Contracts II Outline

Contracts II – Outline
 
I. Chapter 1: Bases for Enforcing Promises
                A. The Meaning of “Enforce”
1. Contract – according to Restatement Second § 1 a promise or set of promises that the law will enforce or at least recognize in some way. The remedies include damages, specific performance, rescission and restitution, quasi-contract, and a tort action.
2. The following cases expose two fundamental assumptions made by courts in enforcing promises.
a. Contract law is intended to provide relief to the promisee to make up for the breach, not to punish the promisor for breaching.
b. Relief should put the promisee in the position she would have been in had the contract been performed, thereby fulfilling the promisee’s expectations.
c. The appropriate form of relief is substitutional (i.e. a money award), rather than specific (i.e. ordering the promisor to perform).
 
United States Naval Institute v. Charter Communications, Inc. – (1991) – (Focus on Injured Parties Damages) – USNI sued for breach because Charter released the paperback version of the book that it owned copyright to a month before they had agreed to release it. Issue: Must a breaching party pay the profits it received through its breach to the promisee? No.
-Damages for breach of contract are generally measured by P’s actual loss, which achieves the objective of compensating the injured party. Sometimes, D’s profits may be the measure of damages, so long as they define P’s loss. But awarding D’s profits that far exceed P’s loss would be a penalty and punitive awards are not part of contract law. (The amount awarded was based on the previous month’s sales, which is a reasonable estimate.)
 
Sullivan v. O’Connor (1973) – Disfigurement of nose. Pain and suffering and mental distress were compensable on either an expectancy or reliance view. Issue: Is reliance the proper measure of damages for breach of a physician’s contract to produce tertian result? Yes.
-In ascertaining damages, mere restitution (an amount equal to the value of the benefit conferred on D for performing the operation) would usually be inadequate.
-On the other hand, expectation recovery (an amount intended to put P in the position she would have been in had the contract been performed as agreed) would be excessive.
-Reliance (putting P back in the position she occupied before the agreement) provides a middle ground, particularly in noncommercial settings, and adequately protects both doctors and patients.
-Recovery for pain and suffering for the third operation may be awarded under either an expectation or a reliance view, because P has waived her claims for pain and suffering for the first two operations.
 
                B. Three Interests
1. Reliance Interest – Any expenditure made by P and any other detriment following proximately and foreseeably from D’s failure to carry out his promise; i.e., putting P back in the position he occupied before the agreement
2. Restitution Interest – Restitution is limited to gain that is “at the plaintiff’s expense.” One who has been unjustly enriched at the expense of another is required to make restitution to the other; an amount corresponding to any benefit conferred by P upon D in the performance of the contract.
3. Expectation Interest  (Benefit of the Bargain Rule)– An amount intended to put P back in the position that they would have been in had the contract been fully been performed as agreed.
4. There is also specific performance. (See part C below.)
                C. Specific Performance for Breach of Contract
1. A court will decline to order specific performance (because of I(A)(2)(c)) of a contract if, in the words of the Restatement Second §359, “damages would be adequate to protect the expectation interest of the injured party.”
                D. Punitive Damages for Breach of Contract
1. Although punitive or exemplary damages are not traditionally granted for breach of contract, they may be granted for tortuous conduct that is sufficiently “outrageous” to justify punishment.
2. There is a trend toward greater use of punitive damages, especially in claims involving insurers.
3. Nominal damages are a minimal sum such as $1 that are awarded when P has proved technical invasion of this rights or a breach by P of some duty owed to P, but where P cannot prove substantial loss or injury.
4. Compensatory damages – are awarded to compensate P for the los or injury suffered.
E. Arbitration
1. Alternative to the resolution of disputes in court. Procedure is ore flexible and informal than judicial procedure and the arbitrators may give no reasons for their decisions.
2. In the U.S., arbitration is the subject of both federal and state statutes.
3. Because arbitration is a process by which parties voluntarily refer their disputes to a special tribunal, an arbitration can validly take place only if the parties agree to use this method.
4. Because a decision by arbitrators is subject to only very limited review by a court, they can reach decisions and give relief that a trial court cannot.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
II. Chapter 5: Remedies for Breach(Class 2)
            A. Specific Relief
1. The discussion of specific performance for breach mentioned the assumption that the appropriate form of relief is substitutional, in the form of a judgment awarding money damages to be paid to the aggrieved promisee, rather than specific, in the form of a court order directing the promisor to perform its promise.
2. Where damages are shown not to be an adequate and just remedy, equity may allow specific enforcement of the contract. Adequacy is the line of demarcation from when you get specific performance and when you don’t.(Last year’s final exam topic.)
3. Courts will not order specific performance of a contract to provide a service that is personal in nature based on the difficulty of passing judgment on the quality of performance.
 
Lumley v. Wagner(1852) – Opera singer breaks a contract to perform in order to perform at an alternate venue. An injunction is upheld restraining her from doing so. A court will not grant an injunction unless the remedy in damages would be inadequate.
 
Klein v. PepsiCo, Inc. (1988) – (No Specific Performance Where Money Damages are Adequate) – Under UCC 2-716, a non-breaching buyer of goods may seek specific performance of the contract if the good being sold is unique. However, specific performance is inappropriate where money damages are recoverable and adequate. Under UCC 2-716, a non-breaching buyer of goods may seek specific performance of the contract if the good being sold is unique. However, specific performance is inappropriate where money damages are recoverable and adequate. Rule: Specific performance may not be awarded where there are substitute goods that can be purchased to satisfy the original contract.
 
Laclede Gas Co. v. Amoco Oil Co. (1975) – (Practical Approach) – The law does not require that both parties be mutually entitled to specific performance for one of them to receive that remedy, All that is required is inadequacy of a remedy at law. Although specific performance is a discretionary remedy, when certain equitable rules have been met and the contract is fair and plain, specific performance is available as a matter of right.
1.(Pr
                                                                 Applicable Restatements
                                                                §357: Availability of Specific Performance and Injunction
(1) Subject to the rules stated in §§359-69, specific performance of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty.
(2) Subject to the rules stated in §§359-69, an injunction against breach of a contract duty will be granted in the discretion of the court against a party who has committed or is threatening to commit a breach of the duty if
                (a) the duty is one of forbearance, or
(b) the duty is one to act and specific performance would be denied only for reasons that are inapplicable to an injunction.
Comment b: Injunction
A court may by injunction direct a party to refrain from doing a specified act in two types of cases: (1) When the performance due under the contract consists simply of forbearance, and the injunction in effect order specific performance and (2) when the performance due under the contract consists of the doing of an act rather than of forbearance, and the injunction is used as an indirect means of enforcing the duty to act.
 
                                      §359: Effect of Adequacy of Damages
(1) Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation interest of the injured party.
(2) The adequacy of the damage remedy for failure to render one party of the performance or does not preclude specific performance or injunction as to the contract as a whole.
(3) Specific performance or an injunction will not be refused merely because there is a remedy for breach other than damages, but such a remedy may be considered in exercising discretion under the rule state in §357.
 
                                      §360: Factors Affecting Adequacy of Damages
In determining whether the remedy in damages would be adequate, the following circumstances are significant:
                (a) the difficulty of proving damages with reasonable certainty,
(b) the difficulty procuring a suitable substitute performance by means of money awarded as damages, and
                (c) the likelihood that an award of damages could not be collected.
Comment b: IF the injured party has suffered loss but cannot sustain the burden of proving it, only nominal damages will be awarded. He if can prove some but not all of his loss, he will not be compensated in full. In either case, damages are an inadequate remedy.
 
                                      §362: Effect of Uncertainty of Terms
Specific performance or an injunction will not be granted unless the terms of the contract are sufficiently certain to provide a basis for an appropriate order.
 
                                      §364: Effect of Unfairness
(1) Specific performance or an injunction will be refused if such relief would be unfair because
                (a) the contract was induced by mistake or by unfair practices,
(b) the relief would cause unreasonable hardship or loss to the party in breach or to third persons, or
(c) the exchange is grossly inadequate or the terms of the contract are otherwise unfair.
(2) Specific performance or an injunction will be granted in spite of a term of the agreement if denial of such relief would be unfair because it could cause unreasonably hardship or loss to the party seeking relief or to third persons.
 
                                      §365: Effect of Public Policy
Specific performance or an injunction will not be granted if the act or forbearance that would be compelled or the use of compulsion is contrary to public policy.
 
                                      §366: Effect of Difficulty in Enforcement or Supervision
A promise will not be specifically enf