CONTRACTS – OUTLINE
Pratt – Fall 2012
Contract – a legally binding promise or set of promises, for the breach of which the law gives a remedy, or for the performance of which, the law in some way recognizes a duty.
Private law negotiated in a reasonable exchange
Governed by:
The Restatement (judge made/common law) (everything that is not goods)
UCC (sale of goods)
When analyzing a contract, determine what the contract is for, to determine what body of law governs it.
If both goods and services?? à determine the parties’ intent when the contract was made and what most of the money paid was for (the good or the service)
Promise – 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.
A contract and a promise are DIFFERENT. A promise is a unilateral act, a contract is mutual. All contracts are promises. NOT all promises are contracts.
Shaheen v. Knight (1957)
· Facts: π has vasectomy operation, it is unsuccessful, wife gets pregnant. Π claims that ∆ failed to fulfill K to make π sterile, and therefore must pay for the cost of raising child.
· Holding: No, ∆ is not liable for cost of raising child.
· Reasoning: to rule in favor of π would go against public policy that raising children is a good thing for society. There is no reasonable remedyà K is void, and unenforceable.
Restatement:
· § 1: Contract Defined
o a K 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 a duty.
· § 2: Promise; Promisor: Promissee; Beneficiary
o (1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so as to justify a promise in understanding that a commitment has been made.
o (2) The person manifesting the intention is the promisor.
o (3) The person to whom the manifestation is addressed is the promisee.
o (4) Where performance will benefit a person other than the promisee that person is a beneficiary.
· § 3: Agreement Defined; Bargain Defined
o An agreement is a manifestation of mutual assent on the part of two or more persons.
o A bargain is an agreement to exchange promises or to exchange a promise for a performance or to exchange performances.
· § 4: How a Promise May be Made
o A promise may be stated in words either oral or written, or may be inferred wholly or partly from conduct.
Restatement: (pg. 57)
· § 178: When a Term is Unenforceable on Grounds of Public Policy
o (1) 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.
o (2) In weighing the interest in the enforcement of a term, account is taken of:
§ (a) the parties’ justified expectations
§ (b) any forfeiture that would result if enforcement were denied, and
§ (c) any special public interest in the enforcement of the particular term
o (3) In weighing a public policy against enforcement of a term, account is taken of:
§ (a) the strength of that policy as manifested by legislation or judicial decisions,
§ (b) the likelihood that a refusal to enforce the term will further that policy,
§ (c) the seriousness of any misconduct involved and the extent to which it was deliberate, and
§ (d) the directness of the connection b/t that misconduct and the term.
· § 179: Bases of Public Policies Against Enforcement
o A public policy against the enforcement of promises or other terms may be derived by the court from:
§ (a) legislation relevant to such a policy, or
§ (b) the need to protect some aspect of the public welfare, as is the case for the judicial policies against, for example,
· (i) restraint of trade
· (ii) impairment of family relations, and
· (iii) interference with other protected interests.
Damages for Breach of K
Three Damage Interests: Expectation, Reliance, and Restitution
I. Hawkins v. McGee (1929) [pg. 61] à Expectation Interest
a. “Hairy Hand Case”; skin graft to repair burned hand; doctor guarantee of 100%.
b. Sued under breach of K and received damages for pain and suffering
i. Proper? à NO. pain and suffering was part of his consideration to K with doctor, not part of damages.
ii. Measure of damages should be Expectation Interest: the difference b/t what the condition of the π would have been had the K been fully performed, and the actual current state of the π. That is the difference b/t the current state of the hand and what the doctor promised; a 100% fully fixed hand.
Expectation Interest: expectation of result from K, K not fulfilled, damages are the difference b/t what was expected and what was received.
II. Restatement: § 347 Measure of Damages in General
a. (A + B) – C = $ Damages
i. A=loss of value to injured party as result of breaching parties failure/deficiency
ii. B=any other loss sustained by injured party (incidental or consequential loss)
iii. C=any cost or loss injured party has avoided by not having to perform
III. Sullivan v. O’Connor (1973) [pg. 70] (Discussion of all 3 damage interests)
a. Entertainer has three botched plastic surgeries on nose.
i. Restitutionà get back $ paid for K not performed, used when injured party has conferred some benefit on the breaching party.
ii. Expectationà put injured party in position he/she would have been in had the K been performed.
iii. Relianceà put injured party in position he should have been had the promise NOT been made; used when injured party has changed position to detriment in reliance on K.
b. Damages are not confined to simply receiving back the $ paid.
c. P&S Recovery – allowed in this case, under reliance theory.
i. In normal course of surgery, post op P&S is expected but accepted as part of successful surgery.
ii. BUT, P&S following unsuccessful surgery is a change in π’s position, for the worse, in reliance on the K being performed, so… upheld here!
IV. Hooker & Sons v. Roberts Cabinet Co. (1996) [pg. 76] (UCC governed or no?)
a. UCC governs K’s for the sale of goods; does NOT cover K’s for services (applies to goods that are moveable at time of identification)
b. What about a mixed K of goods and services?
i. à “depends upon the nature of the K and also whether the dispute in question primarily concerns the goods furnished or services rendered under the K.”
ii. This Caseà dispute is about performance of services in regard to the K & fact that goods were furnished as part of the K has no bearing = NO UCC
c. Were the damages awarded excessive?
i. Storage costs in rented space? à only entitled to recover $ that would not otherwise have been incurred absent a breach.
1. Already renting space, so NO RECOVERY
ii. Admin. Costs? à paying manager to work on this project reaping no profit when he could have been working on other project generating $ for company = damages ALLOWED
d. Lost Profitsà if a reviewing court only has π v. ∆ word they will most likely side with the jury so long as noting is fishy.
V. Tongish v. Thomas (1992) [pg. 84] (bad faith breaches of K)
a. General Ruleà breaching party is NOT penilized/punished for breaching K.
b. Here, π & ∆ agreed to $13/lb., market rocketed to $20/lb and ∆ sold product out from under π @ higher price to new buyer with no explanation for this course of action.
c. UCC § 2-106 (simply lost profits); § 2-713 (difference in market & K price)
i. If you breach in bad faith, you are going to get the raw end of the deal.
d. Fixed Price K: Gambling on the Mkt. Price
i. From seller POV:
1. If market price goes up; you lose
2. If market price goes down; you win
3. (opposite for buyer)
Three Limitations on Damages
Three most common limitations: remoteness or foreseeability of
a. K for actor to perform in movie in England, actor has another agmt to act in movie in America, actor reneges K for movie in England.
b. “if he has not suffered any lost profits, or cannot prove what his profits would have been, he can claim in the alternative what has been thrown away, that is, wasted, by reason of the breach.
c. Wasted Expenditure à expenditures incurred BEFORE & AFTER K formation, provided that it is such that would reasonably be in the contemplation of the parties as likely to be wasted if the K was broken.
VI. Mistletoe Express v. Locke (1988) [pg. 126] (reliance damages & losing Ks)
a. Instead of claim for damages based on lost profit, can recover as damages expenditures in reliance on K being performed.
b. Losing Kà π was going to lose money even if K performed.
i. Party in breach may bring this evidence as justification to reduce amount of damages he must pay, but must prove to degree of reasonable certainty. (flips usual process around)
VII. Rockingham County v. Luten Bridge Co. (1929) [pg. 129] (avoidability of harm)
a. Action for amount due under K for construction of bridge.
b. Rule of Law: after a party receives notice of breach of K, they have a duty to do nothing that will increase the damages flowing therefrom. (American Rule)
c. Example given by court [pg. 131] “If A enters into a binding K to build a house for B, B, of course, has no right to rescind the K without A’s consent. But if, before the house is built, he decides that he does not want it, and notifies A to that effect, A has no right to proceed with the building and thus pile up damages. His remedy is to treat the K as broken when he receives the notice, and sue for the recovery of such damages, as he may have sustained from the breach, including any profit which he would have realized upon performance, and well as any other losses which may have resulted to him.”
VIII. Shirley Parker v. 20th Century Fox (1970) [pg. 140]
a. π hired for one movie, movie canceled by ∆, but π offered role in alternative movie in Australia.
b. Π declined alternative role & sued for breach of K.
i. Issue: Was π obligated to accept 2nd offer as part of duty to mitigate damages flowing from initial breach of K? à NO
c. General Rule for Wrongful Discharge: [pg. 141]
i. Damages = (amount promised) – (amount already paid) – (what employee might have earned after reasonable effort for alternative employment**)
1. **Alternative Employment MUST be comparable or substantially similar to that work deprived of. (∆ burden of proof)
d. Alternative employment here was both different and inferior à did not have to accept as part of mitigation.
Restatement §350: Avoidability as a Limitation of 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) [above] to the extent that he has made reasonable but unsuccessful efforts to avoid loss.
o Lay Men’s Terms:
§ No damages for loss that injured party could have avoided with no undue risk, burden, or humiliation.
§ Injured party can recover so long as reasonable effort, even if unsuccessful, is made to avoid loss.
