I. A Roadmap for Contract Law
Lucy v. Zehmer, Supreme Court of Virginia, 1954
Facts: P allegedly entered into a K with the D for the sale of land. P thought the K was legitimate and acted on it. The D says that the K was just a joke.
Issue: Whether there was a K?
Holding: The inner intention of the D was not material in determining if the contract was enforceable; the actions and words that communicate the intent that a reasonable person would interpret not the actual intent of the person is important. The court order specific performance.
Delchi Carrier SpA v. Rotorex Corp.
a. Facts: P, an Italian company contracted for goods from D w/ a letter of credit. The goods upon arrival were not to specification and P wasn’t able to use the goods. D covered with extra expense.
b. Issue: Under the CISG is P able to recover damages for nonconforming goods?
c. Result: P was entitled to lost profits, foreseeable consequential damages. P was not entitled to damages for modifications necessary for cover.
II. The Bargain Theory of Contract
A. Consideration
1. Definitions
a) Contract – a promise or set of promises for the breach of which law gives a remedy, or the performance of which the law in some way recognizes as a duty. Restatement 2d § 1.
b) Consideration – A required element of Ks. It is the performance of a promise in exchange for performance, a promise, forbearance of something, or creation, modification or destruction of a legal relation.
c) Illusory Promise – 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.
d) Bargain Theory of Contracts – A promise is presumptively serious and worthy of legal enforcement if and only if there is an exchange
e) Unilateral Contract – promise in exchange for a future act; No promise on the side of the other party.
f) Bilateral Contract – the exchange of a promise for a promise, with each promise serving as consideration for the other
g) Mutuality – the state of sharing or exchanging something; reciprocation; an interchange. Now considered and aspect of consideration. Only applies to bilateral contracts.
h) Conditional Contracts- If there is enough of a detriment in the condition the promise is not illusory because of the inclusion of the condition.
i) Output contract – a contract in which a buyer promises to buy all the goods or services that a seller can supply during a specified period and at a set price – valid contracts according to Ramey Lumber Co. v. John Schroeder Lumber Co.
j) Requirement contract – a contract in which a seller promises to supply all the goods or services that a buyer needs during a specific period and at a set price and in which the buyer promise (explicitly or implicitly) to obtain those goods or services exclus
) Restatement 2d §175 – a contract is voidable by the victim if that party’s “manifestation of assent is induced by improper threat by the other party that leaves the victim no reasonable alternative.”
g) UCC §2-306 – Output, Requirements, and Exclusive Dealings
(1) A term that measures the quantity by output or requirements means actual output or requirements as may occur in good faith, cannot be disproportionate to a stated or implied estimate.
3. Forbearance is Adequate Consideration
a) Hamer v. Sidway
a. Facts: Uncle promises nephew $5,000 if he refrains from certain vices until he is 21. Nephew complies. The testator refuses to give the money saying that there isn’t adequate consideration.
b. Issue: Whether the forbearance was adequate consideration to make an enforceable K?
c. Holding: The Nephew refraining from this activity is adequate consideration to make an enforceable K. The court will not determine whether the consideration benefits the promisee or a third party. He didn’t do what he had a legal right to do.
d. Class Discussion: If the Nephew decides not to comply he doesn’t breach the K. He just doesn’t get the money.
