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Contracts
Temple University School of Law
Smyth, Sophie E.

 
Contracts
Smyth
Fall 2013


Intro
a.        Principals of K law
i.      Three elements
1.        Mutual Assent- agreement by parties, offer and acceptance, objective standard- intent manifested by words and deeds (not secret intent)
2.        Enforceability- K won’t be unenforced against PP, if illegal won’t be enforced, Penalty clauses won’t be enforced, very few times will an oral K be enforced
3.        Breach- Violation of K obligation, failure to perform promise, Repudiation, interference with another party’s performance, doing something you said you wouldn’t do
ii.      Freedom to K
1.        People free to K, helps grease the wheels of business, C will enforce valid agreements.
a.        Shaheen V. Knight- K for permanent vasectomy failed P sued for cost of raising baby. Warranty of cure does not apply for doctors normally, but here parties made special K will be upheld. (No damages for birth of healthy baby though)
2.        RSC 1- Contract- 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.
3.        RSC 2- Promise; Promisor, Promisee ; Beneficiary- 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. 2) The person manifesting the intention is the promisor. 3) the person whom the manifestation is addressed is the promisee. 4) Where the performace will benefit a person other than the promisee that person is a beneficiary.
iii.      Will uphold contracts unless
1.        Void against public policy-
a.        RSC 178- When a Term is Unenforcable on Grounds of Public Policy- A promise of other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable of the interest inits enforcement is clearly outweighed in the circumstances by public policy against the enforcement of such terms. 2) In weighing the interest in the enforcement of a term, account is taken of a) the parties justifiec expectations b) any forfeiture that would result if enforcement were denied and c) any special public interest in the enforcement of the particular term. 3) In weighing a public polivy against enforcement of a term, account is taken of a) the strength of that policy as manifested by legislation or judicial decisions, b) the likelihood that a refusal to enforce the term will further the policy, c) the seriousness of any misconduct involved and the extent to which it was deliberate, and d) the directness of the connection between the misconduct and the term.
b.        RSC 179- Bases of Public Policies against Enforcement- A public policy against the enforcement of promises or other terms may be derived by the C from a0 Legislation relevant to such a policy, or b) the need to protect some aspect of the public welfare, as is the case for the judicial policies against for example, i) restraint of trade, ii) impairment of family relations and iii) interference with other protected interests
c.        Unanimous public opinion- C may see itself as the voice of the people and declare K void for public health, safety, welfare and morals, (Baby M)
i.      Must be well defined, universal public sentiment, deeply ingrained in customs and beliefs.
2.        Illegal- Statutes can’t be contracted around- (Baby M, trying to write K to circumvent adoption laws)
II.                   Damages-
a.        RSK 346- 1) The injured party has a right to damages for any breach by a party against whom the contract is enforceable unless the claim for damages has been suspended or discharged. 2) If the breach caused no loss or if the amount of loss is not proved under the rules stated in this Chapter, a small fixed sum without regard to the amount of loss will be awarded as nominal damages.
b.        Expectation- looks to give non-breaching party benefit of bargain; in the position they would have been in if K not breached; used in actions founded on promises enforceable by consideration.
i.      Standard and usual award (most generous)
ii.      Encourages efficient breach (If A breaches, B is paid to compensate for breach and A can save or make money)
iii.       RSC 347- Subjects to limits of 350-353, the injured party has a right to damages based on his expectancy interest measure by a) the loss in the value to him of the other party’s performance caused by its failure or deficiency, plus b) sny other loss, including incidental or consequential caused by the breach, less c) any cost or other loss that he has avoided by not having to perform.
iv.      Lost profit/value + other loss(incidental or consequential)- costs saved.
v.      Lost value- Difference between what should have been received and what was actually received. (Limited by uncertainty)
vi.      Consequential Loss- damages that flow from the breach, costs incurred by breach, injury to person or property, impact on other transactions or endeavors dependent on K (harm from defective product)
vii.      Incidental loss- Damages incurred in attempt to correct, cost incurred after breach ina reasonable attempt to avoid loss even if attempt is unsuccessful (costs of finding replacement).
1.        Hawkins v. McGee- court held that P could recover for D breaching warranty of cure for disfigured hand. Usually no warranty of care for dr.’s here a special K that created warranty of care. No violation of pub policy. Relied on D’s urging to do surgery, and guaranteed results. No P&S; damages measured by what parties did have or should have knowing would occur if breached occurred. Given exp. Damages; amount equal to diff in value of good hand (hand K’d for) and bad hand (result of D’s breach). Will not give P&S, concerned with P getting too much money, would result in more people coming to courts with similar actions and to provide incentives to go into K’s. If damages go way beyond scope of K why enter? Use C To uphold agreement but limits liability of not following through. Limited by foreseeability

c.        Reliance- looks to put non-breaching party in the same condition they would be in if K not made. When promise changes its position in its detriment in reliance on promise (incurring expenses when performing or preparing to perform, expenses in anticipation of K) (Nurse v. Barns). Does not take lost profits into consideration, less generous than expectation dam. Use for special K’s, where value is more subjective (Hawkins, Sullivan), and in case of losing K (Mistletoe v. Locke).
i.      Easier to prove damages as C Looks at concrete evidence of what you paid.
ii.      RST 349- Damages based on Reliance Interest- As an alternative to the measure of damages stated in 347, the injure party has a right to damages based on his reliance interest, including expenditures made in preparation of performance or in performance, less any loss the party in the breach can prove with reasonable certainty the injured party would have suffered had the contract had been performed.
iii.      Expenses made in prep- losses saved
1.        Nurse v. Barns- P paid 10 L to rent mill. D breached, given 200 L in damages, to reimburse for loss of stock created for mill in prep for carrying out k. Reliance damages- wanted to put party back in position that they would have been in if K carried out.
2.        Sullivan V. O’Connor- Singer and dr. created special K to change look of nose. Surgery botched but not negligent, required one extra surgery than agreed upon. Ct. ruled that reliance damages are to be used as it will reimburse for out of pocket expenditures and items that could be foreseen by breach. Courts will only award damages that flow directly from D’s breach. Here exp. Damages would be too excessive (PP concern for creating incentives frivolous lawsuits), damages here hard to place value on. Restitution too limited. Also disagrees with Hawkins, awards P&S for third surgery as it was not envisioned by the K, but still foreseeable.  Also says special K for medicinal procedure valid as K if dr. guaranteed result.  If upheld for all cases, Dr.’s would practice def. medicine, if not upheld some Dr.s may take advantage and exploit patients.
3.        Hooker v. Roberts- Mixed K, Common law not U.C.C.  P to furnish and install cabinets for D. D breached, P sued for storage costs, admin costs and lost profit. Ct. ruled that storage costs not applicable, would have been incurred regardless to award here would put P in better position than if K carried out. Admin costs can be taken into account, cost would have been had regardless but P at loss, he could have spent that time on work that was actually profitable, Comp. not double, if lost profits as well as expense would be included in determining profits. Lost profits also given, sole proof that 26 too high was that it was based on what D makes, but D is contactor, P is contactor manufacturer.
4.        Tongish v. Thomas- P had K to buy seeds form D. P had k to resell seeds to X at cost minus handling fee.  Market price went up, D repudiated and sold to Y. P sues D for exp. Dam, given total difference in market value at time sold to Y and original value when sold to P (2-716); not just amount P would have made from resale (1-106) to put P in same positions as if D fully performed. Also D says P takes no hit, he is covered by his K with X.  D cited Allied where 106 was used, but there D repudiated in good faith as weather caused no crop. Here D repudiates to make more money. (Raises issue of eff. Breach, here it looks to keep it from happening) Ct ruled that 716 needed to stop seller from arbitrarily breaching K to make more profit, to let D just walk would shake faith in K’s. This measure fair for allocation of risk, if price declined, P would still have to pay D at K price. Covering played sig. role, if P did not cover, def. would be MV-KV;  since covered in normal circum. Exp. Dam would be = profit P made from resale
a.        UCC- For commercial goods only
i.      1-103- Supplemental Principles of K Law applicable- Unless displaced by act, principles of law and equity, including law merchant and law relative to capacity to contract, principal and agent, estoppels, fraud, misrepresentation, duress, coercion, mistaken bankruptcy or other validating or invalidation cause shall supplement its provisions.
ii.      2-102- Scope; Certain security and other transaction excluded from this article- Unless the context otherwise requires, the Article applies to transactions in goods; it does not apply to any transaction which although in the form of an unconditional contact to sell or present sale is intended to operate only as a security transaction nor does this article impair or repeal any statue regulating sales to consumers, farmers, or other specified classes of buyers.
iii.      2-105 Definitions; Transferability; Goods- 1) Goods means all things (including specially manufactured goods) which are moveable at the time of identification to the contract of sale for other than the money in which the price is to be paid, investment securities (Article 9) and things in action. Goods also includes the unborn young of animals and growing crops and other identified things attached to realty as described in goods to be served from realty (section 2-107)
iv.      2-106- Definitions: Contract; Agreement; Contract for Sales; Sale; Present Sale…- 1) In this article unless the context otherwise requires contract and agreement are limited to those relating to the present sale of goods and a contract to sell goods at a future time. A sale consists in the passing of title from the seller to the buyer for a price (2-401). A present sale means a sale which is accomplished by the making of a contract.
d.        Restitution- looks to deprive breaching party of benefit of the bargain. Less generous, lost profit and reliance not taken into account.
III.                 Limits on Damages- Parties who are victims may experience losses that are not recoverable. Damages must be measure by scope of K.  If no limits, parties would not know what their exposure under K would be; would be hesitant to enter into Ks. When these limits apply, usually see ct. measure damages in reliance and restitution.  
a.        Foreseeability/ Remoteness- Objective concept, what a reasonable person would have realized would occur. Firm principle of K law that person only party should only be held liable for damages that they had reasonably could have saw at time of making agreement. Breaching party on liable for damages foreseeable at time of K. Liable for damages that could or should have reasonably been seen if breach occurred. Depends on what foreseeable in ordinary course of business and any additional info given at time of K. Special circumstances need to be told of at time of agreement. (Hawkins, Hadley)
i.      Losses are fair and reasonable when within ordinary course of K.
ii.      Must have been contemplated by both parties at time of K.
iii.      Policy- Must be able to limit damages to make sure parties have some idea of their exposure; parties allocate their own risk.
iv.       RSC 351- Unforeseeability and Related Limits on damages- 1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. 2) Loss may be foreseeable as a probable result of a breach because it follows from the breach a) int the ordinary course of business, or b) as a result of special circumstances, beyond the ordinary course of business events, that the party in breach had reason to know. 3) A court may limit damages for foreseeability 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 (used in Sullivan).
1.        Hadley v. Baxendale- Mill owner contracted with D to have part sent to be replaced. Mill shut down as new piece needed, D did not know. D had delay in shipping part, P brought suit for lost profits asserting D made promise to ship next day. D says damages too remote, not foreseen at time of K. P says damages natural and flowing from D’s actions. Ct. held proper rule is that “ Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach should be as such as may fairly and reasonably be supposed to have be considers either arising naturally according to the usual course of things from such breach of K itself, or such that as may reasonably be supposed to have been in the contemplation of both parties at the time they made the contract as the probable result of the breach of it. Now, if the special circumstance under which the contract was made was communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of K under these special circumstances so known and communicated. But, on the other hand, if these special circumstances where wholly unknown to the party breaking the contract, he, at the most, could be only supposed to have had in his contemplation the amount of injury which would arise generally; and in the great multitude of cases not affected by any special circumstances, from such a breach of contract. For, had the special circumstances been known, parties might have specially provided for the breach of special terms as the damages in that case; and of this advantage it would be very unjust to deprive them.” In present case,  breacher liable for things that naturally occur from breach. D only knew they had to deliver broken shaft and that P were millers, did not know mill closed until part was replaced, so not liable for lost profits. No way to know that slow delivery would create lost profits, can’t make liable as special circumstances not communicated an

sided with P in issuing summary judgment, saying she was not barred from recovery for not accepting new role as it was diff and inferior. D also raised no issue of P’s efforts to obtain other employment. D sole issue was that P did not act reasonably in refusing new role. Gen rule for recovery in wrongful discharge is amount of salary less money earned or money that should have been earned from other employment. Before subtracting projected money from damages, D must show alternatives were comparable or substantially similar to that which employee was deprived. P’s rejection or failure to seek other employ of a different or inferior kind may not be used to mitigate damages. Under current rules (RSC 350) new role was different and inferior, she lost production say and roles were different; first was a musical suited to her style, second was a drama where someone else would take lead, no stretch of imagination could make this role seem similar. Dissent- Should have been up to jury to decide if jobs different and inferior, peculiar choice of words to use to describe alt. employ, can’t accept that eliminating rights makes k inferior, should be only if so significant that omission makes new kind of employment.
a.        Honored the subjectivity of the non-breaching party. Value of being in musical vs. being in drama.
b.        Why should no breaching party not be allowed to sit and do nothing? If P can collect $ and sit on couch they are allowed windfall, comp for no work. Note 63, value of mitigation is that if a wrongly discharged employee can ,through his own action and without suffering financial or psychological loss in process, reduce damages the most sensible policy would be to require him to do so; otherwise bad for economy to allow unnecessary personal and social costs of contractual failure.
c.        If damages incurred trying to mitigate, P can recover them as incidental damages.
d.        For D to have allowed damages to be mitigated, they must show P failed to try to get similar employment.
e.        Clause 58- P may has viewed this a D saying she would be paid if movie made or not. Pay or Play clause, used to guarantee option of using person and ensuring they do not show up with competitor during that period.
f.         Too severe to demand a person to work in a field where they have no training or experience.
3.        Neri v. Retail Marine- Dealt with buyer who repudiated from boat purchase with volume seller. Buyer brought suit to reclaim deposit under 2-718 (2)(b), and D counterclaimed for lost profit. P argued that seller was put in as good as a position as if K not breached as boat resold; D says if not for P’s breach they would have sold two boats not one. TC ruled in P’s favor saying that boat was resold later so no lost profit and that D failed to prove incidental damages for storage fees before the resale. Found that UCC 2-718(2)(b) applied and gave P balance of deposit after $500 offset given to the D by the section. D appealed and Ct. of Appeals found that as D was volume seller, 2-708 dictated how D was to be compensated. As buyer’s right to restitution was established under 2-718 (2) and seller had right to offset under 2-718 (3), only matter is which measure of damages to use. Under 2-708 dealing with buyers repudiation, section 1) gives damages equal to the difference of the proved market value at time and place of tender  and the unpaid contract price +  any incidental damages – expense saved from not having to perform. Under section 2) if section 1 inadequate to put seller in the same condition as if K performed, measure of damages is profit from full performance +  incidental damages (under 2-710) + costs reasonable incurred, – credits for resale. (For volume sellers the credit for resale does not apply). Here as D is a volume seller (if not for P repudiation, D would have sold 2 boats), Section 1 of 2-708 is not adequate; section 2 applies. Measure of damages would be profit on full performance + Incidental damages+ reasonable costs. This amount then offsets the amount of restitution that is given to P.
a.        UCC- 2-706 Pg. 155 (Resale for Non-volume Sellers)- Sellers resale including K for resale-1) Under conditions of 2-703 on sellers remedies the seller may resale the goods concerned or the undelivered balance. Where resale made in good faith and I a commercially reasonable manner the seller may recover the difference between the resale price and the contract price together with any incidental damages (2-710) allowed under the provisions of this article, but less expenses saved in the consequence of the buyers breach. . . .
b.        UCC 2-708 Pg. 156 – Sellers Damage’s for Non-Acceptance or repudiation- 1) Subject to subsection 2 and to the provisions of this Article with respect to proof of market price (2-723), the measure of damages for non-acceptance or repudiation by he buyer is the price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this article (2-710) but less expenses saved in consequence of the buyers breach. 2) Loss Value Rule- If the measure of damages provided in subsection 1 is inadequate to put the seller in as good as a position as performance would have done then the measure of damages is the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article due, allowance for costs reasonable incurred and due credit for payments or proceeds for resale.
c.        UCC 2-710- Sellers Incidental Damages- Incidental damages to an aggrieved seller include any commercially reasonable charges, expense or commission incurred in stopping delivery, in transportation, care and custody of goods after the buyer’s breach, in connection with return or resale of goods or otherwise resulting from the breach.
d.        UCC 2-718- Liquidation or Limitation of Damages- Deposits- 2) Where the seller justifiably withholds delivery of goods because of the buyers breach, the buyer is entitled to restitution of any amount by which the sum of his payment exceeds a) the amount to which the seller is entitled by virtue of terms liquidating the sellers damage in accordance with section 1, or b) in the absence of such terms, 20% of the value of the total performance for which the buyer is obligated under the K or $500, whichever is smaller. 3) The buyer’s right to restitution under subsection 2 is subject to offset to the extent the seller establishes a) a right to recover damages under provisions of this article other than subsection 1, and b) the amount or value of any benefits received by the buyer directly or indirectly by reason of contract.
d.        Contracting Around Damages- Parties can limit liability under default rules by including a warranty clause that is expressly intended to be the exclusive remedy for breach of K, excluding damages for other foreseeable losses. Often difficult to determine damages, agreeing on this amount at time of K can save time and expense of trial.