Long Questions

Question 1

A buyer agreed to buy a limited edition guitar from a seller for $12,000 and a contract memorializing the agreement was signed by both parties. The next day, after the seller received an offer of $20,000 for the guitar, he called the buyer and said that he could not sell the guitar to him for $12,000. The buyer did not respond. On the delivery date, the buyer fails to tender $12,000 and the seller does not deliver the guitar.

On these facts:

1. The buyer can recover from the seller for breach of contract.
2. Neither the seller nor buyer can recover until one of the parties tenders performance.
3. The contract is terminated.

Answer 1

The buyer can recover because the seller’s phone call was an anticipatory repudiation. Anticipatory repudiation occurs where a promisor, prior to the performance time, unequivocally indicates that he cannot or will not timely perform, allowing the nonrepudiator the option of suspending performance and waiting to sue until the performance date, or to sue immediately. The seller’s phone call was an unequivocal statement that he would not sell the guitar for $12,000. This repudiation excused the buyer’s duty to tender $12,000 on the delivery date.

2) is incorrect because the seller’s repudiation the day after the contract was signed gave rise to an immediate cause of action. 3) is wrong because the contract was not terminated; rather, it was anticipatorily breached by the seller.

Question 2

On January 1, a car salesman offered to sell an antique car to a collector for $35,000 cash on delivery. The collector paid the car salesman $100 to hold the offer open for a period of 25 days. On January 4, the collector called the car salesman and left a message on his answering machine, asking him whether he would consider lowering the price to $30,000. The car salesman played back the message the same day but did not reply. On January 9, the collector wrote the car salesman a letter, telling him that he could not pay more than $30,000 for the antique car, and that if the car salesman would not accept that amount, he would not go through with the deal. The car salesman received this letter on January 10 and again did not reply. The car salesman never heard from the collector again.

When did the offer that the car salesman made to the collector on January 1 terminate?

1. On January 25, when the 25-day option expired.
2. On January 10, when the car salesman received from the collector what amounted to a rejection.

Answer 2

The car salesman’s offer terminated on January 25, when the 25-day option expired. An option is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer. The collector paid the car salesman $100 to hold the offer open for a period of 25 days, and the offer could not be terminated before that time, not even by the offeree (here the collector). Nor did the offer survive the option period because the option specifically identified how long the offer would be open.

2. is incorrect because, as discussed above, even unequivocal words of rejection by the offeree will not extinguish an option, absent detrimental reliance on the part of the offeror, which was not the case here.

Question 3

On March 1, the purchasing agent for a suburban school district faxed a “quotation request form” to a supplier of school furniture requesting an offer for the sale of 20 student chairs. The form was on school district letterhead and signed by the purchasing agent. It specified that the offer must be held open for four months and that the price term must be no higher than $30 per chair. The supplier telephoned the purchasing agent and told him that he would sell the school district 20 chairs at $20 per chair. He also agreed to hold the offer open for four months. The purchasing agent thanked the supplier for the offer and indicated that he would get back to him within that time period. On May 1, before the purchasing agent had responded to the supplier’s offer or taken any action in reliance on it, the supplier faxed a letter to the purchasing agent stating that demand for student chairs had been higher than expected and that the offer was terminated. On May 2, the purchasing agent called the supplier, told him that the school district was treating his offer as still being open, and accepted it on its terms.

Did the purchasing agent’s call on May 2 create a legally enforceable contract with the supplier?

1. Yes, because the contract is for the sale of goods valued at less than $500.
2. No, because the supplier did not sign the form specifying the length of time that the offer would be held open.

Answer 3

No contract was created because the supplier effectively revoked his offer. Under the UCC, an offer by a merchant to buy or sell goods in a signed writing that, by its terms, gives assurances that it will be held open is not revocable for lack of consideration during the time stated (not to exceed three months). If the term assuring that the offer will be held open is on a form supplied by the offeree, it must be separately signed by the offeror. Here, the school district supplied the form stating that the offer must be held open for four months. The supplier’s verbal assent to that requirement was not sufficient to qualify as a firm offer under the UCC. Thus, he was free to revoke his offer.

1. is incorrect because the fact that a writing would not be required under the Statute of Frauds if a contract had been formed between the parties is irrelevant. A writing is required for a firm offer under the UCC regardless of the value of the goods offered.

Question 4

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.

What would most courts likely hold?

1. The woodworker’s cashing of the check constituted an accord and satisfaction, discharging the decorator’s duty to pay the balance.
2. The woodworker can recover the $2,500 balance from the decorator.

Answer 4

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.

(2) 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

Question 5

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?

1. No, because the total quantity of the contract is not specified.
2. No, because there is no consideration on the greengrocer’s part.

Answer 5

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.

Question 6

On July 1, a cattle breeder, who was planning to retire soon, sent a note to his neighbor offering to sell his prize bull for $15,000. On July 10, the neighbor, who was also a cattle breeder, wrote the following note to the retiring breeder:

“I have decided to take the bull. I will give you a cashier’s check on delivery on Saturday, July 28.”

The retiring breeder did not respond. The retiring breeder did not want to deliver the bull on July 28 and did not think that the delivery day was agreed to. Instead, he delivered the bull on Monday, July 30. The neighbor refused the delivery and stated that he had found another bull he likes better. The retiring breeder sues the neighbor for breach of contract.

Is the retiring breeder likely to prevail?

Answer 6

The retiring breeder will not prevail because he did not deliver the bull on July 28.

This is a contract for a sale of goods and thus is governed by the UCC. Under the UCC, an acceptance with additional terms does not constitute a rejection and counteroffer, but rather is an effective acceptance u_nless made expressly conditional on the assent to the additional terms_. Here, the neighbor accepted the offer and added the additional term of a delivery date. Thus, there was a contract. Whether additional terms become part of the agreement depends on whether both parties are merchants. If both parties to the contract are merchants, additional terms in the acceptance will be included in the contract unless they materially alter the terms of the offer, the offer expressly limited the acceptance to its terms, or they are objected to within a reasonable time. Here, both parties are breeders in the cattle business and, thus, are merchants. The change in the delivery date does not materially change the offer (i.e., it does not change a party’s risk or remedies), the offer did not limit the acceptance to its terms, and the retiring breeder did not object. Therefore, the July 28 delivery date became part of the contract. By delivering the bull on July 30th, the retiring breeder breached the contract. (Perfect Tender Rule require perfect tender)

Question 7

A craftsperson entered into a written agreement with an electrician to install electrical wiring in her standalone garage so that she could convert the garage into a workshop. The contract contained a clause requiring all electrical work to be completed within two days and provided that the craftsperson would pay the electrician $700 for his work. After the first day, approximately half of the job was completed. That evening, a piece of a defunct satellite reentered the Earth’s atmosphere and a large chunk of it crashed directly into the craftsperson’s garage, catching the garage on fire and destroying it.

Which of the following best describes the obligations of the electrician and the craftsperson after the crash?

• Neither the electrician nor the craftsperson is discharged from their obligations under the contract.
• Neither the electrician nor the craftsperson has any further obligations.
• The craftsperson is obliged to pay the electrician the full contract price of $700.
• The electrician is discharged from his obligation but is entitled to recover from the craftsperson the fair value of the work he performed prior to the destruction of the garage.

Answer 7

The electrician is discharged from his obligation but is entitled to recover from the craftsperson the fair value of the work he performed prior to the destruction of the garage.

The destruction of the garage discharges the electrician’s duties due to impossibility, but the electrician 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. 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 for the reasonable value of his performance. 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 garage that the electrician was wiring burned down after a chunk of a satellite crashed into it. That event 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 objectively impossible for the electrician (or anyone else) to complete the job. This impossibility will discharge both the craftsperson and the electrician from performing any contractual duties still to be fulfilled. Therefore, the electrician need not finish the wiring work, and the craftsperson is not obligated to pay the entire amount of $700. However, the electrician can recover under quasi-contract.

Question 8

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

Who will prevail?

1. The store, because there was no consideration to support the promise to pay the bank.
2. The bank, because it is an intended creditor beneficiary of the modified contract between the store and the electrician.

Answer 8

The store will prevail, because there was no consideration to support its promise to pay the bank the additional $1,000 per month. This question looks like it concerns third-party beneficiaries, but it actually presents a consideration issue. Generally, there must be consideration for modification of a contract, and a promise to perform an act that a party is already obliged to do is not sufficient consideration (the “preexisting legal duty” rule). Here, the electrician is promising to do exactly what he was obliged to do under his original contract with the store; thus, there is no consideration to support the promise to increase the fee. Note that the modern view permits modification without consideration if it is fair and equitable in view of unanticipated circumstances. That is not applicable here. This exception contemplates an unanticipated circumstance arising in performance of the contract that makes performance more difficult or expensive.

2. is wrong even though it is true that the bank is an intended creditor beneficiary. Despite this status, the bank will not recover because there was no consideration to support the modification of the contract. The status of creditor beneficiary does not give the bank any more rights than the electrician would have had to enforce the agreement, and the electrician could not enforce the agreement for the additional money because there was no consideration

Question 9

A small processor of specialized steel agreed in writing with a small manufacturer of children’s toys that it would supply, and the manufacturer would buy, all of the manufacturer’s specialized steel requirements over a period of years at a set price per ton of steel. Their contract did not include a nonassignment clause. Recently, the toy manufacturer decided to abandon its line of steel toys, so it made an assignment of its rights and delegation of its duties under the contract to a toymaker many times larger. The large toymaker notified the steel processor of the assignment and relayed to the processor its good faith belief that its requirements will approximate those of the assignor.

Must the steel processor supply the requirements of the large toymaker?

1. Yes, because there was no nonassignment clause in the contract.
2. Yes, because the large toymaker acted in good faith to assure the steel processor that its requirements will approximate those of the small manufacturer into whose shoes it stepped.
3. No, because requirements contracts are not assignable under the UCC
4. No, because the steel processor did not give prior approval of the assignment.

Answer 9

Yes, because the large toymaker acted in good faith to assure the steel processor that its requirements will approximate those of the small manufacturer into whose shoes it stepped.

Because the large toymaker acts in good faith in setting its requirements to approximately those of the small manufacturer into whose shoes it stepped, the contract may be assigned. The contract in this question is a “requirements” contract: The steel processor must sell the small manufacturer of children’s toys all the specialized steel it requires for its toys. Generally, the right to receive goods under a requirements contract is not assignable because the obligor’s duties could change significantly. In fact, here, a significant change would seem possible because the large toymaker is a larger company than the small manufacturer and its needs could be greater. However, the UCC allows the assignment of requirements contracts if the assignee acts in good faith not to alter the terms of the contract. [UCC §2-306] (The UCC applies here because goods are involved.) Thus, assuming the large toymaker’s requirements remain about the same as the small manufacturer’s requirements, the steel processor would be required to honor its contract, now assigned to the large toymaker. (A) is wrong because requirements contracts may be nonassignable, even without a nonassignment clause. Thus, the clause would be irrelevant. The only thing that could allow assignment of a requirements contract is a good faith limitation, as addressed in choice (B). (C) is wrong because the UCC does allow requirements contracts to be assigned, as long as the good faith limitation is satisfied. (D) is similarly incorrect. The UCC would allow assignment without approval by the obligor if there is a good faith limitation on the requirements.

Question 10

After reaching an oral agreement on the terms of representation, a law firm, at its clients’ behest, instituted a class action lawsuit against a tobacco company for $100 million. Prior to signing the written contract outlining the parties’ rights and responsibilities, including the fee arrangement, the firm’s senior partner told the clients’ representative in a moment of goodwill and generosity that if they won or the tobacco company settled, he would turn over half of the attorneys’ fees in the case to a particular nonprofit group that funds research on lung cancer and other respiratory illnesses. After the law firm won the case and collected its fee of $33 million, it had second thoughts about turning over half of it to the nonprofit group.

If the nonprofit group sues the law firm in an attempt to collect the $16.5 million, would it succeed?

Answer 10

The law firm was simply attempting to confer a gift upon the nonprofit group.

The nonprofit group did not give consideration to the law firm in return for the law firm’s promise to turn over half of its attorneys’ fees to the group in the event it won or settled the class action suit. Thus, the law firm’s promise was gratuitous; i.e., it was simply attempting to confer a gift upon the nonprofit group, and the group could not compel the law firm to turn over the money

Question 11

A man shopping for a leather jacket at a clothing store could not decide between two jackets, so the proprietor, who knew the man and his family well, let him take one of the jackets on approval. No mention was made by the proprietor of the method of payment he expected. The man wore the jacket on a visit to his grandfather, who liked it so much that when the man told him what the jacket cost and that he had taken it on approval, the grandfather said he would buy it for him if he promised to give some of his old clothes to a favorite charity for the poor at Christmastime. The man wholeheartedly agreed to donate the clothes to the charity at Christmas. Very pleased, the grandfather called the shop and told the proprietor to send the bill for the jacket to him, which he did. Before the bill was paid and before the Christmas season arrived, the grandfather fell ill and died. The grandfather’s executor has refused to pay the bill, and the man has not yet given any old clothing to the charity.

Will the proprietor be able to recover the price of the jacket from the estate?

1. Yes, because the proprietor was the intended beneficiary of the promise between the man and his grandfather.
2. Yes, because the man has no duty to give the clothing to the charity.
3. No, because the grandfather’s implied promise to pay the proprietor arising from the phone call is unenforceable.
4. No, because a condition has not yet occurred.

Answer 11

The proprietor can recover the cost of the jacket from the grandfather’s estate because the proprietor is an intended third-party beneficiary and his right to enforce the contract has vested. The rights of an intended third-party beneficiary vest when the beneficiary (i) manifests assent to the promise in a manner invited or requested by the parties; (ii) brings suit to enforce the promise; or (iii) materially changes his position in justifiable reliance on the promise. Here, the proprietor qualifies as an intended beneficiary of the agreement between the man and his grandfather because the proprietor was expressly designated in the contract, he was to receive performance directly from the grandfather, and he stood in an existing contractual relationship with the man that required the man to either pay for the jacket or return it, making it likely that the young man’s purpose in making the arrangement with his grandfather was to satisfy the obligation to the proprietor. The proprietor can enforce the contract because his rights vested when he sent the bill to the grandfather at the grandfather’s request. Thus, the proprietor will prevail against the grandfather’s estate. (B) is wrong because the man does have a duty to give the clothes to the charity; if he does not do so, he will be in breach of his contract with his grandfather, and this would give his grandfather’s estate a defense to payment. However, the man’s time for performance (Christmastime) has not yet occurred, and so he is not in breach. Nevertheless, this fact is not the reason the proprietor will recover; he will recover due to his status as an intended beneficiary, not because this possible defense has been negated. (C) is wrong because both the result and the rationale are incorrect. The proprietor is not relying on the grandfather’s implied promise to him in the phone call; he is seeking to enforce his rights as a third-party beneficiary of the agreement between the man and his grandfather. Even if the grandfather had not called the proprietor, the proprietor could still have recovered against the grandfather’s estate because of his status as a third-party beneficiary. (D) is wrong because the man’s giving the clothes to the charity is not a condition that must be fulfilled before the grandfather’s estate must pay. The grandfather promised to pay for the jacket if the man promised to donate the clothes; i.e., the consideration for the grandfather’s promise was the man’s promise, not his actually donating the clothes. As soon as the man made the promise, the grandfather’s duty to pay became absolute. (If the man does not donate the clothes, he will be in breach of his contract with his grandfather, but the grandfather’s performance was not conditioned on the man’s donating the clothes.)

Question 12

A breeder of quarter horses entered into an agreement with a rancher to sell and deliver two quarter horses, one to the rancher and the other to the rancher’s fiancée as a gift. Although the fair market value of each horse was $3,000, the horse breeder agreed to sell both horses together for a total price of $5,000. Under the agreement that the rancher wrote out and both parties signed, the horse breeder agreed to deliver one horse to the rancher on August 1, at which time the rancher agreed to pay the horse breeder $5,000. The horse breeder further agreed to deliver the other horse to the rancher’s fiancée on August 12.

On August 1, the horse breeder delivered the first horse to the rancher and, at the same time, the rancher gave the horse breeder a certified check for $5,000. On August 12, the horse breeder brought the second horse to the residence of the rancher’s fiancée and told her that the horse was a gift from the rancher. The rancher’s fiancée told the horse breeder that she loathed quarter horses and she refused to take the horse. The horse breeder brought this horse back to his farm and sent an e-mail to the rancher, informing him that his fiancée refused delivery and that he (the horse breeder) could not keep the horse. Two weeks later, after not hearing from the rancher, the horse breeder sold the horse to an interested party for $3,000.

If the rancher sues the horse breeder, how much should the rancher recover?

1. $3,000, the value of the second horse.
2. $2,000, the difference between the value of the horse delivered to the rancher and what the horse breeder received from the rancher.
3. Nothing, because the rancher was not financially harmed.
4. Nothing, because the horse breeder performed his part of the contract.

Answer 12

$2,000, the difference between the value of the horse delivered to the rancher and what the horse breeder received from the rancher. (Each horse was 3k, he received 5k so he returned the excess since he never got the other horse)

The rancher should recover $2,000 because that is the amount by which the horse breeder would be unjustly enriched. In a proper tender of delivery under UCC section 2-503, the seller must put and hold conforming goods at the buyer’s disposition for a time sufficient for the buyer to take possession. The seller must give the buyer notice reasonably necessary to enable him to take possession of the goods. Proper tender of delivery entitles the seller to acceptance of the goods and to payment according to the contract. [UCC §2-507] Having made a proper tender of delivery at the place designated by the rancher and having notified the rancher of his fiancée’s nonacceptance, the horse breeder has discharged his duty under the contract. When a party’s duty of performance is discharged, the other party is entitled to restitution of any benefits that he has transferred to the discharged party in an attempt to perform on his side. With the horse breeder’s contractual duty to deliver the second horse to the rancher’s fiancée discharged, the horse breeder would be unjustly enriched, to the detriment of the rancher, if he were permitted to keep the entire $5,000 paid to him by the rancher. The rancher conferred a benefit upon him by paying him $5,000 in exchange for two horses, one of which was to be delivered to the rancher, the other to the rancher’s fiancée. Because delivery to the fiancée cannot be accomplished, the rancher finds himself in a position of having paid $5,000 for one horse, the fair market value of which is $3,000. Thus, if the horse breeder is permitted to retain the sum of $5,000, he will be unjustly enriched by $2,000. Therefore, the rancher should recover restitution of $2,000. (A) is incorrect because $3,000 represents more than the amount by which the horse breeder has been unjustly enriched. Although the value of the second horse is $3,000, keep in mind that the horse breeder’s duty to deliver the horse to the rancher’s fiancée has been discharged (and the horse breeder still has title to the horse under the UCC rule that title passes on delivery). The rancher received a discount of $1,000 off the total fair market value of the two horses because he was buying both of them. Once the horse breeder’s duty under the contract is discharged, the rancher cannot recover the benefit of that bargain under the contract; he can only recover the benefit conferred upon the horse breeder, the retention of which would unjustly enrich the horse breeder. Because the horse breeder has received $5,000 from the rancher for one horse worth $3,000, the amount of unjust enrichment is $2,000. (C) is incorrect because, if the rancher recovers nothing, he will have incurred financial harm by paying $5,000 for one horse worth $3,000. (D) is incorrect because the fact that the horse breeder tendered performance but was unable to complete delivery of the second horse to the rancher’s fiancée, solely due to her refusal to accept the horse, does not justify the horse breeder’s keeping the entire $5,000 paid by the rancher, because the horse breeder would be unjustly enriched.

Question 13

A retailer entered into a written contract with a wholesaler whereby the wholesaler agreed to sell, and the retailer agreed to buy, 100 boxes of sunglasses manufactured by a large corporation located in a neighboring city. The agreed-upon price was $75 per box. Two weeks before the specified delivery date, the wholesaler told the retailer that it would not be able to fill its order, because of unexpected high demand for sunglasses this season. Although the retailer learned that the needed quantity of the same brand of sunglasses could be shipped within two days for $83 per box from a supplier in another area, the retailer instead purchased 100 boxes of the sunglasses locally at a cost of $90 per box. These sunglasses were of a slightly higher quality than the sunglasses that were originally contracted for. A few days before the original delivery date, the wholesaler notified the retailer that it would fill the order, and tendered 100 boxes of the sunglasses on the date of delivery. However, the retailer refused to accept them. At that time, the wholesale market price of the sunglasses had declined to $80 per box.

If the retailer sues the wholesaler for damages based on the wholesaler’s alleged breach, what is the retailer likely to recover?

1. $1,500, the difference between the cost of cover and the contract price.
2. $800, the difference between the contract price and the nonlocal supplier’s price.
3. $500, representing the difference between the contract price and the wholesale market price at the time of performance.
4. Nothing, because the retailer obtained cover without waiting a commercially reasonable time for the wholesaler to retract the repudiation.

Answer 13

$800, the difference between the contract price and the nonlocal supplier’s price.

The retailer is entitled to recover $800. The wholesaler’s notice that it would be unable to fill the retailer’s order constituted an anticipatory repudiation, which the retailer was entitled to treat as a total breach. Under the UCC, the buyer’s basic remedy where the seller breaches by refusing to deliver is the difference between the contract price and either the market price or the cost of buying replacement goods (“cover”). If the buyer intends to fix damages based on the latter measure, the buyer must make a reasonable contract for substitute goods in good faith and without unreasonable delay. Here, the retailer chose to make a contract for a higher quality of sunglasses at a higher price, even though the model that he had originally ordered was available from a supplier outside the area. While the retailer need not find the lowest available price in the country or make a contract for substitute goods with an unreliable supplier, he was aware that he could have obtained the sunglasses in plenty of time from the nonlocal supplier. Absent additional facts that would justify the retailer’s decision, he can recover only the difference between the contract cost and a reasonable contract for substitute goods. Hence, (A) is wrong because the retailer’s contract for cover probably would not be deemed to be commercially reasonable. (C) is wrong because the retailer’s remedy based on market price would be determined at the time the retailer learned of the breach, not necessarily the time of performance. In the case of an anticipatory repudiation such as this, the buyer may either treat the anticipatory repudiation as a total breach and pursue his breach of contract remedies, or suspend his performance and await the seller’s performance for a commercially reasonable time. The retailer chose to treat the wholesaler’s notice as a total repudiation and breach of contract. Hence, the market price remedy would be measured at that time because that is when the retailer “learned of the breach,” rather than at the time of performance. (D) is wrong because the nonrepudiating party need not wait for the repudiating party to retract its repudiation. The retailer exercised its option to treat the repudiation as a total breach and buy substitute goods. Once that occurred, the wholesaler was not entitled to retract its repudiation and force the retailer to accept the sunglasses.

Question 14

An antique lover spotted a beautiful Early American bedroom ensemble at her favorite antique store. The ensemble included a bed, a mirror, and two dressers. Over a period of several weeks, the shop owner and the antique lover negotiated over a price, but they were unable to come to an agreement.

On April 3, the shop owner and the antique lover signed a statement whereby the shop owner offered to sell to the antique lover an Early American bedroom ensemble, recorded as items 20465, 20466, 20467, and 20468 in the shop’s registry, if the parties agree upon a price on or before April 12.

On April 6, the shop owner sent a letter to the antique lover, telling her that she could have the bedroom ensemble for $22,000. Also on April 6, the antique lover sent a letter to the shop owner telling him that she was willing to pay him $22,000 for the bedroom ensemble. Both parties received their letters on April 7.

Without assuming any additional facts, which of the following statements is most correct as of April 8?

1. The shop owner and the antique lover had a valid contract from the moment the letters of April 6 were mailed.
2. A contract exists between the shop owner and the antique lover, because the shop owner, a merchant, sent the antique lover an offer in writing.
3. A contract exists between the shop owner and the antique lover, because the crossing offers were identical and received before April 12.
4. No contract exists between the shop owner and the antique lover, because of a lack of mutual assent.

Answer 14

No contract exists between the shop owner and the antique lover, because of a lack of mutual assent.

Although the crossing offers as to price were identical, there is no requisite mutual assent absent an acceptance. If offers stating precisely the same terms cross in the mail, they do not give rise to a contract despite the apparent meeting of the minds. An offer cannot be accepted if there is no knowledge of it. Here, the shop owner and the antique lover each sent offers setting the price of the ensemble at $22,000. Despite the fact that these offers were identical, there is no mutual assent without at least one of the parties manifesting acceptance of the terms of the offer, and communicating that acceptance to the other. We are told that this has not yet happened even though the shop owner and the antique lover both have received the letters. Consequently, although there is an apparent meeting of the minds as to price, there has not been a sufficient objective manifestation of this agreement as to denote a mutual assent. (C) fails to account for the principle discussed above, that identical crossing offers do not give rise to a contract. Despite their receipt of identical offers before April 12, there is no agreement between the parties. (A) is incorrect because it misstates the mailbox rule. Acceptance by mail or similar means creates a contract at the moment of posting, properly addressed and stamped, unless the offer stipulates that acceptance is not effective until received, or unless an option contract is involved. This rule does not operate to create a contract from the moment an offer is mailed (or in this case, two identical offers are mailed). Thus, (A) is incorrect. Regarding (B), the fact that a merchant sends an offer in writing is significant because it will limit the offeror’s power to revoke if it gives assurances that it will be held open for a stated time. Here, the written offer by the shop owner is irrevocable at least until April 12, but the issue in the question is whether it has been accepted rather than whether it has been revoked.

Question 15

A salvage company offered for sale Confederate dollars that had been recovered when the company recently raised a shipwreck off the coast of South Carolina. A purchasing agent for a private west coast museum purchased the bills, but he had represented that he was buying them for himself in hopes of obtaining a lower price.

After purchasing the bills, the agent carefully packaged them and had them shipped to his museum. While the bills were in transit, the museum burned to the ground and its owner decided that she would not rebuild because most of her collections had been destroyed.

When the bills arrived after the fire, the owner opened the package only to discover that the bills were too brittle for shipping by this method—three bills had disintegrated in transit. Undaunted, the owner took the remaining nine bills and had them mounted behind a glass frame so she could display them in her study. While the bills were being framed, the owner read on the Internet that a large cache of similar bills had just been discovered, and the market price for such bills had just been cut in half.

Frustrated but still undaunted, the owner hung the framed bills in her study. Unfortunately, the salt water had reacted with the pigments in the bills in such a way that shortly after they had been exposed to indirect sunlight, all of the color in the bills faded almost completely away. No other Confederate bills raised from the ocean before had similar reactions; these bills appear to have been printed using substandard dyes.

Which of the following facts would give the museum owner the best basis for rescinding the contract with the salvage company?

1. The bills were too brittle for transport.
2. The discovery of a large cache of similar bills a few days after the sale.
3. The bills’ unusual reaction to indirect sunlight.
4. The destruction of the museum before the bills arrived.

Answer 15

The bills’ unusual reaction to indirect sunlight.

The circumstances of (C) offer the best grounds for rescinding the contract based on mutual mistake. When both parties entering into a contract are mistaken about existing facts relating to the agreement, the contract may be voidable by the adversely affected party if (i) the mistake concerns a basic assumption on which the contract is made; (ii) the mistake has a material effect on the agreed-upon exchange; and (iii) the party seeking avoidance did not assume the risk of the mistake. Here, both parties probably believed that the bills would be suitable for display, like other bills that had been raised from the ocean. They had no reason to suspect that the bills would discolor when exposed to indirect sunlight. This occurrence probably rendered the bills nearly worthless, creating a material imbalance in the exchange. Finally, there is nothing to indicate that the museum owner/purchasing agent assumed the risk of what occurred. (A) is incorrect. Since the museum’s agent was responsible for transporting the bills, the museum clearly assumed the risk that the bills were too brittle for the type of transport. (B) is incorrect because this is a fact occurring after the contract was made. When both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement, the contract may be voidable by the adversely affected party. Here, the subsequent change in price cannot be considered a mistake that was made at the time the parties entered into their contract. (D) is incorrect because the circumstances do not satisfy the requirements for discharge by frustration. Frustration will exist where the purpose of the contract has become valueless by virtue of some supervening event not the fault of the party seeking discharge. To establish frustration, the following must be shown: (i) there is some supervening act or event leading to the frustration; (ii) at the time of entering into the contract, the parties did not reasonably foresee the act or event occurring; (iii) the purpose of the contract has been completely or almost completely destroyed by this act or event; and (iv) the purpose of the contract was realized by both parties at the time of making the contract. Here, the salvage company thought that the purchasing agent was purchasing the bills for himself; thus, it did not realize at the time the contract was made that the purpose of the contract was to procure the bills for the museum that was subsequently destroyed. Therefore, frustration will not be available as a ground for rescission here.

Question 16

A buyer and seller entered into a written contract on March 31 for the sale of a beach house. Under the terms of the agreement, the buyer would purchase the house for $275,000, with 10% due at closing on May 1 and a 15-year mortgage. At the time the contract was entered into, the parties agreed orally that the written agreement would not become binding unless the buyer notified the homeowner, in writing, by the end of the day on April 15, that she had secured the proper financing. With the summer season approaching, the seller did not wish to risk any delay in selling the house if the buyer was not in a position to buy it. On the morning of April 15, the buyer’s financing was approved. On April 16, the buyer telephoned the seller and told him that her financing had been approved. The buyer also told the seller that she was not able to get written confirmation to him by April 15 because of the postal workers’ slowdown and because her fax machine just broke down. The seller assured the buyer that this was not a problem. However, before closing, the seller had a change of heart and decided not to sell the beach house after all. The buyer files an action for breach.

Which of the following would be the basis for the buyer’s best argument?

1. Statute of Frauds.
2. Parol evidence rule.
3. Waiver of condition.
4. Excuse of condition by hindrance.

Answer 16

Waiver of condition.

The buyer’s best argument is that the seller’s assurances that there was no problem with the buyer’s failure to provide written notification by April 15 amounts to a waiver of the condition. The buyer’s written notification by April 15 that he had obtained the proper financing was a condition precedent to the seller’s absolute duty to perform under the contract. It is clear that the buyer did not provide the required notification by April 15; thus, the condition was not fulfilled. However, one having the benefit of a condition may indicate by words or conduct that he will not insist upon it. When a condition is broken, the beneficiary of the condition has an election: (i) he may terminate his liability; or (ii) he may continue under the contract. If a choice is made to continue under the contract, the person is deemed to have waived the condition. The seller was fully aware that the buyer had not satisfied the condition, yet, when speaking with the buyer on April 16, he stated unequivocally that it was not a problem. This is a definite indication that the seller elected to continue under the contract. Having so elected, the seller is deemed to have waived the condition. Therefore, the seller’s duty of performance under the contract became absolute. Regarding (A), the only way the Statute of Frauds could bolster the buyer’s position would be if the original oral agreement setting forth the condition were required by the Statute to be in writing. If that were the case, the buyer could argue that the condition is unenforceable because it is not in writing. However, the oral agreement is not of a type that falls within the purview of the Statute of Frauds. Therefore, the Statute of Frauds will provide no help to the buyer. Similarly, regarding (B), the parol evidence rule could help the buyer only if it could be used to preclude admissibility of the original oral agreement. Under the parol evidence rule, where the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, any expression made prior to the writing and any oral expression contemporaneous with the writing is inadmissible to vary the terms of the writing. However, where it is asserted that there was an oral agreement that the written contract would not become effective until the occurrence of a condition, evidence of the oral agreement may be offered and received. Because the original oral agreement between the seller and buyer established a condition precedent to the effectiveness of the written agreement, the buyer will be unable to raise the parol evidence rule as a bar to the admissibility of evidence relating to the oral agreement. (D) is unsupported by the facts. If a party with a duty of performance that is subject to a condition prevents the condition from occurring, he no longer has the benefit of the condition. This is referred to as excuse of condition by hindrance. The seller did nothing to prevent the occurrence of the condition regarding written notification by April 15. Consequently, it cannot be said that the condition is excused by hindrance.

Question 17

A businesswoman entered into a written contract with a general contractor to build a studio and broadcast transmitter for $3 million by July 1. Among his tasks, the contractor was to install underground cables and fiberoptic lines necessary to broadcast.

When digging the deep trench necessary to lay the conduit containing the fiberoptic lines, the contractor encountered a stretch of extremely soggy soil. This was an indication that an offshoot of the nearby city’s aquifer underlay the property. This was not indicated on any of the geological survey maps available in the office of the county recorder of deeds. The contractor told the businesswoman that it would cost an additional $50,000 to lay the conduit through that stretch of soil. The businesswoman had already launched an advertising campaign indicating that the station would begin broadcasting on July 4, which was rapidly approaching. Therefore, when the contractor threatened to quit the job without the additional $50,000, the businesswoman reluctantly agreed orally to the contractor’s demand as long as he promised that all of the work would be completed by the middle of June. The contractor agreed, proceeded to lay the conduit, and completed building the studio and transmitter by June 15. The businesswoman paid the contractor $3 million, but when the contractor demanded $50,000 more, she refused to pay it. The contractor sues the businesswoman for the $50,000.

Who will prevail?

1. The businesswoman, because the oral modification was not effective to alter the prior written agreement.
2. The businesswoman, because no valid consideration was provided for the agreement to pay the additional $50,000.
3. The contractor, because the modification was supported by consideration.
4. The contractor, because he detrimentally relied on the businesswoman’s promise to pay the additional $50,000.

Answer 17

The contractor, because the modification was supported by consideration.

The original contract was modified by the parties, and this modification discharged the payment term of the original contract ($3 million) and replaced it with a new payment term ($3,050,000). If a contract is subsequently modified by the parties, this will serve to discharge those terms of the original contract that are the subject of the modification. Generally, a modifying agreement must be mutually assented to and supported by consideration. In most cases, consideration is found to be present in that each party has limited her right to enforce the original contract as is. Generally, if a modification will benefit only one of the parties, it may be unenforceable without some consideration being given to the other party. If, however, a promisee has given something in addition to what he already owes in return for the promise he now seeks to enforce, or has in some way agreed to vary his preexisting duty, there is consideration. Here, the businesswoman agreed to pay the contractor an additional $50,000 and the contractor agreed to complete the work early—by mid-June instead of July 1. Thus, there was sufficient consideration to support the modification. Note that this modification may have been enforceable without consideration. Under the modern view, a modification is enforceable without consideration if the modification is fair and equitable in view of the unanticipated circumstances. Here, the aquifer did not appear on city surveys, so the soggy soil was not anticipated. The $50,000 represented the electrician’s additional cost, so the modification seems fair. (A) is incorrect because neither the Statute of Frauds nor the parol evidence rule affects the validity of the oral modification. The Statute of Frauds does not require a writing for the modification of a construction contract, and parol evidence can be offered to show subsequent modifications of a written contract. (B) is incorrect because, as explained above, the contractor’s agreement to vary his contractual duty by promising to perform all of the work by a date earlier than that originally agreed to constitutes consideration sufficient to support the businesswoman’s promise to pay the additional $50,000. (D) is incorrect because the electrician was already obligated to perform; i.e., he was already obligated to do the job he did in reliance on the businesswoman’s promise. Therefore, fulfilling his duty cannot be detrimental reliance.

Question 18

In answer to a radio advertisement, a teenager two months shy of his 18th birthday contracted to buy a late model car from a car dealership. The agreement required a $1,500 down payment with the remainder of the $7,200 price to be paid in monthly installments to a local finance company. The teenager’s first eight payments were made regularly until his driver’s license was suspended. He then informed the company that no further payments would be forthcoming.

The finance company sued for the remaining payments. The age of majority in the teenager’s state is 18 years.

Would the teenager be liable for the balance of the payments?

Answer 18

The court should rule that the teenager affirmed the contract and, thus, should be liable for the balance of the payments. Although infants generally lack capacity to enter into a contract that is binding on themselves, an infant may affirm, i.e., choose to be bound by his contract, upon reaching majority. Affirmance may be either express or by conduct, e.g., failing to disaffirm the contract within a reasonable time after reaching majority. Disaffirmance discharges all liability. Here, the teenager continued making payments on the car six months after reaching his 18th birthday, and did not disaffirm the contract. Thus, the court should hold that he affirmed the contract and was liable for the unpaid balance.

although it is true that the car dealership was liable on the contract from the outset, that liability did not extend to the infant. A contract entered into between an infant and an adult is voidable by the infant but binding on the adult

although the teenager could have voided the contract while still a minor, he did not do so and, once he reached the age of 18, was left only with the option of disaffirming the contract within a reasonable time after reaching majority, which he also failed to do. Thus, his minor status at the time of contracting, without more, would not allow him to escape liability for the payments.

Question 19

A manufacturer of down coats and jackets entered into a written agreement with a distributor, whereby the distributor agreed to distribute the manufacturer’s products statewide for a one-year period to begin on June 1. Before the manufacturer signed the distribution contract with the distributor, the distributor told the manufacturer that their deal was exclusive, but nothing to that effect was in the written agreement. However, in the outerwear industry it has been a custom for many years for distributors to distribute only one brand of outerwear.

On September 1, the distributor began distributing coats and jackets manufactured by one of the manufacturer’s chief competitors. These coats and jackets were sewn with man-made fabrics, were as warm as the manufacturer’s jackets, and were less bulky. The competitor’s advertising campaign throughout the state emphasizes that “you don’t have to look fat to stay warm.” Seasonally adjusted sales figures showed that the manufacturer’s sales in the state dropped 6% after its competitor’s products were introduced.

The manufacturer of the down coats and jackets complained to the distributor, demanding that it stop distributing the man-made coats and jackets made by the manufacturer’s competitor. The distributor refused, and the manufacturer of the down coats and jackets brought suit against the distributor.

Which of the following facts would provide a basis for the manufacturer’s best case against the distributor?

1. The competitor’s advertising campaign throughout the state alluding to the unattractive bulkiness of the manufacturer’s coats and jackets.
2. The 6% drop in seasonally adjusted sales figures in the state after the competitor’s products were introduced.
3. The distributor’s oral statement to the manufacturer about their deal being exclusive.
4. The long-standing custom in the outerwear industry for distributors to distribute only one brand of outerwear.

Answer 19

The long-standing custom in the outerwear industry for distributors to distribute only one brand of outerwear.

Of all the alternatives listed, (D) is the only one that presents any real basis for supporting the manufacturer’s case. One of the general rules of contract construction, including contracts for goods under the UCC, is that courts will look to see what custom and usage are in the particular business and in the particular locale where the contract is either made or to be performed. The manufacturer could claim that when he and the distributor entered into the distribution contract, both parties implicitly understood that the custom of distributing only one brand of outerwear would be followed in their transaction. Under such circumstances, the manufacturer may be able to successfully assert that the distributor’s distribution of the competitor’s outerwear constitutes a breach of contract. The fact that the competitor’s advertising campaign at least impliedly denigrates the appearance of the manufacturer’s outerwear (as in (A)), or that the manufacturer’s sales have dropped since the introduction of the competitor’s products (as in (B)), establishes no cause of action against the distributor. Absent some provision in the contract, or some reference to custom and usage as mentioned in (D), there is no basis for holding that the distributor was prohibited from distributing other companies’ products, or that the distributor can be held liable for a decline in the manufacturer’s sales figures due to sales or advertisements made by a company whose products are being distributed by the distributor. (C) is incorrect because the written agreement between the distributor and the manufacturer would probably be deemed to be a final expression of the bargain, so that evidence of the distributor’s prior expression would be inadmissible to vary or supplement the writing under the parol evidence rule. Under UCC section 2-202, a party cannot offer consistent additional terms if the writing was intended as a complete statement of the terms of the agreement. (In contrast, evidence of custom in the trade can be offered regardless of the completeness of the written agreement.) Also, the distributor’s statement about their deal being exclusive is not specific enough on its face to establish whether he meant that the distributor would distribute only the manufacturer’s products, or that the manufacturer would have its products distributed in the state only by the distributor, or perhaps some other meaning. The statement, even if admissible, is not definite enough to form a basis for a cause of action against the distributor.

Question 20

A grandfather told his granddaughter that she could have his house because he was moving to a retirement home, and entered into a valid contract to convey it to her. He promised her that he would have another wing added to the house in the back before turning it over to her, and entered into a written contract with a builder to construct the addition for his granddaughter. Before the grandfather had entered into the contract with the builder, the granddaughter had paid $5,000 for a 60-day option to purchase another house because she was not sure she would like the addition. However, when her grandfather showed her the plans for his house prepared by the builder, she liked it very much and decided to let her option to purchase the other house lapse. Shortly thereafter, the local zoning authority increased the minimum lot line setbacks, making it impracticable to put the addition on the back of the house. The builder offered to put an addition above the existing floor rather than in the back, and the grandfather agreed. After the granddaughter’s option had lapsed, she discovered that the addition was now going up rather than in the back. She angrily demanded that the builder either build the addition according to the original specifications that she approved or pay her damages. The builder refused and the granddaughter filed suit.

Who is more likely to prevail?

1. The builder, because he may raise all defenses that he had against the grandfather against the granddaughter.
2. The builder, because the granddaughter is merely an incidental beneficiary of the contract between the grandfather and the builder and, as such, has no power to enforce the contract against the builder.

Answer 20

The builder will prevail because he may raise all defenses that he had against the grandfather against the granddaughter. The granddaughter is an intended third-party beneficiary of the contract between the grandfather and the builder. Generally, a third-party beneficiary has rights under the contract as soon as she does something to vest her rights (manifests assent to the promise, brings suit to enforce the promise, or materially changes position by justifiably relying on the promise). Here, the granddaughter materially changed her position by justifiably allowing her option on the other house to lapse. Generally, once the third-party beneficiary’s rights have vested, the original contracting parties may not modify the contract without the assent of the third-party beneficiary. However, the third-party beneficiary is subject to any defenses that the promisor could have used against the original promisee, and here the builder could have used the defense of impracticability against the promisee. Therefore, he could use that defense against the granddaughter to avoid having to pay damages for not building the house as he originally agreed.

is incorrect because the granddaughter is not an incidental beneficiary; rather, she is an intended beneficiary because she was specifically mentioned in the contract as the recipient of the house.

Question 21

A homeowner contracted with a local heating company to install two baseboard heaters in an addition to his home for a total cost of $3,500. This figure included the heaters and labor costs for installation. Upon completion of the installation, the heating company sent an invoice to the homeowner for the $3,500. The homeowner did not immediately pay the bill because the heaters were too noisy. The heating company sent a repair worker to the home to service the heaters, but after several attempts to fix the problem, the heaters were still too loud.

The homeowner contacted a qualified repairman to find out how to fix the problem and was told it would cost an additional $300 for new blowers and $150 in labor costs to replace the faulty blowers. The homeowner mailed the heating company a copy of the repair estimate and a check for $3,050—the contract price less the cost of new blowers and labor to install them—and wrote prominently on the check “Payment in full for installation of two baseboard heaters.” The heating company cashed the check upon receipt. The heating company then sued the homeowner for $450, the difference between the agreed contract price and the amount paid.

Is the heating company likely to prevail in its suit seeking the $450 from the homeowner?

1. No, because the heating company failed to fix the problem after several attempts.
2. No, because the heating company cashed the check.
3. Yes, because the check did not represent payment in full (i.e., the contract price) for the work done.
4. Yes, because the heating company should have been given more time to cure the defect.

Answer 21

No, because the heating company cashed the check.

The heating company is not likely to prevail in its suit seeking to recoup the $450 from the homeowner. An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some other, different performance. Satisfaction is the performance of the accord agreement. Satisfaction discharges not only the original contract but also the accord contract. If a monetary claim is uncertain or is subject to a bona fide dispute, an accord and satisfaction may be accomplished by a good faith tender and acceptance of a check when that check (or an accompanying document) conspicuously states that the check is tendered in full satisfaction of the debt. Here, there was a good faith dispute as to the amount owed. The check the homeowner tendered had a prominent notation that it was payment in full for the two baseboard heaters. By cashing the check, the heating company accepted it, and the accord and satisfaction was complete. The homeowner is discharged from any further performance under the contract. (A) and (D) are wrong because it was the existence of an accord and satisfaction, and not the heating company’s failure to adequately fix the problem, which foreclosed its options to recoup further monies. (C) is wrong because the check represented an accord and thus did not have to be for the contract price.

Question 22

A and B enter into a contract under which A will sell 500 widgets to B for $5,000. A assigns his right to payment for the widgets to C and notifies B. Just before A shipped the widgets, A and B agreed that A will accept $4,500 if B pays within 10 days of delivery. B pays C $4,500 within 10 days of delivery of the widgets.