Contract Law Learning Questions - Set 9 Flashcards
A court order requiring a breaching party to perform under the contract or face contempt of court charges is also known as:
A
Replevin
B
Specific performance
C
Laches
D
An injunction
B
An order for specific performance is essentially an order from the court directing the breaching party to perform as promised under the contract or face contempt of court charges.
In contrast, an injunction is usually a court order prohibiting someone from doing a specified act. Although a mandatory injunction may order a party to perform a particular act, an order requiring a party to perform under the contract or face contempt is an order for specific performance, not an injunction.
Replevin is a buyer’s right to replevy (recover) undelivered, identified goods from a seller under certain circumstances. Replevin will lie only in cases with identified goods.
Laches is an equitable defense involving an unreasonable lapse of time in asserting a right that prejudices the defendant. It can be raised to defend an action for specific performance; the breaching party would argue that the other party delayed too long in bringing the specific performance action, and the delay caused prejudice against the breaching party.
A nonbreaching party may not seek specific performance:
A
when the contract is for the sale of land
B
when a service contract is involved
C
when the legal remedy is inadequate
D
when the subject matter of the contract is rare
B
Specific performance is not available for breach of a service contract. One reason is the difficulty in supervising the performance, but the primary reason is that courts feel it is tantamount to involuntary servitude.
A nonbreaching party may seek specific performance only when the legal remedy is inadequate, such as when the subject matter of the contract is rare or unique. Specific performance is always available for land sale contracts because all land is considered to be unique.
When a party that offers a rare or unique service has breached a service contract, the court may grant __________ to the nonbreaching party.
A
punitive damages
B
injunctive relief
C
restitution
D
specific performance
B
A court may grant injunctive relief to enjoin a breaching party from working for a competitor throughout the duration of the contract if the services contracted for are rare or unique.
Specific performance is not available for breach of a contract to provide services, even if the services are rare or unique because it is difficult to supervise and most courts find that it is tantamount to involuntary servitude.
Punitive damages are generally not awarded in contract cases.
Restitution is available as an alternative to contract damages in a non-contract situation to prevent unjust enrichment. Here there is a contract and there are no facts indicating unjust enrichment.
The right to specific performance in a land sale contract is cut off if the subject matter of the contract has already been sold to another who purchased for value and in good faith.
This is known as the equitable defense of:
A
Laches
B
Sale to a bona fide purchaser
C
Replevy
D
Unclean Hands
B
If the subject matter of a goods or land contract has already been sold to another who purchased for value and in good faith, the right to specific performance is cut off. This is known as the equitable defense of sale to a bona fide purchaser.
The equitable defense of laches arises when a party delays in bringing an equitable action and the delay prejudices the defendant. Note that mere delay itself is not a ground for this defense.
The unclean hands defense arises when the party seeking specific performance is guilty of some wrongdoing in the transaction being sued upon. Note that the wrongdoing must be related to the transaction being sued upon; it is not sufficient that the plaintiff has defrauded other persons in similar transactions.
Replevy is a nonmonetary remedy found in Article 2 of the U.C.C. If a buyer has made at least part payment of the purchase price of goods that have been identified under a contract and the seller has not delivered the goods, the buyer may replevy (or recover) the goods from the seller if the seller becomes insolvent within 10 days after receiving the buyer’s first payment or the goods were purchased for personal, family, or household purposes. In either case, the buyer must tender any unpaid portion of the purchase price to the seller.
One Saturday, the owner of an art gallery and her friend were discussing art after the friend had helped the owner move some furniture in her home. The friend mentioned that he was very fond of a particular artist. The gallery owner asked her friend if he would like to buy a painting by the artist, entitled “Tears of a Clown,” recently consigned to the gallery. The friend said that he would love it, but he only had $2,700. The gallery owner told her friend that she would let him have the painting for that price. The friend knew that the painting was priced at $7,000. He immediately wrote out a check for $2,700 and gave it to the gallery owner, who told him to visit the gallery on Monday to pick up the painting. On Sunday, a salesperson at the gallery sold “Tears of a Clown” to a gallery customer. Neither the salesperson nor the customer knew of the agreement between the gallery owner and her friend. The customer took the painting with him on Sunday. When the friend arrived at the gallery on Monday, the painting was gone.
Can the friend obtain specific performance from the gallery owner?
A Yes, because there was a bargained-for exchange of promises between the friend and the gallery owner.
B Yes, because the friend’s assistance to the gallery owner in moving her furniture should be considered part of the quantum of adequate consideration.
C No, because the painting was sold to a bona fide purchaser for value and enforcement against the gallery owner is no longer feasible.
D No, because the gallery owner’s promise was essentially a gift to her friend that she was free to revoke.
C
The salesperson sold the painting in good faith to a customer. Because the gallery owner no longer actually has the painting, there is no way to specifically enforce her agreement to convey it to her friend. Specific performance is granted when: (i) there is a valid contract; (ii) the legal remedy is inadequate; (iii) enforcement is feasible; and (iv) mutuality of remedy is present. The gallery owner and her friend had a contract, pursuant to which the gallery owner promised to sell her friend the painting for $2,700. Although this was an oral contract for the sale of goods for a price exceeding $500 and thus subject to the Statute of Frauds, the contract is removed from the Statute by the fact that the friend tendered full payment for the painting. Thus, the oral nature of the agreement is no hindrance to its validity. Moreover, a painting, by its nature, is unique, rendering the legal remedy (damages) inadequate. However, feasibility of specific performance against the gallery owner is lacking here. The salesperson sold the painting to a customer who paid value for it and was unaware that the gallery owner had already agreed to sell it to her friend. The salesperson also was unaware of the gallery owner’s agreement with her friend. With the subject matter of the contract having been transferred in good faith to a third party, there is no feasible means to enforce against the gallery owner her agreement to sell the painting to her friend. Thus, the right to specific performance is cut off. Regarding (A), it is true that there was a bargained-for exchange of promises between the gallery owner and her friend. Nevertheless, specific performance is unavailable because enforcement is not feasible. (B) is incorrect because the friend’s assistance to the gallery owner in moving her furniture does not form part of the basis of the consideration. The assistance given by the friend occurred before the gallery owner’s promise to sell the painting, and thus was not given in exchange for the promise when made. Also, even if the assistance given did form part of the quantum of adequate consideration, specific performance would still be denied because enforcement is not feasible. (D) is incorrect because a gift is a voluntary transfer of property from one person to another without compensation or consideration. The gallery owner clearly stated that she wanted her friend to pay her $2,700 for the painting. Thus, the donative intent necessary for a gift was absent.
A property owner decided that she would turn the garage on her property into an exercise area, including a modern sauna and spa. She entered into a written agreement with a contractor who agreed to do the job personally for $12,500, which included all requisite plumbing, electrical, and carpentry work. The contractor was to begin work by May 14. On May 15, he had not yet appeared to start the job. The property owner telephoned the contractor, who told her that he was hired for a big job that was going to pay him “a lot more money than that marginal project of yours, so I’m not going to work on your garage.” Over a period of several months, the property owner made many calls to local contractors, but none of them would agree to do the job for the price agreed upon by the original contractor. On June 3 of the following year, the property owner filed suit for specific performance against the original contractor.
Which of the following represents the contractor’s best argument in his defense against the property owner’s suit?
A Specific performance is an equitable remedy, and because the property owner waited for over a year to sue, the equitable defense of laches will apply.
B Specific performance is inappropriate, because a contract for services is involved.
C Specific performance is inappropriate, because nominal legal damages are available to the property owner.
D Specific performance is inappropriate, because the property owner’s failure to obtain another contractor for the job is an indication that $12,500 was an unfair price.
B
The contractor’s best argument is that a contract to provide services is not specifically enforceable. Thus, the property owner cannot obtain specific performance of the contractor’s agreement to perform personal plumbing, electrical, and carpentry work for her. One of the prerequisites to obtaining specific performance is that a plaintiff must show that the legal remedy is inadequate. Where the plaintiff has contracted for something rare or unique, money damages are inadequate compensation for loss of the bargain. Generally, the services to be performed under a contract for services are not unique and money damages can remedy a breach. Thus, specific performance is not available in such cases. In addition, even in the case of unique services, a court will not order a defendant to work for the plaintiff, in part because of the difficulty of enforcement and because such an order is tantamount to unconstitutional involuntary servitude. Another requirement for specific performance is that enforcement must be feasible. Enforcing a services contract generally would create complicated and time-consuming supervision problems that courts are reluctant to undertake. In this case, the contractor agreed to personally perform for the property owner plumbing, electrical, and carpentry work. Thus, this was a contract to provide services. However, the services to be performed by the contractor were not unique or capable of being performed solely by him. The property owner could obtain adequate compensation by receiving the amount, above her contract price with the contractor, that it will cost to have someone else perform the required work (plus reasonable compensation for the delay in performance). Thus, specific performance is inappropriate here. (A) is incorrect because circumstances that would permit the defense of laches do not appear to be present. Laches is available as an equitable defense if the plaintiff has unreasonably delayed in bringing the action and the delay is prejudicial to the defendant. There is no automatic invocation of laches by a delay of one year before suit is filed. Here, there is no showing that the property owner’s delay in filing suit was unreasonable, given that she spent several months trying to find another contractor, nor that the contractor has been prejudiced by the delay. Therefore, laches will not provide the contractor with a strong defense. (C) is incorrect because nominal damages would not be an adequate legal remedy. Nominal damages are appropriate where there is a breach, but no actual loss. Here, nominal damages would fail to compensate the property owner for the amount she will have to pay above the price agreed to by the contractor. Thus, the availability of nominal damages would not, by itself, render specific performance an inappropriate remedy. Regarding (D), a court of equity may inquire into the relative values of agreed-upon consideration and deny an equitable remedy if it finds a contract to be unconscionable. Nevertheless, the mere fact that the property owner could not find another contractor to do the job for the price agreed upon by the contractor does not establish that the contract was unconscionable. Thus, the contractor will not be successful in his contention that specific performance should be denied on the basis that the price for which he agreed to do the work was too low.
A distributor of electric toy trains and a hobby shop owner entered into a written contract providing that the distributor will tender to the shop owner four dozen of a popular electric train set at a price of $100 apiece, to be delivered no later than October 31, to take advantage of the holiday shopping season. The shop owner chose to order from this distributor because its price for the train set was lower than that of other distributors. Shortly after the shop owner placed his order, the distributor raised its prices due to a sudden surge in popularity of that train set. Because the distributor did not have enough train sets to accommodate everyone due to the surge of orders, it decided to deliver train sets only to those buyers who had ordered them at the increased price. The distributor notified the shop owner that it would not deliver the train sets it ordered. The shop owner filed an action to force the distributor to deliver the train sets at the agreed-upon price.
Will the court compel the distributor to deliver the train sets to the shop owner?
A No, because a contract for the sale of goods is not subject to specific performance.
B No, because the shop owner can buy them from another distributor.
C Yes, because the shop owner will not be able to buy them from another source at the contract price.
D Yes, because time is of the essence.
B
Because the shop owner can cover (i.e., buy the train sets from another source), a court will not grant specific performance. If the seller fails to deliver goods under a valid contract, the buyer has a number of remedies available, including the right to cover and the right to obtain specific performance if appropriate. A buyer may obtain specific performance of a contract for the sale of goods if the goods are unique or in short supply, but that does not appear to be the case here because the other distributors carried that train set. Thus, the shop owner can buy the train sets from another distributor and get the difference between the cost of the substitute goods and the contract price. Thus, (B) is correct. (A) is incorrect because, as discussed above, under certain circumstances a seller of goods may be subject to specific performance. (C) is incorrect because, as discussed above, the shop owner can buy the train sets from another distributor and then sue for damages for the difference in cost. Thus, specific performance is not the appropriate remedy. (D) is irrelevant to whether specific performance is granted and is unsupported by the facts.
A college student was interested in renting a particular apartment because of its very distinctive features, but she was also considering a number of other options. Because she wanted some time to make up her mind, she contacted the building’s rental agent and asked him to reserve her right to rent the particular apartment. They made the following written agreement:
“Upon payment of $200, the student shall have the right to inform the agent that she wishes to rent the apartment any time on or before July 1. If she fails to notify the agent that she wants the apartment on or before July 1, the agent shall keep the $200. However, if she does notify the agent on or before July 1 that she desires the apartment, the agent will apply the $200 to her first month’s rent.”
The student paid the agent $200.
On June 9, the agent rented the apartment to a third party who was unaware of the agent’s agreement with the student. On July 1, the student told the agent that she wanted the apartment. He refused to rent it to her and returned her $200.
The student sued, requesting the court to compel the agent to rent her the apartment. The court determined that the agent breached his agreement with the student.
Would it be appropriate for the court to order the agent to rent the apartment to the student?
A Yes, because the agent should not have rented the apartment to the third party before July 2.
B Yes, because the student’s harm cannot be remedied with money damages.
C No, because the contract was unconscionable.
D No, because the student’s right to specific performance was cut off by the lease to the third party.
D
The court should not order the rental agent to rent the apartment to the student because her right to specific performance was cut off by the lease to the third party. A court will grant specific performance of a contract in certain circumstances (e.g., if money damages would be inadequate). While money damages generally are considered inadequate when a transfer of an interest in land is involved (including a transfer of a leasehold estate), a court will not grant specific performance if the subject matter of the contract has been transferred to a bona fide purchaser for value. A third party lessee who was unaware of the agreement between the agent and the student would be considered a bona fide purchaser for value. Thus, even assuming that all of the elements for specific performance are present, the court still would not order the rental agent to lease the apartment to the student here. (A) would be correct if a bona fide purchaser were not involved. The student and the agent created an option contract, the terms of which required the agent to rent the apartment to the student if she notified the agent on or before July 1. The agent breached the contract by renting the apartment to a third party on June 9, because renting the apartment before July 2 prevented the agent from renting the apartment to the student. All land is considered unique (and the apartment here had some very distinctive features to make this point even clearer), so specific performance would generally be an appropriate remedy for breach but for the lease to the third party. (B) would also be a good choice but for the lease to the third party. The student’s harm cannot be remedied with money damages (because the apartment is unique) and that generally is a ground for granting specific performance. However, as explained above, any right to specific performance will be cut off by the lease. (C) is wrong because nothing in the facts shows the contract to be unconscionable. Unconscionability prevents oppression and unfair surprise. The basic test is whether at the time the contract was formed the clauses involved were extremely one-sided. That was not the case here.
