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George Mason School of Law

Contracts II

Foreseeability, Third Parties

F.H. Buckley

fbuckley@gmu.edu

Foreseeability

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Hadley v. Baxendale 113

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The Hadley Mill, Gloucester UK

Hadley v. BaxendaleGloucester to Greenwich

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2.5 hrs, according to Mapquest

Hadley v. Baxendale

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Tel: 011-44-203-188-2100

Hadley v. Baxendale

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Just why do you think Pickfords is out of the business? Milgard Tempering at 117

Hadley v. Baxendale

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Where the damages are astronomical, are you sure who the least cost risk avoider is?

Hadley v. Baxendale

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Where the damages are astronomical , are you sure who the least cost risk avoider is?

Qu. Western Industries at 966

Hadley v. Baxendale

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Just what was the Δs told?

Hadley v. Baxendale

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Just what was the Δs told?

What if the headnote had been correct?

Hadley v. Baxendale

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Just what was the Δs told?

What if the headnote had been correct?

Why might this be a rule of efficiency?

Just what is “on the cards”?Sprang Industries 957

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BattenkillBrudge

Just what is “on the cards”?

Fort Pitt Bridge Why did the problem arise?

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Just what is “on the cards”?

Fort Pitt Bridge Fort Pitt breached by delivering late, with

the result that Torrington incurred extra damages in pouring cement in cold weather

Could Torrington recover for these expenses?

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Just what is “on the cards”?

Fort Pitt Bridge Could Torrington recover for these

expenses? Yes, since the alternative of waiting

another 8 months would have increased the damages even more A reasonable effort at mitigation

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Increased labor costs in Cricket Alley 962

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Increased labor costs in Cricket Alley

What was the promise?

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Increased labor costs in Cricket Alley

What was the promise?

And what expenses did Cricket Alley incur as a consequence of the breach?

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Increased labor costs in Cricket Alley

If increased labor costs are foreseeable, why not lost profits? Same diff… Recall Drews (new restaurant) Cook v. Woornick 965

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Emotional Distress

Valentine at 967 Is it foreseeable that one might suffer

emotional distress on being fired?

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Emotional Distress

Valentine at 967 Is it foreseeable that one might suffer

emotional distress on being fired? So why no recovery? Restatement § 353.

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Emotional Distress

Is Allen v. Jones consistent with Valentine?

22 Jules et Jim

MitigationLuten Bridge: Building bridges to nowhere

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Mebane Bridge Road, Eden NC

MitigationShirley MacLaine

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Mitigation:Shirley MacLaine

Which film was the biggest turkey?

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Mitigation:Shirley MacLaine

Which film was the biggest turkey?

Was she entitled to do nothing?

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Mitigation:Shirley MacLaine

Which film was the biggest turkey?

Was she entitled to do nothing?

What if she had immediately walked in to a better contract?

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Mitigation

What if the injured party is a business that gets new clients after the breach? Kersage Computer at 978

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Liquidated damages

Restatement § 356

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Lake River v. Carborundum

Restatement § 356

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Lake River v. Carborundum

Lake River to bag and ship Carborundum’s Ferro Carbo

Why did LR insist on a liquidated damages clause?

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Lake River v. Carborundum

Lake River to bag Carborundum’s Ferro Carbo

Why did LR insist on a liquidated damages clause?

And why was this a penalty?

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Lake River v. Carborundum

And why was this a penalty? So what’s wrong with penalties?

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Lake River v. Carborundum

And why was this a penalty? So what’s wrong with penalties?

Lemons and signalling A suitable case for paternalism? The efficient breach argument?

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C and H Sugar

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MV Moku Pahu

C and H Sugar

Sun to pay damages of $17K/day after delivery date of June 30, 1981

Sun completed the barge on March 16, 1982

Halter supplies the catamaran tug boat on July 15, 1982

Sun assembles tug to barge in July ‘82

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C and H Sugar

Sun to pay damages of $17K/day after delivery date of June 30, 1981, or $4.4M

Was this in excess of the damages actually suffered?

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C and H Sugar

Sun to pay damages of $17K/day after delivery date of June 30, 1981

Was this in excess of the damages actually suffered?

How does UCC § 2-718 assist? “anticipated or actual” A problem of concurrent causation

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C and H Sugar

Sun to pay damages of $17K/day after delivery date of June 30, 1981

Was this in excess of the damages actually suffered?

Qu. Unit Vending v. Tobin at 990

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Third Party Rights

A wants to enter into a contract with B in which B agrees to benefit C. How should this be drafted?

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Third Party Rights

A wants to enter into a contract with B in which B agrees to benefit C. How should this be drafted? Are we sure that A wants C to have the

right to sue B for non-performance? And why might he not?

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Third Party Rights

A wants to enter into a contract with B in which B agrees to benefit C. How should this be drafted? Suppose we are sure A wants C to have

the right to sue B for non-performance How to do it?

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Third Party Rights

A wants to enter into a contract with B in which B agrees to benefit C. How should this be drafted? Suppose we are sure A wants C to have

the right to sue B for non-performance Join C as a party to the contract

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Third Party Rights

A wants to enter into a contract with B in which B agrees to benefit C. How should this be drafted? Suppose we are sure A wants C to have

the right to sue B for non-performance Suppose C has just departed in a hot air

balloon and has left his BlackBerry behind?

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Third Party Rights

A wants to enter into a contract with B in which B agrees to benefit C. How should this be drafted? Suppose we are sure A wants C to have

the right to sue B for non-performance Suppose C has just departed in a hot air

balloon and has left his BlackBerry behind? Did he leave an agent behind?

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Third Party Rights

A wants to enter into a contract with B in which B agrees to benefit C. How should this be drafted? Suppose we are sure A wants C to have

the right to sue B for non-performance Suppose C is not yet born or identified

“the winner of the 2012 Booker Prize”

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Third Party Rights

Trust relationships

A B

C

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“settlor”

“trustee”

“beneficiary”“cestui que trust”

Third Party Rights

Trust relationships

A B

C

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“settlor”

“trustee”

“beneficiary”“cestui que trust”

“trust res” Legal Interest

Beneficial Interest

Restatement 302

So when would you rely on it? “appropriate to effectuate the intention

of the parties” Either:

Satisfies an obligation of the promisee to pay money to the beneficiary; or

Circumstances indicate that the promisee intends to give the beneficiary the benefit of the promise

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Restatement 302

So when would you rely on it? “appropriate to effectuate the intention

of the parties” Either:

Satisfies an obligation of the promisee to pay money to the beneficiary; or

Circumstances indicate that the promisee intends to give the beneficiary the benefit of the promise

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Lawrence v. Fox

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Lawrence v. Fox

Holly Fox Δ

Lawrence Π

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$300

Lawrence v. Fox

Was the promise revocable?

Was Fox an agent of Lawrence?

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Lawrence v. Fox

Was the promise revocable?

Was Fox an agent of Lawrence?

Why didn’t Lawrence sue Holly? Restatement 304

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Lawrence v. Fox

Does every externality give rise to third party rights? Eisenberg’s hypothetical bargain

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Donee Beneficiaries

Restatement 302(1)(b)

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Donee Beneficiaries: Seaver 1009

Restatement 302(1)(b)

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Donee Beneficiaries: Seaver 1009

Mrs Beman Judge

Seaver (niece)

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Donee Beneficiaries: Seaver 1009

Why didn’t a trust relationship arise?

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Donee Beneficiaries: Seaver 1009

Why didn’t a trust relationship arise?

Natural obligations to family members

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Donee Beneficiaries: Drake 1012

Why shouldn’t the child be able to sue?

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Donee Beneficiaries: Drake 1012

Why shouldn’t the child be able to sue? What’s the distinction between a

promise to pay college tuition and a promsie for periodic support?

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Donee Beneficiaries: Drake 1012

Why shouldn’t the child be able to sue? What’s the distinction between a promise

to pay college tuition and a promise for periodic support?

“The duty ceases when the adult child refuses to heed to parent’s reasonable restrictions and leaves the custodial home”

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Creditor Beneficiaries

Restatement 302(1)(a)

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Creditor Beneficiaries: Hamill 1017

Hamill Gunnell

Maryland (performance bond)

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Operating capital

Creditor Beneficiaries

In what sense was Maryland a third party beneficiary?

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Creditor Beneficiaries

In what sense was Maryland a third party beneficiary? Hamill promised to finance Gunnell and

must have known about the need for a performance bond

Gunnell owed Maryland

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Creditor Beneficiaries: Pierce 1020

Pierce Gilbanesubcontractor contractor

Nemours owner

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HVAC

Summing up

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An understanding of the common law…

Blackstone at the DC Circuit

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Blackstone at the DC Circuit

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Blackstone at the DC Circuit

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Commentaries I.14 (1765)

The law of England abhors, and will not endure the existence of, slavery within this nation: so that when an attempt was made to introduce it, by statute … the spirit of the nation could not brook this condition, even in the most abandoned rogues; and therefore this statute was repealed in two years afterwards.

And now it is laid down, that a slave or negro, the instant he lands in England, becomes a freeman; that is, the law will protect him in the enjoyment of his person, his liberty, and his property.

R. v. Somerset (1772)

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Granville Sharp

R. v. Somerset (1772)

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Granville Sharp

R. v. Somerset (1772)

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Wm Murray, Earl Of Mansfield

R. v. Somerset (1772)

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The state of slavery is of such a nature, that it is incapable of being introduced on any reasons, moral or political, but only by positive law, which preserves its force long after the reasons, occasion, and time itself from whence it was created, is erased from memory. It is so odious, that nothing can be suffered to support it, but positive law. Whatever inconveniences, therefore, may follow from the decision, I cannot say this case is allowed or approved by the law of England; and therefore the man, James Somerset, must be discharged.