CONTRACTS

Question 1

When does an offeror’s revocation of an offer take effect?

Answer 1

Revocation takes effect only when communicated to the offeree or if the offeree acquires reliable information that the offeror no longer intends to enter into the contract.

Question 2

Can minors disaffirm contracts?

Answer 2

Yes, minors can disaffirm contracts, but they may ratify the contract upon reaching the age of majority without new consideration.

Question 3

When does the Statute of Frauds require a writing, and how can multiple documents satisfy this requirement?

Answer 3

A contract cannot be fully performed within one year falls under the Statute of Frauds and requires a writing to be enforceable.

Multiple documents can satisfy the writing requirement if they collectively:
* Identify the parties,
* Specify the nature and subject matter of the agreement,
* Include the essential terms of the contract, and
* Are signed in some manner by the party against whom enforcement is sought.

For example, a flyer with handwritten notes detailing the agreement and a signed check referencing the contract in the memo line can be tacked together to meet this requirement.

Test Tip: In breach of contract cases, ask if the defendant broke the agreement and whether they have a valid legal excuse for doing so.

Question 4

Does the death of a party to a contract automatically terminate the contract?

Answer 4

The death of a party to a contract does not automatically terminate or rescind the contract unless the deceased’s continued existence was necessary for performance.

• In cases like a real estate transaction, the contract can still be performed by the personal representative of the deceased, who will pay the purchase price out of the estate.
• The realty interest will pass to the deceased’s heirs or devisees, who can accept the deed.
• The seller must convey the property to the heirs and cannot rescind the agreement based solely on the death of the party.

Question 5

📌 Why does this contract fall under the Statute of Frauds, and how can the writing requirement be satisfied?

Answer 5

✅ Statute of Frauds Applicability:

The contract lasts longer than a year (September to October/November of the next year).
It requires a writing to be enforceable.
✅ Satisfying the Writing Requirement:

Multiple documents can be “tacked together” if they collectively include:
Identity of the parties
Nature & subject matter
Essential terms
Flyer with handwritten notes includes these elements.
Signed check can satisfy the signature requirement if it references the contract (neighbor’s memo note does so).
✅ Breach of Contract Consideration:

The teacher broke her word, and moving away is not a valid legal excuse for breaching the contract.

Question 6

📌 Who bears the risk if a newly constructed building is destroyed by an act of nature before completion?

Answer 6

✅ The carpenter bears the risk because this was new construction.
✅ The condition for payment was the completion of the cabin.
✅ Since the cabin was not completed, the carpenter is not entitled to payment under the contract.
✅ Reason: The destruction was due to an act of nature, not the widow’s negligence, so the contract remains enforceable against the carpenter.

Question 7

📌 Why is the oral agreement regarding the adjacent property admissible under the parol evidence rule?

Answer 7

✅ Collateral Agreement Exception:

The oral agreement about the adjacent property is distinct from the written contract for the first property.
Under the parol evidence rule, oral agreements are generally inadmissible, but a collateral agreement is an exception.
✅ What is a Collateral Agreement?

A collateral agreement exists when there are two separate agreements, one written and the other oral, that do not contradict each other and are about different matters.
Here, the parties had agreements for the sale of the first property and the option to buy the adjacent property—two distinct agreements.
✅ Conclusion:

The evidence regarding the adjacent property is admissible as it is a collateral agreement.

Question 8

📌 Under what circumstances are contractual responsibilities discharged under the doctrine of impossibility, and why is the hiking club entitled to a full return of its deposit in this case?

Answer 8

✅ Doctrine of Impossibility:

Impossibility discharges contractual responsibilities when an unforeseen event makes it impossible for parties to perform their duties under the contract.
✅ Why Performance Was Impossible Here:

It would have been dangerous and unreasonable to take rafts on the river due to the risk of encountering submerged wreckage.
Neither the tour company nor the hiking club assumed the risk of the river being unnavigable due to foreign objects, so neither party was at fault.
✅ Why the Hiking Club Is Entitled to a Full Return of Its Deposit:

Since the performance of the contract was impossible under the circumstances, both parties were excused from their obligations.
The hiking club is entitled to a full return of its deposit.

Question 9

📌 Why is this a unilateral contract, and when is it considered accepted?

Answer 9

✅ Unilateral Contract:

A unilateral contract is created when the offeror requests acceptance by the performance of an act, rather than a promise.
The offeree’s promise is not sufficient to accept the offer in a unilateral contract; only performance of the act requested creates acceptance.
✅ Acceptance in This Case:

The inventor’s performance in developing the friction-reduction process constitutes acceptance of the offer.
No return promise is needed to accept the offer—performance alone creates the effective acceptance.

Question 10

📌 Why is the contractor not discharged from performance under the doctrine of impossibility, and what are his obligations?

Answer 10

✅ Doctrine of Impossibility Does Not Apply Here:

The destruction of the cabin by an act of nature does not relieve the contractor of his obligation to perform.
Although the contractor might argue impossibility, he can still rebuild the cabin. The destruction was not due to the woman’s negligence, and the risk of destruction was assigned to the contractor.
✅ Contractor’s Obligation:

The contractor agreed to build the cabin and is not relieved of that obligation.
Since the loss was foreseeable, the contractor cannot prove impossibility or impracticability as defenses.
He must either rebuild the cabin or face potential breach of contract.

Question 11

📌 Can the student enforce her uncle’s promise to pay tuition for the remaining three years of college? Why or why not?

Answer 11

✅ No, the student cannot enforce the uncle’s promise for the remainder of her tuition:

The uncle’s promise to pay for the remaining three years of tuition is a gratuitous promise, which is unenforceable because it lacks consideration.
✅ Why:

A gratuitous promise (a promise to give something without receiving anything in return) is not enforceable in a contract, as there is no exchange of value.
The first-year tuition payment of $40,000 is an executed gift because the uncle delivered the funds, making that part of the promise enforceable.
However, the promise for the remaining years is unenforceable since the funds for those years have not been delivered yet.

Question 12

📌 Why did the fence company lose any remedy for the nonconforming delivery of goods?

Answer 12

❌ Failure to provide timely rejection

Under UCC Section 2-602, rejection of goods must occur within a reasonable time after delivery.
The fence company kept the redwood poles at its warehouse for three months without rejecting them.
By not notifying the manufacturer in a reasonable time, the fence company lost any remedy it may have had.
Result: The fence company now owes the manufacturer the contract price for the goods.

Question 13

📌 Can the defendant be found guilty of receiving stolen property in this case?

Answer 13

✔️ Yes, due to conditional return

Receiving stolen property requires knowledge that the property is stolen and the intent to permanently deprive the owner of it.
The defendant accepted the stolen bike and offered to return it only if the parishioner repaid the money to the church.
Even though the defendant intended to benefit the church, the conditional offer may still indicate an intent to permanently deprive the parishioner of the bike.
Therefore, the defendant may be found guilty of receiving stolen property.

Question 14

📌 Is the boy entitled to payment for shoveling the driveway if the man never responded to the price modification and the boy performed the work?

Answer 14

✔️ The boy is not entitled to any payment.

A valid contract requires an offer, an acceptance, and consideration.
The man made an offer to pay the boy $10 per day, but the boy counteroffered with $15 per day, which the man never accepted.
Since the man did not accept the boy’s counteroffer, no valid contract was formed.
Therefore, the boy is not entitled to payment for the services rendered.

Question 15

📌 Would the friend be entitled to recover $750 from the father if he did not first file a suit against the nursing student’s estate?

Answer 15

✔️ Yes, the friend is entitled to recover $750 from the father.

Consideration is a requirement for enforcing a promise, and in this case, there was a bargained-for exchange.
The father’s promise to pay the $750 was supported by the friend’s agreement not to file a suit against the nursing student’s estate, which the friend had a legal right to do.
The exchange of giving up the legal right to sue for the $750 in return for the father’s promise created sufficient consideration.

Question 16

Which type of evidence would be barred by the parol evidence rule?

Answer 16

Evidence that “all of the widgets that Seller produces” was meant to refer only to widgets from one specific factory would be barred.

The parol evidence rule prohibits introducing evidence that contradicts the express terms of a final written agreement. Since this evidence attempts to limit the scope of a clearly stated term, it is inadmissible.

Question 17

A contractor was awarded a construction contract with a city. After a number of issues with the project, the city announced that it was hiring another construction company and would not pay the contractor. The contractor sued the city for breach of contract. After the lawsuit was filed, an article appeared in the newspaper quoting the contractor as saying to the reporter, “The city is going to owe me millions.” Prior to trial, the contractor filed a motion in limine to exclude the newspaper article from being admitted at trial. What is the best argument for excluding the newspaper article?

Answer 17

The newspaper article itself is hearsay, and the contractor’s statement within the newspaper article has no probative value.
Hearsay is an out-of-court statement offered to prove the truth of the matter asserted. The newspaper article is hearsay because it was made by the reporter (the declarant) out of court, and it is being offered to prove the truth of the contractor’s statement, which is irrelevant to the case. The contractor’s statement is not hearsay because a party-opponent’s statement is not considered hearsay, but it has no probative value as it is not relevant to whether the city was in breach of contract. Therefore, the newspaper article is properly excluded.

Question 18

Can a court order rescission of the contract between the science fiction fan and the swordsmith?

Answer 18

Yes, because the swordsmith materially breached the contract.
The contract required the swordsmith to deliver a custom-made sword that matched the science fiction fan’s specifications. The swordsmith failed to meet this requirement, delivering a sword that was “substantially similar” but did not match the specifications. Since this is a material breach of a custom contract, the court can order rescission to cancel the contract.

Question 19

Is the construction company’s contract with the car dealership enforceable, given the documents exchanged?

Answer 19

Yes, the contract is enforceable because the documents were signed by the construction company. Under the Statute of Frauds, a contract for the sale of goods over $500 must be in writing and signed by the party against whom enforcement is sought. In this case, the construction company signed documents that describe the contract, and one document incorporated the other by reference. This satisfies the writing and signature requirements, making the contract enforceable.

Question 20

Which type of real estate transaction did the buyer and seller enter into?

Answer 20

An installment land-sale contract. In this type of transaction, the buyer takes possession of the property and makes payments over time to the seller. Once the payments are complete, the seller delivers the deed and legal title to the buyer. This matches the description of the transaction in the fact pattern.

Question 21

Would a court excuse a couple’s contractual obligations under the doctrine of frustration of purpose due to a hurricane?

Answer 21

No, because a hurricane had occurred in the last year, making hurricanes a foreseeable occurrence. The doctrine of frustration of purpose applies only when an unforeseen event fundamentally changes the contract’s purpose. Since hurricanes are predictable in that region, the risk is allocated to the couple, and the doctrine will not excuse their performance.

Question 22

An avid model airplane builder and collector was flying a radio-control model airplane outside his apartment building. A
security guard for the building approached the collector and asked if he knew where the security guard could get such a model
airplane. The collector showed the security guard a blue model airplane the collector had in the back of his car and offered to
sell it to him. The guard arranged to come by the collector’s apartment the following day to bring the collector $150 cash and to
pick up the model. The collector wrote the terms of their agreement on a scrap of paper identifying the collector as seller and
the guard as buyer and stating the collector’s agreement to “sell one model airplane for the price of $150” to the guard with
payment to be made the following date. Both parties signed the paper. The next day the guard went to the collector’s apartment
with the money, and the collector offered him a red model airplane with a crack in it, rather than the blue model the guard was
shown the previous day. The guard refused to take the red plane, and the collector sued claiming he simply agreed to say one
model airplane–meaning any model plane. The guard seeks to introduce evidence that the parties agreed to the sale of the
blue model the collector had shown the guard and therefore he is justified in not paying $150 for the red model.
Will the guard prevail?

Answer 22

The correct answer is:Yes, because the parol evidence rule will permit admission of evidence to explain the terms of a
contract.
Discussion of correct answer:The parol evidence rule generally bars the admission of extrinsic evidence such as
conversations prior to or contemporaneous with signing of the written agreement or evidence of the parties’ negotiations
when that evidence is introduced for certain purposes–such as to contradict the terms of the written agreement. However,
the parol evidence rule will allow the admission of evidence that explains or interprets the terms of a written agreement.
Here, the written agreement addresses the sale of one model airplane but does not identify which model plane. Therefore,
the court would likely admit evidence that could demonstrate which plane the parties agreed would be sold.

Question 23

A native of Australia owned several acres of dry land in the western United States on which he operated a ranch raising emus and
wallabies. The Australian seldom visited the ranch, which was run primarily by his faithful foreman. The Australian induced the
foreman to stay on at the ranch, despite many financial setbacks, by promising to leave the ranch to the foreman when he died. When
the Australian finally died, however, his will left the property to his daughter, a lounge singer in New York.
The daughter had the executor of the Australian’s estate close up the ranch as an operating business, firing the foreman and selling
off the stock. She was advised to wait to sell the land until a developer approached her with a tempting offer. She continued her career
in New York, listing the ranch with a real estate broker but never visiting the property.
The foreman returned to the land and reopened the ranch, raising buffalo for meat. The foreman paid the property taxes and otherwise
held himself out as the owner of the land for the next 21 years, reminding all who asked about his good fortune of the hard work he
had done for the Australian and the high regard in which the Australian had held him.
The foreman finally decided that he was getting too old to work the ranch any longer and contracted for the sale of the land to Wildlife
Now, a conservation group. Their contract required that the foreman convey “good and marketable title.” At the closing, however, an
attorney for Wildlife Now discovered that title to the land was actually in the daughter’s name, not the foreman’s, and Wildlife Now
refused to deliver the purchase price and go forward with the purchase. The foreman sued, and Wildlife Now counterclaimed for all
available relief.
How should the court rule?

Answer 23

The correct answer is:The foreman is the owner of the ranch, but the contract with Wildlife Now is rescinded and no further
remedies are available to him.
Discussion of correct answer:The foreman is the owner of the ranch by adverse possession, but is not entitled to damages for
breach of contract. The foreman had not brought an action to prove his adverse possession claim and to quiet title. Therefore his
title was not “good and marketable.” If the title is presently unmarketable, the buyer may choose either to rescind the contract and
recover any down payment; to sue for damages for breach of contract; or to bring an action for specific performance with an
abatement of the purchase price to compensate the buyer for the defect in title. Wildlife Now has chosen the remedy of rescission
and cannot be forced to perform the contract or to pay damages for its refusal, since it was not the breaching party.

Question 24

A man went to an electronics store to purchase a television. While browsing around the store, the man saw a 30-inch television
set that he particularly liked, with an advertised price of $500. A sales clerk advised him that the price of the television was going to
increase soon. Wanting to be protected from the increase but not having the money at the time to buy the television, the man signed a
standard contract promising to buy the television on or before the end of the month for the price of $500. A week later, the man saw
the same television set advertised by another store for $395. As a result, the man breached his contract and purchased the same
television at the other store, saving himself $105.
The day after the contract was breached, another customer entered the original store and bought the same television that the man
had contracted to purchase from the clerk for the price of $500. Despite the fact that the store did not lose any money as a result of
the man’s breach, nevertheless it decided to sue him. At trial, the store established that it was able to obtain as many television sets
as it could sell, and that it made a profit of $200 on each set sold.
In an action for breach of contract against the man, what is the store most likely to recover?

Answer 24

The correct answer is:$200.
Discussion of correct answer:In the area of seller’s remedies, the traditional measure of damages is the difference between the
contract price and the market price at the time and place of delivery, less expenses saved in consequence of the buyer’s breach.
This measure of recovery, however, does not consider the lost-volume seller. Lost volume occurs when the seller resells to a buyer
who would have bought from the seller even if there had been no breach of the original contract. The result is that the seller’s total
volume of sales by year’s end is reduced by one, and his damages are the profits the seller would have made on that additional
sale. Because the store lost a $200 profit from the original sale, the correct measure of damages is $200.

Question 25

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

Answer 25

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

Question 26

A secretary lives in a nice house, but he can barely afford the house payments and cannot afford to remodel it. A wealthy friend decides to hire a contractor to remodel the secretary's house. She signs a contract with the contractor, under which the friend will pay and the contractor will remodel the secretary's house. The contractor then invites the secretary to agree to the contract, which he does. However, three days later, the wealthy friend has some unanticipated expenses and goes to the contractor to rescind the contract. Which of the following is correct?

Answer 26

The friend cannot rescind the contract, because the secretary assented to the contract. Parties to a contract are free to modify or rescind it by mutual consent, and they may modify orrescind a third-party beneficiary provision without the beneficiary's consent unless and until the beneficiary's rights under thecontract have vested. An intended beneficiary's rights vest when the beneficiary assents to the contract at the request of either thepromisee or the promisor. In this case, the secretary assented to the contract at the contractor's request, so the friend can nolonger rescind the contract.

Question 27

A tourist visits an arts and craft store in a mountain community. The tourist decides that he likes a large sculpture that sits in front of the store. When the tourist gets home, he writes the store owner a letter and sends her a proposed contract under which the tourist will pay the store owner $3,000 to create a similar sculpture for the tourist's home. The store owner signs the contract and immediately mails it to the tourist. The next day, before the tourist receives the signed contract from the store owner, the tourist calls the store owner to say that he has changed his mind and does not want the store owner to do the sculpture. Do the tourist and the store owner have a binding contract for the store owner to create the sculpture?

Answer 27

Yes, because the store owner mailed the signed contract before the tourist called to revoke the offer. Discussion of correct answer:This answer is correct because it is a straightforward application of the "mailbox rule," which states that acceptance of an offer by mail is effective upon dispatch. The store owner's acceptance of the offer was effective the moment she mailed the contract back to the tourist. The tourist's later purported revocation of the offer has no effect because the store owner has already accepted the offer.

Question 28

On Monday, a widget wholesaler faxed to a buyer a letter promising to sell him 500 widgets for $2,000. On Tuesday, the buyer telephoned the wholesaler and said he was rejecting the offer because the price was too high. During the telephone conversation, the wholesaler responded, "Why don't you wait and think it over until tomorrow?" The following day, the buyer learned that there was a nationwide widget shortage. He immediately telephoned the wholesaler and said, "I've changed my mind and will accept your offer." The wholesaler then told the buyer, "Sorry, pal, you had your chance and blew it." After the wholesaler refused to sell the widgets to him, the buyer sued for breach of contract. Is there an enforceable contract between the parties?

Answer 28

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

Question 29

homeowner entered into a written contract with a construction company to build a 12-foot-by-12-foot addition onto her house for $25,000. The contract conditioned the homeowner's duty to pay the entire contract price on the job being complete by March 30. Soon after the parties signed the contract, the city revised several zoning regulations. One of the revised regulations prohibited property owners in residential areas from building structures on their property less than three feet from their property line. If the construction company built the room according to the contract specifications, the addition would violate this regulation. To bring the project into compliance, the company instead built a room measuring 11 feet by 12 feet. The decrease in the size of the addition reduced the value to the homeowner by $1,000. The cost of paying another contractor to extend the room would be $5,000. If the construction company completed the project on time and conformed with all other contract specifications, to what amount is it entitled?

Answer 29

The correct answer is:$25,000, less the construction company's cost and profit allocable to the "missing" foot. Discussion of correct answer:The building of a 12-foot-by-12'-foot addition was an express condition of the contract. However, a change in the law prevented the construction company from lawfully fulfilling this condition. Thus, a supervening illegality made performance illegal according to the original terms of the contract. A supervening illegality is viewed as a type of impossibility. If impossibility prevents the occurrence of an express condition that is not a material part of a bargain, the condition may be excused. Here, the requirement of building the addition to measure 11 feet by 12 feet, instead of 12 feet by 12 feet, would not likely be considered a material part of the bargain because the essential purpose of the contract could be accomplished by a room measuring 11 feet by 12 feet. Because the condition may be excused, and the company performed all of its other responsibilities under the contract, it would be entitled to payment of the entire contract price of $25,000, less the cost and profit allocable to the "missing" foot. The allocable cost and profit would be subtracted from the contract price, because it would not be fair for the company to benefit from being excused from performing.

Question 30

A collector of rare opera recordings from the 1920s sought out a seller who owned a collection of many such recordings. The seller learned of the collector's interest and offered to sell the collector an opera recording from an obscure tenor who died after only one recorded performance. The collector was anxious to obtain the recording because there were no other known copies of this particular performance, and it would make the collector's collection complete. The collector offered the seller $10,000 for the recording, subject to certification by a recognized expert in the subject of 20th century opera singers. The seller wrote to the collector and accepted the offer. However, prior to submitting the recording to the expert for certification, the seller received an offer of $20,000 from an opera aficionado for the recording. The seller told the expert that the recording was a fake so that she could take advantage of the offer from the aficionado. The expert refused to issue the certificate, and so the collector rejected the seller's tender of the recording when she presented it without the certificate. If the collector discovered the reason why the expert would not certify the recording and brought suit against the seller, what should the collector recover?

Answer 30

The correct answer is:Specific performance. Discussion of correct answer:Specific performance is available to enforce a contract for the sale of a unique item of personal property. Here, the subject matter of the contract (the rare recording) was the only known recording of its kind. As such, the collector would be entitled to specific performance of the contract. The condition of certification by the expert was excused by the seller's conduct when she falsely told the expert that the recording was a fake, and thus the failure of the condition to occur would not preclude enforcement of the contract.

Question 31

A homeowner renewed her homeowner's insurance policy without reviewing the terms by mailing the signed copy to her insurance agent. When she read the terms later, she found that her rates had been increased. The homeowner called her agent and said that she had mailed the policy along with a check for the premium, but was not sure about renewing at the increased price. The agent said that he would check for any additional discounts. He later called the homeowner and stated that in fact, he had undercharged her, and a new policy would cost 20% more. He indicated that he was revoking the first policy and preparing a new one for her to sign. Is there a validly formed contract between the insurance company and the homeowner?

Answer 31

The correct answer is:Yes, because the homeowner accepted the agent's first offer prior to his revocation. Discussion of correct answer:Under the mailbox rule, the homeowner's acceptance occurred at the time that she mailed the signed policy back to her agent. Unlike offers, revocations, rejections, and counteroffers, an acceptance occurs at the time the acceptance is mailed. There was thus an enforceable contract between the homeowner and the agent at that moment, and the contract is binding on both parties.

Question 32

Two brothers decided to open a dry cleaning business. After the brothers had been running the business for several months, they realized that although the volume of business exceeded their expectations, they were barely breaking even. Investigating further, the brothers determined that the cash registers and bank accounts did not contain the expected amount of funds. They installed a video camera in the shop and quickly discovered that an employee was stealing money. The video also included footage of the employee physically threatening a customer and stealing his clothes. The brothers immediately fired the employee. If the customer the ex-employee stole from and threatened sues the brothers, what is the likely outcome of the customer's lawsuit?

Answer 32

The correct answer is:The brothers will bear no liability for the ex-employee's acts, because the ex-employee did not commit the acts against the customer for the benefit of the brothers. Discussion of correct answer:An employer is liable for the tortious acts of his or her employees that are committed within the scope of employment and that cause injuries or property damage to a third person. The "scope of employment" includes acts so closely connected and reasonably incidental to what the servant was employed to do that they may be regarded as methods, however improper, to carry out the employer's objectives. Here, the ex-employee's actions amount to an intentional tort. However, because the actions were not committed to further the brothers' business objectives, the brothers will bear no liability for the ex-employee's actions.

Question 33

Adam Payne and Sons, a painting company, has been in business for over 30 years. The company was owned and operated by Adam Payne, who inherited the business from his father. Adam had three sons, Aaron, Buster, and Clem. All the brothers worked under their father's employ in the family painting business. Recently, Aaron, Buster, and Clem had a bitter argument with their father and decided to start their own painting company, which they named Aaron Payne & Brothers. Thereafter, Aaron Payne in his new firm name entered into a contract with Benjamin Moore Paints, a large wholesale paint dealer, to purchase 50 gallons of paint in assorted colors, at $12 per gallon. According to the contract terms, delivery was set for March 1, with full payment ($600) due 30 days later. Before shipment, Betty Morgan, the Benjamin Moore sales representative who negotiated the sale, suddenly realized that she had been dealing with Aaron Payne & Brothers, rather than Adam Payne & Sons, a longtime customer. Betty telephoned Aaron, explained the mistake, and indicated that her company required C.O.D. payment instead of 30-day billing because this was a new account. Being short of cash, Aaron Payne covered by buying 50 gallons of paint from another dealer on credit at a higher price. Aaron Payne & Brothers now sues Benjamin Moore to recover damages. Which of the following facts, if true, would most strengthen Benjamin Moore's defense

Answer 33

The correct answer is:At the time the contract was entered into, Betty Morgan referred to "your long-established business." Discussion of correct answer:In accordance with Restatement of Contracts, 2d, Section 153, "Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performance that is adverse to him, the contract is voidable by him...." If the other party had reason to know of the mistake, he is not allowed to "snap up" the bargain in his favor. Choice (A) is correct because if Benjamin Moore's representative, Betty Morgan, referred to Aaron's "long-established business" at the time the contract was entered into, then Aaron had reason to know of Betty Morgan's misunderstanding. If this is true, the contract is voidable by the mistaken party, Benjamin Moore, according to Section 153.