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Contracts
University of Florida School of Law
Davis, Jeffrey

Contracts – Prof. Davis – Fall 2012
 
 
 
Key Principles
 
1.      UCC trumps common law: every state except Louisiana has adopted the UCC. Provisions of the UCC usually trump common law.
2.      Redress/punishment: law concerned mainly with relief of promisees to redress breach and not with punishment of the promisors to compel performance.
3.      Expectation interest: the relief granted to the aggrieved promise should generally protect the promisee’s expectation by attempting to put the promisee in the position in which it would have been had the contract been performed.
4.      Damages/performance: the appropriate form of relief is substitutional, in the form of a judgment awarding money damages to be paid to the aggrieved promise, rather than specific, in the form of a court order directing the promisor to perform the promise.
5.      Err on the side of the plaintiff: when there is uncertainty in calculating damages.
6.      Definiteness: when calculating damages, speculation should be avoided. Take a conservative approach – require a sound basis upon which to measure damages.
7.      Avoidability: injured parties are obligated to try to minimize losses; one cannot seek a worse position in order to increase damages.
8.      Evidentiary presumptions: in commercial settings, we assume that parties intend to enter legal relations, whereas in marriage, for instance, we assume the opposite.
9.      General duty to read the contract one signs; common law rule: “in the absence of fraud, one who signs a written contract is bound by its terms whether he read and understood it or not, or whether he can read or not.”
 
Redress
1.      Expectation damages: amount necessary for post-performance-of-contract state (standard remedy)
a.      UCC 1-106(1): remedies are to be administered “to the end that the aggrieved party may be put in as good a position as if the other party had fully performed.
2.      Reliance damages: amount necessary to return promise to pre-contract state.
a.      Middle road between expectancy and restitution; is not limited to restoration of benefit conferred on the defendant, nor does it contemplate recovery of the whole difference in value between the contract as promised and the breach.
b.      The aim is to put the plaintiff back in the position he occupied just before the parties entered upon the agreement, to compensate him for the detriments he suffered in reliance upon the agreement.
                                                              i.      ** includes opportunity costs!
3.      Restitution damages: returns goods/services transferred to breaching party to minimize unjust enrichment (disgorgement principle).
4.      Specific performance: order party in breach to fulfill contact obligations/perform contract.
5.      Punitive damages: rarely granted. Added on to another form of damages to punish defendant for tortious/fraudulent behavior and/or bad faith.
a.       Damages are usually measured by plaintiff’s loss (expectation), not defendant’s gain (restitution).
b.      When there is uncertainty, err on the side of the plaintiff.
                                                              i.      United States Naval v. Charter Communications
1.      Punitive damages are not recoverable in contract breach actions unless the breach was fraudulent.
2.      On occasion a defendant’s profits are used as a measure of damages, this generally occurs when those profits tend to define the plaintiff’s loss.
                                                            ii.      Sullivan v. O’Connor
1.      Court may enforce a doctor’s promise of a specific medical result by awarding compensatory damages, provided the promise was not merely a statement of medical opinion.
2.      Expectation damages (where she would have been if the contract had been fulfilled) and restitution damages (what she paid for the surgeries) would have been inappropriate.
3.      Reliance damages (difference between the old nose and the new one) would put the patient back in the position she occupied before the agreement and provides a middle ground.
 
 
I.                  ENFORCING PROMISES
For a contract to be enforceable, there must be consideration and a bargained-for exchange.
A.                Contract is
1.           A promise or set of promises that the law will enforce or recognize in some way.
B.                 Types of Contracts
1.           Express – an agreement manifested by words
2.           Implied-in-fact – an agreement manifested by conduct 
3.           Implied-in-law (“quasi-contract”) – not a true contract but an obligation imposed by a court despite the absence of a promise in order to avoid an injustice
C.                Enforced because
1.           Relief of promisees to redress breach and not with punishment of promisors to compel performance.
2.           The relief granted will generally protect the promisee’s expectation by attempting to put the promisee in the position she would have been had the contract been performed.
3.           In most cases, relief should be susbtitutional ($ – remedy at law) and not specific (ordering performance – equitable remedy).
D.                Bargain / Consideration
1.           RS 71 à consideration consists of a bargained for exchange. “Good Enough Things”. A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promise in exchange for that promise.
a.       Performance may be an act or forbearance (refraining from enforcing a right, obligation, or debt).
1.      Forbearance
a.       R 74 à if the parties dispute, in good faith, reasonableness is irrelevant.
2.           RS 17 à the formation of a contract requires a bargain in which there is a manifestation of mutual assent to the exchange and consideration.
3.           Fiege v. Boehm (forbearance as sufficient consideration)
a.       Abstention form a legal but harmful right is sufficient consideration to make promise enforceable; uncle bargained for forbearance.
b.      “Under doctrine of consideration, you know whether you have an enforceable promise immediately upon signing the agreement
1.      If you don’t have clear consideration, neither party knows whether the argument is enforceable until events occur after its execution.”
4.           Not Good Enough Things
a.       Preexisting duty
b.      Illusory promise
c.       Promise made in bad faith
d.      Gratuitous promise
1.      Gratuitous gifts are different – if it’s actually delivered, there’s a legal d

eed on modifying contract.
2.      A new promise by the parties to an existing contract constitutes a mutual rescission (or partial rescission) of the existing contract and creates a new one.
d.      UCC 2-209 à Gets rid of pre-existing duty altogether, as long as modifications were sought IN GOOD FAITH.
I.                   Illusory promises = no bargain
1.           Promises must actually bind the promisor to do something, otherwise bargain is absent and promise is unenforceable.
a.       Strong v. Sheffield
1.      Strong promised not to collect for an unspecified time (“until he needed it”) – not sufficient consideration.
2.      In order for promise to be legally binding, a promise must be supported by consideration and cannot be illusory.
2.           RS 77 à Illusory promises: a promise or apparent promise is not consideration if by its terms the promissor reserves a choice of alternative performance UNLESS:
a.       Each of the alternative performances would have been consideration if it alone had be bargained for or
b.      One of the alternative performances would have been consideration and there is or appear to the parties to be a substantial possibility that before the promissor exercises his choice events may eliminate the alternatives which would not have been consideration.
3.           UCC 2-309 (3) à Termination Clauses: contracts allowing unilateral termination at will are illusory unless the terminator is required to give reasonable or written notice. Contracts for the sale of goods usually require reasonable notice before termination, unless otherwise agreed.
4.           Satisfaction Clauses à not necessarily illusory; maybe bargain
a.       A contract which depends on the satisfaction of one party may be enforceable if:
1.      Satisfaction is measured objectively (as in commercial contracts) or the party judges satisfaction in good faith.
a.       Good faith limits options and therefore, contract is not illusory.  [Davis] b.      Mattei v. Hopper
1.      Purchase subject to the buyer obtaining “satisfactory leases”
2.      Satisfaction clause did not make K illusory or void.
5.           Exclusivity contracts à not necessarily illusory: maybe bargain
a.       Where one party agrees to use only the other to provide certain goods/services, are enforceable, but the exclusive provider is implicitly obligated to use “best efforts”
b.      Wood v. Lucy, Lady Duff-Gordon
1.      Not everything in agreements need to be explicitly written in the contract.
Cardozo: “A promise may be lacking, and yet the whole writing may be ‘instinct with an obligation,’ imperfectly expressed”