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St. Johns University School of Law
Kniffin, Margaret N.

Contracts I Outline (3 credits) – Margaret Kniffin – FALL 2010Basic Principles of Contracts1.) Damages are in the form of money (the norm)2.) Goal is to compensate victim, but not punitive damages3.) Courts give expectation damagesI. DamagesA. Specific Performance
May require exactly what was promised.
Unique goods fall under this
UncommonB. Goal is to compensate but never to punish or have punitive damages
White v. Benkowski
C. Expectation Damages
Court tries to put party in position that they would have been in had the contract not been breached. (Laredo Hides)
(UCC 2-711, 2-712) (expectation)
Cover Formula
1.) Difference between higher market price and contract price.
2.) Buyer must suffer a breach of contract
Cover Price – Contract Price = Damages for Breach
ex. Breached contract for $10. Market price $12. The court orders $2 for expectation damages.
When the buyer covers in the market, his purchase must be done in good faith. Otherwise, it will be switched to market price.
If the buyer chooses not to cover, apply market price formula, which is the cost of the goods at the market when the buyer learned of breach.
D. Consequential Damages
UCC (7-215)
There is an element of reasonable foreseeability  
There is a causal chain reaction —> not direct result of breach —> Cover formula applies
Any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise and injury to person or property proximately resulting from any breach of warranty.
E. Incidental Damages
UCC 2-715
Not the main result of breach but it still occurred. Resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges expenses or  commissions in connections with effecting cover and any other reasonable expense incident to the delay or other breach.
F. Reliance Damages   
Sullivan v. O’Connor – physician/patient case
Patient given reliance not expectation. Reliance puts the party back before the contract as if it was never made.
G. Restitution Damages
Unjust enrichment. Technically, it is under reliance. (Sullivan v. O’Connor)
II. Consideration
A bargained-for exchange desired by both parties in which each party receives something that is EITHER a benefit to that party or a detriment to the other party.

*The plaintiff and defendant must be judged on their own merits*
Conditional gratuitous exchange is a gift, not a bargained for exchange
A. Offeror dictates the terms of the contract. The offeree accepts.B. Detriment could be a hidden benefit.
Giving up a legal right is a detriment
Hamer v. Sidway – gave up right to drink and smoke
Cannot give up right to do something illegal
There is no rule that a benefit to one is a detriment to the other
C. Performance
Unilateral (Performance), void until completed (offer is completed)

Bilateral (Promise)…contract is made immediately…courts usually lean towards promise  on uncertain cases.
D. Unconscionability  
Extremely unfair contract (could be restitution)
ex. Refrigerator hypo – old couple bought a refrigerator for $1200 from traveling salesman. Could have purchased same refrigerator for $300 at Macy’s
E. Token/Sham Consideration
A way to cover a promise under the guise of a contract
Courts do not look at relative value of goods in most cases
Some courts do not recognize/Some court do
Peppercorn example…pg. 38
F. Forbearance of legal right
Revocation of a legal right is consideration as long as it was made in good faith (honest    and reasonable) at the time of the agreement.
(Fiege v. Boehm)
1.) The value of chance was given to Fiege (the father). The bastardy charges were taken off.
2.) There must be no fraud or unfairness.
3.) The standard of the reasonable person is used.
What if person gave up a legal right that is uncertain?
South Dakota land example…ongoing litigation over who owns land…person sells land to someone who is willing to take the risk…this is the value of chance
G. Feinberg v. Pfeiffer Co.
*Bargained-for exchange aspect of case*
Consideration can occur without mentioning it.
The pharmaceutical company offered her

l effort, the remedy of restitution is appropriate.
D. Illusory Promise (Not a valid substitute for consideration) (Mattei v. Hopper)
·         Lack of mutuality of obligation
·         No limitation on discretion makes a promise illusory
·         Reserves full choice to promisor whether to perform
o    ex. Contract to purchase house w/ last line saying…”If I feel like it”
o    gives 100% discretion to promisor
o    ex. “If I win NY lottery”…not an illusory promise…limits discretion
o    Termination clauses are considered illusory
·         Mattei v. Hopper
o    Was not an illusory promise
o    2 types of Satisfaction Contracts:
§ Commercial Subject Matter
·         ex. Having exterior of barn painted
·         Reasonable Person Standard
·         to be dissatisfied, a reasonable person would have to be as well
·         may require expert testimony
Artistic Subject Matter
·         ex. painting of a portrait
·         Hard to tell degree of satisfaction
·         Good Faith Standard
·         Very hard to prove
Eastern Airlines v. Gulf Oil Corp.
Requirement Contract
Because of this, Eastern is not required to purchase a certain amount
Is a requirements contract an illusory promise?
No. Because it was made in good faith. Quantity judged by good faith
Output Contract
Contracting to sell all of output…similar to requirement contract
ex. Laredo Hides
E. Implied Contract
Wood v. Lucy (creator of fashions employs plaintiff to place designs in store)
Implied in fact
Facts show both parties intended this term to be in contract but was not written
Implied to give good reasonable effort, this was the middle