Ø CHAPTER 1 – BASIS FOR ENFORCING PROMISES
Ø Section 1 – the Meaning of “Enforce” – a Brief Introduction to Contract Remedies
o Introduction, 1-2
§ Three Assumptions
· Law is mainly concerned with relief of promises to redress breach and the punishment of promisors to compel performance
· Relief granted should generally protect the promisee’s expectation by putting the promisee in the position they would be in if the contract had been performed
· The appropriate relief is substatutional, money damages, rather than specfic, where the court compels performance
o United States Naval Institute v. Charter Communications, Inc., 2-8
§ U.S. Naval Institute (plaintiff) grants defendant exclusive rights to publish paperback “Hunt for Red October,” but the right to sell shall begin “not sooner than October 1985”. Defendant ships and begins selling the paperback on September 15, 1985.
§ . “[P]unitive damages not recoverable for breach of contract” UNLESS the conduct also violates tort law. [Restatement (Second) Contracts, Section 355]. 2. However, uncertainty in the calculation of damages is “generally resolved against the party in breach.” [Restatement (Second) Contracts, Section 352, comment (a)]
o Sullivan v. O’Connor, 8-17
§ Professional entertainer (plaintiff) underwent surgery to augment the appearance of her nose. Over the span of three operations, the surgeon (defendant) proceeded to mold the nose into a aesthetically inferior shape.
§ The primary measure of contract damages is EXPECTATION DAMAGES: “amount intended to put the plaintiff in the position he would be in if the contract had been performed.” (CAUTION: This particular case does NOT award traditional expectation damages because the plaintiff waived them on appeal. Furthermore, the court awarded pain and suffering damages on a “creative” theory, but this is NOT the general rule)
o The Three Interests
§ Expectation: Highest Damages
· Put into position as if promise was performed
· adheres to third assumption/benefit of the bargain
o promisee begins at 0, expected to be +1. Breach causes promisee to now be -1. Court would award damages of 2. (-1+2=+1)
§ Reliance: Put back into position as if the promise was never made
· Incurred detriment due to reliance on promise, made expenditures due to promise
o promisee begins at 0, expected to be +1. Promisee expends 1 due to promise, breach causes promisee to now be -1. Court would award damages of 1. (-1+1=0)
§ Lost opportunity too speculative
§ Restitution: least damages
· put into position as if the promise has no been made
· Promisee relied in a way which conferred benefit to the promisor
· Court disgorge benefit and award back to promisee
o promisee begins at 0, expected to be +1. Promisee expends 1 due to promise, confers additional 1 to promisor. Breach causes promisee to now be -2. Court would award damages of 1, only being benefit conferred. (-2+1=-1)
o Specific Performance, 17
§ According to R § 259, courts will only order specific performance if damages would not be “adequate to protect the expectation interest of the injured party”
· Example: courts hold land to be unique, therefore damages are not adequate and specific performance is sometimes ordered
o Punitive Damages, 17-19
§ Restatement § 355: breach must be accompanied by fraud or tort
· No punitive for just a breach
§ “Bad Faith Breach” Tort: only where special relationship exists
· i.e. insured and insurer
§ Nominal Damages: Symbolic award where breach is proven but fails to prove damages
o Arbitration, 19-21
§ Flexible alternative to court based dispute resolution
· Voluntary/both parties must agree
o Tribunal can grant relief a court cannot
· Courts can compel arbitration/enforce arbitration agreements
o Debate over whether can impose punitive damages
o Contract Remedies in Practice, 21-22
§ Justice is not frictionless, financial costs are high
· Merchant at advantage over consumer
· Award for attorneys fees can be provided in contract
Ø Section 2 – Consideration as a Basis for Enforcement
Ø Fundamentals of Consideration
o Introduction, 22-27
o Hamer v. Sidway, 27-32
§ Uncle seeks nephew’s forbearance from legal vices; will give him $5000 dollars if he does so until he is 21
§ Element of exchange present as nephew is performing (forbearance)
§ Rule: Forbearance of legal rights is consideration even if no harm is done to promisee
o Consideration Must be:
§ Given and accepted as the motive or inducement of the promise
· Promise and consideration must be motive for each other
· Detriment is not enough
§ Unilateral Contracts: only one party makes promise, promise for performance
§ Bilateral Contracts: both parties promise, promise for a promise
o Gratuitous Promises, 32-34
§ The law does not recognize the promise of gifts
· It does recognize transfers of gifts
§ Peppercorns: a gratuitous promise cannot be made enforceable by creating a token payment
· Courts do not inquire into adequacy of consideration, but if parties know that “purchase” is a pretense (know it’s a peppercorn), then it is not enforceable
o Fiege v. Boehm, 34-39
§ Woman seeks support from possible father or her child; in return for support, she will forbear filing a paternity suit
§ Element of exchange is present as woman is performing a forbearance in not filing the claim, as long as the claim was held in good faith
§ Rule: If a claim is believed to be bona fide and is forbeared, consideration is met, regardless of whether or not the forbeared claim is true
Ø The Requirement of Exchange: Action in the Past
o Feinberg v. Pfeiffer Co. 39-43 PROMISSORY ESTOPPEL
o After 37 years with company, the Board of Directors awards Feinberg a pension “for her many years of long and faithful service.” Plaintiff retires one and a hal
olicy to reflect change from discharge with cause to employment at will, without express reservation to do so, as long as they give reasonable notice of change to employees
o Rewards, 64-66
§ Offer of reward may be accepted by anyone who performs service with knowledge that in performing the service they are entitled to the reward.
· Person can’t obtain reward by accident
Ø Promises as Consideration
o Introduction, 66-69
§ R. § 71. Consideration for a promise can be found in a return promise
§ R. § 75. Promise is enforced by virtue of the fact of the bargain
· All cases above were promise for performance
· A bargained for exchange of promises (Lucy v. Zehmer)
§ Unilateral and Bilateral Contracts
o Unilateral: one promise made (usually specific performance)
o Bilateral: two promises, promise for a promise
§ If A promises B to perform X
· A has right to receive performance of X from B
· B has duty to peform X for A
o Unilateral only has one right and one duty
o Bilateral has both a right and duty on both sides
§ Bilateral provides both a promise and a performance
§ Conditional Promise
o Performance is only due is a “condition ocurrs”
§ This can offer protection to unsure performance
§ Usually used when promises are not performed at the same time
§ R. § 75. A promise bargained for is consideration if the promised performance would itself be considered performance
o Strong v. Sheffield. 69-71
§ Man owes money to plaintiff. Debt comes due and man’s wife (defendant) endorses the debt (as a guarantor). Plaintiff does not demand the money, but instead says he will call for it when ready. Two years later, he demands the money from defendant.
§ In order for forbearance to constitute legal consideration, “such forbearance must be either absolute or for a definite time, or for a reasonable time; forbearance for a little, or for some time, is not sufficient.”
o Illusory Promise: R. § 77. Promise without actual substance, not consideration. Not actually bound by any terms.
o Contracts for the Sale of Real Estate, 71-72
o Mattei v. Hopper, 72-75
Plaintiff purchases real estate from defendant, contingent upon plaintiff finding that the leases are “satisfactory.” Plaintiff goes through with the deal and makes the down payment. Defendant backs out of the deal, and as an excuse
