MBE IMMERSION CONTRACTS

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Contracts Questions 1.

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Contracts Questions

Question 1

A software vendor who collected vintage baseball cards as a hobby had in his collec-tion a Roger Maris baseball card, circa 1961, in pristine condition. The vendor knew that the local high school baseball coach would love to add that card to his own collection, so he told the coach that he was interested in selling it. The coach said that he would like to buy the card but did not have the kind of money on hand that he would need. He mentioned that he would, however, be getting a bonus in three weeks. The vendor replied that he could wait three weeks and proceeded to write the following on a piece of paper and hand it to the coach: “I will transfer my 1961 Roger Maris baseball card to the coach if he gives me $2,000 within the next 30 days.” The vendor then signed the paper.

Two weeks later, before the coach could pay the $2,000 to the vendor, the vendor incurred an unexpected debt and gave the baseball card to his creditor as repayment of the debt. The vendor then called the coach to tell him that he was revoking his offer to sell the baseball card to the coach. The coach, who had cleared off his mantel and built a little wooden stand on which to display the card, filed suit against the vendor.

Will the coach likely be successful?

(A) Yes, because the offer to sell was irrevo-cable for 30 days.

(B) Yes, because the vendor wrongfully prevented the fulfillment of the contractual condition.

(C) No, because the confirmatory writing is not binding where only one party is a merchant.

(D) No, because the paper was a revocable offer for a unilateral contract.

Question 2

A seller and a buyer entered into negotiations over the telephone for the buyer to buy widgets from the seller. Following their conversation, the seller sent the buyer a contract, already signed by the seller, agreeing to sell 1,000 widgets to the buyer for a total contract price of $10,000. Upon receipt of the contract in the mail, the buyer signed the contract, placed it in an envelope, and deposited the envelope in the mailbox located in front of the buyer’s office building.

Before the seller received the contract, the buyer had a change of heart. He telephoned the seller and said, “Look, I just can’t make a profit on those widgets. I’m not interested in that contract we talked about.” The seller replied, “That’s all right, I understand. Maybe we can do business some other time.” The next day, the signed contract was delivered to the seller’s office. The seller, also having had a change of heart, decided that he wanted to enforce the contract.

Is the contract enforceable against the buyer?

(A) Yes, because the acceptance occurred prior to rejection.

(B) Yes, because of the parol evidence rule.

(C) No, because the offer to rescind was accepted and that discharged the original contract.

(D) No, because the rejection by telephone voided the acceptance by mail.

2. Contracts Questions

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Question 3

A sporting goods shop owner placed an online order to one of his regular suppliers for 200 12-inch leather softballs at $5 per ball, the supplier’s list price, delivery within seven days. The supplier checked its inventory and discovered that it had only 180 12-inch leather softballs, which it shipped to the shop owner, along with 20 12-inch synthetic softballs. The synthetic softballs had the same list price of $5 per ball. The supplier also emailed to the shop owner the following message: “We did not have enough leather softballs in stock to fill your order. Therefore, we are sending synthetic softballs at the same list price to make up the balance of the shipment—hope you will be able to use them!”

Upon receipt of the shipment and the email, what are the shop owner’s options?

(A) The shop owner may accept the conform-ing part of the shipment and reject the nonconforming part, in which case he must pay the supplier $900 less any damages sustained because of the nonconforming part of the shipment.

(B) The shop owner may accept the shipment, in which case he must pay the supplier $1,000 less any damages sustained because of the nonconforming shipment.

(C) The shop owner may reject the shipment, but the supplier will not be liable for breach of contract.

(D) The shop owner may reject the shipment, in which case he may recover against the supplier for breach of contract.

Question 4

A small parish hired a contractor to build a school wing onto its church for a cost of $200,000 by August 31. The parties entered into a written contract that provided for five progress payments of $40,000 each at various stages of completion. On July 18, after the contractor had spent $160,000 on performance and received $120,000 in progress payments, he notified the parish that he was quitting the project because a more lucrative job came up. The parish hired some local laborers who did construction work for a living to finish the job by August 31 for $120,000, which was a reasonable price given the short notice.

If the parish sues the contractor for breach of contract, and the contractor countersues to recover the $40,000 in costs that he has not been paid, what is the likely award?

(A) The parish can recover $120,000, the cost to complete construction of the wing.

(B) The parish can recover $40,000, the difference between the contract price and the total amount that the parish paid for construction of the wing.

(C) The contractor can recover $40,000, the difference between the amount it expended on performance and the amount it was paid, to prevent the parish’s unjust enrichment.

(D) Neither party can recover anything, because the $40,000 extra that the parish had to pay to complete construction of the wing is offset by the $40,000 difference between the contractor’s expenditures and the payments that the parish made to the contractor.

Contracts Questions 3.

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Question 5

For many years, a farmer has grown and harvested a sizeable wheat crop on his land. On May 1, the farmer entered into an agreement with a bakery to supply the bakery with 10,000 bushels of wheat at $15 a bushel. The agree-ment called for the farmer to deliver the bushels to the bakery’s plant on or before September 1. In mid-July, it became apparent that the year’s wheat crop grown in the United States was going to be substantially smaller than originally antici-pated. As a result, the price of wheat on August 1 rose to $35 a bushel. On August 10, the farmer informed the bakery that he would be unable to deliver any bushels to the bakery on September 1 because he had sold his entire harvested crop to other consumers.

If the bakery sues the farmer for breach of contract, will the bakery prevail?

(A) Yes, as long as it files suit on or after Sep-tember 1.

(B) Yes, regardless of whether it sues before or after September 1.

(C) No, because the sharp increase in the price results in a commercial frustration of the original deal, which excuses the farmer’s performance.

(D) No, because the unforeseen rise in price is a substantial change of circumstances that excuses both parties.

MBE IMMERSION CONTRACTS EXPLANATORY ANSWERS

Contracts Answers 7.

Contracts Answers

Answer to Question 1

(D) The coach will not be successful in his suit, because the writing on the paper was merely an offer for a unilateral contract, which is revocable prior to acceptance. The vendor did, in fact, revoke his offer before the coach accepted. An offer for a unilateral contract is a promise to perform in exchange for a requested performance, and acceptance is achieved by that requested perfor-mance rather than by a return promise. Here, the vendor promised to transfer the baseball card to the coach if the coach performed by tendering $2,000. Thus, he clearly indicated that he was looking for payment rather than a promise, making the offer unilateral and revocable prior to the offeree’s performance. Note that the coach did not make an offer because there was no expression of promise, undertaking, or commitment. He merely expressed that he would like the card but did not have cash. He did not propose any terms. Since the coach’s statement was not an offer, the vendor’s writing could not be an acceptance. (A) is incorrect because the offer was revocable. It was neither an option contract nor a merchant’s firm offer; thus, the vendor was free to revoke it. An option is a promise to keep an offer open for an agreed-upon time and requires consideration. Here, the coach gave no consideration to the vendor to hold the offer open, so this cannot be an option contract. Consideration is not required to make the offer irrevocable if a merchant signs a writing giving assurances that the offer will be held open during the time stated (or, if no time is stated, for a reasonable time not to exceed three months). With a couple of notable exceptions (e.g., warranty of merchantability), most anyone in business is considered a merchant for purposes of Article 2. However, for the merchant rules to apply, the party must be acting in his mercantile capacity. Here, the vendor is in the software sales business and would be considered a merchant for any transaction involving his business—even if it did not involve software. This transac-tion, however, involved the vendor’s personal life (his hobby) rather than his business. Thus, he was not acting in his mercantile capacity and the merchant rules on firm offer and confirmatory memo would not apply to this transaction. (B) is incorrect for two reasons: First, there was no contract, so there was no contractual condition. Second, even if this were a contract, the vendor did not interfere with the condition of the coach paying $2,000. The fulfillment of that condition was completely within the coach’s control, not the vendor’s. (C) is incorrect because the writing is an offer, not a contract or confirmatory memo. If this were a contract, it would be one for the sale of goods priced at more than $500; thus, it would require a writing signed by the party to be charged. Here, there is a writing signed by the party to be charged (the vendor), so there is no need to resort to the confirmatory memo rule. Moreover, to satisfy the Statute of Frauds and bind both parties with a merchant’s confirmatory memo of an oral agreement, both parties must be merchants. As noted above, neither party is a merchant for purposes of this transaction.

Answer to Question 2

(A) The contract is enforceable because the “mailbox rule” applies here. Acceptance by mail creates a contract at the moment of posting, properly addressed and stamped, unless the offer stipu-lates that acceptance is not effective until received, or an option contract is involved. If the offeree sends an acceptance and then rejects the offer, the mailbox rule applies; i.e., a contract is created upon dispatch of the acceptance. Because no option contract is involved here, and the seller’s offer did not state that the buyer’s acceptance would be effective only when received, the buyer’s acceptance was effective the moment he placed the envelope containing the contract in the mailbox. The buyer’s attempt to reject occurred after acceptance took place. Thus, a valid contract was formed and the seller may enforce it. (B) is incorrect because the parol evidence rule is inapplicable to the issue of enforceability. The parol evidence rule applies to prevent the

8. Contracts Answers

introduction of evidence of certain statements made before or concurrently with the execution of a written contract that was intended by the parties to be the complete and final expression of their agreement. These statements are inadmissible to vary the terms of the written agreement. Here, the issue is not the terms of the agreement, but rather whether there is an agreement at all. Note that the parol evidence rule does not prevent the introduction of evidence that affects whether a contract was formed or whether it is valid. Thus, the parol evidence rule would not prevent the introduction of evidence of an oral rescission of the contract. Here, the attempted rescission is ineffective because there was no meeting of the minds. (C) is incorrect because there is no “meeting of the minds” concerning the rescission. A contract may be discharged by an express agreement between the parties to rescind; the agreement to rescind is itself a binding contract. Because the seller did not know that the buyer had accepted the offer, the seller did not know there was a contract to rescind. Thus, seller’s statement that “that’s all right” cannot be construed as acceptance of the buyer’s offer to rescind. Therefore, a contract to rescind was not formed. (D) is incorrect because the telephone rejection did not void the acceptance by mail. As discussed above, if the offeree sends an acceptance first, followed by a rejection, the mailbox rule applies; i.e., a contract is created upon dispatch of the acceptance. Because the buyer’s telephone rejec-tion took place after his acceptance by mail, the rejection was ineffective. While an offeree will be estopped from enforcing the contract if the offeror receives the rejection first and changes his position in reliance on it, the offeror (the seller) is the one wanting to enforce the contract here.

Answer to Question 3

(C) The shop owner may reject the shipment, but the supplier will not be liable for breach of contract because the supplier alerted the shop owner that the shipment was an accommodation. Under Article 2 of the UCC, an offer to buy goods for current or prompt shipment is construed as inviting acceptance either by a promise to ship or by current or prompt shipment. A shipment of nonconforming goods ordinarily is an acceptance creating a bilateral contract as well as a breach of that contract. The result is different if the seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation to the buyer; in that case, the shipment is a counteroffer, not an acceptance and breach, and the buyer is free to accept it or reject it. (A) is incorrect because, as discussed above, the shipment constituted a counteroffer by the supplier, which the shop owner was obligated to wholly accept or reject. Choices (B) and (D) are incorrect because, without a valid contract, the shop owner cannot recover any damages from the supplier.

Answer to Question 4

(B) The parish can recover $40,000, which is the amount above the contract price that it cost the parish to get the wing completed. In construction contracts, when the builder breaches after partially performing, the standard measure of damages to which the owner is entitled is the cost of completion plus reasonable compensation for any delay in performance (unless completion would involve undue economic waste). In addition, most courts allow the builder to offset or recover for work performed to date if necessary to avoid the unjust enrichment of the owner. Here, the parish paid the contractor $120,000 and had to pay the laborers an additional $120,000. Thus, the total cost of the wing was $240,000, which is $40,000 more than the contract price. No offset will be allowed for the reasons discussed in (C) and (D) below. Hence, the parish can recover $40,000. (A) is incorrect because the cost of completion is determined from the perspective of the owner, i.e., how much additional money did the owner have to pay to above the contract price to have construction completed? Here, the owner (the parish) paid $40,000 more to have the wing completed than it would have paid had the contract been performed to completion. The parish

Contracts Answers 9.

would be unjustly enriched if it could recover another $80,000 beyond the damages it suffered. (C) and (D) are incorrect because the parish was not unjustly enriched by the additional amount that the contractor expended in performance over the progress payments that it received. The parish still had to pay $40,000 more than the contract amount for completion of the wing because of the contractor’s breach. Thus, the parish received no windfall as a result of the contractor’s additional expenditures.

Answer to Question 5

(B) The bakery will prevail regardless of when it sues. The farmer’s statement of August 10 that he would be unable to deliver because he had sold all of his crop to others constitutes a repudiation of the contract, which entitles the bakery to sue at once rather than wait for the September 1 perfor-mance date. [See UCC §2-610] The bakery will prevail unless there have been some unanticipated circumstances that would excuse performance, but a rise in price due to poor crop performance is not sufficient to excuse performance under the doctrine of commercial impracticality. The farmer appears to have repudiated merely to make a greater profit. (A) is incorrect—because the farmer repudiated, the law does not require the bakery to wait until the due date for performance to arrive. It may sue at once. [See UCC §2-610] (C) is incorrect because the facts do not indicate that the farmer has been harmed at all by the price increase, or that he cannot perform the contract with the bakery. As a matter of fact, he is simply attempting to gain a windfall by repudiating the contract with the bakery to sell at a higher price. (D) is incorrect because the facts do not indicate that the circumstances that led to the poor crop were unforeseen. Crop performance is risky and variable, and a poor crop can certainly result in a price increase by virtue of the operation of the law of supply and demand. The farmer must be assumed to have anticipated such possibilities and taken such risks.