Contract Law Capstone Questions Flashcards
A print cartridge company sent a letter to a business office offering to supply a free premium printer if the business office would agree to purchase all the print cartridges the office would need from the print cartridge company. This letter arrived in the hands of the business owner on the same day the office printer failed. The business office had experienced a slow month and the business owner was trying to decide whether to pay the office rent for the month or fix the printer. Based on the offer, the owner paid the rent. A week after she put the rent check in the mail, the owner received a second letter from the print cartridge company indicating that the printer program was being canceled due to a lack of printers. The next day, before she read the second letter, the owner mailed her acceptance letter to the print cartridge company.
The print cartridge company refused to supply the business owner with a printer. If the business owner brings a breach of contract action against the print cartridge company, how should the court rule?
A For the print cartridge company, because its offer to the business office was not sufficiently definite.
B For the print cartridge company, because its revocation letter was received by the business owner before she dispatched the acceptance letter.
C For the business owner, because she mailed her acceptance letter without being aware that the print cartridge company had revoked its offer.
D For the business owner, because the owner used funds to pay the office rent in reliance on the print cartridge company’s offer.
B
The print cartridge company will prevail because the business owner could no longer accept the offer. A revocation generally is effective when received by the offeree. A written communication is considered to have been “received” when (i) it comes to a person’s attention, or (ii) it is delivered at a place of business through which the contract was made. The communication need not be read by the recipient to be effective. Hence, the business owner received the revocation when the revocation letter arrived. Her receipt of the revocation letter before she dispatched her acceptance letter effectively revoked the offer (even though the business owner was unaware of its contents when she mailed the acceptance). (A) is wrong because an offer to make a requirements contract (i.e., the buyer promises to buy from a certain seller all the goods it requires and the seller agrees to sell that amount to the buyer) is sufficiently definite because the quantity is capable of being made certain by reference to objective, extrinsic facts (i.e., the buyer’s actual requirements). (C) is wrong because, as stated above, the revocation was effective when it was received (i.e., when it came into the offeree’s possession), not when the offeree becomes aware of the revocation. (D) is wrong because the business owner’s response to the offer was not reasonably foreseeable. As an exception to the general rule that a revocation is effective on receipt, an offer cannot be revoked and will be treated as an option contract for a reasonable length of time where the offeror could reasonably expect that the offeree would rely to her detriment on the offer. However, this exception usually is applied in only two circumstances: an offer for a unilateral contract and a subcontractor’s bid to a general contractor. If the offeror is seeking a bilateral contract in a circumstance other than that of a subcontractor, it would be extremely rare for the offer to be irrevocable due to detrimental reliance. Generally, an offeree must accept the offer before relying on it. Here, it is not even clear that the business owner suffered a detriment (unless she could have skipped paying the rent that month). She was already obligated to pay rent. In any case, nothing suggests that the cartridge company reasonably should have foreseen that the business owner would rely on the offer the way she did (without having accepted it yet).
On March 1, the purchasing agent for a suburban school district sent a “quotation request form” to a supplier of school furniture requesting an offer for the sale of 20 student chairs. The form was on school district letterhead and signed by the purchasing agent. It specified that the offer must be held open for four months and that the price term must be no higher than $30 per chair. The supplier telephoned the purchasing agent and told him that he would sell the school district 20 chairs at $20 per chair. He also agreed to hold the offer open for four months. The purchasing agent thanked the supplier for the offer and indicated that he would get back to him within that time period. On May 1, before the purchasing agent had responded to the supplier’s offer or taken any action in reliance on it, the supplier e-mailed the purchasing agent stating that demand for student chairs had been higher than expected and that the offer was terminated. On May 2, the purchasing agent called the supplier, told him that the school district was treating his offer as still being open, and accepted it on its terms.
Did the purchasing agent’s call on May 2 create a legally enforceable contract with the supplier?
A Yes, because the contract is for the sale of goods valued at less than $500.
B Yes, because the school district accepted the offer within three months.
C No, because the supplier did not sign the form specifying the length of time that the offer would be held open.
D No, because a firm offer under the UCC is not effective if its term is more than three months.
C
No contract was created because the supplier effectively revoked his offer. Under the UCC, an offer by a merchant to buy or sell goods in a signed writing that, by its terms, gives assurances that it will be held open is not revocable for lack of consideration during the time stated (not to exceed three months). If the term assuring that the offer will be held open is on a form supplied by the offeree, it must be separately signed by the offeror. Here, the school district supplied the form stating that the offer must be held open for four months. The supplier’s verbal assent to that requirement was not sufficient to qualify as a firm offer under the UCC. Thus, he was free to revoke his offer. (A) is incorrect because the fact that a writing would not be required under the Statute of Frauds if a contract had been formed between the parties is irrelevant. A writing is required for a firm offer under the UCC regardless of the value of the goods offered. (B) is incorrect because the school district lost its power of acceptance when the supplier revoked his offer, regardless of the fact that three months had not passed. As discussed above, the supplier’s offer did not constitute a firm offer under the UCC. (D) is incorrect because the fact that the term of the firm offer was more than three months does not invalidate it. If the stated period extends beyond three months, the firm offer will stand, but it will only last for the three-month maximum.
On January 1, a car salesman offered to sell an antique car to a collector for $35,000 cash on delivery. The collector paid the car salesman $100 to hold the offer open for a period of 25 days. On January 4, the collector called the car salesman and left a message on his answering machine, asking him whether he would consider lowering the price to $30,000. The car salesman played back the message the same day but did not reply. On January 9, the collector wrote the car salesman a letter, telling him that he could not pay more than $30,000 for the antique car, and that if the car salesman would not accept that amount, he would not go through with the deal. The car salesman received this letter on January 10 and again did not reply. The car salesman never heard from the collector again.
When did the offer that the car salesman made to the collector on January 1 terminate?
A On January 4, when the collector made a counteroffer.
B On January 9, when the collector mailed to the car salesman what amounted to a rejection.
C On January 10, when the car salesman received from the collector what amounted to a rejection.
D On January 25, when the 25-day option expired.
D
The car salesman’s offer terminated on January 25, when the 25-day option expired. An option is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer. The collector paid the car salesman $100 to hold the offer open for a period of 25 days, and the offer could not be terminated before that time, not even by the offeree (here the collector). Nor did the offer survive the option period because the option specifically identified how long the offer would be open. (A) is incorrect because the collector’s words did not amount to a counteroffer because they merely inquired as to whether the collector would consider lowering his price; the words were not unequivocal. (Even if this were a counteroffer, it would not extinguish the car salesman’s offer, because of the option, as explained above.) (B) is incorrect because, as discussed above, even a rejection by the offeree will not terminate the option. Also, if the communication were effective as a rejection, it would be effective when received by the offeror. (C) is incorrect because, as discussed above, even unequivocal words of rejection by the offeree will not extinguish an option, absent detrimental reliance on the part of the offeror, which was not the case here.
The manager of a shoe store noticed that mukluks were flying off the shelf in anticipation of another exceptionally cold winter. On November 1, the manager sent an order on the store’s own form to a local manufacturer of mukluks for 100 pairs, at a cost of $90 a pair, the price listed in the manufacturer’s catalogue. The manager filled in the delivery date as December 1 and signed the form. The next day, November 2, the manufacturer mailed a signed confirmation on its own form, which was the same in all respects except that it included a clause calling for arbitration of all disputes. Having found mukluks for $80 per pair from another supplier, the store manager phoned the manufacturer on November 4 and stated that the store no longer wished to order the boots. The manufacturer responded that it was too late, and that the store should expect delivery as promised in December. On November 5, the store manager received the manufacturer’s confirmation.
If the store manager subsequently refuses the manufacturer’s delivery on December 1, who will prevail if the manufacturer sues the shoe store for breach of contract?
A The manufacturer, because the purchase offer was made by a merchant.
B The manufacturer, because the shoe store’s revocation of its offer was too late.
C The shoe store, because the arbitration materially altered the terms of the offer.
D The shoe store, because it effectively revoked its offer to purchase the mukluks.
B
The manufacturer accepted the store’s offer when it mailed its confirmation. Under the mailbox rule, acceptance by mail or similar means creates a contract at the moment of dispatch. Thus, the contract was created on November 2. It does not matter that the manufacturer’s acceptance did not reach the store before the store attempted to revoke. Because the contract was created on November 2, the store could not revoke its offer on November 4-it was too late. Thus, (D) is incorrect. (A) is incorrect because the store’s merchant status does not affect its ability to revoke the offer. Under Article 2 of the UCC, if a merchant offers to buy or sell goods in a signed writing, and the writing gives assurances that it will be held open, the offer is not revocable during the time stated (or if no time is stated, for a reasonable time). Here, the store did offer to buy goods in a signed writing, but the writing did not give assurances that it would be held open for any length of time. Thus, the offer was revocable. (C) is incorrect because whether an additional term in an acceptance materially alters the offer affects whether the term will be included in a contract between merchants; it does not affect whether a contract was formed..
A builder and a wealthy landowner entered into a written contract whereby the builder would build on the grounds of the landowner’s estate a mausoleum, using imported granite, to hold the remains of the landowner’s recently deceased wife. The cost of the mausoleum was set at $100,000. After the contract was signed but before construction began, an international incident occurred. The incident resulted in various governments enacting an embargo, which prevented the builder from obtaining the granite he planned to use to build the mausoleum. The builder could get the granite from another source, but it would cost an additional $25,000. The builder explained the situation to the landowner, who agreed to pay $125,000 to have the mausoleum built. The builder prepared a writing stating that the price for the mausoleum was now $125,000. Both the builder and the landowner signed the writing. After the work was completed, the landowner gave the builder a certified check for $100,000 and refused to pay one penny more.
If the builder brings suit against the landowner to recover the additional $25,000, will the builder likely prevail?
A Yes, because the modification was fair and equitable in view of the unanticipated increase in the cost of granite.
B Yes, because the later agreement was in writing and signed by the parties.
C No, because the builder had a preexisting duty to do the work for $100,000.
D No, because the 25% increase in price that the builder was trying to force on the landowner is unconscionable.
A
The builder will likely prevail. Under the modern and better view of the Restatement (Second), a promise modifying a duty under a contract not fully performed on either side is binding if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made. Here, the contract had not been performed on either side at the time of the modification, the embargo is a circumstance unanticipated by the parties when the contract was made, and the increase is fair and equitable in light of the circumstances (it reflects only the builder’s increased costs). Thus, the builder should succeed in his suit for the additional $25,000. (B) is incorrect because whether there is a signed writing is immaterial when there is a failure of consideration and thus no contract to be enforced. (C) is incorrect because it states the traditional rule and does not take into account the unanticipated circumstances of the embargo. Generally, modification of a building contract requires consideration, and performance of a preexisting legal duty is not consideration. Even the slightest change in performance is generally sufficient to constitute consideration, but here there was no change in the builder’s duties in exchange for the additional $25,000 payment. Thus, under the traditional view, the modification would not have been valid, and the landowner would have been liable only for the amount agreed to in the original contract. (D) is incorrect because courts rarely recognize unconscionability based on price alone-and then only if the parties were in vastly unequal bargaining positions, which does not appear to be the case here. Moreover, a 25% increase alone is very unlikely to be found unconscionable. Had there been consideration, this modification undoubtedly would have been enforceable.
A large wholesale dealer in produce had never done business with a certain greengrocer who operated a small chain of markets in the Midwest. They entered into a written agreement whereby the wholesale dealer agreed to supply to the greengrocer the “fuzzy” variety of peaches at $35 per 50-pound lot. The agreement contained a provision stating that the greengrocer will buy “as many 50-pound lots of fuzzy peaches as the greengrocer chooses to order.”
Assuming that the greengrocer has not yet placed any orders for peaches with the wholesale dealer, is this agreement between the parties enforceable?
A Yes, because it is a valid requirements contract and, as such, is enforceable under the Uniform Commercial Code.
B Yes, because the Uniform Commercial Code will imply reasonable terms.
C No, because the total quantity of the contract is not specified.
D No, because there is no manifestation of commitment on the greengrocer’s part.
D
The agreement is not enforceable because the greengrocer’s promise is illusory. For a contract to be enforceable, consideration must exist on both sides, i.e., each party’s promise must create a binding obligation. If one party has become bound but the other has not, the agreement lacks mutuality because one of the promises is illusory. Here, the wholesale dealer has promised to supply the greengrocer with fuzzy peaches at a fixed price. The greengrocer, however, has not promised to order any peaches from the wholesale dealer. Even if the greengrocer decides to sell fuzzy peaches, it has not bound itself to order them from this particular wholesale dealer. The illusory nature of the greengrocer’s promise makes the agreement unenforceable on consideration grounds. (A) is incorrect because in a valid requirements contract, both parties’ promises create binding obligations: The promisor binds itself to buy from the supplier all that it requires, and the supplier binds itself to sell to the promisor that same amount. Consideration exists because the promisor is suffering a legal detriment; it has parted with the legal right to buy the goods it may need from another source. Under the UCC, which governs in this case because a contract for the sale of goods is involved, a good faith term is implied: The buyer’s requirements means such actual requirements as may occur in good faith. Thus, if the provision had stated instead that the greengrocer will buy “as many 50-pound lots of fuzzy peaches as the greengrocer shall require,” it would be a valid requirements contract under the UCC because it requires the greengrocer to buy fuzzy peaches only from the wholesale dealer and to act in good faith in setting its requirements. (B) is incorrect even though the UCC will imply reasonable terms under certain circumstances. Such terms as price and time for performance need not be spelled out in the contract; the terms will be supplied by a “reasonableness” standard if that is otherwise consistent with the parties’ intent. However, supplying reasonable terms will not change the express terms of the contract. The provision that the greengrocer will buy as many peaches as it chooses to order is not sufficiently obligatory to be saved by the court supplying reasonable terms. (C) is incorrect because if the agreement were otherwise a valid requirements contract, the absence of a total quantity term would not matter. As a general rule in sale of goods contracts, the quantity being offered must be certain or capable of being made certain. The UCC provides that an agreement to buy all of one’s requirements is sufficiently certain because requirements usually can be objectively determined. Furthermore, the quantity ultimately required in good faith must not be unreasonably disproportionate to any stated estimate or any normal requirements (in the absence of a stated estimate). Hence, if the greengrocer had contracted to buy all of its requirements from the wholesale dealer, the absence of a term specifying total quantity would not have made the agreement unenforceable.
The father of a young child whose life was saved by doctors at a hospital emergency room called the president of the hospital and told her that he will donate $50,000 to the hospital, payable in 90 days, in consideration of the doctors’ saving his child’s life. The president recognized the father’s name as a wealthy philanthropist who had donated generously to other worthy causes, and accepted the offer. The president promptly informed the hospital’s board of directors of the father’s offer and her acceptance of the offer. The board approved the purchase of a new respirator for $50,000 and authorized the president to enter into a written contract with a medical devices company to make the purchase, which she did. Once the child recovered, the father changed his mind and refused to give the hospital the $50,000.
If the hospital sues the father, what would the hospital’s best theory be to recover the $50,000?
A The father’s offer was supported by consideration.
B The father was estopped from not performing under a theory of detrimental reliance.
C The father’s offer constituted fraud in the inducement.
D The terms of the father’s offer were definite and certain.
B
The hospital’s best theory to recover the $50,000 would be promissory estoppel (detrimental reliance). Under section 90 of the Second Restatement, a promise is enforceable, even without consideration, if the promisor reasonably expects to induce action or forbearance and such action or forbearance is in fact induced. (The remedy may be limited as justice requires.) Here, the father called the hospital’s president and promised to donate $50,000 to the hospital. Based on that promise, and the president’s knowledge that the father was a wealthy philanthropist who could make good on the promise and had donated generously to other worthy causes, the hospital’s board of directors authorized the hospital president to purchase a new respirator for $50,000, which she did. The father should have reasonably expected to induce such action, and such action was in fact induced. Therefore, the father was estopped from not performing. (A) is incorrect because in most jurisdictions “past” or “moral” consideration is not sufficient consideration because it was not bargained for. If something was already given or performed before the promise was made, it will not satisfy the “bargain” requirement because it was not given in exchange for the promise. Here, the doctors had already saved the daughter’s life when the father made his offer; the father’s promise was not made to induce the doctors to act, nor did the doctors act to induce the father’s promise. Thus, (A) is not correct. (C) is not correct because there is nothing in the facts to suggest that the father engaged in fraud in the inducement, i.e., that he made his promise knowing he had no intention of keeping it; rather, he simply changed his mind. Fraud in the inducement occurs when one party induces another to enter into a contract by asserting information he knows to be untrue, and the innocent party justifiably relies on the fraudulent misrepresentation. In such cases, the contract is voidable by the innocent party. (D) is incorrect because, although it is true that the father’s offer was definite and certain, there can still be no contract absent consideration.
The owner of a house put the property up for sale. A surgeon entered into negotiations with the owner to purchase the house, and the parties agreed upon a sale price of $200,000 and a closing date. The owner told the surgeon that she would drop a contract in the mail and have her attorney draw up a deed. The owner signed a land sale contract, which included the property’s address but did not contain a metes and bounds legal description. She mailed the contract to the surgeon that afternoon, although it was mailed too late for the last mail pickup of the day. The owner’s attorney promptly drew up a deed and dropped it in the mail to his client. The surgeon received the contract the next day.
After she mailed the contract, the owner received an offer of $250,000 for her property from her next-door neighbor, who wanted to expand beyond his own property line. The owner called her attorney and told him to inform the surgeon that the deal was off. The attorney e-mailed the surgeon, stating that his client had found another purchaser for the property, and that all matters regarding the surgeon’s offer for the property were rescinded. The surgeon signed the contract anyway and returned it to the homeowner by registered mail.
If the surgeon brings an action to compel the owner to convey the property to him for $200,000, is he likely to prevail?
A Yes, because the owner signed the land sale contract.
B Yes, because the contract was effective when the owner placed the document in the mail.
C No, because the surgeon did not mail the signed contract until after he received the revocation by e-mail.
D No, because the land sale contract does not contain the complete legal description of the property.
A
The surgeon is entitled to specific performance because the owner signed the land sale contract. A contract was formed here when the parties orally agreed to the sale of the property. However, the contract was unenforceable at that time because, under the Statute of Frauds, a contract for the sale of land is unenforceable unless a memorandum containing the contract’s essential terms is signed by the party to be charged. Here, the party to be charged is the owner, and she signed the land sale contract, a writing sufficient to satisfy the Statute of Frauds (a memorandum for the sale of land is sufficient if it contains the price, a description of the property-which need not be a “legal” description-and a designation of the parties). Thus, the contract was enforceable. Specific performance is allowed when the legal remedy (damages) would be inadequate, such as with contracts to purchase land, which is unique. Therefore, the surgeon is entitled to specific performance (assuming the property has not already been sold to a bona fide purchaser); under the facts the neighbor had made an offer but nothing indicates that the owner accepted the offer yet. (B) is incorrect because the contract was effective when the parties orally agreed to it. The contract became enforceable when the owner signed it, not when she placed it in the mail. (C) is incorrect because this is not a mailbox rule issue. The contract was already formed before the attorney attempted to revoke the offer. Thus, his attempt at revocation was ineffective. It did not matter when the surgeon mailed the contract. (D) is incorrect because, to satisfy the Statute of Frauds, a description need not be a complete legal description, but need merely be sufficient to reasonably identify the subject of the contract. It is sufficient that the property was identified by its address.
A man of seemingly modest means died, leaving his nephew as his sole heir. Among the items inherited by the nephew were some old oil paintings. The nephew knew nothing about art and had no place to put the paintings in his home. He placed an ad in the paper offering to sell the paintings at a price to be mutually agreed upon. A buyer for an art gallery responded to the ad. The buyer did not identify himself as an art gallery buyer or tell the nephew that he was knowledgeable about art. Rather, he concocted a story about wanting the paintings for his country estate. The nephew, for his part, revealed his lack of knowledge about art when he told the buyer that his uncle had probably painted the pieces himself. From the signature and the style, the buyer recognized that the artist was a renowned 19th century American portrait artist. The nephew and the buyer agreed upon a price and executed a contract. However, before the nephew delivered the paintings to the buyer, or the buyer paid him, he sought to rescind the contract. The buyer insisted that the nephew deliver the paintings to him and threatened to sue for breach of contract if he did not.
Which argument would give the nephew the best basis for rescinding the contract with the buyer?
A The nephew told the buyer that his uncle had probably painted the paintings himself.
B The nephew did not know that the buyer was a professional buyer for an art gallery and was knowledgeable about art.
C The buyer falsely told the nephew that the paintings were going to be used to furnish his (the buyer’s) country estate.
D The contract was still executory on both sides.
A
The nephew may be able to rescind the contract on the grounds of unilateral mistake if the buyer was aware that the nephew was mistaken about the identity of the artist. Where only one of the parties is mistaken about facts relating to the agreement, the mistake usually will not prevent formation of the contract. However, if the nonmistaken party is aware of the mistake made by the other party, he will not be permitted to snap up the offer; i.e., the mistaken party will have the right to rescind the agreement. Under the facts in this choice, the buyer knows that the nephew is mistaken about the identity of the artist, which is a basic assumption of the contract for the paintings. To obtain rescission, the nephew would also have to establish that the mistake creates a material imbalance in the exchange and that he did not assume the risk of that mistake. The facts in choice (A) give him the best grounds for doing so. (B) is incorrect because the fact that one of the parties to the contract has superior knowledge about the subject matter of the contract does not by itself justify rescission, even if the other party is unaware of that fact. The buyer’s knowledge or lack of it was not a basic assumption on which the contract was made and was not relied on by the nephew in making the sale. (C) is incorrect because the buyer’s misrepresentation to the nephew as to how he will use the paintings does not appear to have been relied on by the nephew. Hence, the misrepresentation is not significant enough to serve as grounds for rescinding the contract. (D) is incorrect because while it is true that a contract must be executory on both sides to be effectively discharged by rescission, this fact alone will not be sufficient to effect a rescission. Rather, when only one of the parties is seeking rescission, as is the case here, that party must prove an adequate legal ground (e.g., mistake, misrepresentation, duress, and failure of consideration). In this case, as discussed above, the ground of unilateral mistake will provide the nephew with the best basis for rescinding the contract.
A sailing enthusiast went to a boat builder and told him that he wanted a yacht built to his specifications. They agreed that the price would be $400,000, and that the sailing enthusiast was to make payment in full within 30 days after he had accepted delivery of the yacht. They further agreed that the boat builder would not subcontract any of the work. The boat builder, however, contacted a master sail maker and subcontracted the sails for the yacht to him. They agreed orally that the boat builder would pay the sail maker $25,000 for the sails within 20 days of receiving them. The boat builder did not tell the sail maker of his agreement with the sailing enthusiast regarding subcontracting. The sail maker made the sails and delivered them to the boat builder, who then completed the yacht and delivered the boat to the sailing enthusiast. Although the yacht was built to his specifications, the sailing enthusiast refused to accept it after he learned that the boat builder had subcontracted for the sails.
When the 20-day payment period for the sails had expired, the sail maker went to the boat builder and demanded the $25,000. The boat builder told the sail maker that he could not pay the $25,000 unless the sailing enthusiast paid him for the yacht.
If the sail maker brings an action against the boat builder for breach of contract, is he likely to prevail?
A Yes, because both parties are merchants.
B Yes, because the sail maker fully performed.
C No, because the boat builder had agreed not to subcontract.
D No, because their agreement was oral.
B
The contract between the sail maker and the boat builder is enforceable despite the Statute of Frauds because the sail maker fully performed. The contract here was for the sale of goods (sails) for the price of $500 or more; thus, the contract is within the Statute of Frauds. A contract within the Statute of Frauds is generally unenforceable absent written evidence of a contract signed by the party to be charged. However, there is an exception to the general rule for goods received and accepted. Here, although the contract was oral, the boat builder accepted the sails, and so he is bound despite the Statute. Note that the boat builder might also be bound under another exception to the Statute-for specially manufactured goods if the sails were made specially for the yacht and were not suitable for sale to others. (A) is incorrect because the UCC does not exempt merchants from the Statute of Frauds. Although it provides a special confirmatory memo rule by which a merchant may be bound even if his signature does not appear on the writing evidencing the contract, here there is no writing at all. (C) is incorrect because it is irrelevant. The fact that the boat builder agreed not to subcontract is relevant to whether he breached his contract with the sailing enthusiast, but it does not affect his contract with the sail maker. (D) is incorrect because, as stated above, the contract here falls within an exception to the Statute of Frauds because the boat builder accepted the sails.
After extensive negotiations, representatives for an automobile manufacturer and a tire maker orally agreed on the specifications for a supply of tires. The lawyer for the car manufacturer then drafted a written agreement and sent it to the tire maker’s lawyer, who modified the draft and sent it back to the car manufacturer. This writing was signed by both parties. The tire maker now brings an action for breach of contract against the car manufacturer seeking damages. The car manufacturer attempts to introduce the testimony of its chief negotiator describing the oral agreement with the tire maker representatives that the tires would meet certain requirements of the car models. The tire maker objects, arguing that the parol evidence rule bars admission of this testimony.
Which of the following is the best argument supporting admission of the testimony?
A The memorandum signed by the parties was not a complete integration of their agreement.
B The parol evidence rule does not bar evidence interpreting a written agreement.
C The car manufacturer detrimentally relied on the oral agreement in signing the memorandum.
D The parol evidence rule does not exclude misrepresentations.
A
The best argument for admission of the testimony is that the memorandum does not cover the entire agreement between the parties and was thus not a complete integration. Because the writing contains no mention of the oral agreement to meet certain car models requirements, the testimony would not “interpret” it in any way. Thus, (B) is incorrect. (C) and (D) are wrong because there is no evidence that the car manufacturer detrimentally relied on the oral agreement in signing the memorandum, or that the tire supplier’s promise constituted a misrepresentation at the time it was made.
An art student ordered from an art museum’s gift shop a miniature reproduction of a favorite statue, which the museum’s flyer indicated was for sale only at the gift shop. The student’s order included a check to cover the price. The museum received and processed the order, but by mistake sent, by common carrier, a reproduction of a different statue. The statue was stolen from the carrier en route to the student’s home.
Between the student and the museum, who bears the loss?
A The loss falls on the museum because it was the museum that selected the carrier and made the arrangements for shipment.
B The loss falls on the museum because it sent the wrong statue.
C The loss falls on the student because the risk of loss shifted to the buyer when the museum received and accepted the payment.
D The loss falls on the student.
B
The museum suffers the loss because the risk of loss was still with it when the statue was stolen. The UCC presumes a contract is a shipment contract in the absence of a contrary agreement. In a shipment contract, the seller must ship the goods by carrier but is not required to tender them at a particular destination. (A “ship to” address does not make a contract a destination contract.) In a shipment contract, the risk of loss generally passes to the buyer when the goods are delivered to the carrier. There is an exception, however, if the buyer has a right to reject the goods. In that case, the risk of loss does not pass to the buyer until the defects are cured or the buyer accepts the goods. The UCC requires perfect tender; that is, the goods and their delivery must conform to the contract in every way. Here, the shipment of the wrong statue (a nonconforming good) constituted a breach, and the buyer had a right to reject it. Thus, the risk of loss did not pass to the buyer, and the loss falls on the museum with respect to the theft. (A) is incorrect because risk of loss here is determined by the fact that the shipment was a breach of contract; it is not determined by who selected the carrier and made the arrangements. (C) is incorrect because the risk of loss did not shift to the student. Furthermore, it misstates the general rule. Under the general rule, the risk of loss passes when the seller delivers the goods to the carrier, not when the seller accepts payment. (D) is incorrect because, as stated above, risk of loss does not pass to the buyer if the buyer has a right to reject the item. (D) would be correct were it not for the breach.
A man went to his local sporting goods store and told the salesperson that he wanted a tennis racket that was very high-end. The salesperson showed him a racket that he said was made of the finest titanium and would probably last for years. The man bought the racket and left the store. After playing with the racket for three days, it suddenly snapped in two when he hit a hard shot. He showed it to the tennis pro at his club, who informed him that the racket was painted plastic.
If the man sues the sporting goods store, which of the following best describes the legal basis for his suit?
A The store breached the implied warranty of fitness for a particular purpose and an express warranty that the racket was made of titanium.
B The store breached the implied warranty of merchantability and an express warranty that the racket would last for years.
C The store breached both the implied warranty of fitness for a particular purpose and the implied warranty of merchantability.
D The store breached the implied warranty of merchantability and an express warranty that the racket was made of titanium.
D
The best argument is that the store breached both the implied warranty of merchantability and an express warranty that the racket was made of titanium. An express warranty will arise from any statement of fact or promise. Here, the salesperson said that the racket was made of titanium. This is a statement of fact that will give rise to a warranty. An implied warranty of merchantability will arise in every sale by a merchant unless disclaimed. To be merchantable, goods must be fit for ordinary purposes, and arguably a racket that breaks right away because it is made of plastic is not fit for ordinary purposes. (A) is wrong because an implied warranty of fitness for a particular purpose arises only when: (i) a seller has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller’s skill and judgment to select suitable goods; and (ii) the buyer in fact relies on the seller’s skill or judgment. Here, the buyer did not convey a particular purpose. He merely stated he wanted a high end racket. There was no indication that the man was looking to the seller’s skill or judgment in selecting the racket. Thus, the implied warranty of fitness did not arise. (C) is wrong for the same reason. (B) is wrong because no express warranty arose regarding how long the racket would last. The statement that the racket would probably last for years is not a statement of fact, but a prediction of the future or puffery. Moreover, it is not specific-it is qualified by the use of “probably,” and how long is “years”? This statement amounts to mere puffery and will not give rise to a warranty.
A homeowner and a builder entered into a written contract to build a sauna in a spare room in the homeowner’s home at a cost of $3,000. The contract contained a clause stating that the builder will not begin construction without prior approval of the plans by the homeowner’s certified public accountant. The builder submitted his designs to both the homeowner and the accountant. The homeowner liked the plans, but the accountant did not and withheld his approval. The builder asked the homeowner whether she wanted him to submit new designs. The homeowner told the builder orally, “No! Your designs are great! My accountant is crazy! You go right ahead and construct the sauna.” The builder constructed the sauna. The homeowner now refuses to pay the builder, citing the clause requiring approval by the accountant.
If the builder sues the homeowner, what will the builder likely recover?
A The full contract price, because the accountant’s approval was not a condition precedent for the contract to take effect.
B The full contract price, because once the builder began building the sauna after speaking to the homeowner, the homeowner did nothing to stop the builder.
C The reasonable value of the builder’s services and materials, because otherwise the homeowner would be unjustly enriched.
D Nothing, because the homeowner’s oral statement will be excluded by the parol evidence rule.
B
By her statement to the builder, the homeowner waived the benefit of the condition requiring the accountant’s approval of the design plans, and the builder detrimentally relied on the statement by building the sauna. Thus, there is a binding waiver of the condition. A condition is an event, other than the passage of time, the occurrence or nonoccurrence of which creates, limits, or extinguishes the absolute duty to perform in the other contracting party. The occurrence of a condition may be excused under a number of different circumstances. One such circumstance is where the party having the benefit of the condition indicates by words or conduct that she will not insist upon it. If a party indicates that she is waiving a condition before it happens, and the person affected detrimentally relies on it, a court will hold this to be a binding estoppel waiver. The promise to waive the condition may be retracted at any time before the other party has detrimentally changed his position. Here, the contract provided that the builder could not begin work without the accountant’s prior approval. This approval was a condition that had to be met before the homeowner’s duty to pay would arise. When the homeowner told the builder to commence working on the sauna, even though the accountant had withheld his approval, the homeowner was telling the builder that she was waiving the condition of the accountant’s approval. The builder then acted in detrimental reliance on this statement by in fact starting and completing the building of the sauna. While the homeowner could have retracted her statement and reinstated the condition prior to the builder’s detrimental reliance, she did nothing when the builder began working on the sauna. Under such circumstances, the homeowner made a binding waiver of the condition and will be estopped from asserting it. Thus, the builder is entitled to recover the full contract price. (A) is incorrect because, as discussed above, the accountant’s approval was a condition precedent for the parties’ contractual duties to arise. The builder’s duty to build the sauna and the homeowner’s duty to pay for it would not arise without the condition of the accountant’s approval either being satisfied or being excused. (C) is incorrect because unjust enrichment is a quasi-contract alternative that the builder could utilize if he did not have a contract remedy. Here, however, the builder can recover the full contract price because the homeowner waived the condition and is estopped from retracting the waiver. (D) is incorrect because the parol evidence rule does not prohibit evidence of a subsequent modification of a written contract; the rule applies only to prior or contemporaneous expressions. Consequently, it may be shown that the parties altered the integrated writing after its making. The oral agreement between the homeowner and the builder described in the facts was made subsequent to the writing. Therefore, the parol evidence rule is inapplicable to this agreement.
A buyer agreed to buy a limited edition guitar from a seller for $12,000 and a contract memorializing the agreement was signed by both parties. The next day, after the seller received an offer of $20,000 for the guitar, he called the buyer and said that he could not sell the guitar to him for $12,000. The buyer did not respond. On the delivery date, the buyer fails to tender $12,000 and the seller does not deliver the guitar.
On these facts:
A The seller can recover from the buyer for breach of contract.
B The buyer can recover from the seller for breach of contract.
C Neither the seller nor buyer can recover until one of the parties tenders performance.
D The contract is terminated.
B
The buyer can recover because the seller’s phone call was an anticipatory repudiation. Anticipatory repudiation occurs where a promisor, prior to the performance time, unequivocally indicates that he cannot or will not timely perform, allowing the nonrepudiator the option of suspending performance and waiting to sue until the performance date, or to sue immediately. The seller’s phone call was an unequivocal statement that he would not sell the guitar for $12,000. This repudiation excused the buyer’s duty to tender $12,000 on the delivery date. (A) is incorrect because the seller’s anticipatory breach excused the buyer’s performance. (C) is incorrect because the seller’s repudiation the day after the contract was signed gave rise to an immediate cause of action. (D) is wrong because the contract was not terminated; rather, it was anticipatorily breached by the seller.
