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Unit 7: Remedies and Specific Performance, Remedies, Specific Performance, Third Parties

Unit 7: Remedies and Specific Performance, Remedies, Specific Performance, Third Parties

“Remedies and Specific Performance …  Remedies … Specific Performance … Third Parties”
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Summaries

  • Unit 7: Part 1 - Remedies and Specific Performance > Remedies > Expectation Damages: Two Measures
  • Unit 7: Part 1 - Remedies and Specific Performance > Remedies > Expectation Damages: More Complications
  • Unit 7: Part 1 - Remedies and Specific Performance > Remedies > Groves v. Wunder
  • Unit 7: Part 1 - Remedies and Specific Performance > Remedies > Peevyhouse v. Garland Part 1
  • Unit 7: Part 1 - Remedies and Specific Performance > Remedies > Peevyhouse v. Garland Part 2
  • Unit 7: Part 1 - Remedies and Specific Performance > Remedies > Reliance Damages: Security Stove
  • Unit 7: Part 1 - Remedies and Specific Performance > Specific Performance > Unique Value
  • Unit 7: Part 1 - Remedies and Specific Performance > Specific Performance > Negative Specific Performance: Lumley v. Gye
  • Unit 7: Part 1 - Remedies and Specific Performance > Specific Performance > Non-Compete Clauses: Lumley v. Gye Part 2
  • Unit 7: Part 2 - Third Parties > Third Party Beneficiary > Intro & Motorcycle Hypothetical Part 1
  • Unit 7: Part 2 - Third Parties > Third Party Beneficiary > Motorcycle Hypothetical Part 2
  • Unit 7: Part 2 - Third Parties > Third Party Beneficiary > Motorcycle Hypothetical Part 3
  • Unit 7: Part 2 - Third Parties > Promises to Make a Gift to a Third Party > Motorcycle Hypothetical Part 4

Unit 7: Part 1 – Remedies and Specific Performance > Remedies > Expectation Damages: Two Measures

  • How did you interpret that case? And remember the two ships Peerless? There, too, there was no deal, because the minds of the buyer and seller had not met on what was essential to the deal.
  • Was this a sale of cotton to arrive on a particular ship, or was it just a contract for the purchase and sale of a quantity of Indian cotton? Remember, there were two ships named Peerless traveling between Bombay and Liverpool.
  • The buyer claimed that he intended the ship leaving Bombay in October, and the seller thought the deal was for cotton arriving on a ship that left in December.
  • As the court ruled, the parties thought that this was a deal about cotton coming on a particular ship, like Rose, and they had two different ships in mind, what looked like an agreement was not an agreement at all.
  • The court said that the purpose of the contract was to view the procession, and if the procession was canceled, the joint purpose of the parties had been frustrated, and the deal would be called off.

Unit 7: Part 1 – Remedies and Specific Performance > Remedies > Expectation Damages: More Complications

  • PROFESSOR: Well, what is the benefit of this bargain to me? I can sue him for $250, because that is the benefit that I would have had at the end of the day.
  • The bargain was for a $750 desk, for which I paid $500. And that’s a $250 benefit.
  • The excess benefit, which I had been promised, and which I had a right to expect, is $250. And that’s what I can sue him for.
  • What if the desk isn’t worth $500? What if it really is worth only $250? I [would have] overpaid.
  • Do I have to pay him anything for the desk I didn’t get? No. Even though I made a bad deal, even though I would have lost $250 on it, he can’t sue me because he hasn’t fulfilled his side of the bargain.
  • He owes me a desk, which he’s not going to give me.
  • I owe him $500 if I got the desk, which I didn’t get.
  • Since the desk is worth only $250, I’m perfectly happy to let the whole thing go.
  • Now that we’ve covered the basics, here are a few final twists on this that I’d like you to think about, and see how they come out.
  • He can sue me for $500. And when he has gotten the $500 from me, he should deliver the desk.
  • On the other hand, he might sell the desk to someone else, telling me, OK, you’ve broken your deal.
  • Suppose somebody else comes in and offers him $250 for the desk.
  • For how much? That’s right, for $250. And you can see why.
  • Some sucker comes in, and he manages to sell the desk to him for $750. Can he sue me then for anything? I think you’ll agree that he really shouldn’t be able to sue me for anything.
  • What would he sue me for? How much would he sue me for? Could he sue me for $500? That would mean he sold the same desk twice, but only delivered it once- to the other guy.
  • Now, we’re not talking about a unique item now, like the antique desk.
  • Is that like the situation with the desk? There are people coming in through that dealership all the time, buying.
  • It’s springtime, and people are buying cars all the time.

Unit 7: Part 1 – Remedies and Specific Performance > Remedies > Groves v. Wunder

  • He used it to extract sand and gravel and sell it to builders, road builders, and so on.
  • He made a contract with Groves that allowed him to take sand and gravel from Groves’ land over a period of years for $105,000.
  • You can imagine what a piece of land you’ve been taking sand and gravel from would look like after a period of years.
  • Groves didn’t want that, so he put a clause in the contract that stated that at the end of the term of years, and after John Wunder had taken the sand and gravel, Wunder would leave the property- and here I’m quoting from the contract- at a uniform grade, substantially at the grade now existing at the roadway.
  • So he would use the soil, the soil he had removed to get the sand and gravel beneath – “for the purpose of maintaining and establishing said grade.
  • ” In other words, when Groves got the land back, it would be level and covered with ordinary soil- the kind that presumably you could grow grass on.
  • He did take away a great quantity of sand and gravel.
  • He never replaced the soil or smoothed the land to a uniform grade.
  • What have he been promised, the owner of the land? Groves had been promised $105,000 by John Wunder for the privilege of stripping away the sand and gravel.
  • He’d also been promised that at the end of the operation, at the end of the five years, he’d have a nice, flat, graded, and seeded piece of land- industrial land.
  • They say that if Wunder had kept his promise- had graded and seeded and put lawn on the land, maybe planted some flowers- the land would have been worth $13,000 more than it was worth in its present beat-up condition.
  • Does he get $13,000- the extra amount the land would be worth if it looked all nice and graded? Or does he get $60,000, which is the amount that is necessary to put it in that condition? What do you think? “.

Unit 7: Part 1 – Remedies and Specific Performance > Remedies > Peevyhouse v. Garland Part 1

  • This is a case from Oklahoma, where there’s a lot of coal quite near the surface and big companies- big goal companies.
  • The big coal companies go around to the local farmers.
  • They say, we want to strip mine your land and take the coal off it.
  • What happened in this case in the 1950s is it the Garland Coal Company, a big coal company thereabouts, went to this farming family, the Peevyhouses, and offered to pay them a certain amount per ton of coal that they stripped from the Peevyhouse’s farm.
  • At the end of the mining lease, after strip mining the Peevyhouse’s farm and paying the agreed amount for the goal they took, they just walked away.
  • So to bring the farm back up to its promised condition would increase its value by $300. And to do that would cost the coal company $29,000.
  • It’s just like the gravel case, isn’t it? Or is it? What are the important differences? How do you think these two cases came out? Both the same way? And if only one gets the fix up money, which one should it be? If you had been the judge in either or both cases, what would you decide? “.

Unit 7: Part 1 – Remedies and Specific Performance > Remedies > Peevyhouse v. Garland Part 2

  • In the gravel case, the owner of the land got the full $60,000, the $1 million in today’s dollars, the cost to fix up the land, which was certainly more than the land was worth.
  • He did not spend it on fixing his land up and making it look good.
  • If your sense is that in the gravel case, the owner of the industrial land shouldn’t have gotten anything more than the difference between the value of the land as fixed up and the value of it as it had been left, while in the Peevyhouse’s case, they should have been able to fix up their land and have their farm looking good again, then you would feel, like I do, that the two courts got it exactly wrong, both of them.
  • So knowing that this happens and supposing you were the farm owner- it was your farm- and you’ve read about your neighbors, the poor Peevyhouses, and what happened to them.
  • What we are seeing is another dead weight loss, because the court will not force the coal company to fix up your land.
  • You’re not going to let them mine the coal.
  • You would both be better off going in if the coal company could mine its coal, selling at a profit, but still was required to spend the money to fix up your land.
  • You would get the price that they promised for the coal and end up with your farm looking pretty decent.
  • What if you put a clause in the contract? You add this line, “At the end of the mining lease, you, the coal company, are either going to fix up the land for me or you’re going to pay me $29,000.
  • You make two contracts, the first with the coal company and the second with the landscape company.
  • Isn’t that just what the coal company did? Except with the coal company, if the fix-up costs were factored to reduce what they paid me for the coal, it’s as if the landscape company had kept my money and hadn’t done the work.
  • Can you see why? So seeing what had happened to the Peevyhouses, other farmers are not going to let the coal company on their land, even though the farmers need the money for the coal, and the coal company wants the coal and is ready to pay up for it.
  • You could try to put a clause in the contract that the coal company has got to fix up your land.
  • Maybe another way is to negotiate a higher price for the coal so that you have the money for the landscaping.
  • Not knowing how much coal they’ll take, you could even charge $29,000 up front for the first ton and then the agreed upon rate for the rest.

Unit 7: Part 1 – Remedies and Specific Performance > Remedies > Reliance Damages: Security Stove

  • PROFESSOR: We’ve seen that the usual principle in contracts is to give you the value of what you’ve been promised.
  • Hard to figure out how much the land is worth, and so on.
  • This is the case of a very enterprising man who had a company called Security Stove.
  • The best way to market the stove was to demonstrate it at a trade convention.
  • The convention is in Atlantic City, where he wanted to have this booth, and he wanted to be able to show his great new invention to all the potential dealers who might want to buy.
  • He arranges to have the Railway Express pack the stove up in 21 boxes, pick them up, get them to Atlantic City in time.
  • The express company says, “yes, we understand.
  • The last one has the crucial part in it, which allows it to be a dual fuel stove.
  • The express company had broken its contract.
  • What are the damages? What did the inventor lose? Now, you might say what he lost, in general, was his expectation.
  • Who knows? What’s a court supposed to do? How can it guess? How can anybody guess what would’ve happened if that 21st box had come? If he’d been able to display his great ideas, and all of the dealers had come and looked at it? There’s no way of knowing.
  • On the other hand, does that mean that the express company can say, well, we’re awfully sorry.
  • The court said, we have no idea what would’ve happened if the express company had fulfilled its contract and had delivered what they said they were going to deliver.
  • You paid for the booth, and that was totally wasted money.
  • It was wasted because the express company didn’t do what it promised.
  • We don’t know whether if they had done what they promised your invention would’ve been a success or a bust.
  • The express company deprived you of that chance by breaking their contract to you.
  • What does that look like? It is the money that the stove man spent in reliance on the express company’s promise.
  • What the court should have done in Sister Antillico’s case, Kirksey and Kirksey, and what today they would do.
  • What the court did do with Security Stove is to pay the money that Sister Antillico lost in detrimental reliance on her brother-in-law’s promise.
  • What she lost in the expense of moving, and maybe fixing up and furnishing the house which had been promised her.
  • Remember, we never really got far enough to know what kind of store it would have been, how big it would be.
  • We can reimburse you the money you lost in detrimental reliance on the promise.
  • If the farmer demonstrates the detrimental reliance on the coal company to fix the farm, or the cost to move to a new farm- lost harvests and so on- then, they might have more to recover.
  • Later, we’ll discuss safeguards and ways to avoid these types of problems.

Unit 7: Part 1 – Remedies and Specific Performance > Specific Performance > Unique Value

  • CHARLES FRIED: It may be a bit surprising that the law mainly stands behind promises in money terms.
  • Well, it’s the money’s worth of what you were supposed to build that courts will give me.
  • Or you didn’t finish the job, and understandably, the courts just don’t want to get into that.
  • Since most contracts are bargains, and have a kind of business quality to them, if you get the money equivalent of your bargain- if you, the disappointed person, get the money equivalent of your bargain, what’s the problem? Why not? Contract law is not there to punish a faithless promisor.
  • If money will make him whole, that’s good enough.
  • Finally, by having money as the usual, the overwhelming the usual way to put right a situation that has gone wrong, if it frees up not only the courts from having to supervise the performance of the contract, it also frees up the contract-breaking promisor.
  • I’ll give you enough money to find someone else to do the job just as well, and I’ll pay you whatever you lose by opening late, if that’s what’s going to happen.
  • What complaint can I possibly have? I’m going to get enough money to allow me to get out and find someone else who will fix up my store.
  • I’m going to get my money, which will compensate me for having to go and look for such a person.
  • If the opening is two weeks late, and I lose some business, then the contract breaker is going to have to give me money for that, too.
  • If the builder is forced to give up his better opportunity in order to fix up my store, he has lost whatever that greater chance was, while if I had been given enough money to compensate me for everything that his breach of contract cost me- the cost of getting another builder, finding the other builder, any money I’d lost in my business during the delay- it would just be vindictive on my part to say, “I don’t care.
  • You promised you we’re going to do it, and now you’re going to do it, even though I could find somebody else to do it and it won’t cost me anything.
  • That’s another reason why our law prefers to give me the money.
  • There are important exceptions that sometimes require specific performance, instead of a forced payment of money.
  • Maybe somebody has come along and offered him more money.
  • If the court says, well, we’ll just give you the money.
  • If another desk as nice is going to cost you $750, we’ll give you that money.
  • Now there are all kinds of situations in which the disappointed party can say, or can convince the court, that money just won’t do.
  • Remember, for the Peevyhouses and for Garland, money would do.
  • Thought he could get more money, or something like that.
  • I suppose you could say, well, we can put a money value on that, too.
  • At this point, the money value part gets to be a little bit strained.
  • In fact for traditional reasons- maybe historical reasons- the usual rule which is, money is good enough- money could solve most problems- is reversed in respect to the sale of land, buildings, houses and so on.
  • There, if a person is contracted to sell real property, usually- not inevitably, but usually- the courts won’t require some extra showing that the land, the house, the property is of particular value which money cannot easily compensate you for.
  • Incidentally, one of the reasons for making money, the usual way of solving a contract gone bad, disappears in the case of land or a building.
  • The court can step in and require more than money transfer without getting bogged down in details.
  • In general, if there’s not something unique about it, money will do.
  • If there is something unique, if you can come to court and persuade the court that this has a unique value, a unique importance to you, then the court may very well order specific performance.

Unit 7: Part 1 – Remedies and Specific Performance > Specific Performance > Negative Specific Performance: Lumley v. Gye

  • In the 1850s, there was an opera singer, Johanna Wagner, who was the niece of the famous composer Richard Wagner.
  • She wasn’t just a great singer, she was a great beauty, and a great actress, and a very famous person all over Europe.
  • Its history goes back to the 18th century, when operas by Mozart and Handel were performed there.
  • Lumley thought that he had scored a coup, because he had signed Johanna Wagner up for a season to perform exclusively in his theater.
  • Guy jumped in and offered Johanna Wagner more money to sing in Covent Garden.
  • He was able to persuade the court- he would certainly be able to persuade me or you- that Johanna Wagner’s breach of contract was not something that could easily be made good by just paying money.
  • Lumley had built a whole season around Johanna Wagner’s singing there.
  • How would you figure out what the right amount of money would be? Maybe Johanna Wagner would get sick.
  • He wanted the court to force Johanna Wagner to sing for him, and not for Guy.
  • To sing at His Majesty’s Theater, and not at Covent Garden.
  • It declined to force Johanna Wagner to sing for Lumley.
  • It did forbid her from singing anywhere else in London during that season.

Unit 7: Part 1 – Remedies and Specific Performance > Specific Performance > Non-Compete Clauses: Lumley v. Gye Part 2

  • CHARLES FRIED: One reason, of course, is that if the court ordered her to sing, or threatened her with jail if she didn’t, what were they going to do? Was a judge going to come to each performance and say, well, she wasn’t any good that night.
  • The other reason is that to force a person to work- to force a person to actually do something- is such an intrusion on that person’s liberty that the court is very reluctant to do it.
  • Think of many more ordinary situations where workers have agreed to do a job of work, and they don’t do it.
  • They want to move west, or they want to stay at home and look after a sick child.
  • Then another team comes along and scoops him up, hires him away.
  • Is the court going to force the baseball player to play for the team which hired him first? No. After all, what’s the judge going to do? Come and sit in the stands night after night, day after day, saying, he could have done better than that.
  • It can be pretty coercive, because if you can’t work for any competitor, and you don’t want to work for the person you’ve contracted to, you’re sort of out of luck.
  • OK, you may be out of luck, but at least there’s nobody there from the court, standing over you and making you do something.
  • I suppose Joanna could work as a stockbroker or a tour guide, but not as an opera singer.
  • It’s quite an important area of dispute, in respect to non-compete clauses in contracts.
  • May pay her a lot of money, but the contract will say that, when you leave- and we can’t make you stay- when you leave, you promise that for two years, you will not join another company which competes with us.
  • Well, not force you to work for the person you contracted with.
  • The courts do enforce the non-compete clauses.
  • As I said, he doesn’t want to work for the company he contracted with, and they can’t make him work for it.
  • In a number of states, courts have begun to worry about the effect of non-compete clauses on competition.
  • Preventing the employee from moving by telling them, you can leave, but you can’t work for somebody else, has a bad effect on competition.
  • So in a number of states, the validity of non-compete clauses is very much in question, both in courts and in legislation.
  • Of course, everything that I’ve said doesn’t change the general proposition that you can always sue the contract breaking employee- Johanna Wagner, the baseball player, the software engineer- for money damages.
  • In jumped Texaco at the last minute, and took Getty away from Pennzoil.
  • In a case like that, Pennzoil might very well have gotten a decree of specific performance, if the contract had really been in place, which there was some controversy about.
  • Pennzoil didn’t sue Getty for breach of contract.
  • Lumley, when he couldn’t succeed in getting the court to force her to sing for him, sued Gye, the manager of Covent Garden, for having interfered with his contract rights.

Unit 7: Part 2 – Third Parties > Third Party Beneficiary > Intro & Motorcycle Hypothetical Part 1

  • CHARLES FRIED: At the start of this course, we saw how first using trust and then moving on to promises and then moving on to money and then to contracts and credit, we were able to make things happen which otherwise just might not.
  • Remember the sandals that I make and you want in the summer, and the boots that you make and I want in winter? Because of contract, we are willing to trust each other, and both of us get what we need when we need it.
  • In past units, we’ve seen what promises courts will stand behind and the mechanics of making contracts.
  • Xavier knows Amy, and he’s pretty confident she’s going to come up with the money eventually.
  • Now, Brad could pay Amy the $5,000 for the Yamaha, and then Amy could pay off her debt to Xavier.
  • She delivers the bike, and he delivers his promise to pay her the $5,000 next week.
  • So instead of paying me, why don’t you promise me that you will pay the $5,000 to Xavier? That way, I get him off my back, you get your bike, Xavier will get his money, and I can go away, and I don’t have to worry about taking the money and passing it on to Xavier next week.

Unit 7: Part 2 – Third Parties > Third Party Beneficiary > Motorcycle Hypothetical Part 2

  • B’s promise is a promise to A, and in return for that promise, A gave him a Yamaha.
  • Why? Do you see why? And Xavier didn’t get paid.
  • Amy has the old Harley, Xavier has his $5,000, B has the Yamaha, and it has cost him $5,000.
  • Wouldn’t it be simpler if Xavier could sue Brad directly for the $5,000? And if he got it, he would have exactly the same result as at the end of the two lawsuits.
  • I’m sorry to tell you that it took the courts in the United States until sometime in the 19th century to cotton onto this and to allow somebody in Xavier’s position to sue Brad. Let me give you a little legal jargon for this.
  • Amy is the promisee on this second contract, and Xavier is what’s called a third party beneficiary.
  • In situations like this today in the United States and many other countries, the third party beneficiary can sue Brad, the promisor, directly.

Unit 7: Part 2 – Third Parties > Third Party Beneficiary > Motorcycle Hypothetical Part 3

  • Some people worried that Brad shouldn’t have to meet in court somebody he doesn’t know and had never dealt with, never made an agreement with, and that’s Xavier.
  • To him, Xavier is just an X. And now, all of a sudden, here’s X suing him.
  • Why should he complain if Xavier now steps up and says, OK, pay me? It’s all so much simpler if the third party beneficiary, Xavier, can sue the promisor, Brad. And today, that’s quite routine.
  • Though Brad promised to pay Xavier, and though it’s much simpler to have Xavier sue Brad directly, it’s Amy who promised to pay for the Harley.
  • Xavier gave Amy the Harley, and Amy promised to pay for it.
  • The Yamaha may not work, and that’s the reason that Brad doesn’t want to pay Amy for it.
  • Let’s just say that allowing Xavier to sue Brad in spite of all the complications and in spite of all the defenses that might be brought up which may allow Brad to win, it’s better all around if at least he’s got that chance.

Unit 7: Part 2 – Third Parties > Promises to Make a Gift to a Third Party > Motorcycle Hypothetical Part 4

  • Anyway, if you want to make a gift, just make a gift.
  • We also saw that if you make a promise to make a gift- remember grandpa’s $2,000? Remember sister Antillico in Kirksey against Kirksey? If the other party relied on that promise, if she thought she was going to get the gift and made expenditures, inconvenienced herself- remember Sister Antillico abandoning her house in the not-so-nice neighborhood and picking up and moving- all that is reliance.
  • She sold her Yamaha to Brad, and Brad has promised to give the money to Xavier.
  • Once again, if Brad doesn’t pay Xavier, Amy can sue him, recover, and give the $5,000 to Xavier.
  • Can Xavier sue Brad? Here, we have the beneficiary of a gift, the third party beneficiary of a contract.
  • Xavier can sue Brad for $5,000, even though it’s only a gift to him.
  • Before Xavier gets the gift of money and before he’s even told about it, Amy says to Brad, you know, I think I want this money myself, just give it to me? Can she do that, withdraw her gift? Can

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