Select Page

Contracts
Rutgers University, Newark School of Law
Hyman, Jonathan M.

HYMAN
CONTRACTS
FALL 2010

I. A Roadmap for Contract Law
Lucy v. Zehmer
Facts: Lucy allegedly entered into a K with Zehmer for the sale of land.  Lucy says they were serious, but Zehmer says he was clearly only joking. 
Rule: Must look to the outward expression of a person as manifesting his intention rather than to his secret and unexpressed intention. “The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts.” A person cannot say that he is merely jesting when his conduct and words would warrant a reasonable person in believing that he intended a real agreement.

Northern Indiana Public Service Co. v. Carbon County Coal Co
Facts: NIPSCO agreed to buy a certain amount of coal from CC per year at a certain price. NIPSCO could find electricity prices below the costs of CC so they decided to stop accepting coal deliveries.
Issue: Whether NIPSCO’s obligations under the K were excused or suspended by virtue of either the force majeure clause or the doctrines of frustration or impracticability? Whether Carbon County was entitled to specific performance?
Rule:  Specific performance is not appropriate when there is an adequate remedy at law and declaring specific performance would further injure the defendant and society as a whole.
Holding: By signing the K it did, NIPSCO gambled that fuel costs would rise over the life of the K.  If such a gamble fails, the result is not force majeure. Specific performance was not allowed because the mine was closed and it would force the continuation of production that was uneconomical.

II. The Bargain Theory of Contract
A. Consideration
a) A K is “a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” Restatement 2d §1.
b) Consideration is the inducement of a K, something of value given in return for a performance or a promise of performance by another, for the purpose of forming a K. This is a required element in the formation of a K.

Restatement 2d §71 defines the requirement of consideration in the following way:
(1)   To constitute consideration, a performance or a return promise must be bargained for.
(2)   A performance or return promise is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
(3)   The performance may consist of (a) an act other than a promise, or (b) a forbearance, or (c) the creation, modification, or destruction of a legal relation

Restatement 2d §79-If the requirement of consideration is met, there is no additional requirement of:
(1)(a) a gain, advantage, or benefit to the promisor or a loss, disadvantage, or detriment to the promisee; or
(2)(b) equivalence in the values exchanged; or
(3)(c) “mutuality of obligation.”- Mutuality applies only to so-called bilateral contracts where parties exchange promises.

c) Illusory Promise is a promise so indefinite that it cannot be enforced or which, by virtue of provisions or conditions contained in the promise itself, is one whose fulfillment is optional on the part of the promisor. Not adequate for consideration.

Hamer v. Sidway  (Forbearance as consideration)
Facts: An uncle told his nephew that if he would refrain from certain vices until he becomes 21, then he would pay him $5,000. The nephew agreed and fully performed his part of the agreement.
Issue: Is forbearance of legal right valid consideration to create a valid and enforceable K?
Rule: A valuable consideration in the sense of the law may consist either in some right, interest, profit, or benefit accruing to the one party, or some forbearance, detriment, loss, or responsibility given, suffered or undertaken by the other. Refraining from a right is adequate consideration.
Holding: It is sufficient that he restricted his lawful freedom upon the faith of his uncle’s agreement and now having fully performed the conditions imposed, it doesn’t matter if the performance proved a benefit to the promisor.

Lake Land Employment Group of Akron, LLC v. Columber (At-Will Employment)
Facts: Columber signed a non-compete agreement with Lake Land that for a period of three years after his termination he would not engage in any business within a 50 mile radius of Akron.  After being terminated, Columber formed a corporation that engaged in business similar to Lake Land.  Columber pled lack of consideration.
Issue: Is subsequent employment alone sufficient consideration to support a covenant-not-to-compete agreement with an at-will employee entered into while he was already employed?
Rule: Consideration exists to support a non-competition agreement when, in exchange for the assent of an at will employee to a proffered non-competition agreement, the employer continues an at will employment relationship that could legally be terminated without cause.
Holding: In at will employment either party may terminate the employment at any time.  It follows that either part may propose change to the terms at any time.  Here, the employer forbore from firing his at will employee.

DISSENT ALSO….

Fiege v. Boehm (Settlement of weak legal claims as consideration)
Facts: Boehm obtained a promise from Fiege to pay expenses incident to the birth of her child, upon the condition she would not institute bastardy proceedings against him over the child.  He paid and then stopped.  When she instituted bastardy proceedings it was proven that he was not the child’s father and so he was acquitted of bastardy.  She sued on K.
Holding: Held for Boehm to secure support for the child.  Stated that “forbearance to sue for a lawful claim or demand is sufficient consideration to pay for the forbearance if the party forbearing had an honest intention to prosecute litigation which is not frivolous, vexatious, or unlawful and which he believed to be well founded.”

Petroleum Refractionating Corp v. Kendrick Oil Co. (Illusory Promise)
Facts: Kendrick contracted to buy 1.5 million gallons of Oil from Petroleum and will accept the oil unless Petroleum stops making that grade of oil.  Kendrick will not accept shipment anymore and Petroleum sold the undelivered at $.25 per barrel.  Kendrick says this is an illusory

on is a simple offer to sell the same land.  No consideration was received so there was no option.  Burgess gave the promise to hold the offer open, but for that promise to be legally binding it has to be given in exchange for something.  The $1 was never given therefore it did not need to be held open.  Options contract-In order to be held open there must be consideration. One dollar is valid consideration for an option to purchase land provided the dollar is paid or tendered.

Employment at Will
Permanent employment is terminable at the will of either party without liability to the other.

Fisher v. Jackson (Employment at Will)
Facts: Jackson induced Fisher to give up his employment with a firm of bakers where he was making $50/week to enter into employment as a reporter for $40/week under an oral K that the employment would be FOR LIFE or until he was physically disabled.  They used the language permanent position.
Issue: Is permanent employment equal to employment at will?
Holding: In the absence of consideration in addition to the rendering of services incident to the employment, an agreement for permanent employment is no more than an indefinite general hiring, terminable at the will of either party without liability to the other.  The mere giving up of a job by one who decides to accept a contract for alleged life employment is an incident necessary to accept the position.  Giving up the job was not consideration.  In order to establish that his job was truly for life, the plaintiff would have to show a consideration in addition to the rendering of services incident to the employment (additional consideration).

B. Reliance
a)      Equitable Estoppel is strictly, an estoppel which arises out of a person’s statement of fact, or out of his silence, acts, or omissions, rather than from a deed or record or written contract. Equitable estoppel is available when one party knowingly misrepresents material facts that are then predictably relied upon by the other. The misrepresenting party is “estopped” from asserting facts that contradict its misrepresentations
b)     Promissory Estoppel (Detrimental Reliance) – an equitable doctrine declaring that “a promise which the promisor should reasonably expect [will] 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.”  You relied to your detriment on the other person’s promise. Restatement 2d §90.