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University of California, Hastings School of Law
Martinez, Leo P.

I. Contract Formation
A. Background and Basic Concepts
K = legally enforceable promise (promise = commitment to future behavior)
Lucy v. Zehmer – Two drunks agree to a farm sale written on the back of a bar bill
Rule: Look to the outward manifestation of what parties meant, and if it is apparently serious, treat it as such. Words/conduct are NOT interpreted according to subjective meaning, but what a reasonable person would understand their outward manifestation to mean.
Note: A humorous offer in a TV commercial is not binding on the advertiser if a reasonable person would have known the offer was a joke
Leonard v. Pepsico (Here the outward manifestation, as read by a reasonable person was to interpret it as a joke.)
Remedies Overview
Must ENFORCE K’s in court when they are breached…
·        K remedies are SUBSTITUTIONAL (preference for $$ damages)
o       If the thing is unique, specific performance
·        Designed to compensate the victim! Not designed to punish!
o       Breach of contract – just liable for compensation (nothing immoral about breach of contract, so no punitive damages)

he month of October
Rule: Damages for breach of K are generally measured by P’s actual loss
Here, they were awarded the estimated loss of hardcover sales but not the wrongfully acquired profits (this would be punitive)
The Economics of Remedies
o       Reallocation of resources in a society is considered to be “efficient” if that reallocation will make some economic unit better off without making some other unit worse off.
o       Sullivan v. O’Connor Plastic surgeon disfigures patient in the course of performing a nose job; clearly proven that dr promised more than std of profession required.
Rule: Clear proof of Dr.’s promise of specific medical results may give rise to an enforceable contract. (More than std required! Otherwise, a tort – malpractice)
3 Measures of Damages
·        $$ to put P back in position P would have been in had the K been performed