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Contracts
University of California, Hastings School of Law
Lefstin, Jeffrey A.

Contracts

Lefstin

Fall 2013

R § 1 – Contract Defined

· 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 as a duty.

· Bargain or exchange for

o A promise for a promise

o A promise for a performance

· Must include:

o Exchange

o Promise

· The duty to keep a contract at common law means a prediction that you must pay damages if you do not keep it – and nothing else. OWH

Shaheen v. Knight

· Botched Vasectomy, Child Expenses

· Damages for the normal birth of a normal child is against public policy.

Contracts unenforceable public policy;

· Illegal act

· In restraint of trade

· Immoral acts

· Sale of inalienable good

· Rearrange status relationships

DAMAGES

To determine damages:

· Determine nature and extent of loss

· Determine which remedy fully compensates

· Take into account any limitations on damages

3 Damage Interests:

– EXPECTATION

· put the PROMISEE in the position which they would have been had the promise been performed

– RELIANCE

· put the PROMISEE in the position which they would have been had the promise not been made

– RESTITUTION

· put the PROMISOR back in the position in which the PROMISOR would have been had the promise not been made (Unjust Enrichment)

R § 347 – Measure of Damages in General

· The injured party has a right to damages based on his expectation interest as measured by

o (a) the loss in the value to him of the other party’s performance caused by its failure or deficiency, plus

o (b) any other loss, including incidental or consequential loss, caused by the breach, LESS

o (c) any cost or other loss that he has avoided by not having to perform.

GENERAL DAMAGES

· Gains prevented and losses sustained

· Position P would have been in had contract been performed

· DAMAGES

P’s LOSS IN VALUE (MARKET PRICE – CONTRACT PRICE)

+ ADDITIONAL LOSS (CONSEQUENTIAL/INCIDENTAL)

– ANY COSTS AVOIDED

EXPECTANCY DAMAGES

DAMAGE TYPES

· GENERAL DAMAGES: Natural Consequence of Breach

· CONSEQUENTIAL DAMAGES: Damages that occur as result of breach

o SPECIAL DAMAGES: Consequential Damages that are above and beyond the natural consequence of the breach, and must be known by party in breach to be recoverable

· INCIDENTAL DAMAGES: Damages that are incurred in handling the breach (separate from incidental reliance)

Hawkins v. McGee

· Hairy Hand

· P entitled to expectancy damages: difference between a perfect hand and a hairy hand.

· Not entitled to damages for pain and suffering, ESSENTIAL RELIANCE: would have been endured under the original agreement.

Nurse v. Barns

· Iron Mills, P incurred expenses

· Expenses incurred in INCIDENTAL RELIANCE are foreseeable and recoverable as damages (losses would not have occurred had the promise been performed).

ESSENTIAL (Direct) RELIANCE: The “price willing to be paid” by the parties entering into the contract. These “losses” cannot be recovered.

INCIDENTAL (Consequential) RELIANCE: Foreseeable losses that result from reliance on the contract, but are not considered as the “price willing to be paid.” Usually a waste or loss that cannot be salvaged.

LIMITATIONS ON DAMAGES

1) FORSEEABILITY

· Consequential damages must be reasonably foreseeable to be recovered

Hadley v. Baxendale

· Broken Shaft, delay in delivery

· Damages must be foreseeable:

o as may fairly and reasonably be considered NATURAL CONSEQUENCE of breach. (GENERAL DAMAGES)

§ ie – roofer doesn’t show then rain and water damages is natural consequence

o if not natural consequence then as may reasonably have been in the contemplation of both parties. Requires NOTICE. (SPECIAL DAMAGES)

§ ie – roofer doesn’t show and a special, unique, immovable object is damaged – roofer must have been aware to be liable for this damage

· Where special circumstances exist that would give rise to damages in excess of those reasonably

can prove that the injured party would have suffered had the contract been performed.

· Locke can recover expenditures incurred in order to perform.

· Where there is a losing contract P can get reimbursed for expenses incurred in reliance (reliance interest) and the burden is on D to prove any loss that D may have incurred under full performance to reduce the amount awarded as reliance (reducing reliance to amount of true expectation including the loss anticipated).

· Loss is generally prorated so as to avoid undercompensating.

o ie – full expected loss to P is 20, full compliance w/ contract in reliance is 120. Half of reliance has been accomplished (60) so loss is also reduced by half to 10, 60 (1/2 reliance costs) – 10 (1/2 expected loss) = 50 awarded to P.

3) MITIGATION

· victim of breach must take reasonable steps to mitigate loss

· they are not required to suffer undue burden or prejudice

Rockingham County v. Luten Bridge

· County board unstable, bridge to nowhere

· Damages that could have been mitigated cannot be recovered.

· After repudiation of performance by one party, the other party cannot continue to perform and recover damages based on full performance. They must mitigate damages.

· Stop performance at time of breach and recover costs incurred, plus expected profits.

Shirley Maclaine Parker v. Twentieth Century Fox Film

· Bloomer Girl vs. other role

· The measure of recovery by a wrongfully discharged employee is the amount of the salary agreed upon for the period of service, less the amount which employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment.