with No Comments

Post No.: 0958contract

 

Furrywisepuppy says:

 

If a furry inventor needed a freight company to ship his/her invention to a trade exhibition but only 19 out of 20 crates arrived in the agreed time, and that missing crate had a crucial part inside that made the whole invention work but it arrived too late – the freight company has clearly broken its contract. But how do we work out the damages? The inventor lost his expectation, which was a chance to drum up some business during the exhibition, which might’ve been massive in value… or alternatively nothing!

 

What the courts would try to do here is ascertain not just the objective freight costs but also the objective or determinable costs for going to the exhibition that were spent/wasted (e.g. for the exhibition booth materials and hire, assistant fees, hotel rooms, travel expenses, the inventor’s time) and make sure the inventor gets at least these costs back. This is the money the inventor had spent in detrimental reliance on the freight company’s promise.

 

There’s no way of knowing what value such a scenario would’ve truly been worth or what one would’ve gotten had the promises been fulfilled though – we cannot turn back time to make good on those promises anymore. But the injured party can be reimbursed for the money they’d lost in detrimental reliance on the promise. Note that Contract law doesn’t concern itself with psychological or physical pain, suffering or emotional distress – this would involve personal injury law.

 

The courts standing behind promises in monetary terms keeps things simple. It means they don’t have to get into the business of managing and supervising people’s lives in any great detail i.e. it means they don’t have to stand over people to make sure they do something and do it right – the courts require the transfer of money, and that’s it. In most cases, money is acceptable to make a disappointed party whole again. (‘Making whole’ generally means compensating someone for their actual economic and non-economic losses rather than their potential foregone gains or lost profits, although the definition can depend on specific contract terms and local laws.)

 

Contract law also isn’t there to punish an unreliable promisor – after all, there are many reasons why people fail to keep promises; many of which aren’t their fault whatsoever. And unlike Criminal law, the courts here don’t want to get into the reasons for failure (with some exceptions). Using money to compensate for broken promises also allows the parties, who might’ve found better opportunities elsewhere, to be freed from each other easily thus avoiding deadweight losses. Forcing people to do something they don’t want to do is also against their liberty so people cannot be ordered into a specific performance anyway, only potentially goods or services.

 

If there’s enough money to compensate the injured party for everything that a breach of contract has cost them (the search for and cost for a replacement, lost business if a delay has been caused, etc.) then it’d seem vindictive to tell the breaching party they cannot leave even if the injured party would be completely covered by them so that they won’t be out of pocket whatsoever i.e. the net cost to them is zero and an appropriate replacement could be found. And for the breaching party, they can take on a bigger or better job elsewhere too.

 

Post No.: 0943 mentioned that in most cases, an injured party is granted some amount of money (a ‘forced payment of money’ as damages). However in some rare cases, the courts can make the breaching party perform the contract as promised (issue a decree of ‘specific performance’). Or if they don’t do it then they’ll be threatened with jail.

 

So sometimes it’s more appropriate to order the breaching party to do what they had promised to do – like to deliver that sentimental piece of old family heirloom that used to belong to one’s grandfather, or it’s one unique missing piece that’d make an entire set whole. Here, money won’t be good enough hence the contract must be enforced as written or else (which might be prison).

 

Maybe due to historical or traditional reasons, contracts concerning plots of land and properties (real properties) tend to always be issued with a decree of specific performance if a seller attempts to avoid handing over a property as contracted. Usually, the courts won’t require from the injured party any extra proof that the land or property is of any particular special value for which money cannot easily compensate for. Perhaps because the courts can easily point to a particular land or property, and they don’t need to watch over anyone to get a land title transferred in the land registry – transferring property is just as simple to get sorted as transferring money is without getting bogged down in complicated details.

 

Generally, if there’s nothing unique about something then money will sufficebut if you can persuade the court that something has unique, special, irreplaceable or sentimental value and importance to you in a way that’s incredibly difficult to value in monetary terms then specific performance may be issued instead. If the performance of a contract offers a very unique value that cannot be easily replicated by paying a different party to complete the contract then the court may award specific performance. So a court is unlikely to award specific performance if it involves commodities, unless the situation makes it extremely difficult to access an alternative to the specific commodity.

 

If a farmer hires a one-of-a-kind machine which seemingly has no substitute for hundreds of miles around near the location it is needed during the harvest, but the machine owner decides to break the contract with this farmer mere days before this season starts in order to take on a more lucrative deal elsewhere – the farmer can get the courts to issue a decree of specific performance instead of monetary damages. The farmer built his/her business based on using this machine, and since there’s no reliable substitute, the court would likely allow the farmer use of it, lest he/she lose his/her entire crop and year’s income if not. The crops rotting in the fields will create a smell and a lasting damage that’s hard to calculate; not to mention the damage to the farmer’s reputation as a crop supplier.

 

So a lesson is don’t commit to a contract too soon in case you find a better deal elsewhere, or charge a higher price for the risk of foregoing a potentially better deal, or don’t commit to a contract term that’s too long if you don’t understand the market yet. Or if you do strike a bargain – stick to it, unless the benefits outweigh the costs, including to your reputation. Woof!

 

An argument of irreplaceable value or importance won’t always result in specific performance though. Although people are unique, the courts will not force people to do something they don’t want to do. So if a famous singer broke their contract to perform at a venue by taking a better contract at another venue, they will not be forced to perform at the first venue, even though this famous singer is unique and is exactly whom the venue’s patrons wished to see and the first venue planned a whole season around this singer. However, this singer could be prevented from performing (potentially as any kind of performer) anywhere else (e.g. for a competitor, although the size of the barred territory may depend on the singer’s fame) for the length of the original contract’s term, including at the poaching venue (a ‘negative order of specific performance’).

 

So contracts that require a party to render personal services are a whole class of cases where specific performance will not be issued, but the breaching party can be barred from performing those services for any party other than that in the contract. The courts won’t waste resources checking if the singer will be at the venue in the original contract every night, nor could they ensure the singer would sing to their best ability if forced to uphold their original contract anyway. Additionally, forcing people to do something is against their liberty, even though the singer effectively voluntarily sold themselves to sing at the first venue. People can be punished monetarily, and of course a contract-breaking performer can still be sued for money damages; but they cannot be forced to work, even though it can be incredibly difficult to put a monetary value on such a loss. The best course of action for the venue would probably be to try to sue the poaching venue instead of the singer, for wrongfully interfering with its contractual rights with the singer.

 

On a practical level, you cannot really force a footballer to stay at a club they don’t wish to stay at because they’d just deliberately put in an unmotivated performance, which means that the manager shouldn’t bother to field them, which means that the club shouldn’t bother to continue paying their wages, which means they might as well be allowed to leave. (They however might still be compelled to show effort in playing well because if they gain a reputation for being unprofessional then another club mightn’t want them!) Therefore if a footballer has found a better contract elsewhere, then instead of being held at their current club to fulfil the original contract to its full term, the footballer – or usually the buying club – can offer to buy out the remainder of that contract (noting any buyout or release clauses) and cover all of the first club’s losses for the breach in contract, at the right price.

 

A company may hire someone and pay them a shedload of money for their skills, and include a ‘non-compete clause’ in their employment contract that states that, if/when they leave (because the company cannot force them to stay), they promise that they won’t join another competitor for at least, say, two years. The legislation and courts do enforce these clauses but they are beginning to get worried about skilled persons not being able to deploy their skills for some time for work, as well as the effect on market competition.

 

With a billboard, one could argue that the location is unique. But even if the location is unique and prime, the courts will likely decide that one should be awarded monetary damages rather than specific performance if the landlord breaches a contract. The courts may argue that, given the large amount of advertising space available in a city and the large market for it, one can reliably calculate the monetary damages for being dispossessed of a billboard space. Furthermore, imposing specific performance on the landlord would be unduly burdensome and improper.

 

For the courts, the need for specific performance would be based on the uncertainty of valuing the wronged party’s damages – not on the literal physical uniqueness of the piece of property being leased. This is one of those controversial situations, and one could argue for a different outcome provided one has stronger reasons for one’s particular claim. The courts could still potentially issue a negative order of specific performance on the landlord, which prevents them from renting out the space to a competitor of the injured party, though.

 

When calculating the damages, the injured party could, say, show that they would’ve lost €30,000 in profit for the remaining duration of the lease. On an alternative billboard space, the injured party may make €18,000 in profit over what would’ve been the remaining duration of the broken lease. And incidental costs may amount to €1,000 for finding a new location and to erect the advertisement onto this new space. If so, the injured party should receive their lost profits, less whatever amount they could reasonably obtain through an alternative arrangement (i.e. €30,000 – €18,000 = €12,000), plus the incidental costs to secure that new location (i.e. €12,000 + €1,000 = €13,000 in total).

 

Woof.

 

Comment on this post by replying to this tweet:

 

Share this post