Restatement 2d of Contracts
§178. When a term is unenforceable on the grounds of public policy
(1) . . . if legislation provides or enforcement is outweighed in the circumstances by a public policy against its enforcement
(2) In weighing the interest in enforcement of a term, account is taken of
(a) parties justified expectations
(b) any forfeiture that would result if enforcement were denied AND
© any special public interest in the enforcement of a particular term
(3) In weighing a public policy against enforcement of a term, account is taken of
(a) the strength of the public policy
(b) the likelihood that a refusal to enforce the term will further the policy
© the seriousness of any misconduct involved and the extent to which it was deliberate
(d) the directness of the connection between misconduct and the term
§179 Bases of Public Policies Against Enforcement
A public policy against the enforcement of promises or other terms may be derived by the court from
(a) legislation OR
(b) the need to protect some aspect of the public welfare, as is the case for judicial policies against . . .
“It is only when a given policy is so obviously for or against the public health, safety, morals or welfare that there is a virtual unanimity of opinion in regard to it, that a court may constitute itself the voice of the community in declaring such policy void.” As a result, a contract between a doctor and a man wherein perfectly effective sterilization was promised and undelivered was not void for public policy b/c there was no “unanimity” of opinion against such a contract. However, the plaintiff didn’t get any $$ b/c a baby is not “damages.” Shaheen v. Knight (1957)
Parens Patriae – the court assumes responsibility for a child that is improperly cared for. Best interest of the child always trumps parental rights. In the Matter of Baby “M” (Superior Court of New Jersey 1987)
DIFFERING results regarding the enforceability of surrogacy contracts in light of public policy considerations . . .
Some courts have found that surrogacy contracts are valid because a) they do not violate public policy and b) they do not conflict with the best interest of the child. In the Matter of Baby “M” (Superior Court of New Jersey 1987)
OR, depending on how the contract is written, a surrogacy contract is merely a contract for the sale of services (gestation) and not for the sale of a human being. As a result, those contracts do not violate public policy. Johnson v. Calvert (1993)
Generally speaking, there are two forms of relief for injured parties after a contract is breached:
1.) Substitutionary Relief – Payment of damages by breaching party to injured party. Also known as “damages” or “legal relief” **Preferred mechanism of relief**
2.) Specific Relief – Requirement of performance of contract. “Specific performance” or “equitable relief”
Expectation damages are the preferred measure of damages. 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
RESTATEMENT §347: Expectation Damages
Injured party can recover expectation damages as measured by:
(a) loss in value to him of the other parties performance
(b) any other loss (incidental/consequential) caused by the breach
© any cost or other loss avoided by not having to perform
Where a doctor promises a young man a perfectly healthy hand and in fact delivers a hairy and mangled hand the young man is entitled to expectancy equal to the value of the perfectly good hand less the amount of pain and suffering that could be reasonably expected to be incurred as a result of the surgery. Hawkins v. McGee
J.O Hooker and Sons v. Roberts (1996)
Dispositive Facts J.O. Hooker is a contractor who sub-contracts w/ Roberts. Contract includes both goods and services but only the part of the contract dealing with services is in dispute so the UCC does not apply. Dispute arises regarding which party has the duty to dispose of the cabinets. Roberts says this is Hooker’s job b/c it is in the original contract. Hooker says “as per specs and plans” language shifts that burden to Roberts. Hooker breaches and Roberts dues for damages. Trial court awards Roberts restitution and expectation damages. Hooker only contests paying for administrative time, storage of cabinets and lost profits, files motion for remittitur.
Holding & Reasoning
Roberts should be awarded expectation interest in the form of lost profits in the amount determined by the jury.
Roberts’s request for reliance interests (for administrative time and storage) are denied insofar as they are expenses that would have been incurred even if the contract wasn’t performed.
These expenses were not expenses that he would “not otherwise have incurred”
UNIFORM COMMERICAL CODE
§1-103: Supplementary General Principles of Contract Law Applicable
General principles of contract law apply unless stated otherwise in the UCC. (Enumerates these principles)
§1-106: Remedies to be Liberally Administered
(1) Remedies t
.g. public policy embodied in statute.)
3.) Limitations on Damages
1.) Foreseeability (Remoteness)
Restatement 2d of Contracts §351: Unforeseeability and related limitations on damages
(1) Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made.
(2) Loss may be foreseeable as a probably result of a breach because it follows from the breach
(a) in the ordinary course of events OR
(b) as a result of SPECIAL CIRCUMSTANCES BEYOND THE
ORDINARY COURSE OF EVENTS THAT THE PARTY IN BREACH HAD REASON TO KNOW
(3) A 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.
Hadley v. Baxendale (1854)
RULE In the event of a breach, damages should be those that arise
“fairly and reasonably . . . arising naturally, i.e., according to the usual course of things, from such breach . . .” that “may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it.”
Dispositive Facts: P (miller) contracts w/ D (common carrier) to deliver a vital part of a mill (crankshaft) to an engineer in London. Representative of P is told by D that it can be done in a day. Takes 5 because of neglect. P sues for lost profits (EXPECTATION INTEREST) b/c mill couldn’t run during that time. Plaintiff’s theory is implied warranty based on D’s status.
Holding: Given the nature of the part in question, it is unlikely that the halted operation of an entire mill was a reasonably foreseeable consequence of the defendant’s breach. As there are no special circumstances in this case, damages for lost profits are not recoverable.
*Result not necessarily just but it was essential to establish a concrete rule for judicial expediency
*Restatement §351 parallels the holding in Hadley