Contract Law - Knowledge Set

Question 1

When should the nonbreaching party treat an otherwise minor breach as a material breach?

A When the breach is part of a divisible contract

B When the breach causes the nonbreaching party damages

C When the breach is coupled with an anticipatory repudiation

D When the breach relates to the timing of performance

Answer 1

C

If a minor breach is coupled with an anticipatory repudiation, the nonbreaching party may treat it as a material breach. Thus, the nonbreaching party may sue immediately for total damages and is permanently discharged from any duty of further performance. The courts hold that the nonbreaching party must not continue on with the contract, because to do so would be a failure to mitigate damages. There is no reason that a minor breach that is part of a divisible contract should be treated as a material breach. In fact, in a divisible contract, recovery is available for substantial performance of a divisible part even if there has been a material breach of the entire contract. Even a minor breach can cause the nonbreaching party damages. The effect of a minor breach is to provide a remedy for the immaterial breach to the aggrieved party. The aggrieved party is not relieved of her duty of performance under the contract by a minor breach, unlike in the case of a material breach. Unless the nature of the contract is such as to make performance on the exact day agreed upon of vital importance, or the contract by its terms provides that time is of the essence, a failure by a promisor to perform at the stated time will not be material. Thus, a minor breach that relates to the timing of performance generally should not be treated as a material breach

Recommended Activity: Read Contracts and Sales VII.B.1. Effect of Breaches

Question 2

In an installment contract situation, the contract can be canceled by the buyer if:

A Any shipment is deficient in quantity

B There is a nonconformity in a shipment that substantially impairs the value of the installment and cannot be cured

C Any shipment fails to conform to the contract in any way

D There is a nonconformity in a shipment that substantially impairs the value of the contract and cannot be cured

Answer 2

D

To cancel the entire installment contract due to breach, the buyer must show that the nonconformity substantially impairs the value of the entire contract and cannot be cured. If the nonconformity substantially impairs the value of only the installment and cannot be cured, only the single installment may be rejected. Unlike most contracts for the sale of goods, under which a shipment may be rejected in it fails to conform to the contract in any way, installment contracts have special rules limiting the right to reject to substantial impairment of the value of the installment. The right to cancel the entire contract is even further limited to substantial impairment of the value of the entire contract. A shipment that is deficient in quantity is not grounds for canceling an installment contract. This situation is the least likely to even give rise to a right to reject an installment because it is easily cured by a shipment of the missing quantity

Recommended Activity: Read Contracts and Sales VII.C.5.a. Installment Contracts

Question 3

Which of the following statements is true regarding a specific performance remedy for breach of a contract to provide services?

A Specific performance is not available as a remedy for a breach of a contract to provide services

B Specific performance can always be granted for a breach of a contract to provide services because services are personal and thus always considered to be rare or unique

C Specific performance can be granted for a breach of a contract to provide services only if a legal remedy would be inadequate

D Specific performance can be granted for a breach of a contract to provide services only if the services are shown to be rare or unique

Answer 3

A

Specific performance is not available for breach of a contract to provide services, even if the services are rare or unique and a legal remedy would be inadequate. This is because of problems of enforcement (it would be difficult for the court to supervise the performance) and because the courts feel it is tantamount to involuntary servitude, which is prohibited by the Constitution. Generally a court may grant specific performance, which is essentially an order from the court to the breaching party to perform or face contempt of court charges, if the legal remedy is inadequate. The legal remedy (damages) generally is inadequate when the subject matter of the contract is rare or unique. The rationale is that if the subject matter is rare or unique, damages will not put the nonbreaching party in as good a position as performance would have, because even with the damages the nonbreaching party would not be able to purchase substitute performance. A contract to provide services is an exception to this general rule for the reasons stated above.

Recommended Activity: Read Contracts and Sales VIII.A.1. Specific Performance

Question 4

Which of the following statements is correct regarding damages for a breach of a contract for the sale of goods?

A Either a nonbreaching buyer or a nonbreaching seller may recover consequential damages, but only a buyer may recover incidental damages

B Either a nonbreaching buyer or a nonbreaching seller may recover incidental damages, but only a buyer may recover consequential damages

C Either a nonbreaching buyer or a nonbreaching seller may recover consequential damages, but only a seller may recover incidental damages

D Either a nonbreaching buyer or a nonbreaching seller may recover incidental damages, but only a seller may recover consequential damages

Answer 4

B

In contracts for the sale of goods, compensatory damages may also include incidental damages. Either a nonbreaching buyer or a nonbreaching seller may recover incidental damages for a breach of a contract for the sale of goods. Incidental damages include expenses reasonably incurred by the buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other expenses reasonably incident to the seller’s breach, and by the seller in storing, shipping, returning, and reselling the goods as a result of the buyer’s breach. Consequential damages are special damages over and above standard expectation damages. These damages result from the nonbreaching party’s particular circumstances and are recoverable only if a reasonable person would have foreseen them as a probable result of breach. Note that in contracts for the sale of goods, only a buyer may recover consequential damages

Recommended Activity: Read Contracts and Sales VIII.B.1. Types of Damages

Question 5

In a suit for restitution, the measure of recovery is:

A the amount necessary to buy a substitute performance

B nothing, if the plaintiff is the breaching party

C the value of the benefit conferred

D the difference between what the plaintiff would have received if the contract had been properly performed and the value of what the plaintiff actually received

Answer 5

C

In a suit for restitution, the measure of recovery is the value of the benefit conferred. Restitution is based on preventing unjust enrichment when one has conferred a benefit on another without gratuitous intent. The value of the benefit conferred is usually measured by the benefit received by the defendant, but it may also be measured by the reasonable value of the work performed by the plaintiff. The amount necessary to buy a substitute performance is an expression of the measure of expectation damages, not restitution. The measure of recovery is not necessarily nothing if the plaintiff is the breaching party. Under some circumstances, a plaintiff may seek restitution even though the plaintiff is the party who breached. For example, a buyer who has paid part of the purchase price may recover some payments even if he is in breach. The difference between what the plaintiff would have received if the contract had been properly performed and the value of what the plaintiff actually received is also a formulation of compensatory, expectation damages rather than restitution. This measure does not address unjust enrichment.

Recommended Activity: Read Contracts and Sales VIII.C. Restitution

Question 6

Nonfulfillment of a condition:

A will excuse a duty to perform that was subject to the condition

B gives rise to liability for nonperformance

C does not excuse the other party’s duty to perform under the contract

D will result in a breach of contract

Answer 6

A

Nonfulfillment of a condition normally will excuse a duty to perform that was subject to the condition. A condition is a provision the fulfillment of which creates or extinguishes a duty to perform under a contract; thus, nonfulfillment of a condition will excuse the other party’s duty to perform under the contract. Nonfulfillment of a condition is not a breach of contract and does not give rise to liability for nonperformance.

Recommended Activity: Read Contracts and Sales VI.D. Conditions - Has the Duty to Perform Become Absolute?

Question 7

What is a “constructive” condition?

A A contractual provision providing that a party does not have a duty to perform unless some event occurs or fails to occur

B A condition that is implied by a court even though it is not explicitly stated in the contract

C A condition commonly found in construction contracts stating that the condition of complete performance may be excused if the party has rendered substantial performance

D A contractual provision providing that the contract is not effective unless some event occurs or fails to occur

Answer 7

B

A constructive condition is a condition that is implied by a court even though it is not explicitly stated in the contract. Common examples of constructive conditions are the conditions of cooperation and notice. Constructive conditions are also known as implied conditions. In contrast, an express condition precedent is an explicit contractual provision providing that a party does not have a duty to perform unless some event occurs or fails to occur. When an entire contract is not effective unless some event occurs or fails to occur, the contract is subject to an express condition precedent, not a constructive condition. The concept of substantial performance was developed in construction cases to avoid the harsh results that could occur when complete performance is required. Under the doctrine of substantial performance, the condition of complete performance may be excused if the party has rendered substantial performance.

Recommended Activity: Read Contracts and Sales VI.D.2. Classification of Conditions

Question 8

Which of the following is a key distinction between an anticipatory repudiation and a prospective failure to perform?

A Repudiation must be unequivocal, whereas prospective failure to perform is determined by the subjective beliefs of the other party.

B Repudiation is final, whereas prospective failure to perform may be retracted.

C Repudiation must be unequivocal, whereas prospective failure to perform involves mere doubts.

D Repudiation may be retracted, whereas prospective failure to perform is a breach and cannot be retracted.

Answer 8

C

Prospective inability or unwillingness to perform differs from anticipatory repudiation because repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that the party will perform. Repudiation must be unequivocal. However, a prospective failure to perform is not based on the subjective beliefs of the other party, but rather is judged on a reasonable person standard. Both repudiation and prospective failure to perform may be retracted, provided the other party has not yet changed position in reliance on the repudiation or prospective failure. The effect of a prospective failure is to allow the innocent party to suspend performance until she receives adequate assurances. She may treat this situation as a breach only if the assurances are not given. If a defaulting party regains his ability or willingness to perform, he must communicate that to the other party.

Question 9

Which one of the following elements is needed for a discharge of a contract due to frustration?

A An unanticipated or extraordinary act or event has made the contractual duties impossible or impracticable to perform

B A subsequently enacted law or other governmental act has made the subject of matter of the contract illegal

C An act of nature has destroyed the contract’s subject matter or the designated means for performing the contract

D An unforeseen act or event has completely or almost completely destroyed the purpose of the contract

Answer 9

D

An element of frustration is that an unforeseen act or event has completely or almost completely destroyed the purpose of the contract. Frustration will exist if the purpose of the contract has become valueless by virtue of some supervening event not the fault of the party seeking discharge. If the purpose has been frustrated, a number of courts will discharge contractual duties even though performance of these duties is still possible. The elements necessary to establish frustration are: (i) some supervening act or event leading to the frustration; (ii) at the time of entering into the contract, the parties did not reasonably foresee the act or event occurring;(iii) the purpose of the contract has been completely or almost completely destroyed by this act or event; and (iv) the purpose of the contract was realized by both parties at the time of making the contract. A contract can be discharged by impossibility or impracticability when an unanticipated or extraordinary act or event has made the contractual duties impossible or impracticable to perform. Contractual duties can also be discharged by a subsequent act of nature that destroys the contract’s subject matter or the designated means for performing the contract. But neither of these is considered discharge by frustration. A discharge by illegality occurs when the subject matter of the contract has become illegal due to a subsequently enacted law or other governmental act. This is often referred to as “supervening illegality.”

Recommended Activity: Read Contracts and Sales VI.D.6.h. Excuse of Condition by Impossibility, Impracticability, or Frustration

Question 10

Which of the following is a true statement regarding discharge of contractual duties by rescission?

A An agreement to rescind is itself a binding contract supported by consideration

B Once an offeree of a unilateral contract has fully performed, the contract cannot be rescinded under any circumstances

C A third-party beneficiary contract may be discharged by mutual rescission despite the vesting of the beneficiary’s rights if the beneficiary is a donee beneficiary

D A mutual rescission agreement must be in writing if the contract so provides

Answer 10

A

“An agreement to rescind is itself a binding contract supported by consideration” is a true statement. The consideration is the giving up by each party of her right to counterperformance from the other. A third-party beneficiary contract may not be discharged by mutual rescission if the third-party beneficiary’s rights have vested, regardless of whether he is a creditor or donee beneficiary. Once an offeree of a unilateral contract has fully performed, the contract can be rescinded, but only if the rescission promise is supported by: (i) An offer of new consideration by the nonperforming party; (ii) Elements of promissory estoppel; or (iii) Manifestation of an intent by the offeree to make a gift of the obligation owed to her. A mutual rescission agreement may be oral, even if the contract to be rescinded expressly states that it can be rescinded only by a writing.

Recommended Activity: Read Contracts and Sales VI.E.6. Discharge by Rescission

Question 11

If an accord agreement is breached:

A by the debtor, the creditor may sue on both the original contract and for breach of the accord agreement

B by the debtor, the creditor may sue either on the original contract or for breach of the accord agreement

C by the creditor by refusing to accept the performance agreed to in the accord, the debtor is entitled to punitive damages

D by the creditor by suing on the original contract, the debtor may immediately sue for damages for breach of the accord agreement

Answer 11

B

If an accord agreement is breached by the debtor, the creditor may sue either on the original contract or for breach of the accord agreement, but not on both. If the accord agreement is breached by the creditor by suing on the original contract, the debtor may either: raise the accord agreement as an equitable defense and ask that the contract action be dismissed or wait until the creditor is successful in the action (i.e., until the debtor is damaged) and then bring an action at law for damages for breach of the accord contract. The debtor may not immediately sue for damages. If the accord agreement is breached by the creditor refusing to accept the performance agreed upon in the accord, the debtor may bring an action for breach of the accord agreement, but is not entitled to punitive damages. Punitive damages generally are not awarded in contract cases.

Recommended Activity: Read Contracts and Sales VI.E.12. Discharge by Accord and Satisfaction

Question 12

A communication will not be considered to be definite and certain enough to be an offer if it is for the sale of goods and:

A is missing a quantity term

B is missing the price term

C states the quantity to be purchased and sold as “all that the buyer requires”

D states the quantity to be purchased and sold as “all that the seller produces”

Answer 12

A

A communication will not be considered to be definite and certain enough to be an offer if it is for the sale of goods and is missing a quantity term. The quantity term is the only term that is absolutely required to make a communication an offer when the sale of goods is involved. Most other terms can be implied or supplied later in the contract. A communication may be considered definite enough to be an offer for the sale of goods despite a missing price term. If the price term is not included, a reasonable price can be implied. The buyer’s requirements and the seller’s output are valid quantity terms sufficient to make a communication an offer for the sale of goods. Although these terms do not state a specific quantity, the quantity is capable of being made certain by reference to objective, extrinsic facts (i.e., the buyer’s actual requirements and the seller’s actual output).

Recommended Activity: Read Contracts and Sales II.B.2.b.2) Missing Terms

Question 13

Which of the following statements regarding revocation and acceptance of contract offers is correct?

A A revocation generally is effective when received, and an acceptance generally is effective when received.

B A revocation generally is effective when received, and an acceptance generally is effective when dispatched.

C A revocation generally is effective when dispatched, and an acceptance generally is effective when dispatched.

D A revocation generally is effective when dispatched, and an acceptance generally is effective when received.

Answer 13

B

A revocation generally is effective when received and an acceptance generally is effective when dispatched (i.e., the mailbox rule). Under the mailbox rule, if the offeree dispatches an acceptance before he receives a revocation sent by the offeror, a contract is formed.

Recommended Activity: Read Contracts and Sales II.D.7. When Acceptance Effective—The Mailbox Rule

Question 14

Which of the following statements is correct?

A Both an ordinary option contract and a merchant’s firm offer require that the offeree give consideration

B A merchant’s firm offer requires that the offeree give consideration, whereas an ordinary option contract does not

C An ordinary option contract requires that the offeree give consideration, whereas a merchant’s firm offer does not

D Neither an ordinary option contract nor a merchant’s firm offer requires that the offeree give consideration

Answer 14

C

An ordinary option contract is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer. In contrast, under Article 2’s merchant’s firm offer provision, there are circumstances in which a promise to keep an offer open is enforceable even if no consideration has been paid to keep the offer open: A merchant’s firm offer arises when a merchant offers to buy or sell goods in a signed writing and the writing gives assurances that the offer will be held open.

Recommended Activity: Read Contracts and Sales II.C.1.a. Termination by Offeror—Revocation

Question 15

An offer for a bilateral contract can be accepted by:

A Full performance only

B Beginning performance only

C A promise to perform only

D A promise to perform or the beginning of performance

Answer 15

D

An offer for a bilateral contract may be accepted either by a promise to perform or by the beginning of performance. Note: Unless an offer specifically provides that it may be accepted only through performance, it will be construed as an offer to enter into a bilateral contract. In contrast, a unilateral contract can be accepted only by full performance . Note that the beginning of performance may create an option so that the offer is irrevocable. However, the offeree is not obligated to complete performance merely because he has begun performance, as only complete performance constitutes an acceptance of the offer.

Recommended Activity: Read Contracts and Sales II.D.6. Bilateral Contracts Formed by Performance

Question 16

Under Article 2, when an offeree proposes additional or different terms during acceptance, what will the court apply to determine whether the additional or different terms become part of the contract?

A The battle of the forms provision

B The mailbox rule

C Gap fillers

D The mirror image rule

Answer 16

A

The battle of the forms provision of Article 2 lists specific rules for determining what terms are included in a contract when the terms of acceptance do not match the terms of the offer. Article 2 has abandoned the mirror image rule, which requires an absolute and unequivocal acceptance of each and every term of the offer. Gap fillers are used when certain terms are not included in the contract; it does not apply to additional or different terms in the acceptance. The mailbox rule is applied to determine the timing of acceptance of a contract.

Recommended Activity: Read Contracts and Sales II.D.5.b. Battle of the Forms

Question 17

An advertisement, catalog, or circular letter, listing the price at which a seller is willing to sell a product, would typically be construed as:

A An offer for a bilateral contract

B An invitation for an offer

C A merchant’s firm offer

D An offer for a unilateral contract

Answer 17

B

An advertisement, catalog, or circular letter, listing the price at which a seller is willing to sell a product, would typically be construed as an example of an invitation for an offer, rather than an offer. Since there is no clearly identified offeree, there is no offer of any type, whether for a bilateral contract, consisting of the exchange of mutual promises, a unilateral contract, where the offeror requests performance rather than a promise, or any type of merchant’s firm offer.

Recommended Activity: Read Contracts and Sales II.B. The Offer

Question 18

A vague term in a contract can be cured by:

A the presumption that the parties’ intent was to include a reasonable term

B gap fillers

C part performance

D quantum meruit

Answer 18

C

Where part performance supplies the needed clarification of the terms, it can be used to cure vagueness. Gap fillers and the presumption that the parties’ intent was to include a reasonable term go to supplying missing, rather than vague, terms. When the parties have included a term that makes the contract too vague to be enforced, the court will not apply a gap-filling term or a presumption to cure the problem. Quantum meruit is another term for quasi-contractual recovery to remedy unjust enrichment. Although it does not cure a vague term, it is available as a remedy for a party who performs despite a vague term that causes a contract to fail.

Recommended Activity: Read Contracts and Sales II.B.2.b.3)a) Vagueness Can Be Cured by Part Performance

Question 19

Which of the following would not be considered valuable consideration that supports a contract?

A A benefit with no economic value.

B Peace of mind for the promisor.

C The gratification of influencing the mind of another.

D Fulfillment of a condition to receive a gift.

Answer 19

D

The mere fulfillment of a condition to receive a gift is not adequate consideration. The fulfillment of the condition must be of some benefit to the promisor to constitute proper consideration. The benefit to the promisor need not have economic value. Peace of mind or the gratification of influencing the mind of another may be sufficient to establish bargained-for consideration.

Recommended Activity: Read Contracts and Sales III.B.2. Legal Value

Question 20

Which of the following promises is commonly considered to be illusory?

A A promise with an unqualified right to cancel or withdraw at any time

B A promise conditioned on the promisor’s satisfaction

C A promise to purchase all that one requires

D A promise to sell all that one decides to make

Answer 20

A

Reservation of an unqualified right to cancel or withdraw at any time would be considered an illusory promise. “Requirements” contracts (i.e., promises to purchase all that one requires ) and “output” contracts (i.e., promises to sell all that one decides to make) are enforceable, as the promisor has parted with the legal right to buy (or sell) the goods he may need (or make) from (or to) another source. A promise conditioned on the promisor’s satisfaction is not illusory because the promisor is constrained by good faith (for contracts involving personal taste) and a reasonable person standard (for contracts involving mechanical fitness, utility, or marketability).

Recommended Activity: Read Contracts and Sales III.C. Mutual and Illusory Promises - The Requirement of Mutuality

Question 21

Which of the following is not traditionally an element of the doctrine of promissory estoppel?

A The reasonable expectation that the promise will induce action or forbearance

B Valuable consideration on both sides of the bargain

C Detrimental reliance

D An action or forbearance that is in fact induced by a promise

Answer 21

B

Promissory estoppel is considered a substitute for consideration. Thus, consideration is not necessary if the facts indicate that the promisor should be estopped from not performing. A promise is enforceable if necessary to prevent injustice if: (i) the promisor should reasonably expect to induce action or forbearance; and (ii) such action or forbearance is in fact induced. Detrimental reliance is simply another way of describing the action or forbearance of the promisee (i.e., he relied on the promise to his detriment).

Recommended Activity: Read Contracts and Sales III.D. Promissory Estoppel or Detrimental Reliance

Question 22

Which of the following normally would not be an exception to the preexisting legal duty rule?

A A minor’s ratification of a contract upon reaching the age of majority.

B A compromise based on an honest dispute as to duty.

C Payment of a smaller sum to settle an existing debt.

D An acceleration of the performance of the duty.

Answer 22

C

In the case of an existing debt, payment by the debtor of a smaller sum than due will not be sufficient consideration for a promise by the creditor to discharge the debt. However, because courts are anxious to avoid the preexisting duty rule, payment of a smaller debt may be sufficient consideration if the payment was in any way different (e.g., stock instead of cash) or if the debt was honestly disputed. Almost any variation, such as accelerating performance, is considered adequate consideration. A promise to perform a voidable obligation (e.g., a minor’s ratification of a contract upon reaching the age of majority) is also enforceable despite the absence of new consideration. If the scope of the legal duty owed is the subject of honest dispute, then a modifying agreement relating to it will ordinarily be given effect.

Recommended Activity: Read Contracts and Sales III.B.2.c. Preexisting Legal Duty Not Consideration

Question 23

A homeowner and a builder entered into a written contract to build a sauna in a spare room in the homeowner’s home at a cost of $3,000. The contract contained a clause stating that the builder will not begin construction without prior approval of the plans by the homeowner’s certified public accountant. The builder submitted his designs to both the homeowner and the accountant. The homeowner liked the plans, but the accountant did not and withheld his approval. The builder asked the homeowner whether she wanted him to submit new designs. The homeowner told the builder orally, “No! Your designs are great! My accountant is crazy! You go right ahead and construct the sauna.” The builder constructed the sauna. The homeowner now refuses to pay the builder, citing the clause requiring approval by the accountant.

If the builder sues the homeowner, what will the builder likely recover?

A The full contract price, because the accountant’s approval was not a condition precedent for the contract to take effect.

B The full contract price, because once the builder began building the sauna after speaking to the homeowner, the homeowner did nothing to stop the builder.

C The reasonable value of the builder’s services and materials, because otherwise the homeowner would be unjustly enriched.

D Nothing, because the homeowner’s oral statement will be excluded by the parol evidence rule.

Answer 23

B

By her statement to the builder, the homeowner waived the benefit of the condition requiring the accountant’s approval of the design plans, and the builder detrimentally relied on the statement by building the sauna. Thus, there is a binding waiver of the condition. A condition is an event, other than the passage of time, the occurrence or nonoccurrence of which creates, limits, or extinguishes the absolute duty to perform in the other contracting party. The occurrence of a condition may be excused under a number of different circumstances. One such circumstance is where the party having the benefit of the condition indicates by words or conduct that she will not insist upon it. If a party indicates that she is waiving a condition before it happens, and the person affected detrimentally relies on it, a court will hold this to be a binding estoppel waiver. The promise to waive the condition may be retracted at any time before the other party has detrimentally changed his position. Here, the contract provided that the builder could not begin work without the accountant’s prior approval. This approval was a condition that had to be met before the homeowner’s duty to pay would arise. When the homeowner told the builder to commence working on the sauna, even though the accountant had withheld his approval, the homeowner was telling the builder that she was waiving the condition of the accountant’s approval. The builder then acted in detrimental reliance on this statement by in fact starting and completing the building of the sauna. While the homeowner could have retracted her statement and reinstated the condition prior to the builder’s detrimental reliance, she did nothing when the builder began working on the sauna. Under such circumstances, the homeowner made a binding waiver of the condition and will be estopped from asserting it. Thus, the builder is entitled to recover the full contract price. (A) is incorrect because, as discussed above, the accountant’s approval was a condition precedent for the parties’ contractual duties to arise. The builder’s duty to build the sauna and the homeowner’s duty to pay for it would not arise without the condition of the accountant’s approval either being satisfied or being excused. (C) is incorrect because unjust enrichment is a quasi-contract alternative that the builder could utilize if he did not have a contract remedy. Here, however, the builder can recover the full contract price because the homeowner waived the condition and is estopped from retracting the waiver. (D) is incorrect because the parol evidence rule does not prohibit evidence of a subsequent modification of a written contract; the rule applies only to prior or contemporaneous expressions. Consequently, it may be shown that the parties altered the integrated writing after its making. The oral agreement between the homeowner and the builder described in the facts was made subsequent to the writing. Therefore, the parol evidence rule is inapplicable to this agreement.

Question 24

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

On these facts:

A The seller can recover from the buyer for breach of contract.

B The buyer can recover from the seller for breach of contract.

C Neither the seller nor buyer can recover until one of the parties tenders performance.

D The contract is terminated.

Answer 24

B
The buyer can recover because the seller’s phone call was an anticipatory repudiation. Anticipatory repudiation occurs where a promisor, prior to the performance time, unequivocally indicates that he cannot or will not timely perform, allowing the nonrepudiator the option of suspending performance and waiting to sue until the performance date, or to sue immediately. The seller’s phone call was an unequivocal statement that he would not sell the guitar for $12,000. This repudiation excused the buyer’s duty to tender $12,000 on the delivery date. (A) is incorrect because the seller’s anticipatory breach excused the buyer’s performance. (C) is incorrect because the seller’s repudiation the day after the contract was signed gave rise to an immediate cause of action. (D) is wrong because the contract was not terminated; rather, it was anticipatorily breached by the seller.

Question 25

The owner of a summer house entered into a written agreement with a plumber. The contract contained a clause requiring all plumbing work to be completed by noon on June 1 and provided that the homeowner would pay the plumber $1,200 for his work. The plumber began working on the job on May 28. When he quit working for the day on the afternoon of May 29, half of the job was completed. Shortly thereafter, a heavy rain began, which caused a flash flood. The house was swept away in the flood waters.

Which of the following best describes the obligations of the plumber and the homeowner after the flood?

A Neither the plumber nor the homeowner is discharged from their obligations under the contract.

B The homeowner is obliged to pay the plumber $1,200.

C The plumber is discharged from his obligation but is entitled to recover from the homeowner the fair value of the work he performed prior to the flood.

D Neither the plumber nor the homeowner have any further obligations.

Answer 25

C

The destruction of the house discharges the plumber’s duties due to impossibility, but the plumber has a right to recover for the reasonable value of the work he performed. Contractual duties are discharged where it has become impossible to perform them. The occurrence of an unanticipated or extraordinary event may make contractual duties impossible to perform. If the nonoccurrence of the event was a basic assumption of the parties in making the contract, and neither party has assumed the risk of the event’s occurrence, duties under the contract may be discharged. If there is impossibility, each party is excused from duties that are yet to be performed. If either party has partially performed prior to the existence of facts resulting in impossibility, that party has a right to recover in quasi-contract for the reasonable value of his performance. While that value is usually based on the benefit received by the defendant (unjust enrichment), it also may be measured by the detriment suffered by the plaintiff (the reasonable value of the work performed). Here, the house on which the plumber was to perform plumbing repairs was totally destroyed in a flood. The facts indicate that this flood was of such an unexpected nature that its nonoccurrence was a basic assumption of the parties, and neither party was likely to have assumed the risk of its occurrence. Thus, it has become objectively impossible for the plumber (or anyone else) to complete the job. This impossibility will discharge both the homeowner and the plumber from performing any contractual duties still to be fulfilled. Therefore, the plumber need not finish the repair work, and the homeowner is not obligated to pay the entire amount of $1,200. However, the plumber can recover under quasi-contract. (A) is incorrect because both parties are discharged. (B) is incorrect because, as discussed above, the homeowner is obligated to pay for the value of the plumber’s services to date, not the full contract price. (D) is incorrect because it fails to account for the fact that the homeowner will have to pay the plumber for the value of the work already performed.

Question 26

An interior decorator asked a woodworker she met at a crafts fair to build a curly maple armoire. They entered into a written contract, with a contract price of $6,500 to be paid upon the decorator’s receipt of the armoire. When the work was completed, the woodworker shipped the armoire to the decorator. After inspecting it, the decorator felt that it was not of the same high level of workmanship as she was expecting, given the other furniture that the woodworker had showcased at the fair, and a good faith dispute arose between the parties as to the workmanship. The decorator sent the woodworker a check for $4,000 marked “payment in full.” The woodworker indorsed and cashed the check, then sued the decorator to recover the $2,500 balance.

What would most courts likely hold?

A The woodworker’s cashing of the check constituted an accord and satisfaction, discharging the decorator’s duty to pay the balance.

B The woodworker can recover the $2,500 balance from the decorator.

C The woodworker is estopped to sue for the balance because he cashed the check knowing that it was being tendered in full settlement.

D The woodworker’s indorsing a check so marked constituted a written release, thereby discharging the contract.

Answer 26

A

Most courts would hold that there is a good faith dispute, and the check thus proposed an accord; the woodworker’s act of cashing it is a satisfaction. A contract may be discharged by an accord and satisfaction. An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that he is supposed to receive from the other party, some other, different performance. Satisfaction is the performance of the accord agreement. An accord and satisfaction generally may be accomplished by tender and acceptance of a check marked “payment in full” where there is a bona fide dispute as to the amount owed. Here, there is a good faith dispute between the parties as to the workmanship on the armoire. Therefore, the decorator’s tender of the check marked “payment in full” and the woodworker’s cashing of the check constituted an accord and satisfaction, discharging her duty to pay the balance. (B) is incorrect because the debt is unliquidated. Generally, payment of a smaller sum than due will not be sufficient consideration for a promise by the creditor to discharge the debt. However, the majority view is that payment of the smaller amount will suffice for an accord and satisfaction where there is a bona fide dispute as to the claim. As discussed above, because the parties had a good faith dispute about the workmanship on the armoire, the decorator’s tender of the check and the woodworker’s cashing of the check constituted an accord and satisfaction, which discharged the decorator’s duty to pay the balance. (C) is incorrect because a promissory estoppel situation does not exist in that there was no change of position by the decorator based on any act or statement by the woodworker. Whenever a party to a contract indicates that she is waiving a condition before it is to happen or some performance before it is to be rendered, and the person addressed detrimentally relies upon the waiver, the courts will hold this to be a binding (estoppel) waiver. Here, there is no indication that the designer detrimentally changed position as a result of the woodworker’s cashing of the check. Therefore, his act of cashing the check could not be considered an estoppel waiver. (D) is incorrect because the woodworker’s indorsement is not sufficient to meet the writing requirement for a release. A release that will serve to discharge contractual duties is usually required to be in writing and supported by new consideration or promissory estoppel elements. While the good faith dispute between the woodworker and the decorator would meet the consideration requirement for a release, the indorsement does not show the kind of circumspection and deliberateness that the writing requirement was intended to ensure. Therefore, the better answer is that the acceptance of the check by the woodworker was a satisfaction, as discussed above, rather than a release.

Question 27

A print cartridge company sent a letter to a business office offering to supply a free premium printer if the business office would agree to purchase all the print cartridges the office would need from the print cartridge company. This letter arrived in the hands of the business owner on the same day the office printer failed. The business office had experienced a slow month and the business owner was trying to decide whether to pay the office rent for the month or fix the printer. Based on the offer, the owner paid the rent. A week after she put the rent check in the mail, the owner received a second letter from the print cartridge company indicating that the printer program was being canceled due to a lack of printers. The next day, before she read the second letter, the owner mailed her acceptance letter to the print cartridge company. The print cartridge company refused to supply the business owner with a printer.

If the business owner brings a breach of contract action against the print cartridge company, how should the court rule?

A For the print cartridge company, because its offer to the business office was not sufficiently definite.

B For the print cartridge company, because its revocation letter was received by the business owner before she dispatched the acceptance letter.

C For the business owner, because she mailed her acceptance letter without being aware that the print cartridge company had revoked its offer.

D For the business owner, because the owner used funds to pay the office rent in reliance on the print cartridge company’s offer.

Answer 27

B

The print cartridge company will prevail because the business owner could no longer accept the offer. A revocation generally is effective when received by the offeree. A written communication is considered to have been “received” when (i) it comes to a person’s attention, or (ii) it is delivered at a place of business through which the contract was made. The communication need not be read by the recipient to be effective. Hence, the business owner received the revocation when the revocation letter arrived. Her receipt of the revocation letter before she dispatched her acceptance letter effectively revoked the offer (even though the business owner was unaware of its contents when she mailed the acceptance). (A) is wrong because an offer to make a requirements contract (i.e., the buyer promises to buy from a certain seller all the goods it requires and the seller agrees to sell that amount to the buyer) is sufficiently definite because the quantity is capable of being made certain by reference to objective, extrinsic facts (i.e., the buyer’s actual requirements). (C) is wrong because, as stated above, the revocation was effective when it was received (i.e., when it came into the offeree’s possession), not when the offeree becomes aware of the revocation. (D) is wrong because the business owner’s response to the offer was not reasonably foreseeable. As an exception to the general rule that a revocation is effective on receipt, an offer cannot be revoked and will be treated as an option contract for a reasonable length of time where the offeror could reasonably expect that the offeree would rely to her detriment on the offer. However, this exception usually is applied in only two circumstances: an offer for a unilateral contract and a subcontractor’s bid to a general contractor. If the offeror is seeking a bilateral contract in a circumstance other than that of a subcontractor, it would be extremely rare for the offer to be irrevocable due to detrimental reliance. Generally, an offeree must accept the offer before relying on it. Here, it is not even clear that the business owner suffered a detriment (unless she could have skipped paying the rent that month). She was already obligated to pay rent. In any case, nothing suggests that the cartridge company reasonably should have foreseen that the business owner would rely on the offer the way she did (without having accepted it yet).

Question 28

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

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

A Yes, because the contract is for the sale of goods valued at less than $500.

B Yes, because the school district accepted the offer within three months.

C No, because the supplier did not sign the form specifying the length of time that the offer would be held open.

D No, because a firm offer under the UCC is not effective if its term is more than three months.

Answer 28

C

No contract was created because the supplier effectively revoked his offer. Under the UCC, an offer by a merchant to buy or sell goods in a signed writing that, by its terms, gives assurances that it will be held open is not revocable for lack of consideration during the time stated (not to exceed three months). If the term assuring that the offer will be held open is on a form supplied by the offeree, it must be separately signed by the offeror. Here, the school district supplied the form stating that the offer must be held open for four months. The supplier’s verbal assent to that requirement was not sufficient to qualify as a firm offer under the UCC. Thus, he was free to revoke his offer. (A) is incorrect because the fact that a writing would not be required under the Statute of Frauds if a contract had been formed between the parties is irrelevant. A writing is required for a firm offer under the UCC regardless of the value of the goods offered. (B) is incorrect because the school district lost its power of acceptance when the supplier revoked his offer, regardless of the fact that three months had not passed. As discussed above, the supplier’s offer did not constitute a firm offer under the UCC. (D) is incorrect because the fact that the term of the firm offer was more than three months does not invalidate it. If the stated period extends beyond three months, the firm offer will stand, but it will only last for the three-month maximum.

Question 29

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

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

A On January 4, when the collector made a counteroffer.

B On January 9, when the collector mailed to the car salesman what amounted to a rejection.

C On January 10, when the car salesman received from the collector what amounted to a rejection.

D On January 25, when the 25-day option expired.

Answer 29

D

The car salesman’s offer terminated on January 25, when the 25-day option expired. An option is a distinct contract in which the offeree gives consideration for a promise by the offeror not to revoke an outstanding offer. The collector paid the car salesman $100 to hold the offer open for a period of 25 days, and the offer could not be terminated before that time, not even by the offeree (here the collector). Nor did the offer survive the option period because the option specifically identified how long the offer would be open. (A) is incorrect because the collector’s words did not amount to a counteroffer because they merely inquired as to whether the collector would consider lowering his price; the words were not unequivocal. (Even if this were a counteroffer, it would not extinguish the car salesman’s offer, because of the option, as explained above.) (B) is incorrect because, as discussed above, even a rejection by the offeree will not terminate the option. Also, if the communication were effective as a rejection, it would be effective when received by the offeror. (C) is incorrect because, as discussed above, even unequivocal words of rejection by the offeree will not extinguish an option, absent detrimental reliance on the part of the offeror, which was not the case here.

Question 30

The manager of a shoe store noticed that mukluks were flying off the shelf in anticipation of another exceptionally cold winter. On November 1, the manager sent an order on the store’s own form to a local manufacturer of mukluks for 100 pairs, at a cost of $90 a pair, the price listed in the manufacturer’s current catalogue. The manager filled in the delivery date as December 1 and signed the form. The next day, November 2, the manufacturer mailed a signed confirmation on its own form, which was the same in all respects except that it included a clause calling for arbitration of all disputes.

Having found mukluks for $80 per pair from another supplier, the store manager phoned the manufacturer on November 4 and stated that the store no longer wished to order the boots. The manufacturer responded that it was too late, and that the store should expect delivery as promised in December. On November 5, the shoe store manager received the manufacturer’s confirmation.

If the store manager subsequently refuses the manufacturer’s delivery on December 1, who will prevail if the manufacturer sues the shoe store for breach of contract?

A The manufacturer, because the purchase offer was made by a merchant.

B The manufacturer, because the shoe store’s revocation of its offer was too late.

C
The shoe store, because the arbitration materially altered the terms of the offer.

D The shoe store, because it effectively revoked its offer to purchase the mukluks.

Answer 30

B

The manufacturer accepted the store’s offer when it mailed its confirmation. Under the mailbox rule, acceptance by mail or similar means creates a contract at the moment of dispatch. Thus, the contract was created on November 2. It does not matter that the manufacturer’s acceptance did not reach the store before the store attempted to revoke. Because the contract was created on November 2, the store could not revoke its offer on November 4—it was too late. Thus, (D) is incorrect. (A) is incorrect because the store’s merchant status does not affect its ability to revoke the offer. Under Article 2 of the UCC, if a merchant offers to buy or sell goods in a signed writing, and the writing gives assurances that it will be held open, the offer is not revocable during the time stated (or if no time is stated, for a reasonable time). Here, the store did offer to buy goods in a signed writing, but the writing did not give assurances that it would be held open for any length of time. Thus, the offer was revocable. (C) is incorrect because whether an additional term in an acceptance materially alters the offer affects whether the term will be included in a contract between merchants; it does not affect whether a contract was formed.

Question 31

A builder and a wealthy landowner entered into a written contract whereby the builder would build on the grounds of the landowner’s estate a mausoleum, using imported granite, to hold the remains of the landowner’s recently deceased wife. The cost of the mausoleum was set at $100,000. After the contract was signed but before construction began, an international incident occurred. The incident resulted in various governments enacting an embargo, which prevented the builder from obtaining the granite he planned to use to build the mausoleum. The builder could get the granite from another source, but it would cost an additional $25,000. The builder explained the situation to the landowner, who agreed to pay $125,000 to have the mausoleum built. The builder prepared a writing stating that the price for the mausoleum was now $125,000. Both the builder and the landowner signed the writing. After the work was completed, the landowner gave the builder a certified check for $100,000 and refused to pay one penny more.

If the builder brings suit against the landowner to recover the additional $25,000, will the builder likely prevail?

A Yes, because the modification was fair and equitable in view of the unanticipated increase in the cost of granite.

B Yes, because the later agreement was in writing and signed by the parties.

C No, because the builder had a preexisting duty to do the work for $100,000.

D No, because the 25% increase in price that the builder was trying to force on the landowner is unconscionable.

Answer 31

A

The builder will likely prevail. Under the modern and better view of the Restatement (Second), a promise modifying a duty under a contract not fully performed on either side is binding if the modification is fair and equitable in view of circumstances not anticipated by the parties when the contract was made. Here, the contract had not been performed on either side at the time of the modification, the embargo is a circumstance unanticipated by the parties when the contract was made, and the increase is fair and equitable in light of the circumstances (it reflects only the builder’s increased costs). Thus, the builder should succeed in his suit for the additional $25,000. (B) is incorrect because whether there is a signed writing is immaterial when there is a failure of consideration and thus no contract to be enforced. (C) is incorrect because it states the traditional rule and does not take into account the unanticipated circumstances of the embargo. Generally, modification of a building contract requires consideration, and performance of a preexisting legal duty is not consideration. Even the slightest change in performance is generally sufficient to constitute consideration, but here there was no change in the builder’s duties in exchange for the additional $25,000 payment. Thus, under the traditional view, the modification would not have been valid, and the landowner would have been liable only for the amount agreed to in the original contract. (D) is incorrect because courts rarely recognize unconscionability based on price alone—and then only if the parties were in vastly unequal bargaining positions, which does not appear to be the case here. Moreover, a 25% increase alone is very unlikely to be found unconscionable. Had there been consideration, this modification undoubtedly would have been enforceable.

Question 32

A large wholesale dealer in produce had never done business with a certain greengrocer who operated a small chain of markets in the Midwest. They entered into a written agreement whereby the wholesale dealer agreed to supply to the greengrocer the “fuzzy” variety of peaches at $35 per 50-pound lot. The agreement contained a provision stating that the greengrocer will buy “as many 50-pound lots of fuzzy peaches as the greengrocer chooses to order.”

Assuming that the greengrocer has not yet placed any orders for peaches with the wholesale dealer, is this agreement between the parties enforceable?

A Yes, because it is a valid requirements contract and, as such, is enforceable under the Uniform Commercial Code.

B Yes, because the Uniform Commercial Code will imply reasonable terms.

C No, because the total quantity of the contract is not specified.

D No, because there is no consideration on the greengrocer’s part.

Answer 32

D

The agreement is not enforceable because the greengrocer’s promise is illusory. For a contract to be enforceable, consideration must exist on both sides, i.e., each party’s promise must create a binding obligation. If one party has become bound but the other has not, the agreement lacks mutuality because one of the promises is illusory. Here, the wholesale dealer has promised to supply the greengrocer with fuzzy peaches at a fixed price. The greengrocer, however, has not promised to order any peaches from the wholesale dealer. Even if the greengrocer decides to sell fuzzy peaches, it has not bound itself to order them from this particular wholesale dealer. The illusory nature of the greengrocer’s promise makes the agreement unenforceable on consideration grounds. (A) is incorrect because in a valid requirements contract, both parties’ promises create binding obligations: The promisor binds itself to buy from the supplier all that it requires, and the supplier binds itself to sell to the promisor that same amount. Consideration exists because the promisor is suffering a legal detriment; it has parted with the legal right to buy the goods it may need from another source. Under the UCC, which governs in this case because a contract for the sale of goods is involved, a good faith term is implied: The buyer’s requirements means such actual requirements as may occur in good faith. Thus, if the provision had stated instead that the greengrocer will buy “as many 50-pound lots of fuzzy peaches as the greengrocer shall require,” it would be a valid requirements contract under the UCC because it requires the greengrocer to buy fuzzy peaches only from the wholesale dealer and to act in good faith in setting its requirements. (B) is incorrect even though the UCC will imply reasonable terms under certain circumstances. Such terms as price and time for performance need not be spelled out in the contract; the terms will be supplied by a “reasonableness” standard if that is otherwise consistent with the parties’ intent. However, supplying reasonable terms will not change the express terms of the contract. The provision that the greengrocer will buy as many peaches as it chooses to order is not sufficiently obligatory to be saved by the court supplying reasonable terms. (C) is incorrect because if the agreement were otherwise a valid requirements contract, the absence of a total quantity term would not matter. As a general rule in sale of goods contracts, the quantity being offered must be certain or capable of being made certain. The UCC provides that an agreement to buy all of one’s requirements is sufficiently certain because requirements usually can be objectively determined. Furthermore, the quantity ultimately required in good faith must not be unreasonably disproportionate to any stated estimate or any normal requirements (in the absence of a stated estimate). Hence, if the greengrocer had contracted to buy all of its requirements from the wholesale dealer, the absence of a term specifying total quantity would not have made the agreement unenforceable.

Question 33

The father of a young child whose life was saved by doctors at a hospital emergency room called the president of the hospital and told her that he will donate $50,000 to the hospital, payable in 90 days, in consideration of the doctors’ saving his child’s life. The president recognized the father’s name as a wealthy philanthropist who had donated generously to other worthy causes, and accepted the offer. The president promptly informed the hospital’s board of directors of the father’s offer and her acceptance of the offer. The board approved the purchase of a new respirator for $50,000 and authorized the president to enter into a written contract with a medical devices company to make the purchase, which she did. Once the child recovered, the father changed his mind and refused to give the hospital the $50,000.

If the hospital sues the father, what would the hospital’s best theory be to recover the $50,000?

A The father’s offer was supported by consideration.

B The father was estopped from not performing under a theory of detrimental reliance.

C The father’s offer constituted fraud in the inducement.

D The terms of the father’s offer were definite and certain.

Answer 33

B

The hospital’s best theory to recover the $50,000 would be promissory estoppel (detrimental reliance). Under section 90 of the Second Restatement, a promise is enforceable, even without consideration, if the promisor reasonably expects to induce action or forbearance and such action or forbearance is in fact induced. (The remedy may be limited as justice requires.) Here, the father called the hospital’s president and promised to donate $50,000 to the hospital. Based on that promise, and the president’s knowledge that the father was a wealthy philanthropist who could make good on the promise and had donated generously to other worthy causes, the hospital’s board of directors authorized the hospital president to purchase a new respirator for $50,000, which she did. The father should have reasonably expected to induce such action, and such action was in fact induced. Therefore, the father was estopped from not performing. (A) is incorrect because in most jurisdictions “past” or “moral” consideration is not sufficient consideration because it was not bargained for. If something was already given or performed before the promise was made, it will not satisfy the “bargain” requirement because it was not given in exchange for the promise. Here, the doctors had already saved the daughter’s life when the father made his offer; the father’s promise was not made to induce the doctors to act, nor did the doctors act to induce the father’s promise. Thus, (A) is not correct. (C) is not correct because there is nothing in the facts to suggest that the father engaged in fraud in the inducement, i.e., that he made his promise knowing he had no intention of keeping it; rather, he simply changed his mind. Fraud in the inducement occurs when one party induces another to enter into a contract by asserting information he knows to be untrue, and the innocent party justifiably relies on the fraudulent misrepresentation. In such cases, the contract is voidable by the innocent party. (D) is incorrect because, although it is true that the father’s offer was definite and certain, there can still be no contract absent consideration.

Question 34

The owner of a condominium hired a cleaning and junk removal service to clean his condominium after he moved. The parties agreed in writing that the company was to completely empty out the condominium, wash the walls and floors, and clean the appliances in exchange for $1,500. Shortly after beginning performance, the company assigned to a creditor its right to all monies due under the contract (i.e., $1,500), and the creditor promptly notified the condominium owner of the assignment. The condominium owner acknowledged the assignment. The company continued working, completely emptying out the condominium, washing the walls and floors, and cleaning all of the appliances except for the oven before quitting the job. It would cost $150 to hire a substitute to clean the oven. The condominium owner refuses to pay the creditor anything because of the cleaning service’s breach.

If the creditor sues the condominium owner, how much, if anything, is the creditor entitled to recover?

A $1,500, the amount assigned, and the condominium owner may look to the company to recover for the minor breach.

B The reasonable value of the labor and materials expended by the company on the portion of the job it did complete.

C $1,350, on a theory of substantial performance.

D Nothing, because the condominium owner’s duty to pay is subject to a constructive condition precedent, and the assignee takes subject to the defense that the condition has not been satisfied.

Answer 34

C

The creditor will be able to recover the contract price less damages for the company’s minor breach. Generally, an assignee has whatever rights his assignor would have against the obligor. Similarly, the assignee is subject to any contract-related defenses that the obligor has against the assignor. Thus, the creditor will have whatever rights the company would have against the condominium owner. Here, the company completed all of the tasks that needed to be done except for one (i.e., cleaning the oven). If the work remaining on the contract is minor, the company will be seen as substantially performing its contract, and substantial performance will discharge its duty to perform and obligate payment by the condominium owner. Because the facts state that the cost of finishing the job was relatively small (10% of the cost of the contract), it will probably be seen as a minor breach. Thus, the condominium owner cannot avoid payment of the contract price. However, despite the substantial performance, the other party to the contract may recover damages for the less than complete performance. Thus, the condominium owner will be able to offset his damages from the breach. The creditor then will be able to recover $1,350 (the contract price less the damages). (A) is incorrect because, as stated above, the obligor may offset damages directly against the assignee; he does not have to pay the full contract price and then seek damages from the assignor. (B) is incorrect because this suggests a restitutionary remedy, but, as stated above, the creditor, as assignee of the company, would be able to recover the contract price less damages because the company substantially performed. (D) is incorrect because the constructive condition precedent to the condominium owner’s duty to pay (the company’s performance) has been satisfied here by substantial performance.

Question 35

A large farming concern in the Midwest contracted with a pet food manufacturer to deliver 100 tons of processed cornmeal no later than November 15. The purchase price and delivery terms were specified in the contract, which permitted partial shipments. On November 1, the farming concern delivered 50 tons of cornmeal to the pet food manufacturer with the notification that the balance would be shipped by November 15. The pet food manufacturer rejected the shipment because the written documentation accompanying the shipment did not establish that the cornmeal came from an approved source, as required by the contract. The farming concern responded to this rejection by conceding that the shipment did not conform to the contract and promising to deliver all 100 tons of cornmeal by November 15 with proper documentation.

Which of the following best expresses the pet food manufacturer’s options?

A The pet food manufacturer may notify the farming concern that the entire contract is terminated and that it is going to obtain the 100 tons of cornmeal from another source.

B The pet food manufacturer may notify the farming concern that the contract is terminated as to the 50 tons of cornmeal that was shipped and did not conform to the contract, but must accept the additional 50 tons when it is shipped if it conforms to the contract.

C The pet food manufacturer must allow the farming concern a commercially reasonable time to ship cornmeal that conforms to the contract before it can terminate the contract.

D The pet food manufacturer must allow the farming concern until November 15 to ship cornmeal that conforms to the contract before it can terminate the contract.

Answer 35

D

The pet food manufacturer must allow the farming concern until November 15 to ship cornmeal that conforms to the contract because that is the original date when performance was due. Under the UCC, if a buyer has rejected goods because of defects, the seller may, within the time originally provided for performance, “cure” the defective tender by giving reasonable notice of its intention to do so and making new tender of conforming goods, which the buyer must then accept. Here, the farming concern promised to deliver cornmeal that conforms to the contract by the original date of performance. Thus, the pet food manufacturer cannot declare the contract to be in breach and must accept the farming concern’s delivery of conforming goods if it occurs by November 15. (A) is incorrect because, as discussed above, the farming concern has the right to cure until November 15. (B) is incorrect because the farming concern has the right to cure the defective tender of the 50 tons by November 15, the date when performance is due under the contract. Note too, that the UCC requires perfect tender; thus, the manufacturer would never be required to accept an amount less than full contract amount. If a delivery or goods do not conform to the contract in any way, the buyer may accept all, reject all, or accept some commercial units and reject the rest. The buyer always has the option to reject all of the goods if they or the delivery do not conform to the contract exactly. (C) is incorrect because it states the wrong standard for the time allowed to a seller to cure a defective delivery. It states the standard applied when the seller believed the goods would be acceptable, which is not the case here. When the buyer rejects a tender that the seller reasonably believed would be acceptable, the seller, on reasonable notification to the buyer, has a further reasonable time beyond the original contract time within which to make a conforming tender. In this case, the time for performance under the original contract has not expired, and the farming concern has promised to perform within that time. Furthermore, there is nothing in the facts to suggest that the farming concern believed its original shipment was reasonable; the farming concern acknowledged that the shipment did not conform to the contract and there was no indication that the pet food manufacturer had previously accepted nonconforming goods.

Question 36

A hairstylist entered into a contract with a hairspray manufacturer in which the manufacturer agreed to supply the hairstylist with all of its “long lasting” hairspray (reputed to be the longest lasting in the industry) that the hairstylist would need over the next five years. In the second year of the contract, the hairspray manufacturer learned that the hairstylist was “butchering” high-profile clients’ hair and using the hairspray to hold the style, and feared that the negative publicity would harm its reputation and decrease sales. It sent a letter to the hairstylist stating that it would send no more hairspray.

If the hairstylist files suit for specific performance against the manufacturer, will he prevail?

A Yes, provided the hairspray is in fact the “longest lasting” and no other hairspray would suffice.

B Yes, because the hairstylist relied to his detriment on the manufacturer’s promise to supply the hairspray for five years.

C No, because specific performance is not available for a contract for the sale of goods.

D No, because the hairstylist’s use of the product will harm the hairspray manufacturer’s reputation, and therefore is inequitable, and specific performance is an equitable remedy.

Answer 36

A

The buyer of goods may obtain specific performance where the seller refuses to deliver goods if the goods are unique or circumstances are otherwise proper. Here, the hairspray was reputedly the “longest lasting” in the industry and presumably no other hairspray would measure up to it. Thus, (A) is correct. (B) is wrong because there was a valid contract between the parties, and detrimental reliance is a remedy in cases where there is no contract. (C) is wrong because it is overbroad. Specific performance is available for contracts for the sale of goods where money damages would be inadequate to secure substitute goods. (D) is wrong. Specific performance is an equitable remedy and thus subject to equitable defenses such as unclean hands. However, the hairstylist’s action in “butchering” his customers’ hair is not the sort of wrongdoing that implicates the doctrine of unclean hands. The haircuts are not a “wrongdoing” in any moral, ethical, or legal sense, and the hairstylist certainly engaged in no improper conduct arising out of the same transaction that is the subject of the contract, with respect to contractual duties (i.e., paying for the hairspray he received). Hence, (D) is incorrect.

Question 37

A wholesale seller of mobile phones entered into a contract with a retailer, who was in the business of selling electronics, to sell 50 of a particular model phone at a cost of $200 apiece, or a total cost of $10,000. When the phones were delivered, the retailer discovered that 20% of them were defective. The retailer promptly sent the seller an electronic check for 80% of the contract price ($8,000).

Did the retailer make a proper rejection?

A Yes, because the phones were defective.

B Yes, because the retailer paid for the phones that were not defective.

C No, because the retailer accepted the phones and failed to seasonably notify the seller of any rejection due to defects.

D No, because the retailer kept all of the phones and did not return the defective phones to the seller.

Answer 37

C

The retailer did not properly reject, because he accepted the phones and failed to give proper notice of rejection. A buyer who receives nonconforming goods generally has the right to accept all, reject all, or accept any commercial units and reject the rest. Here, 20% of the phones shipped were defective, so the retailer had a right to reject. To properly reject, the rejecting party must, within a reasonable time after delivery and before acceptance, reject the goods or notify the seller of the rejection. Here, the retailer failed to reject the goods or notify the seller of the defects. He merely transferred payment for less than the contract price. Thus, the retailer cannot rely on the defect in claiming a breach, and his rejection was improper; i.e., he has accepted the goods. (A) and (B) are wrong because, although the retailer does not have to accept defective goods or pay for them, he must give the seller notice of the specific defect or he cannot rely on that defect in rejecting. (D) is not as good a choice as (C) because the retailer could have rejected the goods without returning them. As discussed above, the retailer was required to reject or notify the seller of the defects.

Question 38

A building contractor entered into a contract with the local college to remodel a residence hall during the summer. As specified by the contract, the work had to be completed before the fall semester began at the beginning of September. Because the contractor received a great deal of other maintenance business from the college, his price of $400,000 was significantly lower than other contractors and he was not going to demand payment until the work was completed. By the end of the first week in August, the contractor had completed 75% of the project and had expended $350,000 in labor and materials. At that time, however, a labor dispute between the contractor and his employees prompted most of the workers to walk off the job. Because prospects for a quick settlement of the dispute were doubtful, the contractor informed the college that he would not be able to meet the completion deadline. A week later, the college obtained another contractor who was able to finish the project by the end of August. The college paid him $150,000, which included a substantial amount of overtime for his workers. The increase in value of the residence hall due to the remodeling was $425,000.

The original contractor, who had not been paid, files suit against the college, which files a counterclaim against him. What should the contractor recover from the college?

A Nothing, because the contractor breached the contract.

B $200,000 in restitutionary damages, which is the difference between its expenditures and the amount the college paid the other contractor to complete the work.

C $250,000 in restitutionary damages, which is the contract price minus the amount the college paid the other contractor to complete the work.

D $275,000 in restitutionary damages, which is the difference between the value of the completed remodeling and the amount the college paid the other contractor to complete the work.

Answer 38

C

The contractor should be able to recover $250,000 in restitutionary damages. Where a builder in a construction contract breaches during the construction, the nonbreaching party is entitled to the cost of completion plus compensation for any damages caused by the delay in completing the building. Most courts, however, will allow the builder to offset or recover for work performed to date to avoid the unjust enrichment of the owner. This restitutionary recovery is usually based on the benefit received by the unjustly enriched party. If substitute performance is readily obtainable, damages are measured by the unpaid contract price minus the cost of completion (up to the value of the benefit received by the defendant). Here, the contractor’s duty to complete the project was not discharged by impossibility; he could have hired another contractor to take his place or yielded to his employees’ demands. Hence, the contractor’s failure to complete the remodeling constituted a breach of contract and resulted in the college having to expend $150,000 to have the building completed on time. However, the contractor did not receive any payments for the work that he did before breaching; the college would be unjustly enriched if it does not have to pay for any of this work. The benefit of the completed remodeling is measured by the contract price, $400,000, because a restitutionary recovery here would be based on the failed contract between the parties and substitute performance is readily obtainable. This amount is reduced by the $150,000 cost of completion that the college can recover from the contractor, leaving a net recovery of $250,000 for him. (A) is incorrect. Most modern courts would permit the contractor to recover in restitution to prevent the college’s unjust enrichment from the work that he did. (B) is incorrect because recovery measured by the claimant’s detriment (i.e., his reliance interest) is an appropriate alternative only where the standard “benefit” measure would achieve an unfair result; it is not applied where the party seeking restitutionary recovery was the breaching party. (D) is incorrect because courts will always limit relief to the contract price where the claimant is the breaching party. Measuring the benefit to the college in terms of the value of the improvements rather than the contract price will deny to the college the benefit of the bargain that it became entitled to when the contractor breached.