Missed MBE - Contracts Flashcards
On May 10, the coach of a youth-league baseball team sent a letter to a supplier asking the supplier to promptly ship 20 red jerseys to the coach. On May 15, the supplier received this letter and sent the coach a reply letter accepting the offer. On May 16, the supplier realized that he had no red jerseys with which to fill the order and sent the coach 20 blue jerseys with a note that the blue jerseys were tendered as an accommodation. The coach received the jerseys and accommodation note on May 18 and received the supplier’s acceptance letter on May 19.
On May 20, which of the following is a correct statement of the parties’ legal rights and duties?
A The coach can either accept or reject the blue jerseys and, in either event, recover damages, if any, for breach of contract.
B The coach can either accept or reject the blue jerseys, but if he rejects them, he will thereby waive any remedy for breach of contract.
C The supplier’s shipment of nonconforming goods constituted an acceptance of the coach’s offer, thereby creating a contract for the sale of the blue jerseys.
D The supplier’s shipment of the blue jerseys constituted a counteroffer.
A The coach can either accept or reject the blue jerseys and, in either event, recover damages, if any, for breach of contract.
Contracts for the sale of goods (here, jerseys) are governed by Article 2 of the Uniform Commercial Code (UCC). Under the UCC, an offer to buy goods for prompt shipment can be accepted by:
* promising to ship the goods
* shipping goods that conform to the order or
* shipping nonconforming goods without notice that they are being offered only as an accommodation (which also operates as a breach)
Under the mailbox rule, acceptance by mail is effective upon dispatch—not upon receipt. Therefore, the coach’s offer to buy 20 red jerseys was accepted by the supplier on May 15, when he sent the coach a reply letter accepting the offer, thereby promising to ship the goods. This created a valid contract that required the supplier to then deliver goods that conformed perfectly to the contract (“perfect-tender rule”).
Here, however, the supplier breached the contract by shipping blue jerseys instead of red jerseys. As a result, the coach may accept or reject the nonconforming goods in whole or in part, and he may sue for damages related to the supplier’s breach.
(Choice B) A buyer does not waive any remedy for breach of contract by rejecting nonconforming goods. Instead, upon proper rejection, the buyer is entitled to a return of any payments made on the goods.
(Choice C) The coach’s offer was accepted when the supplier dispatched an acceptance letter on May 15—not when the supplier shipped blue jerseys on May 16.
(Choice D) If a seller ships nonconforming goods and seasonably notifies the buyer that the goods are tendered as an accommodation, then the accommodation operates as a counteroffer—unless the parties formed an enforceable contract before the accommodation was sent (as seen here).
Note to self: This is not a merchant agreement, and since there was an agreement via the mailbox rule. Can (1) accept shipment (2) reject shipment (3) accept some, reject others and collect damages. Bottom line: since there was an acceptance on May 15, the nonconforming goods were a breach.
A maker of handwoven rugs contracted with a supplier to provide yarn made from sheep’s wool. The written contract specified that, for four years, the supplier would provide the rugmaker with 2,000 spools of yarn made from 100% sheep’s wool per month, at $10 per spool, for a total of $20,000. Two years into the contract, the supplier sent the rugmaker 2,000 spools of yarn made from 90% sheep’s wool and 10% synthetic fiber. The rugmaker sent the supplier a check for $15,000 for the shipment, and added a clear note on the check stating that the payment was in full for the shipment but was $5,000 less due to the synthetic fiber in the yarn. The supplier promptly deposited the check, and then four months later filed suit against the rugmaker for the remaining $5,000. The supplier has submitted evidence of the written contract, and the rugmaker has submitted evidence of the deposited check.
What is the rugmaker’s best defense in this situation?
A By depositing the check, the supplier was estopped from claiming that the rugmaker owed him an additional $5,000.
B The rugmaker’s and supplier’s good-faith dispute over the yarn composition suspended the rugmaker’s obligation to pay the remaining $5,000.
C The supplier deposited the check for $5,000 less than the contract price, thereby discharging the rugmaker of any further duty to pay the remaining amount for that month’s shipment.
D The supplier’s act of knowingly depositing the check for $15,000 was a novation that relieved the rugmaker from any further liability.
C The supplier deposited the check for $5,000 less than the contract price, thereby discharging the rugmaker of any further duty to pay the remaining amount for that month’s shipment.
Ways to discharge contractual obligations
* Full performance of contractual obligations
* Impossibility, impracticability, or frustration of purpose
* Release (in writing only)
* Mutual rescission
* Substituted contract
* Contract or covenant not to sue
* Accord & satisfaction
* Novation
Mnemonic: FIRM SCAN
An existing contractual obligation can be discharged by an accord agreement. Under this agreement, a contracting party agrees to accept performance that differs from what was promised in an existing contract in satisfaction of the other party's existing duty. When a claim is unliquidated or otherwise subject to dispute, it can be discharged by accord and satisfaction if:
○ the person against whom the claim is asserted tendered a negotiable instrument (e.g., a check)
○ the instrument was accompanied by a conspicuous statement indicating that it was tendered as full satisfaction of the claim (e.g., "payment in full") and
○ the claimant obtained payment of the instrument.
Here, the rugmaker sent the supplier a check for $15,000 (instead of $20,000) after receiving yarn made of 90% wool (instead of 100% wool). The check clearly stated that it was being tendered as payment in full for the supplier's shipment of the lesser-quality yarn. The supplier then obtained payment by depositing the $15,000 check. Therefore, the rugmaker's best defense is that there was an accord and satisfaction that discharged the rugmaker of any further duty to pay the remaining $5,000 for the shipment.
Note to self: Needs a good faith dispute of what is owed. Agreement = accord, payment = satisfaction. Look for (1) good faith dispute (2) payment made to supplier (3) with a conspicuous note that the payment is intended to be in full. Look for supplier party accepting the debt.
The owner of a restaurant who highlighted local ingredients when creating his menu bought cheese and other dairy products from a local dairy farmer. The owner and the farmer had entered into written requirements contracts each spring for the past 10 years. In the winter of the tenth year, the farmer purchased a substantial amount of new dairy cows and expanded his farming capabilities. He notified all customers that he would have a higher volume and amount of available products the following spring and would adjust deliveries accordingly. The owner responded with a date he wished the products to be delivered, as per custom, but said nothing else. On the agreed-upon date, the farmer delivered substantially more products than he had customarily provided. The owner attempted to accept half of the shipment, as that was roughly his customary quantity, but the farmer stated that the products were already packaged and that the owner should have spoken up after receiving the notice from the farmer. The owner then rejected the shipment in its entirety.
Did the owner breach the contract with the farmer as to this shipment?
A No, because no contract existed, as the parties did not agree to a quantity.
B No, because the farmer made a nonconforming tender of goods.
C Yes, because the owner should have given the farmer time to cure the nonconformity.
D Yes, because the owner rejected the shipment in its entirety.
B No, because the farmer made a nonconforming tender of goods.
Under the UCC, a requirements contract is a contract under which the buyer agrees to purchase as many goods as the buyer requires from the seller. And under the perfect-tender rule, the goods and the seller’s tender of those goods must fully conform with the terms of the agreement. Substantial performance will not suffice.
Although goods must generally be tendered in a single delivery, this rule does not apply when the contract or circumstances indicate otherwise. For example, a single delivery would be unreasonable when the buyer would clearly have no room to store the goods if they were delivered all at once. In such an event, the buyer is entitled to reject the delivery for imperfect tender.
Here, the owner and the farmer had a requirements contract. However, the farmer delivered substantially more dairy products than the owner reasonably required, thereby making a nonconforming tender of goods. Considering the owner’s past requirements and the shelf life of dairy products, providing roughly double the amount required in one delivery was clearly unreasonable. Therefore, the owner did not breach the contract when he rejected the farmer’s shipment in its entirety (Choice D).
(Choice A) The quantity term in a requirements contract is sufficiently definite because the quantity can be made certain by reference to objective facts (i.e., the buyer’s actual requirements) or implied in good faith. However, the quantity cannot be unreasonably disproportionate to the stated estimate or prior requirements.
(Choice C) A seller has a right to cure a nonconforming tender if the time for performance has not yet passed. Here, the time for performance was the date of the delivery, so the farmer did not have a right to cure. In any case, the farmer refused to tender a conforming amount when requested by the owner.
Educational Objective:
Under the perfect-tender rule, the goods and the seller’s tender of those goods must fully conform with the terms of the agreement. If the tender of goods in a single delivery would be unreasonable, then the buyer can reject the delivery for imperfect tender.
Note to self: When there are requirement contracts, you want to look at what the individual requires. Any substantial increase/decrease/differentiation is a breach.
Only get to cure a nonconforming tender if it is beyond the date of performance.
A sister convinced her brother that they should open a small coffee shop. Their friend, a guitarist, suggested bringing his band to play live music in order to attract customers. He did not request any payment, saying that the publicity would be good for the band. The siblings agreed, and the band started playing at the coffee shop weekly. The coffee shop became a success, in no small part due to the band’s performances. When a businessperson offered to buy the coffee shop from the siblings, they orally agreed to each pay the guitarist $10,000 out of their share of the sale proceeds for his help in making the shop popular. The sister told the guitarist about their agreement. He was so delighted with it that he made a down payment on a new car. By the time the sale of the coffee shop was finalized, the brother had encountered financial difficulties. After the sale, the siblings signed a written contract stating that the sister would pay the guitarist $10,000 and her brother would pay him $5,000.
If, after the sale, the brother pays the guitarist only $5,000, will the guitarist have a valid basis for an action against the brother for another $5,000?
A No, because the guitarist was bound by the written modification of the contract made by the siblings.
B No, because the guitarist was only a donee beneficiary of the oral contract between the siblings.
C Yes, because the guitarist’s reliance on the promised payment prevented the siblings from changing the obligations of their oral contract.
D Yes, because the oral promise to pay $10,000 to the guitarist was made binding by the guitarist’s valuable and uncompensated contributions to the business.
C Yes, because the guitarist’s reliance on the promised payment prevented the siblings from changing the obligations of their oral contract.
A third-party beneficiary is a nonparty to a contract who receives an advantage or benefit from that contract. If the contracting parties intended for the contract to benefit the third party, the third party is an intended beneficiary with enforceable rights under the contract. Those rights vest when the beneficiary: ○ detrimentally relies on the rights created ○ manifests assent to the contract at one party's request or ○ files a lawsuit to enforce the contract. Once this occurs, the original contracting parties are bound to perform the contract. Any efforts to rescind or modify the contract after vesting are void unless the third party consents to the rescission or modification. Here, the guitarist was an intended third-party beneficiary of the siblings' oral agreement to each pay him $10,000. His rights under that agreement vested when he made a down payment on a car in reliance on the agreement. This means that the subsequent written modification of that agreement was void because it was made without the guitarist's consent (Choice A). Therefore, the guitarist may enforce the brother's original promise to pay $10,000. (Choice B) An intended beneficiary of a "gift promise" (i.e., a donee beneficiary) may generally sue only the promisor because the promisee is not under an obligation to the intended beneficiary. But this is of no consequence here since both siblings made a promise for the guitarist's benefit (i.e., both were promisors). (Choice D) Something given in the past typically is not adequate consideration to support a contract because it could not have been bargained for, nor could it have been given in reliance upon a promise. Here, the guitarist already performed at the coffee shop without asking for payment, so this past contribution is not adequate consideration to support the contract. Educational Objective: An intended third-party beneficiary is a nonparty to a contract who receives an advantage or benefit from that contract that was intended by the contracting parties. The beneficiary's right to enforce the contract vests when, for example, the beneficiary detrimentally relies on the rights created.
A shoe manufacturer contends that the owner of a shoe store called and ordered 50 pairs of Oxford-style dress shoes at $100 per pair to be shipped within three weeks. The manufacturer promptly sent the owner a signed, written acknowledgment of the alleged order that reflected the manufacturer as seller and the owner as buyer, as well as the number and style of shoes. However, the acknowledgment did not indicate the price of the shoes. The owner admits to receiving the acknowledgment the following day and taking no action regarding it. Two weeks later, the owner received a shipment of 50 pairs of Oxford-style dress shoes. The owner immediately called the manufacturer and asserted that he had never ordered the shoes.
Will the statute of frauds prevent the manufacturer from enforcing this contract against the owner?
A No, because an oral contract between merchants is enforceable.
B No, because the owner received and did not respond to the written acknowledgment in a timely manner.
C Yes, because the acknowledgment did not indicate the price of the shoes.
D Yes, because the price of the shoes exceeds the $500 threshold of the statute of frauds.
B No, because the owner received and did not respond to the written acknowledgment in a timely manner.
The UCC statute of frauds applies to contracts for the sale of goods valued at $500 or more. Here, the total price of the shoes exceeds the $500 threshold ($100 × 50 pairs of shoes = $5,000), so the contract must comply with this statute, or meet an exception (Choice D). To be enforceable, these agreements must be evidenced by a writing that: ○ provides a reasonable basis to believe a contract was formed (the written acknowledgment) ○ identifies the parties (the manufacturer as seller and the owner as buyer) ○ lists the quantity of goods sold (50 pairs of shoes) and ○ is signed by the party against whom enforcement is sought (the owner). However, the UCC relaxes the signature requirement in agreements between merchants—i.e., regular dealers of the goods involved in the transaction. Under the merchant exception, a written confirmation need only be signed by one merchant and sent to the other merchant. If the recipient has reason to know the confirmation's contents and does not object within 10 days, then it is enforceable against both merchants. Here, the acknowledgment was not signed by the owner. But since the owner and the manufacturer are merchants in the sale of shoes, the merchant exception applies. The acknowledgment meets this exception because it was signed by the manufacturer and received by the owner, who did not object until 14 days after receiving it. Therefore, the statute of frauds will not prevent the manufacturer from enforcing this contract against the owner.
A nature magazine advertised a photography contest in its January issue, offering “$1,000 to any subscriber who sends us a photograph of the rare Florida Grasshopper Sparrow that we use for the cover of our May issue. Only submissions meeting our technical specifications and received by April 1 will be considered.” The only subscriber to respond to the advertised contest sent the magazine a photograph of the sparrow that met the magazine’s technical specifications. The photograph arrived on March 15. However, due to an ecological disaster that occurred in early April, the magazine decided to use a different picture on the cover of its May issue. The magazine used the subscriber’s picture on the cover of its June issue and has refused to pay $1,000 to the subscriber on the ground that it was not used on the May cover.
Is the subscriber likely to prevail in a breach-of-contract action against the nature magazine?
A No, because the subscriber’s photograph was not used on the cover of the May issue.
B No, because the subscriber failed to adequately notify the magazine of his acceptance.
C Yes, because all of the express conditions of the offer have been satisfied.
D Yes, because the magazine prevented the publication of the photograph.
D Yes, because the magazine prevented the publication of the photograph.
Performance is generally due once a contract is formed, but a duty to perform can be delayed or discharged by a condition—i.e., an uncertain future event that must occur before performance becomes due or is discharged. There are two types of conditions: ○ condition precedent – delays performance until a specified event occurs ○ condition subsequent – excuses performance once a specified event occurs A condition precedent will be excused if a party whose performance is subject to that condition wrongfully prevents or interferes with its occurrence—e.g., by breaching the duty of good faith and fair dealing (which includes the duty to cooperate) that is implied in every contract. When this occurs, the condition no longer needs to occur for the interfering party's performance to become due. Here, the magazine's duty to perform was delayed by three conditions: ○ receiving a photograph that meets the magazine's technical specifications ○ receiving the photograph by April 1 ○ using the photograph on the magazine's May cover The first two conditions were fully satisfied when the subscriber delivered the photograph to the magazine on March 15. However, the third condition was not met because the magazine failed to cooperate when it chose to use a different picture on the May cover—presumably because the ecological disaster was more newsworthy (Choices A & C). The magazine's wrongful interference with the occurrence of this condition excused that condition and triggered the magazine's duty to pay the subscriber. Therefore, the subscriber will likely prevail. Note to self: Magazine caused condition to fail. If the condition is in the holder of the party asserting the condition. Here, the Magazine caused the delay, not the subscriber. Ask: Is it fair?
A homeowner called a septic cleaning company and made arrangements for the company to remove the waste from the septic tank on the homeowner’s property. After completing the job, the company mailed the homeowner a bill for $500, the fair market value of the services rendered by the company. The bill indicated that payment was due in 60 days. Upon receiving the bill, the homeowner called the company and informed it that, since he had lost his job due to an accident, he would not be paying the company’s bill. The following day, the company filed suit for breach of contract. Ten days later, the homeowner moved to dismiss the suit. The court granted the motion, dismissing the suit without prejudice.
Is the court’s dismissal proper?
A No, because the parties’ dealings created an implied-in-fact contract.
B No, because the homeowner has repudiated the contract.
C Yes, because the company failed to demand assurances.
D Yes, because the company’s complaint is premature.
D Yes, because the company’s complaint is premature.
The doctrine of anticipatory repudiation generally applies when a contracting party clearly and unequivocally indicates an unwillingness to perform a promise before the time for performance is due. Upon repudiation, the nonrepudiating party may: ○ treat the repudiation as a breach of the contract or ○ ignore the repudiation and demand performance. However, this doctrine does not apply when the date of performance has not passed and the nonrepudiating party has fully performed. Under those circumstances, the nonrepudiating party must wait until the repudiating party's performance is due before filing suit. Here, the homeowner clearly and unequivocally stated that he would not pay for the company's septic cleaning services after receiving a bill from the company. However, the company cannot immediately sue the homeowner because his performance (payment) was not due for 60 days and the company had fully performed. The company must instead wait until the 60-day period expires before filing suit (Choice B). Therefore, the company's complaint is premature and the court's dismissal was proper.
A homeowner entered into oral contracts with both a painter and a landscaper to perform services at his home. The landscaper was the first to begin the services, and shortly after he began to work, he realized that the projected cost of the project would increase dramatically. After the homeowner learned how high the cost of the landscaping services was going to be, he called the painter to tell her that he could not go through with their contract at that time.
The painter stated that she had already purchased a standard set of paintbrushes to paint his home, as well as glass necessary to create a custom mosaic on a back corner of the house, according to the homeowner’s specifications. She had also paid for a temporary city permit to park her utility van on the residential street where the homeowner lived.
In a suit by the painter against the homeowner, which of the following is the painter LEAST likely to recover?
A The contract price minus the market cost of performance.
B The cost of the glass for the mosaic.
C The cost of the paintbrushes.
D The cost of the parking permit.
C The cost of the paintbrushes.
After a contract is breached, the nonbreaching party may seek compensatory damages. These damages primarily aim to put the nonbreaching party in the same position as if the contract had been performed so that the nonbreaching party receives the "benefit of the bargain". Compensatory damages primarily include all of the following (minus mitigable damages): ○ expectation damages – the difference between the value of performance without the breach (what was promised) and the value of the performance with the breach (what was received) (Choice A) ○ consequential damages – losses that arose from the nonbreaching party's special circumstances that were reasonably foreseeable to the breaching party when the contract was made ○ incidental damages – reimbursement for commercially reasonable expenses that the nonbreaching party incurred as a result of the breach If such damages cannot be calculated with reasonable certainty, then the nonbreaching party may recover for any expenses incurred in reasonable reliance that the contract would be performed—e.g., the cost of the glass for the mosaic and the parking permit (Choices B & D).* However, recovery of reliance damages may be reduced by the amount spent by the nonbreaching party on materials that could reasonably be repurposed for another job—e.g., the painter's paintbrushes. Therefore, the painter is least likely to recover that cost. *Note that a nonbreaching party cannot recover both expectation and reliance damages, so the painter can only recover the contract price or the price of the glass and the parking permit.
A jeweler and a goldsmith signed a written agreement that provided as follows: “For $3,000, the goldsmith shall sell to the jeweler a size six gold ring setting that the jeweler shall select from only the goldsmith’s white gold ring designs.” The agreement did not address any other specific terms with regard to the business arrangement between the jeweler and the goldsmith.
When the jeweler arrived to select a ring, he refused to select one of the goldsmith’s white gold ring designs. The jeweler claimed that the goldsmith, immediately prior to the execution of the written agreement, had orally agreed to broaden the jeweler’s choices to also include rose gold ring designs. The jeweler also claimed that the goldsmith had, at the same time, orally agreed to include a set of earring settings, valued at $1,000, as an incentive for the jeweler’s continued business. The goldsmith refused to sell to the jeweler any of his rose gold ring designs or include the earring settings.
If the jeweler sues the goldsmith for damages, how should the court handle the evidence of the alleged oral agreements?
A The court should admit the evidence as to both the promise to include the earring settings and the option to choose a rose gold ring design.
B The court should admit the evidence as to the promise to include the earring settings but not the option to choose a rose gold ring design.
C The court should admit the evidence as to the option to choose a rose gold ring design but not the promise to include the earring settings.
D The court should exclude the evidence as to both the option to choose a rose gold ring design and the promise to include the earring settings.
A The court should admit the evidence as to both the promise to include the earring settings and the option to choose a rose gold ring design.
The parol evidence rule generally bars evidence of prior or contemporaneous agreements that contradict the terms of an integrated writing—i.e., a writing that presents the final expression of the parties' agreement. A writing may be fully or partially integrated. However, the UCC presumes that a contract for the sale of goods (e.g., jewelry) is only partially integrated.* As a result, evidence that supplements a written contract is admissible—but evidence that contradicts the writing is inadmissible. Here, the written agreement between the jeweler and the goldsmith is partially integrated because it represents the parties' final agreement for the sale of a ring—including the price, size, and type of gold. This writing expressly stated that the ring would be chosen only from the white gold ring designs. The goldsmith's prior oral statement that he would also include rose gold ring designs contradicts the writing, so the court should not admit this evidence (Choices A & C). In contrast, the writing made no mention of earrings. This means that the goldsmith's prior oral statement to include a set of earring settings merely supplements the writing and is not barred by the parol evidence rule (Choices C & D). As a result, the court should admit the evidence as to the earring settings. *A contract for the sale of goods will be deemed fully integrated if the court concludes that the parties "certainly" would have included the term in the written contract. However, this is a difficult standard to meet. NOTE TO SELF: Items that are not in the contract may be admitted, but items in the contract cannot admit a contradictory statement.
A licensing agreement provided that a manufacturer could use an inventor’s patent in manufacturing its products for 10 years. Immediately thereafter, the inventor assigned his rights to receive payments pursuant to the licensing agreement to a corporation. The inventor did not receive compensation for this assignment. The inventor, upon his death five years later, devised his stock in the corporation to his daughter and all of his remaining property to his son.
To whom should the manufacturer make its payments under the licensing agreement?
A The corporation.
B The inventor’s daughter.
C The inventor’s son.
D No one, because the manufacturer’s obligation to make payments under the licensing agreement terminated upon the death of the inventor.
C The inventor’s son.
An assignment is the transfer of contractual rights to a third party. If an assignment is not supported by consideration, then it is a gratuitous assignment and is generally revocable (exceptions listed in the table above). A revocable assignment is automatically revoked upon the death, incapacity, or bankruptcy of the assignor. Here, the inventor assigned his right to receive payments under a licensing agreement to the corporation without receiving compensation or other consideration. Therefore, the assignment was automatically revoked upon the inventor's death, and the right to receive payment returned to his estate (Choice A). Aside from the stock, the inventor devised all of his property to his son, including the right to receive payment from the manufacturer under the licensing agreement (Choice B). Therefore, the manufacturer should make payments to the inventor's son.
The owner of a rare eighteenth-century chest offered to sell it to a connoisseur of antiques for $75,000. The connoisseur countered that she would buy the chest for $50,000. The owner rejected this price. The owner and the connoisseur then executed a written agreement for the sale of the chest at a price to be determined only by a particular antiques dealer whose expertise in valuing this rare item they both trusted. Two weeks later, the agreed-upon antiques dealer examined the chest. He told the owner and the connoisseur that he had to do further research on the chest but that he would let them know his decision in several days. Unfortunately, the dealer died before doing so. A reasonable price for the chest can be established by the court.
Is there likely an enforceable contract?
A No, because the owner and the connoisseur did not intend to be bound unless the dealer set the price of the chest.
B No, because the price of the chest was not determined at the time the agreement was executed.
C Yes, because a reasonable price for the chest can be established by the court.
D Yes, because the owner and the connoisseur executed a written agreement for the sale of the chest.
A No, because the owner and the connoisseur did not intend to be bound unless the dealer set the price of the chest.
Under the UCC, a contract for the sale of goods is formed if both parties intend to contract and there is a reasonably certain basis for giving a remedy in the event of a breach. Intent to contract is judged by outward, objective manifestations of intent, as interpreted by a reasonable person. So when an agreement reflects an intent to be bound only if the price is subsequently set, no contract is formed until the price is set.
A student inherited a large tract of undeveloped land from an eccentric uncle. The student had no present need for the land, and because he had numerous student loans, he decided to sell the land. He advertised a proposed sale of the property, and he was soon contacted by a rancher who owned property adjacent to the offered land. The rancher wanted to purchase the student’s property to expand his ranch and to build facilities for dairy production. The student told the rancher that his car had just broken down and that he was eager to sell the property quickly so that he could repair his car for his commute to class. Although the rancher was fully aware of the fair market value of the property, he offered the student a cash price 80 percent less than the property was worth. The student, disappointed with the low price but desperate to repair his car, accepted the rancher’s offer.
On these facts, which of the following legal concepts would give the student the best chance of canceling the contract with the rancher?
A Bad faith.
B Duress.
C Equitable estoppel.
D Unconscionability.
D Unconscionability.
Procedural
Party induced to enter contract without meaningful choice due to deception, compulsion, or significantly unequal bargaining power—eg boilerplate contract provisions that are inconspicuous, hidden, or difficult to understand; contract of adhesion (ie, take-it-or-leave-it contract) when parties have greatly unequal bargaining power
Substantive
Substance of contract itself is duly unfair—eg: one-sided terms; gross disparity in value of consideration exchanged
A court may modify or refuse to enforce a contract on the ground that it is unconscionable—i.e., so unfair to one party that no reasonable person in that party’s position would have agreed to it. Unconscionability can be procedural or substantive, and it is a question of law for the court (not the jury) to decide based on the circumstances. The contract is substantively unconscionable if the terms are unduly unfair.
Here, the student’s best argument for canceling the contract with the rancher is that the contract’s substantive terms are unconscionable. No reasonable person would agree to sell a piece of real property for 80 percent less than it is worth (i.e., for 20 percent of its actual worth). And though there does not appear to be procedural unconscionability, the actual terms of the contract are so unfair that the court could refuse to enforce the contract.
An honest dispute developed between a condominium owner and a plumber over whether plumbing installed in the kitchen and bathrooms of the condominium satisfied contractual specifications. If the plumbing met those specifications, the condominium owner would owe the plumber $15,000 under the terms of the contract. The condominium owner offered to pay the plumber $10,000 in satisfaction of the owner’s contractual obligations if the plumber replaced the plumbing in the kitchen with another grade of pipe. The plumber accepted the condominium owner’s offer. After the plumber replaced the kitchen plumbing, the condominium owner refused to pay the plumber.
In a breach-of-contract action brought by the plumber, the fact finder determined that the plumbing originally installed by the plumber did satisfy the contract specifications. The fact finder also determined that the plumber and the condominium owner entered into a substitute agreement under which the owner failed to deliver the required performance.
What is the maximum amount that the plumber can recover in damages from the condominium owner?
A $25,000.
B $15,000.
C $10,000.
D Nothing.
C $10,000.
Parties to a contract may agree to change one or both parties' performance through an accord agreement or a substitute contract: ○ Accord agreement – when a party agrees to accept different performance in satisfaction of (i.e., in place of) the original promise; after breach, the party can sue under either the original contract or the accord agreement. ○ Substitute contract – when the parties form a second agreement that immediately discharges the original contract; after breach, a party can sue under the substitute contract only. Whether the parties formed an accord agreement or a substitute contract is a fact issue that depends on the formality of the agreement. The more formal the agreement (e.g., words discharging original duties, consideration on both sides), the more likely the fact finder will determine that the parties intended to create a substitute contract. Here, the fact finder determined that the plumber and the condominium owner entered into a substitute agreement. This discharged the original contract for $15,000, so the plumber may sue only under the substitute contract (Choice B). The substitute contract required that the condominium owner pay $10,000 for the kitchen plumbing, so that is the maximum amount that the plumber can recover (Choice D).
An independent trucker and a manufacturer entered a written contract for the delivery of a farming implement from the manufacturer to a farmer. Under the terms of the contract, the trucker promised “to deliver a farming implement from the manufacturer to the farmer,” and in exchange, the manufacturer promised “to pay the trucker if the trucker delivers the implement directly to the farmer after picking it up.” The trucker picked up the implement but, instead of driving directly to the farmer, drove 100 miles out of his way to pick up another item from a third party before delivering the implement to the farmer. The manufacturer, unaware that the trucker had failed to deliver the implement directly to the farmer, refused to pay the trucker.
Who has breached this contract?
A Both the trucker and the manufacturer.
B The trucker only.
C The manufacturer only.
D Neither the trucker nor the manufacturer.
D Neither the trucker nor the manufacturer.
Note to self: Look at the separate promises made. Here, the issue is that payment was contingent on a direct delivery. However, the trucker’s promise was only to deliver items to the manufacturer.
A breach of contract occurs when a party fails to perform a contractual duty that has become due. Performance may be predicated upon a condition precedent, under which a contracting party’s obligation to perform arises only upon the occurrence of an uncertain future event. If the parties expressly agree to a condition precedent, then the condition precedent will be strictly enforced. This means that a contracting party must fully comply with the condition before the other party’s performance is due.
Here, the trucker fully performed his promise to deliver a farming implement from the manufacturer to the farmer, so the trucker has not breached the contract (Choices A & B). However, the manufacturer's duty to pay the trucker was expressly predicated on the trucker's direct delivery of the implement to the farmer. The trucker did not fully satisfy this condition precedent because he took a 100-mile detour, so the manufacturer's performance is not due (Choice C). Therefore, neither party has breached the contract.
During the warm months of the year, the owner of a fur coat stored it with the furrier from whom she had bought it. While the coat was at the furrier’s store, a salesperson, mistakenly thinking that the coat was for sale, sold it to a customer. The customer was allowed to reduce the purchase price by the amount of an outstanding debt owed by the furrier to the customer; the customer paid the remainder in cash. In the process of purchasing the coat, the customer was told by the salesperson about the furrier’s storage service but, like the salesperson, was unaware that the coat was not part of the store’s merchandise. After the sale, the owner learned of the transaction between the furrier and the customer. Since the coat had significant sentimental value to the owner, she sought its return from the customer. When the customer refused, the owner filed an action to recover the coat from the customer.
Will the owner likely prevail?
A No, because the customer was a good-faith purchaser of the coat that had been entrusted to the furrier.
B No, because the owner is entitled to damages from the furrier.
C Yes, because the customer did not give full value in acquiring the coat.
D Yes, because the furrier transferred only voidable title in the coat to the customer.
A No, because the customer was a good-faith purchaser of the coat that had been entrusted to the furrier.
Under the UCC, which applies to contracts for the sale of goods, the entrustment of goods by the owner to someone who sells goods of that kind (i.e., a merchant) gives the merchant the power to convey good title. Good title can be conveyed to a buyer in the ordinary course of business—i.e., someone who buys goods:
○ in good faith
○ without knowledge that the sale violates the owner’s rights to the goods and
○ from a merchant in the business of selling goods of that kind.
Entrustment includes any delivery and acquiescence to the possession of goods, regardless of conditions expressed between the parties.
Here, the owner stored her coat with, and thereby entrusted the coat to, the furrier—a merchant in the business of selling fur coats. The customer then purchased the coat in good faith and without knowledge that it actually belonged to the owner. As such, the customer is a buyer in the ordinary course who took good title (not voidable title) to the coat (Choice D). Therefore, the owner likely will not prevail in an action to recover the coat from the customer.*
