Contract & Sales Flashcards
In a K for sale of goods and b/w merchants, what’s the appropriate measure of damage when a buyer defaults after putting down a deposit? There is no liquidated damages provision in the K.
The deposit minus the lost profits.
4 Measures of damages authorized by UCC when a buyer defaults after putting down a deposit.
(1) the deposit to serve as liquidated damages if the contract so provides, within certain limits.
(2) § 2-718(2) measure –> when a deposit is given and there is no liquidated damages provision, the seller may keep 20% of the contract price or $500, whichever is less.
(3) If actual damages are more than 718(2) remedy, actual damages, § 2-708, the traditional expectancy measure of damages = resale price minus contract price.
(4) § 2-708, When (3) is inadequate to put the nonbreaching party in as good a position as he would be in if the sale went through, then the measure of damages is lost profit.
A & B entered into a K to rebuild A’s dock. K price $50,000.
Pay $25,000 at commencing (May 1).
The rest payable upon completion.
B = “would not proceed with the work unless price increased to $80,000.”
A did not respond but made a K with a 3rd P. for $60,000 (fair market cost).
B still showed up and did the work as originally agreed but dismissed by A.
Is the original K valid?
No, B committed a total breach of contract. B’s notification that he would not perform his obligations on a binding contract unless he was given more money = anticipatory breach.
Anticipatory breach = gives nonbreaching party the right
(1) to terminate, and
(2) to engage a new contractor to complete the work.
No notice needs to be given by the nonbreaching party.
Under what occasions is the party who anticipatorily breaches NOT allowed to repudiate his breach?
Anticipatory breach CAN be repudiated at any time unless the other party
(a) has canceled,
(b) materially changed his position in reliance on the repudiation, or
(3) indicated that he considers the repudiation final.
If the nonbreaching party performs one of these, anticipatory breach CANNOT be repudiated.
In an Anticipatory Breach situation, What’s the remedy for the nonbreaching party?
Cost of the substitute performance - Contract price
A loaned B $1,500. There was no writing and no payback date;
It was understood that B would repay when he was able to do so.
Sometime later, A asked B to pay the $1,500 directly to his nephew. Immediately thereafter, A informed the nephew to expect $1,500 from B on the following Monday. When Monday came, B decided he would rather tender the money to A, and A accepted the money.
Will the nephew succeed in an action against B for the $1,500?
No, because the shopkeeper’s acceptance of the $1,500 from the employee revoked the shopkeeper’s gift to the nephew.
Can a creditor’s right to receive money due from a debtor be assigned when the debt is NOT evidence by a writing?
Yes. Regardless of whether the debt is evidence by a writing, and consideration is also NOT required for assignment to be valid.
Is a gratuitous assignment generally revocable?
Yes. But an exception arises when the assignor is estopped from revoking when he:
(1) reasonably foresees that the assignee will change his position in reliance on the assignment; and
(2) such detrimental reliance occurs.
In a situation of gratuitous assignment, what is one way the assignment may be terminated?
By the assignor taking performance directly from the obligor. By accepting the money from the employee, the assignor took direct performance from the obligor, thereby revoking the assignment.
A dealer in oriental rugs acquired an antique rug measuring 24 feet by 36 feet. A banker inspected the rug and orally agreed to buy it for the asking price of $65,000, provided he was successful in purchasing the house he was trying to buy, because it had a living room large enough to accommodate the rug. The sale agreement was later reduced to writing, but the provision concerning the purchase of the house was not included in the written agreement.
If the banker is unsuccessful in acquiring the house he wants because the owner decided not to sell, and the dealer sues the banker for the purchase price, what is the most likely result?
The banker will prevail because he was unable to acquire the house he wanted.
The banker will prevail because he could not acquire the house. In general, the parol evidence rule bars oral evidence contradicting a written agreement which was intended to be a final and exclusive embodiment of the parties’ agreement. However, one exception to this general rule provides that parol evidence is admissible to show a condition precedent to the existence of a contract. Here, the contract between the banker and the dealer for the sale and purchase of the rug was only to be effective if the banker acquired the house he wanted. This condition precedent may be shown by the banker despite the fact that it was not reduced to writing. (B)-The dealer will prevail because of the parol evidence rule- is incorrect because a condition precedent to a written agreement’s enforceability may be shown by parol evidence.
A gourmet food company entered into a long-term contract with an airline, under which the food company would supply the airline with 5 million gourmet dinners over a five-year period at a special rate of $2 per unit. The food company insisted as a term of the contract that the airline agree to purchase from a microwave supplier, and to install in each of its planes, a microwave oven specifically designed to heat frozen dinners, in part because the food company owned considerable stock in the microwave supplier. The contract between the food company and the airline had a clause that authorized “oral modifications by the contracting parties.”
One month after the contract was signed but before any dinners were delivered, the airline informed the food company that it would have difficulty complying with the provision requiring purchase of the supplier’s microwaves because the supplier’s products had increased dramatically in price. Subsequent negotiations between the food company and the airline led to an oral agreement to increase the price per dinner to $2.08 per unit and eliminate the supplier’s microwave requirement.
If the supplier sues the airline for enforcement of the contract, what will be the most likely result?
Judgment for the airline, because the supplier’s rights had not vested when the modification took place.
This is a favorite MBE question. The airline will prevail because the supplier’s rights had not vested at the time of the modification. The rights of the third-party beneficiary do not vest until: (i) it manifests assent in a manner invited or requested by the parties; (ii) it learns of the contract and detrimentally relies on it; or (iii) it brings a lawsuit to enforce its rights. Until a third party’s rights have vested, a modification of the contract can take place without the consent of the third party. The proper analysis is that the supplier’s rights have not vested. Even if the supplier was aware of the contract, and even if the supplier was pleased with it, the supplier had not assented to the contract in any manner, had not detrimentally relied, and had not brought suit on the contract before it was modified. Therefore, the supplier’s rights had not vested, and the contracting parties were free to modify the contract. Moreover, notwithstanding the oral modification clause, while the oral modification will be enforceable between the food company and the airline only if an exception to the Statute of Frauds applies (e.g., the parties admit the modification or perform the contract as modified), it is doubtful that a court would allow the supplier to use the Statute to prevent the parties from admitting their modification. Thus, the modification is valid. (B)-Judgment for the supplier, because it was a third-party beneficiary to the original contract and it did not agree to the modification-is wrong because the supplier’s rights had not vested.
The proprietor of a men’s shop contracted on May 1 with a wholesaler of shirts to buy 300 men’s long-sleeve white cotton shirts for $4 per shirt, or $1,200. The parties each signed a purchase order calling for delivery of the shirts to the proprietor’s place of business and payment of the purchase price on July 1. Two days later, the wholesaler discovered that he had made a mistake in his price quote. He told the proprietor that, unless the proprietor paid him $8 per shirt, or a total price of $2,400, he would not be able to deliver the shirts. The proprietor refused to pay anything more than $1,200. When the wholesaler failed to deliver the shirts on July 1, the proprietor purchased 300 comparable shirts for $8 per shirt and brought suit against the wholesaler for damages.
What is the likely result of this lawsuit?
The wholesaler will prevail if the proprietor had reason to know on May 1 that the wholesaler made a mistake in quoting the price of $4 per shirt.
The wholesaler will prevail if the proprietor had reason to know of the mistake. Where one party makes a unilateral mistake about a basic assumption on which the contract is based, and the other party knew or had reason to know of the mistake, the mistaken party will be allowed to rescind the contract. In this case, there is a substantial disparity between the contract price of $4 per shirt and the market value of the shirts at wholesale, which seems to be $8 per shirt. If the proprietor, because of the disparity in price, was or should have been aware that the wholesaler had made a mistake, the wholesaler will be able to rescind the contract and therefore will prevail. Hence, choice (D)-The proprietor will prevail-is incorrect.
A large producer of bread wrote to a distributor of flour, asking, “How much will you charge to supply my needs for flour for the next year?” The distributor replied in writing that it could supply the producer with all the flour it would need next year at a specified price per pound. The producer wrote back, “Your offer to supply me with flour is hereby accepted, provided that you agree to a 10% discount if payment is made within 10 days from date of billing.”
What should the producer’s reply concerning a 10% discount be characterized as?
A rejection of the distributor’s offer.
The producer’s reply is a conditional acceptance, which is a rejection of the offer. This question deals with the “battle of the forms” provision of the UCC. Under section 2-207 of the UCC, an acceptance containing additional or different terms is effective unless the offeree expressly makes his acceptance conditional on assent by the offeror to the additional terms. When an acceptance is made expressly conditional on the acceptance of new terms, it is a rejection of the offer. The conditional acceptance is essentially a new offer, and the original offeror may form a contract by expressly assenting to the new terms. Here, the producer made his acceptance conditional on the distributor’s assent to the 10% discount. Thus, his communication is a rejection of the distributor’s offer. (A)-An acceptance with a proposal for an additional term that does not become part of the contract unless the supplier expressly agrees-is incorrect because this is not an acceptance. The rule stated in (A) is the one used for a nonmerchant when an acceptance contains an additional term.
On September 1, an art collector offered to sell one of his expensive paintings to a buyer. The buyer, who was a friend of the collector, wanted a few days to make up her mind, so the collector and the buyer decided that the collector would keep his offer to her open until September 8 in exchange for a payment of $5. Later that week an art investor tendered to the collector double what he was asking for the painting. On the morning of September 8, the buyer telephoned the collector to tell him that she wanted the painting but his phone was out of order, so she wrote out a check for the agreed-on amount and dropped it into a mailbox before leaving town. On September 9 the collector, not having heard from the buyer, sold the painting to the investor.
Who is entitled to the painting?
The investor, because the collector sold the painting to the investor on September 9 before receiving the buyer’s check.
The investor owns the painting. While it is true that the buyer had a valid option contract with the collector, she did not effectively accept the collector’s offer to sell the painting when she dropped the check into the mailbox on September 8. The majority view is that acceptance of an option is effective only when received by the offeror, so the usual “mailbox rule” does not apply to make the acceptance effective on dispatch. This means that the buyer did not effectively accept the option within the stated period, i.e., by September 8. When, as here, the time the offer will remain open is specified in the option, if it is not accepted within that time, the offer terminates due to lapse of time. (A)-The buyer, because she had a valid option contract with the collector and effectively accepted the collector’s offer to sell the painting- is incorrect because, as discussed above, the buyer does not own the painting because acceptance of an option is effective only when received by the offeror, and here the collector would not have received the buyer’s acceptance until it was too late.
The general rule for unilateral mistake is that a K will not be avoided. But what’s the exception?
If the nonmistaken party knew or should have known of the mistake, the K may be avoided(rescind a K).
What is the basic measure of damages when the buyer accepts goods that breach one of the seller’s warranties?
Different between the value of the goods as delivered and the value they would have had(i.e., market price) if they had been according to the contract.
