Business Law Exam 1Certified Questions and Correct Answers Guaranteed to score an A (2025 Version).

Business Law Exam 1Certified Questions and Correct Answers Guaranteed to score an A (2025 Version). What types of sales fall under Uniform Commercial Code (UCC)? Sale of goods (tangible, personal property)--not real estate= What types of sales fall under Common Law? (2 examples) Everything that doesn't fall under UCC, for example: - Real Estate - Services What are the 3 elements of a contract? Offer + Acceptance + Consideration = Contract A person known to have an account at a drugstore picks up an item at the drugstore, show it to the clerk, and walk out. Is this a valid contract? What's the concept here? Yes, it's valid. Implied contract. Adelle says to Byron, "If you promise to mow my lawn, I will pay you $10," and Byron agrees to mow Adelle's lawn. Is this a valid contract? What's the underlying concept? Yes. This is a bilateral contract (both parties have made promises) Adelle says to Byron, "If you will mow my lawn, I will pay you $10." Is there a contract? When will there be a contract here? What's the concept? A contract will be formed when Byron has finished mowing the lawn and not before. Unilateral contract (only one of the parties has made a promise). An agreement entered into by a person whom the courts have declared incompetent. Is this a contract? Concept? No. Void contract. (Doesn't meet requirements of a contract). Through intentional misrepresentation of a material fact (fraud), Thomas induces Regina to enter into a contract. Is this a contract? Concept? Yes, but it's voidable at Regina's election. Regina may, upon discovery of the fraud, notify Thomas that by reason of the misrepresentation, she will not perform her promise, and the law will support Regina. (193) Someone brings a lawsuit against another party for a contract on which the statute of limitations has passed. Will they win? Concept? No, it's an unenforceable contract. Gordon promises Constance not to foreclose for a period of six months on a mortgage Gordon owns on Constance's land. Constance then expends $100,000 to construct a building on the land. Is Gordon's promise binding? Concept? Promissory Estoppel (a promise someone has detrimentally relied on) Willard by mistake delivers to Roy a plain, unaddressed envelope containing $100 intended for Lucia. Can Willard recover from Roy? Concept? Yes. Restitution (remedy for parties to attain recovery of unjust enrichment under a void/voidable/unenforceable contract). 196 Joanne seemingly offers to sell to Bruce her Chevrolet automobile but intended to offer and believes that she is offering her Ford automobile and Bruce accepts the offer, reasonably believing it was for the Chevrolet. UCC or common law? Is there a contract? Why/why not? Yes. The law isn't concerned with subjective meaning (what I thought), it's concerned with objective meaning (what does it reasonably seem like from your words). (202) Oscar signs a letter containing an offer to Ellen and leaves it on top of the desk in his office. Later that day, Ellen, without prearrangement, goes to Oscar's office, discovers that he is away, notices the letter on his desk, reads it, and then writes on it an acceptance that she dates and signs. Is a contract formed? Why/why not? No. An offeror must communicate an offer in an intended manner.(203) Jones tells Black that she plans to offer White $600 for a piano and Black promptly informs White of Jones's intention. Is this an offer? Why/why not? No. No authorized communication of an offer from Jones to White. (203) David offers to sell to Lou his diamond ring. Tia accepts. Is this effective? Why/why not? No. The offer must be authorized by the offeree. (203) A person, without knowing of an advertised reward for information leading to the return of a lost watch, gives information leading to the return of the watch. Is he entitled to the reward? Why/why not? No. His information is not an acceptance of the offer, because he can't accept an offer he had no knowledge of. (203) Charlotte, after having her month-old Cadillac break down for the third time in two days, screams in disgust, "I will sell this car to anyone for $10.00!" Lisa hears Charlotte and hands her a $10.00 bill. Is she entitled to the car? Why/why not? No. A reasonable person in Lisa's position would understand this isn't an offer, it's just an emotional, nonbinding utterance (same way with jokes). (203-204) Brown writes to Young, "Will you buy my automobile for $3,000?" and Young replies, "Yes,". Is there a contract? What's the concept? No. This is merely a preliminary negotiation. Showing willingness to enter into a contract doesn't bind you to a contract. (206) Great Minneapolis Surplus Store (a women's store) published an advertisement in a Minneapolis newspaper reporting that "Saturday, 9:00 a.m. sharp; 3 brand new fur coats worth up to $100; first come, first served, $1.00 each." Lefkowitz (a man) was the first to arrive at the store, the store refused to sell to him because they said it's a "house rule" that the offer was intended for women. Is there a contract here that obligates the store to sell to Lefkowitz? Yes. Usually an advertisement isn't an offer. However: this offer was clear, definite, and explicit, and left nothing open for negotiation. Therefore, it constitutes an offer (206-207) Aaron offers to sell his portable television set to Ted and tells Ted that he has ten days in which to accept. One week later, Ted observes the television set in Celia's house and is informed that Celia purchased it from Aaron. The next day, Ted sends to Aaron an acceptance of the offer. Is there a contract? Concept? No. Revocation. Aaron's offer was effectively revoked when Ted learned of Aaron's inability to sell the television set to Ted because he had sold it to Celia. Notice of revocation may be communicated indirectly to the offeree through reliable information from a third person that the offeror has disposed of the property he has offered for sale or has otherwise placed himself in a position indicating an unwillingness or inability to perform the promise contained in the offer (209) Ellen, in return for the payment of $500 to her by Barry, grants Barry an option, exercisable at any time within thirty days, to buy Blackacre at a price of $80,000. Ellen then revokes this offer 15 days later. Is she able to revoke the offer? Concept? No. Ellen is legally bound to keep the offer open for thirty days, and any communication by Ellen to Barry giving notice of withdrawal of the offer is ineffective. (Option contract). (209) What is a firm offer? Is it enforceable? UCC or Common Law? Exists under UCC. Offer by a merchant that he/she is obligated to keep open for a stated period of time, not to exceed 3 months. Merchant gives assurance in a signed writing that the offer will be held open. UCC makes a firm offer enforceable even though no consideration is given by the promisee to the promisor. (210) Jordan offers Karlene $300 if Karlene will climb to the top of the flagpole in the center of campus. Karlene starts to climb, but when she is five feet from the top, Jordan yells to her, "I revoke." Can Jordan do this? Why/why not? No. You can't revoke after a reasonable period of time (after the offeree begins performance). (210) Worthy writes Joanne a letter stating that he will sell to Joanne a secondhand color television set for $300. Joanne replies that she will pay Worthy $250 for the set. At what point does this terminate the original offer? What's the concept underlying this scenario? When Worthy receives Joanne's counteroffer. Underlying this is the concept of counteroffers, which usually terminate the original offer (211). Suppose that Sarah, owning a Buick, offers to sell the car to Barbara and allows Barbara five days in which to accept. Three days later the car is destroyed by fire. On the following day, Barbara, with- out knowledge of the destruction of the car, notifies Sarah that she accepts Sarah's offer. Is there a contract? Concept? No. Destruction of subject matter terminates offer. (213) Joy publishes an offer of a reward to anyone who returns the diamond ring that she has lost and Bob, with knowledge of the offer, finds and returns the ring to Joy. Is this a contract? Why? What type of contract is this? Why? Yes. Unilateral Contract. Acceptance is the performance of the requested act with the intent of accepting. (213) Carlos in New York sends by mail to Paula in San Francisco an offer that is expressly stated to be open for ten days. On the fourth day, Paula sends to Carlos by mail a letter of rejection, which is delivered on the morning of the seventh day. At noon on the fifth day, Paula dispatches an over- night letter of acceptance that Carlos receives before the close of business on the sixth day. Was a contract formed? Why/why not? Yes. A contract was formed when Carlos received Paula's overnight letter of acceptance, as it was received before the letter of rejection. An acceptance sent after a prior rejection is not effective when sent by the offeree, but only when and if received by the offeror before he receives the rejection. Thus, when an acceptance follows a prior rejection, the first communication the offeror receives is the effective one. (217) When's an offer effective? When's a rejection effective? A rejection, an offer, a revocation, and a counteroffer are effective when they are received. An acceptance is generally effective upon dispatch. (214) What are the requirements of acceptance under: 1) Common law? 2) UCC? Common law: must be mirror image. (Positive and Unequivocal) UCC: if the offeree does not expressly make her acceptance conditional upon the offeror's assent to the additional or different terms, a contract is formed. (218) Ellen, a landlord, induces Vijay, an infirm, bedridden tenant, to enter into a new lease on the same apartment at a greatly increased rent by wrongfully threatening to terminate Vijay's lease and evict him. Is she able to do this? Why/why not? What's the concept? Vijay can escape or avoid the new contract by reason of the duress exerted on him. Abigail, a person without business experience, has for years relied on Boris, who is experienced in business, for advice on business matters. Boris, without making any false representations of fact, induces Abigail to enter into a contract with Boris's confederate, Cassius. The contract, however, is disadvantageous to Abigail, as both Boris and Cassius know. Can Abigail get out of this contract? Underlying concept? Yes. The contract is voidable. Undue influence. (230) Melody delivers a package to Ray, requests that Ray sign a receipt for it, holds out a simple printed form headed "Receipt," and indicates the line on which Ray is to sign. This line, which appears to Ray to be the bottom line of the receipt, is actually the signature line of a promissory note cleverly concealed underneath the receipt. Ray signs where directed without knowing that he is signing a note. Is Ray stuck in this contract? Why/why not (concept)? No, Ray contract is void. This is fraud in the execution -- you deceive another party into believing a contract is something other than what it is. (230) Alice, in offering to sell her dog to Bob, tells Bob that the dog won first prize in its class in the recent national dog show. In truth, the dog had not even been entered in the show. However, Alice's statement induces Bob to accept the offer and pay a high price for the dog. Is this a valid contract? Why/why not? No. This contract is voidable. Fraud in the inducement (intentional misrepresentation of a material fact): voidable by Bob because Alice's fraud induced his assent. (230) Sid owns a farm that, as a farm, is worth $100,000. Brenda, who knows that there is oil under Sid's farm, also knows that Sid is ignorant of this fact. Without disclosing this information to Sid, Brenda makes an offer to Sid to buy the farm for $100,000. Sid accepts the offer, and a contract is duly made. Can Sid upon learning of the facts later, get the farm back? Why/why not? No. It's not fraud when one party possesses advantageous information over another (230). Judith owns a valuable horse, which she knows is suffering from a disease discoverable only by a competent veterinary surgeon. Judith offers to sell this horse to Curt but does not inform him about the condition of her horse. Curt makes a reasonable examination of the horse and, finding it in apparently normal condition, purchases it from Judith. Curt, later discovers the disease in question. Can he get out of the contract? What's the concept? Yes. One's silence on a 1) material fact 2) that you know would correct a mistake that another party has 3) and failure to disclose amounts to failure to act in good faith and along reasonable standards of fair dealing, allows the buyer to have the sale set aside. (231) Dale induces Mike to purchase shares in a company unknown to Mike at a price of $100 per share by representing that she had paid $150 per share for them during the preceding year, when in fact she had paid only $50.00. Is this a valid contract? Why/why not? No. This is misrepresentation of a material fact. (231). Gail contracts to purchase Pete's automobile under the belief that she can sell it at a profit to Jesse. Can she get out of this contract if she's mistaken and she can't sell it? No, she can't get out of her contract just because she was mistaken in that belief. (236) 2 parties contract for the sale of a car upon the assumption that the automobile is a 2010 Cadillac with fifteen thousand miles of use, when in fact the engine is that of a cheaper model and has been run in excess of fifty thousand miles. Can the injured party rescind? Why/why not? What concept? Yes. Mutual mistake. If 2 parties make a mistake on a basic assumption of the contract, the injured party can usually rescind (236). A building contractor makes a serious error in his computations and consequently submits a job bid that is one-half the amount it should be. If the other party knows that the contractor made such an error, or reasonably should have known it, can they accept the offer? Concept? No. They cannot accept the offer. Unilateral mistake. (236) A purchaser paid $1 for a stone that was subsequently discovered to be worth $700. The parties didn't know at the tme of sale what the stone was, & knew they didn't know. Can the seller recover from the purchaser upon discovery that the ring is worth $700? Concept? No. Assumed risk - each assumed the risk that the value might be more or less than the selling price. (236ish). A promises to pay B $2,000 if B paints A's house. B paints A's house. What type of contract is this? Unilateral (246). A negligently injures B, for which B may recover damages in a tort action. A promises B $5,000 if B forbears from bringing suit. B accepts by not suing. Is this a contract? Why/why not? Yes. You can create a contract through a promise of forbearance in exchange for consideration. (246) A (the offeror) promises (offers) to purchase an automobile from B for $20,000 and B (the offeree) promises to sell the automobile to A for $20,000 (accepts the offer). Is this a valid contract? Yes. (246) ExxonMobil offers to sell to Gasco as many barrels of oil as Gasco shall choose at $40.00 per barrel. Is this a contract? Why/why not? Concept? No. No consideration. This is an illusory contract (a promise that puts no obligation on the maker of the statement). Joanne offers to pay Barry $8,000 for Barry's automobile, provided that Joanne receives such amount as an inheritance from the estate of her deceased uncle, and Barry accepts the offer, the duty of Joanne to pay $8,000 to Barry is conditioned on her receiving $8,000 from her deceased uncle's estate. Is this sufficient consideration? What's the concept? Yes, this is sufficient consideration, unless the promisor knows that the event cannot happen. (Conditional promises are sufficient consideration for a contract). Norton promises to pay Holmes, the village ruffian, $100 not to injure him. Is Norton's promise enforceable? Why/why not? (Concept) Because of preexisting public obligation. The law already prevents you from doing this. You can't make a contract receiving payment not to do something the law prevents. Anita employs Ben for one year at a salary of $1,000 per month, and at the end of six months promises Ben that in addition to the salary she will pay Ben $3,000 if Ben remains on the job for the remainder of the period originally agreed on. Is this new contract binding? Why/why not? No. Anita's promise is not binding for lack of legally sufficient consideration. There was no new consideration introduced in this scenario. Diane and Fred agree that Diane shall put in a gravel driveway for Fred at a cost of $2,000. Subsequently, Fred agrees to pay an additional $3,000 if Diane will blacktop the driveway. Because Diane was not bound by the original contract to provide blacktop, she would incur a legal detriment in doing so and is therefore entitled to the additional $3,000. Does this create a valid modification?UCC or Common Law? Common law. Yes it does. There's new consideration (3,000) for new consideration (blacktop instead of just gravel driveway). (251) Barbara owes Arnold $100, and in consideration of Barbara's paying him $50.00, Arnold agrees to discharge the debt. Does Arnold win in a subsequent suit by Arnold against Barbara to recover the remaining $50.00 under common law? Why/why not? Yes, Arnold wins. There was no new consideration; thus, the new contract had insufficient consideration to replace the previous contract. There must be a new form of consideration (even agreeing to pay early) in order to replace your contract. (253) Andy sends to Bess, an accountant, a check for $120 in full payment of his debt to Bess for services rendered, which services Andy considered worthless but for which Bess billed Andy $600. Bess cashes the check. Is Andy still liable? Why/why not? No. Cashing the check was acceptance. Acceptance discharges a disputed debt. (254) Diana installs Tom's complex new car stereo and speakers. Tom subsequently promises to reimburse Diana for her expenses. Is this promise binding? Why/why not? Concept? No. A promise made on account of something already done is not binding. (past consideration). (254) A promises to pay B $15.00 if B delivers a specified book to C. Is this contract binding? Why/why not? It's binding. Because B incurred a legal detriment by delivering the book to C that they were previously obligated to do. (3rd party) Alice enters into an agreement with Brent Co. through the bribing of Brent Co.'s purchasing agent, is the agreement enforceable? Concept? No. Illegal bargain. Smith makes a bet with Brown on the outcome of a ball game. Is this enforceable? No, it can't be enforced by either party. Ada and Bernard enter into an agreement under which Ada promises Bernard that in return for $5,000, she will disparage the product of Bernard's competitor, Cone, in order to provide Bernard with a competitive advantage. Is this promise enforceable? Concept? No. Ada's promise is to commit the tort of disparagement. Any promise to commit a tort isn't enforceable. Is a contract for the sale of unregistered securities enforceable? Why/why not? No. In such case, even though there is an unlawful agreement, the statutes usually expressly give the purchaser a right to withdraw from the sale and recover the money paid. (279) Jones and Old South Building Co. enter into a contract to build a factory that contains specifications in violation of the town's building ordinance. Jones did not know of the violation and had no reason to know. Is this enforceable? Old South's promise to build would not be rendered unenforceable on grounds of public policy, and Jones consequently would have a claim against Old South for damages for breach of contract. 279 a minor sells his car to an individual who resells it to a used-car dealer, a good-faith purchaser for value. Is this contract voidable? Why/why not? No. Used car dealer would keep the car. A minor can't recover property he's sold to a buyer who has sold to a third party a mother tells a merchant to extend $1,000 worth of credit to her son and says, "If he doesn't pay, I will." The promise is not in writing. Is it enforceable? Concept? No. Suretyship provisions fall under the statute of frauds. (304) a father tells a merchant to deliver certain items to his daughter and says, "I will pay $400 for them." The contract is not in writing. Is it enforceable? Concept? Yes. It's an original promise. The father originally promises to pay, therefore it can be oral. (305) Suppose that a supply company has refused to furnish materials on the credit of a building contractor. Faced with a possible slowdown in the construction of his building, the owner of the land promises the supplier that if the supplier will extend credit to the contractor, the owner will pay if the contractor does not. The contract is oral. Is this contract enforceable? Why/why not? (concept) Yes. Enforceable. Main purpose provision: which "must be such as to justify the conclusion that his main purpose in making the promise is to advance his own interest." Says that if main purpose of contract is your own interest, it falls outside the statute of frauds (305) D owes a debt to C. S promises D to pay D's debt. It's an oral promise. Is it enforceable? Why/why not? Yes its enforceable. A promise made to the debtor is enforceable (306). Edgar, who is Donna's son and executor of Donna's will, recognizes that Donna's estate will not have enough funds to pay all of the decedent's debts. He orally promises Clark, one of Donna's creditors, that he will personally pay all of his mother's debts in full. Is this enforceable? No. Promises for him to pay the debt out of pocket fall under the statute of frauds and must be in writing. If he were paying it out of the estate, then it could be oral. (307) Adams's promise to convey title to a certain farm to Barnes if Barnes accepts Adams's proposal of marriage. The contract is oral. Is it enforceable? No. Must be in writing. Mutual promises to marry can be oral. (308) Jane orally agrees to sell land to Jack for $30,000. With Jane's consent, Jack takes possession of the land, pays Jane $10,000, builds a house on the land, and occupies it. Several years later, Jane repudiates the contract. Is this enforceable? Why/why not? Typically no. But in this case yes, because of the partial performance exception, which says that if you've partially made payments or made improvements to the land dependent on the contract, then an oral contract becomes enforceable. Short-term leases would be another contract that could be enforceable orally. (308) on January 1, 2015, A hires B to work for eleven months starting on May 1, 2015, under the terms of an oral contract. That contract will be fully performed on March 31, 2016, which is more than one year after January 1, 2015, the date the contract was made. It's an oral contract. Is it enforceable? Why/why not? No. It's covered under the statutue of frauds because it's not possible to complete this contract within a year. (310) Jane borrows $4,800 from Tom. Jane orally promises to pay Tom $4,800 in three annual installments of $1,600. Enforceable? Why/why not? Yes. most courts hold that when one party has fully performed (Tom has fully performed when he made the loan). Therefore, it becomes enforceable despite the 1-year provision (310) Liz orally agrees to buy one thousand watches from David for $15,000. David delivers three hundred watches to Liz, who receives and accepts the watches. Is this contract enforceable? UCC or Common Law? Why/why not? UCC. The oral contract is enforceable to the extent of three hundred watches ($4,500)—those received and accepted—but is unenforceable to the extent of seven hundred watches ($10,500). parties enter into an oral contract to sell for $450 a motorcycle to be delivered to the buyer and later, prior to delivery, orally agree that the seller shall paint the motorcycle and install new tires and that the buyer shall pay a price of $550. Is this modified contract enforceable? No. Under UCC, since the modified contract is now worth more than $500, an oral contract is unenforceable (312) Parties have a written contract for the sale of two hundred bushels of wheat at a price of $4.00 per bushel and later orally agree to decrease the quantity to one hundred bushels at the same price per bushel, the agreement as modified is for a total price of $400. Is this oral contract enforceable? Yes. They're bringing the price under $500. Under UCC that makes the contract enforceable. (312) Jones and Brown enter into a written contract of employment for a two-year term. Later they orally agree to rescind the contract. Is this contract rescinded? Yes. Problem doesn't state its under statute of frauds. (312) Sid and Gail enter into an oral agreement that Sid will sell Blackacre to Gail for $5,000. Sid subsequently receives a better offer and sends Gail a signed letter, which begins by reciting all the material terms of the oral agreement. The letter concludes: "Because my agreement to sell Blackacre to you for $5,000 was oral, I am not bound by my promise. I have since received a better offer and will accept that one." Does Gail have a right to the land? Concept? Yes. Gail has a right to the land because a memorandum that sufficiently outlines the details of an agreement and is signed actually is sufficient for it to be a written contract under the statute of frauds. Gail didn't sign, so she isn't bound. But she can force Sid to sell her the land. (313) Brown Co. and ANM Industries enter into an oral contract that provides that ANM will deliver twelve thousand shirts to Brown at $6.00 per shirt. Brown sends a letter to ANM acknowledging the agreement. The letter is signed by Brown's president, contains the quantity term but not the price, and is mailed to ANM's vice president for sales. Is this agreement enforceable? Concept? Yes. It's binding to Brown. However, ANM has 10 days to reject otherwise its binding to them too. (314-15) Kirkland, a painter, and Riggsbee, a homeowner, make an oral contract under which Riggsbee is to give Kirkland a certain tract of land in return for the painting of Riggsbee's house. Enforceable? No. Statute of frauds. (315) Matthew makes an oral contract to furnish services to Rachel that are not to be performed within a year and Rachel discharges Matthew after three months, Can Matthew recover? Why/why not? Yes. Even though it's an unenforceable contract. He can seek restitution for the value of the services rendered since he acted upon them. (315-16) Lenny enters into an oral contract to sell land to Elaine, and Elaine pays a portion of the price as a down payment. Lenny subsequently repudiates the oral contract. Can Elaine recover from Lenny? Why/why not? Elaine may recover in restitution the portion of the price she paid. A party to a contract that is unenforceable because of the statute of frauds may have, nonetheless, acted in reliance upon the contract. In such a case, the party may recover in restitution the benefits he conferred upon the other in relying upon the unenforceable contract. (316) Tailor Ken contracts to make a suit of clothes to Dick's satisfaction and that Dick promises to pay Ken $850 for the suit if he is satisfied with it when completed. Ken completes the suit using materials ordered by Dick. The suit fits Dick beautifully, but Dick tells Ken that he is not satisfied with it and refuses to accept or pay for it. Is Ken entitled to recover $850? Concept? Ken is not entitled to recover $850 or any amount from Dick because the express condition did not happen. Where satisfaction relates to a matter of personal taste, opinion, or judgment, the law applies the subjective satisfaction standard, and the condition has not occurred if the promisor is in good faith dissatisfied. (348) Rachel promises to buy Justin's land for $50,000, provided Rachel can obtain financing in the amount of $40,000 at 10 percent or less for thirty years within sixty days of signing the contract. Rachel isn't able to obtain financing. Is she bound by this duty? If the condition is satisfied, Rachel is bound to perform; if it is not met, she is not bound to perform. Rachel, however, is under an implied-in-law duty to use her best efforts to obtain financing under these terms. (350) Joe orders a custom-made, tailored suit from Peggy to be made of wool, but Peggy makes the suit of cotton instead. Assuming that the labor component of this contract predominates and thus the contract is not considered a sale of goods, has Peggy has materially breached the contract? Yes. Consequently, Joe is discharged from his duty to pay for the suit, and he may also recover money damages from Peggy for her breach. (351) An unjustified failure to perform substantially the obligations promised in a contract is a material breach. Matthew has contracted to grow a certain crop for Richard and Richard plows the field and destroys the seedlings Matthew has planted. Is Matthew discharged from his duty under the contract? Concept? His interference with Matthew's performance discharges Matthew from his duty under the contract. It does not, however, discharge Richard from his duty under the contract. Prevention of Performance One party's substantial interference with, or prevention of, performance by the other generally constitutes a material breach that discharges the other party to the contract. (351) Peggy, the tailor, used the correct fabric but improperly used black buttons instead of blue, when she made a suit for Joe. Can she collect from Joe? . Concept? Yes, she would be permitted to collect from Joe the contract price of the suit less the damage, if any, caused to Joe by the substitution of the wrongly colored buttons. Substantial performance is performance that, though incomplete, does not defeat the purpose of the contract. (352) Adam builds a $300,000 house for Betty but deviates from the specifications, causing Betty $10,000 in damages. The courts considered this a breach, and Betty does not have to pay for the house that is now on her land. Can Adam recover from Betty? Because Adam's performance has been substantial, the courts would probably not deem the breach material, and he would be able to collect $290,000 from Betty. (352) If Dan owes Sara $500, and the parties agree that Dan will paint Sara's house in satisfaction of the debt, does Dan's performance discharge the debt? Concept? When Dan performs the accord by painting Sara's house, he will by satisfaction discharge the $500 debt. An accord is a contract by which an obligee promises to accept a stated performance in satisfaction of the obligor's existing contractual duty. The performance of the accord, called a satisfaction, discharges the original duty. (354) B owes A $500 and A, B, and C agree that C will pay the debt and B will be discharged. Does C's payment discharge B? Concept? Yes, C's payment discharges B. Concept: novation is a substituted contract that involves an agreement among three parties to substitute a new promisee for the existing promisee or to replace the existing promisor with a new one. A novation dis- charges the old obligation by creating a new contract in which there is either a new promisee or a new promisor. (355) a jockey contracts to ride a certain horse in the Kentucky Derby and the horse dies prior to the derby, is this contract discharged ? concept? Yes, it discharges the duty to perform. concept: the common law excuses a party from contractual duties only for objective impossibility, that is, for situations in which no one could render performance. 356 Ken contracts to lease to Karlene a certain ballroom for a party on a scheduled future date. The room is destroyed by fire. is the contract discharged? destruction of the ballroom by fire without Ken's fault before the scheduled event discharges the contract. (356) concept: the common law excuses a party from contractual duties only for objective impossibility, that is, for situations in which no one could render performance. Linda contracts to sell and deliver to Carlos ten cases of a certain whiskey each month for one year. A sub- sequent prohibition law makes the manufacture, transportation, or sale of intoxicating liquor unlawful. Is she obligated to perform? concept? No. Subsequent illegality discharges duty of performance under the contract 356 the seller has performed prior to receiving pay- ment under a contract discharged for impossiblity, frustration, or impractibility, do they have a claim to restitution? concept? Yes. provides that a person who renders more advanced performance under a contract that is discharged for impossibility, subsequent illegality, frustration, or impracticability is entitled to restitution to prevent unjust enrichment of the other party. 358 Jacob sells an automobile to Juliet, expressly warranting that it will get forty-five miles per gallon; but the automobile gets only twenty miles per gallon. The automobile would have been worth $24,000 if as warranted, but it is worth only $20,000 as delivered. Can Juliet recover from Jacob damages ? Concept? Juliet would recover $4,000 in damages for loss of value. loss of value is the dif- ference between the value of the promised performance of the breaching party and the value of the actual per- formance rendered by the breaching party. (366) Clinton agrees to build a hotel for Debra for $11 million by September 1. Clinton breaches by not completing construction until October 1. As a consequence, Debra loses revenues for one month in the amount of $400,000 but saves operat- ing expenses of $60,000. Can she recover damages? How much? Concept? she may recover damages for $340,000. loss of value is the dif- ference between the value of the promised performance of the breaching party and the value of the actual per- formance rendered by the breaching party. (366) Cost Avoided The recovery by the injured party is reduced, however, by any cost or loss she has avoided by not having to perform. Victor agrees to convey land to Joan in return for Joan's promise to work for Victor for two years. Joan repudiates the contract before Victor has conveyed the land to Joan. How much can victor recover? Victor's recovery for loss from Joan is reduced by the value to Victor of the land. 366 In a contract in which the injured party has not fully performed, the injured party's recovery is reduced by the value to the injured party of the performance the injured party promised but did not render. 366 Agnes employs Benton for nine months for $40,000 to supervise construction of a factory. She then fires Benton without cause after three weeks. Benton, who spends $850 in reasonable fees attempting to find comparable employment, seeks to recover these fees from Agnes. Can he? Concept? He may recover $850 in incidental damages in addition to any other actual loss he has suffered. You can recover incidental damages (damages that arise directly out of the breach, such as costs incurred to acquire the nondelivered performance from some other source.) 366 Tracy leases to Sean a defective machine that causes $40,000 in property damage and $120,000 in personal injuries. How much can Sean recover? Sean may recover, in addition to damages for loss of value and incidental damages, $160,000 as consequential damages. Consequential damages are damages not arising directly out of a breach but arising as a foreseeable result of the breach. 367 Donald agrees to sell his retail store to Gary, who spends $750,000 in acquiring inventory and fixtures. Donald then repudiates the contract, and Gary sells the inventory and fixtures for $735,000. neither party can establish with reasonable certainty what profit Gary would have made. What can Gary recover from Donald? Gary may recover damages the loss of $15,000 he sustained on the sale of the inventory and fixtures plus any other costs he incurred in entering into the contract. 367 Emily intentionally misrepresents the capabilities of a printing press and thereby induces Melissa to purchase the machine for $20,000. Though the value of the press as delivered is $14,000, the machine would be worth $24,000 if it performed as represented. What would she recover in majority states? Concept? Damages are equal to the difference between the value of what she has received and the value of the fraudulent party's performance as represented. Benefit-of-bargain rule 368 Emily unintentionally misrepresents the capabilities of a printing press and thereby induces Melissa to purchase the machine for $20,000. Though the value of the press as delivered is $14,000, the machine would be worth $24,000 if it performed as represented. What would she recover in majority states? Concept? Under the out-of-pocket rule, Melissa would recover $6,000 (majority of states for non-fraudulent representation). Madeline breaches a contract with Jane, causing Jane, due to special circumstances, $10,000 in damages when ordinarily such a breach would result in only $6,000 in damages. How much is Madeline liable to Jane for? Concept? $6,000, not $10,000, provided that Madeline was unaware of the special circumstances causing Jane the unusually large loss. Foreseeability of damages: compensatory or reliance damages are recoverable only for loss that the party in breach had reason to foresee as a probable result of a breach when the contract was made. Earl is under a contract to manufacture goods for Karl and Karl repudiates the contract after Earl has begun performance, Earl continues to manufacture goods. Can he recover for these additional goods he makes? Concept? No, he will not be allowed to recover for losses he sustains by continuing to manufacture the goods; unless he finished the goods to help eliminate damages because he can sell to someone else. Mitigation of damages - mitigation of damages, the injured party may not recover damages for loss that he could have avoided with reasonable effort and without undue risk, burden, or humiliation. 371 Acme Insurance Co. and Bell agree that for good consideration, Acme will issue an annuity paying $500 per month. Because of a clerical error, the annuity policy is issued for $50 per month. Can Bell change the policy to $500 a month. Why/why not? A court of equity, upon satisfactory proof of the mistake, will reform the policy to provide for the correct amount—$500 per month. Courts work to restore contracts to what the intent was among the parties when there's an error in drafting the contract 373 Carmen, an accomplished concert pianist, agrees to appear at a certain time and place to play a specified program for Rudolf, will a court issue a decree of specific performance upon her refusal to appear? No, courts won't grant specific performance of contracts when its a personal service 373 Clint enters into a written contract to give Janice the right of first refusal on a tract of land owned by Clint. Clint, how- ever, subsequently offers the land to Blake without first offering it to Janice. What might a court of equity do in reaction? Issue an injunction to order him to stop performance 375 Allan makes a contract with Marlene, a famous singer, under which Marlene agrees to sing at Allan's theater on certain dates for an agreed-upon fee. Before the date of the first performance, Marlene makes a contract with Craig to sing for Craig at his theater on the same dates. What will a court of equity do here? Although Allan cannot obtain specific performance of his contract by Marlene, a court of equity will, on suit by Allan against Marlene, issue an injunction against her, ordering her not to sing for Craig. 375 Nathan agrees to sell land to Milly for $160,000, and Milly makes a partial payment of $15,000. Milly then repudiates the contract. Nathan sells the land to Murray in good faith for $155,000. How much can Milly recover from Nathan in restitution? Concept? Milly may recover from Nathan in restitution the part payment of the $15,000 less the $5,000 damages Nathan sustained because of Milly's breach, which equals $10,000. A partly performing party whose material breach prevents a recovery on the contract has a claim in restitution against the recipient of performance, as necessary to prevent unjust enrichment. 376 Wilton makes an oral contract to furnish services to Rochelle that are not to be performed within a year and Rochelle discharges Wilton after three months. Can Rochelle recover from Wilton? Concept? Wilton may recover in restitution the value of the services rendered during the three months. Restitution is the act of return- ing to the aggrieved party the consideration, or its value, that he gave to the other party. The purpose of restitution is to restore the injured party to the position he was in before the contract was made. 376 Sanford enters into an oral contract to sell land to Betty, and Betty pays a portion of the price as a down payment. Sanford subsequently repudiates the oral contract. Can Betty recover from Sanford? Concept? Betty may recover in restitution the portion of the price she paid. Restitution is the act of returning to the aggrieved party the consideration, or its value, that he gave to the other party. The purpose of restitution is to restore the injured party to the position he was in before the contract was made. 376 Samuel fraudulently induces Jessica to sell land for $160,000. Samuel pays the purchase price, and Jessica conveys the land. Jessica then discovers the fraud. Can Jessica recover the land? Why? Jessica may disaffirm the contract and recover the land as restitution, but she must return the $160,000 purchase price to Samuel. 376 A party who has rescinded or avoided a contract for lack of capacity, duress, undue influence, fraud in the inducement, non-fraudulent misrepresentation, or mistake is entitled to restitution for any benefit he has conferred on the other party. Pam was induced to purchase a ring from Sally through Sally's fraudulent misrepresentation. If, after learning the truth, Pam undertakes to sell the ring to Janet , can she rescind the contract with Sally? Concept? No, if she tries to sell the ring, or does something else that is consistent only with her ownership of the ring, she may no longer rescind the transaction with Sally. Affirmance: A party who has the power to avoid a contract for lack of capacity, duress, undue influence, inducement, non-fraudulent misrepresentation, or mistake will lose that power by affirming the contract. 377 A transfers property to B in a transaction that is voidable by A, and B sells the property to C (a good faith purchaser for value) before A exercises the power of avoidance, Will A lose the right to recover the property. Why/why not? Yes she loses the right to recover the property. Rights of Third Parties: The intervening rights of third parties further limit the power of avoidance and the accompanying right to restitution in a sale that could have been remedied. Albert parks his car in front of his house. Later, Ronald pushes Albert's car around the corner. Albert subsequently looks for his car but cannot find it for several hours. What is Ronald liable to Albert for? Ronald is liable to Albert for trespass. Barbara entrusts an automobile to Ken, a dealer, for sale. After he drives the car eight thousand miles on his own business, Ken is liable to Barbara for what? Definition? Coversion: an intentional exercise of dominion or control over another's personal property that so seriously interferes with the other's right of control as justly to require the payment of full value Calvin may offer Becky, an employee of Fran under a contract that has two years left, a yearly salary of $5,000 per year more than the contractual arrangement between Becky and Fran. If Calvin is aware of the contract between Becky and Fran and of the fact that his offer to Becky will interfere with that contract, is Calvin liable to Fran? Yes Calvin is liable to Fran for intentional interference with contractual relations. (147) Intentional interference w/ contractual relations Simon, while contemplating the purchase of a stock of merchandise that belongs to Marie, reads an advertisement in a newspaper in which Ernst falsely asserts he owns the merchandise. What issue has Ernst caused here? Disparagement. intentionally false statements that cast doubt on another's right of ownership in or on the quality of another's property or products. 148 Smith misrepresents to Jones that a tract of land in Texas is located in an area where oil drilling has recently commenced. Smith makes this statement knowing it is not true. In reliance upon the statement, Jones purchases the land from Smith. Is Smith Liable? Why/why not? Smith is liable to Jones for intentional or fraudulent misrepresentation. 149 A statute enacted to protect employees from injuries requires that all factory elevators be equipped with specified safety devices. Arthur, an employee in Leonard's factory, and Marian, a business visitor to the factory, are injured when the elevator fails because the safety devices have not been installed. What will the court do against Leonard for Arthur? For Marian? The court may adopt the statute as a standard of conduct as to Arthur, and hold Leonard negligent per se (negligent because it violates a statute). as to Arthur, but not as to Marian, because Arthur, not Marian, is within the class of persons the statute is intended to protect. Marian would have to establish that a reasonable person in the position of Leonard under the circumstances would have installed the safety device. Alice innocently drives her car into Frank, rendering him unconscious. Alice leaves Frank lying in the middle of the road, where he is run over by a second car driven by Rebecca. Is Alice liable to Frank? Alice is liable to Frank for the additional injuries inflicted by Rebecca. Ann finds Ben drunk and stumbling along a dark sidewalk. Ann leads Ben halfway up a steep and unguarded stairway, where she then abandons him. Ben attempts to climb the stairs but trips and falls, suffering serious injury. Is Ann liable to Ben? Ann is liable to Ben for having left him in a worse position. Don is employed by Welch Repair Service, which knows that Don had several episodes of assault in his previous employment. Don goes to Traci's residence, where he had previously been dispatched by Welch, and misrepresents to Traci that he is there on Welch business to check repairs that had previously been made in Traci's home. After Traci admits Don, he assaults Traci. Is Welch liable liable to Traci? Welch is subject to a duty under this subsection with regard to Don's assault on Traci. 160 David's store has a large glass front door that is well lighted and plainly visible. Maxine, a customer, mistakes the glass for an open doorway and walks into the glass, injuring herself. No, reasonably she should've seen the glass. Arnold fails to erect a barrier around an excavation. Doyle is driving a truck when its accelerator becomes stuck. Is Arnold held responsible for negligence? No. Arnold's negligence is not a cause in fact of Doyle's death if the runaway truck would have crashed through the barrier even if it had been erected. Richard, a hunter, finishes his day in the field and stops at a friend's house while walking home. His friend's nine-year-old daughter, Kim, greets Richard, who hands his loaded shotgun to her as he enters the house. Kim drops the shotgun, which lands on her toe, breaking it. Is Richard liable? Although Richard was negligent for giving Kim his shotgun, the risk that made Richard negligent was that Kim might shoot someone with the gun, not that she would drop it and hurt herself (the gun was neither especially heavy nor unwieldy). Kim's broken toe is outside the scope of Richard's liability, even though Richard's tortious conduct was a factual cause of Kim's harm.