Quiz 5

Read the following statement of law and case excerpt. Statement of Law Once it has been determined that a contract exists, the next step is to determine the actual terms of the contact. Case Excerpt A contract is a legally enforceable agreement between two or more parties. A void "contract" is not legally enforceable, and therefore is not really a true contract at all. It is only by examining the language of the purported contract that it can be determined whether the contract is void as contrary to public policy. However, since we can only determine the terms of the contract if there is a contract in the first place, we are unable to examine the language of the purported contract for violations of public policy. Assuming that the statement of law is accurate, what error in reasoning does the court in the case excerpt seem to have made? A. The court assumed that it could only consider the terms of the contract upon its determination that a contract actually exists. B. The court assumed that the only way a contract's terms could be determined is through the judicial system. C. The court assumed that an actual contract existed with terms capable of being ascertained by the court. D. The court assumed that, because the terms of the contract were unknown, no contract existed.

Correct: Choice A is the correct answer. The error that the court in the Case Excerpt seems to have made was in assuming that it could only consider the terms of the contract upon its determination that a contract actually existed. The Statement of Law provides that once it has been determined that a contract actually exists, a court may then go on to determine the actual terms of the contract. However, the Statement of Law does not stand for the proposition that the only time a court can consider the terms of a contract is upon the determination that a contract exists. By making this error, the court in the case excerpt employs circular reasoning and places itself in an impossible situation: The court can only consider the terms of the contract upon a finding that a contract existed, but it can only find a contract to exist through consideration of it terms. Choice B is incorrect because, while it is true that there are other ways to determine the terms of a contract outside of the judicial system (e.g., the parties themselves may agree to the meaning of contractual terms during the negotiation process), the court in the case excerpt does not appear to suggest otherwise. Choice C is incorrect because the court in the case excerpt did not assume that a contract existed. The court explicitly states that "since we can only determine the terms of the contract if there is a contract in the first place, we are unable to examine the language of the purported contract." As a result, the court becomes mired in the impossible task mentioned in the discussion of Choice A. Choice D is incorrect because, if the court had determined that there was no contract, it would have had no need to consider the terms of the contract.

Read the following case excerpts. Case Excerpt 1 We find in favor of the plaintiff on the issue of wastewater discharge. Where a contract has an unambiguous meaning, the meaning attached to the contract by the parties themselves is not controlling, nor does the fact that the parties attach different meanings to the contract create ambiguity standing alone. Here, the contract unambiguously grants the plaintiff the right to discharge wastewater into the defendant's holding pond. Finally, since the clear provisions of the contract grant the right to discharge wastewater, the fact that the prior course of dealing between the parties did not allow such discharge is irrelevant. Case Excerpt 2 We find in favor of the defendant finance company on the issue of reimbursement. This would be a straightforward case, but the contract itself is silent on the issue. Given this silence, we must look beyond the express provisions of the contract. In past dealings with the plaintiff, the finance company had reimbursed the plaintiff's incidental costs relating to maintenance of various properties, but that does not appear to be the case here. Instead, the parties engaged in a course of performance under which the defendant did not reimburse the plaintiff. The plaintiff, having acquiesced in this arrangement for more than three years, cannot now argue that the parties intended to continue the reimbursement practice followed in earlier deals. Which of the following best synthesizes the approaches to contract interpretation in the two excerpts? A. The course of performance between the parties is more influential than the express, unambiguous contract provisions, which are more influential than the past course of dealing between the parties. B. The express, unambiguous contract provisions are more influential than the course of performance between the parties, which is more influential than the past course of dealing between the parties. C. The past course of dealing between the parties is more influential than the express, unambiguous contract provisions, which are more influential than the course of performance between the parties. D. The course of performance between the parties is more influential than the past course of dealing between the parties, which is more influential than the express, unambiguous contract provisions.

Correct: Choice B is the correct answer. The statement that best synthesizes the two courts' approaches to contract interpretation is that the express, unambiguous contract provisions are more influential than the course of performance between the parties, which is more influential than the course of dealing between the parties. Case Excerpt 1 provides that the express, unambiguous provisions of a contract are more influential in the interpretation of its terms than the prior course of dealing between the parties. Case Excerpt 2 provides that, where there are no express provisions of the contract that speak to an issue, the court will look beyond the contract to the course of dealing or the course of performance between the parties. Note that the court opines that "[t]his would be a straightforward case" if the contract spoke to the issue, indicating that, like the court in Case Excerpt 1, the court believes that unambiguous express contract terms should take precedence over the parties' actions. In the absence of express contract terms, Case Excerpt 2 goes on to provide that the course of performance is more important than the course of dealing when looking beyond the actual terms of a contract. Taken together, the two case excerpts provide that the express contract provisions of a contract are more influential than the course of performance between the parties, which is more influential than the course of dealing between the parties. Choice A is incorrect because Case Excerpt 2 provides that the express contract provisions are more influential than the course of performance. Choice C is incorrect because Case Excerpt 2 provides that the express contract provisions are more influential than the course of dealing between the parties. Choice D is incorrect because both case excerpts provide that the express contract provisions are more influential than either the course of performance or the course of dealing between the parties.

Upon graduation from high school, a young man wanted to enroll in a nine-month program at a community college to study to be an electrician, but he could not afford tuition and the costs of being unemployed for that time period. His uncle told him that if he enrolled and participated in the program, he would pay his tuition and living expenses for the time involved, and that he would also pay him a $1,000 bonus for each "A" he earned as a final grade in a class. The young man told his uncle that he would enroll in the program. The next day, the young man's grandfather called and told him that he had learned of the uncle's offer and that if the uncle failed to pay the young man as promised, he (the grandfather) would. The young man attended the program and earned "As" as final grades in three classes. Shortly thereafter, the uncle died, and the executor of the uncle's estate refused to pay the young man the bonus for each of the three "As." The young man will not be successful in trying to enforce his grandfather's promise because: A. The contract was illusory B. The contract was oral. C. There was no consideration flowing to the grandfather. D. The fact that the young man received nine months' worth of free education and living expenses was sufficient compensation for his efforts in earning the three "As."

Correct: Choice B is the correct answer. The young man will not succeed in trying to enforce his grandfather's promise because the promise was not in writing, as is required under the Statute of Frauds. Generally, contracts do not have to be in writing to be enforceable; however, under the Statute of Frauds, certain contracts will not be enforceable unless they are evidenced by a writing signed by the party to be charged. One such contract is to pay the debt of another, such as the grandfather's promise here to pay the uncle's debt if he does not pay. Therefore, Choice B is correct. Choice A is wrong because the contract clearly is not illusory. Each party is bound by his promise to the other party, so the requisite mutuality exists. The young man agreed to (and did) attend the nine-month program, and he worked hard and earned three "As," by which he incurred a legal detriment because he was doing something he was under no legal obligation to do, and the grandfather agreed to pay the young man's tuition and living expenses plus a $1,000 bonus for each "A" he earned as a final grade in a class if the uncle failed to pay the young man as promised. Detriment to the promisee in performing an act or making a promise is valid consideration. Thus, the contract was not illusory. Choice C is wrong because, as discussed above, consideration flowed to the grandfather when the young man participated in the program and earned the three "As," neither of which he was legally obligated to do. Choice D is wrong because nine months of free education and living expenses was not the full consideration for which the parties bargained.

Statement of Law The parol evidence rule prevents some, but not all, types of extrinsic evidence from being used to vary the terms of a fully or partially integrated written contract. Among the types of extrinsic evidence that are not excluded are the following: (i) formation defects such as fraud or mistake, (ii) evidence that consideration cited in the contract was never paid, (iii) evidence of a prior agreement that the written contract in question would not become effective unless a condition occurred, and (iv) evidence used to show the meaning of uncertain terms used in the contract. Which of the following general rules best summarizes a central idea of the statement of law? A. Uncertain terms are interpreted against the drafter of the contract. B. Contracts should be interpreted in a way that renders them enforceable C. A contract may be voided if fundamental circumstances change D. A written contract cannot prove its own validity or effectiveness.

Correct: Choice D is the correct answer. The rule that best summarizes the statement of law is that a contract cannot prove its own validity or effectiveness. The statement of law provides that, where there is a wholly or partially integrated written contract, certain evidence cannot be used to alter the terms of the contract. This is known as the parol evidence rule. However, simply because a writing exists does not mean that it is a valid contract. The first three exceptions to the parol evidence rule listed in the statement of law reflect this fact, and allow a party to a written contract to demonstrate, for example, that the contract was the product of fraud and, thus, should be voided by the court. Similarly, simply because there is a written document does not mean that the terms used within have a clear meaning. The fourth exception to the parol evidence rule recognizes this fact and allows external evidence to help prove the meaning of uncertain terms within the written document. Thus, Choice D is correct. Choices A, B, and C are all incorrect because they are assertions that do not summarize the parol evidence rule as described in the statement of law.

A service contract that by its terms __________ is subject to the Statute of Frauds. A. cannot be performed within one year B. might extend to longer than one year C. is for the lifetime of one of the parties D. might extend to longer than ten years

Correct: The correct answer is Choice A. The Statute of Frauds requires that certain contracts be evidenced by a writing signed by the parties sought to be bound. A service contract that by its terms cannot be performed within one year is subject to the Statute of Frauds. The date runs from the date of the agreement and not from the date of performance. If the contract might extend to longer than one year, but is still possible to complete within one year, it is not within the one-year prong of the Statute of Frauds, even though actual performance may extend beyond the one-year period. Since it does not matter how long the contract might extend as long as it is capable of performance within one year, a contract that might extend to longer than ten years is also not within the Statute. A contract for the lifetime of one of the parties is not within the Statute because it is capable of performance within a year, since a person can die at any time.

A yoga instructor entered into a valid written contract with a builder to construct a large yoga studio on some land she owned outside of town. She agreed to pay the builder $150,000 upon completion of the job. As work progressed, and due to substantial increased building costs, the yoga instructor and the builder orally agreed that the builder could omit installation of the koi pond planned for the atrium (saving the builder $1,000), and that the contract price would be reduced to $149,500. The builder completed the job (minus the koi pond) in reliance thereon. Most courts would hold that this subsequent oral agreement is: A. An enforceable contract. B. Unenforceable under the Statute of Frauds. C. Unenforceable, because a contract in writing cannot be modified orally. D. Unenforceable under the parol evidence rule.

Correct: The correct answer is Choice A. The agreement is enforceable because both the builder and the yoga instructor gave new consideration to support the modification. If parties agree to modify their contract, consideration is usually found to exist where the obligations of both parties are varied. It is usually immaterial how slight the change is, because courts are anxious to avoid the preexisting duty rule. Here, the obligations of both the builder and the yoga instructor are varied--he will not install the koi pond and she will pay a construction price reduced by $500. Consideration is therefore found in the promise of both parties to forgo their rights under the original contract--the builder's right to full contract price and the yoga instructor's right to the koi pond. Choice C is incorrect because a contract in writing may be modified orally unless the modification brings the contract within the Statute of Frauds or, in U.C.C. cases, the contract provides that modifications must be in writing. The contract here is not within any provision of the Statute of Frauds (see below), and does not fall under the U.C.C. Even if the contract had prohibited oral modifications, parties in non-U.C.C. cases may alter their agreement orally in spite of such a provision as long as the modification is otherwise enforceable. Choice B is incorrect because this modified construction contract does not have to be in writing, because it is not for the sale of goods valued at $500 or more and can be completed within a year. A promise that by its terms cannot be performed within a year is subject to the Statute of Frauds and must be evidenced by a writing signed by the parties sought to be bound. If the contract can be completed within one year, it need not be in writing. Here, it can be assumed that the builder could complete the studio within a year. Therefore, the modification does not have to be in writing. Choice D is incorrect because the parol evidence rule does not apply to subsequent oral agreements. The parol evidence rule states that where the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, any other expressions - written or oral - made prior to the writing, as well as any oral expressions contemporaneous with the writing, are inadmissible to vary the terms of the writing. Parol evidence can be offered to show subsequent modifications of a written contract, such as the oral agreement between the builder and the yoga instructor, because the rule applies only to prior or contemporaneous negotiations.

With respect to a completely integrated written agreement, parol evidence can be received to aid a fact-finder when there is a dispute as to __________. A. the intent of the parties to the agreement B. a clause supplementing the agreement C. the meaning of an ambiguous term within the agreement D. the inclusion of an additional term to the agreement

Correct: The correct answer is Choice C. If there is uncertainty or ambiguity in the written agreement's terms or a dispute as to the meaning of ambiguous terms, parol evidence can be received to aid the fact-finder. Under the parol evidence rule, written or oral expressions made prior to the writing, as well as any oral expression contemporaneous with the writing, are inadmissible to vary the terms of the writing. Those expressions barred include those concerning additional, supplementing terms and those concerning the parties' intent. If a writing is a complete integration, it may not be contradicted or supplemented. If the integration is only partial, it may be supplemented by proof of consistent additional terms.

Which of the following is required under the Statute of Frauds? A. The handwritten signature of the party sought to be held liable on some document acknowledging the existence of the contract. B. A signed writing for suretyship promises that primarily serve the pecuniary interest of the promisor. C. A formal written contract signed by both parties to the agreement. D. One or more writings that reflect the material terms of the contract, signed by the person sought to be held liable.

Correct: The correct answer is Choice D. To satisfy the Statute of Frauds, there must be one or more writings signed by the person sought to be held liable on the contract that reflect the material terms of the contract. The Statute of Frauds does not require a formal written contract signed by both of the parties. For example, a letter, receipt, or a check containing the material terms (e.g., quantity for sale of goods) and signed by the party to be charged satisfies the Statute of Frauds. The needed signature need not be handwritten, but the document or documents must include the material terms of the contract, not just acknowledge the existence of the contract. Generally, the Statute of Frauds requires that suretyship promises be in writing and signed by the party to be held liable. However, there is an exception for suretyship promises that primarily serve the pecuniary interest of the promisor; they are not within the Statute of Frauds.

Under Article 2's version of the parol evidence rule, a party may offer evidence of __________ to explain or supplement a fully integrated written contract's terms. A. a prior oral agreement B. a contemporaneous oral agreement C. a prior written agreement D. a prior course of dealing, usage of trade, or course of performance

Correct: The correct answer is Choice D. Under Article 2, a party may offer evidence of course of dealing, usage of trade, or course of performance to explain or supplement a written contract's terms. A course of dealing is a sequence of conduct concerning previous transactions between the parties that may be regarded as establishing a common basis of their understanding. A usage of trade is a practice or method of dealing, regularly observed in a particular business setting, and it may also be used to explain a contract because it justifies an expectation that it will be followed in this transaction. If a contract involves repeated occasions for performance by either party and the other party has the opportunity to object to such performance, any course of performance accepted or acquiesced to is admissible in determining the meaning of the contract. Under the parol evidence rule, if a writing is deemed to be an integration of an agreement, any contemporaneous oral agreements are inadmissible to vary the terms of the writing. The parol evidence rule also bars any written or oral agreements made prior to the writing.

Case Excerpt Extrinsic evidence may be admitted to address matters outside the scope of the parol evidence rule where that evidence is not introduced to vary, contradict, or add to an integrated contract. Parol evidence may be introduced to show that the contract never came into being due to fatal defects in contract formation such as fraud, duress, mistake, illegality, etc. Facts supporting these allegations may be shown because the parol evidence rule does not come into play until a binding contract exists. From this it follows that a condition precedent, under which the contract would not come into being until its occurrence, is also outside the scope of the parol evidence rule. Which of the following best describes the main idea of this excerpt? A. The parol evidence rule only applies to the contract itself, not to events leading up to contract formation B. A contract that is illegally made is not properly formed and never comes into being. C. A condition precedent is similar to fraud or duress in that it can prevent the formation of a contract. D. Where the parol evidence rule applies, no extrinsic evidence may be admitted.

The correct answer is Choice A. The case excerpt begins by noting that the parol evidence rule bars the admission of evidence that contradicts an integrated contract. The excerpt then notes that fraud and other illegalities that prevent contract formation, as well as conditions precedent, are not subject to the rule because they are events occurring prior to formation of the contract. Thus it appears that the main idea of the case excerpt is that the parol evidence rule only applies to the contract itself, not to events leading up to contract formation. Choice B is incorrect because, while the case excerpt mentions the fact that an illegally formed contract never comes into being, this is only mentioned in the context of what the parol evidence rule does and does not apply to. Choice C is incorrect because, while the excerpt does describe illegality as being similar to a condition precedent in that it can prevent the formation of a contract, the two are compared for purposes of describing application of the parol evidence rule. Choice D is incorrect for two reasons. First, because the case excerpt does not provide that the parol evidence rule bars all extrinsic evidence. Second, because the effect of the parol evidence rule is only mentioned in the context of discussing what it does and does not apply to.