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Contracts
University of North Carolina School of Law
Weidemaier, W. Mark C.

I. Introduction
a. General
i. Issues of Contract Formation
1. Contract
a. Promise(s) [Rest. 2nd 2] i. Manifestation of intent to act
ii. Justify
iii. Belief in commitment
b. For breach – law gives remedy [Rest. 2nd 1] c. Law recognize duty of performance [Rest. 2nd 1] ii. Defenses to Enforcement
iii. Questions of Interpretation [what was agreed to] iv. Public Policy
v. Breach
vi. Remedy
b. Warranty v. Guarantee
i. Warranty – promising that a particular fact will be true, but if it turns out not to be true, there will be some type of remedy
1. Explicit ways to allocate risks among parties
ii. Guarantee – promise that someone else will perform their promise, and if they do not perform their promise, then you will do it
c. UCC v. Restatement (2nd)
i. UCC
1. Applies to sale of goods
2. All states have adopted by statute
ii. Restatement
1. Describe common law
2. Not law, but sometimes adopted as law
d. Restatement definitions
i. §1 – 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.
ii. §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.
iii. §3 – 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 a performance or to exchange performances.
iv. §4 – A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct.
e. Shaheen v. Knight – failed vasectomy, unplanned child (pp. 8-11)
i. I: does a failed vasectomy operation constitute a breach of contract between Physician and Patient?
ii. R: If patient and doctor contracted for a particular result and result not obtained, patient has a cause of action for breach of contract – in absence of a special contract in writing, health care provider is never a warrantor or guaranteer of a cure.
iii. H: No damage done to P, so none rewarded
1. To allow damages for the normal birth of a child is foreign to the universal public sentiment to the people
II. Public Policy
a. Rest. 2nd 178 – When a term is unenforceable on grounds of public policy
i. A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms
ii. In weighing the interest in enforcement of a term, account is taken of:
1. Parties’ justified expectations
2. Any forfeiture that would result in the enforcement of the particular term
3. Any special public interest in the enforcement of the particular term
iii. In weighing public policy against enforcement of a term, account is taken of
1. Strength of that policy as manifested by legislation or judicial decisions
2. Likelihood that a refusal to enforce the term will further that policy
3. Seriousness of any misconduct involved and the extent to which it was deliberate
4. Directness of the connection between that misconduct and the term
b. Contract of adhesion – form k, non-negotiable set of terms
i. Problems
1. Substance of k – leads to unconscionability
2. Intent to be bound
c. Two ways of analyzing
i. Protect third parties
ii. Voluntary consent
III. Freedom of K/Public Policy
a. In re Baby M (Superior Court)– surrogacy k [plaintiff sperm and defendant’s egg] i. R – Although the surrogacy contract is signed, the surrogate may nevertheless renounce and terminate the contract until the time of conception. She may be subject then for such monetary damages as may be proven. However, once conception has occurred the parties’ rights are fixed, the terms of the contract are firm and performance will be anticipated with the joy that only a newborn can bring.
b. In re Baby M (Supreme Ct)
i. H – Restore surrogate as mother of the child
ii. Statutory and Public Policy conflicts
c. Johnson v. Calvert – surrogacy [plaintiffs’ sperm and egg] i. R- When two means (genetic and desire to establish parent/child relationship) coincide in one woman, she who intended to procreate the child is the natural mother

Damages for Breach

I. Three Damage Interests
a. Expectation interest – put promisee in the position in which the promisee would have been had the promise been performed (“Benefit of Bargain”)
i. Hawkins v. McGee – hairy hand skin grafting, promise of a 100% perfect hand (pp. 61-64)
1. I: Can oral guarantee of 100% success in operation hold a doctor liable when operation fails? i.e. when a special contract is made?
2. R: Yes, utterance of words are done with the intention that they would be taken at face value by patient inducing them to consent to operation. D went beyond offering a medical opinion when offering a “perfect” hand
a. (Difference between promised performance and actual performance) + any incidental consequences fairly within the contemplation of the parties
ii. Tongish v. Thomas (pg. 79) – Co-op case
1. Co-op was simply hedging by buying seeds from Tongish, reselling to Bambino – only earned handling fee, not subject to price fluctuation
2. Market price of seeds doubled so Tongish breaches contract with Coop
3. Issue – use contract price vs. market price (UCC 2-713) or lost profits (UCC 1-106)?
a. Lost profits would be minimal for Coop because of resale nature of their business
b. But contract vs. market would be windfall for Coop because had the contract not been breached, Bambino would have received opportunistic deal, not Coop
c. If not for Bambino, these two measures would be equal.
4. Court rules that contract vs. market is appropriate because of ex ante view rather than ex post
a. Lost profits would encourage Tongish to breach whenever market exceeded contract because they would not owe any damages to Coop
iii. Restatement 347
1. Loss in value, plus
2. Any other loss caused by breach, less
3. Any cost OR
4. Loss avoided by not having to perform
iv. UCC
1. 1-106 = expectation damages, but not consequential, special, or penal damages
2. 2-712 – Cover
a. After a breach a buyer may cover by
i. making in good faith
ii. w/o unre

en increased in value or his other interests advanced.
2. Most commonly used:
a. Where k is losing k – restitution measure usually better for the innocent party than expectation
b. Quasi-k – restitution usually awarded when party has conferred a benefit on another under circumstances where the other is not contractually liable for the benefit
c. Where no k was formed, but a benefit was conferred in a pre-contractual stage when the parties believed they had concluded a k
3. Not available where P has fully performed
II. Three Limitations on Damages
a. Remoteness or Foreseeability
i. Hadley [default rule] – Damages recoverable that were reasonably foreseeable by parties at time k was formed: 1) arise naturally or 2) contemplated by both parties [notice] 1. Liable if foreseeable
a. Naturally occurring (general)
i. Loss of use
1. Measure?
b. If not naturally occurring, then notice at time of k
2. Unless agreement says otherwise
ii. Restatement 2nd 351 – loss may be foreseeable as a probable result of a breach because it follows from the breach
1. in the ordinary course of events, or
2. as a result of special circumstances, beyond the ordinary course of events, that the party in breach had reason to know.
3. [Not in Hadley] – Court may limit damages for foreseeable loss by excluding recovery for loss of profits, by allowing recovery only for loss incurred in reliance, or otherwise if it concludes that in the circumstances justice so requires in order to avoid disproportionate compensation
iii. Morrow – special damages: notice + “other evidence” [minority rule] 1. Morrow v. First National Bank of Hot Springs (pg. 102) – coin collection in bank vault
a. Morrow’s coins stolen before he put in vault – sues Bank because did not tell him vault was ready
b. Without express agreement, court requires tacit agreement btwn parties to cover more than ordinary damages
c. Court felt no tacit agreement btwn these parties:
i. Morrow’s phone call did not create an agreement that bank would be liable for stolen materials prior to availability of safety deposit boxes
ii. Damages were large compared to consideration given – party would not have been held itself to be liable for burglary insurance over a $75 deposit box
iv. UCC 2-715 (See above)
v. Distinction between general and consequential damages
1. General (direct) – flow from a given type of breach without regard to the particular circumstances of the victim of the breach
a. Never barred by Hadley principle
Consequential (special) – damages, above and beyond