Contracts Flashcards

An offeror offers to sell a parcel of land to an offeree for $10,000, stating that the offer shall remain open for 30 days. The offeree replies that she will keep the offeror’s offer under advisement but says, “We can wrap this up immediately if you’ll take $9,000.” The offeror does not reply, but within the 30-day period the offeree accepts the original offer. The offeror, however, replies that he now wants $12,500. Was a contract formed when the offeree accepted the $10,000 offer?

Answer: Yes, because the offeree was able to keep the original offer with the 30-day window open by stating that he was keeping it under advisement.

A counter-offer typically terminates the original offer, but an inquiry or negotiation does not. The offeree's statement, 'We can wrap this up immediately if you’ll take $9,000,' coupled with her intention to keep the original offer 'under advisement,' indicates an exploration of terms rather than a definitive rejection. Since the original offer explicitly stated it would remain open for 30 days, it created an option period, and the offeree's subsequent acceptance within that period was valid.

A roofer offers to completely refurbish a homeowner’s roof for $1,000. The next day the roofer realizes he’s not going to make much, and he sends a revocation of the offer in the mail to customer. On the third day the homeowner puts a letter in the mailbox accepting the offer. On the fourth day the homeowner receives the roofer’s revocation letter. Was a contract formed between the homeowner and the roofer or was the revocation effective?

Answer: The acceptance was effective on posting but the revocation does not become effective until received; thus, a contract was formed when the acceptance was placed in the mailbox.

Under the mailbox rule, an acceptance is generally effective when dispatched (e.g., placed in the mailbox), provided the offer was made by mail or a similar non-instantaneous means. Conversely, a revocation of an offer is only effective when it is *received* by the offeree. In this case, the homeowner's acceptance was effective upon mailing on day three, forming a contract, before the roofer's revocation letter was received on day four.

A 16-year-old minor went to a used car dealer with his aunt and grandmother. The minor purchased a used car in “as is” condition. The purchaser was listed as the minor; his relatives were not on the agreements. The boy discovered later that the drive shaft was bent and he returned the car with a demand for a refund of the $2,000 purchase price. The dealer refused to give a refund, citing the assistance and verbal assurances by the aunt and grandmother. They also gave him funds to make the purchase. Is the contract still voidable by the minor so that he can get a refund of the purchase price?

Answer: The participation in this case by the adults did not change the rule that a contract entered into by a minor is voidable by that minor – he’s entitled to a refund.

Contracts entered into by minors (typically individuals under 18) are generally voidable at the minor's option. The presence or assistance of adults who are not parties to the contract does not alter the minor's right to disaffirm. Since the contract was solely between the minor and the dealer, the minor retains the power to void the contract and is entitled to a refund of the purchase price.

A retail store runs an advertisement in the local newspaper stating: “Only 3 cashmere sweaters remaining; highest quality; real Polo; one grey, one maroon and one beige; on closeout, starting 9 a.m. Saturday, $5.00 each, first-come, first-served.” A store customer was the first to arrive on Saturday morning. He located the three advertised sweaters, picked them up, handed $15.00 to the clerk, and demanded all three sweaters at $5 each. The clerk stated that the store’s price on each sweater was actually $50 each. The customer demanded the advertised price. Who has the superior legal position?

Answer: The customer, because the terms of the advertisement were definite enough to constitute an offer and the offer was duly accepted.

While advertisements are usually invitations to make an offer, this advertisement was sufficiently definite and specific to constitute a binding offer. It specified the exact items, quantity ('Only 3'), price ('$5.00 each'), and method of acceptance ('first-come, first-served'). By being the first to arrive and tendering the exact price for the specified items, the customer duly accepted the offer, forming a valid contract.

An auto retailer started a marketing promotion on a new hybrid model sedan. It advertised that anyone who purchased the car in 2013 and did not get at least 50 miles per gallon average gas mileage during the first 60 days, would receive a payment of $10,000 cash from the company. Record-keeping and inspection procedures were required to assure accurate reporting by the vehicle owner. The promotion was widely publicized. A female customer purchased a hybrid model during the promotion period, followed all the rules, and recorded only 42 mpg in the first 60 days. She demanded the rebate but the company stalled for months and then stopped responding to her inquiries. Does she have a contractual right to collect the $10,000?

Answer: Yes, this was a unilateral contract in which the offeree acted upon the offer by performing the terms of the offer, thus creating a binding contract.

This scenario describes a unilateral contract, where an offer invites acceptance by performance rather than a promise. The auto retailer made a clear offer promising $10,000 for a specific performance: purchasing the car, following the rules, and achieving less than 50 mpg. The customer's actions of purchasing the car, adhering to the rules, and recording the mileage constituted the requested performance, thereby accepting the offer and creating a binding contract.

A small business sued an insurance company in federal court for failing to pay certain claims made. After completion of discovery, the insurer filed a motion for summary judgment, requesting dismissal of the lawsuit. In the meantime, the parties went to a scheduled settlement conference with the federal magistrate judge and agreed to settle for $75,000. The district court judge had, however, granted the pending summary judgment motion and issued an order of dismissal a day earlier. The dismissal order, however, had not been docketed and no judgment was entered of record. When the district judge learned of the settlement, she rescinded the order of dismissal and instead ordered the settlement agreement to be docketed. The insurer’s attorney then moved to have the settlement rescinded on the basis of mutual mistake. What is the best and most likely decision of the United States Court of Appeals when it hears the case on appeal?

Answer: The settlement contract is binding because the insurer knew it had a pending motion when it agreed on a settlement, thus it assumed the risk of these developments and cannot now complain.

A contract will not be rescinded for mutual mistake if one party bears the risk of that mistake. Here, the insurer was aware of its pending summary judgment motion when it agreed to the settlement. By entering into the settlement, the insurer implicitly assumed the risk that the motion might be decided in its favor or against it, and therefore cannot now claim mutual mistake regarding the motion's status. The settlement agreement is binding.

A man purchased a pickup truck from a used car dealer. He made it clear to the salesperson that he needed a vehicle powerful enough to be used in his timber hauling business. The agent represented that the truck would last for hauling timber, because the engine was totally rebuilt and like new. Based on such assurances, the man purchased the truck. The sales contract papers did not mention any warranties nor did it exclude any. After hauling timber for three months with the pickup, it stopped running one day while carrying a full load. The engine had cracked and was rendered useless. The purchaser sued the seller of the truck asking for damages, including what it cost to purchase and install a new engine. The purchaser claimed a breach of implied warranties. The court held a bench trial. Which of the following is the most likely and most applicable decision, considering applicable U.C.C. principles?

Answer: In this case, there was an implied warranty of merchantability and an implied warranty of fitness for a particular purpose.

Under the UCC, two implied warranties apply here. An implied warranty of merchantability arises because the seller is a merchant, guaranteeing the truck is fit for its ordinary purpose. Additionally, an implied warranty of fitness for a particular purpose arises because the salesperson knew the buyer's specific purpose (hauling timber) and that the buyer was relying on the salesperson's representation that the engine was 'like new' and suitable for that use. Both warranties were breached when the engine failed.

A drywall subcontractor submitted an offer to a general contractor for proposed drywall work on a small office building being constructed. The bid was for $20,000 for all drywall supplies and labor. The contractor factored the experienced subcontractor’s bid into its final bid and was awarded the contract. A few days later the subcontractor informed the contractor that it had worked on the figures and realized that it underestimated the cost of the project. The subcontractor refused to do the job for less than $35,000. The contractor hired another subcontractor to do the work for $30,000 and sued the first subcontractor for the $10,000 difference over the original bid of $20,000. Will the court likely award the $10,000 to the contractor and against the first subcontractor?

Answer: Yes, because the contractor had reasonably relied on the subcontractor’s offer when making its bid, and it suffered a detriment that can only be avoided by enforcement of that offer.

This is a classic application of promissory estoppel in construction bidding. While a subcontractor's bid is generally revocable before acceptance, a general contractor's reasonable and foreseeable reliance on that bid when submitting its own prime bid can make the subcontractor's offer irrevocable. The contractor suffered a clear detriment by having to pay more to another subcontractor due to its reliance, and enforcing the original bid is necessary to prevent injustice.

A candy manufacturer used pre-printed purchase order forms to purchase separate orders of baking sugar from a supplier. The supplier responded to each order by sending the shipment along with its own printed form confirming the shipment and the terms. According to the manufacturer, the last shipment contained spoiled sugar. The manufacturer filed a complaint in state court alleging breach of contract and damages. The supplier filed a motion to have the dispute transferred to arbitration. The manufacturer’s purchase order forms were silent as to the mode of settling disputes, but the supplier’s form contained a clause calling for “any controversy or claim” to be settled by arbitration. The manufacturer was silent as to the arbitration clause. What is the likely decision of the court?

Answer: The clause did not automatically become a part of the contract because it materially altered the offer, thus there is no transfer to arbitration.

Under UCC § 2-207, an additional term in an acceptance between merchants becomes part of the contract unless it materially alters the offer. An arbitration clause is generally considered a material alteration because it significantly impacts the parties' rights and remedies by changing the forum for dispute resolution. Therefore, the arbitration clause did not automatically become part of the contract without the manufacturer's express assent, and the case will not be transferred to arbitration.

A professional hockey player was traded from one team to another, with his existing contract being assigned to the new team. The contract had an option to require the four-time all-star player to sign a new three-year contract at a newly negotiated amount. The new team exercised the option. After successful negotiations, they agreed on and signed a three-year contract. However, that team later discovered that the player also signed a one-year contract with another team. Despite demands, the player has failed to assure his new team that he is going to honor the three-year contract. For that reason, the team filed an action requesting injunctive relief. What will the court most likely decide?

Answer: There is an anticipatory repudiation of the valid three-year contract, and an injunction will issue because money damages are inadequate to replace the players highly unique and special services.

The player's action of signing a contract with another team constitutes an anticipatory repudiation of his valid three-year contract. Injunctive relief is appropriate because money damages are inadequate to compensate for the loss of a highly unique and special service, such as that of a professional athlete. Courts often grant injunctions to prevent such unique individuals from performing for a competitor when they have breached a valid contract.

A married couple had a rocky relationship but remained together for many years. There was a prenuptial agreement protecting the husband’s substantial separate property from the wife’s potential claims. The husband got cancer and was fighting a battle for survival. He asked her to remain at home and take care of him, as he feared being sent to a nursing home or a hospice. She agreed, but only if he gave her several additional parcels of property. He died soon thereafter, without having made deeds or changes to his will regarding the promised properties. She later sued the decedent’s estate for the properties, claiming a contract. She asserted she would likely have left him if he hadn’t promised the additional properties. What is the most likely decision of the court?

Answer: There was no contract formed because a spouse has a duty to care for the other in times of illness, and allowing such agreements is contrary to public policy.

Contracts between spouses for services that are already part of their marital duties, such as caregiving during illness, are generally unenforceable due to public policy. The law presumes that spouses owe each other support and care, and allowing such agreements could undermine the marital relationship. Therefore, the wife's promise to care for her husband was not valid consideration for the additional property, and no enforceable contract was formed.

A man (offeror) sent an offer by letter to sell his 2010 Mercedes Benz to a prospective buyer (offeree), and stated, “I suggest that you mail me your response quickly and advise whether you accept this offer.” The offeree immediately accepted by leaving a message on the offeror’s answering machine, at the phone number the parties had previously used to communicate with each other in prior transactions. The offeree didn’t know that the offeror sometimes neglected to check his phone messages in a timely manner. Thinking that he received no response, the offeror signed three days later to sell to another party. On the fourth day the offeree came to the offeror’s house with the cash, demanding to take the car. He was turned away and sued the offeror for specific performance. Does the offeree have a superior contractual right to the car?

Answer: Yes, because a reasonable interpretation of the offer does not indicate that return mail was the sole and exclusive method of acceptance, and timely acceptance by telephone formed a contract.

Unless an offer explicitly states that acceptance must be made by a specific, exclusive means, acceptance can be made by any reasonable method. The offeror's suggestion to 'mail me your response quickly' did not make mail the *sole* method of acceptance. Given the parties' prior use of the phone, leaving a message on the answering machine was a reasonable and timely method of acceptance, forming a contract before the offeror sold the car to another party.

A husband applied for a life insurance policy for $50,000 on his life, listing his wife as the beneficiary. He paid the insurance company an initial amount of $100 at the time of submitting the application. The agent accepted the down payment, which represented two months of the premium payment. In exchange for this payment, the agent gave the husband a "conditional receipt." A few days later the husband died in an auto accident. The wife as beneficiary demanded payment despite the fact that the insurance company had not officially issued a policy and the husband had not taken a required medical examination required in the wording of the application. The company denied liability, asserting that certain conditions contained in the application and in the conditional receipt (namely the taking of the medical examination) had not been fulfilled by the applicant. The insurer claimed that the condition precedent (the medical examination) was never performed and the contract was not formed. What is the most likely decision of the court?

Answer: The conditional receipt stood as the temporary formation of a contract of insurance until the company made a final decision on whether to issue a policy.

A conditional receipt, issued upon payment of an initial premium, often creates a temporary contract of insurance, subject to certain conditions. This temporary coverage is intended to protect the applicant while the insurance company processes the application and determines final insurability. If the applicant dies during this period, and the conditions for temporary coverage were met (or could have been met), the insurer is typically liable, even if a formal policy was not yet issued or a medical exam not completed.

A contractor agreed with a city government to build it a bridge. The contractor was guilty of undue delay in getting the construction finished. The contract specified liquidated damages of a deduction from the contract price for each day of delay based on how much traffic flow was turned away. The city tried to deduct the damages from the contract price. The contractor, however, pointed out that the city had not yet connected a road to the bridge so that there was no traffic flow and hence no damage to the city. Will the court uphold the liquidated damages clause in favor of the city?

Answer: No, because the purpose of the liquidated damages clause has been frustrated by the city’s own failure to perform, making liquidated damages in this case unnecessary.

Liquidated damages clauses are enforceable if they are a reasonable forecast of actual damages and not a penalty. However, if there are no actual damages whatsoever, or if the party seeking to enforce the clause contributed to the lack of damages, the clause may be unenforceable. Here, the city suffered no actual traffic-related damages from the delay because its own failure to connect a road rendered the bridge unusable, frustrating the purpose of the liquidated damages clause.

The owner of an engineering design company recruited a young man to work as a design engineer in the business development section of the business for two years. The man agreed to relocate from another state. He started working as soon as he arrived, and due to the pressing volume of work the parties never put the agreement in writing. Three months later, the owner fired the young man. The young man sued for damages, claiming that he had a legal right to the job for two years, unless fired for just cause, which the owner did not have. The owner countered that the alleged agreement was in violation of the Statute of Frauds and was void. Which one of the following legal principles did the trial court most likely cite in support of its ruling that the agreement was excepted from the Statute of Frauds and would be enforced?

Answer: The principle of promissory estoppel.

The Statute of Frauds generally requires contracts that cannot be performed within one year to be in writing. However, promissory estoppel can serve as an exception. The owner's promise of a two-year job, the young man's reasonable and foreseeable reliance by relocating, and the resulting detriment (being fired) make it unjust not to enforce the promise. Promissory estoppel allows enforcement to prevent injustice despite the lack of a written agreement.

A dealer ordered “one truckload of western regional first-grade widgets, usual terms and conditions” on a standard order form that he sent to his usual wholesale supplier. The dealer and the supplier had a practice that all shipments would contain standard-sized widgets unless otherwise stated. The truckload arrived and was unloaded but later discovered to contain “extra-large” size widgets, which the dealer could not use. The dealer refused to pay and the manufacturer sued for the ticket price of $223,000. The dealer soon learned that industry standards re-classified the extra-large widgets as “discontinued” and essentially obsolete. At trial, the dealer offered to testify to his standard practices in ordering so as to clarify what he intended to order. The manufacturer objected based on the parol evidence rule. What is the best and most likely decision of the court regarding the objection?

Answer: The dealer’s testimony will be allowed because course-of-dealing testimony that attempts to explain and interpret what is meant by the writing is allowed.

The parol evidence rule generally prevents the introduction of prior or contemporaneous oral agreements that contradict a fully integrated written contract. However, it does not bar evidence of course of dealing, usage of trade, or course of performance to *explain or supplement* the terms of a contract, especially under the UCC for contracts involving goods. The dealer's testimony about standard practices (course of dealing) is admissible to clarify the meaning of terms like 'western regional first-grade widgets' and 'usual terms and conditions.'

An amateur golfer was playing in an amateur golf tournament. When she arrived at the ninth tee she found a new car with signs on it that said: "HOLE-IN-ONE Wins this 2014 luxury sedan.” The name of the a dealership appeared on the sign. Much to everyone’s amazement she inexplicably shot a hole-in-one. She attempted to claim her prize. The dealer refused, claiming that the car had been there from a charity tournament that was held two days earlier. The company admitted to neglecting to remove the car and posted no signs prior to the golfer’s hole-in-one. The golfer sued the dealership demanding delivery of the car. What is the likely decision of the court?

Answer: The golfer performed the act needed to win the prize, which in this case constituted an acceptance of the offer and the formation of an enforceable unilateral contract.

The sign 'HOLE-IN-ONE Wins this 2014 luxury sedan' constituted a public offer for a unilateral contract, inviting acceptance by performance (shooting a hole-in-one). The golfer, seeing the sign, performed the requested act. The dealership's internal mistake about the car's purpose is irrelevant because the offer was publicly displayed and reasonably appeared to be a current offer. Upon performance, a binding contract was formed, obligating the dealership to deliver the prize.

A contractor was performing re-modeling work for a nursing home. The written contract called for a 30-day project in which several common social areas would be refurbished, including dry wall, insulation, carpeting, and painted, along with minor plumbing and cosmetic improvements, for $50,000. About a week after work started, the nursing home director asked the foreman on the job to put in natural wood paneling over the dry wall, and to reduce the total area to be painted. The director also told the foreman to upgrade certain bathroom fixtures. At the end of the project, the final bill was $72,000. The nursing home’s board refused to pay that amount and tendered the $50,000 contract price, claiming that a contract could not be modified without another writing. At trial, the nursing home objected to testimony from the foreman and the nursing home director on the basis of the parol evidence rule. Do you think that the court would order the nursing home to pay the additional money?

Answer: Yes, because a written contract not for the sale of goods can be modified by subsequent oral modification and the parol evidence rule does not apply to modifications made after the written contract is finalized.

For contracts not involving the sale of goods, a written agreement can generally be modified by a subsequent oral agreement, even if the original contract required modifications to be in writing. The parol evidence rule applies to *prior or contemporaneous* agreements, not to modifications made *after* the written contract is finalized. Therefore, the testimony about the oral modifications made after the initial contract was formed is admissible, and the nursing home will likely be ordered to pay the additional amount for the agreed-upon changes.

A regular customer left his car at an auto mechanic’s shop with instructions to: check the engine and tune it up; make sure the brakes were all in good working order; examine the tires; and, to otherwise check and repair all major systems because the customer was going on a long driving tour through other states. No discussion of price or words of agreement were spoken between the parties. When the customer picked up the car, there was a bill for $5,000 left on the seat to his attention. All of the services and parts listed pertained to the areas stated in the customer’s instructions. He refused to pay, claiming that there was no agreement and that the mechanic didn’t get advance approval for all of the repairs. Can he be held responsible for contractual service performed?

Answer: There was an implied-in-fact contract that required the customer’s payment for the services and parts.

An implied-in-fact contract arises from the conduct of the parties, rather than express words. When the customer provided specific instructions to 'check and repair all major systems' for a long trip, and the mechanic performed those services, it created a mutual understanding that the mechanic would be paid for the work. The customer's actions implied a promise to pay for the reasonable value of the services and parts rendered, forming a binding contract.

A woman asked a male friend to hold her valuable antique jewelry in safe storage for her while she traveled in a foreign country. He owned a jewelry store and graciously offered to store the collection for free. He also volunteered to get the jewelry insured at his own expense. She relied on the promises, and turned over the collection to him without the payment of monetary consideration. He forgot to get the jewelry insured, and the collection was stolen in an armed robbery of the jewelry store. When she returned, he refused to compensate her for the stolen collection. Which one of the following legal principles would be her strongest and most accurate claim for remuneration under these facts?

Answer: The principle of promissory estoppel.

While the friend's promise to insure the jewelry was a gratuitous promise lacking consideration, the woman reasonably and foreseeably relied on that promise to her detriment by entrusting him with her valuable collection and not seeking her own insurance. Promissory estoppel allows for the enforcement of such promises to prevent injustice when there has been clear detrimental reliance. The friend's failure to insure, leading to the loss, makes promissory estoppel the strongest claim for remuneration.