First Year Contracts Course Outline- Fall 2010
Part I: Basis for Recognizing an Enforceable Obligation
a. General information for contracts:
a. Restatement (Second) § 1: Contract Defined
i. A contract is a promise or a 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. Remedy = Consequence
b. UCC § 2-102(1): Transactions in goods.
i. Unless the context otherwise requires, this Article applies to transactions in goods.
c. UCC § 2-105: Goods
i. “Goods” means all things (including specially manufactured goods) which are moveable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action…
d. UCC § 2-313: Express Warranties
i. (1) Express warranties by the seller are created as follows:
1. Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates and express warranty that the goods shall conform to the affirmation or promise
2. Any description of the goods which is made part of the basis off the bargain creates an express warranty that the goods shall conform to the description.
ii. (2) It is not necessary to the creation of an express warranty that the seller use formal words such as ‘warrant’ or ‘guarantee’ or that he have a specific intention to make a warranty, but an affirmation merely of the value of the goods or a statement of legal purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.
e. Questions a court will ask in determining the enforceability of the contract:
i. Was there consideration or some substitute for consideration?
ii. Was there mutual assent?
iii. Is there sufficient definiteness?
iv. Does a statute require the contract to be in writing?
v. Are there any defenses to the creation of the contract?
f. Determining how contract is formed:
i. Who made the offer? Identify what the offer is.
iii. What were the terms of the offer?
iv. How was offeree supposed to accept the offer?
v. Who accepted the offer (exercised the power to create the contract)?
II. Basis for Recognizing an Enforceable Obligation
a. Enforceable Promises
i. General Rules:
1. Restatement (Second) § 2:
2. Restatement (Second) § 4:
3. Reliance: This really goes to consideration and reliance, but if a person says something with the expectation that it will influence the behavior of the other and the other does change their behavior as a result of this assertion, then the one who made the original statement should be held liable for any injury resulting from the change in behavior based on his statement.
4. Promises in advertising literature only apply to the specific item they are advertising. If the purchased item is different from the advertised item, the promises made do not hold.
1. Oral Promise: Hawkins v. McGee (2-4)
1. Fact Pattern: Doctor guarantees he will make patient’s hand 100%. Hand is not 100%, patient sues for breach of contract. Verdict for plaintiff.
2. If defendant spoke the words attributed to him, he did so with the intention that they should be accepted at their face value, as an inducement for the granting of consent to the operation by the plaintiff and his father, and there was ample evidence they were so accepted by them. (3)
3. It appears that the defendant was making a ‘deal’ that if the patient gave him the opportunity to ‘experiment with skin grafting’ the defendant would ‘guarantee a 100% hand’. (2, 3)
2. Warranties: Bayliner Marine Corp. v. Crow (4-8)
1. Fact Pattern: Plaintiff argues that his boat does not perform at the specifications of the brochure, and that he wouldn’t have bought the boat had he known how it would actually perform. As a matter of fact, the brochure’s promises were different from the boat he purchased. Verdict for the defendant.
2. UCC § 2-313: Express Warranties:
i. “A statement purporting to be merely the seller’s opinion or commendation of the goods does not create a warranty.”
3. The statements in the ‘prop matrixes’ provided by Bayliner did not relate to the particular boat purchased by plaintiff, or to one having substantially similar characteristics. Because the differences were substantial, the claims do not apply to the different boat.
4. You can’t enforce a contract to something for which the contracts doesn’t even apply.
b. Remedying the Breach
i. General Rules:
1. Three Protected Interests (Restatement of Contracts, Second: § 344; page 159)
1. Expectation Interest
i. Interest in having the benefit of the bargain by being put in as good a position as would have been in had the contract been performed.
ii. The promisee is often said to receive ‘the benefit of the bargain’ and the interest that is protected in this way is the expectation interest.
iii. This is the standard for awarding of damages.
2. Reliance Interest
i. Interest in being reimbursed for loss caused by reliance on the contract by being put in as good as a position as would have been in has the contract not been made.
ii. This is used when the expectation damages are deemed to be too speculative.
3. Restitution Interest
i. The promisee’s interest in having restored any benefit that one has conferred on the other party. (Basically the defendant should give back what they made from the contract.)
2. Two assumptions in providing remedies
1. The law is primarily concerned with relief of aggrieved promisees and not with punishment of promisors.
2. The primary purpose of the remedy is to put the promisee in the position it would have been in had the promise been performed.
3. Restatement, Second, of Contracts § 356 comment a: “The central objective behind the system of contract remedies is compensatory, not punitive.” (11)
4. The appropriate form of relief is compensation for the breach, rather than requiring the promisor to perform.
5. Three Types of Damages:
1. Punitive: This is to deter the defendant (and others) from engaging in such conduct again.
2. Compensatory: This is to compensate the wronged party for the harm they have suffered.
3. Nominal: This is usually $1-$10 and is awarded as a statement that while the law supports your conduct, the court does not.
1. Expectation Interest: Naval v. Charter Communications, Inc. (9-13)
1. Fact Pattern: Both parties entered contract, Charter breached the contract by shipping books early. Naval sues for lost income due to breach of the contract. Judgment for plaintiff.
2. What Naval got:
i. Hardcover sales lost, due to presence of paperback in the market: $35,380.50
ii. Profits Berkley made on paperbacks that displaced sales of hardcover books: $7,760.12 (restitution interest: reversed on appeal).
3. Here, the remedy lies in the lost sales of Naval’s books. Charter’s profits were determined to not be appropriate to award to Naval.
2. Expectation/Reliance Interest: Sullivan v. O’Connor (14-20)
1. Fact Pattern: Plaintiff hired defendant to make her nose better. He did not, and after three surgeries she sued him for breach of contract. Judgment for plaintiff, including damages for third surgery (since she expected to pay for the first two surgeries).
2. “But where the plaintiff by reason of the operation was put to more pain than she would have had to endure, had the doctor performed as promised, she should be compensated for that difference as a proper part of her expectancy recovery.” (1
improves, and preserves the property of the promisor, though done without his request, it is sufficient consideration for the promisor’s subsequent agreement to pay for the service, because of the material benefit received.”
1. Action in the Past: Feinberg v. Pfeiffer (46-50)
i. Fact Pattern: Woman is promised a pension. After working for two more years, she retires. New management doesn’t want to pay pension. Plaintiff sues for her pension. Judgment for plaintiff on theory of reliance (or promissory estoppel).
ii. In this case, the evidence for enforceability is not consideration (since there is none here, since there was no bargaining for the promise); rather ‘reliance’ is the basis for enforceability (on p. 49).
iii. “The trial court so found [that the ‘plaintiff relied upon the continued receipt of the pension installments’], and, in our opinion, justifiably so.” (48)
iv. “As the trial court correctly decided, such action [of forbearance] on the plaintiff’s part was her retirement from a lucrative position in reliance upon defendant’s promise to pay her an annuity or pension.” (95)
v. Can action in the past satisfy the requirements for consideration? No, not usually.
2. Moral Obligation: Mills v. Wyman (50-52)
i. Fact Pattern: Defendant’s son fell ill on a ship, and plaintiff cared for him for about 2 weeks. Defendant promises to pay incurred costs, and later decides to not pay. Judgment for defendant in that there was no consideration.
ii. There was no material benefit to the promisor. Although there was a detriment to the promisee (loss of time and money), there was no bargain for the promise (resulting in the detriment to the promisee).
iii. “The rule that a mere verbal promise, without any consideration, cannot be enforced by action, is universal in its application, and cannot be departed from to suit particular cases in which refusal to perform such a promise may be disgraceful.” (50)
iv. For consideration, the plaintiff must have taken care of the defendant’s son in exchange for the money promised by the father. The defendant did not promise the money in order to induce the plaintiff the take care of his son. Instead, he took care of the kid because he was acting the part of the Good Samaritan. Therefore, there is no consideration.
3. Late Bargaining: Webb v. McGowin (52-56)
i. Fact Pattern: Employee could drop block on employer’s head or divert it and fall with it. He chose the latter, suffered severe injuries, and the employer promised to pay him money monthly for life. Employers heirs stopped payment. Judgment for the plaintiff on appeal.
ii. There was a material benefit (bodily protection) to the promisor. There was a detriment (physical injury) to the promisee. There was a subsequent bargain for the promise between the two parties.
iii. “It is well settled that a moral obligation is a sufficient consideration to support a subsequent promise to pay where the promisor has received a material benefit, although there was no original duty or liability resting on the promisor…here, the promisor received a material benefit constituting a valid consideration for his promise.” (54)