Contracts

Question 1

On Monday, Seller offers to sell her Prius to Buyer. On Tuesday, Seller mails Buyer a revocation. On Wednesday, Buyer accepts the offer. On Thursday, Buyer receives Seller’s revocation. Is Seller’s revocation effective?

Answer 1

No. There is no mailbox rule for revocations. Revocations are effective ONLY when received.

Question 2

(1) Seller, a nonmerchant, verbally offers her Prius to Buyer, a nonmerchant, for $8,000 and promises to keep her offer open for a week. Can Seller revoke?
(2) Same hypo, but now Seller is CarMax? Can CarMax revoke on its verbal guarantee to hold the offer open?

Answer 2

(1) Yes. This looks like an option contract, but it lacks consideration for the option.
(2) STILL YES! This becomes a UCC Article 2 firm offer contract. But firm offers are enforceable ONLY when it’s in writing. If in writing, it’s enforceable for up to 3 months.

Question 3

(1) Beyonce offers me $10,000 to paint her house, but does not specify how to accept her offer. I start painting the house. Have I accepted Beyonce’s offer so that I am bound to finish the job?
(2) What if Beyonce’s offer requires that I accept by painting the house, and I start painting? Have I accepted the offer such that I am bound to finish the job?
(3) If I start painting under the terms in #2, may Beyonce still revoke?

Answer 3

(1) Yes. Because it leaves open the method of acceptance, this is a bilateral contract, which may, by default, be accepted by performance.
(2) No. TRICKY! This is a unilateral contract (a contract which, by its terms, is accepted by performance). Unilateral contracts are ONLY accepted by COMPLETING the work.
(3) No. TRICKY! Because the offeror chose unilateral language, they have to deal with the disadvantages of that contract type. You get to quit before finishing, but she can’t revoke once you start painting.

Question 4

(1) The buyer orders a Beyonce CD from the seller. The seller ships a Lady Gaga CD instead. Has the seller accepted the buyer’s offer?
(2) What if the seller includes a note saying, “I’m out of Beyonce, but I am sending a Lady Gaga CD as an accommodation”?

Answer 4

(1) Yes. This is acceptance and breach in one. The seller accepted, and then breached the agreement.
(2) No. This is a counteroffer WITHOUT a breach. Shipment of nonconforming goods (with seasonable notification that it’s being offered as accommodation) is a counteroffer the buyer is not obligated to accept.

Question 5

Does the mirror image rule apply under UCC?

Answer 5

No. There is no mirror image rule under UCC. Acceptance is not defeated so long as there is a “seasonable expression of acceptance,” even if there are new terms added.

Question 6

B makes a written offer to buy 100 widgets from S. The offer does not mention any warranties. S’s written acceptance disclaims all warranties.

(1) Is there a contract?
(2) Does the contract include S’s disclaimer?
(3) What if S had merely added “Monday delivery”? Part of the contract?
(4) What if B had responded that Monday delivery was not convenient?

Answer 6

(1) Yes. The mirror image rule does not apply to UCC contracts.
(2) No. Disclaimers are considered material changes (“hardship or surprise”), and even in merchant to merchant contracts, material changes are not part of the contract.
(3) Yes and yes. Between merchants, additional terms (as long as they are not material) are automatically added to the contract unless they’re objected to.
(4) This is rejection.

Question 7

Donald Duck offers to sell his Tesla Roadster to Mickey Mouse for $1 million. Mickey pays Donald $3,000 to hold the offer open until July 9. On July 9, Mickey mails an acceptance. On July 11, Donald receives the acceptance. Is Mickey’s acceptance effective?

Answer 7

No. TRICKY! The mailbox rule does not apply to option contracts, which makes sense because the justification for the mailbox rule (parity of bargaining power with the offeror) doesn’t apply when everybody has agreed how long the offer will stay open.

Question 8

Snooki helps JWoww move into her new home. A week later, JWoww promises to pay Snooki $300 in consideration for helping her move. JWoww now refuses to pay. What result?

Answer 8

No contract. This is past consideration, which is not consideration at all.

Question 9

Beyonce contracts to sing at the Coachella Music Festival for $20,000. On arrival, she demands $30,000. Coachella agrees. After Beyoncé performs, Coachella refuses to pay her the extra $10,000.

(1) Is there consideration for Coachella’s promise to pay Beyonce the extra $10,000?
(2) What if Beyonce agrees to sign autographs for an hour in exchange for the extra $10,000?
(3) What if the modification is fair in light of an unanticipated change in circumstances?
(4) What if the promise to pay the extra $10,000 is made by Kanye West, not by Coachella?

Answer 9

(1) No. B was under a preexisting duty to perform.
(2) Yes. This is new consideration.
(3) Yes. Unforeseen circumstances are an exception to the preexisting duty rule.
(4) Yes. This is the third-party exception to the preexisting duty rule. The same consideration (to sing) can be “paid” to two parties simultaneously, so there’s a valid bargained-for exchange both with Coachella and with Ye.

Question 10

Donna Karan contracts to sell a dress to Heidi Klum for $4,000. Later, they agree to increase the price to $4,500. Is Heidi’s promise to pay the extra $500 enforceable?

Answer 10

Yes. Preexisting duty rule does not apply under UCC, which only requires good faith to modify a contract–not new consideration.

Question 11

You owe MasterCard $3,000. You and MasterCard orally agree that if you pay $2,000, MasterCard will forgive the rest of the debt. If you pay $2,000, can MasterCard recover the $1,000 balance?

Answer 11

Yes. TRICKY! There is no new consideration for the promise to liquidate the $1000. (Payment of $2000 was already required as a preexisting duty!)

Question 12

Grandpa promises to give his granddaughter $2,000 as a gift. In reliance on the gift, Granddaughter quits her job as a bookkeeper. Then Grandpa dies and his estate reneges. Was there consideration for Grandpa’s promise to give Granddaughter the $2,000?

Can Granddaughter enforce Grandpa’s promise on any other ground?

Answer 12

No. That’s a gift.

Yes. Promissory estoppel. This is ONLY the answer when there is no consideration! 
Three elements:
(1) Promise was made.
(2) Justifiable reliance.
(3) Justice requires enforcement.

Question 13

A-Rod agrees to sell Serena Williams a baseball bat for $100,000. Neither party was aware that the baseball bat had been destroyed two days earlier.

(1) Does Serena still have to buy the bat?
(2) A-Rod agrees to sell Serena a baseball bat for $100,000. Both parties believe it was used by Babe Ruth. After the agreement, they learn that it was not. Does Serena still have to buy the bat?
(3) What if the baseball bat was one of Babe Ruth’s, but it was worth only $50,000?
(4) At the time of their agreement, Serena believed Babe Ruth was the original owner of the baseball bat, but A-Rod did not. Later, Serena learns she was wrong. Does she still have to buy the bat?

Answer 13

(1) No. This is mutual mistake about the existence of the subject matter. No contract exists.
(2) No. This is a mutual mistake as to an existing fact. In that situation, the adversely affected party (here, Serena) may void upon discovery that a material basic assumption was wrong.
(3) Yes. This is a mutual mistake, but it is about a collateral issue–it’s about the value of the object (ie. the sufficiency of the consideration). Courts don’t examine that. Contract is valid.
(4) Yes. Unilateral mistakes do not spoil a contract.

Question 14

Six types of agreements covered by the statute of frauds

Answer 14

Marriage
Year (by its terms)

Land sale or lease
Estate execution
Goods worth $500+
Surety

Question 15

Provisions prohibiting oral modification: valid under common law? UCC?

Answer 15

Common law: No.

UCC: Yes.

Question 16

Starbucks Seattle contracts to ship coffee to Central Perk in New York City. Rats infest the coffee containers while they are in transit. The contract is silent on who bears the risk and neither party is to blame for the rats. Who has the risk of loss if Starbucks shipped the coffee after the contract deadline? Why?

Same hypo except Starbucks shipped on time, but the contract was for FOB Seattle? What about FOB New York?

Answer 16

Starbucks Seattle. Because it breached. It does not matter that the breach was unrelated to the rats: they breached, so they have to eat the risk.

FOB Seattle: This is a shipment contract – so Starbucks’ delivery obligations end when they get the coffee to a common carrier in Seattle. Risk from then on is with the buyer.

FOB New York: This is a destination contract – so Starbucks’ delivery obligation extends all the way until it arrives in New York. Risk stays with them until that point, so it would depend on when the rats infest the coffee.

Question 17

Maya contracts to buy a floor model couch from Costco. She plans to pick it up at the loading dock. Before she does, the couch is ruined by kids jumping all over it. Does Maya still have to pay?

Maya contracts to buy a couch at a garage sale. Owner tells her where it’s located in the back bedroom and how to pick it up. Before Maya picks up the couch, it’s ruined by bargain hunters jumping all over it. Does Maya still have to pay?

Answer 17

No. Costco is a merchant, so it bears the risk until the buyer takes possession (as repeat players they can insure against that risk or upcharge accordingly).

Yes. Garage sellers are not merchants, so they bear the risk only until tender of delivery. Here, the seller made it available to her immediately.

Question 18

How much performance is sufficient to complete a contract to:

(1) Paint a house
(2) Sell 100 widgets
(3) To buy a baseball card with the express condition that it appraise for at least $1,000, if it instead appraises for $999.99.

Answer 18

(1) As a contract for service, this is covered by the common law which requires “substantial performance” - would depend on the facts.
(2) As a contract for goods, this is covered by UCC, which requires perfect tender. The only answer here is 100 widgets. Anything less allows the buyer to reject all, accept all, or accept the conforming goods and reject all the rest.
(3) None. An express condition excepts the substantial performance rule. No performance is necessary if the condition is not met.

Question 19

Beyonce agrees to buy my house, provided she obtains a $1,500,000 mortgage at 5% or less. She makes no effort to get a mortgage and refuses to purchase my house. Is she in breach?

Answer 19

Yes. The condition was to protect her, so her failure to cooperate in good faith squanders that protection and excuses the condition. She is in breach.

Question 20

John contracts to buy vintage vinyl records from Beyonce. John learns from other buyers that Beyonce’s recent deliveries have contained lots of scratched records.

(1) What can John do?
(2) If Beyonce doesn’t respond, what are John’s rights?
(3) Beyonce contracts to sell John goods on credit. Later, Beyonce learns that John has failed to make payments to other suppliers. Can Beyonce demand that John pay cash?

Answer 20

(1) Require that Bey provide adequate assurance that the records are in good condition.
(2) John is released from his obligation to pay.
(3) No. Bey is only entitled to demand ADEQUATE assurance. She cannot rewrite the terms of the contract to demand a specific form of payment.

Question 21

Ida Hogh hires Van Gogh to paint her portrait.

(1) If Van gets hurt and cannot paint, is he liable?
(2) What if Ida Hogh hired Van Gogh to paint the exterior of her barn instead?
(3) If Van Gogh paints the portrait, but Ida dies, is her estate liable for the contract price?

Answer 21

(1) Physical incapacity discharges of a necessary person contractual obligations.
(2) Painting the outside of a barn does not require a particular person – it can be done by anybody. Van is not necessary to effectuate the contract, and therefore Van is still on the hook to find someone to do the work.
(3) Yes. Her obligation was to pay–a task which can be carried out by her estate, which inherits all of her obligations.

Question 22

I agree to paint Beyonce’s house for $10,000. I breach. She pays another painter $13,000 to paint the house.

(1) How much can Beyonce recover from me?
(2) Same facts, except that Beyonce refuses to pay me after I have started painting her house. I have already spent $5,000. I expected to have $1,500 in profit. What are my damages?
(3) If my profits were uncertain, what would my reliance damages be?
(4) What would be my damages in restitution?

Answer 22

(1) $3,000. She expected to have a painted house and be down $10k. She ended up with a painted house and was down $13k. She gets the $3k difference from me.
(2) $6,500. I expected to be up $1.5k I’m down $5k now. $6.5k gets to me to where I expected to be.
(3) $5k. Reliance damages just resets me to where I was before the contract happened, so I get back whatever I paid in reliance of the contract.
(4) Whatever the reasonable value of the benefit conferred on Beyonce was. How much is part of a house painting worth?

Question 23

Will Smith breaches on a deal to buy a Mercedes-Benz GTClass from a dealer. The dealer has to store and insure the Mercedes and advertises it for sale in the newspaper in an attempt to find another buyer. Can the dealer recover the storage and insurance expenses from Will?

Answer 23

Yes. These are incidental damages. Note: it DOES NOT MATTER whether Smith could have foreseen these damages.

Question 24

Bridget contracts to buy an antique painting for $4,000. She later discovers it’s not antique, but keeps it anyway. The painting is worth $2,000. Had it been antique, it would be worth $5,000. What are Bridget’s damages?

Answer 24

$3,000. These are technically warranty damages, but you can use expectation damages to get the same answer. The value of her expected outcome was $5000; what she has is $2000. Give her the difference.

Question 25

Cheryl contracts to buy a Model X for $100,000 from her local Tesla dealership out of its regular inventory. The dealership would’ve made a profit of $10,000. Cheryl backs out of the deal. A week later, the dealership sells the same car to someone else. What are the dealership’s damages?

Answer 25

$10,000. TRICKY! This is the lost volume seller exception to seller’s damages. The Tesla dealer has a whole lot full of cars; had Cheryl not breached, the dealer would have sold one car to her, and another to the next buyer. Instead they now have just one buyer, which is a difference of $10k in profit. It does not matter that they still have the car and can sell it to someone else–Cheryl’s breach cost them the chance to sell to her.

Question 26

Batman contracts to provide security for Gotham City for $200,000. Batman (“assignor”) then assigns his right to the payment to Robin.

(1) Must Robin give Batman consideration to make the assignment valid?
(2) The Batman-Gotham contract provides, “Rights under this contract are not assignable.” Batman assigns the right to payment to Robin anyway. Can Robin collect from Gotham City?
(3) Same facts as 2, except that the contract states “All assignments under this contract are void.”
(4) Same facts as 3, except Batman delegates protection services to Robin instead of assigning him the collection rights. Valid?

Answer 26

(1) No. Consideration is not required to assign – gift assignments are permissible.
(2) Yes. Batman breached (he violated a contract term which commanded him not to assign), but that doesn’t do away with any assignments which have been validly made PROVIDED Robin did not know about the prohibition language.
(3) This is invalidation language which keeps the rights from being assigned. Robin does not get the right to collect.
(4) No. TRICKY! Generally, delegations are permissible without the permission of the counterparty; but when a contract says “no assignments,” that ALSO means delegations. It’s just one of those things.

Question 27

(1) Gotham pays Batman for security services. Batman assigns the right to payment from Gotham City to Robin as a gift. Batman later assigns the same right to charity. To whom should Gotham City make payment?
(2) On January 1, Batman assigns the right to the payment from Gotham City to Robin as a gift. On February 2, Batman promises to assign the same right to Ben Affleck. On March 3, Batman sells the right to payment to the Joker for $100. On April 4, Batman sells the same right to payment to Beyonce for $1,000. Who should Gotham City pay?

Answer 27

(1) The charity. Gift assignments are valid, but are revoked by later assignments (whether backed by consideration or not).
(2) The Joker. Assignments for consideration trump gift assignments, and when the right went to Joker, there was nothing left for Batman to sell to Beyonce.

Question 28

A farmer who supplies several local bakeries with grains wanted to sell his rye before the growing season was over. The farmer sent the following e-mail to a local baker: “Will sell my unprocessed rye, 20 bushels maximum, best price $100 per bushel, firm for 48 hours. /s/ Farmer.” Unsure how the baker would respond, and anxious to find a buyer for the rye, the farmer made the same offer to the baker’s chief competitor by e-mail later that same day. The baker was delighted to receive the offer, but needed a day or so to figure out how much rye she needed. When she accepted the farmer’s offer the next day, e-mailing to him an order for 20 bushels, she was aware of the farmer’s offer to her competitor, and that her competitor had also e-mailed an order to the farmer for 20 bushels. Unbeknownst to the baker, the farmer has only 30 bushels of rye left in his fields.

Assuming the farmer is a merchant with respect to rye, which of the following states the probable legal consequences of the correspondence between the parties?

(A) The farmer has a contract with the baker for 20 bushels and one with the competitor for 20 bushels
(B) The farmer has a contract with neither the baker nor her competitor.

Answer 28

(A) UCC governs. The time/quantity/price notice is an irrevocable firm offer which can be accepted unilaterally by the buyer. Both buyers accepted the offer.

Question 29

A downtown department store engaged an electrician to service all electrical appliances sold by the store for a flat fee of $5,000 per month. Under a written contract signed by both parties, the store was responsible for pickup and delivery of the appliances to be repaired and the billing for the work. By its terms, the contract would continue until either party gave 180 days’ written notice of its intent to terminate. Several months ago the electrician informed the store that he was losing money on the deal and was in financial trouble. He requested in good faith that the fee for the next three months be increased by $1,000 and that this increase be paid to a local bank to help pay off a loan that the bank had made to the electrician. The store orally agreed to so modify the original contract. However, the store did not pay the bank and now the bank is suing the store for $3,000.

Who will prevail?
(A) The store, because there was no consideration to support the promise to pay the bank.

(B) The store, because the bank is only an incidental beneficiary of the modified contract between the store and the electrician.

(C) The bank, because it is an intended creditor beneficiary of the modified contract between the store and the electrician.

(D) The bank, because the electrician exercised good faith in requesting the modification regarding the payment to the bank.

Answer 29

(A) TRICKY! By its terms, this is NOT an assignment of the right to collect – it’s a contract modification. Even before you get to the third-party beneficiary issue, you have to assess whether the contract modification was valid in the first place. Contract modifications require consideration. All that supports this one was a promise to perform services that the electrician was already under a duty to perform. No consideration, no valid contract revision. The store is therefore under no obligation to pay the additional money.

Question 30

On April 15, a wholesaler of tulip bulbs telephoned a local nursery and offered to sell to the nursery 80 gross of tulip bulbs for $8,000, not including delivery charges. The nursery accepted immediately. On April 17, the nursery sent the wholesaler an email confirming the deal for the sale of 80 gross of tulip bulbs for $8,000, and stating that it anticipated a waiver of the delivery charges because of the size of the order. On May 3, the wholesaler telephoned the nursery and stated that, due to a poor growing season for tulips, it would not be able to supply any tulip bulbs to the nursery.

If the nursery brings suit against the wholesaler and the wholesaler asserts the Statute of Frauds as a defense, will the nursery prevail?

(A) Yes, because its April 17 email contained the quantity term.

(B) Yes, because its April 17 email contained the price term.

(C) No, because the nursery’s April 17 email varied the terms of the wholesaler’s offer.

(D) No, because the wholesaler is the party to be charged and has signed nothing.

Answer 30

(A) The SoF applies in a goods contract for $500+. It has to be evinced by the party to be charged (here, the nursery). The SoF just requires that that the QUANTITY of goods to appear in the contract–it doesn’t require price.

D is wrong because the UCC binds both parties to a writing if the nonsender fails to object within 10 days.

Question 31

Contracts for goods for $500 or more must meet the statute of frauds writing requirement except in what three circumstances?

Answer 31

1. The goods are specialty goods unsuitable for resale in the regular course of business.
2. The buyer acknowledges the contract in court.
3. The buyer partially accepts the goods (they’re then bound to pay for whatever they accepted)

Question 32

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.

Answer 32

B. The shop owner can cover, so the proper remedy is damages equal to the difference in sales prices.

Question 33

Does the mailbox rule apply to option contracts?

Answer 33

NO.

Question 34

Explain the battle of the forms.

Answer 34

Between merchants, an acceptance containing extra terms unilaterally adds those extra terms to the contract UNLESS the acceptance is conditional upon those extra terms. If you see something like “your offer to sell me ____ is accepted, provided that you ___,” it’s a battle of the forms question. They function as a rejection and counteroffer in one. The recipient can then accept or reject in any of the usual ways merchants accept offers.

Question 35

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?

(A) The dealer will prevail because the original oral agreement need not be in writing to be enforceable.

(B) The dealer will prevail because of the parol evidence rule.

(C) The banker will prevail because he was unable to acquire the house he wanted.

(D) The banker will prevail because the dealer is not entitled to specific performance.

Answer 35

(C). The parol evidence rule applies BUT one of the key exceptions to it applies here: proving a condition precedent to the contract. The parol evidence can be admitted to show that the contract itself was conditional upon some other thing happening.

Question 36

What does a novation require to be valid?

Answer 36

Novation is a substitution of one party for a non-party.

1. A previously valid contract.
2. Agreement among the parties to do the novation
3. Immediate extinguishment of the original parties
4. A new valid contract

Question 37

Define partnership (exact phrase)

Answer 37

An association of 2 or more persons to carry on as co-owners of a business for profit.

Question 38

Twin duties owed by a fiduciary to the principal?

Extra duties owed when the fiduciary is also a partner?

Answer 38

Duty of loyalty
Duty of care
------
Duty of disclosure
Duty of obedience

Question 39

ABC Partnership is a general partnership with members A, B, and C. C unilaterally sells his share in the Partnership to X. X wishes to exert management control over a standard business practice Partnership engages in. May X do so?

Answer 39

No. This is the pick-your-partner rule in action. C cannot compel A and B to enter into a partnership with X without their consent, and here they have not granted it. In effect what X got was a share in the profits/losses, but the right to manage the company stayed with C.

Question 40

Mother and Father have resided with Daughter in Oregon for ten years, then divorce. Father moves to California. Ninety days later, Father files for custody of Daughter in California. What result?

Answer 40

Father loses. Jurisdiction can be obtained in three ways:

1. Child lives in the jurisdiction for 6 months.
2. # 1 doesn’t apply, but the child has “significant connection with a state AND substantial evidence concerning the child is available in the state”
3. Neither 1 nor 2 apply.

Question 41

Most important five words in a custody case?

Answer 41

“Best Interests of the Child” USE THE EXACT PHRASE

Question 42

Secured Transactions: Three requirements for attachment?

Answer 42

1. Security agreement: signed identification of property and the interest therein
2. Value given (consideration, even past)
3. Debtor’s has a right to the collateral

Question 43

There is only ONE transaction which is automatically perfected upon attachment. What is it?

Answer 43

A PMSI (purchase money secured interest) in a consumer good. The ONLY ONLY ONLY exception to this is cars, which have to be securitized by notating the lien on the title.

Question 44

Who has priority between two secured parties?

Answer 44

Look at the dates when filing and perfection occurred for each party. Whoever has the earliest date wins.

Question 45

How do you perfect?

Answer 45

1. Filing a financial statement in the proper place
2. Taking possession
3. Taking control
4. Automatic perfection
5. Temporary (20 day) perfection

Question 46

Absent other facts, who has priority between a perfected secured party and an unperfected secured party?

Answer 46

The perfected party. Duh.

Question 47

In a contest between these three secured parties who all have control over a deposit account, which has priority?
Party A put its name on the account
Party B is the bank housing the account
Party C has a signed service agreement

Answer 47

They’re in order of their priority. The one with their name on the account wins, the account servicer is second, and the contract-holder is third.

Question 48

Compensatory Damages - what are each of the following?
Expectation
Reliance
Incidental
Consequential

Answer 48

Expectation: cost of substitute performance
Reliance: cost to put P back in position they would have been before contract
Incidental: costs knock-on costs caused by the breach (additional shipping/storage, etc.)
Consequential: damages a reasonable person would have foreseen due to known circumstances