Contracts

Question 0

A communication will not be considered to be definite and certain enough to be an offer if it is for the sale of goods and:

A is missing a quantity term

B is missing the price term

C states the quantity to be purchased and sold as “all that the buyer requires”

D states the quantity to be purchased and sold as “all that the seller produces”

Answer 0

A is missing a quantity term

A communication will not be considered to be definite and certain enough to be an offer if it is for the sale of goods and is missing a quantity term. The quantity term is the only term that is absolutely required to make a communication an offer when the sale of goods is involved. Most other terms can be implied or supplied later in the contract. A communication may be considered definite enough to be an offer for the sale of goods despite a missing price term. If the price term is not included, a reasonable price can be implied. The buyer’s requirements and the seller’s output are valid quantity terms sufficient to make a communication an offer for the sale of goods. Although these terms do not state a specific quantity, the quantity is capable of being made certain by reference to objective, extrinsic facts (i.e., the buyer’s actual requirements and the seller’s actual output).

Question 1

A vague term in a contract can be cured by:

A the presumption that the parties’ intent was to include a reasonable term

B gap fillers

C part performance

D quantum meruit

Answer 1

C part performance

Where part performance supplies the needed clarification of the terms, it can be used to cure vagueness. Gap fillers and the presumption that the parties’ intent was to include a reasonable term go to supplying missing, rather than vague, terms. When the parties have included a term that makes the contract too vague to be enforced, the court will not apply a gap-filling term or a presumption to cure the problem. Quantum meruit is another term for quasi-contractual recovery to remedy unjust enrichment. Although it does not cure a vague term, it is available as a remedy for a party who performs despite a vague term that causes a contract to fail.

Question 2

When should the nonbreaching party treat an otherwise minor breach as a material breach?

A When the breach is part of a divisible contract

B When the breach causes the nonbreaching party damages

C When the breach is coupled with an anticipatory repudiation

D When the breach relates to the timing of performance

Answer 2

C When the breach is coupled with an anticipatory repudiation

If a minor breach is coupled with an anticipatory repudiation, the nonbreaching party may treat it as a material breach. Thus, the nonbreaching party may sue immediately for total damages and is permanently discharged from any duty of further performance. The courts hold that the nonbreaching party must not continue on with the contract, because to do so would be a failure to mitigate damages. There is no reason that a minor breach that is part of a divisible contract should be treated as a material breach. In fact, in a divisible contract, recovery is available for substantial performance of a divisible part even if there has been a material breach of the entire contract. Even a minor breach can cause the nonbreaching party damages. The effect of a minor breach is to provide a remedy for the immaterial breach to the aggrieved party. The aggrieved party is not relieved of her duty of performance under the contract by a minor breach, unlike in the case of a material breach. Unless the nature of the contract is such as to make performance on the exact day agreed upon of vital importance, or the contract by its terms provides that time is of the essence, a failure by a promisor to perform at the stated time will not be material. Thus, a minor breach that relates to the timing of performance generally should not be treated as a material breach.

Question 3

In an installment contract situation, the contract can be canceled by the buyer if:

A Any shipment is deficient in quantity

B There is a nonconformity in a shipment that substantially impairs the value of the installment and cannot be cured

C Any shipment fails to conform to the contract in any way

D There is a nonconformity in a shipment that substantially impairs the value of the contract and cannot be cured

Answer 3

D There is a nonconformity in a shipment that substantially impairs the value of the contract and cannot be cured

To cancel the entire installment contract due to breach, the buyer must show that the nonconformity substantially impairs the value of the entire contract and cannot be cured. If the nonconformity substantially impairs the value of only the installment and cannot be cured, only the single installment may be rejected. Unlike most contracts for the sale of goods, under which a shipment may be rejected in it fails to conform to the contract in any way, installment contracts have special rules limiting the right to reject to substantial impairment of the value of the installment. The right to cancel the entire contract is even further limited to substantial impairment of the value of the entire contract. A shipment that is deficient in quantity is not grounds for canceling an installment contract. This situation is the least likely to even give rise to a right to reject an installment because it is easily cured by a shipment of the missing quantity.

Question 4

Which of the following statements is true regarding a specific performance remedy for breach of a contract to provide services?

A Specific performance is not available as a remedy for a breach of a contract to provide services

B Specific performance can always be granted for a breach of a contract to provide services because services are personal and thus always considered to be rare or unique

C Specific performance can be granted for a breach of a contract to provide services only if a legal remedy would be inadequate

D Specific performance can be granted for a breach of a contract to provide services only if the services are shown to be rare or unique

Answer 4

A Specific performance is not available as a remedy for a breach of a contract to provide services

Specific performance is not available for breach of a contract to provide services, even if the services are rare or unique and a legal remedy would be inadequate. This is because of problems of enforcement (it would be difficult for the court to supervise the performance) and because the courts feel it is tantamount to involuntary servitude, which is prohibited by the Constitution. Generally a court may grant specific performance, which is essentially an order from the court to the breaching party to perform or face contempt of court charges, if the legal remedy is inadequate. The legal remedy (damages) generally is inadequate when the subject matter of the contract is rare or unique. The rationale is that if the subject matter is rare or unique, damages will not put the nonbreaching party in as good a position as performance would have, because even with the damages the nonbreaching party would not be able to purchase substitute performance. A contract to provide services is an exception to this general rule for the reasons stated above.

Question 5

In a suit for restitution, the measure of recovery is:

A the amount necessary to buy a substitute performance

B nothing, if the plaintiff is the breaching party

C the value of the benefit conferred

D the difference between what the plaintiff would have received if the contract had been properly performed and the value of what the plaintiff actually received

Answer 5

C the value of the benefit conferred

In a suit for restitution, the measure of recovery is the value of the benefit conferred. Restitution is based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent. The value of the benefit conferred is usually measured by the benefit received by the defendant, but it may also be measured by the reasonable value of the work performed by the plaintiff. The amount necessary to buy a substitute performance is an expression of the measure of expectation damages, not restitution. The measure of recovery is not necessarily nothing if the plaintiff is the breaching party. Under some circumstances, a plaintiff may seek restitution even though the plaintiff is the party who breached. For example, a buyer who has paid part of the purchase price may recover some payments even if he is in breach. The difference between what the plaintiff would have received if the contract had been properly performed and the value of what the plaintiff actually received is also a formulation of compensatory, expectation damages rather than restitution. This measure does not address unjust enrichment.

Question 6

Unless properly disclaimed, this warranty is included in every contract for the sale of goods:

A Warranty against infringement

B Warranty of title

C Implied warranty of merchantability

D Implied warranty of fitness for a particular purpose

Answer 6

B Warranty of title

A warranty of title is included in every contract for the sale of goods. Any seller of goods warrants that the title transferred is good, that the transfer is rightful, and that there are no liens or encumbrances against the title of which the buyer is unaware at the time of contracting. The warranty against infringement, which warrants that goods are delivered free of any patent, trademark, copyright, or similar claims, arises automatically only in contracts by merchant sellers. The implied warranty of merchantability, which generally warrants that the goods are fit for the ordinary purpose for which such goods are used, also is implied only in contracts by merchant sellers. The implied warranty of fitness for a particular purpose arises only when: the seller has reason to know the particular purpose for which the goods are to be used and that the buyer is relying on the seller’s skill and judgment to select suitable goods, and the buyer in fact so relies.

Question 7

In a shipment contract, when goods are destroyed en route from the seller to the buyer, the risk of loss is borne by:

A The buyer because the risk of loss passed to the buyer at the time of the contract under the doctrine of equitable conversion

B The seller because the risk of loss does not pass to the buyer until the shipment is tendered to the buyer

C The seller because it was the seller’s responsibility to contract with the carrier

D The buyer because the risk of loss passed to the buyer when the goods were delivered to the carrier

Answer 7

D The buyer because the risk of loss passed to the buyer when the goods were delivered to the carrier

In a shipment contract, the risk of loss passes to the buyer when the goods are delivered to the carrier. Any loss incurred en route is borne by the buyer. Equitable conversion is a doctrine that applies only to the sale of land, not goods. The risk of loss does not pass to the buyer until the goods are tendered to the buyer under a destination contract. This is a shipment contract, which means the risk of loss passes to the buyer when the goods are delivered to the carrier. While it is the seller’s responsibility to contract with the carrier, that does not affect the risk of loss rules.

Question 8

Which of the following would not be considered valuable consideration that supports a contract?

A A benefit with no economic value.

B Peace of mind for the promisor.

C The gratification of influencing the mind of another.

D Fulfillment of a condition to receive a gift.

Answer 8

D Fulfillment of a condition to receive a gift.

The mere fulfillment of a condition to receive a gift is not adequate consideration. The fulfillment of the condition must be of some benefit to the promisor to constitute proper consideration. The benefit to the promisor need not have economic value. Peace of mind or the gratification of influencing the mind of another may be sufficient to establish bargained-for consideration.

Question 9

Which of the following promises is commonly considered to be illusory?

A A promise with an unqualified right to cancel or withdraw at any time

B A promise conditioned on the promisor’s satisfaction

C A promise to purchase all that one requires

D A promise to sell all that one decides to make

Answer 9

A A promise with an unqualified right to cancel or withdraw at any time

Reservation of an unqualified right to cancel or withdraw at any time would be considered an illusory promise. “Requirements” contracts (i.e., promises to purchase all that one requires ) and “output” contracts (i.e., promises to sell all that one decides to make) are enforceable, as the promisor has parted with the legal right to buy (or sell) the goods he may need (or make) from (or to) another source. A promise conditioned on the promisor’s satisfaction is not illusory because the promisor is constrained by good faith (for contracts involving personal taste) and a reasonable person standard (for contracts involving mechanical fitness, utility, or marketability).

Question 10

Which of the following normally would not be an exception to the preexisting legal duty rule?

A A minor’s ratification of a contract upon reaching the age of majority.

B A compromise based on an honest dispute as to duty.

C One party’s unforeseen difficulty in performing the contract.

D An acceleration of the performance of the duty.

Answer 10

C One party’s unforeseen difficulty in performing the contract.

Under the majority view, mere unforeseen difficulty in performing is not a substitute for consideration. Courts are anxious to avoid the preexisting duty rule. Thus, almost any variation, such as accelerating performance, is considered adequate consideration. A promise to perform a voidable obligation (e.g., a minor’s ratification of a contract upon reaching the age of majority) is also enforceable despite the absence of new consideration. If the scope of the legal duty owed is the subject of honest dispute, then a modifying agreement relating to it will ordinarily be given effect.

Question 11

The Statute of Frauds requires:

A one or more writings that reflect the material terms of the contract, signed by the person sought to be held liable.

B a signed writing for suretyship promises that primarily serve the pecuniary interest of the promisor.

C the handwritten signature of the party sought to be held liable on some document acknowledging the existence of the contract.

D a formal written contract signed by both parties to the agreement.

Answer 11

A one or more writings that reflect the material terms of the contract, signed by the person sought to be held liable.

To satisfy the Statute of Frauds, there must be one or more writings signed by the person sought to be held liable on the contract that reflect the material terms of the contract. The Statute of Frauds does not require a formal written contract signed by both of the parties. For example, a letter, receipt, or a check containing the material terms (e.g., quantity for sale of goods) and signed by the party to be charged satisfies the Statute of Frauds. The needed signature need not be handwritten, but the document or documents must include the material terms of the contract, not just acknowledge the existence of the contract. Generally, the Statute of Frauds requires that suretyship promises be in writing and signed by the party to be held liable. However, there is an exception for suretyship promises that primarily serve the pecuniary interest of the promisor; they are not within the Statute of Frauds.

Question 12

The owner of a house put the property up for sale. A surgeon entered into negotiations with the owner to purchase the house, and the parties agreed upon a sale price of $200,000. The owner told the surgeon that she would drop a contract in the mail and have her attorney draw up a deed. The owner signed a land sale contract, which included the property’s address but did not contain a metes and bounds legal description. She mailed the contract to the surgeon that afternoon, although it was mailed too late for the last mail pickup of the day. The owner’s attorney promptly drew up a deed and dropped it in the mail to his client, who did not sign it. The surgeon received the contract the next day. After she mailed the contract, the owner received an offer of $250,000 for her property from her next-door neighbor, who wanted to expand beyond his own property line. The owner called her attorney and told him to inform the surgeon that the deal was off. The attorney sent a letter to the surgeon, stating that his client had found another purchaser for the property, and that all matters regarding the surgeon’s offer for the property were rescinded. The owner later received the signed contract from the surgeon.

Can the surgeon compel the owner to convey the property to him for $200,000?

A Yes, because the owner signed the land sale contract.

B No, because the land sale contract does not contain the complete legal description of the property.

C No, because the deed was not signed by the party to be charged.

D No, because contracts involving land are governed by the Statute of Frauds.

Answer 12

A Yes, because the owner signed the land sale contract.

The surgeon is entitled to specific performance because the owner signed the land sale contract. A contract was formed here when the parties orally agreed to the sale of the property. However, the contract was unenforceable at that time because, under the Statute of Frauds, a contract for the sale of land is unenforceable unless a memorandum containing the contract’s essential terms is signed by the party to be charged. Here, the party to be charged is the owner, and she signed the land sale contract, a writing sufficient to satisfy the Statute of Frauds (a memorandum for the sale of land is sufficient if it contains the price, a description of the property - which need not be a “legal” description - and a designation of the parties). Thus, the contract was enforceable. Specific performance is allowed when the legal remedy (damages) would be inadequate (usually with contracts to purchase land). Therefore, the surgeon is entitled to specific performance (assuming the property has not already been sold to a bona fide purchaser); under the facts the neighbor had made an offer but nothing indicates that the owner accepted the offer yet. (B) is incorrect because to satisfy the Statute of Frauds, a description need not be a complete legal description, but need merely be sufficient to reasonably identify the subject of the contract. It is sufficient that the property was identified by its address. (C) is incorrect because it does not matter whether the deed was signed by the owner, because the land sale contract was sufficient under the Statute, and the owner signed it. (D) is incorrect because while it is true that contracts involving the sale of land are governed by the Statute of Frauds, the Statute was satisfied here by the written sale contract.

Question 13

A man of seemingly modest means died, leaving his nephew as his sole heir. Among the items inherited by the nephew were some old oil paintings. The nephew knew nothing about art and had no place to put the paintings in his home. He placed an ad in the paper offering to sell the paintings at a price to be mutually agreed upon. A buyer for an art gallery responded to the ad. The buyer did not identify himself as an art gallery buyer or tell the nephew that he was knowledgeable about art. Rather, he concocted a story about wanting the paintings for his country estate. The nephew, for his part, revealed his lack of knowledge about art when he told the buyer that his uncle had probably painted the pieces himself. From the signature and the style, the buyer recognized that the artist was a renowned 19th century American portrait artist. The nephew and the buyer agreed upon a price and executed a contract. However, before the nephew delivered the paintings to the buyer, or the buyer paid him, he sought to rescind the contract. The buyer insisted that the nephew deliver the paintings to him and threatened to sue for breach of contract if he did not.

Which argument would give the nephew the best basis for rescinding the contract with the buyer?

A The nephew told the buyer that his uncle had probably painted the paintings himself.

B The nephew did not know that the buyer was a professional buyer for an art gallery and was knowledgeable about art.

C The buyer falsely told the nephew that the paintings were going to be used to furnish his (the buyer’s) country estate.

D The contract was still executory on both sides.

Answer 13

A The nephew told the buyer that his uncle had probably painted the paintings himself.

The nephew may be able to rescind the contract on the grounds of unilateral mistake if the buyer was aware that the nephew was mistaken about the identity of the artist. Where only one of the parties is mistaken about facts relating to the agreement, the mistake usually will not prevent formation of the contract. However, if the nonmistaken party is aware of the mistake made by the other party, he will not be permitted to snap up the offer; i.e., the mistaken party will have the right to rescind the agreement. Under the facts in this choice, the buyer knows that the nephew is mistaken about the identity of the artist, which is a basic assumption of the contract for the paintings. To obtain rescission, the nephew would also have to establish that the mistake creates a material imbalance in the exchange and that he did not assume the risk of that mistake. The facts in choice (A) give him the best grounds for doing so. (B) is incorrect because the fact that one of the parties to the contract has superior knowledge about the subject matter of the contract does not by itself justify rescission, even if the other party is unaware of that fact. The buyer’s knowledge or lack of it was not a basic assumption on which the contract was made and was not relied on by the nephew in making the sale. (C) is incorrect because the buyer’s misrepresentation to the nephew as to how he will use the paintings does not appear to have been relied on by the nephew. Hence, the misrepresentation is not significant enough to serve as grounds for rescinding the contract. (D) is incorrect because while it is true that a contract must be executory on both sides to be effectively discharged by rescission, this fact alone will not be sufficient to effect a rescission. Rather, when only one of the parties is seeking rescission, as is the case here, that party must prove an adequate legal ground (e.g., mistake, misrepresentation, duress, and failure of consideration). In this case, as discussed above, the ground of unilateral mistake will provide the nephew with the best basis for rescinding the contract.

Question 14

A homeowner and a builder entered into a written contract to build a sauna in a spare room in the homeowner’s home at a cost of $3,000. The contract contained a clause stating that the builder will not begin construction without prior approval of the plans by the homeowner’s certified public accountant. The builder submitted his designs to both the homeowner and the accountant. The homeowner liked the plans, but the accountant did not and withheld his approval. The builder asked the homeowner whether she wanted him to submit new designs. The homeowner told the builder orally, “No! Your designs are great! My accountant is crazy! You go right ahead and construct the sauna.” The builder constructed the sauna. The homeowner now refuses to pay the builder, citing the clause requiring approval by the accountant.

If the builder sues the homeowner, the builder will recover:

A The full contract price, because the accountant’s approval was not a condition precedent for the contract to take effect.

B The full contract price, because once the builder began building the sauna after speaking to the homeowner, the homeowner did nothing to stop the builder.

C The reasonable value of the builder’s services and materials, because otherwise the homeowner would be unjustly enriched.

D Nothing, because the homeowner’s oral statement will be excluded by the parol evidence rule.

Answer 14

B The full contract price, because once the builder began building the sauna after speaking to the homeowner, the homeowner did nothing to stop the builder.

By her statement to the builder, the homeowner waived the benefit of the condition requiring the accountant’s approval of the design plans, and the builder detrimentally relied on the statement by building the sauna. Thus, there is a binding waiver of the condition. A condition is an event, other than the passage of time, the occurrence or nonoccurrence of which creates, limits, or extinguishes the absolute duty to perform in the other contracting party. The occurrence of a condition may be excused under a number of different circumstances. One such circumstance is where the party having the benefit of the condition indicates by words or conduct that she will not insist upon it. If a party indicates that she is waiving a condition before it happens, and the person affected detrimentally relies on it, a court will hold this to be a binding estoppel waiver. The promise to waive the condition may be retracted at any time before the other party has detrimentally changed his position. Here, the contract provided that the builder could not begin work without the accountant’s prior approval. This approval was a condition that had to be met before the homeowner’s duty to pay would arise. When the homeowner told the builder to commence working on the sauna, even though the accountant had withheld his approval, the homeowner was telling the builder that she was waiving the condition of the accountant’s approval. The builder then acted in detrimental reliance on this statement by in fact starting and completing the building of the sauna. While the homeowner could have retracted her statement and reinstated the condition prior to the builder’s detrimental reliance, she did nothing when the builder began working on the sauna. Under such circumstances, the homeowner made a binding waiver of the condition and will be estopped from asserting it. Thus, the builder is entitled to recover the full contract price. (A) is incorrect because, as discussed above, the accountant’s approval was a condition precedent for the parties’ contractual duties to arise. The builder’s duty to build the sauna and the homeowner’s duty to pay for it would not arise without the condition of the accountant’s approval either being satisfied or being excused. (C) is incorrect because unjust enrichment is a quasi-contract alternative that the builder could utilize if he did not have a contract remedy. Here, however, the builder can recover the full contract price because the homeowner waived the condition and is estopped from retracting the waiver. (D) is incorrect because the parol evidence rule does not prohibit evidence of a subsequent modification of a written contract; the rule applies only to prior or contemporaneous expressions. Consequently, it may be shown that the parties altered the integrated writing after its making. The oral agreement between the homeowner and the builder described in the facts was made subsequent to the writing. Therefore, the parol evidence rule is inapplicable to this agreement.

Question 15

The owner of a summer house entered into a written agreement with a plumber. The contract contained a clause requiring all plumbing work to be completed by noon on June 1 and provided that the homeowner would pay the plumber $1,200 for his work. The plumber began working on the job on May 28. When he quit working for the day on the afternoon of May 29, half of the job was completed. Shortly thereafter, a heavy rain began which caused a flash flood the next day, which swept the house away.

Which of the following best describes the obligations of the plumber and the homeowner after the flood?

A Neither the plumber nor the homeowner is discharged from their obligations under the contract.

B The homeowner is obliged to pay the plumber $1,200.

C The plumber is discharged from his obligation but is entitled to recover from the homeowner the fair value of the work he performed prior to the flood.

D Neither the plumber nor the homeowner have any further obligations.

Answer 15

C The plumber is discharged from his obligation but is entitled to recover from the homeowner the fair value of the work he performed prior to the flood.

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

Question 16

An interior decorator asked a woodworker she met at a crafts fair to build a curly maple armoire. They entered into a written contract, with a contract price of $6,500 to be paid upon the decorator’s receipt of the armoire. When the work was completed, the woodworker shipped the armoire to the decorator. After inspecting it, the decorator felt that it was not of the same high level of workmanship as she was expecting, given the other furniture that the woodworker had showcased at the fair, and a good faith dispute arose between the parties as to the workmanship. The decorator sent the woodworker a check for $4,000 marked “payment in full.” The woodworker indorsed and cashed the check, then sued the decorator to recover the $2,500 balance.

Most courts would hold that:

A The woodworker’s cashing of the check constituted an accord and satisfaction, discharging the decorator’s duty to pay the balance.

B The woodworker can recover the $2,500 balance from the decorator.

C The woodworker is estopped to sue for the balance because he cashed the check knowing that it was being tendered in full settlement.

D The woodworker’s indorsing a check so marked constituted a written release, thereby discharging the contract.

Answer 16

A The woodworker’s cashing of the check constituted an accord and satisfaction, discharging the decorator’s duty to pay the balance.

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

Question 17

The manager of the shoe department of a large department store noticed that mukluks were flying off the shelf in anticipation of another exceptionally cold winter, and he realized that he needed to order more. On November 1, the manager phoned a local manufacturer of mukluks and placed an order for 100 pairs, at a cost of $90 a pair, the price listed in the manufacturer’s catalogue, which the manager had consulted before placing his order. Two days later, the manufacturer mailed the manager a letter stating that the mukluks were now $105 a pair and that they would be shipped to him on November 17. The manager received the letter on November 5, but he never responded. On November 17, the manufacturer shipped the mukluks to the department store, but it was not a perfect tender, and the manager filed suit for breach of contract.

Assuming that the parties’ communications were sufficient to form a contract, on what day was the contract formed?

A November 1, the day the manager placed his order.

B November 3, the day the manufacturer sent its letter.

C November 5, the day the manager received the letter.

D November 17, the day the mukluks were shipped.

Answer 17

B November 3, the day the manufacturer sent its letter.

The contract was formed on November 3. An offer to buy goods for shipment is generally construed as inviting acceptance either by a promise to ship or by shipment. Here, the letter constitutes a promise to ship and thus is an acceptance. The rule for acceptances is that they are effective as soon as they are dispatched, which was November 3. Thus, (B) is correct, and (C) is wrong. (A) is wrong because the order was an offer, not an acceptance to the catalogue. (D) is wrong because acceptance occurred before shipment when the manufacturer sent its promise to ship.

Question 18

A building contractor entered into a contract with the local college to remodel a residence hall during the summer. As specified by the contract, the work had to be completed before the fall semester began at the beginning of September. Because the contractor received a great deal of other maintenance business from the college, his price of $400,000 was significantly lower than other contractors and he was not going to demand payment until the work was completed. By the end of the first week in August, the contractor had completed 75% of the project and had expended $350,000 in labor and materials. At that time, however, a labor dispute between the contractor and his employees prompted most of the workers to walk off the job. Because prospects for a quick settlement of the dispute were doubtful, the contractor informed the college that he would not be able to meet the completion deadline. A week later, the college obtained another contractor who was able to finish the project by the end of August. The college paid him $150,000, which included a substantial amount of overtime for his workers. The increase in value of the residence hall due to the remodeling was $425,000.

The original contractor, who had not been paid, files suit against the college, which files a counterclaim against him. What should the contractor recover from the college?

A Nothing, because the contractor breached the contract.
B $200,000 in restitutionary damages, which is the difference between its expenditures and the amount the college paid the other contractor to complete the work.
C $250,000 in restitutionary damages, which is the contract price minus the amount the college paid the other contractor to complete the work.
D $275,000 in restitutionary damages, which is the difference between the value of the completed remodeling and the amount the college paid the other contractor to complete the work.

Answer 18

C $250,000 in restitutionary damages, which is the contract price minus the amount the college paid the other contractor to complete the work.

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

Question 19

A builder and a wealthy landowner entered into a written contract whereby the builder would build on the grounds of the landowner’s estate a mausoleum, using imported Italian granite, to hold the remains of the landowner’s recently deceased wife. The cost of the mausoleum was set at $100,000. After the contract was signed but before construction began, the builder learned that an unforeseen embargo prevented him from getting the granite he planned to use to build the mausoleum. He could get the granite from another source, but it would cost an additional $25,000. The builder explained the situation to the landowner, who agreed to pay $125,000 to have the mausoleum built. The builder prepared a writing stating that the price for the mausoleum was now $125,000. Both the builder and the landowner signed the writing. After the work was completed, the landowner gave the builder a certified check for $100,000 and refused to pay one penny more.

If the builder brings suit against the landowner to recover the additional $25,000, will the builder likely prevail?

A No, because the builder had a preexisting duty to do the work for $100,000.
B No, because the 25% increase in price that the builder was trying to force on the landowner is unconscionable.
C Yes, because the later agreement was in writing and signed by the parties.
D Yes, because the modification was made by the parties in good faith because of the unforeseen circumstances.

Answer 19

A No, because the builder had a preexisting duty to do the work for $100,000.

Performance of a preexisting legal duty does not constitute consideration sufficient to support a contract. Even the slightest change in the consideration given by the promisee will suffice to overcome the preexisting legal duty rule. Here, absolutely no new or different consideration was given by the builder. Thus, (A) is correct. (B), (C), and (D) are incorrect. (B) is incorrect because this was not a one-sided bargain where one of the parties to the contract had substantially superior bargaining power and could dictate the terms of the contract to the other party with inferior bargaining power. The wealthy landowner was undoubtedly a sophisticated shopper and could certainly have chosen another builder to do the job. Thus, this is not a case of unconscionability. (C) is incorrect because it is immaterial whether the Statute of Frauds is satisfied if there is, as here, a failure of consideration. (D) is incorrect. The fact that the modification was made in good faith may be relevant in a contract for the sale of goods because the U.C.C. permits modifications without consideration, but that rule is not applicable here. Note also that this embargo, though unforeseen, does not make performance impossible or impracticable. The facts state that the granite is available from another source at an increased price. Generally, the builder assumes the risk of a change in degree of difficulty or expense because of increased prices of materials or costs of construction. The fact that something is much more expensive is not impracticability. Cases have held that even a 300% increase in cost is insufficient to render performance impracticable. Many cases hold that increased costs alone, no matter how large, do not give rise to the defense of impracticability. The test for impracticability is: (i) extreme and unreasonable difficulty and/or expense, and (ii) its nonoccurrence was a basic assumption of the parties. Here, as noted above, the expense is not extreme enough. Furthermore, these facts probably could not pass the second prong of the test either. It is unlikely that unhampered transport of the granite was a basic assumption of the owner in entering into the contract (although it may have been for the builder).

Question 20

A large wholesale dealer in produce had never done business with a certain greengrocer who operated a small chain of markets in the Midwest. They entered into a written agreement whereby the wholesale dealer agreed to supply to the greengrocer the “fuzzy” variety of peaches at $35 per 50 pound lot. The agreement contained a provision stating that the greengrocer will buy “as many 50 pound lots of fuzzy peaches as the greengrocer chooses to order.”

Assuming that the greengrocer has not yet placed any orders for peaches with the wholesale dealer, is this agreement between the parties enforceable?

A Yes, because it is a valid requirements contract and, as such, is enforceable under the Uniform Commercial Code.
B Yes, because the Uniform Commercial Code will imply reasonable terms.
C No, because the total quantity of the contract is not specified.
D No, because there is no consideration on the greengrocer’s part.

Answer 20

D No, because there is no consideration on the greengrocer’s part.

The agreement is not enforceable because the greengrocer’s promise is illusory. For a contract to be enforceable, consideration must exist on both sides, i.e., each party’s promise must create a binding obligation. If one party has become bound but the other has not, the agreement lacks mutuality because one of the promises is illusory. Here, the wholesale dealer has promised to supply the greengrocer with fuzzy peaches at a fixed price. The greengrocer, however, has not promised to order any peaches from the wholesale dealer. Even if the greengrocer decides to sell fuzzy peaches, it has not bound itself to order them from this particular wholesale dealer. The illusory nature of the greengrocer’s promise makes the agreement unenforceable on consideration grounds. (A) is incorrect because in a valid requirements contract, both parties’ promises create binding obligations: The promisor binds itself to buy from the supplier all that it requires, and the supplier binds itself to sell to the promisor that same amount. Consideration exists because the promisor is suffering a legal detriment; it has parted with the legal right to buy the goods it may need from another source. Under the U.C.C., which governs in this case because a contract for the sale of goods is involved, a good faith term is implied: The buyer’s requirements means such actual requirements as may occur in good faith. Thus, if the provision had stated instead that the greengrocer will buy “as many 50 pound lots of fuzzy peaches as the greengrocer shall require,” it would be a valid requirements contract under the U.C.C. because it requires the greengrocer to buy fuzzy peaches only from the wholesale dealer and to act in good faith in setting its requirements. (B) is incorrect even though the U.C.C. will imply reasonable terms under certain circumstances. Such terms as price and time for performance need not be spelled out in the contract; the terms will be supplied by a “reasonableness” standard if that is otherwise consistent with the parties’ intent. However, supplying reasonable terms will not change the express terms of the contract. The provision that the greengrocer will buy as many peaches as it chooses to order is not sufficiently obligatory to be saved by the court supplying reasonable terms. (C) is incorrect because if the agreement were otherwise a valid requirements contract, the absence of a total quantity term would not matter. As a general rule in sale of goods contracts, the quantity being offered must be certain or capable of being made certain. The U.C.C. provides that an agreement to buy all of one’s requirements is sufficiently certain because requirements usually can be objectively determined. Furthermore, the quantity ultimately required in good faith must not be unreasonably disproportionate to any stated estimate or any normal requirements (in the absence of a stated estimate). Hence, if the greengrocer had contracted to buy all of its requirements from the wholesale dealer, the absence of a term specifying total quantity would not have made the agreement unenforceable.

Question 21

After extensive negotiations, representatives for an automobile manufacturer and a tire maker orally agreed on the specifications for a supply of tires. The lawyer for the car manufacturer then drafted a written agreement and sent it to the tire maker’s lawyer, who modified the draft and sent it back to the car manufacturer. This writing was signed by both parties. The tire maker now brings an action for breach of contract against the car manufacturer seeking damages. The car manufacturer attempts to introduce the testimony of its chief negotiator describing the oral agreement with the tire maker representatives that the tires would meet certain requirements of the car models. The tire maker objects, arguing that the parol evidence rule bars admission of this testimony.

Which of the following is the best argument supporting admission of the testimony?

A The memorandum signed by the parties was not a complete integration of their agreement.
B The parol evidence rule does not bar evidence interpreting a written agreement.
C The car manufacturer detrimentally relied on the oral agreement in signing the memorandum.
D The parol evidence rule does not exclude misrepresentations.

Answer 21

A The memorandum signed by the parties was not a complete integration of their agreement.

The best argument for admission of the testimony is that the memorandum does not cover the entire agreement between the parties and was thus not a complete integration. Because the writing contains no mention of the oral agreement to meet certain car models requirements, the testimony would not “interpret” it in any way. Thus, (B) is incorrect. (C) and (D) are wrong because there is no evidence that the car manufacturer detrimentally relied on the oral agreement in signing the memorandum, or that the tire supplier’s promise constituted a misrepresentation at the time it was made.