I. A Roadmap for Contract Law
1. Lucy v. Zehmer, 196 Va. 493 (1954)
a) Facts: Π allegedly enters a contract with Δ for the sale of land. Π says they were serious, but Δ says he was clearly only joking around. Π wants specific performance.
b) Issue: Was there a contract, and is it enforceable?
c) Held: The contract was in good faith and specific performance was awarded. The private intentions of Δ are irrelevant, only the manifested acts.
2. Delchi Carrier SpA. v. Rotorex Corp., 71 F.3d 1024 (1995)
a) Facts: Π, an Italian company contracted for goods from Δ w/ a letter of credit. The goods upon arrival were not to spec and Π wasn’t able to use the goods. Π covered with extra expense.
b) Issue: Under the CISG is Π able to recover damages for nonconforming goods?
c) Result: Π was entitled to lost profits, foreseeable consequential damages. Π was not entitled to damages for modifications necessary for cover.
II. The Bargain Theory of Contract
a) A Contract is “a promise or a set of promises for the breach of which the law gives a remedy, or the performance of which the law in some way recognizes as a duty.” Restatement 2d §1.
b) Consideration is the inducement of a contract, something of value given in return for a performance or a promise of performance by another, for the purpose of forming a contract. This is a required element in the formation of a contract.
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.
a) Restatement 2d §71(1) – to find consideration there must be a performance or return promise which has been bargained for by the parties.
b) Restatement §76 – Any consideration that is not a promise is sufficient to satisfy the requirement of §19 (c), except the following:
(1) (a) An act or forbearance required by a legal duty that is neither doubtful nor the subject of honest and reasonable dispute if the duty is owed either to the promisor or to the public, or, if imposed by the law of torts or crimes, is owed to any person;
(2) (b) The surrender of, or forbearance to assert an invalid claim or defense by one who has not an honest and reasonable belief in its possible validity;
(3) (c) The transfer of money or fungible goods as consideration for a promise to transfer at the same time and place a larger amount of money or goods of the same kind and quality.
c) Restatement §79 – A promise or apparent promise which reserves by its terms to the promisor the privilege of alternative courses of conduct is insufficient consideration if any of these courses of conduct would be insufficient consideration if it alone were bargained for.
(1) See P
is and stops paying.
(2) Held: Π’s promise not to sue for bastardy even though impossible was adequate consideration for his promise to pay support. There was no evidence of fraud. Giving up the right to take legal action is adequate consideration.
(3) Uses Restatement §76(b). A current defense could have used Restatement 2d 175.
c) Petroleum Refractionating Corp. v. Kendrick Oil Co., 65 F.2d 997 (1933)
(1) Facts: Δ contracted to buy 1.5M G of oil from Π unless Π should stop making that grade of oil. Δ states that the grade of oil is not correct and will not accept further deliveries. (This is during the depression when the price of oil is falling fast.) Π then sells the remaining contract for much less than originally contracted and is suing for the difference.
(2) Issue: Δ argues there was no consideration.
(3) Held: A benefit to the promisor (Δ) or a detriment to the promisee (Π) is a sufficient consideration for a contract. Under Restatement 79, both need to be sufficient when promisor has alternative courses of conduct. Δ got oil, and Π gave up the right to discontinue producing that grade of oil. Giving up a right is adequate consideration.