Contracts Flashcards
A large clothing retailer contracted with a firm that specialized in custom printing to print the logo of a major sporting event onto 5,000 jerseys. The logo was coupled with an identifying landmark of the city in which the event was to take place. The retailer planned to sell the jerseys as souvenirs at the event. As called for in the contract, the retailer supplied the firm with the jerseys and paid half the contract price. Shortly before the event and before any shirts had been printed, the stadium where the game was to be held was damaged by an earthquake. As a consequence, the event was moved to another city. The retailer demanded the return of its payment and the jerseys. The supplier, claiming that it was entitled to the benefit of its bargain, kept its anticipated profit of $2,000 but returned the jerseys and the remainder of the payment to the retailer. The retailer filed a lawsuit seeking rescission of the contract and return of the $2,000. What is the retailer’s best argument in support of its suit?
The retailer’s contractual duties are discharged because the game’s relocation frustrated the purpose of the contract.
The doctrine of frustration of purpose applies when an unexpected event arises that destroys one party’s purpose in entering into the contract, even if performance of the contract is not rendered impossible. The event that arises must not be the fault of the frustrated party, and its non-occurrence must have been a basic assumption of the contract. The frustrated party is entitled to rescind the contract without paying damages. Here, relocation of the sporting event was not a foreseeable prospect, and only occurred because of an improbable event—an earthquake that damaged the stadium. Consequently, the contract should be rescinded and the $2,000 returned to the retailer.
An artist who had designed a sculpture to be made out of steel went to the website of a merchant that sold specialized tools. Using the chat feature, the artist explained to an employee of the merchant that the artist wanted to purchase a tool that could cut through steel. The employee suggested that the artist purchase a particular saw. The employee, pointing out that the website’s description of the saw indicated that it could cut through most metals, added that the saw “should cut through steel with no problem.” The artist purchased the saw from the merchant’s website for a total cost of $450. Conspicuously appearing on the page where the artist had to indicate his consent in order to purchase the saw was the following: “There are no implied warranties provided with this product other than the general warranty of merchantability.” The tool failed to cut through the steel that the artist intended to use for his sculpture. The artist sued the merchant for damages attributable to breach of the implied warranty of fitness for a particular purpose. Which party is likely to prevail?
The merchant, because the merchant disclaimed the warranty of fitness for a particular purpose.
A warranty that the goods are fit for a particular purpose may be disclaimed by a conspicuous writing. Such a writing need not refer to this warranty by name.
A publishing company entered into a contract to purchase a newspaper company. The contract specified that “it shall be a condition precedent to buyer’s obligation to pay that the newspaper shall have 200,000 subscribers by December 31 of this year.” In anticipation of the purchase, the publishing company purchased $200,000 of new equipment to be used in printing the newspaper; the newspaper was aware of the investment. At the end of the business day on December 31, the newspaper had only 199,750 subscribers, and had no justification for the shortfall. The publishing company immediately redirected $100,000 of the new equipment to print one of its magazines, but the other $100,000 of equipment was custom-made for the newspaper and could not be used elsewhere. The publishing company refused to go through with the sale, and then sued the newspaper company for $100,000. Is the publishing company likely to prevail?
No, because failure of a condition precedent does not give rise to damages.
The claim for $100,000 is a claim for reliance damages, which may be recovered if the non-breaching party incurs expenses in reasonable reliance upon the promise that the other would perform. Here, however, there is no breach, because the 200,000 subscriber requirement was a condition precedent, and not a promise. The failure of a promise is a breach, and gives rise to damages, while the failure of a condition merely relieves a party of the obligation to perform. Consequently, the publishing company need not perform by meeting its obligation to pay, but it is not entitled to damages.
A middle-aged farmer who lived by himself in a rural area had surgery to correct an orthopedic problem. Since his recovery would take about a year, he contacted a retired nurse about serving as his caretaker. While the farmer was still in the hospital, the two reached an agreement, the terms of which were specified in two letters. The letter written by the nurse identified the farmer by name and stated, “I agree to take care of your medical needs for a period of one year, starting when you leave the hospital.” The letter written by the man identified the nurse by name and stated, “I agree to pay you $10,000 per month.” Each letter was signed by its drafter. Before his discharge from the hospital, the man found out that the hospital had a less expensive program for home care, and cancelled the contract. Unable to find other employment, the nurse brought a breach of contract action against the man. Based solely on the letters, will the nurse be able to establish the existence of a contract?
No, because the Statute of Frauds precludes enforcement.
Since the contract cannot be performed within one year from the time of the contract’s making, it is subject to the Statute of Frauds. The writings are not sufficient under the Statute of Frauds because, although together they state the essential terms of the bargain and each is signed by the promisor, neither writing references the other. In order to satisfy the Statute of Frauds, at least one of the writings must reference the other. Because the farmer’s letter does not indicate the subject matter of the contract (i.e., why the farmer is paying the nurse $10,000 a month), the nurse will be unable to enforce the agreement against the farmer.
A homeowner hired a contractor to finish her basement. They agreed on a price of $20,000 for the job. During the final stages of the remodeling, the contractor discovered that there was mold in the basement, the existence of which had been unknown to either party. The contractor refused to complete the job unless the homeowner paid an additional $2,000 to the contractor for removal of the mold. The homeowner reluctantly agreed, and the contractor finished the basement in accord with the modified contract. The homeowner paid the contractor $20,000. In a breach of contract action to recover the $2,000, will the contractor prevail?
Yes, because the homeowner agreed to the price increase.
Under the common law, which applies to a construction contract, a contract generally cannot be modified without consideration. Here, the contractor proposed modifying the contract to increase the contractor’s compensation in exchange for the removal of the mold from the basement. Since the homeowner agreed to the modification and the contractor finished the basement in accord with the modified contract, the homeowner is liable to the contractor for the additional $2,000.
A retail store that specialized in glass objects entered into a written contract to purchase 100 hand-blown glass ornaments from an artisan. Because of the artisan’s popularity, the store paid in full for the ornaments at the time that the contract was executed. The contract specified that the store would pick up the ornaments after notification that they were ready. The contract contained no other terms related to delivery of the ornaments and did not allocate the risk of loss. When the ornaments were ready, the artisan notified the store. The parties arranged for the store to pick up the packaged ornaments no later than 2:00 pm the next day. The employee assigned by the store to make the pickup did not arrive until 6:00 pm. In the late afternoon just before the store employee arrived, a short but intense storm caused a large, healthy tree on the artisan’s property to fall over and destroy all the ornaments. Neither party had insured the ornaments against such a loss. Who bears the risk of the loss with respect to the ornaments?
The store, because the artisan’s insurance did not cover the loss.
The UCC provides that a merchant seller generally retains the risk of loss in the absence of a contract term to the contrary until the buyer receives the goods. However, if the buyer is in breach of the contract, the risk of loss passes to the buyer to the extent of any deficiency in the seller’s insurance coverage. Here, the store, as buyer, was in breach of the contract by failing to pick up the ornaments by 2:00 pm. Although the UCC only requires that the delivery time be “reasonable” in the absence of a specific contract term, the parties here modified the contract in that regard by agreeing that the seller should pick up the ornaments by 2:00 pm.
A corporation entered into an agreement with an accountant to audit the corporation’s books pending a sale of all of the company’s assets. The agreement specified that the accountant would perform “all services relating to the sale of assets of the corporation.” The agreement was fully integrated, but did not contain a merger clause. The day after the agreement was executed, the corporation and the accountant amended the agreement to include the evaluation of prospective buyers, for $2,000 per buyer. The accountant evaluated two corporations who were potential buyers. The corporation refused to pay the additional $4,000. In a breach of contract action, will evidence of the evaluation agreement be excluded?
No, because the agreement regarding the evaluation of prospective buyers was entered into after the execution of the writing.
The parol evidence rule does not apply because the second agreement was entered into after the writing was executed; the rule only applies to agreements reached before or contemporaneous with the writing.
In January, a garden center contacted a farmer who owned a greenhouse about growing seedlings for sale in the spring. The garden center promised in writing to buy, at a fixed price, all of the seedlings that the farmer raised in his greenhouse. As a consequence, the farmer purchased containers and seeds and hired a worker to prepare the containers, plant the seeds, and tend to the seedlings. Just prior to the delivery of any seedlings, the garden center notified the farmer that it would not purchase any of the seedlings. The farmer sold the seedlings at a price far below the price set by the garden center. The farmer filed a breach of contract action to recover damages. Will the farmer likely succeed?
Yes, because the farmer accepted the garden center’s offer by beginning performance.
Unless a contract specifies that it can be accepted only by performance (i.e., a unilateral contract), it can be accepted either by the offeree’s promise to perform or by the offeree’s beginning performance of the contract. Here the garden center’s promise was to purchase all of the seedlings raised by the farmer. Since the farmer had begun to raise the seedlings—by purchasing the containers and seeds and by hiring a worker who prepared the containers, planted the seeds, and tended to the seedlings—the farmer had accepted by beginning performance. Consequently, the garden center’s refusal to accept delivery of the seedlings from the farmer constituted a breach of the contract.
A homebuyer was discussing the purchase of a house with the seller. Of particular concern to the buyer was whether the house had a termite problem. The seller, aware of the buyer’s concern, ordered an inspection from a licensed inspection company. The company issued a report stating that the house was free of termites. In fact, the company’s inspector was negligent, and the house’s foundation had a modest termite problem. Relying on the report, the seller told the buyer that the house was free of termites. The buyer is seeking to avoid the contract. Will he prevail?
Yes, because the buyer reasonably relied on the misrepresentation.
Even though the misrepresentation was not fraudulent, it nevertheless renders the contract voidable. Here, the buyer justifiably relied on a certified inspection, and it was a material misrepresentation because the presence of termites was a major factor in the buyer’s decision. Answer choice B is incorrect because the misrepresentation did not rise to the level of unconscionability; the contract was not unfair or one-sided.
An American helicopter manufacturer contracted with a foreign hospital located in a severely war-torn region to sell five helicopters specially outfitted for medical use. The helicopter manufacturer, in turn, contracted with a subcontractor to provide five flight systems for use in the helicopters. The subcontractor was not informed about the contract between the helicopter manufacturer and the foreign hospital, nor the location where the helicopters would be used. After the two contracts were formed, the country in which the hospital was located descended deeply into civil war. The United Nations imposed an embargo against all shipments to that country. The helicopter manufacturer directed the subcontractor to stop all work on the contract, and to place any completed systems into storage. At that point, the subcontractor had finished three of the five flight systems called for by the subcontract. The systems were custom-built, and could not be used for any other purpose. The subcontractor sued the helicopter manufacturer for breach of contract. Is the subcontractor likely to prevail?
Yes, because the helicopter manufacturer assumed the risk of the failure of the contract.
The defense of impracticability may be raised if performance has become illegal after the formation of the contract. However, the defense is unavailable to a party who has assumed the risk of an event happening that makes performance impracticable. Here, the helicopter manufacturer entered into a contract with the subcontractor knowing that the helicopters were to be used in a “severely war-torn region.” The subcontractor was not informed of this information, and consequently had no opportunity to assess the risk involved in the contract. Consequently, it can be fairly said that the helicopter manufacturer assumed the risk, and cannot advance the defense of impracticability.
A widow and widower were engaged to be married. After some discussion as to how to pay for the wedding, the son of the widow and the daughter of the widower each orally agreed to give $50,000 to the other’s parent as a gesture of approval of the upcoming union. The son and daughter shook hands in agreement as to the arrangement, but before either gift had been made, the two became embroiled in a serious disagreement, and both agreed to forego making the gifts. In spite of this, the son of the widow did make a gift of $50,000 to the widower at the time of the wedding. Soon after th
No, because the agreement between the children was rescinded before the widow’s rights vested.
The widow was an intended beneficiary of the agreement between the children. In this case, she was the one to whom the promisee wished to make a gift of the promised performance. An intended beneficiary may sue a promisor to enforce the contract once her rights have vested. The rights of an intended beneficiary vest when the beneficiary (i) detrimentally relies on the rights created; (ii) manifests assent to the contract at one of the parties’ request; or (iii) files a lawsuit to enforce the contract. Here, none of these three vesting events occurred before the rescission of the contract. Consequently, the widow cannot enforce the contract.
A 16-year-old entered into a written agreement to buy a car from a dealership. He made a small down payment and took out a loan from the dealership for the remainder of the purchase price. The deal was fair in every respect, and the same as the car dealership would give any other customer. After the sale was finalized, the salesman’s supervisor reviewed the contract, and upon researching the matter further, discovering that the boy was only 16. He told the salesperson to call the boy and cancel the contract, which he did. In a breach of contract action brought on behalf of the boy, the court held for the boy. What was the reason?
The dealer did not have the right to void the contract.
Contracts with minors are voidable, but only by the minor.
A hospital placed an order to purchase scalpel blades from a medical supply company. The hospital specified that the blades were to be shipped immediately. Upon receipt of the order, the supply company discovered that it did not have the type of blade ordered by the hospital, and shipped instead a different type of blade, along with a note that these blades were not the type ordered by the hospital but were sent as an accommodation. The hospital rejected and returned the shipped blades, then sued the supply company for breach of contract. Will the hospital be successful in its suit?
No, because the medical supply company did not accept the hospital’s offer.
Normally a shipment of goods by a seller made in response to an order placed by the buyer constitutes acceptance of the buyer’s offer. Such a shipment does not constitute acceptance, however, if the seller indicates that the shipped goods are made as accommodation. Since the supply company so designated the blades that it sent, the shipment did not constitute acceptance. Consequently, no contract was formed, so there can be no breach.
A gas station entered into a contract with an oil distributor to purchase a specified quantity of gasoline for resale. The contract specified, per the gas station’s request, that the gasoline was to be 99.5% free of impurities, as determined by industry-standard measurements. Another contract provision specified that the gasoline was to be delivered by July 31 at the latest. The oil distributor delivered the gasoline to the gas station on July 30. Before accepting the delivery, the gas station manager checked the purity of the gasoline. The gasoline was only 99.3% free of impurities, and the manager rejected it. The oil distributor immediately informed the gas station manager that it intended to cure the defect by delivering a new shipment as soon as possible. The oil distributor delivered a new shipment of gasoline to the gas station on August 1, but the gas station manager rejected the new shipment. Both parties agree that the gasoline in the second shipment was 99.7% free of impurities. Later, the oil distributor sued the gas station for breach of contract. Is it likely to prevail?
No, because an acceptable shipment needed to be delivered by July 31.
A seller has the right to cure a defective tender if (i) the time for performance under the contract has not yet lapsed, or (ii) the seller had reasonable grounds to believe the buyer would accept the goods despite the nonconformity. Here, neither condition is satisfied; the gas station insisted on the purity provision in the contract, and so there were no reasonable grounds to believe that the station would accept a lower-quality gasoline. Nonetheless, the oil distributor retained the right to cure the defective tender by July 31. It did not deliver conforming gasoline until August 1, and consequently, the gas station was justified in rejecting the second shipment.
How long do you have to give adequate assurances?
Reasonable time cannot exceed 30 days
