DIRECT AND CONSEQUENTIAL DAMAGES

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Apr 29, 2024

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DIRECT AND CONSEQUENTIAL DAMAGES 1. A company contracted with NASA to launch a communications satellite. Several months prior to the scheduled launch, NASA told the company it would not launch the satellite due to political pressure. The company then had to sell the satellite for a significant loss because the satellite no longer had a launch contract. The company filed suit, claiming breach of contract. It argued that it was entitled to the difference in value between the satellite with NASA’s launch contract and the actual sale price of the satellite. The parties’ contract limited any award for breach of contract to direct damages and specifically excluded consequential damages . Is the company entitled to its requested damages? YES, because the diminution in value of a party’s assets due to another party’s breach represented the benefit of the bargain. Direct damages in contract cases represent the plaintiff’s lost benefit of bargain, meaning the loss of the monetary value of the defendant’s promised performance, usually as of the date that the defendant breached the contract. New Valley Corp. v. United States . Here, the loss the company took on the sale of the satellite was directly caused by NASA breaching the launch contract. Because this diminution in value represented the benefit of the bargain to the company, it was direct damages as allowed under the party’s breach of contract agreement. 2. A rock band broke down in their touring van in a small town in the mountains. The band went to get the van repaired, and the repairman said that he needed a special gasket to fix the van. He told the band to take the van’s broken gasket to a shipping office in town and have it shipped overnight to the manufacturer, who would then send a replacement gasket via overnight return shipment. The band went to the shipping company and told the shipping clerk that the gasket had to get to the manufacturer by noon the next day and specifically explained their situation. They told the clerk that, if the band could not get a replacement gasket within two days, they would be unable to have their van repaired in time to drive to the city and play a show, where they were expected to make $10k in profits. The clerk agreed to ship the gasket, and the band paid the shipping company $50 for the expedited shipment. However, the clerk negligently forgot to send the gasket until later in the day, resulting in the manufacturer getting it too late to send the band a replacement in time. Consequently, the band missed the show. The gasket did eventually arrive, the van was fixed, and the band continued its tour. The band sued the shipping company for the loss of $10k. Can the band recover the $10k? YES, because the band told the clerk about the importance of the gasket. Consequential damages in contract cases may only be recovered if they were within the subjective contemplation of the parties at the time they entered into
the contract of reasonably foreseeable to the defendant at the time the parties entered into the contract. Hadley v. Baxendale , Here, because the band members told the clerk about the specific circumstances about why they needed the gasket, including how much money they would lose if it weren’t delivered on time, they are likely entitled to their lost profit from missing the show. 3. An oil company chartered a supertanker from a shipping company. At the oil company’s request, the shipping company outfitted the supertanker with special turbines. The shipping company’s president specifically told the turbine manufacturing company that the oil company needed the turbines to speed up its oil shipments because each day of delay in shipping oil cost the oil company $1million. A month later, a defective part within the turbines caused most of the turbines to malfunction. The malfunctioning turbines caused no personal or property damage but did result in 10 days of delay in the shipment of oil, ultimately resulting in $10million in lost profits for the oil company. The turbine manufacturer replaced the defective parts at no cost. Although it had no contractual privity with the turbine manufacturer, the shipping company sued the turbine manufacturer based on a theory of negligence for the defective turbines and sought the $10million in lost profits as damages. Is the court likely to award the company’s lost profits? NO, because the company only suffered an economic loss. In most American jurisdictions, if the only injury to the plaintiff from a defendant’s negligence was economic loss (typically lost profits) and there was no privity between the parties, the remoteness limitation always prevents recovery of such consequential damages, even if the economic loss was reasonably foreseeable. East River SS Corp. v. Transamerica Delaval, Inc. , here, because the company suffered only economic loss, it would not be entitled to lost profits, even if the damages were foreseeable. 4. A woman entered into a purchase sales agreement with a businessman to buy his company, which manufactured a specific product, for $5m. However, the businessman decided to breach the contract and sell the company to a third-party buyer for a higher price. The woman sued the businessman for the breach, claiming $20m in lost profits based on a 20-year projection by an expert witness who admitted on cross-examination that her projection include a “good deal of speculation” based on “uncertain long-term economic conditions and changing consumer preferences.” The businessman’s expert witness testified that his 20- year projection showed that, in the best scenario, the woman had a “small chance” of earning as much as $10m in profits but was more likely to make little or no profit over 20 years because of changing economic and market conditions that would render the company’s product much less popular. Between the time of the breach and the lawsuit, which was one year, the third party made $2m in profits
from the joint venture. The court ruled in the woman’s favor on the issue of liability. What is the woman’s likely recover? $2m, the amount of profits by the third party in the prior year. Compensatory damages do not need to be calculable with mathematical accuracy and, instead, may be approximated if there is a rational basis in the evidence. However, damages should not be awarded when they are based solely on speculation. Thermo Electron Corp. v. Schiavone Constr. Co. , here, because the other damage calculations are based on mere speculation or the cost of the contract itself, the court is most likely to award the woman lost profits in the amount the third party actually made form the venture. 5. A month before Halloween, a candy retailer entered into a contract with a candy wholesaler. According to the agreement, the wholesaler would sell the retailer 500 crates of candy for $50 each, to be delivered two weeks before Halloween. However, two weeks before Halloween, the wholesaler told the retailer that he could not deliver the candy as promised. On the day of the breach, the wholesale market value of a crate of candy was $75 each. Because the candy was a new product that had not been sold by the retailer before, the retailer believed he lost $5k in profit when the wholesaler backed out of the deal. The retailer sued the wholesaler for damages. What amount of damages will the retailer likely recover? $12,500, the difference between the contract and market price. Direct damages in contract cases represent the plaintiff’s lost benefit of the bargain, meaning the loss of the monetary value of the defendant’s promised performance, usually as of the date that the defendant breached the contract. Here the wholesale market value of candy crates on the day of the wholesaler’s breach was $75. Consequently, the retailer would most likely be able to recover the benefit of the bargain, $25 per crate ($75 minus $50) for 500 crates, or $12,500. 6. A man owned a large commercial zoo and aquarium. The aquarium’s most popular attraction was a whale named Pepe, who did tricks for the aquarium audience. One day, a special gasket broke in Pepe’s tank. The gasket was necessary to keep his tank properly oxygenated. To get a new gasket, the aquarium had to send the old one to a special gasket maker. The man contracted a shipping company, who told him that if he could get the gasket to them by noon, they could get it to the special gasket maker that day. The man delivered the gasket to the shipping company before noon and paid the full shipping price. However, the clerk at the shipping company dropped the gasket behind a table, and the gasket wasn’t found until two days later. The shipping company immediately mailed the gasket, and the special gasket maker delivered a new gasket to the aquarium within a week. However, by that time, Pepe’s tank had
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become deoxygenated, killing Pepe. The man sued the shipping company for $20m in lost profits due to the shipping company’s failure to send the gasket. Which of the following facts must be true in order for the man to recover lost profits? The man told the shipping company about the gasket’s importance. Consequential damages in contract cases may only be recovered if they were within subjective contemplation of the parties at the time they entered into the contract or reasonably foreseeable to the defendant at the time the parties entered into the contract. Hadley v. Baxendale , here, if the man did not tell the shipping company about the gasket’s importance, he would not be entitled to lost profits. 7. The captain of an oil tanker was drunk when he negligently sailed the tanker into a sandbar. The tanker broke in half, spilling millions of gallons of oil along the South Carolina coast. The spill killed all the fish and wildlife in the area, and the beaches had to be closed for the entire summer to allow clean-up. A group of restaurants and hotels that were situated in resort towns along the South Carolina coast sued the tanker’s owner in tort for their lost profits due to reduced business caused by the oil spill. The plaintiffs based their amount of lost profits on 10 years of financial data, although they could not prove the amount of lost profits to an absolute certainty. Is a court likely to allow the plaintiffs to recover their lost profits? No, because the plaintiffs suffered only economic loss. In most American jurisdictions, if the only injury to the plaintiff was economic loss, typically lost profits, the remoteness limitation always prevents recovery of such consequential damages, even if the economic loss was reasonably foreseeable. Here, because they plaintiffs suffered only economic loss, they would not be entitled to lost profits. 8. A law professor entered into a contract with a publisher to publish the professor’s new book. The professor had never published a book before, although he did have a semi-popular blog. The contract stipulated that the publisher agreed to publish the new book in a hardbound edition within 18 months of its receipt and to pay royalties to the professor based on this percentage of sales. The professor delivered the book to the publisher as required under the contract, and the publisher refused to publish it. The professor sued, seeking damages for lost royalties and the cost of publication if the professor had to publish the book himself. Is a court likely to award the professor his requested damages? NO, because lost royalties would be based on pure speculation. Compensatory damages in contract cases needn’t be proved with mathematical precision and, instead, may be approximated if there is a rational evidentiary basis. However, contract damages shouldn’t be awarded if they’re merely speculative.
9. A new video game company licensed its first game to a game publisher. The contract required the publisher to pay a 15-percent royalty on all games that it sold. However, the publisher breached the contract six months later, before any games were sold. The video game company sued, arguing that it was entitled to lost royalties in the amount of $4m, based on its own sales projections and the sales of similar games during that year. It claimed that the publisher’s failure to market the game resulted in a foreseeable loss in sales. Is the company likely to recover its claim for lost royalties? NO, because this is the first game licensed by the video game company. Ther is a new business rule in many jurisdictions that either place an additional burden on a plaintiff to prove damages with certainty, or categorically prohibits compensatory damages, if a defendant’s breach of contract prevented the plaintiff’s operation of a brand-new business. Here, since this is a new video game company and this is its first game, it is likely that the company will be covered by the new business rule and be unable to prove compensatory damages to the necessary degree.
INCIDENTAL DAMAGES, DUTY TO MITIGATE, THE COLLATERAL SOURCE RULE. 1. The CEO of a company was injured in a car accident. The CEO filed suit against the other driver for negligence, claiming $150,000 in medical expenses and $1m in lost income. Before the case went to trial, the CEO received $150,000 from his health insurance company for medical expenses and $500,000 from his disability insurance company for his lost income. Ultimately, the jury ruled in his favor for the full amount of damages ($1,150,00). The other driver asked the court to offset the CEO’s damages by $650,000 based on what his insurance companies had paid him. In view of the requested offset, what is the CEO’s likely recovery? $5,150,000. The collateral source rule provides that, in a tort case where the plaintiff receives compensation for the damages caused by the defendant from the plaintiff’s own insurance company or from some other third-party source unrelated to the defendant, the plaintiff’s damages won’t be offset. Perreira v. Rediger , here the CEO would be entitled to the full amount of his damages, without any offset resulting from the payments by his health insurance or disability insurance policies. 2. A construction supply company sued a bank for tortiously interfering with a contract to sell 100,000 tons of stone owned by the company. The stone was being stored on another corporation’s property, and when the corporation defaulted on a loan held by the bank, the bank sold the stone to a landscaper. The company sued the bank for lost profits for not being able to sell the stone at the retail level. Although the bank admitted it had tortiously interfered with the stone, it argued that the company presented no evidence that it tried to obtain replacement stone to sell at the retail level after learning of the bank’s tortious interference. Is the court likely to award the company lost profits? NO, because the company did not try to get replacement stone to sell. After a defendant tortiously interferes, a plaintiff may be required to take action to reduce, or mitigate, the damages sustained. Such a duty to mitigate damages arises if a reasonably amount of effort on the plaintiff’s part would significantly minimize the damages. Martin Marietta Corp. v. New Jersey Nat’l Bank , here, the court is unlikely to award the company lost profits unless it can show it could not have reasonably mitigated the lost profits unless it can show it could not have reasonably mitigated the lost profits damages by obtaining replacement stone and selling at the retail level after learning.
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3. A university football team contracted to buy a standard passenger bus from a retail seller. The retail seller sold such buses all across the country, to sports teams, churches, and musicians. However, six days after executing the agreement, the team informed the seller by letter that, due to state budget cuts, the team was rescinding the contract. However, the retailer had already ordered the bus from the manufacturer, and it was delivered to the retailer at roughly the same time the team’s letter was received. The seller sued the team, seeking damages for its lost profits and the cost of storing and insuring the bus until it could be resold. At trial, it was proved that the seller sold the bus one week later to a different team for the same price for which it had contracted with the football team. If the court rules in the seller’s favor on the issue of liability, what damages will the seller likely receive? The seller’s lost profits and the cost of storing and insuring the bus, despite the fact the seller resold the bus for the same price. Under UCC 2-708(2), if a buyer repudiates a contract for the sale of goods with a lost-volume seller, the seller is entitled to the profit the seller would have made from full performance by the buyer, plus reasonable incidental damages associated with the resale. Here, because the seller was a retail seller of standard passenger buses, it was a lost- volume seller entitled to both lost profits and the incidental costs of storing and insuring the bus. 4. An actor best known for his singing entered into a contract with a Broadway producer in which the actor was to play the male lead in a musical. However, the producer had a change of heart and decided to produce a different musical. The producer offered the actor the male lead in the new musical, pointing out that the director, other actors, and compensation were all the same. However, the actor refused the offer because he did not think the songs were as good and he believed the different musical would not be as big of a hit with the public or have as long as a run as the original musical. The actor brought suit against the producer for breach of contract to recover the guaranteed compensation under the original contract. At the trial, many of the other actors in the musical testified that they considered the songs and script to be of comparable quality to the songs in the original musical and that the plaintiff actor’s subjective perception that they weren’t was incorrect. The producer contended that the actor had failed to reasonably mitigate his damages by refusing to accept the role in the new musical. Is the court likely to award the actor his guaranteed compensation under the original contract? No, because the actor was offered a similar role, with the same director, other actors, and compensation. The measure of recovery by a wrongfully discharged employee is the amount of salary agreed upon, less the amount which the employee has earned or with reasonable effort might have earned from other
employment. In such cases, the employer must show that the substituted employment was substantially similar to the other employment, and the employee does not need to seek other available employment of a different or inferior kind to mitigate damages. Parker v. Twentieth Century Fox File Corp. , here a court would likely find that the role in the new musical, with the same director, actors, and compensation, was similar enough that the actor failed to reasonably mitigate his damages by not taking the role. 5. A buyer contracted to purchase a motorcycle from a large retail motorcycle dealer for $12,000, which would result in a $2,000 profit for the dealer. The buyer paid a deposit of $4,000 in consideration of the dealer’s agreement to deliver the motorcycle immediately. Five days later, the buyer informed the dealer that he was facing health problems and was rescinding the contract. However, the motorcycle had already been ordered from the factory, and it was delivered to the dealership that day. The dealer stored the motorcycle in its warehouse and paid the necessary insurance as required by state law. The cost of storage and insurance, until the motorcycle could be resold, was $1,000. The buyer sued for recovery of his $4,000 deposit, and the dealer counterclaimed for $2,000 in lost profits and $1,000 in incidental damages. What amount of damages will the buyer likely recover? $1,000. Under UCC 2-708(2), if a buyer repudiates a contract with a lost-volume seller, the seller is entitled to the profit the seller would have made from full performance by the buyer, plus reasonable incidental damages associated with resale. Here, the seller would be entitled to $2,000 in lost profits, plus $1,000 in incidental damages. Consequently, the buyer would only be entitled to the return of $1,000. 6. An art restorer agreed to clean and repair several old paintings for the paintings’ owner for $2,000. The job would entail $1,000 in expenses for paint, framing, and other repair components, and $1,000 in labor costs. The owner delivered the painting to the restorer’s workshop, and the restorer began to work on them. Two weeks later, the owner contracted the art restorer and told him that, due to an unforeseen car repair, he could no longer pay for the restoration job. Consequently, he told the restorer to stop work. However, the restorer finished the job and then demanded the full $2,000 contract price to be paid. The owner refused. Is the restorer entitled to $2,000? NO, because he failed to mitigate damages by stopping work when directed to do so by the owner. After a defendant breaches a contract, a plaintiff may be required to take action to reduce, or mitigate, the damages sustained. Such a duty to mitigate damages arises if a reasonable amount of effort on the plaintiff’s part would significantly minimize the damages. Clark v. Marsiglia , here, once the
contract was breached, the restorer had the duty to mitigate damages by stopping work on the contract, which would have saved a significant amount of the expenses. 7. An actress, who also was well known as a professional dancer and singer, entered into a contract with a film studio in which the actress was to play the female lead in the studio’s new musical film. He guaranteed compensation was $1m. The studio decided not to produce the film and offered the actress the female lad in an action movie for $750k. Her role in that movie did not involve any singing or dancing. The actress thus did not accept the new part and brought suit to recover the guaranteed compensation under the original contract. Is the actress entitled to recover the guaranteed compensation of $1m? YES, because the female lead in a musical is very different from the female lead in an action film for an entertainer such as the actress here. The measure of recovery by a wrongfully discharged employee ordinarily is the amount of salary agreed upon, less the amount which the employee has earned or with reasonable effort might have earned from other employment. In such cases, the employer must show that the other employment was substantially similar to the other employment, and the employee does not need to seek other available employment of a different or inferior kind to mitigate damages. Here, a court would likely find being the female lead in a musical is very different from being the female lead in and action picture. Parker v. Twentieth Cent. Fox , consequently, the actress was not required to take the role, and she would be entitled to her compensation under the original agreement. 8. One snowy day, a woman slipped, fell, and sustained injuries on the steps of a bank. The woman filed suit against the bank, its insurance carrier, and the bank’s snow removal contractor to recover $30,000 in direct damages, including for her medical expenses, and $20,000 in consequential damages, including lost income. During this time, the woman’s health insurer paid all of her medical expenses, which were $13,000. Ultimately, the court ruled in the woman’s favor on the issue of the bank’s liability. What is the woman’s likely recovery in terms of damages? $50,000. The collateral source rule provides that, in a tort case where the plaintiff receives compensation for the damages caused by the defendant from the plaintiff’s own insurance company or from some other third-party source unrelated to the defendant, the plaintiff’s damages will not be offset. Perreira v. Redinger , here the woman would be entitled to the full amount of her damages, without any offset caused by the recovery from her health insurer. 9. A man was permanently disabled in a construction accident and sued the construction company. The jury ruled in the injured man’s favor on the issue of liability. The jury was then charged with determining the correct amount of
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damages owed to the man. The man sought $5m in compensatory damages, including $1m in medical expenses. Over the man’s objection, the construction company present evidence that the man had already been compensated $1m from his own health insurance for medical expenses. Ultimately, the jury awarded the man $4m for his personal injuries. The man appealed the damages award, arguing that the trial court erred by allowing evidence of the man’s medical insurance payments to be introduced during the damages phase of trial. Is the appeals court likely to rule in the man’s favor? YES, because the jury shouldn’t have been informed about the man’s payment from his insurance company. The collateral source rule provides that injuries must not be informed that the plaintiff received payment from his own insurance policy or a third-party source unrelated to the defendant. Perreira v. Redinger , consequently, the jury should not even have known about the man’s $1m from his insurance company.
MEASURING DAMAGES FOR BREACH OF CONTRACT 1. A sporting goods manufacturer agreed to sell to a sporting goods retailer 10,000 lacrosse balls at $1 per ball, for a contract price of $10,000. The retailer paid the $10k in advance. However, on the scheduled day of delivery, the manufacturer partially breached the contract by delivering only 5,000 balls. The manufacturer refunded the $5k that the retailer had prepaid for the 5,000 undelivered balls. At the time of the breach, the market price for balls was $2 per ball. Normally, when selling balls, the retailer makes a profit of $3 per ball. The manufacturer knew that the retailer normally made a $3 per ball profit. The retailer tried to obtain replacements for the undelivered 5,000 balls from other manufacturers but was unable to do so because there was an industry wide shortage. The retailer sued the manufacturer for breach of contract. What amount of damages will the retailer likely recover? $20,000; the difference between the contract price and the market price, plus the lost profit on the undelivered balls. Expectancy damages represent the benefit of the bargain, that is, the amount of money that, to the extent possible, will put the plaintiff in as good as position as he would have been had the defendant performed his obligation under the contract. Expectancy damages also include consequential damages, if proved. Under UCC 2-713, the measure of direct expectancy damages for a buyer is the difference between the contract price and the market price for the same type of goods at the time of the seller’s breach. That is $5,000 in this case ($1 x 5,000). Because the retailer tried to obtain the undelivered balls elsewhere in c commercial reasonable manner, it would also be entitled to the lost profits. Lost profits are $15k ($3 x 5,000). The total damages thus are $20k. 2. A developer contracted to buy a large plot of land from a landowner for $1m. She gave the landowner a $100k down payment and then paid $5k for a title search and inspection, which the developer’s bank required as a condition of financing. However, a week before the closing, the landowner decided to give the land to one of his nieces instead of completing the sale with the developer. On the date of the breach, the fair market value of the land was $1.25m. The developer sued the landowner for damages. The court ruled in favor on the issue of liability. What amount of damages is the developer likely to recover?
$250,000, the difference between the fair market value of the land on the date of the breach and the contract price. A majority of United States jurisdiction follow the American rule, which permits the land buyer to recover ordinary expectancy damages, measured by the difference between the contract price and the fair market value of the property at the time of the breach. Burgess v. Arita , here, the developer would likely be entitled to those damages. 3. A farmer hired a builder to construct a new grain silo for $500k. When the builder completed the project, the developer discovered that the foundation of the silo had been built using an inferior building material and the silo could only hold half the grain that the silo could have held with the superior material that was listed in the contract. The inferior foundation decreased the fair market value of the silo to $300k. The cost of repairing the foundation to bring it into conformity with the contract’s specifications would be $150k. If the builder had originally used the superior foundation material, the fair market value of the silo would be $600k. The farmer sued the builder for the breach. The court found the builder liable for the breach. What is the farmer’s likely recovery? $150k, the cost of repairing the foundation. If a builder breaches a construction contract by failing to construct a building as promised, the property owner’s expectancy damages will depend upon whether the deficiency or defect in the construction’s substantial or insubstantial. If there is a substantial defect, the owner is generally entitled to damages representing the cost to repair or replace the deficient or defective portion of the building in order to render it in conformity with the contract, unless that cost would be disproportionate to the diminution value caused by the breach. If the cost of repair is disproportionate, then the plaintiff is only entitled to the diminution in value. Nichols Const. Corp. v. Virginia Machine Tool Co. , here, the foundation defect is a substantial defect, so the farmer would be entitled to the cost of repair ($150k), because it is not disproportionate to the diminution in value caused by the breach ($200k). 4. A man who had just graduated from culinary school entered into a one-year contract with a large company in which he would provide ground coffee, milk, sugar, and bakery items for the company’s break rooms and receive $5k per month (or $60k over the entire year). In order to fulfill the contract, the man bought supplies and equipment, including a brand-new industrial coffee grinder, an industrial oven, and industrial size baking sheets, for $10k. During the contract period, the man never made a monthly profit, although he lost less each month that passed. Six months into the contract, the company canceled it without justification. The man sold his remaining supplies and all of the equipment for $5k. The man then sued the company for the breach. If the court rules in the man’s favor on the issue of liability, what damages will the man likely receive?
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$5k, the difference between what the man paid for the supplies and equipment and what he later sold those items for after the company cancelled the contract. A plaintiff’s reliance interest is one of two alternative measures to the expectancy interest measurement. It’s the interest in being reimbursed for losses caused by reasonably detrimental reliance on the defendant’s breached promise. Such reliance damages put the plaintiff in as good a position as the plaintiff would have been had the contract not been made. Reliance damages are generally sought when a plaintiff has difficulty proving expectation damages. Here, because the man could not show that he could have profited from the contract, he is only entitled to the reasonable financial losses he suffered in preparing to carry out the contract. Mistletoe Exp. Service of Oklahoma City, Okl v. Locke , “The injured party may, if he chooses, ignore the element of profit and recover as damages his expenditures in reliance. He may choose to do this . . . in the case of a losing contract, one under which he would have had a loss rather than a profit.” Consequently, the man could only recover his net expenditures on the supplies and equipment ($5k after selling them at a loss). 5. A wood merchant agreed to sell a wood retailer 6,000 wood boards at $10 per board, for a contract price of $60k. The retailer paid the $60k in advance. However, on the scheduled day of delivery, the merchant partially breached the contract by delivering only 4,000 boards. At the time of the breach, the market price for boards had risen to $20 per board. Normally, when selling boards, the retailer made a profit of $5 per board, a fact known to the merchant. The retailer sued the merchant for breach of contract but offered no evidence that he had attempted to purchase 2,000 replacement boards after the merchant’s partial breach. What number of damages will the retailer likely recover? $20,000, the difference between the contract price and the market price of the undelivered boards. Expectancy damages represent the benefit of the bargain, that is, the amount of money that, to the extent possible, will put the plaintiff in as good a position as he would have been had the defendant performed his obligation under the contract. Expectancy damages also include consequential damages, if proved. Under UCC 2-713, the measure of direct expectancy damages for a buyer is the difference between the contract price and the market price for the same type of goods at the time of the seller’s breach. Here, the difference between the contract price and the market price for the same type of goods at the time of the breach was $10 per board, equaling $20k. 6. A music retailer contracted to buy 5,000 guitar strings from a string manufacturer for $1 per string. When the manufacturer delivered the strings to the retailer, the retailer accepted the shipment but refused to pay anything unless the manufacturer agreed to accept $2,500 instead of the purchase price of $5,000. The retailer told the manufacturer, “Since we signed the contract, I learned that
the market price was 50 cents per string when we signed. That should be the price you accept.” The manufacturer told the retailer, “I gave you a deal. Today, those strings go for $2 apiece.” A week later, the retailer still had not paid the manufacturer. The manufacturer sued the retailer for breach of contract. At the time of the suit, guitar strings has shot up to a market price of $3 per string. What amount of damage is the manufacturer likely entitle to? $5,000, the contract price. The measure of a seller’s expectancy damages, when a buyer breaches the contract, depends on whether the buy accepted the goods, or they remained in the seller’s possession. If the buyer accepts the goods but refuses to pay, the measure of damages is the contract price of the goods. Here, because the retailer kept the strings, the measure of damages is the contract price. 7. A buyer contracted to buy a plot of land on which to build her dream house for $300k. She gave the seller a down payment of $5k and spent $5k on a land survey and title search (required by the buyer’s mortgage company). However, the land seller breached the contract and did not sell the land to the buyer. The seller returned the down payment. On the date of the seller’s breach, the fair market value of the property was $350k. The buyer sued the seller for compensatory damages. The relevant jurisdiction follows the majority rule on the issue of damages measures for this type of breached contract. What damages are the buyer likely entitle to? $50,000, the difference between the market price on the date of breach and the contract price. A majority of U.S. jurisdictions follow the American rule, which permits the buyer to recover ordinary expectancy damages, measured by the difference between the contract price and the fair-market value of the property at the time of the breach. Burgess v. Arita , here, the buyer would likely be entitled to those damages. 8. A woman hired a builder to build her a new home for $250k. When the builder completed the project, the buyer discovered that the builder had used a slightly lesser grade of wood flooring than the wood flooring called for by the contract. The woman sued the builder for the breach. The lesser wood flooring decreased the fair market value of the property by $500. The cost of ripping out the lesser wood flooring and replacing it with the flowing called for under the contract would cost $10k. If the builder had originally put in the flooring as called for under the contract, it would have cost the builder $7,500. What is the woman’s likely recovery? $500. If a builder breaches a construction contract by failing to construct a building as promised, the property owner’s expectancy damages will depend upon whether the deficiency or defect in the construction’s substantial or insubstantial. If there is a substantial defect, the owner is generally entitled to damages
representing the cost to repair or replace the deficient or defective portion of the building in order to render it in conformity with the contract. However, if there is only an insubstantial defect, and the repair or replacement cost would be grossly disproportionate to the decrease in value resulting form the deficiency or defect, the owner is entitled only to damages representing the property’s diminution. Nichols Const. Corp. v. Virginia Machine Tool Co., here, the lesser flooring is likely an insubstantial defect, so the woman could be entitled to the diminution in value, or $500. 9. A woman entered into a contract with a company in which she would provide pickup and delivery service. In order to fulfill the contract, the woman bought a new vehicle, a loading ramp, and a new GPS device. She took out a loan to cover these expenses. During the contract, the woman never made a profit, although she lost less each month. The company cancelled the contract. The woman closed her business and sold the vehicle, ramp, and GPS system at a loss. The woman sued the company for the breach. What damages are the woman likely to recover? The cost of the vehicle, ramp, and GPS. A plaintiff’s reliance interest is one of two alternative measures to the expectancy interest measurement. It’s the interest in being reimbursed for losses caused by reasonable detrimental reliance on the defendant’s breach promise. Such reliance damages put the plaintiff in as good a position as the plaintiff would have been had the contract not been made. Reliance damages are generally sought when a plaintiff has difficulty proving expectation damages. Here because the woman could not show that she could have profited from the contract, she is only entitled to the reasonable financial losses she suffered in preparing to carry out the contract. Mistletoe Exp. Service of Oklahoma City, Okl. v. Locke.
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MEASURING DAMAGES FOR TORTS I 1. A family hired a prominent local lawyer to bring a civil suit against a police officer who had been criminally prosecuted for killing their son. During the course of the investigation, the lawyer was featured in a local newspaper, yet the lawyer refused to be interviewed and did not seek any publicity for himself or his client’s case. the lawyer had nothing to do with the police officer’s criminal prosecution, but the article accused him of masterminding the prosecution. The newspaper claimed the prosecution was a gram-up of the police officer and part of a vast conspiracy to discredit law enforcement. While the newspaper did check on the claims leveled at the lawyer, it was fooled by several biased witnesses attempting to get the lawyer disbarred so the civil case might end. The lawyer sued the newspaper for defamation and only sought actual damages, not presumed or punitive damages. Is the court likely to rule in the lawyer’s favor? Yes, because the lawyer is not a public figure. The First Amendment prohibits damages for defamation about public figures or matters or public concern unless the plaintiff proves actual malice, that is, the defendant’s knowledge of or reckless disregard concerning the falsehood. In addition, the First Amendment prohibits any type of damages against a defendant for defamation of a public official regarding his official conduct without proof of such actual malice. New York Times Co. v. Sullivan , however, this standard does not apply to private persons such as the lawyer, who did nothing to promote himself or his client’s case in the media or public, even if the statements about him were arguably about some type of public concern. 2. A woman filed suit against her physician after he negligently prescribed the wrong type of birth control pills. Due to the mistake, the woman had an unplanned pregnancy that resulted in a severely disabled child. The woman sued the physician for the child’s wrongful life, arguing that the child was entitled to damages for his pain and suffering in life and his lost income that he would have earned in life had he not been born severely disabled. She also sued for wrongful- conception damages for her medical expenses, her pain and suffering during the pregnancy and birth, and also for the child’s special medical and caretaking expenses related to his disability.
All of the wrongful-conception damages but none of the wrongful-life damages. Although most jurisdictions allow for wrongful-conception damages, few permit wrongful-life damages. 3. A man was injured when a municipal water tower collapsed on top of him. He sued the city and was awarded $1m in pecuniary damages and $5m in nonpecuniary damages. Which of the following would not be part of the man’s nonpecuniary damage awards? Lost past and future earnings. Pecuniary damages are objectively quantifiable and based on a mathematical measure, such as determining lost wages. Conversely, nonpecuniary damages seek to compensate for harms that can’t be objectively monetized, such as emotional distress, and are based on the subjective judgments of a jury or judge. Lost past and future earnings are an example of pecuniary damages, so they would not be part of the man’s nonpecuniary damage award. Golden Eagle Archery, Inc. v. Jackson. 4. A man was severely injured when a tractor-trailer truck ran the man’s car off a highway. After a trial, the man was awarded $1m in pecuniary damages. Which of the following is least likely to be part of the man’s damage award? Loss of enjoyment of life. Pecuniary damages are objectively quantifiable and based on a mathematical measure, such as determining lost wages. Conversely, nonpecuniary damages seek to compensate for harms that can’t be objectively monetized, such as emotional distress, and are based on the subjective judgments or a jury or judge. Loss of enjoyment of life is an example of nonpecuniary damages, so it would not be part of the man’s pecuniary damage award. Golden Eagle Archery, Inc. v. Jackson. 5. A banker was killed when a construction crane fell on her. The banker’s daughter, who lived with the banker, sued the construction company for negligence. If the daughter’s suit is successful, what damages will she most likely recover? Damages for the banker’s lost future net income and benefits. In most jurisdictions, a decedent’s survivors or his estate are entitled to damages for the decedent’s future net income and benefits. Brantuas v. Odette Therese Fishing Corp. 6. Due to her doctor’s negligence, a woman was given an improper drug for birth control and became pregnant. Although she did not want to be pregnant, she gave birth to a healthy baby boy. The woman sued her doctor, claiming she was entitled to recover wrongful-conception damages for her doctor’s negligence failure to properly provide birth control. What damages are the woman likely entitled to recover?
Medical expenses related to the pregnancy and birth, pain and suffering, and loss of income relating to the pregnancy and birth. Most jurisdictions allow a plaintiff to recover wrongful-conception damages for a medical professional’s negligent failure to properly provide birth control. Such damages are generally limited to medical expenses related to the pregnancy and birth as well as pain and suffering and loss of income resulting from the pregnancy and birth. They do not include recovery of the costs of child-rearing if the child was born healthy. Johnson v. University Hospitals of Cleveland . 7. A woman filed a wrongful birth claim against a hospital, alleging that her physician failed during several visits for prenatal care to make a timely diagnosis of physical defects and abnormalities afflicting her unborn child, thereby depriving her of the right to terminate the pregnancy. Her son was born severely disabled and likely to suffer a life of pain and deprivation. On her son’s behalf, she asserted a claim for wrongful life to recover the loss of income that he might have enjoyed as an adult. The jurisdiction follows the majority rule among all American jurisdictions. Is the woman likely to recover damages on behalf of her sone for wrongful life. No, because few United States jurisdictions allow children to recover wrongful-life damages. Few jurisdictions allow for wrongful-life damages. Greco v. United States , because the jurisdiction followed the majority of jurisdictions, it is unlikely the woman’s son could receive wrongful-life damages. 8. The incumbent county coroner was running for reelection. A few weeks before the election, a local paper printed a story claiming that the coroner was involved in illegally selling corpses to several religious cults for their rituals. The coroner sued for defamation and sought presumed damages. It was undisputed that several of the allegations were either false or exaggerated, and that many of the people making the allegations reported by the newspaper were biased in favor of the opposing candidate for coroner. During trial, the newspaper admitted that the story was flawed, but the court found that the newspaper did not act with actual malice toward the coroner and instead only acted with mere negligence in reporting the allegations that were either untrue or exaggerated. Is the coroner likely to recover presumed damages for his defamation claim? No, because the coroner is a public figure. The First Amendment prohibits presumed damages for defamation about public figures or matters of public concern unless the plaintiff proves actual malice, that is, the defendant’s knowledge of or reckless disregard concerning the falsehood. In addition, the First Amendment prohibits any type of damages against a defendant for defamation about a public official regarding his official conduct without proof of such actual malice. New York Times Co. v. Sullivan , here, because the coroner is public official
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and the accusations involve his official conduct, he could not succeed on his claim without proving actual malice. MEASURING DAMAGES FOR TORTS II 1. A musician was playing a show at a local bar when a waiter negligently spilled a pitcher of beer on her amplifier. The amplifier caught fire and was damaged beyond repair. The musician sued the bar for damages. The musician had bought the amplifier for $400, with a fair market value of $600. The musician also claimed $200 in loss-of-use damages based on her inability to perform for two shows before buying a new amplifier, which she obtained from a friend for $300. The musician sold the destroyed amplifier to a music store for $100. Ultimately, the court ruled that the bar was liable to the musician for its waiter’s negligence. What damages is the musician likely entitled to? $700, the fair market value of the amplifier plus loss-of-use damages, minus the salvage value. If a plaintiff’s property is completely destroyed, the measure of damages is the fair market value of the property at the time the defendant destroyed it, minus any salvage value, plus loss-of-use damages. Averett v. Shircliff , here, because the amplifier was totally destroyed, the musician would be entitled to $600 in fair market value minus $00 in salvage value, plus $200 in loss-of-use damages. 2. A man parked his truck on the street, where it was hit by a city bus. The man had bought the truck two years earlier from a retail car dealer for $35,000. The fair market value of the truck at the time it was hit by the bus was $25,000 and the salvage value of the wrecked truck was $2,000. However, the truck could be repaired to its original condition at a cost of $28,000. The man sued the city for negligence. The court ruled in the man’s favor on this issue of the city’s liability. What damages is the man likely entitled to? $23,000, the fair market value of the truck before it was hit minus its salvage value. If the property was destroyed, the damages measure is the property’s fair market value before destruction, less any salvage value after destruction. However, if the property wasn’t destroyed and can be repaired, the most common damages measure is the reasonable cost of repair, and also loss-of-use damages during the repair process. If property is repairable but the cost of repair would be uneconomical because it would exceed the value of the property after repair, then
the damaged property is considered totaled. The plaintiff isn’t entitled to damages for repair costs in that situation. Rather, damages are based on the fair market value of the property before the injury occurred, minus any salvage value after the injury. State Farm Mut. Auto Ins. Co. v. Berthelot , here, because it would cost $28,000 to repair the truck, and the fair market value of the truck after the hit was only $25,000, the truck would be considered totaled and the man would only be entitled to the fair market value of the truck minus its salvage value. 3. A gravel company opened a large quarry on the outskirts of a town, with knowledge that a residential home was being constructed nearby. A year later, after the homeowner moved in, the quarry increased its daily operations. Loud noises and large amounts of dust made it impossible for the homeowner to live at the home. He thus purchased a new home in a different part of town and moved in. when he advertised the home near the quarry for sale, no offers were made. A realtor told him the home would “never sell so long as the quarry operates.” The homeowner then sued the quarry for nuisance and sought damages. The court ruled in the homeowner’s favor on the issue of the quarry’s liability for nuisance. Which of the following damages, if any, is the homeowner likely entitled to? The diminution in the fair market value of the property. The measure of damages for a nuisance depends on whether it was temporary or continuous and permanent. The usual damages measure for a temporary nuisance is the diminution of the fair market rental value of the property during the nuisance. For permanent nuisances, the damages measure is the diminution in the fair market value of the property caused by the nuisance. Guzzardi v. Perry’s Boats, Inc. , here, because the quarry’s operation is permanent, the homeowner would likely be entitled to the diminution in the fair market value of the property. 4. A landlord who rented apartments to college students sued a student tenant after the tenant overstayed his lease for six months and also refused to leave the premises or pay any hold-over rent during the time. The standard rent for students had been $1k per month during the prior rental year and also was $1k per month during the rental year in which the student tenant overstayed. The tenant’s overstaying caused the landlord to miss the prime rental time for student rentals, although the landlord did manage to rent the premises to a visiting professor for the remaining six months of that rental year for $800 per month. When the student tenant finally vacated the apartment, the landlord discovered that the student had cause $1k in damages to the walls and floor. The landlord sued the student for trespass. If the court rules in favor of the landlord on the issue of liability, what are the likely damages the landlord will be awarded? $7k, representing the fair market rental value of the property during the six- month period of the trespass and the $1k of physical damage. In addition to
damages for physical injuries caused by a defendant’s trespass, the plaintiff may recover mesne damages for an extensive trespass, such as a tenant who overstayed a lease. Mesne damages represent the rental value of the property during trespass. Pffenbarger v. Merit Energy Co. , here, the student tenant caused $6k in mesne damages and $1k in physical damages, so the landlord will likely recover $7k. 5. A man bought a used truck from a used car dealership to use for his personal use and landscaping business. He did so by taking a car loan from a bank. Unbeknownst to the man, the truck had been stolen from a car and truck rental company. The man possessed the truck for six months before it was taken back without the man’s permission by the rental company. The man demanded return of the truck because he has superior title to is as a bone fide purchaser for value under the relevant state law. After 18 months, during which time the man continued to make loan payments to the bank and could not afford to get another vehicle, the rental company returned the truck to the man. The man sued the rental company for conversion. What amount of damages is the man most likely entitled to for unlawful conversion of the truck? The rental value of the truck for 18 months. If a defendant converts a plaintiff’s property, the normal measure of compensatory damages is the fair market value of the converted property at the time of the conversion. However, if the defendant returned the property undamaged or if the fair market value of the property can’t be reasonably determined, then loss-of-use damages are normally awarded. Loss- of-use damage represents the rental value of the property during the time of the conversion. Mahana v. Onyx Acceptance Corp. , here, because the company returned the truck, the man would be entitled to the rental value of the truck for 18 months. 6. A woman was driving an antique car when she was forced off the road by a delivery truck. The woman’s car hit a tree and was severely damaged. The car belonged to the woman’s deceased father and had strong sentimental value to the woman’s family, because he had spent the last years of his life repairing it himself. The fair market value of the car at the time of the accident was $100k. The salvage value of the car wreckage was $500. The father had spent $12k to repair it initially, but the cost of repairing the now wrecked car was $15k. The woman sued the delivery truck for negligence. What damages is the woman most likely to recover? $15k. the cost to repair the car now. If the property was destroyed, the damages measure is the property’s fair market value before destruction, less and salvage value after destruction. However, if the property was not destroyed and can be repaired, the most common damages measure is the reasonable cost of repair, plus
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compensation for the diminution in value even after the repair, and also loss-of- use damages during the repair process. If property is repairable but the cost of repair would be uneconomical because it would exceed the value of the property after repair, then the damaged property is considered totaled. A plaintiff is entitled to damages for repair costs in that situation. Rather, damages are based on the fair market value of the property before the injury occurred, minus any salvage value after the injury. An exception exists when the damaged but repaired item has a special, nonmonetary value to the plaintiff. State Farm Mut. Auto Ins. Co. v. Berthelot , here, because the car has strong sentimental value for the woman and her family, she could likely recover the cost of repair. 7. A woman owned a home on a lake next to a small restaurant. One summer, the restaurant decided to host a month-long series of punk-rock concerts. After the concert series was over, the woman sued the restaurant, alleging that the noise and crowds drawn by the concerts created a nuisance. If the woman’s claim is successful, what damages is she likely entitled to recover? The fair market rental value of her property during the time of the nuisance. The measure of damages for a nuisance depends on whether it was temporary or, instead, continuous and permanent. The usual damages measure for a temporary nuisance is the diminution of the fair market rental value of the property during the nuisance. For permanent nuisances, the damages measure is the diminution in the fair market value of the property caused by the nuisance. Guzzardi v. Perry Boats, Inc. , here, because the month-long punk-rock concerts were only temporary, the woman is likely entitled to recover the fair market rental value of her property during the time of the nuisance. 8. A singer sued a man for violation of the Copyright Act, alleging that the man had recorded a song that was very similar to one that had appeared on the singer’s last record. The singer sued the man for copyright infringement, claiming damages for emotional distress due to the man’s alleged theft of the song. She claimed the man’s song ruined her reputation among music critics as a unique artist. Is the woman likely to recover damages for her emotional distress? No, because copyright violations do not allow nonpecuniary damages. Only pecuniary damages, and not non-pecuniary damages such as for emotional distress, can be recovered for intellectual-property torts. Garcia v. Google , consequently, the woman could not recover damages for her emotional distress. 9. The tenured football coach of a public university was suspended without pay after allegedly punching a player on the football team. Before the suspension occurred, the university did not provide the coach any type of hearing. During the coach’s suspension, he suffered a heart attack. The coach sued the university for deprivation of his liberty and property without due process of law because he was
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suspended without a hearing. He offered proof that he did not intentionally punch a player and instead had accidentally elbowed the player during practice. He contended that, if he had been given a hearing before being suspended, he could have proved that he did not intentionally hit the player. The jury found in his favor. Which of the following is least likely to be part of the coach’s damage award? Nonpecuniary damages for the inherent value of the violation of the coach’s constitutional right to due process.  Damages for constitutional torts don’t include presumed or inherent damages for the inherent value of the constitutional right itself.  See Memphis Community School District v. Stachura . Consequently, the coach could not receive damages simply for the violation of his due process rights. SPECIAL ISSUES ON COMPENSATORY DAMAGES 1. After a car accident, a plumber sued a doctor in federal district court for his injuries. The jury awarded the plumber compensatory damages, but the judge believed that the damages award was too high based on the evidence before the jury and that it was likely awarded based on the jury’s perception of the difference in wealth between the plumber and the doctor. Consequently, the judge ordered the plumber to either accept a lower damages award or the court would order a new trial on the damage’s issues. May the judge place this condition on the plumber? YES, because the judge did not believe the evidence supported the damage award. If a court believes that the jury’s damages were insufficient or excessive, the court will conditionally reduce or increase the award, subject to the plaintiff or defendant’s right to a new trial on the damages amount. Geyer v. Vargas Productions, Inc. , Importantly, conditional remittitur, or the conditional lowering of an excessive damage award, is allowed in federal civil cases if the court believes that the evidence did not support the damage awarded. 2. A man was killed when a truck driver negligently ran into his car. The man’s estate sued the truck driver for wrongful death, and the court ruled in the estate’s favor. As part of the damage award, the court awarded the estate the deceased man’ lost income. How is the court likely to determine the appropriate present- value for the man’s lost income? By determining the highest interest rate that could be earned on a safe investment. If a court or jury awards future damages in a wrongful death case, it must calculate the damages in a way that reduces them to the present value of the cumulative future damages. The present-value discount is determined using the highest interest rate that could be earned on a safe investment, such as a long-term government bond. The plaintiff is awarded an amount of present
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damages that, if allowed to accrue interest at the rate over the relevant time period, would equal the total amount that the judge or jury finds that the plaintiff will lose in the future because of the defendant’s breach or tort. 3. A poet who had never published before entered into a contract with a recording label to release an album of the poet reciting her poetry. The contract stipulated that the label agreed to release the record within six months and pay royalties to the poet based upon a percentage of sales. The poet delivered the recording, but the label refused to release it. The poet sued for damages. The court found that the label had in fact breached the agreement. What damages is the poet most likely to recover? Nominal damages. In some cases, plaintiffs prove that the defendant breached a contract but can’t establish any compensatory damages, either because damages are too uncertain or remote or because the harm cause was extremely minimal. In such cases, a judge or jury may award damages, such as on dollar. Fruend v. Washington Square Post. , here, as a poet who has never been published, any royalties lost by the label’s refusal to release the recording are likely too uncertain to be awarded. 4. A buyer offered to buy a restaurant from a seller. Under the contract negotiated between the parties, the seller was entitled to $1m in liquidated damages if the sale did not take place before Sept. 1. In the contract, the parties noted that the liquidated-damages clause was not intended as a penalty and that estimating potential damages at that point was difficult. However, due to third-party financing issues, the buyer could not complete the sale. Consequently, the seller sold the restaurant to another party on Nov. 1 for an even greater price than the one in the original contract with the buyer, resulting in the seller suffering little in the amount of actual damages. The seller then sued the buyer for the $1m in liquidated damages as specified in the original sales contract. Is the court likely to enforce the liquidated-damages clause? NO, because the seller suffered little in the amount of actual damage. Courts generally enforce liquidated-damages clauses so long as the amount of liquidated damages is reasonable in the light of the anticipated or actual loss caused by the breach or the anticipated difficulties of proving loss. Commercial Real Estate Investment, L.C. v. Comcast of Utah II, however, if the actual damages suffered by the plaintiff are little to none at the time of the lawsuit, the court will not enforce the clause because it then constitutes a mere penalty. Here, because the seller suffered little in the amount of actual damages at the time of the lawsuit, the court is unlikely to enforce the liquidated-damages clause. 5. A jury awarded a stockbroker a very large compensatory-damages award after he slipped and fell in a diner. The judge believed that the evidence in the case only
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supported a lower damages award, so she told the stockbroker that the stockbroker either had to accept the lower damages award or the court would order a new trial on the damages issue. May the judge place this condition on the stockbroker? YES, because the judge believed the evidence did not support the damages award. Depending on the jurisdiction, a trial or appellate court can increase or decrease a jury’s award of compensatory damages in a tort case based on the court’s view that the evidence in the case supports higher or lower compensatory damages. In view of the parties’ right to a jury trial in a civil case, many jurisdictions will permit only a conditional remittitur or a conditional additur. In those jurisdictions, if court believes that the jury’s damages were insufficient or excessive, the court will conditionally reduce or increase the award, subject to the plaintiff or defendant’s right to a new trial on the damages amount. City of Birmingham v. Business Realty Inv. Co. , here, because the judge believes the evidence does not support the award, she can ask the stockbroker to either accept lower damages or a new trial on the damages issue. 6. A banker sued a lawyer in federal district court for injuries that he sustained during a skiing accident in which the two collided. The jury awarded the banker compensatory damages, but the judge believed that the damages award was too low based on the evidence before the jury. Specifically, the judge thought that the jury did not award the banker more damages because the was already wealthy, and the banker had suffered extensive and expensive injuries. Consequently, the judge ordered the lawyer to pay additional damages to that awarded by the jury or face a new trial on the damages issued. May the judge place this condition on the banker? No, because the conditional additur in federal courts is not permitted under the Seventh Amendment. The United States Supreme Court has prohibited conditional additurs in federal civil cases, concluding that the Seventh Amendment right to a civil jury trial, which is inapplicable to the states, doesn’t allow damages to be added to what the jury awarded. Dimick v. Schiedt , if a court believes that the jury awarded insufficient damages, a new trial on the damages issue will be awarded without giving the defendant the right to accept higher damages than the amount awarded by the jury. Consequently, the judge could not give the lawyer the right to accept higher damages in lieu of a new trial on damages.
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INJUNCTIVE RELIEF GENERALLY 1. An anti-taxation interest group, fearing the results of a statewide referendum on a potential property tax increase to be used for public education, filed a lawsuit seeking an injunction against the ballot to be used in the referendum. The group, whose membership included over 100,000 citizens of the state, alleged that the wording of the question posed on the ballot was biased in favor of an affirmative answer. The lawsuit was filed two weeks before the scheduled special election and three days after five million ballots had been printed. The wording of the ballot question was not publicly announced and known to the interest group until the day of the printing. The defendant, the state’s election commission, responded by contending that the injunction should be denied because the question was not biased and also because it would be extremely difficult, if not impossible, to reprint new ballots and distribute them throughout the state in time for the election. At a court hearing, the group offered testimony from an expert in formulating referendum ballot questions, who swore that, in his expert opinion, the question as currently written was “seriously biased” but could “easily be fixed” by rephrasing the question. The commission offered its own expert witness, who disputed the plaintiff’s expert. Assume that the trial court agreed that the question was “very slightly biased” in favor of an affirmative answer and proceeded to decide whether to grant the injunction. Which of the following factors is irrelevant to the trial court’s decision about whether to grant the injunction? Whether the average member of the group was affluent enough to afford the potential tax increase, assuming it were to occur. A court considers four main factors in deciding whether to grant injunctive relief: first, whether an injunction is required because the plaintiff lacks an adequate remedy of law; second, whether the plaintiff would suffer irreparable harm without the injunction; third, whether,
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in balancing the parties’ respective hardships, an injunction favors the plaintiff; and fourth, whether an injunction would be against the larger public interest.  eBay Inc. v. MercExchange, L.L.C . 2. State prisoners filed a class-action civil-rights lawsuit in federal court, contending that overcrowding prison conditions in the state prison constituted cruel and unusual punishment under the Eight Amendment and seeking an injunction to require prison officials to correct the unconstitutional conditions. After an evidentiary hearing, the federal court ordered prison officials to build more prison cells to reduce overcrowding. What type of injunction did the court order? A mandatory and reparative injunction. The court’s injunction mandated certain affirmative actions by prison officials. It thus is a mandatory injunction. It also required action to repair the existing unconstitutional overcrowded prison conditions and, thus, also is reparative. 3. A plaintiff, a United States-owned company, held a majority interest in a large commercial oil tanker with a mostly Russian crew, which was docked in Houston, Texas. The defendant, a Russian company that owned a minority interest in the oil tanker, got into a dispute with the plaintiff about whether the plaintiff actually possessed a majority interest. After the plaintiff insisted that it had a majority interest and would make all business decisions about the tanker, the defendant company decided to secretly move the ship from Houston to Russia without notifying the plaintiff. At 11:00 a.m. on October 31, the plaintiff company learned from reliable sources on the tanker that the defendant planned to leave the port in Houston shortly after 12:01 a.m. on November 1. The plaintiff company filed an ex parte motion for a temporary restraining order (TRO) with the federal district court at 2:00 p.m. on October 31. The motion explained the parties’ dispute over ownership, offered proof that the plaintiff was the majority owner, and alleged that the defendant was planning to convert the tanker by removing it from United States territorial jurisdiction without the plaintiff’s permission. Without notifying the defendant company or permitting it to respond to the plaintiff’s ex parte motion, the court issued the TRO at 6:00 p.m. on October 31, which ordered the Russian company not to remove the ship from the Houston port. Did the trial court err by granting the plaintiff’s request for a TRO? No, because the defendant’s company was planning imminent, likely tortious conduct in a matter of hours. An immediate TRO was necessary to prevent irreparable harm that would occur if the ship left United States’ territorial waters. A TOR, issued in an ex parte manner, is appropriate when the potential harm to a plaintiff is imminent and pre-issuance notice to the defendant could result in further harm to the plaintiff. Bradshaw v. Veneman.
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4. The plaintiff, an over-the-counter cold-medicine company, sued the defendant, a competitor, alleging theft of the plaintiff’s formula for manufacturing its main cold product, which the plaintiff claimed was a trade secret. The plaintiff company requested a preliminary injunction to prevent the defendant from selling its product pending the final judgment after a trial in the case. At a pretrial evidentiary hearing on the plaintiff’s motion, the plaintiff offered evidence from an accountant that the defendant’s sales of its cold medicine, at half the price of the plaintiff’s cold medicine, was taking away $50 million in annual profits from the plaintiff’s business. The defendant offered both lay and expert witnesses, who convincingly testified that the defendant legally had reverse engineered the formula of the plaintiff’s cold medicine and, thus, had not engaged in any theft of a trade secret. The plaintiff offered no rebuttal evidence showing that the defendant had actually stolen the trade secret other than proof that two marketing employees had left the plaintiff company to go work for the defendant company within the past two years. Yet the plaintiff was unable to specifically prove that either of those two former employees ever had access to plaintiff’s secret formula for its cold medicine. Should the trial court grant the plaintiff’s request for a preliminary injunction? NO, because the plaintiff’s likelihood of ultimately prevailing on the merits at a trial appears slim, and a preliminary injunction would put the defendant out of business. A key issue in deciding whether to grant a preliminary injunction is a court’s determination of the plaintiff’s likelihood of ultimately prevailing on the merits after a trial. Ty, Inc. v. Jones Group, Inc. 5. Two minor children were beneficiaries of a trust. The trust wholly owned a company that operated a business. The trustee of the trust was not a relative of the children. The children’s mother became concerned that the trust had been harmed financially by illegal business practices of another company. The mother asked the trustee, who ran the trust’s business, to file a lawsuit against the other company before the one-year statute of limitations ran. The trustee, who recognized that the other company had engaged in tortious conduct toward the trust’s company, repeatedly said that he intended to file a lawsuit but had still not done so within three days of the expiration of the statute of limitations. On behalf of the minors, the mother then filed her own lawsuit, seeking to have the court issue a preliminary injunction requiring the trustee to file a lawsuit against the other company before the limitations period expired. How should the court rule on the mother’s request for a preliminary injunction? The court should grant it because the trustee’s failure to file the lawsuit likely will irreparably harm the trust (and the children as its beneficiaries) if the limitations period expires. Although courts traditionally have been hesitant to issue mandatory preliminary injunctions (as opposed to prohibitory preliminary
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injunctions), courts will do so if failure to grant such a mandatory injunction will irreparably harm the plaintiff. INJUNCTIONS AGAINST TORTS 1. A farmer owned over 2,000 acres of farmland in an area that was rapidly changing in nature from rural to suburban. The farmer repeatedly had refused to sell to subdivision developers. Much of the farm was surrounded by new suburban developments. The quickest path from one of the suburban neighborhoods to the main highway into town was on a private dirt road on the farmer’s land. Several homeowners regularly drove on that dirt road, without the farmer’s permission, even though the farmer had placed clearly visible no-trespassing signs at the entrance and exit. The extra traffic of the cars caused erosion in the unpaved road. The drivers each used the dirt road at least once per week. After identifying the drivers, by taking photographs of their license plates with a security camera, the farmer filed a lawsuit in state court, alleging trespass and seeking a permanent injunction against those drivers. Should the trial court grant the farmer’s request for an injunction against the drivers? YES, weekly trespasses are sufficiently continuous to entitle a property owner to an injunction. In order to prove that the legal remedy of money damages is inadequate, so as to justify an injunction against future trespasses, a property owner must show that the trespassing is continuous and likely to recur on a regular basis, as opposed to being sporadic in nature. A defendant’s weekly trespasses are sufficiently continuous. Aberdeen Apartments v. Cary Campbell Realty Alliance, Inc 2. A rock quarry that had been dormant for three decades reopened for business after the price of gravel and the demand for it both rose significantly. During those three decades, the surrounding area had been transformed from rural farmland into a large subdivision of 500 houses, which had been developed within
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a mile of the quarry. The houses surrounded the quarry from all sides. When the quarry resumed its operations, it made extremely loud noises beginning at 6:00 a.m. and continuing throughout the day, which all of the homeowners could hear, often awakening people and not permitting children to take naps during the day. In addition, the trucks entering and exiting the quarry often stopped the flow of local traffic and created a large amount of dust, which dirtied local residents’ cars. Loose pieces of gravel that fell from the trucks sometimes caused cracks in the windshields of residents’ passing cars. After a real estate agent told one of the homeowners that the quarry’s resumed operations had significantly lowered all of the homeowners’ property values, that homeowner filed a lawsuit against the quarry, alleging a nuisance and seeking a permanent injunction against the quarry’s continued operations. Will the trial court likely grant the homeowner’s request for an injunction? No. because the nuisance is a public one and the homeowner has not demonstrated any special injury to himself (that differentiates him from the other 499 homeowners in the subdivision). A court may not grant an injunction when an individual property owner seeks to enjoin a public nuisance unless that individual proves a special injury. Here, the quarry created a public, rather than a private, nuisance that equally affected all 500 homeowners in the subdivision. The homeowner did not allege a special injury that differentiated him from the other members of the subdivision. 3. A chain of massage parlors publicly announced its plans to open a new parlor in an office building located near to a residential neighborhood. Some, but not all, of the chain’s parlors were known to offer customers sexual activity as well as legal massages. Several masseurs working in different locations were arrested by undercover police officers for having offered prostitution. Once the announcement about the new parlor was made, three of the residents who lived in homes located within 100 yards of the proposed site filed a lawsuit in state court, seeking an anticipatory injunction to prevent the opening of the new parlor. The residents offered proof of the illegal prostitution activities that had occurred in some of the other locations and contended that the new parlor would constitute a nuisance that would diminish their quality of life and lower their property values. Will the trial court likely grant the residential neighbor’s request for an anticipatory injunction? No, because, until there is proof that this new massage parlor engages in prostitution, there is no basis to grant an injunction. A potential nuisance that has not yet materialized cannot be anticipatorily enjoined unless it is more likely than not that it will materialize and also that it will constitute a nuisance per se. State v. Feezzel . Here, although prostitution is a nuisance per se, the plaintiffs have not offered evidence that such a nuisance per se will occur at the new
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location of the massage parlor. If, after the new parlor opened, the plaintiffs could prove that prostitution was occurring on a regular basis, they likely would be able to obtain an injunction at that point against a nuisance in fact, without proof that the new location will engage in prostitution, it is not a nuisance per se. 4. After their elderly parents passed away in a car accident, the couple’s two surviving children, two sisters in their fifties, read the couple’s joint will. It provided that the financial assets were to be divided equally among the sisters but divided other valuables, including jewelry, in a specific manner. The mother’s diamond engagement ring was bequeathed to the older sister, and the mother’s gold wedding ring and father’s gold wedding ring were bequeathed to the younger sister. The engagement ring had been manufactured by a leading jewelry manufacturer in the mid-1950s; tens of thousands were sold. Many identical rings were available for purchase at used jewelry stores and online sites, with a typical price of $10,000. The younger sister was resentful that her mother’s engagement ring was left to her older sister. One day, when she was visiting her older sister’s home, the younger sister stole the engagement ring. Several years later, the older sister learned from a relative that the younger sister had taken the ring. That revelation led to estrangement between the two sisters. When the younger sister refused to return the ring, the older sister filed a lawsuit in state court, alleging conversion of an item that she described as “irreplaceable” and as having “strong sentimental value.” The older sister requested a mandatory injunction requiring the younger sister to return the ring. The younger sister did not dispute that she had converted the ring but claimed that money damages would be an adequate remedy for her sister, noting that the $10,000 fair market value of identical rings available to purchase from various sources. Should the trial court grant the older sister’s request for mandatory injunction? YES, because the ring’s strong sentimental value makes money damages an inadequate remedy at law. Because the engagement ring has strong sentimental value to the older sister—what equity calls  pretium affectionis.  When a person has converted an item with  pretium affectionis  to the owner, a court will issue a mandatory injunction requiring the person who converted it to return the item to the rightful owner.  Burr v. Bloomsberg . 5. A buyer purchased a used car from a car dealer. Thereafter, the car repeatedly broke down because of various defects. The car dealer refused to refund the buyer’s money. The unhappy buyer then started to carry a large sign on the public sidewalk in front of the car dealership, which read, “This dealer sells LEMONS! And CHEATS customers!” In response, the dealer filed a lawsuit in state court, alleging continuing defamation by the buyer and seeking an injunction to prohibit the buyer from making such statements, particularly in front of the dealership. After a hearing on the dealer’s request for a preliminary injunction, the court
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found that the buyer’s statements were defamatory. Should the trial court grant the dealership’s request for a preliminary injunction? No, because issuing a preliminary injunction at this juncture in the case would constitute a prior restraint that would violate the First Amendment. A preliminary injunction against speech, even if defamatory, constitutes unconstitutional prior restraint.  Kramer v. Thompson . Only if the defendant is found liable for defamation in a final judgment and thereafter continues to make the judicially determined false statements would an injunction be possible. EXTRATERRITORIAL, PROPHYLACTIC, AND STRUCTURAL-UNIVERSAL INJUNCTIONS 1. A wife sued for divorce from her husband in state court in State A. Both the husband and wife were residents of State A. Among other things, she sought the sole title to the couple’s vacation home, which was located in State B. After a trial, the court granted the divorce and also issued an order “altering the deed,” thereby transferring the husband’s portion of title in the vacation home from the husband to the wife. Did the court in State A have authority to transfer the title in the couple’s vacation property? No, because the court in State A lacked in rem jurisdiction over the real property in State B. A court in one state lacks authority to transfer title to real property located in another state because the court lacks in rem jurisdiction over such property. Burnley v. Stevenson . Here, the court in State A could have exercised its in personam jurisdiction over the ex-husband and ordered him to transfer his portion in the title to his ex-wife. If he refused to do so, the court could hold him in contempt of court in order to compel him to transfer the title. 2. A farmer owned a farm located in State A, which was less than one mile from its border with State B. The farmer, who relied on water from a river tributary on her property to irrigate her crops, learned that the water had become polluted from chemicals, which was killing her crops. She discovered that her neighbor, who owned nearby farms in State A and State B and who was a resident of State A, was unlawfully dumping pesticides into the river in State B, which flowed down to the tributary on the farmer’s farm in State A. The farmer sued her neighbor in court in State A, seeking an injunction against the neighbor’s unlawful dumping
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of chemicals in the river in State B. May the court in State A grant the injunction? YES, because the court possesses in persoman jurisdiction over the neighbor whose conduct in State B is harming the farmer. The court in State A possesses in personam jurisdiction over the neighbor, a resident of State A, and thus can issue a prohibitory injunction requiring him to cease illegally dumping pesticides into the river in State B (because such dumping has harmed the farmer’s crops in State A. The Salton Sea Cases. 3. A plaintiff, a resident of State A, sued a defendant (also a resident of State A) in state court in State A, seeking a mandatory injunction requiring the defendant to transfer the title of real estate in State B from the defendant to the plaintiff. Following a trial, the court in State A entered a final judgment in the form of an injunction ordering the defendant to transfer title to the plaintiff. The defendant then fled State A and went to State B, where the defendant refused to transfer the title. The plaintiff proceeded to file a separate lawsuit against the defendant in a court in State B, requesting that the court in State B give res judicata effect to the prior final judgment of the court in State A and, thus, transfer the title in the real property from the defendant’s name to the plaintiff’s name. May the court in State B grant the plaintiff’s request? YES, because under the Full Faith and Credit Clause, the court in State B must give res judicata effect to the final judgment of the court in State A. Under the Full Faith and Credit Clause, a court in one state must give preclusive (res judicata) effect to a prior judgment of a court in another state, even if the other state court’s judgment was based solely on in personam jurisdiction over the defendant. Note that such preclusive effect is not required if the court in the first state had erroneously tried to exercise in rem jurisdiction over real property in another state. Fall v. Eastin . Here, the court in State A only exercised in personam jurisdiction over the defendant (rather than in rem jurisdiction over the property in State B), so the court in State B must give preclusive effect to the final judgment of the court in State A. 4. As part of a divorce decree, a woman obtained a restraining order against her abusive ex-husband, who continued to illegally harass and stalk her after their divorce. The ex-husband then went to a real estate agent and specifically asked to look at available properties located very near the ex-wife’s house. Before he obtained such a property, the ex-wife filed a motion for an injunction to prevent him from doing so, contending that he should not be permitted to lease or buy a home very near hers in view of his pattern of physical abuse, harassment, and stalking. May the court grant the request injunction?
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Yes, because when a defendant has demonstrated a past pattern of extreme tortious conduct and indicates an intent to continue to do so, a court may issue a prophylactic injunction to prevent a recurrence. A court may enjoin a defendant from being in a position to repeat the commission of a serious tortious or unlawful act when there is a prior pattern of such acts and an indication that they will continue. Such a “prophylactic” injunction is only appropriate when the defendant’s pattern of tortious or unlawful acts is clearly established and the need to prevent a recurrence of behavior is strong.  Zappaunbulso v. Zappaunbulso . Here, the ex-husband’s pattern is clear, and he also showed an intent to repeat the acts by seeking a home very near his ex-wife. The need to prevent such future abuse is strong. 5. A city council adopted an ordinance that outlawed same-sex couples from showing certain public displays of affection (including “romantic kissing”). A conviction for violating the ordinance carried a $50 fine. A married same-sex couple in the town was outraged at the ordinance and began to engage in such public displays in protest, openly challenging the city attorney to prosecute them. The city attorney then moved the municipal court to enjoin the couple from violating the ordinance. The court granted the injunction. Without moving to stay or appealing the court’s injunction, the couple thereafter again engaged in the prohibited public displays of affection. The court held the couple in contempt of court and fined them $1,000, the maximum fine for contempt of court under the city code. Did the court err in finding the couple in contempt of court? No, because the couple’s failure to have obtained a stay of the injunction forfeited their right to challenge a contempt-of-court finding based on their post-injunction willful conduct. Even if an injunction is unconstitutional, a person subject to the injunction cannot simply ignore the injunction’s terms and intentionally violate it in protest. Instead, the person must seek a stay of the injunction, initially from the trial court and then from an appellate court if the trial court refuses to stay it. Only if a stay is granted may the person engage in the conduct. This is true even if the underlying statute or ordinance on which the injunction is based is unconstitutional. Walker v. City of Birmingham .
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ANIT-SUIT INJUNCTIONS AND MODIFICATION/DISSOLUTION OF INJUNCTIONS 1. A car parts wholesale dealer and a car parts retailer, both with offices in State A and in State B, entered into a two-year supply contract. The contract contained a forum-selection clause and a choice-of-law clause that provided that, if one of the parties ever filed a lawsuit against the other related to an alleged breach of the contract, the lawsuit had to be filed in a trial court in State A and would be governed by the laws of State A. Six months into the contractual relationship, the retailer stopped buying parts after claiming the wholesaler breached the contract by delivering defective parts. The retailer filed a lawsuit against the wholesaler in the state trial court in State B, alleging a breach of the contract. The wholesaler then filed its own lawsuit in the state trial court in State A, alleging that the retailer had breached the contract by refusing to buy any more car parts. The wholesaler also moved the trial court in State A to grant an anti-suit injunction against the retailer, prohibiting it from continuing its lawsuit in State B. May the trial court in State A grant the requested anti-suit injunction? Yes, because the retailer’s lawsuit was filed in State B for an improper purpose (in obvious breach of the forum-selection clause). An anti-suit injunction is proper when the enjoined litigant has filed a lawsuit in a court for an improper purpose. Ordinarily, when parties have included a forum-selection clause in their contract, they must litigate only in the forum to which they agreed—here, the trial court in State A. Their refusal to do so evidences an improper purpose and justifies an anti-suit injunction.  Rouse v. Texas Capital Bank, N.A . 2. A majority partner and minority partner entered into a partnership agreement in State A, whereby the two partners, both residents of State A, would operate a
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business in State A that primarily did in-state business but occasionally did a small fraction of its business in State B. The partnership owned most of its business property in State A but did own a small amount of property in State B. After the partners had a disagreement about running the business and the manner in which profits were being shared, the minority partner filed a lawsuit against the majority partner in trial court in State B. The majority partner then filed his own lawsuit in the trial court in State A. He also moved for an anti-suit injunction against the minority partner’s lawsuit in State B, contending that State A’s courts were the appropriate forum based on the fact that all of the witnesses resided in State A, the partners had entered into their partnership agreement in State A, and the vast majority of the partnership business and property were in State A. The trial court in State A granted the anti-suit injunction and ordered the minority partner to dismiss his lawsuit in State B. Rather than dismiss, the minority partner moved the trial court in State B to issue its own anti-suit injunction against the majority partner’s lawsuit in State A, including the majority partner’s motion for an anti-suit injunction. Does the trial court in State B have jurisdiction to grant the minority partner’s requested anti-suit injunction against the majority partner’s lawsuit in State A? Yes, because the trial court in State B possesses in personam jurisdiction over the majority partner, insofar as the partnership owns some property in State B. So long as a court possesses in personam jurisdiction over a defendant who has filed his own, competing lawsuit in a different state, the court may issue an anti-suit injunction against that defendant.  AutoNation, Inc. v. Hatfield . Here, because the partnership owns some property in State B, the trial court in State B has in personam jurisdiction over both partners. Note, however, that whether a court possesses jurisdiction to do so is an entirely different question from whether a court should, as a matter of judicial discretion, grant the anti-suit injunction. Under the comity doctrine, most state trial courts would decline to enter a counter anti-injunction when a court in another state already has issued an anti-suit injunction directed at the plaintiff litigating in the former court, particularly when the bulk of the relevant events occurred in that other state. 3. A county attorney filed a public-nuisance lawsuit in state court, seeking an injunction against a gravel quarry. Loud noises and dust were causing hundreds of neighbors in a surrounding suburb to complain that the quarry’s operations were significantly interfering with the use and enjoyment of their properties. After the lawsuit was filed, the quarry owner, a longtime, outspoken critic of the county government, filed a federal civil rights lawsuit, seeking an anti-suit injunction against the pending state court public-nuisance lawsuit. The owner contended that the county’s lawsuit was actually motivated by political animus against the owner, rather than because of any alleged public nuisance, thus
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violating his First Amendment right to political expression. May the federal court grant the anti-suit injunction against the pending state lawsuit? NO, because the Younge r abstention doctrine requires federal courts to abstain from enjoining pending state civil lawsuits brought by state or local official, such as a county attorney, on behalf of the state of local government. The  Younger  abstention doctrine, which originally applied to state criminal cases, was extended to state civil cases where the state or local government possesses an important interest in the pending lawsuit. A county clearly possesses an important interest in a public-nuisance lawsuit brought by the county attorney.  Huffman v. Pursue, Ltd . Therefore, the federal court may not grant the anti-suit injunction here against the county lawyer’s pending public-nuisance suit. 4. A state court issued a final judgment against the plaintiff, concluding that the plaintiff’s breach-of-contract claim against the defendant was frivolous. The following day, the plaintiff filed a federal lawsuit against the defendant in federal district court in the city in which the defendant resided, raising the same breach- of-contract claim the state court rejected as frivolous. Federal diversity jurisdiction existed because the plaintiff was a resident of a different state from the defendant and the amount in controversy exceeded $75,000. The defendant responded by filing a motion for an anti-suit injunction against the plaintiff in the state court, asking the state court to stop the plaintiff from continuing to litigate his frivolous breach-of-contract claim in federal court. Should the state court grant the defendant’s request for an anti-suit injunction? No, because a state court may not enjoin a person from litigating in federal court, even if the person’s lawsuit is frivolous and barred by the Full Faith and Credit Clause. The United States Supreme Court in  Donovan v. City of Dallas , held that a state court may not enjoin a person from litigating a federal lawsuit, even if that person previously raised the same claim in state court and lost there.  Donovan  prohibits the state court here from granting the defendant’s request for an anti-suit injunction. Note, however, that the federal court can dismiss the federal case as barred by the Full Faith and Credit Clause and also sanction the federal plaintiff for filing a clearly frivolous lawsuit. 5. A class-action federal civil rights lawsuit was filed against a state-run psychiatric hospital. The plaintiffs, legal guardians of involuntarily admitted patients, alleged that the state officials who ran the hospital had violated the patients’ constitutional rights to liberty under the Due Process Clause by maintaining custody of them even after they were no longer dangerous to themselves or others. After a trial, the federal court issued a reparative injunction
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that required the mental hospital to adopt new medical procedures to assure that, when a patient was no longer a danger to himself or others, the patient would be released. The court maintained jurisdiction over the case to oversee the injunction. Seven years later, the court conducted a status conference to assess the hospital officials’ continuing compliance with the injunction. At that hearing, the court learned that no complaints had been made by any patients for several years and that the hospital’s director and the majority of its staff had been hired after the injunction went into effect. The court found that the hospital officials had acted in “utmost good faith” in implementing the reparative injunction. May the district court dissolve the injunction? Yes, because the court found that the circumstances justifying the injunction seven years before no longer existed. Unlike the legal remedy of money damages, the equitable remedy of an injunction may be modified or even dissolved with a sufficient change in circumstances rendering the injunction no longer necessary. The United States Supreme Court has stressed this principle has the greatest force with respect to federal court injunctions against state officials.  Board of Educ. of Oklahoma City Public Schools, Independent School Dist. No. 89, Oklahoma County, Okl. v. Dowell . 
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QUASI-CONTRACT RESTITUTION 1. A 25-year-old woman struck up a friendship with a 75-year-old woman who lived next door. The older woman complained that her two children lived out of state and were unable to provide the daily help that she needed and also that she did not trust "hired help." The older woman increasingly asked the younger woman to assist her in various ways, such as with yardwork and housework. Although she never reduced her promise to writing, the older woman repeatedly told the younger woman that "I will more than fairly compensate you for what you're doing to help by providing for you financially in my will." In reliance on those promises, the younger woman spent many hours every week helping the older woman. The next year, after the older woman suffered a stroke, the younger woman helped her bathe, dress, and eat—often spending several hours per day doing so. The younger woman ended up quitting her job as a waitress because of the time demands of helping the older woman. After two years of such unpaid assistance, the older woman died. When her will was probated, it did not include the younger woman as a beneficiary. The younger woman sued the deceased woman's estate, contending that she was entitled to reasonable compensation for the personal services that she had provided. The coexecutors of the estate, the deceased woman's two children, moved to dismiss the claim on the ground that a state statute rendered oral amendments to wills unenforceable. The parties agreed that the statute applied as a matter of law, yet the younger woman nevertheless contended that she was entitled to the fair market value of her personal services as a matter of equity. Is the younger woman entitled to equitable relief in the amount of the fair market value of the personal services that she provided?
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Yes, because the younger woman reasonably relied on the older woman's promises, and it would be unjust not to disgorge from the estate the reasonable value of the personal services that she provided to the older woman. The equitable doctrine of restitution provides for reasonable compensation for personal services provided despite an enforceable oral agreement when (1) the person providing the services reasonably relied on the promisor's promise, (2) the person provided a benefit to the promisor, and (3) it would be unjust not to disgorge the unjust enrichment.  Heil v. McCann . Here, the younger woman reasonably relied on the older woman's oral promises and provided her a substantial benefit over the three-year period. It would be unjust not to disgorge from the older woman's estate the reasonable, fair market value of the personal services provided. 2. A landlord and a prospective tenant orally agreed that the landlord would lease commercial office space to the tenant for a five-year term, for $5,000 per month. The tenant insisted that he would lease the space only if the landlord first made significant modifications of the office space specifically tailored to the tenant's unique business requirements. In reliance on the prospective tenant's oral promise to lease the building for five years if such specific modifications were made, the landlord spent $30,000 in making the modifications. A month later, after the modifications had been completed, the tenant informed the landlord that the tenant had found a different office to rent and refused to sign the five-year lease. The landlord sued the tenant for the $30,000 that the landlord had spent on the modifications. It was undisputed that those specialized modifications were of no value to the landlord or any other prospective tenant. The tenant moved to dismiss the landlord's claim under the statute of frauds, which requires leases for more than a year to be in writing and signed by the parties. Assume this jurisdiction is one that recognizes a claim of restitution based on a theory of detrimental reliance (promissory estoppel). Is the landlord entitled to recover the $30,000 spent on the modifications the tenant requested? Yes, because the landlord relied to his detriment on the tenant's promise that the tenant would sign the five-year lease if the landlord made the specialized modifications.  In those jurisdictions recognizing a promissory estoppel theory of restitution, a plaintiff may recover the reasonable value of the performance rendered in response to the defendant's oral promise, even if that promise is legally unenforceable under the statute of frauds and even if the plaintiff's performance conferred no benefit on the defendant.  See, e.g. ,  Farash v. Sykes Datatronics, Inc. , 452 N.E.2d 1245 (NY 1983);  Earhart v. William Low Co. Here, because the landlord relied on the prospective tenant's promise in spending $30,000 to customize the rental property, the landlord is entitled to $30,000 in damages.
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3. A cardiologist was driving on a downtown street when he witnessed a man fall to the ground and begin to suffer what appeared to be a heart attack. The stricken man became unconscious and began to turn pale. The doctor pulled his car over and began administering CPR on the man. Bystanders called 911 and asked for paramedics to be sent. When CPR did not work, and the man's pulse and breathing appeared to have stopped, the doctor ran to his car and retrieved a portable defibrillator that he had in his medical bag. He used the defibrillator on the unconscious man, which restored his heartbeat and breathing. The man survived. The doctor later sent him a bill for $2,000, the standard fee for such emergency life-saving medical services by a cardiologist. The man's health insurance plan did not cover the treatment because the doctor was out of network. After the man refused to pay the bill, on the ground that he had not consented to the treatment and his insurance would not cover it, the cardiologist sued the man for restitution in the amount of $2,000. Should the court award the cardiologist $2k? Yes, because the man’s failure to pay the standard fee for such lifesaving services would amount to unjust enrichment. A medical professional is entitled to reasonable compensation for providing necessary ( e.g. , life-saving) treatment to an unconscious person. The law presumes an agreement to receive such treatment by an unconscious person.  See  Restatement (Third) of Restitution and Unjust Enrichment § 20 (2011). Here, because the doctor saved the man's life, the doctor is entitled to damages for the reasonable amount of the medical services that he provided. 4. A trucker bought a new tractor-trailer rig from his friend, a truck dealer, for $75,000, but financed the truck through a third-party finance company that the dealer recommended. Three years into the five-year payment plan, the trucker fell behind in his payments because of serious illness. The trucker never asked his friend, the dealer, to help him keep current on his payments, but the dealer decided to do so anyway when he learned from the finance company that it intended to repossess the truck. The dealer assumed that the trucker would pay him back when he recovered from his illness. When the dealer contacted the finance company, the finance company told the dealer that, because the trucker had fallen so far behind in payments, the full balance of the principal amount of the loan, $55,000, was due immediately to avoid repossession. Feeling sorry for the trucker, the dealer decided to pay it, hoping the trucker would make arrangements to repay him. When the dealer later informed the trucker that his loan was paid in full, the trucker thanked him but informed the dealer that he had not asked for such help and refused to make arrangements to pay the dealer the $55,000. After recovering from his illness the next month, the trucker started driving again. He earned $60,000 over the next six months. When the dealer
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learned about the trucker's earnings, the dealer sued the trucker in restitution for $55,000, the amount that the dealer had paid to the trucker's lender. Is the dealer entitled to the $55k from the trucker? No, because the benefit the dealer gave to the trucker was unsolicited, and no special circumstances justify disgorging the benefit from the trucker, who did not act inequitably. An "officious intermeddler" who provides a benefit to another person without being asked to do so is not entitled to restitution. Here, the trucker and dealer never entered into an agreement whereby the trucker would pay the dealer for the $55,000 that the dealer spent on the trucker's behalf. The dealer, notwithstanding his kindness, was an officious intermeddler and, thus, not entitled to restitution.  Cf.   Kenworth Sales Company v. Skinner Trucking, Inc . 5. At 9:00 a.m., a client of a precious-metal dealer directed the dealer to sell $1 million worth of gold bullion bars that the client was storing at the dealer's depository. The client, who owed a creditor $1 million, further directed the dealer to wire the $1 million to the client's creditor on behalf of the client. At 11:30 a.m., the price of gold unexpectedly dropped by 50 percent, leading the client to reconsider her decision. At 12:00 p.m., the client telephoned the dealer to cancel the sale of the gold and stop the wire transfer. The client spoke to a customer- service representative of the dealer and requested that the sale and wire transfer be cancelled. The representative said that the sale of the gold had not yet occurred and still could be cancelled but that she would have to get a manager's approval to cancel the transaction. The representative said she would immediately confer with the manager (who was on another call) and call the client back after the cancellation was approved. The representative got distracted with a personal matter and failed to speak with the manager immediately. Unaware the client wanted to cancel the sale, the manager sold $1 million worth of the client's gold at 12:15 p.m. and initiated the wire transfer at 12:30 p.m. The representative only then told the manager that the client wished to cancel the transaction, but it was too late. After the creditor received the $1 million that day, it immediately applied it toward the client's existing debt. Because of the precipitous drop in gold prices, the dealer went bankrupt the next week. The client, who initially had sued the dealer for $1 million based on its employee's negligence, later sued the creditor for restitution, contending that the now-defunct dealer had mistakenly paid the creditor and that the creditor thus should disgorge the $1 million. Should the court order the creditor to disgorge the $1m mistakenly wired to it by the dealer? No, because the creditor acted in good faith in accepting the wire transfer and applying the $1m toward the client’s preexisting debt. Under the discharge-of- value rule, when a creditor receives a payment and in good faith applies it toward a debtor's preexisting debt, the fact that the money was mistakenly sent to the
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creditor is not a basis to require the creditor to disgorge the mistaken payment. Banque Worms v. BankAmerica Int'l . Here, the creditor received the $1 million from the dealer on behalf of the client (a debtor in relation to the creditor). At the time it applied the $1 million toward the client's preexisting debt, the creditor did not know the money had been sent in error. Thus, restitution is not appropriate. RESTITUTION FOR TORTS AND CONSTRUCTIVE TRUST/EQUITABLE LIENS 1. An orchard owner had an apple-washing machine that could wash 10 times as many apples as could be washed by hand in the same amount of time. The owner was a member of the Army Reserves. After he was activated to serve abroad during wartime, he sold his orchard, but not the apple-washing machine, to a buyer. The original owner intended to buy another orchard when he returned from war and planned to use the machine on the new orchard. The orchard buyer learned that the original owner had stored his apple-washing machine in a commercial storage unit. After the original owner went abroad, the buyer, who could not afford to buy or even rent his own apple-washing machine, gained access to the unit by pretending to be the original owner's business partner. He took the machine without the owner's permission and used it to wash the apples that he harvested the following season. The use of the apple-washing machine saved the buyer $30,000 in labor costs. After he was finished using the machine, the buyer returned it to the storage unit. The additional wear and tear from the machine's use during that harvest season diminished the fair market value of the machine by $1,000. When the original owner returned from war the following year, he learned that the buyer had tortiously converted the machine for his own use. The fair market rental value of the machine during one apple-harvesting season was $3,000. The owner sued the buyer for tortiously converting the machine and
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sought $30,000, the amount of labor costs that the buyer had saved by using the machine. Is the owner entitle to $30k? Yes, because the owner suing for conversion of his personal property is entitled to restitution in the amount of the buyer's unjust enrichment resulting from the buyer's unlawful use of the converted property. Ordinarily, the measure of damages for the tort of conversion is the higher of the fair market rental value of the item during the time of its conversion or the diminution in value resulting from the defendant's conversion. However, a plaintiff may instead elect to sue for restitution that reflects the amount of unjust enrichment to the defendant from the defendant's act of conversion.  Olwell v. Nye & Nissen Co. Here, the buyer unjustly profited from the conversion of the machine in the amount of $30,000 (in saved labor costs). The owner is entitled to disgorge that amount as restitution. 2. A farmer discovered a large underground cavern on his extensive farmland. The cavern was a marvel of nature, with crystal formations throughout. The farmer opened the cave to the public as a tourist attraction, charging a $10 entrance fee. After he had operated the cave for three years and made $500,000 in net profits, a neighbor discovered that the back half of the cave, which was part of the tourist attraction, was actually under the neighbor's farmland. The neighbor also proved that the farmer had known that half of the cave was not on the farmer's subterranean property since he first opened the cave as a tourist attraction. It was undisputed that the farmer had not damaged the neighbor's portion of the cave and, in fact, had improved it by installing support beams (at the cost of $10,000) that made the back half of the cave more stable. The neighbor sued the farmer, seeking $250,000 (half of the $500,000 in net profits that the farmer had made). Is the neighbor entitled to the $250k? Yes, because half of the farmer's profits resulted from his intentional trespass on the neighbor's property and, therefore, half the profits should be disgorged as unjust enrichment. The normal damages measure for an intentional trespass of real estate is the higher of the fair market rental value during the trespass or the diminution in the real property's value resulting from the trespass. However, a plaintiff alternatively may recover damages in the amount of any profit that the defendant made from the trespass (which is considered unjust enrichment and can be disgorged). Edwards v. Lee's Adm'r . Here, the farmer's intentional trespass resulted in $500,000 profit—half of which was attributable to the neighbor's land. Thus, $250,000 in restitutionary damages are appropriate. 3. A 42-year-old divorced insurance salesman, who had just emerged from bankruptcy, became acquainted with a 79-year-old widow, whom he had assisted in collecting on a $100,000 life insurance policy in the name of her late husband.
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The widow, who dropped out of high school when she married at 17, had been married for 62 years before her husband died the year before. She had no children or close friends in her town and was very lonely. The younger man began to spend time with her, purportedly out of a romantic interest in her. He brought her flowers and candy regularly and watched romantic movies at her home, while holding her hand. All the while, he maintained a secret romantic relationship with his 23-year-old administrative assistant. After several months of the widow's "relationship" with the younger man, she began to rely on him for advice about how to invest her money and handle her assets—something her late husband had always handled. She eventually sold her house (worth $500,000) to the younger man for $10,000, but he agreed to allow her to live rent free for the rest of her life. Two days later, the widow suffered a severe stroke and became bedridden. Because she was no longer mentally competent, her sole immediate relative, her younger brother, was appointed to be her guardian. On behalf of his sister, the brother sued the younger man, seeking a court order to require him to transfer the title to the house back to the widow. The brother agreed to return the younger man's $10,000 as a condition of the court order. YES, because the younger man exploited a confidential relationship in securing title to the widow’s house. A person who enters into a confidential relationship with another owes that other person a duty not to exploit the relationship for personal gain. Here, the younger man had assumed a confidential relationship with the widow, who was unsophisticated and lacked even a high-school diploma. He not only allowed her to believe they were in a romantic relationship, but she also relied on him for financial advice. His clear exploitation of her—purchasing her home for one-twentieth of its value—requires the disgorgement of his unjust enrichment, the home.  Cf.   Sharp v. Kosmalski . 4. A probate lawyer's administrative assistant regularly assisted the lawyer in inventorying deceased clients' estates. One day, when accompanying the lawyer through the mansion of a recently deceased miserly old man, the assistant saw a bag of rare gold coins in the deceased man's bedroom closet. When the lawyer was not paying attention, the assistant put the bag of gold coins in his jacket and stole them. The next day, the assistant sold them to a coin dealer in a different town for $200,000. The assistant gave the money to his girlfriend—falsely telling her that he had inherited it from his grandfather—and asked her to use the money to buy a house in her name only (claiming that he feared his creditors would take the house if it were in his name). Believing him, the girlfriend did so, and the assistant moved into the house with her. Several months later, after it was discovered that the assistant had stolen the gold coins and that his girlfriend bought a house with the sales proceeds, the deceased man's estate filed a lawsuit against the girlfriend. The estate sought an order from the court requiring the
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girlfriend to transfer the title of the house to the estate. It was undisputed that, when she bought the house, the girlfriend honestly believed the assistant had inherited the $200,000 from his grandfather. Should the court order the assistant’s girlfriend to transfer the house title to the estate? Yes, because the assistant's girlfriend, a gratuitous donee, holds the house in a constructive trust for the estate based on the assistant's conversion of the gold coins. When a defendant converts a plaintiff's property, equity imposes a constructive trust on the converted property. Here, when the assistant stole the gold coins, equity thus created a constructive trust in the coins on behalf of the estate. The trust continued when the assistant liquidated the gold coins into cash and further continued when the cash was used to buy a house. The proceeds of the sale of the coins were directly traceable to the house. The fact that the girlfriend was unaware that the money was stolen did not prevent imposition of a constructive trust on the house.  Cf.   Costello v. First Nat. Bank of Mobile. The girlfriend was a gratuitous donee rather than a bona fide purchaser for value without notice. She gave nothing for the $200,000. 5. A bank teller embezzled $200,000 in cash from the bank over the course of four years by carefully hiding her thefts and doctoring the bank's records. After she left her job, an auditor discovered the embezzlement, and an investigator for the bank looked into what the teller had done with the $200,000 in cash. The teller's bank records showed that she never had deposited any of the stolen cash into her sole bank account. Rather, she lived off the embezzled money instead of her salary, which was directly deposited into her account and never withdrawn. Shortly before her embezzlement was discovered, the teller withdrew all of the money from her bank account ($150,000) and bought a home for $150,000. The bank sued her for conversion of the $200,000 and asked the court to place a constructive trust on her home. Should the court place a constructive trust on her home on behalf of the bank? No, because the money in the bank account that was used to buy the home was not traceable to the embezzled money.  In order for a constructive trust to be imposed as an equitable remedy, the property on which the trust is imposed must be reasonably traceable to the stolen property or money.  See  Restatement (Third) of Restitution and Unjust Enrichment § 58 (2011). Here, the money in the teller's bank account was the salary from the bank, which the teller directly deposited. The teller's salary was validly earned from her employer and was not traceable to her embezzlement. Therefore, a court may not place a constructive trust on her home for the benefit of the bank. The bank is limited to securing a legal (rather than equitable) judgment against the teller; it then may seek to collect damages in the normal course.
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SPECIFIC PERFORMANCE GENERALLY 1. On May 1, a retail heating oil supply company located in a northern state bordering Canada entered into a seven-month installment contract with ABC Oil Company (ABC) for 21 million gallons of heating oil, at $2 per gallon, with the first monthly delivery of three million gallons occurring on September 1. The retail company in turn had tens of thousands of seven-month contracts with residential customers for the supply of their heating oil from September 15 through April 15 of the following year. On June 1, a military conflict erupted between several Middle Eastern, oil-rich countries, which tripled the price of petroleum. Petroleum industry analysts predicted extreme volatility in oil prices during the next 12 months. On August 1, ABC anticipatorily breached the contract, informing the retail company that ABC planned to use all of the petroleum it had for gasoline production, which was more lucrative than heating oil. The retail company immediately explored alternative wholesale supply companies for seven-month heating oil contracts. None were willing to enter into seven-month contracts in view of the volatility in petroleum prices and the fact that it was more profitable to make gasoline than heating oil. A single company was willing to enter into month-by-month contracts, with the first month at $6 per gallon of heating oil. However, it offered no guarantee of future months' prices. On August 15, the retail company sued ABC for breach of contract, seeking
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specific performance of the seven-month contract at $2 per gallon. May the trial court grant specific performance? Yes, because the retail company's inability to cover by entering into a seven-month wholesale contract with another oil company is a valid basis for specifically enforcing the contract.  Although heating oil is not unique and carries no sentimental value, the Uniform Commercial Code (UCC) permits specific performance in "other proper circumstances," such as when a retail supplier subject to long-term consumer contracts is faced with the inability to cover with a replacement long-term wholesale supply contract because of market volatility.  Laclede Gas Co. v. Amoco Oil Co. Here, the retail company was faced with that scenario and, therefore, the court may order specific performance. 2. A uranium supplier entered into an installment contract with a nuclear power plant company to supply 1.2 million pounds of uranium at $15 per pound over a 12-month period (100,000 pounds per month) to the company's five plants. Because the uranium market was small (only around five suppliers and 50 customers), the market was very sensitive to changes in supply and demand. After the first month's delivery, the supplier informed the company that the supplier had not foreseen a dramatic rise in labor and shipping costs that occurred during the prior month. For that reason, the supplier demanded that the contract price be adjusted to $25 per pound for the remaining 11 months of the contract—the average price per pound to which uranium had risen. The company refused to renegotiate, and the supplier thereafter repudiated the contract. The company sued the supplier for breach of contract, seeking specific performance. The company offered undisputed expert testimony that, if it were to buy one million pounds of uranium from one or more of the other four suppliers, it would significantly increase the existing market price from $25 to $30 per pound, twice the original contract price. The expert also testified without contradiction that the $5 increase "might" result in as much as a 1 percent average increase in consumers' power bills. The Uniform Commercial Code (UCC) applies to contracts for uranium. May the court grant specific performance of the contract? No, because the mere rise in market prices for uranium that would result from the company's buying one million pounds from one or more other suppliers does not render the remedy of compensatory damages inadequate as a matter of law. Under the UCC, specific performance is appropriate either when the goods that are the subject of the contract are "unique" or "in other proper circumstances." UCC § 2- 716(1). The mere fact that a seller's breach causes the buyer to have to purchase a quantity of replacement goods in a manner that increases the average prices of the goods does not qualify as "other proper circumstances." The buyer is still able to cover with replacement items from a different supplier and then sue the
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original seller for the difference between the price paid for the replacement goods and the contract price.  Cf. Excelon Generation Co. Here, the power plant company could cover by buying one million pounds of uranium from one or more of the other four suppliers. The measure of compensatory damages would be the difference between the price paid for the replacement one million pounds and the contract price. That damages amount is an adequate remedy at law. 3. On October 1, a computer assembly company entered into a written contract with a computer parts supplier, whereby the parts supplier would sell 10,000 high-speed computer processors at $10 per processor, with a delivery date of December 1. At the time of the contract, $10 per processor was the average price on the open market. The contract included a provision that stated that, if one of the parties breached the contract, the nonbreaching party could waive regular compensatory damages and, instead, demand liquidated damages in the amount of $10,000. On October 15, an international strike by processor manufacturers raised the average price for processors to $30 per processor. Forecasts called for even more price increases if the strike continued. On November 1, the parts supplier anticipatorily breached the contract because it decided to sell the 10,000 processors it had set aside for the assembly company to a different buyer for $40 per processor. On November 7, the assembly company sued the parts supplier for breach of contract and moved the court to specifically enforce the contract. The assembly company offered proof that it did not have the funds to buy 10,000 replacement processors at $30 or more per processor and also would go out of business in a few weeks if it did not receive the 10,000 processors (at $10 per part) by December 1. The parts supplier responded that the liquidated-damages provision in the parties' contract prevented the court from ordering specific performance because the provision constituted an adequate remedy at law. Should the court deny specific performance in view of the liquidated-damages provision in the parties’ contract? No, because the liquidated-damages provision is an optional remedy in the parties' contract that does not foreclose specific performance as an alternative remedy if compensatory damages are an inadequate remedy at law. The mere existence of a liquidated-damages provision in a contract does not foreclose specific performance as a remedy. Only if the provision makes liquidated damages the exclusive remedy will it prevent specific performance.  Rubinstein v. Rubinstein . Here, the liquidated-damages provision in the parties' contract is not an exclusive remedy. It merely permits the nonbreaching party to waive regular compensatory damages and, instead, demand liquidated damages in the amount of $10,000.
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4. An arcade owner entered into a contract with an owner of 10 antique video- game machines. The arcade owner agreed for a period of five years to allow the machines' owner to place his machines in the arcade. In exchange, the arcade owner would receive 25 percent of the gross revenue generated by the machines. After one year of this arrangement, the arcade owner grew dissatisfied that the amount of revenue generated by the machines, which varied widely from $50 to $500 per week, was much less than what the arcade owner had anticipated. The parties' contract, however, did not provide for any minimum revenue amount. The arcade owner terminated the contract and ordered the machines' owner to remove the machines within 10 days. The machines' owner sued the arcade owner for breach of contract, seeking specific performance of the remaining four years of the contract rather than compensatory damages. The machines' owner offered undisputed proof that (1) the arcade owner was judgment-proof ( i.e. , he had no savings or other assets and made very little profit from the arcade, the premises of which he rented) and (2) no other arcade was willing to provide commercial space for the machine owners' 10 machines. May the court grant specific performance under the circumstance? Yes, because the fact that the arcade owner is judgment-proof, along with the unpredictable revenue stream and the fact no other arcade exists, render compensatory damages an inadequate remedy at law. The fact that a defendant who has breached a contract is judgment-proof is a fact that must be considered in deciding whether to grant specific performance.  Roberts v. Brewer. Also relevant to a court's decision here are (1) the fact that proving the amount of lost revenue is difficult based on the widely varying weekly revenue amounts and (2) the fact that the machines' owner has no revenue-generating alternative to placing his machines in the arcade. 5. A state park entered into a 25-year contract with a concessions company to operate a food and gift shop within a mile of a park-run cavern on a mountainside. The contract provided that the company would construct a building for the shop, while the park would construct and operate a railroad tram from the building, where cavern tickets were sold, to the cavern entrance located one mile above the building on the mountain. The company had the right to renew the contract for a second 25-year period. After 24 years of operating the tram, the state park announced its plan to cease operating the tram the following year and, instead, build a road on which visitors could travel to the cavern entrance by car. The company, which had renewed the contract for a second 25-year period at the time of the park's anticipatory breach, sued the state park. It sought specific performance of the contract,  i.e. , a court order requiring the state park to continue operating the tram rather than building the road. The company offered undisputed proof that, if the tram closed and the road opened, the shop would go
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out of business based on a lack of customers. The company also offered undisputed testimony from a business expert that it was impossible to predict the amount of profits that the company would lose over a 25-year period if it went out of business. May the court grant specific performance? Yes, because the concessions company does not have an adequate remedy at law and will suffer from irreparable harm if the tram is closed.  If a defendant were to breach a long-term contract that would put the plaintiff out of business and the plaintiff is unable to prove with reasonable certainty the amount of damages the breach would cause, a court may order specific performance.  Cf.   Link v. State . Here, the state park's breach of the contract during the second 25-year period would put the concessions company out of business. Furthermore, the company is unable to prove with reasonable certainty how much profit the business closure would cost it over a 25-year period. Therefore, the court may grant specific performance. SPECIFIC PERFORMANCE OF CONTRACTS FOR REAL PROPERTY 1. An owner of an acre of real property signed a contract to sell a buyer the property for $100,000, closing to occur in 45 days. Under the doctrine of equitable conversion, at the moment the owner and buyer signed the contract, the buyer possessed which, if any, of the following interests in the real property? Equitable title. When a seller and buyer sign an executory contract for the sale of real property, equitable conversion occurs. At that moment, the buyer possesses equitable title, and the seller possesses legal title, but only until the closing occurs. At the closing, the seller is obligated to convey the legal title to the buyer if the buyer pays the purchase price.  Washington Mut. Bank v. Homan . Here, at the moment the owner and buyer signed the contract, equitable conversion occurred. 2. A married couple signed a contract to buy their first home in Country Acres, a new residential subdivision being built by a developer, for $250,000. The developer
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agreed to build a particular model of home on a specific lot (lot #10) within three months, with closing to occur two weeks thereafter. After the couple and the developer had signed the contract, but before the closing had occurred, the developer informed the couple that the developer refused to build the house on lot #10 because it would cost the developer an additional $25,000 to prepare the home's foundation in view of lot #10's soil quality. The developer offered the couple a different lot (#12) on the same block; the land on that lot was suitable for the home's foundation without any additional cost to the developer. Lot #12 had the same square feet as lot #10 and did not differ in any significant respect, other than having superior soil quality. The county appraiser had appraised the values of both lots in the same amount. The developer stated that the exact same home model specified in the parties' contract could be constructed on lot #12. The couple refused to agree to switch lots and sued to specifically enforce the contract as written. It was undisputed that the couple had $250,000 to pay at closing. Should the court specifically enforce the contract? Yes, because the couple does not have an adequate remedy at law. A contract for conveyance of real estate, even a fungible suburban property, generally should be specifically enforced upon request of the buyer because the remedy at law (money damages) is presumed to be inadequate. The buyer must be ready and able to pay the purchase price to obtain specific performance.  Flack v. Laster ,  (“When land is the subject matter of the agreement, the legal remedy is assumed to be inadequate, since each parcel of land is unique[.]”). Here, the couple is entitled to specifically enforce the contract for lot #10 (and the home to be built on it). Despite the existence of another, comparable lot on which the home could be built, equity presumes each piece of real estate is unique. The fact that the developer will have to spend an extra $25,000 to comply with his obligations under the contract does not prevent specific performance. 3. A buyer and seller signed a contract for the sale of a commercial building for $1 million, with closing to occur in 90 days. They agreed that the seller would possess the property until closing. The contract did not specify which party assumed the risk of damage to the property before closing. The seller accidentally allowed property insurance on the building to lapse between the execution of the contract and closing. Thirty days before the scheduled closing, a lightning bolt struck the building, causing $10,000 in damage to the roof. The seller was heavily in debt and had no money to pay for the repair of the roof beyond paying a roofer to place a tarp over the roof to prevent rain damage. The buyer demanded that the seller fully repair the roof before closing. When the seller refused to do so, the buyer informed the seller that the buyer refused to close. The seller sued the buyer, seeking specific performance of the contract, with abatement of the purchase price by $10,000 (the undisputed cost to fully repair the roof). Assume the jurisdiction
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has adopted the Uniform Vendor and Purchaser Risk Act, which places the risk of damage to the property on a seller before closing when the parties have not agreed otherwise in their contract. Should the court grant specific performance with abatement? Yes, because the damage to the building is immaterial. Although in most jurisdictions a seller may specifically enforce a real estate contract against an unwilling buyer, the court will abate the purchase price by the value of the immaterial damage to the property that occurred between the execution of the sales contract and closing. Conversely, a material defect will result in the contract being rescinded.  See  Restatement (Second) of Contracts § 360, illustration 12 (1981) (seller may specifically enforce real estate contract);  Hadock Motors, Inc. v. Metzger , (if there is an immaterial defect in the property, seller is entitled to specific performance with abatement in the purchase price). Here, the damage to the roof is 1 percent of the purchase price, which qualifies as immaterial damage. Therefore, the seller is entitled to specific performance with a $10,000 abatement in the $1 million purchase price. 4. A buyer and seller signed a contract for the sale of 100 acres of rural land for $100,000 ($1,000 acre), with closing to occur within 60 days. Two weeks later, the seller learned that a major internet retailer was buying land in that area at $2,000 per acre to build a regional distribution center. The seller then assigned all of his rights in the 100 acres to his brother, who did not pay any consideration for the property and who was aware of the existing contract for sale. The seller's brother, as the assignee, informed the buyer that, as the assignee, he would not convey title to the 100 acres unless the buyer agreed to increase the purchase price to $1,750 per acre. The buyer refused and sued the brother for specific performance of the contract. It was undisputed that the buyer would pay the brother $100,000 at closing. The jurisdiction follows the majority rule concerning the effect of a seller's assignment of his real property interest after signing a contract to sell the property but before closing occurs. Should the court grant the buyer’s request for specific performance? Yes, because a buyer of real estate may seek specific performance of an executory contract for sale of real property against an assignee of the seller's interest in the property. Generally, after a buyer and seller have executed a real estate sales contract, the buyer may obtain specific performance against the seller's assignee if the assignee refuses to convey the title to the property at closing. The effect of the prior equitable conversion is not voided by the assignment, and the buyer thus still possesses equitable title.  See  81A C.J.S.,  Specific Performance  § 26. Here, the seller's brother, as the assignee, refused to convey the title to the property at closing even though the buyer was able to pay the $100,000 purchase price. The
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court should order the brother to convey the title to the property to the buyer for $100,000. 5. An elderly seller signed a contract with a buyer for the sale of the seller's home for $250,000, with closing to occur in 120 days. A week later, the seller died. The seller's daughter inherited all of his property pursuant to a simple will, which was probated within 60 days, thus conveying legal title to the daughter. The seller's daughter refused to convey the title to the home to the buyer at closing, contending that the property was worth $350,000 and that the buyer should pay at least $300,000. The buyer sued the daughter, seeking specific performance of the contract that the buyer had made with her deceased father. It was undisputed that the buyer would pay $250,000 at closing. Should a court order the seller’s daughter to convey title to the home? Yes, because a person who inherits real property after equitable conversion but before closing only inherits the right to the sale proceeds of the contract and must convey the title at closing.  When a seller dies between executing a contract for sale of real property—at which point equitable conversion occurred—and closing, the buyer generally is entitled to specific enforcement of the contract if the person who inherited the seller's property refuses to convey the title at closing,  Mattlage v. Mattlage . Here, the execution of the sales contract, which occurred before the seller died, resulted in equitable conversion. At that point, the buyer held equitable title, and the seller held legal title, but only until closing occurred, assuming the buyer paid the purchase price. The seller's death resulted in his daughter's inheriting the legal title, but the buyer still retained the equitable title after the seller's death. The daughter was obligated to convey the title at closing, just as the seller would have been obligated to do if he had lived that long. The court thus should order the daughter to convey title to the buyer.
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SPECIFIC PERFORMANCE OF OTHER CONTRACTS 1. The PAG, a national chain of retail clothing stores, paid $10,000 to a national shopping mall company for an option to lease a 10,000-square-foot store for 10 years, at a monthly rent of $10,000, in a mall to be constructed the following year. Other than specifying 10,000 square feet, the option contract did not otherwise explicitly provide information about the layout of the store. However, it did state that the store would "be equivalent to PAG stores in other malls owned and operated by" the mall company. After the PAG exercised its option in a timely manner, the mall company refused to build the store for the PAG unless it was willing to pay $15,000 per month. The PAG sued the company and sought specific performance of the contract. The company responded by contending that the court did not possess authority to specifically enforce a contract that lacked essential terms about the store's construction. It also argued that a court generally should not specifically enforce a construction contract even if the terms were specific enough. It was undisputed that the PAG could not prove its lost profits over the
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10-year lease period with reasonable certainty if the company did not lease the retail space for $10,000 per month. Should the court grant specific performance? Yes, because the terms of the contract are sufficiently clear to allow for meaningful specific performance. Although in the distant past most courts refused to specifically enforce construction contracts, even if the terms were sufficiently clear, in the modern era courts generally will specifically enforce construction contracts. Even if the terms of a construction contract have gaps, a court will specifically enforce the contract so long as there is a meaningful way in which to fill the gaps. Here, there is a meaningful way to fill in the gaps—the option contract's reference to equivalent PAG stores in other malls owned and operated by the mall company. Therefore, the court can specifically enforce the contract.  Cf.   City Stores Co. v. Ammerman . 2. A leading architectural firm, with offices throughout the world, recruited one of the rising stars in the field, a 32-year-old architect whose work was praised as being among the most innovative, creative building designs in the past century. On May 1, she and the firm's president signed a five-year contract, whereby she would be paid $1 million per year. Her position was to commence on June 1. On May 15, she informed the firm that she had decided to take a position at a competitor firm, which was going to pay her $1.5 million per year for five years. The first firm sued the architect for breach of contract and moved the court to specifically enforce the employment contract by requiring her to work for the first firm rather than the second firm. It was undisputed that the first firm could not prove with reasonable certainty the financial loss that it would suffer based on the architect's anticipatory breach. Should the court specifically enforce the contract? No, because courts generally do not specifically enforce employment contract. With rare exceptions, such as court orders reinstating terminated employees who were the victims of unlawful employment discrimination (a remedy under Title VII), courts will not specifically enforce employment or personal services contracts, particularly when an employer is attempting to force an employee to work for the employer.  See  71 Am. Jur. 2d Specific Performance § 179. Here, the court will not specifically enforce the contract because it would be the equivalent of involuntary servitude. 3. A highly skilled court reporter who qualified to work in all courts, a distinction earned by only 1 percent of all court reporters, signed a 10-year employment contract with a leading court reporting firm. The firm was located in the state's largest city, which had a population of two million. The contract included a restrictive covenant prohibiting the reporter from working within the entire state
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for a five-year period if he left employment with the firm before the end of his contract. The reporter owned a home in the city and had a spouse and three small children. Three years into his contract, the reporter breached the contract and left the firm to start his own firm in the city. His former firm sued him for breach of contract and sought a court order preventing him from working as a court reporter anywhere in the state for the next five years. It was undisputed that the reporter, who usually earned over $100,000 per year, was the primary income source for his family. It also was undisputed that the nearest metropolitan area in another state with meaningful employment prospects for a court reporter was over 200 miles away. Will the court likely specifically enforce the restrictive covenant as written in the contract? No, because the covenant's temporal and geographical restrictions are overbroad and, thus, should be reduced to reasonable restrictions. Although courts will specifically enforce reasonable restrictive covenants in employment contracts when an employee's skills are unique or special, they will not enforce geographical and temporal restrictions that are overbroad and thus unreasonable. Based on the circumstances of the above scenario, a restrictive covenant that covered the entire state for five years is overbroad both geographically and temporally. The court likely would reduce both restrictions to render them reasonable ( e.g. , restricting employment within the city limits for one year).  Cf. Rogers v. Runfola & Associates, Inc. , (reducing a court reporter's restrictive covenant from all of Franklin County, Ohio, for two years to the City of Columbus for one year). 4. A title insurance salesperson signed an employment contract with Title Insurance Company A. The contract contained a restrictive covenant that prohibited the salesperson from working for a competitor company in the same city for six months after the salesperson stopped working for Company A. The salesperson worked at Company A for six years, generating several million dollars' worth of lucrative new sales accounts per year and earning a salary of $300,000 per year. After six years, the salesperson quit his job and immediately began to work for Title Insurance Company B. Company A filed a lawsuit against the salesperson and moved to specifically enforce the restrictive covenant. At trial, it was undisputed that the salesperson was highly skillful at building personal relationships with clients and would be difficult, although not impossible, to replace with a new salesperson with similar abilities. Will the court likely enforce the restrictive covenant as written? Yes, because this salesperson is sufficiently unique or special to justify specific performance of the restrictive covenant. Although a typical salesperson is neither unique nor sufficiently special to justify specific enforcement of a restrictive covenant, a highly paid title insurance salesperson who generates several million
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dollars of revenue annually based on his skill at cultivating personal relationships is sufficiently special. Therefore, the court would likely specifically enforce the restrictive covenant, which has reasonable geographic and temporal restrictions.  Cf.   Ticor Title Ins. Co. v. Cohen. 5. A world-renowned opera singer signed a three-year employment contract with a major city opera. The contract included a restrictive covenant that prohibited the singer from performing for any other opera within 400 miles of the opera for three years if the singer ceased employment before the end of her three-year term. The contract also included an arbitration provision requiring binding arbitration for any dispute arising out of the employment relationship or employment contract. After one year into the contract, the singer signed a new contract with a different opera located 300 miles away. The singer filed for arbitration, contending that the restrictive covenant was overbroad geographically and temporally and thus should not be enforced as written. Her attorney in the arbitration proceeding cited a prior decision of the state's supreme court in an analogous case that had invalidated as geographically unreasonable a covenant in a professional violinist's employment contract that had restricted his employment with any other orchestra within 300 miles. The arbitrator stated that she disagreed with the state supreme court's decision and concluded that the singer's restrictive covenant was reasonable and enforceable. When the opera moved a state trial court to confirm the arbitrator's decision and specifically enforce the restrictive covenant as written, the singer contended that the court should not do so because the arbitrator had ignored governing precedent showing that the restrictive covenant was geographically unreasonable. Should the trial court confirm the arbitrator’s decision and specifically enforce the restrictive covenant as written? Yes, because a court generally should confirm an arbitrator's decision even if the court would have ruled differently based on governing law if the court had decided the case in the first instance. With very rare exceptions, a court should confirm an arbitrator's decision and provide any equitable remedy found appropriate by the arbitrator, even if the court would have ruled differently if the court had decided the matter in the first instance. Here, although the restrictive covenant appeared unreasonable under governing appellate precedent, an arbitrator is not bound by such precedent and may render a decision inconsistent with it. The court should confirm the arbitrator's decision and specifically enforce the restrictive covenant.  Cf. Sprinzen v. Nomberg .
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RESCISSION I 1. A 22-year-old recent college graduate, who had just gotten his first credit card and fallen in love for the first time, went into a jewelry store and purchased a $20,000 diamond engagement ring that he planned to give to his girlfriend. The man, who had done no research into the value of diamond rings, did not attempt to negotiate the price and merely accepted the advertised price. The store had a no-return policy clearly set forth in the invoice that the man signed. That night, before he was able to propose to her, his girlfriend informed the man that she was breaking up with him. When he went back to the store the next day and tried to return the ring for a refund, the store refused to refund his money. When the man later went to a jewelry appraiser, the appraiser informed the man that the ring was worth around $15,000. The appraiser also informed the man that the advertised prices at that jewelry store were “always inflated” and that “it's pretty common for the store to drop the advertised price by as much as 25 percent if a
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customer negotiates.” The man proceeded to file a lawsuit against the jewelry store, seeking rescission of the sales contract and a refund of the $20,000 purchase price. Should the court rescind the contract? No, because buyer's remorse is not a basis for rescission when there are no equitable grounds for rescission.  Equity does not require rescission of a sales contract simply because the buyer purchased something on a whim and later has buyer's remorse after learning that he paid too much. For rescission to be an appropriate remedy, there must be some equitable ground such as mutual mistake, unilateral mistake coupled with some other equitable factor, or fraud by the seller.  See   Echols v. Williams , (“There is no basis to rescind a contract in the mere emotional regret of having agreed to its terms.”). Here, there are no equitable grounds for rescission. The man, a recent college graduate, purchased an overpriced ring without having done any research into the value of diamond rings. Although the store's prices were inflated, the store did nothing to deceive the man. Therefore, rescission is not an appropriate remedy. 2. Along with other bidders, ABC Construction Company submitted a bid to build a new two-story commercial building. ABC's accountant, who had been in a serious car accident the week before and had just gotten out of the hospital, accidentally entered the wrong number in her computer-generated estimate of the cost of building the foundation and basement (entering “2,000,000” instead of “7,000,000” based on mistaking “2” for “7” in a structural engineer's handwritten estimate). The error led to a total bid of $10 million rather than $15 million. Before ABC realized its error, XYZ Real Properties, Inc., accepted the $10 million bid, which was $4 million less than the next lowest bid (made by MNO Construction Company, another qualified bidder). The next day, ABC informed XYZ that its bid had been in error by $5 million and asked to withdraw it. XYZ refused and threatened to sue ABC if it did not construct the building for $10 million. ABC would lose $3 million rather than profit $2 million if it were paid only $10 million for the construction job. ABC filed a lawsuit against XYZ, seeking an order to rescind the contract based on ABC's accountant's error. It was undisputed that MNO was still willing to do the construction project for $14 million. May the court rescind the contract? Yes, because a contract should be rescinded when one of the parties was unilaterally mistaken about an essential aspect of the contract and it would be unconscionable to enforce the contract. At the time a contract is made, if one party's mistake concerning a basic assumption on which she made the contract has a material effect on the agreed exchange of performances that is adverse to her, a court may rescind the contract if she did not assume the risk of the mistake and (1) the effect of the mistake is such that enforcement of the contract would be
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unconscionable or (2) the other party had reason to know of the mistake or his fault caused the mistake.  See  Restatement (Second) of Contracts § 153, Illustration 1 (1981). Here, ABC's unilateral mistake was based on its accountant's typographical error (a scrivener's error) rather than an error in judgment in estimating the actual costs to build. Enforcing the contract would cost ABC to lose $3 million, and MNO is available to construct the building at $1 million less than the cost of ABC's intended bid. Under these circumstances, a court may rescind the contract. 3. ABC Construction Company decided to bid on a contract for a sports stadium. The job would require use of several subcontractors. ABC asked DEF Plumbing Company, a subcontractor, to prepare a portion of the larger bid on the stadium. DEF's accountant made a typographical error when entering DEF's cost into a bidding calculator, resulting in DEF's portion of the bid being $3 million rather than $4 million. In good-faith reliance on DEF's calculations, ABC submitted its bid for the entire project in the amount of $50 million. The county's sports authority accepted ABC's bid. Thereafter, DEF realized its error and asked ABC to modify the subcontract from $3 million to $4 million. DEF stood to lose $500,000 rather than profit by $500,000 based on the $3 million subcontract. When ABC refused to modify the subcontract, DEF sued ABC, seeking rescission of the subcontract. Should the court rescind the subcontract? No, because ABC, in good faith, relied to its detriment on DEF's unilateral mistake.  Although sometimes a party's unilateral mistake in formulating a contract can result in rescission, rescission is not appropriate when the non- mistaken party relied in good faith to its detriment on the other party's mistake.  See  Restatement (Second) of Contracts § 153, Illustration 7 (1981). Here, ABC in good faith relied to its detriment on DEF's error in submitting the bid that the sports authority accepted. Under those circumstances, it is not unconscionable to force DEF to lose $500,000 on the subcontract. The court thus should not rescind the subcontract. 4. A car buyer went to a dealership to purchase a new car. After looking at the dealer's inventory and test-driving several cars, the buyer offered a salesperson $60,000 for “the red Corvette.” The salesperson informed the sales manager, who accepted the buyer's offer, and the parties signed a written contract. In the contract, the sales manager specified a red Corvette with a vehicle identification number (VIN) ending in 1234. After the buyer signed the contract, the manager brought out a different red Corvette from the one the buyer had in mind when he had offered to pay $60,000. The one that the buyer had in mind had a VIN ending in 5678. Although both cars were red Corvettes and were of the same model year, the one mentioned in the contract had less expensive features, such as a less
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expensive sound system and a less powerful engine. The buyer refused to accept the car with the VIN ending in 1234 and demanded the one with the VIN ending in 5678. When the manager refused and demanded $60,000 from the buyer, the buyer sued the dealership, seeking rescission of the contract. At trial, it was undisputed that, when the buyer looked at the dealer's inventory, he saw only one red Corvette (the one with the VIN ending in 5678) because the other one was being washed. It also was undisputed that, when the manager accepted the buyer's offer, he honestly believed that the only red Corvette left in his inventory was the one with the VIN ending in 1234. Another buyer originally had agreed to buy that car the day before, but, unknown to the manager, that buyer failed to qualify for financing and his contract never went into effect. Should the court rescind the contract? Yes because the parties were mutually mistaken about an essential aspect of the contract. When both parties to a contract are mistaken about an essential aspect of the contract, such as the item for sale, there was never a meeting of the minds and, as a result, the contract is void. A void contract is subject to rescission.  See, e.g. ,  Vople v. Schloboh, here, the parties never had a meeting of the minds about which Corvette was the subject of the contract. As a result of that mutual mistake, the contract is void, and the court should rescind it. 5. An antique rug store submitted to a local newspaper an advertisement to be published the next morning. The ad was for a specific antique Persian rug at an advertised price of $10,000. The rug had a fair market value of $12,000 and was advertised at a lesser price to draw customers' interest in coming to the store. A newspaper employee negligently ran the ad with a purchase price of $5,000. After seeing the ad the next morning, a buyer went to the rug store when it opened at 10:00 a.m., showed the ad to a salesperson, and said, “I accept your store's offer.” The salesperson, unaware of the ad, said that she would need to check with the store's manager. After learning from the manager that the ad contained the wrong sales price, the salesperson refused to accept $5,000 for the rug and explained that the actual sales price was $10,000. The buyer then sued the rug store for breach of contract, and the store counterclaimed, seeking rescission of the contract. Assume that the statute of frauds was satisfied by the written ad. Should the court rescind the sales contract? Yes, because the store's unilateral mistake in making the offer was the result of the newspaper employee's error and is not attributable to the store. When one party's unilateral mistake about an essential term of a contract, such as the price, is the result of a third party's error, the contract is subject to being rescinded.  Cf. Donovan v. RRL Corp . Here, the newspaper employee was the sole source of the error, and thus the store should not be required to sell the rug for $5,000 less than
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the intended sales price. Therefore, the court should rescind the contract and award no damages to the buyer. RECISSION II 1. A buyer signed a contract to purchase a business, a widget-manufacturing company, from a seller, for $10 million. During the negotiations, the seller provided copies of the business’s financial records and sales records, which showed the company appeared to be worth in excess of $11 million and that it had made around $1 million in net profit during each of the prior two years. After the sale occurred, the buyer learned that the seller had provided doctored financial and sales records. Rather than being worth more than $11 million, the business was worth at most $10 million, and the average annual profit during the past few years was around $750,000 rather than around $1 million. The buyer filed a
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lawsuit against the seller, seeking to rescind the contract. Should the court rescind the contract? Yes, because the seller fraudulently induced the buyer into signing the contract. A party to a contract is entitled to rescission if the other party fraudulently induced the first party to enter into the contract.  Sokolow, Dunaud, Mercadier & Carreras LLP v. Lacher . Here, the seller fraudulently induced the buyer by doctoring the company's records. Therefore, the court should rescind the contract. 2. A mature-looking high-school senior, aged 17 years, 11 months, and 27 days old, was dared by her friends to go to a car dealership and attempt to buy a car as a prank. In her dealings with an overzealous salesperson, she never misrepresented her age but also never revealed her actual age. She signed a contract for a new economy car, agreeing to pay $17,000 for it. She pretended to be from a wealthy family and told the salesperson that she would pay in cash upon delivery. The car was to be delivered to the dealership for her to pick up the next week. When she did not return the following week, the salesperson inquired about when she was going to come to the dealership to pick up the car and bring the $17,000. When she explained that her signing the contract was a prank, the dealership sold the car to another buyer for $14,000— the actual fair market value of the car—and then sued the high-school senior for the $3,000 difference between the contract price and the price of the sale to the other buyer. By then 18 years old, she countersued to rescind the contract based on the fact that she had been 17 at the time of the contract and also to dismiss the car dealer's suit for money damages. The age of majority is 18 years old under the jurisdiction's law. At trial, the salesperson admitted that the high-school senior never misrepresented her age and that he had assumed she was at least 18. Should the trial court rescind the contract and dismiss the dealership's lawsuit? Yes, because the high-school senior was a minor when she signed the contract. If a person under the legal age of majority signs a contract, the contract is voidable and is subject to rescission for lack of capacity.  See  Restatement (Second) of Contracts § 12 (1981). Here, the high-school senior was a minor, albeit barely so, and the contract was thus voidable. She did not misrepresent her age at the time of the contract and, thus, is not estopped from asserting the defense of rescission. The trial court should rescind the contract and dismiss the dealership's lawsuit for money damages. 3. A recently retired couple decided to build a lakefront home. They went to a new retirement community being developed on and around a large lake. They negotiated for a "lakefront" property and a custom home to be built on it. When the developer showed the couple the plans for a 10,000-square-foot lot, the
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drawing showed the lot having "direct access" to the lakeshore. The couple informed the developer that they had a small boat and intended to build a boat shed on the part of the property abutting the lake. The developer gave the couple a tour of a model lakefront home with direct access to the lake and also drove by the lot that they were considering purchasing. It was completely wooded and required removal of many trees before construction could begin. The couple signed the contract for that property and paid a deposit. The couple later visited the site after the trees had been removed and as construction was beginning. They discovered that the lot did not actually have direct access to the lakeshore. Instead, there were around 1,000 square feet at the end of their lot abutting the lakeshore, which could not easily be traversed because it was too steep. In addition, that portion of the lot had several tons of large rocks that were partially exposed. The developer was unwilling to move the rocks because of the great expense it would require. Therefore, the couple would not be able to have direct access to the lakeshore or build a boat shed. After the developer refused to cancel the contract and return their deposit, the couple sued for rescission of the contract. It was undisputed that, when the developer referred to the lot as being "lakefront" and having "direct access" to the lakeshore, the developer did not realize that the portion of the land in question was both too steep to traverse and also full of large rocks. Should the court rescind the contract? Yes, because the misrepresentations made to the couple during the contractual negotiations were material. A court can rescind a contract when one of the parties made a material misrepresentation about the subject matter of the contract during negotiations on which the other party relied. Here, the developer effectively made misrepresentations about the lot being "lakefront" with "direct access" to the lakeshore. The couple had made it clear that they wished to buy a property with direct access to the lake and that they wished to build a shed for their boat near the water. Therefore, the court should rescind the contract and require the developer to refund the couple's deposit.  Cf.   Fry v. J.E. Jones Constr. Co. 4. A high-school teacher at a private religious school, who was in the first year of a three-year teaching contract, was arrested for allegedly having a sexual relationship with an underage student. After the arrest, police officers interrogated the teacher for over two days, during which time the teacher did not sleep. The teacher refused to confess, adamantly stating that the student who accused him was lying. When he was finally released from custody and returned to his home utterly exhausted, the school's principal was waiting there for him. The principal told the teacher that, if he did not immediately sign a letter of voluntary resignation, the school would terminate him based on the student's accusation. The principal also opined that, if the school involuntarily terminated
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the teacher, it would be very difficult for him to be able to obtain future employment as a teacher, even if the criminal charges were dismissed. Fearing a loss of future employment as an educator, the teacher signed the letter that the principal had prepared for him. The next day, the accuser admitted that she had fabricated the accusation, and the local prosecutor announced that there would be no criminal charges. When the teacher asked the principal to give him his teaching job back, the principal refused. The teacher sued the school, seeking a court order rescinding the letter of resignation and money damages in the event the school refused to honor the remainder of the three-year contract. Should the court rescind the letter of resignation? Yes, because the principal exercised undue influence over the teaching in obtaining his letter of resignation. If a person signs a contract or executes any other type of legal instrument based on another person's undue influence over the signer, a court may rescind the contract or other legal instrument. Here, considering all of the circumstances, the principal exercised undue influence over the teacher in obtaining his signature on the purportedly voluntary letter of resignation.  Cf.   Odorizzi v. Bloomfield School Dist. 5. A buyer signed a contract to purchase the seller's 10 acres of rural farmland. The seller advertised the land as having sufficient natural sources of water for irrigation of crops requiring lots of water. Before signing the contract, the buyer had informed the seller that the buyer planned to grow crops requiring significant irrigation and did not have the resources to bring in outside sources of water for irrigation. After the buyer paid for the land and started farming, she discovered that the natural water sources had been affected by years of drought and could not produce sufficient water for irrigation of the crops that she wished to grow. Before making that discovery during the first growing season, the buyer spent $100,000 in making improvements to the farmland, including building a series of paved roads and erecting a silo. The buyer sued the seller for rescission of the contract and also for restitution in the amount of $100,000 for the improvements made to the land. It was undisputed that the improvements increased the fair market value of the land by $100,000. The court ordered that the contract be rescinded based on the seller's misrepresentation about the extent of the land's natural water sources. The court found, however, that the seller's misrepresentation was not intentional but was material to the contract. Should the court also order the seller to pay restitution to the buyer? Yes, because the court's failure to require the seller to pay the buyer $100,000 will result in unjust enrichment to the seller. When a court rescinds a contract after a buyer has increased the value of the property that is being returned to the seller, a court should order restitution in the amount that the buyer's improvements
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increased the fair market value of the property. Otherwise, there will be unjust enrichment to the seller. Here, the court's failure to require the seller to pay the buyer $100,000 would result in unjust enrichment to the seller (whose land has increased in value by $100,000). Therefore, the court should order the seller to pay the buyer $100,000 in restitutionary damages.  Cf. Renner v. Kehl . REFORMATION 1. A buyer orally agreed to purchase a car from a dealer for $20,000. The dealer's secretary prepared a written contract that stated that the purchase price was $29,000. The secretary accidentally typed "9" instead of "0." Without noticing that the contract stated that the purchase price was $29,000 instead of $20,000, the buyer and dealer signed it. Thereafter, when the dealer refused to modify the
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contract to reflect the agreed-upon purchase price of $20,000, the buyer sued the dealer, seeking a court order reforming the contract to provide for a purchase price of $20,000. By what standard of proof must the buyer prove that the parties actually intended the sales price to be $20,000? Clear and convincing evidence.  In order to prevail in a lawsuit seeking reformation of a contract involving a mistake in integration, a plaintiff must offer clear and convincing evidence that the parties had a meeting of the minds about certain terms of their agreement and that their subsequent written contract fails to reflect those terms. Therefore, to prevail, the buyer here must offer clear and convincing evidence supporting his claim for reformation. 2. A 40-year-old man applied for a 10-year $100,000 term life insurance policy from a life insurance company by submitting a written application. The annual premium for a $100,000 policy for a 40-year-old male quoted in the application was $300 per year, according to a table of policy amounts and corresponding annual rates. The company approved the man's application and issued a contract for life insurance. The written policy that the company issued listed the amount of coverage as $500,000 as a result of a clerk's typing error. The annual premium for a $500,000 policy was $1,500 per year, which had been noted in the application's rate table. The company did not notice the error when it mailed a copy of the policy to the man. The man noticed the change in policy amount but did not say or do anything in response because the annual premium amount remained at $300. For 10 years, the man sent the company annual premium payments of $300. In the eleventh month of the tenth year of the policy, the man unexpectedly died of a heart attack. The man's beneficiary requested $500,000 from the company. The company then filed a lawsuit against the beneficiary, seeking a court order reforming the policy amount from $500,000 to $100,000. Should the court reform the life insurance policy as requested by the company? Yes, because the parties’ meeting of the minds was for $100k rather than $500k. Reformation of a written contract is required when the parties had a meeting of the minds about certain contract terms, but the subsequent written policy contains different terms not agreed upon (without the subsequent agreement of both parties to modify those contract terms). Here, the parties had a meeting of the minds about a $100,000 policy but, as a result of a scrivener's error, the written insurance policy contract said $500,000 instead of $100,000. The man only paid a premium for a $100,000 policy amount. As a result, the court should reform the policy and provide for an insurance coverage amount of only $100,000.  Cf.   Mutual Life Ins. Co. of New York v. Simon .
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3. A customer rented a car from a rental car company at an airport. The customer was late for a business meeting and hurriedly filled out the rental paperwork. The customer intended to purchase full insurance on the rental car. The rental paperwork included two options for car insurance in connection with the rental. One option was for liability insurance only; its cost was $10 per day. A second option was for both liability and collision insurance; its cost was $20 per day. Although the customer intended to select liability and collision insurance, the customer in haste inadvertently checked the box for liability-only coverage. The company's rental agent printed out a rental contract that noted the customer's choice of liability-only coverage and showed a cost of $30 for the three-day rental period. The agent signed the contract and handed it to the customer. Without reading the contract, the customer hurriedly signed it and retrieved his rental car from the parking lot. As he was driving out of the airport, the customer negligently got into an accident with a large truck, which totaled the rental car. When the rental car company demanded that the customer pay it $40,000—the fair market value of the totaled car—the customer sued for reformation of the rental contract, seeking a court order that the rental contract included both collision and liability insurance coverage. To prove his intent to obtain full insurance coverage, the customer offered an email that his employer had sent him before his trip, telling the customer that he would be reimbursed for the cost of the rental car, including the cost of "full insurance coverage." The customer also offered an email reply that he sent to his employer before he had arrived at the rental car company, stating that, "I will get full coverage on the rental car." Should the court reform the rental car insurance contract to include full insurance coverage? No, because the man's unilateral mistake is an insufficient ground to reform the contract under the circumstances.  A court will not reform a written contract based on one party's unilateral mistake about the terms of a written contract that both parties signed when the non-mistaken party was unaware of the mistaken party's error and did nothing to cause the mistaken party's error. Here, the customer's mistake was unknown to the rental company's agent. In addition, the rental company's agent did nothing to cause the customer's mistake. The customer's mistake resulted from his haste in filling out the paperwork. Therefore, the court should not reform the contract.  Cf.   Mutual of Omaha Ins. Co. v. Russell . 4. A homeowner and painter engaged in oral negotiations about a paint job. The owner stated that he wished to have two coats of "premium" quality paint on his house and offered to pay $8,000. The painter counteroffered to paint two coats of "premium" paint for $12,000. The painter alternatively counteroffered to paint two coats of "non-premium" paint for $8,000 or to paint one coat of "premium"
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paint for $8,000. The homeowner responded by accepting the painter's counteroffer to paint two coats of "non-premium" paint for $8,000. The painter then filled out a standard contract by hand, checking boxes regarding the terms of the contract. The painter inadvertently checked "premium" rather than "non- premium" paint but correctly checked two coats rather than one. The price listed was $8,000. The painter handed the unsigned contract to the homeowner and stated, "Eight thousand dollars is a fair price even for non-premium paint considering how large your house is." Before signing the contract, the homeowner noticed that the painter had checked the "premium" paint box. Without saying anything, the homeowner signed the contract, which the painter then also signed. Thereafter, the homeowner demanded that the painter use two coats of "premium" paint for the $8,000 contract price, as provided in the written contract. The painter sued the homeowner, seeking a court order reforming the contract to provide for two coats of "non-premium" paint for $8,000. Should the court reform the contract as requested? Yes, because the homeowner exploited the painter's unilateral mistake about the contents of the written contract by signing the contract.  When one party is mistaken about the contents of a written contract—insofar as the mistake differs in a material way from the terms of the contract to which the parties previously had agreed—and the other party is aware of that mistake and does not call it to the attention of the first party before signing the contract, a court should reform the contract to reflect the parties' prior agreement.  See   Nash v. Kornblum . Here, because the homeowner was aware of the painter's unilateral mistake about the type of paint to be used for the $8,000 contract price and did not call the mistake to the painter's attention before the parties signed the contract, the court should reform the contract to provide for two coats of "non-premium" paint, as the parties had previously agreed. 5. A buyer and seller orally negotiated a contract for the sale of the seller's home. Numerous witnesses, including the buyer's friends and family members, witnessed the negotiations. After several offers and counteroffers, the buyer and seller finally orally agreed to a sales price of $500,000. The parties also agreed that the buyer would have a 10-day inspection period during which time the buyer could withdraw from the contract for any reason. The seller prepared a written contract, which inadvertently said that the home was being sold "as is" and did not include a provision about the 10-day inspection period. The buyer and seller both were unaware of the "as is" provision when they signed the contract. Five days later, after a home inspector hired by the buyer discovered extensive termite damage to the home, the buyer sent an email withdrawing from the contract. The seller, who had by then discovered the "as is" provision, stated that the buyer was contractually obligated to buy the home for $500,000 and threatened to sue the
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buyer for breach of contract if the buyer did not pay $500,000 at the scheduled closing 45 days later. The buyer sued the seller, seeking a court order reforming the contract to provide for a 10-day inspection period and striking the "as is" provision. The buyer asked the court to hear testimony from the buyer's friends and family members about the parties' oral agreement to a 10-day inspection period. Does either the parol-evidence rule or the statute of frauds prevent the buyer from introducing testimony of the buyer's friends and family members? No, neither the statute of frauds nor the parol-evidence rule would prevent the testimony. Neither the parol-evidence rule nor the statute of frauds prevents a plaintiff from offering proof of the parties' prior oral agreement when such proof is being offered in support of a claim for reformation of the contract based on a mistake in integration after the parties' meeting of the minds during oral negotiations.  See, e.g. , Chimart Assoc. v. Paul, 489 N.E.2d. Therefore, the court here should admit the testimony of the buyer's family and friends. DECLARATORY JUDGMENT AND INTERPLEADER 1. A homeowner became increasingly irritated with a next-door neighbor, who had begun repairing several cars in his backyard and who also allowed his six aggressive and loudly barking dogs to run around his backyard freely. The year
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before, the homeowner had erected an expensive tall wooden privacy fence between the two properties. After the homeowner complained about the car repairs and dogs, the neighbor informed the homeowner that the neighbor believed that the fence was on the neighbor's side of the property line. The neighbor also stated that he planned to remove the privacy fence one week later and replace it with a chain link fence, which would visibly expose the neighbor's backyard to the homeowner. The next day, the homeowner had a professional surveyor examine the property line. The surveyor determined that the fence was entirely on the homeowner's side of the property line. The homeowner then hired an attorney to file a lawsuit against the neighbor, seeking to prevent him from removing the privacy fence. The homeowner and his attorney are considering both a declaratory judgment and injunction as potential remedies. Which of the following is correct? A declaratory judgment in favor of the homeowner would be res judicata if the neighbor were to file a subsequent lawsuit against the homeowner seeking an injunction to require the homeowner to remove the privacy fence. A declaratory judgment is res judicata in a subsequent lawsuit between the same parties involving the same factual and legal issues. Therefore, a court in the subsequent case would have to dismiss that case in favor of the party who prevailed in the prior declaratory-judgment action.  See generally  26 C.J.S. Declaratory Judgments § 1  et seq . Here, if the court issues a declaratory judgment ruling that the fence is located on the homeowner's property, a court in a subsequent lawsuit filed by the neighbor against the homeowner seeking an injunction to require removal of the fence would be dismissed in view of the res judicata effect of the prior declaratory judgment. 2. Although there was no judicial precedent in any jurisdiction supporting his belief, a man claimed on his internet blog that the First Amendment provides people the constitutional right to make, use, and sell methamphetamine and that criminal laws against those acts are unconstitutional. The man honestly believed that methamphetamine use was "free expression" under the First Amendment and wished to make it and distribute it to others in order to "spread free expression." Both his state's law and federal law provide that possession (including use), manufacturing, and distribution of methamphetamine are criminal offenses. Although the man had not been specifically threatened by a state or federal prosecutor with criminal prosecution for possession, manufacture, and distribution of methamphetamine, the man filed a federal lawsuit seeking a declaratory judgment that the First Amendment guarantees a person's right to possess, manufacture, and distribute methamphetamine and that criminal laws against those acts are unconstitutional. Does the court have authority to issue a
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ruling on the merits concerning the man's lawsuit seeking a declaratory judgment? Yes, because there is a case or controversy permitting a court to issue a ruling on the man's request for a declaratory judgment. When a person wishes to engage in specific behavior, has an honest fear of being prosecuted if he does so, and also believes that such behavior is protected by the United States Constitution, that person may seek a declaratory judgment about the lawfulness of the behavior before engaging in it.  See, e.g. ,  Entertainment Concepts, Inc., III v. Maciejewski , 631 F.2d 497 (7th Cir. 1980). Here, the man has a genuine fear of being prosecuted if he makes, uses, and distributes methamphetamine. And, although no judicial precedent supports his position, he also honestly believes that such activity is protected by the First Amendment. Therefore, the court has authority to rule on the merits of the man's request for a declaratory judgment. Yet, of course, it is extremely likely that the court will declare that there is no constitutional right to make, use, or distribute methamphetamine. However, whether a legal claim has merit does not foreclose a declaratory-judgment action. 3. In the mid-1800s, a state’s legislature enacted a law requiring a "Christian minister to perform all marriage ceremonies" in the state. That law further provided that any couple married by an officiant other than an ordained Christian minister was guilty of a misdemeanor offense and could be jailed for up to one year. Since the law was enacted, no prosecutor has ever enforced or even threatened to enforce the law within the state. Tens of thousands of Jewish, Muslim, and other non-Christian marriage ceremonies have been performed in the state. However, the state legislature never repealed the statute. A Muslim couple wishing to be married in an Islamic marriage ceremony within the state filed a declaratory-judgment action against their county's district attorney, seeking a ruling that the state law violates the First Amendment's Establishment and Free Exercise Clauses. The district attorney responded that she will not enforce the statute. Should the court grant the declaratory judgment? No, because there is no case or controversy. There is no case or controversy, and thus a court should not issue a declaratory judgment, when there is no realistic possibility that a challenged law will ever be enforced by governmental authorities.  See  Golden v. Zwickler, 394 U.S. 103 (1969). Here, because the law has never been enforced during its century on the books, and because no modern prosecutor has threatened to enforce the patently unconstitutional law, there is no justiciable case or controversy. Therefore, the court should dismiss the couple's lawsuit and not render a declaratory judgment.
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4. Police officers threatened to arrest an anti-war protester who, during daylight hours for an entire week, had been marching with an anti-war sign on the street where the secretary of defense lived. When the protester responded that the First Amendment permitted him to march peacefully on a public street in such a manner, the officers repeated their warning that he would be arrested for disturbing the peace, a violation of state law, if he continued to march on the street. The protester left the street as a result of the threat. He then sued the officers in federal court, seeking a declaratory judgment that his marching activity was protected by the First Amendment. A federal district court granted a declaratory judgment that ruled that the protester's peaceful marching on the street during daylight hours was protected by the First Amendment. The next day, the protester began his marching on the street again. After the officers again threatened to arrest him, he moved the federal court to issue an injunction prohibiting the officers from arresting him. Does the court have authority to issue an injunction after it previously issued a declaratory judgment? Yes, because a court under these circumstances has authority to issue an injunction after previously having issued a declaratory judgment.  A court that previously issued a declaratory judgment in favor of a plaintiff may later grant an injunction against the defendant, assuming that the plaintiff has met the requirements for an injunction.  Steffel v. Thompson , 415 U.S. 452, 477-78 (1974) (White, J., concurring). Here, the district court has authority to issue an injunction because the officers' repeated threat to arrest the protester, after the court had issued a declaratory judgment ruling that the protester's marching was protected by the First Amendment, posed irreparable harm justifying an injunction. 5. An interstate bus carrying passengers who were residents of several different states collided with a tractor-trailer on an interstate highway in State A. The accident seriously injured several of the bus passengers and also totaled the tractor-trailer, which was owned by an interstate transportation company. The tractor-trailer driver was also injured in the accident. The tractor-trailer driver was a resident of State B, the bus driver was from State C, and the injured bus passengers were from States D, E, F, and G. The police officer who came to the accident scene and interviewed the witnesses issued a ticket to the bus driver for speeding and changing lanes without signaling but did not issue a ticket to the tractor-trailer driver. Within days after the accident, several different attorneys representing the transportation company and bus passengers contacted the insurance company that had issued a $250,000 liability policy for the bus company and its driver, notifying the insurance company of their intent to sue the bus company in different state and federal courts in States A, B, C, D, E, F, and G. The insurance company feared that the bus company and driver would be sued in
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different courts located in several different states and also that the $250,000 policy would not cover but a small fraction of the potential damages that could be awarded against the bus company and its driver. Which of the following remedies should the insurance company seek? Federal law interpleader.  If a liability insurance company fears that it and its insured will be sued in multiple courts in different jurisdictions and wishes to have all litigation implicating the company filed in a single case, it should file a federal interpleader action. 28 U.S.C. § 1335;  State Farm Fire & Cas. Co. v. Tashire , 386 U.S. 523 (1967). Here, the insurance company should file a federal interpleader action in a single federal district (any district in which any one potential claim resides, 28 U.S.C. § 1397). The company, as the stakeholder, would be required to deposit the $250,000 policy amount in the registry of the federal court.
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EQUITABLE DEFENSES I 1. In 2013, a state legislature enacted a statute authorizing the construction of a new 50-mile segment of state highway that would connect two existing state roads and thereby greatly reduce motorists' travel time from one city to another city within the state. In 2014, contractors hired by the state transportation department began construction of the new highway. Public records, available to anyone in 2014, showed that over half of the new highway was planned to go through a 20-mile swamp area that contained several animal species that, although not protected as endangered species under federal law, were protected under a state environmental protection statute. In 2020, after 40 percent of the highway had been built at the cost of $50 million of taxpayer money, a nonprofit environmental advocacy organization filed a lawsuit in state court, seeking an injunction against further construction of the highway through the swamp area. The lawsuit alleged that the highway was killing several of the state-law- protected species. The transportation department responded that the lawsuit should be dismissed because of the nonprofit group's delay in bringing the lawsuit seeking an injunction. Assume no statute of limitations applies to the advocacy group's lawsuit. Should the trial court grant the injunction? No, because the advocacy group unduly delayed the filing of its lawsuit, and if the injunction is granted, it will prejudice the transportation department and public. Laches is an equitable doctrine that has two elements. First, a plaintiff must have unreasonably delayed in filing his lawsuit. Second, the defendant must have been prejudiced by the delay. Here, the advocacy group waited for six years after the beginning of the construction to file the lawsuit. Information that the planned highway would be constructed through the swamp area, where the protected species lived, was available to the group at the time construction commenced in 2014. Therefore, the group unduly delayed. In addition, the transportation department, as well as the taxpayers, would be prejudiced if the injunction were to be granted after six years of construction at the cost of $50 million. The court thus should deny the request for the injunction under the laches doctrine.  Cf.   Environmental Defense Fund, Inc. v. Alexander , 614 F.2d 474 (5th Cir. 1980). 2. During a traffic stop, a police officer pulled a driver from his car, which dislocated the driver's arm. The incident occurred after the driver had complained that the officer had stopped the driver based on racial profiling and also had refused to exit the car, as ordered, because he stated that he feared the officer would assault him if he got out of the car. After ticketing the driver for speeding,
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the officer allowed the driver to leave. The next week, the driver sued the officer in federal court, alleging that the officer had used excessive force in violation of the Fourth Amendment and also had committed an assault and battery under state tort law. The driver sought $1 million in money damages. After the case was pending for 13 months, the federal district court dismissed the case after concluding that the qualified-immunity doctrine protected the officer from being sued for money damages. Because the federal court lacked federal supplemental jurisdiction over the state-law claim after dismissing the Fourth Amendment claim, the court dismissed the federal lawsuit in its entirety. The next day, the driver filed a lawsuit against the officer in state court, claiming only that the officer had committed an assault and battery on the driver in violation of state tort law. In response, noting that the state's statute of limitations governing civil actions for assault and battery was one year, the officer moved to dismiss the lawsuit for being filed in an untimely manner. Does the driver have any equitable defense to the officer’s invocation of the statute of limitations? Yes, the equitable tolling doctrine. If a plaintiff establishes that it would be inequitable to allow a defendant to invoke the statute of limitations because of an exceptional circumstance, the court will deem the statute of limitations equitably tolled during the time that the circumstance existed. A plaintiff must not only identify such an exceptional circumstance, but must also prove that he acted diligently in filing the lawsuit after the circumstance no longer existed and that the defendant will not be unduly prejudiced by allowing the lawsuit to proceed. Here, the driver can rely on the equitable tolling defense because the pendency of the federal lawsuit beyond the one-year statute of limitations period and the ultimate dismissal of the case on qualified-immunity grounds (as opposed to a dismissal based on the merits of the claim) constitute an exceptional circumstance. In addition, the driver did not delay in filing the state case after the federal case was dismissed. Finally, the officer will not be prejudiced by allowing the state court case to proceed because the officer was on notice of the state tort law claim, which the driver had raised along with his Fourth Amendment claim in the federal court well within the limitations period. Therefore, the driver has a valid equitable tolling defense.  Cf.   Addison v. State . 3. A famous painter's daughter inherited one of his well-known paintings, which she allowed a museum in her city to display. After six years of its display, at which time she was seriously considering moving to a different state, the daughter emailed the museum's director, informing him that she might retrieve the painting in the coming months because she might be moving. The director replied that he understood that she had donated the painting and that the museum would not return it. The daughter responded by email that she had only loaned the painting and that she would sue the museum if it was not returned. The director
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replied that, although he believed that she had donated the painting six years before, he would "like to avoid litigation" and that he would "return the painting when requested." He asked that the museum be allowed to display the painting "at least until you actually move" because a major exhibition was scheduled the next month. The daughter reluctantly agreed. The daughter ultimately decided not to move and, thus, did not ask for the painting back that year. Four years later, she decided to sell the painting. She telephoned the museum's new director, who had replaced the former director after his death, and informed the new director that she would be retrieving the painting that week. The new director responded that the daughter had donated the painting to the museum 10 years before and that it was too late to change her mind. The daughter filed a lawsuit alleging conversion of the painting and moved for an injunction ordering the museum to return the painting. In response, the museum's attorney moved to dismiss the lawsuit under the state's three-year statute of limitations governing conversion claims. The museum stated that the former director had "asserted ownership" four years before, which began the limitations period. Relying on the email exchange between the daughter and the former director that occurred four years before, the daughter argued that she had relied on the former director's assurance that the museum would return the painting when requested and, thus, did not file a lawsuit at that time. Should the court dismiss the lawsuit based on the museum's invocation of the statute of limitations? No, because the museum is equitably estopped from invoking the statute-of- limitations defense based on the former director's emails to the daughter. Equitable estoppel allows a plaintiff to bring a claim that would otherwise be barred by the statute of limitations if the defendant's past words or conduct reasonably induced the plaintiff to postpone filing a lawsuit based on a known claim. Here, the former museum director's email explicitly stated that the museum would return the painting when requested after the daughter originally threatened to sue to recover the painting. The daughter reasonably relied on that statement in not bringing a lawsuit four years before. Therefore, the court should reject the museum's invocation of the statute of limitations.  Cf.   Barry v. Donnelly , 781 F.2d 1040 (4th Cir. 1986). 4. After a global pandemic ravaged the world, scientists developed several vaccines. One them, the ABC Vaccine, was developed most rapidly and distributed first. A man, who had no known cardiovascular problems, died of a stroke six days after he received the vaccine. The pharmaceutical company that developed the vaccine did not list a stroke as a potential side effect. The next week, when the man's widow asked the coroner who had performed the man's autopsy whether his fatal stroke was related to the vaccine, the coroner responded that his research of available information revealed that a stroke was not one of the potential side
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effects. In the following months, a few media outlets sporadically reported on a few cases of previously healthy people suffering strokes within days after being vaccinated with the ABC Vaccine. However, during that time, neither the company that developed the vaccine nor government health agencies reported any connection between the vaccine and strokes and issued no warnings that a stroke was a potential side effect. Twenty-six months after the man died, researchers at a private university's medical school reported a study showing that the ABC Vaccine posed a small but appreciable risk of stroke. The study was widely reported in the media. Two weeks later, the man's widow filed a wrongful-death lawsuit against the company that had developed the ABC Vaccine. The company responded that the lawsuit was untimely under the state's two-year statute of limitations governing wrongful-death actions. Does the widow have any equitable defense to the company's invocation of the statute of limitations? Yes, the equitable discovery rule. Under the equitable discovery rule, a cause of action does not accrue until the plaintiff knew of, or reasonably should have discovered, the factual basis for a claim. If a plaintiff using due diligence did not discover the factual basis for a claim until after the limitations period otherwise would have run, the discovery rule treats the limitations clock as not having begun to run until that point. Here, the widow was not reasonably on notice of the factual basis of the wrongful-death claim until the university study was publicly announced. Therefore, she has a basis under the equitable discovery rule to defeat the company's invocation of the statute of limitations.  Cf.   In re Swine Flu Products Liability Litigation , 764 F.2d 637 (9th Cir. 1985). 5. A bank's loan officer orally promised that her bank would lend a farmer $100,000 to finance his cattle operation and separately would lend the farmer $100,000 for irrigation equipment for his crops. That same day, the loan officer and farmer signed a loan agreement for the irrigation loan, which included the farmer's pledge of his farmhouse, the only substantial asset that the farmer owned, as collateral for the loan. The next day, the farmer purchased $100,000 worth of irrigation equipment, which was installed a few days later. The same day that the irrigation equipment was installed, when the farmer inquired about the status of the loan for his cattle operation, the loan officer responded that the bank had changed its mind about the cattle loan. The farmer then attempted to secure a $100,000 loan for his cattle operation from other lenders but was unable to obtain it because the other lenders refused to make a loan without "unimpaired collateral." All of the other lenders stated that the farmer's use of his farmhouse as collateral for the irrigation loan impaired the farmhouse as potential collateral for the loan for his cattle operation. The farmer then sued the bank to specifically enforce the loan officer's oral agreement to lend the farmer $100,000 for his cattle operation. The bank responded by asserting that the oral agreement was
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unenforceable under the state's statute of frauds, which required loan agreements over $50,000 to be in writing and signed by the lender and borrower. Does the farmer have any equitable defenses to the statute of frauds? Yes, the equitable estoppel doctrine. A plaintiff can use the equitable estoppel doctrine to prevent a defendant from invoking the statute of frauds when the plaintiff reasonably had relied on the defendant's words or conduct to his detriment in not reducing an oral agreement to writing, and it would be inequitable to allow the plaintiff to sue the defendant under the circumstances. Here, the farmer reasonably relied to his detriment on the loan officer's promise that the bank would make two separate loans to the farmer. The farmer was prejudiced in that he was unable to secure a loan for his cattle operation because his sole asset, his farmhouse, was impaired (as it had been used for collateral for the irrigation loan). Therefore, the farmer can use the equitable estoppel doctrine to prevent the bank from using the statute of frauds to defeat the farmer's lawsuit.  Cf.   White v. Production Credit Association of Alma , 256 N.W.2d 436 (Mich. App. 1977).
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EQUITABLE DEFENSES II 1. A husband and wife decided to divorce following a difficult marriage, which included infidelity by the husband with a paramour. During the last decade of their marriage, the husband had maintained a secret bank account in his own name, which had a $100,000 balance. Under the state's community-property laws, the wife owned 50 percent of the bank account. Before the wife filed a divorce petition, the husband transferred the ownership of the secret account to the paramour. The husband did so, with the paramour's full knowledge, because he feared that the wife's divorce attorney would discover the account when investigating the husband's assets. The paramour agreed she would return the money after the divorce was final. After the wife filed the divorce petition, her attorney did not discover the account because the money had been transferred to paramour. After the divorce was finalized, the husband asked the paramour to return the $100,000. The paramour refused to do so and broke up with the husband. The husband then sued the paramour for restitution and asked the court to impose a constructive trust on the money for the husband's behalf. The paramour responded by claiming that the husband had unclean hands and, thus, was not entitled to restitution. Should the court impose a constructive trust on the paramour's bank account? No because the husband’s misconduct in engaging in the fraudulent conveyance was at least equally as culpable as the paramour’s misconduct. For the unclean- hands defense to be viable, the plaintiff's inequitable or criminal conduct must have had a nexus to the transaction or event at issue in the litigation. A plaintiff's unrelated misconduct, no matter how egregious, will not support the defense. In addition, the plaintiff's misconduct must have been substantially equal to, or more serious than, the alleged misconduct or fault of the defendant.  See, e.g. ,  Senter v. Furman , 265 S.E.2d 784 (Ga. 1980). Here, there is a clear nexus between the husband's unclean hands and his claim of restitution against the paramour. In addition, the husband is at least as culpable as, if not more culpable than, the paramour. Therefore, the paramour's unclean-hands defense has merit, and the court should refuse to order the paramour to return the money or impose a constructive trust. A couple's only child, an 18-year-old son, was the sole survivor of a car accident that killed his parents and left him mildly brain damaged and with impaired vision. The son inherited all of his parents' assets, including a home valued at $500,000, which did not have a mortgage. A real estate investor approached the
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son and offered to buy the home for $300,000. The son, who was suffering from bad headaches and whose ability to understand complex matters was impaired by the brain damage, misunderstood the investor as offering $500,000. The investor, who was unaware of the son's brain damage and vision impairment, neither said nor did anything to cause the son's misunderstanding. The investor prepared a written contract with a sales price of $300,000. The son, who had not yet gotten glasses to address his impaired vision, signed the contract without realizing the sales price was $300,000 rather than $500,000. The next day, the son's friend read the contract and informed the son that the sales price was $300,000. The son notified the investor that he would not convey the title to the property unless the investor paid him $500,000. The investor sued the son for specific performance of the contract. Should the court specifically enforce the contract? No, because even without inequitable conduct by the investor, if would be inequitable to specifically enforce the contract.  When one party to a contract is unilaterally mistaken about a material term of a contract and the totality of the circumstances would make it inequitable to specifically enforce the contract, a court should refuse to do so—even if the other party did not engage in inequitable or fraudulent conduct.  See, e.g. ,  Panco v. Rogers , 87 A.2d 770 (N.J. Super. Ch. Div. 1952). Here, although the investor did nothing inequitable or fraudulent, under the totality of the circumstances it would be inequitable to specifically enforce the contract in view of the (1) $200,000 difference between the home's fair market value and the contract price, (2) the son's brain damage and vision impairment, (3) the fact the son was barely an adult, and (4) the fact that the son had just lost his parents. Thus, the court should refuse to specifically enforce the contract. 3. A real estate developer developed a new 100-lot subdivision on land where a former coal mine and coal-fired power plant had been environmentally remediated. As a promotion, the developer advertised 10 of the 100 residential lots for only $1 each on the condition that the buyers would construct homes on the lots within a year. The developer's hope was that, once 10 people bought lots and started building homes, other buyers would be willing to purchase the remaining 90 lots at the advertised price of $50,000 per lot and also might purchase the developer's home models to build on the lots. A house flipper signed a contract for one of the first 10 lots for $1. The next week, after the other nine $1 lots had been sold to others, the flipper signed a contract with a buyer to sell him the lot for $25,000. The buyer planned to construct a home on the lot within one year. When the developer discovered what had occurred, he refused to convey the title to the lot to the flipper, which prevented him from flipping the lot to his buyer for a quick $24,999 profit. The flipper sued the developer for specific performance of the contract. At trial, the developer offered undisputed proof that the flipper never intended to build a home on the lot and always had planned to
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flip the $1 lot for a $24,999 profit. The flipper offered undisputed proof that his buyer would build a home on the lot within a year if the property could be flipped to him. Should the court specifically enforce the contract? No, because the flipper acted fraudulently when he signed the contract for the $1 lot. If a party signs a contract with an intent not to perform his contractual obligation, such promissory fraud is a basis for a court to refuse to specifically enforce the contract if the other party refuses to perform its obligation.  See, e.g. ,  Kelly v. Central Pacific Railroad Co. , 16 P. 386 (Cal. 1888). Here, the house flipper acted fraudulently when he signed the contract for the $1 lot because he never intended to build a home on the lot. 4. A man and woman married at 18 after graduating from high school. The husband worked at a factory, making minimum wage, while the wife went to college and later law school. During their marriage, they had one child. After getting her law license, the wife worked as a lawyer for a large civil firm, making over $200,000 per year. When she turned 30, the wife filed a petition to divorce the husband, who had not furthered his education and had continued working in the low-paying factory job during the 12 years of their marriage. The husband was not represented by a divorce attorney. The wife's divorce attorney, one of her law firm colleagues, told the husband that he should relinquish his interest in the couple's home, which had $300,000 of equity and that the wife would agree to joint custody of their 6-year-old daughter. Otherwise, the lawyer threatened, the wife would seek primary custody of the child and “very likely will win that battle." Fearing he would not get joint custody of his daughter, the husband immediately signed the property settlement agreement, relinquishing his interest in the home. Subsequently, after the husband hired his own divorce attorney, he moved the divorce court to refuse to enforce the property settlement as unconscionable. The husband's attorney offered compelling evidence that, based on the husband's and the wife's parenting histories, the husband was legally entitled to joint custody of their daughter regardless of the wife's agreement. Should the court refuse to enforce the property settlement agreement? Yes, because it would be unconscionable to enforce the property settlement agreement. A contract executed between a sophisticated party represented by counsel and an unrepresented, unsophisticated party, which clearly provides an unfavorable outcome to the latter party and which resulted from unfair negotiating tactics, is unconscionable.  See  Restatement (Second) of Contracts § 208. Here, the wife's attorney engaged in unfair negotiating tactics by claiming that the husband likely would not be awarded joint custody of his daughter unless he gave the wife his interest in the home. That negotiation resulted in the husband's loss of his share of the equity in the home. That loss would be
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especially unconscionable considering the wife's high-paying job as an attorney compared to the husband's low-paying job as a factory worker. Therefore, the court should refuse to enforce the property settlement agreement.  Cf.   Weber v. Weber . 5. A single father of three small children, who dropped out of eleventh grade and who worked a minimum-wage job, signed a rent-to-own installment contract with a furniture store for the purchase of furniture for his rental home. Neither party was represented by an attorney. The contract provided for the sale of three rooms of furniture for 36 monthly payments of $200, for a total price of $7,200. That same furniture could be purchased in a single payment of $3,600. The father had a poor credit rating and was unable to obtain furniture from any other seller. After paying $200 per month for 18 months, the father lost his job and was unable to make any further monthly payments. When the furniture store filed a lawsuit to repossess the furniture, the father responded that the contract as written was unconscionable. The father also argued that the $3,600 that he had already paid was sufficient consideration for the furniture and that the court should refuse to order repossession. Should the court order repossession of the furniture? Yes, because the contract was not unconscionable and the father breached the contract.  A consumer installment contract for the sale of goods is unconscionable if the contract price is substantially disproportionate to the fair market value of the goods sold and other circumstances indicate unconscionability. However, a purchase price that is only twice the fair market value is not unconscionable when the buyer was financially unable to acquire the goods except by paying for them over a substantial period of time. Here, because the contract price was only twice the fair market value and the father was financially unable to obtain the furniture elsewhere, the contract was not unconscionable.  Cf.   Remco Enterprises, Inc. v. Houston .
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EQUITABLE DEFENSES III A man hired a certified financial advisor to provide him investment advice. The man explained that he owned several different interests in oil and gas ventures, which were not publicly traded, and wished to sell them all. The man explained that he had inherited the interests and had no idea what they were worth. The financial advisor knew that selling the oil and gas interests could result in a substantial profit of around $1 million. Without disclosing that fact or otherwise opining about the value of interests, the advisor told the man that the advisor himself would be willing to buy all of the interests and quoted the man a price of $500,000. Without researching the value of interests, the man accepted the offer on the spot and signed a contract to sell all of the interests for $500,000. The man agreed to transfer the paperwork reflecting his interests the next day, when he could go to a bank and sign the paperwork in front of a notary public. That night, when the man's daughter learned what he had done, she conferred with her accountant and learned that the value of the interests was worth twice what the financial advisor had offered. The next day, the man informed the advisor that he would not transfer the interests and also refused to accept a check for $500,000. The financial advisor then sued the man, seeking specific performance of their contract. Does the man have a meritorious equitable defense to the financial advisor’s claim for specific performance? Yes, breach of fiduciary duty.  If a fiduciary exploits a client who has relied on the fiduciary's expertise, a court will not specifically enforce a sales contract that the two entered into.  See, e.g. ,  Firebaugh v. Hanback , 443 S.E.2d 134 (Va. 1994). Here, because a financial advisor owes a fiduciary to a client,  Johnston v. CIGNA Corp ., 916 P.2d 643, 647 (Colo. App. 1996), and the advisor exploited the man's ignorance about the value of his interests and failed to disclose their actual value, the man has a meritorious equitable defense to the advisor's claim for specific performance. 2. A 48-year-old brother and 35-year-old sister each inherited 50 percent of the home-improvement company their late father owned. The brother had a college degree in business and had worked full-time as a sales manager at a car dealership for several years. The sister had dropped out of high school in eleventh grade, had a learning disability, and worked part-time in a child-care center. She had an eight-year-old son. The brother convinced the sister, who relied on the brother for advice and guidance in life, to sell him her half of the company for
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$90,000. The fair market value of her share was $140,000. The day after they signed a sales contract, the sister died suddenly in a car accident. At that point, she had not executed the paperwork to transfer her share of the company to her brother. The executor of her estate, a friend of their late father, told the brother that the contract price of the sister's share of the company was unfairly low and refused to sign the paper transferring her share in the company unless the brother was willing to pay $140,000. The brother refused and moved the probate court to specifically enforce the contract. Does the sister's executor have any meritorious equitable defense to the brother's claim for specific performance? Yes, breach of a confidential relationship. If a person in a superior position in a confidential relationship with another enters into a contract with the latter, a court generally will not specifically enforce that contract, particularly if it appears that there has been exploitation of the confidential relationship by the superior party vis-à-vis the vulnerable party.  See   Sand v. Red River Nat. Bank & Trust Co. of Grand Fork , 224 N.W.2d 375 (N.D. 1974). Here, the brother and sister were in a confidential relationship because the sister had relied on the older, more educated, and more financially sophisticated brother's advice and guidance. Particularly because the contract price was $50,000 less than the fair market value of the sister's share of the company, a court will not specifically enforce the contract.  Cf.   In re Estate of Mihm . 3. A retired couple decided to put their suburban home up for sale and move into a condo in a beach town 100 miles away. They signed a contract for sale of the property with a buyer, with a sales price of $250,000 and with closing to occur in 90 days. Although the fair market value of the home was $300,000, the couple was willing to sell it for less because the housing market was in a mild recession and they very much wished to move to the beach condo as soon as possible. The day after closing, the wife had a severe stroke and became largely paralyzed. She also became emotionally fragile. The day before closing, the husband informed the buyer that the couple would not convey the title to the home because the husband feared that moving from the home, in which they had lived for 30 years, would make the wife's emotional condition even worse. The buyer sued the couple, seeking specific enforcement of the contract for the sale of the home. Does the couple have any meritorious equitable defense? No, the couple does not have a meritorious equitable defense. The couple does not have a meritorious equitable defense to the buyer's claim for specific performance. Although it will pose a hardship to the couple if they are required to move, the degree of hardship is not extreme enough for a court in equity to intervene and prevent specific performance. To defeat specific performance, hardship must be much more extreme than the couple's hardship here.  See, e.g. ,  Kilarjian v. Vastola ,
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877 A.2d 372 (N.J. Super. Ch. Div. 2004) (moving from the couple's home posed a serious threat to the wife's physical health, which the court found to be extreme enough hardship to defeat specific performance). 4. A 40-year-old wealthy lawyer who had built a lavish weekend lake home required access to a deeper part of the lake than the waterfront abutting his property in order to launch his new large powerboat. A deeper portion abutted the property of his next-door neighbor, a 50-year-old man who owned a small, much older lake home. That man recently had divorced, lost his job as a car mechanic, and moved into his lake home after having had to relinquish his prior home in the city to his ex-wife. Because of his unemployment, the man struggled financially to keep the lake home. When the lawyer approached the man about selling his waterfront portion, the man responded that he did not want to sell it because it would significantly decrease the overall value of his property. The lawyer then proposed that the man grant him a lifetime easement so the lawyer could launch his boat from the man's property. The lawyer knew that the man was facing potential foreclosure of his lake home and needed $25,000 to avoid foreclosure. The lawyer stated that, as consideration for such an easement, he would loan the man $25,000, without interest and with repayment to occur within three years. The man, desperate to avoid foreclosure, agreed because his credit was too poor to obtain a loan from a traditional lender. The two signed a contract. The man, who later inherited $30,000 after his mother died, repaid the loan. At that point, the man still was unemployed and felt compelled financially to sell his home. Without the lawyer's easement, the man's home was worth $200,000. With the easement, however, it was only worth $125,000. Buyers were deterred from offering more than $125,000 because of the lawyer's frequent use of the waterfront portion of the property. When the lawyer refused to relinquish the easement at the man's request, the man put up a fence to prevent the lawyer from bringing his boat onto the man's property. The lawyer then sued for an injunction to require the man to remove the fence and provide the lawyer access to the man's waterfront. Yes, inadequate consideration. Yes, inadequate consideration. Does the man have any meritorious equitable defense to the lawyer's lawsuit? Yes, inadequate consideration. Although courts rarely refuse to specifically enforce contracts based on inadequate consideration (as opposed to total lack of consideration), they will if the consideration is grossly inadequate and the circumstances surrounding the parties' contract suggest unfairness. Here, the consideration is grossly inadequate; a mere interest-free $25,000, three-year loan is worth a tiny fraction of the $75,000 diminution in value resulting from the lawyer's lifetime easement. The lawyer also appeared to exploit the man's desperate situation that his unemployment and need to avoid foreclosure created. Therefore, a court likely would refuse to order the man to remove his fence and
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provide the lawyer access to the waterfront.  Cf. McKinnon v. Benedict , 157 N.W.2d 665 (Wisc. 1968). 5. A tenant, a restaurant owner, entered into a 10-year, renewable lease for the landlord's empty 5,000-square-foot commercial building. Rent was $5,000 per month. The lease provided that the tenant was permitted to make improvements to the building that were appropriate for the building's use as a restaurant. The lease further provided that the tenant could renew the lease, for indefinite 10-year periods at increased rental rates, if the tenant provided written notice to the landlord, including by email, of the intent to renew “at least 30 days in advance of the expiration of the current lease term.” After signing the lease, the tenant spent $100,000 on improvements that turned what was a drab, empty building into a nicely adorned restaurant. The restaurant flourished during the next decade. In the final few months of the lease period, the tenant became seriously ill with meningitis. He was hospitalized for several weeks, but survived and was released with 29 days left in the lease period. While he was hospitalized, his manager had operated the restaurant. The manager had been unaware of the lease-renewal provision. With 28 days left in the lease term, the tenant emailed the landlord of the tenant's intent to renew the lease for another decade. He explained that he had overlooked the due date for the lease renewal because of his illness and hospitalization. He also attached a copy of a doctor's letter explaining that the meningitis had seriously affected the tenant's mental state. The landlord refused to accept the renewal because the tenant had not notified the landlord within 30 days of the end of the lease term. When the tenant refused to vacate the premises 28 days later, the landlord filed a lawsuit seeking to evict the tenant. The tenant responded that the court should order the landlord to renew the lease. At trial, the landlord admitted that he intended to benefit from the $100,000 of improvements that the tenant had added by leasing to a different restaurant proprietor. It was also undisputed that the tenant was financially unable to open a new restaurant but could continue to operate his existing restaurant if he could remain in the previously leased building that the landlord owned. Does the tenant have any meritorious equitable defense to the landlord's eviction action? Yes, avoidance of forfeiture. Courts generally seek to avoid forfeiture of a substantial amount of money or property by a tenant when the tenant failed to renew a lease if (1) the tenant was merely negligent in failing to renew the lease in a timely manner, and (2) the renewal would not unduly prejudice the landlord. Here, the tenant was merely negligent in failing to renew the lease as a result a serious illness and hospitalization and notified the landlord within one day of being released from the hospital. In addition, the landlord will not be unduly prejudiced because the lease renewal would be on the same terms as originally agreed and the two-day delay did not prejudice the landlord. Finally, the
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landlord's admitted intent to profit from the tenant's $100,000 of improvements, which the tenant will forfeit if the lease is not renewed, militates in favor of the tenant. Therefore, the court should rule in favor of the tenant and require the landlord to renew the lease.  Cf.   J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc. , 366 N.E.2d 1313 (N.Y. 1977).  
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