Specific Performance
Chapter 22 Specific Performance
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Specific performance, or a mandatory (positive) injunction or order of a court instructing a party to perform its contractual obligations, is the exception to the rule. Many reasons have been advanced for this, including policies against voluntary or involuntary servitude and the difficulties and unwillingness of judges to supervise and evaluate the adequacy of performance. Parties to a breach of contract suit are often acrimonious---imagine expending precious public, judicial resources on forcing them to "play nice" rather than just ordering payment of damages and leaving enforcement to the parties and the sheriff. Parties to a contract dispute can generally be expected to act like four year olds if given the chance.
Also possible, of course, is a prohibitory (negative) injunction, ordering the parties not to do anything but perform the contract. We saw one of these at issue in MGM v. Scheider in Chapter 2. This sort of decree is easier to enforce but remains tedious and is largely considered a waste of judicial resources if money damages will suffice. Thus, the basic rule: specific performance is only available when money damages are inadequate to compensate the non-breaching party.
This "inadequacy" rule historically led to a few categorical rules. The most common is the rule that contracts for the purchase of real property could be specifically enforced by the purchaser as land was considered "unique." Combining this rule with the principle of mutuality of remedy leads to the rule applicable in some jurisdictions, like Tennessee, that a contract for the purchase or sale of real estate is specifically enforceable against either the buyer or the seller.
While this assumption that land was unique may have been true in an agrarian-based or feudal society, it is certainly subject to doubt in modern America where real estate has largely been turned into a commodity with the spread of suburban sprawl, housing developments, shopping malls, and the rise of the condominium and other forms of shared and fractionalized real estate ownership and control. A member of the American Institute of Appraisers would be hard pressed to find even 5% of the property in the United States that could not be appraised and given a market value through a melding of the comparison approach, the income approach, and the replacement cost approach. The value that a proximate interstate off 620 ramp will bring to your acre of real estate can be measured with precision, commercial or residential, up or down, long before the ramp is ever built.
Thus, the categorical rules, like specific performance of land sales, may be on their way out---but they are not out yet. As the cases in this chapter indicate, the focus of the rules on availability of specific performance and other equitable, non-money-damages relief should return once again to the first principles: the inadequacy of money damages to appropriately compensate the non-breaching party for his or her loss.
As noted above, whatever the direction in which the law is moving in this area, the historical, categorical rules remain in force in most jurisdictions. They also provide easy testing targets for law professors and bar examiners.
The R2d covers specific performance in sections 357 to 369. The UNIDROIT provisions are found in articles 7.2.3 to 7.2.5.
Centex Homes Corp. v. Boag, Superior Court of New Jersey, Chancery Division, 128 N.J. Super. 385, 320 A.2d 194 (1974)
Gelman, J.
[1]Plaintiff Centex Homes Corporation (Centex) is engaged in the development and construction of a luxury high-rise condominium project in the Boroughs of Cliffside Park and Fort Lee. The project when completed will consist of six 31-story buildings containing in excess of 3,600 condominium apartment units, together with recreational buildings and facilities, parking garages and other common elements associated with this form of residential development. As sponsor of the project Centex offers the condominium apartment units for sale to the public and has filed an offering plan covering such sales with the appropriate regulatory agencies of the States of New Jersey and New York.
[2]On September 13, 1972, defendants Mr. and Mrs. Eugene Boag executed a contract for the purchase of apartment unit No. 2019 in the building under construction and known as "Winston Towers 200." The contract purchase price was \$73,700, and prior to signing the contract defendants had given Centex a deposit in the amount of \$525. At or shortly after signing the contract defendants delivered to Centex a check in the amount of \$6,870 which, together with the deposit, represented approximately 10% of the total purchase of the apartment unit. Shortly thereafter Boag was notified by his employer that he was to be transferred to the Chicago, Illinois, area. Under date of September 27, 1972 he advised Centex that he "would be unable to complete the purchase" agreement and stopped payment on the \$6,870 check. Centex deposited the check for 621 collection approximately two weeks after receiving notice from defendant, but the check was not honored by defendants' bank. On August 8, 1973 Centex instituted this action in Chancery Division for specific performance of the purchase agreement or, in the alternative, for liquidated damages in the amount of \$6,870.1 The matter is presently before this court on the motion of Centex for summary judgment.
[3]Both parties acknowledge, and our research has confirmed, that no court in this State or in the United States has determined in any reported decision whether the equitable remedy of specific performance will lie for the enforcement of a contract for the sale of a condominium apartment. The closest decision on point is Silverman v. Alcoa Plaza Associates, 37 A.D. 2d 166, 323 N.Y.S. 2d 39 (App. Div. 1971), which involved a default by a contract-purchaser of shares of stock and a proprietary lease in a cooperative apartment building. The seller, who was also the sponsor of the project, retained the deposit and sold the stock and the lease to a third party for the same purchase price. The original purchaser thereafter brought suit to recover his deposit, and on appeal the court held that the sale of shares of stock in a cooperative apartment building, even though associated with a proprietary lease, was a sale of personalty and not of an interest in real estate. Hence, the seller was not entitled to retain the contract deposit as liquidated damages.2
[4]As distinguished from a cooperative plan of ownership such as involved in Silverman, under a condominium housing scheme each condominium apartment unit constitutes a separate parcel of real property which may be dealt with in the same manner as any real estate. Upon closing of title the apartment unit owner receives a recordable deed which confers upon him the same rights and subjects him to the same obligations as in the case of traditional forms of real estate ownership, the only difference being that the condominium owner receives in addition an undivided interest in the common elements associated with the building and assigned to each unit.
[5]Centex urges that since the subject matter of the contract is the transfer of a fee interest in real estate, the remedy of specific performance is available to enforce the agreement under principles of equity which are well-settled in this state.
[6]The principle underlying the specific performance remedy is equity's jurisdiction to grant relief where the damage remedy at law is inadequate. The text writers generally agree that at the time this branch of equity jurisdiction was evolving in England, the presumed uniqueness of land as well as its importance to the social order of that era led to the 622 conclusion that damages at law could never be adequate to compensate for the breach of a contract to transfer an interest in land. Hence specific performance became a fixed remedy in this class of transactions. The judicial attitude has remained substantially unchanged and is expressed in Pomeroy as follows:
[I]n applying this doctrine the courts of equity have established the further rule that in general the legal remedy of damages is inadequate in all agreements for the sale or letting of land, or of any estate therein; and therefore in such class of contracts the jurisdiction is always exercised, and a specific performance granted, unless prevented by other and independent equitable considerations which directly affect the remedial right of the complaining party. . . .
1 Pomeroy, Equity Jurisprudence (5th ed. 1941), § 221(b)
[7]While the inadequacy of the damage remedy suffices to explain the origin of the vendee's right to obtain specific performance in equity, it does not provide a rationale for the availability of the remedy at the instance of the vendor of real estate. Except upon a showing of unusual circumstances or a change in the vendor's position, such as where the vendee has entered into possession, the vendor's damages are usually measurable, his remedy at law is adequate and there is no jurisdictional basis for equitable relief. But see Restatement, Contracts § 360, cmt. c.3 The early English precedents suggest that the availability of the remedy in a suit by a vendor was an outgrowth of the equitable concept of mutuality, i.e., that equity would not specifically enforce an agreement unless the remedy was available to both parties.
[8]So far as can be determined from our decisional law, the mutuality of remedy concept has been the prop which has supported equitable jurisdiction to grant specific performance in actions by vendors of real estate. The earliest reported decision in this State granting specific performance in favor of a vendor is Rodman v. Zilley, 1 N.J. Eq.320 (Ch. 1831), in which the vendee (who was also the judgment creditor) was the highest bidder at an execution sale. In his opinion Chancellor Vroom did not address himself to the question whether the vendor had an adequate remedy at law. The first reported discussion of the question occurs in Hopper v. Hopper, 16 N.J. Eq. 147 (Ch. 1863), which was an action by a 623 vendor to compel specific performance of a contract for the sale of land. In answer to the contention that equity lacked jurisdiction because the vendor had an adequate legal remedy, Chancellor Green said (at p. 148):
It constitutes no objection to the relief prayed for, that the application is made by the vendor to enforce the payment of the purchase money, and not by the vendee to compel a delivery of the title. The vendor has not a complete remedy at law. Pecuniary damages for the breach of the contract is not what the complainant asks, or is entitled to receive at the hands of a court of equity. He asks to receive the price stipulated to be paid in lieu of the land. The doctrine is well established that the remedy is mutual, and that the vendor may maintain his bill in all cases where the purchaser could sue for a specific performance of the agreement.
[9]No other rationale has been offered by our decisions subsequent to Hopper, and specific performance has been routinely granted to vendors without further discussion of the underlying jurisdictional issue.
[10]Our present Supreme Court has squarely held, however, that mutuality of remedy is not an appropriate basis for granting or denying specific performance. Fleischer v. James Drug Stores, 1 N.J. 138 (1948); see also, Restatement, Contracts § 372; 11 Williston, Contracts (3d ed. 1968), § 1433. The test is whether the obligations of the contract are mutual and not whether each is entitled to precisely the same remedy in the event of a breach. In Fleischer plaintiff sought specific performance against a cooperative buying and selling association although his membership contract was terminable by him on 60 days' notice. Justice Heher said:
And the requisite mutuality is not wanting. The contention contra rests upon the premise that, although the corporation "can terminate the contract only in certain restricted and unusual circumstances," any "member" may withdraw at any time by merely giving notice.
Clearly, there is mutuality of obligation, for until his withdrawal complainant is under a continuing obligation of performance in the event of performance by the corporation. It is not essential that the remedy of specific performance be mutual . . . The modern view is that the rule of mutuality of remedy is satisfied if the decree of specific performance operates effectively against both parties and gives to each the benefit of a mutual obligation . . .
The fact that the remedy of specific enforcement is available to one party to a contract is not in itself a sufficient reason for making the remedy available to the other; but it may be decisive when the adequacy of damages is difficult to determine and there is no other reason for refusing specific enforcement. It is not 624 necessary, to serve the ends of equal justice, that the parties shall have identical remedies in case of breach.
[11]The disappearance of the mutuality of remedy doctrine from our law dictates the conclusion that specific performance relief should no longer be automatically available to a vendor of real estate, but should be confined to those special instances where a vendor will otherwise suffer an economic injury for which his damage remedy at law will not be adequate, or where other equitable considerations require that the relief be granted. As Chancellor Vroom noted in King v. Morford, 1 N.J. Eq.274, 281--282 (Ch. Div. 1831), whether a contract should be specifically enforced is always a matter resting in the sound discretion of the court and considerable caution should be used in decreeing the specific performance of agreements, and . . . the court is bound to see that it really does the complete justice which it aims at, and which is the ground of its jurisdiction.
[12]Here the subject matter of the real estate transaction---a condominium apartment unit---has no unique quality but is one of hundreds of virtually identical units being offered by a developer for sale to the public. The units are sold by means of sample, in this case model apartments, in much the same manner as items of personal property are sold in the market place. The sales prices for the units are fixed in accordance with schedule filed by Centex as part of its offering plan, and the only variance as between apartments having the same floor plan (of which six plans are available) is the floor level or the building location within the project. In actuality, the condominium apartment units, regardless of their realty label, share the same characteristics as personal property.
[13]From the foregoing one must conclude that the damages sustained by a condominium sponsor resulting from the breach of the sales agreement are readily measurable and the damage remedy at law is wholly adequate. No compelling reasons have been shown by Centex for the granting of specific performance relief and its complaint is therefore dismissed as to the first count.
[14]Centex also seeks money damages pursuant to a liquidated damage clause in its contract with the defendants. It is sufficient to note only that under the language of that clause (which was authored by Centex) liquidated damages are limited to such moneys as were paid by defendant at the time the default occurred. Since the default here consisted of the defendant's stopping payment of his check for the balance of the down-payment, Centex's liquidated damages are limited to the retention of the "moneys paid" prior to that date, or the initial \$525 deposit. Accordingly, the second count of the complaint for damage relief will also be dismissed.
625 Notes and Questions
1.A condominium is a form of ownership of real estate in which the owner of each unit owns parts of the real estate herself. She owns a fee simple interest in the three-dimensional space which she occupies and a proportional interest in the "common areas" (halls, walls, floor, roof, grounds, etc.) as a tenant-in-common with the owners of the other units. In a cooperative apartment building, the owner does not really own his apartment. Instead, the entire building is owned by a corporation. When the buyer "buys an apartment" in a co-op (in the terminology used) he actually gets stock in the corporation and a perpetual lease of his individual apartment. The co-op form of ownership evolved before condominium ownership. The condominium form of ownership is generally considered to be superior, but in New York and other East coast jurisdictions, cooperatives were prevalent before condominiums were established and lawyers still use the cooperative form of ownership because it is customary, they are used to it, and there is a great deal of case law to rely on. The condominium form of ownership is prevalent in Florida and on the West Coast and is generally the form of shared ownership that is being adopted in areas that are experiencing growth of this sort and lack a historical bias toward cooperatives.
2.Good lawyers are always on the lookout for situations where people are trying to "elevate form over substance." For example, suppose that Fish approaches Shark for a Loan, offering to give Shark a mortgage on Fish's home as security. Shark wants to avoid laws regulating loans and mortgages, so he tells Fish: "I'll buy your house for \$100,000. You can buy it back from me any time in the next year for \$120,000. In the meantime, you can continue to live in it rent free." A court would have no trouble deciding that although this transaction was in form a sale, lease, and option to repurchase, it was in substance a loan and mortgage. The court would normally apply to it all the laws pertaining to loans and mortgages, including laws limiting the amount of interest that can be charged.
3.In the case discussed in paragraph 3, was the court elevating form over substance? Can you think of a good reason why the court might be justified in elevating form over substance in that situation?
Walgreen Co. v. Sara Creek Property Co., United States Court of Appeals, Seventh Circuit, 966 F.2d 273 (1992)
Posner, Circuit Judge.
[1]This appeal from the grant of a permanent injunction raises fundamental issues concerning the propriety of injunctive relief. The essential facts are simple. Walgreen has operated a pharmacy in the Southgate Mall in Milwaukee since its opening in 1951. Its current lease, 626 signed in 1971 and carrying a 30-year, 6-month term, contains, as had the only previous lease, a clause in which the landlord, Sara Creek, promises not to lease space in the mall to anyone else who wants to operate a pharmacy or a store containing a pharmacy. . . .4 [We affirm.---Eds.]
[2]In 1990, fearful that its largest tenant---what in real estate parlance is called the "anchor tenant"---having gone broke was about to close its store, Sara Creek informed Walgreen that it intended to buy out the anchor tenant and install in its place a discount store operated by Phar-Mor Corporation, a "deep discount" chain, rather than, like Walgreen, just a "discount" chain. Phar-Mor's store would occupy 100,000 square feet, of which 12,000 would be occupied by a pharmacy the same size as Walgreen's. The entrances to the two stores would be within a couple of hundred feet of each other.
[3]Walgreen filed this diversity suit for breach of contract against Sara Creek and Phar-Mor and asked for an injunction against Sara Creek's letting the anchor premises to Phar-Mor. After an evidentiary hearing, the judge found a breach of Walgreen's lease and entered a permanent injunction against Sara Creek's letting the anchor tenant premises to Phar-Mor until the expiration of Walgreen's lease. He did this over the defendants' objection that Walgreen had failed to show that its remedy at law---damages---for the breach of the exclusivity clause was inadequate. Sara Creek had put on an expert witness who testified that Walgreen's damages could be readily estimated, and Walgreen had countered with evidence from its employees that its damages would be very difficult to compute, among other reasons because they included intangibles such as loss of goodwill.
[4]Sara Creek reminds us that damages are the norm in breach of contract as in other cases. Many breaches, it points out, are "efficient," in the sense that they allow resources to be moved into a more valuable use. Perhaps this is one---the value of Phar-Mor's occupancy of the anchor premises may exceed the cost to Walgreen of facing increased competition. If so, society will be better off if Walgreen is paid its damages, equal to that cost, and Phar-Mor is allowed to move in rather than being kept out by an 627 injunction. That is why injunctions are not granted as a matter of course, but only when the plaintiff's damages remedy is inadequate. Walgreen's is not, Sara Creek argues; the projection of business losses due to increased competition is a routine exercise in calculation. Damages representing either the present value of lost future profits or (what should be the equivalent) the diminution in the value of the leasehold have either been awarded or deemed the proper remedy in a number of reported cases for breach of an exclusivity clause in a shopping-center lease. [The court cited 7 cases and an A.L.R. annotation.---Eds.] Why, Sara Creek asks, should they not be adequate here?
[5]Sara Creek makes a beguiling argument that contains much truth, but we do not think it should carry the day. For if, as just noted, damages have been awarded in some cases of breach of an exclusivity clause in a shopping-center lease, injunctions have been issued in others. [Here, the court cited six cases.---Eds.] The choice between remedies requires a balancing of the costs and benefits of the alternatives. The task of striking the balance is for the trial judge, subject to deferential appellate review in recognition of its particularistic, judgmental, fact-bound character. As we said in an appeal from a grant of a preliminary injunction---but the point is applicable to review of a permanent injunction as well---"The question for us [appellate judges] is whether the [district] judge exceeded the bounds of permissible choice in the circumstances, not what we would have done if we had been in his shoes." Roland Machinery Co. v. Dresser Industries, Inc., 749 F.2d 380, 390 (7th Cir. 1984).
[6]The plaintiff who seeks an injunction has the burden of persuasion---damages are the norm, so the plaintiff must show why his case is abnormal. But when, as in this case, the issue is whether to grant a permanent injunction, not whether to grant a temporary one, the burden is to show that damages are inadequate, not that the denial of the injunction will work irreparable harm. "Irreparable" in the injunction context means not rectifiable by the entry of a final judgment. It has nothing to do with whether to grant a permanent injunction, which, in the usual case anyway, is the final judgment. The use of "irreparable harm" or "irreparable injury" as synonyms for inadequate remedy at law is a confusing usage. It should be avoided. Owen M. Fiss & Doug Rendleman, Injunctions 59 (2d ed. 1984).
[7]The benefits of substituting an injunction for damages are twofold. First, it shifts the burden of determining the cost of the defendant's conduct from the court to the parties. If it is true that Walgreen's damages are smaller than the gain to Sara Creek from allowing a second pharmacy into the shopping mall, then there must be a price for dissolving the injunction that will make both parties better off. Thus, the effect of upholding the injunction would be to substitute for the costly processes of forensic fact determination the less costly processes of private negotiation. 628 Second, a premise of our free-market system, and the lesson of experience here and abroad as well, is that prices and costs are more accurately determined by the market than by government. A battle of experts is a less reliable method of determining the actual cost to Walgreen of facing new competition than negotiations between Walgreen and Sara Creek over the price at which Walgreen would feel adequately compensated for having to face that competition.
[8]That is the benefit side of injunctive relief but there is a cost side as well. Many injunctions require continuing supervision by the court, and that is costly. . . . Some injunctions are problematic because they impose costs on third parties. A more subtle cost of injunctive relief arises from the situation that economists call "bilateral monopoly," in which two parties can deal only with each other: the situation that an injunction creates. The sole seller of widgets selling to the sole buyer of that product would be an example. But so will be the situation confronting Walgreen and Sara Creek if the injunction is upheld. Walgreen can "sell" its injunctive right only to Sara Creek, and Sara Creek can "buy" Walgreen's surrender of its right to enjoin the leasing of the anchor tenant's space to Phar-Mor only from Walgreen. The lack of alternatives in bilateral monopoly creates a bargaining range, and the costs of negotiating to a point within that range may be high. Suppose the cost to Walgreen of facing the competition of Phar-Mor at the Southgate Mall would be \$1 million, and the benefit to Sara Creek of leasing to Phar-Mor would be \$2 million. Then at any price between those figures for a waiver of Walgreen's injunctive right both parties would be better off, and we expect parties to bargain around a judicial assignment of legal rights if the assignment is inefficient. R.H. Coase, "The Problem of Social Cost," 3 J. Law & Econ. 1 (1960). But each of the parties would like to engross as much of the bargaining range as possible---Walgreen to press the price toward \$2 million, Phar-Mor to depress it toward \$1 million. With so much at stake, both parties will have an incentive to devote substantial resources of time and money to the negotiation process. The process may even break down, if one or both parties wants to create for future use a reputation as a hard bargainer; and if it does break down, the injunction will have brought about an inefficient result. All these are in one form or another costs of the injunctive process that can be avoided by substituting damages.
[9]The costs and benefits of the damages remedy are the mirror of those of the injunctive remedy. The damages remedy avoids the cost of continuing supervision and third-party effects, and the cost of bilateral monopoly as well. It imposes costs of its own, however, in the form of diminished accuracy in the determination of value, on the one hand, and of the parties' expenditures on preparing and presenting evidence of damages, and the time of the court in evaluating the evidence, on the other.
629 [10]The weighing up of all these costs and benefits is the analytical procedure that is or at least should be employed by a judge asked to enter a permanent injunction, with the understanding that if the balance is even the injunction should be withheld. The judge is not required to explicate every detail of the analysis and he did not do so here, but as long we are satisfied that his approach is broadly consistent with a proper analysis we shall affirm; and we are satisfied here. The determination of Walgreen's damages would have been costly in forensic resources and inescapably inaccurate. The lease had ten years to run. So Walgreen would have had to project its sales revenues and costs over the next ten years, and then project the impact on those figures of Phar-Mor's competition, and then discount that impact to present value. All but the last step would have been fraught with uncertainty.
[11]To summarize, the judge did not exceed the bounds of reasonable judgment in concluding that the costs (including forgone benefits) of the damages remedy would exceed the costs (including forgone benefits) of an injunction. We need not consider whether, as intimated by Walgreen, exclusivity clauses in shopping-center leases should be considered presumptively enforceable by injunctions. Although we have described the choice between legal and equitable remedies as one for case-by-case determination, the courts have sometimes picked out categories of cases in which injunctive relief is made the norm. The best-known example is specific performance of contracts for the sale of real property. The rule that specific performance will be ordered in such cases as a matter of course is a generalization of the considerations discussed above. Because of the absence of a fully liquid market in real property and the frequent presence of subjective values (many a homeowner, for example, would not sell his house for its market value), the calculation of damages is difficult; and since an order of specific performance to convey a piece of property does not create a continuing relation between the parties, the costs of supervision and enforcement if specific performance is ordered are slight. The exclusivity clause in Walgreen's lease relates to real estate, but we hesitate to suggest that every contract involving real estate should be enforceable as a matter of course by injunctions. Suppose Sara Creek had covenanted to keep the entrance to Walgreen's store free of ice and snow, and breached the covenant. An injunction would require continuing supervision, and it would be easy enough if the injunction were denied for Walgreen to hire its own ice and snow remover and charge the cost to Sara Creek. On the other hand, injunctions to enforce exclusivity clauses are quite likely to be justifiable by just the considerations present here---damages are difficult to estimate with any accuracy and the injunction is a one-shot remedy requiring no continuing judicial involvement. So there is an argument for 630 making injunctive relief presumptively appropriate in such cases, but we need not decide in this case how strong an argument.
AFFIRMED.
Campbell Soup Co. v. Wentz, United States Court of Appeals, Third Circuit, 172 F.2d 80 (1948)
Goodrich, J.
[1]These are appeals from judgments of the District Court denying equitable relief to the buyer under a contract for the sale of carrots . . .
[2]The transactions which raise the issues may be briefly summarized. On June 21, 1947, Campbell Soup Company (Campbell), a New Jersey corporation, entered into a written contract with George B. Wentz and Harry T. Wentz, who are Pennsylvania farmers, for delivery by the Wentzes to Campbell of all the Chantenay red cored carrots to be grown on fifteen acres of the Went farm during the 1947 season. Where the contract was entered into does not appear. The contract provides, however, for delivery of the carrots at the Campbell plant in Camden, New Jersey. The prices specified in the contract ranged from \$23 to \$30 per ton according to the time of delivery. The contract price for January, 1948 was \$30 a ton.
[3]The Wentzes harvested approximately 100 tons of carrots from the fifteen acres covered by the contract. Early in January, 1948, they told a Campbell representative that they would not deliver their carrots at the contract price. The market price at that time was at least \$90 per ton, and Chantenay red cored carrots were virtually unobtainable. The Wentzes then sold approximately 62 tons of their carrots to the defendant Lojeski, a neighboring farmer. Lojeski resold about 58 tons on the open market, approximately half to Campbell and the balance to other purchasers.
[4]On January 9, 1948, Campbell, suspecting that Lojeski was selling it "contract carrots," refused to purchase any more, and instituted these suits against the Wentz brothers and Lojeski to enjoin further sale of the contract carrots to others, and to compel specific performance of the contract. The trial court denied equitable relief. We agree with the result reached, but on a different ground from that relied upon by the District Court.
[5]The case has been presented by both sides as though Erie Railroad v. Tompkins, 1938, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, and Klaxon Company v. Stentor Electric Manufacturing Co., Inc., 1941, 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477, had never been 631 decided. We are not advised as to the place of the contract, although as we have pointed out in other cases, the Pennsylvania conflict of laws rule, which binds us here, refers matters concerning the validity and extent of obligation of the contract to the place of making. In this instance, however, the absence of data on which to base a rule of reference does not preclude the decision of the case. We have said several times in this Circuit that the question of the form of relief is a matter for a federal court to decide. But neither federal decisions nor the law of New Jersey or Pennsylvania as expressed in the Uniform Sales Act differ upon this point. A party may have specific performance of a contract for the sale of chattels if the legal remedy is inadequate. Inadequacy of the legal remedy is necessarily a matter to be determined by an examination of the facts in each particular instance.
[6]We think that on the question of adequacy of the legal remedy the case is one appropriate for specific performance. It was expressly found that at the time of the trial it was "virtually impossible to obtain Chantenay carrots in the open market." This Chantenay carrot is one which the plaintiff uses in large quantities, furnishing the seed to the growers with whom it makes contracts. It was not claimed that in nutritive value it is any better than other types of carrots. Its blunt shape makes it easier to handle in processing. And its color and texture differ from other varieties. The color is brighter than other carrots. The trial court found that the plaintiff failed to establish what proportion of its carrots is used for the production of soup stock and what proportion is used as identifiable physical ingredients in its soups. We do not think lack of proof on that point is material. It did appear that the plaintiff uses carrots in fifteen of its twenty-one soups. It also appeared that it uses these Chantenay carrots diced in some of them and that the appearance is uniform. The preservation of uniformity in appearance in a food article marketed throughout the country and sold under the manufacturer's name is a matter of considerable commercial significance and one which is properly considered in determining whether a substitute ingredient is just as good as the original.
[7]The trial court concluded that the plaintiff had failed to establish that the carrots, "judged by objective standards," are unique goods. This we think is not a pure fact conclusion like a finding that Chantenay carrots are of uniform color. It is either a conclusion of law or of mixed fact and law and we are bound to exercise our independent judgment upon it. That the test for specific performance is not necessarily "objective" is shown by the many cases in which equity has given it to enforce contracts for articles---family heirlooms and the like---the value of which was personal to the plaintiff.
[8]Judged by the general standards applicable to determining the adequacy of the legal remedy, we think that on this point the case is a 632 proper one for equitable relief. There is considerable authority, old and new, showing liberality in the granting of an equitable remedy. We see no reason why a court should be reluctant to grant specific relief when it can be given without supervision of the court or other time-consuming processes against one who has deliberately broken his agreement. Here the goods of the special type contracted for were unavailable on the open market, the plaintiff had contracted for them long ahead in anticipation of its needs, and had built up a general reputation for its products as part of which reputation uniform appearance was important. We think if this were all that was involved in the case specific performance should have been granted.
[9]The reason that we shall affirm instead of reversing with an order for specific performance is found in the contract itself. We think it is too hard a bargain and too one-sided an agreement to entitle the plaintiff to relief in a court of conscience. For each individual grower the agreement is made by filling in names and quantity and price on a printed form furnished by the buyer. This form has quite obviously been drawn by skillful draftsmen with the buyer's interests in mind.
[10]Paragraph 2 provides for the manner of delivery. Carrots are to have their stalks cut off and be in clean sanitary bags or other containers approved by Campbell. This paragraph concludes with a statement that Campbell's determination of conformance with specifications shall be conclusive.
[11]The defendants attack this provision as unconscionable. We do not think that it is, standing by itself. We think that the provision is comparable to the promise to perform to the satisfaction of another and that Campbell would be held liable if it refused carrots which did in fact conform to the specifications.
[12]The next paragraph allows Campbell to refuse carrots in excess of twelve tons to the acre. The next contains a covenant by the grower that he will not sell carrots to anyone else except the carrots rejected by Campbell nor will he permit anyone else to grow carrots on his land. Paragraph 10 provides liquidated damages to the extent of \$50 per acre for any breach by the grower. There is no provision for liquidated or any other damages for breach of contract by Campbell.
[13]The provision of the contract which we think is the hardest is paragraph 9, set out in the margin.5 It will be noted that Campbell is 633 excused from accepting carrots under certain circumstances. But even under such circumstances the grower, while he cannot say Campbell is liable for failure to take the carrots, is not permitted to sell them elsewhere unless Campbell agrees. This is the kind of provision which the late Francis H. Bohlen6 would call "carrying a good joke too far." What the grower may do with his product under the circumstances set out is not clear. He has covenanted not to store it anywhere except on his own farm and also not to sell to anybody else.
[14]We are not suggesting that the contract is illegal. Nor are we suggesting any excuse for the grower in this case who has deliberately broken an agreement entered into with Campbell. We do think, however, that a party who has offered and succeeded in getting an agreement as tough as this one is, should not come to a chancellor and ask court help in the enforcement of its terms. That equity does not enforce unconscionable bargains is too well established to require elaborate citation.
[15]The plaintiff argues that the provisions of the contract are separable. We agree that they are, but do not think that decisions separating out certain provisions from illegal contracts are in point here. As already said, we do not suggest that this contract is illegal. All we say is that the sum total of its provisions drives too hard a bargain for a court of conscience to assist.
[16]This disposition of the problem makes unnecessary further discussion of the separate liability of Lojeski, who was not a party to the contract, but who purchased some of the carrots from the Wentzes.
The judgments will be affirmed.
Note
After the end of the 1959 college football regular season the New York Giants of the National Football League attempted to sign University of Mississippi star Charlie Flowers to an NFL contract before he could sign with the rival American Football League (later merged into the NFL as the AFC). Flowers balked because NCAA rules barred a player who had signed a pro contract from bowl games. To allow Flowers to play in the Sugar Bowl (where he played against Billy Cannon, whose contract problems are described in a note following Beard Implement Company in Chapter 3), the Giants agreed to keep the contract secret. Upon receiving assurances that the contract would be 634 kept secret, Flowers signed and received a bonus of \$3,500.7 (This is not a typo. That's what players made in those days.) Like Mr. Cannon's contract, this contract also provided that it became valid and binding only upon approval by the Commissioner of the National Football League. Part of the deal between Flowers and the Giants was that the Giants would not submit the contract to the commissioner until after the Sugar Bowl. Flowers had a change of heart, and in early December, he told the Giants he wanted to get out of the deal. The Giants responded by submitting the contract to the commissioner, who approved it on December 15 with the understanding that the approval wouldn't be announced until after the Sugar Bowl. On December 29, three days before the Sugar Bowl, Mr. Flowers negotiated a better deal with the Los Angeles Chargers of the American Football League (now the San Diego Chargers of the NFL). This contract was not formally executed until after the Sugar Bowl. Also on December 29, Mr. Flowers wrote the Giants a letter telling them the deal was off and returning their bonus check uncashed.
The Giants sued Mr. Flowers and the Chargers in federal court, seeking specific performance of his contract with them, or, in the alternative, an injunction prohibiting him from playing for the Chargers. The trial court held that the commissioner's approval of the Flowers/Giants contract was not effective because the contract had been submitted to him in violation of the parties' understanding.
On appeal the Fifth Circuit took a different approach:
Without considering the legal issues on the merits, we affirm the judgment of the trial court. We do so by application of the age-old, but sometimes overlooked doctrine that "he who comes into equity must come with clean hands." . . . That doctrine is rooted in the historical concept of the court of equity as a vehicle for affirmatively enforcing the requirements of conscience and good faith. This presupposes a refusal on its part to be the abettor of inequity.
New York Football Giants, Inc. v. Los Angeles Chargers Football Club, Inc., 291 F.2d 471, 473--74 (5th Cir. 1961). The court said that the "deceit" practiced by the Giants barred them from being the beneficiaries of any equitable remedy.
Lumley v. Wagner, Lord Chancellor's Court, 1 De. G.M. & G. 604, 42 Eng. Rep. 687 (1852)
[1]Lord St. Lyons, Lord Chancellor. The question which I have to decide in the present case arises out of a very simple contract, the effect of which is, that the Defendant Johanna Wagner should sing at Her Majesty's Theatre for a certain number of nights, and that she should not 635 sing elsewhere (for that is the true construction) during that period. As I understand the points taken by the Defendant's counsel in support of this appeal they in effect come to this, namely, that a Court of Equity ought not to grant an injunction except in cases connected with specific performance, or where the injunction being to compel a party to forbear from committing an act (and not to perform an act), that injunction will complete the whole of the agreement remaining unexecuted.
[2]Wherever this court has not proper jurisdiction to enforce specific performance, it operates to bind men's consciences, as far as they can be bound, to a true and literal performance of their agreements; and it will not suffer them to depart from their contracts at their pleasure, leaving the party with whom they have contracted to the mere chance of any damages which a jury may give. The exercise of this jurisdiction has, I believe, had a wholesome tendency towards the maintenance of that good faith which exists in this country to a much greater degree perhaps than in any other; and although the jurisdiction is not to be extended, yet a Judge would desert his duty who did not act up to what his predecessors have handed down as the rule for his guidance in the administration of such an equity.
[3]It was objected that the operation of the injunction in the present case was mischievous, excluding the Defendant J. Wagner from performing at any other theatre while this Court had no power to compel her to perform at Her Majesty's Theatre. It is true that I have not the means of compelling her to sing, but she has no cause of complaint if I compel her to abstain from the commission of an act which she has bound herself not to do, and thus possibly cause her to fulfil her engagement. The jurisdiction which I now exercise is wholly within the power of the Court, and being of opinion that it is a proper case for interfering, I shall leave nothing unsatisfied by the judgment I pronounce. The effect, too, of the injunction is restraining J. Wagner from singing elsewhere may, in the event of an action being brought against her by the Plaintiff, prevent any such amount of vindictive damages being given against her as a jury might probably be inclined to give if she had carried her talents and exercised them at the rival theatre: the injunction may also, as I have said, tend to the fulfillment of her engagement; though, in continuing the injunction, I disclaim doing indirectly what I cannot do directly.
[4]Referring again to the authorities, I am well aware that they have not been uniform, and that there undoubtedly has been a difference of decision on the question now revived before me; but, after the best consideration which I have been enabled to give to the subject, the conclusion at which I have arrived is, I conceive, supported by the greatest weight of authority.
636 Notes and Questions
The remedies clause in Trista Rehn's contract for the reality-based television program "The Bachelorette," which we looked at when discussing liquidated damages in the previous chapter, is a little one-sided:
E.Remedies: I acknowledge and agree that the rights I have granted hereunder and my participation related thereto are unique, unusual, special and extraordinary, the loss of which would not be adequately compensable in damages in an action at law. I further agree that, in addition to any rights or remedies which Producer may have under this Agreement or otherwise, Producer therefore would be entitled to all available equitable remedies in case of my breach or threatened breach of this Agreement. Any remedies, rights, undertakings and obligations contained in this Agreement shall be cumulative. No remedies, rights, undertakings, or obligations shall be in limitation of any other remedy, rights, undertaking, or obligation of either party. No breach of this Agreement shall entitle me to terminate or rescind the rights granted to Producer or the Network herein. I hereby waive the right, in the event of any such breach by Producer or the Network, to equitable relief or to enjoin, restrain or interfere with the exercise of any of the Granted Rights, it being my understanding that my sole remedy shall be the right to recover monetary damages with respect to any such breach.
The term "Granted Rights" is defined in the contract to include all the rights granted to the producer and the network under the contract, which are pretty broad:
The unconditional right throughout the universe in perpetuity to use, simulate or portray (and to authorize others to do so) or to refrain from using, simulating or portraying, my name, likeness (whether photographic or otherwise), voice, personality, personal identification or personal experiences (including without limitation, whether I am clothed, partially clothed or naked, whether I am aware of or unaware of such photographing, videotaping, filming, or recording, and by requiring me to wear a microphone at all times), my life story, biographical data, incidents, situations and events which heretofore occurred or hereafter occur, including without limitation the right to use, or to authorize others to use any of the foregoing in or in connection with the Series (or any episode or portion thereof) and the distribution, exhibition, advertising, promoting or publicizing of the Series or any Series episode by Producer, the Network, its operations, activities or programming services and with any merchandise, tie-in, product or service of any kind where such use is made in conjunction with a reference to the Series by Producer, the Network, or any of its programming services, but not so as to constitute a direct endorsement of any other product or service.
637 1.How would you explain to Ms. Rehn what the remedies clause means?
2.Suppose you were representing the producer in a suit against Ms. Rehn and the producer wanted to get equitable relief. How would you distinguish Campbell Soup Co. v. Wentz?
Lawyering Skills Problem
Suppose that you want to draft a contract so as to make it more likely that a court will specifically enforce an agreement. What sort of provisions would you draft in light of the case law on the subject? Remember, the key is to read the cases to see what the courts were looking for in order to grant specific performance and then to draft into that standard and out of or around any prohibitions on the remedy.
1[\$6,870 in 1974 dollars is roughly the equivalent of \$35,000 in 2019 dollars using the CPI and the GNP Deflator.---Eds.]
2Under New York law, if the contract was deemed to be for the sale of realty, the seller could retain the deposit in lieu of damages.
3The Restatement's reasoning, as expressed in § 360, comment c, amounts to the inconsistent propositions that (1) because the vendor may not have sustained any damage which is actionable at law, specific performance should be granted, and (2) he would otherwise sustain damage equal to the loss of interest on the proceeds of the sale. Yet loss of interest is readily measurable and can be recovered in an action at law, and to the extent that the vendor has sustained no economic injury, there is no compelling reason for equity to grant to him the otherwise extraordinary remedy of specific performance. At the end of the comment, the author suggests that the vendor is entitled to specific performance because that remedy should be mutual, a concept which is substantially rejected as a decisional basis in §§ 372 and 373 of the Restatement.
4[A provision like this might read as follows:
For so long as Walgreen occupies or leases space in the Parcel, it is expressly agreed that neither all nor any portion of the Parcel shall be used, directly or indirectly, for any one or more of the following purposes: (i) the operation of a drug store or a so-called prescription pharmacy or for any other purpose requiring a qualified pharmacist or other person authorized by law to dispense medicinal drugs, directly or indirectly, for a fee or remuneration of any kind; (ii) the sale of so-called health and/or beauty aids and/or drug sundries; (iii) the operation of a business in which greeting cards and/or gift wrap shall be offered for sale; (iv) the operation of a business in which food shall be sold for off premises consumption; (v) the sale of alcoholic beverages; (vi) the operation of a medical diagnostic lab, and/or (vii) the operation of a business in which photofinishing services and/or photographic film are offered for sale.
The quoted provision is from a Walgreen transactional document in an unrelated deal.---Eds.]
5Grower shall not be obligated to deliver any Carrots which he is unable to harvest or deliver, nor shall Campbell be obligated to receive or pay for any Carrots which it is unable to inspect, grade, receive, handle, use or pack at or ship in processed form from its plants in Camden (1) because of any circumstance beyond the control of Grower or Campbell, as the case may be, or (2) because of any labor disturbance, work stoppage, slow-down, or strike involving any of Campbell's employees. Campbell shall not be liable for any delay in receiving Carrots due to any of the above contingencies. During periods when Campbell is unable to receive Grower's Carrots, Grower may, with Campbell's written consent, dispose of his Carrots elsewhere. Grower may not, however, sell or otherwise dispose of any Carrots which he is unable to deliver to Campbell.
6[Francis H. Bohlen was at one time the Dean of the University of Pennsylvania Law School. Apparently he was well-known at the time this opinion was written.---Eds.]
7\$3,500 in 1959 dollars is roughly the equivalent of \$30,000 in 2019 dollars using the CPI and the GNP Deflator.