Free TX Bar Contracts Questions and Answers 1 — Questions and Answers
Question 1: A furniture dealer sold furniture to a young couple with less than perfect credit. They signed a contract that said that if they purchased new items on the account, they would not own the old purchases until the new ones were paid in full. That provision was in hard-to-read fine print on the reverse side of the agreement.<br> When husband lost his job, they had by that time paid for everything purchased on the account except for one chair they bought a few weeks earlier. The store sued, trying to repossess all furniture ever sold to the couple.<br> Will the couple likely prevail on a defense of unconscionability?
- No, because they might be able to find another store to sell them furniture, which proves that there was no lack of bargaining power.
- No, because the store was nice enough to extend credit; and the couple should be expected to pay for everything before they own any of it.
- Yes, because any time a seller puts terms in fine it is proof of bad faith and unconscionability.
- Yes, because a combination of factors makes it likely that the court will recognize unconscionability under these circumstances. (Correct answer)
Correct answer: Yes, because a combination of factors makes it likely that the court will recognize unconscionability under these circumstances.
Unconscionability in contract law typically involves both procedural (unfair surprise, unequal bargaining power) and substantive (overly harsh or one-sided terms) elements. The contract's fine print, the couple's vulnerable credit situation, and the 'cross-collateralization' clause (where new purchases prevent ownership of old ones) combine to create an oppressive and unfair agreement. A court would likely find this combination of factors sufficient to deem the contract unconscionable, particularly the term that prevents ownership of fully paid-for items due to a new, small debt.
Question 2: The buyer asked a manufacturer to make him 100,000 widgets for $1,000,000. The buyer intended to retail them by mail order sales. The widgets had to have the buyer's logo imprinted on them. The manufacturer ordered the raw material and made a new widget mold that contained buyer's logo.<br> The buyer wanted quick delivery of at least 10,000 right away. The manufacturer rushed the order and sent 10,000 conforming widgets two days later. The buyer paid for the widgets but rejected delivery on the remaining 90,000 widgets.<br> The manufacturer filed suit and claimed damages for breach of contract. Defendant buyer filed a motion to dismiss the complaint on the basis that the statute of frauds was violated in that it was a contract for over $500 that was unenforceable under state law.<br> Will the court likely grant the motion to dismiss?
- Yes, the statute of frauds of frauds must be enforced when it involves goods over $500.
- Yes, the manufacturer did not protect its interests by agreeing to an oral contract and it must pay for its bad business practices.
- No, because there is an exception for goods that are specially made for a buyer. (Correct answer)
- No, the law will enforce the "benefit of the bargain" rule.
Correct answer: No, because there is an exception for goods that are specially made for a buyer.
Under the Uniform Commercial Code (UCC) Statute of Frauds, contracts for the sale of goods over $500 generally must be in writing to be enforceable. However, there is a significant exception for 'specially manufactured goods.' This exception applies when the goods are custom-made for the buyer, are not suitable for sale to others in the ordinary course of the seller's business, and the seller has made a substantial beginning of their manufacture or commitments for their procurement. Here, the custom logo and mold clearly indicate specially manufactured goods, making the oral contract enforceable despite the lack of a writing.
Question 3: A businessperson sent his employee, an administrative assistant, to represent him at a conference where business deals are often negotiated. The principal gave the assistant all of the materials to set up a table with the principal's cards, brochures, promotional materials, price lists and even some order forms with businessperson's logo on them.<br> In addition, the assistant represented to third parties that she was there officially representing the principal and that she was authorized to execute contracts on his behalf. The assistant negotiated a deal for the businessperson with a third party, which the businessperson refused to honor because he did not like the terms that were negotiated.<br> Will the third party likely prevail in enforcing the contract against the businessperson?
- Yes, because the furnishing of the indicia of authority to act to the employee was sufficient proof to bind the principal. (Correct answer)
- Yes, because the principal is bound to the employee's actions whenever he sends an employee to attend a convention on his behalf.
- No, because people dealing with an assistant at a convention have a duty to determine whether that person is in fact an authorized agent.
- No, because the technological revolution makes it easy these days for a potential customer to first confirm the existence of actual authority.
Correct answer: Yes, because the furnishing of the indicia of authority to act to the employee was sufficient proof to bind the principal.
Apparent authority arises when a principal, through their words or conduct, causes a third party to reasonably believe that an agent has authority to act on the principal's behalf, even if actual authority is lacking. By providing the employee with business cards, brochures, price lists, and order forms bearing the principal's logo, and allowing her to represent herself as authorized, the businessperson created the appearance of authority. The third party reasonably relied on these 'indicia of authority,' thus binding the principal to the contract negotiated by the employee.
Question 4: A retailer agreed to purchase an orchard's total cherry production for a 12-month period. The contract included this provision: "Terms: Cash upon delivery — deliveries to be made at least twice per month." The deliveries went as scheduled.<br> At the beginning of the fifth month, the orchard sent notice to the retailer that a load of cherries was ready for pick up. The truck driver, however, forgot to take the retailer's check with him. The orchard turned over the cherries but advised the retailer to pay within three days.<br> The retailer sent the check by mail but it arrived late by two days. The orchard refused to deliver any more cherries. The retailer sued the orchard for breach of the installment contract and demanded the difference in price between the cherries on the open market and what he would have paid under the contract.<br> The orchard claimed that the delayed payment impaired the value of the contract and moved to dismiss. Will the court grant the orchard's motion to dismiss?
- Yes, the agreement called for cash at delivery, which was not done when the driver forgot to deliver the check.
- Yes, the failure to make an installment on time was a breach because time is of the essence in all installment agreements.
- No, there is always a grace period of ten days for any single payment pertaining to an installment contract.
- No, there is always a grace period of ten days for any single payment pertaining to an installment contract. (Correct answer)
Correct answer: No, there is always a grace period of ten days for any single payment pertaining to an installment contract.
Under an installment contract, a single non-conforming installment, such as a slightly delayed payment, does not automatically constitute a breach of the entire contract unless it substantially impairs the value of the whole contract. The UCC generally allows for a party to cure a minor breach. While the contract specified 'cash upon delivery,' a two-day delay in payment for one installment, especially when the goods were delivered and payment was sent, is unlikely to be considered a substantial impairment justifying termination of the entire contract, and a grace period may apply.
Question 5: A young woman joined a social media service that provided networking with other business persons and entities nationwide. The woman discovered that the service was selling her personal profile information, and the information pertaining to thousands of other members, to third party purchasers for tracking of their Internet activities and buying habits.<br> In her class action breach of contract action against the service, she alleged two theories of damages. First, she contended that she and the class members suffered "embarrassment and humiliation" from the disclosure, and second, that she and the others must be compensated for the market value of the information seized.<br> Will the court likely recognize these allegations as sufficient to state a claim for breach of contract?
- Yes, because the service breached the duty of good faith inherent in every contract.
- Yes, because these are common types of damages that are authorized in breach of contract cases.
- No, because Internet laws protect absolutely all communications and downloads of this nature as part of the service's guaranteed scope of free speech rights.
- No, because humiliation is not an item of damages in a breach of contract case, and the unauthorized collection of personal data does not establish an economic loss. (Correct answer)
Correct answer: No, because humiliation is not an item of damages in a breach of contract case, and the unauthorized collection of personal data does not establish an economic loss.
In breach of contract actions, damages are generally limited to economic losses that were foreseeable at the time the contract was made. Damages for emotional distress, such as 'embarrassment and humiliation,' are typically not recoverable in contract cases unless the breach also constitutes a tort or the contract itself was of a highly personal nature where emotional distress was a foreseeable consequence of breach. Furthermore, simply alleging unauthorized data collection without demonstrating a quantifiable economic loss or market value for the 'seized' information may not establish a sufficient basis for contract damages.
Free TX Bar Contracts Questions and Answers 1
A furniture dealer sold furniture to a young couple with less than perfect credit.
They signed a contract that said that if they purchased new items on the account, they would not own the old purchases until the new ones were paid in full.
That provision was in hard-to-read fine print on the reverse side of the agreement.
When husband lost his job, they had by that time paid for everything purchased on the account except for one chair they bought a few weeks earlier.
The store sued, trying to repossess all furniture ever sold to the couple.
Will the couple likely prevail on a defense of unconscionability?