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Contracts
University of Florida School of Law
Harrison, Jeffrey L.

CONTRACTS

HARRISON

2013

EXPECTATION, RELIANCE AND RESTITUTION

1. Expectation interest – is to put the promissee in as good a position as he would have been in had the contract been performed.

a. Specific performance

i. but it is not always this way because remedies in US say the appropriate form of relief is compensation for the breach, rather than requiring the promisor to perform

ii. when compensation is inadequate, court can use specific performance.

b. compensation to promisee

i. amount needed to protect the promisee’s expectation interest or the amount necessary to put the promisee in as good a position as he would have been in had the contract been performed.

2. Reliance interest- if it has changed its position to its detriment in reliance on the promise (promise; promisees inj consist of being worse off than if the promise had not been made.

i. reimbursement for loss caused by reliance and aim to put pltf in as good a position as he would have been had the contract not been made

3. Restitution interest- to the extent that the promise conferred a benefit on the promisee. “interest in having restored to him any benefit that he has conferred on the other party”

i. putting the promisee in the position in which it would have been had the promise not been made.

4. Pain and Suffering for Breach of Contract

a. While many decisions show that pain and suffering are not compensable in contracts (restatements § 341) – Comment a) There is no general rule barring such items of damage in actions for breach of K.

b. it is all a question of the subject matter and background of the K

c. When the K calls for an operation on the person of the P psychological as well as physical injury may be expected to figure somewhere in the recovery depending on the particular circumstances

d. SULLIVAN V. O’CONNOR

i. Sullivan was an entertainer, Botched cosmetic surgery. Π was entitled to out of pocket expenses, worsening of condition, and pain and suffering. (Court notes these could have been found on either expectation or reliance

ii. Although damages for pain and suffering and emotional distress are not generally available as contract damages, when those damages flow directly and naturally from the breach, they are compensable as either expectancy damages or reliance damages.

5. US NAVAL INST v. CHARTER COMM

a. Facts: D had licensing agreement w/ P to sell book in Oct. Jumped the gun and started selling in Sept. Dispute over damages.

b. Holding:

iii. Expectation damages: the amount of money P would have made had the contract been performed – the lost profits on the hardcover sales.

iv. Reliance damages: makes the promisee as well off as if the contract was never signed. Arguably the same – they would have signed with another company that wouldn’t have jumped the gun and sold the softcover book early.

v. Restitution damages: clawing back the profits D made from the sales of the softcover book.

vi. Contract damages are compensatory, not punitive

vii. Tie, with respect to calculating damages, goes to the plaintiff. Restatement §352 comment a.

b. Basically – In calculating the amount of damages in a breach of contract case, focus on the P’s loss, not on the D’s gain and remember that the central objective behind the system of contract remedies is compensatory, not punitive.

Consideration

6. In General:

Consideration can take the form of either some return benefit being received by the person making the promisor, or some detriment, forbearance or loss being suffered by the promisee

For consideration, must be what you have a legal right to give up.

Three party pre-existing duty cases:

If promisee makes a contract with promisor, and makes a promise to a third party to do what he was already obligated to do by virtue of the first contract, some courts are more willing to say this contract supports consideration. Argument is that the person’s detriment is forgoing their right to negotiate out of the contract and cancel.

i. If a modification to an agreement was motivated by unforeseeable circumstances (ex. Change in supply/demand), then the modification is enforceable.

Pre-existing duty rule

a common-law rule of contract. It says that the rule that performance of an act by which a party is already contractually bound to perform does not constitute valid consideration for a new promise. In other words, a party’s offer of a performance already required under an existing contract is an insufficient consideration for modification of the contract.

Courts don’t enforce gratuitous promises, just gratuitous transfers

Forbearance does count as consideration

Forbearance to assert an invalid claim by one who has not an honest and reasonable belief in it is possible validity is not consideration. What is important is good faith

i. FIEGE V BOEHM

– the man believing himself to be the father of a woman’s bastard child paid child support in return for her forbearance to sue him in court.

– When he found out he was not the father, he stopped paying. Court held that, if she believed in good faith that he was the father, and he believed that he was the father, then the contract was valid with forbearance as the consideration.

R.2d §74(1) – “Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless: a)the claim or defense is in fact doubtful because of uncertainty as to the facts of the law, or b)the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.

Gift- a gift with no strings attached has no return performance, and thus no consideration and is not enforceable as a contract

HAMMER V SIDWAY

i. Courts found child who refrained from sinful activities suffered a detriment and thus consideration.

ii. Story incurred a limitation on his legal right to engage in certain activities sufficient to constitute adequate consideration to form a valid and enforceable contract with his uncle. Adequate consideration sufficient to form a valid and enforceable contract may consist of either a right, interest, profit, or benefit accrued to one party, or some forbearance, detriment, loss, or responsibility given, suffered, or undertaken by the other. It does not matter whether one party actually received a benefit or whether the thing which forms the consideration is of any substantial value to either party. Adequate consideration does not depend so much on a promisor’s benefit from a contract as it does on the promisee’s voluntary limitation of his legal rights or freedoms in exchange for the promise.

13. Promise plus Antecedent Benefit- Moral Obligation

a. Moral obligation is sufficient consideration and are valid in:

1) debts barred by statute of limitations – if you have a debt and statute of limitation has ran, and you promised to pay after that, can be held liable

2) debts incurred by minor- if you made a contract as a minor, you can void. If you uphold the promise once at age, you are liable. If your parents promise to pay, they can be held liable.

3) debts of bankrupts- bankruptcy and afterward promise to pay the debt (even though bankruptcy excused) the promise will be enforced.

i. A promise made in recognition of a moral obligation arising out of a benefit previously received is not enforceable.

b. MILLS V WYMAN

ii. no consideration for father’s promise to pay for care of adult son; won’t enforce Moral duty; won’t define public policy to go against personal autonomy

iii. A promise based on a moral obligation but made without legal consideration does not constitute an enforceable contract unless it is tied to a preexisting legal obligation. A promise may be tied to a preexisting legal obligation if the original legal obligation was based on consideration. For example, when one promises to assume the debt of another who cannot pay, this promise is enforceable because of the consideration originally provided by the initial debtor to the lender. Additionally, a parent’s promise to pay the debts of his minor children is enforceable based on the preexisting legal duty of parents to provide for their children’s expenses. However, this obligation dissolves once the child reaches adulthood. Levi Wyman fully reached adulthood and had long been out of his father’s care. Thus, his father is no longer obligated to pay his debts based on a preexisting parent-child relationship.

c. WEBB V MCGOWIN

i. Moral consideration can create an enforceable promise if the promisor has received a material benefit constituting a valid consideration for his promise.

ii. Factors to consider:

– Did injured party create the harm? If you created harm, one may say you did so in order to reap a material benefit.

– reflection on part of benefitted party,

– lengt

es satisfactory to the purchaser.

– Promisor’s duty to exercise his judgment in good faith represents adequate consideration, such that “Satisfaction” clause not illusory

– Not just an arbitrary standard: P actually went out to find satisfactory leases!

ii. Output/Requirement K’s: Eastern v. Gulf Oil: Gulf locked into a very unfavorable deal. Gulf says they don’t have to sell any oil b/c P isn’t asking for a specific amount of oil…they didn’t promise anything in return

– Such a contract is not illusory: Party who determines quantity “required” must continue business operations in “good faith”

– This makes the required quantity reasonably foreseeable to the provider

– U.C.C. § 2-306

1) A term which measures the quantity by the output of the seller or the requirements of the buyer means such actual output or requirements as may occur in good faith, except that no quantity unreasonably disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable prior output or requirements may be tendered or demanded.

i. as long as requirements or output are in good faith, implicitly, contract is not illusory.

ii. E.g., bad faith: requirement goes up considerably so that they take extra and profit from it

2) A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

– Requirement is for ongoing business operations (they are on the hook for a reasonably estimated amount…as judged by ongoing business operations or any other estimate provided for in contract)

iii. Implied Promise: Wood v. Lucy, Lady Duff: P gets the exclusive rights to D’s name. She uses her name without him.

– No express guaranty that Wood would seek out endorsements

– “Implied in fact” promise to follow through in “good faith” on his obligation (Wood explicitly promised her half the profits, and to give monthly updates and accounting)

– Also, they are both businesspeople (not naïve): why enter into the contract if you don’t think other person will perform?

PROMISSORY ESTOPPEL

17. Promise plus Detrimental Reliance – Promissory Estoppel

i. Promissory estoppel serves as a “consideration substitute” in contract law that renders certain promises otherwise lacking in consideration binding and enforceable. In such cases, the promisee’s reliance is treated as an independent and sufficient basis for enforcing the promise. Promissory estoppel can be viewed as a legal device that prohibits the promissor from denying the existence of a contract for lack of consideration.

ii. Under old common law, if you made a contract, if short of complete performance you changed your mind, the contract is void. Only at complete performance is the contract enforceable.

iii. CL is unfair- hence promissory estoppel. Meant to remedy someone who relied on gratuitous promise.

iv. Detrimental reliance! The reason you acted was the promise.

a. Promissory estoppel elements R2d 90:

i. A promise made

ii. Reasonably expected by the promisor to induce action or forbearance, and do so

iii. Action or forbearance by the promisee in justifiable reliance on the promise (i.e. “detrimental reliance”)

iv. Injustice can be avoided only through enforcement of the promise.

a. Promise

b. Expected Reliance

c. Reasonable Reliance

d. Detrimental reliance

e. Injustice results if promise not enforced