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Contracts
Temple University School of Law
Hoffman, David A.

 
Hoffman Contracts Fall 2013

I. Intro
A. General
1. Things to consider when formulating rules
a. Administrability – how easily can the rule be administered to later cases
b. Fairness – effect of rule on contracting, views of the public, risk shifting, morality,                              distributional effects
B. Public Policy
Cases: Shaheen v. Knight, In the Matter of Baby “M”

Remedies

II. Damages for Breach
A. Three Damage Interests
Cases: Hawkins v. McGee, Tongish v. Thomas
1. Expectation interest – “benefit of the bargain”
a. Court awards damages in based on what plaintiff would have gotten had their been                              no breach; most often loss of profit
b. Damages = Expected result – actual result
c. Most common form of damages b/c most money for plaintiff
d} Why give expectation for breach?
i} Theory – contract law is compensating people for breach => they are entitled to                                 the benefit they expected but can’t receive due to the breach
2. Reliance interest – reimbursement
a. Restore party to the position they were in prior to the agreement being made
b. Used if plaintiff changed its position to its detriment due to a reliance on the other                             party’s promise
3. Restitution interest – breaching party disgorges the benefits it received
a. Damages based on the benefit that the plaintiff bestowed on the defendant
b. Rationale – defendant shouldn’t be able to keep a benefit that it was given due to                               the agreement if the agreement is not fulfilled; and plaintiff should be put back in the                                  position that it was in
4. Overarching theme
a. Want to put the plaintiff in the position that they would have been in if the K was                               fulfilled on both sides
b. Plaintiff should at least be put back in the position that it was in prior to the                                           agreement being made
c. Defendant shouldn’t be able to benefit from an agreement that it breached
5. Damages can be contracted out of (Liquidated Damage Clause)
a. Must be explicitly expressed in the K that one party will not be responsible to the                               other for damages
b. Parties can also explicitly accept liability for damages
6. Efficient breach – two options
a} Award damages based on benefit to defendant for their breach (restitution)
i} Would take away the benefit of the efficient breach; take away the incentive to                                    breach efficiently because you would just have to give benefit to other party
ii} Rationale – efficient breach bad b/c is unfair to other party, and possibly creates                                  more instability in market because there is incentive to breach in these situations
b} Award damages based on the plaintiffs loss of profit (expectation or reliance                                     interest)
i} If plaintiff’s expectation interest was less then the benefit of the efficient breach                                  then the defendant is better off from breaching the K
ii} Rationale – efficient breach is better for the economy overall, should be allowed;                                  Plaintiff still gets benefit of the bargain & Δ gets some benefit from breach
B} Three Limitations on Damages
– Don’t want people to be in a better position as a result of breach than they would have                been in had the contract been fulfilled
1} Foreseeability – not liable for unforeseeable damages resulting from breach
Cases: Hadley v. Baxendale, Hector Martinez and Co. v. Southern Pacific Transportation                            Co., Morrow v. First National Bank of Hot Springs
a} Unfair to hold defendant liable for damages that were not reasonably foreseeable at                        the time of breach
i} If defendant couldn’t be expected to know what would result from breach then                                  they shouldn’t be held responsible
b} Exception – defendant can be liable if they agreed to accept responsibility
i} Tacit agreement test – did Δ explicitly or implicitly [through actions i.e. charging                                 extra money] accept responsibility for damages caused by breach (Martinez)
2} Certainty of Harm
Cases: Chicago Coliseum Club v. Dempsey, Anglia Television Ltd. v. Reed, Mistletoe Express                 Service v. Locke
a} Plaintiff cannot recover damages that cannot be determined with reasonable                                     certainty
b} Typically prevents recovery of expectation interest (Chicago Coliseum Club)
i} Parties agree expecting to get a benefit. If the benefit was uncertain then you                                      didn’t have any set expectation when agreement was made
ii} Recovery of expected profits more likely in mature/stable industries where likely                             profits can be reasonably ascertained
c} If damages are unforeseeable than nominal damages will be given instead
3. Avoidability
Cases: Rockingham County v. Luten Bridge Co., Parker v. Twentieth Century-Fox Film
a} Plaintiff cannot recover for damages that it could reasonably have avoided
i} Plaintiff has a duty to mitigate damages
ii} Applies to damages that could have been avoided w/o undue risk, burden, or                                    humiliation
b} Most relative to reliance interest
i} Failure to reasonably avoid damages => damages were not in reliance of promise
c} Employment – employee has obligation to secure employment of similar nature
i} employment of different or inferior nature doesn’t mitigate damages (Parker)
C. Liquidated Damages
Cases: Wassenaar v. Towne Hotel, Lake River Corp. v. Carborundum Co.
1} Stipulated damage clause is enforceable as long as it’s reasonable
a} Test – Do stipulated damages fit the injury
i} prevent abuse from stipulated damages that don’t fit the resulting injury
ii} P must prove that damage clause is unreasonabl

when breach was not                                    willful, and non-breaching party received a benefit from partial performance
i} Breaching party must prove benefit received from partial performance was                                        greater than damages caused by breach
c} Seeking fair and equitable relief for both parties
5. “Quasi-Contracts” and Restitution
Cases: Cotnam v. Wisdom, Martin v. Little, Brown and Co.
a} Rendering emergency services – may receive restitution if they are a professional                             (i.e. – doctor, surgeon)
i} Must be a situation where party would typically receive pay for performance
ii} Average person wouldn’t be paid for such service; won’t make a K where one                                    wouldn’t normally exist

Assent

IV. Reaching an Agreement
A. Objective Theory of Assent
Cases: Embry v. Hargadine, McKittrick Dry Goods Co., Lucy v. Zehmer
1. Assent determined by parties’ outward actions
a. K exists if a plaintiff reasonably thought defendant was agreeing
i. Would a reasonable man take the other party’s actions as assent?
ii. Look at the outward expressions of both parties (words and actions)
b. Plaintiff’s subjective belief matters
i. Plaintiff must personally believe there is a K to recover
ii. Plaintiff can only come forward in good faith
c. Defendant’s subjective belief doesn’t matter
i. Defendant can’t lie to get out of K
ii. unfair for plaintiff to bear negative effects of defendants hidden intention when he                            thought he was entering into an agreement
iii. Is it unfair to hold defendant to agreement that he didn’t think he was entering?
d. Rationale – make parties manifest their intentions explicitly
B. Offers – Offeror is the master of the offer
Cases: Nebraska Seed Co. v. Harsh, Leonard v. Pepsico, Dickinson v. Dodds
1. Offer requires…
a. Some degree of certainty
i. Important terms must be stated i.e. – what goods, money to be paid
ii. Requiring more certainty requires parties to spend more time discussing                                             agreement before it is made
iii. UCC allows more uncertainty by giving default rules to fill in gaps in K
iv. How much certainty should be required?
b. Communication from one party to another
i. Must be explicitly communicated