Business Law - Chapter 13

Amy, a baker, has found her dream home, but cannot afford the down payment. Amy's brother agrees to loan her $30,000 for the down payment, and Amy agrees to pay him back in one year. Next year, Amy offers to bake her brother's wedding cake for his wedding next month instead of paying back the loan, so that she can buy new equipment for her bakery. Amy's brother agrees. How much money does Amy owe her brother?

$0 because an agreement to accept different performance in lieu of full payment of liquidated debt is binding.

Under the UCC, which of the following are ways that organizations can prevent accord and satisfaction?

- Within 90 days of cashing a "full payment" check, repaying the same amount to the debtor - Notifying debtors that offers to settle for less than the full debt must be made to a particular official

If a contract for the sale of goods specifies that modifications must be made in a writing signed by the parties, a verbal agreement by the parties to different terms may be enforced.

False

Pursuant to the "peppercorn rule", courts will refuse to enforce contracts that are economically unfair if the parties did not have equal bargaining power.

False

Consideration is a requirement for contracts to be enforceable, unless the parties agree otherwise in writing.

False.

Which of the following are examples of a deal supported by consideration?

Freya buys a gift certificate to a spa

Melnick built a house for Gintzler, but the foundation was defective. Gintzler agreed to accept the foundation if Melnick guaranteed to repair any damage that was caused by the defects in the future. Melnick agreed but when Gintzler called Melnick two years later to repair water damage resulting from the foundation defects, Melnick refused to make any repairs. Gintzler sued, and Melnick argued that his promise to make future repairs was unsupported by consideration. Who will win the suit?

Gintzler will win because he gave consideration.

A contract needs more than an offer and acceptance.

True

A promise to act or forbear in the future counts as consideration.

True

A property owner hires a contractor to renovate a building, which both believe does not have asbestos, a hazardous material. After beginning the project the developer discovers asbestos in the walls. A subsequent agreement that the property owner will pay additional money to the contractor for asbestos removal is enforceable.

True

Critics of "moral consideration" argue that it gives judges leeway to enforce promises whenever they feel that it is just.

True

Pursuant to the UCC, a creditor who cashes a check on which a debtor has written "full settlement" generally loses the right to claim any more money from the debtor.

True

Different types of promises can serve as consideration in the formation of a contract. Which of the following are types of circumstances that can serve as the basis for consideration?

Unforeseen circumstances Additional work

What are the requirements for accord and satisfaction?

Unliquidated debt Debtor pays the agreed upon amount Creditor agrees to accept as full payment a sum less than the amount creditor claims

Which of the following are the two basic elements of consideration?

Value Bargained-for exchange

Richard hires Paul to paint his kitchen in two eight-hour days of work for $500. At the end of the first day, the kitchen is 85 percent complete. Richard asks Paul to stay late and finish. Paul agrees to stay and complete the painting if Richard pays him a total of $750 for the job. Richard agrees. Does Richard owe Paul the additional $250? a. No, Paul was already required to paint the kitchen, so there was no consideration b. No, because the agreement was not signed in writing c. Yes, but only if the parties agreed prior to the start of work that additional hours would require additional pay d. Yes, Paul provided the additional consideration of working overtime and completing the work in a shorter time period than originally agreed

Yes, Paul provided the additional consideration of working overtime and completing the work in a shorter time period than originally agreed

Past consideration

A completed act

Additional work

A party agrees to do something above and beyond what he is obligated to do

Pre-existing duty

A promise to perform an obligation that the promisor is already legally required to perform.

Preexisting duty

A service that someone is already obligated to do

Unforeseen circumstances

A situation different from what the parties anticipated

Requirement contract

An agreement under which a buyer purchases 100% of goods from a single seller, and the seller provides for buyer's reasonable needs.

Output contract

An agreement under which a seller sells 100% of products made by the seller to a single buyer, and the buyer accepts the full quantity.

Illusory promise

An agreement where one party has no obligation to perform or receives all the benefit.

American Bakeries had a fleet of over 3,000 delivery trucks. Because of the increasing cost of gasoline, the company was interested in converting the trucks to propane fuel. It signed a requirements contract with Empire Gas, in which Empire would convert "approximately 3,000" trucks to propane fuel upon American Bakeries' potential request, and would then sell American Bakeries all required propane fuel to run the converted trucks. American Bakeries never requested a single conversion. Empire sued for lost profits. Who wins?

American Bakeries wins because this was a requirements contract which does not require any purchase from Empire.

__________ is the inducement, price, or ___________ that causes a person to enter into ________ and forms the basis for the parties' exchange. If one side gets all the _________ of the exchange, then the agreement is not a(n) _________ contract.

Consideration promise contract benefit enforceable

Tim's Lumber Co. agrees to provide Deckbuilders, Inc. with all of the wood that Deckbuilders requires for the next five years. Deckbuilders agrees not to buy wood from any other vendors. What is the primary restriction on how much wood Deckbuilders may demand?

Deckbuilders' demand for wood must be made in good faith.

CeCe Hylton and Edward Meztista, partners in a small advertising firm, agreed to terminate the business and split its assets evenly. Meztista gave Hylton a two-page document showing assets, liabilities, and a bottom line of $35,235.67, with half due to each partner. Hylton questioned the accounting and asked to see the books. Meztista did not permit Hylton to see any records and refused to answer her phone calls. Instead, he gave her a check in the amount of $17,617.83, on which he wrote "Final payment/payment in full." Hylton cashed the check, but she wrote on it, "Under protest—cashing this check does not constitute my acceptance of this amount as payment in full." Hylton then filed suit, demanding additional monies. Meztista defended on the grounds that the parties had made an accord and satisfaction. What is the likely result?

Hylton's debt is discharged because there has been an accord and satisfaction.

Lisa makes hand-crafted beads. Lisa approaches Julia, a successful jewelry maker, and offers to sell her beads exclusively to Julia if Julia agrees to buy all of the beads that Lisa makes. Julia agrees to buy all of the beads Lisa produces each month if, after inspecting them, Julia thinks they will sell well. Do Lisa and Julia have an enforceable contract?

No, Julia has made an illusory promise.

After going through her old clothes, Farra asks her friend Michelle if she would like to buy any of them, stating she is hoping to get at least $50. Michelle responds that she will pay $5 for each piece that she would like to buy. The next day, Michelle tells Farra that she does not want any of the clothes. Has Michelle violated the agreement with Farra?

No, because of Michelle's illusory promise, she and Farra did not have an enforceable agreement.

Florian, a busy surgeon, reads about a new state-of-the-art surgical mask developed by Myriad Medical Devices (M.M.D.) and thinks it would be useful for his practice. Florian enters into a contract with M.M.D. in which M.M.D. agrees to sell the doctor all the masks he needs in the next six months. Shortly thereafter, a fire burns down Florian's practice, and he will be unable to see patients for at least 9 months. Florian will not need a single mask until the practice is back up and running. If M.M.D. sues Florian for breach of contract when Florian does not order any masks, will M.M.D. win?

No. This is a requirements contract and Florian acted in good faith.

Certain particular types of contracts and rules of consideration are governed by the UCC. Which of the following are items that are governed by the UCC?

Output contracts Requirement contracts Modification of sale of goods contract

Rodolfo hires Tessa to paint the exterior of his house. Two days into the project, smoke from a nearby forest fire blows onto the property and stains her work. Tessa will have to start again. Tessa asks Rodolfo to pay for the additional labor and materials and Rudolfo agrees. Tessa completes the job, but Rodolfo refuses to pay the additional fee. Tessa sues. What outcome? a. Rodolfo owes Tessa the additional money because Tessa promised to re-paint the stained areas of the house and needed more paint to do the job. b. Rodolfo owes Tessa no additional money, because she had a preexisting duty to complete the project. c. Rodolfo owes Tessa the additional money because Tessa has done additional work. d. Rodolfo owes Tessa the additional money because he had a preexisting duty to pay her for the job.

Rodolfo owes Tessa the additional money because Tessa promised to re-paint the stained areas of the house and needed more paint to do the job.

Helena shares with her family her two goals for her senior year in college: join a synchronized swim team and shoot a bald eagle. Helena's cousin Anika is concerned about the utility of both of these goals and urges Helena to spend the year looking for a job, promising, "If, upon graduation, you have secured a job, have refrained from synchronized swimming, and have not shot any bald eagles, I will give you $10,000." Helena immediately accepts the terms of the agreement and at graduation has met all three criteria, but Anika refuses to pay. What argument will be most helpful for Anika in court?

The element of the agreement about the bald eagle is not enforceable, because shooting bald eagles is illegal.

In Hamer v. Sidway, if the court had agreed with the uncle that his promise was not supported by consideration, what would be legal consequence?

The nephew and the uncle would not have an enforcement contract.

Unliquidated debt

The parties dispute whether any money is owed or how much is owed.

Liquidated debt

The parties do not dispute the amount owed.

While visiting Sarah's art gallery, Mark spots what he believes is an original painting by the artist Vincent Van Gogh and agrees to buy the painting from Sarah for $1,000,000. Upon returning home, Mark has the painting appraised and learns that it is not a Van Gogh and is worth only $100,000. Mark sends Sarah a letter saying that he bought the painting under false pretenses and will pay only the fair market value of the painting, enclosing a check for $100,000 with "payment in full" written in the memo line. Before depositing the check, Sarah crosses out Mark's note and writes "first partial payment" over it. The next day Sarah learns that Mark's check has bounced. If Sarah sues Mark, will the court find in her favor?

Yes, as there was no satisfaction of the debt because Mark's check bounced.

Maybelline falls down a well and is saved when her neighbor Ruben makes a very daring rescue. Ruben hoists her to safety and Maybelline hugs him and promises him a check for $100,000 for his kindness. Ruben is delighted and when Maybelline visits him the next day and again mentions the $100,000, he tells her that he is going to quit his job as a preschool music teacher and use the money to start a business. Two days later he resigns from the nursery school and calls Maybelline and asks when he can expect his money. He is startled when she replies that she is not going to give him a cent. Will a court enforce Maybelline's promise?

Yes, because Ruben relied on the promise.

For seven years, Stanford Owens has run a successful practice that helps small businesses file their taxes, become incorporated, and perform other legal tasks. Stanford moves his practice to NYC, and is happy to find his first local client, DiggyWerx, almost immediately. They negotiate a flat fee of $5,500 for six months of Stanford's services. A month later, Stanford is more familiar with the local business landscape and realizes that most people offering his services in NYC charge around $13,000 for six months of work because of the higher costs to do business in NYC. Is the deal between Stanford and DiggyWerx enforceable?

Yes, because Stanford and DiggyWerx each receive a benefit and incur a detriment.

The court in Hamer v. Sidway found for the below optoins. a. nephew because he had refrained from engaging in certain lawful actions. b. nephew because the actions that the nephew refrained from were especially valuable and enjoyable for the nephew. c. uncle because the nephew had already received the benefit of an improved quality of life by not drinking, smoking, or gambling. d. uncle because the nephew could not demonstrate that he had been harmed by refraining from drinking, smoking, or gambling.

a. nephew because he had refrained from engaging in certain lawful actions.

Courts will enforce a contract for a pre-existing duty if the promisor agrees to provide __________.

additional work

Chandly forbears if he _______________.

agrees not to do something he had a legal right to do

As the court's holding in Henches v. Taylor demonstrates, a creditor who alters a debtors "full payment" or similar notation on a check before depositing the check a. prevents accord and satisfaction. b. does not prevent accord and satisfaction and loses his right to recover any more money from the debtor. c. is liable for fraud. d. may collect the remainder of the outstanding debt from the debtor only if the creditor files suit within 30 days of the depositing the check.

b. does not prevent accord and satisfaction and loses his right to recover any more money from the debtor.

Sarah, a fashion designer, enters into an output contract with a department store under which the department store will pay Sarah $100 per dress for one year. Six months later, a local boutique offers to pay Sarah $150 per dress. Sarah may a. sell a portion of her dresses to the boutique as long as she continues to meet the department store's demands. b. not sell to the boutique because, pursuant to the output contract, Sarah must sell 100 percent of her dresses to the department store. c. increase the price per dress under the output contract to $150 per dress.

b. not sell to the boutique because, pursuant to the output contract, Sarah must sell 100 percent of her dresses to the department store.

As reflected in the holding in Snider Bolt & Screw v. Quality Screw & Nut, the current majority view on non-compete agreements is that a. they are unconscionable. b. they are supported by consideration in the form of continued employment by the employer in exchange for the employee's promise not to compete. c. they are not supported by consideration because the employer has already hired the employee. d. they are only enforceable if accompanied by monetary compensation, even if only one dollar.

b. they are supported by consideration in the form of continued employment by the employer in exchange for the employee's promise not to compete.

Seth finds a lost dog and returns her to her owners. The overjoyed owners promise Seth $500, but never send him the money. Seth __________________.

cannot collect the money because it was offered in response to something Seth had already done.

There is no valid _________ for promises to perform an act the promisor is already obligated to perform. This is called the ___________.

consideration pre-existing duty rule

In March, Louisa's Hamburger Stand contracts with HydrationCorp to buy 100 bottles of lemonade for $100 and an additional 100 bottles of lemonade for $115 on May 1. After the purchase and delivery of the 100 lemonades in March, Louisa speaks with a HydrationCorp representative and they agree that on May 1 HydrationCorp will instead sell Louisa 100 bottles of iced tea for $115. What result? a. The new terms are binding because the parties created an accord and satisfaction by check. b. The new terms are not binding because contract modifications must be in writing. c. The new terms are not binding. An oral modification is only permissible when it is supported by consideration. d. The new terms may be binding because an oral modification may be binding under the UCC.

d. The new terms may be binding because an oral modification may be binding under the UCC.

The UCC allows __________ of existing contracts for the sale of goods without additional consideration.

modification

When a one party makes an illusory promise _________________.

neither party can enforce the deal

Consideration requires a legal benefit to the _________or a legal _________ to the ________. Legal benefit means receiving something _________.

promisor detriment promisee of measurable value

Parties may ____________ an agreement to terminate all of their respective obligations under the contract.

rescind

Camila commits an act that can be valid consideration when she does something __________________________.

she was not legally required to do in the first place

Something is bargained for if it is ________________________________.

sought by the promisor and given by the promisee in exchange for their respective promises

Agreements to accept less than full payment of liquidated debt are not binding because __________________.

the debtor has given no consideration in exchange for reducing the debt

Mary pledges $30,000 to a school for the blind. In reliance on Mary's promise, the school hires an architect to build a cafeteria. Two month later Mary takes back her promise. The school sues and the judge will likely rule that _______________________.

the school will be able to enforce the promise with "moral consideration"

The case involving Tuppela and Embola demonstrates how courts ____________________.

will enforce a contract that is supported by consideration, regardless of the economic fairness of the contract's terms