This outline based upon an original outline by Ed Everitt prepared in Fall 2003. The original outline has been heavily edited to reflect 1) the content of my notes during Fall 2005, and 2) my personal style of study.
: Farnsworth, Young 6thEd.: Brad Morris: Fall 2005: Barnes: 2: Contracts I
Introduction To Contracts Law
Sources of Contract Law
primary source of general contract law in most jurisdictions
governs all contracts EXCEPT sale of goods
Restatement 2d of Contracts
has no legal force but provides highly persuasive authority on common law
Uniform Commercial Code (UCC)
governs all transactions for sale of goods
covers all parties – not just merchants (although some provisions are limited to merchants)
has been adopted by every state except Louisiana
Whether the common law (Rest.2d) or the UCC controls, depends upon the primary purpose of the contract:
primary purpose is sale of goods – UCC controls
primary purpose is sale of services or non-goods – common law (Rest.2d) controls
Contracts that involve both goods AND services must be evaluated to see which constitutes the primary purpose of the contract.
The two main ingredients for formation of a contract are
Generally, a contract exists and a promise is legally enforceable when it
was made as part of a bargain for valid consideration;
reasonably induced the promisee to rely on the promise to his detriment; or
is deemed enforceable by a statute despite the lack of consideration.
Contract law is not about making moral judgments, it is about economic judgments. Contracts of moral consequence are left to other parts of the law.
Two approaches to interpretation of contracts:
: Contract is interpreted by the strict meaning of the words used in the contract.: contract is interpreted with the intention of the parties in mind.
Courts utilize three fundamental assumptions when enforcing promises under contract law:
The law is concerned mainly with providing relief to the promisee to redress breach.
Punitive damages are VERY RARE under contract law
White v. Benkowski
punitive damages usually limited to bad faith insurance claim
if conduct constituting breach is also a tort, may be punitive damages
– no punitive damages for breach of promised access to water well
The relief granted should generally protect expectations of the promisee by attempting to put the promissee in the position in which he/she would have been had the promise been performed.
The appropriate form of relief is substitutional relief – money damages.
specific performance is only appropriate when
Remedies for breach of contract focus upon the EXPECTATIONS of the non-breaching party. The law looks at three interests of a party when determining appropriate remedies for breach of contract:
– Puts promisee in same position as if contract had been performed … compensates for reasonable expectation (out of pocket expenses + expected return) (§ 347)
Plaintiff determines whether to pursue expectation, reliance, or restitution interest when contract claim is initiated.
5 categories of agreements
Family Promises – not always clear if enforceable promise or not.
Promises in which a detriment is sought are enforceable.
Gifts are not enforceable.
Contracts for the sale of goods
Real Estate Transactions
that help demonstrate different approaches to contract formation:
EXCEPT Leases and Securities
Rest.2d § 1
1973 Cotton Cases
“damages would [NOT] be adequate to protect the expectation interest of the injured party.” Rest.2d § 359.
U.S. Naval Institute
Rest.2d § 347
Sullivan v. O’Connor
Rest.2d § 349
Mobil Oil v. U.S.
Rest.2d § 370
Overview of the UCC
Covers all contracts for the sale of goods.
UCC § 2-105(1) – “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 and things in action.”
The UCC definition of goods includes:
crops and timber that are growing, unborn young of animals, and other identified things attached to land, if they can be removed without harm to land
minerals and structures
to be removed by the seller
currency exchanged as a commodity
The UCC definition of goods DOES NOT INCLUDE:
minerals and structures
intangible rights such as intellectual property
money which is the medium for payment of goods
that are to be removed by the buyer
UCC § 2-104(1)
or who employs an agent or broker in such occupation
Basis Of Enforcing Promises
Consideration as a Basis for Enforcement
Consideration is value given by one party in exchange for performance (or promise of performance) by the other party. Consideration is a bargained for exchange of legal value.
Rest.2d § 71
Feinberg v. Pfeiffer
Webb v. McGowin
Key to past services/benefits analysis is to prove that a huge injustice will occur if not compensated
– exception for promise in recognition of benefit received (saved McGowan from injury at own peril) – past action is not consideration. If nothing given in return, it is just a gift.
Requirement of Bargain
Kirksey v. Kirksey
Hypothetical: “Lunch time at Tiffany’s”
CAB v. Ingram
Maj. Rule – covenant not to compete that is not bargained for is enforceable on the grounds of continued employment, pay raises, promotions, etc. (reasonableness)
Min. Rule (MS) – Any continued employment is enough
Employer Handbooks – Employer can modify and employee is bound by it
Rewards – sheriff did not have to reward b
s a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill particular to the practices or goods involved in the transaction”: Requirement that Benefit be Conferred
A party is entitled to restitution . . . only to the extent that he has conferred a benefit on the other party by way of part performance or reliance.
Case – When a person with a fiduciary duty breaches trust, then the party who relied on promise of trust may collect profits the fiduciary made from the breach. –when U.S. breached contract for off-shore drilling rights, had to refund payment for the rights (even though no guarantee that oil would be discovered) – Puts BOTH parties back in pre-contract position by returning detriment suffered by promissee AND taking away benefit conferred upon breaching party. (§370): Damages based on Reliance Interest
As an alternative to the damages stated in § 347, the injured party has a right to damages based on his reliance interest, including expenditures made in preparation for performance or in performance, less any loss that the party in breach can prove with reasonable certainty the injured party would have suffered had the contract been performed.
– patient recovers out of pocket cost plus value of detriment (pain, suffering, worsened physical condition) from surgeon’s failure to deliver promised nose – Returns any detriment suffered by promisee in reliance upon the contract. Attempts to put reliant party back in pre-contract position (out of pocket expenses and value lost from reliance) (§ 349): Measure of Damages in General
. . . the injured party has a right to damages based upon his expectation interest as measured by
the loss in the value to him of the other party’s performance caused by its failure or deficiency, plus
any other loss, including incidental or consequential loss, caused by the breach, less
any cost or other loss that he has avoided by not having to perform.
– in breach of contract suit damages are measured by the lost profits of the promisee (their expectation had the promise been performed) not the profit gained by the party who breached the contract. – “forward” contracts at 30¢, price shot up to 80¢, farmers tried to break contracts: A contract is a promise or set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.