BAXTER FALL 2012 CONTRACTS
TYPES OF CONTRACTS
Express Contract = Promises are communicated by language, there is a bargained for exchange
EX—I will agree to do this for you if you agree to give me this
Implied Contract = Parties’ conduct indicated that they assented to be bound.
EX—A person fills their gas tank at a fuel station. There is a contract for the sale and purchase of gas implied in the person’s performance of filling the tank
Quasi-Contract (not a contract at all) = one party is unjustly enriched at the expense of another party so that the enriched party must pay restitution to the other party equal to the unjust enrichment.
EX—a person agrees to build a house for another party which then dies while only part of the house has been completed. P can recover the benefit conferred on D even though they are unable to sue on the contract.
BASES FOR ENFORCING PROMISES
1. Enforceable Promises: Intro
Restatement of Contracts 2
Ø Promise- manifestation of intent to act or refrain from and acting in a specified way.
o Hawkins v. McGee: Harry Hand Case- D claimed could perform a skin graft on P to make a “100% perfect hand”
RULE: R2C §2 (1) A promise is a 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.
· No need to use the word promise but it is necessary that there's some obligation that shows an implicit promise (more than just opinion or hope)
Ø Express warranties
o Bayliner Marine Corp. v. Crow: D, gave “prop matrixes” to P (for boat). “prop matrixes” stated model in question having a maximum speed of 30 mph when equipped with size 20×20 or 20×19 propeller. Boat P purchased had 20×17. The “prop matrixes” stated that the data was for a boat with 600lbs of gear and passenger weight. P purchased boat and added 2,000 pounds of gear. P boat never reached 30 mph and filed a motion for judgment against Bayliner alleging breach of express warranties, and implied warranties of merchantability and fitness for a particular purpose
RULE: A mere opinion or commendation of a good does not create an express warranty
2. Remedying Breach
Ø U.S. Naval Institute v. Charter Communications, Inc. pg 9: D and P had a licensing agreement for publishing a book in which D would be the sole distributor of the paperback edition of the book set for a specific release date; D shipped early; P sought injunction to stop D but court refused. P sued: can recover damages due to breach of contract and loss of sales in its hardback edition due to D’s early release
RULE: R2C §347: Purpose of damages for breach of contract is to compensate the injured party for the actual loss caused by the breach. The focus in determining recovery should be on P’s loss, not on D’s gain.
• D is responsible for the loss of sales that P would likely have made during that month. P cannot
recover award of profits because they could not prove a case for copyright infringement.
The Economies of Remedies
* A reallocation of resources in a society is considered to be “efficient” if that reallocation will make some economic unit better off without making other units worse off; focus is on loss, not gain
Ø Sullivan v. O’Connor: D promised to perform a nose job on P over the course of 2 operations; P was a professional entertainer and her appearance increased her value; P underwent 3 surgeries during which her appearance worsened and could not be improved through further surgery; P can recover damages.
RULE: Reliance Damages: Since P relied on D for a promised result, P should be awarded damages based on a reliance interest. P suffered an unfixable detriment in reliance upon D’s promise.
* Reliance Damages = gives P what P had before the contract or the promise was made
P can recover for her loss in value of appearance of the surgeries.
* Restitution Damages = gives P back what P gave to D
Not enough compensation for what P lost
* Expectancy Damages = gives P the value of what P expected to receive from the contract had it been performed correctly
Note 1 pg 19, in using Sullivan
Specific Performance for Breach of Contract
* Used only when damages are inadequate
* Court order telling a promisor to perform its promise
* Exception: for the sale of land
b/c court regards each piece of land to be unique, therefore damages will NOT be adequate
Restatement 359, pg 364 of handbook- Adequacy of Damages
Punitive Damages for Breach of Contract (p.23)
· These damages are meant to punish and deter from these acts, these usually come from torts that concurrently occurred; damages are for the tort, not the breach
o White v Benkowski- agreement to share water, D shuts off water, P wants Damages. No Punitive damages in contract law
Nominal Damages = when P proves there has been a breach of contract, but cannot prove damages; often P is awarded a small sum to serve a declarative right (might be court costs)
3. Consideration As a Basis For Enforcement, p. 29
Restatement (Second) § 71
(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
Restatement (Second) § 74
(1) Forbearance of the ability to assert a right, or surrender of a claim or defense, which proves to be invalid is not consideration unless
(a) the claim or defense is doubtful due to the uncertainty of the facts or the law, or
(b) the forbearing or surrendering party believes the claim or defense may be fairly deemed valid
(2) The execution of a written instrument surrendering a claim or defense by one who is under no duty to execute it is consideration if the execution thereof is bargained for even though he is not asserting the claim or defense and believes that no valid claim or defense exists.
(A) Fundamentals of Consideration, p. 34
Ø Hamer v. Sidway pg 34: D promised to pay P, his nephew, if he refrained from smoking, drinking, etc. until P turned 21; complied; D’s estate refused to pay; D breached and P could recover b/c there was bargained for exchange
RULE: It is enough that something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him
* Since P gave up his legal right to do certain things on the belief that D would pay, D’s promise
will be enforced as a binding contract
Consideration and Pretenses (p. 38-39)
A court will not inquire into the sufficiency of consideration as long as the promise is not a pretense.
Peppercorn pg 38 = a consideration that is of very small value; not actual consideration, will not make an unenforceable promise enforceable
Gratuitous Promise pg 39 = promise to make gift; generally not enforceable if there is no consideration
* the exchange does not need to be of the same value as long as there is bargained for exchange
Ø Fiege v. Boehm (p. 40): P agreed not to bring bastardy proceedings against D in exchange for the promise that D would pay a certain amount in support etc.; D made payments until he got a blood test suggesting the child was not his; P brought bastardy proceedings and sued for breach: P can recover even thought the child was not D’s.
RULE: Forbearance to sue for a lawful claim or demand is sufficient consideration for promise to pay for the forbearance if the party forbearing had an honest intention (good faith) to prosecute litigation which is not frivolous, vexations, or unlawful, and which he believed to be well founded.
* Contract had sufficient consideration because P did not exercise (forbearance) P’s right to prosecute for bastardy in exchange for D’s promise to pay. P made the claim in good faith (at the time of contracting) and there was no proof of fraud or unfairness.
Note: It is possible for P to have suits against other men as long as they are in good faith—D or any other man should just not enter into agreement until knew for certainty of paternity.
(B) The Requirement of Exchange: Action in the Past
o Past consideration is no consideration
Restatement (Second) § 86 (Promise for Benefit Received), pg 46 txt book
(1) A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the extent necessary
(D) Promises as Consideration
R2d 75 pg 67: “a promise that is bargained for consideration if the promised performance would be consideration”
Restatement (Second) § 76 (Conditional Promise)
(1) A conditional promise is not consideration if the promisor knows at the time of making the promise that the condition cannot occur.
(2) A promise conditional on a performance by the promisor is a promise of alternative performances within §77 unless occurrence of the condition is also promised.
Restatement (Second) § 77 (Illusory and Alternative Promises)
A promise or apparent promise is not consideration if by its terms the promisor or purported promisor reserves a choice of alternative performances unless
(a) each of the alternative performances would have been consideration if it alone had been bargained for; or
(b) one of the alternative performances would have been consideration and there is or appears to the parties to be a substantial possibility that before the promisor exercises his choice events may eliminate the alternatives which would not have been consideration.
• promises are enforceable immediately after being made
EX—Lucy v. Zehmer: promise to sell farm and then immediately taken back, not count. It is enforceable b/c the first promise was enforceable and in effect until performance.
• Conditional Promises pg 68: A promise is conditional if its performance will become due only if a
particular event occurs. This does not mean that the promise is not enforceable until the event occurs, but only that the event must occur before performance must occur.
EX—a homeowner has insurance for fire. The insurance co. does not have to pay until the house burns down. This is the condition of the promise to pay.
Unilateral Contracts: only one party makes the promise
Bilateral Contracts: both parties make promises; much more common & economically significant
Ø Strong v. Sheffield (p. 69): D endorsed a promissory note that her husband, “maker”, made.The debt of Ds husband was past due when D endorsed it. P stated that he would keep the promissory note “until such time as I want it”. Ct. No consideration because there was no agreement to forebear for a fixed time or for a reasonable time, but an agreement to forebear for such a time as P should elect. Thus could forebear or not forebear
RULE, pg 70: Agreement by the creditor to forbear collection of a debt presently due is a good consideration for an absolute or conditional promise of a third person to pay the debt, nor is it essential that the creditor should bind himself at the time to forbear collection or to give time
o Judge Andrews: nor was it the case of request to forbear, followed by forbearance
o Actual forbearance in consequence thereof for a reasonable time, furnishes good consideration for the collateral undertaking
§ P expressly agreed to hold it to whatever time as he felt he held the right to not forebear from calling on the note at all and therefore was no consideration
· He did not obligate himself to do anything
• Illusory Promise: a promise that appears so insubstantial as to impose no obligation on the promisor; an expression cloaked in promissory terms but actually containing no commitment by the promisor. An illusory promise typically makes performance optional with the promisor. (i.e. if a guarantor promises to make good on the principal debtor’s obligation “as long as I think it’s in my commercial interest,” the guarantor/promisor is not really bound.