Contracts Outline

Contracts

Areheart

Fall 2011

I. Basis for Enforcing Promises

1. Enforceable Promises

a. Introduction

i. Contracts are the basis for all commercial law

ii. Not all promises are binding, so the question is HOW does the law determine which promises to enforce

iii. Enforce when law of promissory obligation is found

b. Restatement Definitions

i. §1: Contracts: “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 a duty”

ii. §2: definitions

1. Promise- a manifestation of intention to act or refrain to act in a specified way, so made as to justify a promisee in understanding a commitment has been made

2. Promisor- PR- person manifesting intention to promise

3. Promisee- PE person to whom the manifestation is addressed

4. Beneficiary- person who benefits from the promise

c. Hawkins v. McGee

Dr. solicits father to do operation on child’s hand, he guaranteed to give kid a 100% perfect hand; ended up doing a bad job. Was there a contract? Did Dr. have a legal duty to fix hand? Yes, have an enforceable promise with PR shows intent of promise such that the PE could justifiably interpret it that way- social context, special relationship, solicitation of family

d. Bayliner v. Crow

Crow buys boat manufactured by Bayliner, goes to slow, sues for false advertising, based on a “prop matrix” which gives speeds and specifications, and ad “performance you need” Was there a Promise? Was Bayliner’s prop matrix a promise of performance? The ad? No, because prop matrix described a boat that Crow did not have, gave specifications other than what he had bought; RULE- if make affirmation about a good, then this is an express warranty; they did not do this, this was a different good; point to UCC 2-313. The ad was not a guarantee- no reasonable person would see it as such; has to be specific and measurable

e. Uniform Commercial Code § 2-102, 2-105(1)

i. 2-102- below applies to transactions of goods

ii. 2-105- definition of goods- all things moveable at time of transaction, includes unborn animals, growing crops, minerals from mines

2. Remedying Breach (“Enforce”)

a. Introduction

i. Goal in providing remedies 2 fold:

1. Relief for PE, not punishment for PR

2. Place PE in the position would have been in if promise had been kept

ii. Enforce- court provides relief or grants injunction

b. U.S. Naval Inst. v. Charter

Publishing company breach K and started selling paperbacks early, so this caused a loss in hard back sales. Court determines what breach is worth; K law gives expectation (here, hardback sales), but P cannot collect on all profits from paperback; Expectation interest- what you would have expected to get but for the breach; Restatement 352 (a) doubts resolved against party in breach. Raises economic question- when is it economically “better” to breach K?

c. The Purpose of Remedies

i. Specific performance: can achieve the desired result of the contract (PR does what he promised); in many cases unavailable or undesirable

ii. Expectation- Compensation for the breach: alternative to specific performance, question of how much money to protect PE’s expected interest

iii. Reliance interest- when PE has change position to their detriments; put PE back to where was before the K

iv. Restitution- return any benefit given to other party, just get back what you paid to other party

d. Sullivan v. O’Connor

Dr. did plastic surgery on patient, made her worse off than before surgery. Issue: should the court apply the general rule of expectation? Holding: in this case, hard to put a numerical value on surgery and what was expected, but restitution is too little because she was damaged, reliance would probably be the best solution. But, court does not have to decide between reliance and expectancy. Would have worked out to the same figures because P never proved what appearance value would be and she didn’t’ ask for pain and suffering in the first two surgeries.

e. Economics of Remedies

i. K more legal than moral, idea is perform function or pay damages

ii. Damages decided on position before contract

iii. Sometimes breach is in economic interest of party

1. Even after damages, financially ahead

2. Pareto-efficient- everyone wins in theory (expensive to go to court, sp PE still looses)

f. White v. Benkowski

Remedy meant to compensate, not punish, just makes P whole; pecuniary loss (of or relating to money)

g. Remedies in Practice

i. Compensate, don’t punish

ii. Compensate= expectation, with some exceptions

iii. Expectation is substituted for money

3. Consideration

a. Fundamentals of Consideration

i. Rest. 2d § 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.

i. Use objective test (acts/ words of parties) to determine intent for exchange

3. The performance may consist of:

i. an act other than a promise, or

ii. a forbearance, or

iii. 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.

ii. Consideration:

1. A benefit to PR; or

2. A detriment to PE

i. Detriment= immediate act, forbearance (refraining from doing something), OR partial/ complete abandonment of a legal right.

3. That is bargained for in exchange for the promise in question

iii. Hamer v. Sidway

Uncle tells nephew if he gives up smoking, drinking until 21, will give him $5000. Issue: Was there consideration for this promise? Consideration here is detriment to PE, nephew gave up a legal right, so that was consideration. Promise is enforceable. Exchange legal right for 5 year in return for $5000

iv. Gratuitous Promises

1. Don’t want to be bound by all promises

2. Need to get something out of a promise; idea of paying for what you get

v. Fie