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Chapter 10 - Introduction to the Law of Contracts

Chapter 11 - The Offer

Chapter 12 - The Acceptance

Chapter 13 - Consideration

Chapter 14 - Genuine Assent

Chapter 15 - Capacity to Contract

Chapter 16 - Illegality

Chapter 17 - Legal Form

Chapter 18 - Rights of Third Parties

Chapter 19 - Performance, Discharge & Remedies

Chapter 20 - Introduction to Sales Contracts

Chapter 21 - Sales, Title, Risk of Loss, & Insurable Interests

Chapter 22 - Sales: Performance

Chapter 23 - Sales: Remedies

Chapter 24 - Warranties

Chapter 25 - Product Liability

Chapter 47 - Personal Property

Chapter 48 - Interests in Real Property

Chapter 49 - Acquisition, Financing, and Control of Real Property

ANSWERS TO DISCUSSION QUESTIONS

1. There must be a valid offer, proper acceptance, considerations, mutual assent, competent partners, a legal object Additionally, the agreement must sneer the requirements of the statute of frauds and the parole evidence Nile.

2. Contract law is not statutory. Instead, it is a field of judge made law.

3 . The UCC statutorily sets principles governing contracts for the sale of goods.

4. The parties intend a contract implied-in-fact. The courts arbitrary establish a contract implied-in-law to achieve equity.

ANSWERS TO REVIEW PROBLEMS

1. Landscaper can obtain the reasonable value of the goods and services on the basis of a contract implied-in-fact. All the elements of quasi contracts are satisfied.

2. Yes. There is no unjust enrichment.

3. It is a valid, express, unilateral contract. The contract could be changed to bilateral by having the broker promise to do something such as advertise the house a minimum number of times.

4. It is a unilateral contract, because a promise is made in return for a service.

ANSWERS TO CASE PROBLEMS

1. The Supreme Court of New York held that since adultery, a class B misdemeanor, is contrary to public policy, the content was void and unenforceable. Further, the court held that the mincing of such contracts was detrimental to the welfare of society. Cook v. Johnson, 221 P2d 525 (1950).

2. The contract is unenforceable. Miller v. Miller, 78 Iowa 77 (1889).

3. Yes. To not enforce the agreement would allow Richardson to be unjustly enriched. Richardson v. J.C Flood Company, 190 A2d 259 (1963).

4. Possibly. One could argue that it is analogous to Marvin v. Marvin.

5. Andrews' right were not violated because work schedules were made on the basis of seniority. A quasi contract was not formed because Andrews knew of the conditions upon which work would be assigned prior to taking the examination to qualify as an employee for the New York Transit Authority. Andrews v. New York City Transit Authority, 252 N.Y.S. 2d 814 (1964).

Last updated September 14, 1997 by Dawn D. Bennett-Alexander

ANSWERS TO DISCUSSION QUESTIONS

1. Common law - price, quantity, subject matter.

U.C.C. - quantity.

2. An offer can terminate by rejection revocation, death of a party, illegality, or

destruction of the subject matter.

3. A counter-offer terminates the original offer.

ANSWERS TO REVIEW PROBLEMS

1. No. The statement of the owner did not reflect an intent to be bound. He was speculating about a future possibility.

2. No. The term "impressive bonus" is probably not definite enough.

3. The courts are split on this issue. A reasonable position would be to add 5 days to the normal amount of time it takes to get from where the offeror mailed it to the offeree's. That way there is a degree of certainty as to the dates for both parties.

4. Probably not. The contractor must be able to count on the subcontractor if the contract bid is accepted, but the subcontractor his no similar reliance on the contractor prior to acceptance of his bid. It would depend on how the contractor worded his solicitation for bids from subcontractors. Ideally, the solicitation would clearly state the time at which the bid from the subcontractor would be accepted.

ANSWERS TO CASE PROBLEMS

1. No. The solicitation of bids is an imitation to bidders to make offers. Thus, the bid by the plaintiff is an offer, not an acceptance and no contract results unless the school board accepts the offered bid. Rofra, Inc. v. Board education, Prince Georges County, Libra. 346 A2d 458 (Ct. of Special Appeals, Md. 1975).

2. Sokol Won. The court found that he had withdrawn his over before the acceptance had been communicated to him. Sokol v. Hill, 310 S.W. 2d 19 (Ct. App. Mo. 1958).

3. The defendant won. The letter was not sufficient to construct a binding contract. Smith v. House of Keneon, 209 S.E. 2d 397 (1974).

4. The court found in favor of Smith. The provision was not a part of the contract.

ANSWERS TO DISCUSSION QUESTIONS

1. Unless so reamed by the offer, the acceptance need not be expressed is words. It (acceptance) can be inferred from the actions of the offeree. In certain limited circumstances, silence (inaction) can be considered an acceptance.

2. "If the offer is one to enter into a unilateral contract (a promise for an act), the offeree must perform the requested act." "If the offer is one to enter into a bilateral contact (one in which each party makes a promise), the offeree must make and communicate his or her promise in order to accept the offer."

3. Under common-law rules, the acceptance generally "must mirror the teams of the offer." "There are some situations where the law or facts imply into the offer terms that may act have been expressed." Under the Uniform Commercial Code (UCC), "the response containing additional terms must meet two requests to be effective as an acceptance. First, it must be stated in terms of a definite and seasonable expression of acceptance. Second, it must not be expressly made conditional on assent to the additional or different terms." When those conditions are met, an acceptance with differing terms will be valid.

4. Generally, silence as a response to an offer is not considered an acceptance. However, the law recognizes the following three exceptions:

(1) "If the transactions the parties have entered into in the past show them intent to regard silence as an acceptance, that intent becomes a part of their future transactions."

(2) "The initial agreement between the parties constitutes the basis for treating silence by the offerer as acceptance."

(3) "If the offeree uses the goods and treats them as if he had accepted then the courses consider the offeree's actions and silence as together consuming the required acceptance."

ANSWERS TO REVIEW PROBLEMS

1. The offer established formal steps to be followed in accepting, including the payment of a 25 percent down payment and the return of a signed order. Thus, the oral response by the buyer did not establish a contract. If the response by the buyer could be considered an offer, then the seller's response to get on it immediately could be considered an acceptance creating a contract.

2. The question is whether the acceptance was conditional. The issue of inspection is a significant one between the parries and the acceptance would appear to be conditional at common law. Under the UCC, assuming that the acceptance is considered definite and certain, the inspection term in the acceptance would become part of the contact if it were found not to vary the contract materially.

3. No. Under ordinary circumstances, silence is not acceptance, and acceptance of a single renewal policy is not itself a sufficient basis to constitute an implied acceptance of a second renewal based on the offeree's silence.

4. Yes. Sally's silence and failure to send the form back timely constitutes an acceptance.

ANSWERS TO CASE PROBLEMS

1. No. The offer was not accepted. There was no express promise or action of the landowner which could be the basis of an implied promise to pay for the use of the subcontractor's machine. Crosby v. Paul Hardeman, Inc., 414 F2d (8th Cir. 1969).

2. Yes. The evidence showed that the normal procedure would have placed the acceptance in the mail prior to the receipt of the revocation. Since the offeror used the mail, it implied use of the mail for the acceptance. Hurble Oil and Refining Co. v. Westside Invest. Corp., 419 S.W. 2d 448 (Ct. Civ. App. Tex., 1967).

3. Farley recovered; there was no contract. The check constituted neither an offer nor an acceptance. The court said there was no meeting of the minds on these facts. Farley v. Clark Equipment Co., 484 S.W. 2d 142 (Ct. Civ. App. Tex., 1972).

4. The court determined that since Collins & Aikman's acceptance expressed by the acknowledgment forms was not conditioned on the buyer's assent to the additional terms it proposed, a compact existed pursuant to UCC 9-207(1). The arbitration terms were proposals for additional terms. Those proposals between merchants such as the parties here are deemed accepted unless they materially alter the terms of the over (made in this case by the Carpet Mart). The court then sent the case back to the district court to determine if the arbitration provisions "materially altered" the Carpet Mart's over. If they did, they were not a part of their contract. If they were not "material alterations," they would be a part of the contract terms. Dorton v. Collins & Aikman Corp., 453 F2d 1161 (6th Cir. 1972).


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ANSWERS TO DISCUSSION QUESTIONS

1. Adequacy of consideration refers to economic adequacy; sufficiency of consideration refers to legal sufficiency.

2. An accord and satisfaction, a compromise of debts, and cases of unforeseen difficulty.

3. The two components of consideration are a baron and an exchange.

4. Promissory estoppel is the legal theory that enforces promises on the basis of reasonable reliance upon a promise.

ANSWERS TO REVIEW PROBLEMS

1. The court held that forbearance to assert a legal claim is valid consideration for a contract. "At the time this agreement was entered into Gill had already feed suit against the appellees and in accordance with the agreement had agreed to abate the action and to dismiss it if the appellees performed in accordance with the agreement. He did not know at the time that this portion of his suit would be subsequently dismissed, and it appears he had a reasonable belief in its validity. Aside from this forbearance it seems that Gill had partially performed.... He had therefore changed position in reliance on the agreement. It has been held that a benefit to the promisor or a loss or detriment to the promise is good consideration... "

2. The court held that "the trial court erred in dismissing the plaintiff's suit. This suit could be legally considered as prematurely brought only if the agreement ... was a valid agreement. We fail to find any evidence of ... a sufficient consideration in the record. A person's promise to pay what he already owes is not a valid consideration, whether the promise is to pay the whole amount due or to pay in accordance with an installment arrangement, as here. It is not sufficient consideration for an agreement to extend the tune of payment that the debtor promises to do anything that he is legally bound to do."

3. There are two possible methods by which the $200,000 pledge might be construed to be an enforceable promise--consideration or promissory estoppel.

(a) Consideration -- Did the United Jewish Appeal (UJA) make any promise(s) to Polinger that induced him to make the pledge? If so, there was a bargained exchange. Did the promise represent a new obligation on UJA's part? If so, there was a legal detriment. It was clear that Polinger suffered a legal detriment, as he would not have been obligated to pay $200,000 to the UJA but for his pledge to do so.

(b) Promissory estoppel -- Did Polinger have reason to expect UJA to incur some substantial economic detriment in reliance on his pledge? Did the USA do so? Can injustice be avoided only by enforcement of the promise? If the answer to each of these questions is yes, the promise would be enforceable on a promissory estoppel theory.

4. No. At first glance, the $1,000 payments of the respective buyers seem to have been exchanged for the right to purchase a condominium at the specified price. That might have been an accurate analysis had the $1,000 been nonrefundable. However, the $1,000 is fully refundable plus interest if the parties do not ultimately enter into a sales contract. The buyers, then, have not incurred any legal detriment in exchange for the seller's promise to sell at a specified price. Furthermore, according to the terms stated in the receipt, the $1,000 was offered as a deposit toward the purchase price, rather than as an exchange for the right to hold the seller to the given price. Therefore, no bargained exchange exists. Lacking both a legal detriment on the part of the buyers and abargained exchange for the promise to hold the selling price constant, the buyers' promises fail to satisfy either of the two requirements of consideration.

Notice, however, that there might be a promissory estoppel that would render enforceable the promise to maintain the selling price. Additional facts would be needed to decide that issue.

5. This is a valid contract because Buyer, by agreeing to give Seller thirty days' notice before cancellation, has incurred a legal detriment. This is not an illusory promise.

ANSWERS TO CASE PROBLEMS

1. The defendant argued that staying in business was merely good business sense and thus the plaintiff had incurred no detriment. The defendant's promise was an inducement for the plaintiff to stay in business, a course of action that the plaintiff for financial reasons might not otherwise have taken. Staying in business, without receiving the promised reimbursement, would thus constitute a detriment to the plaintiff

The defendant argued that the plaintiff's promise was illusory in that it specified no definite time period during which the plaintiff would remain in business and hence was not valid consideration.

The court held that "here the plainly has bound himself... to relocate and open his business elsewhere. The plaintiffs promise is to be distinguished from a promise to relocate if it so desired, which clearly would be illusory." Graphic Arts Finish, Inc v. Boston Redevelopment Authority, 295 N.E. 2d 793 (Mass. 1970).

2. The court held that "the five-year acceleration of the trust benefit payment to Hurley was sufficient consideration to support specific performance of his promise not to compete." Marine Contractors Co. Inc. v. Hurley, 310 N.E. 2d 915 (moss. 1974).

3. The court held, "The evidence establishes that the agreement was based on a forbearance to bring suit for the enforcement of a claimed legal right. This constitutes consideration. Refraining from bringing a suit may be sufficient consideration. . .

Refraining from enforcing a claim which might reasonably be thought to be doll is sufficient consideration.... The evidence is sufficient to establish that both parties had reasonable grounds for believing that the plaintiff had a bona fide claim and that both parties acted in good faith. A compromise of a bona fide controversy consulates a good consideration for a claim." Kenn v. Larson, 132 N.W. 2d 350 (N.D. 1970).

4. The court held, "The question of lack of mutuality of obligation is determined by analysis of the contract in its entirety. Wright and Taylor's fixed obligations for the first year furnished adequate consideration to the lessee for lessor's retention of a unilateral right to terminate the lease. This takes the lease out of that class of cases where one of the parties may elect not to perform at all." David Roth's Sons, Inc. v. Wright and Taylor, Inc. 343 S.W. 2d. 389 (Ky. App. 1961).

ANSWERS TO DISCUSSION QUESTIONS

1. (1) a misrepresentation offset

(2) that is material

(3) that is made with knowledge of its falsity and with intent to deceive the other party

(4) who reasonably relies on the misrepresented statement (by causing injury as a consequence of the reliance

2. Because the free will of the consenting party is overcome by a wrongful threat or act and valid contracts are entered into fully, courts refinish to enter into cones made under duress.

3. Duress occurs when a wrongful act or threat, rather than the free will of the party, has induced contractual assent. Undue influence occurs when a dominant-subservient relationship exists. The dominant party has induced the subservient party to enter an agreement.

4. When a bilateral mistake (a mistake made by both parties to a contract) conceding the subject matter of the contract occurs, courts generally grant relief if refining to do so would impose undue hardship or expense on the mistaken party.

ANSWERS TO REVIEW PROBLEMS

1. Probably yes. The expert testimony of the country building inspector regarding the soil slippage would represent substantial evidence that the lot was not suitable for building. So long as there was nothing about the property that would have put Jones on inquiry notice about the conditions of the soil. Presumably they are both relying on the belief that the land is sufficiently stable to build a home.

2. She is not likely to succeed. She is a relatively sophisticated party who appears to be exercising her own free will. No evidence is given regarding fraud, duress, or deception.

3. Yes. Frank can argue undue influence due to the fact that Ted is his legal guardian. An annual fee of 10 percent in these circumstances is not reasonable and Frank's subservient position will allow the contract to be set aside.

ANSWERS TO CASE PROBLEMS

1. The court rescinded the contract. "The treatment proved to be extremely painful, resuming in appellee's inability to perform under the contract; but this reflects more of a mutual mistake of fact as to the possible effect these treatments might have on her than it does the blind willingness to proceed with than in spite of her condition. To return the parties to their respective stations worked no hardship on either of them." Slenderella Systems, Inc. v. Greber, 163 A2d 462 (D.C. Mun. Ct. App. 1960).

2. Their claim was not held to be justified. "Fraud winch constitutes a ground for voiding the contract must be fraud which induced the parties to enter the contract." Here the statement by Oliver was made after the lease was signed. Furthermore, the representation which forms the basis for the fraud must relate to an existing fact and not a future event--in this case, that someone will make the repairs when needed. Gilbreath v. Argo, 219 S.E. 2d 461 (Ga Ct. App. 1975).

3. Usry was unable to rescind. "Where two contracting parties deal at arm's length with one another and a written agreement is entered into between them, it cannot be set aside upon the ground of fiend or upon the basis that he was induced to enter into and sign the agreement in the consequence of fraudulent misrepresentation when it appears that the party signing did so with the full opportunity to inform himself as to the terms of the instrument but negligently omitted to take such prisons as would have served to protect him against the imposition alleged to have been practiced." Granite Management Services, Inc. v. Usry, 204 S. F. 2d ;62 (Ga Ct. App. 1974):.

4. Robinson's defense was not accepted by the court. [T]he Court finds that the defendant was a free agent [and] that he had a choice, that is, he had freedom in exercising his will in signing the written agreement.... The fear of some impending peril or financial injury, or the mere fact that one acts with reluctance or that a person is in a mental state of perturbation at the time of doing any act, is not sufficient Mound for holding that the act was done under duress." (The court did find that the contract was invalid on the ground that it was made by Robinson in consideration of an agreement not to prosecute Gallaher Drag Co. v. Robinson, 212 N.E. 2d 668 (Ohio Mun. Ct. 1965).

5. The purchaser is emitted to rescission Sorrell v. Young, 6 Wash App. 220 (1962).

6. The court found that there was no failure of consideration and therefore no grounds for rescission. Bierles v. Taylor, 524 P. 2d 783 (1964).

ANSWERS TO DISCUSSION QUESTIONS

1. The test for a person's capacity is that at the time of making the contract he or she must understand the nature and effect of the transaction.

2. Most contracts are considered voidable, but on a state-by-state basis some contracts (as Listed in the chapter) are considered valid, and thus the option of disaffirmance is not available to the minor.

3. No, only if a person is so intoxicated at the time of entering the contract that he or she does not understand the nature and effect of the transaction. In Olsen v. Hawkins the court discussed this principle.

ANSWERS TO REVIEW PROBLEMS

1. The question is whether the automobile was a "necessary." Here, the court felt that as a matter of law articles used for pleasure are not necessaries, and found on the evidence that Pelham intended to use the car for pleasure. Thus, the car was not a "necessary" and Pelham prevailed.

2. "An infant is Liable for the reasonable value of necessaries supplied to him or his family, unless his parents or guardian have already made provision for the articles furnished." Johnson was denied relief, since there was no evidence that Horton was not supplied with suitable housing by his parents or guardian. If Johnson could prove that Horton's parents were not providing him and his wife with lodging, Johnson would win, because housing is a necessary item.

3. No. The court found that (a) there was no evidence to show that Curry was either intoxicated or otherwise incompetent at the time he signed the agreement and (b) subsequent acts by Curry showed that he understood and ratified the dissolution agreement.

4. Yes. Bowling can disaffirm this contract. Minors can disaffirm contracts that do not deal with "necessary" items. For the automobile to be considered necessary, it would have to be vital to Bowling's existence. In this case the automobile would have been considered necessary if it had been the sole source of transportation to Bowling's place of employment.

5. In a majority of states an infant is liable for the reasonable value of necessaries even if he does not return the items purchased. Jack is liable for all items except the photographic equipment.

6. No, disaffirmance is a question of intent and his instruction (via his father) to the bank to pick up the car indicated he no longer wanted it or was willing to make payments on the note. A minor can disaffirm a contract during his minority and that is what was done. Once the contract has been disaffirmed, he has no further obligation on the contract.

7. Yes, when a minor is the sole contracting party with an adult, the minor can disaffirm the contract. It is immaterial whether his mother advised and counseled him. The policy of the law is to discourage adults from contracting with a minor.

ANSWERS TO CASE PROBLEMS

1. Yes. The court found Williamson lacked capacity. The court noted the testimony showed Williamson's aberrative behavior and that her capacity to transact business was impaired. She had a history of drinking, she had been drinking that day, she was pressured by the impending foreclosure and she complained about the transaction soon after it had been completed. Williamson v. Mattthews, 379 So 2d 1245 (Ala., 1980).

2. No. There was no direct evidence concerning Brenda's mental capacity on the day she signed the deed. Although her mental state fluctuated and she suffered from progressive mental incapacity, the evidence of her condition five months later did not indicate what was her condition when she signed the deed. The presumption of contractual capacity was not overcome. Butler v. Harrison, 578 A 2d 1098 (D.C. App., 1990).

3. No. The Court found the lack of capacity had not been proven. A suit based on lack of capacity to execute a deed must show more than great weakness of mind. The person may still have the capacity to understand the nature of the transaction and to assent to the provisions of the document. The testimony of those who were at her execution of the document was probably given greater weight than those who testified to her mental capacity later, even if their observations occurred only a month or two after she signed the deed. Brown v. Resort Development, 385 S.E 2d 575 (Via 1989).

ANSWERS TO DISCUSSION QUESTIONS

1. Usury statutes exist primarily to protect the borrower Prom being forced to pay an excessive amount for the use of money. A "just price" sounds like a fair idea and has roots in religion. Both Catholic and Jewish teachings deal with the concept of a just price. But in applying the law, one finds that the principle is very open-ended and would cause great uncertainty in business transactions.

2. The courts will not enforce agreements in restraint of trade unless such agreements are incidental to other lawful contracts and are limited to reasonable terms.

3. One of the most common situations in which one of the parties to a contract seeks to limit his or her liability concerns the bailee of proper (i.e., someone who has been given the right to possess property). These bailees usually try to protect themselves through clauses that limit their lability, even for their own negligence, in the event that a person's property is lost or damaged. Which such clauses are generally enforceable, courts will not enforce them in some instances because to do so would violate public policy.

4. The courts determine what makes a cost unconscionable They (course) will generally not enforce such agreements and will order a rescission.

ANSWERS TO REVIEW PROBLEMS

1. This problem raises the question of whether or not the doctrine of unconscionability can be used to attack an "unjust" price. Here the complaint is that the listing of a "service" fee implies that it is part of the cost of the service. In fact, it is just part of the overall price of the phone service. The return available to the phone company is subject to regulation. The doctrine of unconscionability is an awkward way of dealing with the real problem here.

2. Assuming that there was evidence that Edward read the words printed on the sign prior to leaving his car in the garage, and that the signs clearly represented to Edward that no degree of care would be exercised for the safety of his automobile at any time, the court would probably hold that the garage would not be liable for any damages.

However, while exculpatory clauses (such as the one used by the parking garage) are generally enforceable, in some cases the courts will not enforce them become to do so would violate public policy. Because the keys were led with the garage, one could argue that it would be consistent with public policy to hold the garage responsible. Otherwise, they have no incentive to h careful with the keys.

3. The court refused to sustain Tovar's claim. "Any agreement the purpose of which is to induce a breach of one of these licensing sates is illegal. The agreement sued upon is [also] unenforceable as contrary to public policy."

4. The lease was held invalid as unconscionable, and American found liable. "Had this case involved the sale of goods, it would have been termed an unconscionable contract under Sec. 2-302 of the UCC.... It seems a deplorable abuse of justice to hold a man of poor education to a contract prepared by the attorneys of American Oil for the benefit of American Oil which was presented to Weaver on a take-it or leave-it basis. The party seeking to enforce such a[n unconscionable] contract has the burden of showing that the provisions were explained to the other party and came to his knowledge and there was in fact a real and voluntary meeting of the minds and not merely an objective meeting."

ANSWERS To CASE PROBLEMS

1. Natell was held not liable in accordance with the lease. "Where they do not adversely affect the public interest, exculpatory clauses in private agreements are generally sustained. It was a private contractual agreement fairly and freely entered into and which the common law would sympathetically carry out in accordance with the contemplation of the parties. "Mayfair v. Natell, 244 A2d 344 (1968).

2. The court refined to enforce the contract, concluding that the restrictions were not reasonably necessary for the protection of the employer. The validity of a contract in restraint of competition is conditioned upon its reasonableness in tends of its effect upon the parties to the contract and the public. To stake out unrealistic boundaries in time and space . . is to impose upon an employee the risk of proceeding at his peril, or the burden of expensive litigation to ascertain the scope of his obligation." House of Vision v. Hiyanne, 225 N.E. 2d 21 (1967).

3. The Attorney General was correct. The court decided that the backgammon tournament was gambling because although skill is involved "after the roll of the dice," the game's outcome is materially affected by chance. Boardwalk Regency v. Attorney General of New Jersey, 457 A 2d 847 (1982).

4. The court enforced the contract. "The general rule is that transactions in violation of a statute prescribing penalties are void. However, there are exceptions to the rule. The language of the statute, its subject matter, and the purpose to be accomplished in its enactment are matters of consideration. Defendant . . . was not injured by the delay in obtaining the permit. The work has been inspected [and approved]. [T]he purpose of the statute has been met." Measday Sweazeo, 438 P. 2d 525 (1968).

5. Siders was not prohibited from working for Sexton. The differences between the two lines were significant enough that enforcement of the restriction was unnecessary. Knoebel v. Siders, 439 P. 2d 355 (1968).

6. The landlord loses. A landlord cannot exculpate him or her self from the duty to main common areas in a safe condition. Henriovlle v. Dreyer, 135 CAL. Rptr. 767 (1977).

7. Notice that the lot doses at 6 p.m. does not constitute notice that cars are led after that time at the owners' risk. The lot owner had a duty to retain control of the keys. The plaintiff was affirmed. Allright, Inc. v. Schroeder, 551 S.W. 2d. 745 (1977).

ANSWERS TO DISCUSSION QUESTIONS

1. Contracts in consideration of marriage (prenuptial agreements), personal representative's promise to pay for the debts of the deceased, promises to pay for the debt of another, sale of land or an interest in land, promises not performable in one year, and sales of goods for $500 or more are all contracts that must be in writing.

2. As noted in the text, the statute of fiends can be used to actually perpetuate fraud. The courts have become increasingly sensitive to this use, and equable estoppel and promissory estoppel can be used to counteract the negative use of the statute. By examining individual cases where injustices are apparent, the statute of frauds is bypassed in an effort to reach a fair settlement.

3. The parol evidence rule does not generally apply when one is trying to prove a later modification of the contract. Nor is this rule effective when a question of ambiguity arises. In addition, questions of fraud, alteration, mistake, illegality, duress, undue influence or lack of capacity cannot be deemed inadmissable by the parol evidence rule because these issues raise questions concerning the validity of a contrast. To deny questions of validity would possibly protect a defrauding party--very poor legal policy to say the least.

4. The statute of frauds and the parol evidence rule can work to the detriment of consumers when individuals use them as ways to defend illegal or unfair business practices. For example, a buyer might be able to enforce a contract because a merchant did not sign or did not have the authority to sign the document. In cases pertaining to the parol evidence rule, those who have negotiated an under contract may hold up the rule as a defense, so that they may not be incriminated. However, the courts have worked to correct abuse of both the statute of frauds and the parol evidence rule.

ANSWERS TO REVIEW PROBLEMS

1. There was no writing so the promise is not enforceable.

2. Yes. It was a contract for the sale of goods having a price well over $500. The check was had to be a sufficient memorandum. Also, under UCC 2-201(3)(c), the check may constitute partial performance of the contract to the extent that payment was made ahead accepted.

3. Probably not. The issue is whether the parol evidence rule rewires exclusion of all testimony regarding the finance contingency. In the District of Columbia, where this case was decided, a written contract may be conditioned on an oral agreement that the compact shall not be binding unto some oral condition precedent has been performed. The intention clause in the contact must be interpreted in light of the surrounding Rices. Oral testimony is admissible for that purpose.

ANSWERS TO CASE PROBLEMS

1. Yes. The letter satisfied Section 2-201 and clearly sets up a requirements contract. Pope and Cottle v. Wheelwright, 133 N.E. 106 (1921).

2. Although judgment for the plaintiff was reversed on other grounds, the court found (1) that the promise to pay was original and thus not within the Statute and (2) that the reliance of Barney constituted sufficient consideration for the promise. Stress that consideration -- statute of frauds issues are always interrelated in lawsuits involving promises to pay the debt of another.

3. This was determined to be a collateral promise. The court found for the estate on the basis that the making of the new loan was not a sufficient consideration for the promise to pay her son's debt. Fortune Furniture Manufacturing Company, Inc. v. Mid-South Plastic Fabric Company, Inc., 310 So. 2d 725 (1915).

4. The appellate court held that the parol evidence was not admissible. The lower court's judgment for the plaintiff was overturned. "[A]n inspection of this contract shows a full and complete agreement, setting forth in detail the obligations of each parry." On reading it, one would conclude that the reciprocal obligations of the parties were fully detailed. A strong dissent noted that "the parol agreement is established by the overwhelming weight of evidence" and argued that parties could well be expected to use two separate agreements to deal with this situation. Mitchell v. Lath, 160 N.E. 646 (1928).

5. The decision was of affirmed in favor of Hine. Growing crops are goods under Section 2-201. The memo was sufficient under Section 2-201, and it infers that this was an "output" contract for the sale of all of Harris's cotton grown on his 825 acres. Harris v. Hine Cotton, 205 S.E. 2d 847, (1974).

6. The count held that the case is covered by the UCC. Part performance for the sale of goods applies only to goods actually accepted and paid for. It can't be used here to establish the 7,000 quantity term. Lippold v. Beanblossom, 319 N.E. 2d 548 (1974).

7. Yes. The testimony is not being used to add or change the agreement. It is being used to interpret the agreement so the parol evidence rule does not apply.

ANSWERS TO DISCUSSION QUESTIONS

1. It is important for an assignee to immediately notify the obliger of the assignment for the following reasons: (1) If the obliger doesn't know of the assignment, he or she may pay the assignor. This would discharge the obliger. (2) In most states after the assignee has notified the obliger the obliger can no longer raise claims and defenses against the assignor unless they arise out of the same transaction.

2. The principal reason for giving priority to the first assignment is that once an assignment has been made the assignor has nothing left to assign. On the other hand, giving priority to the assignee who first notifies the obliger rewards the conscientious assignee in protecting his or her nights. Giving priority to the first assignee to notify also helps to eliminate fraudulent assignments, as it encourages the assignee to notify the obliger. Additionally, it protects the obliger who should not have to pay twice.

3. One determines that an intended beneficiary is a creditor or donee beneficiary by looking at the relationship between that person and the promises. If the promisee's intent is to make a gift to the third party, that person is a donee beneficiary. If the promisee's intent is to repay a debt to the third party, that person is a creditor beneficiary.

ANSWERS TO REVIEW PROBLEMS

1. No. The Coburns were not intended to benefit from the contract between the builder and the original purchases. The original purchasers never expressed any intention to resell the house as soon as it was built and they in fact did live in it for several years. The court also found here that the Coburns could not sue based on either an express or imlied warranty. It did, however, indicate that if negligence could be proved, the Coburns might be able to recover. They could not, however, seek to sue on the original contract between Lenox and Buenger.

2. Yes. The assignment by the hospital of the right to receive money did not change Lara's obligation to pay it. The hospital could skill adjust its bill with Lara's, even after the assignment due to his financial situation. By law Mr. Lara is obligated to pay for the medical services; that obligation will not be altered merely because the hospital assigns a right to receive money to a collection agency.

3. Yes. Warren has delegated to Ace Garage its duty to perform the warranty work for Smith. The performance of warranty work on Smith's car did not have to be performed by Warren's mechanic, other people are capable of doing that type of wor. Since the duty to perform the work is not personal, it can be delegated. Of course, if Smith has problems win Ace's work on his car, Smith can sue both Warren and Ace. Warren is still liable on the original contract with Smith; the duty is delegated but not discharged. Ace's contract with Warren was intended to benefit Smith, and thus Smith is a third-party creditor beneficiary of the Warren-Ace contract.

4. Yes. Stevenson is an intended beneficiary contract between Asphalt and Flint. By signing the contract with its provision regarding liability for damage to property, Asphalt has shown it too intended those people with property that could be damaged to be the beneficiaries of the contract with Flint. It is not necessary that Stevenson be identified in the contact as long as he is one of a class of persons (property owners) whom both parties intended to benefit by inserting the liability clause in the contract.

ANSWERS TO CASE PROBLEMS

1. An assignee (Sinclair) took subject to any defenses or demands the obliger (Rosier) may have against the assignor (Chanute Refining) at the time of the assignment. Rosier had a set-off the amount of the inspection fees against Sinclair.

2. Sinclair would ordinary have a right against Chanute Refining for the monies that it held.

3. An executory contract is not assignable where personal acts and qualities of one of the parties form a material part of the agreement. A contract for insurance protection certainly is of this nature. This, however, was not an executory contract of insurance. The contract was fully executed and noting remained except payment of money. The element of personal character and credit is no longer important. As this was purely a monetary claim, it could be assigned in spite of the "no-assignment" provision. Ginsburg v. Bulldog Auto Fire Ins. Co., 160 N.E. 145 (Sup. Ct. III. 1928).

4. In some states the assignee of a bilateral contract is not liable for the nonperformance of the assignor's duties--unless the assignee expressly promises the assignor or other contracting party to do so. Other states, as well as the UCC, hold that the assignee also becomes a delegates of the duties. This is the preferred view.

When Vulcan accepted the assignment, it became delegatee of Dooley's duties under the contract and implied the promise to perform such duties. Vulcan therefore was obliged to supply stone to Rose at the original contract prices. Rose v. Vulcan Materials Co., 194 S.E. 2d 520 (Sup. Ct NC 1973).

5. In order to have an elective assignment under the UCC, the account debtor, MGM, must receive notice that (1) the amount due or to become due has been assigned and (2) the payment is to be made to the assignee, Haas. Although Selznick did notify MGM of the assignment to Haas, he did not request that payment be made direct to Haas, only that Haas be notified of the payment. Thus, (2) was not met. Also, since Haas (assignee) never objected to payment of the debt from MGM to Selznick (assignor), MGM was not bound by the assignment. Comment 3, UCC Section 9-318(3), provides, "The account debtor is authorized to pay the assignor until the account debtor receives notification that the amount due or to become due has been assigned and the payment is to be made to the assignee. A notification which does not reasonably identify the rights assigned is ineffective. If requested by the account debtor, the assume must seasonably finish reasonable proof that the assignment has been made and unless he does so the account debtor may pay the assignor." Haas Estate v. Metro-Goldwyn-Mayer, Inc. 617 F.2d 1136 (Tex. Civ. App. 1980).

6. "Subject to certain exceptions in case of contracts involving relations of personal confidence or trust or being for personal services, all contracts are assignable." [6A C.J.S. Assignments, Section 29.] The question here is whether the right was not personal to Copeland, and therefore assignable without McDonald's consent. To determine such a question, a court looks to the nature of the contract and the express or implied intentions of the parties. Granting the right to Copeland in a separate agreement may imply that the parties intended it to be personal and not assignable without McDonald's consent. Also, Copeland's reputation probably influenced the granting of the right, implying a personal contract. Although McDonald's consented to the Franchise assignment, the film made it clear that it did not consent to a general right of assignment -- an express intention that the right was personal to Copeland. Since the evidence implied that the right was personal and since McDonald's did not consent to the assignment of the right to Shupack he did not obtain the right of first refusal. Shupack v. McDonald's System, Inc. 264 N.W. 2d 827 (Neb. Sup. Ct. 1978).

7. Generally, any contract that is personal in nature or requires personal skill and which is based on the personal relationship of the parties, is act assignable without the skilled party's consent. However, such comtracts may be assigned if the character of the performance will not be changed. Cunningham was obligated to the club to perform personal services, and the nature of such performance would not be changed by the assignment to a differed owner of the club. Thus, the assignment is effective. Munchak Corp. v. Cunningham, 457 F2d 721 (4th Cir. 1972).

ANSWERS TO DISCUSSION QUESTIONS

1. The substantial performance doctrine allows a party who has substantially performed a contract recovery for the performance rendered where the performance substantially complies with the terms of the contracts, there is an honest effort to comply fully, and the minor breaches of the contract are unintentional.

2. "Impossibility" refers to the fact that one party's obligations under a contract are impossible of performance. Under the concept of strict or legal impossibility, this means impossible in the literal sense; that is, no one could perform the conduct in place of the nonperforming party.

3. The standard for the recovery of lost profits is whether the lost profits were reasonably foreseeable at the time of the making of the contract. That is, when the contract was made, did the party who would later breach the contract realize that his or her breach would occasion a loss of profits, and nevertheless undertake to enter into the contract?

4. The reason the law requires a nonbreaching party to mitigate damages is that such a requirement promotes economic efficiency. For example, if a landlord were allowed to run up the damages on a breaching tenant, instead of being required to mitigate the tenant's damages by seeking a substitute tenant, society would lose the benefit of the use of the property.

ANSWERS TO REVIEW PROBLEMS

1. Under the doctrine of substantial performance, Ace is entitled to $64,000.

2. A twenty-day delay in the completion of the house would not relieve Julius and Penelope of their duty to make payment. General Contractors would be entitled to a reasonable period after the deadline to complete construction. However, Julius and Penelope would be entitled to damages.

3. The cracks in the foundation represent a breach of the contract between the Gibsons and Ace Home Builders. Ace will be liable for the difference in the market value of the house with a leaky foundation as opposed to one with a dry basement.

4. No, the liquidated damage clause is unenforceable because the amount of $100 a day exceeds the rental value of comparable property. It would be reasonable if the amount of $100 was related to profits from the rink and known by the contractor to be so related.

5. Don Construction wins. The amount of $1,000 per day was not reasonably related to potential losses of Jessup; thus a penalty clause exists.

6. The Squires won. The Court granted an injunction saying that there would be irreparable harm to the team leading to its collapse if Erving was able to breach his contract.

7. The injunction was not granted because one year was a reasonable period of time.

ANSWER TO CASE PROBLEM

1. The U.S. District Court held that under the doctrines of impracticability and frustration of purpose, the seller was entitled to reformation of the long-term toll-conversion service contract. The views the Pennsylvania federal court expressed that were different from those of earlier cases include that (1) a loss of $60 millon under one contract is sufficient to establish impracticability, even where it is not shown that requiring performance would endanger the financial health of the promisor, (2) a cost escalator was not evidence of a consensual allocation of the risk between the parties; and (3) although the contract was made in an inflationary environment, where the specific cause had not previously been confronted, foreseeability would not have been the undoing of the disadvantaged party.

Other points of interest in the lengthy opinion relate to its application of Section 2-615 to a toll-conversion contract (i.e., is it a goods or services contract?) and to its comparison between impracticability of performance and frustration of purpose. Finding that ALCOA's primary purpose was to make a profit, the court appeared far more receptive to the doctrine of frustration of purpose than American courts traditionally have been.

Even more interesting is the court's rejection of the idea that once impracticability is established, performance should be excused. Recognizing that this would have created an enormous windfall for ALCOA and a great loss to Essex, the court reasoned that its inherent equity powers allowed it to write a wholly new pace term for the parties and ordered them to get on with their other contractual obligations.

In an appendix to its opinion, the court provided an analysis of the law in other countries that have experienced rapid inflation in recent years. Alcoa Co. of America v. Essex Group, Inc., 499 F. Supp. 53 (W.D. Pa 1980).