Contracts Outline - APALSA

8/8/2019 Contracts Outline - APALSA

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a. Offereespowerofacceptance may beterminated in five waysi. Rejection by the offeree: assoon as an offereerejects offer, powerofacceptance

terminatedii. Counter-offer by the offeree: Hassameeffect asrejecting the offer

iii. Lapse of time:Offerorcan settime limitforacceptance, atend ofwhichpowerofacceptanceends

iv. Revocation by the offeror:

Offerorcan revoke offerat anytime before it is accepted (exception:optioncontracts) When revocation iseffective, only when received bythe offeree. Rest. 2d 42 Indirectrevocation: Ifthe offeree obtainsreliable information thatthe offerorhas

taken action showing thathehas changed his mind, the offer isrevoked.(Dickinson rule)

Case: Dickinson v. Doddsa. Facts: P should have until Fri 9 am to determine whetherto purchasethe

house ornot. P thoughthehad thepowerto accept until thattime but Dsold thehouseto a third party

b. Holding: Unless bothpartieshad then agreed, there was no concludedagreement made. It was only an offerto sell. No binding contract.c. There was no consideration forthe offerto be open to P, therefore, theoffercan be withdrawn (was NOT an OPTION)

d. Rest 2d 68 : A written revocation, rejection, oracceptance isreceivedwhen the writing comes into thepossession oftheperson addressed, orofsomeperson authorized byhim to receive itforhim orwhen it isdeposited in someplace whichhehas authorized astheplaceforthis orsimilarcommunicationsto be deposited forhim

v. Revocability offirm offers: an offerthat by itsexpress orimplied terms isto remain openfora certainperiod.

General rule: an offerthat by itsterms isto remain open until a fixed date cangenerally berevoked priorto theexpiration ofitsterm.

Exceptions:a. Option Contracts:promiseto keep an offeropen fora stated period of

time. There was consideration, the offer is irrevocableforthestatedperiod.

i. Consideration can be cashpayment, promiseto pay a specific sumofmoneyetc

ii. Rest 2d 87 (1)(a):the grant ofan option Is valid ifit is inwriting, signed bythe grantor, recites a purported consideration forthe offer, and proposes an exchange on fairterms within areasonabletime.

b. Nominal considerationc. Reliance: A firm offer irrevocable

i. Implied promiseto hold offeropen Case: Drennan v. starPaving Co.

a. Facts:Subcontractorrevoked his contractto the general contractorstatingthatthepricehe bid forwas a mistake

b. Holding: General contractorsreliance on thesubcontractormadesubcontractors offer irrevocable

c. Rest 90 : Apromise whichthepromisorshould reasonablyexpecttoinduce action orforbearance on thepart ofthepromise ora third person


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and which does inducesuch action orforbearance is binding ifinjusticecan be avoided only byenforcement ofthepromise.

d. => Makes a promise binding even thoughthere was no consideration inthesense ofsomething that is bargained forand given in exchange

e. Thesubsidiarypromiseservesto precludethe injusticethat would result ifthe offercould berevoked afterthe offereehad acted in detrimentalreliancethereon. This is implied in law. Protection ofjustifiablerelianceas a general value ofcontract law.

f. Promissoryestoppelsshould be applied carefully and selectively in theprecontractual context. Promises are not normally made duringnegotiationspriorto making a contract.

Rest. 2d 87 : an offerwhichthe offerorshould reasonablyexpectto haveinduce action orforbearance ofa substantial characteron thepart ofthe offereebefore acceptance and which does inducesuch action orforebearance is bindingas an option contractto theextent necessaryto avoid injustice.

vi. Death orincapacity ofofferororofferee:powerto acceptterminatedb. Offersforunilateral contracts:

i. Classical contract law: Could berevoked at anytime beforethe designated acthad beencompleted, even ifperformance ofthe acthad begun.ii. Modern contract law:Rest 45 :

Beginning to perform completed a bargain and therefore madethe offerorspromiseto hold the offeropen enforceable.

Action bythe offeree otherthan beginning to perform has no effect Ifthe offereetakes on step on the B. Bridge, the offerorit bound, but ifthe offeree

engages in massivepreparationsto getreadyto crossthe Bridge, the offeroris notbound

*General rule:OfferisREVOCABLE UNLESS

1)the offerwassupported by consideration

(2) causereasonablyforeseeablereliance

(3) was a U.C.C. firm offeror

(4) was an offerfora unilateral contract in whichperformancehad begun.

Forms of Acceptance

1. Acceptance: bringsthe contract into existence.2. Offeroris masterofhis offer and prescribesthe method ofacceptance

a. Where method notspecified:any reasonable methodb. Acceptance ofunilateral contract:full performance (classical common law) oftherequested act,

beginning ofperformance (modern contract law)c. MailboxRule: acceptance ofan offerwill beeffective upon mailing putting in the mailbox.

i. Case: Bishop v. Eaton Facts: P paid a noteforthe loan madeto Ds brotheron behalfofa promise. D

refused to reimburse. Holding:there was a binding contract. D should pay.


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D's offerwas made by letter. It is natural that P reply bythesameform ofcommunication through whichthe offerwas made. P madeeveryreasonableeffortto send notice ofacceptance. Even ifthe letterwas notreceived, it isstillaccepted.

d. Offerinviteseitherpromise orperformance: offeree may accept byeithermethodi. Shipment ofgoods:sellermay accept a purchase orderbypromising to ship orby in fact

shipping goodsii. Accomodation shipment: ifseller is accommodating the buyerbyshipping non-

conforming goods, it is not an acceptance; it is a counter-offerwhich buyercan accept orreject. Sellerwill not befound to be in breach UCC 2-206(1)(b)

e. U.C.C. 2-207(1)forsale ofgoods- a definite and seasonableexpression ofacceptance operatesas an acceptanceeven though it states terms additional to ordifferent from those offered oragreed upon, unless acceptance isexpressly made conditional on assentto the additional ordifferentterms (normally addition ordifferentterm would be a counterofferNOT an acceptance)

f. U.C.C. 2-207(3) Conduct by bothparties whichrecognizestheexistence ofa contract issufficientto establish a contractforsale

3. Notice ofacceptance ofunilateral contract:Offeree must give notice ofhis acceptance afterhehas donerequested actwithin reasonable time orelse contractthat wasformed by act is discharged

a.

Carlill v. Carbolic Smoke Balli. Facts:Smoke Ballprovides a unilateral promiseto pay 100 pounds ifP catches a flueafterusing thesmoke ball

ii. Holding: There was a promiseiii. An offerto pay 100 to anybody who will perform these conditions and theperformance

ofthe conditions isthe acceptance ofthe offer.iv. Notice ofacceptance:theperson who makesthe offergetsthe notice ofacceptance

contemporaneously withhis notice oftheperformance ofthe condition.v. Consideration: There was an inconvenience ofusing thesmoke ball. There is ample

consideration.b. Using Sub-ContractorBid

i. Case:Holman Erection co. v. Orville E. Madsen & Sons, Inc. Subcontractor cannot withdraw the bid but the general contractor can

withdraw the bid Thesubcontractordid notrely on the contractor, therefore, thepromise is not

bound The court also considersthe industry and the interest

a. Reliance on subcontractor's bid, whysubcontractordoes notrely ongeneral and suffers no detriment-subcontractor prepares its bidregardless who wins

b. Nature ofbidding allows leewayto maintain flexibility in executingsubcontracts

c. Doneto prevent bid-shoppingd. Imposerigidity on theprocess and result in greatercostto awarding

authorities4. Inadvertent acceptance: The offereessubsequent conduct createsthe impression ofacceptance.5. Acceptance bysilence: NOT an acceptanceRest 2d 69.

a. Exceptions:b. Reason to understand: offerorhas given offereereason to understand thatsilence constitutes

acceptancei. Case: Cole-McIntyre-Norfleet Co. v. Holloway


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Facts: Through a traveling salesman, D ordered mealsfrom P. P wassilent bothupon accepting and rejecting the offer. Prices went up afterthe order.

Holding: The delay in notice was unreasonable and effected an acceptance ofthecontract. Silence would amountto an acceptance ifthe offerer isrelying upon himforgoods.

There was a DUTY TO LET P KNOW ofhis acceptance orrejection ofthe offer Two situations in whichsilence bindsthe offeree:

a. The offerorproffersproperty orservices withthe offerand the offeree,havereasonable opportunityto return orrefusethem, exercises ownershiprights overtheproperty oracceptsthe benefits oftheservice.

b. Priordealings between theparties orothercircumstances make itreasonableforthe offerorto expectthe offereeto give notice ofrejection

c. Benefit ofservices: offereesilentlyreceives benefit ofservices (but not goods)held to haveaccepted a contractforthem ifhe (had a reasonable opportunityto rejectthem) and (2) knew orshould have known thattheprovideroftheservicesexpected to be compensated

i. Case: Day v. Caton Facts: Debate whetherthere was a contractto constructthe wall Ifa party voluntarily accepts and availshimselfofvaluableservicesrendered for

his benefit, when hehasthe option whetherto accept orrejectthem, even ifthereis no distinctproofthatthey wererendered byhis authority orrequest, a promiseto payforthem may be inferred.

When onestands in silence, and sees valuableservicesrendered upon hisrealestate bytheerection ofa structure, suchsilence, accompanied withtheknowledge on hispartthatthepartyrendering theservicesexpectspaymenttherefor, mayfairly betreated asevidence ofan acceptance ofit and tending toshow an agreementto payforit.

d. PriorConduct:priorcourse ofdealing may make itreasonableforthe offereessilenceto beconstrued as consent

i. Case:Vogt v Madden Fact: Hethoughtthere was an agreement. Madden had no objection ofhaving

bean crop grown. Madden neverexpresslytold him thathe would enter intoanotheragreement in thespring of81.Vogthad an impression thattheyhad anagreement.

Holding: Juryhold thatsilence was an acceptance, Howeverthe courtholdsthatnot in this case.

Rationale:a. No evidencethat Madden had received benefits

b.No evidencethatVogtstated orgave Madden reason to understand assentto Vogt'sexpectation to farm theproperty might be manifested bysilenceorinaction.

c. Theexception arising from "previous dealings" between theparties isinapposite.

6. Not an acceptance: UCC 2-207(1)a. Not a definiteexpression ofacceptance (notseasonable)

b. Expresslystatesthat acceptance is conditional on assentto its new terms


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i. => rejection orcounteroffer

THE BARGAIN PRINCIPLE

1. Bargain:Exchange ofpromises, acts, orboth. This bargained-forprice may include not onlypromisesand acts, but alsopromises to forbearand actual forbearancefrom performing acts one is legallyentitledto perform.

2. Consideration: a bargain is an exchange in whicheachparty viewshispromise orperformance astheprice ofthe otherspromise orperformance. As a general rule, a bargain constitutes consideration.

a. Detrimentto thepromise (property, money orsome legal righthas been given upto thepromisor)

b. Benefitto thepromisorc. Thetwo musthave been BARGAINED FOR(AGREED TO)

Promise to make a gift

1. Generally unenforceable, But ifthepromisorimposes a condition, and occurrence ofthis condition isofbenefitto him, then the bargain element will bepossiblypresent.

a. Case: Hamerv. Sidwayi. Facts: UncleWilliampromised to giveyoung Willie, hishephew, thesum of$5,000 ifhe

would refrain from smoking, drinking and gambling until he was 21. Will did abstain.ii. Holding: Unclespromise was bargained for and thereforesupported by consideration.

Whilethe uncle mayhave derived no actual economic benefitfrom his nephewsabstinence, he wastrying to obtain something heregarded as desirable and wasthereforebargaining.

b. Case: Hancock Bank & Trust Co. v. Shell Oil Co.i.

Facts: D occupied premises in Taunton undera written lease. The lease contained aprovision that "Shell mayterminatethis lease at anytime by giving Lessorat least ninetydays' notice." The bank acquired thepremises, subjectto the lease agreement. The bankassertsthat a leaseforfifteen years, with options in the lesseeto extend theterm foranadditional fifteen years, whichpermitsthe lesseeto terminatethe lease on ninety days'notice is "so lacking in mutuality asto be void as againstpublic policy."

ii. Holding: Courtshavetraditionally declined to relieve a partyfrom theterms ofa contract

merely becausehe made whatheregards as a bad oruneven bargain. It is not clearthatthe original lessormade a bad bargain. No basisfortreating the

lease as void on publicpolicy grounds. Th

ere was consideration to supportthe lessor's obligations underthe lease.iii. Illusorypromise is one wherethere is no substanceto thepromise. Herethere wassubstance. 90 days would not be nearly as long as 15 years butthat doesn't matteras longasthere has been an exchange. Oneside oftheexchange is not illusory.

2. Detrimentelementa. Apromisee mustsuffera detriment forconsideration to bepresent.

i. do something she does nothaveto do,ii. orrefrain from doing something thatshehas a rightto do.

b. Non-economic detriment:suffices abstaining from alcohol, tobaccoc. Adequacy ofconsideration does not matteras long aspromisesufferssome detriment


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d. Case: Batsakis v. Demotsisi. Fact: P sued D to recover$2000 with interest attherate of8% perannum alleged to be

due on an instrument in which d acknowledged receipt of$2000 american moneyto helpsupportherfamily in a time ofneed. D agreed to repaythe 2000 plus 8% interest. Theevidence in thetrial courtshowed thatthe actual amounttendered to D was 500,000Greek drachmae, which isequivalentto $25 American money.

ii. Holding: Award P a recovery against D of$2000 with interestthereon attherate of8%perannum from the datethe instrument wassigned.

iii. Rationale: Dstestimony clearlyshowsthatthe understanding oftheparties wasthat P

would giveherthe 500,000 drachmas ifshe would sign the instrument. Mere inadequacy of consideration will not void a contract. VALID Norwastheplea offailure ofconsideration availing. D gotexactly whatshe

contracted foraccording to herown testimony. The courtshould haverendered judgment in favorofP against D fortheprincipal

sum of$2000 evidenced bythe instrumentsued on, with interest asthereinprovided.

iv. Thethree damage measures differ. D was willing to paytherestitution damages butresisted to paytheexpectation damages which wasthe value ofwhatshehad promised.

v. The court made a damagesrulethat when a bargain has been made, the normal remedyforthe breach isexpectation damages and it is no defensethatthe value ofonepromisedperformanceexceeded the value ofthe other.

vi. In this case, the promisordid not cause the duress that the promisee sufferedso thepromise could beenforceable. Whereaspulling out a gun and asking formoney, thepromisorwasthe one who caused the duressthereforethepromise would not beenforceable. Restatementsection 176, 177

e. Case: Maxwell v. FidelityFinancial Services, Inc.i. Facts: P financed forpurchasing a solarhome waterheaterfrom d. Thepurchaseprice

was $6,512 and fora ten-yearperiod at 19.5% interest which amountto thetotal cost of

$15,000. LaterP approached D to borrow additional $800 forpurposes unrelated to theoriginal loan. D created a new loan contract. P brought a declaration thatthe contract wasunenforceable on the groundsthat it was unconscionable. D said thatthe contract workedon novation barring P on any action oftheearliercontract.

ii. Holding: The contract was unconscionable, INVALID forthepurposes ofnovation.iii. Contract ofadhesion: A contractthat comes on a take it orleave it basis. Ifnot I'm not

interested in doing business withyou. it isenforceable as long as it is not beyond thereasonableexpectation.

iv. Unconscionability U.C.C. 2-302 The clauses involved areso one-sided asto be unconscionable underthe

circumstancesexisting atthetime ofthe making ofthe contract, theprinciple is

one oftheprevention of oppression and unfair surprise, not ofdisturbance ofallocation ofrisks because ofsuperiorbargaining power.

Procedural unconscionability: Bargaining did notproceed as itshould,understanding ofoneparty, the degree ofappreciation ofwhat is atstake, but it isa matterofunderstanding oftheparty.

Substantive unconscionability: Ifthe deal issufficiently unfair, disparate value,then the deal will not be valid and substantively unconscious.

Professorthinksthere needsto be both unconscionabilityforthe contractto bevoid.


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v. Novation:Substitute ofcontract, unduethe contract and re-make another, sometimeswhen oneparty issubstituted fortheexistingparty

Conditions

1. Concurrent:exists only when thepartiesto a contract areto exchangeperformances atthesame time.

(Delivery and payment ofa carareto berendered simultaneously)2. Express and constructive conditions: Ifthepartiesexplicitly agreethat a duty is conditional upon the

happening ofsomeevent, thatevent is an express condition. Ifinstead thehappening ofan event ismade a condition ofa duty because a courtso determines, the condition is a constructive one implied in law.

a. Significance ofdistinction:Strict compliance withexpress conditions is ordinarily necessary butmerelysubstantial compliance isrequired to satisfy a constructive condition

3. Distinction between conditions and promises: Thefactthat an act is a condition does not by itselfmakeit also a promise. Ifthe act is a condition on the otherpartys duty, the otherparty wonthavetoperform. Ifthe act is a promise, and it doesnt occur, the otherparty can suefordamages.

4. Case:Scott v. Moraguesa. Facts:Scott made an offerto Moragues LumberCo. thatsubjectto hispurchase ofa ship, hewould chartertheshipto Moraguesforthetransportation ofa cargo oflumber. Moraguesaccepted. Scott, without notifying Moragues ofhispurchase, and beforetheship was deliveredto him, chartered theshipto a third person, whichtherebyrendered him unableto comply withthe contracthe made with Mor.

b. Holding: A valid contract may be conditioned upon thehappening ofan event, even thoughtheevent may depend on the will oftheparty, who afterwards weeksto avoid its obligation. In thiscase, Moraccepted Scott's offerbeforehepurchased theship. Thereupon the offerwas convertedinto a binding contract to be performed, ifnot otherwisestipulated, within a reasonabletime.VALID

Illusory Promise

1. not a realpromise, form ofpromise w/outsubstance-no consideration, committo do something in thefuture- ifI decide I wantto do thatthing atthattime, no answerto do something now, prediction offuture willingness notenough.

2. Notenforceable (Wickman, R2d 77)a. Rule: ifbargain involvesexchange ofa real promiseforan illusorypromise, the bargain can't be

enforced againsttheperson who madethereal promise.b. Illusory Promise-Rest 2d 77 ->not apromise, there is no consideration

i.

Agreeing to do whathe choosesii. Rightto chooseto terminatehis commitment at anytime.

3. Case:Wickham & Burton Coal Co. v. Farmers LumberCo.a. Facts: P agreed to furnish and deliverto D orders given forcarload shipments ofcoal attheprice

of$1.50 until 9/1/1916 and$1.65 until 4/1/1917. P allegesthatthestated amount ofcoal had tobepurchased by D in the open market at greaterthan the contractprice.


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b. Holding: A contract ofsale is void forwant ofmutuality ifthequantityto be delivered isconditioned entirely on whatthe buyermay wantto buy.

c. Rationale: D merely agreed to buy what itpleased. There is no undertaking to buythat much orindeed anyspecified amount ofcoal ofP. The contract on part ofD isto buy if itpleased, whenitpleased, to buy ifitthought it advantageous, to buy much, little ornot at all as itthought best.

d. There is a difference between a promiseto buy what I need to buy and a promiseto buy what Iwantto buy. The latterdoes nothavethesubstance ofa promise. There is no wayto break it.

Implied Promise

1. Implied promiseto use bestefforts is binding. Iftheparty makes no effort at all, he is liableforbreachofcontract

2. Case:Wood v. Lucy, Lady DuffGordona. Facts:Wood had agreed to pay Lucyhalftheprofitsearned from placing herendorsements and

selling herdesigns. Lucy breached theexclusive agency byendorsingproducts on herown andkeeping all theprofitsforherself.

b. Wood arguesthatthere was no contractsince wood had not actuallypromised to do anything toearn thoseprofits.

c. Holding: Lucys grant ofan exclusive agency necessarily gaveriseto the implication thatWoodwas obliged to use bestefforts in generatingprofits. (Cardozo)d. There was an IMPLIED PROMISE ofhis duties.

Pre-existing Duty Rule

1. No detriment when legally obligated to do orforbearfrom doing something whichhe is not legallyentitled to do

2. Case:Slattery v. WellsFargo Armored Service Corp.a. Facts: $25,00 to be awared forinformation leading to the arrest and conviction oftheperson

participating in theshooting ofa WellsFargo agent. P contendsthathe isentitled to therewardoffered by D. Trial judge, rejected P's argument, entered summary judgment in favorofD. It wasPspre-existing duty.

3. Case: Lingenfelderv. Wainwright Brewery Co.a. Facts: D promised P to pay 5% on the cost ofthe ice machine ifP promised to work when P

refused to continue withhisplan. P sued D contending thatthere was consideration when Dpromised to pay 5%.

b. Holding:When a party merely does whathehas already obligated himselfto do, he cannotdemand an additional compensation. Although bytaking advantage ofthe necessities ofhisadversaryhe obtains a promiseformore, the law will regard it as nudumpactum, and will notlend itsprocessto aid in the wrong.

Unanticipated Difficulty

1. Rest 2nd 89 Modification ofExecutory Contracta. Apromise modifying a duty undera contract notfullyperformed on eitherside is binding

i. Ifthe modification isfairand equitable in view ofcircumstances not anticipated bytheparties when the contract was made; or


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ii. To theextentprovided bystatute; oriii. To theextentthat justicerequiresenforcement in view ofmaterial change ofposition in

reliance on thepromiseb. Comment b

i. Rule of 73 finds its modern justification in cases ofpromises made by mistake orinduced by unfairpressure. The limitation to a modification which is fair andequitable goes beyond absence ofcoercion and requires an objectively demonstrablereason forseeking a modification.

ii. Therelativefinancial strength oftheparties, theformality with whichthe modification ismade, theextentto which it isperformed orrelied on and othercircumstances may berelevantto show ornegate imposition orunfairsurprise.

2. UCC does notrequire consideration to make binding ofcontractforthesale ofgoods ifthe modificationwassought in good faith.

Waiver

1. Apartyexcusesthe nonoccurrence ordelay in fulfillment ofa condition to herdutyto perform underthecontract2. Enforceable ifit is given in exchangeforseparate consideration.3. Enforceable withoutseparate consideration ifthe waived condition was not a material part of the

agreed-upon exchange and uncertainty ofthe occurrence ofthe condition was not an element oftheriskassumed bytheparty who gavethe waiver. Rest. 2d 84(1)

4. Retraction: Ifeach offourconditions is meta. The waiverwas not given forseparate consideration

b. The otherpartyhas not changed position in reliance on the waiverc. The waiverrelated to a condition to befulfilled bythe otherpartyto the contract, ratherthan by a

third party andd. Theretraction occurs beforethetimethatthe waived condition wassupposed to occurand the

party who gavethe waivereithergives notice ofherintention to retract whilethere isstill areasonabletimeforfulfilling the condition orprovides a reasonableextension ofthetime inwhichto perform.

5. Case: Clark v. Westa. Facts: Drunken law professor, entered into an agreementforlaw books. 6 dollars a page ifhe

abstained from drinking alcohol and 2 dollars ifhe didnt. Cause ofaction, stipulation was aconditionprecedent. Courtholdsthatthestipulation was a conditionprecedent. This issomething that can be waived without consideration. Clark's not drinking was a condition to hisentitlementfortheextra fourdollars.

b. Holding: D waived the incidental condition therefore is not bound to paytheplaintiff6 dollars.c. Doesthe courttalks about non-drinking as a promise, as a condition orboth at once? The onlywayforthereto be a breach, then the court would haveto thinkthat drinking would have been apromise. It clearlythinks ofit being a condition but it also seems like a promise along with acondition. Condition can be waived ifdone withsufficient notice.

d. Ifit was a promise in addition to the condition, then theWest company isentitled to damages ifhe drinks. Ifit is merely a condition, then theWest company would not be ableto get damageseven thoughhe drinks.

6. Condition Precedent:something a partyhasto do7. Condition Subsequent: will relieve obligation thathas come into being


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8. Condition can be waived w/o consideration, a promise needs consideration formodification ofwaivera. Reasons:To prevent forfeiture.

b. In the insurancepolicy, ifthe insuree doesn'tprovide notice oftheevent within 10 days, then heloseshisrightto getthe amount ofthe damage. The insurance agentsaysthat don't worry aboutthe notice. Then later, the insurance companysayyou didn'tfulfill a condition. The court wouldsaythatthe company waived the condition so you cannot insist aboutthat condition. It will workas a forfeiture, eliminate insuranceproceeds not what a promise would have doneto get itsdamages. The insurance company would haveto pay 100%.A forfeiture isharsh. In ordertocompensatefortheharshness, provide a way out ofconditionsthat iseasierthan promises, thatcould be waived.

Past Consideration

1. Ifpromise is made in return fordetrimentpreviouslysuffered bypromisee, there is no bargain, and thusno consideration. (pre-existing debt, promisesto payforservices alreadyreceived, lack bargainelement.

2. Case: Mills v. Wymana. Facts: He wassuddenlysick at Hartford and beingpoorand distress, wasrelieved bytheplaintiff. Defendantpromised to pay Pshospital expenses. No consideration forthispromise,except what grew out oftherelation whichsubsisted between P and D.

b. Holding: Moral obligation itselfwon't bind D. There wasn't a bargain forexchange becausetheservicethat wasprovided preceded thepromise. It was a past consideration. There was noreliance and thepromise is notenforceable because it was a past consideration.

3. Promisesto payforbenefitsreceiveda. Apromiseto payforbenefits orservices onehaspreviouslyreceived will generally be

enforceableeven without consideration. This isespecially likely wheretheservices wererequested, orwheretheservices werefurnished withoutrequest in an emergency.

b. Case:Webb v. McGowini. Facts: Dsfatherpromised to payforPs care and maintenance when P got injured from

saving Dsfathers life. AfterDsfatherdies, D no longerpaid P. P sues.ii. Holding :McGowin was benefited. Plaintiffwas injured. This is a sufficient legal

consideration forthepromisor's agreementto pay.

PROMISES

Donative Promises

1. Promisesthat are madeforaffectivereasons;that are not cast in a form to which modern contract lawgivesspecial significance and thathave not been demonstrablyrelied upon.

a. Case: Dougherty v. Salti. There was no consideration given forthe note when the aunt gave a noteforvalue

received bythe boy.ii. The note wassimply a voluntary and unenforceablepromise ofan executory gift, despite

the note'sform language ofbeing for"valuereceived."iii. The boy was not a creditor, norwas auntrepaying a debt orotherobligation.


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Nominal Consideration:

1. Promisorfalsely castsherpromise in theform ofa bargain withthepromisee in an attemptto makethepromiseenforceable, butthetransaction lacksthesubstance ofa bargain because neitherparty viewseachpromised performance astheprice ofthe other. Nominal consideration exists when there is a recitalofa bargain, but no real bargain.

2. In the case ofdonativepromises, althoughthe authorities are not in complete accord, theprevailing viewisthat nominal consideration normally will not make a donativepromiseenforceable.

3. RestatementFirst adopted the convention that a nominal consideration is an actual bargain.4. RestatementSecond rejectsthe concept ofnominal consideration. It is not a consideration.5. Case:Schnell v. Nell

a. Facts: Theresa made a will that devised a sum of$200 to each ofthreerecipients. Threepotentialconsideration: Promiseto paySchnell one cent, Love and affection Schnell had born forhisdeceased wife, His wife's desireto paythe moneyto therecipients in the inoperative will.

b. Holding: Nominal consideration is notsufficientto make a contract valid and enforceable. Therewas no consideration. It wassimply a gift in accordanceto Schnells deceased wife.

Unconscionability

1. Disparity isso great asto be unconscionable.2. Normally, applied to determine whethertheterms in a form contract wereunfairly surprising or one

partyimproperly exploited the others ignorance.3. Some courts usethe doctrineto upset contractsthat appearto beso imbalanced asto be oppressive

withoutregard to defects in the bargaining process.

Gratuitous Promise

1. Unenforceable because it lacks bargain element ofconsideration.2.

Even iftheperson promising to make a giftrequirespromiseto meet certain conditions, there isstill noconsideration ifthe meeting ofconditions is not bargained for bythepromisor

3. Case: Kirksey v. Kirkseya. Holding: A change ofresidence in reliance on a promiseto provide a new residence is not

necessarilysufficient consideration to impose contractual duties upon thepromisor. In thissituation thepromise ofD has been interpreted bythe majority ofthe court as a mere gratuity. Assuch, D did notenterinto a binding contract with P. However, the loss and inconveniencethat Psuffered in moving to D's land issufficient consideration to support D'spromiseto furnishherwith a house and land to cultivate.

Promissory Estoppel

1. One ofthepromises whichforeseeably inducereliance on thepart ofthepromise, will often beenforceable without consideration

2. 6 elements: Promise, promissorreasonablyhaveexpected thatpromise would rely on itspromise,promissee musthaverelied justifiably on thepromise, enforcement ofthepromise must be necessarytoavoid injustice, remedy

3. Actual reliance:promisee must actuallyrely on thepromise4. Foreseeablereliance:promiseesreliance must beforeseeableto promisor5. Reliance damages would be granted6. Case:Feinberg v. Pfeifferco.


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a. Facts: D stopped paying P money afterherretirement which D promised forhergood efforttothe company.

b. Holding: P relied on Dspromiseto pay benefits when she madeherdecision to retire. Ruling infavorofP.

c. Section 90 oftheRestatement ofContracts apromise whichthepromisorshould reasonablyexpectto induce action orforbearance on thepart ofthepromise and which does inducesuchaction orforbearance is binding ifinjustice can be avoided only byenforcement ofthepromise

7. D&G Stout, Inc. v. Bacardi Imports, Inc.a. Facts: Bacardi, one ofGeneral'sremaining majorsupplier, promised that General would continue

to act as Bacardi's distributorforNorthern Indiana. Based on thispromise, P turned down thenegotiated selling price with a different distributorit was offered. One week later, D withdrew itsaccount. P went backto the negotiating table and settled foran amount $550,000 below thefirstoffer.

b. Holding: P will be ableto be compensated thereliance damages but nottheprice differentialfrom Bacardi based on thepromissoryestoppels.

c. Rationale:Lost future income expected from an at-will relationship, is not recoverable on atheory of promissory estoppel. Bacardi's account was neveran "asset" that National couldacquire bypurchasing General.General had a business opportunitythat allparties knew would be

devalued once Bacardi announced its intention to go elsewhere. Theextent ofthat devaluationrepresents a reliance injury, ratherthan an injuryto Genera'sexpectation offutureprofit.d. Terminable at will promise

INTERPRETATION

Mutual Assent Needed

1. Meeting ofthe minds needed forthereto be a contract2. Case:Raffles v. Wichelhaus

a. Latent ambiguityto whichShip peerless wasreferring to.b. Ctfound whereevidenceshows P meant orunderstood something differentfrom what D meant

orunderstood when entering into agreement dueto ambiguity in lang. where no party can beshown to be moreto blamethe K is not binding

c. Whenpartiessubjectively attach different meaning to an expression and thetwo meaning areequallyreasonableneither prevails.

d. Rest. 2nd 20 There is no manifestation ofmutual assentto an exchange iftheparties attachmaterially different meaningsto theirmanifestations

e. Thisrule is limited to cases wheretwo ormore meanings areequallyreasonableMeaning Prevails

1. Rest. 2nd 201 : Discusses whose meaning prevailsa. Same meanings attached, it is interpreted in accordance withthat meaning

b. Different meanings attached, interpreted in accordanceto one ofthem, which isreasonable, orat least more reasonable

2. Case:Frigaliment Importing Co. v. B.N.S. Intern. Sales Corp.a. Different meaning of chicken


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b. Trade Usagei. UCC 1-303(c). The meaning attached to a particularterm in a certain region, orin a

certain industry, would be admissible.3. Case:Embry v. Hargadine, McKittrick Dry Goods Co. => Objective interpretation, a reasonable

person standarda. An employeethoughthe wasre-employed foranotherterm when theemployersaid Go ahead,

you are alright

b.

Despite a party'sreal intent, a contract isformed iftheparty acts in such a waythat a reasonableman would believehe is assenting to thetermpropsed b anotherparty and that otherpartybelieveshe is agreeing to thoseterms.

4. Case:Spaulding v. Morse => Main purpose of the contract, Underlying intentiona. Fatheragreed to payson in trust until heentered into college and 4 years afterhisentrance into a

higherinstitute. Son wentto army. Fatherstopped paying.b. Main purpose oftheparents ofRichard wasto arrive at an agreementforhis maintenance and

education and to providesecurity.c. The main objectsforwhich D had bound himselfto provide did notexisted within the meaning

ofthetrust instrument.d. Father is notrequired to performprovisionsforthe maintenance and education ofRichard while

he was oris in the armed service ofthe U.S.e. There was a literal meaning thatthefatherwouldpayforhisson only when he is in schoolf. The court looks into the underlying intention, thepurpose ofthe contract

5. Smith v. Salem Press => Trade Usagea. Facts: Dispute overcharging pervolume basis orcharging perset basis

b. The court rulesthatthe case wasproperlysubmitted to the jury and the jury looks into thetradeusage and holdsthatpervolume wasright. Rulesfortheplaintiff.

PAR

OLE

E

VIDE

NCE

1. Limitstheextentthat discussions orwritingspriorto thesigned written contractshould betaken aspartofthe agreement. Sometimes, it mayrulethe juryfrom considering anyevidence ofcertainpreliminaryagreementsthat are not contained in thefinal writing, even thoughthisevidence mightshow thatthepreliminary agreement did in facttakeplace and thattheparties intended itto remainpart oftheirdealdespite its absencefrom the writing.

2. General Rule: Parol evidence is NOT ALLOWED ifa. There ifa fully integrated contract (final and completeexpression ofagreement)

b. Theevidence is ofan earlierwritten ororal agreement ora contemporaneous oral agreementwiththescope ofthe contract

c. Theevidence attemptsto vary, add, orcontradicttheterms ofthe contract3. Exceptions: Parol evidence MAY BE admissible if

a. Offered to show lack ofconsideration, fraud, duress, ormistakeb. Offered to show a conditionprecedentto effectiveness ofthefinal contractc. Offered to explain orinterpretterms ofthe contractd. Concerns a modification ofthe contract (lateragreement)e. Concerns a naturally omitted termf. Separate consideration was given forparol agreement

4. Statement ofRule:


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a. Partial integration: Documentthat is intended to befinal butthat is not intended to include allthe details oftheparties agreement.

i. When a writing is a partial integration, no evidence ofpriororcontemporaneousagreements may be admitted ifthisevidence would contradict a term ofthe writing ->Consistent but not contradictoryparoleevidence can be used

ii. Case: Materson v. Sine Holding:the majorityfound thatsuch an oral agreement might naturally be made

outside ofthe writing in a familytransaction. Naturally omitted UCC 2-202: Ifthe additional terms aresuchthat ifagreed upon, they would

certainlyhave been included in the document in the view ofthe court, thenevidence oftheiralleged making must be keptfrom thetrieroffact.

The option clause in the deed in this case did notexplicitlyprovethat it containsthe complete agreement and the deed issilent on thequestion ofassignability.

This is a case wherethe collateral agreement might naturally be made as aseparate agreement

D offered evidencethattheparties agreed thatthe option was not assignable inorderto keeptheproperty in the Masterson family. Thetrial courterred inexcluding thatevidence

b. Total integration: A final expression ofagreement with all details ofthe agreement included;i. No evidence ofpriororcontemporaneous agreements ornegotiations may be admitted. -

> Paroleevidence cannot be usedc. Collateral Agreement: A separateform ofthe integrated written agreement. Self-contained and

distinct. Consistency and may not contradictthe writing. Subject matterand consideration ofthecollateral agreement must be distinct and capable ofbeing separately identified.

i. Case: Mitchell v. Lath Facts:Oral agreementthat D would getrid ofthe icehouse in front ofthe

property Holding: Not binding since it was notput into the written contract whichthe

partiespresumablysigned

Courtrefused to admit it as a collateral agreement. It wasrelated closelyenoughto thesale ofthepropertythat one would expectto find it in the writing ifithadbeen agreed to.

d. Priorwritings and oral agreements: Theparoleevidencerule appliesto oral agreements anddiscussionsthat occurpriorto a signing ofintegration. It also appliesto writings created priortoan integration

e. Policy:i. Control the jurys decision making, shielding itfrom evidencethe judgefindsto be

suspect and unreliable.ii. Promoted efficiency in the conduct oflitigation

iii. to guard againstfraud and mistakef. Interpretation ofWritten Contracts

i. Case:Steuart v. McChesney Facts: P refused tenderand commenced an action to cancel theRight ofFirst

Refusal orhave an agreementfairmarket value determined independently ofassessed value. D requested the conveyance ofthepremisefor$7,820 and soughtspecificperformance

Where language is clearand unambiguous, thefocus ofinterpretation is upon theterms ofthe agreement as manifestlyexpressed ratherthan silently intended.

Plain meaning approach


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a. Could hinderparties dissatisfied withtheiragreementfrom creating amyth asto thetrue meaning ofthe agreementthroughsubsequentlyexposed extrinsic evidence.

Holding:the language oftheRight ofFirstRefusal isexpress and clearand not inneed ofinterpretation byreferenceto extrinsic evidence. Exerciseprice must be ineffect not lessthan the market value ofthepremises according to theassessmentrolls.

ii. Rest 212(2) A question ofinterpretation ofan integrated agreement isto bedetermined bythetried offact ifit depends on the credibility ofextrinsic evidence orona choice among reasonable inferencesto be drawn from extrinsic evidence. Otherwise aquestion ofinterpretation ofan integrated agreement isto be determined as a question oflaw.

MISTAKE

1.Mutual mistake: Ifbothpartieshavethesame mistaken beliefa. Threerequirementsforavoidance: Must besatisfied beforethe adversely affected party may

avoid the contract on account ofmutual mistake:i. Basic Assumption: This mistake must concern a basic assumption on whichthe contract

was made. The beliefthat a violin is a Stradivarius when it is a worthless imitationii. Material Effect: The mistake musthave a material effect on the agreed exchange of

performance No material effect ifbuyerand sellerthink violin is a Stradivarius when itis a Garnarius worth almostsame amount

iii. Risk: The adversely-affected party must not bethe one on whom the contracthasimplicitly imposed therisk ofthe mistake.

Case: Lenawee County Board ofHealth v. Messerlya. Facts: Pickles bought land from Messerly and shortly afterLenawee

obtained a permanent injunction againstthe land fornot conforming to thesewagestandard.

b. Holding:parties did entertain a mutual misapprehension offact butthatthe circumstances ofthis case do not warrantrescission. Recission is notavailableto relieve a party who has assumed therisk ofloss in connectionwiththe mistake.

c. There was a provision in the writing thatseemed to assumetherisk bythebuyer.

b. Special contexts:i. Market conditions: Mistakes asto market conditions will generally not be basic ones

so the mistaken party will not be ableto avoid the contract. Comparable land is believedto be worth $100 peracre. Buyercant avoid contract ifcomparable land is worth $2000.

ii. Existence of subject matter: Theexistence ofa subject matterofthe contract is usuallya basic assumption. Selleragreesto sell land containing timberto Buyer. Buyercanavoid the contract before orafterclosing, when factsemergethat land contains only 20 %oftimberbelieved to be in it.

Case: Griffith v. Brymera. The agreement was made on thesupposition by bothpartiesthat nothing

had happened which madeperformance impossible. This was a


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missuppposition ofthestate offacts which wentto the wholeroot ofthematter-> contract void

iii. Quality of subject matter:thequality ofthe contractssubject matter is often a basicassumption so the disadvantaged party can avoid the contract. Bothparties believetheviolin is a Stradivatius when in fact is worthless imitation, this is a mistake on the basicassumption. Buyercan void contract.

Sherwood v. Walkera. Facts: P wantsto purchase a cow from D. Agree on a mistakenly known as

a barren cow whichturned outto befertile. D refusesto deliver.b. Holding: Aparty who has given an apparent consentto a contract ofsale

mayrefuseto execute it orhe may avoid it after ithas been completed, ifthe assent wasfounded orthe contract made, upon the mistake ofamaterial fact, such asthesubject matterofthesale, theprice orsomecollateral fact materially inducing the agreement and this can be donewhen the mistake is mutual.

c. Thequestion is not in the difference ofvalue but whetherthe cow wasthesamething asthe cow that bothpartiesthoughtthey were buying. A fertilecow isfundamentally differentfrom a barren cow.

2. Non-Disclosure:a. Case: Hill v. Jones

i. Nondisclosure ofmaterial fact makes contract voidableii. Correct a mistake asto a basic assumption on whichthatparty is making the contract

iii. Dutyto tell -Facts materially affection and knowsthatfacts are not known to orwithinthereach ofdiligent attention

iv. Matteris material ifis oneto which a reasonableperson would attach importance indetermining his choice ofaction in thetransaction.

3. Unilateral Mistakea. Wherethe mistake is unilateral, it is more difficultforthe mistakenpartyto avoid the contract

than in the mutual mistakesituation. The mistakeparty mustshow thesamethreeshowings asformutual mistake (basic assumption, material effect, and risk on the otherparty), plus mustshow eitherthat:

i. Unconscionability:the mistake issuchthatenforcement ofthe contract would beunconscionable

ii. Reason to know: The otherpartyhad reason to know forthe mistake, orthe otherpartysfault caused the mistake.

CONTRACTFORMATION IN A FORM-CONTRACTSETTING

1. MirrorImage:a. Classical common law:the acceptance must correspond exactly withthe offer.

b. Contemporary approach: Tolerate minordiscrepancies and to applytherule only wheretheresponse makesmaterial changes in thetransactionproposed in the offer.


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c. Can lead to the conclusion that a counterofferwas made where an acceptance wasreallyintended

2. Sales ofgood: Non-conforming purchase orderwould be a counterofferand thesellersshipment wouldbe deemed an acceptance ofthat counter-offer. Ifaccepting terms were differentthen it was a counteroffer.

3. Lastshot approach: ifthe goods wereshipped and accepted, theterms ofthe contract werethosesetby whicheverpartyfired the lastshot in the battle oftheforms

4. Acceptance underUCC 2-207a. KnockoutRule: Conflicting terms in the offerand acceptance cancel each otherout ofthe

parties agreementb. 2-207(2)(b) Materially Alter : Importantterms may be added by an acceptance

i. The offerorfailsto eitherexpressly limit acceptanceto theterms ofthe offerundersubsection(2)(a)

ii. Objectto the added terms in the acceptance undersubsection (2)iii. Include contraryterms in the offerso that boththe offerorsterms and the offerees added

terms drop away underthe knockoutruleiv. Iftheterm that is added by an acceptance would materially alter the contract, theterm

will not becomepart ofthe contract Material:Economicallysignificant orwould be likelyto affect a partys decision Result in surprise orhardship : Surprise includes both a subjectiveelement of

what a party actually knew and an objectiveelement ofwhat a partyshould haveknown.

5. Acceptance ofunknown terms:a. Traditional offer and acceptance rule:Offerand acceptance occurred atthetime ofbuying

goods orserviceb. Offerand acceptancehave occurred but it is dueto the common transaction ofthis kind and

a reasonable buyer should have knownthat and should have ascertained whatthey are. Ifhefailed. He did notfulfill his dutyto read.

c. No offer and acceptance. The delivery ofthestandard terms is an offer. Buyeracceptsthe offerifhe does notreject it within a reasonabletime byreturning ordeclining the benefit ofthecontract. Focuses on the disputed term itselfto decide ifthe offereehad a reasonable opportunityto become aware ofit

6. Rolling Contracts- UCC 2-606(1)(b) & 2-204(a)a. Case: ProCD, Inc. v. Zeidenberg

i. Facts: A buyerboughtsoftware at a retail store, the box in whichthesoftware waspackaged contained a licensethat limited the use ofthesoftwareto noncommercialpurposes.

ii. Holding: The license was a term ofthe contract. Disagreed withthetrial courtthat offerand acceptance occurred attheretail store, the vendorofthesoftware made an offerby

supplying thesoftware withthe license and the buyeraccepted byfailing to return thesoftware and using it.iii. Acceptance upon failureto returniv. 2-204(1) a contractforsale ofgoods may be made in any mannersufficientto show

agreement, including conduct by bothparties whichrecognizetheexistence ofsuch acontract

v. Irrelevantthat buyercould notseeterms attime ofpurchase, buyerhad opportunitytoreturn afterwards

Otherwise all buyers would getstandard warranty- and no state disregardswarrantiesfurnished with consumerproducts

Consumerdrugs, conditions/info on the inside


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7. Reasonable Notice ofLicensetermsa. Specht v. Netscape Communicationsp.676

i. Licensepast whereyou clicked download - notreasonableto assumethat P would seethelicense

QUAS

IC

ONTR

ACT

Contract implied in fact

1. Contractthat can be inferred from the circumstanceseven thoughtheparties didn'tsaythey wereagreeing oreven thoughthey didn'teven think about agreeing.

2. Assent is implicitratherthan explicit3. IfP undertook workthinking D would pay, D had reason to know that P had thisexpectation and did

nothing -> K4. Request and receivethem undercircumstances which imply agreement5. No need forunjustenrichment6. Case: Day v. Caton

a. Debate whetherthere was a contractto constructthe wallb. Benefitto D therefore contract implied in fact

Contract implied in law = notreally a contract (Contrastthis with moral obligation arising out ofpasteconomic benefitto promisor)

1. Ifthepartiesexplicitly agreethat a duty is conditional upon thehappening ofsomeevent, thatevent isan express condition. Ifinstead thehappening ofan event is made a condition ofa duty because acourtso determines, the condition is a constructive one implied in law.

2. Benefit conferred on a recipient undercircumstances in which it is unfairto permithim to retain withoutpayment. Cause ofaction ofunjustenrichment3. Remedy is RESTITUTION damages.4. Case: Nursing Careservices, Inc. v. Dobos

a. Facts: D wasserved with nursing services which billed to $3,723.90. D contested thatshe neversigned a written contract nororally agreed to be liableforthe nursing services.

b. Holding: The courtfound thatthere was a contract implied in law whichentitlestheplaintifftorecover. The care wasessential to Dshealth and safety.

5. Case: Batsian v. Gafforda. There was a contract implied in law. Even ifD did not usetheplans, he was benefited ofhaving

the option to use it.

Employment at will

1. Employers conduct undermined publicpolicy2. Proofofimplied-in-factpromiseforduration found in manuals ormemoranda3. Implied-in-law - good faith & fairdealing4. Case:Wagensellerv. Scottsdale5. Lookthis over


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REMEDIES

1. DamagesExpectation Damages

1. Expectation damages arethe usual measure ofdamagesforbreach ofcontract.2. The courttriestoput the plaintiff in the position he would have been inhad the contract beenperformed

bythe defendant.3. Theplaintiffshould end up with asum equal to the profithe would have madehad the contract been

completed4. Case: Hawkins v. MgGee

a. Facts: Pshand isscarred from a severe burn. P Ked with D, a surgeon fora skin graftoperation which, D verbally warrantied, will make Pshand completely normal .Theoperation fail to correctthescar, AND caused Pshand to become covered withhairand tobleed. P suffers verysignificantemotional consequences as a result.

b. RULEOF HOLDING: P mayrecoverthe difference between the value ofa perfecthand and thevalue ofthescarred and hairyhand. Expectation damages, the difference between whathewould havereceived had the contract beenperformed (a perfecthand) and theposition he wasleft in afterDs breach (a scarred and hairyhand).

c. Note: IfCourt were awarded reliance damages, it would have been the difference between thescarred hand, which P had beforethesurgery and thescarred and hairyhand which P had afterthesurgery.

5. Case: U.S. Naval Institute (P) v. CharterCommunications (Berkeley) (D)a. Facts: P conferred copyright authority overbookRed Octto D in K, butstated thatpaperback

versions could not beshipped beforeOct 1985. D breached such clause and shipped paperbackversions beforeOct 1985.

b. P argued loss ofprofitsfrom notselling hard-copy versions. P broughtsuitto recoverallprofitsobtained wrongfully by D. The latterprofits would have made P betteroffthan ifKhad beenperformed.

c. Naval is notentitled to Berkeleysprofits, no disgorgementi. Purpose ofcontract damages isto compensateforinjured partys loss

ii. Damages makeyou no more well offthan you would have been ifcontracthad beenperformed

d. Damagesforbreach ofcontract ate generally measured by Ps actual loss, which achievestheobjective ofcompensating the injured party. But awarding Ds profits that far exceed Ps losswould be a penalty (restitution damage interest was larger than expectation interest), and

punitive awards are not part of contract law. (torts law) e. Dsprofits are used as a measure ofdamagessometimes. Generally occurs whenprofitstend to

define Ps loss. Ifawarding profits would exceed Ps loss and there was no tortuous conduct->punitive damage, notpart ofcontract damages. Contractremedies are compensatory, notpunitive.

6. Case:Coppola Enterprises, Inc, v Alfonedisgorgementa. Facts: Coppola contracted to sell Alfone a land. While Coppola delayed closing, he did not grant

necessarytimeforAlfoneto acquirefinancing within thetimerequired. Coppola sold the land toa third party at a betterprice.


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b. Thetrial courtfound that Coppola failed to exercise good faith byrefusing Alfone a reasonabletimeto close and byterminating the contract. The courthold thatthe award ofdamagesto acontractual vendee includesthe profit made by the vendor on the sale of the property tosubsequent purchasereven thoughthere is no proofoffraud orbad faith. -restitution damage

7. Efficient Breach8. Case: Peevyhouse v. GarlandCoal & Mining

a. Facts: P let D mine coal as long as D did restorative work afterfinishing. Work wasnt done.b.

The value ofthefarm is $300 lessthan the value it would have been had D performed his work.The cost ofperformance would be $29,000.

c. Holding:Whenperformance costs are disproportionateto increases in the value ofthe land, thedamages arethe value ofthe diminution ofthe land.

d. Rationale: (1)provision ofKrequiring theremedial work was only incidental to the mainpurpose ofK (2)economic benefit which P would havereceived from full performance ofthework was grossly disproportionateto the cost ofperforming the work. (would beeconomicwaste).

e. A largeproblem isthepotential emotional attachmentthat Peevyhouse mayhavehad forthefarm. (Idiosyncratic value:Valuethatthepartyputs in thatthe court cannotperceivefrom themarket.)

f. Three issues: 1. Wasthere idiosyncratic value attached? 2. Ifthere was, was it incidental? 3. Is itcompensable?g. Idiosyncratic value is compensable ifit was attached to thepromise.h. Put in a differenttype ofpipethan the onerequested. Theyre identical and changing it would be

very costly, wesay leave it. It would be wasteful.9. Hypo: Hancock builtto be withsteel #1. Built upto 98 floorand it was discovered thatthey used steel

#2. Now the value difference is $100,000. Iftheytearthe building down and rebuild it would take $100million dollars. Whatshould bethe award?

a. Asidefrom market values, there could be idiosyncratic valuethatthehancock ownerputs in.However, rationally, John Hancock would notteardown the building iftheyhad gotthe $100million and build up a new one.

b. Ownerwould probably notputthat much idiosyncratic value. It was all market valuethat waslost.

10.Indiosyncratic Value: In theory, ifidiosyncratic value was attached to fulfillment ofthepromise, itshould be compensable. However, measurement is much more difficultthan market value.

Cover:

1. Buyerpurchasessubstitute goods and recoveras damagesthe difference between the cost ofthis coverand the contractprice. (the buyermust coverin good faith and withoutreasonable delay)

a. UCC 2-712 (1) Aftera breach, the buyermay cover by making in good faith and withoutunreasonable delay anyreasonablepurchase oforcontractto purchase goods in substitution forthose duefrom theseller. (2)the buyermayrecoverfrom theselleras damagesthe differencebetween the cost ofcoverand the contractpricetogetherwith any incidental orconsequentialdamages ashereinafterdefined, but lessexpensessaved in consequence ofthesellers breach.

b. UCC 2-713 Buyers DamagesforNon-delivery orRepudiation (1) The measure ofdamagesfornon-delivery orrepudiation bytheseller isthe difference between the marketprice atthetime when the buyer learned ofthe breach and the contractpricetogether with any incidentaland consequential damagesprovided in this Article but lessexpensessaved in consequence ofthesellers breach.

i. Comment 3: when the current marketprice underthissection is difficultto prove, thesection on determination and proofofmarketprice is availableto permit a showing ofa


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comparable marketprice orwhere no marketprice is available, evidence ofspotsaleprices isproper.

c. UCC 2-273 price which in commercial judgment orunderusage oftrade would serve as areasonablesubstituteforthe on described

d. REASONABLE AND CUSTOMARY2. Case:Egererv. CSR west

a. Facts: CSRbreached contractto provideshoulderexcavation to Egerer. Egererpurchased pitrunthat was moreexpensive. Egererfiled suit.

b. Holding: Hypothetical cover:the difference between the marketprice atthetime when the buyerlearned ofthe breach and the contractprice.

Mitigation of Damages: Cannotrecoverfortheexpenses whichyou could have avoided.

1. Case:Rockingham County v. Luten Bridge Co.a. Bridge company continuesto build even afterthey know thatthe contract was breached.

b. Holding:Recovery amount is limited to therecovery damagesforbreach ofcontract and notthework done afterthe notice ofbreach wasreceived.

c. AfterP had received notice ofthe breach, it was its dutyto do nothing to increasethe damages.Plaintiffwould have desisted from furtherwork when the county gave noticeto theplaintiff. Ithad no rightthusto pile up damages byproceeding withtheerection ofa useless bridge. Theplaintiffmust mitigatethe damages caused bythe defendant's wrongful act.

2. Policy: Having therule ofmitigation may avoid the cost ofnegotiation3. Employment contracts: Ifan employerwrongfullyterminatestheemployment, theemployee is under

dutyto mitigate by looking fora comparable job.4. Case:Shirley MacLaine Parkerv. Twentieth centuryforfilm corp.

a. Facts:Film company offers anotherfilm withthesamesalaryb.

Holding: The actress does nothaveto mitigatethe damages bytaking the offerofthe new role. Itwas an inferioremployment and different.

Forseeability:

1. Damages are notrecoverable before lossthattheparty in breach did nothavereason to foresee as a probableresult ofthe breach when the contract was made.

2. Loss may beforeseeable as a probableresult ofa breach because itfollowsfrom the breach: (a) in theordinary course ofevents, b) as a result ofspecial circumstances, beyond the ordinary course ofevents, thattheparty in breachhad reason to know.

3. A court may limit damagesforforeseeable loss byexcluding recoveryforloss ofprofits incurred in relianceorotherwise ifit concludesthat in the circumstances justiceso requires in orderto avoid disproportionatecompensation.

4. Case: Hadley v. Baxendale


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a. Facts: P operated a mill which wasforced to suspend operations because ofa broken shaft. Psemployeetooktheshaftto D carrierforshipmentto anothercityforrepair. D knew thatthe itemwas a shaftforP mill but was nottold thatthe mill was closed because oftheshaft. Dnegligently delayed delivery oftheshaft and mill had to stay closed few more days. P sued D forloss ofextra profitsforthese days.

b. Holding: P cannotrecoverlostprofits astheprofits were not a consequence which in the usualcourse ofthings flowsfrom the delay. Onlyforthe lossthat wasforeseeable.

c. Rules: The damages musteither: (1) arise naturally ,i.e. according to theusual course ofthings from the breach ofcontract itself(direct orgeneral damages) or(2) arisefromthespecial circumstancesunderwhich K was actually made ifand only if thesespecialcircumstances werecommunicatedby P to D (special orconsequential damages). Knowledgeofconsequential damages by D is NECESSARY.

d. Foreseeability:Reasonablysupposed to have been in the contemplation ofbothparties.Foreseeability is a verypowerful limitation on theexpectation damages. Ifthey could have notreasonably been foreseen, then expectation awards will not be awarded.

Certainty

1.Requirementsforloss offutureprofits:a. Such damageshave been caused bythe breach

b. The alleged loss must be capable ofproofwithreasonable certaintyi. -> may not be merespeculationpossible orimaginary but must bereasonably certain and

directlytraceable2. Case: Kenford Co. v. Erie County

a. Holding: Theplaintiffmay notrecoverloss ofprospectiveprofitsfor its contemplated 20-yearoperation ofa domed stadium which wasto be constructed by defendant County ofErie.

b. Damagesshould not be way disproportionatei. No proofthat liabilityfor loss ofprofits overa 20 yearperiod was in contemplation of

theparties atthetime oftheexecution ofthe basic contract oratthetimes ofits breach

What could thepartieshave concluded had they considered thesubject? Cleary nottheloss ofthe wholeperiod ofthe contract.

ii. His damages werespeculative. Damages must be certain.

Liquidated Damages

1. Only at an amountthat isreasonable in the light ofthe anticipated oractual loss caused bythe breachand the difficulties ofproofofloss

2. Should not disregard theprinciple ofcompensation. Must be compensatory not punitive.3. General rule: Courts will enforce liquidated damagesprovisions, but only ifthe court issatisfied thattheprovision is not a penalty so, based on actual damages, ratherthan to penalizethepartyforbreachby awarding damages that arefar in excess ofthe ones actuallysuffered.

4. Requirementsa. Reasonableforecast amount must bereasonablerelativeto the anticipated oractual lossfor

breach; andb. Difficult calculation harm caused by breach must be uncertain orvery difficultto calculate

accurately.5. Case:Wassermans Inc. v. Middletown


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a. Facts:entered into a commercial leasefortract ofmunicipally owned property->contained aclause, stipulated damages, pro-rata re-imbursementforany improvement costs and damages of25% oflessees average grossreceiptsforoneyear.

b. The court affirmed forthe damagesforconstruction and remanded forthe grossreceipts. Eventhoughthis is a permissiblestipulated damages clause.

c. Stipulated damages are normallyenforced but ifit istoo high, the court could rule differentlyd. Profsthought:thepromisseeshould nottake advantagefrom thepenalty clause when the

promisortakes action in good faith. The damagesshould be measured in effortto estimatetheactual damagesthat willprobablyensueform the breachratherthan as a threat ofwhich isdesigned to preventthe breach.

Specific Performance

1. A decreeforspecificperformance ordersthepromisorto renderthepromised performance.2. Situations in which money damages cannot compensatetheparty. Damages aretoo speculative or

uncertain to be calculated ornot a substituteforDsperformance ofK.

3. Case:Walgreen Co. v. Sara Creek Propertya. Facts:Walgreen signed a lease which contained a clause in whichthe landlord, Sara Creekpromised notto leasespace in the mall to anyoneelse who wanted to operate a pharmacy orastore containing a pharmacy. Sara Creek decided to install in theplace ofthe bankrupt anchortenant a PharMorstore, which would have inside it a pharmacythesize ofWalgreen's. WhenSara Creek informed Walgreen ofthe decision, Walgreen sought an injunction to stopthe deal. Afederal district court granted the injunction and Sara Creek appealed.

b. Holding: An injunction is a properremedyfora breach ofan exclusivity clause in a shopping-center lease agreement.

c. Rationale: Determination ofWalgreen's damages would have been costly in forensic resourcesand inescapably inaccurate. It is difficultto forecasttheprofitability ofa retail store overa

decade. Damages are difficultto computehere and the injunction is a negative injunction. Thecosts ofjudicial supervision and enforcement would be negligible.

4. Contractsforthesale ofLanda. Buyercan get a decreespecifically ordering thesellerto execute a deed in hisfavor. Rest. 360

b. Traditional rationale:i. The value ofland is conjectural, no defined marketprice

ii. Land is unique, idiosyncratic values5. Employment ContractsRest. 367(1)

a. Notspecificallyenforcedb. Not be ableto earn a living which indirectlyforcesemployeesto workforthe original employerc. Problem ofservitude Againstthirteenth amendmentd. Rest 2nd 367(2) apromiseto renderpersonal serviceexclusivelyforoneemployerwill not be

enforced by an injunction againstserving anotherifitsprobableresult will beto compel aperformance involvingpersonal relationstheenforced continuance ofwhich is undesirable orwill beto leavetheemployee without otherreasonable means ofmaking a living.

Reliance Damages:


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Most contracts the award ofexpectation damages will adequately compensatetheplaintiff. In some contractsituations, expectation damages are notsuitable, and reliance damages may be appropriate in thefollowingsituations:

1. P cannotshow his lostprofits withsufficient certainty, but can show items ofexpenditureRes. 2nd.2. Case:SecurityStove &MFG.Co. v. American Rys. Express Co.

a. Holding: P may notrecovertheprofits whichhe would have madeform new ordershad thecontract been performed. He mayrecoverhisexpensesreasonable incurred in preparation fortheconvention:sum paid to D, fareforP and workmen to Atlantic City and back, thehotel, rental ofconventional booth, the wages ofworkmen, values ofPs own time.

b. Profits are denied becausethey aretoo speculative. Courts award relianceexpenditures instead ofthe lostprofits.

c. When expenditures are made before a promise isreceived, the usefulness oftheexpendituresdepends on thepromise. If you forgo thepromise, the opportunity cost is in the relianceto thepromiseyou got. Opportunity costshould be ableto berecoverable.

Restitution Damages

1. Benefit conferred on D by P, theretention which would leave D unjustlyenriched.2. Refersto remedies, including moneyremediesthat are based on the amount ofa Ds unjustenrichment.3. Note:three interests will basically lead to thesamerecovery, when they diverge P would prefer

expectation > Reliance > Restitution4. Case:Osteen v. Johnson

a. Facts: In return for$2,500, Johnson agreed to promote Linda as a singerand country music. Palleged breach ofcontract.

b. Holding: There was a substantial breach. P can seekrestitution ofthe benefit $2,500 lessthereasonable value ofJohnsonsservices.

5. Case: U.S. v. Algernon Blaira. Facts: Blairentered into a contract with U.S. forconstruction ofa naval hospital. Blaircontracted

with Coastal Steel to conductsteel erection operations and supplyequipment. Coastal beganperforming and supplied its own cranes. Blairclaimed thatthe costs ofthe crain rental were notitsresponsibility. Refused to pay costs. Coastal had completed 28% ofitssubcontract butthenterminated itsperformance. B completed its contract withthe U.S. with a new subcontractor.Costal sued

b. Issue: May a subcontractor, who justifiably ceases work undera contract because oftheprimecontractor's breachrecover in quantum meruitthe value oflaborand equipment alreadyfurnished?

c.

Holding: Yes. Precedent casestated thatthesubcontractorcould choose notto filesuit based onthe contract and instead could make a claim forthereasonable value ofhisperformance.6. Case: Kutzin v. Pirnie

a. Facts: Breach ofcontractforsell ofhouse. Pirnieseeksto recoverthe deposithepaid. Kutzinrefuses and suesforspecificperformance.

b. Issue:Whetherthe Kutzins areentitled to retain theentire $36,000 deposit as damages.c. Holding: Pirnies areentitled to recoverrestitution damages of$36,000- $17,325(injury Kutzins

havesuffered) = $18,675.d. Rationale: The common law rule wasthat wherethe vendee ofreal property makes a part

payment on thepurchaseprice, butfailsto fulfill the contract without lawful excuse, he cannot


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recoverthepaymenteven thoughthe vendormayhave made a profit byreason ofthe default.Restitution should berefused forthe good and sufficientreason thatthe buyeris guilty ofabreach ofcontract and should neverbe allowed to have advantagefrom his own wrong.However, thepartperformancerendered, may be much more valuableto D than the amount ofthe injury caused bythe breach, and in such caseto allow the injured partyto retain the benefit ofthepartperformanceso rendered, without making restitution ofanypart ofsuch value, istheenforcement ofa penalty orforfeiture againstthe contract-breaker. Whenpartperformance isrendered, theplaintiffshould be given judgmentforrestitution ofthe amount ofmoneyplaintiff

holds as a penaltyratherthan as compensation. (deposit- damages doneto D)Wheneverthebreaching buyerprovesthatthe depositexceedstheseller's actual damagessuffered as a result ofthe breach, the buyermayrecoverthe difference.

Substantial Performance

1. Where onepartysubstantiallyperforms (does not materially breach), the otheris notrelieved ofhisduties. Ifthe latterrefusesto perform, thesubstantiallyperforming partyhas an action forbreach ofcontract.

2. Case: Jacobs &Youngs v. Kenta. Facts: P built a countyresidentforD at a cost ofupwards of$77,000 and now suesto recovera

balance of$3,483 remaining unpaid. The work ceased in June, 1914 and D then began to occupythe dwelling. D learned in March 1915 thatsome ofthepipe, instead ofbeing made in Reading,wastheproduct ofotherfactories. P was directed bythe architectto do the work anew. Theplumbing wasthen encased within the wallsexcept in a few places where ithad to beexposed. Pleftthe work untouched and asked forthefinalpayment. D refused. P sued.

b. Holding:When a contractual obligation issubstantiallythough notfullyperformed, theomissionmade in the attempted fulfillment of the contract is trivial, and the cost of fixing thatomission would be great, a court may orderas damagespayment ofthe difference in value

between thefulfillment ofthe contract as completed and thefulfillment as contemplated underthe contract instead ofthe cost offixing the omission.c. Rationale: The defect was insignificant in itsrelation to theproject. The measure ofthe

allowance is notthe cost ofreplacement butthe difference in value, which would beeithernominal ornothing. The owner isentitled to the money which willpermithim to complete,unlessthe cost ofcompletion is grossly and unfairly out ofproportion to the good to be attained.

3. Ifit was a willful breach, then the breaching party would not beentitled to haveperformedsubstantially.

4. Case: Kreyerv. Driscolla. Facts: D entered into a contract Dec 1961 forthe construction ofa dwelling house according to

drawings and specifications at a cost of$47,046 which wasto be completed in thefall of1962.

There were difficulties in completing thehouse. D refused to pay P because ofalleged breached.Courtfound P having substantiallyperformed the contract and deducted from the contractprice.Judgmententered in favorofthe P forthe balance $10,967. D appealed and P cross appealed forinterest.

b. Holding: P did notsubstantiallyperform, therefore is notentitled to contractprice. Justrestitution throughquantum meruit.

c. Rationale: The court made no finding on Kreyer's good faith, buteven ifthat is implied, there isstill thefactthathe did not constructthehouseto thepoint ofcompleteness which could becalled substantialperformance. There was much work unfinished. A contractorwho leavesthis


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much work unfinished has notsubstantially complied withhis contract. Heshould not beentitledto recoveron the contractforsubstantially completing performance.

PRELIMINARY NEGOTIATIONS

1. Preliminary negotiationshave no legal effect2. No liability upto thetime at which an acceptance ofan offeroccurred;full liabilityforexpectation

damagesa. Case: Academy Chicago Publishers v. Cheever

i. Ifessential terms areso uncertain thatthere is no basisfordeciding whethertheagreementhas been kept orbroken there is no contract

ii. Pertinent language lacks definite and certain essential termsrequirediii. Unduly uncertain and indefinite->no contract

b. Case: Teachers Insurance and Annuity Association ofAmerica v. Tribune Co.i. Facts: D refused to forego withthe agreement with P unless P was willing forthe use of

offset accounting in a loan agreement

ii. Holding: The commitment letterrepresented a binding preliminary commitment andobligated bothsidesto seekto conclude a final loan agreement upon the agreed terms bynegotiating in good faithto resolvesuch additional terms as are customary in suchagreements.

THEEFFECT OFUNEXPECTED CIRCUMSTANCES

1. Nature oftheproblema.

Theparties may be discharged from performing the contract if:i. (1)theperformance isimpossible;

ii. (2) because ofnew events, thefundamentalpurpose of one of the parties hasbeenfrustrated; or

iii. (3)performance is not impossible but is much moreburdensomethan originallyexpectedimpracticable.

b. Apartythat is discharged from performing forsuch a reason is not liableforbreach ofcontract.

2. Impossibility: ifperformance ofa contracthas been rendered impossible byevents occurring afterthecontract wasperformed, court will discharge bothparties.

a. Destruction ofthesubject matteri. Ifperformance involvesparticulargoods, building, orsome othertangible item which is

destroyed throughthefault ofneitherparty, contract is discharged.ii. The discharge will occuronly wheretheparticularsubject matterisessentialto the

performance ofthe contract.iii. Impossibility ofintangible butessential mode ofperformance: Ifessential but intangible

aspect ofthe contract becomes impossible, the contract may be discharged. Case: Krell v. Henry


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a. Facts: Krell wasto rent Henry a flatfortwo daysforthepurpose ofviewing the king's coronationprocession. King became kill and thecoronation and procession didn'ttakeplace asplanned. D refused to paytheremainderoftherent and P sued him. D denied to pay arguing thatbecausetheprocession didn'ttakeplace, there was a total failure ofconsideration.P arguesthat although bothpartiesexpected theprocessionsto takeplace and theprice oftheroomsreflected thisexpectation, thecontract mentions nothing about it.

b. Issue:Where bothpartiesenter into a contract based on the assumption ofa particularstate ofthings, and someeventpreventsthatstate ofthings,doesthisevent dischargetheirdutyto perform even ifthesubject matterofthe contract continuesto exist andperformanceremainspossible?

c. Holing: Bothparties are discharged from the contractd. Rationale: The impossibility doctrine is not limited to thesubject matter. It

can be applied to thesubstance ofthe contract, and parties can find thiseitherfrom theterms ofthe contract orfrom surrounding circumstanceswhich bothpartiesrecognize. Ifperformance becomes impossible duetothe nonexistence ofthatstate ofthings, there will be no breach ofthecontractthus limited. In this case, the contract was notto leasetheroomsfora particularpurpose butto seetheprocessions.

e. Theprevious cases, the meansto oneparty'send was impossible. Theconcert couldn't beheld, the canal was blocked. The meansto theend.Here oneparty'send became impossibleto fulfill. Frustration ofpurposeratherthan mistake offact orcommercial practicability.

f. The lessorunderstood that whatthepurpose ofthe lessee's was, that iswhythe lessorcharged so much. But couldn't lessorsaythat it wasn'tthepurposeforhim, the lessor'spurpose wasto get money.

g. The court may bereluctantto thinkthatthe contract wastotally undone.To be undone, bothpartieshaveto agreeto put it off.

b. Failure ofthe agreed upon means ofperformance: Ifit is a non-essential aspect ofthe contract,then usuallythe contract will not be discharged.

i. Case: Transatlantic Financing corp. v. US Facts: P contracted D to delivercargo to Iran. Bothparties intended that P would

go throughtheSuez Canal. Military unrest, couldn'thappen. P sailed around themuch longerroute ofthe Cape ofGood Hope. P then demanded that D reimburseP fortheextra costs ofhaving to go around the Cape instead ofthroughtheSuez.

Holding: D may not berewarded withthe additional cost occurred. Rational: Theparty cannotshow thattheperformance was impractical.a. 3 conditions must be met

i. Something unexpected musthave occurred => metii. Therisk ofthe unexpected occurrence must nothave been

allocated eitherby agreement orby custom => not metiii. Occurrence ofthe unexpected event musthaverendered

performance commercially impracticable. => not metb. There must be a greaterdifference between the contractprice and the

actual costs incurred to perform the dutiesthan $43,972.


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c. P wasn'tfaced with impracticability and P can'treceivethroughthetheoryofquantum meruit any additional costs incurred outside ofthe contractprice.

d. Transatlantic was in a betterposition to know aboutthe closure ofthecanal and to buy insurance

e. Trans is asking fortheextra expenses, they wanted to keeptheprofitwhich included theriskpremium. It didn't wantthe value oftheperformance including the cape ofgood hope, they would get more iftheygotthe contractprice whichhad theriskpremium.

=>the court doesn't articulatethispoint very much butthisshowsthattransatlantic knew oftherisk ofthe canal being closed. Iftheyasked forthehighprofit, then they knew ofthepossibility ofthecanal being closed. Allocated therisk in thepricing mechanism.

c. Death orincapacity ofa party: ifa contractspecificallyprovidesthatperformanceshall be madeby a particularperson, then ifthatperson dies, contract becomes discharged.

THIRD PARTY BENEFICIARIES

1. A third party beneficiary is a person whom thepromisee in a contract intendsto benefit.2. When beneficiary may sue:Restatementrule: intended beneficiaries maysue, but incidental

beneficiaries may not

Rest 1st. Section 133 :Whereperformance ofa promise in a contract will benefit a person otherthan thepromisee, thatperson is (a) a donee beneficiary (make a giftto the beneficiary orto

conferupon him a right againstthepromisee) (b) a creditorbeneficiary (an actual orsupposed orasserted duty ofthepromiseeto the beneficiary) an incidental beneficiary

Donee orcreditorbeneficiaryhas legallyenforceablerights underthe contract but incidentalbeneficiary does not (Peanut vendorin Jordan Hypo)

3. Case: Lawrence v. Foxa. Facts: Hollyentered into an oral agreement withFox. Holly loaned Fox 300 buttold Foxthathe

owed Lawrence. So Fox agreed thathe would pay Lawrencethe 300. ButFox neverpaidLawrence. Lawrencesued Fox. Juryfound forLawrence.P appealed

b. Issue: Can a third party creditorbeneficiary ofthe contractrecoverforbreach ofcontract?c. Holding: Yesd. Rationale:Where oneperson makes a promiseto anotherforthe benefit ofa third person, the

third person has an enforceableright underthe contract and can maintain an action forbreach ofcontract. Anythird person, forwhose direct benefit a contract was intended, could sue on it.

e. Efficiency argument: ifthe beneficiary can'tsue, the creditorwould go afterhis debtorwho isthepromisee and debtorwould losethat lawsuit, and then the debtor, promisee would havesuehispromisor. Two lawsuits. Allowing the benficiaryto suethepromisoronlytakes one law suit.

4. Case:Seavorv. Ransoma. Facts: P alleged that Beman had obtained propertyfrom his wife and induced herto executethe

will in theformprepared byhim byhispromiseto give P $6000, the value ofthehouse.


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b. Holding: IfMrs. Beman had leftherhusband thehouse on condition thathepay P $6000, and hehad accepted the devise, he would have becomepersonally liableto paythe legacy, and P couldhaverecovered in an action at law againsthim, whateverthe value ofthehouse.

c. Rationale: Thetestatrixhas in substance bequeathed thepromiseto P and not because closerelationship ormoral obligation sustained the contract. Thetendency ofAmerican authority istosustain the gift in all such cases and to permitthe donee beneficiaryto recoveron the contract.Theequities are withtheplaintiffand they may beenforced

5. A donee beneficiary wherethepromiseeextracted thepromiseto give a giftto the beneficiary wouldhave a strongercaseto suethan the creditorbeneficiary. In the creditor, ifthe creditoris not allowed tosue, there arestill mechanism wherethe world could set itright. There could betwo lawsuits and thecreditorcould getthe money back. In the donee beneficiary case, wherethepromisee who is dead, therewould be no mechanism to getthat giftthe way it issupposed to go. Ifwe don't allow the doneeto sue,there will be no mechanism to setthe world right. Ifthepromisee donorisstill alive and changed hismind, then the donee would not be ableto sue.

6. A third-party beneficiaryshould havepowerto enforce a contract ifbut only if(1) allowing thebeneficiaryto enforcethe contract is a necessary orimportant means ofeffectuating the contractingparties' performance objectives (2) allowing the beneficiaryto enforcethe contract issupported byreasons ofpolicy ormorality independent ofcontract law and would not conflict withthe contractingpartiesperformance objectives. Ifit conflicts withthe objectives ofthe contractingparties' then shouldnot bepermitted. Ifno conflict, then the interests ofpolicy ormorality would beserved.

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