Contracts Review

A homeowner entered into a written K by which a carpenter agreed to build book shelves and an office area in the homeowner's new home within 6 months in exchange for $20k. The carpenter reported to the homeowner that the work was completed and demanded their $20k. The homeowner inspected the shelving and discovered that the carpenter had installed 3 shelves instead of the 4 called for in the specifications accompanying and incorporated by reference into the K. The homeowner estimated that it would cost $2k to installed the fourth shelf and mailed the carpenter a check for $18k on which she had written "Payment in Full". The carpenter cashed the check then filed an action against the homeowner for the additional $2k.

For whom should the court award judgement?

• The carpenter, because she substantially performed under the K, and the homeowner's remedy, if any, is to seek judgement for damages

• The homeowner, because the carpenter is estopped from denying that she has been paid in full

• The homeowner, because there has been an accord and satisfaction

• The homeowner, because the carpenter is in material breach of the K and thus cannot complain of the homeowner's failure to perform as promised

Answer explanation

An accord is an agreement in which the obligee of a separate contract accepts a lesser performance than was called for by the original contract. A satisfaction is the performance of the accord. As to a bona fide dispute, the compromise of the competing claims provides consideration for the accord, and upon satisfaction, the obligation is extinguished. Here, when the carpenter cashed the $18,000 check marked "Payment in Full," she was impliedly agreeing to accept $2,000 less than the contract price as a compromise of the dispute over the fourth shelf. Having so agreed, the carpenter cannot thereafter seek to enforce the full contract price.

A businessman sold curtains at his store in a small town. One day, he decided to buy more curtains, because of growing demand. He contacted a curtain producer and the two parties agreed that the producer would sell 20 curtains for $2000. The parties signed a K to that effect. However, the K did not specify where the delivery was to take place.

Which of the following is correct?

• The place of delivery will be the producer's place of business

• The K is enforceable, but the parties must renegotiate the place of delivery

• The place of delivery will be the businessman's place of business

• The K is not enforceable

Answer explanation

Under the UCC, where there are pertinent terms missing, certain default provisions will supplant the contract. The default rule for a missing place of delivery term is that the place of delivery will be the seller's place of business unless otherwise agreed. Here, since the contract did not mention the place of delivery, the place of delivery will be the producer's place of business.

A buyer is a company that manufactures different types of gauges. The buyer sends a telegram to a seller, a manufacturer of flywheels. The telegram indicates that the buyer wants to immediately purchase 500 model C-42 flywheels and wants them shipped by the quickest possible means. The telegram is duly signed by an officer of the buyer.

Which of the following is true if the seller has promptly shipped the goods without notifying the buyer, and the buyer has not yet received the order?

• The buyer cannot cancel the K unless the flywheel delivery suffers from a material delay

• The buyer would be bound to a K with the seller at the time when the buyer receives the flywheels

• The buyer may treat the offer as lapsed after a reasonable amount of time

• The seller has not effectively accepted the buyer's offer

Answer explanation

:Under UCC Section 2-206, there are two ways in which an order or other offer to buy goods for prompt or current shipment may be accepted. One is by a prompt promise to ship the goods. The second method of acceptance is the prompt shipment of conforming goods. The buyer has made an offer, and the terms of the offer clearly demonstrate a desire for immediacy. The UCC construes this offer as inviting acceptance by either method. Where performance is a reasonable mode of acceptance, an offeror may treat the offer as having lapsed before acceptance if the offeree failed to notify the offeror of acceptance within a reasonable time. In this question, the buyer has not received the goods, nor has the seller notified the buyer that the goods have been shipped. Therefore, he may consider his offer to buy as having lapsed once a reasonable amount of time has passed.

As her time to go to college approached, a student's uncle promised to provide the funds for her tuition for four years . The student had already chosen her college and had the means to pay her tuition, but she was happy of course to accept her uncle's gift. When the student enrolled, the uncle gave the student a check for $40,000 for the first year's tuition. When the student's sophomore year was about to begin, the student contacted the uncle and asked for her second check. The uncle declined and told the student he was worried about his ability to fund his own retirement to give away any more money.

May the student enforce her uncle's promise to pay her tuition for the remainder of the college years?

• Yes, because the uncle made an unambiguous promise to do so

• Yes, because the uncle actually paid the first year's tuition

• No, because the promise was not in writing

• No, because the funds for the next three years have not been delivered to the student

Answer explanation

his answer is correct because of the difference between a gratuitous promise and an executed gift. Because there is no consideration for a gratuitous gift, a promise to make one is unenforceable. However, an executed gift, which is delivery of an item with an intention to bestow a gift, is enforceable. The uncle has promised the student three more years of tuition but has not delivered the funds. Therefore, that part of his promise is unenforceable as a gratuitous promise. The funds already delivered for the first year's tuition constitute a completed or executed gift, and the student is entitled to keep those funds, but she may not enforce the other gratuitous promises.

A young man decides he wants to buy a used car, but does not have a long enough credit history. He then verbally asks his cousin to answer for the car payments if the young man will not make them for 11 months. The cousin agrees and the young man tells the seller of the car about the cousin's guarantee. The young man then buys the car. However after 10 months of paying car payments, the young man loses his job and can no longer make the necessary payments. The seller sues the cousin.

Which of the following is correct?

• The seller will prevail, because the young man is not a merchant

• The seller will prevail, because the young man's obligation was transferred to the cousin

• The seller will not prevail, because the guarantee was oral

• The seller will not prevail, because the guarantee was for longer than 9 months

Answer explanation

The general rule is that a promise to answer for the debt of a third party—a suretyship, or guarantor agreement—is subject to the Statute of Frauds. Under the Statute of Frauds, for a contract to be enforceable, it must be evidenced by a signed writing reflecting that contract. Here, the agreement is a guarantor agreement, because the cousin promised to answer for the debt of the young man. However, since the agreement was only oral, it does not satisfy the Statue of Frauds. Therefore, the guarantor agreement is not enforceable and the seller will not prevail.

On Jan. 3rd, a collector signed a K with a quilter to design and create a special quilt for $8,000 to be delivered on Mar. 15th. On Jan. 15, the quilter telephoned the collector would be unable to finish crafting the quilt before she and her husband, who was being reassigned to a military base, moved overseas. The collector was very upset because the quilt was to be a focal point of his living room in his new purchased home. The collector decided to file suit against the quilter, seeking a court order compelling the quilter to fulfill the K and complete the quilt.

Is the collector likely to prevail in her action seeking the quilter's specific performance of the K?

• No, because the remedy of specific performance is not available to the paying party in a K

• No, because the remedy of specific performance is not available for contracts for personal services

• Yes, because the remedy of specific performance is generally available for Ks involving the sale of unique objects such as works of art or precious heirlooms

• Yes, because money damages would not adequately compensate the collector for the loss of the benefit of the specifically-designed quilt

Answer explanation

:Specific performance is an extraordinary remedy that may be available to the non-breaching party in a breach of contract action when a monetary award would be inadequate. Under rules dating back to common law, money damages are presumed to be inadequate when a party is purchasing either a unique object, such as a work of art or precious heirloom, or real property. However, it is not available to require a breaching employee or contractor to perform, as specific performance in such a case would be difficult to enforce and would violate public policy prohibiting involuntary servitude. In this case, given that the contract involved the purchase of a uniquely-crafted quilt, it may appear at first that the remedy of specific performance would be available to the collector. However, a closer examination of the facts clearly reveals that the parties' contract was actually a contract for the quilter's personal services in designing and crafting the quilt. Specific performance will not, therefore, be available to the collector, so this answer is correct.

A new college grad was looking for a job. Her uncle lived several hundred miles away, and told her that, if she moved to his city, he could help her find a job. The grad was not able to find a job in any of the other cities she was considering, and decided to move to her uncle's city. The uncle then told her that he was retiring due to poor health and would not in fact be able to help her.

Can the grad bring a breach of K against her uncle based on promissory estoppel?

• No, because there would be no injustice if the promise was not enforced

• No, because there was no foreseeable reliance on the uncle's promise

• Yes, because the grad actually relied on her uncle's promise

• Yes, because the grad's reliance on her uncle's promise was forseeable

Answer explanation

Promissory estoppel requires: (1) a promise; (2) foreseeable reliance on the promise; (3) actual reliance; and (4) injustice without enforcement. Courts will consider several factors, including the strength of the case as a whole, the blameworthiness of the breach, and the balance of equities between the parties. The requisite injustice is easier to establish the greater the harm of nonenforcement to the promisee is, and more difficult to establish the greater the harm of enforcement to the promisor is. Here, the breach was caused by the uncle's poor health and forced retirement. Not enforcing the promise against him would be harmful to the graduate, but the harm to the uncle of enforcing the promise would be greater.

On Monday, a widget wholesaler faxed to a buyer a letter promising to sell him 500 widgets for $2000. On Tuesday, the buyer telephoned the wholesaler and said he was rejecting the offer because the price was too high. During the telephone conversation, the wholesaler responded "Why don't you wait and think it over until tomorrow?" The following day, the buyer learned that there was a nationwide widget shortage. He immediately telephoned the wholesaler and said "I've changed my mind and will accept your offer" The wholesaler then told the buyer, "Sorry, pal, you had your chance and blew it!"

After the wholesaler refused to sell the widgets to him, the buyer sued for breach of contract.

Is there an enforceable K between the parties?

• No, because the buyer's telephone call on Tuesday constituted a rejection

• No, because there was no consideration to keep the offer open until Wednesday

• Yes, because the wholesaler's statement "Why don't you think it over until tomorrow" revived the offer, which the buyer subsequently accepted in a timely fashion

• Yes, because both parties are merchants

Answer explanation

There are no magic words required to extend an offer, but all offers contain three elements: (1) an expression of intent to enter a present contract; (2) a sufficient articulation of the essential terms of the proposed bargain; and (3) communication of that intent and those terms to another person (the offeree) who has the capacity to form a contract by a timely and conforming acceptance. This Contracts question deals with the revival of an offer. If, in the wake of a rejection/counteroffer, the offeror remanifests an intention to trade on the terms of the original offer, that offer is once again open to an acceptance by the offeree. This choice is correct because the wholesaler's statement, "Why don't you think it over until tomorrow?" revived the original offer. It is also important to note that the buyer's acceptance by telephone would be effective even though the offer was by a different medium. According to UCC Section 2-206, "an offer to make a contract shall be construed as inviting acceptance in any manner and by any medium that is reasonable under the circumstances."

A juggler borrows money from his coworker. The juggler is unable to pay the money back, and years pass. The coworker eventually needs the money and contacts the juggler, who consults a lawyer. The lawyer tells the juggler that the SOL on the debt has expired and that he is not legally obligated to repay the loan. The juggler nevertheless promises to do so in writing, but then changes his mind.

May the coworker enforce the juggler's recent promise to repay the old loan?

• Yes, because past consideration is generally sufficient to support a present promise

• Yes, because it was a promise to repay a debt, but for the SOL, would still be owing

• No, because the recent promise to repay the money was gratuitous promise

• No, because the recent promise to repay the money was supported only by past consideration

Answer explanation

This answer is correct because it applies an exception to the general rule that past consideration will not support a contract. A written promise to pay a debt that is barred by the statute of limitations is one of two particular types of promises that are enforceable even if there is no new consideration for them. In this case, the juggler's promise to pay the debt despite the expiration of the statute of limitations is therefore binding.

A business man was scheduled to attend a two-week conference in a distant city. A local forecast for his town called for heavy snow during his absence, so he promised to pay his neighbor's son $10 a day if the neighbor's son promised to shovel the sidewalk and driveway while he was away. The boy said he would agree to do the shoveling but only if the man would pay him $15 per day. The man left for his conference without responding to the boy's price modification. The snow arrived as predicted, and the boy shoveled each evening for 14 days. When the man returned the boy requested payment, but the man refused.

If the boy sues the man for services rendered, which of the following is true?

• The boy is entitled to $140, which is $10 for each day's work

• The boy is entitled to $210, which is $15 for each day's work

• The boy is entitled to a reasonable payment for services rendered

• The boy is not entitled to any payment

Answer explanation

The boy is not entitled to any payment. A valid contract requires an offer, an acceptance, and consideration. In this case, no contract was ever formed. The boy's attempt to modify the price constituted both a rejection of the man's original offer and a counteroffer, which the man never accepted. Without a valid contract, the man is under no obligation to tender payment.

The "reasonable value of services rendered" is a standard used for quantum meruit, or quasi-contract. Here, no such standard is called for because the man was not aware that the boy had started to perform.