Contracts Outline – Professor Jeffery Harrison, Fall 2010
Thursday, September 16, 2010
CONTRACT – A PROMISE OR SET OF PROMISES THAT THE LAW WILL ENFORCE OR AT LEAST RECOGNIZE IN SOME WAY – 5 categories of contracts
1. Contracts for sale of goods
2. Real Estate transactions
3. Construction Contracts
4. Employment Agreements
5. Family Contracts
3 kinds of contracts
Express – parties are out in the open about offer/acceptance
Implied Contract in Fact – don't go through offer/acceptance – questions of proof – both parties intend there to be an enforceable exchange.
Implied by Law – no offer, no acceptance -court says one party has been unjustly enriched so the court will enforce payment to avoid unfairness.
Unilateral Contract- performance for promise
Bilateral Contract – promise for promise
Can't contract for things outside of the law.
Efficient Breach Hypothesis – pay expectation damages instead of performing when it is in the promisor's interest to do so.
Pareto-Superior Outcome – One of the parties believes itself to be better off and the other does not believe itself to be worse off.
Neither Barter nor Present sale looks to the future. Both lack the involvement of promise.
Seven Questions of Contracts
1. Is there an agreement?
2. Is there any reason not to enforce the agreement?
3. What are the terms of the contract?
4. Was the contract performed?
5. Are there any excuses of non-performance?
7. Third Party Duties – What are they?
CONTRACT THEORY – OFFER + ACCEPTANCE CONSIDERATION
1. Benefit or detriment – no need to show, no legal obligation
2. Bargained for (element of causation) – if there's no bargaining, it's probably a gift
3. Condition v. consideration – go inside and I'll buy you a coat v. father seeing estranged daughter at Tiffany's and promising to buy her a ring
4. Past consideration and exception – not consideration except where material benefit (other factors include time to reflect, started payment, requested)
5. Requirements, output, and exclusive dealing contracts (require good faith)
6. Invalid claim – can be consideration
7. Illusory promise – one where I don't give up anything (I won't ask for money until I need it (well when's that?)) – also, non-competition agreement
8. Conditions of satisfaction
1. Remedies for Breach
In the restatement, judicial remedies serve to protect one or more of the following interests of a promisee.
1. Expectation Interest – Restatement §344(a) – the goal of protecting a promisee's expectation interest is to put the promisee “in as good a position as he would have been in had the contract been performed.”
i. One way to compel performance of what was promised is using the remedy known as Specific Performance. It is rarely used because it may require continuing judicial supervision (courts don't want to do it) or as a remedy it is unavailable (promised goods are no longer available). The assumption for contract remedies is that the appropriate form of relief for breach is compensation rather than specific performance.
2. Reliance Interest – if the promisee has changed its position to its detriment in reliance on the promise – Restatement §344(b) – puts the promisee “in as good a position as he would have been in had the contract not been made.”
3. Restitution Interest – Restatement § 344© – “interest in having restored to him any benefit that he has conferred on the other party.”
i. Restitution is the only benefit available to the breaching party
ii. Covering transaction – if sold in good faith, difference between sales price and market value
4. Liquidated damages
Can't have punitive damages for breach in contract law unless there is tortious conduct along with the breach
Contract opens the door to expectancy
Unwritten rule that reliance can't be more than expectancy
United States Naval Institute v. Charter Communications, Inc. – Berkley (Charter) breached contract by distributing paperback books before the specified date in the contract. Court awarded plaintiff the difference in sales between September and October (last month of hardcover sales w/no paperbacks and first month w/paperbacks). Court did not award profits made by Berkley and did not award punitive damages (no punitive damages in contract).
Sullivan v. O'Connor – Actress contracts with doctor for rhinoplasty. Doctor promised her that her nose would be shorter and more pleasing after two operations. Surgery is botched, requiring a third surgery which still doesn't fix the nose. She sues for breach and negligence – she's awarded money for breach but negligence is dismissed. Dr. appeals saying she didn't demonstrate she lost employment due to the nose, she appeals saying she didn't get expectation but she'll waive appeal if appellate court denies Dr.'s appeal. She gets her hospital fees back, pain and suffering for the third surgery (which wasn't planned for), and damages for the difference in the value of appearance of her uncut nose and the messed-up nose (and the mental element that went along with that). The reason the court didn't go to full expectancy was that the doctor wasn't found negligent and that it requires too much speculation to put a value on the promised nose. Expectancy is mainly for goods, which have a concrete value.
1. Consideration –
THE REQUIREMENT OF CONSIDERATION
Restatement §71 – Requirement of Exchange; Types of Exchange
(1) To constitute consideration, a performance or a return promise must be bargained for.
(2) 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 promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise, or
(b) a forbearance, or
(c) the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or by some other person.
Elements of consideration
1. Bargained for exchange – you secure something you're not otherwise legally entitled to
2. benefit to promisor – bargained for element must be legally sufficient
3. detriment to promisee.
Peppercorn – small value consideration – it doesn't matter how imbalanced they are, once it's a contract, it's a contract. – mutual reciprocal inducement.
Hamer v. Sidway – Uncle tells nephew if he gives up smoking, drinking, swearing, and playing cards until his 21st birthday that uncle will give nephew $5000. Nephew agrees and fully performs the promise. He writes to his uncle informing him so. Uncle writes back saying that the money is his on interest. When someone tries to ge
action. Though that action was done without McGowin's request, it is sufficient consideration. Also, there is a presumption of a previous request – McGowin would have wanted Webb to save his life.
Exception to the exception – 1. Promisee creates the harm, 2. no reflection period, 3. makes promise once, 4. No harm.
Boothe v. Fitzpatrick – man takes care of escaped bull. Bull's owner promises to pay for the actions after the fact. Promise to pay trumps need for previous request, as the promise is equivalent to the previous request. Essentially, he would have wanted this to happen. Courts have enforced where there is promise + moral obligation, but not always.
Kirksey v. Kirksey – Man dies, his brother writes man's wife telling her he wants to see them so she should pack up her kids and move to a home he has for them. She leaves her farm without disposing of it, moves, and then two years later the brother tells her to leave the house for another house, and then kicks her out altogether. Court held that the brother's promise was a mere gratuity with a condition and that her moving was not consideration, no bargained for exchange.
Hypo – Father and daughter are estranged – He writes her that if she will meet him at Tiffany's, he'll buy her an emerald ring. She shows but he doesn't buy.
Hypo – I tell a homeless guy to go into a coat store and pick out a coat and I'll buy it for him. Is this a contract? No, the walk into the store and the choice of coat are not consideration, they're conditions of a gift.
Gottlieb v. Tropicana Casino and Resort – Lady joins Tropicana's Diamond Club – a club that offers promotions after collecting information about the gambler's habits. She gets a free spin of the million-dollar wheel, which she wins. Tropicana refuses to pay, saying there's no consideration. She sues and wins, permitting the casino to gather information, had to go to the casino, wait in line, and spin the wheel (an entertainment offered to all present)
Lake Land Employment Group of Akron, LLC v. Columber – Guy works for company for 10 years. At year 3, he signs a noncompetition agreement, saying he won't compete for 3 years within 50 miles. He leaves the company and starts working for a competitor. Company files breach and wins. He was an at-will employee. Court says that the noncompetition agreement is a renegotiation of the original at-will employment contract. If employee assents, the employee is accepting continued employment on new terms, which is consideration. Employee's assent to the agreement is given in exchange for employer's forbearance not to terminate. Dissent – when all is said and done, the only thing different is that the employer has the NCA. Employee gained nothing except continued employment, which could still be terminated the next day.