Contracts Outline
Contract: a legal duty to perform a promise and the provision of remedy if performance
does not occur
Law concerned with relief, not with punishment
Put promisee in position it would have been in had the
promise been enforced “benefit of the bargain”
expectation interest
Voluntary exchange creates wealth
Redistribution resulting in a gain of wealth is efficient
Pareto efficiency-enhances total wealth and leaves no one worse off
Kaldor Hicks efficiency-transaction results in an increase in total wealth between
the parties but you can’t say that both are better off than before
contract remedies force Pareto efficiency from Kaldor Hicks
K law makes people live up to their bargains when facts change
Ultimate goal?
Moral duty-duty based
Create more wealth-efficiency based
To enforce a contract is to protect the party’s expectations
Put victim in same economic position as if contract fulfilled
Ultimate goal is wealth creation
Efficient breach: enhances society’s wealth
Hicks transferred to Pareto by rule requiring compensation
Naval Institute v. Charter Communications
(P entered licensing agreement w/ D, “not sooner than Oct. 1985” paperback shipped early)
Rule: If one party breaches, the other party is entitled to compensation in the amount
necessary to put victim in position they would have been if contract had been fulfilled.
Have expectation honored, make them whole
Punitive damages are never allowed for a breach of contract
Basis of liability
Duty
Contract duties arises from our assent, you mean it, you choose it
Assent must have volitional aspect- not bound if not want to be bound
Hawkins v. McGee
(boy burned hand, dr. “guarantee make it 100% good hand”, surgery didn’t go well, promise was enforceable)
Rule: Guarantee made to induce person to go through w/ operation, then more likely to be legally enforceable, must look at context
Lucy v. Zehmer
(D agree to sell property on napkin, P acts on promise, D refuses to sell, said “I was joking”)
Rule: If promisee believes promisor is assenting, then promisor is assenting, not actual
belief but reasonable belief of a person in their position.
D’s actions would lead a reasonable person to believe it was a real contract
Test needs to be objective: Has the promisor done something (objective words or acts) that
would lead a reasonable person in the position of the promisee to believe that promisor has legally bound himself.
Drunk excuse: if promisor is so drunk he doesn’t comprehend what he’s doing and
promisee knows that he’s too drunk
Objectivist: protect promisee’s reliance interest
What you do based on your understanding of a promise being made to you
Get what you think you’re going get
Subjectivist: protects promisor from entering into agreements that they didn’t want
to assent to
impossible for court to know what parties thinkin
offeree has final say and ability to close the deal
offer is the penultimate (next to last) step in creation of contract
-ultimate step is the acceptance
Offer is power creating act for offeree, if accept and say yes, then legal duty
Created
Fairmount Glass Works v Crunden Martin Woodenware Co.
(advise lowest price, quote you X price for immediate acceptance, enter order)
Rule: Price quotes not normally an offer to sell, if communication from offerer reserves a
say for himself then its not an offer, CM had power to close the deal
Contingency clause: not reserving say prior to creation of contract,
additional promise merely a condition to their having to perform
Advertisements:
Advertisements aren’t offers, but rather invitations by seller to buyer to make an
offer for purchase
Lefkowitz v. Great Minneapolis Surplus Store
(store ad “first come, first served”, P showed up but store refused to sell to him )
Rule: Moulton v. Kershaw
Always risk for oversubscription, seller retains power, reasonable person
knows this
no possibility in this case for oversubscription, no reason to believe store reserving
a say b/f a contract would be formed
