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Contracts
Rutgers University, Newark School of Law
Hyde, Alan

Contracts: Alan Hyde’s Fall 2012 Class

Rutgers-Newark: School of Law

Contracts Introduction

1) Types of Contracts

a. Express Contracts: A written or oral contract formed by language based solely on the words of the parties.

b. Implied Contracts: Based on the conduct of the parties, manifestation of assent other than language

i. Implied in Law: Quasi-Contracts, they are not contracts but courts construct these to avoid unjust enrichment and by allowing the plaintiff to bring an action of restitution

ii. Implied in Fact: This is a true contract which is not formed by words of agreement but is inferred from other words, acts or conduct by the parties

2) Contract Suits

a. Contracts: Where the parties have formed a legally enforceable contract and the defendant has breached the contract, the plaintiff will normally sue on the contract.

i. The plaintiff brings a suit for the breach and the court will look to the contract to determine whether there was a breach and for help in calculating damages

b. Quasi-Contract: There are circumstances in which the P is not seeking enforcement of the contract but is seeking damages based on the actual value of the P’s performance, irrespective of any price set on the contract.

i. Possible Situations:

1. No Contract

a. No contract was attempted to be formed: When there were no attempts to even form a contract but the P deserves recovery anyway

i. Example: When P supplies emergency services to D expecting recovery

b. Unenforceable: When the contract is unenforceable because:

i. Contract is vague

ii. Contract is illegal

iii. Based on mistake

iv. Barred from the Statute of Frauds

v. Impossibility

vi. Frustration of purpose

2. There was a contract

a. When the contract is enforceable but:

i. The plaintiff breached himself so he cannot recover damages

ii. Cases where the defendant has breached but the plaintiff is not entitled to damages

ii. Possible damages: Expectation damages are rarely awarded. Both reliance damages and restitution damages are frequently awarded and are chosen based on the equities of the case

iii. Commonly used: In construction cases where the builder’s work did not constitute substantial performance of the contract

iv. Willful Default: In many states, a defaulting P cannot recover in quasi-contract if his breach was willful

UCC Introduction

1) UCC 1-103: Common law supplements the UCC

2) Flexible Contracts:

a. Save the deal: Gianni, Lorenz, Empire Gas

b. Save the deal on other theories: Lorenz (oral agreement) or implied K

Remedies

1) Restatement 346: Availability of Damages

a. The injured party has a right to damages for any breach unless the claim was suspended or discharged

b. Nominal damages can be awarded

2) UCC 1-106: It protects expectation interest and remedies shall be liberally administered to the end that the aggrieve party may be put in as good a position as if the other party performed

3) Expectation: There are 5 expectation damages

4) Hyde’s Damages List

a. Contract Liability:

i. Expectation: Hawkins, Peevyhouse, and nearly all cases

ii. Reliance: Security Stove, L. Albert

iii. Restitution: Oliver

b. Promissory Estoppel

i. Expectation: Ricketts, Janke

ii. Reliance: Hoffman

c. Quasi-K

i. Restitution: DeLeon

5) Theories of Contract Formation: Less conventional à More Conventional

a. Offer and Acceptance

b. Quasi-Contract

c. Subjective “meeting of the minds”: Raffles

i. Not American Law: Will argue that “I didn’t mean it”

d. Objective “reasonable person”: Embry

i. Even if one person said there was no contract- The question is if a reasonable person believes there is a contract

e. Objective (Misunderstanding) “reason to know”: Lamb and Section 20

f. Negligence or tort like approaches: WPC

i. The question is: Who is liable – Measured by the degree of fault

g. Promissory Estoppel/Reliance: Janke and 87(2)

i. The question is: Who was offering and did the offeree rely?

h. UCC- Save the deal with gap fillers: 2-204-2-207 (Preliminary agreements + Default gap fillers)

i. When people are doing a business on a document: Gap fillers are used to provide consideration

ii. Also: Preliminary agreements + Good faith negotiations on the remainder of the agreement

iii. 2-207

i. Usage of trade/Course of dealing: 2-322 etc. (delivery ex ship)

i. It is no defense for contract formation: See Ricketts

j. Duress and Misrepresentation Questions: The UCC wants to save the deal usually but in cases of duress and misrepresentation, we look at the approaches above

Expectation Damages

1) Definition: An award of money damages that put the aggrieved party into the economic position that full performance would have.

a. Includes: An award of losses caused and gains prevented by D’s breach, in excess of savings made possible

b. Valuation in General: Based on a reasonable person and only compensates economic injury.

i. Human valuation:

1. Does not include: The moral or mental state of the breacher

2. Machine: Think of humans as a machine to get rid of a emotional tone- Difference between the value of the machine if it had complied with warranty – its actual value

c. Restatement 344: Rest. §344 (a) his “expectation interest,” which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed,

2) Formula: Value of what was promised – Value of what was received + incidental + expenses incurred in reliance of the defendant’s performance of his contractual promise – costs he avoided by not having to perform

a. Incidental damages: Damages reasonably associated with the breach and incurred in the consequence for purpose of using and enjoying benefits

b. Consequential damages: Further damages that are caused by the breach that were dependent on the contract

c. Pain and suffering: Does not include pain and suffering but incidental damages may include pain and suffering

d. Benefit of the bargain: The plaintiff is given his benefit of the bargain, including any profits he would have made on the contract

e. Sources:

i. Rest. §347 (a) the loss in the value to him of the other party’s performance caused by its failure or deficiency, plus (b) any other loss, including incidental or consequential loss, caused by the breach, less, (c) any cost or other loss that he has avoided by not havin

of reducing its volume of sales in which the second sale is not a substitute, its proceeds should not be treated as reducing the loss from the breach and the seller is entitled to recover its full profit expected under the breached transaction

i. Rule: The breaching party has the burden to prove with specificity that the employee could have avoided damages by finding a

1. Similar: Comparable and substantially similar employment and

2. Not Inferior/Different: not one that is of inferior and different in kind

ii. Limitation of Mitigation: The damaged party does not have to do certain things to mitigate damages (suffer undue humiliation, risk and undue burden)

iii. Determination: Depends on the reasonableness of P’s response to the breach

1. Choices available, risks and hardships with choice, how much time to respond, motive

iv. Additional sales: The damaged party must also prove that additional sales would have continued to generate profits at an equal extent

1. Factors: Seller’s marginal costs, competition in the market place from used goods, and other factors may reduce and ultimately eliminate profitability

v. Source: Restatement 350

1. Rest. §350 Avoidability as a Limitation on Damages. (1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation. (2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.

vi. Goods seller: If a seller has an unlimited supply of something, if a buyer breaches, the seller can recover lost profits and incidental damages

vii. Employment Contracts: The general rule is that the measure of recovery by a wrongfully discharged employee is

1. Employment Formula: the amount of salary agreed upon for the period of service – the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment

viii. Damages of wrongful discharge: Salary that would have been payable during the remainder of the term – the income which he has earned, will earn or could with reasonable diligence earn during the unexpired term.

1. Employee does not need to: Go to a location unreasonably distant from his residence or a residence apart the employee’s spouse

2. Reputation: Injuries to reputation are too remote and not in contemplation of the parties

ix. Wrongful Termination: Additional market cost of obtaining substitute help of unexpired term; Difference between market value of services – contract rate of compensation