EC410 Exam 2 Study Guide -2 University of Alabama EC 410
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Course
EC 410
Institution
EC 410
EC410 Exam 2
Study Guide
Bargain Theory: Hamer v. Sidway
Bargain Theory: Allegheny College v. Chautauqua National Bank
Contract Formation: Lucy v. Zehmer
Optimal Reliance: Hadley v. Baxendale
Optimal Reliance: Allied Canners & Packing v. Victor Packing Co.
Optimal Rel...
ec410 exam 2 study guide 2 university of alabama ec 410
ec410 exam 2 study guide bargain theory hamer v sidway bargain theory allegheny college v chautauqua national bank contract f
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EC410 Exam 2
Study Guide
Bargain Theory: Hamer v. Sidway
Bargain Theory: Allegheny College v. Chautauqua National Bank
Contract Formation: Lucy v. Zehmer
Optimal Reliance: Hadley v. Baxendale
Optimal Reliance: Allied Canners & Packing v. Victor Packing Co.
Optimal Reliance & Promissory Estoppel: Pertz v. The Edward J. Corporation
Optimal Reliance & Promissory Estoppel : Hoffman v. Red Owl Stores
Gratuitous Promises: Cosgrove v. Bartolotta
Mistakes: ALCOA v. Essex Group Incorporated
Remedies & Performance: Campbell Soup v. Wentz
Remedies, Damages & Performance: Jacob & Young v. Kent
Breach & Remedies: Walgreen Co. v. Sara Creek Property Co.
Remedies, Incentives, & Efficient Breach: Peevyhouse v. Coal & Mining Co.
Remedies & Damages: Autotrol Corp v. Continental Water Systems
Breach and Formation Defenses: Alaska Packers’ Association v. Domenico
Contracts:
The result of a bargain
Does a bargain = a transaction?
Is it a promisor? An enforceable promise?
One way to think about it: it binds the parties together
What is the purpose of a contract?
Creates incentive to keep promise (negative consequences)
It specifies the details of the transaction
The Bargain Theory
The fact of a bargain determines enforceability
The expected value of a bargain measures damages
The Bargain Principle: A promise is legally enforceable if it is given as part of a bargain;
otherwise, a promise is unenforceable.
o So, Courts must decide if a bargain occurred.
Bargaining: a dialogue on value to agree on a price.
Dialogue must include:
o Offer
o Acceptance
o Consideration (aka: inducement)
Each bargain involves reciprocal inducement: The promise gives something to induce the
promisor to give the promise (for ex: money, goods, service, or another promise)
Consideration makes the promise enforceable
There must be a “meeting of minds” to warrant an offer/ acceptance. So, there must be no
confusion.
, A contract is fair when the value of the promise is proportional to the value of the
consideration. Inequality of consideration may invalidate a contract.
Unconscionability: compare to economic assumption of rationality. Assume both parties
are rational & would not agree to something that would make them worse off. However,
unconscionable contracts are so one-sided that they are unenforceable under law.
o Duress
o Unequal Bargaining Power
o Unfair Surprise
o Limiting Warranty
o Undue Influence
According to Bargain Theory, a court should enforce bargains induced by consideration,
regardless of whether it was equivalent in value to the promise. Courts should merely
determine whether a bargain occurred, not inquire into whether it was fair. This would
burden the courts.
Remedy for the breach of enforceable promises are expectation damages
o The benefit that the promisee could reasonably expect from performance
o Loss of future income
o Often speculative
CRITICISM of theory:
o Requires all promises to have consideration (think car shopping and “firm offer”)
-underinclusive
o Requires that all bargains be enforced -overinclusive
Economic Theory
Principle: Contracts should be pareto efficient – that is, they should make both parties
better off
Economic efficiency requires enforcing a promise that both parties WANT enforced at the
time the contract was made (timing)
The Purpose of Contract Law:
1. Enable cooperation
2. Provide remedies when promises are not kept
3. Induce optimal reliance
4. Induce optimal information disclosure
5. Minimize contracting transaction costs (default terms)
1) Contracts should enable cooperation
Makes a promise credible (some sort of commitment)
Move from inefficient to efficient setting
2) Provides remedy for breaking enforceable promises- secure optimal commitment to
performance
Party-designed remedies
o The contract stipulates a remedy in specific terms
Court-imposed damages
o Expectation damages: damage based on the value of expected performance.
Perfect expectation damages leave the victim indifferent between performance
and breach.
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