A Roadmap for Contract Law

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  1. A Roadmap for Contract Law
    1. Lucy v. Zehmer
      1. 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.
      2. Issue: Was there a contract, and is it enforceable?
      3. Held: The contract was in good faith and specific performance was awarded.  “The law imputes to a person an intention corresponding to the reasonable meaning of his words and acts
        1. Rst. 1, Sec. 71: If the words or other acts of one of the parties have but one reasonable meaning, his undisclosed intention is immaterial except when an unreasonable meaning which he attaches to his manifestations is known by the other party.
      4. Objective/Reasonable Person Theory of Contract: endorsed by the Rst. 2d.
        1. What would be the difficulty in probing the subjective intent of the parties?
          1. Inconsistency (both in the courts in rendering judgments, and the parties in entering contracts); also, cultural differences (esp. today, with so much international interaction/even regional differences nationally). Uncertainty in bargaining: calling into question the very value of the contract (esp. a written contract, where the parties spend so much time hammering out the details and haggling over language). Efficient use of resources: why would it be better for courts to deal with objective tests rather than subjective? Normative and administrative reasons; the expertise of judges–they might be better suited interpreting the words in a contract as opposed to the subjective intent of the parties.
      5. Intoxication: Rst. 2d, Sec. 16–“Where there is some understanding of the transaction despite intoxication, avoidance of a contract depends on a showing that the other party induced the drunkenness or that the consideration was inadequate or that the transaction departed from the normal pattern of similar transactions; if the particular transaction in its result is one which a reasonably competent person might have made, it cannot be avoided even though entirely executory.”
        1. “Entirely executory:” meaning, neither side has yet begun performance when an attempt is made by one party to repudiate the deal.
      6. Mental Illness: Rst. 2d, Sec. 15–A contract is voidable if a person with a mental illness “is unable to understand in a reasonable manner the nature and consequences of the transaction” or “is unable to act in a reasonable manner in relation to the transaction AND the other party has reason to know his condition.”
    2. Northern Indiana Public Service Co. v. Carbon County Coal Co.
      1. Facts: NIPSCO wants declaratory judgment excusing it from performing on the contract, whether through force majeure or frustration. Carbon County counterclaims for specific performance. Judge Posner is applying the UCC here. UCC applies to transactions and goods. [§ 2-102] § 2-105 defines goods.
      2. Force Majeure
        1. NIPSCO argues under force majeure clause that it was prevented from completing contract by government order not to pass on increased fuel prices to consumers.
        2. Posner denies use of force majeure clause in this situation, the government did not prevent from NIPSCO using the coal, just told them they had to eat the costs on the bad deal they signed. Posner says this was a risk NIPSCO assumed.
        3. The government does not prevent NIPSCO from utilizing coal, it makes the use of coal not cost-effective.
        4. Does the word “utilize” in the force majeure have to be interpreted narrowly for NIPSCO to prevail here? Posner seems to take the broadest possible interpretation here. For NIPSCO, it’s going to want utilize to mean “making a profit”.
      3. Impracticability/Frustration
        1. Impracticability and frustration are about distributing risk. Posner decides that NIPSCO is in the best position to take on the risk here. Because NIPSCO took the risk that the coal prices would go down, it cannot shift risk back to the seller.
      4. Specific Performance
        1. CCC Co. wanted specific performance, but Posner says that specific performance is only available only when damages are inadequate. CCC Co. says that specific performance is not enough because although the owners would be made whole, it wouldn’t help the workers who lost their jobs. CCC Co. says that without a client, they can no longer continue to operate.
        2. Posner says that the operation of the mine was uneconomical, so if it’s uneconomical, just for policy reasons, it shouldn’t stay open. On the same note, if an order for SP were given, its unlikely that it would actually be implemented. Also, the miners are not a party to the contract and not intended third party beneficiaries.