School: Penn State University Dickinson School of Law
Course: Contracts
Semester: Spring 2014
Professor: Reilly
Outline
Chapter One BASES FOR ENFORCING PROMISES
Section 1 Enforceable promises: An Introduction
1. Economic basis: consideration
Traditional basis: moral incentive for wrong and right behavior
2. Promise: only legally enforceable promise can be remedied. Promises of illegal activities are not enforceable.
Hakwin v. McGee — It depends on more than a statement of promise rather other factors to be considered.
Facts: Doctor made a promise that the surgery would make an injured hand 100 percent good hand. After the surgery the promise failed and the hand was even worse than before.
Issue: Whether the doctor’s statement was a guarantee of legally enforceable promise?
Holding: Yes.
Rationale: 1) It seems obvious that proof of their utterance would establish the giving of a warranty in accordance with his contention.
2) There are other factors to make the statements of promise rather than just a prediction, reassurance of patients and an inducement for the granting of consent.
Discussion: What if the doctor is a university professor or just a family doctor?
It depends on other factors.
Bayliner Marine Corp v. Crow — The statements contained in “propmatrixes” which refers to another boat did not constitute an express warranty of the boat at issue. Mere opinion does not constitute a warranty.
Facts: Seller promised a maximum speedy of a boat under a “prop matrixes” statement. The prop matrixes statement did not contain the specific information of the sold boat but information of other related boats.
Issue: Was it a promise or not?
Holding: Not a promise.
Rationale: The seller provided information but it’s not a legally binding promise. The information did not relate to the purchased goods. The statements in the “prop matrixes” provided by Bayliner did not relate to the particular boat purchased by Crow, or tone having substantially similar characteristics. The statements, instead, referred to a boat with different sized propellers that carried equipment weighing substantially less than the equipment on Crow’s boat. Therefore, the statements contained in “propmatrixes” did not constitute an express warranty by Bayliner about the performance capabilities of the particular boat purchased by Crow. An affirmation merely of the value of the goods or a statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty
Section 2 Remedying Breach
Analysis step: 1) whether the statement is a promise? 2) if yes, whether the remedy shall follow the promise?
United States Naval Institute v. Charter Communications, Inc — Profits in previous month is reliable basis for the expected loss.
Facts: P authorized D the author’s copyright not sooner than October, 1985. D published paperback earlier than the contract required, P’s hardcover edition’s sale was significantly affected because of D’s publication.
Issue: whether the damages shall be measured by the profits of the D or the loss of the P if the paperback were not published?
Holding: measured by loss of the P.
Rationale: The measurement of P’s profits in August is not speculative. It is not error for court to find the preponderance of the evidence indicated that D’s early shipment of copies of its paperback edition, some 40% of which went to retail outlets and led to the Book’s rising close to the top of the paperback bestseller lists before the end of September 1985, caused P the loss of some hardcover sales. It is not error. In terms of the estimated loss, it is within the prerogative of the court as finder of fact to look to P’s August sales.
Policy: Incentive for changing the publishing industry behavior that not encourages them to breach of contracts for more profits.
Sullvian v. O’Connor — Expectancy: The amount that P would have gained had D not breached; Restitution: Return the benefits that P gave to D; Reliance: Recover any proximate and foreseeable loss.
Facts: D did act according to the professional standard, but failed to perform the duty in contract. So D is not liable in torts but liable in contracts.
Issue: what is the measure of damages to be applied where D’s liability is found.
Holding: APPLY RELIANCE MEASURE. P is entitled to recover from D under contract which is measured by expectation interests. The remedy includes not only the surgery but also the possible loss like wages the value of her beauty and embarrassments.
Rationale: Measure I – Expectancy(期待利益). An amount intended to put the P in the position he would in if the contract had been performed, or presumably, at the P’s election. Measured by the more pain than the patient would have had to endure, P is compensated for the difference as a proper part of his expectancy recovery. Measure II – Restitution(恢复原状). An amount corresponding to any benefit conferred by the P upon the D in the performance of the contract disrupted by the D’s breach. Measure III – Reliance（信赖利益）. P is entitled to recover any expenditures made by him and for other detriment following proximately and foreseeably upon the D’s failure to carry out his promise. General rule is that no compensation for psychological injury or emotional distress, because of lack of foreseeability. Here is the exception: medical operation. Because both physical and psychological pains are foreseeable and a probable consequence of the breach of contract.
Punitive Damages
White v. Benkowski — General rule punitive damages is not recoverable for breach of contract. Punitive damages are not available in breach of contract actions. This is true even if the breach, as in the instant case, is willful.
Facts: P signed agreement with D to be supplied by D’s well. D maliciously shut off the water supply on nine occasions.
Issue: (1) Was trial court right in reducing jury’s award of compensatory damages from $10 to $1 (2) Are punitive damages available in this action?
Holding: (1) Wrong in reducing the compensatory damages. (2) No punitive damages.
Rationale: (1) The damages here are not nominal, but actual damages. The damages shall not be in mathematical precision, the jury can set a reasonable amount of actual damages. (2) General rule punitive damages are not recoverable for breach of contract. Punitive damages are not available in breach of contract actions. This is true even if the breach, as in the instant case, is willful.
Section 3 Consideration as a Basis for Enforcement
1. Fundamentals of consideration
Hamer v. Sidway
Facts: D promised P to give $5000 if P refrains from drinking, using tobacco, swearing and playing cards or billiards for money until he became 21 years of age. When P did these, D refused to perform.
Issue: whether there is consideration in this agreement?
Holding: Yes.
Rationale: A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other. Here it is sufficient that P restricted his lawful freedom of action within certain prescribed limits upon the faith of his uncle’s agreement, and now having fully performed the conditions imposed, it is of no moment whether such performa
at-will employee to a proffered noncompetition agreement, the employer continues an at-will employment relationship that could legally be terminated without cause. Here, neither party exercised that legal right to terminate the employment relationship for an additional ten years. So the detriment of employer is not exercise the right to terminate an at-will contract.
Dissent: No consideration exists. Because P has relinquished nothing, since it retains exactly the same preexisting right it always had to discharge the employee at any time, for any reason, for no reason, with or without cause. D has gained or been given nothing other than what he already had.
4. Promises as Consideration
1) Unilateral contract: performance in exchange for promise;
Bilateral contract: Promise in exchange for promise
2) Promise is a valid form in exchange for another promise or performance as a consideration in contract.
Strong v. Sheffield — Illusory Promises <Restatement &77>
Facts: P sued D, requiring D to perform her promise to be the guarantor of her husband’s debt. D argued that the promise of guarantee is not a legally enforceable promise because it lacks consideration for her promise. D said: “I will hold it until such as I want my money…”
Issue: whether there is a consideration?
Holding: No.
Rationale: The agreement made is not left to inference, nor was it a case of request to forbear, followed by forbearance, in pursuance of the request, without any promise on the part of the creditor at the time. The evidence failed to disclose any consideration for D’s endorsement.
Mattei v. Hopper
Facts: P and D entered into a contract and P agrees to buy the land for $57,500 with $ 1,000 deposit fee to the real estate agency. P gets 120 days to close by paying remaining of purchase price. The condition is P’s SATISFICATION upon the lease. D changed minds during 120 days and refused to complete the transaction. D argued that SATISFACTION clause is an illusory promise that lacks mutuality of obligation.
Issue: Whether UPON P’s SATISFACTION condition is an illusory promise?
Holding: No.
Rationale: SATISFACTION clause is not necessarily an illusory promise. The courts have two tests to examine whether such clause is actually illusory. First, use reasonable person standard to determine whether satisfaction has been met. Second, use Good Faith test to determine the clause. Although these decisions do not expressly discuss the issues of mutuality of obligation or illusory promises, they necessarily imply that the promisor’s duty to exercise his judgment in good faith is an adequate consideration to support the contract.
Eastern Air Lines, Inc v. Gulf Oil Corporation
Facts: P and D entered into an agreement, stating that D is required to provide P with aviation fuel with a fixed price. During the performance, the market price for the fuel soars and D increased the price, P refused and insisting on the contract price.
