CONTRACTS SYLVESTER FALL 2016
CHAPTER 1 – lecture 1 – Tuesday 8/22/16
What are contracts?
(A) Private law that parties make between themselves as well as the public law that governs how you enter into contracts, what to do if there’s a breach, and what remedies
affirmatively promotes commerce (in the aggregate all these transactions are the economy)
(B) Judge’s decisions / rulings are called “opinions” – elasticity in rules is quite deliberate
(C) Hawkins V McGee
Question of whether a contract is formed is a factual question and is to be decided based on the words spoken, as well as the context in which they are spoken (nature of the promise).
Doctor’s promise enforceable? it’s a contracts case because the plaintiff entered into the contract with the doctor for his service based on the doctor’s guarantee and solicitation – Doctor intentionally sold a service to develop his skill set
(D) Bayliner Marine Corp v Crow
Statements that do not relate to the particular item purchased, or that merely commend the quality of goods, do not create express warranties.
A buyer might reasonably rely on the seller as an expert in a certain kind of good “warranties of merchantability and fitness for a particular purpose”
Sources of Contract Law
(A) Two hemispheres from where contract law comes from
Goods – things that are tangible or moveable – “article 2” of the uniform commercial code (UCC) – supplement page 259
Uniform commercial code (UCC) was adopted by states to allow for interstate commerce. Article 1 is preliminary and article 2 is goods.
Not goods – most importantly: Services (employment contracts), real estate, intellectual property – State common law established in cases
Restatement Second of Contracts(R2d) on page 5 of the supplement
Remedies: Remedies have different meanings than just enforcing a promise
(A) Fundamental assumptions
Relief of the aggrieved promises and not the punishment of promisors – making the injured party whole
Protection of expectancy – expectation interests – preference for not just restoring the status quo ante but giving the promisee the benefit of the bargain
(B) Remedying a Breach (Measures of Recovery/Protected Interests)
Expectancy – “expectation interest” benefit of the bargain by being put in as a good a position as he would have been in had the contract been performed
Restitution – restore the victim of a breach to the position he or she would have been in if the contract had not been made (Status Quo Ante (SQA)) – breaching party disgorges any unjust enrichment the victim conferred to the breaching party
Reliance – restore the victim of a breach to the position he or she would have been in if the contract had not been made and had not changed his or her behavior as a result of relying on the breaching party (Status Quo Ante (SQA)) – breaching party compensates the breach victim for injuries suffered and costs incurred as a result of his or her reliance.
(C) US Naval Institute v Charter Communications, Inc (Efficient Breach)
Originally sued for injunction to prevent Charter Communications from selling paperback books (Hunt For Red October) prior to October – Naval 1 – and for damages in the event that they sell prior to October.
Assessing damages – damages should be awarded based on losses of the plaintiff (breach victim) and not the gains of the defendant based on breach
Contract law is not about punishment because it’s not anti-commerce; especially considering it stimulates the economy which is thought to be better for everyone
Cure the injuries of the plaintiff, not punish the breach of the defendant
Contracts law does not want discourage contracts so they do only provide relief for the injured party
Courts will not grant punitive damages for a breach of contract.
There’s always going to be speculation in awarding damages in cases like this but the benefit of the doubt goes to the victim of the breach of contract.
Awarded damages based on speculated losses; hardback seller got to keep the difference between their sales gain and victim’s sales loss: efficient breach.
(D) Sullivan v O’connor Pain and suffering only recoverable in expectancy & reliance
Standard remedy for a breach of contract is expectancy (compensation)
Noses: promised (or expected nose), the resultant nose, original nose
Expectancy: difference between the promised nose and the resultant nose
Restitution: 0; there is nothing for the surgeon to “return”; he did not “benefit” from the surgery
Reliance: difference between resultant nose to original nose
Pain and suffering (only recoverable in expectancy & reliance): 3 operations
Expectancy: only giving remedy for operation 3 because she expected the pain and suffering from operation 1 and 2, she was technically made whole for that pain and suffering because she received the value of the resultant nose
Restitution: 0; there is nothing for the surgeon to “return”; he did not “benefit” from the surgery
Reliance: Yes pain and suffering for operation 1 and 2 AND 3 because she wouldn’t have suffered from any surgery
Out of pocket expenses: 622.65
Expectancy: nothing for the first two surgeries because she expected to pay
Restitution: 300; whatever the breach victim gave to the surgeon but not the hospital because they are not defendants
Reliance: all of her total out of pocket expenses
(E) White v Benkowski
Punitive damages may not be recovered for breach of contract (unless there is also a tort); Restatement 2nd section 355 on pg 189 of the supplement –
Nominal doesn’t just mean “trivial” or “small” it means in name only or symbolic– a trivial sum of money because you haven’t shown price of damages but you have proven a breach of contracts.
Chapter 1 – Doctrine of Consideration / Bargain for Exchange – There is either consideration or there is NOT. (Class 2 – 8/25/16)
Bases for Enforcing Promises (overview)
Consideration, Promise, or Reliance
Term
Cases
Restatement
P/C
Traditional
Hamer, Dyer
§ 71
P/ ”C”
“Moral Obligation”
Webb (exception to rule)
§ 86
P/(R)
Promissory Estoppel
Feinberg, Ricketts, D&G Stout
§ 90
-/ “C”
Quasi-contract (3 ways)
Cotnam, Callano, Pyeatte
§ 371
Hamer V Sidway: Uncle made promise to the nephew to the tune of 5,000 dollars for abstaining from vices but Uncle died; executor of uncle’s estate refused to pay
(A) FORBEARANCE as an inducement for a promise, gives sufficient consideration, but only when the individual has a right to perform the action he or she forbears. Relinquishment of the right to engage in vice (selling h
lict (free market and freedom of contract)
must be reasonable for the following three criteria
duration
geographic scope
range of activities
Employer is inclined to draft too broadly contracts so the courts tend to cut them back. California: post-employment non-compete covenants are presumptively invalid
(C) Lake Land Employment Group of Akron v. Columber: continuation of at-will employment
Facts: Columber (D) worked for Lake Land (P) for several years before signing an agreement not to compete with Lake Land (P) and later claimed that the agreement was not supported by consideration.
Rule: The continuation of an at-will employment relationship after the employer imposes a new requirement on the employee is sufficient consideration for the employee’s agreement to that requirement.
Simply not terminating an at-will employee is consideration for a non-competition contract, BUT, court remand to the lower court to determine if the noncompetition agreement is reasonable (i.e., short enough time, small enough geographic area, etc.)
Illusory promise: promise of employment at will; permanent employment isn’t really permanent;
Legal Reasoning: The at-will employee has no expectation to continued employment. The employee’s assent to not compete after termination is given in consideration of the employer’s forbearance of the right to terminate the employee.
The facts are more compelling than the legal reasoning in this case; consideration is not really used
Courts tend not to go back and retroactively parse the terms of agreements after deciding the legal reasoning was sound
Not consistent with our terms of consideration
Promises can be consideration in contracts and perfectly enforceable if not illusory or illegal
(A) Illusory promise (Restatement 2nd §77 page 38) : free or unfettered chance of escape “unless I don’t want to” or “until I want to” – classic illusory promise)
Parties want not just the promise, but the security of the promise
(B) The Consideration is to be tested by the agreement, and not by what was done under it
(C) Strong v Sheffield (1895): Illusory promise not consideration
Facts: Strong attempts to obtain payment for a note from the guarantor, although Strong convinced the guarantor to sign the note merely by promising not to demand payment until he felt like it.
RULE: In order to be legally binding, a promise must be supported by consideration and cannot be illusory
No consideration because it was a demand hold not a promise to forbear on the loan. There was no bargain for exchange because an illusory promise, “I will hold off until I want my money”, offers him free or unfettered chance of escape
