FORMATION OF CONTRACTS

MUTUAL ASSENT (7)

A farmer owned a tractor and offered his brother the chance to purchase it. The farmer told the brother that he had to decide
whether he wanted to purchase the tractor within "six months of today's date." The brother paid the farmer $200 that day to keep
the option open. The agreement was reduced to writing, signed by both men, and dated May 15. The farmer died on July 1. On
August 15, the brother notified the executor of the farmer's estate that he wanted to accept the offer to buy the tractor. The
executor refused to sell, and the brother filed suit for the enforcement of the contract.
Is the brother likely to prevail?
Correct Answer: Yes, because the brother paid $200 to keep the option open.
Irrevocable offers

Type Description Consideration Duration

Merchant gives written & signed assurance that offer

UCC Firm offer Not required
will remain open
Specified or
reasonable time
Offeror promises to keep offer open in exchange for
Option contract
consideration
Required
Partial Reasonable time
Common Offeror invites acceptance only by performance &
performance (unilateral for full
law offeree begins to perform
contracts) performance

Offeror could reasonably foresee reliance on offer &

Promissory estoppel* Not required Reasonable time
offeree reasonably relies to his/her detriment

UCC = Uniform Commercial Code.

*Also referred to as "detrimental reliance."
An offer to form a contract generally remains open for the time stated in the offer or, if no time is stated, for a reasonable time.
However, an offer will terminate prematurely if the offeror dies or becomes mentally incapacitated before the offer is accepted—
with one exception. An option contract will not terminate under such circumstances because the offeree gave separate
consideration to keep the offer open for a specified period of time.*
Here, the farmer and the brother entered into a valid option contract on May 15 when the brother paid $200 in consideration to
keep his option to purchase the tractor open for six months. This offer was irrevocable for the entire option period (six months)
even though the farmer died on July 1 (Choice B). Since the brother exercised his option within the six-month period (i.e., before
November 15), he is likely to prevail in his suit to enforce the option contract.
*Under the UCC firm-offer rule, no consideration by the offeree is needed to keep the offer open. But this rule only applies in a
contract with a merchant, which is not the case here. (1,000 × $7.50).

On November 1, the owner of a yacht posted a flyer at a local coffee shop reading, "Yacht for Sale: Make me an offer!" The
flyer also included the owner's phone number. A buyer called the owner on November 3 to ask how much the owner wanted for
the yacht. The owner said, "Well, I'd hate to part with it for less than $55,000, but if you can pay me $50,000 by November 20,
I'd sell it to you. I'll hold onto the yacht for you until then." Elated, the buyer took steps to obtain a loan by November 20. On
November 15, a second buyer called the owner and offered to buy the yacht for $60,000. The owner immediately accepted, and
the second buyer picked up the yacht the next day. On November 20, having obtained a loan, the first buyer visited the owner
with a check for $50,000. The first buyer then learned the owner had already sold the yacht.

Can the first buyer bring a successful suit against the owner for breach of contract?

Correct Answer: Yes, because the owner's offer to the first buyer was still outstanding on November 20.
Rationale:

Termination of offer before acceptance

 Offeror communicates revocation directly to offeree

Offeror's
revocation  Offeree learns information from reliable source that reasonably indicates offer was revoked (eg, house
sold to another buyer)

1. Offeree communicates rejection directly to offeror

Offeree's
rejection 2. Offeree's counteroffer serves as rejection & new offer*

 Time period specified in offer expires

Lapse
 After reasonable time if no time period specified in offer

 Either party dies or is adjudicated insane

By law
 Subject matter of offer is destroyed or becomes illegal

*Counteroffer does not terminate offer if offeree manifests intent to take offer under advisement.

An offer can be accepted at any time before the offer is revoked. The offeror can revoke the offer by manifesting an intent
not to enter into the proposed contract. This can occur in two ways:

 expressly – when the offeror communicates the revocation directly to the offeree

 constructively – when the offeree acquires reliable information that the offeror has taken definite action
inconsistent with the offer

Here, the owner offered to sell the yacht to the first buyer and then sold the yacht to a second buyer. However, the owner never
revoked the offer made to the first buyer, and the first buyer did not otherwise learn of the sale prior to accepting the offer.*
Therefore, a valid contract was formed when the first buyer accepted the offer on November 20, and the first buyer can bring a
successful suit against the owner for breach of contract.

*Had the first buyer learned of the sale from a reliable source prior to acceptance, then the offer would have been terminated
through constructive revocation.

A chemistry professor offered to sell her colleague an autographed first edition of a novel for $1,000. The professor provided her
colleague with a signed written statement specifying the terms of the offer and stating that the offer would remain open for one
week. Two days later, the colleague learned that the professor had sold the book to someone else in their department. The next
day, the colleague showed up at the professor's office with $1,000, asking to purchase the book. The professor apologized,
saying that the book had already been sold.

Is the colleague likely to succeed in an action for breach of contract?

Correct Answer: No, because the colleague learned that the book had been sold before accepting the offer.

Rationale:
Termination of offer before acceptance
 Offeror communicates revocation directly to offeree
Offeror's  Offeree learns information from reliable source that reasonably indicates offer was revoked (eg,
revocation house sold to another buyer)

 Offeree communicates rejection directly to offeror

Offeree's
rejection  Offeree's counteroffer serves as rejection & new offer*

 Time period specified in offer expires

Lapse  After reasonable time if no time period specified in offer

 Either party dies or is adjudicated insane

By law  Subject matter of offer is destroyed or becomes illegal

*Counteroffer does not terminate offer if offeree manifests intent to take offer under advisement.

An offer can generally be revoked by the offeror at any time prior to acceptance. If the offeree acquires reliable information that
the offeror has taken definite action inconsistent with the offer, then the offer is automatically revoked (i.e., constructive
revocation). Once an offer is revoked, it can no longer be accepted and no contract can be formed.

Here, the colleague learned that the professor had sold the book to someone else before the colleague accepted the offer. The
professor's action was inconsistent with—and automatically revoked—the offer because the autographed first edition of the book
was a unique item that the professor could not sell to both the colleague and someone else (Choice C). Since the colleague could
not accept the revoked offer, the colleague is not likely to succeed in this breach-of-contract action.

CONSIDERATION (1)
An honest dispute developed between a condominium owner and a plumber over whether plumbing installed in the kitchen and
bathrooms of the condominium satisfied contractual specifications. If the plumbing met those specifications, the condominium
owner would owe the plumber $15,000 under the terms of the contract. The condominium owner offered to pay the plumber
$10,000 in satisfaction of the owner's contractual obligations if the plumber replaced the plumbing in the kitchen with another
grade of pipe. The plumber accepted the condominium owner's offer. After the plumber replaced the kitchen plumbing, the
condominium owner refused to pay the plumber.
In a breach-of-contract action brought by the plumber, the fact finder determined that the plumbing originally installed by the
plumber did satisfy the contract specifications. The fact finder also determined that the plumber and the condominium owner
entered into a substitute agreement under which the owner failed to deliver the required performance.

What is the maximum amount that the plumber can recover in damages from the condominium owner?

A. Correct Answer: $10,000.

Rationale:

Parties to a contract may agree to change one or both parties' performance through an accord agreement or a substitute
contract:

 Accord agreement – when a party agrees to accept different performance in satisfaction of (i.e., in place of) the
original promise; after breach, the party can sue under either the original contract or the accord agreement.

 Substitute contract – when the parties form a second agreement that immediately discharges the original contract;
after breach, a party can sue under the substitute contract only.

Whether the parties formed an accord agreement or a substitute contract is a fact issue that depends on the formality of the
agreement. The more formal the agreement (e.g., words discharging original duties, consideration on both sides), the more likely
the fact finder will determine that the parties intended to create a substitute contract.

Here, the fact finder determined that the plumber and the condominium owner entered into a substitute agreement. This
discharged the original contract for $15,000, so the plumber may sue only under the substitute contract (Choice B). The
substitute contract required that the condominium owner pay $10,000 for the kitchen plumbing, so that is the maximum amount
that the plumber can recover (Choice D).

PROMISES BINDING WITHOUT CONSIDERATION

A general contractor was preparing a bid to build a "green home" designed to be environmentally friendly and sustainable. The
general contractor received five bids from subcontractors ranging from $22,000 to $29,000 for the installation of solar panels on
the roof of the house. In computing his own bid, the general contractor used the lowest sub-bid of $22,000 for installation of the
solar panels. The general contractor was awarded the contract to build the green home. After winning the bid, the general
contractor was approached by another solar panel installer, who offered to install the solar panels for $20,000. The general
contractor entered into a contract with this installer to mount solar panels onto the roof of the green home.
The subcontractor who had submitted the $22,000 sub-bid learned of the general contractor's contract with the installer and sued
the general contractor for breach of contract.

Will he succeed?

A. Correct Answer: No, because his sub-bid was never accepted.

Rationale:

A subcontractor's bid is merely considered an outstanding offer. This means that a general contractor does not accept a
subcontractor's bid by incorporating it into the overall bid and is not bound to accept the subcontractor's bid upon being awarded
the general contract (Choice D). Therefore, the general contractor here never accepted the subcontractor's $22,000 sub-bid—and
rightfully accepted the installer's $20,000 sub-bid instead.

DEFENSES TO FORMATION
As part of a divorce settlement, an ex-husband purchased an annuity from an insurance company to be paid to his ex-wife so that
she would receive a fixed amount quarterly for the duration of her life. Within a week after the purchase, the ex-wife learned that
she had a fatal illness, which had not previously manifested itself but had existed for some time. She died two months later, prior
to receiving any payments from the annuity.

The ex-husband has filed suit to rescind the annuity contract.

Will the ex-husband be likely to prevail?

A. Correct Answer: No, because the ex-husband assumed the risk of his ex-wife's death.

Rationale:

Mistake as grounds for rescission

Adversely affected party can rescind contract if:

 mistake relates to basic assumption of contract

 mistake materially affects agreed-upon exchange of performances
Mutual mistake
AND

 adversely affected party did not assume risk of mistake

Unilateral mistake In addition to above elements for mutual mistake, either:

 mistake makes enforcement of contract unconscionable

 OR

 nonmistaken party caused, or knew or should have known of, mistake

When both parties are mistaken as to an essential element of a contract (i.e., mutual mistake) at the time the contract is formed,
the contract is voidable by the adversely affected party if:

 the mistake relates to a basic assumption of the contract

 the mistake materially affects the agreed-upon exchange of performances and
 the adversely affected party did not assume the risk of mistake.

A party assumes the risk of mistake if, at the time the contract is formed, the party is aware that he/she has limited knowledge of
the facts and accepts this knowledge as sufficient.

Here, the ex-husband and the insurance company entered into the annuity contract with no knowledge of the ex-wife's illness.
However, the contract cannot be rescinded based on mutual mistake (Choice D). An annuity contract for the duration of
someone's life assumes that the person will die but does not predict when the death will occur. As such, there is an inherent risk
of death before the purchase price is recouped.* Therefore, the ex-husband assumed the risk of the ex-wife's death and is
unlikely to prevail.

*Note that there also is an inherent risk that the person lives longer than predicted, impacting the profitability of the annuity. The
insurance company assumed that risk when it sold the annuity to the ex-husband.

DEFENSES TO ENFORCEMENT
A student inherited a large tract of undeveloped land from an eccentric uncle. The student had no present need for the land, and
because he had numerous student loans, he decided to sell the land. He advertised a proposed sale of the property, and he was
soon contacted by a rancher who owned property adjacent to the offered land. The rancher wanted to purchase the student's
property to expand his ranch and to build facilities for dairy production. The student told the rancher that his car had just broken
down and that he was eager to sell the property quickly so that he could repair his car for his commute to class. Although the
rancher was fully aware of the fair market value of the property, he offered the student a cash price 80 percent less than the
property was worth. The student, disappointed with the low price but desperate to repair his car, accepted the rancher's offer.

On these facts, which of the following legal concepts would give the student the best chance of canceling the contract with the
rancher?

A. Correct Answer: Unconscionability.

Rationale:

Types of unconscionability

Party induced to enter contract without meaningful choice due to deception, compulsion, or significantly
unequal bargaining power—eg:

Procedural
 boilerplate contract provisions that are inconspicuous, hidden, or difficult to understand
 contract of adhesion (ie, take-it-or-leave-it contract) when parties have greatly unequal bargaining
power

Substance of contract itself is duly unfair—eg:

Substantive
 one-sided terms
 gross disparity in value of consideration exchanged

A court may modify or refuse to enforce a contract on the ground that it is unconscionable—i.e., so unfair to one party that no
reasonable person in that party's position would have agreed to it. Unconscionability can be procedural or substantive, and it is
a question of law for the court (not the jury) to decide based on the circumstances. The contract is substantively unconscionable
if the terms are unduly unfair.

Here, the student's best argument for canceling the contract with the rancher is that the contract's substantive terms are
unconscionable. No reasonable person would agree to sell a piece of real property for 80 percent less than it is worth (i.e., for 20
percent of its actual worth). And though there does not appear to be procedural unconscionability, the actual terms of the
contract are so unfair that the court could refuse to enforce the contract.

IMPLIED IN FACT CONTRACTS

A tenant rented a small cabin from a landlord. The lease provided that the tenant was permitted to make structural improvements
to the cabin but that the tenant must pay for such improvements. Relying on this clause in the contract, the tenant contacted a
contractor to install a loft in the cabin for $10,000. The tenant and the contractor agreed in a writing signed by both parties that
payment would be due 30 days after the loft was completed. The contractor knew that the tenant was renting the cabin and sent
the landlord a letter informing him of the impending construction on his property. The landlord received the letter and did not
reply.

The contractor completed the loft, which increased the market value of the cabin by $6,000. Ten days later and three months
before the end of her lease, the tenant vacated the cabin and disappeared. Thirty days after the loft was completed, the
contractor's bill remained unpaid.

If the contractor has no remedy quasi in rem under the jurisdiction's mechanic's lien statute, which of the following will give the
contractor the best chance of recovery in personam against the landlord?

A. Correct Answer: An action in quasi-contract for the benefit conferred on the landlord.

Rationale:

Implied contracts

 Formed when party manifests assent by conduct rather than spoken or written words
Implied-in-fact
 Eg, contractor mistakenly paves driveway & owner does not object

Implied-in-law*  Constructed by court to prevent unjust enrichment when party receives benefit from another
who reasonably expects compensation
("quasi")  Eg, physician treats unconscious person

*Implied-in-law contracts are not true contracts since they lack mutual assent.

A "quasi in rem" remedy is effective against a defendant in reference to property, while an "in personam" remedy is effective
against a defendant directly. In personam remedies are available for most causes of action, including quasi-contract. A plaintiff
can recover in quasi-contract—despite having no contractual relationship with the defendant—if the plaintiff
conferred a non-gratuitous and measurable benefit on the defendant that resulted in unjust enrichment because:

 the defendant had the opportunity to decline the benefit but knowingly accepted it or
 the plaintiff had a reasonable excuse for not giving the defendant an opportunity to decline.

Here, there was no contract between the contractor and the landlord. However, the contractor conferred a measurable benefit on
the landlord by increasing the value of his cabin by $6,000 upon completing the loft. This benefit was non-gratuitous because the
contractor expected compensation for this work. And since the landlord knew about this construction and knowingly accepted it,
the contractor can recover in quasi-contract for the benefit conferred on the landlord.

ASSIGNMENT OF RIGHTS
A licensing agreement provided that a manufacturer could use an inventor's patent in manufacturing its products for 10 years.
Immediately thereafter, the inventor assigned his rights to receive payments pursuant to the licensing agreement to a corporation.
The inventor did not receive compensation for this assignment. The inventor, upon his death five years later, devised his stock in
the corporation to his daughter and all of his remaining property to his son.
To whom should the manufacturer make its payments under the licensing agreement?

A. Correct Answer: The inventor's son.

Rationale:

Assignment of contractual rights

Type Revocability Warranties

Revocable unless:

 obligor already performed

Gratuitous  document symbolizing assigned right (eg,None
stock certificate) delivered
 written & signed assignment delivered
 promissory estoppel applies

Assignor warrants that he/she:

 has right to assign

For value Irrevocable
 is not subject to limitations/defenses
unknown to assignee
 will not defeat/impair assigned rights

An assignment is the transfer of contractual rights to a third party. If an assignment is not supported by consideration, then it is
a gratuitous assignment and is generally revocable (exceptions listed in the table above). A revocable assignment
is automatically revoked upon the death, incapacity, or bankruptcy of the assignor.

Here, the inventor assigned his right to receive payments under a licensing agreement to the corporation without receiving
compensation or other consideration. Therefore, the assignment was automatically revoked upon the inventor's death, and the
right to receive payment returned to his estate (Choice A). Aside from the stock, the inventor devised all of his property to his
son, including the right to receive payment from the manufacturer under the licensing agreement (Choice B). Therefore, the
manufacturer should make payments to the inventor's son.

PAROL EVIDENCE RULE

INTEGRATION
A jeweler and a goldsmith signed a written agreement that provided as follows: "For $3,000, the goldsmith shall sell to the
jeweler a size six gold ring setting that the jeweler shall select from only the goldsmith's white gold ring designs." The agreement
did not address any other specific terms with regard to the business arrangement between the jeweler and the goldsmith.

When the jeweler arrived to select a ring, he refused to select one of the goldsmith's white gold ring designs. The jeweler
claimed that the goldsmith, immediately prior to the execution of the written agreement, had orally agreed to broaden the
jeweler's choices to also include rose gold ring designs. The jeweler also claimed that the goldsmith had, at the same time, orally
agreed to include a set of earring settings, valued at $1,000, as an incentive for the jeweler's continued business. The goldsmith
refused to sell to the jeweler any of his rose gold ring designs or include the earring settings.

If the jeweler sues the goldsmith for damages, how should the court handle the evidence of the alleged oral agreements?

A. Correct Answer: The court should admit the evidence as to the promise to include the earring settings but not the
option to choose a rose gold ring design.

Rationale:
The parol evidence rule generally bars evidence of prior or contemporaneous agreements that contradict the terms of an
integrated writing—i.e., a writing that presents the final expression of the parties' agreement. A writing may be fully or partially
integrated. However, the UCC presumes that a contract for the sale of goods (e.g., jewelry) is only partially integrated.* As a
result, evidence that supplements a written contract is admissible—but evidence that contradicts the writing is inadmissible.

Here, the written agreement between the jeweler and the goldsmith is partially integrated because it represents the parties' final
agreement for the sale of a ring—including the price, size, and type of gold. This writing expressly stated that the ring would be
chosen only from the white gold ring designs. The goldsmith's prior oral statement that he would also include rose gold ring
designs contradicts the writing, so the court should not admit this evidence (Choices A & C).

Educational Objective:
The UCC presumes that a written contract is partially integrated. As a result, evidence that supplements the written contract is
admissible—but evidence that contradicts the writing is inadmissible—under the parol evidence rule.

A grocery chain whose main customer base was families with young children contacted a cereal manufacturer. After various
discussions regarding the cereal and the box, the two parties entered into a written contract whereby the grocery chain agreed to
purchase 10,000 boxes of children's cereal on a monthly basis for $5,000, due upon delivery. The contract further stated that the
cereal would be shaped like donuts, and each piece of cereal would be one of the seven colors of the rainbow. Finally, in listing
the primary ingredients, the contract stated that the cereal would contain high-fructose corn syrup as a sweetener.

When the first shipment arrived, the grocery chain refused to pay the $5,000 and repudiated the contract. The cereal
manufacturer sued the grocery chain for damages and introduced the contract between the two parties into evidence. The grocery
chain then attempted to offer evidence regarding the discussions that occurred between the two parties prior to the execution of
the contract. It claimed that the cereal manufacturer had orally agreed to use evaporated cane juice, not high-fructose corn syrup,
as the sole sweetener and that the cereal manufacturer would also include a small prize in each cereal box at a cost of a penny a
box.

In deciding whether to admit evidence of the oral agreement, how will the court likely rule?

A. Correct Answer: Only the evidence regarding the small prize in each cereal box is admissible.
Rationale:

The parol evidence rule generally bars the admission of extrinsic evidence of prior or contemporaneous agreements that modify
or contradict the terms of an integrated writing. However, the scope of this bar depends on whether the writing is:

 totally integrated – sets forth the parties' agreement about all terms, so such evidence is not admissible or

 partially integrated – sets forth the parties' agreement about some but not all terms, so such evidence is admissible if
it is consistent with the writing—but not if it contradicts the written terms.

The UCC presumes that contracts for the sale of goods (e.g., cereal boxes) are partially integrated. Therefore, evidence
of additional consistent terms is admissible unless a court concludes that the parties "certainly" would have included those
terms in the written contract. This is a difficult standard to meet, so parties can usually bring in outside evidence of consistent
terms.

Here, the contract regarding the purchase of cereal boxes is presumed to be partially integrated under the UCC, so evidence that
contradicts its express terms is inadmissible. The contract expressly stated that the boxed cereal would contain high-fructose
corn syrup as a sweetener. Evidence that the parties had previously agreed to use evaporated cane juice as the sole sweetener
would contradict that express term. Therefore, the court is not likely to admit this evidence (Choices B & D).

Educational Objective:
The UCC presumes that a writing is partially integrated, so extrinsic evidence of additional consistent terms is admissible unless
the parties "certainly" would have included the terms in the written contract. However, contradictory terms are not admissible.

WHEN THE PAROL EVIDEN RULE IS INAPPLICABLE

On April 1, a buyer and a seller executed a written contract for the sale of an antique car for $40,000, delivery on May 1. The
contract contains a clause indicating that it is a total integration of the parties' agreement. As they each signed the contract, the
buyer orally reminded the seller that the buyer's duty to purchase the car was conditioned on his ability to get approval for a loan
by April 20 to fund the purchase. The seller orally agreed, though the condition was not noted in the written contract. When the
seller contacted the buyer to execute the sale on May 1, he discovered that the buyer had attempted but failed to get a loan and
could not afford to purchase the car. The buyer refused to honor the contract.

If the seller sues the buyer for breach of contract, will the court likely admit the evidence of the oral condition regarding the
buyer's approval for a loan?

A. Correct Answer: Yes, as proof of a condition precedent to the buyer's obligation under the contract.

Rationale:

Exceptions to parol evidence rule

Evidence of prior or contemporaneous oral or written agreement is admissible to establish:

 whether writing is integrated and, if so, completely or partially

 meaning of ambiguous term
 defense to formation or enforcement (eg, fraud, duress, mistake)
 ground for granting or denying remedy (eg, rescission, reformation)
 subsequent contract modifications
 condition precedent to effectiveness

The parol evidence rule generally prevents a party to a written contract from presenting extrinsic evidence of a prior or
contemporaneous agreement that contradicts the terms of the contract as written. However, evidence may be admitted to
prove a condition precedent to the existence of the contract. A condition precedent is a condition that must occur to trigger a
party's obligation to perform.

Here, the parties orally agreed that the buyer's duty to purchase the car was conditioned on his ability to get approval for a loan
by April 20. Although the written contract makes no mention of this condition, it reflects a condition precedent to the buyer's
obligation under the contract. Therefore, evidence of this oral condition is not barred by the parol evidence rule and will likely be
admitted by the court.

A refrigeration-unit manufacturer contracted with a kitchen appliance store to sell and deliver 100 refrigeration units to the store
at a price substantially lower than market value. The written and signed contract included the term "F.O.B. kitchen appliance
store, on or before March 30." The shipping company that the manufacturer normally used to deliver its refrigeration units
experienced an unforeseen strike at the end of March. As a result, the manufacturer personally delivered the units to the store on
April 18. The store suffered no material harm due to the delay. The refrigeration appliance industry generally allows appliance
manufacturers a 30-day leeway for any contractually specified time of delivery, unless such leeway is expressly prohibited by the
contract.

If the store brings suit against the manufacturer for breach of contract, which of the following facts provides the manufacturer
with the strongest defense to the store's claim?

A. Correct Answer: There is evidence of a trade usage in the refrigeration appliance industry allowing a 30-day leeway
for appliance deliveries.

Rationale:

UCC parol evidence rule

Description Priority of evidence

Inadmissible Prior/contemporaneous agreements that contradict written contract Express terms always control

Admissible Course ofSequence of conduct under contract involvingCourse of performance > course of
performance repeated occasions for performance dealing & trade usage

Course of dealing Sequence of conduct pertaining to previousCourse of dealing > trade usage
 contracts

Regular practice or method of dealing in that

Trade usage N/A
particular business/industry

UCC = Uniform Commercial Code.

Under the UCC parol evidence rule, evidence of a prior or contemporaneous agreement cannot be used to contradict the terms
of a final written agreement. But evidence of the parties' course of performance, course of dealing, or trade usage can be used
to explain or supplement those terms—even when the terms appear unambiguous. Trade usage is any practice or method of
dealing in the particular business or industry that is observed with such regularity so as to justify an expectation that it will be
observed in the instant case.

Here, the contract stated that delivery was due on or before March 30. However, the refrigeration appliance industry generally
allows appliance manufacturers a 30-day leeway for a contractually specified delivery date unless expressly prohibited by the
contract (not seen here). Therefore, this evidence of trade usage would provide a strong defense against the store's breach-of-
contract claim because it shows that the manufacturer was not in breach when it delivered the units on April 18—within 30 days
of March 30.
_____________________________________________________________________
ASSIGNMENT OF RIGHTS AND DELEGATION OF DUTIES (1)
A licensing agreement provided that a manufacturer could use an inventor's patent in manufacturing its products for 10 years.
Immediately thereafter, the inventor assigned his rights to receive payments pursuant to the licensing agreement to a corporation.
The inventor did not receive compensation for this assignment. The inventor, upon his death five years later, devised his stock in
the corporation to his daughter and all of his remaining property to his son.

To whom should the manufacturer make its payments under the licensing agreement?

A. Correct Answer: The inventor's son.

Rationale:

Assignment of contractual rights

Type Revocability Warranties

Revocable unless:

 obligor already performed

Gratuitous  document symbolizing assigned right (eg,None
stock certificate) delivered
 written & signed assignment delivered
 promissory estoppel applies

Assignor warrants that he/she:

 has right to assign

For value Irrevocable
 is not subject to limitations/defenses
unknown to assignee
 will not defeat/impair assigned rights

An assignment is the transfer of contractual rights to a third party. If an assignment is not supported by consideration, then it is
a gratuitous assignment and is generally revocable (exceptions listed in the table above). A revocable assignment
is automatically revoked upon the death, incapacity, or bankruptcy of the assignor.

Here, the inventor assigned his right to receive payments under a licensing agreement to the corporation without receiving
compensation or other consideration. Therefore, the assignment was automatically revoked upon the inventor's death, and the
right to receive payment returned to his estate (Choice A). Aside from the stock, the inventor devised all of his property to his
son, including the right to receive payment from the manufacturer under the licensing agreement (Choice B). Therefore, the
manufacturer should make payments to the inventor's son.

CONDITIONS AND PERFORMANCE (2)

An independent trucker and a manufacturer entered a written contract for the delivery of a farming implement from the
manufacturer to a farmer. Under the terms of the contract, the trucker promised "to deliver a farming implement from the
manufacturer to the farmer," and in exchange, the manufacturer promised "to pay the trucker if the trucker delivers the implement
directly to the farmer after picking it up." The trucker picked up the implement but, instead of driving directly to the farmer,
drove 100 miles out of his way to pick up another item from a third party before delivering the implement to the farmer. The
manufacturer, unaware that the trucker had failed to deliver the implement directly to the farmer, refused to pay the trucker.

Who has breached this contract?

Correct Answer: Neither the trucker nor the manufacturer.

Rationale:

A breach of contract occurs when a party fails to perform a contractual duty that has become due. Performance may be
predicated upon a condition precedent, under which a contracting party's obligation to perform arises only upon the occurrence of
an uncertain future event. If the parties expressly agree to a condition precedent, then the condition precedent will be strictly
enforced. This means that a contracting party must fully comply with the condition before the other party's performance is due.

Here, the trucker fully performed his promise to deliver a farming implement from the manufacturer to the farmer, so the trucker
has not breached the contract (Choices A & B). However, the manufacturer's duty to pay the trucker was expressly predicated on
the trucker's direct delivery of the implement to the farmer. The trucker did not fully satisfy this condition precedent because he
took a 100-mile detour, so the manufacturer's performance is not due (Choice C). Therefore, neither party has breached the
contract.*
was discharged from her obligation to pay the baker and did not breach the contract.
PERFORMANCE OF CONTRACTUAL DUTY
A wheat farmer contacted an agricultural services company in May to inquire about hiring workers for a five-day period toward
the beginning of the summer-long harvest season to assist the farmer in harvesting his wheat crop. After some negotiations, the
farmer entered into a written contract with the company "to provide five workers for a five-day period starting in the first week of
June for a cost of $5,000." On May 31, the company's workers went on strike. On June 9, the strike ended, and the company's
workers began harvesting wheat on the farmer's farm for the next five days. The farmer subsequently refused to pay the
company, claiming that the company's delay in performance excused his obligation to pay.

Is the farmer's obligation to pay excused?

Correct Answer: No, because the delay did not deprive the farmer of the substantial benefit of the bargain.

Rationale:

Factors considered to determine material breach

Extent to which nonbreaching party will suffer loss

Extent to which nonbreaching party can be adequately compensated for loss
Extent to which breaching party will suffer forfeiture
Likelihood of cure by breaching party
Absence of good faith or fair dealing by breaching party
Under common law, which governs contracts for services, a material breach allows the nonbreaching party to withhold its own
performance. A breach is material when the nonbreaching party does not receive the substantial benefit of its bargain. As a
result, substantial performance—i.e., less-than-full performance that, while imperfect, does not defeat the contract's main purpose
—does not typically constitute a material breach.

However, substantial performance will not suffice for express conditions in a contract. Such conditions must be performed in
full. Words in the contract such as "on the condition that" or "provided that" are typical indicators of express conditions. The
contract at issue here does not contain these words, so starting the harvest in the first week of June was not an express condition
(Choice B). This means that substantial performance would be sufficient.

Here, the company did not perform in the first week of June. However, the company substantially performed if its delay did not
deprive the farmer of the benefit for which he contracted—five days of work from five people. Since the farmer's wheat was still
harvested within the summer-long harvest season, the delay did not deprive him of the substantial benefit of his bargain (Choice
D). Therefore, the company did not materially breach the contract, and the farmer's obligation to pay was not excused.
When nonoccurrence of condition is excused
Waiver  Party waives condition by words or conduct
Wrongful interference  Party wrongfully prevents or interferes with condition's occurrence
 Party indicates condition will not be enforced
AND
Estoppel
 Other party reasonably & detrimentally relies on belief that condition has
been waived
Disproportionate  Party substantially performed & will be significantly harmed if condition
forfeiture is enforced
Performance is generally due once a contract is formed, but a duty to perform can be delayed or discharged by a condition—i.e.,
an uncertain future event that must occur before performance becomes due or is discharged. There are two types of conditions:
 condition precedent – delays performance until a specified event occurs
 condition subsequent – excuses performance once a specified event occurs
A condition precedent will be excused if a party whose performance is subject to that condition wrongfully prevents or
interferes with its occurrence—e.g., by breaching the duty of good faith and fair dealing (which includes the duty to cooperate)
that is implied in every contract. When this occurs, the condition no longer needs to occur for the interfering party's performance
to become due.
Here, the magazine's duty to perform was delayed by three conditions:
 receiving a photograph that meets the magazine's technical specifications
 receiving the photograph by April 1
 using the photograph on the magazine's May cover
The first two conditions were fully satisfied when the subscriber delivered the photograph to the magazine on March 15.
However, the third condition was not met because the magazine failed to cooperate when it chose to use a different picture on the
May cover—presumably because the ecological disaster was more newsworthy (Choices A & C). The magazine's wrongful
interference with the occurrence of this condition excused that condition and triggered the magazine's duty to pay the subscriber.
Therefore, the subscriber will likely prevail.
BREACH OF CONTRACT AND REMEDIES
A dancer signed a contract with a traveling circus to travel and perform as an aerialist for six months. The contract provided that
the dancer would be paid $500 per week and would be guaranteed employment for the full six months, with an option to renew
the contract for the next traveling season. Excited for the opportunity to perform for a traveling circus, the dancer turned down
an invitation to dance with a theatre group for the same time period as the circus contract. After two weeks of traveling and
dancing for the circus, the dancer sprained her ankle and was briefly hospitalized for one week. The circus was forced to hire
another aerialist. After an additional week, the dancer's doctor gave her approval to return to work, but the circus refused to
honor the remainder of the contract. The dancer brought an action against the circus for breach of contract.
If the dancer wants to recover the highest possible amount of damages, which of the following is the dancer's best legal theory?
A. Correct Answer: The dancer's failure to perform for two weeks was not a material breach of the contract.

Rationale:
A party who substantially performs contractual obligations (i.e., commits a minor breach) can recover on the contract even
though that party has not rendered full performance. The substantially performing party can generally recover the contract
price minus any cost that the nonbreaching party incurred to receive full performance.
In contrast, a party who commits a material breach by failing to substantially perform cannot recover under the contract. The
breaching party can only recover in restitution for any benefit conferred on the nonbreaching party minus damages for the
breach.
Here, the dancer breached the contract because she could not perform for two weeks. However, she can argue that missing only
two weeks out of a six-month period was a minor breach—especially if she could perform for the rest of the contract period.
Therefore, her best argument is that her breach was not material, so she is entitled to the full benefit of the contract (minus any
costs incurred due to her breach).

A builder ordered 100 squares of shingles from a home-supply store for installation on the roofs of homes that he was building.
The builder agreed to a price of $120 per square. Delivery to the construction site was set for no later than noon on the following
Monday. The store's truck with the ordered shingles arrived at 1:00 p.m. the following Monday. The builder rejected the
shipment due to its failure to arrive on time. The store, which regularly sold 600 squares of shingles per week, resold the squares
that had been rejected by the builder at a price of $110 per square. The store would have made a profit of $3,000 had the builder
accepted the shingles.

If the store sues the builder for breach of contract, how much can the store recover from the builder?

A. Correct Answer: Nothing.

Rationale:
Under the UCC perfect-tender rule, which applies to this contract for the sale of goods (shingles), a seller must strictly
perform all contractual obligations or be in breach. Substantial performance will not suffice. Failure to tender (i.e., deliver)
perfectly conforming goods constitutes a breach that, unless cured in the time remaining to perform, allows the buyer to accept
or reject the goods. And the seller, as the breaching party, cannot recover damages under the contract for any rejected goods.

Here, the contract expressly stated that delivery was to be made no later than noon. The store failed to perfectly perform this
contractual obligation because it delivered the shingles at 1:00 p.m.—one hour late. And since the store could not cure its breach
since the delivery deadline had passed, the builder had the right to reject the shingles. This means that the store, as the breaching
party, can recover nothing from the builder in a breach-of-contract action.*

*Although a breaching party cannot recover under the contract, it may be entitled to restitution for any benefit conferred on the
nonbreaching party. However, restitutionary recovery is not available here since no benefit was conferred on the builder.

contract price or the price of the glass and the parking permit.
REMEDIES UNDER THE UCC
During the warm months of the year, the owner of a fur coat stored it with the furrier from whom she had bought it. While the
coat was at the furrier's store, a salesperson, mistakenly thinking that the coat was for sale, sold it to a customer. The customer
was allowed to reduce the purchase price by the amount of an outstanding debt owed by the furrier to the customer; the customer
paid the remainder in cash. In the process of purchasing the coat, the customer was told by the salesperson about the furrier's
storage service but, like the salesperson, was unaware that the coat was not part of the store's merchandise. After the sale, the
owner learned of the transaction between the furrier and the customer. Since the coat had significant sentimental value to the
owner, she sought its return from the customer. When the customer refused, the owner filed an action to recover the coat from
the customer.

Will the owner likely prevail?

Correct Answer: No, because the customer was a good-faith purchaser of the coat that had been entrusted to the furrier.
Rationale:

Under the UCC, which applies to contracts for the sale of goods, the entrustment of goods by the owner to someone who sells
goods of that kind (i.e., a merchant) gives the merchant the power to convey good title. Good title can be conveyed to a buyer in
the ordinary course of business—i.e., someone who buys goods:

in good faith

without knowledge that the sale violates the owner's rights to the goods and

from a merchant in the business of selling goods of that kind.

Entrustment includes any delivery and acquiescence to the possession of goods, regardless of conditions expressed between the
parties.

Here, the owner stored her coat with, and thereby entrusted the coat to, the furrier—a merchant in the business of selling fur
coats. The customer then purchased the coat in good faith and without knowledge that it actually belonged to the owner. As
such, the customer is a buyer in the ordinary course who took good title (not voidable title) to the coat (Choice D). Therefore, the
owner likely will not prevail in an action to recover the coat from the customer.*

*However, the owner may have a cause of action against the furrier (e.g., breach of contract, conversion).

A caterer contracted with a local farmer for the delivery of three dozen fresh local eggs. The contract provided that because the
caterer planned to use the eggshells to serve one of her signature dessert recipes, the eggs needed to be a uniform color.

The farmer delivered the caterer 20 white eggs and 16 speckled eggs. The caterer immediately emailed the farmer and informed
him that she was rejecting the eggs because she could not use the inconsistent shells to serve her desserts. The caterer also told
the farmer that she did not have the ability to refrigerate the eggs or the space to store them for long and that she would wait for
his instructions. The caterer stored the eggs on her countertop for a week and had not heard from the farmer. Concerned that the
unrefrigerated eggs would soon spoil, the caterer promptly returned the eggs to the farmer. Due to the perishable nature of the
eggs, the farmer had to resell the eggs at half the normal price.

If the farmer brings a breach-of-contract claim against the caterer to recover the full contract price of the eggs, will he succeed?

Correct Answer: No, because the caterer behaved appropriately after rightfully rejecting the eggs.

Rationale:

Under the UCC's perfect-tender rule, a seller must deliver goods that conform perfectly to the contract. A buyer can therefore
reject nonconforming goods within a reasonable time after delivery by promptly notifying the seller of the rejection—as the
caterer did here.

After rejection, the buyer has an obligation to take reasonable care of any goods in its possession until the seller has had a
reasonable amount of time to retrieve them (Choice B). When, as here, the seller does not retrieve the goods or provide further
instructions, the buyer may generally choose to store, reship, or sell the goods on the seller's behalf. However, the buyer is
required to sell the goods on the seller's account if:

the buyer is a merchant—i.e., one who regularly deals in goods of the kind involved or who, by occupation, holds him/herself out
as having knowledge or skills unique to the goods involved*

the goods involved are perishable or threaten to speedily decline in value and

the seller has no local agent to whom the goods can be returned.

Here, the eggs are perishable and there is no indication that the seller had a local agent to whom the eggs could be returned. But
since the caterer is not in the business of selling eggs, she was not a merchant required to sell the perishable eggs on the farmer's
behalf (Choice D). As a result, she acted appropriately when she promptly returned the eggs to the farmer after he failed to give
her further instructions.

*For purposes of the UCC firm-offer rule (not applicable here), "merchant" also includes any businessperson when the
transaction is of a commercial nature.