Defenses

Question 1

Restatement § 208 Unconscionable Contract or Term

Answer 1

If a contract or term thereof is unconscionable at the time the contract is made a court may refuse to enforce the contract, or may enforce the remainder of the contract without the unconscionable term, or may so limit the application of any unconscionable term as to avoid any unconscionable result.

Question 2

Restatement § 208 Unconscionable Contract or Term Overall Imbalance

A, an individual, contracts in June to sell at a fixed price per ton to B, a large soup manufacturer, the carrots to be grown on A’s farm. The contract, written on B’s standard printed form, is obviously drawn to protect B’s interests and not A’s; it contains numerous provisions to protect B against various contingencies and none giving analogous protection to A. Each of the clauses can be read restrictively so that it is not unconscionable, but several can be read literally to give unrestricted discretion to B. In January, when the market price has risen above the contract price, A repudiates the contract, and B seeks specific performance.

Answer 2

In the absence of justification by evidence of commercial setting, purpose, or effect, the court may determine that the contract as a whole was unconscionable when made, and may then deny specific performance.

Question 3

Restatement § 208 Unconscionable Contract or Term Overall Imbalance

A, a homeowner, executes a standard printed form used by B, a merchant, agreeing to pay $1,700 for specified home improvements. A also executes a credit application asking for payment in 60 monthly installments but specifying no rate. Four days later A is informed that the credit application has been approved and is given a payment schedule calling for finance and insurance charges amounting to $800 in addition to the $1,700. Before B does any of the work, A repudiates the agreement, and B sues A for $800 damages, claiming that a commission of $800 was paid to B’s salesman in reliance on the agreement.

Answer 3

The court may determine that the agreement was unconscionable when made, and may then dismiss the claim.

Question 4

Restatement § 208 Unconscionable Contract or Term Weakness in the Bargaining Process

A, literate only in Spanish, is visited in his home by a salesman of refrigerator-freezers for B. They negotiate in Spanish; A tells the salesman he cannot afford to buy the appliance because his job will end in one week, and the salesman tells A that A will be paid numerous $25 commissions on sales to his friends. A signs a complex installment contract printed in English. The contract provides for a cash price of $900 plus a finance charge of $250. A defaults after paying $32, and B sues for the balance plus late charges and a 20% attorney’s fee authorized by the contract. The appliance cost B $350.

Answer 4

The court may determine that the contract was unconscionable when made, and may then limit B’s recovery to a reasonable sum.

Question 5

Restatement § 208 Unconscionable Contract or Term Unconscionable Terms

A, a retail furniture store, sells furniture on installment credit to B, retaining a security interest. As A knows, B is a woman of limited education, separated from her husband, maintaining herself and seven children by means of $218 per month public assistance. After 13 purchases over a period of five years for a total of $1,200, B owes A $164. B then buys a stereo set for $514. Each contract contains a paragraph of some 800 words in extremely fine print, in the middle of which are the words “all payments … shall be credited pro rata on all outstanding … accounts.” The effect of this language is to keep a balance due on each item until all are paid for. On B’s default, A sues for possession of all the items sold.

Answer 5

It may be determined that either the quoted clause or the contract as a whole was unconscionable when made.

Question 6

Restatement § 208 Unconscionable Contract or Term Unconscionable Terms

A, a corporation with its principal office in State X, contracts with B, a resident of State X, to make improvements on B’s home in State X. The contract is made on A’s standard printed form, which contains a clause by which the parties submit to the jurisdiction of a court in State Y, 200 miles away. No reason for the clause appears except to make litigation inconvenient and expensive for B.

Answer 6

The clause is unconscionable.

Question 7

Restatement § 208 Unconscionable Contract or Term Law and Fact

A, a finance company, lends money to B, a manufacturing company, on the security of an assignment by B of its accounts receivable. The agreement provides for loans of 75% of the value of assigned accounts acceptable to A, and forbids B to dispose of or hypothecate any assets without A’s written consent. The agreed interest rate of 18% would be usurious but for a statute precluding a corporation from raising the defense of usury. Substantial advances are made, and the balance owed is $14,000 when B becomes bankrupt, three months after the first advance.

Answer 7

A determination that the agreement is unconscionable on its face, without regard to context, is error. The agreement is unconscionable only if it is not a reasonable commercial device in the light of all the circumstances when it was made.

Question 8

§ 2-302. Unconscionable Contract or Clause.

Answer 8

(1) If the court as a matter of law finds the contract or any clause of the contract to have been unconscionable at the time it was made the court may refuse to enforce the contract, or it may enforce the remainder of the contract without the unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result.
(2) When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.

Question 9

Restatement § 208 Unconscionable Contract or Term Law and Fact

A, a packer, sells and ships 300 cases of canned catsup to B, a wholesale grocer. The contract provides, “All claims other than swells must be made within ten days from receipt of goods.” Six months later a government inspector, upon microscopic examination of samples, finds excessive mold in the cans and obtains a court order for destruction of the 270 remaining cases in B’s warehouse.

Answer 9

In the absence of justifying evidence, the court may determine that the quoted clause is unconscionable as applied to latent defects and does not bar a claim for damages for breach of warranty by B against A.

Question 10

Restatement § 178 When a Term Is Unenforceable on Grounds of Public Policy 1

Answer 10

(1) A promise or other term of an agreement is unenforceable on grounds of public policy if legislation provides that it is unenforceable or the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms.

Question 11

Restatement § 178 When a Term Is Unenforceable on Grounds of Public Policy 2

In weighing the interest in the enforcement of a term, account is taken of

Answer 11

(a) the parties’ justified expectations,
(b) any forfeiture that would result if enforcement were denied, and
(c) any special public interest in the enforcement of the particular term.

Question 12

Restatement § 178 When a Term Is Unenforceable on Grounds of Public Policy 3

In weighing a public policy against enforcement of a term, account is taken of

Answer 12

(a) the strength of that policy as manifested by legislation or judicial decisions,
(b) the likelihood that a refusal to enforce the term will further that policy,
(c) the seriousness of any misconduct involved and the extent to which it was deliberate,
(d) the directness of the connection between that misconduct and the term.

Question 13

Restatement § 178 When a Term Is Unenforceable on Grounds of Public Policy

A promises to pay B $1,000 if the Buckets win their basketball game with the Hoops, and B promises to pay A $2,000 if the Hoops win. A state statute makes wagering a crime and provides that a promise such as A’s or B’s is “void.”

Answer 13

A’s and B’s promises are unenforceable on grounds of public policy. Any claims of A or B to restitution for money paid under the agreement are governed by the rules stated in Topic 5, Restitution.

Question 14

Restatement § 179 Bases against public Policies against enforcement A Public Policy against the enforcement of promises or other terms may be derived by the court from

Answer 14

a. Legislation relevant to such policy,
b. The need to protect some aspect of the public welfare, as is the case for the judicial policies against, for example
i. Restraint of trade
ii. Impairment of family relations, and
iii. Interference with other protected interests

Question 15

Restatement § 12 Capacity to Contract

Answer 15

(1) No one can be bound by contract who has not legal capacity to incur at least voidable contractual duties. Capacity to contract may be partial and its existence in respect of a particular transaction may depend upon the nature of the transaction or upon other circumstances.
(2) A natural person who manifests assent to a transaction has full legal capacity to incur contractual duties thereby unless he is
(a) under guardianship, or
(b) an infant, or
(c) mentally ill or defective, or
(d) intoxicated.

Question 16

Restatement § 14 Infants

Answer 16

Unless a statute provides otherwise, a natural person has the capacity to incur only voidable contractual duties until the beginning of the day before the person’s eighteenth birthday.

Question 17

Restatement § 89 Promise to Perform a Voidable Duty

Answer 17

Except as stated in § 93, a promise to perform all or part of an antecedent contract of the promisor, theretofore voidable by him, but not avoided prior to the making of the promise, is binding.

Question 18

Restatement § 161 When Non-Disclosure Is Equivalent to an Assertion

Answer 18

A person’s non-disclosure of a fact known to him is equivalent to an assertion that the fact does not exist in the following cases only:

(a) where he knows that disclosure of the fact is necessary to prevent some previous assertion from being a misrepresentation or from being fraudulent or material.
(b) where he knows that disclosure of the fact would correct a mistake of the other party as to a basic assumption on which that party is making the contract and if non-disclosure of the fact amounts to a failure to act in good faith and in accordance with reasonable standards of fair dealing.
(c) where he knows that disclosure of the fact would correct a mistake of the other party as to the contents or effect of a writing, evidencing or embodying an agreement in whole or in part.
(d) where the other person is entitled to know the fact because of a relation of trust and confidence between them.

Question 19

Restatement § 161 When Non-Disclosure Is Equivalent to an Assertion Known Mistake as to a Basic Assumption

A, seeking to induce B to make a contract to sell A land, learns of the valuable mineral deposits from trespassing on B’s land and not from government surveys.

Answer 19

A’s non-disclosure is equivalent to an assertion that the land does not contain valuable mineral deposits, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164.

Question 20

Restatement § 161 When Non-Disclosure Is Equivalent to an Assertion Known Mistake as to a Basic Assumption

A, seeking to induce B to make a contract to sell A land, learns from government surveys that the land contains valuable mineral deposits and knows that B does not know this, but does not disclose this to B. B makes the contract.

Answer 20

A’s non-disclosure does not amount to a failure to act in good faith and in accordance with reasonable standards of fair dealing and is therefore not equivalent to an assertion that the land does not contain valuable mineral deposits. The contract is not voidable by B.

Question 21

Restatement § 161 When Non-Disclosure Is Equivalent to an Assertion Known Mistake as to a Basic Assumption

In answer to an inquiry from “J.B. Smith Company,” A offers to sell goods for cash on delivery. A mistakenly believes that the offeree is John B. Smith, who has an established business of good repute, but in fact it is a business run by his son, with whom A has refused to deal because of previous disputes. The son learns of A’s mistake but accepts A’s offer without disclosing his identity.

Answer 21

The son’s non-disclosure is equivalent to an assertion that the business is run by the father, and this assertion is a misrepresentation. Whether the contract is voidable by A is determined by the rule stated in § 164.

Question 22

Restatement § 161 When Non-Disclosure Is Equivalent to an Assertion Known Mistake as to a Basic Assumption

In response to B’s invitation for bids on the construction of a building according to stated specifications, A submits an offer to do the work for $150,000. A believes that this is the total of a column of figures, but he has made an error by inadvertently omitting a $5,000 item, and in fact the total is $155,000. B knows this but accepts A’s bid without disclosing it.

Answer 22

B’s non-disclosure is equivalent to an assertion that no error has been made in the total, and this assertion is a misrepresentation. Whether the contract is voidable by A is determined by the rule stated in § 164.

Question 23

Restatement § 161 When Non-Disclosure Is Equivalent to an Assertion Known Mistake as to a Basic Assumption

A, seeking to induce B to make a contract to sell land, knows that B does not know that the land has appreciably increased in value because of a proposed shopping center but does not disclose this to B. B makes the contract.

Answer 23

Since B’s mistake is not one as to a basic assumption, A’s non-disclosure is not equivalent to an assertion that the value of the land has not appreciably increased, and this assertion is not a misrepresentation. The contract is not voidable by B.

Question 24

Restatement § 161 When Non-Disclosure Is Equivalent to an Assertion Known Mistake as to a Basic Assumption

A, seeking to induce B to make a contract to buy a food-processing business, knows that B does not know that the health department has given repeated warnings that a necessary license will not be renewed unless expensive improvements are made but does not disclose this to B. B makes the contract.

Answer 24

A’s non-disclosure is equivalent to an assertion that no warnings have been given by the health department, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164.

Question 25

Restatement § 161 When Non-Disclosure Is Equivalent to an Assertion Known Mistake as to a Basic Assumption

A, seeking to induce B to make a contract to buy A’s house, knows that B does not know that the house is riddled with termites but does not disclose this to B. B makes the contract.

Answer 25

A’s non-disclosure is equivalent to an assertion that the house is not riddled with termites, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164.

Question 26

Restatement § 161 When Non-Disclosure Is Equivalent to an Assertion Known Mistake as to a Basic Assumption

A, seeking to induce B to make a contract to buy land, knows that B does not know that the land has been filled with debris and covered but does not disclose this to B. B makes the contract.

Answer 26

A’s non-disclosure is equivalent to an assertion that the land has not been filled with debris and covered, and this assertion is a misrepresentation. Whether the contract is voidable by B is determined by the rule stated in § 164.

Question 27

Restatement § 15 Mental Illness or Defect

A, a school teacher, is a member of a retirement plan and has elected a lower monthly benefit in order to provide a benefit to her husband if she dies first. At age 60 she suffers a “nervous breakdown,” takes a leave of absence, and is treated for cerebral arteriosclerosis. When the leave expires she applies for retirement, revokes her previous election, and elects a larger annuity with no death benefit. In view of her reduced life expectancy, the change is foolhardy, and there are no other circumstances to explain the change. She fully understands the plan, but by reason of mental illness is unable to make a decision based on the prospect of her dying before her husband. The officers of the plan have reason to know of her condition. Two months after the changed election she dies.

Answer 27

The change of election is voidable.

Question 28

Restatement § 15 Mental Illness or Defect

Answer 28

(1) A person incurs only voidable contractual duties by entering into a transaction if by reason of mental illness or defect
(a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
(b) he is unable to act in a reasonable manner in relation to the transaction and the other party has reason to know of his condition.
(2) Where the contract is made on fair terms and the other party is without knowledge of the mental illness or defect, the power of avoidance under Subsection (1) terminates to the extent that the contract has been so performed in whole or in part or the circumstances have so changed that avoidance would be unjust. In such a case a court may grant relief as justice requires.

Question 29

Restatement § 153 When Mistake of One Party Makes a Contract Voidable

A offers to sell B goods shipped from Bombay ex steamer “Peerless.” B accepts. There are two steamers of the name “Peerless” sailing from Bombay at materially different times. B means Peerless No. 2, and A has reason to know this. A means Peerless No. 1, but B has no reason to know this.

Answer 29

Under the rule stated in § 20 there is a contract for the sale of goods from Peerless No. 2, but, under the rule stated in this Section, if the court determines that its enforcement would be unconscionable, it is voidable by A.

Question 30

Restatement § 153 When Mistake of One Party Makes a Contract Voidable

Answer 30

Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake under the rule stated in § 154, and

(a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or
(b) the other party had reason to know of the mistake or his fault caused the mistake.

Question 31

Restatement § 154 When a Party Bears the Risk of a Mistake

Answer 31

A party bears the risk of a mistake when

(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

Question 32

Restatement § 152 When Mistake of Both Parties Makes a Contract Voidable

A contracts to sell and B to buy a tract of land, the value of which has depended mainly on the timber on it. Both A and B believe that the timber is still there, but in fact it has been destroyed by fire.

Answer 32

The contract is voidable by B.

Question 33

Restatement § 152 When Mistake of Both Parties Makes a Contract Voidable

Answer 33

(1) Where a mistake of both parties at the time a contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake under the rule stated in § 154.
(2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, or otherwise.

Question 34

UCC § 1-304. Obligation of Good Faith.

Answer 34

Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.

Question 35

Restatement § 262 Death or Incapacity of Person Necessary for Performance Where Particular Person is Necessary

A and B, a firm of contractors doing an extensive business in many localities, contract with C to fill a tract of low land. A dies and B fails to complete performance.

Answer 35

Neither A’s nor B’s duty to fill the land is discharged, and both A’s estate and B are liable to C for breach of contract.

Question 36

Restatement § 262 Death or Incapacity of Person Necessary for Performance Where Particular Person is Necessary

A and B, a firm of architects, contract with C to design a building for C. It is understood by the parties that both A and B shall render services under the contract. A dies and B fails to complete performance.

Answer 36

Both A’s and B’s duties to design the building are discharged, and neither A’s estate nor B is liable to C for breach of contract.

Question 37

Restatement § 262 Death or Incapacity of Person Necessary for Performance Where Particular Person is Necessary

A and B make a contract under which A is to devote full time to prospecting for coal on B’s land, and, if he is successful, B personally is to finance and manage a corporation for the exploitation of the coal. B is to pay A a salary and convey to him a one-quarter interest in any resulting corporation. A locates coal and is paid his salary, but B dies before he is able to finance and manage a corporation to exploit it, and no such corporation is formed.

Answer 37

Whether performance of B’s duty to finance and manage a corporation became impracticable on B’s death depends on whether that duty, as understood by the parties, could only be performed by B himself. If the court concludes that it could, B’s duty to convey an interest in any resulting corporation is discharged, and B’s estate is not liable to A for breach of contract. A may have a claim against B under the rule stated in § 272(1).

Question 38

Restatement § 262 Death or Incapacity of Person Necessary for Performance Where Particular Person is Necessary

A contracts with B to cut a tract of standing timber. A dies, and his estate refuses to complete performance.

Answer 38

In the absence of special circumstances showing that A’s personal service or supervision is necessary to performance of his duty, A’s duty to cut the timber is not discharged, and A’s estate is liable to B for breach of contract.

Question 39

Restatement § 262 Death or Incapacity of Person Necessary for Performance Rationale

A contracts with B to produce a play starring C, a famous actor, in B’s theater on December 16. Early in December, while the play is being performed elsewhere, C experiences a worsening throat condition and, although it does not prevent his performing, he is advised by his doctor to cancel his further performances and have a minor operation. On December 12, A notifies B that the December 16 performance of the play is cancelled for this reason.

Answer 39

A’s duty to produce the play is discharged, and A is not liable to B for breach of contract.

Question 40

Restatement § 262 Death or Incapacity of Person Necessary for Performance Rationale

A, a corporation, contracts to employ B as its secretary for five years. A’s dissolves its business is voluntarily or the result of insolvency.

Answer 40

A’s duty to employ B is not discharged, and A is liable to B for breach of contract.

Question 41

Restatement § 262 Death or Incapacity of Person Necessary for Performance Rationale

A, a corporation, contracts to employ B as its secretary for five years. Within that time the state legislature enacts a law requiring the dissolution of corporations engaged in A’s business.

Answer 41

On dissolution, A’s duty to employ B is discharged, and A is not liable to B for breach of contract. B may have a claim against A under the rule stated in § 272(1).

Question 42

Restatement § 262 Death or Incapacity of Person Necessary for Performance Rationale

A contracts to employ B as his confidential secretary for a year. A rather than B dies before the end of the year, and B takes other employment.

Answer 42

B’s duty to work for A is discharged, and B is not liable to A’s estate for breach of contract.

Question 43

Restatement § 262 Death or Incapacity of Person Necessary for Performance Rationale

A contracts to employ B as his confidential secretary for a year. B dies before the end of the year.

Answer 43

B’s duty to work for A is discharged, and B’s estate is not liable to A for breach of contract.

Question 44

Restatement § 262 Death or Incapacity of Person Necessary for Performance

Answer 44

If the existence of a particular person is necessary for the performance of a duty, his death or such incapacity as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.

Question 45

Restatement § 261 Discharge by Supervening Impracticability Basic Assumption

A contracts to sell and B to buy a specific machine owned by A to be delivered on July 30. On July 29, as a result of a creditor’s suit against A, a receiver is appointed and takes charge of all of A’s assets, and A does not deliver the goods on July 30.

Answer 45

A’s duty to deliver the goods is not discharged, and A is liable to B for breach of contract.

Question 46

Restatement § 261 Discharge by Supervening Impracticability

A contracts with B to carry B’s goods on his ship to a designated foreign port. A civil war then unexpectedly breaks out in that country and the rebels announce merely that they will confiscate all vessels found in the designated port. The goods can be bought and sold on markets throughout the world. A refuses to perform. Although there is no risk of injury to persons, the court may conclude that the risk of injury to property is disproportionate to the ends to be attained.

Answer 46

A’s duty to carry the goods to the designated port is then discharged, and A is not liable to B for breach of contract. If, however, B is a health organization and the goods are scarce medical supplies vital to the health of the population of the designated port, the court may conclude that the risk is not disproportionate to the ends to be attained and may reach a contrary decision.

Question 47

Restatement § 261 Discharge by Supervening Impracticability

A contracts with B to carry B’s goods on his ship to a designated foreign port. A civil war then unexpectedly breaks out in that country and the rebels announce that they will try to sink all vessels bound for that port. A refuses to perform.

Answer 47

Although A did not contract to sail on the vessel, the risk of injury to others is sufficient to make A’s performance impracticable. A’s duty to carry the goods to the designated port is discharged, and A is not liable to B for breach of contract.

Question 48

Restatement § 261 Discharge by Supervening Impracticability

A contracts to repair B’s grain elevator. While A is engaged in making repairs, a fire destroys the elevator without A’s fault, and A does not finish the repairs.

Answer 48

A’s duty to repair the elevator is discharged, and A is not liable to B for breach of contract.

Question 49

Restatement § 261 Discharge by Supervening Impracticability Contrary Indication

A, who has had many years of experience in the field of salvage, contracts to raise and float B’s boat, which has run aground. The contract, prepared by A, contains no clause limiting A’s duty in the case of unfavorable weather, unforeseen circumstances, or otherwise. The boat then slips into deep water and fills with mud, making it impracticable for A to raise it.

Answer 49

If the court concludes, on the basis of such circumstances as A’s experience and the absence of any limitation in the contract that A prepared, that A assumed an absolute duty, it will decide that A’s duty to raise and float the boat is not discharged and that A is liable to B for breach of contract.

Question 50

Restatement § 261 Discharge by Supervening Impracticability Basic Assumption

A and B make a contract under which B is to work for A for two years at a salary of $50,000 a year. At the end of one year, A discontinues his business because governmental regulations have made it unprofitable and fires B.

Answer 50

A’s duty to employ B is not discharged, and A is liable to B for breach of contract.

Question 51

Restatement § 261 Discharge by Supervening Impracticability Basic Assumption

A contracts to produce a movie for B. As B knows, A’s only source of funds is a $100,000 deposit in C bank. C bank fails, and A does not produce the movie.

Answer 51

A’s duty to produce the movie is not discharged, and A is liable to B for breach of contract.

Question 52

Restatement § 261 Discharge by Supervening Impracticability

Answer 52

Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.

Question 53

Restatement § 261 Discharge by Supervening Impracticability Basic Assumption

On June 1, A agrees to sell and B to buy goods to be delivered in October at a designated port. The port is subsequently closed by quarantine regulations during the entire month of October, no commercially reasonable substitute performance is available, and A fails to deliver the goods.

Answer 53

A’s duty to deliver the goods is discharged, and A is not liable to B for breach of contract.

Question 54

Restatement § 263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for Performance When Specific Thing is Necessary

A, a farmer, contracts with B in the spring to sell a large quantity of beans to B during the following season. A and B have no common understanding as to where the beans will be grown. A properly plants and cultivates beans on the tract in sufficient quantity to perform the contract, but an extraordinary flood destroys the crop. A delivers no beans to B.

Answer 54

A’s duty to deliver beans is not discharged, and A is liable to B for breach of contract.

Question 55

Restatement § 263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for Performance When Specific Thing is Necessary

A, a farmer, contracts with B in the spring to sell a large quantity of beans to B during the following season. Although the contract does not state where the beans are to be grown, A owns but one tract of land, on which he has in the past raised beans, and both parties understand that the beans will be raised on this tract. A properly plants and cultivates beans on the tract in sufficient quantity to perform the contract, but an extraordinary flood destroys the crop. A delivers no beans to B.

Answer 55

A’s duty to deliver beans is discharged, and A is not liable to B for breach of contract.

Question 56

Restatement § 263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for Performance When Specific Thing is Necessary

A contracts with B to drive logs to B’s mill during the following spring. Although the contract does not specify a particular stream, the parties know that there is only one stream down which the logs can be driven. An extraordinary drought dries that stream up during the time for performance.

Answer 56

A’s duty to drive the logs is discharged, and A is not liable to B for breach of contract.

Question 57

Restatement § 263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for Performance Rationale

A contracts to sell a specified machine to B for $10,000. Before A tenders the machine to B, a fire destroys it without A’s fault.

Answer 57

A’s duty to deliver the machine is discharged, and A is not liable for breach of contract.

Question 58

Restatement § 263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for Performance Rationale

A contracts with B to build a house for B. When A has done part of the work, much of the structure is destroyed by fire without his fault. A refuses to finish building the house.

Answer 58

A’s duty to build the house is not discharged, and A is liable to B for breach of contract.

Question 59

Restatement § 263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for Performance Rationale

A contracts with B to shingle the roof of B’s house. When A has done part of the work, much of the house including the roof is destroyed by fire without his fault, so that he is unable to complete the work.

Answer 59

A’s duty to shingle the roof is discharged, and A is not liable to B for breach of contract.

Question 60

Restatement § 263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for Performance Rationale

A contracts to sell and B to buy cloth. A contracts to sell cloth to be manufactured in the factory that is later destroyed.

Answer 60

A’s duty to deliver the cloth is discharged, and A is not liable to B for breach of contract.

Question 61

Restatement § 263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for Performance Rationale

A contracts to sell and B to buy cloth. A expects to manufacture the cloth in his factory, but before he begins manufacture the factory is destroyed by fire without his fault. Although cloth meeting the contract description is available on the market, A refuses to buy and deliver it to B.

Answer 61

A’s duty to deliver the cloth is not discharged, and A is liable to B for breach of contract.

Question 62

Restatement § 263 Destruction, Deterioration or Failure to Come into Existence of Thing Necessary for Performance

Answer 62

If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made.

Question 63

Restatement § 264 Prevention by Governmental Regulation or Order

A and B make a contract under which A is to employ B for a year. B is unable to complete his performance because he is arrested and imprisoned for a burglary that he has committed.

Answer 63

Because his inability was due to his own fault, B’s duty to work for a year is not discharged, and B is liable to A for breach of contract.

Question 64

Restatement § 264 Prevention by Governmental Regulation or Order

A contracts with B to sell him a specific machine on a stated day, time being of the essence. C, by false allegations of ownership of the machine, induces a court to enjoin A from delivering the machine. In spite of diligent efforts, A is unable to have the injunction dissolved in time to fulfill his contract with B.

Answer 64

A’s duty to deliver the machine is discharged, and A is not liable to B for breach of contract. The result would be different if due to A’s fault C had just grounds for obtaining the injunction, or if A, in breach of his duty of good faith and fair dealing (§ 205), failed to use diligent efforts which could have secured its dissolution.

Question 65

Restatement § 264 Prevention by Governmental Regulation or Order

A, a manufacturer of sewage treatment equipment, contracts to design and install a central sewage treatment plant, for which B, a developer of a residential subdivision, contracts to pay. The parties understand that A must obtain the approval of the state Department of Health before installation. A is unable to install the plant because the Department of Health disapproves the plans.

Answer 65

If the court concludes, on the basis of A’s experience and the absence of any limitation in the contract, that A assumed the risk that approval would be denied, it will decide that A’s duty to install the plant is not discharged and that A is liable to B for breach of contract.

Question 66

Restatement § 264 Prevention by Governmental Regulation or Order

A, a railroad, promises to give B annual passes for life, in consideration for a conveyance of land by B to A. After thirteen years, a statute is enacted forbidding railroads to grant such passes, and A refuses to give further passes to B.

Answer 66

A’s duty to give passes is discharged, and A is not liable to B for breach of contract. B may have a claim against A under the rule stated in § 272(1).

Question 67

Restatement § 264 Prevention by Governmental Regulation or Order

A sells land to B, who, as part of the contract, promises that the land shall not be built upon. The land is taken by eminent domain under statutory authority and a building is built on it.

Answer 67

B’s duty not to build on the land is discharged, and B is not liable to A for breach of contract.

Question 68

Restatement § 264 Prevention by Governmental Regulation or Order

Answer 68

If the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made.

Question 69

Restatement § 265 Discharge by Supervening Frustration Limitations on Scope

A leases neon sign installations to B for three years to advertise and illuminate B’s place of business. After one year, a government regulation prohibits the lighting of such signs but provides for a procedure under which B can apply for an exemption, but B, in breach of his duty of good faith and fair dealing (§ 205), fails to make such an application.

Answer 69

Unless it is found that such an application would have been unsuccessful, B’s duty to pay rent is not discharged, and B is liable to A for breach of contract.

Question 70

Restatement § 265 Discharge by Supervening Frustration Rationale

A leases a gasoline station to B. A change in traffic regulations so reduces B’s business that he is unable to operate the station except at a substantial loss. B refuses to make further payments of rent.

Answer 70

If B can still operate the station, even though at such a loss, his principal purpose of operating a gasoline station is not substantially frustrated. B’s duty to pay rent is not discharged, and B is liable to A for breach of contract. The result would be the same if substantial loss were caused instead by a government regulation rationing gasoline or a termination of the franchise under which B obtained gasoline.

Question 71

Restatement § 265 Discharge by Supervening Frustration RationaleA contracts to sell and B to buy a machine, to be delivered to B in the United States. B, as A knows, intends to export the machine to a particular country for resale. Before delivery to B, a government regulation prohibits export of the machine to that country. B refuses to take or pay for the machine.

Answer 71

If B can reasonably make other disposition of the machine, even though at some loss, his principal purpose of putting the machine to commercial use is not substantially frustrated. B’s duty to take and pay for the machine is not discharged, and B is liable to A for breach of contract.

Question 72

Restatement § 265 Discharge by Supervening Frustration Rationale

A leases neon sign installations to B for three years to advertise and illuminate B’s place of business. After one year, a government regulation prohibits the lighting of such signs. B refuses to make further payments of rent.

Answer 72

B’s duty to pay rent is discharged, and B is not liable to A for breach of contract.

Question 73

Restatement § 265 Discharge by Supervening Frustration Rationale

A, who owns a hotel, and B, who owns a country club, make a contract under which A is to pay $1,000 a month and B is to make the club’s membership privileges available to the guests in A’s hotel free of charge to them. A’s building is destroyed by fire without his fault, and A is unable to remain in the hotel business. A refuses to make further monthly payments.

Answer 73

A’s duty to make monthly payments is discharged, and A is not liable to B for breach of contract.

Question 74

Restatement § 265 Discharge by Supervening Frustration Rationale

A contracts with B to print an advertisement in a souvenir program of an international yacht race, which has been scheduled by a yacht club, for a price of $10,000. The yacht club cancels the race because of the outbreak of war. A has already printed the programs, but B refuses to pay the $10,000.

Answer 74

B’s duty to pay $10,000 is discharged, and B is not liable to A for breach of contract. A may have a claim under the rule stated in § 272(1).

Question 75

Restatement § 265 Discharge by Supervening Frustration Rationale

A and B make a contract under which B is to pay A $1,000 and is to have the use of A’s window on January 10 to view a parade that has been scheduled for that day. Because of the illness of an important official, the parade is cancelled. B refuses to use the window or pay the $1,000.

Answer 75

B’s duty to pay $1,000 is discharged, and B is not liable to A for breach of contract.

Question 76

Restatement § 265 Discharge by Supervening Frustration

Answer 76

Where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.

Question 77

Restatement § 16 Intoxicated Persons

Answer 77

A person incurs only voidable contractual duties by entering into a transaction if the other party has reason to know that by reason of intoxication

(a) he is unable to understand in a reasonable manner the nature and consequences of the transaction, or
(b) he is unable to act in a reasonable manner in relation to the transaction.

Question 78

Restatement § 191 Promise Affecting Custody

Answer 78

A promise affecting the right of custody of a minor child is unenforceable on grounds of public policy unless the disposition as to custody is consistent with the best interest of the child.

Question 79

Restatement § 210 Completely and Partially Integrated Agreements

Answer 79

(1) A completely integrated agreement is an integrated agreement adopted by the parties as a complete and exclusive statement of the terms of the agreement.
(2) A partially integrated agreement is an integrated agreement other than a completely integrated agreement.
(3) Whether an agreement is completely or partially integrated is to be determined by the court as a question preliminary to determination of a question of interpretation or to application of the parol evidence rule.

Question 80

Non-substantive Unconscionability

Answer 80

Arises when certain factors prevent a contracting party from exercising his freedom to choose the terms of an agreement

Question 81

Substantive Unconscionability

Answer 81

Arises when a contract yields a result that affects a contracting party too harshly or that affects a non-contracting party adversely.

Question 82

UCC § 2-615. Excuse by Failure of Presupposed Conditions.

Answer 82

Except so far as a seller may have assumed a greater obligation and subject to the preceding section on substituted performance:

(a) Delay in delivery or non-delivery in whole or in part by a seller who complies with paragraphs (b) and (c) is not a breach of his duty under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.
(b) Where the causes mentioned in paragraph (a) affect only a part of the seller’s capacity to perform, he must allocate production and deliveries among his customers but may at his option include regular customers not then under contract as well as his own requirements for further manufacture. He may so allocate in any manner which is fair and reasonable.
(c) The seller must notify the buyer seasonably that there will be delay or non-delivery and, when allocation is required under paragraph (b), of the estimated quota thus made available for the buyer.