Contracts MBE Flashcards
(32 cards)
A wholesaler of bicycle chains sent a retailer the following fax on December 1: “Because of your continued loyalty as a customer, I am prepared to sell you up to 1,000 units of Bicycle Chain Model D at $7.50 per unit, a 25% discount off our original $10.00 price. This offer will remain open for 7 days.” The fax lacked a full, handwritten signature, but it was on the wholesaler’s letterhead and had been initialed by the wholesaler’s head of sales. On December 4, the wholesaler’s head of sales called the retailer and informed the retailer that the wholesaler had decided to revoke his December 1 offer. On December 5, the retailer placed an order for 1,000 bicycle chains, stating that he would pay the discounted price of $7.50 per unit.
What is the correct value of the order placed by the retailer?
Here, the wholesaler engaged in the sale of bicycle chains (i.e., a merchant) faxed a written offer to sell the retailer 1,000 units at $7.50 per unit. The offer contained assurances that it would remain open for 7 days. And though the offer did not contain a full, handwritten signature, it was on the wholesaler’s letterhead and initialed by the head of sales (Choice C). As a result, this was a firm offer that had to remain open for 7 days. Since the retailer timely accepted the offer, the correct value of the order is $7,500 (1,000 × $7.50).
A maker of handwoven rugs contracted with a supplier to provide yarn made from sheep’s wool. The written contract specified that, for four years, the supplier would provide the rugmaker with 2,000 spools of yarn made from 100% sheep’s wool per month, at $10 per spool, for a total of $20,000. Two years into the contract, the supplier sent the rugmaker 2,000 spools of yarn made from 90% sheep’s wool and 10% synthetic fiber. The rugmaker sent the supplier a check for $15,000 for the shipment, and added a clear note on the check stating that the payment was in full for the shipment but was $5,000 less due to the synthetic fiber in the yarn. The supplier promptly deposited the check, and then four months later filed suit against the rugmaker for the remaining $5,000. The supplier has submitted evidence of the written contract, and the rugmaker has submitted evidence of the deposited check.
What is the rugmaker’s best defense in this situation?
Here, the rugmaker sent the supplier a check for $15,000 (instead of $20,000) after receiving yarn made of 90% wool (instead of 100% wool). The check clearly stated that it was being tendered as payment in full for the supplier’s shipment of the lesser-quality yarn. The supplier then obtained payment by depositing the $15,000 check. Therefore, the rugmaker’s best defense is that there was an accord and satisfaction that discharged the rugmaker of any further duty to pay the remaining $5,000 for the shipment.
RULE – Accord & Satisfaction:
An existing contractual obligation can be discharged by an accord agreement. Under this agreement, a contracting party agrees to accept performance that differs from what was promised in an existing contract in satisfaction of the other party’s existing duty. When a claim is unliquidated or otherwise subject to dispute, it can be discharged by accord and satisfaction if:
- the person against whom the claim is asserted tendered a negotiable instrument (e.g., a check)
- the instrument was accompanied by a conspicuous statement indicating that it was tendered as full satisfaction of the claim (e.g., “payment in full”) and
- the claimant obtained payment of the instrument.
Educational Objective:
A contractual obligation is discharged by accord and satisfaction if a party tendered a negotiable instrument with a conspicuous statement that it was tendered as “payment in full” and the other party obtained payment of the instrument.
The owner of a restaurant who highlighted local ingredients when creating his menu bought cheese and other dairy products from a local dairy farmer. The owner and the farmer had entered into written requirements contracts each spring for the past 10 years. In the winter of the tenth year, the farmer purchased a substantial amount of new dairy cows and expanded his farming capabilities. He notified all customers that he would have a higher volume and amount of available products the following spring and would adjust deliveries accordingly. The owner responded with a date he wished the products to be delivered, as per custom, but said nothing else. On the agreed-upon date, the farmer delivered substantially more products than he had customarily provided. The owner attempted to accept half of the shipment, as that was roughly his customary quantity, but the farmer stated that the products were already packaged and that the owner should have spoken up after receiving the notice from the farmer. The owner then rejected the shipment in its entirety.
Did the owner breach the contract with the farmer as to this shipment?
Here, the owner and the farmer had a requirements contract. However, the farmer delivered substantially more dairy products than the owner reasonably required, thereby making a nonconforming tender of goods. Considering the owner’s past requirements and the shelf life of dairy products, providing roughly double the amount required in one delivery was clearly unreasonable. Therefore, the owner did not breach the contract when he rejected the farmer’s shipment in its entirety.
RULE:
Under the UCC, a requirements contract is a contract under which the buyer agrees to purchase as many goods as the buyer requires from the seller. And under the perfect-tender rule, the goods and the seller’s tender of those goods must fully conform with the terms of the agreement. Substantial performance will not suffice.
Although goods must generally be tendered in a single delivery, this rule does not apply when the contract or circumstances indicate otherwise. For example, a single delivery would be unreasonable when the buyer would clearly have no room to store the goods if they were delivered all at once. In such an event, the buyer is entitled to reject the delivery for imperfect tender.
Educational Objective:
Under the perfect-tender rule, the goods and the seller’s tender of those goods must fully conform with the terms of the agreement. If the tender of goods in a single delivery would be unreasonable, then the buyer can reject the delivery for imperfect tender.
A homeowner entered into a written contract with a contractor to construct an elaborate tree house among the large trees located in the homeowner’s backyard. After commencing construction of the tree house, the contractor discovered that one of the trees intended to be used as support for the tree house had a relatively common fungal infection in its core that would cause the strength of the tree’s branches to falter if left untreated. Neither the homeowner nor the contractor had knowledge of the fungal infection when they entered into the contract, but the contractor knew that such infections were common in the area and did not request an inspection of the trees before entering the contract. The contractor also knew that treatment was available at a high cost, but that even after treatment, he would need to create additional heavy-load-bearing supports for the tree at a substantial cost. When the contractor informed the homeowner that he would not perform under the contract unless the homeowner provided at least 75% of the additional costs needed to make the structure safe, the homeowner refused to pay the additional amount. The homeowner then sued the contractor for breach of contract.
What is the likely result?
Here, fungal infections were common in the area, so it was foreseeable that the load-bearing tree would be infected. The contractor knew about the risk of fungal infection but did not inspect the trees. So even though the contract may have been formed under the assumption that the tree was not infected, the contractor’s performance was not discharged by impracticability (Choice A). Instead, he assumed the risk of encountering the fungal infection when he agreed to construct the tree house. Therefore, the homeowner will likely win.
Educational Objective:
Performance can be discharged by impracticability if (1) an unforeseeable event has occurred, (2) the contract was formed under the basic assumption that the event would not occur, and (3) the party seeking discharge is not at fault (e.g., did not assume the risk).
A sister convinced her brother that they should open a small coffee shop. Their friend, a guitarist, suggested bringing his band to play live music in order to attract customers. He did not request any payment, saying that the publicity would be good for the band. The siblings agreed, and the band started playing at the coffee shop weekly. The coffee shop became a success, in no small part due to the band’s performances. When a businessperson offered to buy the coffee shop from the siblings, they orally agreed to each pay the guitarist $10,000 out of their share of the sale proceeds for his help in making the shop popular. The sister told the guitarist about their agreement. He was so delighted with it that he made a down payment on a new car. By the time the sale of the coffee shop was finalized, the brother had encountered financial difficulties. After the sale, the siblings signed a written contract stating that the sister would pay the guitarist $10,000 and her brother would pay him $5,000.
If, after the sale, the brother pays the guitarist only $5,000, will the guitarist have a valid basis for an action against the brother for another $5,000?
Here, the guitarist was an intended third-party beneficiary of the siblings’ oral agreement to each pay him $10,000. His rights under that agreement vested when he made a down payment on a car in reliance on the agreement. This means that the subsequent written modification of that agreement was void because it was made without the guitarist’s consent (Choice A). Therefore, the guitarist may enforce the brother’s original promise to pay $10,000.
Educational Objective:
An intended third-party beneficiary is a nonparty to a contract who receives an advantage or benefit from that contract that was intended by the contracting parties. The beneficiary’s right to enforce the contract vests when, for example, the beneficiary detrimentally relies on the rights created.
While attending a rodeo on August 20, a hatmaker entered into a valid, written agreement with the rodeo manager to make 500 leather cowboy hats for an upcoming rodeo event at a price of $75 per hat. Per the agreement, the rodeo manager agreed to pay one-fourth of the total purchase price to a tannery owner to whom the hatmaker owed a debt for a previous leather order. The hatmaker and the rodeo manager made no mention of the agreement to the tannery owner.
On August 25, the hatmaker changed his mind about paying one-fourth of the purchase price to the tannery owner. The hatmaker and the rodeo manager subsequently executed a valid modification of the original agreement. The rodeo manager’s brother had also been present on August 20 when the original agreement was executed, but he did not know about the August 25 modification of the agreement to no longer pay the tannery owner. On August 30, the brother, who was friends with the tannery owner, called and told the tannery owner that his debt from the hatmaker would finally be paid off. However, the rodeo manager refused to pay one-fourth of the purchase price to the tannery owner.
If the tannery owner sues the rodeo manager for one-fourth of the purchase price, will he likely recover?
Here, on August 20, the rodeo manager agreed to pay one-fourth of the total purchase price to the tannery owner. This made the tannery owner an intended beneficiary. However, the parties modified this agreement on August 25—before the tannery owner learned about the original agreement on August 30. This means that the modification occurred before the tannery owner could rely on the original agreement or his rights could otherwise vest. As a result, the tannery owner is unlikely to recover from the rodeo manager.
Educational Objective:
An intended beneficiary has contractual rights and may sue to enforce those rights once they vest through justifiable reliance, assent, or the initiation of a lawsuit. Until that time, the contracting parties can modify or rescind the contract without the beneficiary’s consent.
A nature magazine advertised a photography contest in its January issue, offering “$1,000 to any subscriber who sends us a photograph of the rare Florida Grasshopper Sparrow that we use for the cover of our May issue. Only submissions meeting our technical specifications and received by April 1 will be considered.” The only subscriber to respond to the advertised contest sent the magazine a photograph of the sparrow that met the magazine’s technical specifications. The photograph arrived on March 15. However, due to an ecological disaster that occurred in early April, the magazine decided to use a different picture on the cover of its May issue. The magazine used the subscriber’s picture on the cover of its June issue and has refused to pay $1,000 to the subscriber on the ground that it was not used on the May cover.
Is the subscriber likely to prevail in a breach-of-contract action against the nature magazine?
Here, the magazine’s duty to perform was delayed by three conditions:
-receiving a photograph that meets the magazine’s technical specifications
-receiving the photograph by April 1
-using the photograph on the magazine’s May cover
The first two conditions were fully satisfied when the subscriber delivered the photograph to the magazine on March 15. However, the third condition was not met because the magazine failed to cooperate when it chose to use a different picture on the May cover—presumably because the ecological disaster was more newsworthy. The magazine’s wrongful interference with the occurrence of this condition excused that condition and triggered the magazine’s duty to pay the subscriber. Therefore, the subscriber will likely prevail.
Educational objective:
A condition precedent to a contractual duty to perform will be excused if a party whose performance is subject to that condition wrongfully prevents the condition from occurring—e.g., by breaching the implied duty of good faith and fair dealing.
A new florist placed a written order with a wholesaler for $15,000 worth of fresh flowers. Delivery was to be made to the florist’s shop via a national delivery service. Because the florist was a new customer, the wholesaler accepted the order on the condition that the florist pay $5,000 in advance and the remaining $10,000 within 20 days of delivery. There was no discussion as to who bore the risk of loss.
The florist paid the wholesaler $5,000, and the wholesaler arranged with a national delivery service to pick up and deliver the flowers to the florist. The delivery service picked up the flowers, but, due to malfunction of the temperature controls on the transporting plane, the flowers were worthless upon arrival. The florist rejected the flowers and notified the wholesaler, who refused to ship other flowers. The wholesaler filed a claim against the florist for the remaining $10,000. The florist counterclaimed for the return of his $5,000 payment to the wholesaler.
How should the court rule on these claims?
Here, the florist and the wholesaler formed a destination contract because delivery was to be made at a particular location—the florist’s shop. As a result, the risk of loss was still with the wholesaler when the flowers were destroyed during transport. Because the wholesaler delivered worthless flowers, the florist was entitled to reject the goods and recover his $5,000 payment.
Educational Objective:
A contract that requires the seller to deliver the goods by third-party carrier to a particular location is a destination contract. Under such a contract, the risk of loss does not shift to the buyer until the goods are delivered at the named location.
TRUE OR FALSE: Regarding modification of a contract for the sale of goods, past consideration constitutes consideration.
FALSE
TRUE OR FALSE: Traditionally, an illegal contract was enforceable unless unconscionable.
FALSE
A jeweler and a goldsmith signed a written agreement that provided as follows: “For $3,000, the goldsmith shall sell to the jeweler a size six gold ring setting that the jeweler shall select from only the goldsmith’s white gold ring designs.” The agreement did not address any other specific terms with regard to the business arrangement between the jeweler and the goldsmith.
When the jeweler arrived to select a ring, he refused to select one of the goldsmith’s white gold ring designs. The jeweler claimed that the goldsmith, immediately prior to the execution of the written agreement, had orally agreed to broaden the jeweler’s choices to also include rose gold ring designs. The jeweler also claimed that the goldsmith had, at the same time, orally agreed to include a set of earring settings, valued at $1,000, as an incentive for the jeweler’s continued business. The goldsmith refused to sell to the jeweler any of his rose gold ring designs or include the earring settings.
If the jeweler sues the goldsmith for damages, how should the court handle the evidence of the alleged oral agreements?
The court should admit the evidence as to the promise to include the earring settings but not the option to choose a rose gold ring design.
Explanation:
Here, the written agreement between the jeweler and the goldsmith is partially integrated because it represents the parties’ final agreement for the sale of a ring—including the price, size, and type of gold. This writing expressly stated that the ring would be chosen only from the white gold ring designs. The goldsmith’s prior oral statement that he would also include rose gold ring designs contradicts the writing, so the court should not admit this evidence.
Educational Objective:
The UCC presumes that a written contract is partially integrated. As a result, evidence that supplements the written contract is admissible—but evidence that contradicts the writing is inadmissible—under the parol evidence rule.
A licensing agreement provided that a manufacturer could use an inventor’s patent in manufacturing its products for 10 years. Immediately thereafter, the inventor assigned his rights to receive payments pursuant to the licensing agreement to a corporation. The inventor did not receive compensation for this assignment. The inventor, upon his death five years later, devised his stock in the corporation to his daughter and all of his remaining property to his son.
To whom should the manufacturer make its payments under the licensing agreement?
The inventor’s son.
Here, the inventor assigned his right to receive payments under a licensing agreement to the corporation without receiving compensation or other consideration. Therefore, the assignment was automatically revoked upon the inventor’s death, and the right to receive payment returned to his estate (Choice A). Aside from the stock, the inventor devised all of his property to his son, including the right to receive payment from the manufacturer under the licensing agreement (Choice B). Therefore, the manufacturer should make payments to the inventor’s son.
Educational objective:
A gratuitous assignment—i.e., an assignment that is not supported by consideration—is automatically revoked upon the death, incapacity, or bankruptcy of the assignor.
An independent trucker and a manufacturer entered a written contract for the delivery of a farming implement from the manufacturer to a farmer. Under the terms of the contract, the trucker promised “to deliver a farming implement from the manufacturer to the farmer,” and in exchange, the manufacturer promised “to pay the trucker if the trucker delivers the implement directly to the farmer after picking it up.” The trucker picked up the implement but, instead of driving directly to the farmer, drove 100 miles out of his way to pick up another item from a third party before delivering the implement to the farmer. The manufacturer, unaware that the trucker had failed to deliver the implement directly to the farmer, refused to pay the trucker.
Who has breached this contract?
Neither the trucker nor the manufacturer.
Here, the trucker fully performed his promise to deliver a farming implement from the manufacturer to the farmer, so the trucker has not breached the contract (Choices A & B). However, the manufacturer’s duty to pay the trucker was expressly predicated on the trucker’s direct delivery of the implement to the farmer. The trucker did not fully satisfy this condition precedent because he took a 100-mile detour, so the manufacturer’s performance is not due (Choice C). Therefore, neither party has breached the contract.*
*Although the manufacturer is not in breach, the trucker is not without remedy. He can still seek restitution for the benefit conferred on the manufacturer by the delivery.
Educational Objective:
If contracting parties expressly agree to a condition precedent—an uncertain future event that must occur before a party’s obligation to perform arises—then performance is not due until the condition is fully satisfied.
The owner of a ferry boat operated the boat only during daylight hours during the summer months of June, July, and August. On March 1, the owner entered into a written agreement with a man to serve as the captain of the boat for the upcoming season. On May 1, the owner contracted with a woman to serve as the captain of the boat. On May 30, the man was diagnosed with an illness, and the treatment for this illness prevented him from being employed until the following year. On May 31, the owner learned of the man’s illness and told the man not to worry about their contract as he had found someone else to serve as captain of the boat. The woman served as captain of the boat for the summer months of June, July, and August that year.
On September 1, the man sued the owner for damages based on a breach of their contract.
Can the man recover damages based on breach of contract?
No, because the man was unable to serve as the captain of the boat during the summer months.
Here, the parties formed a bilateral contract when the man promised to captain the boat and, in exchange, the owner promised to pay for the service. The owner then committed an anticipatory breach by contracting with the woman on May 1 (Choices B & D). However, the man was unable to serve as the boat captain during the summer months because he was diagnosed with an illness on May 30. This material breach discharged the owner’s duty to pay for the man’s services, so the man cannot recover breach-of-contract damages.
RULE:
In a bilateral contract, the exchange of promises is sufficient consideration to render both promises enforceable. Failure to perform the promise at the time performance is due constitutes a breach. A breach can also occur before the time for performance arises or elapses under the doctrine of anticipatory repudiation. This doctrine applies when a party clearly and unequivocally, by words or acts, indicates an unwillingness to perform his/her contractual duties.
The nonrepudiating party may generally ignore the repudiation and demand performance pursuant to the contract OR treat the repudiation as a breach. However, the nonrepudiating party cannot recover damages under the contract if that party is in material breach (i.e., cannot substantially perform his/her obligations). That is because the material breach discharges the other party’s duty to perform.*
Educational Objective:
A nonrepudiating party who materially breaches the contract cannot recover damages for the other party’s anticipatory breach because the material breach discharges the other party’s duty to perform.
A private port authority contracted with a company that manufactures and operates cranes to assist with loading and unloading containers from ships docked at the port. One of the company’s cranes was defectively manufactured. Due to this defect, a container was dropped, injuring an individual below.
The individual sued the port authority, alleging negligence. Neither the individual nor the port authority notified the crane company of this lawsuit. The port authority settled its claim with the individual before trial for a reasonable amount. The port authority seeks to recover the cost of the settlement from the crane company under a breach-of-contract action.
Is the port authority likely to prevail?
Yes, because the settlement was reasonably foreseeable at the time the contract was formed.
Here, the crane company breached its contract with the port authority when one of its defective cranes dropped a container and injured an individual. Due to its special circumstances as the dock operator, the port authority suffered damages from the individual’s negligence suit. It was reasonably foreseeable that a defect in the crane might cause personal injury and that the port authority, as the dock operator, would be sued for that injury. Therefore, the port authority will likely prevail in its breach-of-contract suit to recover the settlement cost.
Educational Objective:
Consequential damages—i.e., losses arising from the parties’ special circumstances—are recoverable only if they were reasonably foreseeable to the breaching party when the contract was entered.
The owner of a retail clothing store regularly displayed for-sale works by local artists on a wall in the store. An art collector who came into the store inquired about purchasing a particular work for display at his home. The two agreed upon a price, but the collector was not ready to commit to purchasing it immediately. Confident that the collector would purchase the work, the owner promised in a signed writing to sell the work to the collector at the agreed-upon price at any time before the end of the month. On the last day of the month, the collector sent the owner a check for the agreed-upon price, which the owner received on the following day.
If the owner returns the collector’s check and refuses to sell the artwork to the collector, which of the following best supports the owner’s position that a contract had not been formed?
The collector’s acceptance of the owner’s offer was not timely.
Here, the owner’s signed writing that promised to sell the work to the collector was a firm offer that remained open until the end of the month. Although the collector sent a check to accept the offer on the last day of the month, it was not received by the owner until the following day. Therefore, the best support for the owner’s position that no contract was formed is that the collector’s acceptance of the owner’s offer was untimely.
Educational Objective:
Acceptance of a firm offer, option, or other irrevocable offer is effective only when it is received by the offeror. The mailbox rule does not apply.
On January 5, a buyer and a seller contracted for the delivery of 100 widgets if they could be delivered by February 20. The agreement was made in a writing signed by both parties and provided that the buyer would pay the contract price of $1,000 upon delivery. On February 3, the buyer and the seller orally agreed to postpone delivery until March 1. However, when the widgets arrived on March 1, the buyer refused to accept or pay for the widgets.
If the seller sues the buyer for breach of contract, who is most likely to succeed in the action?
The seller, because the oral agreement on February 3 waived the February 20 delivery date.
A contracting party may generally avoid performance if a condition precedent—i.e., an uncertain future event that must occur before performance becomes due—has not occurred. The nonoccurrence of a condition may be excused, however, if the party who would benefit from the condition waives it by words or conduct. And the waiving party cannot retract the waiver once the other party has detrimentally relied on it.
Here, the buyer’s duty to pay under the original contract was conditioned on the seller’s delivery by February 20. However, the buyer waived the original delivery date by orally agreeing on February 3 to postpone delivery to March 1. The seller detrimentally relied on that waiver by delivering the widgets on March 1, so the buyer cannot retract the waiver. Therefore, the seller will likely succeed in this breach-of-contract action.
Educational Objective:
Nonoccurrence of a condition may be excused if the party who would benefit from the condition waives it by words or conduct. And that waiver cannot be retracted if the other party has detrimentally relied on it.
A tenant rented a small cabin from a landlord. The lease provided that the tenant was permitted to make structural improvements to the cabin but that the tenant must pay for such improvements. Relying on this clause in the contract, the tenant contacted a contractor to install a loft in the cabin for $10,000. The tenant and the contractor agreed in a writing signed by both parties that payment would be due 30 days after the loft was completed. The contractor knew that the tenant was renting the cabin and sent the landlord a letter informing him of the impending construction on his property. The landlord received the letter and did not reply.
The contractor completed the loft, which increased the market value of the cabin by $6,000. Ten days later and three months before the end of her lease, the tenant vacated the cabin and disappeared. Thirty days after the loft was completed, the contractor’s bill remained unpaid.
If the contractor has no remedy quasi in rem under the jurisdiction’s mechanic’s lien statute, which of the following will give the contractor the best chance of recovery in personam against the landlord?
An action in quasi-contract for the benefit conferred on the landlord.
Here, there was no contract between the contractor and the landlord. However, the contractor conferred a measurable benefit on the landlord by increasing the value of his cabin by $6,000 upon completing the loft. This benefit was non-gratuitous because the contractor expected compensation for this work. And since the landlord knew about this construction and knowingly accepted it, the contractor can recover in quasi-contract for the benefit conferred on the landlord.
RULE:
A “quasi in rem” remedy is effective against a defendant in reference to property, while an “in personam” remedy is effective against a defendant directly. In personam remedies are available for most causes of action, including quasi-contract. A plaintiff can recover in quasi-contract—despite having no contractual relationship with the defendant—if the plaintiff conferred a non-gratuitous and measurable benefit on the defendant that resulted in unjust enrichment because:
-the defendant had the opportunity to decline the benefit but knowingly accepted it, OR
-the plaintiff had a reasonable excuse for not giving the defendant an opportunity to decline.
Educational Objective:
A plaintiff can recover under a quasi-contract theory—despite having no contractual relationship with the defendant—if the plaintiff conferred a non-gratuitous benefit on the defendant that resulted in unjust enrichment.
On April 1, a buyer and a seller executed a written contract for the sale of an antique car for $40,000, delivery on May 1. The contract contains a clause indicating that it is a total integration of the parties’ agreement. As they each signed the contract, the buyer orally reminded the seller that the buyer’s duty to purchase the car was conditioned on his ability to get approval for a loan by April 20 to fund the purchase. The seller orally agreed, though the condition was not noted in the written contract. When the seller contacted the buyer to execute the sale on May 1, he discovered that the buyer had attempted but failed to get a loan and could not afford to purchase the car. The buyer refused to honor the contract.
If the seller sues the buyer for breach of contract, will the court likely admit the evidence of the oral condition regarding the buyer’s approval for a loan?
Yes, as proof of a condition precedent to the buyer’s obligation under the contract.
Here, the parties orally agreed that the buyer’s duty to purchase the car was conditioned on his ability to get approval for a loan by April 20. Although the written contract makes no mention of this condition, it reflects a condition precedent to the buyer’s obligation under the contract. Therefore, evidence of this oral condition is not barred by the parol evidence rule and will likely be admitted by the court.
Educational Objective:
Evidence used to establish a condition precedent that must occur before a contract becomes effective is admissible under an exception to the parol evidence rule.
A manufacturer of T-shirts contracted with a brand-new clothing store to sell the store 1,000 T-shirts per month for a period of two years. The clothing store’s signature color for its clothing was an orange-tinted red color, called coquelicot, which is very difficult to replicate on a consistent basis. The final, written contract specified that any T-shirts that were not coquelicot could be returned, but it was silent with regard to the return of T-shirts for other reasons.
One year into the contract, the store decided to switch to coquelicot-colored baseball caps instead of T-shirts. As a result, the store returned the most recent shipment of coquelicot-colored T-shirts to the manufacturer and demanded a refund. The manufacturer refused to grant the refund, and the store sued the manufacturer for damages.
At trial, the manufacturer introduced the contract, which clearly stated that T-shirts that were not coquelicot could be returned. The store then attempted to introduce evidence that it had returned coquelicot-colored T-shirts to the manufacturer over the past year without objection and received a refund.
Is this evidence admissible?
Yes, because the evidence is relevant to show that the manufacturer had accepted the return of coquelicot-colored T-shirts in the past.
Here, the manufacturer entered into a final written contract with the clothing store to sell 1,000 T-shirts per month for two years. The contract stated that non-coquelicot T-shirts could be returned but was silent with regard to the return of coquelicot T-shirts. This means that the contract’s terms can be supplemented with evidence that the store had returned coquelicot T-shirts over the past year without objection and received a refund. Evidence of this course of performance is therefore admissible.
RULE:
Under the UCC parol evidence rule, which applies to contracts for the sale of goods (e.g., T-shirts), evidence of prior or contemporaneous agreements cannot be used to contradict the terms of a final written agreement. However, a course of performance can be used to explain or supplement those terms. A course of performance is a sequence of conduct that is relevant to understanding an agreement between the parties if:
-the agreement involved repeated occasions for performance by a party AND
-the other party accepted performance without objection and with knowledge of the course of performance.
Educational Objective:
Under the UCC parol evidence rule, course of performance can be used to supplement or explain the terms of a final written agreement.
A grocery chain whose main customer base was families with young children contacted a cereal manufacturer. After various discussions regarding the cereal and the box, the two parties entered into a written contract whereby the grocery chain agreed to purchase 10,000 boxes of children’s cereal on a monthly basis for $5,000, due upon delivery. The contract further stated that the cereal would be shaped like donuts, and each piece of cereal would be one of the seven colors of the rainbow. Finally, in listing the primary ingredients, the contract stated that the cereal would contain high-fructose corn syrup as a sweetener.
When the first shipment arrived, the grocery chain refused to pay the $5,000 and repudiated the contract. The cereal manufacturer sued the grocery chain for damages and introduced the contract between the two parties into evidence. The grocery chain then attempted to offer evidence regarding the discussions that occurred between the two parties prior to the execution of the contract. It claimed that the cereal manufacturer had orally agreed to use evaporated cane juice, not high-fructose corn syrup, as the sole sweetener and that the cereal manufacturer would also include a small prize in each cereal box at a cost of a penny a box.
In deciding whether to admit evidence of the oral agreement, how will the court likely rule?
Only the evidence regarding the small prize in each cereal box is admissible.
Here, the contract regarding the purchase of cereal boxes is presumed to be partially integrated under the UCC, so evidence that contradicts its express terms is inadmissible. The contract expressly stated that the boxed cereal would contain high-fructose corn syrup as a sweetener. Evidence that the parties had previously agreed to use evaporated cane juice as the sole sweetener would contradict that express term. Therefore, the court is not likely to admit this evidence (Choices B & D).
In contrast, the contract is silent as to the inclusion of a small prize in each cereal box, so evidence that the parties previously agreed to this term is consistent with the writing. Additionally, it is unlikely that the court would reach the difficult conclusion that the parties “certainly” would have included this term, given the minimal cost of the prizes (1 cent) compared to the cereal (50 cents). Therefore, the court is likely to admit this evidence (Choice A).
RULE:
The UCC presumes that contracts for the sale of goods (e.g., cereal boxes) are partially integrated. Therefore, evidence of additional consistent terms is admissible unless a court concludes that the parties “certainly” would have included those terms in the written contract. This is a difficult standard to meet, so parties can usually bring in outside evidence of consistent terms.
Educational Objective:
The UCC presumes that a writing is partially integrated, so extrinsic evidence of additional consistent terms is admissible unless the parties “certainly” would have included the terms in the written contract. However, contradictory terms are not admissible.
In January, a local farmer contracted with a chef to sell the chef a specified amount of local organic tomatoes to be delivered on August 1. On June 15, the farmer called the chef to tell him that part of his crop was infested with tomato fruitworms and he was unsure that he would be able to deliver the full amount requested by August 1. The chef told the farmer that it was absolutely essential that he receive those tomatoes on time to make organic tomato sauce for a restaurant scheduled to open in late August. The farmer assured the chef that he would do his very best to save the crop and deliver by August 1.
Does the chef have valid legal grounds to cancel the contract and order tomatoes from another source?
No, because the farmer did not state unequivocally that he could not deliver the tomatoes on time.
Here, the farmer told the chef that he was “unsure” whether he could deliver the full amount of tomatoes by August 1. Since the farmer did not state unequivocally that he could not deliver the tomatoes on time, this did not constitute an anticipatory repudiation (Choice C). However, it did provide the chef with reasonable grounds for insecurity about the farmer’s ability to deliver the tomatoes by August 1.
RULE:
Anticipatory repudiation occurs when one party to a contract clearly and unequivocally communicates (through words or conduct) to the other party that it will not perform. The other party can treat the repudiation as a breach and sue immediately.
In contrast, mere insecurity about the party’s prospective ability to perform is not a repudiation, but it does give the other party the right to demand assurance of performance. Under the UCC, which governs contracts for the sale of goods (e.g., tomatoes), the demand for assurances must be made in writing. Failure to provide adequate assurance within a reasonable time—not to exceed 30 days under the UCC—constitutes a breach.
Educational Objective:
Anticipatory repudiation occurs when a party clearly and unequivocally communicates that it does not intend to perform. Mere insecurity about the party’s ability to perform is not a repudiation, but it allows the insecure party to demand assurance of performance. Failure to provide adequate assurances is a breach.
A farmer owned a tractor and offered his brother the chance to purchase it. The farmer told the brother that he had to decide whether he wanted to purchase the tractor within “six months of today’s date.” The brother paid the farmer $200 that day to keep the option open. The agreement was reduced to writing, signed by both men, and dated May 15. The farmer died on July 1. On August 15, the brother notified the executor of the farmer’s estate that he wanted to accept the offer to buy the tractor. The executor refused to sell, and the brother filed suit for the enforcement of the contract.
Is the brother likely to prevail?
Yes, because the brother paid $200 to keep the option open.
Here, the farmer and the brother entered into a valid option contract on May 15 when the brother paid $200 in consideration to keep his option to purchase the tractor open for six months. This offer was irrevocable for the entire option period (six months) even though the farmer died on July 1 (Choice B). Since the brother exercised his option within the six-month period (i.e., before November 15), he is likely to prevail in his suit to enforce the option contract.
Educational Objective:
An offer terminates when the offeror dies or becomes mentally incapacitated—unless the parties formed an option contract. Then the offer will not terminate because consideration was paid to keep the offer open for a specified period of time.
A painter entered into a contract with a homeowner to paint the exterior of the homeowner’s home over a weekend while the homeowner was on vacation. After the homeowner left on his vacation, the painter was offered a second job that paid slightly more during the same weekend. The painter delegated his duty under the first contract to a second painter in exchange for a $50 advance and a promise to split his profits from both jobs with the second painter. The second painter took the advance and agreed to paint the homeowner’s home that weekend. The first painter worked on the second job that weekend and did not check on the homeowner’s home. When the homeowner returned from vacation, he discovered that his home had not been painted at all. In addition, no one has been able to locate the second painter.
Does the homeowner have a valid cause of action against the first painter?
Yes, because the first painter was not released from his liability to the homeowner.
Here, the first painter (delegator) delegated his duty to paint the homeowner’s home to the second painter (delegatee). The second painter agreed to perform that duty and, in exchange, received consideration in the form of a $50 advance and a promise to split profits (Choice B). However, there was no novation because the homeowner did not agree to release the first painter from liability and substitute the second painter. Therefore, the homeowner has a valid cause of action against the first painter for failing to paint the homeowner’s home.
RULE:
Obligations and duties under a contract can generally be delegated to another. Acceptance of the delegation by the delegatee constitutes a promise to perform those duties. That promise is enforceable against the delegatee if:
-the delegatee has received consideration, OR
-there is a consideration substitute that makes the promise enforceable.
However, the delegator is not released from liability unless the other party to the contract expressly or impliedly agrees to a novation—i.e., to release the delegator from his/her promises under the original contract and substitute a new party.
Educational objective:
When contractual obligations or duties are delegated, the delegator remains liable under the contract unless the other party to the contract expressly or impliedly agrees to release that party and substitute a new one (i.e., novation).
