Chapter 11
PERFORMANCE, DISCHARGE,
AND REMEDIES
1
Suggested Additional Assignments
Drafting Exercise: Substantial Performance Scenarios
Divide students into three groups. Have one group brainstorm a relatively simple residential construction
project, such as building a deck, installing an in-ground pool, or adding an addition containing a family
Drafting Exercise: Defining Good Faith
This chapter contains several cases involving insurance companies, which is not surprising since these
companies frequently face suits alleging bad faith denial of claims. Students should draft a company
memo, intended for all employees, describing the company’s attitude toward “good faith.” They should
Chapter Overview
Chapter Theme
Good faith and reasonable conduct will prevent many contract disputes.
Quote of the Day
“If you can’t give me your word of honor, will you give me your promise?” –Samuel Goldwyn
(1882-1974), Hollywood producer.
Performance and Discharge
If a party is discharged, she is “finished”, and has no more duties under a contract. Most contracts are
discharged by full performance. In other words, the parties generally do what they promise.
Sometimes the parties discharge a contract by agreement.
Performance
People speak of “dotting the i’s and crossing the t’s” when discussing contract performance, yet that is not
the standard the law generally imposes to determine whether a party has performed or breached its
2 Unit 2 Contracts and the UCC
Additional Case: Strategic Resources Group v. Knight-Ridder
1
Facts: Brighton Homes developed residential housing in the Miami area and contracted with Knight-
Ridder to run advertisements in the Miami Herald newspaper. The contract required Brighton to
designate the size of the ad and stated that Knight-Ridder would print them and “bill for the exact space
Issue: Did Knight-Ridder substantially perform its advertising contract?
Holding: Judgment for Knight-Ridder affirmed. Substantial performance is that performance of a
contract which, while not full performance, is so nearly equivalent to what was bargained for that it would
be unreasonable to deny the promisee the full contract price subject to the promisor’s right to recover
whatever damages may have been occasioned him by the promisee’s failure to render full performance.
relied on contractual language which authorized it “to revise, alter, or reject any advertisement.”
Question: Why is Strategic the plaintiff in this case when the dispute arose with Brighton’s ads?
Answer: Brighton assigned to Strategic its rights in overpayments made to Knight-Ridder for the
Question: What if the ads had been 10% smaller? Would the result have been different?
Question: What facts does the court rely on in ruling for Knight-Ridder?
Answer: The court notes that the practice which is the basis for Strategic’s claims continued for six
Question: In some of the other contract chapters we discussed cases in which the rules favored form
over substance. Is it fair to say the opposite is true here—that courts do not favor a standard of strict
performance?
Good Faith
The parties to a contract must carry out their obligations in good faith. This sounds easy enough, but
courts wrestle with the question of just what defines good faith.
Case: Brunswick Hills Racquet Club Inc. v. Route 18 Shopping Ctr. Associates
2
Facts: Brunswick Hills Racquet Club (Brunswick) owned a tennis club on property that it leased from
Route 18 Shopping Center Associates (Route 18). The lease ran for 25 years, and Brunswick had spent
about $1 million in capital improvements. The lease expired, and Brunswick had the option of either
Chapter 11 Performance, Discharge, and Remedies 3
buying the property or purchasing a 99-year lease, both on very favorable terms. To exercise its option,
Brunswick had to notify Route 18 no later than September 30, and had to pay the option price of
$150,000. If Brunswick failed to exercise its options, the existing lease automatically renewed as of
September 30, for 25 more years, but at more than triple the current rent.
Route 18’s lawyer notified Brunswick that it could not exercise its option to lease, because it had
failed to pay the $150,000 by September 30.
Brunswick sued, claiming that Route 18 had breached its duty of good faith and fair dealing. The trial
court found that Route 18 had no duty to notify Brunswick of impending deadlines, and gave summary
judgment for Route 18. The appellate court affirmed, and Brunswick appealed to the state supreme court.
Issue: Did Route 18 breach its duty of good faith and fair dealing?
Holding: Judgment for Route 18 reversed.
Excerpts from Justice Albin’s Decision: Courts generally should not tinker with a finely drawn and
precise contract entered into by experienced business people that regulates their financial affairs.
the benefits of the contract.
Our review of the undisputed facts of this case leads us to the inescapable conclusion that
defendant breached the covenant of good faith and fair dealing. Nineteen months in advance of the option
deadline, plaintiff notified defendant in writing of its intent to exercise the option to purchase the 99-year
lease. Plaintiff mistakenly believed that the purchase price was not due until the time of closing.
Defendant never requested the purchase price of the lease. Indeed, as defendant’s attorney
candidly admitted at oral argument, defendant did not want the purchase price because the successful
exercise of the option was not in defendant’s economic interest.
Ordinarily, we are content to let experienced commercial parties fend for themselves and do not
[Plaintiff is entitled to exercise the 99-year lease.]
Question: Brunswick failed to pay the option price of $150,000 when it notified Route 18 of its
exercise of the 99-year lease option. Why doesn’t that end the case, in favor of Route 18?
Answer: The court states that Brunswick’s failure to pay arose from a mistaken belief. Implicit in
4 Unit 2 Contracts and the UCC
Question: The definition of good faith is nebulous. What standard does the court apply?
benefits of the contract.
Question: What does that mean in practical terms?
Answer: It means that courts must examine each claim of breach of the covenant of good faith and
party under the contract.
Question: It seems in these cases that courts could wind up interfering with legitimate competitive
business practices.
Answer: That is a valid concern, one that courts recognize. As the court states here, “courts
Additional Case: Hinc v. Lime-O-Sol Company
3
Facts: Through his experience in the paint industry and as an employee handling claims for the Sherwin–
Williams Company, a paint manufacturer, Hinc became aware of the recurring problems of surfactant
The parties discussed whether Hinc’s product would be viable. Hinc visited LOS’s facility in Ashley,
Indiana at least two times to discuss potential applications of Stain Remover. Negotiations led to a
contract providing that while Hinc would retain ownership of the secret ingredient, he would divulge it to
LOS. LOS would manufacture and distribute the product while keeping Hinc’s secret ingredient
confidential. Without discussion between the parties as to its meaning, the contract contained a term
obligating both parties to use their “best efforts” to market the product “in a manner that seems
appropriate.”
“best efforts” clause was vague and unenforceable under applicable law.
Issue: Was the “best efforts” clause vague and therefore unenforceable?
Holding: Judgment for LOS reversed. After ruling that Indiana law governed the contract the court
stated “[w]here possible, Indiana courts will construe contracts as being valid, rather than void.” The
phrase “in a manner that seems appropriate,” is obviously indefinite and could mean different things to
3
382 F.3d 716; 2004 U.S. App. LEXIS 18345 United States Court of Appeals for the Seventh Circuit, 2004
Chapter 11 Performance, Discharge, and Remedies 5
The Duty of Best Efforts in Contract Law, 46 U. Pitt. L. Rev. 1, 8 (1984) (noting that fifty years ago it was
generally accepted that a duty defined only in terms of best efforts was too indefinite to be enforced, but
Time of the Essence Clauses
If a contract indicates that time is of the essence, then deadlines will be strictly enforceable. Without such
a clause, stated dates for performance are usually interpreted as flexible.
Breach
When one party breaches a contract, the other party is discharged. The discharged party has no
obligation to perform and may sue for damages.
Case: O’Brien v. Ohio State University
4
Facts: The Ohio State University (OSU), experiencing a drought in its men’s basketball program,
brought in coach Jim O’Brien, to turn things around. The plan was successful.. In only his second year,
he guided the team to its best record ever. The team advanced to the Final Four, and O’Brien was named
national coach of the year. OSU’s athletic director promptly offered the coach a new, multiyear contract,
O’Brien concluded that Radojevic would never play for OSU or any major college. He also decided
to loan Radojevic’s mother some money. Any such loan would violate an NCAA rule if done to recruit a
player, but O’Brien believed the loan was legal, since Radojevic could not play in the NCAA anyway.
Several years later, the University learned of the loan, and realized that O’Brien had never reported it.
Hoping to avoid trouble with the NCAA, OSU imposed sanctions on itself. The University also fired the
coach, claiming he had lied, destroyed the possibility of postseason play, and harmed the school’s
6 Unit 2 Contracts and the UCC
current season], and relinquishing two basketball scholarships from the [next] recruiting class. Contrary to
OSU’s argument, however, the trial court found these sanctions to be insubstantial. [Athletic Director]
Geiger announced the one-year post-season ban in December, and it appears from the timing of that
announcement that Geiger made the decision based on the fact that the team was unlikely to be invited to
OSU argues that O’Brien acted in bad faith by covering up his misconduct for several years. In
the words of OSU’s counsel at oral argument: “If lying to your employer for four years is not a material
breach, it’s hard to imagine what would be!” Although the premise for counsel’s argument is sound, it is
unsound in application because it assumes facts not in evidence. Counsel for OSU assumes for the
purposes of the argument that O’Brien systematically either denied allegations about the Radojevic loan,
or took affirmative steps to conceal it from OSU. The evidence does not support such a conclusion. After
Radojevic was drafted by the NBA, there is not a single inference that can be drawn from the record to
suggest that O’Brien even thought about the loan. In O’Brien’s own mind, he did not believe he had done
anything wrong, thus, he would not have had a motive to conceal what he had done.
[There was no material breach.]
Affirmed.
Question: How did O’Brien breach the contract?
Question: If he breached the contract, why does OSU have to pay anyway?
Question: But, if the parties agreed to the terms of the contract, and O’Brien did not honor those
terms, isn’t it unfair that he collects damages?
Statute of Limitations
A party injured by a breach of contract should act promptly. A statute of limitations begins to run at
the time of injury and will limit the time within which the injured party may file suit. These laws set
time limits for filing lawsuits.
Impossibility
True Impossibility
These cases are easy—and rare. True impossibility means that something has happened making it
literally impossible to do what the promisor said he would do.
Chapter 11 Performance, Discharge, and Remedies 7
Commercial Impracticability and Frustration of Purpose
It is rare for contract performance to be truly impossible, but very common for it to become a
financial burden to one party.
Remedies
Someone breaches a contract when he fails to perform a duty without a valid excuse.
There are four principal contract interests that a court may seek to protect:
• Expectation Interest. This refers to what the injured party reasonably thought she would get from
the contract. The goal is to put her in the position she would have been in if both parties had fully
performed their obligations.
Expectation Interest
Courts typically divide the expectation damages into three parts: (1) direct (or “compensatory”) damages,
Landmark Case: Hawkins v. McGee
5
Facts: Hawkins suffered a severe electrical burn on the palm of his right hand. After years of living with
disfiguring scars, he went to visit Dr. McGee, who was well-known for his early attempts at skin grafting
surgery. The doctor told Hawkins “I will guarantee to make the hand a hundred per cent perfect.”
Hawkins hired him to perform the operation.
5
84 N.H. 114; 146 A. 641 Supreme Court of New Hampshire, 1929
8 Unit 2 Contracts and the UCC
The jury awarded Hawkins $3000, but the court reduced the award to $500. Dissatisfied, Hawkins
appealed.
Issue: How should Hawkins’ damages be calculated?
Excerpts from Justice Branch’s Decision: The jury was permitted to consider two elements of damage,
(1) pain and suffering due to the operation, and (2) positive ill effects of the operation upon the plaintiff’s
hand. [T]he foregoing instruction was erroneous.
By damages as that term is used in the law of contracts, is intended compensation to put the plaintiff
Direct Damages
Direct damages are those that flow directly from the contract. They are the most common monetary award
for the expectation interest.
Consequential Damages
Consequential damages reimburse for harm that results from the particular circumstances of the plaintiff.
These damages are only available if they are a foreseeable consequence of the breach.
Students who performed the consequential damages research could discuss their findings here.
You Be the Judge: Bi-Economy Market, Inc. v. Harleysville Ins. Co. of New York.
6
Facts: Bi-Economy Market, a family-owned meat market, was insured by Harleysville Insurance. The
“Deluxe Business Owner’s” policy provided replacement cost for damage to buildings and inventory.
Coverage also included “business interruption insurance” for one year, meaning the loss of pre-tax profits
plus normal operating expenses, including payroll.
A fire destroyed the Market’s building and its inventory. The Market immediately filed a claim with
Harleysville, but the insurer responded slowly. Harleysville eventually offered a settlement of $163,000,
and a year later an arbitrator awarded the market $407,000. During that year, Harleysville paid for 7
6
2008 WL 423451, New York Court of Appeals, 2008.
Chapter 11 Performance, Discharge, and Remedies 9
To determine whether consequential damages were reasonably contemplated by the parties, courts
must look at the nature and purpose of the contract between the parties, and what liability the parties
reasonable expected Harleysville to take on in the event of a loss. Here, according to the court, the
Implicit in the insurance contract was an obligation on Harleysville to honestly and promptly
evaluate the claim. Harleysville knew that failure to do this would defeat the very purpose of the
insurance contract, and would cause more damage to Bi-Economy. When an insured, like Bi-Economy,
suffers additional damages as a result of an insurer’s excessive delay or improper denial, the insurance
company should be liable for these damages. This is not to punish the insurer, but to give the insured its
bargained-for-benefit.
Harleysville argued that consequential damages were only appropriate where an insured suffered a
Question: What are consequential damages?
particular party.
Question: What were the unique circumstances of Bi-Economy?
Question: Wasn’t the unique circumstance that it went out of business?
Answer: No, and that was what Harleysville tried to tell the court: Bi-Economy went out of
Question: What point was the court trying make by explaining the difference between a loss and
damages?
Answer: What the court was saying was a loss was something contemplated by the parties when they
Question: Why is Harleysville liable for Bi-Economy going out of business?
Answer: Because, according to the court, it was reasonably foreseeable to Harleysville that if there
Incidental Damages
Incidental damages are the relatively minor costs that the injured party suffers when responding to the
breach.
10 Unit 2 Contracts and the UCC
Reliance Interest
The reliance interest is designed to put an injured party in the position he would have been in had the
Additional Case: Toscano v Greene Music
7
Facts: Joseph Toscano was the general manager of Fields Pianos (Fields) in Santa Ana, California. He
was unhappy with his job, and decided to seek other employment. In July, Greene offered Toscano a
sales management job, starting September 1. Toscano relied on Greene’s offer and quit his job at Fields
damages of $536,833. Green appealed.
Issue: Was Toscano entitled to reliance damages?
Holding: Judgment for Toscano’s entitlement to reliance damages affirmed, but damage award vacated
and remanded for new trial on amount of damages. Promissory estoppel permits Toscano, who
relinquished his job in reliance on an unfulfilled promise of employment, to prove he is entitled to recover
the lost wages he would have expected to earn from his former employer but for the defendant’s promise.
The at-will nature of Toscano’s former employment with Fields is not a strict impediment to recovery of
future wages that Toscano would have earned at Fields had he not relied on Greene’s promise. The
evidence, however, was too speculative to support the trial court’s award of Toscano’s future lost
earnings from September 1 until his retirement. Toscano’s damages–expert’s testimony does not establish
Toscano had a definite expectation of continued employment with Fields for any particular period of time.
Question: On what claim did the trial court award damages to Toscano?
Answer: Promissory estoppel.
Question: On what promise did Toscano rely?
Question: What harm did Toscano suffer in reliance on Green’s promise?
Answer: He quit his job with Fields on August 1, then Greene withdrew its offer and left Toscano
Question: Why wasn’t Toscano successful on his breach of contract claim?
Answer: The appellate court decision doesn’t explain why; the only issue before it was the trial
Question: Toscano relied on Green’s promise and sued Greene. Why does the damages discussion
focus on what Toscano would have earned at Fields?
Answer: Toscano’s harm is that he quit his job at Fields in reliance on Greene’s promise of
Question: Why does the court rule that the damage award is too speculative?
7
124 Ca.App.4th 685, 21 Ca.Rptr.3d 732 Court of Appeal of California, 2004
Chapter 11 Performance, Discharge, and Remedies 11
Answer: Because the trial court relied on expert testimony that assumed Toscano would have stayed
Public Policy
Question: Is it fair to permit Greene to escape all liability? What is the purpose of the remand?
What might Toscano demonstrate on remand? What practical difficulties will he encounter?
Answer: Although it seems unfair to permit Greene potentially to avoid all liability, the court’s
Restitution Interest
The restitution interest is designed to return to the injured party a benefit that he has conferred on the
other party, which it would be unjust to leave with that person. Restitution is a common remedy in
before they made the agreement.
Additional Case: Putnam Construction & Realty Co. v. Byrd
8
Facts: Putnam Construction owned the University Square Business Center (USBC), an office complex
with several major tenants. William Byrd and some partners (the “buyers”) agreed to pay slightly over
$17 million for USBC. They financed the purchase with a $16.2 million loan from Northwestern Mutual
restitution of the buyers’ expenses, such as the closing costs. The sellers appealed.
Issue: Were the buyers entitled to rescission and/or restitution?
Holding: The court affirmed rescission of the contract, but also awarded over $1 million, representing
closing costs, interest, and nonrefundable fees. The sellers knew that major tenants were planning to
leave but repeatedly assured the buyers that all tenants were staying. Compensatory damages are not
adequate because the property is operating at an increasing loss. Rescission is appropriate. In addition,
the buyers are entitled to their expenses in completing the deal.
Excerpts from Justice Steagall’s Decision:
With the departure of its major tenants, the USBC does not have the profit potential the buyers
8
632 So. 2d 961, 1992 Ala. LEXIS 1289 Supreme Court of Alabama, 1992
12 Unit 2 Contracts and the UCC
We agree with the trial court that a reconveyance of USBC to the sellers, subject to the mortgage,
“constitutes the most equitable result which can be achieved.” Accordingly, we affirm those portions of
the court’s order relating to the reconveyance of USBC subject to the mortgage. We must also recognize,
Question: What is the difference between rescission and restitution?
Answer: Rescission means “undoing” a contract–that is, discharging the parties’ obligations and
Question: Were the plaintiffs in this case entitled to rescission, restitution, or neither?
Answer: The plaintiffs obtained both remedies. They were entitled to rescind the contract, meaning
Question: What’s the best way to characterize Putnam’s failure to tell Byrd that major tenants were
leaving the property?
Answer: Fraud.
Question: How does that relate to the court’s decision to award restitution to Byrd?
other party and it would be inappropriate for the other party to keep it.
Question: Byrd didn’t pay these closing costs to Putnam, so how were they a benefit to Putnam?
Answer: They were not paid to Putnam, but Byrd incurred them as a result of Putnam’s fraud. This
Question: Let’s assume that the officer from Putnam in charge of negotiating the sale of USBC was
required by her boss to tell Byrd that all tenants would be staying. Isn’t it a matter of ethics whether
she disobeys her boss or plays along with the ruse?
Answer: Unlike most of the ethical questions in the book, this one does not seem to have two
Other Remedies
In contract lawsuits, plaintiffs are occasionally awarded the remedies of specific performance, injunction,
and reformation. A court will award specific performance, ordering the parties to perform the contract,
only in cases involving the sale of land or some other asset that is considered “unique.”
Chapter 11 Performance, Discharge, and Remedies 13
Case: Milicic v Basketball Marketing Company, Inc.
9
Facts: The Basketball Marketing Company (BMC) markets, distributes, and sells basketball apparel and
related products. BMC signed a long term endorsement contract with a 16-year-old Serbian player,
Issue: Was Milicic entitled to a preliminary injunction?
Holding: Judgment for Milicic affirmed. Excerpts from the court’s opinion:
Milicic met the four essential prerequisites necessary for injunctive relief. 1. Likelihood of success on
the merits: Pennsylvania law recognizes, except as to necessities, the contract of a minor is voidable if the
minor disaffirms it at any reasonable time after the minor attains majority. Milicic stated his unequivocal
the ability to disaffirm protects them from their own immaturity and lack of discretion. Under
Pennsylvania law BMC should have had a guardian appointed for Milicic to oversee his affairs. 4. The
injunction restored the parties to the status quo.
Question: How did this dispute arise?
Question: On what basis did he disaffirm?
Question: Did he fail to disaffirm properly?
Question: Then why didn’t BMC honor his disaffirmance?
Answer: Good question. It did not appear to have any legitimate grounds for doing so, and the court
Question: In this part of its opinion does the court really refer to Milicic as an “infant?” Why?
Answer: Yes. It is using that term to describe anyone under the age of 18, although “minor” would
Question: What test does the court apply to evaluate the preliminary injunction?
Answer: Milicic had to prove four things to obtain the preliminary injunction:
9
857 A.2d 689 Superior Court of Pennsylvania, 2004
14 Unit 2 Contracts and the UCC
conduct
Question: Did Milicic prove each of these things?
Drafting Exercise: Injunctions
If you chose to assign to students the injunction drafting exercise described above, this is a good place to
discuss it. The injunction might simply say:
Defendant Francis Bacon is hereby ordered to immediately cease and desist from keeping or maintaining
Discussion Problem: Employment Injunctions
This hypothetical is based on a real case. Bob Bluebonnet is a television news anchor. He has three years
remaining on his four-year contract with station WIMP. The contract contains two clauses:
1. WIMP will pay Bluebonnet $125,000 per year to work as a news anchor.
WIMP continues to pay Bluebonnet his full salary.
Bluebonnet files suit, seeking an injunction that would force WIMP to reinstate him as the co-anchor on
the 6:00 P.M. and 11:00 P.M. broadcasts.
Question: Make an argument that a court should grant Bluebonnet’s injunction.
Question: Make an argument that a court should deny Bob’s injunction.
Answer: Historically, courts never force a worker on a given employer. Judges assume that
The Winner? WIMP. In the real case, in Connecticut, the court denied the injunction, for the reason
Special Issues
Mitigation of Damages
A party injured by a breach of contract may not recover for damages that he could have avoided with
reasonable efforts.
Chapter 11 Performance, Discharge, and Remedies 15
Liquidated Damages
It can be difficult or even impossible to prove how much damage the injured party has suffered. So
Multiple Choice Questions
1. Most contracts are discharged by…
(a) agreement of the parties
(b) full performance
(c) failure of conditions
(d) commercial impracticability
(e) a material breach
2. Big Co., a construction company, builds a grocery store. The contract calls for a final price of $5
million. Big Co. incurred $4.5 million in costs and stands to make a profit of $500,000. On a final
inspection, the grocery store owner is upset. His blueprints called for 24 skylights, but the finished
building has only 12. Installing the additional skylights would cost $100,000. Big Co. made no
other errors. How much must the grocery store owner pay Big Co.?
(a) $5,000,000
(b) $4,900,000
(c) $4,500,000
(d) $0
3. Lenny makes K2, a synthetic form of marijuana, in his basement. He signs an agreement with the
Super Smoke Shop to deliver 1000 cans of K2 for $10,000. After the contract is signed, but before
the delivery, Super Smoke Shop’s state legislature makes the sale of K2 illegal. Lenny’s contract will
be discharged because of ______________________.
(a) true impossibility
(b) commercial impracticability
(c) frustration of purpose
(d) none of the above
4. A manufacturer delivers a new tractor to Farmer Ted on the first day of the harvest season. But, the
tractor will not start. It takes two weeks for the right parts to be delivered and installed. The repair
bill comes to $1000. During the two weeks, some acres of Farmer Ted’s crops die. He argues in
court that his lost profit on those acres is $60,000. If a jury awards $1000 for tractor repairs, it will be
in the form of _____________ damages. If it awards $60,000 for the lost crops, it will be in the form
of ___________________ damages.
16 Unit 2 Contracts and the UCC
(a) direct; direct
(b) direct; consequential
(c) consequential; direct
(d) consequential; consequential
(e) direct; incidental
5. Julie signs a contract to buy Nick’s 2002 Mustang GT for $5,000. Later, Nick changes his mind and
refuses to sell his car. Julie soon buys a similar 2002 Mustang GT for $5,500. She then sues Nick
and wins $500. The $500 represents her _________________.
(a) expectation interest
(b) reliance interest
(c) restitution interest
(d) none of the above
Essay Questions
1. Loehmann’s clothing stores, a nationwide chain with headquarters in New York, was the anchor
tenant in the Lincoln View Plaza Shopping Center in Phoenix, Arizona, with a 20-year lease from the
landlord, Foundation Development, beginning in 1978. Loehmann’s was obligated to pay rent the
first of every month and to pay common area charges four times a year. The lease stated that if
Loehmann’s failed to pay on time, Foundation could send a notice of default, and that if the store
failed to pay all money due within 10 days, Foundation could evict. On February 23, 1987,
Foundation sent to Loehmann’s the common area charges for the quarter ending January 31, 1987.
The balance due was $3,500. Loehmann’s believed the bill was in error and sent an inquiry on March
18, 1987. On April 10, 1987, Foundation insisted on payment of the full amount within 10 days.
Foundation sent the letter to the Loehmann’s store in Phoenix. On April 13, 1987, the Loehmann’s
store received the bill and, since it was not responsible for payments, forwarded it to the New York
office. Because the company had moved offices in New York, a Loehmann’s officer did not see the
bill until April 20. Loehmann’s issued a check for the full amount on April 24 and mailed it the
following day. On April 28 Foundation sued to evict; on April 29 the company received Loehmann’s
check. Please rule.
Answer: Loehmann’s violated the lease by failing to pay common charges within 10 days of the
2. You Be the Judge: WRITING PROBLEM Kuhn Farm Machinery, a European company,
signed an agreement with Scottsdale Plaza Resort, of Arizona, to use the resort for its North
American dealers’ convention during March 1991. Kuhn agreed to rent 190 guest rooms and spend
several thousand dollars on food and beverages. Kuhn invited its top 200 independent dealers from
Chapter 11 Performance, Discharge, and Remedies 17
the United States and Canada and about 25 of its own employees from the United States, Europe, and
Australia, although it never mentioned those plans to Scottsdale.
On August 2, 1990, Iraq invaded Kuwait and on January 16, 1991, the United States and allied forces
were at war with Iraq. Saddam Hussein and other Iraqi leaders threatened terrorist acts against the
United States and its allies. Kuhn became concerned about the safety of those traveling to Arizona,
especially its European employees. By mid-February, 11 of the top 50 dealers with expense-paid trips
had either canceled their plans to attend or failed to sign up. Kuhn postponed the convention. The
resort sued. The trial court discharged the contract under the doctrines of commercial impracticability
and frustration of purpose. The resort appealed. Did commercial impracticability or frustration of
purpose discharge the contract?
Argument for Scottsdale Plaza Resort: The resort had no way of knowing that Kuhn anticipated
bringing executives from Europe, and even less reason to expect that if anything interfered with their
travel, the entire convention would become pointless. Most of the dealers could have attended the
convention, and the resort stood ready to serve them.
Argument for Kuhn: The parties never anticipated the threat of terrorism. Kuhn wanted this
convention so that its European executives, among others, could meet top North American dealers.
That is now impossible. No company would risk employee lives for a meeting. As a result, the
contract has no value at all to Kuhn, and its obligations should be discharged by law.
Answer: Reversed. Summary judgment granted for Scottsdale Plaza, with the case remanded to the
3. Lewis signed a contract for the rights to all timber located on Nine Mile Mine. He agreed to pay $70
per thousand board feet ($70/mbf). As he began work, Nine Mile became convinced that Lewis
lacked sufficient equipment to do the job well and forbade him to enter the land. Lewis sued. Nine
Mile moved for summary judgment. The mine offered proof that the market value of the timber was
exactly $70/mbf, and Lewis had no evidence to contradict Nine Mile. The evidence about market
value proved decisive. Why? Please rule on the summary judgment motion.
Answer: Motion granted. Nine Mile may have breached the agreement, but there is no evidence that
4. Racicky was in the process of buying 320 acres of ranch land. While that sale was being negotiated,
Racicky signed a contract to sell the land to Simon. Simon paid $144,000, the full price of the land.
But Racicky then went bankrupt, before he could complete the purchase of the land, let alone its sale.
Which of these remedies should Simon seek: expectation, restitution, specific performance, or
reformation?
Answer: He should, and did, seek restitution. Expectation damages will be unavailable since
18 Unit 2 Contracts and the UCC
5. Evans built a house for Sandra Dyer, but the house had some problems. The garage ceiling was too
low. Load-bearing beams in the “great room” cracked and appeared to be steadily weakening. The
patio did not drain properly. Pipes froze. Evans wanted the money promised for the job, but Dyer
refused to pay. Comment.
Answer: This case creates an issue of substantial performance. The court held that the low garage
Discussion Questions
1 Krug International, an Ohio corporation, had a contract with Iraqi Airways to build aeromedical
equipment for training pilots. Krug then contracted for Power Engineering, an Iowa corporation, to
build the specialized gearbox to be used in the training equipment, for $150,000. Power did not know
that Krug planned to resell the gearbox to Iraqi Airways. When Power had almost completed the
gearbox, the Gulf War broke out and the United Nations declared an embargo on all shipments to
Iraq. Krug notified Power that it no longer wanted the gearbox. Power sued. Please rule.
Answer: Power wins. Although it was impossible for Krug to complete its deal with Iraqi Airways,
2. ETHICS The National Football League (NFL) owns the copyright to the broadcasts of its games. It
licenses local television stations to telecast certain games and maintains a “blackout rule,” which
prohibits stations from broadcasting home games that are not sold out 72 hours before the game starts.
Certain home games of the Cleveland Browns team were not sold out, and the NFL blocked local
broadcast. But several bars in the Cleveland area were able to pick up the game’s signal by using
special antennas. The NFL wanted the bars to stop showing the games. What did it do? Was it
unethical of the bars to broadcast the games that they were able to pick up? Apart from the NFL’s
legal rights, do you think it had the moral right to stop the bars from broadcasting the games?
3. Consequential damages can be many times higher than direct damages. Consider the “Farmer Ted”
scenario raised in multiple choice question 4, which is based on a real case.
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Is it fair if consequential
damages are 60 times higher than direct damages? The Supreme Court is skeptical that punitive
damages should be more than nine times compensatory damages in a tort case. Should a similar “soft
limit” apply to consequential damages in contract cases?
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Prutch v. Ford 574 P.2d 102 (Colo. 1977)
Chapter 11 Performance, Discharge, and Remedies 19
4. If someone breaks a contract, the other party can generally sue and win some form of damages. But
for centuries, the law has considered land to be unique. And so, a lawsuit that involves a broken
agreement for a sale of land will usually result in an order of specific performance. Is this ancient
rule still reasonable? If someone backs out of an agreement to sell an acre of land, should he be
ordered to turn over the land itself? Why not just require him to pay an appropriate number of dollars
in damages?
5. Is it reasonable to require the mitigation of damages? If a person is wronged because the other side
breached a contract, should she have any obligations at all? For example, suppose that a tenant
breaches a lease by leaving early. Should the landlord have an obligation to try to find another tenant
before the end of the lease?