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

1. K is about enforcing a promise R2C 1
a. Promises not enforced:
i. Unilateral
ii. Illegal
iii. Promises made by those w/o capacity to do so
iv. Promises against public policy: Shaheen v. Knight; In re Baby M, Johnson v. Calvert
b. All others will be enforced
c. Enforcement (using the state’s power to provide damages) can mean:
i. Damages: cash, judgments will be enforced for the legal authority (police, etc.)
ii. Specific performance: court orders breacher to do what was required; his refusal to do so would be contempt of court
d. Promise: manifestation of an intent to act that justifies promisee’s belief that a commitment has been made R2C 2
i. Express: explicit, tacit, clear manifestation to do something
ii. Implied: the law presumes that a specific promise was made, even if there’s no evidence that an express promise was made
iii. Warranty: promise that a particular fact will be true or that something will happen, if it doesn’t, there will be a remedy
iv. promise that someone else will perform their promise. If someone else does not perform the promise, the guarantor must perform it.
e. Default Rules: The law may presume that a condition exists, unless the parties say otherwise (van be Ked around)
f. Mandatory Rules: A rule that cannot be contracted around
g. Void: K is not any good. It will not be enforceable at all: In re Baby M, Johnson v. Calvert
h. Voidable: K is able to be voided by the party who cannot have signed it (usually kid or nutjob)

2. Remedies: Damages given to make up for breach of K
a. Compensatory: given to compensate P for damages caused by D
b. Specific performance: Ct ordered that K be performed
c. Punitive: meant to punish D; rarely awarded
d. Three interests:
i. Expectancy: Ct puts the promisee in the position he would have been in had the contract been performed. This is usually the most generous. It is also the default. It is measured by ACV, not K value. Hawkins v. McGee, R2C 347, but see Tongish v. Thomas
1. Incidental Damages: flow naturally from the breach, and are limited:
a. They must be foreseeable
b. They must be avoided if possible
i. UCC and cover: Merchant must sell his goods, if possible. Ct will award the difference between what he had to sell for (cover price) and what he Ked for. UCC 2-712, Tongish v. Thomas
c. They must be proved with certainty
2. Consequential Damages: loss resulting from general or particular requirements and needs of which the seller at the time of K had reason to know that could not be covered.
3. Measured as: a+b-c=expectancy
a. Loss of value in K
b. Plus other expenses
c. Less cost avoided.
ii. Reliance: Ct puts promisee in the position he would have been in had the contract never been made.
1. Essential Reliance: Expenses necessary to fulfill the bargain
2. Incidental Reliance : Expenses that flow naturally from the bargain. Nurse v. Barnes, Hadley v. Baxendale
iii. Restitution: Attempt to put promisor in the position he would have been in had K never existed (makes him give back unjust enrichment).
e. Example: Jane agrees to build an office on Tom’s land. Tom agrees to pay $500k. Jane thinks her costs will be $400k. Once she has put $200k into it, Tom calls and cancels everything.
i. What’s Jane’s Expectation (expectancy) Interest?
1. $300k, the 200k already spent and her 100k profit.
a. Loss of value to Jane: 500k total contract
b. Plus incidental and consequential loss: nothing–the 200k spent was accounted for in the contract; it is not ‘any other loss.’
c. Less loss avoided by not having to perform: 200k, the amount of materials she didn’t have to pay for after Tom cancelled the contract
500k-200k=300k
–from R2C Sec 347: The distinction between incidental and consequential damages tries to get at the difference from damages caused by the breach and damages that are more remote.
a. Incidental damages: flow naturally from the breach
b. Consequential damages: more remote damages
c. Example: you contract to fix my car, tow it away and don’t fix it. My hiring a tow truck to get it back is incidental. My loss of income from not being able to use my car to make deliveries is consequential.
4. Expectancy damages act as if the contract had been in force. If the price of materials went up after the contract was made, and Jane was forced to spend 600k in materials.
a. 500k in loss from contract
b. No additional loss
c. 400k cost avoided (600k in materials, less the 200k already spent)
d. Award of 100k; this combined with the 200k she spent means she’s out 100k. This is what would have happened had the contract been performed–Expectation interest does not protect you against a bad deal.
2. In general, damages are limited by the expectancy interest; they cannot go higher. Suppose the materials only cost 300k: 500k for contract, no other damages, less 100k she avoided (300k-200k spent)=400k award.
2. Her Reliance interest?
a. 200k, the money already spent. She gets what she’s out, but does not get any profit–she goes back to her pre-K position.
1. Supposing Jane made a bad deal, and it took 600k to make the building? She’d only get 100k–the damages are capped at the expectancy interest.
a. Essential Reliance: preparation for and performance under the contract–the price paid by the promisee to get the contracted benefit. The cahs Jane spent on the building is essential relaince
b. Incidental Reliance: Performance under or preparation for collateral contracts–Ks w/ 3rd parties that are made in reliance on

ead: Even if D breaches in bad faith, P only gets what can be reasonably computed.
a. Lost profits are speculative and generally not allowed. R2C 346, R2C 349
b. Pre-K expenses can be recovered if the breach prevents recouping of expenses. Reed v. Anglia, Mistletoe v. Locke
3. Avoidability: The breached against party must try to avoid damages if possible.
a. Once there a breach, the party seeking damages must:
1. Stop performing. Rockingham County v. Luten Bridge
2. Take reasonable step to mitigate damages. Parker v. 20th Century Fox, R2C 350
3. Lost volume sales: When you K to buy from a merchant and breach, the next person he sells to is not a substitute (mitigation, cover, etc.). He would have made that sale anyway, but he lost the sale to you. Seller will be entitled to the profits from the sale. Neri v. Retail Marine, UCC 2-708, UCC 2-710
a. People can K around the lost-volume problem.
4. Punitive damages are not recoverable unless:
a. The conduct is also a tort; and
b. Punitive damages are allowed for that tort. R2C 355
1. conduct must be outrageous, have an evil motive, or display reckless indifference
c. Hypo: Jane Ks to let Tom use her well for 10 years. 5 years in, she stops liking him so she repudiates
1. No punies. Her conduct is not a tort
d. Hypo: Jane makes Tom a secured loan. She stop liking him, so she sells the collateral
1. Punies allowed for the tort of conversion
5. Arbitration: Parties present cases in front of a neutral third party who makes a ruling
a. Parties k for the specific proceedings and rules of arb
b. Can be binding or non-binding
c. FT pay will allow a ct confirmation of ruling and order for payment, backed by all the menace of the state
1. Ct must confirm ruling unless:
a. It was procured by fraud, corruption, or undue means
b. Arb was evidentially biased toward one party
c. Arb misconduct (ie refusing to listen to one party’s evidence, refusing to postpone when presented with good reason to do so. )
d. Arb exceeded his powers (this is based on what power he was given in K)
2. Screwing up the facts or law allows the award to stand; but see Garrity v. Lyle Stewart, Inc.; contrast Willoughby Roofing v. Kajima Int’l