Prof. Movsesian – Fall 2011
A. What is a Contract?
-a legally enforceable promise
Restatement 2nd Definition
“…a promise or set of of promises for the breach of which the law gives a remedy or the performance of which the law in some way recognizes a duty.”
B. What is a Promise?
-manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.
C. Types of Contracts/Promises
(1) Express: an agreement between two parties expressed in words
(2) Implied-in-Fact: parties agreement is demonstrated by parties conduct in he circumstances; no words needed
(3) Implied-in-Law (Quasi): no agreement, not a real promise at all
-the law imposes a promise on the parties to avoid an unjust result
-the purpose is to prevent unjust enrichment…nothing to do w/benefit, detriment, etc.
Elements of a Quasi K:
(1) P confers a benefit on the D
(2) D appreciates the benefit (didn't decline…except when unconscious)
(3) circumstances are such that it would be unjust for the D to retain the benefit w/out reimbursing P
Baily v. West: no implied-in-law K b/c #2 is not met – West knew Bailey was taking care of the horse, but he told him he wasn't going to pay for it.
D. Theories of Contracts
(1) Objective Theory of Ks: look not at what a person intends, but what a reasonable person would understand a party to intend in the circumstances
(b) Why do we have this?
-to prevent people from getting stuck in contracts they didn't want to make
(2) Formalism (big on rules) v. Pragmatism (realists, look at circumstances) – courts today generally take a “middle ground”
E. Remedies for Breach of Contract
(a) Types of remedies:
(1) Expectation Measure: attempt to put the injured party in as good as a position had the K been performed as expected.
-this is the one P will usually go for since its pays the most
(2) Reliance Interest: attempt to put the injured party in as good a position had the K never been made. – So pay party all expenses she incurred because of K.
(3) Restitution Interest: reimburse injured party for whatever benefit he/she has conferred on the breaching party; same thing as an implied-in-law K
(b) Often we go with what damages measure the P selects; the court has discretion and may refuse expectation and choose another measure
(c) Sullivan v. O'Connor: the case of the Hedy Lamarr nose…court chooses reliance damages, takes into account everything but decrease in the econ value of her nose (hard to prove)
-Emotional Distress Damages…court says P could get this because it resulted from K and also Dr. could have expected it, but most of the time, you don't get this in K cases. We look to what breaching party would reasonably have expected to pay for breach.
(d) As a general rule, damages in K law are only compensatory
-punitive damages (meant to punish the D): as a general rule, are not available in K law because we want to allow for:
Efficient Breach: We want parties to be entitled to breach if it will be a better deal for them. Holmes view on Ks – promise to perform or pay for damages, not to perform no matter what.
F. Pacta sunt servanda & Changed Circumstances
(a) Definition: agreements must be enforced, no excuse! sticky nature of contracts
(b) Rationale: Making people fulfill their promises is the economically efficient thing to do
(c) Bolin Farms vs. ACSA: cotton farmers try to get out of their forward sales K when the price skyrockets. Court says no weigh Jose!
Rationale: if forward Ks are worthless, then people won't rely on them OR they will make a lot of them & fiddle around with the price, etc.; predictability, fairness
(d) Rare exceptions:
(1) Force majeure clause: clause in K accounting for “irresistible force,” performance is excused if certain events occur
(2) Impracticability and Frustration: performance has become extremely burdensome; party's principle purpose in making the K has been frustrated by a change of circumstances. Must be events so far out of the ordinary that they could not have been foreseen.
II. The Consideration Requirement
A. Theories of Consideration
(1) Positive Theory: what promises courts enforce
(2) Normative Theory: how courts should decide cases
Two Main Normative Theories:
(1) Freedom of K Theory: courts should enforce promises that are the product of bargains
-substance of the deal is irrelevant
-the only requirement for a valid K is a bargain, that's all that matters
(2) Substantive Fairness Theory: courts should enforce substantively fair bargains
-presence of a formal bargain is not conclusive
-what's relevant: was this an adequate exchange? That's what we care about
B. Types of Consideration Contracts
(1) The Unilateral Contract: a promise is exchanged for a performance
-e.g. I promise to give you my book if you give me $50, K exists when you give me the cash, not before…before cash exchange, no obligation to give you the book
(2) The Bilateral Contract: a promise is exchanged for another promise
-e.g. I promise to give you my book tomorrow if you promise to give me $50 the next day; the K exists the moment we exchange promises; if I don't bring book tomorrow, it's a breach, can't say you didn't give me the mo
the time it was made, the court may refuse to enforce the K, or it may enforce the remainder of the K without the unconscionable clause, or it may limit the application of the unconscionable clause to avoid any unconscionable result.”
(b) must big disparity between price and fair value and problem in bargaining process
(c) Jones v. Star Credit Corp.: K is unconscionable b/c
-huge mathematical disparity between price paid & fair price for fridge
-gross inequality of bargaining power (D was taking knowing advantage of P)
(d) this is very rare in American K law
IV. Forbearance to Bring an Invalid Claim
A. Presumption: Invalid Claim is NOT legal detriment (formalist)
(1) refraining from bringing an invalid claim is not legal detriment on the part of the p'ee = no consideration
(a) In re Greene: “the other woman” had no valid claims against D, and therefore his promise to pay taxes & divorce his wife are not enforceable
-b/c claims are invalid, she suffers no detriment to give them up
A. Exception: Invalid Claim CAN BE legal detriment (pragmatist)
(1) legal detriment if p'ee believes claim is valid & a reasonable person would believe it's valid
(a) Fiege v. Boehm: even though D didn't get P pregnant, she honestly believed he did (subjective) & reasonably thought she had a claim under the circumstances
(2) Restatement 2nd Section 74: legal detriment if p'ee honestly believes it is an honest claim
V. Pre-Existing Duty Rule
A. Presumption: Pre-existing Duty DOES NOT = Legal Detriment (formalist)
(1) A promise regarding a pre-existing obligation to the other party does not constitute a legal detriment
(2) Formalist view = very dismissive of modifications the Ks
(3) Alaska Packers: no consideration b/c sailors didn't promise to do anything more than what they promised in the original K…no legal detriment!
-courts don't appreciate “the hold-up game”
(4) Levine v. Blumenthal: tenant agreeing to stay and pay $$ in exchange for landlord's promise to keep current rate is not good consideration b/c he was already obligated to pay $$…no legal detriment