GENERAL BACKGROUND INFO
I. Broad overview key terms
a. Contract: promise or set of promises for which the breach of which the law gives a remedy, or for the performance of the K the law recognizes as a duty.
b. Promise: Manifestation of intention to act or refrain from acting in a specified way, so made to justify a promise or understand that a commitment has been made
c. Promisor: Person manifesting the promise/ the breaching party
d. Promisee: Person to whom the manifestation is addressed
e. Assumpsit: process of reclaiming lands or goods
II. Farnsworth
a. Right to breach is necessary
b. Common law assumes promises are generally unenforceable
i. Create exceptions for promises thought to be generally enforceable
III.Restatement 2nd of Contracts
a. When term is unenforceable on grounds of public policy
i. Public policy outweighs the enforcement of some promises
ii. In weighing interest of enforcement, 3 things need to be taken into account
1. Parties justified exceptions
2. Any forfeiture that would result should enforcement be denied
3. Any special public interest in enforcement
b. In weighing public policy against enforcement, 4 things taken into account
i. Strength of policy
ii. Likelihood that refusal to enforce will further the policy
iii. The seriousness of any misconduct that was involved/extent that it was deliberate
iv. The directness of the connection between that misconduct and promise
c. Basis of public policy against enforcement
i. Public policy against enforcement may be derived from
1. Legislation relevant to policy
2. The need to protect some aspect of public welfare
IV. Freedom to / from Contract
a. Freedom to K
i. Printing and Numerical Registering Co. v. Sampson
1. Men have the utmost liberty to contract
2. Must not be illegal/immoral
3. Cannot be held void on basis of public policy if the above two criteria are met
ii. Noble v. Williams,
iii. Hurley v. Eddingfield
1. Rule: No man, on his own volition, can make another his debtor
2. Just as the court will not interfere with a good contract, it will not force a K on another without good reason.
b. Freedom from contract and public policy
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OVERVIEW OF CONTRACTS
V. Why do people enter into K?
a. To maximize one’s wellbeing
b. Increase their utility
c. To hold people to their promises
VI. Why Should Courts Enforce Contracts? (S-I-W-E-F-D, B)
a. Cohen
i. Sanctity of Promises
1. Why are promises enforced?
a. Sacred per se (the right thing to do)
b. Clearly inadequate because the legal system cannot enforce all promises, nor would people want every promise enforced
ii. The Will Theory
1. The first essential of the K is the agreement of wills/meeting of minds
2. Objections
a. Minds or wills are not in themselves existing things we can look at
b. The incompatibility of classical theory, meaning what is said is what is protected, not what is thought (Objective, not subjective) (ANTITHESIS OF WILL THEORY)
c. Litigation reveals the absence of genuine agreement between parties…if no agreement, how can you hold them to their wills?
iii. Injurious Reliance Theory (IRT)
1. Contractual liability arises or should arise only where…
a. Someone makes promise explicitly or by act
b. Someone else relies on it
c. That someone suffers some loss thereby
2. Objections
a. It does not ask court to examine the intention of the promisor
b. Contractual obligations not co-extensive with IRT because there are instances of both injury and reliance in which there is no contractual obligation and 2 there are cases of obligation where there is no injury or detriment.
iv. Exchange Theory
1. “quid pro quo” – promise to give something in exchange for something else. This is where the idea of consideration came from. This is also the most prevalent theory.
2. The problem with this that it’s difficult for the court’s to accurately assign value.
v. Formality Theory
1. The purpose of a formality is to make distinctions that would otherwise not be so apparent. Formalities express a certain level of intent to be bound
2. Problem – not all promises are concluded with formalities.
vi. Distribution of risks (Cohen favors this one)
1. Parties don’t know the future. Contracts allocate the risk as best they can among parties and leave the rest to the law as to what should happen if something happened that got in the way of the contract being carried out.
2. Essential problem of the law of K is the distribution of risks
b. Atiyah:
i. Benefit theory
1. That if someone bestows a benefit on you, you should not be able to breach that contract—no unjust enrichment
VII. Which Promises Do Courts Actually Enforce? (Consideration)
a. Consideration Based / Bargain Based / Exchange Based
i. Bargain + Consideration
1. Bargain – exchange of promises
2. Consideration
a. Legal benefit to the promisor, OR
b. Legal detriment to the promisee
b. Reliance Based / Promissory Estoppels / Injurious Reliance
i. Don’t need consideration for Promissory Estoppels (see section 90 of the Restatement
. What did the parties intend?
2. Look to the actual language of the contract
ii. Interpret terms of the contract
iii. Gap Filling
1. Chirlstein Article
a. Contract law is a gap filler to make the contracting process more efficient. Parties are free to create their own rules of they want or they can comfortably rely on the established law. When the terms of the contract cannot be interpreted the court acts as a gap filler.
iv. Interpreting the meaning of the terms
1. Objective Theory of Assent
a. A K is an obligation attached by the mere force of law to certain acts of the parties, usually words, which ordinarily accompany/represent a known intent.
b. The words of the K are taken for their commonly known meaning
2. Subjective Theory of Assent
a. The courts look for a “meeting of the minds”. Tries to read minds
3. Mixed approach
X. How Do Judges Determine Whether There Has Been Performance or Breach?
a. Look for mutual assent
b. Look to the intentions of the parties
i. If it is willful – material breach (cost of completion remedy would be available)
ii. If it was unintentional – substantial performance (diminished value of the asset)
iii. *** Both material breach and substantial performance are expectancy damages. Both would put the promisee in the position they would be in if the contract had been properly carried out.
XI. Remedies – How Do and Should Judges Enforce Contracts?
a. If the court determines that there was a contract, and that it has been breached, then what should be done about it?
i. Specific performance – force the promisor to perform
ii. Damages
1. Restitution – put promisor back in position back in the position they would have been in had there never been a contract
2. Reliance – put promisee back in position back in the position they would have been in had there never been a contract
3. Expectation – put promisee in position they would have been in had the contract been carried out as agreed to
4. Nominal – a trifling sum awarded when a legal injury is suffered but there is no substantial loss or injury to be compensated
