Chapter 9. The Scope Of Contractual Obligations (200-230)

Question 1

A and B agree that A will sell goods to B “f.o.b.” the place of destination. Prior correspondence shows that the price has been adjusted on the assumption that B’s insurance policies will cover the goods during shipment. Is this open to interpretation? What does this mean for B?

Answer 1

Notwithstanding the normal meaning of the “f.o.b.” term declared in Uniform Commercial Code § 2-319, it may be found that the parties have “otherwise agreed” under that section and that B bears the risk in transit. Restatement 2d of Contracts § 201(c)

Question 2

A signs a negotiable promissory note payable to B’s order, and C signs his name on the back without more. Is this open to interpretation? What does this mean for C?

Answer 2

Under Uniform Commercial Code § 3-402, C’s signature is an indorsement, and evidence of a contrary understanding is not admissible except for the purpose of reformation of the instrument. This conclusion does not rest on interpretation of the writing. Restatement 2d of Contracts § 201(c)

Question 3

A agrees to sell beer to B at a specified price per barrel. At the time of the agreement both parties and others in their trade use as standard barrels wooden barrels which originally hold 31 gallons and hold less as they continue in use. A statute defines a barrel as 311/2 gallons. Is this open to interpretation?

Answer 3

The statute does not prevent interpretation of the agreement as referring to the barrels in use. Restatement 2d of Contracts § 201(d)

Question 4

A agrees to sell and B to buy a quantity of eviscerated “chicken.” A tenders “stewing chicken” or “fowl”. B rejects on the ground that the contract calls for “broilers” or “fryers.” Each party makes a claim for damages against the other. It is found that each acted in good faith and that neither had reason to know of the difference in meaning. Which interpretation, if any, is upheld? Who will prevail?

Answer 4

Both claims fail. Restatement 2d of Contracts § 201(d)

Question 5

A orders goods from B, using A’s standard form. B acknowledges the order, using his own standard form. Each form provides that no terms are agreed to except those on the form and that the other party agrees to the form. One form contains an arbitration clause. the other does not. The goods are delivered and paid for. Later a dispute arises as to their quality. Is this open to interpretation? Is the arbitration clause to be enforced?

Answer 5

There is no agreement to arbitrate the dispute. Restatement 2d of Contracts § 201(d)

Question 6

A contracts to sell and B to buy A’s business. The contract provides that B is to pay in installments over a five-year period following the conveyance, and that A is to convey on condition that B pledge specified collateral to secure his payment. Conveyance by A does not become due until B pledges the collateral. How might A’s duty be discharged?

Answer 6

If the agreement does not provide for the time within which the collateral is to be pledged, A’s duty is discharged if it is not pledged within a reasonable time. Restatement 2d of Contracts § 225(a)

Question 7

B gives A $10,000 to use in perfecting an invention, and A promises to repay it only out of royalties received during his lifetime from the sale of the patent rights. In spite of diligent efforts, A is unable to perfect his invention and obtain a patent, and no royalties are received. A dies after six years. Does B have a claim against A’s estate? What is the condition of the duty of A? How might A’s duty be discharged?

Answer 7

B has no claim against A’s estate. Receipt of royalties is a condition of A’s duty to repay the money and A’s duty is discharged by the non-occurrence of that condition during his lifetime. Restatement 2d of Contracts § 225(a)

Question 8

A contracts with B to build a house for $50,000, payable on condition that A present a certificate from C, B’s architect, showing that the work has been properly completed. A properly completes the work, but C refuses to give the certificate because of collusion with B, and the non-occurrence of the condition is therefore excused. Doe’s A have a claim against B?

Answer 8

See § 239. Since the presentation of the architect’s certificate is not part of the performances to be exchanged under the exchange of promises, A has a claim against B for $50,000. Restatement 2d of Contracts § 225(c)

Question 9

Under an option contract, A promises to sell B a painting “on condition that B pay $100,000” by a stated date. Before that date, the non-occurrence of the condition is excused by A’s repudiation of the contract. What, if anything, can B claim against A?

Answer 9

See § 255. Since the payment of the $100,000 is B’s part of the performances to be exchanged under the exchange of promises, B saved that amount when the non-occurrence of the condition was excused, and it should be subtracted in determining damages. B has a claim against A for the value of the painting to B less $100,000. Restatement 2d of Contracts § 225(c)

Question 10

A leases property to B for a stated monthly rental. The lease provides that A is under a duty to remove described property from the premises, and that its removal is a condition of B’s duty to pay the rent. After A has removed most of the property from the premises, B says that he will pay the rent even though not all of it has been removed. Does B have a duty? What, if anything, can B claim against A?

Answer 10

The non-occurrence of the condition is excused and B is under a duty to pay the rent even though A does not remove the rest of the property. See § 84. But A’s duty to remove the rest of the property is not discharged and his failure to remove the rest is a breach. Restatement 2d of Contracts § 225(c)

Question 11

A, a shipowner, promises to carry B’s cargo on his ship to Portsmouth. B promises to pay A the stipulated freight on condition that A’s ship sail directly there on its next sailing. A’s ship carries B’s cargo to Portsmouth, but puts into port on the way. Does B have a duty? What, if anything, can B claim against A?

Answer 11

Since carrying B’s cargo directly to Portsmouth is a condition of B’s duty, no duty to pay arises, and, since the condition can no longer occur, B’s duty is discharged. Since A is under no duty to carry B’s cargo directly to Portsmouth, however, his failure to do so is not a breach. Restatement 2d of Contracts § 225(d)

Question 12

A, a shipowner, promises to carry B’s cargo on his ship directly to Portsmouth on its next sailing. B promises to pay A the stipulated freight on condition that A’s ship sail directly there on its next sailing. A’s ship carries B’s cargo to Portsmouth, but puts into port on the way. Does B have a duty? What, if anything, can B claim against A?

Answer 12

Since carrying B’s cargo directly to Portsmouth is a condition of B’s duty, no duty to pay arises and, since the condition can no longer occur, B’s duty is discharged. Since A is under a duty to carry B’s cargo directly to Portsmouth, his failure to do so is also a breach. Restatement 2d of Contracts § 225(d)

Question 13

A contracts to sell and B to buy a house for $50,000, with the provision, “This contract is conditional on approval by X Bank of B’s pending mortgage application.” Does B have a duty?

Answer 13

Approval by X Bank is a condition of B’s duty. B is under no duty that the X Bank approve his application, but a court will supply a term imposing on him a duty to make reasonable efforts to obtain approval. See §§ 204, 205. Restatement 2d of Contracts § 225(e)

Question 14

A, a shipowner, promises to carry B’s cargo on his ship to Portsmouth. B promises to pay A the stipulated freight on condition that A’s ship sail directly there on its next sailing. A’s ship carries B’s cargo to Portsmouth, but puts into port on the way. B refuses to pay the freight without knowing that A’s ship has put into port on the way. Does B have a duty? Is there a breach?

Answer 14

B’s refusal is not a breach since his duty is discharged. Restatement 2d of Contracts § 225(e)

Question 15

A, a general contractor, contracts with B, a sub-contractor, for the plumbing work on a construction project. B is to receive $100,000, “no part of which shall be due until five days after Owner shall have paid Contractor therefor.” B does the plumbing work, but the owner becomes insolvent and fails to pay A. Does A have a duty?

Answer 15

A is under a duty to pay B after a reasonable time. Restatement 2d of Contracts § 227(b)

Question 16

A, a mining company, hires B, an engineer, to help reopen one of its mines for “$10,000 to be payable as soon as the mine is in successful operation.” $10,000 is a reasonable compensation for B’s service. B performs the required services, but the attempt to reopen the mine is unsuccessful and A abandons it. Does A have a duty?

Answer 16

A is under a duty to pay B $10,000 after the passage of a reasonable time. Restatement 2d of Contracts § 227(b)

Question 17

A, a mining company, contracts with B, the owner of an untested experimental patented process, to help reopen one of its mines for $5,000 paid in advance and an additional “$15,000 to be payable as soon as the mine is in successful operation.” $10,000 is a reasonable compensation for B’s services. B performs the required services, but because the process proves to be unsuccessful, A abandons the attempt to reopen the mine. Does A have a duty?

Answer 17

A is under no duty to pay B any additional amount. In all the circumstances the risk of failure of the process was, to that extent, assumed by B. Restatement 2d of Contracts § 227(b)

Question 18

A contracts to sell and B to buy land for $100,000. At the same time, A contracts to pay C, a real estate broker, as his commission, $5,000 “on the closing of title.” B refuses to consummate the sale. Does A have a duty?

Answer 18

Absent a showing of a contrary intention, a court may conclude that C assumed this risk, and that A’s duty is conditional on the sale being consummated. A is then under no duty to pay C. Restatement 2d of Contracts § 227(b)

Question 19

A contracts with B to repair B’s building for $20,000, payment to be made “on the satisfaction of C, B’s architect, and the issuance of his certificate.” A makes the repairs, but C refuses to issue his certificate, and explains why he is not satisfied. Other experts in the field consider A’s performance to be satisfactory and disagree with C’s explanation. Does A have a claim against B?

Answer 19

A has no claim against B. The quoted language is sufficiently clear that Subsection (1) does not apply. If C is honestly not satisfied, B is under no duty to pay A, and it makes no difference if his dissatisfaction was not reasonable. Restatement 2d of Contracts § 227(c)

Question 20

A contracts with B to repair B’s building for $20,000, payment to be made “on the satisfaction of C, B’s architect, and the issuance of his certificate.” A makes the repairs, but C refuses to issue his certificate although he admits that he is satisfied. Other experts in the field consider A’s performance to be satisfactory and disagree with C. Does A have a claim against B?

Answer 20

A has a claim against B for $20,000. The quoted language will be interpreted so that the requirement of the certificate is merely evidentiary and the condition occurs when there is, as here, adequate evidence that C is honestly satisfied. Restatement 2d of Contracts § 227(c)

Question 21

A contracts with B to repair B’s building for $20,000, payment to be made “on the satisfaction of C, B’s architect, and the issuance of his certificate.” A makes the repairs, but C refuses to issue his certificate. C does not make a proper inspection of the work and gives no reasons for his dissatisfaction. Other experts in the field consider A’s performance to be satisfactory and disagree with C. Does A have a claim against B?

Answer 21

A has a claim against B for $20,000. In using the quoted language, A and B assumed that C would exercise an honest judgment and by failing to make a proper inspection, C did not exercise such a judgment. Since the parties have omitted an essential term to cover this situation, the court will supply a term (see § 204) requiring A to pay B if C ought reasonably to have been satisfied. Restatement 2d of Contracts § 227(c)

Question 22

A contracts with B to repair B’s building for $20,000, payment to be made “on the satisfaction of C, B’s architect, and the issuance of his certificate.” A makes the repairs, but C refuses to issue his certificate, and explains why he is not satisfied. C makes a gross mistake with reference to the facts on which his refusal to give a certificate is based. Other experts in the field consider A’s performance to be satisfactory and disagree with C’s explanation. Does A have a claim against B?

Answer 22

A has a claim against B for $20,000. In using the quoted language, A and B assumed that C would exercise his judgment without a gross mistake as to the facts. Since the parties have omitted an essential term to cover this situation, the court will supply a term (see § 204) requiring A to pay B if C ought reasonably to have been satisfied. Restatement 2d of Contracts § 227(d)

Question 23

On August 1, A contracts to sell and B to buy goods, “selection to be made by buyer before September 1.” B merely has a duty to make his selection by September 1, and his making it by that date is not a condition of A’s duty. Has the contract been breached?

Answer 23

A failure by B to make a selection by September 1 is a breach, and if material it operates as the non-occurrence of a condition of A’s duty. See §§ 237, 241. Restatement 2d of Contracts § 227(d)

Question 24

A, B, and C make a contract under which A agrees to buy the inventory of B’s grocery business, C agrees to finance A’s down payment, and B agrees to subordinate A’s obligation to him to pay the balance to A’s obligation to C to repay the amount of the down payment. The contract provides that “C shall maintain the books of account for A, and shall inventory A’s stock of merchandise every two months, rendering statements to B.” Has the contract been breached? Who has what duty?

Answer 24

C merely has a duty to do these acts and doing them is not a condition of B’s duty. A failure by C to do them is a breach, and if material it operates as the non-occurrence of a condition of B’s duty. See §§ 237, 241. Restatement 2d of Contracts § 227(d)

Question 25

A insures B’s house against fire for $50,000 under a policy providing, “other insurance is prohibited.” Does B have a duty?

Answer 25

Because the insured has undertaken no other duties under the contract, Subsection (2) of § 227 does not apply. Because a policy of fire insurance is a type of contract under which only the insurer generally undertakes duties, the absence of other insurance is merely a condition of A’s duty, and B is not under a duty not to procure other insurance. Restatement 2d of Contracts § 227(d)

Question 26

In return for a fee paid by X, A signs and delivers to B a bond which reads: “I acknowledge myself to be indebted to B in the sum of $50,000. The condition of this obligation is such that if X shall faithfully perform his duties as executor of the will of Y, this obligation shall be void, but otherwise of full effect.” X faithfully performs his duty as executor of the will of Y. Does A have a duty?

Answer 26

X’s failure faithfully to perform his duties is a condition of A’s duty under the bond. Restatement 2d of Contracts § 227(e)

Question 27

A promises to pay B $10,000 for a quantity of oil, and promises to pay B an additional $5,000 “but if a greater quantity of oil arrives in vessels during the first quarter of the year than arrived during the same quarter last year, then this obligation to be void.” When and what condition would A have a duty to pay the addition $5,000?

Answer 27

A’s payment of the additional $5,000 is not due until the end of the first quarter, and the failure of a greater quantity of oil to arrive by that time is a condition of A’s duty to pay the additional $5,000. Restatement 2d of Contracts § 227(e)