DAVIS FALL 2013 CONTRACTS OUTLINE
Right to cure
Comment 6 to 2-207 – how does this affect the import of 2-207
CHAPTER 1: BASES FOR ENFORCING PROMISES
Section 1. Enforceable Promises: An Introduction
I. Promise – The undertaking of an obligation or of a commitment to perform that which you intend to do. All promises are offers, but not all offers are promises. The offer will ripen into a promise upon its acceptance.
Hawkins v. McGee, 1929, (Hairy Hand)
Facts: Doctor tells patient 3-4 days in hospital and guarantees hand will be 100%.
3-4 days is merely an opinion or prediction and is not basis for legal action. However, doctor was trying to solicit business (induce) with 100% statement, was a promise.
Black Letter Rule: The 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. (Reasonable person)
This is judged objectively
Bayliner Marine Corp. v. Crow (Guy made boat promises)
Facts: Manufacturer’s materials state that boat of given specifications and circumstances has top speed of 30mph. Plaintiff’s boat did not meet those exact specifications
I: was there sufficient evidence to show that the manufacturer of a sport fishing boat breached express warranty and implied warranty of merchantability and fitness for a particular purpose.
H: materials did not crate express warranty because boats specifications were different
Black Letter Rule: Promises can be made without actual intention. (Would a reasonable person see a promise?)
Section 2. Remedying Breach
K Law is not concerned with punishment, just relief
Expectation Interest – “benefit of the bargain” purpose of remedy is to put the promisee in the position it would have been had the promise been performed.
Promise – undertaking of an obligation to do something in the future (only a promise if you have control over the subject of the promise)
US Naval Institute v. Charter Communication, Inc. 1991 (Red October Book)
Facts: Charter Communications released paperback of “red October” early, naval sued.
Issue: Calculation of damages
Holding: Damages = lost expecatation interest (could not recover Charter’s profits because they wouldn’t have been received if contract properly performed and there was no copyright infringement), estimated lost hardcover sales: favored US Naval in Damages Calculation (“lay uncertainty at the door of the wrongdoer”)
Black Letter Rule-Courts will not grant punitive damages for a breach of contract
Purpose of Remedies: Interests Protected:
Expectation Interest: “benefit of the bargain” – put non-breaching party in position he would have been had the contract been properly performed
Damages or specific performance
Reliance Interest: promisee has changed its postion to its detriment in reliance on the promise – reimbursed for loss caused by reliance, Rest. §344(b) – “in as good a position as he would have been in had the contract not been made”
Restitution: Unjust Enrichment. Restatement §344(c) – “interest in having restored to him any benefit that he has conferred on the other party”
Value of the benefit conferred
Not available for competed K
Sullivan. v. O’Connor (Surgeon failed to make woman pretty)
Facts: Doctor promised Sullivan 2 cosmetic surgeries would make her better looking. Doctor failed and performed 3rd surgery that made face worse and permanent.
Issue: Calculation of Damages: Doctor argues restitution, Sullivan argues Expectation (but waives this argument if appeal is denied)
Holding: affirmed – based on either reliance or expectancy, money for the worsening of her condition, for the pain and suffering and mental distress (of 3rd operation) and for money paid to doctor. Reliance – trying to put her in the situation as if she had never made the K
Rule: Contract Law is strict liability, it doesn’t matter how hard the breaching party tried to fulfill the promise.
Section 3. Consideration as a Basis for Enforcement
A. Fundamentals of Consideration
Not Consideration: NGET (not a good enough thing)
illusory promise – a promise that isn’t really a promise “I promise to pay you 10k if I feel like it” – doesn’t restrain the party in any way
Forbearance of a bad faith assertion of an invalid claim (A claim to do something you know you can't do.)
Contract law is generally designed to apply to a wide variety of transactions.
However, transactions often fall into 1 of 5 categories: contracts for sales of goods, real estate transactions, construction contracts, employment agreements, and family contracts.
· Contracts used to be unenforceable between family members but have now gained much wider acceptance
Hamer v. Sidway (5,000 to not smoke)
Facts: Uncle promised to pay nephew $5,000 if he refrained from drinking, using tobacco, swearing and playing cards or billiards until age 21. Nephew performed and uncle died before paying.
Issue: is a promise not to do something sufficient consideration, even if the promise benefits the promisor?
§79 – if the requirement of consideration is met, there is not requirement of benefit or detriment
§71 To constitute consideration, a performance or a return promise must be bargained for
§3 – Performance: a promise, an act, or a forbearance (includes pretty much everything)
Black Letter Rule-The party who abandons some legal right in the present or limits his legal freedom of action in the future as an inducement for promise, gives sufficient consideration to create a legally binding contract
Rule: Consideration is pretty much anything that is bargained for
To see if something was bargained for in exchange you look at the motive of the promisor (uncle wanted the promise)
Promise of Gift (Gratuitous Promise): is NOT ENFORCABLE
Requires Consideration because –
Cautionary value – really sure they want to make the gift
Evidentiary value – adds evidence that the promise was actually made
Dyer v. National By-Products (Guy gave up right to bring a suit he thought he could)
Facts: Dyer got hurt and made a good faith claim not to sue in exchange for employment. He didn't actually have the legal right to sue but neither party was aware He didn't get his job back when he returned for work
Issue: Was there consideration in a promise to give up a right that the person didn't have if they weren't aware.
Black Letter Rule- A claim to not do something you aren't aware that you can't do is a GOOD ENOUGH THING
B. The Requirement of Exchange: Action in the Past
Feinberg v. Pfeiffer Co. (Woman who was promised 200 every week after she retired)
Facts: plaintiff (Feinberg), a former employee of the defendant (Pfeiffer) was promised a pension of $200 per month after her retirement after a resolution granted by Pfieffer’s board. This pension was available immediately and was not contingent on any further services provided to the company.
Reasoning: Past performance does not constitute consideration – there was no bargained for exchange. However, there was reliance (more later – K that is unenforceable for lack of consideration may be enforceable if promisee reasonably relies on the promise)
Black Letter Rule-Past services is not sufficient consideration to support a promise
Mills v. Wyman – (Father promised to pay for medical expenses of deceased son)
Facts: Levi Wyman (defendant’s son) died aboard a ship after being cared for by Mills (plaintiff)
Issue: Does a written promise to pay for previous expenses constitute a valid contract? Is previous performance adequate consideration to support a contract?
Reasoning: A promise to pay previous costs without consideration is not a valid contract. No bargained for exchange.
§71 – to constitute consideration, a performance or a return promise must be bargained for
Black Letter Rule- Past expense is not sufficient consideration to support a later promise to pay for the expenses
Exceptions to previous performance:
1. Promise to pay debt where the statute of limitations has run
2. Debt that you incur before reaching capacity – reaffirmed once reaching adulthood
3. Promise to pay a debt discharged in bankruptcy
Moral Obligation as Consideration
Webb v. McGowin (Guy who fell from building to prevent injury of boss)
Facts: Webb worked for a company clearing the upper floor of a mill. As appellant was in the act of dropping a block, he saw McGowin und
this an illusory promise – was the promise too vague to require Wood to actually do anything
c. H: Valid Contract – Cardoza implied a promise to “use reasonable efforts”
d. Black Letter Rule: Exclusive dealing arrangements impose an obligation by the seller to use his best efforts to distribute and market goods.(which is his service)
e. If this had been sale of goods, UCC §2-306 would have applied: “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”
· Termination Clauses: “If a termination clause is read as giving a party the power to terminate at any time at will, without more, that party’s promise will be held to be illusory”
Section 4. Reliance as a Basis of Enforcement – used when there is no valid consideration, but the promisee reasonably relies on the promise.
Different than reliance as a way to measure damages
Reliance = way to enforce a contract absent consideration
Ricetts v. Scothorn (Grandfather promise to librarian granddaughter)
o F: Grandfather made written promissory note to granddaughter to pay 2,000, said his other granddaughters didn’t have to work – she quit her job
o I: Is there a way to enforce the contract on the basis of reliance under the doctrine of estoppel?
o H: Yes – Court is essentially creating new law
o Black Letter Rule- When a person changes position in detrimental reliance on a promise, the promisor may be estopped from later denying the promise
o Now: Rest. §90: A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does so is binding if injustice can be avoided only by enforcement of the promise. The remedy granted for breach may be limited as justice requires.
§ Injustice – must be detriment to relying party
§ Reliance may be small, but damages will then be small
The Development of Promissory Estoppel: Types of enforceable reliance
Family Promises (Ricketts)
Promises to convey land – relying on promise by moving onto the land and making improvement
Promises coupled with Gratuitous Bailments- A person to whom the owner of something entrusts its possession makers a promise to the owner respecting the property, on which the owner relies
Charitable Subscriptions – courts have enforced by finding that a charity has done or has promised to do something in exchange for the subscriber’s promise
Feinberg v. Pfeiffer Co (Woman who was promised 200 every week after retirement)
o F: Feinberg retired after being promised a pension of $200 per month – later payments were being discontinued
o I: Does promissory estoppel (reliance) provide basis for enforcing the contract
o H: Yes – relied on promise when quitting job. See Rest. §90
o Black Letter Rule- Retirement in reliance on pension benefits is sufficient reliance to estop the employer from paying retirement benefits.
Wright v. Newman (Father had been acting as father despite not being DNA father)
F: Had been acting as the father for a considerable amount time
Black Letter Rule- a volunteered duty that caused reliance from another party is enforceable under promissory estoppel
Injustice is sometimes taken into account in promissory estoppel cases