First Lecture

elements of a contract
angebot + annahme  [+ causa]  -{Wirksamkeitshindernisse; Nichtigkeitsgruende: -betrug -dol -unfahigkeit{= vertrag
offer (terms must be sufficiently definite and certain as to manifest intent to contract; we may imply terms where it is reasonable to do so.<br />–this expresses the dichotomy of “express versus implied”
–it also expresses the idea of “reasonable”
–these are two key concepts in law: we may sometimes imply thing!
–what is reasonable? reasonable things are things for which… we have a reason (grund)
(yes, it is circular, but it is grounded in facts)
That leads to the question of law versus question of fact…

offer + acceptance + consideration – vices {fraud, duress, incapacity; mistake?}= contract

invitatio ad offerendum
offer to treat  – u.k.
preliminary negotiations – u.s.

memorandum of understanding – m.o.u.

Vocabulary 
Rechtsfaehigkeit, legal personality
Geschaeftsfaehigkeit capacity to contract
Einseitiger Vertrag,
Gegenseitiger Vertrag
Schadensersatz
Strafsschadensersatz
Liquidated Damages
Consideration  Causa
Offer Angebot
Offeror Vertragsgeber, Anbieter 
Acceptance Annahme
Performance Leistung
Angebot Annahme
Versprechen
invitatio ad offerendum
Stare decisis = precedent = case law
Law
Equity

Haftung liability
Verjaehrung – prescription; passage of the statute of limitations [Klagefrist]
Ruecktritt – withdrawl, Rescission; rescind a contract — reformation; to re-form a contract
rescind ~ revoke; revocation

Verzug; delay[?]
Agency – Stellvertretung
agent – Stellvertreter
but also Amt.
Damages – schaden
Rein Vermoegensschaden – pure economic losses
Punitive damages = Strafschaden
Culpa in contrahendo — ????
PVV – (something Vertragsverletzung)
I MUST LOOK THESE TWO UP

Anfechtungsgruende – Grounds for *revocation; defence; complaint;*
bases of complaint
vices
*must look this one up in case there is something more precise; i don’t think there is.

Einseitiges rechtsgeschaeft – unilateral legal act.
Unentgeltliches Rechtsgeschaeft – voluntary uncompensated legal transaction
Anspruch – claim
Hypothek – mortgage
Nacherfuellung — After sales services ***Look up
Leistungsfaehigkeit – Possibility of performance; capacity to perform

Mangel; absent, deficient, incomplete

Schadensersatz — restitution; but restitution is a particular form of schadensersatz
Compensation is a better general term for Schadensersatz.
Restitution in kind = restitution in natura.
Garantie = guaranty guarantie*** warranty must loo up

Sources of Law: Legislation, Cases.
Statute of frauds
Uniform Commercial Code
Restatement on Contracts
United Nations Convention on Contracts for the International Sale of Goods (CISG)

Game: 1) Pair off. 2) Find an English legal term which you are not sure of and ask your neighbor what it means – in English. Do you know the German equivalent term?
We can learn any vocabulary you like. if there are terms you want included in this course email them to me eric.engle@yahoo.com

CONTRACTS ARE VOLUNTARY OBLIGATIONS
TORTS ARE INVOLUNTARY
Contracts logic is restitution – remedial, not punitive.

Elements of a contract
Offer – the offeror is master of their offer. the offer is open until it is closed by the offeror. the offeror may indicate a time during which the offer is open, but may revoke their offer Prior to acceptance.
if no time is specified the offer is open for a reasonable amount of time.
what is reasonable depends on the facts.
what are the reasons for saying the offer should terminate prior to [a month? a week? a year?]
…what is being contracted?
… who is contracting?
…have they dealt with each other before? if so, how?

Acceptance
Consideration  … Rechtsgrund? look it up.
No vices

Vices are:
Fraud, duress, incapacity,  and possibly mistake.

Does anyone know the civilian concept of causa in contracts?

Consideration = Bargained exchange

benefit to the promisor or a detriment to the promisee.
Where consideration for a promise consists of a return promise, the transaction is usually termed a “bilateral” contract. Where the promise by its terms calls directly for an act of performance by the promisee, rather than for a return promise to be followed by its performance, the ensuing contract is “unilateral” in traditional parlance.
illusory/symbolic consideration
Exception: Promises under seal
Why is there a rule requiring consideration?
“adequacy” of consideration.

2. Preexisting duty rule
Cases in which a preexisting duty resulting from a contract with the promisor may prevent enforcement of a later promise involve problems of contract modification. Where such a modification changes the rights and corresponding duties of both parties, there is consideration and the preexisting duty rule does not apply. On the other hand, where only the duties of one of the parties are changed, for instance, a higher compensation than originally agreed is promised, the preexisting duty rule would defeat an enforcement of the modified promise, no matter how reasonable and fair the modification was in view of the circumstances. Such overkill is undesirable. Consequently, courts have sought to avoid it on sometimes spurious grounds.
In a seemingly much more radical fashion the Uniform Commercial Code (UCC) provides in section 2-209(1): “An agreement modifying a contract within this Article needs no consideration to be binding.” But the official comment clearly states that only a modification made in good faith and for a legitimate commercial reason will be enforced.

3. Illusory promises

4. Dispute settlement

  there is consideration if the surrendered claim “is in fact doubtful because of uncertainty as to the facts or the law,” or “the surrendering party believes that the claim … may be fairly determined to be valid,”

5. Past consideration
  defenses mistake, fraud, or lack of capacity.

6. Promissory estoppel
Quasi-contract
Unjust enrichment

Equivalent german terms?

action in reliance
expectation damages.

(1) 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 may be limited as justice requires.

7. Promise under Seal

Since the notary profession, in the form and function known in civil law countries, does not exist in the United States, the notarial form cannot be used to facilitate the making of gift promises. On the other hand, the trust is readily available to serve the same purpose as a serious notarized gift transaction in a civil law country. For instance, if as in a leading case, an uncle wishes his nephew to receive a specified amount of money upon the occurrence of a certain event, he can put funds in a bank, make the bank a trustee, and instruct it to turn the funds over to the nephew as beneficiary upon the specified event. To save expenses, he could also set himself up as trustee, provided the funds are kept sufficiently separate from other assets.

B. Mutual Assent

The distinction between bilateral and unilateral contracts (see pt. II.A.1) is important to the topic of mutual assent. A bilateral contract is formed by an exchange of promises. A unilateral contract is formed when performance is rendered in response to a promisor’s offer calling for acceptance by performance.***

1. Making an offer

Whether a particular communication manifests a present willingness to enter into a bargain or whether it reserves the power of final assent to be expressed at some time later is said to be a question of fact.

invitations to make offers – offer to treat – invitatio ad offerandum.

 2. Specificity of an offer
– terms may be implied

3. Termination of an offer
– offer open until accepted or withdrawn.

4. Acceptance of an offer

UCC: An offer that does not clearly specify whether it is to be accepted by the making of a return promise or by rendering performance can be accepted either way.
Common law:
Whether a unilateral or bilateral contract was intended depends on terms of offer
Acceptance by performance is ordinarily effective without notification to the offerer.

mailbox rule an acceptance takes effect upon dispatch, not upon receipt.

A purported acceptance, which states terms additional to or different from those in the offer, does not have the effect of an acceptance, but rather is a counter-offer

In general, silence does not constitute an acceptance. But in exceptional circumstances an offeree who remains silent after receiving the offer will be held bound by the contract proposed in the offer. For instance, an insurance company which does not respond within a reasonable time to an application for insurance solicited by its agent and coupled with payment of the first premium is most unlikely to escape contract liability.
In an auction a bid is an offer, not an acceptance of an offer by the auctioneer, provided the auction is “with reserve,” which is always the case unless otherwise stated.

Recently, new forms of marketing, communication, and packaging have presented intriguing issues of contract formation. In so-called shrinkwrap cases, a buyer of computer software may discover only after tearing the plastic wrapping from the package that, according to information inside the package, he has agreed to the terms of a “license” concerning the use of the software.

III. DEFENSES: VICE

process was flawed, in that it is affected by a lack of capacity, duress DOL, misrepresentation BETRUG, or mistake. Also, more general policy concerns may demand denial of a contract’s intended effect. With respect to defects of the agreement process and to general policy considerations, the meaning of contract terms, and thus their interpretation, is of paramount importance.

A. The Agreement Process

1. Capacity to contract

Minors generally are lacking in capacity to contract. Most states now fix the age of majority at 18, some at 19. Contracts entered into by a minor are not void NICHTIG, but can be avoided. If the contract involves so-called necessities, it cannot be so disaffirmed. The policy underlying this exception is to enable the minor to obtain necessities crucial to his existence. Courts, however, can limit the extent to which the contract will be enforced. The actual value of goods or services obtained, rather than the contract price, may be used as the measure of recovery.
A person who contracts under the influence of a mental impairment may also lack capacity to contract. But American courts tend to protect certain groups in this category more than others. Someone suffering from a mental illness affecting cognitive abilities can usually avoid a contract. If, however, an illness affects only a person’s emotional processes, avoidance may depend on whether the other party knew or had reason to know of the impairment. Similarly, a person who is found to be voluntarily intoxicated enjoys no great protection in American courts. Such intoxication, as distinguished from compulsive alcoholism and from medication administered by a physician, is seen as a ground for contract avoidance only if the other party took advantage of the condition.

2. Duress

3. Misrepresentation

An assertion that is not in accord with the facts is a misrepresentation. Under certain circumstances, the nondisclosure of a fact will be treated as equivalent to an assertion that the fact does not exist. A misrepresentation can go to the “factum” of a contract, as where a movie star is signing autographs and one of the fans lets her sign a promissory note in the belief it is another autograph. If there was no reasonable opportunity to know the character of the transaction, no contract is formed. There would be a defense even against a holder in due course.
If a misrepresentation goes not to the “factum,” but merely to the “inducement,” the contract is voidable. In this situation, the victim of a misrepresentation knows that a contract is concluded. But since the false assertion supplying a motive affects the agreement process, the contract can be avoided provided the misrepresentation is either fraudulent or material. This means that a fraudulent misrepresentation entitles the defrauded party to an avoidance of the contract irrespective of its materiality, fraudulent misrepresentations include assertions which the maker knows or believes not to be in accord with the facts. In addition, if the maker has no confidence that he states or implies the truth of an assertion, or if he knows that he does not have the basis for an assertion, there is a fraudulent misrepresentation. In determining the materiality of a non-fraudulent misrepresentation, courts use a reasonableness standard. They ask whether a reasonable person was likely to be induced to agree to the deal by the false assertion. Alternatively, if the maker knows that the recipient was likely to be induced by the assertion, reasonableness of the expected reaction becomes irrelevant.
A misrepresentation by someone not a party to the contract is treated exactly like duress by an outsider.

4. Mistake

A belief that is not in accord with the facts is defined as a mistake. Thus an erroneous assumption with respect to future events, for instance, market conditions at some time in the future, is not recognized as a mistake since it does not involve existing facts. It is termed an “error in judgment,” which on principle does not entitle someone to relief.
Mutual mistake occurs when both parties share an erroneous belief as to an existing fact. Such mistake furnishes a ground for contract avoidance if it affects the “essence” or “substance” of the contract, as courts usually put it. The Restatement is more specific; it provides in section 152(1) that the mistake, in order to be relevant, must meet three conditions. It must go to a “basic assumption on which the contract was made,” and it must have a “material effect on the agreed exchange of performances.” If a violinist contracts to sell to another violinist an instrument which both believe to be a Stradivarius, when in fact it is but a clever imitation, the contract is voidable, provided that as is likely the case the agreed price and the value of the imitation differ greatly. The third condition of relief for mutual mistake is that the mistaken party does not bear the risk as to the mistaken fact.
A particular kind of mutual mistake involves the unintended discrepancy between the text of a writing embodying a contract and the actual agreement reached by the parties. To deal with this kind of situation, courts of equity have fashioned a special remedy called reformation. By virtue of this remedy the writing is made to express the actual agreement. But the rights of innocent third parties, such as good faith purchasers, must be protected. If reformation is thus precluded, avoidance may become available.
Unilateral mistake not induced by a false assertion will not give rise to a defense of misrepresentation. If, however, the three conditions of relief for mutual mistake are present, a unilateral mistake of which the other party knew or should have known makes the contract voidable. Even in the absence of actual or constructive knowledge of the other party, under more recent cases unilateral mistake is a ground for avoidance if it causes enforcement of the contract to be unconscionable. For instance, an error in computation resulting in a bid for $150,000 rather than $200,000, and leading to a loss of $20,000 rather than an expected profit of $30,000, makes the contract voidable.
Mistakes as to the identity of the subject matter of, or a party to, a contract have sometimes been seen as a separate category of mistake. More recently, such cases have come to be decided under the same rules as applied to other kinds of mistake.
The fault of a mistaken party whose diligence could have avoided the mistake will ordinarily not defeat a request for relief. Only when the action is inconsistent with the principles of good faith and fair dealing is relief for mistake likely so be denied. Another way of stating this exception is to say that only gross negligence will bar relief.
Misunderstanding in the agreement process can result in problems of mistake. Where the parties attach different meanings to expressions they use in that process, as for instance to the word “chicken” in a leading case, it may be found by a court that none of the parties knew of any different meaning attached by the other, and only one of them knew or had reason to know of the meaning attached by the other. In the absence of such finding there would be no contract. But given that finding, the party who had reason to know of the other’s understanding is bound by a contract based on that understanding. Yet she may be entitled to avoidance because of her mistake as to that understanding. If the three basic conditions discussed before are met, the claim to relief turns on whether enforcement of the contract yields an unconscionable result, since the possibility that the other party had reason to know of the mistake does not exist here.

A. Policy Concerns

1. Public policy

American courts invoke public policy as a ground for holding a contract unenforceable in a variety of situations.

2. Unconscionability

3 Form AGB Adhesion contract fine print requirements

4. Legislation commonly referred to as the statute of frauds establishes form requirements. An English statute of 1677 called “An Act for Prevention of Frauds and Perjuries” required a writing for various transactions, including certain types of contracts. In England the majority of these requirements were repealed in 1954. By contrast, legislation in most American states has expanded the scope of the statute of frauds by the requirement of a writing for many transactions not covered by the original statute and its American early derivatives. Thus, while the law in all other Western countries is characterized by the tendency to liberate the law of contracts from form requirements as much as possible, the legislative policy prevailing in America is to the contrary. Presumably, one of the reasons for this anomaly is the fact that a jury trial can be demanded in civil cases in the United States. See Chap. 16, pt. IX.B.
Among the contracts for which a writing is required are contracts for the sale of goods for the price of $500 or more, contracts for the sale of investment securities, contracts for the sale of other kinds of personal property beyond a remedy of $5,000. As in other systems, including England after the reform of 1954, contracts for the sale of an interest in real property and agreements by which someone promises so pay as a guarantor or surety of a principal debtor are enforceable only if in writing. Also agreements which by their terms cannot be performed within one year, contracts to make a will, promises to pay a commission or other compensation to a real estate broker or agent are frequently included in statutes of frauds. So are promises to pay a debt barred by a statute of limitations or discharged in bankruptcy. The form requirement is fairly easy to meet. A writing must originate only from the party against whom enforcement of a connly that party’s signature is required. Furthermore, rejecting some older case law the UCC section 2-201(1) provides that a writing is not insufficient because it is incomplete or states a term incorrectly. See Chap. 13, pt. III.A. The Restatement Second section 131 has adopted a similarly liberal rule. Also the writing need not be intended as a communication between the parties; an internal memorandum can be a sufficient writing. Several writings can be pieced together to satisfy the statute where no single one of them would be sufficient.
Application of the statute of frauds in cases to which it ordinarily applies can sometimes be avoided. Part performance, especially of a contract for the sale of land, is frequently considered a sufficient ground to enforce an oral contract. Also reliance on representations that a writing will be executed or that a defense based on the statute will not be asserted may help to overcome the form requirement. In Restatement Second section 139 the reliance principle, as applied to statute of frauds cases, is now stated so broadly that it may thwart the statute’s basic policy. Once the Uniform Electronic Transactions Act (UETA) is adopted by a state, an electronic record will satisfy the writing requirement between parties who have agreed to conduct transactions by electronic means.

C. Interpretation

1. Canons of construction

Canons of construction of a rather formalistic nature have sometimes been advocated. Samuel Williston, the reporter of the first Contracts Restatement, favored an approach to interpretation which looked more to an alleged objective standard than to the individual parties’ subjective intentions when a contract or its terms called for interpretation. On the other hand, Arthur Corbin and the Restatement Second want us to establish first of all the subjective meaning of contract clauses.
But the Restatement Second, after stating certain formal canons in sections 202 and 203, also embraces principles with respect to interpretation which, while apparently of a formalistic nature, are in fact an expression of substantive policies. The most prominent canon in this realm is that of contra proferentum. According to Restatement Second section 206, that meaning of an ambiguous agreement or term is generally preferred which operates against the draftsman. This rule has counterparts in Roman law as well as in modern systems of civil law. Under circumstances prevailing today it takes into account the control over terms by virtue of superior bargaining power, which the draftsman typically possesses, especially in the context of an adhesion contract. Application of the rule occurs most frequently in insurance cases.
It is well settled now that every contract must be interpreted to impose a duty of good faith in its performance and enforcement. The UCC in section 1-203 contains a rule to this effect for all contracts to which the Code applies, not only Article 2 contracts for the sale of goods. Restatement Second section 205 states a rule imposing a duty not only of good faith, but also of fair dealing, on parties to all contracts. A bad faith breach of contract may give rise to a tort action, once again especially in the field of insurance.

2. Parol evidence

Parol evidence to establish the actual content of a contractual agreement may be inadmissible once the agreement has been reduced to a writing. In most instances, the various rules pertaining to parol evidence preclude testimony by a witness, but written evidence may also be precluded.
A strong argument for an application of the rule can be made in the case of a so-called merger clause contained not in a standard form contract, but in an individually negotiated written contract. Such clauses stipulate in essence that the writing represents the complete agreement between the parties. It characterizes the writing as something the Restatement calls an “integrated agreement.” Such agreements can be interpreted by extrinsic evidence, and a jury may have to pass on the credibility of such evidence or inferences to be drawn from it; in all other respects interpretation is a question of law to be decided by the judge. Under the parol evidence rule a completely integrated agreement supersedes all prior agreements within its scope, not only inconsistent prior agreements.
In the absence of a merger clause it is for the court to decide whether a writing was intended to be a completely or partially integrated agreement, that is, an agreement constituting a final expression of one or more terms of a transaction. Some courts purport to make that determination within “the four corners” of a writing without ever considering the extrinsic evidence offered to establish an additional agreement. Increasingly, however, it is admitted that this very evidence must be considered by the court to make the initial determination of whether it seems plausible that an additional agreement exists. If so, the writing constitutes only a partially integrated agreement. As such it precludes evidence of an agreement which contradicts terms of a writing, but not evidence of consistent additional terms. The final decision of whether the additional agreement was really concluded must be made by the fact-finder, in jury trials by the jury.
The fact that trial by jury can be obtained in civil cases in America explains to a large extent the significance of the parol evidence rule as well as that of the statute of frauds. See pt. III.B.3. It is generally believed that juries are too much inclined to accept oral testimony as credible even where it conflicts with written evidence. Since this tendency may undermine the integrity of documented business transactions, the parol evidence rule in spite of its murkiness can serve an important purpose by keeping evidence which is likely to mislead away from the jury.

IV PERFORMANCE AND NONPERFORMANCE

A. Conditions

Once an enforceable contract has been formed which cannot be avoided, a duty to perform may still not arise immediately. The parties can stipulate that performance shall be due only upon the occurrence of a future event. If such event is certain to occur, as a day specified by reference to the calendar, the duty is absolute, not conditional; it will be activated at the time so specified. A true condition is an event which is not certain to occur, but which must occur before a present duty to perform exists.

1. Express conditions

A term included in the parties’ agreement may result in an express condition. No specific language is required to create such a condition. But doubts respecting the interpretation of a particular clause in a contract, especially an insurance policy, are usually resolved in favor of holding it not to be a condition because that helps to avoid a forfeiture. If, for instance, a fire insurance policy calls for the installation of a sprinkler system by the insured, interpretation of this clause as a condition might defeat recovery by the insured. As discussed before (see pt. III.C.l) ambiguities in a form contract are resolved against the drafter under the principle of contra proferentum. Therefore, in the absence of unambiguous language an insurance policy is likely to be interpreted not to contain a condition, but only a covenant.
The mutuality of obligations in a bilateral contract is also conceptualized in the form of conditions, not by the use of a discrete concept, such as the civil law idea of synallagma. Where by the terms of a contract, the exchange of performances has to occur simultaneously, each is seen as a concurrent condition to the other. Tender of one party’s performance activates the other party’s duty to perform in this case. Where, however, one performance must be completed before the other becomes due, the former is a condition precedent to the latter.

2. Constructive conditions

Constructive conditions are not created by the parties, but by the court. The party’s failure to provide for a connection between their mutual performances does not necessarily mean that their promises are independent of each other. Rather, the interdependence of the promised performances may be so inherent in a transaction that the parties’ actual purposes would not be accomplished without reading constructive conditions into their agreement.
A distinction is sometimes made between implied-in-fact conditions and constructive conditions, which are also called implied-in-law conditions. The former are said to be based on an actual, though unarticulated, intention of the parties while the latter follow from general notions of fairness and justice. It is stated also that implied-in-fact conditions as well as express conditions must be strictly complied with, while constructive conditions need only be substantially performed in order to trigger the other parry’s duty to perform.
To be sure, courts have developed the doctrine of substantial performance in connection with constructive conditions. In a leading case a contract to build a house called for the installation of pipes of a certain brand. One year after completion of the building it was discovered that a different brand had been installed. The court held that the builder had substantially performed and was therefore entitled to his compensation.
While the doctrine as such is not applied to express conditions, courts will not enforce them if this would result in an unacceptable hardship. A condition is held to be excused if its enforcement would cause an extreme forfeiture and its occurrence forms no material part of the exchange.

B. Breach

After the duty to perform becomes due, nonperformance of a promise unless excused constitutes a breach of contract. Fault is not an essential element of the concept of breach. See Chap. 13, pt. III.C.

1. Excuses for nonperformance

Excuses can be derived from impossibility or impracticability of performance as well as from a frustration of purpose. It amounts to the same when these instances are viewed as grounds for a discharge of the promisor rather than as an excuse.
Where the existence of a particular person or a specific thing is necessary for the performance of a duty, death of the person or destruction of the thing may excuse performance. Earlier cases and writers dealt with these situations under the rubric of impossibility, and some still do. But the prevailing view today that impossibility as such does not necessarily furnish an excuse. Rather the issue turns on whether the promisor assumed the risk of the contingency, in which case he may still be liable in damages. On the other hand, performance may be excused even though it is still possible but, due to an unexpected event, has become commercially impracticable. When the Suez Canal was closed in 1956 the added expense of a voyage around Africa under a charter party providing for the carriage of wheat from the United States to Iran was held not to be so excessive as to constitute impracticability.
Closely related to supervening impracticability is the case of supervening frustration of a party’s purpose. The postponed coronation of King Edward II in 1902 led to a series of cases in which the frustration doctrine was argued by renters of rooms on a street in London through which the coronation procession was originally scheduled to pass. The courts in England were split on whether the renters’ duty to pay was excused after cancellation of the procession due to Edward’s illness. In the United States the doctrine has found the support of some courts and the Restatement. But it is not frequently applied.

2. Anticipatory repudiation

If a duty to perform has not yet become due and the promisor repudiates the contract, the other party can treat this act as a present breach. Repudiation consists either of a statement by the promisor that she will not perform or an affirmative act by which she renders herself unable to perform. For instance, if a contract for the sale of land calls for performance on a future date and before the arrival of that date the seller either announces that she will not make the conveyance to the buyer, or if she conveys title to a third party, she has repudiated her duty to perform.
An anticipatory repudiation has various consequences. Under a bilateral contract the non-repudiating party is discharged of his remaining duties of performance once repudiation occurs. Also the nonoccurrence of a condition to the repudiator’s duty is excused if the repudiation contributes materially to such nonoccurrence. Finally, the repudiation gives rise to an immediate claim to damages for total breach. A leading English case so holding is still followed in the United States even though, unlike the other two consequences, granting a right to bring an action for damages before the due date is not necessary for the protection of the victim of repudiation.
Even where a party does not repudiate a contract by word or deed, circumstances may indicate that performance is not likely to be rendered. If, for instance, two months before delivery of the deed and payment become due, a buyer of land discovers that a third party has a dower interest in the land, clear title cannot be transferred to the buyer without cooperation of the third party. In circumstances like these a promisee, here the buyer, can demand that adequate assurance of due performance be given and can suspend his own performance until such assurance is received. Failure of the promisor to provide adequate assurance within a reasonable time can be treated by the promisee as an anticipatory repudiation.

V REMEDIES

A. Damages

A breach of contract ordinarily entitles the injured party to damages. Under the common law a claim to damages is always understood to be a claim to compensation in the form of money. Restitution in kind to the status quo cannot be demanded in an action for damages.
While fault is not an essential element of the concept of breach as such, in assessing and measuring damages the blameworthiness of a breach is sometimes considered.

1. Expectation damages

Expectation damages are designed to put the injured party in as good a position as performance would have done. The injured party, being entitled to the benefit of the bargain, can demand an amount of money equal to the value of the promised performance. Individual circumstances, such as the value of benefits received through part performance and expenditures incurred by the victim as well as those saved, must be taken into account.
Abstract market price differentials, as well as concrete measures looking to cover or resale prices, can be used to claim damages under a contract for the sale of goods according to the UCC.
If the lessee of real property promises to return the property in a certain condition and then returns it in a lesser condition, the issue arises of whether damages are to be measured by the cost of work necessary to bring about the promised condition or by the diminution in value of the property. In the case of a willful and deliberate breach by the lessee it has been held that the cost of the work to be done determines the amount of damages. This represents one of the instances in which blameworthiness of a breach influences the extent of liability. The same is true of cases in which a builder renders performance which substantially, but not completely, complies with the terms of the contract. See pt. IV.A.2. Here, too, courts take into consideration whether the breach was willful or not; if it was unintended, substantial performance may be found and damages assessed on the basis of a diminution in value, if any.
Under the mitigation principle no damages can be recovered for a loss that the injured party could have avoided after learning of the breach. However, in order to minimize her loss the injured party does not have to enter into a substitute transaction that involves undue risk, burden, or humiliation. For instance, a movie star who is denied a promised, very significant lead role in one type of movie does not have to play a much less important lead role in a different type of movie.
Under the foreseeability principle, established by the most prominent contract case of all times, which interestingly relied on the French Civil Code and the French author Domat, damages are not recoverable for losses that were not reasonably foreseeable for the breacher at the time of contract formation. Foreseeability is determined by application of a dual test. It looks to the probable results of a breach which follow either from the ordinary course of events or, on the other hand, from special circumstances that the party in breach was apprized of by the other party or had reason to know of anyhow. Under me Restatement Second even compensation for foreseeable loss of profits may sometimes be denied as disproportionate and be replaced by reliance damages.
Under the certainty principle no damages are recoverable for losses that may be characterized as speculative, for which there is no stable foundation in the evidence. In applying this principle a court may be satisfied with a lesser degree of certainty in a willful breach case, another instance in which blameworthiness of a breach matters. Where courts apply the certainty principle the injured party’s evidence will not be allowed to go to the trier of fact. In the past an alleged uncertainty of profits frequently affected the recovery of losses involved in a new business with no past earnings history. More recently, however, it has been held that there is no hard and fast rule that prevents every new business from recovering anticipated lost profits for breach of contract. More generally speaking, the certainty requirement is gradually losing much of its significance as more sophisticated knowledge on economic and financial data becomes available and can be interpreted and applied by expert witnesses.

2. Reliance damages

Reliance damages are not designed to put the plaintiff in the position she would have enjoyed if performance had been rendered as promised. Rather, where reliance damages are granted, they are designed to restore the injured party to the position she would occupy if the transaction had never taken place.
The reliance measure of damages may be an attractive alternative to a victim of breach who finds it hard or impossible to prove expectation damages, more specifically loss of profits. However, the party in breach is allowed to show that full performance would have resulted in no gain for his opponent. In the case of such a losing contract, presumably entered into by mistake in calculation or error in judgment, breach must not leave a party better off than performance. Since no expectation damages could possibly be recovered, reliance damages must be denied too.
Several more modern rules of contracts permit courts to limit a remedy “as justice requires,” or to enforce a contract only to the extent “necessary to avoid injustice.” The Restatement Second provides such rules, for instance, in cases of promissory estoppel (section 90), binding offers (sections 45, 87), contract modification (section 89), and action in reliance under the statute of frauds (section 139). In applying rules like these a court may decide to limit recovery to reliance damages rather than to grant expectation damages, even though the injured party is able to prove his loss of profits. In these circumstances the reliance measure is preferred not for practical but for equitable reasons. It is used by the court and not, in the first place, by the plaintiff.
Under the reliance measure of damages, out-of-pocket expenses which are attributable to the contract can be recovered. Sometimes the injured party can recover the value of a lost opportunity. For instance, the plaintiff thinking to be bound by the contract that was later breached may not have bid on another contract that can be shown he would have won as the lowest bidder. Here profits not made in the foregone transaction may be viewed as an item of reliance damages.
Finally, in exceptional circumstances even non-pecuniary loss has been held to be recoverable as reliance damages. When a series of three attempts by a surgeon to improve the appearance of a female entertainer’s nose failed miserably, she was granted reliance damages for her expenses, the worsening of her condition, and for pain and suffering and emotional distress involved in the third operation.

3. Punitive damages

While available in certain circumstances in a tort action, punitive damages cannot ordinarily be recovered for breach of contract. If, however, the conduct constituting the breach is also a tort, punitive damages may become recoverable. The issue is entirely determined by tort law. See Chap. 9, pt. II.E.
In recent decades courts have in effect gone beyond the traditional approach to punitive damages, which requires an independent tort accompanying a breach of contract. Primarily in insurance cases, but also in employment and other cases, a breach of contract committed in bad faith is as such treated as a tort to the extent that it is a basis for imposing punitive damages. The development started in liability insurance where the rationale was advanced that the insurer in handling a third party claim was acting as the insured’s fiduciary. Once the practice of imposing punitive damages for a bad faith breach of contract grew to include other lines of insurance and also non-insurance cases, the fiduciary duty rationale was tacitly abandoned. It is obvious that punitive damages are used as a sanction in contract cases because courts see a need to discourage particularly reprehensible business conduct. This new development provides the most impressive incident demonstrating that under American law the blameworthiness of a breach of contract, while irrelevant to establish liability as such, can be highly significant in determining the extent of liability, that is the amount and the kind of damages recoverable.

4. Liquidated damages

Damages agreed to in a contract clause by the parties will be enforced, provided their agreement meets certain criteria. Unreasonably large liquidated damages will not be enforced. Rather, they are regarded as a penalty, and unlike other systems the common law is generally opposed to penalty clauses. It was only very recently that this policy has come under attack. It is being criticized as paternalistic and inconsistent with economic efficiency. It is also at odds with the new development pertaining to punitive damages discussed in the previous section.

B. Equitable Relief

Remedies which in the past could not be granted by a court of law, so that the injured party had to turn to a court of equity to obtain relief, are still termed equitable remedies even though the formerly separate court systems have long been merged in most American states. See Chap. 16, pts. I.C, D.

1. Specific performance

Specific performance of a contractual promise will not be granted if damages would be an adequate remedy. In this respect, in theory at least, the American law of contracts differs sharply from the law of contracts in civil law countries, which grants specific performance as a regular remedy.
The American approach to specific performance is largely the product of history. Policy reasons in terms of economic efficiency, advanced by some writers in favor of this approach, have been refuted by others.
In actual practice the difference between the systems with respect to specific performance is less dramatic than in theory. Under the civil law a plaintiff will not demand specific performance unless this serves his particular interests. In case such interests exist it is quite likely that an American court would also grant specific performance, since the courts are increasingly inclined to find that there is no adequate remedy at law.
Traditionally, the concept used to determine when damages are inadequate has been the uniqueness of a contract’s subject matter. For mostly historical reasons real property is always considered to be unique, so that the buyer of land is automatically entitled to specific performance. With respect to a contract for the sale of goods the UCC section 2-716(1) provides that specific performance may he decreed where the goods are unique or in other proper circumstances. This rule has been applied to long term supply contracts, especially requirements contracts. Also contracts for the sale of a business, or of an interest in a business in the form of shares to which UCC section 2-716 does not apply directly, have been found to involve unique subjects of performance.
When deciding whether to grant specific performance, in addition to considering the uniqueness of a performance, courts will take into account the difficulty of proving damages with reasonable certainty and the likelihood that an award of damages could not be collected. Reasons for which a decree may be denied include the uncertainty of contract terms. A higher degree of certainty is said to be required for a decree of specific performance than -for a judgment awarding damages. It is also said that in a suit for specific performance courts can base a dismissal on a wider range of fairness and public policy grounds than in an action for damages. Finally, a decree may be denied because the character and magnitude of the performance impose disproportionate burdens in enforcement or supervision upon the court.
If a court decrees specific performance, it has broad discretionary powers in fashioning the remedy. The purposes for which the contract was made, and not necessarily its terms, determine the details of the court’s order.

2. Injunctions

Injunctions can be issued in all kinds of cases, not only those involving contracts. The purpose for which injunctions are primarily used in the area of contracts is the enforcement of a duty of forbearance. Frequently such duties are implied by law, not expressly agreed upon by the parties.
Contracts involving a promise to render personal services will not be specifically enforced, partly because the United States Constitution prohibits involuntary servitude. Still, injunctions are sometimes issued enjoining the promisor from rendering services for others while performance should be rendered to the promisee. If, however, this would leave an employee without a reasonable livelihood, an injunction must be denied.

SELECTED BIBLIOGRAPHY

F.H. Buckley, ed., The Fall and Rise of Freedom of Contract (1999).
John D. Calamari & Joseph M. Perillo, The Law of Contracts (4th ed. 1998).
Arthur Linton Corbin, 1-8 Corbin an Contract (Joseph M. Perillo ed., rev. ed. 1993-1999 &Supp. 2000).
Richard Craswell & Alan Schwartz, Foundations of Contract Law (1994).
E. Allan Farnsworth, Contracts (3d ed. 1999).
——, 1-3 Farnsworth on Contracts (2d ed. 1998 & Supp. 2000).
Grant Gilmore, The Death of Contract (Ronald K.L. Collins ed., 2d ed. 1995).
John Edward Murray, Jr., Murray on Contracts (3d ed. 1990).
Harry N. Scheiber, ed., The State and Freedom of Contract (1998).
David H. Vernon & Alan I. Widiss, Understanding Contract Law (2000).
James J. White & Robert S. Summers, Uniform Commercial Code (5th ed. 2000).
Samuel Williston, 1 -17 A Treatise on the Law of Contracts (Richard A. Lord ed., 4th ed. 1990-2000).