CONTRACTS Flashcards
Under Article 2, when an offeree proposes additional or different terms as part of an otherwise valid acceptance, the acceptance __________.
A. Fails under the mirror image rule
B. Fails under the battle of the forms
C. Is effective, unless the acceptance is expressly made conditional on assent to the additional or different terms
D. Is deemed a rejection and counteroffer
CORRECT ANSWER: C. Is effective, unless the acceptance is expressly made conditional on assent to the additional or different terms
The Article 2 battle of the forms provision provides that the proposal of additional or different terms by the offeree in a definite and timely acceptance is effective as an acceptance, unless the acceptance is expressly made conditional on assent to the additional or different terms. Whether the additional or different terms become part of the contract depends on whether or not both parties are merchants.
Article 2 has abandoned the mirror image rule, which insists on an absolute and unequivocal acceptance of each and every term of the offer. Under that rule, any different or additional terms in the acceptance make the response a rejection and counteroffer.
On July 1, a cattle breeder, who was planning to retire soon, sent a note to his neighbor offering to sell his prize bull for $15,000. On July 10, the neighbor, who was also a cattle breeder, wrote the following note to the retiring breeder:
“I have decided to take the bull. I will give you a cashier’s check on delivery on Saturday, July 28.”
The retiring breeder did not respond. The retiring breeder did not want to deliver the bull on July 28 and did not think that the delivery day was agreed to. Instead, he delivered the bull on Monday, July 30. The neighbor refused the delivery and stated that he had found another bull he likes better. The retiring breeder sues the neighbor for breach of contract.
Is the retiring breeder likely to prevail?
A. Yes, because his breach, if any, was minor.
B. Yes, because the parties had not agreed on July 28 as the delivery date.
C. No, because there was no contract.
D. No, because he did not deliver the bull on July 28.
CORRECT ANSWER: D. No, because he did not deliver the bull on July 28.
The retiring breeder will not prevail because he did not deliver the bull on July 28. This is a contract for a sale of goods and thus is governed by the UCC. Under the UCC, an acceptance with additional terms does not constitute a rejection and counteroffer, but rather is an effective acceptance unless made expressly conditional on the assent to the additional terms. Here, the neighbor accepted the offer and added the additional term of a delivery date. Thus, there was a contract. Whether additional terms become part of the agreement depends on whether both parties are merchants. If both parties to the contract are merchants, additional terms in the acceptance will be included in the contract unless they materially alter the terms of the offer, the offer expressly limited the acceptance to its terms, or they are objected to within a reasonable time. Here, both parties are breeders in the cattle business and, thus, are merchants. The change in the delivery date does not materially change the offer (i.e., it does not change a party’s risk or remedies), the offer did not limit the acceptance to its terms, and the retiring breeder did not object. Therefore, the July 28 delivery date became part of the contract. By delivering the bull on July 30th, the retiring breeder breached the contract. (A) is incorrect because this is a contract for the sale of goods, which requires perfect tender. Whether the breach was material or minor has no effect. (B) is incorrect because under the UCC, the July 28 term became part of the contract when the breeder failed to object to it. (C) is incorrect because, under the UCC, an acceptance is effective even if it includes additional terms. Thus, the neighbor’s letter on July 10 was sufficient to create a contract.
On September 15, a manufacturer of office furniture received an email purchase-order form from a retailer of office furniture. The order was for 100 executive leather swivel chairs and specified a delivery date no later than November 1, at a total cost of $10,000, as quoted on the manufacturer’s website. Two days later, the manufacturer emailed its own purchase-order acceptance form to the retailer, who was a new customer and had never seen the form before. The purchase-order acceptance form stated that it was an acceptance of the specified order, was signed by the manufacturer’s sales manager, and contained all of the terms of the retailer’s form, but it also contained an express warranty and a clause disclaiming all implied warranties such as the implied warranty of merchantability.
Assuming that there were no further communications between the parties, what is the status of the relationship between the parties?
A. There is an enforceable contract between the parties, the terms of which are comprised of the language in the manufacturer’s form.
B. There is an enforceable contract between the parties, the terms of which do not include the disclaimer of implied warranties in the manufacturer’s form.
C. There is no enforceable contract between the parties because the manufacturer’s form constituted a rejection of the retailer’s offer and a counteroffer by the manufacturer.
D. There is no enforceable contract between the parties because the manufacturer’s form added an additional term that materially altered the terms of the retailer’s offer.
CORRECT ANSWER: B. There is an enforceable contract between the parties, the terms of which do not include the disclaimer of implied warranties in the manufacturer’s form.
The manufacturer and the retailer have a contract without the disclaimer. In contracts for the sale of goods, a definite expression of acceptance operates as an acceptance even if it states additional terms. Between merchants, additional terms proposed by the offeree in an acceptance automatically become part of the contract unless (i) they materially alter the original terms of the offer (e.g., they change a party’s risk or the remedies available); (ii) the offer expressly limits acceptance to the terms of the offer; or (iii) the offeror had already objected to the additional terms or objects within a reasonable time. Here, a clause was added by the manufacturer (the offeree) providing for an express warranty and a disclaimer of all implied warranties, including the warranty of merchantability. The disclaimer materially altered the original terms of the offer. Therefore, the disclaimer would not become part of the contract. (A) is therefore incorrect. (C) is incorrect because it reflects the common law “mirror image” rule, which the UCC has rejected in sale of goods cases. (D) is incorrect because under the UCC, the inclusion of a material additional term does not prevent formation of a contract; instead, a contract is formed without the inclusion of that additional term.
A recent nursing school graduate mailed a letter to a classmate on July 1 telling her that she was moving to take a nursing position in another city and asking her whether she wanted “the stuff in my house” for $2,500.
The classmate received the letter on July 2, and on July 3 she sent the newly minted nurse a letter accepting the offer. The next day the classmate changed her mind, called the nurse, and told her to forget the deal. Later that same day, the nurse received the letter that her classmate had sent on July 3.
Is there a contract between the nurse and her classmate?
A. Yes, because the contract is for the sale of goods for more than $500 and the classmate’s attempted rejection is oral.
B. Yes, because the classmate’s letter of acceptance was effective when she mailed it.
C. No, because the classmate’s rejection was communicated to the nurse before her letter of acceptance was received.
D. No, because the description of the subject matter as “the stuff in my house” is not sufficiently definite and certain.
CORRECT ANSWER: B. Yes, because the classmate’s letter of acceptance was effective when she mailed it.
The classmate accepted the nurse’s offer when she mailed the letter on July 3; thus, a contract was formed. Under the mailbox rule, acceptance of an offer by mail creates a contract at the moment the acceptance is posted, properly stamped, and addressed. If the offeree sends both an acceptance and a rejection, whether the mailbox rule will apply depends on which the offeree sent first, the acceptance or the rejection. If the offeree first sends an acceptance and later sends her rejection, the mailbox rule does apply. Thus, even if the rejection arrives first, the acceptance is effective upon mailing (and so a contract is formed) unless the offeror changes his position in reliance on the rejection. Here, the classmate first sent an acceptance, then called with her rejection. The mailbox rule applies, and because there is nothing in the facts to show that the nurse relied on the rejection, a contract was formed. (A) is wrong because it implies that a rejection must be in writing. There is no such requirement. Also, the rejection (absent detrimental reliance) has no effect on the contract because the offer had already been accepted and the contract formed. (C) is wrong because, as stated above, under the mailbox rule the fact that the rejection was received before the acceptance is irrelevant (unless there has been detrimental reliance on the rejection, which was not the case here). The contract was formed when the classmate sent her acceptance. (D) is wrong because the description, although somewhat ambiguous, can be made reasonably certain by evidence of the subjective understanding of the parties and extrinsic evidence of what was in the house, which a court will consider to clarify an ambiguous term.
A photography buff wrote a letter to his brother-in-law offering to sell him his camera for $1,500, because he knew that he had admired it for a long time. The day after the brother-in-law received the letter, he mailed a letter back to the photography buff agreeing to purchase the camera equipment for $1,500. The next day, after describing the camera to a friend who was very knowledgeable about photographic equipment, the brother-in-law learned that the camera was second-rate and not worth more than $1,200. He immediately telephoned the photography buff and told him that he had no interest in buying the camera. The photography buff received his brother-in-law’s letter agreeing to purchase the camera equipment a day after receiving the phone call.
If the photography buff brings an action against his brother-in-law for breach of contract, and the brother-in-law defends on the grounds that no contract was formed, how should the court rule?
A. For the brother-in-law, because the description of the subject matter of the contract was too indefinite to be enforced.
B. For the brother-in-law, because the photography buff received the telephone call before he received the letter.
C. For the photography buff, because his brother-in-law’s letter accepting the offer was effective when mailed.
D. For the photography buff, because the contract is for the sale of goods over $500 in value and his brother-in-law’s attempted rejection of the offer was oral.
CORRECT ANSWER: C. For the photography buff, because his brother-in-law’s letter accepting the offer was effective when mailed.
A contract was formed because the brother-in-law’s acceptance was effective on dispatch. Under the “mailbox rule,” acceptance by mail or similar means creates a contract at the moment of posting, properly addressed and stamped, unless: (i) the offer stipulates that acceptance is not effective until received; or (ii) an option contract is involved. Here, the brother-in-law dispatched first an acceptance and then a rejection of the photography buff’s offer. The mailbox rule applies because the photography buff’s offer did not specify that acceptance was not effective until receipt, nor is an option contract involved. Because the brother-in-law dispatched his acceptance before he called with his rejection, the mailbox rule applies. Thus, the brother-in-law’s acceptance was effective, thereby creating a contract at the moment it was mailed, and his attempted rejection was ineffective. (B) is incorrect because once the acceptance was effective, the fact that the photography buff received the “rejection” by telephone before he received the acceptance letter has no effect on the formation of the contract. (A) is incorrect because the letter from the photography buff indicates that the subject matter of the contract was his camera that the brother-in-law had admired for some time. This description on its face appears to be sufficiently definite that a court would be able to determine with reasonable accuracy which camera is subject to the photography buff’s offer to sell. (D) is incorrect even though it is true that, pursuant to the Statute of Frauds, a contract for the sale of goods of $500 or more is not enforceable unless evidenced by a writing. There is no requirement that a rejection of an offer to enter into such a contract must be in writing.
The owner of a stationary bicycle wrote a letter to her friend offering to sell her stationary bicycle to him for $150. The friend received the letter on January 18. On January 19, he mailed a letter back saying that he was not interested in purchasing the bike because he had just purchased a gym membership. However, the friend changed his mind the next day and mailed a letter to the owner accepting her offer to sell the bicycle and enclosing a certified check for $150. The owner received the friend’s rejection letter on January 21 but put it aside without reading it. The next day, she received the friend’s acceptance letter, which she opened and read immediately.
Do the parties have a contract?
A. Yes, because under the mailbox rule an acceptance is effective on dispatch, while a rejection is effective on receipt.
B. Yes, because the friend paid for the bicycle when he accepted the offer to buy it.
C. No, because the acceptance was dispatched after the rejection.
D. No, because the mailbox rule does not apply-whichever is received first controls.
CORRECT ANSWER: D. No, because the mailbox rule does not apply-whichever is received first controls.
The parties do not have a contract, because the mailbox rule does not apply when the offeree sends a rejection, followed by an acceptance. In such a case, whichever is received first controls. Under the mailbox rule, acceptance by mail or similar means creates a contract at the moment of posting, with a couple of exceptions not relevant here. Rejection, on the other hand, is effective when received. So, if the mailbox rule had applied, there would have been a contract, because the friend’s acceptance was mailed before his rejection letter was received. But because the mailbox rule does not apply here, and the matter is decided based on which letter was received first, there is no contract, because the friend’s rejection letter was received by the bicycle owner a day before his acceptance letter was received by her. (A) is incorrect because, as discussed above, the mailbox rule does not apply when a rejection is sent before an acceptance; rather, whichever is received first controls. The fact that the bicycle owner did not read the rejection does not matter; it still was received by her before the acceptance. [See Restatement (Second) Contracts §68] (B) is incorrect because whether the friend paid for the bicycle is irrelevant. He sent the certified check (and his acceptance) after he sent his rejection, and the rejection was received first. (C) is incorrect because when a rejection by mail is followed by an acceptance by mail, the rule is that whichever is received first controls, not whichever is dispatched first. Thus, although it is true that there is no contract between the parties, it is because the friend’s rejection letter was received by the bicycle owner first, rather than because it was mailed first.
On July 1, a cattle rancher offered to sell his ranch to a dairy farmer for $150,000. The dairy farmer paid the cattle rancher $1,000 to hold the offer open for a period of 30 days. On July 10, the dairy farmer wrote to the cattle rancher, telling him that he could not pay more than $100,000 for the ranch, and that if he would not agree to accept that amount, he would not go through with the deal. The dairy farmer received no reply from the cattle rancher.
On July 29, the dairy farmer mailed a letter to the cattle rancher telling him that he accepted his offer to sell the ranch and enclosed a check for $150,000. The cattle rancher received this letter on August 1.
Has a contract been formed between the parties for the sale of the ranch?
A. No, because the dairy farmer’s letter of July 10 terminated the cattle rancher’s offer.
B. No, because the cattle rancher did not accept the dairy farmer’s counteroffer of $100,000.
C. No, because the cattle rancher did not receive the dairy farmer’s acceptance within 30 days.
D. Yes, because the dairy farmer dispatched his acceptance of the cattle rancher’s offer prior to the expiration of 30 days.
CORRECT ANSWER: No, because the cattle rancher did not receive the dairy farmer’s acceptance within 30 days.
No contract was formed because the cattle rancher did not receive the dairy farmer’s acceptance within 30 days. Under the mailbox rule, acceptance by mail or similar means creates a contract at the moment of dispatch. However, the mailbox rule does not apply to option contracts. An acceptance under an option contract is effective only upon receipt. [Restatement (Second) of Contracts §63] Here, an option contract existed because the dairy farmer paid the cattle rancher $1,000 to hold the offer open for 30 days. The dairy farmer mailed his acceptance within 30 days but it was not received by the cattle rancher within the 30-day period, so the acceptance was not effective. The option specified the period of time during which the offer would remain open, after which the offer terminated. Thus, (C) is correct, and (D) is wrong. (A) and (B) are wrong because an option contract is irrevocable for the time period stated. Thus, not even the dairy farmer himself could revoke the offer within the 30-day period.
A merchant who offers to buy or sell goods in a signed writing that gives assurances that the offer will be held open is offering:
A. An option contract
B. A merchant’s firm offer
C. A unilateral contract
D. A confirmatory memo contract
CORRECT ANSWER: B. A merchant’s firm offer
Under Article 2, a merchant’s firm offer arises when a merchant offers to buy or sell goods in a signed writing that gives assurances that the offer will be held open. If no specific time frame is stated in the offer, a merchant’s firm offer will remain open for a reasonable time (but in no event may such period exceed three months).
An option contract is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer for a period of time.
An offer for a unilateral contract is one that can be accepted only by full performance. Note that the beginning of performance may create an option so that the offer is irrevocable. However, the offeree is not obligated to complete performance merely because he has begun performance, as only complete performance constitutes an acceptance of the offer.
A confirmatory memo is not an offer. It is a method of satisfying the Statute of Frauds in contracts between merchants. The confirmatory memo rule states that if one party, within a reasonable time after an oral agreement has been made, sends to the other party a written confirmation of the understanding that is sufficient under the Statute of Frauds to bind the sender, it will also bind the recipient if: (i) he has reason to know of the confirmation’s contents; and (ii) he does not object to it in writing within 10 days of receipt.
A small business owner decided to retire, so she offered her long-time employee a chance to buy the business for $1 million. She promised in writing to keep the offer open to him for 90 days and to give him enough time to secure financing once he accepted the offer. Over the next few days, the employee cashed out all his retirement accounts and took a second mortgage on his home to raise the funds to purchase the business. When he approached the business owner to discuss the details of the sale, she said that she changed her mind and was revoking her offer because she did not want to retire after all.
Was the owner’s revocation of her offer proper?
A. Yes, because it was an offer that could be revoked at will.
B. No, because the owner created an option contract by promising to keep the offer open for 90 days.
C. No, because the employee detrimentally relied on the offer.
D. No, because the offer constitutes a merchant’s firm offer.
CORRECT ANSWER: A. Yes, because it was an offer that could be revoked at will.
The owner’s revocation of her offer was proper because the offer could be revoked at will. Generally, offers can be revoked at will by the offeror, even if she has promised not to revoke for a certain period of time. There are limitations on the offeror’s power to revoke, but none of those exceptions apply in this case. (B) is incorrect because an option contract requires that the offeree give consideration for the promise by the offeror to keep the offer open, and no consideration is indicated by the facts. (C) is also incorrect. Detrimental reliance can limit an offeror’s power to revoke where the offeror could reasonably expect that the offeree would rely to his detriment on the offer, and the offeree does so rely. However, this usually is limited to those situations in which the offeror would reasonably contemplate reliance by the offeree in using the offer before it is accepted; e.g., when a general contractor uses a subcontractor’s bid in making its own offer. Here, the offer itself included a promise by the owner to give the employee time to secure financing after the offer was accepted. Therefore, the owner had no reason to anticipate that the employee would take immediate steps to raise the purchase money before he even accepted the offer. (D) is incorrect because these facts are not an example of a merchant’s firm offer. A merchant’s firm offer does not apply to any offer by a merchant; it applies only to an offer under the UCC for the sale of goods where a signed writing gives assurances that the offer will be held open.
A hotelier opening a new inn in the Pacific Northwest sent letters to all known hotel and motel suppliers on June 1, alerting them to his need for such items as ice buckets, televisions, linen, and mattresses. The hotelier received a signed letter dated June 8 from a hotel supply company, stating that the company had 250 ice buckets left in stock and will sell them to the hotelier for $1 each. The company added that it must receive the hotelier’s answer by November 1 and will hold the ice buckets for the hotelier until then. On July 1, the company sold 200 of the ice buckets to a competing hotel chain, which had recently opened a hotel on the East Coast. On July 2, the company sent the hotelier a fax stating it had only 50 ice buckets left for sale. The hotelier received the fax that day, but put it aside and never read it. On July 10, the hotelier notified the company that he was accepting the company’s offer to sell 250 ice buckets. The company, upon receiving the hotelier’s acceptance, shipped the remaining ice buckets. The hotelier sues the company for failing to deliver all 250 ice buckets.
Will the hotelier prevail?
A. No, because the hotelier is not a hotel supply merchant.
B. No, because the company’s offer was to remain open for more than three months.
C. Yes, because the company promised in a signed writing to hold the offer open.
D. Yes, because the hotelier never read the company’s July 2 fax.
CORRECT ANSWER: C. Yes, because the company promised in a signed writing to hold the offer open.
The hotelier will prevail. Ice buckets are movable goods; therefore, Article 2 of the UCC applies. The June 8 letter from the supply company is a firm offer under UCC section 2-205. No consideration is required, because the company is a “merchant” (i.e., one who ordinarily deals in goods of the kind sold) of ice buckets. Where a time period for the offer is stated, the period of irrevocability is that period, except that the period cannot exceed three months. Here, the three-month period would end on September 8. The company’s fax stating that it had only 50 ice buckets left to sell constitutes an invalid attempt at revocation, because it is within the three-month period of irrevocability. (A) is incorrect because section 2-205 does not require that the offeree of a firm offer be a merchant; it requires that the offeror be a merchant, and the company is (see above). (B) is incorrect because a firm offer that states a period longer than three months is still firm for the first three months. (D) is incorrect because the hotelier’s knowledge, or lack thereof, of the “revocation” of the company’s offer is irrelevant because it was invalid; the fact that the company made a firm offer prevents it from revoking the offer within the stated time, not to exceed three months.
An art collector was interested in buying a painting from his neighbor. The neighbor told the collector that he could have the painting for $30,000. The collector wanted to think the purchase over. Therefore, the two agreed in writing that the neighbor would keep the offer open for 30 days in exchange for $500, which the collector paid. The terms of the written agreement provided that the offer would expire at 11:59 p.m. on September 30 if the collector failed to accept by that time. On September 20, the collector telephoned his neighbor and told him, “The more I think about it, the less I think that I want your painting.” The neighbor responded, “That’s your decision to make.” On September 26, one of the neighbor’s friends was visiting him, saw the painting, and offered his friend (the neighbor) $35,000 for it.
On September 27, the neighbor mailed a $50 check to the collector with a letter stating that he was terminating his offer to the collector regarding the painting and refunding 10% of the money that the collector paid him to keep the offer open. He mailed the letter at 11:59 p.m. on September 27. The collector received the letter at 11:30 a.m. on September 29. On September 28, at 9:30 a.m., the collector mailed a letter to his neighbor stating that he had decided to purchase the painting and a certified check in the amount of $30,000 was enclosed. Two hours later, the neighbor sold the painting to his friend for $35,000. The neighbor received the collector’s letter on October 1 and immediately mailed the check back to the collector.
Can the collector maintain a successful legal action against his neighbor?
A. Yes, because the neighbor sold the painting after the collector’s effective acceptance, and before the neighbor’s revocation became effective.
B. Yes, because in his revocation the neighbor did not refund the full $500 to the collector.
C. No, because the neighbor effectively revoked his offer before the collector accepted.
D. No, because the collector’s power to accept lapsed before he effectively accepted.
CORRECT ANSWER: D. No, because the collector’s power to accept lapsed before he effectively accepted.
The collector’s power to accept lapsed because the option contract specified that the offer would expire at 11:59 p.m. on September 30. Hence, the power had to be exercised prior to that time and it was not. The mailbox rule does not apply to the exercise of options. In such cases, acceptance is effective when received by the offeror, here on October 1. Thus, (D) is correct. (A) is wrong because, for the reasons discussed above, the collector did not effectively accept before his option expired. (C) is wrong for two reasons: (i) a revocation is not effective until received; and (ii) because the contract is an option, the offeror’s power to terminate the offer through revocation is limited. Even if the revocation had arrived earlier, the neighbor lacked the power to revoke. (B) is irrelevant. Returning the consideration, in and of itself, would not give the offeror the power to revoke in an option situation.
When a contractor is under a contractual duty to construct a building and the building is destroyed by an act of nature while it is still a work in progress, the destruction __________.
A. will discharge the contractor’s duty to perform
B. will not discharge the contractor’s duty to perform, but will extend the date of performance
C. will discharge the contractor’s duty to perform if rebuilding cannot be reasonably completed by the date of performance
D. will neither discharge the contractor’s duty to perform nor extend the date of performance
CORRECT ANSWER: B. will not discharge the contractor’s duty to perform, but will extend the date of performance
A contractor’s duty to construct a building is not discharged by destruction of the work in progress. However, if the destruction was not caused by the contractor, such as by an act of nature, most courts will extend the date of performance beyond the original deadline.
A homeowner and a contractor duly executed a contract providing that the contractor was to construct a residence on a specified lot. No date was included in the contract for completion of the home. After the contractor completed 5% of the residence, a tornado demolished the construction but left the lot undamaged.
Which of the following states the probable legal consequences of the tornado damage?
A. The contract is void because the subject matter of the contract was destroyed through no fault of the parties.
B. The contractor’s duty of performance is discharged because of impossibility.
C. The contractor remains obligated to construct the residence, but he is entitled to a quantum meruit recovery for the work done prior to the tornado.
D. The contractor remains obligated to perform under the original contract without any compensation for the work done prior to the tornado.
CORRECT ANSWER: D. The contractor remains obligated to perform under the original contract without any compensation for the work done prior to the tornado.
(D) is the correct answer. The contractor remains bound under the original contract, and he is not entitled to compensation for the work that was destroyed. The general rule is that a contractor is responsible for destruction of the premises under construction prior to completion. Once the residence is completed, risk of loss shifts to the owner. (A) is wrong because the subject matter was not destroyed. Note that even if the subject matter were destroyed, it would not void the contract; it would merely discharge the contractor’s duties under the contract. (B) is wrong because performance is not impossible; the contractor can rebuild the residence. (C) is wrong because the contract is still enforceable because the contractor can rebuild the residence.
An advertising agency specializing in aerial banners and skywriting signed a contract with a film production company that was premiering a new blockbuster film. The contract provided that the agency would advertise the film by flying over the city towing a giant streamer belonging to the film company heralding the film’s catch phrase and title in large letters. This contract specified that the flight was to be conducted on the first Saturday in June at noon (the day of the local premier), and the film company was to pay the advertising agency $500 for the flight.
On the designated Saturday, the advertising agency was unable to fly because of a defective fuel pump. The defective condition was entirely unforeseeable and did not occur through any negligence or fault of the agency. The film company did not pay the agency, and each of the parties has sued the other for damages.
Which of the following best states the rights and liabilities of the parties?
A. The film company is entitled to recover damages from the advertising agency on account of the agency’s failure to fly.
B. The advertising agency is entitled to recover from the film company the $500 contract price, as the incapacity of the airplane was not the agency’s fault.
C. Neither party is entitled to recover against the other, because the advertising agency’s duty to fly was discharged by impossibility, and the film company’s duty to pay was contingent on the agency’s flight.
D. Neither party is entitled to recover against the other, because the film company’s offer to pay $500 for the flight was in effect an offer for an act, and because the act was not performed, there was no valid acceptance.
CORRECT ANSWER: A. The film company is entitled to recover damages from the advertising agency on account of the agency’s failure to fly.
The film company will be able to recover damages from the advertising agency because the agency’s failure to fly constituted a breach of contract. The parties entered into a bilateral contract-the agency promised to fly with the streamer and the film company promised to pay for the flight. The agency breached the contract by failing to fly on the designated Saturday. Its duty to fly was not discharged by impossibility. A contractual duty to perform may be discharged by objective impossibility (i.e., no one could have performed), but subjective impossibility (defendant could not perform) is insufficient. Here, the defect in the plane constituted only subjective impossibility (if it amounted to impossibility at all) because the agency could have obtained another plane to pull the streamer. If the agency had been unable to fly the plane because of weather (e.g., a severe ice storm), its performance would have been objectively impossible, and the agency would have been discharged. However, under these facts, the film company is entitled to damages for the agency’s breach. (B) is incorrect because the film company’s duty to perform (pay $500) was subject to the condition precedent of the agency’s performance (flying), and, as discussed above, the agency breached the contract by failing to fly. Therefore, the film company’s duty to pay never arose. The fact that the engine problem was not the agency’s fault does not change things. The agency’s inability to perform, even if it were due to impossibility, would merely discharge the contract, and each party would be excused from performance; the film company would not have to pay the $500. (C) is incorrect because, as determined above, the agency’s duty was not discharged because performance was still possible. (If there had been objective impossibility, (C) would have been the correct choice.) (D) is incorrect because it suggests that the contract was a unilateral one (the offer to pay could be accepted only by completion of performance). This interpretation is clearly contrary to the facts. Although the film company offered to pay $500 for the flight, the agency accepted that offer by signing the contract. A promise to pay was given in exchange for a promise to fly. Thus, there was a contract to which both parties were bound.
On April 1, a graduate student who owned an antique dictionary agreed to sell it to a buyer for $1,500. The written contract between the seller and the buyer provided that the dictionary would not be delivered to the buyer until April 20. Late on April 15, a fire swept through the seller’s apartment building, through no fault of the seller, and the dictionary was destroyed. Fortunately for the seller, he had insurance that covered all of his damages, including compensation for the destroyed dictionary. On April 20, the seller told the buyer of the fire, but still demanded payment, claiming that the buyer was the equitable owner of the dictionary when it was destroyed, and told her that she could have obtained insurance on the dictionary had she wanted to, because she had an insurable interest in the dictionary as soon as the contract was made. The buyer refused to pay. The seller brings an action against the buyer for the $1,500.
Who will prevail?
A. The buyer, because the seller was fully compensated for his dictionary and making the buyer pay would therefore result in unjust enrichment.
B. The buyer, because destruction of the dictionary avoids the contract and discharges her duty to pay.
C. The seller, because when he contracted with the buyer, the risk of loss passed to her.
D. The seller, because of the doctrine of equitable conversion.
CORRECT ANSWER: B. The buyer, because destruction of the dictionary avoids the contract and discharges her duty to pay.
The buyer will prevail because complete destruction of the dictionary results in avoidance of the contract and discharge of her duty to pay, since the seller still had the risk of loss. Because the contract here is for the sale of goods, it is governed by the Uniform Commercial Code (“UCC”). Under the UCC, if a contract requires for its performance particular goods identified when the contract is made, and, before risk of loss passes to the buyer, the goods are destroyed without the fault of either party, the contract is avoided. [UCC §2-613] All of the elements of section 2-613 are present here. The contract required the seller’s particular dictionary, which was identified at the time the contract was made. The risk of loss had not yet passed to the buyer because, in a sale by a nonmerchant such as the seller, risk of loss does not pass to the buyer until tender [UCC §2-509], and the seller never tendered the dictionary here (there was no actual tender and delivery was not due until April 20). Finally, the goods were destroyed by a fire and without the fault of either party. Thus, the contract is avoided. (The same conclusion would result under the common law doctrine of impossibility-all executory duties are discharged when the subsequent destruction of the subject matter of a contract renders performance impossible.) (A) is wrong because the UCC contains no such rule. The only UCC remedy that depends on an injured party’s insurance involves the risk of loss after the buyer’s revocation of acceptance or wrongful repudiation under section 2-510. Here, the buyer does not have to pay because the destruction of the dictionary discharged her duty to do so. (C) is wrong because, as explained above, the risk of loss had not yet passed to the buyer. (D) is wrong because the UCC does not follow the doctrine of equitable conversion; rather, the Code contains very specific risk of loss rules, as detailed above.
