Contracts Outline

CONTRACTS OUTLINE – PROF. REID FALL 2014

A. ENFORCING PRIVATE AGREEMENTS

1. INTRODUCTION TO CONTRACT LAW

a. Studying Contract Law

i. 1st principle source of legal doctrine: Restatements = product of American Law Institute

1. suppose to be summaries of existing law

ii. 2nd source of legal doctrine: Uniform Commercial Code (UCC) – prod. of ALI & NCCUSL

1. purpose is to harmonize and make uniform the laws of 50 states

iii. Prima facie case of breach of action:

1. mutual assent, enforceability, breach

iv. Three dimensions of law:

1. doctrine – rules & principles of law

2. facts – actual application of doctrine by courts & and its effects on contracting parties & public

3. theory – rationales or reasons for legal doctrine

b. The Nature and History of Contract

i. Shaheen v. Knight – 1957

1. Failed vasectomy, unplanned child. Court held that you can bargain and contract for partic. result but in this case, it was void but public policy reasons. No implied warranty of cure for Drs. Need special K, which they had, but damages were ruled ridic. No damage done to P.

2. assumpsit def: a common law cause of action, initially created by English judges (Shaheen brings suit in assumpsit bc he is alleging specifically the D’s non-performance

3. warranty v. guarantee

a. warranty: a promise in addition to the promise to perform an operation

b. guarantee: a collateral agreement for the performance of another’s undertaking

4. Special Contract: an express/explicit contract, one which clearly defines and settles the reciprocal rights and obligations of the parties, as distingued from one which must be made out, and its terms ascertained, by the inference of the law and from the nature and circumstances of the action

ii. Rest. 2nd §1

1. §1: A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.

2. §2: A promise is a 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. A promisor is person manifesting the intention while the promisee is whom the manif. is addressed and a beneficiary is a person other than promisee who would benefit from K.

3. §3: an agreement is a manif. of mutual assent btwn 2+ people. a bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.

4. §4: promise made by made orally or written, may be inferred in whole or partly from conduct

iii. The Rise of Assumpsit

1. evolved from English common law over 15th & 16th centuries, trespass on case that came to be known as assumpsit, developed action of assumpsit into general basis for enforcing promises

c. Freedom of Contract & Public Policy

i. In the Matter of “Baby M” – 1987

1. Whitehead, surrogate mother, tried to keep child after agreeing to give baby to child’s father & his wife. Crt held that surrogacy K can be bailed out up until time of conception. Although agreement was valid & enforceable, it is invalid bc of public policy; doesn’t fall under adoption law.

ii. In re: Baby M – 1988

1. NJ Supreme court held that K was illegal and invalid based on stat. law & public policy

2. Freedom of K – Reid: public policy args should be narrowly applied; doesn’t like interfering with freedom to K. In this case, you risk losing ability of people to have freedom of K, don’t want to create class of ppl that cannot K. “You are not lightly to interfere with this freedom of contract”

iii. Johnson v. Calvert

1. the intent of parent at time of conception is considered as tie-breaker when 2 women have equally valid claims to maternity. Johnson was surrogate w/ Calvert’s egg & sperm. Court ruled that Calverts were child’s natural parents & this didn’t offend public policy. dissent by kennard – prop. std should be what is in best interests of child rather than intent of genetic mother

2. DAMAGES FOR BREACH OF CONTRACT

a. Three Damage Interests

i. Expectation, Reliance, and Restitution Interests

1. Expectation: In most cases, P will seek and receive, protection for their “expectation interest.” The court will attempt to put the plaintiff in the position he would have been in had the contract been performed. P is given benefit of the bargain, including profits she would have made from K.

a. general formula: the amt by which the value of D’s actual performance was less than the value of the promised performance minus whatever benefits, if any, the P received from not having to complete its own performance

b. “Reasonable certainty”: P may only recover for losses which he establishes with with “reasonable certainty.” P who claims lost profits had D not breached must not only show that there would’ve been profits but also the amount of those profits.

c. Hawkins v. McGee (1929) – Hairy hand, promise of perfect hand – expectation damages = value of perfect hand – value of current hnd + incidental cons. (in this case, no incidentals bc hawkins would incur pain & suffering anyway)

2. Reliance: In some cases, P receives protection for his reliance interest. The court puts the P in as good as a position as he was in before the contract was made. Usually, crt awards P with out of pocket costs incurred in the performance already rendered. When reliance is protected, P does not recover any part of profits he would have made on K had it been completed

a. when used: mainly when it’s impossible to measure P’s expectation interest accurately and when P recovers on a promissory estoppel theory.

b. Nurse v. Barnes (1664)

i.

3. Restitution: when courts protect P’s “restitution interest,” crt forces D to pay P an amt equal to the benefit which the D has received from P’s performance. Designed to prevent unjust enrichment

a. used mostly where non-breaching P has partly performed and restitut. measure is greater than K price, and a breaching P has not substantially performed but is allowed to recover the benefit of what he was conferred on D.

b. Note: in K actions, all 2 measure used at least sometimes. In quasi-Ks, expectation dams. almost never awarded but reliance and restit. freq. are.

ii. Differentiating Damage Interests – A Problem

1. Tongish v. Thomas (1992) – sale of seeds to co-op; co-op had re-sale K with Bambino. Coop’s profits = handling fee. Tongish breached due to mkt $ increase. True expectations dams. would be lost profits (handling fee) but it was more efficient to award market price – contract price. this way, encourages mkt efficiency & deters breach

2. UCC §1-106: remedies to be liberally administered as to put promisee in position he would be in had contract been performed (general expect

3. UCC §2-712: cost of substitution to promisee minus contract price (“cover”)

4. UCC §2-713: mkt price minus contract price, plus incidental damages (2-715)

5. UCC §2-717: on notice to promisor, promisee may deduct damages caused by breach from any part of price still due under the same K

b. Three Limitations on Damages

i. Remoteness or Foreseeability of Harm

1. Rest. 2nd §351 – Unforeseeability and Related Limitations on Damages

a. (1) damages not recoverable for loss if no reason to foresee result of breach

b. (2) loss foreseeable if it follows from breach:

i. in the ordinary course of events, or

ii. as a result of special circumstances, that party in breach had reason to know

c. (3) crt may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation

2. Hadley v. Baxendale (1854)

a. P’s mill stopped due to crank shaft. P hires Baxendale (carrier) to get fixed. Mill was closed several day due to delay, some neglect on D’s part. D wasn’t aware that mill was closed. If aware, D may be liable. Crt held that D is only liable for damages foreseen or which could’ve been reasonable foreseen by both parties at the time the agreement was mde

b. harm alleged by Ps is remote, therefore unforeseeable, one could want a shaft for many things

c. Objective standard: the std is reasonable contemplation of the parties

d. Sedgwick treatise: …concerned, in allocating damages, not in total recovery…but in allocating who should bear how much of the cost. Remoteness is a means of determining how risk of loss is divided.

e. may be modified by express agreement of parties; parties may choose to allocate risks themselves

ii. Certainty of H