chapter 20

Farmer's Fortune Insurance has a contract with Farmer Fran to insure her crops against insect damage. The contract does not specify which insects are covered or how much damage is necessary to make a claim. The contract will probably be enforced in favor of

Farmer Fran

One provision in a contract states "Ulysses vows he is a board certified physician" and another states "Emma promises not to eat red meat for six months from the date of this agreement." Which of the following best describes these contract terms?

Ulysses has made a warranty and representation; Emma has made a covenant

Ralph is a professional football player. He signs a valid contract with the Miami Dolphins. Later, he claims that he was also promised free use of the Dolphins' private jet, but this was not in the contract. What type of clause in his contract would prevent him from flying away with this claim?

an integration clause

severability

asks a court to delete an enforceable clause, rather than void the whole contract

Ambiguities in contracts are always interpreted in favor of the side that wrote the contract, since they are the ones who know what the provision is supposed to mean.

false

Contracts must use formal terminology such as "whereas" and "heretofore" in order to be legal.

false

If a party to a contract wants to send an approval to the other party, how will he know where to send it?

it is sent to the addresses in the "notices" section of the contract

To whom are businesspeople referring when they mention the "business prevention department?"

lawyers

A party who wants to be sure it is not obligated to perform under a contract if the other party breaches should

make the terms of agreement conditional, not reciprocal

To constitute a violation of a contract, the breach must be

material

Lawyers should work to facilitate deals, rather than hinder them. In the long run, it is easier to draft a contract that provides __________ protection than you need because it prevents ___________.

more unpleasant surprises later on

integration

prevents either side from later claiming that the two parties had agreed to additional provisions

arbitration

prevents the parties from suing in court and mandates alternative dispute resolution

Rich and Archie sign an agreement in which Archie agrees to deliver ten cases of champagne in 5 days. The parties negotiated and meant to say in the written agreement, delivery in 50 days. If the evidence is clear that the two parties intended to agree to 50 days, the courts will probably

reform the contract

Some contracting parties are intentionally vague in contract terms.

true

___________ occurs when the parties do not want the contract to be clear.____________ is different; it means that the provision was __________ unclear.

vagueness ambiguity accidentally

What is a force majeure event?

a disruptive, unexpected occurrence for which neither party is to blame that prevents one or both parties from complying with a contract

Which of the following is a standard provision frequently found in contracts?

choice of forum

A promise in a contract is called a

covenant

In contract law, boilerplate

creates a private law that governs disputes between the parties

Bob, a house painter, contracts with Ollie to paint a rental house which Ollie owns. Bob hires Rob to take his place as the painter on this contract. What has Bob done?

delegated his duties

Which of the following is generally NOT in the introductory paragraph of a contract?

the covenants of the contract

In Dick Broadcasting Co. v. Oak Ridge FM, Inc. the court held that:

the implied covenant of good faith and fair dealing does not create new contractual rights or obligations

Fred slips on some ice on Opal's front steps and shatters both his kneecaps. Opal has a comprehensive homeowner's policy with Riskocity Insurance, but Riskocity refuses to pay for Fred's injuries as the policy does not cover accidents caused by Opal's "dangerous conduct." The Community Rules of Opal's gated community require residents to keep their front steps free of ice. Riskocity contends that because Opal violated the Community Rules, she is liable for Fred's injury. Opal argues that the insurance policy makes no mention of her Community Rules and because she could not foresee Riskocity relying on the Rules, they should not prevent her from recovering. What result?

the insurance contract was ambiguous, so the Community Rules will not prevent Opal from recovering

In a contract modification, the phrase "charged with such amendment" refers to

the party who will be adversely affected by the change

In the case of scrivener's error, a court will reform a contract if _________.

there is clear and convincing evidence that the alleged mistake does not actually reflect the true intent of the parties

Unlike business people, lawyers are trained pessimists -

they try to foresee and protect against everything that could possibly go wrong

What does it mean to "control the pen?"

to prepare the first draft of the contract

Any ambiguity in a contract is interpreted against the party who drafted the contract.

true

In the case of a typo, a court will reform a contract if there is clear and convincing evidence that the alleged mistake does not actually reflect the true intent of the parties.

true

It is possible to form a binding contract without intending to.

true

One purpose of contracts is to avoid litigation.

true

Which of the following are advantages of hiring a lawyer?

1. she can serve as the bad guy 2. it communicates to the other parties that you will not be taken advantage of 3. it communicates to other parties that you are taking the deal seriously

Some contracts require that any amendments be in writing. Which of the following are ways that a written amendment can be added to a contract?

1. signing an amendment 2. rewriting the entire contract to include the changed provisions 3. crossing out the wrong language and replacing it by hand with the correct terms

Select the four situations in which you should definitely sign a written contract:

1. the Statute of Frauds requires it 2. the deal is crucial to your life or the life of your business 3. the terms are complex 4. you do not have an ongoing relationship of trust with the other party

Select the three reasons why ambiguities are interpreted against the drafter of the contract:

1. to protect people who are unlikely to be represented by a lawyer 2. to protect laypeople from the dangers of form contracts they cannot change 3. to encourage those who prepare contracts to do so carefully

A+ Modeling Agency signs a contract with Sandi to do a photo shoot for the local used car dealer's advertising. The contract was most likely written by

A+ Modeling Agency's lawyer

Malay, the CEO of Santi, Inc., interviews four lawyers to help with a potentially lucrative business deal. He provides each candidate the bare facts of the deal so they can discuss it and present their approaches. Which of the four should he hire?

Anthony, who tells Malay about the risks of that sort of deal and ways to accomplish Santi's goals safely and legally

Sam and Elias agree in writing that Sam will give Elias needlepoint lessons once a week for five weeks in exchange for $1,000 per lesson. The contract stipulates that if either party is going to cancel a lesson, it must provide 48 hours notice. On the morning of the second lesson, Elias calls Sam and says he cannot make it because earthquake damage has closed all roads leading out of his town. Will Elias owe Sam for the missed lesson?

Elias will not be liable if the contract contains a clause discharging the obligation if there is a force majeure provision

Louise Latour, a successful interior designer, won a contract to design the interiors of Greentree Broadcasting's corporate headquarters. A few weeks after signing the agreement, Greentree receives a much cheaper bid from another designer and decides to get out of the contract. A Greentree lawyer notices that the top of the contract contains an embarrassing typographical error: It states that the agreement is between "Louise Latour and Grantree Broadcasting." Will Greentree be able to use this mistake to get out of the contract?

No. There is clear and convincing evidence that the mistake does not reflect the intent of the parties and the court will reform the contract

Slimline and Distributor signed a contract that provided that Distributor would use reasonable efforts to promote and sell Slimline Diet Soda, which was already being sold at Warehouse Club. After the contract was signed, Distributor stopped conducting the in-store demos of Slimline it had previously been doing at Warehouse and it did not repackage the product as Slimline and Warehouse requested. Sales of Slimline continued to increase during the term of the contract. Slimline sued Distributor, alleging a violation of the agreement. Who is likely to win?

Slimline, because Distributer's conduct is a material breach

Lucian has every reason to believe the new pizza shop he is opening will be a success, but he also has a lot riding on it. He has borrowed a significant amount and has refinanced his house to pay for the expenses of starting up. If the business does not succeed, it will be a disaster for his family. Fortunately, the construction and start up of the business will be pretty simple, and he is hiring his sister Allegra (an experienced contractor), to do most of the work. Should Lucian and Allegra put their contract in writing?

Yes, because it is essential to the success of Lucian's business that construction goes smoothly

Fritz's Pet Shop has a contract with PlanetLazy Pet Products that states: a) PlanetLazy will deliver to Fritz 25 pet beds on the second Saturday of every month for one year; b) Fritz will pay PlanetLazy $2,500 on the first day of each month for one year. If Fritz does not pay PlanetLazy on a given month, is PlanetLazy still obligated to continue delivering pet beds?

Yes, because the terms are reciprocal promises

Stephan and his boss agree to extend his employment contract by an additional six months. The employment contract states that all amendments must be in writing, so Stephan and his boss cross out and change the provision in his contract that covers the duration of his employment and rewrite it to include the additional six months. They each initial and date the change and they each keep a copy of the agreement. Is the amendment valid?

Yes. This is a valid way to execute a written amendment

force majeure

a disruptive, unexpected occurrence that prevents one or both parties from complying with the contract

Deborah, a lawyer for a minor league hockey team, is negotiating a contract between the team and its new practice stadium. The contract, now in its fourth draft, addresses all of Deborah's concerns and incorporates all of the changes she wanted. She is ready to sign the agreement, but she wants to be sure that any future conversations she has with the stadium lawyers are not considered additional provisions to the contract. What should Deborah do?

add an integration clause to the contract

Nate works as a carnival barker. His employment contract specifies that he can be fired if he "loses his voice." This is an example of

ambiguity

When a provision in a contract is unclear by accident, it is a case of

ambiguity

Why do lawyers prefer to negotiate touchy subjects at the beginning of a relationship?

because everyone is eager to make a deal, and lawyers want to avoid unpleasant surprises later on

Standard provisions in a contract that are often listed under the heading "Miscellaneous" are called

boilerplate

Which of the following is NOT one of the three ways to amend a written contract?

by verbally agreeing to the changes and shaking hands on the deal

Heritage Technologies LLC v Phibro-Tech, Inc. demonstrates that typos

can occur even in carefully drafted agreements

Emily runs a children's clothing boutique which takes in local homemade items on a consignment basis. Her standard form contract indicates that Emily has the right to put items on sale without prior approval, but does not specify what effect the sale has on the consignor's payment percentage. Her intent is to keep the same profit she would have had without the sale. She is using ambiguity in her contract to increase her sales and profit.

false

If you have an established relationship with a buyer, you can sell small tracts of land without a written contract.

false

It is unethical to use your lawyer as an excuse for a provision of a contract, such as, "My lawyer insists that I have a liquidated damages clause..."

false

Lawyers prefer to negotiate touchy subjects as they arise rather than address them at the beginning of a relationship.

false

The vast majority of contracts have either liquidated damages or damage caps.

false

You should hire a lawyer to review any legal papers you have to sign, especially such papers as lease agreements or car purchases.

false

An honest effort to meet both the spirit and letter of the contract is termed

good faith

Statements of fact about the past and present are called

representations and warranties

When hiring a lawyer,

select someone who anticipates risks and presents options

PillPharm is negotiating a deal with Happy Valley Health (HVH), for the sale of PillPharm's latest health supplement. PillPharm would like to package its supplements in bottles produced by Frank, but Frank says he will not enter into a contract with PillPharm until the HVH contract is finalized. HVH has sent PillPharm a letter of intent, but Frank thinks it is too vague and refuses to enter into an agreement with PillPharm. What should PillPharm do?

send HVH its own letter of intent, stating that they do have a binding agreement

If the plaintiff in Quake Construction, Inc. v. American Airlines, Inc. could not get a commitment from its subcontractors until it was certain it had the job, what should it have done?

send the defendant its own letter of intent

If an individual signs a contract without indicating she is doing so in her role as an employee of a party to the contract

she is personally liable

Representations and warranties are _________.

statements of facts about the past or present

In Minkler v. Safeco Ins. Co. of America the court held that

the ambiguities in the contract must be interpreted to protect the reasonable expectations of the insured

In Quake Construction, Inc. v. American Airlines, Inc. the parties disagree on __________, a dispute caused by __________ the letter of intent.

whether or not there was a binding agreement the vagueness of