Contracts Outline Fall 2010 Professor Bowman
INTRODUCTION TO CONTRACT LAW
Studying Contract Law
Key Feature to American Contract law is freedom of contract
Answer is less important than the process
The Three Dimensions of Law
a. Doctrine, Facts, Theory
b. If you change one of these you can change the outcome
The Nature and History of a Contract
Shaheen v. Knight
i. Facts – Shaheen (plaintiff) contracted with Knight (defendant) to do his vasectomy in order to make him sterile. Shaheen sued Knight for non-performance of the contract.
Issue: 1 – Is a doctor responsible for paying damages in the amount of the cost to raise the child when he botches a sterilization procedure?
Holding: 1 – No, the doctor does not have to pay damages.
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 as a duty
Freedom of Contract and Public Policy
Baby M – Public policy v freedom of contract
i. Chancery Division – often deal in family and child matter. They have the power to grant or deny child custody
ii. Public policy can be and often is evidenced by legislation. But a contract can be void for public policy in the absence of legislation
iii. Freedom of contract principles outweigh public policy
iv. Baby M contract is void and unenforceable. Sterns were granted custody as best interest of the child
Johnson v. Calvert
i. Facts: Appellant surrogate entered into a contract with respondents, genetic parents, whereby she would gestate a zygote conceived of respondent’s genetic material.
Issue: Respondents filed a declaratory judgment action seeking a determination that they were the natural parents of the child.
Holding: The court affirmed the judgment that respondents, genetic parents, were the natural parents of a child gestated by appellant surrogate.
DAMAGES FOR BREACH OF CONTRACT
The Three Damage Interests
Expectation Interest
i. Preferred measure of damages
ii. The promisee (injured party) is permitted to recover damages from the promisor (party in breach) sufficient to put the promisee in the position she (objectively) would have been in had the contract been performed
iii. Generally is the highest level of recovery
iv. Benefit of the bargain
Reliance Interest
i. The promisee is permitted to recover damages from the promisor sufficient to put the promisee in the position he was in before the contract was entered into
ii. Involves allowing the promisee to recover for costs incurred “in reliance” on the contract
iii. Recovery is generally less than expectation interest, but more than restitution interest
Restitution Interest
i. The promisee is permitted to recover any benefits already provided by the promisee to the promisor in reliance on the contract
ii. Is thus essentially a “give back” mechanism
iii. Is generally less than both expectation interest and reliance interest
iv. Reset promisor instead of promisee back to start
Hawkins v. McGee
i. Facts: Hawkins (P) underwent surgery to repair scar tissue on his hand resulting from burns he sustained from contact with an electrical wire. Dr. McGee (D) gave Hawkins a 100% guarantee that he would be able to repair the scar tissue by grafting skin from his chest to his hand.
Issue: How are damages determined for breach of contract?
ording to the court, awarding only profit damages to P would encourage breaches of Ks in the marketplace.
DAMAGES FOR BREACH OF CONTRACT
Three Limitations on Damages
Remoteness or Foreseeability of Harm
i. Hadley v. Baxendale
1. Facts: A shaft in Hadley’s (P) mill broke rendering the mill inoperable. Hadley hired Baxendale (D) to transport the broken mill shaft to an engineer in Greenwich so that he could make a duplicate. Hadley told Baxendale that the shaft must be sent immediately and Baxendale promised to deliver it the next day. Baxendale did not know that the mill would be inoperable until the new shaft arrived.
Issue: What is the amount of damages to which an injured party is entitled for breach of contract?
Holding: The court ruled that the jury should not have taken the loss of profits into consideration because Baxendale did not know that the mill was shut down and would remain closed until the new shaft arrived.
NOT FORESEEABLE THAT THERE WOULD BE LOSS OF PROFITS
ii. Martinez v. Southern Pacific
1. Facts: The defendant delivered a dragline a month late. The plaintiff sued for the fair rental value of the dragline for the period it was delayed. The trial court dismissed the claim.
Issue: Can the plaintiff recover for the rental cost of the dragline?
Holding: The trial court’s decision was reversed. It is suggested that the defendant was liable to the plaintiff for the rental cost of the dragline for the period of the delay.
