Contracts II Multiple Choice

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A man has always wanted to become a race car driver. In an effort to realize his dream, the man enrolled in a driving school that trained aspiring drivers for the international race car circuit. The racing school was owned and conducted by a world famous driver. Before the man started his lessons, he applied for a $500,000 life insurance policy with an insurance company. The man completed the application and forwarded it with his first annual premium to the company. Thereafter, the company issued the policy naming the applicant's mother as beneficiary. The policy contained the following clause: "Unless the insured obtains a professional race car driver's license, this policy will not cover death arising from a race car accident while the insured is operating a race car unless the insured is driving in the company of or under the personal supervision of the racing school owner." Three months later, when his driving lessons from the world-famous owner-driver were nearly completed, but before he had obtained his professional driver's license, the man drove off in a race car accompanied by another licensed driving instructor. The licensed driving instructor, who was the owner-driver's partner in the operation of the racing school, was fully qualified and supervised the man's operation of the race car. As the man was driving around the racetrack at a speed of 150 miles per hour, he lost control of the vehicle and crashed into a wall. Both the man and the driving instructor were killed in the accident. The insurance company denied liability, and the man's mother sued to recover under the policy. Which of the following most strongly supports the company's defense? (A) A condition precedent did not occur. (B) The man materially breached a covenant. (C) A constructive condition of cooperation did not occur. (D) The insuring agreement lacked mutuality of obligation.

(A) A condition precedent did not occur.

A newly formed company planned to manufacture a variety of plastic water and irrigation pipes. The company entered into a written contract with a supplier under which the supplier agreed to supply certain types of plastic to the company. The supplier agreed to provide a fixed amount of plastic every month for a fixed price, and it agreed to the terms of payment and delivery. The company and the supplier both covenanted not to assign the contract. Nonetheless, the supplier soon assigned the contract to a bank as partial security for a $50,000 business expansion loan. What legal effect does the covenant not to assign the contract have? (A) Although the assignment constituted a breach of contract, it effectively transferred the supplier's rights to the bank. (B) The assignment had no effect, because a covenant against assignment in a sale-of-goods agreement applies only to the buyer, not to the seller. (C) The assignment to the bank was ineffective, because of the covenant. (D) The covenant had no legal effect whatsoever.

(A) Although the assignment constituted a breach of contract, it effectively transferred the supplier's rights to the bank.

A whitewater rafting tour company and a state college faculty association arranged to rent all of the tour company's rafts for a faculty ride down the Rocopico River the first weekend of spring break. The contract price was set at $2,500 including a $1,000 nonrefundable deposit. The deposit was designated as "liquidated damages." The association paid the $1,000 and agreed to meet the tour company owner and the rafters at Avon on the Rocopico on March 18 at 7:30 A.M. The owner and his rafters showed up at Avon with their rafts in tow at 6:30 A.M. on the morning of March 18. At 10 A.M., no one from the association had shown up. At 10:30 A.M., a group of students from the local elementary school showed up in Avon and became interested in a short ride when they saw the rafts were available. The tour company owner concluded that the association was not going to show up, so he arranged with the head teacher of the elementary school to take the students on a day trip, for $2,000. The owner spent the rest of the day with the students on the river. The association requested a return of the deposit, but the whitewater rafting tour company refused to return the deposit. The association has pursued a legal action to recover a refund of the $1,000 deposit. Will the court enforce the liquidated damages clause? (A) No, because $1,000 is an unenforceable penalty, and damages are sufficient compensation for the breach. (B) No, because the whitewater rafting tour company was able to mitigate its damages. (C) Yes, because $1,000 was a reasonable estimate of damages in the event the association breached the contract. (D) Yes, because the parties agreed to liquidated damages.

(A) No, because $1,000 is an unenforceable penalty, and damages are sufficient compensation for the breach.

A hobbies store entered into a written agreement with a baseball card wholesaler in which the wholesaler agreed to supply all of the store's baseball card needs for three years. During the first eight months of the contract, the store's orders ranged from 400 to 600 units per month. At the beginning of the ninth month, the store informed the wholesaler that it had been purchased by a very large hobby-shop conglomerate that also sells baseball cards, and that the original contract had been assigned to the conglomerate as part of that transaction. The store, the wholesaler and the conglomerate then executed a second written agreement, which provided, in full, "In the requirements contract previously executed between the store and the wholesaler, the parties hereby agree that the conglomerate shall be substituted in place of the store." Three months later, the conglomerate notified the wholesaler that its monthly requirements for baseball cards would drop 200 units because it had purchased an additional 800 units from a competing firm. Under these circumstances, would the wholesaler have any recourse against the store? (A) No, because the agreement among the conglomerate, the store and the wholesaler was a novation. (B) No, because the store assigned its obligations as well as its rights to the conglomerate, and has no further involvement in the relationship between the conglomerate and the wholesaler. (C) Yes, because the conglomerate was a third-party beneficiary of the agreement between the store and the wholesaler. (D) Yes, because the store's assignment of its rights and obligations to the large corporation did not sever the contractual relationship between the store and the wholesaler.

(A) No, because the agreement among the conglomerate, the store and the wholesaler was a novation.

A makeup artist owed her sister-in-law $300, but the statute of limitations had run on the debt. She offered to make up a mother and daughter for a family photography shoot on December 6 if the mother would, on that day, pay the $300 debt that the makeup artist owed to the sister-in-law. When the mother agreed, the makeup artist informed the sister-in-law of the agreement. After the makeup artist made up the mother and daughter, the sister-in-law demanded payment but the mother refused to pay. Is the fact that the statute of limitations had run on the makeup artist's debt to her sister-in-law a good defense for the mother if the sister-in-law sues the mother for the $300? (A) No, because the contract to pay the sister-in-law is a separate transaction from the underlying debt. (B) Yes, because the contract with the mother was actually a gratuitous promise. (C) No, unless the mother can show that the sister-in-law knew that the Statute of Limitations had run. (D) Yes, unless the sister-in-law can show that she changed her position in reliance on the makeup artist-mother contract.

(A) No, because the contract to pay the sister-in-law is a separate transaction from the underlying debt.

A local Little League team hires a batting coach. His employment contract reads, "Coach will provide batting coaching to the team once a week for two months at a rate of $100 per session." At the end of the first week, the team tenders the coach a check for a $100. He refuses to accept the check, demanding cash instead. Is the coach entitled to demand cash payment? (A) No, because the contract was silent as to this condition. (B) No, because under the "mailbox" rule the coach was not entitled to be paid in cash. (C) Yes, because under the "perfect tender" rule, the coach could demand payment in his form of preference. (D) Yes, because the contract was silent as to this condition, so the coach could make a reasonable demand.

(A) No, because the contract was silent as to this condition.

A landlord executed a written lease of a luxury penthouse to a wealthy heir for three years at $550,000 per year. The lease included an option for the heir to buy "the demised premises at the end of the term for the sum of $5,000,000." The lease prohibited assignment and subletting without the landlord's approval. At the end of the second year of the term, the heir assigned his lease to an industrialist without the landlord's permission. The industrialist took possession and paid the rent to the landlord, who accepted it without comment. During the third year, having decided that he would exercise the purchase option, the industrialist built a large deck equipped with an Olympic-sized pool outside the apartment. At the end of the term, the industrialist tendered $5,000,000 to the landlord and demanded a conveyance, but the landlord refused to convey on the grounds that he had not assented to the assignment. The landlord retook possession of the apartment at the end of the term. In an action by the industrialist against the landlord for the reasonable value of the improvements that the industrialist added to the apartment, which of the following theories would best support the industrialist's claim? (A) Quasi-contract for benefits non-gratuitously conferred upon the landlord by the industrialist. (B) Breach by the landlord of an implied-in-fact promise to compensate the industrialist for the improvements. (C) Breach of trust by the landlord as trustee of a resulting trust of the improvements. (D) Tortious conversion by the landlord in retaking possession of the improvements.

(A) Quasi-contract for benefits non-gratuitously conferred upon the landlord by the industrialist.

A office furniture manufacturer entered into an agreement with a buyer whereby the manufacturer agreed to manufacture and the buyer agreed to purchase 2,000 Executive Reclining Office Chairs, at a price of $120 per chair. An additional clause in the agreement indicated that both parties expressly agreed that the buyer would bear no liability under the terms of the contract unless the 2,000 chairs were delivered to the buyer at her warehouse no later than January 2. On January 2, 1,825 chairs were delivered to the buyer's warehouse. All of these chairs met the buyer's requirements and specifications. The remaining 175 chairs were delivered on January 5. These chairs likewise met the buyer's requirements and specifications. The buyer refused to accept any of the chairs. Which of the following statements regarding the contract between the manufacturer and buyer is most accurate? (A) The contract is entire. (B) The contract is divisible. (C) The contract is partially entire and partially divisible. (D) The contract is neither entire nor divisible.

(A) The contract is entire.

A homebuyer purchases a home from a seller. The seller represents that the house has had no water damage. After purchasing the house, but prior to closing, the homebuyer discovers from a neighbor that there was, in fact, water damage, which will cost the homebuyer $50,000 to repair. She wishes to rescind the contract based on fraud and to recover the $50,000 repair costs, and she seeks your legal counsel. What will you advise? (A) The homebuyer can either sue for rescission or for the $50,000, because she will have to elect a remedy. (B) The homebuyer must close on the house, because she cannot prove damages until after the closing. (C) The homebuyer must close on the house, because she will be in breach of contract if she fails to close. (D) The homebuyer can sue for both rescission and the $50,000.

(A) The homebuyer can either sue for rescission or for the $50,000, because she will have to elect a remedy.

A homeowner was planning to move from his town to a large city. She contracted with a local moving company to pick up all the furniture and to deliver it in one week. However, a day before the pickup was to take place, the deliveryman who was to make the pickup fell gravely ill. As a result, the homeowner's furniture was not picked up and not moved to the city. The homeowner sues the moving company for breach of contract. Which of the following is correct? (A) The homeowner prevails, because the company breached the contract. (B) The homeowner prevails, because the delivery man was only ill, not dead. (C) The company prevails, because its duty was discharged by impossibility. (D) The company prevails, because this was a contract for personal services.

(A) The homeowner prevails, because the company breached the contract.

A lawyer agreed to sell his law library to an examinee for $1,500. The examinee explained that she just took her state bar examination and wanted to purchase the books only if she passed the exam. For that reason, the parties agreed that the transaction would not take effect "unless the examinee is successful on the bar exam." Although the examinee was informed that she was successful on the bar exam, she was denied admission by the committee of bar examiners for moral turpitude. As a result, the examinee refused to purchase the law library. Which of the following arguments presents the examinee with the best defense that her contract with the lawyer is unenforceable? (A) The parties reasonably understood that being admitted to the bar was a constructive condition precedent to the examinee's duty to buy the law library. (B) Although the parties reasonably understood that passing the bar exam was a condition to the examinee's duty to buy the law library, the condition should be excused because its non-occurrence would cause a forfeiture to the examinee. (C) The examinee's duty to purchase the law library should be excused under the doctrine of impossibility of performance. (D) The action taken by the committee of bar examiners effectuated a novation of the lawyer-examinee contract.

(A) The parties reasonably understood that being admitted to the bar was a constructive condition precedent to the examinee's duty to buy the law library.

A homeowner contacted a pool company about the installation of a swimming pool in his back yard. He met with the company's chief installation officer to discuss options and pricing. The homeowner wanted the pool to measure 25 feet in length with a diving board on the deeper side and a pool house equipped with a changing room and an indoor shower. The installer quoted a price of $20,000 for the entire project. Several days later the installer presented the homeowner with a written contract stipulating that a 25-foot in ground pool with a diving board would be installed by June 1 for the price of $20,000. The homeowner signed the contract and told the installer that he would be out of town for the month of May. The installer assured him that the work would be completed by the time he returned. The homeowner returned on May 30 to find the pool and diving board completed, but without the agreed-upon pool house. The homeowner refused to tender payment and the pool company sued him for breach of contract. Which of the following accurately predicts the outcome? (A) The pool company will be awarded $20,000, because the homeowner breached the contract. (B) The pool company will not be awarded the full contract price, because they breached the contract, but they will recover the reasonable value for services tendered. (C) The pool company will not recover, because they failed to perform the terms of the contract. (D) The pool company will not recover, because the written contract contradicted the terms of the oral agreement.

(A) The pool company will be awarded $20,000, because the homeowner breached the contract.

A contractor agreed to build a new restaurant for an up-and-coming chef in accordance with detailed plans and specifications. In return, the chef agreed to pay the contractor $100,000 for the restaurant upon completion. The written contract included the following provision: "The chef's liability is expressly conditioned on use of purple marble from the Acme Mountain Range in Country A to floor the foyer." While the restaurant was under construction, the president of the United States, acting under proper legal authorization, banned all further trade with Country A. No other country had such purple marble. There is a black market in Acme Range purple marble, but its cost is quadruple the cost before the president's action, and there is risk associated with illegally importing the marble. The contractor used a similar fine-quality mauve marble from the United States in the foyer instead. Other than the foyer floor, the restaurant was completed according to the plans and specifications contained in the contractor-chef contract. If the chef refuses to pay the contractor because of the contractor's failure to meet the requirement that Acme Range purple marble from Country A be used in the foyer, and the contractor sues on the contract, which of the following is the contractor's strongest argument? (A) The requirement is an express condition, which is excused by the supervening illegality resulting from the president's ban on imports from Country A. (B) The requirement is an express condition, which is excused by impracticality of performance. (C) The requirement is a mere covenant, which was satisfied by substantial performance. (D) The requirement, being nothing more than the chef's personal whim, is a de minimis provision of the contract.

(A) The requirement is an express condition, which is excused by the supervening illegality resulting from the president's ban on imports from Country A.

A hotel chain was building a new luxury resort adjacent to an unspoiled beach and across the street from a golf course. The hotel was scheduled to be completed and open for business on May 1. On February 1 a travel agency entered into a written contract with the hotel chain to book a five day convention at the resort. The contract stipulated that the travel agency would hold the convention between June 1 and July 1. In accordance with the agreement, the travel agency paid a deposit of $40,000 to reserve 100 rooms at the resort. On May 15th the hotel chain notified the travel agency that due to construction delays, the resort would not be open for business until July 15th. The travel agency demanded a refund of its $40,000 deposit. The hotel chain refused to return the deposit. The contract between the hotel chain and the travel agency did not contain any provision regarding the refund of the prepaid deposit. The travel agency sued the hotel chain to recover the $40,000 deposit. Judgment for whom? (A) The travel agency, because it is entitled to quasi-contractual relief. (B) The travel agency, because the hotel chain's performance is non-conforming and it is unreasonable to believe the travel agency would accept the non-conforming performance. (C) The hotel chain, because the deposit may be retained as liquidated damages. (D) The hotel chain, because the inability to open the resort on time was due to an unforeseen intervening event.

(A) The travel agency, because it is entitled to quasi-contractual relief.

A zoo entered into a contract with a fish-food supplier to supply all of its fish-food requirements for the upcoming year at 80 cents a pound. They had signed an identical contract for each of the past 10 years. Each year, the zoo consistently bought 500 pounds of fish food per month. This year, however, because of the birth of two baby sharks, the zoo needed an extra 600 pounds of fish food from January through March, which it decided to buy from a shark specialist at 65 cents a pound. If the fish-food supplier sued the zoo for the its lost profits, which of the following would be the zoo's strongest argument? (A) The zoo was not obligated to buy food needed for the sharks from the fish-food supplier. (B) The courts do not favor this type of agreement because it interferes with the ability of the parties to contract with others. (C) The fish-food supplier's promise to supply the zoo's requirements was illusory. (D) The zoo's purpose for entering into the requirements contract was frustrated by the decline in the market price.

(A) The zoo was not obligated to buy food needed for the sharks from the fish-food supplier.

To commemorate his appointment as president of a telecommunications company, the president wished to have his portrait painted by a famous artist. The artist he chose has a reputation for creating unique portraits that appear to "come alive" in the right light. The president wanted this effect to surprise customers as they entered the company's headquarters. The president and the artist entered into a contract whereby the artist would paint the president's portrait for $40,000. A portrait by a comparable artist would cost the president $20,000. The next weekend the artist became ill and, not wishing to delay the president's portrait, had her assistant paint the portrait. The president was not satisfied with the portrait, which never "came alive." The president subsequently learned that it was the assistant, not the artist, who had painted the president's portrait. Did the artist breach the contract? (A) Yes, because the assistant painted the portrait. (B) Yes, because the assistant's performance materially varied from the artist's portraits. (C) No, because the contract did not specify that the "come-alive" effect was an essential term. (D) No, because the contract did not specify that assignments were void.

(A) Yes, because the assistant painted the portrait.

A woman hired a health care worker to provide in-home care for her elderly father. The parties signed a valid written contract stipulating that the worker would care for the father from 9:00 a.m. 5:00 p.m. Monday through Friday at the rate of $25 per hour, with payment due each Friday at the end of the work day. The worker cared for the father according to the terms of the contract and received a check for $1,000 each Friday. Six weeks into the contract the woman informed the worker that she had received a promotion that would require her to work longer hours. The worker offered to increase her own hours to accommodate the woman's schedule, and the parties orally agreed that the worker would arrive at 7:00 a.m. each morning and remain until 7:00 p.m. each evening. The worker adhered to the new schedule during the following week and on Friday the woman presented her with a check for $1,000. The worker demanded an additional $500 but the woman refused. The worker sued the woman for breach of contract. Will the worker win the suit? (A) Yes, because the oral modification was agreed upon after the written contract was signed. (B) Yes, because she performed her duties for an additional 20 hours that week. (C) No, because the parol evidence rule will not allow admission of the oral agreement. (D) No, because the Statute of Frauds will not allow for enforcement of the oral agreement.

(A) Yes, because the oral modification was agreed upon after the written contract was signed.

On Aug 6, an electronics company received an order from a buyer. The buyer ordered 5,000 of the company's P-3 circuit boards. He wanted delivery by Sept 15. The company shipped the order on Aug. 16. However, the company sent 5,000 P-4 circuit boards, which was a newer version, instead of the P-3s that the buyer ordered. The P-4 was somewhat larger than the P-3 and of a slightly different configuration. The buyer received the shipment at his factory on the 21st. He immediately sent a wire to the company indicating that he was rejecting the shipment of P-4s. He indicated that he could not use them. He failed to return the shipment to the company. In the meantime, the company sent a wire to the buyer indicating that they would ship 5,000 P-3s by the buyer's deadline of Sept. 15. The buyer received the wire on Aug. 28 but made no reply to it. The company shipped the order of P-3s, and the buyer received it on Sept. 13. Again, the buyer refused to accept the shipment. On Sept. 13, the P-3 circuit boards were (A) not properly rejected by the buyer, since the company had resolved their earlier defective shipment by their shipment of conforming goods the second time. (B) not properly rejected by the buyer, since consideration is not necessary to modify a sale of goods contract. (C) properly rejected by the buyer, since the company committed a present breach of contract by shipping the P-4s on Aug. 16. (D) properly rejected by the buyer, since the company made an anticipatory repudiation of the contract by shipping the P-4s on Aug. 16.

(A) not properly rejected by the buyer, since the company had resolved their earlier defective shipment by their shipment of conforming goods the second time.

The president of a manufacturing company placed an order with an electronics company on July 1. The order was for 5,000 drive motors over a period of 10 months at a price of $12.00 each. The electronics company was to deliver 500 drive motors on the 15th of every month, beginning in July. When the manufacturing company received its first shipment on July 15, the president naturally inspected them. He found that about 100 of the drive motors were defective. On the same day he also received a letter from the electronics company indicating that a strike by copper miners meant that the electronics company might have difficulty in obtaining a sufficient amount of copper wire to produce enough drive motors for the manufacturing company. The president was furious and dashed off a letter to the electronics company claiming that the electronics company had breached its contract. He also indicated that because the electronics company had breached the contract, he had contacted a competitor of the electronics company and entered into a contract with them. The competitor was to provide the balance of the drive motors, 4,500, at a price of $18.00 each, and it was to deliver them under the same terms as the contract between the manufacturing company and the electronics company. The most likely result if the manufacturing company sued the electronics company for anticipatory breach is that the manufacturing company would (A) not succeed, because the manufacturing company was faced with grounds for insecurity in the performance of the contract with the electronics company and needed to demand adequate assurance of performance from them. (B) not succeed, because the electronics company's first shipment of drive motors was accepted without any objection by the manufacturing company. (C) succeed, because the manufacturing company signed a contract with the competitor and because the manufacturing company had relied materially on the electronics company's anticipatory breach. (D) succeed, because the electronics company's letter to the manufacturing company regarding the difficulty in obtaining copper wire was an anticipatory breach of contract.

(A) not succeed, because the manufacturing company was faced with grounds for insecurity in the performance of the contract with the electronics company and needed to demand adequate assurance of performance from them.

A managing agent of a commercial building entered into a lease agreement with a law firm. The agent agreed to lease two floors to the firm, and the law firm agreed to pay $300,000 in five annual payments of $60,000. The agreement also stated that payments were to be paid to the agent's successor corporation, if any, and that the agent retained the right to assign the agreement. One year into the lease, the law firm entered into a contract with an insurance company. In exchange for the firm's promise to perform legal services for the insurance company, the insurance company would perform the firm's duties under its lease. Soon thereafter, the managing agent changed the beneficiary from its successor corporation to that corporation's CEO. When the CEO received notice of this, he sent a letter of thanks to the managing agent and notes to both the law firm and the insurance company advising them of his present address. Subsequently, the agent borrowed $30,000 from a bank and assigned the lease agreement as security. Then, the law firm and the insurance company rescinded their contract that provided for the insurance company's payment of the rent. The firm then failed to make an annual payment per its lease. The agent's bank, not having been paid the $30,000 that it lent to the agent, sued the law firm for $30,000. The CEO intervened, alleging that the bank did not have a right to any sum under the lease agreement. How should the court rule? (A) Grant judgment to the bank for $30,000, because consideration was given for the assignment. (B) Grant judgment to the bank for $30,000, because the managing agent reserved power to change the beneficiary and to assign the agreement. (C) Grant judgment to the law firm, because the CEO was named beneficiary before the managing agent made the assignment, so the beneficiary prevails over the assignee. (D) Grant judgment to the law firm, because the CEO is a donee beneficiary and the promisee cannot discharge any part of a donee beneficiary's right.

(B) Grant judgment to the bank for $30,000, because the managing agent reserved power to change the beneficiary and to assign the agreement.

A businessman owned and operated an au pair service. He recruited individuals, generally young women, from France and England who wanted to come to the United States and work in an American household taking care of children. The businessman arranged for the young women to come to the United States and found them positions. In exchange for their work, the young women received room and board and a small monthly stipend. The businessman arranged for a woman to come to the United States and work for a family for a six-month period. Shortly after the woman arrived and began working for the family, she informed the businessman and the family that she was unbearably homesick and quit to return home to her country. If the businessman and the family decide to file suit, who can obtain an order of specific performance? (A) Either the businessman or the family. (B) Neither the businessman nor the family. (C) The businessman only, because he arranged for the woman's position with the family. (D) The family only, because they are the ones for whom the woman agreed to perform services.

(B) Neither the businessman nor the family.

On June 1, a businessman agreed in writing to sell to a baker a special oven that reaches interior temperatures up to 600 degrees for the baker's new restaurant. Delivery was to be made on Aug. 15. Payment was to be made on Sept. 1. The oven was delivered on time and, upon preliminary inspection, seemed conforming. The baker accepted the oven and paid the businessman on Sept. 1. When the oven was installed by the baker's contractor on Sept. 10, the baker discovered that very small cracks in the oven walls, which were undetectable until the oven was heated, permitted heat to escape so that it could not be heated to more than 500 degrees. The baker could not use the oven for its intended purposes. Which of the following best describes the baker's rights on Sept. 11? (A) The baker has lost all rights with respect to the defect because he accepted the goods. (B) The baker has the right to revoke his acceptance and obtain a refund of his purchase price if he gives notice within a reasonable time. (C) If he fails to give notice to the businessman, the baker's damages will be limited to the difference between the value the goods would have had if they had been as warranted, and the value they actually have because of the defect. (D) The baker has the right to all damages flowing from the defect even if he fails to give notice.

(B) The baker has the right to revoke his acceptance and obtain a refund of his purchase price if he gives notice within a reasonable time.

An employment agency decided to add two small offices and a restroom at the end of its building. The agency entered into an agreement with a construction firm to build the addition for $50,000. The agreement provided that payment would not be due until construction was completed and that the construction firm would be responsible for purchasing all necessary faucets, sinks, toilets and other plumbing materials. The agency said that it wanted construction to begin in six weeks. The construction firm agreed but informed the agency that it would therefore have to order the bathroom fixtures and plumbing materials immediately. The construction firm placed an irrevocable order with a plumbing supply company for the bathroom fixtures and materials. The employment agency then acquired a small insurance company. The employment agency decided to transfer its headquarters to a new location and to give its current office to the small insurance company. The small insurance company moved into the office previously occupied by the employment agency. The employment agency informed the small insurance company of the pending construction and advised the small insurance company that the small insurance company would now be responsible for paying the costs of construction. The small insurance company told the agency that it could use the new office space and was willing to pay for its construction, but it never communicated this fact to the construction firm directly. Shortly before construction was set to begin, the small insurance company contacted the construction firm to notify them that it was canceling construction. The construction firm filed suit against the small insurance company for breach of contract. In the construction firm's breach of contract action against the small insurance company, who will prevail? (A) The construction firm, because the employment agency intended the small insurance company to be a third-party beneficiary. (B) The construction firm, because the small insurance company accepted the employment agency's delegation. (C) The small insurance company, because no valid novation was made. (D) The small insurance company, because the construction firm and the small insurance company never formed a contract.

(B) The construction firm, because the small insurance company accepted the employment agency's delegation.

A store owner was looking to expand his business, so he decided to set up a section of the store as a showcase of new digital cameras. On August 10, the store owner signed a contract with a camera manufacturer to send him 50 digital cameras at a total price of $4,000 on September 10, with payment to be tendered after delivery. The manufacturer, however, could not deliver the cameras on September 10 due to a manufacturing delay. Instead, the manufacturer delivered the digital cameras six months later. The store owner refused to accept the cameras. Which of the following is correct? (A) The contract is discharged by impossibility. (B) The contract is discharged by lapse. (C) The store owner is liable for breach of contract. (D) The store owner is not liable, because of a novation.

(B) The contract is discharged by lapse.

A man has recently lost his job so he decides to open his own business, which will be a grocery store. He contacts a grocery supplier and inquires as to the cost of groceries. He then signs a contract with the supplier by which the supplier will deliver groceries worth $1,000 in one month conditioned on the man receiving a business loan from the bank to open his store. The man forgets to apply for a loan. Which of the following is correct? (A) The contract is valid and the man must pay for the groceries, because the requirement that the man must receive a business loan is not a valid condition. (B) The contract is valid and the man must pay for the groceries, because he conducted himself in bad faith. (C) The contract is discharged, because the man did not receive a business loan from the bank. (D) The contract is discharged, because the man receiving a business loan was an implied condition.

(B) The contract is valid and the man must pay for the groceries, because he conducted himself in bad faith.

A hotel contracted with a laundry service company to provide laundry service for the hotel and its guests. The written contract stipulated that the laundry service company would clean the sheets and pillowcases and "provide daily laundry service" for hotel guests. In consideration for the laundry service, the hotel promised to pay the laundry service company $1,000 per week. After the contract was formed, the laundry service company provided daily laundry service for the hotel six days a week, from Monday through Saturday. In accordance with the customary business practice of the laundry industry, hotel laundry service was not provided on Sundays. The hotel, on the other hand, believed that the laundry service company would provide laundry service for all seven days of the week. The contract did not expressly state whether the laundry service would cover a six-day or seven-day week. When the parties contracted, however, the laundry service company realized the meaning attached by the hotel that the laundry service would cover a seven-day period. The hotel sued the laundry service company for breach of contract. At trial, the laundry service company introduced evidence showing the customary business practice in the laundry industry is to provide laundry service to hotels and other business establishments for a six-day week excluding Sundays. If the laundry service company's evidence of customary business practice is admitted into evidence and believed by the jury to be true, for whom should the court rule? (A) The court should rule in favor of the hotel, because in unilateral mistake situations, the contract is interpreted in accordance with the meaning attached by the mistaken party. (B) The court should rule in favor of the hotel, because the laundry service company was aware of the meaning that hotel attached to the term "daily service." (C) The court should rule in favor of the laundry service company, because there was a mutual misunderstanding as to a material term of the contract. (D) The court should rule in favor of the laundry service company, because the contract will be interpreted in accordance with the customary business practice of the laundry industry.

(B) The court should rule in favor of the hotel, because the laundry service company was aware of the meaning that hotel attached to the term "daily service."

While swimming in a lake, a 17-year-old was struck by a jet skier and suffered serious injuries. While the teenager was in the hospital, the jet skier's insurer offered to settle with her for $15,000 because the insurer believed the teenager was an adult based on her representation. The teenager signed a release with the insurer and received a notification from the company that it would pay her by check within 60 days. She left the hospital shortly thereafter. The hospital then presented her with a bill for $15,000. The teenager, in turn, gave the hospital a promissory note for $15,000. The teenager also indicated in her note that it was due in 60 days and that she assigned to the hospital the settlement she would receive from the insurance company. A few weeks later, the insurer discovered that since the teenager was a minor, she did not have the capacity to sign the release. The insurance company took the position that because the teenager had fraudulently represented that she was an adult, the release was invalid. The insurance company refused to pay the $15,000 to either the teenager or the hospital. Which of the following is true? (A) The insurance company does not have to recognize the teenager's assignment because it was invalid. (B) The insurance company can raise the defense of the teenager's fraud, but not incapacity, as against the hospital's claim. (C) The insurance company cannot raise the defense of fraud or incapacity because the assignment has already been made to the hospital, which does indeed have the capacity to enter into contracts and did not commit fraud. (D) The insurance company cannot raise the defense of fraud or incapacity because the insurance company did not object to the assignment.

(B) The insurance company can raise the defense of the teenager's fraud, but not incapacity, as against the hospital's claim.

A local hiking club arranged to rent all of a tour company's rafts for a whitewater ride during the first weekend in April. The club entered into a written contract whereby the tour company owner agreed to provide the club members the tour for a price of $3,200, including a $1,200 deposit. The contract allowed the tour operator to cancel the tour "in the event weather or other natural conditions not under operator's control render the river unsafe for navigation by raft." The hiking club paid the $1,200 deposit, as well as a $500 deposit for space at a local campsite the weekend of the trip. On the Thursday before the weekend set for the rafting trip, a helicopter crashed in the river gorge, and aviation experts were still retrieving the wreckage and examining the crash site on Saturday. The hiking club showed up at the dock for the tour as scheduled on Saturday morning, but the representative of the tour company refused to put rafts in the river, citing the unsafe conditions caused by the possibility of submerged wreckage. What effect did the helicopter crash have on the performance of the contract? (A) The parties are relieved of their contractual obligations, because of impracticality. (B) The parties are relieved of their contractual obligations, because of impossibility. (C) The hiking club may get return of its deposit and damages, because the tour operator anticipated that the trip may need to be cancelled if conditions were unsafe. (D) The tour operator is not liable for damages, because the contract anticipated that the tour operator may have to cancel the trip if conditions were unsafe.

(B) The parties are relieved of their contractual obligations, because of impossibility.

A retail chain ordered a large shipment of televisions. On arrival, the retailer inspects the shipment, which appears normal, and pays the manufacturer. Over the next several weeks, however, multiple customers return the televisions to the retailer because the televisions failed within a few hours of being plugged in. The retailer again inspects the televisions and discovers that the entire shipment is unfit for sale. The retailer files suit for a refund from the manufacturer. Which of the following statements is most accurate? (A) The retailer will prevail, because the manufacturer knowingly sold the retailer defective goods. (B) The retailer will prevail, because the manufacturer breached the implied warranty of merchantability. (C) The retailer will not prevail, because no written contract existed between the retailer and the manufacturer. (D) The retailer will not prevail, because both parties were sophisticated, and the retailer had a chance to inspect the goods.

(B) The retailer will prevail, because the manufacturer breached the implied warranty of merchantability.

A grandfather was leasing a garage where he kept his cars and motorcycles. The grandfather knew that he had a good deal, because he had been renting that garage for a long time. One day, the grandfather learned that his son was going to need space for some of the son's cars. Since the grandfather wanted to move to another city, he decided to transfer the lease to his son. The grandfather signed a contract with the owner of the garage by which the contract would be transferred over to the son in one year and the son would receive the same rate. The contract also stated that the contract could not be modified after three months. Which of the following is correct? (A) The son's rights in the garage lease vested when the contract was signed. (B) The son's rights in the garage lease will vest in three months. (C) The son's rights in the garage lease will not vest because he is a donee beneficiary. (D) The son's rights in the garage lease will not vest because he is an incidental beneficiary.

(B) The son's rights in the garage lease will vest in three months.

An eighth grade student was the winner of her school's spelling bee. She automatically advanced to the State's regional competition, and her father hired a tutor to help her prepare. The terms of the contract stipulated that the tutor would work with the student for a total of ten hours per week until the regional competition for a flat fee of $500 and if the student won the regional competition the tutor would receive an additional $250. The tutor worked diligently with the student for ten hours each week until the date of the regional competition. She won and advanced to the state finals, but her win was based on the successful spelling of a word she had never encountered during any of her sessions with the tutor. Her father gave the tutor a check for $500 but refused his request for the additional $250. If the tutor sues to collect the $250, which of the following is accurate? (A) The tutor will win, because he performed for ten hours each week prior to the regional competition. (B) The tutor will win, because the student won the competition. (C) The tutor will lose, because the student spelled the winning word without his assistance. (D) The tutor will lose, because he was under a pre-existing duty to prepare the student for the competition.

(B) The tutor will win, because the student won the competition.

A homeowner hired a contractor to remodel her kitchen, pursuant to the design of a famous architect. The contract specifies that the homeowner shall pay the cost of the materials up front, but the labor costs of the contract price will be due only upon the architect's certification of satisfaction that the contractor's work is in compliance with the architect's designs and specifications. The architect had worked with the contractor on another project, and was not satisfied with the contractor's work on that project. In fact, that project is currently involved in litigation. Although the homeowner's kitchen was remodeled according to the architect's designs and specifications, the architect withheld the certificate of satisfaction unless the contractor would make certain concessions in the unrelated litigation, which the contractor refused to do. The homeowner, not knowing about the litigation between the architect and the contractor, refused to pay the contractor without the architect's certification. The contractor is now suing the homeowner for payment under the contract. Will the contractor prevail? (A) Yes, because the architect has maliciously withheld certification of satisfaction. (B) Yes, because the architect has withheld certification of satisfaction in bad faith. (C) No, because the architect has complete discretion as to whether or not to issue the certificate of satisfaction. (D) No, because the homeowner is unaware of the dispute between the architect and contractor.

(B) Yes, because the architect has withheld certification of satisfaction in bad faith.

A violin manufacturer entered into a contract with a wood supplier that required the wood supplier to deliver 100 pounds of spruce wood on the first day of every month. The wood supplier's first installment was one week late, with the result that the violin manufacturer was forced to use an inferior quality wood to complete an order of violins for an influential violin store. As a result of his use of the inferior wood, the violin manufacturer's reputation was severely damaged in the musical instrument industry and sales of his violins plummeted. The wood supplier delivered its next monthly installment on time, but the violin manufacturer rejected it and canceled the contract. Is the violin manufacturer entitled to cancel the contract? (A) Yes, because the supplier's nonconforming tender substantially impaired the value of the first installment. (B) Yes, because the manufacturer's business was substantially injured. (C) No, because only the first installment was late. (D) No, because the manufacturer did not first offer the supplier an opportunity to cure.

(B) Yes, because the manufacturer's business was substantially injured.

A skier loved to ski, but she lived far away from the mountains and could rarely enjoy the sport. One day, the skier discovered a contract in the skier's father's desk. The contract was between the skier's father and his friend, the pilot. The contract stated that the father agreed to pay the friend $1,000 to fly the skier to Aspen in the pilot's private plane. The skier placed the contract back in the desk so that she could act surprised when her father told her about the trip. The skier spent the next week purchasing new clothes and equipment for the trip. Since the time of the contract, however, the price of fuel increased, and the pilot wished to cancel the trip. The skier's father informed the skier that he had planned to send the skier to Aspen but that the trip was off. The skier wishes to enforce the contract. Will the skier succeed in enforcing the contract? (A) Yes, because the skier was an intended third-party beneficiary. (B) Yes, because the skier purchased clothes and equipment for the trip. (C) No, because the skier was only a donee beneficiary. (D) No, because neither the skier's father nor the pilot knew that the skier was aware of the contract.

(B) Yes, because the skier purchased clothes and equipment for the trip.

A travel agent wants to obtain a business office in Las Vegas. The travel agent visits Las Vegas, takes a tour of foreclosed homes, and decides to buy a condo near the airport from which to conduct his travel agency business. The seller is a real estate broker, who had purchased foreclosed homes at steep discounts, including the condo, hoping to sell them quickly at a profit. The broker agreed to sell the condo to the travel agent. The broker agreed to the sale on the express condition set forth in the contract that the travel agent secure sufficient financing for the purchase. The contract executed by the parties states that the $10,000 down payment would to be applied towards the purchase price or be kept as liquidated damages in the event of the travel agent's breach of the contract. On the day before the scheduled closing, the travel agent tells the broker that he never sought financing. He demanded the refund of his $10,000 down payment. The travel agent refused to return the monies. If the broker seeks a declaratory judgment as to ownership of the $10,000, will the court allow the broker to retain the $10,000? (A) Yes, because the travel agent defrauded the broker. (B) Yes, because the travel agent acted in bad faith. (C) No, because the broker waived the express condition. (D) No, because it is inequitable to allow the broker to keep a windfall.

(B) Yes, because the travel agent acted in bad faith.

A contractor was selected as the roofing contractor for a new housing development. The contractor approached a clay roof tile manufacturer, to determine whether the clay manufacturer would be interested in supplying the roof tiles for the project. Shortly thereafter, the contractor and clay roof tile manufacturer entered into a contract. According to the terms of the contract, the tile manufacturer agreed to sell the contractor 100,000 clay roof tiles. Each tile was to be blue and measure 8 inches by 6 inches. The contractor agreed to purchase the tiles for $3 each, for a total contract price of $300,000. The tiles were to be delivered in five monthly shipments of 20,000 tiles per shipment. The first shipment was to be delivered on Jan. 2. The remaining four shipments were to be delivered by the first day of each of the following four consecutive months. The contract provided that the contractor would have the right to inspect each tile shipment prior to acceptance. The contractor was required to inform the clay tile manufacturer of any defects in the tile within five days after delivery. The contractor was also required to pay for each shipment within 14 days of delivery. Finally, the contract expressly stated that the contractor and the clay tile manufacturer would treat each monthly delivery as a separate contract. How would the agreement between the contractor and the clay tile manufacturer best be described? (A) Five separate contracts. (B) A requirements contract. (C) An installment contract. (D) A divisible contract.

A young man has always wanted to fly planes. In order to learn how to fly, he enrolled in a three-month piloting course in a flight school. He then applied for a $1 million life insurance policy payable to his wife. Thereafter, the young man made the first payment and then signed the policy. The policy contained a clause that stated that the young man will not be covered until he gets his pilot license, unless he is flying the plane under the personal supervision of the director of the school, who is a licensed pilot and instructor. A month later, the young man was piloting a plane with a pilot instructor, who was also a licensed pilot. The pilot instructor was a good friend of the director of the school. Unfortunately, the plane crashed and both the young man and the pilot instructor died in the crash. Which of the following is the strongest argument supporting the young man's wife's recovery under the insurance policy? (A) The young man did not expressly promise that he would fly only under the director's personal supervision. (B) The young man's flying with the pilot instructor, rather than with the director, was a de minimis non-compliance from the literal terms of the policy. (C) An insured would reasonably understand the policy to mean "either the director or any other licensed pilot." (D) The insurance policy limits coverage to lessons with only a single named pilot instructor, which results in forfeiture against public policy.

A seller contracted to sell to the buyer 100 widgets to be delivered by March 1, at a cost of $100 per widget. Unbeknownst to the seller, the buyer planned to sell the widgets at the Home Show on March 2. The seller delivered the widgets on March 10--too late for the buyer's purposes, because the Home Show was over. For this reason, the buyer refused delivery, but she estimates that she lost an estimated $500,000 in sales (based on figures from the previous year's Home Show). The seller was able to return all of the widgets to his supplier. The buyer seeks your legal counsel regarding her right to collect her lost profits. What do you advise? (A) Given her consequential damages, the buyer could sue and probably win. (B) Given the appropriateness of punitive damages, the buyer could sue and probably win. (C) Because the buyer's damages were not foreseeable, she is unlikely to prevail in a lawsuit to recover the lost profits. (D) Because the buyer's damages were foreseeable, she is likely to prevail in a lawsuit to recover the lost profits.

(C) Because the buyer's damages were not foreseeable, she is unlikely to prevail in a lawsuit to recover the lost profits.

A tenor entered into a contract with the city opera. The contract was signed by himself and by the city opera's manager. The tenor was to be employed by the city opera for three seasons, each running from Sept. 1 through March 30, at a salary of $35,000 per season. On Sept. 1, the tenor failed to appear for work at the city opera. On Sept. 4, the manager heard on the news that the tenor had been seriously injured in a water-skiing accident the previous week and would require two to three months of recovery. The manager then hired a local tenor to sing for city opera for a period of three months at a salary of $6,000 per month. Is the city opera entitled to recover from the tenor the additional $1,000 per month that it has to pay the local tenor beyond what it had contracted to pay the tenor? (A) Yes, because the tenor knew that the city opera had spent a considerable sum advertising his appearance with the city opera beginning Sept. 1. (B) Yes, because the tenor did not give the city opera timely notice of his accident and recuperation. (C) No, because performance of a personal services contract is excused if a party is injured and cannot perform. (D) No, because the tenor did not cause the accident and was not at fault for the delay.

A professional bodybuilder developed sports performance protein bars that he manufactured and used himself and sold to other bodybuilders and some endurance athletes. The performance bars were free of any substance that had been banned by the International Olympic Committee or any other athletic competition governing body; they also were very effective. Nearing retirement and needing a source of income, the bodybuilder entered into a lucrative contract with a sports agent - who represented athletes in many sports - to give the agent the exclusive right to purchase the performance bars. The agent thought he could build his client list by making access to these effective protein bars part of his services. He also anticipated that his clients' improved performance would lead to larger contracts and therefore more income for the agent. The contract provided that "The agent reserves the right to purchase all of the protein bars made by the bodybuilder during the next five years at the current market price at time of delivery, delivery and payment to be made at weekly intervals, and the bodybuilder agrees to supply in any event a minimum of 5,000 protein bars per year during that period." For three years the bodybuilder and the agent honored the contract as written, until one of agent's clients, a cyclist, was found to have violated the banned substances policy of the Tour de France. The agent blamed the bodybuilder's bars for the cyclist's positive drug test; the Tour had recently added more substances to its banned list, and the bars contain one of those ingredients. The agent refuses to accept delivery of any more bars. Is the agent's argument that he is excused from performing under the contract likely to prevail? (A) Yes, under the theory of impossibility. (B) Yes, under the theory of frustration of purpose. (C) No, because the agreement is not commercially impracticable. (D) No, because the mistake was not mutual.

A financial analyst hired a cowboy to perform at his son's birthday party. Soon thereafter, the cowboy got pneumonia and informed the analyst that he would be unable to perform. The analyst immediately sent an overnight letter to a balloon-animal maker recommended by a friend: "I had lined up the cowboy to perform at my son's birthday party, but he can't perform. I need another performer. You have to be here on the actual birthday. Money is no problem. Sincerely, Financial Analyst." The balloon-animal maker promptly sent back a letter by overnight mail: "I'm coming to your rescue! Yours truly, Balloon Maker." After the balloon maker dispatched the letter, but before the analyst received it, the cowboy called the analyst to let him know that his treatment for pneumonia was working better than anticipated, so he could in fact perform as planned. The analyst then called the balloon-animal maker and told her that he no longer needed her. The balloon-animal maker sued the analyst for breach of contract. The analyst asserted the defense that the cowboy's recovery was a changed circumstance that excused the analyst from liability on his contract with the balloon maker. Will the analyst prevail? (A) Yes, because in personal service contracts, illness excuses performance. (B) Yes, because the balloon maker assumed the risk of the cowboy's recovery. (C) No, because the analyst assumed the risk of the cowboy's recovery, since his offer was not conditioned on the cowboy's incapacity. (D) No, because of the analyst's unilateral mistake as to whether the cowboy would recover in time to perform.

(C) No, because the analyst assumed the risk of the cowboy's recovery, since his offer was not conditioned on the cowboy's incapacity.

A doctor was getting married. She entered into an agreement with a graphic artist who would provide her wedding announcements. The wedding was set for June 10, and the artist agreed to provide 250 announcements on or before May 1. The announcements would contain a photograph of the doctor and her fiancé that was to be pasted separately on to one side of the announcement. The doctor was to pay $625 to the artist on June 1. The artist would also take the photo of the doctor and her fiancé at a nearby park. The artist was to deliver the announcements on time, and he guaranteed the doctor's satisfaction. In early April, the artist was called out of town because of a family emergency, and he was not able to take the photo of the doctor and her fiancé until April 20. He indicated to the doctor that the announcements would be a week late. On May 5 he told the doctor that the announcements would probably not be ready until the 10th because of a delay in the time required to process the photographs and to paste them on to the announcements. The doctor told him to go ahead because she was waiting for them and she needed to get them mailed out to relatives and friends. The artist worked very hard to get the announcements ready, and he delivered them to the doctor on May 11. The doctor's family and fiancé really liked the announcements, but the doctor rejected them because she thought her hair looked bad in the photo and she thought the artist had not photographed her best side. She also rejected them because they weren't ready on May 1, as promised. Which of the following statements is the most accurate? (A) The doctor's obligation to pay the $625 was a condition subsequent to the artist's obligation to perform. (B) The doctor's obligation to pay the $625 was a condition precedent to the artist's obligation to perform. (C) The artist's obligation to perform was a condition precedent to the doctor's obligation to pay the $625. (D) The obligations of the doctor and the artist were concurrently conditional.

A shopping center engaged an asphalt company to redo its parking lot. The asphalt company promptly completed the project. However, the shopping center subsequently discovered that the work had not been performed exactly according to the terms of the contract, although the mistake was cosmetic and the parking lot was perfectly usable. Nevertheless, the shopping center sued the asphalt company, claiming that the parking lot needed to be completely torn out and redone. The asphalt company defended on the ground that it had substantially performed its contractual duties. How should the judge rule? (A) The asphalt company will be ordered to redo the work or pay the shopping center what it would cost to redo the work as damages, because the contract was not performed as agreed. (B) The asphalt company will not be required to pay any damages, because the shopping center failed to put a personal satisfaction clause in the contract. (C) The asphalt company will be required to pay only the diminishment in value of the parking lot as constructed, because it substantially performed. (D) The asphalt company will be required to pay damages equal to what it would cost to tear out and rebuild the parking lot, because it breached its promise.

(C) The asphalt company will be required to pay only the diminishment in value of the parking lot as constructed, because it substantially performed.

A businessman, tired of working long hours, plans to sell his grocery store to a competitor. The businessman meets the competitor at a lawyer's office, and they sign a contract for the competitor to close on the grocery store one month later. Unfortunately, the next night, an electrical fire in an adjoining liquor store spreads to the grocery store, destroying it. Which of the following is correct? (A) The businessman is liable for breach of contract, because the risk of loss remained with him. (B) The businessman is liable for breach of contract, because the court may find the contract to be impracticable. (C) The businessman is not liable for breach of contract, because of objective impossibility. (D) The businessman is not liable, because of subjective impossibility.

The owner of a salvage business specialized in antique architectural hardware and other architectural elements, such as doors and window frames. He generally sold items to people who were in the process of restoring old houses and other buildings. When a nearby house was demolished, the owner obtained a large set of double parlor doors. Several weeks later, the owner spotted a customer admiring the parlor doors in his showroom. The owner said, "Hey, that's a great set of standard, 19th-century parlor doors. I'll sell them to you, including the hardware, for $1,000." The customer agreed and bought the doors and hardware for $1,000. The customer (whom the owner did not know was an art historian) was well-acquainted with the history of the demolished house. He knew that, shortly after the house was built, a well-known American folk artist painted a mural on the inside of the doors, which had been painted over by the house's owners when the style of painting went out of fashion. The customer knew that the mural would be worth thousands on the current art market. After having several layers of paint professionally removed, he arranged to sell the painting at auction for an estimated selling price of $20,000. What is the owner's best argument for rescinding his contract with the customer? (A) The owner did not know about the presence of the mural. (B) The owner was not aware that the customer was an art historian and acquainted with the history of the house from which the doors were obtained. (C) The customer was aware that the owner did not know about the presence of the mural. (D) The owner's mistake had a material effect on the performances the parties agreed to exchange.

An inventor and owner of an innovative company that sells woodworking machinery and tools read an article about the hearing loss woodworkers commonly suffered due to the extremely loud machinery. He was struck with the "perfect" idea: a noiseless power saw, which would not only help humanity by helping to save the hearing of millions of woodworkers, but which was also certain to yield a large profit. The inventor researched companies working to develop quieter engines and discovered a little-known manufacturer whose owner had invented an unusually quiet engine. The inventor believed it could be adapted for power saws and other machinery. His only concern was whether the "silent" engine would be powerful enough to cut through all types of wood. After extensive negotiations, the inventor agreed to purchase 5,000 "silent" engines for $50 each, to be shipped to the inventor's warehouse with his having prepaid the shipping costs. The purchase and sale agreement stipulated that each engine must be powerful enough to allow the saw to cut through both hard and soft woods of all types. The contract further provided that the manufacturer would deliver the engines in lots of 500 units each month, beginning on October 1, and that he would pay for each lot within 48 hours of delivery. After the first shipment of engines was delivered to the warehouse on October 1, the inventor sent the manufacturer a $25,000 check. However, after testing all 500 engines, the inventor found that not a single engine was capable of producing the power necessary to cut all types of wood. The inventor notified the manufacturer that he was hereby rejecting the engines already delivered and that he would reject all future deliveries because the engines did not meet the minimum power requirements. With regards to the 500 engines delivered to the inventor, what amount of damages can the inventor recover and/or what remedies are available to him? (A) Two-thirds of the $25,000 he paid for the engines. (B) The entire $25,000 he paid for the engines, but he cannot resell the engines. (C) The entire $25,000 he paid for the engines, or he can resell the engines. (D) No damages.

An organic-corn farmer entered into a contract with a cooperative food market that provided that the market would purchase and the farmer would supply all of the market's corn requirements for the next five years. The contract stated that the market "need not order any specified amount of corn, but must notify the farmer of its monthly requirements no later than the 15th of each month." During the first 18 months of the contract, the market consistently ordered 100 pounds of corn. However, a local pesticide scare suddenly led to a skyrocketing demand for organic produce. The market therefore notified the farmer that it would need 250 pounds for the following month. Which of the following most accurately states the legal rights of the parties? (A) The farmer must supply the 250 pounds of corn, since the contract expressly stated that he would supply all of the market's requirements. (B) The farmer must supply the 250 pounds of corn, since the market's increased need did not arise from any affirmative action on its part. (C) The farmer need only supply approximately 100 pounds of corn, because the 250 pounds demanded is disproportionate to the amount of corn required by the market in previous months. (D) The farmer does not need to supply any corn to the market, because forcing the farmer to sell such a disproportionate amount would be unconscionable.

(C) The farmer need only supply approximately 100 pounds of corn, because the 250 pounds demanded is disproportionate to the amount of corn required by the market in previous months.

A man and his friend have known each other since childhood. At one point, the friend saved the man's life and the man decided to buy the friend a horse to thank him for his act. The man went to a horse breeder and found a horse of a good breed. He then signed a contract with the breeder by which the man would pay for the horse in three months and then the breeder would give the horse to the friend. The man then asked the friend to agree to the contract and the friend agreed. However, one month later the man realized he was short on cash, so he decided to modify the contract in order to substitute a cheaper horse instead of the intended one. Which of the following is correct? (A) The man can modify the contract, whether or not the breeder agrees. (B) The man can modify the contract, but only with the breeder's consent. (C) The man cannot modify the contract, because the friend assented to the contract. (D) The man cannot modify the contract, because the contract has already been signed.

A wine distributor entered into a written contract whereby the distributor agreed to sell a liquor store 500 cases of cabernet at a price of $75 per case. The contract specified that "it is expressly agreed that Buyer shall be under no obligation under this contract unless 500 cases of Cabernet are delivered to its place of business no later than February 1." The distributor tendered 400 cases meeting the liquor store's specifications on February 1. The remaining 100 cases were tendered on February 10. The liquor store refused to accept any of the cases. If the distributor sues the liquor store, which of the following contentions would best support the distributor's case, assuming each contention is factually sustainable? (A) Delivery of the 500 cases on February 1 was delayed by a truckers' strike and was not the distributor's fault. (B) A drop in the liquor store's credit rating, from "good" to "fair," had caused the distributor not to produce and tender the full 500 cases before February 1. (C) The specified bottles of wine were only produced for the wine distributor especially to meet the liquor store's needs and specifications. (D) The liquor store had orally agreed, just prior to the time the written contract was executed, to accept and pay for partial deliveries of the wine.

(C) The specified bottles of wine were only produced for the wine distributor especially to meet the liquor store's needs and specifications.

A wealthy stockbroker hired a high-end contractor to build his dream home. Under the terms of the parties' agreement, the contractor was to construct the stockbroker's new home according to the plans supplied by the stockbroker's architect, for a fee of $1.5 million, with $750,000 to be paid at the start of construction and the remainder to be paid upon completion of construction. The architect's plans, which were incorporated by reference, indicated that the mansion was to be fully air conditioned, but did not specify the capacity of the three air conditioning units to be installed in the mansion. Although it would require an energy output of 100,000 BTU per hour to effectively cool the mansion, the three air conditioning units installed by the contractor had a total energy output of only 75,000 BTU per hour. Apart from this discrepancy, the mansion was otherwise constructed in conformance with the written agreement. After paying the contractor the full amount of the contract price, the stockbroker discovered that the air conditioning units were not of sufficient energy capacity to effectively cool the mansion. If the stockbroker files suit against the contractor for breach of contract, to what damages, if any, will the stockbroker be entitled as a result of the contractor's installation of the insufficiently powered air conditioning units? (A) No damages, because the written agreement did not specify the energy capacity of the air conditioning units to be installed in the mansion. (B) No damages, because the contractor substantially performed the agreement. (C) The stockbroker will be entitled to recover the damages arising from the contractor's failure to install sufficiently powered air conditioning units, including the cost of upgrading to sufficiently powered air conditioning units. (D) The stockbroker will be entitled to recover the full amount of the contract price, because the contractor's use of insufficiently powered air conditioning units constituted a material breach of the contract.

(C) The stockbroker will be entitled to recover the damages arising from the contractor's failure to install sufficiently powered air conditioning units, including the cost of upgrading to sufficiently powered air conditioning units.

A magazine contracted with a printing press to publish its monthly magazine for $10,000. Soon thereafter, the printing press, seeking to get out of the magazine-publishing business, asked a rival to take over the contract, to which the rival agreed. The rival soon dissolved its own business, and the printing press had to find another company to publish the magazine. The new company charged $15,000. The printing press sued the rival for $5,000. Should the court find for the printing press? (A) No, because the rival agreed to render a performance to the magazine, not to the printing press. (B) No, because there was no consideration for the rival's agreement to perform the printing press's duty to the magazine. (C) Yes, because as a promisee, the printing press can enforce the rival's agreement to "take over" the printing press's contract with the magazine. (D) Yes, because even though the printing press had no direct right against the rival, it was subrogated to the magazine's right against the rival.

(C) Yes, because as a promisee, the printing press can enforce the rival's agreement to "take over" the printing press's contract with the magazine.

While browsing in an antiques shop, a collector of American antique furniture sees a highly rare vintage butler's secretary. She offers to purchase the secretary for $8,000, and the antiques shop owner agrees. The antiques shop owner and the collector draw up a written sales agreement. According to the terms of their written agreement, the collector is to tender payment to the antiques shop owner on the day the collector comes to pick up the secretary at the antiques shop. The day before the collector is due to pick up the secretary, a tornado destroys the antiques shop and its contents, including the secretary. At the time the secretary was destroyed, the risk of loss remained on the antiques shop owner. Shortly after the secretary was destroyed, the collector discovers that a secretary of the same age and design was recently sold at auction for $15,000. The antiques shop owner sues the collector to recover the contract price of $8,000. The collector countersues the antiques shop owner for $15,000. Who should recover on her claim? (A) Only the antiques shop owner should recover on her claim. (B) Only the collector should recover on her claim. (C) Both the collector and the antiques shop owner should recover. (D) Neither the collector nor the antiques shop owner should recover.

(D) Neither the collector nor the antiques shop owner should recover.

After inspecting his neighbor's house, a housecleaner agreed in writing to clean it for $150. That night, the neighbor had dinner with his wealthy nephew, who said that he too was looking for a good housecleaner. The neighbor agreed in writing to assign his rights to the contract with the housecleaner for $150. The nephew paid the $150 and took the signed assignment with him to the housecleaner. After seeing the nephew's massive house, the housecleaner refused to honor the assignment. Did the housecleaner breach the contract? (A) Yes, because the nephew was a third-party beneficiary. (B) Yes, because the contract did not specify that assignments were void. (C) Yes, because the assignment was in writing and supported by consideration. (D) No, because the nephew's house was much larger than the neighbor's.

(D) No, because the nephew's house was much larger than the neighbor's.

A well-known violinist decides to build a house in a very expensive neighborhood. He signs a contract with a construction company to begin work in two weeks. Five days before the work is supposed to start, when the company only needs one last building permit, the local government announces that it will be shutting down many of its agencies for one month because of budget constraints. One of these agencies is the one that was supposed to grant the needed permit, so the company cannot start work on the agreed-on date. Two days after the company was supposed to start work, the violinist sues the company for breach of contract. Which of the following is correct? (A) The company will be held liable, because it anticipatorily repudiated the contract. (B) The company will be held liable, because the company did not start the work on the agreed-on date. (C) The company will not be held liable, because the contract is void as a result of impossibility. (D) The company will not be held liable, because the delay is only temporary.

(D) The company will not be held liable, because the delay is only temporary.

A concert promoter rents a large concert hall for a performance by a famous European symphony orchestra, which many people in his city have wanted to see. When he signs the contract, it is two months ahead of the concert. For several months, a particularly virulent influenza has been prevalent in several regions of the world, including one that the orchestra will be traveling through just before it comes to the promoter's city. On the day of the performance, the orchestra has to cancel because half of the musicians are ill with the flu. Which of the following is correct? (A) The contract between the promoter and the hall is discharged, because of impossibility. (B) The contract between the promoter and the hall is discharged, because of frustration of purpose. (C) The contract between the promoter and the hall is not discharged, because the frustration was not substantial. (D) The contract between the promoter and the hall is not discharged, because the promoter bore the risk.

(D) The contract between the promoter and the hall is not discharged, because the promoter bore the risk.

A retired cook was an elderly man who lived by himself. He started repainting his house, but was having a difficult time, so his son hired a contractor to do the job. Their contract provided that the contractor would receive a payment after completion of the work. When the contractor was halfway done, the retired cook died. Which of the following is correct? (A) The contract is discharged, and the contractor receives no payments, because he did not complete the work. (B) The contract is discharged, but the contractor receives payment for work completed. (C) The contract is not discharged, but the contractor must receive half of the payment before continuing work. (D) The contract is not discharged, and the contractor must complete the repainting project.

(D) The contract is not discharged, and the contractor must complete the repainting project.

A retailer decided to purchase chairs to sell in his furniture store. He contacted a furniture manufacturer that was located in another state and signed a contract for the purchase of 50 chairs. The parties agreed that the chairs would be delivered on December 1. However, on November 25, a labor strike erupted at the manufacturing company, and work was stopped for six months. On June 10, the manufacturer tended the chairs to the retailer, but the retailer refused to accept them. What is the result? (A) The contract is valid, and the retailer is in breach of contract. (B) The contract is valid, and the manufacturer is in breach of contract. (C) The contract was discharged by lapse. (D) The contract was discharged by impracticability.

(D) The contract was discharged by impracticability.

A man was clearing out his attic when he found an old painting that was given to him by his grandfather. The man had no use for the painting so he decided to sell it to his neighbor who was a lover of the arts. The man met with the neighbor and showed him the painting, after which the neighbor signed a contract with the man by which the neighbor would buy the painting from the man in one week. The neighbor needed one week to get the money to pay for the painting. However, three days before the neighbor was supposed to pay under the contract, he realized he was having trouble obtaining the necessary money. Therefore, the neighbor went to the man and asked him for an extension or cancellation of the contract, but when the neighbor was finished, the man told him that the painting had been burned up in an accidental fire that was not the man's fault. Which of the following is correct? (A) The man is in breach of contract, because the man can no longer deliver the painting. (B) The man is not in breach of contract, because of impracticability. (C) The neighbor is in breach of contract, because he anticipatorily repudiated the contract. (D) The neighbor is not in breach of contract, because the contract was discharged.

(D) The neighbor is not in breach of contract, because the contract was discharged.

A man's daughter always admired his neighbor's rare car. So one day, when the man heard that the neighbor wanted to sell the car, the man decided to buy the car and gift it to the daughter. The man signed a contract with the neighbor by which he would buy the car in one week. The father invited the daughter to agree to the contract, and the daughter assented. However, one day before the delivery of the car was to take place, the car was accidentally destroyed in a fire. Which of the following is correct? (A) The neighbor will be in breach of contract, and both the father and the daughter can sue the neighbor. (B) The neighbor will be in breach of contract, but only the father can sue the neighbor. (C) The neighbor will not be in breach of contract, because the daughter is a donee beneficiary. (D) The neighbor will not be in breach of contract, because the promisor can use any valid defenses to enforcement of the contract.

(D) The neighbor will not be in breach of contract, because the promisor can use any valid defenses to enforcement of the contract.

A woman entered into an agreement with a 15-year-old neighbor. She would pay him $25 per month if he mowed her lawn when she went out of town for an extended period of time. The woman later won a scholarship to study music in Germany. She left in August and returned in July of the following year. During her absence, the neighbor dutifully mowed her lawn every month. When the woman returned, he presented her a bill for $275. The woman refused to pay, and the neighbor filed suit to enforce the agreement. Who will prevail? (A) The woman will prevail, because the neighbor as a minor cannot enforce her promise. (B) The woman will prevail, because her promise was illusory. (C) The neighbor will prevail, because the woman had always paid him to mow her lawn in the past. (D) The neighbor will prevail, because the woman's promise is enforceable.

(D) The neighbor will prevail, because the woman's promise is enforceable.

A woman had a friend who had a well-bred dog. The woman's niece always loved playing with the friend's dog and when the woman learned that the dog was about to have puppies, the woman decided to buy one of the puppies for the niece. The woman signed a contract with the friend where the woman will pay for a puppy when the dog gives birth, while the friend will give the puppy to the niece. However, three days before the dog is about to give birth, the woman is told that the niece was caught using drugs. At that point, the woman goes to her neighbor, and they both agree to rescind the contract. Which of the following is correct? (A) The niece can sue the woman, because the woman is the promisee. (B) The niece can sue the friend, because the niece's rights vested. (C) The niece cannot sue the woman, because the woman is a promisor. (D) The niece cannot sue the friend, because the niece's rights did not vest.

(D) The niece cannot sue the friend, because the niece's rights did not vest.

A shirtmaker and a retailer entered into a written contract whereby the shirtmaker agreed to supply the retailer 1,000 painted sweatshirts, in accordance with specifications set forth in the contract, for sale during the Christmas season. The goods were to be shipped to arrive at the retailer's store in 10 shipments of 100 each. The first shipment was to be delivered on Sept. 1. The remaining shipments were to be made at one-week intervals until the middle of November. The first shipment arrived at the retailer's store on Sept. 6, and contained only 80 sweatshirts, 10 of which did not conform to the retailer's design specifications. Which of the following most accurately sets forth the obligations of the parties on Sept. 6? (A) The retailer may declare that the entire contract has been breached because of the defects in the first shipment and seek appropriate buyer's remedies under the UCC. (B) The retailer may reject the first shipment even if the shirtmaker agrees to ship 30 conforming sweatshirts the next day. (C) The retailer may accept the conforming sweatshirts, sue for breach of the obligations with respect to the Sept. 1 delivery, and at a later date terminate the contract with respect to future installments. (D) The retailer may not terminate the entire contract for breach of the contract obligations with respect to the first installment unless the first shipment substantially impairs the value of the whole contract.

(D) The retailer may not terminate the entire contract for breach of the contract obligations with respect to the first installment unless the first shipment substantially impairs the value of the whole contract.

A retailer makes a deal with a wholesaler to purchase 500 widgets at a price of $1,000 per widget, to be delivered by June 1. The retailer makes sure to tell the wholesaler that time is of the essence. The wholesaler does not deliver the widgets until June 15. One of the retailer's customers, who needed widgets by June 5, cancels his order with the retailer, costing the retailer $1,000,000 in lost profits. The retailer seeks to recover his lost profits and seeks your legal counsel. What do you advise? (A) The retailer may sue to recover his lost profits, because under the theory of punitive damages the wholesaler could reasonably foresee the harm to the retailer. (B) The retailer may sue to recover his lost profits, because under the theory of estoppel the wholesaler is estopped from denying liability for the damages the retailer incurred. (C) The wholesaler may sue to recover his lost profits, because he is entitled to recover under the theory of incidental damages. (D) The retailer may sue to recover his lost profits, because the wholesaler is liable for any damages that flow from the breach.

(D) The retailer may sue to recover his lost profits, because the wholesaler is liable for any damages that flow from the breach.

A mother loves her son, who is leaving for college. She decides to buy a gift for her son as a reward for being accepted into the college. The mother signs a contract with the son where she states that she will buy a large flat-screen television from an electronics store two days before the son moves. However, when the date of the planned purchase arrives, the mother does not buy the television. Which of the following is correct? (A) The store can sue the mother, because it is an intended third-party beneficiary. (B) The store can sue the mother, because it is an incidental third-party beneficiary. (C) The store cannot sue the mother, because it is an intended third-party beneficiary. (D) The store cannot sue the mother, because it is an incidental third-party beneficiary.

(D) The store cannot sue the mother, because it is an incidental third-party beneficiary.

A musician decided to sell his saxophone and placed an ad in the local newspaper. A college student saw the listing and visited the musician at his home to see the saxophone. The student told the musician that she was very interested in buying the saxophone, but that she needed to get a loan from the bank to finance the purchase. The parties drafted a contract, signed by both parties, which stated that the student would agree to purchase the saxophone from the musician for $2,500. The written agreement contained a provision wherein the sale would not take effect "unless [the student] is successful in her bid to obtain a loan from a bank to finance the purchase of the saxophone." Subsequently, the student made no effort to attempt to obtain a loan from a bank so that the sale could be finalized. After several months, the musician filed suit against the student for breach of contract. Which of the following will be the musician's strongest argument in support of his action against the college student for breach of contract? (A) The obtaining of a loan from a bank was not worded as a condition to the student's duty to buy the instrument. (B) Although obtaining a loan from a bank was a condition to the student's duty to buy the instrument, the condition is unenforceable because it was obtained by fraud. (C) Although obtaining a loan from a bank was a condition to the student's duty to buy the instrument, it should be stricken from the contract because it is an unconscionable term. (D) The student breached the contract by failing to tender the price of the instrument, since her actions prevented her from getting the bank loan.

(D) The student breached the contract by failing to tender the price of the instrument, since her actions prevented her from getting the bank loan.

A contractor agreed to build a house for an enigmatic and highly particular billionaire in accordance with detailed plans and specifications. In return, the billionaire agreed to pay the contractor $10,000,000 for the home upon completion. The written contract included the following provision: "The billionaire's liability is expressly conditioned on the master bedroom being constructed entirely out of malachite." While the home was under construction, a health pandemic developed in the only country that supplied sheets of malachite, ending the supply of malachite to the United States. Because no malachite was available in the country, the contractor used a similarly colored jade to construct the master bedroom instead. A jeweler had agreed in writing with the contractor to trim the walls with pearls. Unfortunately, the pearls were fake, although otherwise functional. Other than the lack of malachite and the fake pearls, the house was completed according to the plans and specifications contained in the contractor-billionaire contract. Despite these discrepancies, the billionaire paid the contractor the full contract price, moved in, and sued the jeweler for using fake pearls instead of real ones. The court will probably find in favor of (A) the jeweler, because the jeweler was not in privity with the billionaire. (B) the jeweler, because the billionaire waived his right to claim the damages by paying the contractor and taking possession of the house. (C) the billionaire, because when the billionaire paid the contractor he acquired an implied assignment of any rights that the contractor had against the jeweler. (D) the billionaire, because the billionaire was a third-party beneficiary of the contract between the contractor and the jeweler.

(D) the billionaire, because the billionaire was a third-party beneficiary of the contract between the contractor and the jeweler.

A nonprofit children's group hired a renowned local painter to repaint its headquarters in time for its grand opening. The artist was later arrested on unrelated graffiti charges and asked his partner to take over the contract. The artist informed the nonprofit that his partner had taken over the contract. The partner then, too, was arrested and could not repaint the building. The nonprofit could not locate another painter on time, and when its grand opening occurred, its headquarters' walls remained unpainted, a public relations disaster. If the nonprofit sued the artist, a court would most likely rule for (A) the artist, because he delegated his duty to perform to his partner. (B) the artist, because it would be inequitable to hold him responsible for the duty under the original contract, under which he no longer retained the right to payment. (C) the nonprofit, because the artist's performance of his duty to the nonprofit could not be delegated. (D) the nonprofit, because the artist's delegation to his partner of the duty to the nonprofit did not relieve the artist of his duty to perform.

(D) the nonprofit, because the artist's delegation to his partner of the duty to the nonprofit did not relieve the artist of his duty to perform.

A homeowner entered into a written contract with a construction company to build a 12-foot-by-12-foot addition onto her house for $25,000. The contract conditioned the homeowner's duty to pay the entire contract price on the job being complete by March 30. Soon after the parties signed the contract, the city revised several zoning regulations. One of the revised regulations prohibited property owners in residential areas from building structures on their property less than three feet from their property line. If the construction company built the room according to the contract specifications, the addition would violate this regulation. To bring the project into compliance, the company instead built a room measuring 11 feet by 12 feet. The decrease in the size of the addition reduced the value to the homeowner by $1,000. The cost of paying another contractor to extend the room would be $5,000. If the construction company completed the project on time and conformed with all other contract specifications, to what amount is it entitled? (A) $25,000, less the construction company's cost and profit allocable to the "missing" foot. (B) $25,000, because the constructive condition of complete performance by the construction company was excused. (C) $25,000, less $5,000, because the construction company substantially performed. (D) $25,000, less $1,000, because the construction company substantially performed.

(A) $25,000, less the construction company's cost and profit allocable to the "missing" foot.

A man owed his brother $500. The man did not have any cash, so he decided to do some contract work for his friend in exchange for the friend paying the brother in cash. The man signed a contract to that effect with the friend and then did the contract work. However, when the man was done with the work, the friend refused to pay the brother. Which of the following is correct? (A) The brother can sue the friend, because the brother is a creditor beneficiary. (B) The brother can sue the man, because the man is a promisor. (C) The brother cannot sue the friend, because the brother is an incidental beneficiary. (D) The brother cannot sue the man, because the man is a promisee.

(A) The brother can sue the friend, because the brother is a creditor beneficiary.

A businessman owned a factory that produced rubber. A woman who required rubber for her business contracted with the businessman to buy his whole production of rubber over the next three months. The shipment of the rubber was to take place on December 1. However, on November 26, the whole shipment that was ready to be sent out to the woman was burned up. The fire took place because one of the employees of the businessman placed highly flammable materials next to the rubber, while another negligently dropped his cigarette on the materials. On December 1, the businessman did not deliver the rubber shipment. Which of the following is correct? (A) The businessman committed a breach of contract, because the fire was the businessman's fault. (B) The businessman committed a breach of contract, whether or not the fire was the businessman's fault. (C) The contract is discharged, because of impossibility. (D) The contract is discharged, because of impracticability.

(A) The businessman committed a breach of contract, because the fire was the businessman's fault.

As a holiday neared, a businessperson realized that her candy store was selling more chocolate bunnies than she anticipated. She sent an email message to a chocolate production company's email order center, which requested immediate shipment of 500 chocolate bunnies at the catalog price of $1.00 per bunny. At the time the owner of the company received the message, he had already sold nearly all of his chocolate bunny inventory. However, he still had 500 chocolate ducks in stock. He promptly ships the 500 chocolate ducks to the businessperson with a note stating that he has sold all of his chocolate bunnies, but that he is sending 500 chocolate ducks at a catalog price of $1.00 per duck in the hope that these will meet the businessperson's needs. At the point that the businessperson timely receives that shipment of chocolate ducks and the accompanying note, which statement best describes the rights and responsibilities of the businessperson and the owner of the chocolate production company? (A) The businessperson may accept the shipment of chocolate ducks and pay the owner the catalog price or she may reject the shipment, preventing the formation of a contract. (B) The businessperson may accept the shipment of chocolate ducks and pay the owner the catalog price, less any damages incurred because of the nonconforming goods, or she may reject the nonconforming shipment and cover by purchasing chocolate bunnies from another source. (C) The businessperson may accept the shipment of chocolate ducks and pay the owner the catalog price or reject the nonconforming shipment and sue the owner for appropriate damages for breach of contract. (D) The businessperson may accept the shipment of chocolate ducks and pay the owner the catalog price or reject the nonconforming shipment and recover for breach of contract, subject to the owner's right to cure.

(A) The businessperson may accept the shipment of chocolate ducks and pay the owner the catalog price or she may reject the shipment, preventing the formation of a contract.

A veterinarian entered into a written contract by which a contractor agreed to construct an animal hospital on the veterinarian's land within 10 months in exchange for $500,000. The contractor completed all work on the animal hospital except the painting of the exterior, the interior, and installation of built-in appliances. A fire, not the fault of either the veterinarian or the contractor, then destroyed the entire construction. Which of the following best describes the rights of the parties at this point in time? (A) The veterinarian is excused from paying the contract price, unless the contractor constructs a new animal hospital in conformance with the original contract. (B) The contractor may recover from the veterinarian the reasonable value of her services and the materials expended in constructing the destroyed building, because the risk of loss had passed to the veterinarian upon substantial completion of the building. (C) The contractor may recover from the veterinarian the reasonable value of her services and the materials expended in constructing the destroyed building, plus a reasonable profit, because the risk of loss had passed to the veterinarian upon substantial completion of the building. (D) The contractor may recover the full contract price, less the cost of installing the appliances.

(A) The veterinarian is excused from paying the contract price, unless the contractor constructs a new animal hospital in conformance with the original contract.

On February 1, the owner and operator of a popular amusement park, which featured numerous water slides, pools, and so on, entered into a written contract with a vendor whereby the vendor agreed to sell and the owner-operator agreed to purchase all of the owner-operator's monthly water chemical requirements during that year. The contract was identical to those entered into by them for each of the past seven years. Although the contracts in previous years made no provision for advance payment, the owner-operator had always paid on the first of each month the estimated cost of the owner-operator's orders for the coming month. On May 5, the owner-operator ordered 10,000 gallons of various chemicals, but had not made any advance payments for May. The vendor told the owner-operator that the vendor would make no deliveries without advance payment. The owner-operator, refusing to pay in advance, bought the chemicals elsewhere at a higher price and sued the vendor for the price difference. The owner-operator most likely will (A) not prevail, because of the past course of dealing. (B) not prevail, because payment in advance is an implied condition to the vendor's duty to deliver, regardless of their prior course of dealing. (C) prevail, because the writing was an integrated contract, which could not be varied by prior negotiations. (D) prevail, because delivery by the vendor was a condition precedent to the owner-operator's duty to pay.

(A) not prevail, because of the past course of dealing.

After a hail storm destroyed his entire crop, a farmer submitted a claim to his insurance company. The insurance adjuster told the farmer that his policy provided that he "must spray his crop with a recognized pesticide before April 1 of each year the policy is in effect." The insurance adjuster denied the farmer's claim after the farmer admitted that he had not sprayed his crop that year. If the farmer files suit against the insurance company to enforce the policy, the court should find in favor of (A) the farmer, because as a matter of contract interpretation, the insurance company still had an absolute duty to perform. (B) the farmer, because this type of clause is unconscionable. (C) the insurance company, because the farmer's breach was willful. (D) the insurance company, because the clause regarding the pesticide is an express condition and must be literally applied.

(A) the farmer, because as a matter of contract interpretation, the insurance company still had an absolute duty to perform.

In a state where gambling is prohibited, the owner of a large unused warehouse asked the operator of successful casinos in a neighboring state to buy some roulette tables, craps tables, and card tables for him to turn the warehouse into a gambling house. The casino operator was to pay for the goods in his own name. The warehouse owner agreed to pay the operator $50,000 for his services and to reimburse him for any costs incurred. The operator bought the goods for $60,000 in his name and had them placed in the warehouse. When the equipment was installed, the operator made "arrangements" with the local police to ensure that the operation wouldn't be bothered. He then asked the warehouse owner for $110,000 to cover the cost of the equipment and his services. The warehouse owner refused to pay. In a suit against the warehouse owner by the operator (A) the operator can recover nothing. (B) the operator can recover $110,000 because he has not entered into a gambling contract. (C) the operator can recover the $60,000 that he spent for the equipment, but he cannot recover the $50,000 promised him for his services. (D) the operator can recover in quantum meruit for the reasonable value of the equipment, but he cannot recover on the contract.

(A) the operator can recover nothing.

An owner of an upscale restaurant in a major metropolitan city contracted with a local bakery to provide "All the breads and pastries we will need for the following year" at a rate of $1,000 per month. Six months later, the bakery sent a letter to the restaurant owner stating, "The increase in the wholesale cost of flour makes it impossible to meet your demand for less than $1,200 per month." The restaurant owner sues the bakery for breach of contract. If the bakery wins, it will be because (A) this is a requirements contract, and the bakery acted in good faith. (B) this is an output contract, and the bakery acted in good faith. (C) the price of flour rose after the contract was formed. (D) unilateral contract terms are subject to change by either party.

(A) this is a requirements contract, and the bakery acted in good faith.

A community theater received a request from the local opera company to stage a production at the theater the following January. The theater director agreed to have a local designer design the sets for the opera. They signed a written contract that promised the designer $5,000 for the sets. The director had some specific ideas and insisted on some detailed specifications for the sets. However, the theater stage was smaller than was really needed, and it would be difficult to fit everything the director wanted into the production. Under the agreement, the designer was to provide all material and labor and would begin work on October 1. The $5,000 would be paid upon completion of the sets. The designer was going to make a profit of $1,000. On September 15, the director called the designer and told her that it was impossible for the theater to stage the opera and that she was going to cancel the production. Knowing that her contract was enforceable, the designer urged the director not to act hastily and to take some time to think about it. On September 17, the designer spent $1,500 on materials for the sets that she was to build according to the director's specifications. The materials were not suitable for anything other than the opera sets. If the designer sues the theater for breach for contract, what is she entitled to recover? (A) Nothing, because she is estopped from recovering damages due to her failure to mitigate. (B) $1,000 as expectation damages. (C) $1,000 as expectation damages and $1,500 as reliance damages. (D) $5,000 as expectation damages.

(B) $1,000 as expectation damages.

On November 7, a general contractor contracted with an insurance company to build an employee cafeteria in an empty space in corporate headquarters. The contract provided that: 1) the insurance company would pay the contractor a total of $400,000 in two equal installments within two weeks of completion; 2) the contractor would complete all work by February 7; and 3) the agreement could be amended only in writing. On December 20, the contractor demanded the initial $200,000 on the grounds that the job was now half finished. The insurance company denied payment, but the parties agreed that the insurance company would place a total of $400,000 into an escrow account so the contractor need not worry about getting paid. The insurance company did place the money in escrow. If, on December 20, the job was indeed half finished, would the contractor have been entitled to a payment of $200,000? (A) No, because the parties orally modified the agreement when the insurance company placed the $200,000 in escrow. (B) No, because the phrase in the agreement "within two weeks of completion" would be interpreted to mean within two weeks after the actual date of completion. (C) Yes, because the contractor had completed half of the project. (D) Yes, because otherwise the insurance company would be unjustly enriched.

(B) No, because the phrase in the agreement "within two weeks of completion" would be interpreted to mean within two weeks after the actual date of completion.

A woman purchased a life insurance policy from an insurance company. Under the terms of the policy, the insurance company promised to pay the woman's husband $100,000 upon the woman's death if the woman paid her annual premiums. The policy also allowed the woman to change her designated beneficiary at any time and to assign the policy. Two years later, the insurance company wished to lessen its risk of loss, and it entered into a reinsurance agreement with a reinsurance corporation. According to the agreement, the reinsurance corporation would perform the insurance company's duties under its policy with the woman in exchange for the insurance company's payment of an annual premium to the reinsurance corporation. The following year, the woman changed the beneficiary on her policy from her husband to her daughter. In anticipation of the expected income from the policy, the daughter and her husband purchased a house in a gated community, and they notified both the insurance company and the reinsurance corporation of the purchase, because the daughter was now the beneficiary of the policy. After naming her daughter beneficiary, the woman became seriously ill. The insurance company decided it no longer needed the protection afforded by the reinsurance policy, and so the insurance company and the reinsurance corporation rescinded the reinsurance policy. The woman died two months later. From the time the woman purchased the policy until her death, the woman had consistently paid her life insurance premiums to the insurance company, and the policy remained in good standing. When the daughter attempted to collect the proceeds of the policy from the reinsurance corporation, the reinsurance corporation refused to pay. The daughter filed suit against the reinsurance corporation to collect on the reinsurance contract. How is the court likely to rule? (A) The court will deny the daughter any damages, because she was not a party to the contract between the life insurance company and the reinsurance corporation. (B) The court will award the daughter the proceeds of the policy, because the daughter was an intended beneficiary of the reinsurance agreement, and the daughter changed her position in reliance on the reinsurance policy. (C) The court will deny the daughter any damages, because the rescission of the reinsurance contract by the insurance company and the reinsurance corporation relieved the reinsurance corporation of any obligation to pay under the life insurance policy. (D) The court will deny the daughter any damages, because the daughter was merely an incidental beneficiary of the reinsurance contract between the insurance company and the reinsurance corporation and must sue the insurance company to recover the policy proceeds.

(B) The court will award the daughter the proceeds of the policy, because the daughter was an intended beneficiary of the reinsurance agreement, and the daughter changed her position in reliance on the reinsurance policy.

An inventor and manufacturer of what he predicted will be the novelty craze of the future was inspired by the legendary success of the pet rock to invent the pet dust bunny. He collected dust balls from under his bed and dyed the dust bunnies a variety of psychedelic colors. He then entered into a contract to sell 200 dust bunnies to a novelty shop. The inventor was only able to collect enough balls of dust to create 180 dust bunnies, so he delivered these 180 to the owner of the shop. The owner accepted the shipment and paid the inventor the agreed upon contract price. If the owner sues the inventor for damages for breach of contract, the owner will most likely (A) succeed, but only if the inventor's failure to deliver the remaining dust bunnies constituted a material breach. (B) succeed, because the inventor did not perform his obligation under the contract. (C) not succeed, because the owner accepted delivery of the shipment containing only 180 dust bunnies. (D) not succeed, because the inventor substantially performed.

(B) succeed, because the inventor did not perform his obligation under the contract.

A furniture restorer agreed to restore two matching French country chairs. The chairs' owner agreed to pay the restorer $400; however, the agreement did not provide for the time of payment. The restorer arrived at the owner's house to pick up the chairs and demanded payment at that time. The owner refused to make payment in advance. If the restorer sues the owner for breach of contract, the court should find for (A) the owner because, where a contract is silent about the order of performance, it is too indefinite to be enforced. (B) the owner because, where an agreement is silent about the order of performance, payment is not required until after the work is completed. (C) the restorer because she first raised the issue of order of performance and thus has a right to establish that order. (D) the restorer because where an agreement is silent about the order of performance, payment is required before the work is to be performed.

(B) the owner because, where an agreement is silent about the order of performance, payment is not required until after the work is completed.

A developer decided to build a major gas station and restaurant on a highway just outside of town. Studies showed that traffic would be increasing substantially along the highway during the next few years. The developer contracted with a construction company to build the facility for $3 million. Construction began in a timely manner on January 15. The County Board of Supervisors decided on April 10 to build a new highway bypass around the town, decreasing the traffic flow on the highway. By April 15, the construction company had spent $2.25 million in construction costs. On April 15, the developer ordered the construction company to cease all work because they believed the facility was no longer going to have the traffic volume to make it economical to operate. Because it was close to completion, the construction company went ahead and finished the facility, spending another $150,000. The total construction costs were $2.4 million. The construction company filed a breach of contract action against the developer. The construction company can recover (A) $2,250,000. (B) $2,400,000. (C) $2,850,000. (D) $3,000,000.

A buyer enters into a written agreement to purchase vacant property from a landowner. A title search subsequently reveals that the landowner actually owns the lot next door to the one the buyer thought she was purchasing, a fact of which both parties were unaware when the contract was signed. The owner of the lot the buyer wishes to buy is willing to sell to the landowner, her neighbor, but not to the buyer. The buyer goes to court seeking to compel the landowner to purchase the correct lot and then sell it to her as agreed. The landowner would still make a profit on the transaction. As the judge, which order will you enter in the case? (A) An order compelling specific performance by the landowner, because of the unique nature of land. (B) An order compelling specific performance by the landowner, because under the mailbox rule the buyer is entitled to the benefit of what she bargained for. (C) An order rescinding the contract, because of the innocent misrepresentation of the landowner. (D) An order compelling the landowner to purchase the lot and sell it to the buyer, because of the fraudulent misrepresentation of the landowner.

A father established a painting company bearing the family name 50 years ago. He employed his son and daughter until the three had a falling out. The son and daughter formed a new painting company, which also had the family name in the name of the company. Thereafter, the son contracted with a paint wholesale company (on behalf of the siblings' company) to purchase 50 gallons of paint, of assorted colors, at $12 per gallon. According to the contract terms, delivery was set for March 1 with full payment ($600) due 30 days later. Before shipment, the wholesaler's representative realized that she was dealing with a new company and not the father's company. When the representative initially spoke with the son, she was under the mistaken belief that the son was still working for the father's company--a longtime customer of the wholesaler--even though the son did not make this representation. The representative immediately called the son, explained the mistake, and indicated that her company required C.O.D. payment instead of 30-day billing because this was a new account. The representative proposed and the son agreed to a new written contract. In this agreement, signed by both parties, the son agreed to pay $15 per gallon of paint (which was the average wholesale market price) with payment due 45 days after delivery. The wholesaler delivered the paint and the son accepted the paint, but 45 days later, the son refused to pay more than $12 per gallon. If the wholesaler sues the siblings' company for the additional $3 per gallon, how will the court likely rule? (A) For the siblings' company, because there was no consideration for the son's promise to pay more than $12 per gallon. (B) For the siblings' company, because their company should not be penalized into accepting less favorable contract terms on account of the wholesaler's mistake. (C) For the wholesaler, because under the applicable law, no consideration was required for effective modification of the original contract price. (D) For the wholesaler, because the parties entered into their agreement under a mutual mistake, and therefore modification of the agreement was appropriate.

(C) For the wholesaler, because under the applicable law, no consideration was required for effective modification of the original contract price.

A swimmer hires a pool builder to build a pool in her backyard. The swimmer is also a former Olympic diver and specifies that the depth of the pool under the board shall be 10 feet. The pool is built, and the pool builder is paid. Then it is discovered, however, that the depth of the pool in the deep end is actually 9 feet, 11 inches, of which the pool builder was unaware. While the pool may still be safely used, the swimmer believes that the house is now worth substantially less due to the discrepancy in the depth of the pool. She sues the pool builder for the cost of having the pool torn out and rebuilt. Will the swimmer prevail? (A) Yes, the pool builder will be required to rebuild the pool, because he failed to perform to the swimmer's personal satisfaction. (B) Yes, the swimmer can recover the amount she paid to the pool builder, because he did not build the pool to her specifications. (C) No, because the pool was still usable, and the swimmer will not be allowed to profit from the pool builder's mistake. (D) No, because the pool builder will be allowed to rescind the contract because of the mutual mistake of fact.

(C) No, because the pool was still usable, and the swimmer will not be allowed to profit from the pool builder's mistake.

Eager to enjoy a tropical beach vacation, a married couple booked a room at a beach resort during the month of August. The previous August, a hurricane had struck the resort. Two weeks before the couple's scheduled vacation, another hurricane struck the resort and rendered the beach on its property unusable. Would a court excuse the couple's obligations under its contract on the grounds of frustration of purpose? (A) Yes, because the hurricane drastically reduced the value of the contract. (B) Yes, because the couple entered into the contract for the express purpose of enjoying a beach vacation. (C) No, because there had been a hurricane in the last year. (D) No, because the hurricane merely rendered performance impracticable.

A new winery sent a written offer to provide an upscale restaurant with a case of its premium champagne for a special "grand opening" price of $200 per case. The restaurant owner sent a written response expressing interest, but said that his chief wine steward would have to approve the champagne before any payment would be forthcoming. The day after receiving the letter, the winery shipped a case of champagne. When the wine steward conducted his tasting he pronounced the champagne "putrid" and refused to approve it. The owner sent the entire case back to the winery with a letter saying that the shipment was being rejected. Which of the following is an accurate reflection of the legal relationship between the parties? (A) The parties have a valid bilateral contract which was formed when the winery received the owner's letter. (B) The parties have a valid unilateral contract which was formed when the wine was delivered. (C) The parties do not have a valid contract, because the steward did not approve the champagne. (D) The parties do not have a valid contract, because the winery did not accept the owner's counteroffer.

A data center is worried about protecting the business data of its clients, which are mostly banks. To this end, the data center hires a contractor to install a complete lightning protection package in the data center's main office. The data center spares no expense and agrees to the installation of everything the contractor recommends to protect the data of its customers. Several months later, a big storm hits the town, and the data center's building is struck several times by lightning. The surge protectors installed by the contractor fail, and the data center loses all of its customers' data. Which of the following statements best describes the legal position of the contractor? (A) Because the lightning strike was an "act of God," the contractor has no liability. (B) Because of the legal doctrine of force majeure, the contractor is relieved of legal liability. (C) Because of the legal concept of cover, the contractor is responsible for all consequential damages, foreseen and unforeseen. (D) Because of consequential damages, the contractor will be responsible for all of the foreseeable damages incurred by the data center.

(D) Because of consequential damages, the contractor will be responsible for all of the foreseeable damages incurred by the data center.

A housing developer decides to build a large housing development in a new neighborhood by the sea. He contracts with a construction company to begin construction work in one month. The parties agree that the company will receive $10,000,000 for its work. After only a month of construction, a large hurricane sweeps through the area, destroying roads and buildings. As a result, the company can no longer receive the supplies that it needs to continue the construction. Government officials are not certain as to when roads will be rebuilt and new supplies will become available. Which of the following statements is correct? (A) The contract is valid and the company will receive the $10,000,000 it is owed under the contract. (B) The contract is valid and the company will receive payment for the work it had done prior to the hurricane. (C) All duties under the contract are discharged and the company will not receive any payments. (D) All duties under the contract are discharged and the company receives payment for the work it had done prior to the hurricane.

(D) All duties under the contract are discharged and the company receives payment for the work it had done prior to the hurricane.

A breeder raised and raced greyhounds at tracks across the country. The breeder wanted to acquire a new male greyhound to strengthen the bloodline of the breeder's kennel. In particular, the breeder was interested in two particularly well-trained dogs. The breeder signed a written contract with the manager of a small pet-store, which provided that the manager would deliver either of those two well-trained dogs to the breeder. The breeder would then pay $5,000 to the pet-store manager. The pet-store manager intended to purchase one of these dogs and then deliver the dog to the breeder. Unfortunately, the pet-store manager had underestimated the market, and he could not purchase either dog at a price that would allow him to realize any profit. A dog groomer owned both dogs and did offer to sell either dog at $5,200. The pet-store manager asked the groomer to "take over" the pet-store manager's contract with the breeder. Since the groomer had incurred substantial debts at the local track, the groomer agreed. The groomer advised the breeder that the groomer had "taken over" the pet-store manager's contract with the breeder. Thereafter, the groomer "won big" at the track and then refused to deliver either dog to the breeder. If the breeder sues the groomer, the court should find for (A) the groomer, because there was no privity of contract between the groomer and the breeder. (B) the groomer, because the groomer did not expressly promise the breeder that he (the groomer) would perform the pet-store manager's duty to the breeder. (C) the breeder, because as a third-party beneficiary of the groomer's agreement to "take over" the pet store manager's contract with the breeder, the breeder has enforceable rights against the groomer. (D) the breeder, because the breeder was an assignee of the pet-store manager's right against the groomer.

(C) the breeder, because as a third-party beneficiary of the groomer's agreement to "take over" the pet store manager's contract with the breeder, the breeder has enforceable rights against the groomer.

After a dry cleaner won the lottery, he sold his business to an investor, who agreed to honor all existing contracts. One of his best clients, a hotel that had contracted to have the dry cleaner press all of its linens, immediately took its business elsewhere, accepting a better price from a rival company, notwithstanding the three years remaining on the hotel's 10-year contract with the dry cleaner. If the investor sued the hotel, how should the court rule? (A) For the hotel, because the dry cleaner could not delegate performance of the underlying contract. (B) For the hotel, because there was no privity of contract between the hotel and the investor. (C) For the investor, because although the performance of the dry cleaner's duty could not be delegated, his rights could be assigned. (D) For the investor, because performance of the dry cleaner's duty under the contract could be delegated and the rights under that contract could be assigned.

(D) For the investor, because performance of the dry cleaner's duty under the contract could be delegated and the rights under that contract could be assigned.

A woman wanted to have a cabin in the woods. She found a lot on the side of a hill for the cabin site that also had an old, run-down garage. She reached an agreement with a contractor under which he would build the cabin and rebuild the garage. Construction began late in the year. The contractor had finished about 75% of the work on the cabin and about 60% of the work on the garage. Snow was heavy that year and an avalanche wiped out the cabin and the garage the contractor had done in February. He refused to build a new cabin for the woman. The woman refused to pay the contractor anything for the work he had done. The contractor brought an action against her. What would the contractor be able to recover from the woman for his work on the cabin? (A) He can recover three-fourths of the contract price. (B) He can recover in restitution either the fair market value of his partial construction of the cabin at the time of the avalanche or the increase in value to the woman from the work on the cabin before the avalanche. (C) He can recover the profit he would be allowed under the cabin contract project if he can reasonably establish that value. (D) He cannot recover anything since his duty under the contract was not fulfilled.

(D) He cannot recover anything since his duty under the contract was not fulfilled.

The last winter was especially harsh, with many houses damaged by countless storms that pounded the area. Two neighbors, an engineer and a musician, needed to repair their houses. The engineer hired a roofer to replace his roof. The musician could not afford the expense of repair work. Feeling generous, the engineer contracted with the roofer he was using to also work on the musician's roof. The written contract specified that the engineer would pay the roofer $8,000 to repair the musician's roof. The engineer placed a copy of the contract in an envelope addressed to the musician. One day, while the roofer was finishing the engineer's roof, but before the roofer could start on the musician's house, the engineer and the musician got into an argument. The engineer contacted the roofer and said, "My neighbor is crazy. Cancel that contract." Having overbooked, the roofer eagerly agreed to cancel the contract for the musician's roof. A few days later, the musician got the envelope containing the contract to repair his roof. The musician sued the roofer for the promised repair work. Will the musician be successful? (A) Yes, because he was an intended third-party beneficiary. (B) Yes, because his rights vested once he discovered the contract. (C) No, because he was only a donee beneficiary. (D) No, because the contracting parties were free to cancel the contract before the musician's rights vested.

(D) No, because the contracting parties were free to cancel the contract before the musician's rights vested.

A juggler and a dancer are neighbors. The juggler washes and details his car once a month. The dancer asked the juggler if the juggler would wash and detail the dancer's car. The juggler agreed, but only if the dancer agreed to pay the juggler $300. Impressed by the work the dancer had seen the juggler do over the years, the dancer agreed, and promised to bring his car to the juggler's house at the end of the month. The juggler told his brother about the juggler's contract with the dancer. The juggler knew that his brother had just lost his job as a lion tamer and needed money, so the juggler told his brother he could have the $300 from the dancer. The juggler washed and detailed the dancer's car. The dancer was so pleased that the dancer promised to tell everyone he knew that it was the juggler who had cleaned the dancer's car. The dancer paid the juggler the $300. The juggler decided to use the money for a new set of juggling balls and refused to pay his brother. Has the juggler breached the contract? (A) Yes, because the brother was a third-party beneficiary. (B) Yes, even though the contract did not specify that assignments were void. (C) No, because the assignment was not in writing. (D) No, because the juggler's promise was gratuitous.

(D) No, because the juggler's promise was gratuitous.

A father wanted to present his daughter and future son-in-law with a mountain cabin as a wedding present. He made a legally binding promise to his daughter to have the cabin ready for them by the date of their wedding, April 10. The father contacted his friend and asked him to construct the cabin, since the friend had previously done such a good job constructing a cabin for the father. They orally agreed on the terms of the project on March 1, the year before the wedding. Both kept accurate written notes of the agreement. According to their agreement, the friend would use a floorplan for the cabin that had been developed by a construction company. The construction price was set at $90,000. The father agreed to pay $10,000 on the first of every month for nine months, beginning on June 1, in exchange for which the friend would provide a certificate from the construction company that their floor plan was being adhered to. The agreement also provided that the friend was to use some boulders and rocks from the father's mountain lot to construct the fireplace. To do this, the friend would need to dig out some of the boulders and cut and form them. The father agreed to pay the friend for all costs incidental to the cutting and forming of the fireplace rocks. When construction began in June, the friend delivered the cut and formed rocks for the cabin's fireplace. The friend did not provide the father with the certificate from the construction company, but the father made his regular payments in June, July, and August. The friend worked into October, but an early snowfall caused him to stop work by the middle of the month. Heavy winter snows prevented him from resuming work on the cabin until late February. The father made no payments during this period. The friend demanded a regular payment on March 1, but the father refused, contending that almost no work had been done since October and that he still had not received any certification from the construction company. On March 3, the friend discontinued all work and he repudiated the agreement with the father. If the friend committed a total breach on March 3, to what damages would the father be entitled? (A) The difference between the market value of the partially completed cabin on March 3 and the value of a completed cabin if built according to specifications. (B) An additional allowance for the mental stress the father suffered as a result of not having the cabin ready by April 10, in addition to the other legally allowable damages. (C) Full restitution of the monthly payments made in June, July, and August of the previous year. (D) The amount that it would cost to have the cabin finished by another contractor, less the installment payments not as yet paid to the friend.

(D) The amount that it would cost to have the cabin finished by another contractor, less the installment payments not as yet paid to the friend.

A talented musician landed a lucrative recording contract. He entered into a contract with an elderly couple to purchase their residence for $1,000,000. The purchase contract required the musician to make an earnest money deposit of $10,000, and provided that the couple could keep the deposit in the event of breach of the contract, due to the uncertainty of selling homes in the high-end market. Shortly thereafter, the musician's recording contract was terminated when he was arrested for drug use. The musician notified the couple that he would be unable to proceed with the purchase of their home. He requested his $10,000 deposit back to pay bail, but the couple refused. If the musician prevails in an action against the couple to recover his $10,000, which of the following best explains the court's decision? (A) The termination of the musician's recording contract was wrongful. (B) The purchase contract with the couple specifically provided that the $10,000 could be retained by the couple as a "penalty for breach" by the musician. (C) Liquidated damage provisions are inappropriate in a contract for the sale of land. (D) The couple was able to sell their property to another buyer for $1,100,000 soon after the musician refused to perform.

(D) The couple was able to sell their property to another buyer for $1,100,000 soon after the musician refused to perform.

A hotel developer purchased an ideal building site for the boutique hotel he wanted to construct. He had very specific ideas about the layout of the buildings and the materials to be used and spent several thousand dollars to have his architect translate these into detailed and complete building plans. Having had difficulty with contractors in the past, the developer had his lawyer prepare a written agreement that set forth the terms under which the hotel would be built. He negotiated and signed with a large construction firm. The contract provided, among other things, that the construction firm would construct the project according to the plans supplied by the developer's architect for $2,750,000; $1,000,000 to be paid 12 months after commencement of construction and the rest to be paid after the architect issued a certificate of compliance verifying that the hotel had been constructed in conformance with the plans he had provided. The architect's plans called for the roofs of the main buildings to be supported by exposed, 12" by 24' oak beams. Late one afternoon during construction, the construction company's project foreman telephoned the developer and informed him that bad weather in the east had delayed delivery of the oak beams by about a month, but that he could purchase redwood beams locally and avoid any delay in construction. The developer, who had hoped to open his hotel soon, told the foreman to use the redwood beams. After discussing it with his architect that evening, the developer changed his mind and telephoned the foreman early the next morning, insisting that he use the oak beams as provided in the plans, even if it delayed construction for a month. After the developer's early morning telephone call to the foreman, which of the following is the best description of the parties' legal rights? (A) The developer's conversations with the foreman regarding the beams never caused any change in the legal positions of the parties. (B) The written agreement between the parties has been orally modified so that redwood beams may be substituted for the oak beams called for in the architect's plans. (C) The developer has waived his right to insist upon oak beams in the construction of the boutique hotel. (D) The developer waived his right to insist upon oak beams, then withdrew the waiver, so that the construction company must use oak beams in the construction.

(D) The developer waived his right to insist upon oak beams, then withdrew the waiver, so that the construction company must use oak beams in the construction.

An elderly woman and a landscaper entered into a written agreement for him to landscape the front yard of her home. The agreement contained no provision regarding assignment. That summer, the area experienced a rash of fires. The landscaper therefore assigned the woman's contract to another local landscaper. The new landscaper subsequently failed to meet the specifications of the original landscaping agreement. Which of the following is true? (A) The woman would not have a cause of action against the original landscaper, because she waived her rights when she permitted the second landscaper to perform the work. (B) The woman would have a cause of action against the original landscaper only. (C) The woman must pursue a cause of action against the second landscaper before attempting to recover damages from the first one. (D) The woman may pursue a cause of action against either landscaper.

(D) The woman may pursue a cause of action against either landscaper.

An acrobat leased a parcel of land to a circus for 50 years. The circus promised to pay $100,000 in five payments of $20,000. The first payment was to be made to the acrobat on execution of the lease, with the remaining payments due to the acrobat's daughter (the fire-eater) every five years thereafter. The acrobat retained power to change the beneficiary of future rent payments and to assign the agreement. In the second year, the circus needed to find more business, so it entered into a contract with a law firm. In exchange for the circus's promise to perform specified services for the law firm's holiday party and summer picnics, the law firm promised to perform the duties of the circus under the lease agreement with the acrobat. In the third year, the acrobat changed the beneficiary from her daughter to her son, the tightrope walker. When the tightrope walker received notice of this, he wrote a letter of thanks to his mother. He also sent notes to the circus and the law firm advising them of his present address and remarking that, due to this fortunate event, he had quit his former job and was starting his own business selling rope in Hawaii. The following year, due to a booming economy, the circus's business boomed, so the circus and the law firm rescinded the contract providing for the law firm's payment of the rent. In the fifth year, the circus remained in possession of the premises, but failed to make the $20,000 payment. Assuming that the tightrope walker has not collected any of his first payment from the circus, will the tightrope walker succeed if he sues the law firm for the payment? (A) No, because the change of beneficiary clause in the lease agreement prevented the tightrope walker's rights under the contract between the circus and the law firm from vesting prior to the time the rent became due and the two companies rescinded their contract. (B) No, because the tightrope walker is an incidental beneficiary of the contract between the law firm and the circus. (C) Yes, because the tightrope walker is a donee beneficiary of the law firm's promise and assent is presumed. (D) Yes, because the tightrope walker is a creditor beneficiary of the law firm's promise, notice was given to the tightrope walker, and he assented and changed his position in reliance.

(D) Yes, because the tightrope walker is a creditor beneficiary of the law firm's promise, notice was given to the tightrope walker, and he assented and changed his position in reliance.

The CEO of a dental equipment company invited bids from several X-ray companies for 10 machines. A small start-up bid $750,000, which was substantially under the market price for such equipment. The CEO immediately made a written agreement to purchase the equipment from the start-up. Soon thereafter, the financial press carried stories stating that the dental equipment company was about to file a bankruptcy proceeding. The start-up, therefore, notified the CEO that it refused to deliver the equipment unless the equipment company paid cash on delivery. The startup's refusal to deliver the equipment unless the dental company paid cash on delivery was (A) a material breach, because the dental equipment company was ready, willing, and able to receive the goods. (B) a material breach, because the start-up was using economic leverage to force preferable terms. (C) a justifiable breach by the start-up, because the stories in the financial press gave the start-up reasonable grounds for insecurity. (D) notice of justifiable suspension of performance by the start-up.

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