Class 1: Welcome + What Is Contract Law?

Foundations · Aug 24

Why contract law matters; what we mean by a promise the law will enforce.

By the end of class, you can

State the principal sources of contract law (common law, R2d, UCC Article 2) and apply the predominant-purpose test to classify a mixed goods-and-services transaction.
Apply the objective theory of contract by deciding, on a short fact pattern, whether outward manifestations would lead a reasonable person to find a promise.
Recall the three remedial interests (expectation, reliance, restitution) and identify which Hawkins v. McGee enforces.

Today

Floor. ~40 min: R2d § 1 + Hawkins. The doctrine the next class assumes you have covered.

Target. ~75 min: Floor + R2d § 2 + synthesis.

R2d § 1: Contract Defined

A contract is a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.

R2d § 2: Promise; Promisor; Promisee; Beneficiary

(1) A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promisee in understanding that a commitment has been made.

Hawkins v. McGee

84 N.H. 114, 146 A. 641 (1929)
Supreme Court of New Hampshire

Rule. Damages for breach of a doctor's express warranty of a medical result are measured by the difference between the value of the hand as warranted (a perfect hand) and the value of the hand as it actually is, plus any incidental losses; not by the patient's pain and suffering.

Three measures of recovery

Three branches off Breach: expectation (value of promise as made minus value as delivered), reliance (out-of-pocket costs incurred), and restitution (benefit conferred on the breacher). These are the three measures the law uses to value a broken promise. — Hawkins picks expectation. Module VII shows when reliance or restitution is the right measure.

Worked example: the warranted roof

Facts. A roofing contractor tells a homeowner: "I guarantee this roof will not leak for ten years, period." The homeowner agrees, pays, and the contractor installs. Eight months later the roof leaks in three places, ruining the ceiling drywall ($4,000), the homeowner''s rugs ($2,000), and forcing the homeowner to stay in a hotel for two nights ($300). A second contractor installs a properly-functioning roof for $12,000. The first contractor''s original price was $10,000.

Question. What is the expectation measure?

Stretch: the reliance fallback

Facts. Same warranted-roof contractor. Same defect. But the homeowner has been unable to replace the roof. A citywide shortage of qualified contractors after a hurricane means no second contractor is available for at least six months. In the meantime the homeowner has spent $1,500 on tarps, drainage repairs, and emergency patching just to keep the house habitable.

Question. Expectation damages are uncertain (no replacement cost yet). What does the homeowner recover?

Stretch: practice problem

Problem. A surgeon promises a patient: "After this procedure you will be able to play professional violin again." After surgery the patient can play but not at professional speed. Pre-surgery she was a touring violinist earning $200,000 per year. Post-surgery she teaches part-time for $40,000 per year. She also paid $20,000 for the surgery itself and spent two weeks recovering in pain.

Question. Apply Hawkins. What does she recover, and what does she not?

Why enforce promises? Four theories

The casebook offers four justifications for enforcing contracts. They are not mutually exclusive; most outcomes can be defended on more than one.

Efficiency. Enforcement makes exchange and investment possible, creating wealth.
Reliance. People make plans on the strength of promises; breaking them causes harm.
Fairness. Some promises must be kept because it would be unjust to let the promisor walk away.
Autonomy. People should be free to bind themselves; enforcement respects self-determination.

Class summary

Rules. R2d § 1, R2d § 2.

Cases. Hawkins v. McGee.

Open question. Hawkins answers what damages flow once a binding promise is broken. It assumes a contract. Class 2 turns to the prior question: when does a promise become a contract the law will enforce? R2d § 17 and the bargain requirement are the next gates.

Next time

Next class: Promises, Bargains, and Remedies

_Foundations_ · Aug 26

Read Pappas v. Bever. A donor signs a pledge card that says "I intend to subscribe $5,000" and pays two installments before the charity closes. Is the unpaid balance enforceable? Come ready to answer; you may be called.