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Contracts
St. Johns University School of Law
Borgen, Christopher J.

Contracts I – Borgen – Spring 2013

Enforceable Promises

I. What is a contract?

a. Promise that is legally enforceable

b. Offer + Acceptance + Consideration = Contract

c. Assent + Definiteness = Enforceability

II. Promises that are unenforceable:

a. To do something illegal

b. Too inefficient for courts to enforce

c. Lacking intent (assent) to enter into contract

III. Why do we make contracts?

a. Risk management

b. Joint enterprise

c. Enforcement

d. Fulfilling needs

IV. Contractual Relief

a. Compensatory [At law]

i. Actual damages

ii. Nominal damages: breach but not actual monetary harm

b. Injunctive relief [At equity]

i. Specific performance: order party to perform contract

ii. Use of equity powers; Court looks to:

1. Good faith

2. Fairness

iii. Usually involves ongoing relationship between the parties

c. Not punitive (Restatement §355)

i. Punitive damages include damages for wrongful profits (United States Naval Institute v. Charter Communications, Inc., White v. Benkowski)

V. The Bargain

a. Two parties enter into bargain that is agreed upon as to what contract is about so that it would be reasonable for plaintiff believe he could recover

b. Two Components

i. Assent

ii. Definiteness

c. Inducement: promise induces promisee to perform some act (Hawkins v. McGee)

d. Restatement (Second) § 2 on Contracts, definition of promise:

i. Manifestation of intention to act or refrain from acting in a specified way, so made to justify a promisee in understanding that a commitment has been made

e. Express warranty v. Implied warranty;

i. Express = Specifically stated

ii. Implied = Not, but hinted at.

f. Advertisements, commendations, or opinions are generally not enforceable (Bayliner Marine Corp. v. Crow)

VI. Uniform Commercial Code

a. Can be law

b. Concern over more efficient economic transactions

c. Purpose: promote greater uniformity

d. National Conference of Commissioners on Uniform State Laws & American Law Institute

VII. Categories of Agreements

a. Sale of goods – UCC Article 2

i. Quick & informal; less demanding requirements; repeat players; standardized terms and forms; assumption that goods are available on market; market prices

b. Real estate

i. Buyer, seller, third parties; more formality; intervening activities before closing

ii. Negotiation > signing > closing

c. Construction

i. Typically two contracts: between owner & general contractor, and general contractor & subcontractor

ii. After subcontractor performs: only has contractual right to payment from general contractor (not owner); no right to restitution from owner

iii. Contractor might be accountable if perpetrated a fraud

iv. Mechanics lien laws to protect subcontractors

d. Employment

i. Non-compete: agreement not to work for competing business or set up own business

ii. At-will: employer or employee can terminate at any time

e. Family

i. Often oral, may not be preceded by significant bargaining, informal & lacking in detail

ii. Usually viewed as outside legal sphere

f. Franchising Agreements

i. Selling products and services identified by a particular trade name which may be associated with a patent, trade secret, or particular design or management expertise

ii. Franchisee usually purchases some products from franchisor and makes royalty payments in exchange for right to offer products

VIII. Policies Underlying Contract Law

a. Freedom from Contract

b. Freedom to Contract

c. Court won’t rescue those who simply enter into bad business decisions

d. Freedom of trade from restraints

Remedying a Breach

I. Three types of remedies

a. Expectation interest

i. Put promisee in as good a position as he would have been had the contract been performed

ii. Promisee is worse off than he would have been had the promise been performed

iii. Benefit of the bargain goes to promisee

iv. Default rule in US

b. Reliance interest

i. Put promisee in position he would have been if promise had not been made

ii. Promisee has changed his position to his detriment in reliance on the promise

iii. Promisee is worse off than if promise had not been made

iv. Preferred to expectancy when:

1. Expectancy would be hard to apply or impose too great a burden (Sullivan v. O’Conner)

2. When performance was interfered with by external circumstances

3. When contract was indefinite

c. Restitution interest

i. Put promisor in position he would have been in if no p

for” (sought in exchange for promise and given by promisee)

ii. Consideration for a promise

1. act other than promise

2. forbearance (Fiege v. Boehm)

a. must be good faith basis for claim (subjective) and

b. a reasonable basis for the belief (objective)

3. creation, modification, or destruction of legal relation

4. return promise

iii. §79: sets aside benefit-detriment theory; no “adequacy” of consideration

1. Except for instances when court’s in equity looking to deal with fairness. (Peppercorn issue. Is consideration sufficient?)

i. Gratuitous Promises

i. Generally not supported by consideration; not contractual

ii. Peppercorn: consideration of trifling value (insufficient consideration)

iii. Court may apply framework of reasonable person if value is different from what it seems to determine if promise is peppercorn

j. Nuisance Litigation/”Strike Suits”

i. Lawsuits with sufficiently low chance of prevailing at trial; brought for prospect of settlment

ii. Frivolous; FRCP 11(b) says attorney must certify it is not improper

III. Requirements of Exchange: Action in the Past

a. Traditional rule: Past action generally is not valid consideration (Feinberg v. Pfeiffer, Mills v. Wyman)

i. Action in past was not induced by promise so it cannot support the promise

ii. Exceptions:

1. Promise to pay debt no longer legally enforceable due to statute of limitations

2. Promise by adult reaffirming promise made when promisor was a minor and could have avoided on that ground

3. Promise to pay a debt that has been discharged in bankruptcy

4. Moral obligation

a. Sufficient to support subsequent promise where promisor has received a material benefit, although there was no original duty or liability resting on promisor (Webb v. McGowin – K created because promisee cared for, improved and preserved the property of the promisor, thus providing a material benefit.)