INTRODUCTION TO CONTRACTS

WHAT IS CONTRACT LAW ABOUT?

A Guided Discovery of Contract Law

 Law of enforceable promises

 Basic rule for remedy - expectation: breaching promiser should put you in a financial position as you would be in if
they did not breach the contract
 Was the agreement made in good faith (voluntary, obtained through valid means, not obtained through coercion)?
 What Constitutes a Contract?

 Two or more parties

 Commitment to future action
 Agreement that constitutes an obligation
 Agreement modifies people's rights
 Not all contracts need to be in writing (certain ones do–such as transfer of property, etc.)

What is a Contract?

a. Pollock on contracts: “ in the case of a contract something remains to be done by one or by each of the parties, which
the other has or will have a right to call upon him to do [and,] when one man has a peculiar right [...] to control
another man’s actions by calling upon him to do or forbear some particular thing, there is said to be an obligation
between them. A contract accordingly is an agreement which produces an obligation”
b. French Civil Code: “contract is a concordance of wills of two or more persons intended to create, modify, transfer or
extinguish obligations.”
c. R2K § 1: 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 as a duty

Main Issues in the Law of Contracts

 Breach and Remedies

 Need legal rules to differentiate enforceable and non-enforceable contract
 Law of remedies asks: what kind of promises are enforceable or legally relevant?
 Mutual Assent/Formation/Interpretation
 Consideration: bargain of exchange
 Patrolling Contract and Justice in Transactions
 Third parties and Contract
 Law of assignment

Note on the Uniform Commercial Code (UCC)

 Intended to simplify, clarify and modernize the law governing commercial transactions
 Only regulates sales of goods
 Given persuasive authority

When You First See a Contracts Case, Ask Yourself:

 Is this governed by common law or UCC?
 Only UCC if sale of goods
 Hybrid contracts: when sale involves both goods & services; mixed sales
  Predominate factor test (predominant purpose test) to determine whether predominate sale is service or good
[Pittsley v. Houser]

Contracts are about voluntary (your autonomous choice) agreements made in good faith

 If a contract is void in principle, you can declare it null and void forever
 All voluntary action is intentional, but not all intentional actions are voluntary
INTRODUCTION TO CONTRACTS
CONSIDERATION AND THE BARGAIN PRINCIPLE
In American contract law, a promise is unenforceable unless it is supported by consideration.

CONSIDERATION GENERALLY
 The promise has some value and must be exchanged for something else of value, such as a counter-promise or
performance given to the promisor by the promisee as quid pro quo for making the promise
 The exchange of promise for consideration = bargain or bargained-for exchange

 Bargain: exchange of a promise for an act in which each party views what she gives as the price/value of what she
gets
 Bilateral: promise in exchange for counter-promise (sales, lease, employment)
 Unilateral: promise in exchange for performance of a certain action (reward offer)

 Only one party is bound

R2K § 71. Requirement of Exchange; Types of Exchange.

(1) To constitute consideration, a performance or a return promise must be bargained for
(2) A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is
given by the promisee in exchange for that promise.
(3) The performance may consist of
a. an act other than a promise, or
b. a forbearance, or
c. the creation, modification, or destruction of a legal relation.
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the
promisee or by some other person.

Common Law Rules re: Consideration

 Exchange may consist of either a right, interest, profit, or benefit accrued to one party OR some forbearance,
detriment, loss, or responsibility given/suffered/undertaken by the other.
 Forbearance from legal right is a detriment, sufficient to constitute adequate consideration to form a valid and
enforceable contract [HAMER v. SIDWAY (consideration for nephew: no smoking/drinking/gambling)
 No precedent of courts relieving a party from K just because it's an uneven bargain [HANCOCK BANK v. SHELL
OIL CO. ]

ADEQUACY OF CONSIDERATION

R2K § 79. Adequacy of Consideration; Mutuality of Obligation

If the requirement of consideration is met, there is no additional requirement of (a) a gain, advantage, or benefit to the
promisor or a loss, disadvantage, or detriment to the promisee; OR (b) equivalence in the values exchanged; OR (c)
“mutuality of obligation”

Inadequacy of consideration alone will not void a contract [Batsakis v. Demotsis]

 Without evidence of fraud, duress, or misrepresentation, the Court is unwilling to void the contract merely because
there may be insufficient consideration [BATSAKIS v. DEMOTSIS]
III.
Conditional Promises

 If not donative, then enforceable (generally)

 Conditional Bargain Promise: parties view performance of the condition as the PRICE of the promise
 ex: "If you mow my lawn, I will pay you $20"
 The act/performance of mowing the lawn is viewed as the PRICE paid to earn the $20
 Conditional Donative Promise: parties view performance of the condition as the MEANS to make the gift
 ex: “If you select a car costing no more than $20,000, I will buy it for you as a graduation present.”
  The act of selecting a car is not viewed as a price paid to get the gift, but as a means for making the gift

On the Justification of the Consideration Doctrine

 We typically restrict our legal freedoms by entering into contracts so past consideration cannot be motivation

THE ILLUSORY-PROMISE RULE

Illusory Promises [purely potestative conditions]

A promise to perform that leaves performance to the discretion of the promising party is an illusory promise and won’t
constitute consideration; purely potestative conditions = fulfillment of obligation depends on the mere will of one party
 Example: Thus, if A says to B, “I’ll sell you as many widgets as you want to order within the next two weeks for $5 a
piece,” and B agrees to buy at that price as many widgets as he decides to order from A, B’s promise is illusory and
will not constitute consideration for A’s promise.

Concept: Constraining the Realm of Legal Freedom or Choice

 Promises are motivated by (1) another promise (bilateral) or (2) performance of an action (unilateral)
 Promises must be constitute an obligation [relinquishes your freedom of choice; limits your legal freedoms]
 Animus Obligandi = intention to be bound
 Being under an obligation: limiting your own legal freedoms in part, limiting your freedom of choice

Scott v. Moragues Lumber (SC Alabama 1918)

 Whether Scott's promise entailed animus obligandi
 A contract that is conditioned upon the occurrence of an event, which is at the will of a party to the
contract, is not void for lack of consideration. Once the condition is met, an obligation to fulfill the
contract exists.
 It depends on the mere will of the promisor

RULE: An optional promise to perform does not constitute consideration

Granting a licensed-right to someone is not an obligation
To have a license to do something does not amount to a promise or obligation to do that thing

Promiser must have been restricted

[OFFICE PAVILLION S FLORIDA v. ASAL PRODS INC.]

Is a License-Right Sufficient Consideration?

WOOD v. LUCY, LADY DUFF-GORDON (New York, 1917) (p. 42)

 Concerns a promise to perform an act that the promisor is already obliged to perform under a contract
 RULE: Mutuality or a return promise may be implied from the circumstances surrounding the contract and the nature
of the whole writing.
 The court reversed the judgment on the grounds that the marketer gave valuable consideration by promising effective
marketing and the splitting of profits pursuant to an implied contract.
 P does not have to do anything under the contract terms; thus, this appears to be an illusory promise as he is bound by
nothing.

Requirements and Output Contracts and the Illusory Promise Rule

 UCC § 2–306(1): “A term which measures the quantity by the output of the seller or the requirements of the buyer
means such actual output or requirements as may occur in good faith, except that no quantity unreasonably
disproportionate to any stated estimate or in the absence of a stated estimate to any normal or otherwise comparable
prior output or requirements may be tendered or demanded.”
 The Official Comment adds that “Under this article, a contract for output or requirements . . . [does not] lack
mutuality of obligation since, under this section, the party who will determine quantity is required [obligated] to
operate his plant or conduct his business in good faith and according to commercial standards of fair dealing in the
trade so that his output or requirements will approximate a reasonably foreseeable figure.”

A promise may be lacking, and yet the whole writing may be “instinct with an obligation,

LEGAL DUTY RULE

Preexisting Duty Rule

 RULE: No consideration where that consideration is a duty the promisor is already obligated to perform. Public
policy [and morality] forbid that a public officer should demand or receive, for services performed by him in the
discharge of official duty, further reward than that prescribed and allowed by law [GRAY v. MARTINO]
 π was a police officer who had information that would help recover some stolen jewelry. π agreed to share that
information in exchange for the reward of the stolen goods. After items recovered, reward wasn't paid
 HELD: No consideration. The services he rendered in this instance must be presumed to have been rendered in
pursuance of that public duty, so he was NOT entitled to receive a special quid pro quo.

§ 73. Performance of Legal Duty

Performance of a legal duty owed to a promisor which is neither doubtful nor the subject of honest dispute is not
consideration; [EXCEPTION] but a similar performance is consideration if it differs from what was required by the duty
in a way which reflects more than a pretense of bargain.

Common Law Rules

 RULE: Under the preexisting duty rule, a promise to do what one is already legally obligated to do cannot serve as
consideration. [LINGERFELDER v. WAINWRIGHT BREWING CO.]
 Caveat: What if the commission had been paid?

 Third parties: R2K § 73 comment d: “Contractual duty to third person. The rule that performance of legal
duty is not consideration for a promise has often been applied in cases involving a contractual duty owed to
a person other than the promisor. In such cases, however, there is less likelihood of economic coercion or
other unfair pressure than there is if the duty is owed to the promisee. In some cases, consideration can be
found in the fact that the promisee gives up his right to propose to the third person the rescission or
modification of the contractual duty. But the tendency of the law has been simply to hold that performance
of contractual duty can be consideration if the duty is not owed to the promisor. Relief may still be given to
the promisor in appropriate cases under the rules governing duress and other invalidating causes. . .

Justificatory issues: banning opportunistic/abusive behavior vs freedom of contract?

MODIFICATION

§ 89: Modification of Executory Contract

 A promise modifying a duty under a contract not fully performed on either side is binding
o if the modification is fair and equitable in view of circumstances not anticipated by the parties when the
contract was made; or
o to the extent provided by statute; or
o to the extent that justice requires enforcement in view of material change of position in reliance on the
promise.
 Common Law Rules

 When unexpected or unanticipated difficulties arise during the course of performance of a contract, the parties may
modify the initial contract even without additional consideration for the modification as long as (1) the parties
voluntarily agree and the promise modifying the initial contract is made before the contract is fully performed on
either side, (2) underlying circumstances prompting modification are unanticipated by parties; and (3) the
modification is fair and equitable [ANGEL v. MURRAY]
 A promise to pay part of a debt is not good consideration for an agreement to settle the full amount. This is because
the defendant is already under an obligation to pay. Existing obligations cannot be relied on as consideration
[FOAKES v. BEER]

 ∆ owed judgment of £2.1K to π. Parties entered into an agreement in which π would forgive interest on debt if ∆ paid
π £500 at once & rest in installments
 The rule that the promise to pay part of a debt or the payment of part cannot be consideration for a discharge of the
whole debt [the Pinnel Rule]
 If a debtor pays a lesser sum of his debt to the creditor in exchange for the creditor’s promise to accept the part payment
and cease to demand the remainder, then if, in addition to the part payment, the debtor gives something else, the
creditor is receiving some benefit and the debtor some detriment, and this will suffice to constitute consideration
for the creditors’ promise to forgo his debts

Exceptions to the Common Law Rule on Modification

 UCC 2: 209 (1)

 CISG 29.

DURESS

§ 174. When Duress by Physical Compulsion Prevents Formation of a Contract

(1) If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is
physically compelled by duress, the conduct is not effective as a manifestation of assent.

§ 175. When Duress by Threat Makes a Contract Voidable

(2) If a party’s manifestation of assent is induced by an improper threat by the other party that leaves the victim no
reasonable alternative, the contract is voidable by the victim.
(3) If a party’s manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by
the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives
value or relies materially on the transaction.

§ 176. When a Threat Is Improper

 A threat is improper if
a. what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining
property
b. what is threatened is a criminal prosecution (plea bargaining @ prosecutors ???)
c. what is threatened is the use of civil process and the threat is made in bad faith (bad faith = determined by judge's
discretion)
d. the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.
(2) A threat is improper if the resulting exchange is not on fair terms, and
a. the threatened act would harm the recipient and would not significantly benefit the party making the threat
b. the effectiveness of the threat inducing the manifestation of assent is significantly increased by prior unfair
dealing by the party making the threat, or
c. what is threatened is otherwise a use of power for illegitimate ends.

What is Duress?

 Duress by physical compulsion, ab initio = no assent/contract

 Duress by threat - prima facie contract but voidable by victim
 Threat must be present at time of signature
 We don't want a system of duress that discourages our bargaining

 RULE: Economic duress exists where (1) one party involuntary accepts the conditions of the other party, (2)
circumstances permitted no alternative, and (3) such circumstances were the result of coercive acts of the other party.
*Implied that acts/threats were made in bad faith [TOTEM MARINE TUG v. ALYESKA PIPELINE ]
 In order to avoid a contract, a party must also show that he had no reasonable alternative to agreeing to the other
party’s terms, or, as it is often stated, that he had no adequate remedy if the threat were to be carried out
 What constitutes a reasonable alternative is a question of fact, depending on the circumstances of each case [an
available legal remedy, such as suing for breach of contract, may provide such an alternative]
 Generally, it has been said that “the adequacy of the remedy is to be tested by a practical standard which takes
into consideration the exigencies of the situation in which the alleged victim finds himself.

Concept of Undue Influence

 Position of domination of one party over another

UNCONSCIONABILITY AND EXPLOITATIVE TERMS

What is the unconscionability doctrine about: defective assent or substantive justice in transactions?

Unconscionability

 RULE: Where the element of unconscionability is present at the time a contract is made, the contract should not be
enforced. [WILLIAMS v. WALKER-THOMAS FURNITURE CO.]
 Unconscionability has generally been recognized to include two elements:
(1) an absence of meaningful choice on the part of one of the parties together (procedural) AND
(2) contract terms which are unreasonably favorable to the other party (substantive)
 Cross-collateral clauses
 Judges did not think they had the power to do so because there was no statute
 Court disagreed and said that unconscionability [FIND IN RECORDING]

Remedies

 UCC 2:302 (see also R2K 208):

(1) If the court as a matter of law finds the contractor any clause of the contract to have been unconscionable at the
time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract
without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any
unconscionable result.
 (2) When it is claimed or appears to the court that the contractor any clause thereof may be unconscionable the parties
shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to
aid the court in making the determination.’

Unconscionability and Policy/Moral concerns: Credit access and Paternalism

Substantive and Procedural Unconscionability

 Procedural or process unconscionability is concerned with “unfair surprise,” fine print clauses, mistakes or
ignorance of important facts or other things that mean bargaining did not proceed as it should
 Factors: age, education, intelligence, business acumen and experience, relative bargaining power, who drafted the
contract, whether the terms were explained to the weaker party, whether alterations in the printed terms were
possible, and whether there were alternative sources of supply for the goods in question
 Substantive unconscionability concerns the actual terms of the contract and examines the relative fairness of the
obligations assumed, encompassing situations where contract terms are so one-sided as to oppress or unfairly surprise
an innocent party, or there is an overall imbalance in the obligations and rights imposed by the bargain or significant
cost-price disparity. [an unjust or one-sided contract]
 First, substantive unconscionability sometimes seems sufficient in itself to avoid a term in the contract.
 Second, substantive unconscionability sometimes helps confirm or provide evidence of procedural
unconscionability.

MAXWELL v. FIDELITY FINANCIAL SERVICES (Arizona, 1995) (p. 108)

 RULE: Even if contract provisions are consistent with the reasonable expectations of the party, they are unenforceable
if they are oppressive or unconscionable.
 A claim of unconscionability can be established with a showing of substantive unconscionability alone, especially in
cases involving either price-cost disparity or limitation of remedies. If only procedural irregularities are present, it
may be more appropriate to analyze the claims under the doctrines of fraud, misrepresentation, duress, and mistake,
although such irregularities can make a case of procedural unconscionability.

Cfr. Restatement of Consumer Contracts: two-steps test.

PUBLIC POLICY

§ 178: When a Term Is Unenforceable on Grounds of Public Policy

 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. [2 and 3 guide such ‘balancing’ test]
 In weighing the interest in the enforcement of a term, account is taken of
o the parties' justified expectations,
o any forfeiture that would result if enforcement were denied, and
o any special public interest in the enforcement of the particular term.
 In weighing a public policy against enforcement of a term, account is taken of
o the strength of that policy as manifested by legislation or judicial decisions,
o the likelihood that a refusal to enforce the term will further that policy,
o the seriousness of any misconduct involved and the extent to which it was deliberate, and
o the directness of the connection between that misconduct and the term.
In Pari Delicto Rule

 A plaintiff who participated equally with a defendant in wrongdoing cannot pursue a claim against the defendant

§ 197: Restitution Generally Unavailable, Except When:

 Disproportionate forfeiture [R2K § 197]

 Excusable ignorance of facts or legislation “of a minor character” [R2K § 198(a)]
 Plaintiff is “not equally in the wrong” [R2K § 198(b)]
 Plaintiff did not “engage in serious misconduct” and reneges [R2K § 199(a)]

§ 198: Restitution in Favor of Party Who Is Excusably Ignorant or Is Not Equally in the Wrong

 A party has a claim in restitution for performance that he has rendered under or in return for a promise that is
unenforceable on grounds of public policy IF:
 he was excusably ignorant of the facts or of legislation of a minor character, in the absence of which the promise
would be enforceable, or
 he was not equally in the wrong with the promisor.

§189-194 Standard Cases of Contracts Which Violate Public Policy

 Contracts to commit torts

 Induce breach of contract
 Breach fiduciary duties
 Impair family relations

Non-Compete Agreements and Public Policy

 RULE: A restraint is reasonable only if it (1) is no greater than is required for the protection of the employer (2) does
not impose undue hardship on the employee, and (3) is not injurious to the public. [HOPPER v. ALL PET ANIMAL
CLINIC ]
 The reasonableness, in a given fact situation, of the limitations placed on a former employee by a covenant not to
compete are determinations made by the court as a matter of law.

R2K §186-188

 §186 Promise in Restraint of Trade

1. A promise is unenforceable on grounds of public policy if it is unreasonably in restraint of trade.
2. A promise is in restraint of trade if its performance would limit competition in any business or restrict the
promisor in the exercise of a gainful occupation.
 §187 Non-Ancillary Restraints on Competition [never enforceable]

 A promise to refrain from competition that imposes a restraint that is not ancillary to an otherwise valid
transaction or relationship is unreasonably in restraint of trade
 §188 Ancillary Restraints on Competition (part of an otherwise valid agreement) (if reasonable then enforceable)
1. A promise to refrain from competition that imposes a restraint that is ancillary to an otherwise valid transaction
or relationship is unreasonably in restraint of trade if
a. the restraint is greater than is needed to protect the promisee's legitimate interest, or
b. the promisee's need is outweighed by the hardship to the promisor and the likely injury to the public.
 2. Promises imposing restraints that are ancillary to a valid transaction or relationship include the following:
a. a promise by the seller of a business not to compete with the buyer in such a way as to injure the value
of the business sold;
b. a promise by an employee or other agent not to compete with his employer or other principal;
c. promise by a partner not to compete with the partnership.

IMPLIED WARRANTIES AND PUBLIC POLICY

 RULE: The implied warranty of workmanship and habitability cannot, under any circumstances, be disclaimed or
waived [ZAMBRANO v. M & RC II LLC]
 Public policy interests clearly outweighed enforcing the contract term in this case
 Public policy interests underlying the implied warranty of workmanship & habitability:

1. protecting buyers of newly built homes and successive owners against latent construction defects that were
not reasonably discoverable when the home was initially sold
2. holding builders accountable for their work (deterring negligent builders)
DONATIVE PROMISES
The Bargain Principle and Donative Promises: When are they legally enforceable?

(1) Recall importance of distinguishing conditional donative promises from bargains.

(2) Distinguish conditions established as prices for promise and as means
(3) If not donative, then enforceable (generally)

Donative Promises (Gratuitous Promises)

 Donative promises are not legally enforceable

 Exception: donative promises that have been relied on [reliance: acting on a promise to one's detriment]

 A promise is only enforceable when consideration is provided by all parties involved, a promise for a future gift is not
enforceable [Dougherty v. Salt]
 A rich aunt’s promise of money to her nephew for $3000 via promissory note without any strings attached is justa
promise to make a gift.

(Executed) Gifts and Promises to Make Gifts: Reasons for the Asymmetry?

 Executed gifts are generally enforceable

 Promised gifts are not generally enforceable
 You can make a gift without transferring position

FORM

Formalities and their Roles

 Formality: any act (other than consent/agreement) the law makes necessary for parties to do before they can enter into
an agreement that is legally enforceable
 Limits discretion about what contracts & scopes can be adjudicated (limits litigation costs)
 Induce careful deliberation

SCHNELL v. NELL (Indiana SC) [nominal consideration is not sufficient]

 'Nominal Consideration:' A transaction is said to involve nominal consideration when it has the form of a bargain
but not the substance of a bargain, because it is clear that the promisor does not view what she gives up as the price of
what she gets [a moral consideration only, will not support a promise]
 Contracts under 'seal'

RELIANCE

Conceptual Issue: What is to Rely on a Promise?

KIRKSEY v. KIRKSEY (Alabama 1825)


Distinction between Promissory Estoppel and Equitable Estoppel

1. Equitable estoppel generally is based on a statement of past or present fact while promissory estoppel is based on a
promise concerning the future.
2. Equitable estoppel may only be used to prevent the other party from asserting a claim, or from asserting a defense to a
claim, it is not recognized as a cause of action. In many states promissory estoppel is recognized as a cause of action.

§90: Promise Reasonably Inducing Action or Forbearance:

A promise which the promisor should reasonably expect to induce action or forbearance on the part of the promisee or a
third person and which does induce such action or forbearance is binding if injustice can be avoided only by enforcement
of the promise. The remedy granted for breach may be limited as justice requires.

 (1) a promise, (2) promisor should reasonably expect to induce action or forbearance on promisee of a third party,
(3) such action or forbearance occurs and (4) injustice can only be avoided by enforcing the promise

FEINBERG v. PFEIFFER (Missouri COA 1959)

 “Resolved, that the salary of Anna Sacks Feinberg be increased from $350.00 to $400.00 per month and that she be
afforded the privilege of retiring from active duty in the corporation at any time she may elect to see fit so to do upon
retirement pay of $200.00 per month, for the remainder of her life.”
 RULE: A promise which the promisor should reasonably expect to induce action or forbearance of a definite and
substantial character on the part of the promisee and which does induce such action or forbearance is binding if
injustice can be avoided only by enforcement of the promise. This doctrine has been described as that of promissory
estoppel

Promissory Estoppel and the Measurement of Damages (R2K 90 b, d)

 Damages are calculated differently than expectation damages

Are plaintiffs entitled to expectation damages or reliance damages?

 R2K states the remedy granted for breach may be limited as justice requires.

PAST CONSIDERATION

Past consideration" is not consideration, except for three traditional classes of cases:

 A promise to pay a debt barred by the statute of limitations

 A promise by an adult to pay a debt incurred when the adult was under legal age (so that the contract was not
enforceable against her)
 A promise to pay a debt that has been discharged in bankruptcy

§ 82. Promise to Pay Indebtedness; Effect on the Statute of Limitations

 A promise to pay all or part of an antecedent contractual or quasi-contractual indebtedness owed by the promisor
is binding if the indebtedness is still enforceable or would be except for the effect of a statute of limitations.
 The following facts operate as such a promise unless other facts indicate a different intention:
 o A voluntary acknowledgment to the obligee, admitting the present existence of the antecedent indebtedness; or
o A voluntary transfer of money, a negotiable instrument, or other thing by the obligor to the obligee, made as
interest on or part payment of or collateral security for the antecedent indebtedness; or
o A statement to the obligee that the statute of limitations will not be pleaded as a defense.

§ 83. Promise to Pay Indebtedness Discharged in Bankruptcy

An express promise to pay all or part of an indebtedness of the promisor, discharged or dischargeable in bankruptcy
proceedings begun before the promise is made, is binding.

Common Law Rules

 RULE: A promise based on a moral obligation but made without legal consideration does not constitute an
enforceable contract unless it is tied to a preexisting legal obligation. [MILLS v. WYMAN]
 A promise may be tied to a preexisting legal obligation if the original legal obligation was based on consideration.
 For example, when one promises to assume the debt of another who cannot pay, this promise is enforceable because
of the consideration originally provided by the initial debtor to the lender. Additionally, a parent’s promise to pay the
debts of his minor children is enforceable based on the preexisting legal duty of parents to provide for their children’s
expenses. However, this obligation dissolves once child reaches adulthood

 RULE: When a promisor receives a material benefit from a promisee, the promisor is morally bound to compensate
the promisee for services rendered. If the promisor subsequently promises to make payment on the basis of that moral
obligation, that promise is valid and enforceable. Such moral obligation constitutes valid consideration for a
subsequent promise if the promisor received a real pecuniary or material benefit. Court acknowledges that McGowin
conferred a substantial material benefit [WEBB v. MCGOWIN; moral obligation - past conferred material benefit]
 Rationale: when receiving the benefit, a moral obligation to compensate was created
 According to law of restitution, he wouldn't get compensation, but he DOES get compensation under contract law

NOTE ON THE LAW OF RESTITUTION AND UNJUST ENRICHMENT

 Obligation in contract generally is promise-based. Obligation in torts generally is harm-based. Obligation in the law of
unjust enrichment generally is benefits-based.
 § 20: This Section provides for restitution in a case of “professional services required for the protection of another’s
life or health . . . if the circumstances justify the decision to intervene without request.” Restitution “is measured by a
reasonable charge for the services in question.”
 If the limitation to professional services were the law (which is questionable) it would make restitution unavailable in
a case like Webb v. McGowin. The Comment to the Third Restatement explains the new limitation:
o Professional services. Emergency assistance rendered by a nonprofessional, however valuable, does not give
rise to a claim in restitution under existing law. The result is that professional providers of medical assistance
are routinely given an enforceable claim to compensation; while the nonprofessional rescuer or good
Samaritan enjoys only such rewards as others may choose to bestow…The claim by a rescuer to recover for
injuries suffered in the course of the rescue is a particularly compelling one, but such a recovery reflects
compensation and insurance principles, not principles of unjust enrichment.

§ 86. Promise for Benefit Received

 A promise made in recognition of a benefit previously received by the promisor from the promisee is binding to the
extent necessary to prevent injustice.
 A promise is not binding under Subsection (1)
 if the promisee conferred the benefit as a gift or for other reasons the promisor has not been unjustly enriched; or
 to the extent that its value is disproportionate to the benefit.

FEG’s formulation ‘If A has conferred a benefit on B, the benefit gives rise to a moral obligation in B to compensate A for
its value, and B later promises to pay a specific sum to A in recognition of this moral obligation and the benefit, then A’s
promise should be binding unless evidentiary and cautionary concern, or changed circumstances, justify not enforcing the
promise’ (FEG 176).

Individualistic nature of private law = beneficiary must be the one suing or paying

Hypothetical: No promise = no need for contract law

 REMEDIES
§ 344. Purposes of Remedies.
Judicial remedies under the rules stated in this Restatement serve to protect one or more of the following interests of a
promisee:

 his “expectation interest,” which is his interest in having the benefit of his bargain by being put in as good a position
as he would have been in had the contract been performed
 his “reliance interest,” which is his interest in being reimbursed for loss caused by reliance on the contract by being
put in as good a position as he would have been in had the contract not been made [expenses incurred by preparing to
perform, in performing, or foregoing opportunities to make other contracts], or
 his “restitution interest,” which is his interest in having restored to him any benefit that he has conferred on the
other party (by ordering restitution or disgorgement of profits) [courts recognize it in order to prevent unjust
enrichment, it may include restitution of what has been paid yet also more generally the disgorgement of any benefits
conferred by the promisee on the breaching promisor].

Law of Remedies

 Legal measures undertaken by the legal system to react to a breach of contract (typically in the form of compensation)
 Law of breach of contracts
 It's up to plaintiff to develop remedial strategy and decide which damages to pursue

Possible Remedies
 Expectation damages
 Reliance damages in lieu of expectation damages
 Restitution
 Disgorgement or profits
 Specific performance

EXPECTATION DAMAGES: THE GENERAL PRINCIPLE

Common Law Rules

 If one party breaches a contract, the non-breaching party may recover damages based on the difference between the
value of the contract as fully performed and the actual value of the non-breaching party’s present condition, plus any
incidental damages reasonably foreseeable to all parties at the time of contract formation. [HAWKINS v. MCGEE]
 Expectation damages beyond the strictly commercial sphere
 SULLIVAN v. O'CONNOR

Expectation Damages/Remedies

 Most stringent remedial measure

 Generally available to the promisee
 Track (or are ground upon) the expectation interests
 Limitations: certainty, foreseeability, duty to mitigate

Reliance Damages/Remedies

 Tracks the reliance interest

  Includes loss of opportunities

Arguments in Favor of the Expectation Measure

 Deontological/Moral Arguments
 Harm avoidance
 Pragmatic/Institutional Arguments

 Reliance damages are very difficult to prove (lost opportunities, etc.)

 Best way of protecting reliance interest is granting expectation damages

BUYER'S REMEDIES: SERVICES

Common Law Rules

 Cost of Completion Damages: The extent of a plaintiff’s damages is measured by the reasonable cost of completing
the contract or repairing the defendant's defective performance, minus the part of the contract price that has not been
paid. [LOUISE CAROLINE NURSING HOME v. DIX CONSTRUCTION]
o Louise Caroline Nursing Home, Inc. (π) sought damages for breach of a contract under which Dix
Construction Corp. (∆) agreed to construct a nursing home.
 Diminished Value Damages: If the cost of performance is grossly disproportionate to the economic benefit, the
defendant should only pay the economic benefit [the relative economic benefit rule]* [PEEVYHOUSE v. GARLAND
COAL]
o Farm owners lease land to coal mining company for 5 yrs on conditions they'll restore land to original
condition after mining
o Compares total cost of performance to the expected economic benefit of performance
o Rationale: to avoid economic waste
o §348 (2) “If a breach results in defective or unfinished construction and the loss in value to the injured
party is not proven with sufficient certainty, he may recover damages based on a) the diminution in the
market price of the property caused by the breach, or b) the reasonable cost of completing performance or
of remedying the defects if that cost is not clearly disproportionate to the probable loss in value to him”.
 Non-Monetary Loss: where the expenditure to rectify a defect is out of all proportion to the benefit to be obtained, the
appropriate measure of damages is the diminution in value caused by the breach to the work, not the cost of
reinstatement. This is so even if it would result in a nominal award. [RUXLEY ELECTRONICS AND
CONSTRUCTION LTD. v. FORSYTH]

 Ruxley (π) sued Forsyth (∆) for failing to pay remaining balance after π completed construction of a swimming pool
(∆ refused to pay because the pool was supposed to be over a foot deeper than constructed, ∆ countersued)
 Trial court's verdict was affirmed [finding that cost of rebuilding pool to correct depth would be wholly
disproportionate to the benefit, if any, of having a deeper pool; separately awarding £2.5K in damages to ∆ for loss of
pleasure and amenity]

BUYER'S REMEDIES: SALE OF GOODS

Relevant UCC provisions: UCC 2-711 (1); 2-712-714; 2-715 (1), 2-723-724. CISG arts. 45, 49, 50, 74, 75, 76.

§ 2–714. Buyer’s Damages for Breach in Regard to Accepted Goods.

 Where the buyer has accepted goods and given notification (§2–607(3)) he may recover as damages for any non-
conformity of tender the loss resulting in the ordinary course of events from the seller’s breach as determined in any
manner which is reasonable.
 The measure of damages for breach of warranty is the difference at the time and place of acceptance between the
value of the goods accepted and the value they would have had if they had been as warranted, unless special
circumstances show proximate damages of a different amount.
 In a proper case any incidental and consequential damages under the next section may also be recovered.

EGERER v. CSR WEST (2003) (p. 239)

[buyers' remedies: nondelivery; cover damage rule or market damage rule]
 In this case, both cover damages and market damages are substitutionary relief: “the fact finder’s valuation of the loss
is substituted for π's valuation.” The market damage rule gave the buyer additional prices it could offer the court to
choose from in valuing π's loss.
 RULE: In cases of nondelivery, the buyer may recover damages from the seller equal to the difference between the
market price at the time when the buyer learned of the breach and the contract price.

§ 2–712. “Cover”; Buyer’s Procurement of Substitute Goods.

 After a breach within the preceding section the buyer may “cover” by making in good faith and without unreasonable
delay any reasonable purchase of or contract to purchase goods in substitution for those due from the seller.
 The buyer may recover from the seller as damages the difference between the cost of cover and the contract price
together with any incidental or consequential damages as hereinafter defined (§2–715), but less expenses saved in
consequence of the seller’s breach.
 Failure of the buyer to effect cover within this section does not bar him from any other remedy.

§ 2–723. Proof of Market Price: Time and Place.

 If an action based on anticipatory repudiation comes to trial before the time for performance with respect to some or
all of the goods, any damages based on market price (Section 2–708 or Section 2–713) shall be determined according
to the price of such goods prevailing at the time when the aggrieved party learned of the repudiation.
3. If evidence of a price prevailing at the times or places described in this Article is not readily available the price
prevailing within any reasonable time before or after the time described or at any other place which in
commercial judgment or under usage of trade would serve as a reasonable substitute for the one described may
be used, making any proper allowance for the cost of transporting the goods to or from such other place.
4. Evidence of a relevant price prevailing at a time or place other than the one described in this Article offered by
one party is not admissible unless and until he has given the other party such notice as the court finds sufficient
to prevent unfair surprise.

HWH CATTLE v. SCHROEDER (1985) (p. 244)

[buyer remedies: expectancy interest]
 In the event of a breach of contract under the Uniform Commercial Code, courts apply the code’s damages
provisions in a way that fulfills the parties’ expectations expressed in the contract.

SELLERS' REMEDIES: SERVICES

Sellers’ Remedies: Services

 First, distinguish whether it is a service or sale of good is involved
 R2K § 347, Illustrations 6, 7 (p. 251-252)

KEARSAGE COMPUTER INC. v. ACME STAPLE COMPANY (p. 248)

[seller remedies: service contract]
 In a suit for breach of a service contract, income from a substitute job is not deducted from the service provider’s
damages unless the first contract required the service provider’s personal services to such an extent that concurrent
performance of another contract would be impossible.

SELLERS' REMEDIES: SALES OF GOODS (UCC)

Relevant norms: UCC [UCC 2-051 (1), 2-703, 2-704 (1), 2-706, 2-708, 2-709, 2-710, 2-723, 2-734 and CISG [arts. 61,62,
64, 74, 75, 76].

Four Basic Remedies

 Resell Price/Contract Price Difference

 Market Price/Actual Price Difference
 Profits
 Actual Price

NERI v. RETAIL MARINE (1972) (p. 253)

[sellers remedies: sale of goods, loss of volume]
 This case is governed by section 2-718 of the UCC
 This case tries to answer the question of "what calculation should we use to determine what the seller should receive?"
 RULE: If a buyer repudiates a contract with a lost-volume seller, the seller is entitled to the profit the seller would
have made from full performance by the buyer, plus reasonable incidental damages associated with resale

Non-monetary awards and monetary awards

Monetary words (remedies from seller POV v. buyer POV)
11:55AM

DUTY TO MITIGATE

Volenti Non Fit Iniuria

 "To one who volunteers, no harm is done"
 Promisee is typically entitled to full compensation for all the losses under the breach, unless the judge determines that
the nonbreaching party violated their duty to mitigate

ROCKINGHAM COUNTY v. LUTEN BRIDGE CO. (1929) (p. 260)

 As seen in Rockingham, sometimes a wronged seller will find it in his self-interest to complete performance after
repudiation.
 In such a case, a court will award the contract price if the seller had sufficient reason to perform to overcome the
argument that the choice to perform was unreasonable.
 RULE: When a non-breaching party in a contract for services receives notice of another party’s breach, the non-
breaching party must treat the contract as broken when notice is received, cease performance, and sue for any losses
sustained from the breach as well as profits that would have been realized upon performance. The non-breaching party
may not incur additional costs after notice is provided and then hold the breaching party for damages which did not
need to be incurred.

In some occasions, it would be very difficult for the victim of the breach to calculate the amount of damages and it'd be
easier for them to just perform the contract

Yet see also Bomberger v. McKelvey.

 Bomberger demolished the building to get skylights for another building AFTER McKelvey decided to repudiate the
contract
 The court held: "Bomberger did not violate the duty to mitigate, and so was entitled to recover the agreed price for
the demolition, because “under these circumstances the trial court could properly conclude that inability to obtain
the salvage from the old building would seriously interfere with completion of the new building, that equivalent
materials could not then be secured by plaintiffs, and that in an action for breach of contract damages would be
difficult to ascertain and would be inadequate."

PARKER v. 20th CENTURY FOX (1970) (p. 265)

 Whether an actress must accept a new role in a different film to mitigate damages from the film producer’s failure to
produce the original film.
 No; she did not violate any duty to mitigate by refusing to accept new employment offer because second offer was
inferior to that agreed upon in the initial contract. If roles were comparable, π would have to accept new role in order
to mitigate
 RULE: The general rule is that the measure of recovery by a wrongfully discharged employee is 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.
 However, before projected earnings from other employment opportunities not sought or accepted by the discharged
employee can be applied in mitigation, the employer must show that the other employment was comparable, or
substantially similar, to that of which the employee has been deprived; the employee's rejection of or failure to seek
other available employment of a different or inferior kind may not be resorted to in order to mitigate damages.

Yet see also Southern Keswick, Inc. v. Whetherholt (Fla. App. 1974). The court held: “while we would agree that a
wrongfully discharged employee is not obliged to seek employment of a different or inferior nature, if he in fact obtains
such employment within the contract period his earnings should be used in mitigation of damages.”

R2K § 350. Avoidability as a Limitation on Damages. [duty to mitigate]

 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.
 The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made
reasonable but unsuccessful efforts to avoid loss.

UCC § 2–704. Seller’s Right to Identify Goods to the Contract Notwithstanding Breach or to Salvage Unfinished
Goods
 An aggrieved seller under the preceding section may (a) identify to the contract conforming goods not already
identified if at the time he learned of the breach they are in his possession or control; (b) treat as the subject of resale
goods which have demonstrably been intended for the particular contract even though those goods are unfinished.
 Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the
purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods
to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner.

UCC § 2–715. Buyer’s Incidental and Consequential Damages

 Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt,
transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or
commissions in connection with effecting cover and any other reasonable expense incident to the delay or other
breach.
 Consequential damages resulting from the seller’s breach include (a) any loss resulting from general or particular
requirements and needs of which the seller at the time of contracting had reason to know and which could not
reasonably be prevented by cover or otherwise; and (b)injury to person or property proximately resulting from any
breach of warranty.

FORESEEABILITY

§ 351. Unforeseeability and Related Limitations on Damages.

 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.
 Loss may be foreseeable as a probable result of a breach because it follows from the breach
1. in the ordinary course of events, or
2. as a result of special circumstances, beyond the ordinary course of events, that the party in breach had
reason to know.
 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.

§ 2–715. Buyer’s Incidental and Consequential Damages.

 Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt,
transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or
commissions in connection with effecting cover and any other reasonable expense incident to the delay or other
breach.
 Consequential damages resulting from the seller’s breach include
 any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had
reason to know and which could not reasonably be prevented by cover or otherwise; and
 injury to person or property proximately resulting from any breach of warranty.

The Foreseeability Principle

 The breaching party is liable only to compensate the damages that were reasonably foreseeable at the time the contract
was formed
 Or the breaching party knew of the special circumstances of the case that brought about the damage/losses, they have
to compensate [11:20ish] Actual knowledge = has to compensate
 When assessing whether it was reasonable for the breaching party to have foreseen the possibility for damages/losses
at the time of contract formation, examine facts in the case, terms in the contract, correspondence between parties, etc.
 Why is the foreseeability principle based on what was reasonably foreseeable at time of contract formation?
 If harm is not foreseeable at time of contract formation, it almost imposes a contractual obligation on you against your
will [indirect way of protecting the voluntary nature of contractual agreements]
 If harm is not foreseeable, the seller may charge less than what they would have if they were aware of the harm/risk

HADLEY v. BAXENDALE (1854) (p. 275)

1. Loss of profits case; crank shift of corn mill breaks, shipping was delayed so cornmill was closed for 5 additional
days than anticipated
2. RULE: When one party breaches a contract, the other party may recover all damages that are reasonably
foreseeable to both parties at the time of making the contract. The non-breaching party may also recover damages
stemming from any special circumstances, provided those circumstances were communicated to and known by all
parties at contract formation.

VICTORIA LAUNDRY (WINDSOR) LTD. v. NEWMAN INDUS LTD. Indus. (p. 280)
 Refines the foreseeability principle and distinguishes between clauses of foreseeability
 Seller should have known that this would cause losses that would result in a loss of profits
 Court makes sub distinctions on the foreseeability principle
 It's sufficient that the breaching party should have known that their breach was highly likely to cause certain losses
(strong likelihood, sufficient likelihood, probabilistic knowledge)
 Distinguishing between type of loss and amount of loss
1. Laundry co. lost very large contract with government
2. Question of whether company was entitled to compensation for this; court says yes this type of damage is
compensable but doesn't mean they have to grant damages in full amount

Foreseeability and Causation

 In addition to the harm being certain and foreseeable, it must be a result of the breach (i.e., the breach must have
caused the harm)
 Traditional test: breach of contract had to be principle/predominate cause of harm
 Modern rule: harm is compensable so long as the contractual breach was a substantial cause of the loss

CERTAINTY

§ 352. Uncertainty as a Limitation on Damages.

 Damages are not recoverable for loss beyond an amount that the evidence permits to be established with reasonable
certainty.

KENFORD CO. v. ERIE COUNTY (1986) (p. 289)

 NY Court of Appeals thought damages were too speculative, not certain enough
 RULE: Any further liability than for damages naturally and directly flowing from the breach must be predicated on
such unusual or extraordinary damages being brought within the contemplation of the parties as the probable result of
a breach at the time of or prior to contracting.
 Is the ‘all-or-nothing’ approach correct?
Promissory Estoppel - when donative promise is relied on, exception to consideration
1036
DAMAGES FOR MENTAL DISTRESS

§ 353. Loss Due to Emotional Disturbance.

Recovery for emotional disturbance will be excluded unless the breach also caused bodily harm or the contract or the
breach is of such a kind that serious emotional disturbance was a particularly likely result.

VALENTINE V. GENERAL AMERICAN CREDIT, INC. (p. 301)

 RULE: We conclude, because an employment contract is not entered into primarily to secure the protection of
personal interests and pecuniary damages can be estimated with reasonable certainty, that a person discharged in
breach of an employment contract may not recover mental distress damages.
 If contract is commercial in nature, no award of damages for mental distress because that's not reasonably foreseeable

LANE v. KINDERCARE LEARNING CENTERS

 If the contract was formed on a matter that is personal in nature & it's reasonable to foresee that a breach may result in
mental distress, then breaching party can be held liable
 We believe that a contract to care for one’s child is a matter of “mental concern and solicitude,” rather than “pecuniary
aggrandizement.” . . . Therefore, . . . the contract involved in the instant case was personal in nature, rather than
commercial.
 At the time the contract was executed, it was foreseeable that a breach of the contract would result in mental distress
damages to plaintiff, which would extend beyond the mere “annoyance and vexation” that normally accompanies the
breach of a contract. . . . Such damages are clearly within the contemplation of the parties to such a contract.
 Damages may be awarded for emotional distress caused by a breach of a personal contract even where the emotional
distress does not result in a physical injury.

Arguments against Damages for Emotional Distress

 Employers may avoid hiring people with mental illnesses if they think they'll suffer mental distress
 Valuation problem
 Subjective nature makes it hard to determine foreseeability

LIQUIDATED DAMAGES

§ 356. Liquidated Damages and Penalties.

 Damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the
light of the anticipated or actual loss caused by the breach and the difficulties of proof of loss. A term fixing
unreasonably large, liquidated damages is unenforceable on grounds of public policy as a penalty.
 A term in a bond providing for an amount of money as a penalty for non-occurrence of the condition of the bond is
unenforceable on grounds of public policy to the extent that the amount exceeds the loss caused by such non-
occurrence.
UCC § 2–718. Liquidation or Limitation of Damages; Deposits.
 Damages for breach by either party may be liquidated in the agreement but only at an amount which is reasonable in
the light of the anticipated or actual harm caused by the breach, the difficulties of proof of loss, and the inconvenience
or nonfeasibility of otherwise obtaining an adequate remedy. A term fixing unreasonably large liquidated damages is
void as a penalty.

Why liquidated damage provisions?

 If damages are difficult to determine or prove in court
 Creates more incentive for other party to perform
 Pre-determined damages gives parties more peace of mind re: potential breach
 Inherently compensatory function
 Anticipate the damages caused by cost of breach ex ante [in the case where one party breaches, the other party is
entitled to…]
Concerns about Liquidated Damage Clauses
 Idea of damages in contract law are of compensatory nature, parties cannot simply opt out of damages nor establish
damages that are unreasonable [damages beyond compensation = penalty = not enforceable]
 Punitive damages in contract law are generally not awarded, so if liquidated damage provision is so unreasonable that
it could be perceived as punitive, then it's likely unenforceable
 Awarded exclusively when the breach would also amount to a tort [example: medical negligence case - breach of
contract and also a tort]

NPS, LLC V. MINIHAN (2008) (p. 308)

 In Massachusetts, a liquidated damages provision is enforceable if the sum provided for is proportionally and
reasonably related to the anticipated actual damages resulting from a breach.
 Mitigation is irrelevant when liquidated damages provision is enforceable
 A liquidated damages provision will usually be enforced, provided two criteria are satisfied:
o that at the time of contracting the actual damages flowing from a breach were difficult to ascertain; AND
o that the sum agreed on as liquidated damages represents a “reasonable forecast of damages expected to occur
in the event of a breach.

LAKE RIVER CORP. v. CARBORUNDUM CO.

 Service contract between Lake River Corp. (distributor, π) and Carborundum Co. (manufacturer of abrasive powder
used in making steel, ∆) where π would "bag" the powder from ∆ and ship to customers
 ∆ convinced π that they needed a new bagging system to handle the contract, so π had a clause which provided a min.
quantity requirement that allowed π to be compensated for the full amount of the contract if ∆ didn't meet min.
quantity guarantee
 The damage formula in this case is a penalty and not a liquidation of damages, because it is designed always to assure
Lake River more than its actual damages
 RULE: When a contract specifies a single sum in damages for any and all breaches even though it is apparent that all
are not of the same gravity, the specification is not a reasonable effort to estimate damages;
o and when in addition the fixed sum greatly exceeds the actual damages likely to be inflicted by a minor
breach, its character as a penalty becomes unmistakable.
 If damage formula is invalid, the victim of breach is still entitled to common law damages (as long as K is not formed
explicitly with reference to the agreed-on damage formula)
 Case was remanded for district judge to adjust the damages

Liquidated Damages and Alternative Performance Clause

 Alternative performance clause: promisor can perform by doing A or doing B
 Sometimes "B" looks like a liquidated damages clause
 Sometimes parties are excused of breach due to change in circumstances (if breach is excused, you're excused from
paying liquidated damages provision)
 Not true for alternative performance clauses because it's a different obligation that is not established around breach

SPECIFIC PERFORMANCE

Specific Performance and Equity

 Specific Performance is backed by the threat of being held in contempt (fine & maybe imprisonment)
 Judicial order issued

§ 359. Effect of Adequacy of Damages.

 Specific performance or an injunction will not be ordered if damages would be adequate to protect the expectation
interest of the injured party.
 The adequacy of the damage remedy for failure to render one part of the performance due does not preclude specific
performance or injunction as to the contract as a whole.
 Specific performance or an injunction will not be refused merely because there is a remedy for breach other than
damages, but such a remedy may be considered in exercising discretion under the rule stated in § 357.
§ 360. Factors Affecting Adequacy of Damages.
 In determining whether the remedy in damages would be adequate, the following circumstances are significant: (a)
the difficulty of proving damages with reasonable certainty, (b) the difficulty of procuring a suitable substitute
performance by means of money awarded as damages, and (c) the likelihood that an award of damages could not be
collected

§ 364. Effect of Unfairness.

 Specific performance or an injunction will be refused if such relief would be unfair because (a) the contract was
induced by mistake or by unfair practices, (b) the relief would cause unreasonable hardship or loss to the party in
breach or to third persons, or (c) the exchange is grossly inadequate, or terms of contract are otherwise unfair.
 Specific performance or an injunction will be granted in spite of a term of the agreement if denial of such relief
would be unfair because it would cause unreasonable hardship or loss to the party seeking relief or to third
persons.

Common Law Rules

 In general, courts will not order specific performance of construction contracts because (1) damages are typically an
adequate remedy, & (2) the court cannot supervise the completion of the work [LONDON BUCKET V. STEWART]

 Ordering specific performance meant that London Bucket would have to go back to the motel and
finish installing the furnace correctly. Ordinary damages are adequate in this situation, even if
they might be difficult to prove.
 An equitable remedy cannot be ordered unless the ordinary common-law remedy of damages for
a breach of contract is inadequate and incomplete. Specific performance is not the appropriate
remedy here

 Damages are the normal remedy for a breach of contract, but a permanent injunction may be more appropriate if the
plaintiff shows that damages are inadequate based on balancing the costs and benefits of the alternatives
[WALGREEN V. SARA CREEK ]
 Sara Creek Property Co. (π), mall landlord, contract w Walgreens not to lease space in mall to another pharmacy,
after "anchor tenant" left, ∆ notified π that they were replacing the anchor tenant with deeper discount pharmacy

 Uncertainty of damages - costly to calculate damages and not as costly to supervise negative injunction

SPECIFIC PERFORMANCE IN SALES OF GOODS

§ 2–716. Buyer’s Right to Specific Performance or Replevin.
 Specific performance may be decreed where goods are unique or in other proper circumstances. [2 rules]
 The decree for specific performance may include such terms and conditions as to payment of the price, damages, or
other relief as the court may deem just.
 The buyer has a right of replevin for goods identified to the contract if after reasonable effort he is unable to effect
cover for such goods or the circumstances reasonably indicate that such effort will be unavailing… In the case of
goods bought for personal, family, or household purposes, the buyer’s right of replevin vests upon acquisition of a
special property, even if the seller had not then repudiated or failed to deliver.
 Action of replevin: action to reclaim property/goods = specific performance

SPECIFIC PERFORMANCE IN LAND AND EMPLOYMENT CONTRACTS

 Generally the case that a buyer of land has the right to request specific performance
 R2K 367 (2) holds that “a promise to render personal service exclusively for one employer will not be enforced by an
injunction against serving another IF its probable result will be to compel a performance involving personal relations
the enforced continuance of which is undesirable or will be to leave the employee without other reasonable means of
making a living”.

RELIANCE DAMAGES AND RESTITUTION (I)

Expectation measure puts victim in the position they would be if they
 How would the world look for promisee if promise was kept?
Reliance measure
 What would things look like if the victim of the breach never made the contract?

Reliance Damages (the ‘Cost’ or ‘Expenses’ measure)

SECURITY STOVE & MFG. V. AMERICAN RYS. EXPRESS (p. 343)

(see also Sullivan v. O’Connor)

Restitutionary Damages for Breach of Contract

 Restitution Interest: the promisee’s “interest in having restored to him any benefit that he has conferred on the
other party” (R2K 344)
 OSTEEN V. JOHNSON
 Whether breach was substantial enough to afford remedy
 Restitution less the benefit conferred by ∆

§ 371. Measure of Restitution Interest. If a sum of money is awarded to protect a party’s restitution interest, it may as
justice requires be measured by either (a) the reasonable value to the other party of what he received in terms of what it
would have cost him to obtain it from a 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.

US V. ALGERNON BLAIR
 Most important point: 11:10AM
 The standard for measuring the reasonable value of the services rendered is the amount for which such services could
have been purchased from one in the plaintiff’s position at the time and place the services were rendered
 Victim of breach is entitled to net profit [price of contract less what has already been paid less the cost saved for not
performing less the cost saved less the benefits obtained for non-performing]
 Subcontractor was entitled to 30K, but cost of non-performance was 30K so damages are 0