Contracts--The Problem Of Mutuality 3

Front 1

The problem of mutuality g) Requirements and output contracts h) Implied promise i) Contracts reserving the promisor the right to cancel or terminate. j) Other examples

Front 2

What is required for a BILATERAL contract to be enforceable? How does MUTUALITY relate to this?

Back 2

(1) For a bilateral bargain to be enforceable, each party’s bargained for promise must be legally sufficient for its counter promise (the test being whether the performance promised in the promise would be sufficient consideration). (2) MUTUALITY: Unless both parties are bound, neither will be.

Front 3

Define: ILLUSORY PROMISES. Is this sufficient consideration for a counter promise?

Back 3

(1) A promise s illusory if it has the form, but not the substance, of a promise. (2) It is NOT legally sufficient consideration for its counter promise

Front 4

Define: CONDITIOANL PROMISES. Are they ILLUSORY?

Back 4

(1) A promise is conditional as long as the promisor has actually limited his future options in some manner. (2) A conditional promise is not illusory.

Front 5

How does SCOTT V. MORAGUES LUMBER CO demonstrate MUTUALITY: CONDITION UNDER PARTY’S CONTROL?

Back 5

(1) D made a conditional promise that if he was able to buy a certain ship, he would then charter it to Moragues Lumber. D bought the ship but never chartered it. (2) Held: A conditional promise is sufficient consideration for a return promise (by P to charter the ship) so that there is mutuality of contract and a valid contract. (3) A valid promise may be conditioned on the happening of an event, even though the event may depend on the performance of the party who made the promise.

Front 6

Define: REQUREMENTS CONTRACT [mutuality]

Back 6

(1) In a requirements contract, A agrees to buy all of his requirements of a given commodity from B, and B agrees to sell that amount to A.

Front 7

Define: OUTPUT CONTRACT [mutuality]

Back 7

(1) In an output contract, A agrees to sell all of his output of a commodity to B, and B agrees to buy that amount from A.

Front 8

Why do courts normally ENFORCE REQUREMENTS and OUTPUTS contracts?

Back 8

(1) The promisor is LIMITED (2) The promisor is required to do an act if the commodity is produced. Each party has limited his freedom to buy and sell as he please. (3) The contract is enforceable even if A agrees only to buy all that I will need.

Front 9

Why do courts NOT allow contracts where if A promises to buy from B “all that I may wish to order form you,”?

Back 9

(1) The promisor is not limited (2) The promise is not enforceable.

Front 10

How does WICKHAM & BURTON COAL CO. v. FARMERS’ LUMBER CO illustrate an ILLUSORY PROMISE?

Back 10

(1) P agreed to furnish D with whatever amount of coal that D wanted to purchase and then refused to ship the coal and D had to buy elsewhere. (2) Held: There is no mutuality where D agrees to buy and P agrees to sell all the coal that D wishes to purchase. (3) The promise was illusory; D only promised to buy “what it wanted to buy”. It was not conditaionl (4) There was really no promise to do anything.

Front 11

How do SATISFACTION CLAUSES make a promise NOT ILLUSORY?

Back 11

(1) The promisor’s duty to exercise his judgment in good faith is adequate consideration. (2) Satisfaction clause: a contract provision that makes one party’s duty to perform conditional on that party’s satisfaction.

Front 12

How can a BILATERAL CONTARCT be upheld? [implied] what does that mean?

Back 12

(1) Even where a bilateral contract apparently contains no promise at all on one side (ie there is a complete lack of mutuality), the contract may still be upheld if the surrounding facts and the nature of the agreement fairly implies a promise of performance by that party.

Front 13

How does the UCC deal with EXCLUSIVE SALES CONTRACTS?

Back 13

(1) UCC section 2-306(2) indicates that in an exclusive sales contract the manufacturer impliedly agrees to use his best efforts to supply the goods and the distributor impliedly agrees to use his best efforts to promote their sale.

Front 14

How does WOOD V. LUCY, LADY DUFF-GORDON demonstrate that an IMPLIED PROMISE has REASONABLE EFFORTS IMPLIED?

Back 14

(1) P was given an exclusive contract to promote D’s fashion clothes. Then D went and promoted her own clothes and sold them. D claimed that the agreement lacked the elements of a contract since P bound himself to nothing. (2) There is a valid promise by P where P did nto promise to sue reasonable efforts to promote D’s goods, and all compensation to D under the contract is to come from such efforts. (3) A promise that P will use reasonable efforts to promote D’s goods is fairly implied. (4) UCC §1-203 now imposes an obligation of good faith in the performance of goods that fall under the UCC, including those for the sale of goods.

Front 15

How does LACLEDGE GAS CO. V. AMOCO OIL CO demonstrate CONTRACTS RESERVING TO THE PROMISOR THE RIGHT TO CANCEL OR TERMINATE: RIGHT TO CANCEL AFTER NOTICE PERIOD. ?

Back 15

(1) P could terminate the agreement on 30 days notice at the end of any year or when natural gas mains were extended. D had no right of termination. (2) Held: A bilateral contract is not invalid merely because one of the parties has a right to a cancellation when the other does not. (a cancellation right held by one party does not make that party’s promise illusory. (3) The general rule is that a right of cancellation by notice after a period of time is not a failure of consideration; only an unrestricted cancellation clause has that effect. (4) As a practical matter, P did bind itself to buy all its supply for D. This is a requirements contract.

Front 16

Is an otherwise real promise rendered illusory by the fact that the contract is voidable by one party as a matter of law, as where one party is an infant?

Back 16

(1) No. An otherwise real promise is NOT rendered illusory by the fact that the contract is voidable by one party as a matter of law, as where one party is an infant.

Front 17

If the promisor reserves the right to discharge her obligation by choosing between two or more alternatives, how can the promise not be illusory?

Back 17

(1) The promise is not illusory as long as each alternative is legally burdensome.

Front 18

How is an agreement allowing one party to supply a material term not illusory?

Back 18

(1) There is an obligation of good faith, and a limit on the discretion of the party who is to supply the term. (2) UCC section 1-203 imposes an obligation of good faith and there is a limit on the discretion of the party who is to supply the term. The promise is not illusory

Front 19

How is a promissor’s reservation expressly or by implication an alternative by which she can escape performance altogether illusory?

Back 19

(1) She has not promised anything at all. Her promise is illusory and such a promise is not sufficient consideration for the return promise. (2) There is no mutuality and there is no valid contract.

Front 20

How is GROUSE V.. GROUP HEALTH PLAN, INC an example of PROMISSORY ESTOPPEL; at will employment?

Back 20

(1) Grouse was a retail pharmacist and wanted a new job. He got an offer and then a condition that he had to get a recommendation letter that he could not. He had already quit his job and rejected another offer because of this offer. (2) Held: Promissory estoppel applies when an employer hires a person to an at-will position, knowing the employee will have to quit his existing job, and then later changes his mind. (3) Promissory estoppel applies to a promise that the promisor should reasonably expect to incur action other part of the promsee and that does incur such action. This occurs here