I.

INTRODUCTION to Contracts
A. What is a contract (K)?
1. A K is a legally enforceable voluntary obligation or promise
2. Ks are distinct from obligations imposed by law and obligations imposed without the
consent of both parties (the former being criminal, the latter being tortious)
3. Ks are traditionally based on common law, but increasingly we see K law codified in
statutes (such as the UCC) or quasi-statutes (such as the Restatements)
B. The four essential questions in K law
1. Formation is there an enforceable K?
2. Interpretation what is the scope of the obligation?
3. Breach did one or more parties fail to perform as promised?
4. Remedy if a breach occurs, what (if anything) should the law do about it?
IV.

REMEDIES for Breach of Contract / Enforcing Contractual Obligations [Dawson

text, chapter 1]
i. Three types of remedies
1. Expectation interest when at all possible, K law gives the injured
party the benefit of his bargain
a. Consequential damages are recoverable if they are reasonably
foreseeable at the time of agreement
b. Cost of performance, or diminution in value?
i. If value lies in having the K performed, then award the
cost of performance
ii. If it is unclear, injured party may choose, subject to the
caveat that cost of performance will not be given if
economic waste is involved. This usually requires
destroying already-built structures (e.g., pipes in
completed house were wrong type we dont destroy
the house)
c. Expectation interest is reduced by any cost that was avoided by
breach
d. Cases
i. Hawkins v. McGee the hand surgeon case. When the
surgery on Hawkins had did not produce a 100%
perfect hand as promised, Hawkins was entitled to his
expectation interest, which the court called what injury
he has sustained over and above the injury he had
before. The purpose of awarding damages for breach
of K is to put the P in as good a position as he would
have been had the D performed faithfully.
ii. Groves v. John Wunder Co D was permitted to
remove gravel from Ps property for a fee. The K
provided that when removal was complete, D would
level the land. D removed the gravel, but did not level
the property. The trial court awarded P only the
diminution in value due to the lack of leveling (i.e., trial

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court found that property was worth $12,000 less

unleveled than it was leveled, and awarded that
amount). Problem is, it would cost $60,000 to level the
land. Held, when a construction K is defectively
performed, the measure of damages is the cost of
remedying the defectthat is, the cost of completion
rather than the diminution in value.
2. Reliance interest recovery for cost incurred acting in belief that the
contract would be performed faithfully
a. Reliance interest is usually sought when profits (part of
expectation interest) are hard to determine
b. Usually applies only to post-K expenses (because pre-K
expenses are usually accounted for in expected profit).
Sometimes pre-K expenses are recoverable under the
reasonably foreseeable consequential damages theory.
c. Reliance interest is reduced by any cost avoided
d. Cases
i. Sullivan v. OConnor the nose job case. P, an
entertainer, alleged that D, a plastic surgeon, promised
a nose job that would improve beauty and appearance.
Court awarded the reliance interestdamages to put
the P in the position she occupied before the surgeries.
The court evidently did not believe that the doctor
guaranteed to improve beauty and appearanceif he
had, the court probably would have awarded
expectation interest.
ii.
3. Restitution interest return by a breaching party to the non-breacher
of any any benefit conferred upon the breacher by the non-breacher
(i.e., if Party A breaches the contract, he must return to Party B
anything which Party B had previously given to Party A)
a. This is rarely sought, and is often more appropriately addressed
through reliance interest or quantum meruit
ii. Mitigation of damages
1. Avoidable post-breach costs are not recoverable
a. Overhead is not avoidable, as it must be paid anyway
2. Must accept offer of replacement work or goods
a. Replacement must be substantially similar or comparable
(see, e.g., The Shirley MacLaine Case)
b. Work which could have been done in addition to the K work is
not replacement work
c. Replacement work of similar/comparable nature that results in
higher pay means that you were not injured by the breach
iii. Quantum meruit literally means what he deserves. It is an implied
promise to pay for what has been done in part performance, including
continual performance contracts where one party receives benefits over time,

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rather than all at once. Quantum meruit is a form of restitution interest. It is

similar to quasi-contract in that denial of recovery would be an unjust
enrichment.
1. Used to cover expenses/costs incurred in reliance on a contract that
was otherwise invalid
2. Recover in QM requires that a benefit be given to the other party
a. If a benefit was to be given to the other party, but his actions
precluded it, the injured party can recover in QM (e.g., a party
who repaints a house at the request of a buyer who later
repudiates the home-sale K can recover in QM see Kearns v.
Andre)
3. Compensation is made based on fair market value rather than on terms
of K (because the K was never or is no longer valid)
4. A breacher cannot recover his own losses through QM
iv. Liquidated damages only enforceable if not in the nature of a penalty
(because K law does not permit punitive damages).
1. Two-pronged test:
a. Liquidated damages must be a reasonable forecast of the actual
damages at the time of the making of the K, or at the time of
the injury
b. Actual damages must be hard to determine
2. Liquidated damages are distinct from limited liability clauses, which
are acceptable (though Ohio seems to be confused on this point)
v. Enforcement in equity reserved for cases in which there is no remedy in
law. Enforcement in equity is given through specific performance (SP) of the
contract or through an injunction
1. Damages are appropriate, not SP, when replacement can be purchased
on market
a. unique goods (art, antique, custom-made) usually cant be
replaced
b. Real estate usually cant be replaced satisfactorily
2. Can be through either positive or negative injunction
a. Negative favored because theyre less burdensome
3. Rarely given for personal services
a. Exception is if person has exceptional talent/skill that would
cause additional damage if used elsewhere (e.g., Dallas
Cowboys case)
4. Non-compete agreements are usually only enforceable if theyre
reasonable
a. If unreasonable, most courts void them entirely, some bluepencil them
5. Contractual provisions for SP
a. Contract cant give jurisdiction
b. Arbitration clauses are OK where permitted by state law

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