Weidemaier – Contracts Law – Spring 2013
Way to think about cases: (Act as if Weidemaier is my very wealthy client that is paying $700/hr. Tell him only relevant issues and consequences.)
1. Where am I getting my legal rules from?
a. Article II of UCC or common law
2. Is there a basis for promissory liability
a. Promise +
b. Theory of obligation
3. Was there a breach of contract?
a. Interpretation
4. Are there any defenses?
5. If there are no valid defenses, what is the remedy?
Why and How We Enforce Promises
1. 3 Principle Elements of an Action or breach of K (prima facie case)
a. Mutual Assent
b. Enforceability
c. Breach
2. Sources of Law
a. Common Law – case law
b. Statutes
i. UCC – Article 2: Ks involving (1) the sale (2) of goods
1. If no UCC on issue, then resort to common law
2. “Mixed” Ks—e.g., Roberts v. Hooker—look to (1) nature of K and (2) nature of dispute
3. Supplemented by common law, as long as it doesn’t displace the code
ii. Statute of Frauds – governs the issue of when a K must be in writing
iii. State and Federal Statutes
c. Restatement (Second) of Contracts (good authority – widely respected)
3. Theories of Obligation
a. Consideration – that Ks are made in the context of a bargain (“reciprocal inducement”)
i. Rest. § 17 – (1) formation of a K requires a bargain, (2) unless there are special rules applicable to formal Ks, or under rules stated in §§ 82-94
1. Exception: promissory estoppel – induced reliance (narrowly applied)
a. Rest. 90: Induced (foreseeable and detrimental) reliance
ii. Rest. § 71 – (1) to constitute consideration, a performance or a return promise must be bargained for. (2) it is bargained for if it is sought by the promisor in change for his promise and is given by the promisee in exchange for that promise
iii. Court not interested in whether the bargain is equal in value – “I can sell you property for a peppercorn”
iv. Process of negotiating is socially meaningful (shows intent to make a serious undertaking)
v. Promises to give gifts aren’t enforced (even if conditional)
1. Exception: effective when the gift is delivered
b. Formalities – ex) Writing
c. Exchange
d. Reliance
e. Unjust enrichment – “a person who is unjustly enriched at the expense of another is subject to liability in restitution”
i. Restitution – remedy, requires that the unjustly enriched party return any benefit they received from the other party
f. Public Policy – Shaheen (Court refused to allow damages for the birth of a child after K to make a man sterile)
i. The court may be the voice of the community in declaring a policy void only if a given policy is so obviously for/against the public health, safety, morals or welfare that there is a virtual agreement of opinion in regard to it.
g. Assignment 1 supplement
4. Remedies
a. Money Damages (Injured party typically chooses)
i. Punitive damages – NO, UNLESS breach of K amounts to a tort that would have resulted in such damages (Rest. 355)
ii. Expectancy – place injured party in the position it would have occupied if the breaching party had performed
1. Award = if promise were kept – now
2. May include substitutionary remedy and other money to compensate for other harms caused by the breach
3. Lost profits OK
iii. Reliance – compensate injured party for the ACTUAL expenditures it made in reliance on the breaching party’s promise
1. Award = pre-promise – now (capped at expectancy damages)
2. Doesn’t include the benefit of the bargain (i.e., the lost surplus)
a. No substitutionary remedies
3. Can’t recover profits on foregone opportunities
a. But see Hooker
iv. Restitution (see above)
1. Benefit received from injured party – benefit injured party received from breaching party = net benefit
a. NOT capped at expectancy damages
2. Used sometimes when K would’ve been a losing K
b. Application of Theories
i. Marvin v. Marvin (relationship between remedy and theory of obligation)
1. Consideration theory – Lee agreed to provide for Michelle in exchange for her to take care of home and give up her career
a. If no consideration, then promissory estoppel would kick in because he induced a foreseeable reliance
2. Expectancy damages – reliance damages wouldn’t have lost income
ii. Roberts
c. Limitations on Damages (Promisor assumes liability when…)
i. Foreseeability – damages must be reasonably foreseeable to the breaching party (of this sort/kind)
1. Restatements 346 (Availability)
2. Restatement 349 (Reliance Interest)
a. [Damages based on reliance interest – any loss that the breaching party can prove the injured party would’ve suffered anyway]
3. Timing is important!
a. If non-breaching party would’ve been able to recoup pre-k costs had the breaching party breached sooner, Court may award such damages. (See Dempsey and Reed)
4. Pre – k expenditures generally not recoverable (“gambling”)
a. See Dempsey – Wouldn’t have been able to recoup costs no matter when Dempsey breached
b. Reed – court allowed pre-K expenditures b/c other party entered into K knowing about them, and could have recouped expenditures if Reed had breached sooner (by finding some other actor)
i. Can recover for expectancy damages or expenditures, but not both
c. Where a contract requires a capital investment by one of the parties to perform, that party’s reasonable expectation of profit includes recouping the capital investment
i. Without fulfillment of the contract, P doesn’t have opportunity to recoup those costs
ii. To recover for these expenditures they must have been reasonably made in performance of the contract or in necessary prep
iv. Burden: Duty of breaching party to demonstrate why stipulated damages should be invalidated
v. Advantages:
1. Parties can control their exposure to risk
2. Avoid uncertainty, delay, and expense of using judicial process
3. Allow parties to correct what they believes are inadequate judicial remedies
a. Agree upon a formula
b. Penalties UNEFORCEABLE
i. Public policy – amount exceeds the loss caused
d. Equitable Remedies– no adequate remedy at law
i. Factors in determining adequacy at law
1. No market for substitute; uniqueness
2. Debtor can’t pay
3. Harm, but not provable with reasonable certainty
ii. Specific Performance (Court reluctant to award this) – injunction ordering the breaching party to keep its promise
1. Awarded when it isn’t possible/realistic to award substitutionary relief
iii. Injunction – directs a party to refrain from doing a particular act.
1. Ex) Breach of employment K by working for a competitor
iv. Types of Ks
1. Real property – presumption of uniqueness – specific performance
a. Brach by buyer or seller
b. Ex. Loveless, where party renting (to buy) property realized they could not afford to buy so entered into an agreement to sell to another party
c. May be an exception for sellers, since they clearly want money for their land
2. Personal services – specific service from a specific person
a. Ex) employee
b. No specific performance, – Court will not order employer to resume employment or employee to perform services
c. YES Injunctions – where an employee under an employment K breaches, the court will be willing to grant an injunction preventing him from working for other competitors. Employer must show that:
i. Employee’s services are unique or extraordinary; and
ii. The likely result will not be to leave the employee without other reasonable means of making a living
iii. Must be reasonable in duration, geographic scope, and substance
