Kniffin, Fall 2011
· Sullivan (entertainer with botched nose job) v O’Connor (doctor)
o RULE: Courts can award reliance damages for breach in pt v doc cases, when the doctor affirmatively promised a particular result
o First time that a lawyer argued that a malpractice case should be viewed as a K
§ Court considers the policy arguments for this and decides it is a K
· **arguments are omitted from casebook**
o Usually courts give expectation damages, but declined here
§ Argued it didn’t want to be overly hard to doctors
§ Didn’t want to begin considering the expected value of the nose job
o Three types of damages
§ Restitution – recovery of any expenses paid directly to D
· Typically not part of expectation damages, but may be if there was a partial pre-payment
§ Reliance – damages to make P whole as before the K (back in time)
· Incidentals – recovery of expenses, fees to hospital, etc
· Pain and suffering – suffered for operations
§ Expectation – damages to make P whole as if K was executed (forward in time)
· These are distinct from consequential damages because these consider foreseen value gained in a chain reaction from K, whereas Reliance and Expectation look at units of utility as value to P.
o Example of calculating damages (using note 1, pg 19)
· Hospital fees: $300 ($100 per operation x 3)
· Pain: $9,000 ($3,000 per operation x 3)
· Nose value: $10,000 decrease in value
· Restitution: $300 in fees directly to doctor
· Hospital fees: $100 ($100 per operation x 1)
· Pain: $3,000 ($3,000 per operation x 1)
· Nose value: $30,000 delta in expected value
· Restitution: NA, forward looking
o Courts usually give expectation damages, however:
§ May be difficult to calculate
§ May be a partial breach, therefore difficult to calculate
§ Sullivan court – “it would be harsh to give expectation damages”
· But that’s wrong, not the point of K law
§ Sullivan court – “doctor was found innocent of negligence”
· But that’s not the point; only breach of K matters
· Arbitration differs from K law
o Binding; no appeal process
o Not bound by rules of evidence, UCC, etc
o Not required to disclose RD
o More expedient the courts
o Each party has a say in who the arbitrator is
· Hamer (nephew refrained from smoking, drinking etc) v Sidway (uncle promised to pay)
o RULE: the surrender of a right can serve as consideration
o Requirements of a K
§ Mutual accent: both parties agree to be bound (the bargain)
§ Consideration: an exchange of values by EACH party
· A benefit to me (including a promise, which has value)
· A detriment to you
o Why require consideration:
§ Procedural: it prevents courts being flooded with every nonsense promise
§ Cautionary: when parties commit a value, they think twice about a K
§ Evidentiary: helps courts decide on Ks
o Contrast with a gift (or promised gift), where there is no exchange of values
o Contrast with hurricane hypo (two men trade $100 and a $100 briefcase when blow to each other in a storm. Values were exchanged, but there was no bargain
o Did the uncle in Hamer receive a value?
§ Court declined to consider
o Did the nephew in Hamer suffer a detriment?
§ Yes, he gave up his legal right to smoke
· Giving up a non-legal activity (speeding?) is not a detriment
o Since both uncle and nephew received consideration, K is formed
o Consideration does not have to be the only or even chief benefit desired
§ EG. A man sets K to paint a picture for $500, but his real motive is desire for fame. $500 still counts as consideration.
o Psychological happiness generally NOT considered consideration (e.g. Uncle’s desire for nephew to not smoke)
o If uncle had given actual cash at outset, there is no clawback against nephew.
o Offeror has choice to ask for a promise or performance
§ Offeror always makes a promise (e.g. to pay $ in the future)
§ If he requests a promise, it is a bilateral contract (2 promises)
§ If he requests performance (e.g. Hammer) it is a unilateral contract (1 promise)
· K is not formed until performance is complete
· Question of ability to revoke offer once performance has begun?
· Procedure issues regarding the raising of issues / points
o In some states, if one side doesn’t raise an issue, the court cannot
o In other, courts are required to raise issues for both sides
· Contract offeror
o Unusual, but you can have a contract where there is NO offeror
§ For example, corporate negations done by lawyers, set term sheet, and both companies agree to K simultaneously
o Offeror is master of his offer
§ Can set mode of acceptance
§ Cannot request illegal terms
§ Can ask for a promise (bilateral) or a performance (unilateral)
· Under a unilateral K, other party must complete performance before K is formed
· Most K are bilateral because it satisfies each parties desire for a future action.
o EG: you order goods, you want the promise (certainty of arrival) rather than waiting on the uncertain arrival of goods
o Courts generally do not require if consideration is sufficient
· If K is unconscionable (EG prices outrageous)
· If consideration is only token
· Token consideration
o Courts are divided on the subject
o EG: parent sells a house to a child for $1
o EG: Father has 2 children; one is retarded. Father sets K with brother to care for sister for life. Sister would pay the brother a “hairpin”
§ Brother grew dissatisfied with burden of care and breached
§ Court rules that the hairpin was only token consideration
· Fiege (promiscuous woman promises not to file paternity suit) vs Boehm (man)
o RULE: Forbearance of bringing suit for a valid claim can be consideration, but an invalid claim cannot be consideration. EXCEPT forbearance of an invalid claim can be consideration if the forbearer has a bona fide subjective believe it is valid, AND this believe is reasonable.
o Rule of law note: if you suffer a MATERIAL breach, you are released from the rest of the K
§ EG in Feige: the man’s stopping of payment released Feige from her promise not to file a paternity suit
o Assuming the parties had mutual consent, was the promise not to file a paternity suit sufficient consideration?
§ This was the first impression of this issue in MD: is forbearance of a claim sufficient consideration.
§ Court looked to Rest 1st :
· Requires that the forbearing party has belief that is
o Honest (person really believes it) AND
o Reasonable (the belief stands to reason)
§ Contrast with Rest 2nd:
o Requires only Honesty (“ one believes a claim may be fairly determined to be valid”)
o Reasonableness is not included in Rest 2nd
· Feiberg (old lad retired when give a pension not previously promised) v Pfeiffer (company wants to stop paying pension)
o RULE: past performanc
EG “I promise to buy your house when I feel like it.” = illusory
· EG: “I promise to buy your house when I win lotto” = a real promise, although unlikely.
· Strong (debt holder desires payback) v Sheffield (Wife [owned her own business] promises to back husbands debt)
o RULE: an illusory promise is not consideration
o P promises not to “bank” (i.e. cash in) the promissory note, “until such a time as I want my money”
o Did the note holder make a real or illusory promise?
§ Illusory because it was so open ended, it really had no value
· If he had said “I want my money” 5 minutes later, the wife would have received effectively no value.
· If he had promised to not bank it for a fixed period of time (e.g. 6 months) there would be value to the wife
o If the offeror asks for a performance (i.e. hold off on banking the note for 6 months) there is a real promise because it is a unilateral K.
· Mattei (Real estate developer; put satisfactory lease clause in K) v Hopper (seller)
o RULE: Satisfaction clauses do NOT automatically make promises illusory, because it requires good faith by promisor.
o Court offers 2 examples of where clauses are not illusory
§ Commercial satisfaction, which can be settled by a reasonable man rule
· EG: I will paint your barn. There it is, it’s red.
§ Artistic items, which require good judgment can be settled by good faith
· EG: I will paint you a picture of a barn to your liking. Subjective
· However, you could have dishonest dissatisfaction – EG you have a fight independent from the painting, and you decide before even seeing the painting you will claim dissatisfaction as revenge.
o Thus, we have a rule of law that a satisfaction clause is not illusory, per se, because they require good faith
o It can be uncertain how a court will view the satisfaction clause (commercial or artistic), therefore ARGUE BOTH.
o Good faith performance is required of all K, or K is breached.
· Eastern Airlines (airline) v Gulf Oil (oil supplier)
o RULE: Requirement and output contracts are not automatically illusory (due to of uncertainly) because it requires promisor act in good faith
o Requirement contract – I will buy a specific amount of my requirements exclusively from you
o Output contract – I will sell a specific amount of my production specifically to you
o P agreed to buy all fuel from D for specific cities
o Issue: are requirement contracts illusory promises
§ Suggests that it is illusory because it allows the buyer / seller so much choice as to be meaningless (i.e. 0% to 100%)
§ No, because you must act in good faith
· Including, according to UCC, no abusive requirements / outputs, to protect parties from unexpected (although honest) flux in demand
· Subsection indicates basis can be:
o Relative to estimates
o Previous deliveries