Contracts Part Iii.

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not bargained for (Consideration Substitute)

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Promissory Estoppel

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1- A promise may still be enforceable without consideration if there is a “substitute” such as a moral obligation or promissory estoppel.
2- It is used as a consideration substitute
3- Restatement 2nd 90- a deliberate promise in writing made freely and without any mistake, may lead the party to whom it is made into contracts and expenses, cannot be broken without a violation of moral duty. But if there was nothing paid or promised for it the law leaves the execution of it to the conscience of him who makes it. It is only when the party making the promise gains something or he whom it is made loses something that the law gives the promise validity.
(Promise which the promisor should reasonably expect to induce action or forbearance –which does induce such action or forbearance—will be binding if it would be an injustice not to enforce the contract)
4- ALWAYS a fallback position
i-you are admitting you have no contract
ii- court is less likely to be understanding if the P put themselves in the posit

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Promises which FORESEEABLY induce RELIANCE on the part of the promisee will often be enforceable without consideration.

5 Elements

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Equitable Remedies- (things that the court orders besides monetary amounts) – contract law gives the injured person the benefit of the broken bargain. P must specify the relief requested.

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Remedies for Breach of Contracts

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a- Its okay to order a company to do something but not an individual to do service because that would be involuntary servitude.
b- Mandamus-orders of a public official
c- Injunction
d- Specific performance
e- R-359 Adequacy test- equitable relief will not be granted if the legal remedy is adequate to compensate the injured party
f- R-360 Factors Affecting Adequacy of damages- difficulty in proving damages with reasonable certainty & cannot be easily replaced because it is unique-damages likely to not be collected from person
g- R-362 Effect of uncertainty of terms- specific performance or an injunction will not be granted unless the terms of the contract are sufficiently certain to provide a basis for an appropriate order.
h- If the P is coming with “unclean hands’ they are not going to be able to recover, court is going to look at the legitimacy of the actions of both the P and the D.
Centex Homes v Boag- D contracted to buy an apartment but later rescinded the K-the court found no specific performan

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Equitable Remedies Elements

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Damages-ALWAYS MONEY

If “prayer” is requested then the court could order an injunction (court order forbidding certain conduct)—specific performance (court decree commanding the other party to perform the contract as agreed)—Declaratory judgment (a ruling interpreting the contract or resolving some other dispute between the parties without stating any specific relief)- If “prayer” is not stated the court assumes money for damages-
We do not punish so there are no punitive damages- 3 types of interests recoverable under Damages- When damages are awarded we want to protect 2 interests when determining the amount recovered.

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Damages ***NOTES***

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Puts the non-breacher into the position they would have been in if the contract was fully performed. “Benefit of Bargain”(get what was bargained for) “Quid Pro Quo”-this for that- compensates P for the amount that gives them the value of what was bargained for. ALWAYS START WITH EXPECTATION FIRST (what P would recover in expectation damages)!

Back 6

Expectation Interest

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R-347--Loss of Value (market value-contract price) PLUS any other losses, including incidental and consequential losses caused by the breach MINUS any cost or loss avoided by not having to perform.

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Formula for expectation interest

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should damages be awarded for the diminution in market value or the reasonable cost of completing the performance? ---- If the cost of performance is more than the value added to the land probably only going to get diminution.

Peevyhouse v Garland Coal Co—D did not fix land as agreed to –cost 25k only add $300 in value to the land—Court says no cost of performance—can’t recover more than what the full performance of the contract would have provided.

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Avoiding Economic Waste

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puts the non-breacher back into the position he or she would have been in before the contract was created-“restore the status quo” – What has been spent out of pocket in reliance on the bargain (contract) is compensated.

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Reliance Interest

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an alternative to the expectation of damages- the amount of damages to the injured party in reliance on the contract minus any amount the injured party would have suffered had the contract been performed-

Rule: When lost profit can’t be proved, a plaintiff is only entitled to recover reliance damages.

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R-349

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applies to expectation and reliance damages ONLY

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Limitations

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damages are not recoverable for loss beyond the amount that the evidence permits to be established with reasonable certainty- Rest 352—There is no recovery if the loss is too approximate—it could be too speculative if they are uncertain as to:
-whether the breach caused the injury that the plaintiff alleged-
-the extent of the injury that P alleged -OR both the cause and extent of the injury alleged-
ABSOLUTE CERTAINTY IS NOT REQUIRED BUT REASONABLE CERTAINTY IS!

The P has the burden of proof for certainty- may require expert testimony, financial data,etc requires something to support Ps loss.
NO SUPPORT/EVIDENCE = NO RECOVERY FOR LOSS-What the reasonable person with particular knowledge should have foreseen

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1- Certainty

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Not the “primary” damages- loss of profits-
1- Lost primary profits
2- Lost secondary profits
3- Loss of prospective profits (good will damages)

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Consequential damages

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Nominal damages only but may award costs- costs & attorney fees

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Technical win

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the general rule is NO because the goal of contract law is not to punish.

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Punitive damages

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- 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 determined by what a reasonable party would know (objective test)

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Foreseeability

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- 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 determined by what a reasonable party would know (objective test)

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Foreseeability

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*The breaching party must have been able to foresee the probable loss that would result from a breach.
*Loss may be foreseeable as a probable result of a breach because it follows from the breach;
1- In the ordinary course of events (general damages) OR
2- As a result of special circumstances beyond the ordinary course of events that the party in breach had reason to know (specific damages)
*A court can limit damages of profits for only those lost in reliance or if the circumstances justify it.

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Foreseeability (Cont'd)

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– recovery for emotional disturbance will be excluded UNLESS:

1- The breach also causes bodily harm OR
2- The breach is of such a kind that serious emotional disturbance was particularly likely to result

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R-353

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1- Difference between goods promised and those delivered – General Damages

2- Those which naturally and proximately flow from the breach and include lost profits (special damages)
a- Primary profits
b- Secondary profits (if caused by primary loss)
c- Good will or perspective profits

AM/PM v Arco- D giving P bad gas-P cant get gas elsewhere- court says can recoverfor primary, secondary and good will.

Back 20

UCC 2-714 Buyers Damages for Breach of Accepted Goods;

Front 21

1- Incidental damages resulting from the breach that are reasonable

2- Consequential damages including:
a- Damages that were reasonably foreseeable at the time of contract that could not be reasonably prevented AND
b- Injury to person or property proximately resulting from breach of warranty

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UCC 2-715 Buyers Incidental and Consequential Damages

Front 22

Cant recover for actions done after repudiation (refusal) of the contract

Rockingham v Luten Bridge co- D sued for damages for building bridge after breach by the P and the court saysno damages for after contract was breached-D needs to mitigate damages-

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Avoidability

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“cover” if a repudiation or failure to deliver… the buyer may “cover” by making in good faith and without reasonable delay any reasonable purchase of or contract to purchase goods in substitution.

Can recover for the difference between the contract price and the price of the “cover” together with incidental or consequential losses minus expenses saved-

Failure of the buyer to effect “cover” within this section does not bar the buyer from any other remedy

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UCC 2-712

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- Loss may be foreseeable as a probable result of a breach because it follows from the breach;
o In the ordinary course of events (general) OR
o As a result of special circumstances beyond the ordinary course of events that the party in breach had reason to know
- Limited to loss incurred in reliance if required to avoid disappropriate compensation
The amount of salary agreed upon for the period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment.

- Parker v Fox Films- D had contract with P to be in a film- d changed the film to another- court says that P can collect for her salary she would have got-D did not offer a job that was comparable or substantially similar.

Back 24

R-350 Avoidability as a Limitation on Damages

Can only recover for losses the breacher had reason to foresee as a probable result of the breach when the contract was made

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1- Damages for breach may be liquidated in the agreement but only a reasonable amount compared to the anticipated or actual loss caused by the breach- TESTED BY:
a. Did the parties intend to agree on the amount of damages before there was a breach
b. Were the damages difficult to ascertain in advance
c. Is the amount agreed to a reasonable forecast of the losses that would result from a breach

2- When a contract specifies a single sum in damages for any and all breaches even though it is apparent that all are not the same gravity, the specification is not a “reasonable” effort to estimate damages-

3- R-355- Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are available.

Ex: an insurance company has refused to settle a claim within a reasonable time

Nominal damages- “technical win” & can sometimes get attorney fees or costs

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Damages by Agreement/Liquidated Damages- R-356

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1- Puts the BREACHER back into the position they were in before the contract was created-
2- R-370 Requirement that benefit can be conferred
a- Can only recover up to the benefit that you have given someone else
3- R-371 Measure of Restitution Interest
a- The reasonable value to the other party of what he received in terms off what it would have cost him to obtain it from another person in the claimant’s position OR
b- The extent to which the other party’s property has been increased in value or his other interests advanced

Back 26

Restitution Interest-
usually used when it is a losing contract—non breacher isn’t limited to contract price-.

Front 27

4- R-373 Restitution When other Party is in Breach
a- Injured party is entitled to restitution for any benefit that he has conferred on the other party by way of part performance or reliance
b- Injured party has no right to anything more than the contract price if he has fulfilled all of his duties
5- “Discourage unjust enrichment”
6- The purpose is to compensate the P the amount that the D has received as a benefit from the P but which D has not yet paid for.
7- Restitution is used in 4 different ways-
1- Quasi contracts
2- Another way to determine damages for a party not in breach of an enforceable contract
3- Remedy for the party who has breached an enforceable contract
4- When there is an unenforceable contract because of defect, such as under the Statute of Frauds when the contract needs to be in writing.

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Restitution Interest (Cont'd)

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8- What should be recovered when there is no contract or Quasi Contract?
a- Quantum meruit-value of services rendered to another
b- Quantum valebant- the value of property delivered to another
c- Money had and received-money held by one person but belonging to another
9- Used for Quasi-Contracts
a- “not a real contract” – implied in law
b- In a quasi contract even if the parties did NOT intend to create a contract one may be imposed on the m by the court if one party has been benefited unjustly
c- The law presumes a promise to pay for the benefit received
d- In comparison to Implied in Fact contract-
-even though the parties did not reach an express agreement a contract may still be applied in fact
-Base for the finding a contract is the parties’ conduct

10- Officious Intermeddlers- those who do something for someone who doesn’t want them to and no recovery

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Restitution Interest (Cont'd)

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- Compensation NOT Compulsion- the court prefers to give money damages not specific performance or injunction
- Mandamus- Ordering public official to do something
- Specific performance- orders a party before the court to do something
- Injunction- orders a party before the court to stop doing something

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Equitable remedies ***NOTES***

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equitable relief will not be granted if the legal remedy ($) is adequate to compensate the injured party-

- Factors affecting adequacy:
o Difficulty in proving damages with reasonable certainty
o Difficulty of procuring a suitable performance by means of money
o Likelihood that money will be collected

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Adequacy test

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Landowners may differ for buyer because of uniqueness
-Awards (or injunctions) contrary to public policy will NOT be granted-
UCC 2-716 – Specific performance may be decreed where the goods are unique or in other proper circumstances
The court will not give equitable relief unless the contract terms are definite enough to enable the court to frame an adequate order.
The court will not grant equitable relief where there are likely to be significant difficulties in enforcing and supervising the order.

Rest 2nd s-367 (1) – a promise to render personal service will not be significantly enforced-
Ex: the court cant make D sing but they can stop her from singing to someone else

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***NOTES***

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Contracts that MUST be in writing to be enforceable

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Statute of Frauds

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-M arriage (property promised in anticipation of)
-Y ear (a contract that cannot be completed within one year)
-L and (a contract for the sale of land)
-E xectuor (a promise by an executor to make payment on behalf of estate from the executor’s own funds)
-G oods (UCC02-201 sale of goods of $500 or more)
-S urety (a promise by a surety to make payment on behalf of a third party)
Contracts that are unenforceable unless in writing are said to be “within the statute of frauds”

Back 33

“MYLEGS”

Front 34

a promise to pay the debt or duty of another is within the statute of frauds, and is therefore unenforceable unless in writing.

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Suretyship

Front 35

“where the party promising has for his object a benefit which he did not enjoy before his promise, which benefit accrues immediately to himself, his promise is original, whether made before, after or at the time of promise of the third party, notwithstanding that the effect is to promise to pay the debt of another.”
If the facts are such that the promisor’s chief purpose in making his promise of suretyship is to further his own interests, his promise does NOT fall within the statute of frauds.
For a promise of suretyship to fall within the statute of frauds, it must be made to the creditor NOT to the debtor.

Back 35

“Main Purpose” or “Leading Object” rule- an exception in surety cases

Front 36

a promise for which consideration is marriage or a promise of marriage is within the statute of frauds-Ex: a promise for property to be delivered in consideration in marriage.

Exceptions: Courts have consistently held that it does not apply to mutual promises to marry-seems to be a policy decision. --- It also does not apply if the marriage is not the consideration of the promise, but rather just the occasion or condition for it.

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Marriage

Front 37

a promise to transfer or buy any interest in land is within the statute of frauds and has to be in writing—Any right, privilege, power related to land, including options to purchase.
- Most states have excluded short-term leases (less than one year)
- It does NOT include things that can be removed from the land like crops or trees, etc. Ex: if the crop is less than $500 in value it is not within the statute of frauds and doesn’t have to be in writing.

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Land

Front 38

a contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the statute of frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific performance.

-the vendee under an oral land contract may, in reliance on the contract take actions which both furnish evidence that the oral contract was in fact made and also create a reliance interest on the part of the vendee in having the contract enforced. If the vendee performs such acts he may be able to have the contract enforced through specific performance notwithstanding the fact that the contract was originally unenforceable due to the statute of frauds.

Ex:step-dad promises to give P the farm if P stays and helps. Step-dad gives to his own child after his death-Court awarded the farm to P.

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Exceptions (Land)

Front 39

if a promise contained in a contract is incapable (might take longer) of being fully performed within one year after the making of the contract the contract MUST be in writing.
-The one year period is measured from the time of execution of the contract NOT the time it will take the parties to perform
-A promise to employ someone for a fixed term of more than one year is within the one-year provision (must be in writing) even though the employee might end the contract by dying or becoming disabled.
-The important points of reference are the date of acceptance and the time when performance is to be completed.
-If a party’s performance can be rendered in two or more ways, the contract is NOT within the statute of frauds if any of the alternatives can be performed within the one-year period.

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One-Year Provision

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UCC 2-201 (1) - Except as otherwise provided.. a contract for the sale of goods… of $500 or more is NOT enforceable..unless there is some writing sufficient to indicate a contract for sale has been made between the parties and signed by the party against whom enforcement is sought-
Exceptions: specially manufactured foods, for the buyer, that aren’t suitable for others.

Estoppels: If the breaching party admits in his pleading that a contract of sale was made. ---- If the elements (misrepresentation of fact, reliance and injury) of equitable estoppels are shown against the party to be charged, that person cannot use the defense of the statute of frauds-

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Goods

Front 41

A promise which the promisor should reasonably expect to induce action or forbearance and which does induce action or forbearance is enforceable notwithstanding the statute of frauds if injustice can be avoided only by enforcement of the promise.

Goods accepted and paid for- a writing is not required for goods for which a payment has been made and accepted or which have been received and accepted

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REST 2ND -139

Front 42

a promise by an executor to make payment on behalf of estate from the executor’s own funds.

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Executor

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a contract within the statute of frauds is enforceable if it is evidenced by any writing, signed by- the party to be charged, which:
- Reasonably identifies the subject matter of the contract
- Is sufficient to indicate that a contract has been made..between the parties..and
- States with reasonable certainty the essential term…of the contract
The memorandum may consist of several writings if one of the writings is signed and the writings clearly indicate that they relate to the same transaction
Letter
Receipt
Invoice
Telegram
Another contract
Will – etc
The signature may be any symbol made or adapted wit han intention, actual or apparent to authenticate the writing-
Letterhhead
Signature (even electronic, stamped, engraved)
Initials
Any symbol executed or adopted by “signer”


Maglika case example—breaching plaintiff—brittain case

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Satisfaction of a contract