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

Contracts I
Chris Borgen
Fall 2016

Restatement
UCC
Applicable to NY
Hypos


Offer + Acceptance + Consideration= K

1. Bases for Enforceable Promises

Enforceable Promises:

Promises that are/aren’t enforceable:

A contract is a promise + legal enforcement (enforceable)
Legal enforcement is the difference b/w a promise and a contract
Was there a bargained for exchange?
Why Enforce?
To compensate the non-breaching party for the damages they suffered as a result of the breach

Not Promises:
Hawkins v. McGee:
Expression of time wasn’t a contract but a “mere expression of opinion or prediction” not enforceable
Not contractual/enforceable

Legal Promises: (enforceable)
Inducement:
A promise made by one party that leads to an action by the other
Hawkins v. McGee
The doctor promised to make the hand 100% better, he induced the patient to have the surgery
Objective theory of contracts: What would a reasonable person believe as being a “contract”?

Warranties of Contract:

Express Warranty:
Created by the overt words/actions- done by the seller
Any affirmation of fact/promise made by the seller to buyer which relates to goods and becomes part of the basis of the bargain creates an express warranty that that the goods shall conform to the affirmation/promise
Any description of the goods which is made a part of the basis of the bargain creates an express warranty that the goods shall conform to the description

Implied Warranty:
Arising by operation at law b/c of the circumstances of a sale, rather than by seller’s expressed promise:

Bayliner Marine Corp v. Crow:
Issue was whether or not the brochure was an express warranty.
Two potential promises (express warranties): boat speed and get to offshore fishing grounds
Not a contract, the brochure is merely a communication of the boat’s performance and doesn’t describe a specific characteristic of the boat, and doesn’t describe specific manufacturer’s opinions
(UCC article 2, Sales of Goods Contract)

Remedying a Breach: damages are calculated by ACTUAL loss and uncertainties are resolved against the wrongdoer. Err on the side of the nonbreaching party (focus on π’s loss, not on ∆’s gain)

United States Naval Institute v. Charter Communications, Inc: breach of agreement with respect to licensing agreement and publication of a book. Judgement of lost hardcover sales awarded in actual damages
You need to be reasonably certain when awarding damages, but that doesn’t mean you need to know the exact amount lost
If there must be an estimate for compensatory damages, the risk must be on the breach of the party
Punitive damages aren’t part of Contract law
Restatement 2d § 355- Punitive damages aren’t recoverable for breach of contract, UNLESS the conduct constituting the breach is also a tort for which punitive damages are recoverable
(UCC article 2, sales of goods)

Three Protected Interests:  §344 a, b, c

Expectation Interest: a
His interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed
Gives the non-breaching party the benefit of the bargain
When you show the promisee is worse off, then put the promisee in the position had the promise been performed
Put promisee forward

Reliance: b
His interest in being reimbursed for loss caused by reliance on the contract by being put in as good a position as he would have been in had the contract not been made
Promisee has a reliance interest if he has changed his position to his detriment by relying on the promise
Put him back

Restitution: c
His interest in having restored to him any benefit that he has conferred on the other party
Giving back to promisee whatever value was given to promisor

Specific Performance: §357
Court order to perform an action
Not a protected interest

Sullivan v. O’Connor: contract to perform 2 surgeries. But had to perform 3. judgement for pain and suffering for 3rd surgery and out of pocket for all.
Used reliance interest instead of expectation b/c you couldn’t put an economic value on the difference b/w noses
Hypo:
Owner and Builder. K for $100,000 to build house. Cost to builder= $90,000
Before they do anything, owner says forget it. What does builder get?
Expectationà $10,000: what court gives him- what he expected to make in profit
Reliance: $0 haven’t been worsened
Restitution: restore all out of pocket expenses so $0
Now… when the owner repudiates, builder has already spent $60,000 AND resulting structure on owner’s property has value of $40,000.
Expectation: $70,000 (expects to benefit $10,000 & spent $60,000 so need to give builder $70,000 to have profit of $10,000)
Reliance: $60,000 (put builder in position as if contract was never made)
Restitution: $40,000
Page 20 Note #1
Restitution: doctors fees $300. No hospital fees b/c doctor didn’t receive hospital fees, just doctor fees.
Reliance: doctor fees ($300) + hospita

amages, but such a remedy may be considered in exercising discretion under the rule stated in §357
Hypo:
Seller has book to sell that she values at $90. Buyer wants to buy it and values it at $110. They come to a bargain for purchase of $100. Before buyer buys, seller sells the book to C for $125
Expectation of buyer: $10 (value would have had)
Disgorgementà not a remedy. Is a punishment: $25 (what original k was vs. what C bought it for- excess profits)


Disgorgement:
Punishment, not remedy; promisor pays over profit to promisee earned through contract breach


Why Breach? -àEfficient Breach:
Make more money in breach than you would lose in a lawsuit
United States Naval Institute
A party might breach when it is more economically efficient than the original transaction would have been
No party can be worse off, and at least one is better off
Then it’s Pareto Efficient
Measure of efficiency
Hypo:
S contracts to sell book to B for $100 but decides to sell to C for $125. S gets $125, pays B $10 (expectation) and ends up with $115 (for a book valued at $90) and C gets the book. *Efficient breach. No one is worse off and S is better off.

Externalities problem
What if B is St. Johns bookstore and S is contracts casebook distributer. There’s an external factor- students.
Need to “internalize the externality”. S needs to make things right with B so the problem with Y is fixed. Just giving $10 to B isn’t sufficient in this case because there is an externality.




Consideration as a Basis for Enforcement

Evolution of Consideration:

Covenant: Promises made under seal
Evidentiary: evidence, proof
Cautionary: protect, deter
Channeling: can lead to Court action

Debt: quid pro quo
Assumpsit: common law
a party that had given only a promise in exchange for the other person’s promise has incurred a detriment by having its freedoms of action fettered, since it was bound in turn by its own promise
basis of reliance interest