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Contracts
South Texas College of Law Houston
Carlson, Richard R.

Carlson – Contracts I – Fall 2014

I. Generally

A. Contract: promise or set of promises that is part of a voluntary exchange and that a court will “enforce,” or grant some other legal effect

1. Simple simultaneous exchange: trade, no promise present

2. Gifts and gratuitous transactions: no trade at all

3. Even if trade is not the best a party could make, trade can still leave him better off

i. Each party can still gain even in unequal exchange

ii. Gross inequality from unequal bargaining may be red flag

iii. Excusing unequal contracts generally defeats reliability

4. Allows parties to write own rules and enforce duties they created

B. Helpful thought progression

1. Was there a contract? Defense to creation?

i. Consideration and Bargained for Exchange

ii. The Bargaining Process (offer and acceptance)

iii. Battle of the Forms

iv. Statute of Frauds

2. Was the contract breached? Defense to breach?

i. Policing The Bargain

ii. Estoppel and Restitution

iii. Battle of the Forms

iv. Statute of Frauds

3. What is the appropriate remedy: enforcement of promises (damages)

C. Why Enforce Promise?

1. Promotion of commerce: induces reliance on complex commercial transactions

2. Protect reasonable reliance (promises of future actions)

3. Fulfill a likely intent to be bound

4. Simultaneous delivery by each party is not always possible or desirable

5. Problem of going first: party has the most to lose

6. Avoid unjust enrichment

D. Remember judicial economy: government solving private disputes is expensive

E. Rule v. Policy

1. Rule: statement of law a decision-maker is required to follow

i. Enacted by legislature (U.C.C.) or common law judges in case by case adjudication

ii. “A promise is not enforceable unless exchanged for consideration”

2. Policy: value, goal, or purpose judge may feel in deciding a close case/ tinkering w/ a rule

i. May look like an opinion

ii. Not binding and not always universally shared (some judges may follow opposite policies)

iii. Helps attorneys persuade judges/ juries (jury instructions)

iv. EX: promote commerce, ability of parties to engage in long term planning

II. Chapter 1: How and When Does a Court Enforce a Contract?

A. Generally

1. Injunction requires court order before trial à supervision of resentful promisor

2. The idea of a substitute: money award for breach of contract

3. Goal of enforcement: compensate a party for their loss

B. The Expectation Interest and Its Alternatives

1. Basic measures of Damages for Breach of Contract (Restatement § 344)

i. Expectation interest: put P “in as good a position as he would have been in had the contract been performed”

a. *Always start here* usually yields best remedy unless overly speculative

b. Theory: unperformed promise can be converted to a money value (substitute for promise)

c. Should not require a “strain on the imagination”

d. DAS = value of promise – cost avoided + other loss caused by breach (injuries/ expenses)

1. Buyer: FMV (NOT contract price) – any money yet to be paid

2. Seller: promise buyer made to promise to pay (contract price) – FMV of thing not delivered (difference in value; loss of the benefit of the bargain)

3. Review Guggenheim

e. Valuation easy for commodity; difficult for unique or aesthetic item

1. Hawkins v. McGee

2. Sullivan v. O’Connor

i. Promise of a more beautiful nose (guarantee) not just to try

ii. Doesn’t matter how promise was breached or why

iii. Dicta for denying expectation-based damages

a. Disproportionate liability

b. Noncommercial transaction

c. Strain on imagination if successful operation possible

iv. Trial court awards expense of surgery, disfigurement, pain/ suffering of third surgery

ii. Reliance interest: put P “in as good a position as he would have been in had the contract not been made.

a. Reimbursed for loss caused by reliance on the contract

b. Proper remedy for Promissory Estoppel

iii. Restitution Interest: breaching party to restore “any benefit that he has conferred on the other party”

a. Usually when there is no promise

b. Unjust enrichment

c. Recovery of a thing delivred under duress

iv. U.C.C. 2-712: “Cover”; Buyer’s procurement of Substitute Goods

a. Buyer can cover by making in good faith a reasonable purchase w/o unreasonable delay in substitution for those due from seller

b. Buyer can recover from seller the difference between the cost to cover and contract price

v. U.C.C. 2-713: Buyer’s Damages for Non-Delivery or Repudiation

a. Measurement of damages for non-delivery or repudiation by seller is difference between market price at time when the buyer learned of the breach and the contract price

b. Market price is to be determined as of the place for tender or, when rejected after arrival/ revocation of acceptance, as of the place of arrival

2. Compensation v. Punishment (Restatement § 355)

i. Contract law does not punish breach even if it is intended

ii. Intentional breaches are sometimes efficient; not immoral

iii. A promisor is strictly liable for his promise regardless of fault, malice, or intent

iv. Disgorgement

a. Seeking profits of defendant as damages

b. Usually not permitted because its punitive

c. Naval Institute v. Charter Communications: court used profits as evidence of P’s loss

v. Remedy: action by court to cure or compensate a breach

vi. Nominal Damages

a. Very low reward for winning contract dispute,

ay (stealth consideration)

1. Employer does not know about severance pay clause in contract

2. No detrimental reliance b/c of lack of knowledge

3. This knowledge does not matter in BFE, therefore employee can win

c. Broadnax v. Ledbetter

d. Lefkowitz

xi. Family Contracts

a. Family interactions, other motives than trade are possible (gift, family duty)

b. Expression of intent is not always intended as a promise (enforcement not promoting commerce)

c. Test: was transaction reasonably viewed as exchange and not as a gift

1. Was promise stated to induce consideration given by promise?

2. Need not be pecuniary, family circumstances may influence judges

d. Factors

1. Ambiguous promise?

2. More distant relatives are more likely to form binding contract

3. Likelihood of disciplinary or child support motivation?

4. Commercial or important property management goal?

5. Need to carry out promisor’s known intent on his behalf

6. Reliance interests of family members and third parties

7. Detrimental impact of judicial intervention in family

xii. Notable Cases

a. Mills v. Wyman: a thing given before promisor’s promise is not traded for that promise (rule against past consideration)

b. Hamer v. Sidway: promise was given in exchange for forbearance of legal rights… see family contracts; pecuniary considerations are NOT required (difference in courts)

c. Kirksey v. Kirksey: brother-in-law’s promise was gratuitous and lacked consideration. Widow’s detrimental reliance is not a factor (bargained-for exchange theory)

d. Feinberg v. Pfeiffer Co.: bargained-for exchange theory does not apply to past consideration; she didn’t promise continued service or retirement and company requested neither; but this is a good case for promissory estoppel

3. The “Illusory Promise” Problem

i. Making a promise while retaining absolute discretion

ii. Promise not to sell debt while retaining right to sue for collection at any time (Strong)

iii. Satisfaction clauses

a. May seem illusory, but are not if

b. Party makes reasonable attempt to gain satisfaction

c. Party applies judgment in good faith

d. Policy: must allow developers ability to investigate property