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

Contracts-

▼ ❑ Bargain theory
• ❑ When a contract is made by offer + acceptance + consideration
• ❑ Reciprocal inducement, the original promise and consideration motivate each other.
• ❑ A contract can be found even if the exact time it began is undetermined.
▼ ❑ Damages for breach of contract
• ❑ Cannot be for more than the party lost, unless there is a tort, which there won’t be in this class.
▼ ❑ Disgorgement of profits
• ❑ Punitive damage, ordered when there is a tort involved in a breach of contract, or breach of fiduciary duty, or like a copy write violation, like Naval case.
▼ ❑ Pareto superior
▼ ❑ When you are able to make someone else better off without making anybody worse off. Relates to the law of contracts because it is the theoretical underpinning of efficient breach.
▼ ❑ Criticisms
• ❑ externalities: people who don’t get factored into the situation properly and suffer harm. (think of students and book store example)
• ❑ To use it fosters a habit of breaching and undermines the stability of promises. Contract law shouldn’t be based on economic efficiency alone, but stable relationships as well.
▼ ❑ Efficient Breach
• ❑ A contract breach that is so beneficial to one party that it can pay the expectation interest of the other party and still be better off than they would have been if they had followed the original contract.
▼ ❑ Types of Damages
▼ ❑ Restitution
• ❑ Restoration of the benefit one party gave to the other party (doctors fee)
▼ ❑ Reliance
• ❑ Repaying the non-breaching party for all costs incurred in performing his obligations in reliance on the contract (make it as if the contract had not taken place at all)
▼ ❑ Expectation
• ❑ Puts the non-breaching party in as good of a position as they would have been if they breaching party had preformed the contract.
▼ ❑ Specific performance
▼ ❑ A court will award specific performance when liquidated damages does not meet your expectation interest.
• ❑ Typically contracts for sale of land, if broken, are awarded with specific performance, because land is so unique that damages will not be adequate.
▼ ❑ Conditional gift
• ❑ When someone gives a gift based on a small condition (walk around the corner with me and I’ll buy you a hot dog), does not make a contract.
▼ ❑ Consideration
▼ ❑ Sufficiency of consideration
• ❑ Basically consideration must be more than a peppercorn, ie more than a mere token payment.
▼ ❑ Consideration for a covenant not to compete
• ❑ Continued employment is not valid consideration for a covenant not to compete that is signed after someone starts working, BUT if the employer shows substantial performance with it over time, then it will become valid consideration.
• ❑ Giving up certain rights can be valid consideration in a contract, even if it is in the promisee’s best interest to do so.
• ❑ A promise not to prosecute a claim which has a reasonable basis to be true can be sufficient consideration in a contract, even if that claim turns out not to be valid.
▼ ❑ Reliance as a way of making a contract
▼ ❑ If someone makes a promise which:
• ❑ 1. The promisor should reasonably expect to induce action or forbearance on the party of the promisee.
• ❑ 2. Does induce such action or forbearance.
▼ ❑

standard to see if they have been conformed with.
• ❑ Fancy taste, judgement- Good faith standard to see if they have been conformed with.
• ❑ Where other consideration is valid, a satisfaction clause will not invalidate a contract.
▼ ❑ Promises not enforceable under bargain theory
▼ ❑ Illusory promises
• ❑ A contract in which there is an illusory promise is without consideration and therefore unenforceable. Strong v Sheffield
• ❑ Illusory promise is one where the promise given has no real value.
▼ ❑ Past acts
• ❑ Acts done in the past without asking for consideration cannot be used as a basis to collect from someone
▼ ❑ If you agree to pay then it will be binding to the extent necessary to prevent injustice.
▼ ❑ Not binding when:
• ❑ 1. The benefit was a gift or for other reasons the promisor was not unjustly enriched.
• ❑ 2. To the extent that its value is disproportionate to the benefit.
▼ ❑ Gratuitous promises
• ❑ When someone promises to do something and there is no consideration involved it is not an enforceable contract, but can be the basis for promissory estoppel (reliance).
▼ ❑ Promise based on an unsolicited action
• ❑ If you do something for someone without them asking you to, and then they promise to pay later, that is not enforceable. Think snow shovel