Enforcing Private Agreements
I. Introduction to Contract Law
The Nature and History of Contract- A contract may be defined as an exchange relationship created by oral or written agreement between two or more persons, containing at least one promise, and recognized in law as enforceable. Where an exchange is entirely instantaneous and neither party makes a promise to the other, their exchange is not regarded as a K.
Shaheen v. Knight- Π alleged Δ contracted to make him sterile. Δ performed the operation, Π’s wife later became pregnant. The court held that Π was not injured and allowing damages for a normal birth of a child was against public sentiment. A doctor and patient are at liberty to contract for a particular result and if that result is not attained, then there is a cause of action.
Restatement §1 Contract Defined
A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes a duty.
Restatement §2 Promise; Promisor; Promisee; Beneficiary
(1) A 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.
Restatement §3 Agreement Defined; Bargain Defined
An agreement is a manifestation of mutual assent on the part of two or more persons. A bargain is an agreement to exchange promises or to exchange a promise for performance or to exchange performances.
Restatement §4 How A Promise May Be Made
A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct.
B. Freedom of Contract and Public Policy
Baby M- Mrs. Whitehead was to serve as a surrogate for the Sterns. Whitehead was to be paid $10,000 for her services. Whitehead performed and gave birth, subsequently after the birth she took the baby and refused to give it back to the Sterns. A surrogate may renounce or terminate at anytime before conception, but once conception occurs the terms are fixed. In the Supreme Court of New Jersey it was held that a surrogacy contract for monetary compensation was void against NJ law and public policy. In these types of cases, the decision revolves around what is in the best interest of the child. The contract was valid except for the fact that it went against NJ law.
Johnson v. Calvert- The court held that a gestational surrogate had no parental rights to a child born to her. The gestational surrogacy contract was legal and enforceable. Again the focus is on the best interests of the child in determining parental rights. The one who intended to bring about the birth of a child that she intended to raise as her own is the natural mother in CA.
Restatement §178 When a Term is Unenforceable on the Grounds of Public Policy
(1) Legislation provides that it is unenforceable, or interest in enforcement is outweighed by public policy.
Restatement §179 Bases of Public Policies Against Enforcement
A public policy against enforcement of promises or other terms may be derived by the court from (a) relevant legislation, (b) need to protect some aspect of public welfare.
II. Damages for Breach of K
The Three Damages Interests- expectancy, restitution, reliance
Expectancy- In general the amount of the award is measured by the promisee’s expectation interest or benefit of the bargain. The court attempts to put the promisee in the position it would have been in had the promise been performed.
Restatement §347 Measure of Damages in General
The injured party has a right to damages based on his expectation interest as measured by (a) the loss in the value to him of the other party’s performance caused by its failure or deficiency, plus (b) any other loss, including incidental or consequential loss, caused by the breach, less (c) any cost or other loss he has avoided by not having to perform.
Reliance- If the promisee has changed its position to its detriment in reliance on the promise- as by incurring expenses in performing or preparing to perform- the court might award reliance damages. Reliance interest has the goal of restoring the promisee to the condition it was in before the breach occurred.
Restitution- If the promisee conferred a benefit on the promisor in the course of the transaction- as by delivering something to the promisor or improving the promisor’s property- a court might award a promisee restitution damages. Restitution interest attempts to put the promisor back in the position it would have been in had the promise not been made. Restitution makes sure that there has been no unjust enrichment. Also, there is no requirement that a contract be in existence in order to be awarded restitution damages.
Hawkins v. McGee- Δ performing surgery on Π to fix his hand. Π ends up getting a worse hand that what he started with. Δ guaranteed a 100% perfect hand after the operation, this did not occur. The court held that when Δ made the explicit guarantee, this created a K or a warranty of cure. To calculate damages, the court used the formula: value of the hand without the breach minus the actual value of the hand after the operation.
Nurse v. Barns- The jury is not bound to give only 10L but also allowed to award special damages (500L awarded).
Problem on page 69-70 Damages calculations!
J.O. Hooker & Sons v. Roberts Cabinet Co.- Π- subcontractor and Δ- general contractor contracted. Δ was told by BPHA that he had to dispose of the cabinets. Dispute over who had to actually dispose them. The court found that this was a mixed K for the sale of goods and the performance of services. The court found that this dispute was over the performance of services, so K law applies. Expectation interest is what K damages are usually based on. Π only entitled to recover damages for expenses it would not otherwise have incurred (storage). Look at the nature of a K to see what law applies.
Tongish v. Thomas- Π contracted with Co-op where Π agreed to grow sunflower seeds to be purchased by the Co-op. Tongish sold and delivered the seeds to Thomas, Thomas paid half. Due to bad weather and short crop the market value of the seeds doubled the contract value. The trial court gave the Co-op lost profits as damages. The appellate court gave the Co-op the difference between the market value and the contract value. Cardinal rule of statutory construction is that the purpose and intent of the legislature governs. The court is trying to award expectancy damages. When general and specific statutes are in conflict, the specific statute wins, unless otherwise provided. The damages awarded were the difference between the market value and the contract value. (Case of efficient breach)
Three Limitations on Damages
1. Remoteness or Foreseeability of Harm
Hadley v. Baxendale- Πs are millers, crane shaft broke. Π contacted Δ to carry the shaft to Greenwich. Δ said if by noon then delivered the next day. The delivery was delayed by Δ, Π did not receive the shaft for several days, losing profits. The court held that Π was not entitled to recover lost profits and the lost profits were not foreseeable. Δ could only be liable for losses that were generally foreseeable or if Π had mentioned special circumstances in advance. Π ought to receive damages arising naturally or reasonably within the contemplation of the parties. Since Π did not tell Δ that the mill would have to close without the crank shaft, Δ not liable for lost profits because they were not foreseeable.
Hector Martinez & Co. v. Southern Pacific Transportation Co.- Π’s agent delivered dragline to Δ for shipping to Π. The dragline was damaged during transit and delayed. Π had to make repairs and the delay caused loss of use. The court looked to foreseeability. Special damages awarded only if actual notice is given. It is foreseeable if a
legal and valid and gave notice of repudiation to Π and told Π to stop building. Π continued anyway. The court held that after notification of the breach, Π had a duty to mitigate, or do nothing to increase the damages. The Π should have treated the K as broken and sued for damages. Π should have stopped after the repudiation. The court held that Π could not hold Δ liable for damages which need not have been incurred. Π must mitigate damages. Here the Π’s damages were the amount to compensate Π for the labor and materials expended plus profit he would have gotten (expenses in part performance at the time of notice).
Parker v. Twentieth Century Fox- Π was to play lead in Bloomer Girl. Δ decided not to do the movie and notified Π. Δ offered Π a leading role in Big Country but gave her the chance to refuse and she did so. The court compared the two movies and believed them to be different employments. The court found Big Country to be inferior to Bloomer Girl with regards to Π. Π was not compelled to accept or find a different or inferior employment.
Restatement p140 §350 Avoidability as a Limitation on Damages
(1) Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.
(2) The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.
Neri v. Retail Marine Corp.- Π contracted to buy a boat from Δ. Π deposited money towards the boat, but a few days later Π sent notice rescinding the K because Π had to have surgery and would be unable to make payments. Δ declined to refund Π’s deposit. The court held that the measure of the difference between the market price at the time of the K and the unpaid contract price, less expenses saved was not adequate. The court also held that the expectancy damages would not be adequate. The court held that the Π was entitled to restitution (the deposit) less an offset to Δ for the lost profit plus incidental damages.
Contracting Around the Default Rules of Damages- Most K rules are default rules, which means that they can be contracted around by inserting an expressed clause to the contrary.
1. Express Limitations on Consequential and Incidental Damages- Parties may seek to limit their liability under the default rules of K damages by including a warranty clause that is expressly intended to be the exclusive remedy for breach of K, thereby excluding damages for foreseeable losses.
2. Liquidated Damages vs. Penalty Clauses- Penalty clauses try to make sure that the agreement is performed. The law also tries to provide compensation for loss suffered by the failure to perform.
Kemble v. Farren- Δ was to perform at Covent Garden Theatre as a comedian for four seasons. K had clause that said if either party breaches, it must pay the other party 1000L. The parties declared this clause to represent a liquidated damages clause, not a penalty clause. The court held that the clause was unenforceable as a penalty clause. No matter the magnitude of the breach, large