CONTRACTS
KREUTZER
SPRING 2012
Issue Spotting Guide
1. Do we have a contract?
(a) offer
(b) acceptance
(c) Enforceability
i. Consideration
ii. Promissory Estoppel
iii. Intent to be Legally Bound (PA only)
2. What does the contract say?
(a) express language
(b) warranties
(c) course of performance, usage, etc.
(d) “missing” provisions that the underlying law fills in
3. Has the contract been breached?
(a) what is the breach and who committed it?
(b) is it a total or partial breach?
(c) are there any available defenses for breach?
4. If the contract has been breached, what remedy?
(a) Expectancy
(b) Reliance
(c) Restitution
5. If the contract has been breached and there is to be some remedy, what is the dollar amount of the remedy?
Damage interests
Damages in General
· Nurse v. Barns (1664 – CB 71)
o Special damages can be awarded (i.e., the loss and including incidental damages caused by breach)
· Restatement (Second) §347 Measure of Damages in General
o Subject to the limitations…the injured party has a right to damages based on his expectation interest as measured by
(a) the loss in value to him of the other party's performance caused by its failure or deficiency, plus
(b) any other loss, including incidentals or consequential loss, caused by the breach, less
(c) any cost or other loss that he has avoided by not having to perform
· Damages
o Expectations is usually the default. If you can’t prove what your expectation/profit is, then you go to reliance.
o Reliance – we have a split
§ Jack Dempsey is really just what you spend in reliance of the contract
§ Anglia v. Reed
· Money before and after K
o Once he came on board, he knew that if he left everything would be wasted.
§ Mistletoe & certainty
o Restitution
· Perspectives: The Reliance Interest in Contract Damages – Lon L Fuller & William R Perdue
o We measure the extent of injury
o We determine whether it was caused by D’s act
o We ascertain whether p has include the same item of damage twice in his complaint
o Normal rule for damages: the expectancy rule:
§ But compensating P by giving him something he never had
§ Lossà “ought”
o The Purpose Pursued in Awarding Contract Damages
§ Restitution interest: force D to perform his promise, disgorge value he received from P
· Object: prevent ion gain by d at the expense of p promisee
§ Reliance: award damage to P for purpose of undoing harm which his reliance on D’s promise has caused him,
· Object is to put him in as good a position as he was before
§ Expectation interest:
· Give promisee the value of the expectancy which the promise created
· Some notes on economics
o Kaldor-Hicks Efficiency
§ All we care is that C gets the cow, we don’t care how.
§ Example:
· A
· B
· C
· 1 Cow (Value)
o A says I want to chop it up and make steaks (5 units of benefit)
o B says I want it as a pet (2 units of benefit)
o C says I want to start a dairy farm (10 units of benefit)
· We should give the cow to C because the most units of benefit will come out of C
o Pareto Efficiency
§ We can’t just look at efficiency we have to look at fairness too
§ Give the cow to C, but compensate A & B
Expectation
CrunchTime Pg. 97
· The benefit of the bargain.
· The court attempts to put the promisee in the position in which the promisee would have been had the promise been performed
· Formula for Calculating:
o Ps expectation = value of D’s promise performance (generally the contract price) – whatever benefits P has received from not having to complete his own performance.
o Three steps:
§ (1) figure out what the position of the non-breaching party would have been if the promise had been kept;
§ (2) figure out the position that the non-breacher is presently in as a result of the breach;
§ (3) figure how much he or she needs to get from the present position to the position he or she would have been in if the contract had been performed as promised.
· Remember the Stove example: if they were willing to spend $801, they must’ve expected to make at least $801 (so expectancy is $801, even though $270 of that was pre-K à if we subtract the pre-K $270, then it’s reliance)
· Note: “looks forward” to the position the parties would have been in if the contract had been performed as promised.
· If the non-breaching party would have made a loss if the K had come to fruition: This is the rule: the breaching seller can deduct any amount the seller can show the buyer would have lost if the seller had performed the contract as promised.
· Mitigation for Goods UCC §2-712: (Cover Price – Contract Price) + (incidental and consequential damages) – expenses saved = expectation damages
o Remember Notes example? (-10)+(-3)+x=2
§ Solve for X à NET PROFIT = ACTUAL COSTS INCURRED + X
· X = Expectation
· Reasons for Expectation:
o Psychological
o Economically
o Will Theory
o Juristic – we want to keep the idea of opportunity costs.
o In general, want to enforce people’s intentions.
Reliance
CrunchTime Pg. 99
· Focuses on promisee’s position
· Promisee changed its position to its detriment in reliance on the promise – as by incurring expenses in performing or preparing to perform – the court might award a sum of money intended to compensate for this loss
· Recovery would then be measured by the promisee’s reliance interest, in an attempt to put the promisee back in the position in which the promisee would have been in had the promise not been made.
· Formula: reliance = amount P has spent in performing or in preparing to perform.
o Awarding the expenses the non-breacher incurred in reliance on the contract
· When: where there is a contract, but expectation damages cannot be accurately calculated, OR where there is no contract but some relief is justifiable (quasi-K)
· Note: The reliance measure does not “look forward” at what would have happened; it “looks backward” at the status quo prior to contracting and returns the parties to that state.
Restitution
CrunchTime Pg 100
· To recover money in restitution, you must show:
o (1) that you conferre
ar; P performed medical service; D died; no agreement b/w D & P
§ A party may recover for medical services rendered in good faith to another party while that other party is incapacitated or in some other way unable to assent.
§ The contract in question was an “implied” or “quasi” contract made since D was unable to assent or provide a return promise.
o Martin v. Little Brown and Co. (1981 – CB 269)
§ P notifies D that 3rd Party plagiarized them, then requests $, D offers $, P seeks more says quasi-K.
§ Rule: In order to construe an implied contract from a course of conduct between two parties, an intention to pay on the part of the alleged promisee must be reasonably inferable.
§ In the absence of a contract, restitution is only available when someone has been “unjustly enriched at the expense of another”
§ Volunteers generally have no right to restitution
How to identify them and how to calculate them
Specific Performance
· The black letter law is: specific performance will not be given when money damages would be adequate.
· Transfer of Land
o Land is presumptively unique, but you can rebut the presumption with condos and similar things that have adequate remedies.
o Loveless v. Diehl (1963 – CB 198)
o L leases land to Diehl, option to buy for $21,000 expires December 15,1959; Diehl spends $$$ on improvements; Diehl finds buyer for $22k; L refuses
§ “Where land or any estate or interest in land is the subject-matter of the agreement, the jurisdiction to enforce specific performance is undisputed, and does not depend upon the inadequacy of the legal remedy in the particular case.”
§ “To deny specific performance, and to award instead an amount of damages far below the buyers’ expenditures in improving the property, would result in the sellers’ being unjustly enriched for their culpable refusal to carry out their promise.”
· Transfer of Goods
o Guiding Policies:
§ Difficulty of supervision
§ Excessive cost of performance (the builder who built the house a foot off example)
§ Cost to the judicial system
o UCC §2-716 Buyer’s Right to Specific Performance or Replevin
o Specific Performance is most frequently going to be available when covering is going to be very difficult or impossible; the thing in question is unique.
§ In the case of most contracts for the sale of goods, money damages will be adequate. Typically, the non- breaching buyer can buy replacement goods; the non-breaching seller can resell. In either case, a monetary award will put the non-breacher in as good a position as he or she would have been in had the contract been performed as promised.
· Anything lost by having to cover as a result of D’s breach would be made up by UCC §2-712 damages: cover price – contract price.
