Contract Law - Knowledge Set Flashcards

Question

The owner of a summer house entered into a written agreement with a plumber. The contract contained a clause requiring all plumbing work to be completed by noon on June 1 and provided that the homeowner would pay the plumber $1,200 for his work. The plumber began working on the job on May 28. When he quit working for the day on the afternoon of May 29, half of the job was completed. Shortly thereafter, a heavy rain began, which caused a flash flood. The house was swept away in the flood waters. Which of the following best describes the obligations of the plumber and the homeowner after the flood? A Neither the plumber nor the homeowner is discharged from their obligations under the contract. B The homeowner is obliged to pay the plumber $1,200. C The plumber is discharged from his obligation but is entitled to recover from the homeowner the fair value of the work he performed prior to the flood. D Neither the plumber nor the homeowner have any further obligations.

Answer 1

C The destruction of the house discharges the plumber's duties due to impossibility, but the plumber has a right to recover for the reasonable value of the work he performed. Contractual duties are discharged where it has become impossible to perform them. The occurrence of an unanticipated or extraordinary event may make contractual duties impossible to perform. If the nonoccurrence of the event was a basic assumption of the parties in making the contract, and neither party has assumed the risk of the event's occurrence, duties under the contract may be discharged. If there is impossibility, each party is excused from duties that are yet to be performed. If either party has partially performed prior to the existence of facts resulting in impossibility, that party has a right to recover in quasi-contract for the reasonable value of his performance. While that value is usually based on the benefit received by the defendant (unjust enrichment), it also may be measured by the detriment suffered by the plaintiff (the reasonable value of the work performed). Here, the house on which the plumber was to perform plumbing repairs was totally destroyed in a flood. The facts indicate that this flood was of such an unexpected nature that its nonoccurrence was a basic assumption of the parties, and neither party was likely to have assumed the risk of its occurrence. Thus, it has become objectively impossible for the plumber (or anyone else) to complete the job. This impossibility will discharge both the homeowner and the plumber from performing any contractual duties still to be fulfilled. Therefore, the plumber need not finish the repair work, and the homeowner is not obligated to pay the entire amount of $1,200. However, the plumber can recover under quasi-contract. (A) is incorrect because both parties are discharged. (B) is incorrect because, as discussed above, the homeowner is obligated to pay for the value of the plumber's services to date, not the full contract price. (D) is incorrect because it fails to account for the fact that the homeowner will have to pay the plumber for the value of the work already performed.

Answer 2

A Most courts would hold that there is a good faith dispute, and the check thus proposed an accord; the woodworker's act of cashing it is a satisfaction. A contract may be discharged by an accord and satisfaction. An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that he is supposed to receive from the other party, some other, different performance. Satisfaction is the performance of the accord agreement. An accord and satisfaction generally may be accomplished by tender and acceptance of a check marked "payment in full" where there is a bona fide dispute as to the amount owed. Here, there is a good faith dispute between the parties as to the workmanship on the armoire. Therefore, the decorator's tender of the check marked "payment in full" and the woodworker's cashing of the check constituted an accord and satisfaction, discharging her duty to pay the balance. (B) is incorrect because the debt is unliquidated. Generally, payment of a smaller sum than due will not be sufficient consideration for a promise by the creditor to discharge the debt. However, the majority view is that payment of the smaller amount will suffice for an accord and satisfaction where there is a bona fide dispute as to the claim. As discussed above, because the parties had a good faith dispute about the workmanship on the armoire, the decorator's tender of the check and the woodworker's cashing of the check constituted an accord and satisfaction, which discharged the decorator's duty to pay the balance. (C) is incorrect because a promissory estoppel situation does not exist in that there was no change of position by the decorator based on any act or statement by the woodworker. Whenever a party to a contract indicates that she is waiving a condition before it is to happen or some performance before it is to be rendered, and the person addressed detrimentally relies upon the waiver, the courts will hold this to be a binding (estoppel) waiver. Here, there is no indication that the designer detrimentally changed position as a result of the woodworker's cashing of the check. Therefore, his act of cashing the check could not be considered an estoppel waiver. (D) is incorrect because the woodworker's indorsement is not sufficient to meet the writing requirement for a release. A release that will serve to discharge contractual duties is usually required to be in writing and supported by new consideration or promissory estoppel elements. While the good faith dispute between the woodworker and the decorator would meet the consideration requirement for a release, the indorsement does not show the kind of circumspection and deliberateness that the writing requirement was intended to ensure. Therefore, the better answer is that the acceptance of the check by the woodworker was a satisfaction, as discussed above, rather than a release.

Answer 3

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).

Answer 4

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.

Answer 5

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.

Answer 6

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.

Answer 7

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.

Answer 8

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.

Answer 9

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.

Answer 10

C The creditor will be able to recover the contract price less damages for the company's minor breach. Generally, an assignee has whatever rights his assignor would have against the obligor. Similarly, the assignee is subject to any contract-related defenses that the obligor has against the assignor. Thus, the creditor will have whatever rights the company would have against the condominium owner. Here, the company completed all of the tasks that needed to be done except for one (i.e., cleaning the oven). If the work remaining on the contract is minor, the company will be seen as substantially performing its contract, and substantial performance will discharge its duty to perform and obligate payment by the condominium owner. Because the facts state that the cost of finishing the job was relatively small (10% of the cost of the contract), it will probably be seen as a minor breach. Thus, the condominium owner cannot avoid payment of the contract price. However, despite the substantial performance, the other party to the contract may recover damages for the less than complete performance. Thus, the condominium owner will be able to offset his damages from the breach. The creditor then will be able to recover $1,350 (the contract price less the damages). (A) is incorrect because, as stated above, the obligor may offset damages directly against the assignee; he does not have to pay the full contract price and then seek damages from the assignor. (B) is incorrect because this suggests a restitutionary remedy, but, as stated above, the creditor, as assignee of the company, would be able to recover the contract price less damages because the company substantially performed. (D) is incorrect because the constructive condition precedent to the condominium owner's duty to pay (the company's performance) has been satisfied here by substantial performance.

Answer 11

D The pet food manufacturer must allow the farming concern until November 15 to ship cornmeal that conforms to the contract because that is the original date when performance was due. Under the UCC, if a buyer has rejected goods because of defects, the seller may, within the time originally provided for performance, "cure" the defective tender by giving reasonable notice of its intention to do so and making new tender of conforming goods, which the buyer must then accept. Here, the farming concern promised to deliver cornmeal that conforms to the contract by the original date of performance. Thus, the pet food manufacturer cannot declare the contract to be in breach and must accept the farming concern's delivery of conforming goods if it occurs by November 15. (A) is incorrect because, as discussed above, the farming concern has the right to cure until November 15. (B) is incorrect because the farming concern has the right to cure the defective tender of the 50 tons by November 15, the date when performance is due under the contract. Note too, that the UCC requires perfect tender; thus, the manufacturer would never be required to accept an amount less than full contract amount. If a delivery or goods do not conform to the contract in any way, the buyer may accept all, reject all, or accept some commercial units and reject the rest. The buyer always has the option to reject all of the goods if they or the delivery do not conform to the contract exactly. (C) is incorrect because it states the wrong standard for the time allowed to a seller to cure a defective delivery. It states the standard applied when the seller believed the goods would be acceptable, which is not the case here. When the buyer rejects a tender that the seller reasonably believed would be acceptable, the seller, on reasonable notification to the buyer, has a further reasonable time beyond the original contract time within which to make a conforming tender. In this case, the time for performance under the original contract has not expired, and the farming concern has promised to perform within that time. Furthermore, there is nothing in the facts to suggest that the farming concern believed its original shipment was reasonable; the farming concern acknowledged that the shipment did not conform to the contract and there was no indication that the pet food manufacturer had previously accepted nonconforming goods.

Answer 12

A The buyer of goods may obtain specific performance where the seller refuses to deliver goods if the goods are unique or circumstances are otherwise proper. Here, the hairspray was reputedly the "longest lasting" in the industry and presumably no other hairspray would measure up to it. Thus, (A) is correct. (B) is wrong because there was a valid contract between the parties, and detrimental reliance is a remedy in cases where there is no contract. (C) is wrong because it is overbroad. Specific performance is available for contracts for the sale of goods where money damages would be inadequate to secure substitute goods. (D) is wrong. Specific performance is an equitable remedy and thus subject to equitable defenses such as unclean hands. However, the hairstylist's action in "butchering" his customers' hair is not the sort of wrongdoing that implicates the doctrine of unclean hands. The haircuts are not a "wrongdoing" in any moral, ethical, or legal sense, and the hairstylist certainly engaged in no improper conduct arising out of the same transaction that is the subject of the contract, with respect to contractual duties (i.e., paying for the hairspray he received). Hence, (D) is incorrect.

Answer 13

C The retailer did not properly reject, because he accepted the phones and failed to give proper notice of rejection. A buyer who receives nonconforming goods generally has the right to accept all, reject all, or accept any commercial units and reject the rest. Here, 20% of the phones shipped were defective, so the retailer had a right to reject. To properly reject, the rejecting party must, within a reasonable time after delivery and before acceptance, reject the goods or notify the seller of the rejection. Here, the retailer failed to reject the goods or notify the seller of the defects. He merely transferred payment for less than the contract price. Thus, the retailer cannot rely on the defect in claiming a breach, and his rejection was improper; i.e., he has accepted the goods. (A) and (B) are wrong because, although the retailer does not have to accept defective goods or pay for them, he must give the seller notice of the specific defect or he cannot rely on that defect in rejecting. (D) is not as good a choice as (C) because the retailer could have rejected the goods without returning them. As discussed above, the retailer was required to reject or notify the seller of the defects.

Answer 14

C The contractor should be able to recover $250,000 in restitutionary damages. Where a builder in a construction contract breaches during the construction, the nonbreaching party is entitled to the cost of completion plus compensation for any damages caused by the delay in completing the building. Most courts, however, will allow the builder to offset or recover for work performed to date to avoid the unjust enrichment of the owner. This restitutionary recovery is usually based on the benefit received by the unjustly enriched party. If substitute performance is readily obtainable, damages are measured by the unpaid contract price minus the cost of completion (up to the value of the benefit received by the defendant). Here, the contractor's duty to complete the project was not discharged by impossibility; he could have hired another contractor to take his place or yielded to his employees' demands. Hence, the contractor's failure to complete the remodeling constituted a breach of contract and resulted in the college having to expend $150,000 to have the building completed on time. However, the contractor did not receive any payments for the work that he did before breaching; the college would be unjustly enriched if it does not have to pay for any of this work. The benefit of the completed remodeling is measured by the contract price, $400,000, because a restitutionary recovery here would be based on the failed contract between the parties and substitute performance is readily obtainable. This amount is reduced by the $150,000 cost of completion that the college can recover from the contractor, leaving a net recovery of $250,000 for him. (A) is incorrect. Most modern courts would permit the contractor to recover in restitution to prevent the college's unjust enrichment from the work that he did. (B) is incorrect because recovery measured by the claimant's detriment (i.e., his reliance interest) is an appropriate alternative only where the standard "benefit" measure would achieve an unfair result; it is not applied where the party seeking restitutionary recovery was the breaching party. (D) is incorrect because courts will always limit relief to the contract price where the claimant is the breaching party. Measuring the benefit to the college in terms of the value of the improvements rather than the contract price will deny to the college the benefit of the bargain that it became entitled to when the contractor breached.