Contracts Outline

 
Contracts 1
Fall 2014 Lambert
Outline
 
 
 
I.       Introduction to Contracts & What it means to enforce a Promise
A.     Contract:
1.      A binding contract is created through the process of offer and acceptance, when consideration is present and when no valid defenses to contract exist
a.     Mutual assent and consideration (bargain for exchange)
B.     Foundational Observations of K Law (law of voluntary exchange)
1.     Voluntary exchange creates wealth (it is efficient: transaction that results in net increase of wealth)
a.     if parties believe themselves to be better off because of an exchange, they have created value
b.     Types of Efficiency
i.       Pareto efficient: transactions that make at least one party better off and no party worse off
A)    Promisee receive ≥ expectancy damages
ii.      Kalder-Hicks efficient: transaction increases overall social wealth but some party is worse off
A)    still potentially pareto if compensate loser so they receive ≥ expectancy damages increase in wealth to winner > decrease in wealth to loser)
2.     we need K Law to make sure people keep their promises when circumstances change
3.     the Ultimate Goal of K: utitlity and morality
a.     Utilitarian: (wealth/happiness)ànot wrong to breach contract and pay the promisee the amount they would have gotten had the contract been performed (efficient breaches are ok àcreate wealth)
b.     Moral duty: regardless of consequences, it is the right thing to do to keep a promise
4.     To enforce a K is to protect the parties expectations by awarding expectancy damages
a.     NOT Moral duty since we encourage efficient breaches as long as other party is compensated to receive expectancy damages ($ if breach hadn’t occurred)
C.    Remedies
1.      2 fundamental assumptions made by courts when remedying breach:
a.     Law is primarily concerned with relief of aggrieved promises and not with punishment of the promisors
i.       Sometimes breach increases efficiency
ii.      “Punishing” the ∆ would make one party worse off and would not be Pareto-Efficient
b.     Money damages to make the other “whole”
c.      Protect the expectations of the parties
D.    Three principal bases of liability related to the making of promises:
1.     Expectation interest – Rest. § 344(a)
a.     Expectancy: Primary purpose of remedy is to put the promise in the position it would have been in had the promise been performed
2.     Reliance interest – Rest. § 344(b)
a.     Reliance: promisee changed position to his detriment by relying on the promise
i.       Damages reimburse promisee for loss caused by reliance (344(b) by putting promisee in as good a position as he would have been in had the contract not been made
3.     Restitution interest – Rest. § 344(c)
a.     Restitution:  interest in having benefit that promisee conferred to another restored
i.       Remedies that protect this  interest  puts promisor in position she would have been in had promise not been made
4.     Specific Performance:  compel performance of exactly what was promised
a.     Injunctive Relief for Specific Performance
i.       Not popular – usually when carried through, it isn’t done the correct way
ii.      Often used in Ks with property or land because it’s difficult to determine the economic value of the transaction
5.     Naval v. Charter: we like efficient breaches—K law is reparative not punitive
a.     compensate for loss had the breach not occurred, no more  (expectancy damages)
b.     contract duty is disjunctive
E.     Promises
1.     Restatement §2: promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made
2.     Restatement §4: promise may be stated in words either oral or written or may be inferred wholly or partly from conduct
3.     Conditional Promises: promise whose performance is due only if a “condition” occurs AND Event must occur before promisor must perform, but promise is still binding before condition occurs
4.     4 questions about promises
a.     What promises are legally enforceable? When can you invoke machinery of the state?
i.       Restatement §17: to make a legally enforceable contract:
A)    Mutual assent (offer and acceptance)
B)    Consideration (promise given in exchange for something else) (see dickinson v. dodds)
b.     What is the promise?
c.      When is the promise kept?
d.     How is the promise enforced
II.      Types of Contracts
A.     Bilateral: at the moment of contract execution, two legal duties exist
1.     Includes all acceptance by promise and some acceptance by performance
a.     May arise when some performance is sufficient to indicate acceptance (if accepting by performance, commencement = moment of contract execution/WTM)
B.     Unilateral: at moment of contract execution, only 1 legal duty remains
1.     Acceptance = completion of performance
a.     Rare – most of the time, you’re allowed to accept without performing entirely)
b.     Mostly rewards: lost cat, accept via returning cat (performance)–> at time of contract formation, 1 legal duty exists because  cat is already delivered (only duty remains is paying)
2.     Unilateral ≠ acceptance by performance
a.     unilateral  is ABSOLUTE COMPLETION of performance at time of contract formation
C.    Express contracts: promise stated in words
D.    Implied contracts: promise implied, not stated in words
1.     Implied In Fact: a promise that existed in the minds of the parties, but not expressed; an actual implied promise (Lady Duff Gordon)
a.     Award expectancy damages
2.     Implied In Law: never did really exist, never intended to promise – but law, for public policy reasons, requires a construction of a promise (legal fiction) I.E. Cotnam. AKA Constructive
a.     Courts create promise to achieve some sort of policy goal (constructive promise)à court still allows restitution to prevent one party from being unjustly enriched at the expense of another. 
b.     Award restitution damagesà pay amount of unjust enrichment
THREE PRINCIPAL BASES OF LIABILITY RELATED TO THE MAKING OF PROMISES
I.       Promises enforceable in contract
A.     Offer
B.     Acceptance
C.    Consideration
II.      Promises enforceable in promissory estoppel
A.     Promise
B.     Reasonably expect reliance by promisee or third party
C.    That party does rely
D.    Unjust not to enforce promise
III.    Promises enforceable in restitution
A.     Unjust enrichment at the expense of another
1.     Unless
a.     Gratuitous
b.     Officious
c.      Legal remedy available.
I.       Contract Formation
A.     mutual assent
1.      (the intent to contract) in both offer and acceptance
2.     Both parties must intend to be bound
3.     Mutual assent sets boundary between precontractual and contractual stages 
a.     No liability arises between parties during precontractual stages (during negotiation)
b.     When parties outward manifestations meetàfull expectation liability emerges
4.     Contract duty is product of our assentà disjunctive
a.     Fulfill the contract – or – pay the damages of the other party’s loss
b.     Come into existence because of Assent of obligor(one who agrees to do something)
c.      Duty  @ common law= pay damages if you break it or perform the contractàdisjunctive