Appendix?Answers to Problems 7-12

• Author: Val Ricks
• Pages: 455-460

455

Appendix—Answers to Problems 7-12

PROBLEM 7 ANSWER: The court in Miami Coca-Cola Bottling Co. v. Orange

Crush Co., 296 F. 693 (5th Cir. 1924), ruled for Crush. Here is the court’s reasoning:

We agree with the District Judge that the contract was void for lack of

mutuality. It may be conceded that the appellee is liable to the appellant for

damages for the period during which the contract was performed; but for

such damages the appellant has an adequate remedy at law. So far, however,

as the contract remains executory, it is not binding, since it can be

terminated at the will of one of the parties to it. The consideration was a

promise for a promise. But the appellant did not promise to do anything,

and could at any time cancel the contract. According to the great weight of

authority such a contract is unenforceable.

Did the court reach the correct result?

PROBLEM 8 ANSWER: The court in Johnson Lakes Development, Incorporated

v. Central Nebraska Public Power & Irrigation District, 576 N.W.2d 806 (Neb.

1998), answered in two ways:

[T]he ‘reservation of such a power to terminate does not invalidate the

contract or render the consideration for a promise insufficient, so long as

the party reserving the power to terminate is irrevocably bound for any

appreciable period of time or has materially changed any of his legal

relations or otherwise rendered some performance capable of operating as

consideration. If a period of notice is required, the contract remains in force

and must continue to be performed according to its terms during the

specified period after receipt of the notice of termination.

* * * *

Even a slight restriction on the exercise of the right of termination, such as

the requirement that advanced notice be given, is sufficient to prevent a

unilateral right of termination from being regarded as illusory in nature.

The court also addressed the fact that only one party of the two had a termination

right:

[W]e do not regard the reserved power to terminate in the instant case as

invalid simply because it is unilateral. As observed in Williston on Contracts:

The confusion attendant upon the use of the term mutuality has

arisen most frequently when one party under a contract has an option,

not given to the other, of discontinuing or extending performance or

of cancelling or renewing the contract, or in some manner of

determining the extent of performance. If the power conferred goes

so far as to render illusory the promise of the party having the option,

there is indeed no consideration, and therefore no contract. However,

the mere fact that the option prevents the mutual promises from

being coextensive with one another does not prevent both promises

from being binding according to their respective terms.