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Contracts
University of Connecticut School of Law
Siegelman, Peter

Contracts

Siegelman

Fall 2011

I. Intro/Nature and History of Contracts

II. Damages for Breach

A. Expectance v Reliance v Restitution

B. Limitations on Damages

1. Remoteness or Foresee ability of Harm

2. Certainty of Harm

3. Avoid ability of Harm

C. Contracting around the Default Rules of Damages

1. Express Limitations on Consequential and Incidental Damages

2. Liquidated Damages v Penalty Clauses

III. Other Remedies and Causes of Action

A. Specific Performance and Injunctions

1. Contracts for Land

2. Contracts for Goods

3. Contracts for personal service

B. Restitution – Damage interest and Cause of action

1. Restitution and “Quasi-Contract”

IV. Reaching an Agreement

A. Intro to Offers and Acceptance

B. The Objective Theory of Assent

C. What is An Offer?

1. Preliminary negotiations

2. Written Memorial Contemplated

D. What is Acceptance?

1. Acceptance by Correspondence – “The Mailbox Rule”

2. Acceptance by Silence

E. Acceptance by Performance and “Unilateral” Contracts

V. Interpreting Assent

A. Filling Gaps in Assent

1. Agreements to Agree

2. Illusory Promises

B. Interpreting Assent Subjectively or Objectively

VI. Written Manifestations of Assent

A. Interpreting a Writing – The Parole Evidence Rule

B. Interpreting Conflicting Writings – “The Battle of the Forms”

VII. The Doctrine of Consideration

A. The Historical Origins of the Doctrine

B. The Bargain Theory of Consideration

1. Distinguishing Bargains form Gratuitous Promises

2. Past Consideration

3. Moral Consideration

D. Contract Modification and the Preexisting Duty Rule

E. Adequacy of Consideration

VIII. The Doctrine of Promissory Estoppel

A. The Development of Promissory Estoppel as A Substitute for Consideration

1. Family Promises

2. Charitable Subscriptions

3. Promises of a Pension

4. Construction Bids

B. Promissory Estoppel as an Alternative to Breach of Contract

C. Some Modern Applications and Limits of Promissory Estoppel

1. Promise

2. Reasonable Reliance

3. Injustice of Nonenforcement

IX. Performance

A. The Implied Duty of Good Faith Performance

B. Implied and Express Warranties

1. Implied Warranties of Merchantability

2. Express Warranties

3. Express Disclaimers of Warranty

X. CONDITIONS

XI. Breach

A. Prospective Nonperformance

1. Anticipatory Repudiation

2. Adequate Assurances of Performance

B. Constructive Conditions and Material Breach

1. Constructive Conditions

2. Material Breach

3. The Perfect Tender Rule: Cure and Recission

C. Cost of Completion v. Diminution in Value: The Expectation Interest Revisited

XII. Obtaining Assent by Improper Means

D. Unconscionability

Restatement (Second) of Contracts §251

1. Where reasonable grounds arise to believe that the obligor will commit a breach by non-performance that would of itself give the obligee a claim for damages for total breach, the obligee may demand adequate assurance of due performance

2. The obligee may treat as a repudiation the obligor’s failure to provide within a reasonable time such assurances of due performance as is adequate in the circumstances of the particular case.

Intro to Remedies:

What is court’s goal when it steps into a contract?

· Make both better off

· Encourage economic efficiency

· Clarify the commercial system that parties are operating in

· Primary focus of courts: to make the injured party “whole”

· Punishment? NOT REALLY

o Punitive damages are usually not awarded, courts don’t see that as their role

o If punish all the time, run the risk that people will not enter into contracts

Assumpsit – He promised; he undertook

Special assumpsit – Under mature English law, actions in assumpsit for expectation damages, based on

defendant’s breach of an express contract whose details were alleged in the complaint

General assumpsit – Actions in assumpsit to recover a debt

Sales contract: the uniform commercial code

§1-103. Supplementary General Principles of Contract Law Applicable (p. 89)

Unless displaced by this act the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions

§2-102. Scope; Certain Security and Other Transactions Excluded From this Article (p. 89)

Unless the context otherwise requires, the Article applies to transaction in goods; it does not apply to any transaction which although in the form of an unconditional contract to sell or present sale is intended to operate only as a security transaction nor does this Article impair or repeal any statute regulating sales to consumers, farmers or other specified classes of buyers.

§2-105. Definitions: Transferability; “Goods”… (p. 89)

“Goods” means all things (including specially manufactured goods) which are movable 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 9) and things in action. “Goods” also includes the unborn young of

animals and growing crops and other identified things attached to realty as described in goods to be

severed from realty (Section 2-107)….

§2-106. Definitions: “Contract”; “Agreement”; “Contract for Sale”; “Sale”; “Present Sale” … (p. 89)

In this Article unless the context otherwise requires “contract” and “agreement” are limited to those relating to the present or future sale of goods. “Contract for sale” includes both a present sale of goods and a contract to sell goods at a future time. A “sale” consists in the passing of title from the seller to the buyer for a price (Section 2-401). A “present sale” means a sale which is accomplished by the making of a contract….

Totten v. United States (1876)

An action cannot be maintained against the government in the Court of Claims upon a contract for secret services during the war made between the President and the claimant.

Shaheen v Knight – Sterile, NOT!

FACTS: Shaheen (P) and his wife decided to get him sterilized b/c they couldn’t afford more kids. Knight (D) agreed to perform the operation and told Shaheen it would be effective. Shaheen’s wife gave birth to another kid 2 years later. P sought breach of contract to cover expenses of raising child.

HOLDING: A doctor and a patient may bargain for a particular result, which, if not achieved, can be the basis for an action for breach of contract. However, to allow damages for the birth of a normal child would be against public policy.

Discussion: sterilization contract void because it is against public policy (not void when wife’s life in danger,

but otherwise void) Problem with using public policy argument is that when court decides what public policy is it has its own view – court said if controversial it won’t rule against it. Also, what about freedom of contract? Also, public opinion is not constant.

II. Damages for Breach

In general, damages are awarded by the promisee’s expectation interest. The court attempts to put the promisee in the position he would have been in if the promise had been fulfilled. Sometimes, though the court will instead award damages to put promisee in the position he would have been in had the promise not been made.

A. Expectance v Reliance v Restitution

Allan Farnsworth Contract Rest.

Expectation: attempts to put promisee in position they’d have been if promiser had come through

Reliance: If promisee chaged position because of the promise to his detriment (built something) then restitution interest puts them back in the place they’d be in if no promise had been made.

Restitution Interests: If promisee gave promisor something the court depraved the promisor of this benefit. Then recovery is calc using rest interest to put the promisor back in the place they’d be in if no promise had been made. (no promisee lost profits)

Award is measured by expectation interest or benefit of bargain

Hawkins v. McGee (pg 63) – the hairy hand

FACTS: Dr. McGee (d) was to remove scar tissue from the right hand of Hawkins (P) and then graft skin from the chest of P to the palm. D stated the hospital stay should be 3-4 days and then D could return to work with a 100% perfect hand. D argues no one would understand that to be a contract.

HOLDING: The true measure of a buyer’s damages is the difference between the value of the goods as they would have been if the warranty as to the quality had been true and the actual value at the time of sale (including incidentals). Therefore damages were the difference between the value to D of a perfect hand and the value of his present hand, ignoring all other damages.

Restatement (Second) of Contracts §347. Measure of Damages (p. 70)

Subject to the limitations in §350-353, the injured party has a right to damages based on his expectation interest as measure by

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

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

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

Nurse v Barns (pg 71) – Expectation

FACTS: The D lent P an iron mine for 10L for 6 months when it appeared the mills were worth 20L per year. Yet damages were given to 500L by reason of the loss of stock laid in.

Calculating…. (pg 72)

FACTS: I agree to sell you a copy of the restatement (to be delivered tomorrow) in return for your agreement to pay me $10 and to give me a photocopy of your class notes. Assume that the restatement has a market value of $15 and your notes have a market value of $1 and that it costs you $3 to photocopy your notes. You pay me the $10 and give me the photocopy of your notes. I refuse to deliver the restatement or return your money and you sue.

1) How much would you get if limited to restitution damages? 10 + 1 =11 (as if no promise)

2) If limited to reliance interest 10 +3=$13

3) Applying McGee? $15-10-3=$2 is profit so we need $2+3+10= $15 in expectation

4) If you had photocopied them and given them to me, but not paid me?

a) Expectation interest? $2+$3=5

b) Reliance interest? $3

c) Restitution interest? $5

5) If you had not paid nor photocopied

a) Expectation interest? $2

b) Reliance interest? $0

c) Restitution interest? $0

6) If the market value was $9 and you had already paid $10 and given me the photocopy of your notes?

a) Expectation interest? Profit=9-10-3=-4 therefore since now out –13 give $9

b) Reliance interest? $13

c) Restitution interest? $11

7) Assuming MV was $15, you had photocopied but not given to me and not paid in advance?

a) Expectation interest? Profit=2 so $5

b) Reliance interest? $3

c) Restitution interest? $0

FACTS: I contract w/ you to sell a machine I price at $100. Include in price is my $50 cost to produce it and $10 to deliver it. Therefore expected profit is $40. ** (a), (b) and (c) are describe above in restatement.

1) If you default preproduction expectation damage = $40 ie

100 loss (a)

+0 other loss (b)

-60 costs/other losses avoided ©

=40

2) You default after production, predelivery, but disposal costs are $15. = $105

100 loss (a)

+15 other loss (b)

e repairs and could not use the equipment until four months later. Martinez (P) settled with South Pacific (D) regarding the cost of repairing the damage to the dragline and storage charges incurred. He sued for damages for the wrongful deprivation of the dragline’s use during the periods of delay in transit and of repair. A lower court dismissed the claim for delay damages because it claimed that the damages were special and Martinez (P) had failed to allege that the carrier had any notice of the possibility that such damages would accrue upon a breach of contract. Martinez (P) appealed and asserted that the loss was reasonably foreseeable when he entered in the contract.

ISSUES: Are special damages awarded only if actual notice was given to the carrier or the possibility of injury?

HOLDING: General damages are awarded only if injury would have been foreseeable to a reasonable man and special damages are awarded only if actual notice was given to the carrier of the possibility of injury. Marinez’ (P) delay claim involved two different items. Lost use during the period resulting from the delay in transit and lost use resulting from the repair of the damaged goods. The court held that the lost use from the repair of the damaged goods was part of the claim of physical damage to the dragline and had already been settled. However, the loss resulting from the delay in transportation may be measured by the rental value of the machinery. The amount of damages that was reasonably foreseeable involves a fact question that Martinez (P) is entitled to present to a jury. Case remanded.

DISCUSSION: foreseeability

Why does court care so much about foreseeability?

– Full compensation would be unfair to the defendant and hurtful to commerce

– The defendant in the case might have done something differently if new of special circumstances that would have resulted in higher damages – would have taken higher precautions, maybe shipped for higher price (act like insurers)

The defendant doesn’t actually have to foresee it, just has to have reason to foresee it. Why?

– Don’t want to encourage ignorance

– Hard to know subjective mind of parties

At what point is foreseeability assigned?

– When contract is signed

– There is a notion of consent- can restrict classes of damages to which they will be responsible

What if mill employee told clerk at shipping company how much loss there would be? Would shipping company be responsible?

– Yes. The default rule is for the agent to be responsible. But, FedEx states explicitly that they don’t care what you told us, we are still not taking responsibility…rule in Hadley is a default rule, but parties can contract around it (like FedEx does)

Why shouldn’t we change default rule? (since everyone seems to be trying to avoid this law) Why don’t we say that we won’t give you damages unless you expressly say what the damages might be?

– One reason why don’t change default rule is because of information revelation. Its good to force FedEx to tell me that they won’t take responsibility. If have the opposite default…the regular consumer may not know much about the law.

Restatement (Second) of Contracts §351. Unforeseeability and Related Limitations on Damages (p. 108)

1. Damages are not recoverable for loss that the party in breach did not have reson to foresee as a probable result of the breach when the contract was made.

2. Loss may be foreseeable as a probable result of a breach because it follows from the breach

a. In the ordinary course of events, or

b. As a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know

3. A court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation.

Morrow v. First National Bank of Hot Springs (p. 109) (stolen coints)

FACTS: Ps(Morrow and Goslee) sought damages from First NB for losses incurred by the burglary of their coin collection, as a result of D’s failure to notify them as to the availability if three safety-deposit boxes. (b/c FNB agreed to notify them, however the failed to do it although the boxes were available before the burglary.

Rule: In an action for consequential damages, under the “tacit agreement (zimni anlasma) test”, P must demonstrate that D expressly assumed responsibility for P’s sustaining special damages as a result of the D’s breach

Holding: P agreed to rent three safety deposit boxes for a total of $75. The court does not consider this K to signify FNB agreed to indemnify P in the amount of app. $ 32,000 for failure to notify him as to the availability of the boxes.