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Contracts II
South Texas College of Law Houston
Powers, Jean Fleming

Contracts II Outline
Spring 2006
Sources of K Law
Common Law
Case law
Restatement – tends to be majority rule
Statutory Law
Articles 2 (sales of goods) and 2A (leases of goods)
Other provisions
Other statutes that deal with K
Statute of Frauds
Consumer Protection Acts
Statutes on Wills
Case law
Why do we enforce Ks?
Expectations and planning – Idea that we need to rely on things to make plans
Commercial contexts – Ks generally tend to appear in a commercial context. Idea that commerce is becoming more important.
What is the goal of enforcement?
To put somebody contractually whole by moving forward
Affect behavior or protect expectations?
Efficient breach – more economic to do the breach and pay the damages then to fulfill the contract.
Benefit of the bargain – put you where you would have been had the K been performed. Most of K stance.
Compare to tort – start with where you were and where you ended up and put you back. (i.e. you get hit by a car. You sue to get put back in the same position as you were before getting hit by the car).
In K, when you want to be made whole, you look at what you lost by not having K performed.
Why not specific performance?
Law & Equity – you only get to equity there is no proper damage allowed in law
Modern Application – not as rigid application. You still have causes of action and some are legal and some are equitable.
Purpose of enrichment – are we trying to make people perform or make people compensate?
Efficient breach – if there was always specific performance there would be no efficient breach
Expectation, Reliance and Restitution
Damages Introduction
General Rule – K dmgs should put the P in as good of a position as if the K was fulfilled.
No action on a K need to be present for dmgs to be proper. An executory K will suffice.
Purpose of Remedies (R2K 344)
Expectation Interest
Benefit of the bargain – position the P would have been in if the K had been performed.
Reliance Interest
Reimbursement for losses caused by reliance on the K
Restitution Interest
Restoration of benefits conferred on the other party.
Expectation Damages
The idea of expectation dmgs is to move you forward and put you in the situation you would have been in had the K been performed
Gives you the benefit of making the bargain – what you expected to get. Not trying to compensate Pl for harm or trying to punish D
How to Calculate Expectation Dmgs (R2K 347):
The loss in value of the other party’s performance (value of expected improvement)
+ any other loss (worsening of condition, additional costs, additional pain and suffering)
– cost or loss avoided (expenses mitigated)
Example – A man sold his house for $280,000 to a woman. The woman told him that the house was worth $560,000. He tore up their K and refused to sell. She did not pay anything. Woman sues.
How to calculate woman’s damages:
$560,000         (Loss in value)
+ 0  

actual upturn in the value of your land, but the dmgs will be for repair and not for devaluation.
In general, repair theory is appropriate in cases of aesthetics, safety or usability.
Aesthetics come from the right to do what you want with your property and the other comes from the fact that the breach has rendered your property totally unusable. The breaching party should pay for the repairs.
Cost to repair when repair is too costly
Use actual cost to repair if reasonable and in good faith.
If repair is an upgrade, the D is only responsible for repair to restore the P to the same quality. P will pay for any additional upgrade.
Exception: P may get entire amount if no other options are available OR the upgrade would not benefit the P.
Repair Theory vs. Diminution in Value
Repair Theory – P can recover the cost of remedying the D’s defective performance.
Diminution in Value – If the cost of remedying defects is clearly disproportionate to the loss in market value from the defective performance, P will only recover the loss in market value.
Not compared to any appreciated value.
Cts generally favor repair theory dmgs unless economic waste will occur through granting repair dmgs.