UGBA 175 Test Prep

Katz offered to purchase land from Joiner, and, after negotiating the terms, Joiner accepted. On October 13, over the telephone, both parties agreed to extend the time period for completing and mailing the written contract until October 20. Although the original paperwork deadline in the offer was October 14, Katz stated he had inserted that provision "for my purpose only." All other provisions of the contract remained unchanged. Accordingly, Joiner completed the contract and mailed it on October 20. Immediately after, however, Joiner sent Katz a telegram stating that "I have signed and returned contract, but have changed my mind. Do not wish to sell property." Joiner now claims an oral modification of a contract within the statute of frauds is unenforceable. Katz counters that the modification is not material and therefore does not affect the underlying contract. Explain who is correct.

Modification or Recission of Contracts. Judgment for Katz. This problem emphasizes the difficulty of determining fixed limits of the statute of frauds. Look to the written contract before modification, and to the modification itself. If neither the portion of the written contract affected by the subsequent modification nor the matter encompassed by the modification itself is required by the statute of frauds to be in writing, then the oral modification will not render the contract unenforceable. Here, the oral modification concerned only an extension of time for finishing paperwork-the underlying land sale was unaffected.

Taylor assaulted his wife, who then took refuge in Ms. Harrington's house. The next day, Mr. Taylor entered the house and began another assault on his wife, who knocked him down and, while he was lying on the floor, attempted to cut his head open or decapitate him with an axe. Harrington intervened to stop the bloodshed, and the axe, as it was descending, fell upon her hand, mutilating it badly, but sparing Taylor his life. Afterwards, Taylor orally promised to compensate Harrington for her injury. Is Taylor's promise enforceable? Explain.

Moral Obligation. No. Taylor may have a moral obligation to honor his promise but not a binding contractual one. Harrington's humanitarian act "voluntarily performed, is not such consideration as would entitle her to recover at law." The Restatement takes a contrary position regarding such situations and provides that a promise after the rendering of emergency services is binding even if not supported by consideration. Section 86, comment d. Harrington v. Taylor, 225 N.C. 690, 36 S.E.2d 227 (1945).

Anthony lends money to Frank. Frank dies without having paid the loan. Frank's widow, Carol, promises Anthony to repay the loan. Upon Carol's refusal to pay the loan, Anthony brings suit against Carol for payment of the loan. Is Carol bound by her promise to pay the loan?

Moral obligation. No. The general rule is that where a promise is made to satisfy a pre-existing moral obligation, it is unenforceable due to a lack of consideration. Anthony should instead bring suit against Frank's estate.

On June 11, Chagnon bought a used Buick from Keser for $9950. Chagnon, who was then a twenty-year-old minor, obtained the contract by falsely advising Keser that he was over twenty-one years old, the age of majority. On September 25, two months and four days after his twenty-first birthday, Chagnon disaffirmed the contract and, ten days later, returned the Buick to Keser. He then brought suit to recover the money he had paid for the automobile. Keser counterclaimed that he suffered damages as the direct result of Chagnon's false representation of his age. A trial was had to the court, sitting without a jury, all of which culminated in a judgment in favor of Chagnon against Keser in the sum of $6557.80. This particular sum was arrived at by the trial court in the following manner: the trial court found that Chagnon initially purchased the Buick for the sum of $9950 and that he was entitled to the return of his $9950; and then, by way of setoff, the trial court subtracted from the $9950 the sum of $3392.20, apparently representing the difference between the purchase price paid for the vehicle and the reasonable value of the Buick on October 5, the date when the Buick was returned to Keser. Is this legally correct? Do you agree? Why?

Liability for Misrepresentation of Age. Judgment for Keser. If a minor does not exercise his right to disaffirm a contract within a "reasonable time" after he reaches the age of majority, he loses that right. Here, however, Chagnon's disaffirmance just two months after reaching majority, was within a reasonable time. Once he returned the car-the only consideration in his possession-he was entitled to recover the full $9950. While a false representation of his age does not destroy a minor's right to disaffirm, it does permit the seller to deduct from the buyer's compensation any damages that he suffered due to the false representation. The measure of damages for the seller is the difference between the reasonable value of the property on the date of delivery and its reasonable value on the date of return. Since Chagnon obtained the contract by false representation of his age, he will not recover his full $9950. Instead, his recovery is decreased by the amount of Keser's damages-the loss of the Buick's reasonable value.

Anita sold and delivered an automobile to Marvin, a minor. Marvin, during his minority, returned the automobile to Anita, saying that he disaffirmed the sale. Anita accepted the automobile and said she would return the purchase price to Marvin the next day. Later in the day, Marvin changed his mind, took the automobile without Anita's knowledge, and sold it to Chris. Anita had not returned the purchase price when Marvin took the car. On what theory, if any, can Anita recover from Marvin? Explain.

Liability for Tort Connected with Contract. Marvin, the minor, having made a contract for the purchase of the car from Anita, and having received possession thereof, was the owner of the car, subject to disaffirmance. The act of disaffirmance, however, is not a new contract, which the minor, in turn, may disaffirm. Upon disaffirmance he merely had the right to the return of the purchase price. Therefore, when Marvin changed his mind, he created no new rights in himself. He had retransferred possession and title to the car to Anita. Marvin's taking the car constituted the tort of conversion, and Marvin would be liable in an appropriate action based upon his tortious act.

Michael, a minor, operates a one-man automobile repair shop. Anderson, having heard of Michael's good work on other cars, takes her car to Michael's shop for a thorough engine overhaul. Michael, while overhauling Anderson's engine, carelessly fits an unsuitable piston ring on one of the pistons, with the result that Anderson's engine is seriously damaged. Michael offers to return the sum that Anderson paid him for his work, but refuses to make good the damage. Can Anderson recover from Michael in tort for the damage to her engine? Why?

Liability for Tort Connected with Contract. No. Decision for Michael. It is clear that the negligence by Michael in carelessly fitting an unsuitable piston ring on one of the pistons, thereby seriously damaging the engine in Anderson's car, grew out of a voidable contract; it would not have occurred had there been no contract, and it is inextricably bound to and interwoven into the contract. To allow recovery for the tort would indirectly enforce the contract, which the court would not permit

Daniel agreed to erect an apartment building for Steven for $12 million and that Daniel would suffer a deduction of $12,000 per day for every day of delay. Daniel was twenty days late in finishing the job, losing ten days because of a strike and ten days because the material suppliers were late in furnishing materials. Daniel claims that he is entitled to payment in full (a) because the agreement as to $12,000 a day is a penalty and (b) because Steven has not shown that he has sustained any damage. Discuss each contention and decide.

Liquidated Damages. (a) The contention that the agreement as to $12,000 a day is a penalty is not tenable. The provision is a modest liquidated damages provision. The agreed amount of damages is reasonable, considering the cost of the apartment building and that actual damages are not readily ascertainable. Restatement, Second, Contracts, Section 356. (b) Steven does not have to prove damages. One of the principal purposes of a liquidated damages provision is to obviate the necessity of proving damages.

Louis leased a building to Pam for five years at a rental of $1,000 per month, Pam depositing $10,000 as security for performance of all her promises in the lease, which was to be retained by Louis in case of any breach on Pam's part. Pam defaulted in the payment of rent for the last two months of the lease. . Louis refused to return any of the deposit, claiming it as liquidated damages. Pam sued Louis to recover $8,000 (the $10,000 deposit less the amount of rent due Louis for the last two months). What amount of damages should Pam be allowed to collect from Louis? Explain.

Liquidated Damages. Decision for Pam. The amount of $10,000 deposited as security for performance of all of Pam's covenants in the lease, to be retained by Louis in case of any breach on Pam's part, was a provision for a penalty rather than one for liquidated damages. For the slightest infraction of the lease by Pam she would forfeit $10,000. This amount does not bear a rational relationship to such actual damages as might accrue in the event of any breach of the contract. Louis is limited to recovery of damages for breach of contract as if the liquidated damages clause were absent.

Erwick Construction Company contracted to build a house for Charles. The specifications called for the use of Karlene Pipe for all plumbing. Erwick, however, got a better price on Boynton Pipe and substituted the equally good Boynton Pipe for Karlene Pipe. Upon inspection, Charles discovered the change, and he now refuses to make the final payment. The contract price was for $200,000, and the final payment is $20,000. Erwick now brings suit seeking the $20,000. Will Erwick succeed in its claim?

Material Breach. Judgment for Erwick Construction Company. Although Erwick deviated from the contract specifications, its conduct would be evaluated as to whether it constituted a material breach. The critical question is whether Charles received substantially what he had bargained for. Since the substitution of the comparable pipe did not qualitatively alter the value of the house, there is no material breach. Charles is not entitled to a discharge of his obligations to perform the contract.

Copenhaver, the owner of a laundry business, contracted with Berryman, the owner of a large apartment complex, to allow Copenhaver to own and operate the laundry facilities within the apartment complex. Berryman subsequently terminated the five-year contract with Copenhaver with forty-seven months remaining. Within six months, Copenhaver placed the equipment into use in other locations. He then filed suit, claiming that he was entitled to conduct the laundry operations for an additional forty-seven months and that through such operations he would have earned a profit of $13,886.58, after deducting Berryman's share of the gross receipts and other operating expenses. Decision?

Mitigation of Damages. Judgment in part for Copenhaver. Although Berryman is liable for the monetary loss sustained by Copenhaver, Copenhaver must exercise reasonable efforts in an attempt to minimize his damages. Copenhaver suffered no damages after the six-month period because all his equipment was in use in other locations and was generating at least as much income. Moreover, Copenhaver failed to prove that he could have expanded to the new locations had Berryman not breached the contract. Therefore, Copenhaver may recover only $3,525.84 as damages for losses sustained during the six-month period. Copenhaver v. Berryman, 602 S.W.2d 540 (Tex. Civ. App. 1980).

In May, Watts was awarded a construction contract, based on its low bid, by the Cullman County Commission. The contract provided that it would not become effective until approved by the State director of the Farmers Home Administration. In September construction still had not been authorized, and Watts wrote to the County Commission requesting a 5 percent price increase to reflect seasonal and inflationary price increases. The County Commission countered with an offer of 3.5 percent. Watts then wrote the commission, insisting on a 5 percent increase and stating that if this was not agreeable, it was withdrawing its original bid. The commission obtained another company to perform the project, and on October 14, informed Watts that it had accepted the withdrawal of the bid. Watts sued for breach of contract. Explain whether Watts will prevail and why or why not?

Mutual Rescission. Judgment for Cullman County. Watt's letter withdrawing his bid and the commission's letter accepting that withdrawal effectively rescinded any contract that might have existed. Parties to a contract may by mutual consent and without other consideration rescind the contract. Once the contract between Watts and Cullman County had been rescinded, Watts cannot recover damages for breach of contract. Watts Construction Company v. Cullman County, 382 So.2d 520 (Ala. S.C., 1980).

Morris, a salesman for Acme, Inc., a manufacturer of household appliances, receives a commission on all sales made and no further compensation. He drives his own automobile, pays his own expenses, and calls on whom he pleases. While driving to make a call on a potential customer, Morris negligently collides with Hudson, who sues (a) Acme and (b) Morris. Who should be held liable?

Nature of Agency. Employees are liable for any negligent conduct that occurs within the scope of their employment. The critical question in this case is whether Morris is an employee of Acme or is an independent contractor. Acme had no control over Morris since Morris made the decision as to which customers to see, as well as driving his own car. Therefore, Morris is most likely an independent contractor and therefore Acme would not be liable to Hudson. Hudson would, however, be successful in a suit against Morris since persons are responsible for their own negligent conduct.

Emily was a Java programmer employed with Sun Microsystems in Palo Alto, California. Upon beginning employment, Emily signed a contract that included a non-compete clause that prevented her from taking another Java programming position with any of five companies Sun listed as "direct competitors" within three months of terminating her employment. Later that year Emily resigned and two months later accepted a position with Hewlett-Packard (HP) in Houston, Texas. HP was listed in Emily's contract as a "direct competitor," but she argues that due to the significant geographic distance between both jobs, the contract is not enforceable. Explain whether the contract is enforceable.

Noncompete clause/Employment Relationship. In National Business Services, Inc. v. Wright, courts determined that geographic location is not a factor when considering Internet-related non-compete clauses. The three-month non-compete time also appears reasonable. If Sun can show that it acted reasonably to protect its interest it will prevail. Nevertheless, it may be very difficult to show how Emily going to work for HP can injure them.

Iverson owned Iverson Motor Company, an enterprise engaged in the repair as well as the sale of Oldsmobile, Rambler, and International Harvester Scout automobiles. Forty percent of the business's sales volume and net earnings came from the Oldsmobile franchise. Whipp contracted to buy Iverson Motors, which Iverson said included the Oldsmobile franchise. After the sale, however, General Motors refused to transfer the franchise to Whipp. Whipp then returned the property to Iverson and brought this action seeking rescission of the contract. Should the contract be rescinded? Explain.

Nonfraudulent Misrepresentation. Yes. Historically, an action for fraud required that the injured party show that the misrepresentation upon which it detrimentally relied was made with the speaker's knowledge of its falsity or with reckless disregard for the falsity of the statement. Today, however, a cause of action may be based on an innocent misrepresentation. Here, Iverson represented that the Oldsmobile franchise was transferable, when, in fact it was not. That misrepresentation, even though innocently made, makes the entire agreement voidable. Whipp v. Iverson, 34 Wis.2d 166, 168 N.W. 2d 201 (1969).

The defendant, Shane Quadri, contacted Don Hoffman, an employee of defendant Al J. Hoffman & Co., to procure car insurance. Later, Quadri's car was stolen on October 25 or 26, 1977. Quadri contacted Hoffman, who arranged with Budget Rent-a-Car, a plaintiff in this case, for a rental car for Quadri until his car was recovered. Hoffman authorized Budget Rent-a-Car to bill the Hoffman Agency. Later, when the stolen car was recovered, Hoffman telephoned plaintiff, Goodyear, and arranged to have four new tires put on Quadri's car to replace those damaged during the theft. The plaintiffs (Budget and Goodyear) sued the defendants (Quadri and Hoffman) for payment for the car rental and tires. Judgment was entered in favor of Budget and Goodyear against defendant Hoffman but in favor of Quadri. Decision?

Original Promises. Judgment for Budget and Goodyear against Hoffman and judgment for Quadri. Although the statute of frauds makes unenforceable oral contracts to pay the debts of a third person, it does not apply to original promises to pay for services rendered to a third person. Hoffman initiated the transactions with both Budget and Goodyear by telephone, indicating that Quadri was insured, and authorized the billing of the Hoffman Agency. By signing the rental agreement and tire invoice, Quadri merely obtained the benefits of the transactions authorized by Hoffman. Since credit was extended solely to the Hoffman Agency, the statute does not apply to Hoffman's oral promises. Thus, they are enforceable against Hoffman.

Tube Art was involved in moving a reader board sign to a new location. Tube Art's service manager and another employee went to the proposed site and took photographs and measurements. Later, a Tube Art employee laid out the exact size and location for the excavation by marking a four-by-four-foot-square on the asphalt surface with yellow paint. The dimensions of the hole, including its depth of six feet, were indicated with spray paint inside the square. After the layout was painted on the asphalt, Tube Art engaged a backhoe operator, Richard F. Redford, to dig the hole. Redford began digging in the early evening hours at the location designated by Tube Art. At approximately 9:30 P.M., the bucket of Redford's backhoe struck a small natural gas pipeline. After examining the pipe and finding no indication of a break or leak, he concluded that the line was not in use and left the site. Shortly before 2:00 A.M. on the following day, an explosion and fire occurred in the building serviced by that gas pipeline. As a result, two people in the building were killed, and most of its contents were destroyed. Massey and his associates, as tenants of the building, brought an action against Tube Art and Richard Redford for the total destruction of their property. Will the plaintiff prevail? Explain.

Other Legal Relationships: Employment vs. Independent Contractor. Judgment for Massey. A number of factors may be taken into account in determining whether one who performs services for another is an employee or an independent contractor. The crucial consideration is "the extent of control which, by the agreement, the master may exercise over the details of the work." An employee is subject to the employer's control or right of control regarding the employee's physical conduct in performing the services. Independent contractors are not subject to such control or right of control. In this case, Redford was essentially self-employed, was free to work for other contractors, and chose the time of day to do the assigned work. Tube Art, however, not only had the right to control Redford's activities, but it did control them. Specifically, it exercised control over the most important decisions associated with the project: the size and location of the hole. Redford simply dug the hole in accordance with the placement and dimensions dictated by Tube Art. Moreover, Redford had no employees of his own, had worked for the Tube Art 90 percent of the time during the previous three years, and was not registered as a contractor or subcontractor. Redford was an employee of Tube Art, and Tube Art is therefore responsible for his actions. Massey v. Tube Art Display, Inc., 15 Wn. App. 782, 551 P.2d 1387 (1976).

Tony Wilson was a member of Troop 392 of the Boy Scouts of America (BSA) and of the St. Louis Area Council (Council). Tony went on a trip with the troop to Fort Leonard Wood, Missouri. Five adult volunteer leaders accompanied the troop. The troop stayed in a building which had thirty-foot aluminum pipes stacked next to it. At approximately 10:00 PM, Tony and other scouts were outside the building, and the leaders were inside. Tony and two other scouts picked up a pipe and raised it so that it came into contact with 7200-volt power lines that ran over the building. All three scouts were electrocuted, and Tony died. His parents brought a suit for wrongful death against the Council, claiming that the volunteer leaders were agents or servants of the Council and that it was vicariously liable for their negligence. The Council filed a motion for summary judgment, arguing as follows: The BSA chartered local councils in certain areas, and councils in turn granted charters to local sponsors such as schools, churches, or civic organizations. Local councils did not administer the scouting program for the sponsor, did not select volunteers, did not prescribe training for volunteers, and did not direct or control the activities of troops. Troops were not required to get permission from local councils before participating in an activity. Is the Council liable for the wrongful death of Tony? Explain.

Other Legal Relationships: Employment vs. Independent Contractor. Judgment for St. Louis Area Council, Boy Scouts of America. Under the doctrine of respondeat superior an employer is liable for those negligent acts or omissions of his employee which are committed within the scope of his employment. Liability based on respondeat superior requires some evidence that a master-servant relationship existed between the parties. The test to determine if respondeat superior applies to a tort is whether the person sought to be charged as master had the right or power to control and direct the physical conduct of the other in the performance of the act. If there was no right to control there is no liability; for those rendering services but retaining control over their own movements are not servants. The relationship of servant and master begins only when the person charged as master has the right to direct the method by which the master's service is performed. Whether a party is liable under the doctrine of respondeat superior depends on the facts and circumstances in evidence in each particular case and no single test is conclusive of the issue of the party's interest in the activity and his right of control. In the instant action, Council neither controlled the actions of the troop leaders nor ran the program at Fort Leonard Wood. There was no vicarious liability on the part of Council for the leaders' actions while on the trip to Fort Leonard Wood. The trial court did not err in granting Council's motion for summary judgment.

Grant leased an apartment to Epstein for the term May 1, 2007, to April 30, 2008, at $750 a month "payable in advance on the first day of each and every month of said term." At the time the lease was signed, Epstein told Grant that he received his salary on the tenth of the month and that he would be unable to pay the rent before that date each month. Grant replied that would be satisfactory. On June 2, due to Epstein's not having paid the June rent, Grant sued Epstein for such rent. At the trial, Epstein offered to prove the oral agreement as to the date of payment each month. Is the oral evidence admissible?

Parol Evidence Rule. Decision for Grant. The lease expressly provided that the rent for each month was payable in advance on the first day of the month. The oral agreement that the lessee could pay each month's rent on the 10th of the month would not be admissible to change the terms of the lease, because it is contemporaneous parole evidence that contradicts an integrated document. If Grant had allowed Epstein to make the payment on the 10th of the month for several months, his actions may give Epstein a stronger argument for enforcement of the oral agreement under a course of performance argument. 9. Rachel bought a car from the Beautiful Used Car Agency under a written contract. She purchased the car in reliance on Beautiful's agent's oral representations that it had never been in a wreck and could be driven at least two thousand miles without adding oil. Thereafter, Rachel discovered that the car had, in fact, been previously wrecked and rebuilt, that it used excessive quantities of oil, and that Beautiful's agent was aware of these facts when the car was sold. Rachel brings an action to rescind the contract and recover the purchase price. Beautiful objects to the introduction of oral testimony concerning representations of its agent, contending that the written contract alone governed the rights of the parties. Decision on the objection? Answer: Parol Evidence Rule. Decision for Rachel. The used car agency's objection to the introduction of the oral testimony would be overruled. The oral representations by used car agency's agent that the car had never been in a wreck and could be driven 2,000 miles without adding oil were fraudulent. The parol evidence rule does not exclude the admission of evidence to establish fraud. The reason for the rule is that where the parties have reduced their contract to writing, they intend that all of the terms of the contract are incorporated in the writing. Consequently, the introduction of extrinsic evidence to vary, alter, change, or add to the terms contained in writing would be changing the contract made by the parties. However, fraudulent misrepresentations which induced the contract are not part of the contract but separate and apart from it. The introduction of evidence of fraud, therefore, is not prohibited by the parol evidence rule. Restatement, Second, Contracts, Section 214.

Dean was hired on February 12, 1962, as a sales manager of the Co-op Dairy for a minimum period of one year with the dairy agreeing to pay his moving expenses. By February 26, 1962, Dean had signed a lease, moved his family from Oklahoma to Arizona, and reported for work. After he worked for a few days, he was fired. Dean then brought this action against the dairy for his salary for the year, less what he was paid. The dairy argues that the statute of frauds bars enforcement of the oral contract because the contract was not to be performed within one year. Is the dairy correct in its assertion?

One Year Provision. Judgment for Dean. A contract of employment to start in the future and to continue for one year is within the statute of frauds because the one-year period runs from the date the contract is made, not the date when performance is to begin. A contract for one year's employment to commence the day following the making of the contract is not within the statute of frauds. The contract here did not prohibit Dean from commencing work until he had moved from Oklahoma. Since he could have reported to work the next day, there was the possibility that the contract could have been performed within one year. The statute of frauds is not applicable if there is the slightest possibility that the contract can be fully performed within one year. Therefore, Dean can recover on the contract even though it was not in writing. Co-op Dairy, Inc. v. Dean, Supreme Court of Arizona, 1968. 102 Ariz. 573, 435 P.2d 470.

Clay orally promises Trent to sell him five crops of potatoes to be grown on Blackacre, a farm in Minnesota, and Trent promises to pay a stated price for them on delivery. Is the contract enforceable?

One Year Provision. The contract may not be enforceable. Where an oral agreement cannot be performed within one year from the date of the making of the contract it is within the statute of frauds. The contract is within the statute of frauds for the reason that it is impossible in Idaho for five crops of potatoes to mature in one year, but if they could, then the contract would be enforceable.

12. Amos orally agrees to hire Elizabeth for an eight-month trial period. Elizabeth performs the job magnificently, and after several weeks Amos orally offers Elizabeth a six-month extension at a salary increase of 20 percent. Elizabeth accepts the offer. At the end of the eight-month trial period, Amos discharges Elizabeth, who brings suit against Amos for breach of contract. Is Amos liable? Why?

One Year Provision: The Possibility Test. Judgment for Amos. The modified contract is unenforceable because employment contracts for one year or longer must be in writing. In this case, Amos extended the contract orally to a period of time in excess of one year.

Sherwood negligently ran into the rear of Austen's car, which was stopped at a stoplight. As a result, Austen received bodily injuries and her car was damaged. Sherwood, arts editor for the Mississippi Press Register, was en route from a Louis Armstrong concert he had covered for the newspaper. When the accident occurred he was on his way to spend the night at a friend's house. Austen sued Sherwood and—under the doctrine of respondeat superior—Sherwood's employer, the Mississippi Press Register. Who is liable? Explain.

Respondeat Superior. Judgment for Austen against Sherwood; Mississippi Press Register not liable. Under the doctrine of respondeat superior, the negligent acts of an employee on his way to and from work are not generally imputed to his employer. The determination of liability depends upon whether the employee's conduct is more closely related to his employment duties or to purely personal considerations separate from the employer's interests. Here, Sherwood was on his way from work to visit a friend. This excursion in no way benefited his employer nor was it related to his employment duties. It did not occur within the course and scope of Sherwood's employment. Therefore, his employer, the Mississippi Press Register, is not liable. Austen v. Sherwood, 425 So.2d 818 (Louis. 1983).

While crossing a public highway in the city, Joel was struck by a horse-drawn cart driven by Morison's agent. The agent was traveling between Burton Crescent Mews and Finchley on his employer's business and was not supposed to go into the city at all. Apparently, the agent was on a detour to visit a friend when the accident occurred. Joel brought this action against Morison for the injuries sustained as a result of the agent's negligence. Morison argues that he is not liable for his agent's negligence because the agent had strayed from his assigned path. Who is correct?

Respondeat Superior. Judgment for Joel. Under the doctrine of respondeat superior, the principal is liable for his agent's negligence only if the agent was acting in the course of his employment at the time of the accident. On the other hand, the principal is not liable if the accident occurred while the agent was out on a frolic of his own and not on his master's business. In this case, however, the agent was driving on Morison's business but had momentarily gone out of his way against his master's implied command in order to visit a friend. Joel v. Morison, 6 Carrington & Payne Reports, 501 Court of Exchequer, 1833) (England).

Aretta J. Parkinson owned a 200-acre farm. Prior to her death on December 23, Parkinson deeded a one-eighth undivided interest in the farm to each of her eight children as tenants in common. On January 15 of the following year, one of the daughters, Roma Funk, approached Barbara Bradshaw about selling the Parkinson farm. They orally agreed to a selling price of $33,000. After this meeting, Funk contacted Bryant Hansen, a real estate broker, to assist her in completing the transaction. Hansen prepared an earnest money agreement that was signed by the Bradshaws but by none of the Parkinson children. Hansen also prepared warranty deeds, which were signed by three of the children. Several of the children subsequently refused to convey their interests in the farm to the Bradshaws. Explain whether the Bradshaws can obtain specific performance of the oral contract of sale due to the defendants' ratification of the oral contract by their knowledge of and failure to repudiate it. Decision?

Ratification Judgment reversed, decision for Parkinson children. Ratification of an agent's unauthorized conduct may be express or implied. It is imperative, though, that the principal have full knowledge of all material facts since the ratification cannot subsequently be revoked. The Utah Statute of Frauds requires that any agency relationship that involves the conveyance of land must also be recognized by a written agreement. Since the law requires that Funk's authority must have been given in writing, the ratification must also have been in writing. Bradshaw v. McBride, 649 P.2d 74 (Utah 1982).

Serges is the owner of a retail meat marketing business. His managing agent borrowed $3,500 from David on Serges's behalf, for use in Serges's business. Serges paid $200 on the alleged loan and on several other occasions told David that the full balance owed would eventually be paid. He then disclaimed liability on the debt, asserting that he had not authorized his agent to enter into the loan agreement. Should David succeed in an action to collect on the loan?

Ratification. Judgment for David. Serge's partial payment and his promise to pay off the loan constituted a ratification of his agent's action. Ratification is the principal's affirmance of a prior act by the agent that would not otherwise have been binding on the principal. Its effect is to bind the principal as if the agent's act had been authorized. David v. Serges, 373 Mich. 442, 129 N.W.2d 882 (1964).

Green owed White $3,500, which was due and payable on June 1. White owed Brown $3,500, which was due and payable on August 1. On May 25, White received a letter signed by Green stating: "If you will cancel my debt to you, in the amount of $3,500, I will pay, on the due date, the debt you owe Brown, in the amount of $3,500." On May 28, Green received a letter signed by White stating: "I received your letter and agree to the proposals recited therein. You may consider your debt to me canceled as of the date of this letter." On June 1, White, needing money to pay his income taxes, made a demand upon Green to pay him the $3,500 due on that date. Is Green obligated to pay the money demanded by White?

Substituted Contracts. White is not entitled to collect the money from Green because there has been a valid substitution of performance. Restatement, Second, Contracts, Section 278(1). White need not have accepted Green's offer, but upon choosing to accept it Green became discharged in accordance with the terms of the offer. Section 278, comment a.

Harvey Hilgendorf was a licensed real estate broker acting as the agent of the Hagues in the sale of eighty acres of farmland. The Hagues, however, terminated Hilgendorf's agency before the expiration of the listing contract when they encountered financial difficulties and decided to liquidate their entire holdings of land at one time. Hilgendorf brought this action for breach of the listing contract. The Hagues maintain that Hilgendorf's duty of loyalty required him to give up the listing contract. Are the Hagues correct in their assertion?

Termination of Agency by Revocation. Judgment for Hilgendorf. Since agency is a consensual relationship, a principal has the power to terminate an agency that is not coupled with an interest even though the term of the agency has not yet expired. But without a legal reason for doing so, the principal does not have the right to terminate an unexpired agency contract and may subject himself to liability for doing so. Although an agent's duty of loyalty does require him to place the principal's interests first in dealing with third parties, in the contract of agency itself between the agent and the principal each is acting in his own behalf. The Hagues' financial difficulties did not give them the legal right to terminate the agency relationship, and Hilgendorf was under no duty to relinquish his role as their agent simply because the principal encountered financial problems. Therefore, Hilgendorf may recover damages for breach of the listing contract.

Palmer made a valid contract with Ames under which Ames was to sell Palmer's goods on commission from January 1 to June 30. Ames made satisfactory sales up to May 15 and was then about to close an unusually large order when Palmer suddenly and without notice revoked Ames's authority to sell. Can Ames continue to sell Palmer's goods during the unexpired term of her contract?

Termination of Agency: Revocation of Authority. No. Although Palmer did not have the right to terminate the agency before June 30 he had the power. Since the authority of an agent is based upon the consent of the principal, the agency is terminated upon the withdrawal of such consent. Therefore, upon Palmer's revocation of Ames's authority to sell, Ames no longer had the actual authority to sell Palmer's goods during the unexpired term of the contract. Ames, however may sue Palmer and recover damages for breach of the agency contract.

Helper, a delivery boy for Gunn, delivered two heavy packages of groceries to Reed's porch. As instructed by Gunn, Helper rang the bell to let Reed know the groceries had arrived. Mrs. Reed came to the door and asked Helper if he would deliver the groceries into the kitchen because the bags were heavy. Helper did so, and upon leaving he observed Mrs. Reed having difficulty in moving a cabinet in the dining room. He undertook to assist her, but being more interested in watching Mrs. Reed than the cabinet, he failed to observe a small, valuable antique table, which he smashed into with the cabinet and totally destroyed. Does Reed have a cause of action against Gunn for the value of the destroyed antique?

Tort Liability of the Principal. No. Gunn is liable for the negligent acts of his employee committed within the scope of his employment, but is not liable for acts of an employee or agent that are unrelated to performance of the duties he was employed to perform. The duties of the delivery boy included only delivering groceries to the front porch and ringing the bell and not only did not entail carrying the goods inside but certainly did not entail his aiding the customer in a chore such as this. His act was voluntary and merely an act of courtesy, and having so volunteered, the act became a joint enterprise of Mrs. Reed and Helper for the accomplishment of special business of Mrs. Reed which was not the business of Gunn.

Driver picked up Friend to accompany him on an out-of-town delivery for his employer, Speedy Service. A "No Riders" sign was prominently displayed on the windshield of the truck, and Driver violated specific instructions of his employer by permitting an unauthorized person to ride in the vehicle. While discussing a planned fishing trip with Friend, Driver ran a red light and collided with an automobile driven by Motorist. Both Friend and Motorist were injured. Is Speedy Service liable to either Friend or Motorist for the injuries they sustained?

Tort Liability of the Principal. Speedy Service is liable to Motorist, but is not liable to Friend. Driver was making a delivery within the course of his employment and his negligent act of running the red light will make his employer responsible for the injuries sustained by Motorist. The mere fact that the driver had an unauthorized passenger does not of itself render the servant outside the scope of his employment insofar as Motorist is concerned. Driver violated the employer's rule as to unauthorized passengers, but he had not abandoned the business of Speedy Service as he was making a delivery for his employer. If Driver had abandoned the business of his employer and embarked upon an adventure for himself, such as taking a trip to the lake where Friend and Driver planned to fish, then such conduct would be outside the scope of his employment and in that event Speedy Service would not be liable to Motorist. Such is not the case here as Driver was on his employer's business at the time of the collision. Speedy Service is not liable to Driver's unauthorized invitee who was injured by the negligence of Driver. Driver's invitation of Friend was outside the scope of his employment. Driver had no apparent authority to invite Friend to take a ride as he was specifically instructed not to do so and the "No Riders" sign demonstrated his lack of authority. Friend was accompanying Driver for personal reasons unrelated to the employment of Driver by Speedy Service.

Stone was the agent authorized to sell stock of the Turner Company at $10 per share and was authorized in case of sale to fill in the blanks in the certificates with the name of the purchaser, the number of shares, and the date of sale. He sold 100 shares to Barrie, and without the knowledge or consent of the company and without reporting to the company, he endorsed the back of the certificate as follows: "It is hereby agreed that Turner Company shall, at the end of three years after the date, repurchase the stock at $11 per share on thirty days' notice. Turner Company, by Stone." After three years, demand was made on Turner Company to repurchase. The company refused the demand and repudiated the agreement on the ground that the agent had no authority to make the agreement for repurchase. Is Turner Company liable to Barrie? Explain.

Types of Authority. Decision for Turner Company. The agent was employed to sell shares of stock. He had no express authority to repurchase stock. There is no implied authority since an agreement by a corporation to repurchase its stock is not usual or customary and is contrary to the purpose for which the stock is sold, namely, to raise capital. There is no basis whatever for any apparent authority. The act of Stone was completely unauthorized.

On November 23, Sylvia agreed to sell to Barnett her Pontiac automobile for $7,000, delivery and payment to be made on December 1. On November 26, Barnett informed Sylvia that he wished to rescind the contract and would pay Sylvia $350 if Sylvia agreed. She agreed and took the $350 cash. On December 1, Barnett tendered to Sylvia $6,650 and demanded that she deliver the automobile. Sylvia refused and Barnett initiated a lawsuit. May Barnett enforce the original contract?

Accord and Satisfaction. Decision for Sally. The parties have entered into a valid accord and satisfaction which discharges the parties from their performance. Bart after entering into this accord and satisfaction cannot now unilaterally reinstate the original contract. Section 281 of the Restatement, Second, Contracts, provides as follows: (1) An accord is a contract under which an obligee promises to accept a stated performance in satisfaction of the obligor's existing duty. Performance of the accord discharges the original duty. (2) Until performance of the accord, the original duty is suspended unless there is such a breach of the accord by the obligor as discharges the new duty of the obligee to accept the performance in satisfaction. If there is such a breach the obligee may enforce either the original duty or any duty under the accord.

In late 2004 or early 2005, the plaintiff, Lan England, agreed to sell 258,363 shares of stock to the defendant, Eugene Horbach, for $2.75 per share, resulting in a total price of $710,498.25. Although the purchase money was to be paid in the first quarter of 2005, the defendant made periodic payments on the stock at least through September 2005. The parties met in May of 2006 to finalize the transaction. At this time, the plaintiff believed that the defendant owed at least $25,000 of the original purchase price. The defendant did not dispute that amount. The parties then reached a second agreement whereby the defendant agreed to pay to the plaintiff an additional $25,000 and to hold in trust 2 percent of the stock for the plaintiff. In return, the plaintiff agreed to transfer the stock and to forego his right to sue the defendant for breach of the original agreement. In December 2007, the plaintiff made a demand for the 2 percent stock, but the defendant refused, contending that the 2 percent agreement was meant only to secure his payment of the additional $25,000. The plaintiff sued for breach of the 2 percent agreement. Prior to trial, the defendant discovered additional business records documenting that he had, before entering into the second agreement, actually overpaid the plaintiff for the purchase of the stock. The defendant asserts the plaintiff could not enforce the second agreement as an accord and satisfaction because (1) it was not supported by consideration, and (2) it was based upon a mutual mistake that the defendant owed additional money on the original agreement. Is the defendant correct in his assertions? Explain.

Accord and Satisfaction. Judgment reversed. An accord and satisfaction arises when the parties to a contract mutually agree that a performance different than that required by the original contract will be made in substitution of the performance originally agreed upon and that the substituted agreement calling for a different performance will discharge the obligation created under the original agreement. The elements of an accord and satisfaction include: (1) a bona fide dispute or uncertainty over an unliquidated amount; (2) a payment tendered in full settlement of the entire dispute; and (3) an acceptance of the payment. In addition, for an accord and satisfaction to have any legal effect, the elements of a contract, including consideration, must be present. It is clear that consideration for an accord may consist of a compromise of a bona fide dispute or uncertainty as to the amount actually owing. Moreover, it is not necessary for the dispute to be well-founded so long as it is in good faith. Thus, if the parties in good faith believe there is a disputed or uncertain claim, mere settlement of the amount due and acceptance of that amount constitutes the consideration necessary to support the contract. At the meeting in May, 2006, the parties both believed that there was a dispute as to the amount that had been paid. Although unfounded, the plaintiff asserted in good faith that he believed additional money was still owing. The defendant accepted this representation without dispute and accepted the plaintiff's settlement proposal. Therefore, the settlement agreement is supported by consideration. The trial court also erred in determining that the accord and satisfaction is unenforceable because of a mutual mistake of fact. A mutual mistake occurs when both parties, at the time of contracting, share a misconception about a basic assumption or vital fact upon which they based their bargain. It is true that, when the settlement agreement was made, neither party was aware that defendant had already paid the original purchase agreement in full. However, this mistake did not go to the terms of the parties accord; rather, it merely demonstrates their accord was indeed a compromise of a bona fide dispute which was not necessarily well-founded, but was made in good faith. The accord and satisfaction accurately reflects the intent of the parties at the time it was entered. Therefore, as there was no mistake regarding a basic assumption underlying the accord and satisfaction, it is enforceable.

Yokel, a grower of soybeans, had sold soybeans to Campbell Grain and Seed Company and other grain companies in the past. Campbell entered into an oral contract with Yokel to purchase soybeans from him. Promptly after entering into the oral contract, Campbell signed and mailed to Yokel a written confirmation of the oral agreement. Yokel received the written confirmation but neither signed it nor objected to its content. Campbell now brings this action against Yokel for breach of contract upon Yokel's failure to deliver the soybeans. Should Yokel be considered a merchant and thus bound by Campbell's written confirmation?

U.C.C.: Written Confirmation. Judgment for Campbell. Under the Code a written confirmation between merchants satisfies the statute of frauds provision of the Code against the recipient as well as the sender unless the recipient gives written notice of his objection within ten days after receiving the confirmation. Yokel, however, insists that he is not a "merchant" within the meaning of the Code, and, therefore, the written confirmation provision is not applicable. The term "merchant" means a person who deals in goods of the kind sold, or otherwise by his occupation holds himself out as having knowledge or skill particular to the practices or goods involved. Yokel is a dealer in soybeans and hence is a merchant within the meaning of the Code. The written confirmation to which Yokel failed to object, therefore, satisfies the statute of frauds provision of the Code. Campbell v. Yokel, 20 Ill.App.3d 702, 313 N.E.2d 628 (1974).

Paula instructed Alvin, her agent, to purchase a quantity of hides. Alvin ordered the hides from Ted in his own (Alvin's) name and delivered the hides to Paula. Ted, learning later that Paula was the principal, sends the bill to Paula, who refuses to pay Ted. Ted sues Paula and Alvin. What are Ted's rights against Paula and Alvin?

Undisclosed Principal. Decision for Ted. Ted is entitled to recover the price either from Alvin or Paula, but not both of them. Upon learning of the undisclosed principal, Ted may treat Alvin as the agent and hold the principal or he may disregard Paula and hold Alvin with whom he contracted as a principal. Ted may bring suit against Alvin and Paula, but before conclusion of the trial must make an election as to which one he wishes to take judgment against. He cannot obtain judgment against both, but may against either.

Stan sold goods to Bill in good faith, believing him to be a principal. Bill in fact was acting as agent for Nancy and was within the scope of his authority. The goods were charged to Bill, and on his refusal to pay, Stan sued Bill for the purchase price. While this action was pending, Stan learned of Bill's relationship with Nancy. Nevertheless, thirty days after learning of that relationship, Stan obtained judgment against Bill and had an execution issued that was never satisfied. Three months after rendition of the judgment, Stan sued Nancy for the purchase price of the goods. Is Nancy liable? Explain.

Undisclosed Principal. Judgment for Nancy. If Stan had obtained his judgment against Bill before he learned that Nancy was a undisclosed principal, clearly he could proceed against Nancy upon learning of the relationship. Although his action against Bill was instituted before he learned of Nancy, he did not take judgment against Bill until 30 days after he learned of Nancy's relationship with Bill. Under the circumstances, Stan is not entitled to collect from Nancy. Restatement, Agency, Second, Section 210 states: An undisclosed principal is discharged from liability upon a contract if, with knowledge of the identity of the principal, the other party recovers judgment against the agent who made the contract, for breach of the contract. It is believed that the foregoing represents the prevailing view, but it has been criticized by some commentators as being unjust.

The following contract was executed on August 22: Ray agrees to sell and Shaw, the representative of Todd and acting on his behalf, agrees to buy 10,000 pounds of 0.32 × 1 5/8 stainless steel strip type 410. (signed) Ray (signed) Shaw On August 26, Ray informs Shaw and Todd that the contract was in reality signed by him as agent for Upson. What are the rights of Ray, Shaw, Todd, and Upson in the event of a breach of the contract?

Undisclosed Principal. Ray, Todd and Upson are bound by the contract but Shaw is not. (a) Ray, although an agent for Upson, is bound because of his failure to reveal the agency. Restatement, Agency, Second, Section 322. Since he appears in the written contract as a principal, he cannot show that he intended to sign the contract merely as an agent. Restatement, Agency, Second, Section 323(1). (b) Since Shaw signed the contract only as the agent for Todd, Shaw is not bound by the contract but Todd is bound. Restatement, Agency; Second, Section 147. Where the name of the principal and the status of the agent appears in the written contract and the contract does not indicate an intention that the agent is personally liable, the principal is bound by the contract but the agent is not. Restatement, Agency, Second, Section 156. (c) Upson is bound by the contract as an undisclosed principal. Restatement, Agency, 2nd, ß 197.

Carolyn Murphy, a welfare recipient with four minor children, responded to an advertisement that offered the opportunity to purchase televisions without a deposit or credit history. She entered into a rent-to-own contract for a twenty-five-inch console color television set that required seventy-eight weekly payments of $16 (a total of $1,248, which was two and one-half times the retail value of the set). Under the contract, the renter could terminate the agreement by returning the television and forfeiting any payments already made. After Murphy had paid $436 on the television, she read a newspaper article criticizing the lease plan. She stopped payment and sued the television company. The television company has attempted to take possession of the set. Decision?

Usury/Unconscionability. Judgment for Murphy. The contract was unconscionable because the television company failed to inform Murphy of the true purchase price and required her to pay two and one half times the retail sales price. Murphy was lured into a contract in which she had unequal bargaining power by the company's deceptive advertising. Moreover, it is usurious to charge a consumer with unequal bargaining power an excessive price; two and one half times the retail value of an item is excessive. Murphy v. McNamara, 36 Conn. Sup. 183, 416 A. 2d 170 (1979).

Calvin uses fraud to induce Maria to promise to pay money in return for goods he has delivered to her. Has a contract been formed? If so, what kind? What are the rights of Calvin and Maria?

Valid, Void, Voidable and Uniforceable Contracts. This is a voidable contract. A contract has been formed; however, Maria, at her option, may rescind the contract. Calvin has no right to avoid the contract if Maria decides to not rescind.

Carl, a salesman for Smith, comes to Benson's home and sells him a complete set of "gourmet cooking utensils" that are worth approximately $300. Benson, an eighty-year-old man living alone in a one-room efficiency apartment, signs a contract to buy the utensils for $1,450, plus a credit charge of $145, and to make payment in ten equal monthly installments. Three weeks after Carl leaves with the signed contract, Benson decides he cannot afford the cooking utensils and has no use for them. What can Benson do? Explain Consider the same facts as in problem 8, but assume that the price was $350. Benson, nevertheless, wishes to avoid the contract based on the allegation that Carl befriended and tricked him into the purchase. Discuss.

Violations of Public Policy. Decision for Benson. Benson could argue that the contract was induced by Carl's fraudulent conduct. Contracts based on fraud are voidable by the victimized party.

Virginia induced Charles to sell his boat to her by misrepresentation of material fact upon which Charles reasonably relied. Virginia promptly sold the boat to Donald, who paid fair value for it and knew nothing concerning the transaction between Virginia and Charles. Upon discovering the misrepresentation, Charles seeks to recover the boat. What are Charles's rights against Virginia and Donald?

Voidable Contracts. Charles may not recover the boat from Donald who is a bona fide purchaser for value because the transaction between Virginia and Charles was voidable not void. Charles may recover damages for fraud from Virginia.

Moriarity and Holmes enter into an oral contract by which Moriarity promises to sell and Holmes promises to buy Blackacre for $100,000. Moriarity repudiates the contract by writing a letter to Holmes in which she states accurately the terms of the bargain, but adds "our agreement was oral. It, therefore, is not binding upon me, and I shall not carry it out." Thereafter, Holmes sues Moriarity for specific performance of the contract. Moriarity interposes the defense of the statute of frauds, arguing that the contract is within the statute and, hence, unenforceable. What result? Discuss.

Writing or Memorandum. Judgment for Holmes. Moriarity, the party whom Holmes seeks to charge, signed a letter stating the terms of the oral contract. By signing the letter, which serves as a memorandum, Moriarity complied with the requirements of the statute of frauds. Thus the contract is enforceable and Holmes is entitled to specific performance of the contract. Specific performance is available because land is a unique commodity.

Green Grocery Company employed Jones as its manager. Jones was given authority by Green Company to purchase supplies and goods for resale and had conducted business for several years with Brown Distributing Company. Although her purchases previously had been limited to groceries, Jones contacted Brown Distributing Company and had it deliver a color television set to her house, informing Brown Company the set was to be used in promotional advertising to increase Green Grocery Company's business. The advertising did not develop, and Jones disappeared from the area, taking the television set with her. Brown Company now seeks to recover the purchase price of the set from Green Company. Will Brown prevail? Explain.

Actual Implied Authority. Judgment for Green Grocery Co. Generally, an agent has implied authority to make reasonable and necessary purchases for his principal, who is bound by the act of the agent within the scope of apparent authority. Payment of bills for merchandise sold to an agent by his principal is sufficient to establish apparent authority, especially where this practice is continued over a period of time, and the principal is estopped to deny the agent's authority. It is a generally recognized rule of law that an agent has implied or apparent authority to purchase those items required in the prosecution of the business he represents. The burden is upon the plaintiff, Brown Company, to prove the authority of the agent, Jones, and that he had authority to make the specific purchase in question. The authority to buy one type of goods is insufficient to establish authorization to buy an entirely different type. While a general agent has authority to bind the principal as to matters within the proper scope of the business, the authority is limited to acts customary and usual in the business involved. Here the purchase was different from prior dealings. The set was delivered to the home of the agent and Brown Company is charged with the duty of determining actual authority. The question of acceptance of benefits or ratification is not involved here.

Mountain Restaurant Corporation (Mountain) leased commercial space in the ParkCenter Mall to operate a restaurant called Zac's Grill. The lease specified that the shopping center should always have as a part of it, or upon premises immediately next to it, a minimum of 500 parking spaces at all times. While developing the mall, ParkCenter entered into two agreements that restricted the amount of parking at their mall to fewer than 500 spaces. Neither agreement was shown to Mountain before it signed the lease. Zac's Grill was to be a fast-food restaurant where tables were anticipated to "turn over" twice during lunch. Zac's operated successfully until parking close to the restaurant became restricted. Two other restaurants opened and began competing for parking spaces, and the parking lot would become full between 12:00 and 12:30 P.M. Parking, however, was always available at other areas of the mall. Business declined for Zac's, which fell behind on the rent due to ParkCenter until finally the restaurant closed. Mountain claims that it was discharged from its obligations under the lease because of material breach. Is Mountain correct? Explain.

Breach/Substantial Performance. Judgment for Mountain Restaurant Corp. The balance of Mountain Restaurant's argument consists of challenging the factual basis for the district court's conclusion of an immaterial breach. Mountain Restaurant argues that the location of parking was very important because in a lunch-oriented business customers will not walk very far from their cars to a restaurant. The specific location of parking for Mountain Restaurant's customers was not stated in the lease. Rather, the relevant lease provision, Article V(A), provided that the lessee shall "at all times have a non exclusive and non revocable right, together with the other tenants and occupants of . . . the shopping center, to use the parking area . . . for itself, its customers and employees." Although Mountain Restaurant may have believed that it was extremely important to its business to have parking available right next to its location, the lease did not so provide. Thus, the fact that spaces in close proximity to the restaurant were generally not available during the lunch hour does not provide support for the claim that there was a material breach of the lease because the lease simply did not provide that parking in that area would be reserved for Mountain Restaurant's customers. After a careful review of the record, we are unable to conclude that the district court committed clear error when it found that the failure to provide a minimum of 500 parking spaces at all times was a material breach of the lease, when the evidence showed that the available parking was never filled, even during the lunch hour. The district court's determination is supported by substantial evidence and is affirmed.

The Park Plaza Hotel awarded its valet and laundry concession to Larson for a three-year term. The contract contained the following provision: "It is distinctly understood and agreed that the services to be rendered by Larson shall meet with the approval of the Park Plaza Hotel, which shall be the sole judge of the sufficiency and propriety of the services." After seven months, the hotel gave a month's notice to discontinue services based on the failure of the services to meet its approval. Larson brought an action against the hotel, alleging that its dissatisfaction was unreasonable. The hotel defended upon the ground that subjective or personal satisfaction may be the sole justification for termination of the contract. Who is correct? Explain.

Condition Precedent. Decision for Park Plaza Hotel on the assumption that its dissatisfaction with the services of Larson, while not reasonable, was nevertheless in good faith. The question is whether the test of dissatisfaction in a contract such as this, where the promise to perform is made expressly conditional on approval or satisfaction, is objective or subjective. If objective, the dissatisfaction must be reasonable. If subjective, it need only be genuine and in good faith and is not required to meet the standard of a reasonable person. This contract specifically provided that the services must meet the approval of the Hotel, who solely was to be the judge of its adequacy.

K & G Construction Co. was the owner of and the general contractor for a housing subdivision project. Harris contracted with the company to do excavating and earth-moving work on the project. Certain provisions of the contract stated that (1) K & G was to make monthly progress payments to Harris; (2) no such payments were to be made until Harris obtained liability insurance; and (3) all of Harris's work on the project must be performed in a workmanlike manner. On August 9, a bulldozer operator, working for Harris, drove too close to one of K & G's houses, causing the collapse of a wall and other damage. When Harris and his insurance carrier denied liability and refused to pay for the damage, K & G refused to make the August monthly progress payment. Harris, nonetheless, continued to work on the project until mid-September, when the excavator ceased its operations due to K & G's refusal to make the progress payment. K & G had another excavator finish the job at an added cost of $1,450. It then sued Harris for the bulldozer damage, alleging negligence, and also for the $1,450 damages for breach of contract. Harris claims that K & G defaulted first, having no legal right to refuse the August progress payment. Did K&G default first? Explain.

Concurrent Conditions/Material Breach. Judgment for K & G Construction Co. Contractual obligations are either independent of each other or mutually dependent. They are independent if the parties intend that performance by each of them is in no way conditioned upon performance by the other. Failure of one party to perform its independent promise does not excuse the other's nonperformance. On the other hand, promises are concurrent conditions and mutually dependent if the parties intend performance by one to be conditioned upon performance by the other. A material breach of a mutually dependent promise by one party excuses the other's performance of his contractual obligations. The modern rule is that there is a presumption that mutual promises are concurrent and dependent, and are to be so regarded, whenever possible. Here, the bulldozer operator's negligent damage to the house was a material breach of Harris's promise to perform in a workmanlike manner. Under a reasonable interpretation of the circumstances and the contract, the progress payment was conditioned upon Harris's nonnegligent, workmanlike performance. Hence, the promises are concurrent and mutually dependent. K & G then had a right to refuse making the progress payment without canceling the contract, based upon Harris's negligence.

A fifteen-year-old minor was employed by Midway Toyota, Inc., of Great Falls, Montana. On August 18, 2006, the minor, while engaged in lifting heavy objects, injured his lower back. In October 2006 he underwent surgery to remove a herniated disk. Midway Toyota paid him the appropriate amount of temporary total disability payments ($53.36 per week) from August 18, 2006, through November 15, 2007. In February 2008 a final settlement was reached for 150 weeks of permanent partial disability benefits totaling $6,136.40. Tom Mazurek represented Midway Toyota in the negotiations leading to the agreement and negotiated directly with the minor and his mother, Hermoine Parrent. The final settlement agreement was signed by the minor only. Mrs. Parrent, who was present at the time, did not object to the signing, but neither she nor anyone else of "legal guardian status" co-signed the agreement. The minor later sought to disaffirm the agreement and reopen his workers' compensation case. The workers' compensation court denied his petition, holding that Mrs. Parrent "participated fully in consideration of the offered final settlement and ... ratified and approved it on behalf of her ward ...to the same legal effect as if she had actually signed [it]. ..." The minor appealed. Decision?

Disaffirmance. Judgment for the minor. The Montana statute allows a minor to disaffirm his contract. Because the sixteen-year-old claimant signed the petition for final settlement in his own behalf, he alone was the contracting party. Tom Mazurek chose to contract with the claimant; he must be prepared to accept the consequences of claimant's disaffirmance of the petition. The person who deals with an infant does so at his own peril. Defendant claims that the mother, Hermoine Parrent, was present at all times during the signing of the contract, that the mother approved of the contract; that there was no objection to the contract; that the adjuster negotiated with the mother and the claimant prior to and after the signing of the contract, the mother was aware of the contract rights of claimant and did not object to the same. Nevertheless, since the mother did not sign the agreement and since the minor is not bound by the agreement, the agreement is unenforceable. Parrent v. Midway Toyota, 626 P.2d 848 (Mont. 1981).

Jones, a minor, owned a 2006 automobile. She traded it to Stone for a 2007 car. Jones went on a three-week trip and found that the 2007 car was not as good as the 2006 car. She asked Stone to return the 2006 car but was told that it had been sold to Tate. Jones thereupon sued Tate for the return of the 2006 car. Is Jones entitled to regain ownership of the 2006 car? Explain.

Disaffirmance. No. Although Jones could avoid the sale as against Stone, he could not recover the car from Tate who purchased the car in good faith and for value from Stone. At common law Jones, the minor, could recover the car from the third person, Tate, to whom Stone, the other party to the contract with Jones had transferred it, even though the third person did not know of the minority and purchased the car for value. However, the UCC repudiates this rule, Section 2-403(1) provides that "a person with voidable title has power to transfer a good title to a good faith purchaser for value."

Timothy retains Cynthia, an attorney, to bring a lawsuit upon a valid claim against Vincent. Cynthia fails to make herself aware of recently enacted legislation that shortens the statute of limitations for this type of legal action, and, consequently, she files the complaint after the statute of limitations has run. As a result, the lawsuit is dismissed. What rights, if any, does Timothy have against Cynthia?

Duties of Agent to Principal: Duty of Diligence. An agent is expected to act on behalf of the principal using reasonable care and skill in addition to any special skill that she may have. The standard is established based on the community or locality in which the employment takes place. Judgment would be for Timothy assuming that a lawyer acting reasonably would have had opportunity to discover the revised statute of limitations period.

Piedmont Electric Co. gave a list of delinquent accounts to Alexander, an employee, with instructions to discontinue electric service to delinquent customers. Among those listed was Todd Hatchery, which was then in the process of hatching chickens in a large, electrically heated incubator. Todd Hatchery told Alexander that it did not consider its account delinquent, but Alexander nevertheless cut the wires leading to the hatchery. Subsequently, Todd Hatchery recovered a judgment of $5,000 in an action brought against Alexander for the loss resulting from the interruption of the incubation process. Alexander has paid the judgment and brings a cause of action against Piedmont Electric Co. What may he recover? Explain.

Duties of Principal to Agent: Indemnification/Reimbursement. Judgment for Alexander. In collecting the accounts and discontinuing service Alexander was acting within his actual authority. A principal is under a duty to indemnify and reimburse his agent for expenses incurred by or resulting from authorized acts of the agent if not illegal or not known by the agent to be wrongful. Accordingly, Alexander has a right of reimbursement from Piedmont Electric Co. for $5,000.

Barta entered into a written contract to buy the K&K Pharmacy, located in the local shopping center. Included in the contract was a provision stating that "this Agreement shall be contingent upon Buyer's ability to obtain a new lease from Landlord for the premises presently occupied by Seller. In the event Buyer is unable to obtain a lease satisfactory to Buyer, this Agreement shall be null and void." Barta planned to sell "high traffic" grocery items such as bread, milk, and coffee in order to attract customers to his drugstore. A grocery store in the local shopping center, however, held the exclusive right to sell grocery items. Barta, therefore, could not obtain a leasing agreement meeting his approval. Barta refused to close the sale. In a suit by K&K Pharmacy against Barta for breach of contract, who will prevail? Explain.

Condition Precedent. Judgment for Barta. Barta's obligation to perform under the contract is dependent upon a condition precedent, that is, an event which must first take place. Here, Barta was contractually bound to purchase K&K Pharmacy only if he first obtained a leasing agreement that was satisfactory to him. Note that according to these facts, Barta need only be honestly dissatisfied with the lease agreement. Assuming good faith, unless expressly provided for there is no requirement that Barta's dissatisfaction be reasonable. K&K Pharmacy, Inc. v. Barta, 222 Neb. 215, 382 N.W.2d 363 (1986).

Schlosser entered into an agreement to purchase a cooperative apartment from Flynn Company. The written agreement contained the following provision: This entire agreement is conditioned on Purchaser's being approved for occupancy by the board of directors of the Cooperative. In the event approval of the Purchaser shall be denied, this agreement shall thereafter be of no further force or effect. When Schlosser unilaterally revoked her "offer," Flynn sued for breach of contract. Schlosser claims the approval provision was a condition precedent to the existence of a binding contract and, thus, she was free to revoke. Decision?

Condition Precedent. Judgment for Flynn Company. The critical question in this case is the legal effect of the contract provision. In this case the contract provision is a condition precedent to the duty to perform, but not a condition precedent to the creation of the contract since the agreement was formed through the mutual assent of the parties. Their intention was clear as evidenced by the writing. The contract to purchase was created without reliance on a prior conditional approval. Schlosser must perform the contract unless the required approval is denied.

Billy Williams Builders and Developers (Williams) entered into a contract with Hillerich under which Williams agreed to sell to Hillerich a certain lot and to construct on it a house according to submitted plans and specifications. The house built by Williams was defectively constructed. Hillerich brought suit for specific performance of the contract and for damages resulting from the defective construction and delay in performance. Williams argued that Hillerich was not entitled to have both specific performance and damages for breach of the contract because the remedies were inconsistent and Hillerich had to elect one or the other. Explain whether Williams is correct in this assertion.

Election of Remedies. Judgment for Hillerich. The remedies of specific performance and damages are not inconsistent in this case. Contracts for the sale of real estate are specifically enforceable in equity, and if the quantity of land owned by the seller is less than the quantity he has contracted to convey, the buyer may obtain specific performance to the extent the seller can transfer title and damages for the difference between the actual performance and such performance as would have fulfilled the terms of the contract, plus damages for delay in performance. There is no reason to distinguish between a deficiency in quantity (short acreage or lack of title) and deficiency of quality (defective construction). Billy Williams Builders & Develop., Inc. v. Hillerich, 446 S.W.2d 280 (Ky. 1969).

Albert Bennett, an amateur cyclist, participated in a bicycle race conducted by the US Cycling Federation. During the race, Bennett was hit by an automobile. He claims that employees of the Federation improperly allowed the car onto the course. The Federation claims that it cannot be held liable to Bennett because Bennett signed a release exculpating the Federation from responsibility for any personal injury resulting from his participation in the race. Decision?

Exculpatory Clause. Judgment for Bennett. A valid exculpatory clause must be clear, explicit, unambiguous and comprehensible to both of the parties. The terms of the agreement also must apply to the specific misconduct of the defendant. In this case, Bennett waived the right to sue based on foreseeable misconduct on the part of the Federation. He did not, however, waive the Federation's liability for actions deviating from normal race procedures, including the presence of automobiles on the course. Bennett v. United States Cycling Federation, 193 Cal. App. 3d 1485, 239 Cal. Rptr. 55 (1987).

Raymond Zukaitis was a physician practicing medicine in Douglas County, Nebraska. Aetna issued a policy of professional liability insurance to Zukaitis through its agent, the Ed Larsen Insurance Agency. The policy covered the period from August 31, 2006, through August of the following year. On August 7, 2008, Dr. Zukaitis received a written notification of a claim for malpractice that occurred on September 27, 2006. Dr. Zukaitis notified the Ed Larsen Insurance Agency immediately and forwarded the written claim to them. The claim was then mistakenly referred to St. Paul Fire and Marine Insurance Company, the company that currently insured Dr. Zukaitis. Apparently without notice to Dr. Zukaitis, the agency contract between Larsen and Aetna had been canceled on August 1, 2007, and St. Paul had replaced Aetna as the insurance carrier. However, when St. Paul discovered it was not the carrier on the date of the alleged wrongdoing, it notified Aetna and withdrew from Dr. Zukaitis's defense. Aetna also refused to represent Dr. Zukaitis, contending that it was relieved of its obligation to Dr. Zukaitis because he had not notified Aetna immediately of the claim. Dr. Zukaitis then secured his own attorney to defend against the malpractice claim and brought this action against Aetna to recover attorney's fees and other expenses incurred in the defense. Should Dr. Zukaitis succeed? Explain..

Effect of Termination of Agency upon Authority. Judgment for Dr. Zukaitis. Aetna is responsible for the defense of Dr. Zukaitis. The notice given by Dr. Zukaitis to Larsen, the agent of Aetna, constitutes notice to Aetna and obligates it to carry out the terms of its insurance contract with Dr. Zukaitis. A revocation of the agent's authority does not become effective between the principal and third persons until they receive notice of the termination. More specifically, when an insurer terminates the agency contract, it is its duty to notify third persons, such as the insureds with whom the agent dealt, and inform them of such termination. If it does not do so and such third persons or insureds deal with the agent without notice or knowledge of the termination and in reliance on the apparently continuing authority of the agent, the insurer is bound by the acts of the former agent. Therefore, the notice given by Zukaitis to Larsen, the agent of Aetna, obligates Aetna to carry out the terms of its insurance contract with Dr. Zukaitis and to provide for his defense against the malpractice claim.

In October 2003, Black, the owner of the Grand Opera House, and Harvey entered into a written agreement leasing the Opera House to Harvey for five years at a rental of $300,000 per year. Harvey engaged Day as manager of the theatre at a salary of $1,175 per week plus 10 percent of the profits. One of Day's duties was to determine the amount of money taken in each night and, after deducting expenses, to divide the profits between Harvey and the manager of the particular attraction that was playing at the theatre. In September 2008, Day went to Black and offered to rent the opera house from Black at a rental of $37,500 per year, whereupon Black entered into a lease with Day for five years at this figure. When Harvey learned of and objected to this transaction, Day offered to assign the lease to him for $600,000 per year. Harvey refused and brought an appropriate action against Day. Should Harvey recover? If so, on what basis and to what relief is he entitled?

Fiduciary Duty. Decree in favor of Harvey. An agent owes the principal a duty of loyalty which includes an obligation not to compete. The agent is precluded from using information acquired in the course of the agency relationship for her own benefit or contrary to the interest of the principal. In this case Day engaged in business activity with Black, and this activity would be characterized as being in conflict with the interests of Day's principal, Harvey.

Kerr Steamship Company sent a telegram to the Philippines through the Radio Corporation of America. The telegram, which contained instructions for loading cargo on one of Kerr's ships, was mislaid and never delivered. Consequently, the ship was improperly loaded and the cargo was lost. Kerr sued the Radio Corporation for $6,675.29 in profits lost on the cargo because of the Radio Corporation's failure to deliver the telegram. Should Kerr be allowed to recover damages from Radio? Explain.

Foreseeability and Damages. Judgment for Kerr in the amount of $26.78, the cost of transmitting the telegram. General damages in an action by the sender of the message and the carrier are not the same as damages in an action by the sender of the message against the receiver of the message. The carrier of the message has a duty to deliver the message and no more. Thus, the damages recoverable for breach of the duty to deliver the message can be no more than the value of the performance of that duty. The Radio Corporation is not in a position to measure accurately every sender's risk of loss and thus cannot be responsible for insuring lost profits for undelivered telegrams. Kerr Steamship Co. v. Radio Corporation of America, 245 N.Y. 284, 157 N.E. 140 (1927).

Edward contracted to buy 1,000 barrels of sugar from Marcia. Marcia failed to deliver, and because Edward could not buy any sugar in the market, he was compelled to shut down his candy factory. (a) What damages is Edward entitled to recover? (b) Would it make any difference if Edward had told Marcia that he wanted the sugar to make candies for the Christmas trade and that he had accepted contracts for delivery by certain dates?

Foreseeability of Damages. (a) Edward is entitled to recover monetary damages in compensation for such losses as are the usual, probable, ordinarily-to-be expected consequences of the breach itself. Hadley v. Baxendale, 9 Exchange 341 (1854). Damages are not recoverable for loss that the party in breach did not have reason to foresee as a probable result of the breach when the contract was made. Restatement, Second, Contracts, Section 351(1). (b) Yes, it would make a difference. Edward would be entitled to recover damages for such losses, though unusual, as may fairly and reasonably be supposed to have been within the contemplation of the parties when they made the contract, provided such losses are neither uncertain in their nature nor remote as to their cause. Hadley v. Baxendale. Loss may be foreseeable as a probable result of a breach because it follows from the breach as a result of special circumstances, beyond the ordinary course of events, if the party in breach had reason to know of these circumstances. Restatement, Second, Contracts, Sect. 351 (2).

On March 1, Joseph sold to Sandra fifty acres of land in Oregon, which Joseph at the time represented to be fine black loam, high, dry, and free of stumps. Sandra paid Joseph the agreed price of $140,000 and took from him a deed to the land. Subsequently discovering that the land was low, swampy, and not entirely free of stumps, Sandra nevertheless undertook to convert the greater part of the land into cranberry bogs. After one year of cranberry culture, Sandra became entirely dissatisfied, tendered the land back to Joseph, and demanded from Joseph the return of the $140,000. Upon Joseph's refusal to repay the money, Sandra brings an action against him to recover the $140,000. What judgment?

Fraud. Judgment in favor of Joseph. Sandra was induced by fraudulent misrepresentations of material fact to purchase the 50 acres of land. Upon discovery of the fraud perpetrated upon her, Sandra had an election of remedies. She could have rescinded the contract and have sued to recover the $140,000 paid to Joseph upon tendering to Joseph a deed for the land or she could have retained the land and sued Joseph in tort for damages resulting from the fraud. Instead of rescinding the contract, Sandra affirmed for the contract when she proceeded to convert the land into cranberry bogs for one year. Although not entitled to recover the purchase price paid to Joseph, Sandra can recover from Joseph in tort for her damages, assuming the statute of limitations has not barred the action.

Anita and Barry were negotiating, and Anita's attorney prepared a long and carefully drawn contract, which was given to Barry for examination. Five days later and prior to its execution, Barry's eyes became so infected that it was impossible for him to read. Ten days thereafter and during the continuance of the illness, Anita called upon Barry and urged him to sign the contract, telling him that time was running out. Barry signed the contract despite the fact he was unable to read it. In a subsequent action by Anita, Barry claimed that the contract was not binding upon him because it was impossible for him to read and he did not know what it contained prior to his signing it. Should Barry be held to the contract?

Fraud. Yes, decision in favor of Anita and against Barry. Barry's defense that the contract was not binding upon him because he had not and could not have read it prior to signing it is not valid. Here, there was no misrepresentation of the contents of the contract Barry was requested to sign. There is nothing approaching fraud upon the part of Anita. Upon the facts stated, Barry's inability to read the contract because of impaired vision does not afford him a defense where his signature to the contract was voluntary, and was not induced by fraud or misrepresentation. Moreover, Barry could not prove a defense based upon duress since Anita did not physically compel nor force Barry by threats to manifest assent to the proposal. Barry could easily have had someone read the contract to him, or have it reviewed by his attorney.

Alice solicited an offer from Robett Manufacturing Company to manufacture certain clothing that Alice intended to supply to the government. Alice contends that in a telephone conversation Robett made an oral offer that she immediately accepted. She then received the following letter from Robett, which, she claims, confirmed their agreement: Confirming our telephone conversation, we are pleased to offer the 3,500 shirts at $4.00 each and the trousers at $3.80 each with delivery approximately ninety days after receipt of order. We will try to cut this to sixty days if at all possible. This, of course, as quoted f.o.b. Atlanta and the order will not be subject to cancellation, domestic pack only. Thanking you for the opportunity to offer these garments, we are Very truly yours, ROBETT MANUFACTURING CO., INC. Is the agreement enforceable?

Here, Robett admits the signing of the letter and that the letter specifies a quantity. Nevertheless, the writing does not evidence a contract for the sale of goods; it merely constitutes an offer to sell. Hence, the memorandum does not satisfy the minimum requirements of the statute of frauds and the agreement is unenforceable. Alice v. Robett Manufacturing Co., United States District Court, District of Georgia

Webster, Inc. dealt in automobile accessories at wholesale. Although he manufactured a few items in his own factory, among them windshield wipers, Webster purchased most of his inventory from a large number of other manufacturers. In January, Webster entered into a written contract to sell Hunter 2,000 windshield wipers for $4,900, delivery to be made June 1. In April, Webster's factory burned to the ground, and Webster failed to make delivery on June 1. Hunter, forced to buy windshield wipers elsewhere at a higher price, is now trying to recover damages from Webster. Will Hunter be successful in its claim?

Impossibility. Decision for Hunter. This is not a case of impossibility of performance by Webster, Inc. Although Webster, Inc. may have expected to manufacture the windshield wipers in his factory the agreement did not require him to do so. Windshield wipers purchased from other manufacturers would have served the purpose. Had Webster, Inc. contracted to manufacture the wipers in his factory and to sell them to Hunter, who contracted to buy, and thereafter Webster's factory was destroyed by fire, without his fault, the contract would be discharged. There would have been destruction of the specific means of performance, rendering performance impossible. In the problem, however, the fact that Webster's factory burned to the ground did not constitute destruction of the specific means or source of performance.

By contract dated January 5, Rebecca agreed to sell to Nancy, and Nancy agreed to buy from Rebecca, a certain parcel of land then zoned commercial. The specific intent of Nancy, which was known to Rebecca, was to erect a storage plant on the land; and the contract stated that the agreement was conditioned upon Nancy's ability to construct such a plant upon the land. The closing date for the transaction was set for April 1. On February 15, the city council rezoned the land from commercial to residential, which precluded the erection of the storage plant. As the closing date drew near, Nancy made it known to Rebecca that she did not intend to go through with the purchase because the land could no longer be used as intended. On April 1, Rebecca tendered the deed to Nancy, who refused to pay Rebecca the agreed purchase price. Rebecca brought an action against Nancy for breach of their contract. Can Rebecca enforce the contract?

Impossibility. Decision for Nancy. Since both parties entered into the sales contract with the purpose of erecting a storage plant and the rezoning by the city council from commercial to residential thereby frustrated the expressed intent, the parties were discharged from their obligations under the contract.

Henrioulle, an unemployed widower with two children, received public assistance in the form of a rent subsidy. He entered into an apartment lease agreement with Marin Ventures that provided, "INDEMNIFICATION: Owner shall not be liable for any damage or injury to the tenant, or any other person, or to any property, occurring on the premises, or any part thereof, and Tenant agrees to hold Owner harmless for any claims for damages no matter how caused." Henrioulle fractured his wrist when he tripped over a rock on a common stairway in the apartment building. At the time of the accident, the landlord had been having difficulty keeping the common areas of the apartment building clean. Will the exculpatory clause effectively bar Henrioulle from recovery? Explain.

Exculpatory Clause. Judgment for Henrioulle. The criteria used to identify when an exculpatory clause is invalid as against public policy include whether: (1) it concerns a business of a type generally thought suitable for public regulation; (2) the party seeking exculpation is engaged in performing a service of great importance to the public, which is often a matter of practical necessity for some members of the public; (3) the party seeking exculpation is in a superior bargaining position; (4) the exculpatory clause is part of a standard adhesion contract in which the terms of the contract are put on a "take-it-or-leave-it" basis. Here, the transaction, a residential rental agreement, meets these criteria and, therefore, the exculpatory clause is invalid as contrary to public policy. Accordingly, Henrioulle is entitled to recover for his injuries.

Louie E. Brown worked for the Phelps Dodge Corporation under an oral contract for approximately twenty-three years. In 2007, he was suspended from work for unauthorized possession of company property. In 2008 Phelps Dodge fired Brown after discovering that he was using company property without permission and building a trailer on company time. Brown sued Phelps Dodge for benefits under an unemployment benefit plan. According to the plan, "in order to be eligible for unemployment benefits, a laid-off employee must: (1) Have completed 2 or more years of continuous service with the company, and (2) Have been laid off from work because the company had determined that work was not available for him." The trial court held that the wording of the second condition was ambiguous and should be construed against Phelps Dodge, the party who chose the wording. A reading of the entire contract, however, indicates that the plan was not intended to apply to someone who was fired for cause. What is the correct interpretation of this contract?

Interpretation of Contracts. Decision for Phelps Dodge. A reading of the entire contract indicates that no ambiguity exists. The contract was not meant to apply to someone who was dismissed for cause. Brown was not entitled to recover under the plan. Phelps Dodge Corp. v. Brown, 112 Ariz. 179, 540 P.2d 651 (1975).

Halsey, a widower, was living without family or housekeeper in his house in Howell, New York. Burns and his wife claim that Halsey invited them to give up their house and business in Andover, New York, to live in his house and care for him. In return, they allege, he promised them the house and its furniture upon his death. Acting upon this proposal, the Burnses left Andover, moved into Halsey's house, and cared for him until he died five months later. No deed, will, or memorandum exists to authenticate Halsey's promise. McCormick, the administrator of the estate, claims the oral promise is unenforceable under the statute of frauds. Explain whether McCormick is correct.

Land Contract Provision. Judgment for McCormick. In general, a contract to convey an interest in land must be in writing to satisfy the statute of frauds. As an exception, equity will sometimes enforce an oral agreement affecting rights in land if the one who will gain the interest has partially performed his promise under the agreement. However, to satisfy this exception, the partial performance must be "unequivocally referable" to the agreement-such as possession or improvement of the promised land. Here, the Burnses never occupied the land as owners or under claim of present right. As boarders, they did not even have possession. Halsey maintained possession; they were merely his personal servants or guests. Though likely to have been rewarded in some fashion, their services to Halsey are not unequivocally referable to his promise to convey the land. Therefore, in the absence of a writing confirming it, his promise is unenforceable.

George Jones on October 1, being then a minor, entered into a contract with Johnson Motor Company, a dealer in automobiles, to buy a car for $10,850. He paid $1,100 down and, under the agreement, was to make monthly payments thereafter of $325 each. After making the first payment on November 1, he failed to make any more payments. Although Jones was seventeen years old at the time he made the contract, he represented to the company that he was twenty-one years old because he was afraid that if the company knew his real age, it would not sell the car to him. His appearance was that of a man of twenty-one years of age. On December 15, the company repossessed the car under the terms provided in the contract. At that time, the car had been damaged and was in need of repairs. On December 20, George Jones became of age and at once disaffirmed the contract and demanded the return of the $1,425 he had paid on it. On refusal of the company to do so, George Jones brought an action to recover the $1,425, and the company set up a counterclaim for $1,500 for expenses it incurred in repairing the car. Who will prevail? Why?

Liability for Misrepresentation of Age. George Jones may disaffirm the contract even though he deliberately misrepresented his age. Most courts would hold that Jones is not estopped from asserting his minority in order to sue Johnson Motor Company. At the same time, many courts would not grant Jones the relief sought unless he offered to return the car and also to account to the company for depreciation and the value of the use of the car where he has falsified his age. Here, the car has already been repossessed by Johnson Motor Company. This problem is based upon the leading case of Myers v. Hurley Motor Co., 273 U.S. 18, 47 S.Ct. 277, 71 L.Ed. 515, 50 A.L.R. 1181, where a minor appeared to be more than 21 but made no misrepresentation to induce the making of the contract for the purchase of an automobile. The seller repossessed the car, and the minor, after attaining his majority, sought to recover the amount paid on the purchase price. The seller sought to recover a somewhat larger amount for damages to the car while in the minor's possession. The United States Supreme Court stated that: "The defense, in effect, is that the plaintiff was guilty of tortious conduct to the injury of the defendant in the transaction out of which his own cause of action arose. In such case it is well settled that the relief is by way of recoupment." The seller was held entitled to a setoff up to but not exceeding the amount of the plaintiff's claim. The company would be entitled to a setoff of $1,225, for depreciation in value, against the amount of Jones' claim.

Sierra Pacific Industries purchased various areas of timber and six other pieces of real property, including a ten-acre parcel on which five duplexes and two single-family units were located. Sierra Pacific requested the assistance of Joseph Carter, a licensed real estate broker, in selling the nontimberland properties. It commissioned him to sell the property for an asking price of $850,000, of which Sierra Pacific would receive $800,000 and Carter would receive $50,000 as a commission. Unable to find a prospective buyer, Carter finally sold the property to his daughter and son-in-law for $850,000 and retained the $50,000 commission without informing Sierra Pacific of his relationship to the buyers. After learning of these facts, Sierra Pacific brought an action for breach of fiduciary duty against Carter. To what relief, if any, is Sierra Pacific entitled?

Fiduciary Duty of Agent. Judgment for Sierra Pacific. An agent owes a fiduciary duty to his principal which requires the disclosure of all information in the agent's possession that is relevant to the subject matter of the agency. An agent may not compete with the principal, nor may he act as agent for another whose interests conflict with those of the principal. A real estate agent must refrain from dual representation in a transaction unless he obtains the consent of both principals after full disclosure. Under most circumstances, then, if the agent is related to the buyer in a way that suggests a reasonable possibility that the agent himself could be acquiring an interest in the property, the relationship is a material fact that must be disclosed. Therefore, Sierra Pacific may recover the $50,000 commission paid to Carter plus any actual and proximately caused loss on the price it received for the property. Sierra Pacific Industries v. Carter, 104 Cal.App.3d 579, 163 Cal.Rptr. 764 (1980).

Cook's Department Store advertises that it maintains in its store a barber shop managed by Hunter. Actually, Hunter is not an employee of the store but merely rents space in it. While shaving Jordon in the barber shop, Hunter negligently puts a deep gash into one of Jordon's ears, requiring ten stitches. Should Jordon be entitled to collect damages from Cook's Department Store?

Apparent Authority. Decision in favor of Jordan. By advertising that it maintained a barber shop in its store in charge of Hunter, Cook's Department Store has caused third persons reasonably to believe that Hunter is its employee. The store is therefore estopped from asserting the fact that Hunter is not its employee because to allow it to do so would be unfair and unjust to persons who, in good faith and in reliance upon the advertisements, engaged Hunter's services in the mistaken belief that he was an employee of the store. This problem presents a case of agency by estoppel or apparent authority.

An artist once produced a painting now called The Plains of Meudon. For a while, the parties in this case thought that the artist was Theodore Rousseau, a prominent member of the Barbizon school, and that the painting was quite valuable. With this idea in mind, the Kohlers consigned the painting to Leslie Hindman, Inc., an auction house. Among other things, the consignment agreement between the Kohlers and Hindman, Inc. defined the scope of Hindman, Inc.'s authority as agent. First, Hindman, Inc. was obliged to sell the painting according to the conditions of sale spelled out in the auction catalog. Those conditions provided that neither the consignors nor Hindman, Inc. made any warranties of authenticity. Second, the consignment agreement gave Hindman, Inc. extensive and exclusive discretionary authority to rescind sales if in its "sole discretion" it determined that the sale subjected the company or the Kohlers to any liability under a warranty of authenticity. Despite having some doubts about its authenticity, Thune was still interested in the painting but wanted to have it authenticated before committing to its purchase. Unable to obtain an authoritative opinion about its authenticity before the auction, Leslie Hindman and Thune made a verbal agreement that Thune could return the painting within approximately thirty days of the auction if he was the successful bidder and if an expert then determined that Rousseau had not painted it. Neither Leslie Hindman nor anyone else at Hindman, Inc. told the Kohlers about the questions concerning the painting or about the side agreement between Thune and Hindman, Inc. At the auction, Thune prevailed in the bidding with a high bid of $90,000, and he took possession of the painting without paying. He then sent it to an expert in Paris who decided that it was not a Rousseau. Thune returned the painting to Hindman, Inc. within the agreed upon period. Explain whether the Kohlers would be successful in a lawsuit against either Hindman, Inc. or Thune.

Anticipatory Breach. The district court ruled that Hindman, Inc. and Thune were entitled to judgment on all of the Kohlers' claims against them. Indeed, all of the Kohlers' claims depend upon how the consignment agreement defined the scope of Hindman, Inc.'s authority as the Kohlers' agent. If Hindman, Inc. acted at all times within its authority, the Kohlers cannot prevail on any of their claims. The district court focused on Paragraph 14 of the consignment agreement, which authorized Hindman, Inc. to rescind a sale when the company, in its "sole discretion," determined that it or its consignor was subject to liability under a warranty of authenticity. The district court concluded that this grant of discretion allowed Hindman, Inc. to rescind a sale whenever it perceived the threat of such liability, notwithstanding the auction catalog's emphatic disclaimers. Hindman, Inc. had the power to rescind or to make a conditional promise to rescind in side agreements with prospective buyers. Ultimately, for lack of objective criteria, we must conclude that Hindman, Inc.'s exercise of its authority is bounded only by its satisfaction as limited, of course, by good faith. Under the side agreement, Hindman, Inc. maintained Thune's incentive to bid as if the painting were really a Rousseau; therefore it maximized the chances of a lucrative result for the auction. This was indeed an act of good faith, and it was made within the limits of Hindman, Inc.'s authority under the consignment agreement. The district court correctly ruled that Hindman, Inc. had not breached the consignment agreement.

By written contract Ames agreed to build a house on Bowen's lot for $165,000, commencing within ninety days of the date of the contract. Prior to the date for beginning construction, Ames informed Bowen that he was repudiating the contract and would not perform. Bowen refused to accept the repudiation and demanded fulfillment of the contract. Eighty days after the date of the contract, Bowen entered into a new contract with Curd for $162,000. The next day, without knowledge or notice of Bowen's contract with Curd, Ames began construction. Bowen ordered Ames from the premises and refused to allow him to continue. Will Ames be able to collect damages from Bowen? Explain.

Anticipatory Repudiation. Judgment for Bowen. Traditionally, if one party to an executory contract, before the time for performance arrives, absolutely and unequivocally renounces and repudiates the contract, the other party has a right to do one of two things. (1) He may accept the renunciation by words or conduct, and treat such announcement as a breach of the contract which absolves him from performance on his part and entitles him to sue for damages, or (2) he may refuse to accept such renunciation in advance of the breach, wait until the time fixed for performance arrives, and then demand fulfillment of the contract and sue if it be refused. If he chose the second of these alternatives he was not permitted to change his mind and assert that the contract was terminated at the time it was repudiated. The Restatement, however, alters this rule by providing that a retraction of a repudiation of a contract is effective provided "the retraction comes to the attention of the injured party before he materially changes his position in reliance on the repudiation . . ." Section 256. Accordingly, Bowen will prevail under this standard since he materially changed his position in that he hired Curd to construct the house.

Victor Packing Co. (Victor) contracted to supply Sun Maid Raisin Growers 1,800 tons of raisins from the current year's crop. After delivering 1,190 tons of raisins by August, Victor refused to supply any more. Although Victor had until the end of the crop season to ship the remaining 610 tons of raisins, Sun Maid treated Victor's repeated refusals to ship any more raisins as a repudiation of the contract. In order to prevent breaching its own contracts, Sun Maid went into the marketplace to "cover" and bought the raisins it needed. Unfortunately, between the time Victor refused delivery and Sun Maid entered the market, disastrous rains had caused the price of raisins to skyrocket. May Sun Maid recover from Victor the difference between the contract price and the market price before the end of the current crop year?

Anticipatory Repudiation. Sun Maid may bring suit immediately, and treat the anticipatory repudiation as if it were a breach. Sun Maid can protect itself by covering, and may recover from Victor the difference between the cost of cover (market price) and the contract price, plus incidental and consequential damages, less expenses saved due to the breach. Alternatively, Sun Maid could wait until the time for performance passes, and the anticipatory repudiation becomes in fact a breach, and then sue for damages. However, Sun Maid would then not be entitled to consequential damages it could have prevented by effectuating cover. See text under Remedies of the Buyer-Cover. Sun Maid Raisin Growers v. Victor Packing Co., 146 Cal.App.3d 787, 194 CalRptr. 612 (Cal.App. 5 Dist. 1983).

Walker & Co. contracted to provide a sign for Harrison to place above his dry cleaning business. According to the contract, Harrison would lease the sign from Walker, making monthly payments for thirty-six months. In return, Walker agreed to maintain and service the sign at its own expense. Walker installed the sign in July, and Harrison made the first rental payment. Shortly thereafter, someone hit the sign with a tomato. Harrison also claims he discovered rust on its chrome and little spiderwebs in its corners. Harrison repeatedly called Walker for the maintenance work promised under the contract, but Walker did not respond. Harrison then telegraphed Walker that due to Walker's failure to perform the maintenance services, he held Walker in material breach of the contract. A week later, Walker sent out a crew, which did all of the requested maintenance services. Harrison sued Walker for breach of contract. Explain whether Harrison will prevail.

Anticipatory Repudiation. Sun Maid may bring suit immediately, and treat the anticipatory repudiation as if it were a breach. Sun Maid can protect itself by covering, and may recover from Victor the difference between the cost of cover (market price) and the contract price, plus incidental and consequential damages, less expenses saved due to the breach. Alternatively, Sun Maid could wait until the time for performance passes, and the anticipatory repudiation becomes in fact a breach, and then sue for damages. However, Sun Maid would then not be entitled to consequential damages it could have prevented by effectuating cover. See text under Remedies of the Buyer-Cover. Sun Maid Raisin Growers v. Victor Packing Co., 146 Cal.App.3d 787, 194 CalRptr. 612 (Cal.App. 5 Dist. 1983).

Murphy, while a guest at a motel operated by the Betsy-Len Motor Hotel Corporation, sustained injuries from a fall allegedly caused by negligence in maintaining the premises. At that time, Betsy-Len was under a license agreement with Holiday Inns, Inc. The license contained provisions permitting Holiday Inns to regulate the architectural style of the buildings as well as the type and style of the furnishings and equipment. The contract, however, did not grant Holiday Inns the power to control the day-to-day operations of Betsy-Len's motel, to fix customer rates, or to demand a share of the profits. Betsy-Len could hire and fire its employees, determine wages and working conditions, supervise the employee work routine, and discipline its employees. In return, Betsy-Len used the trade name, "Holiday Inns," and paid a fee for use of the license and Holiday Inns' national advertising. Murphy sued Holiday Inns, claiming Betsy-Len was its agent. Is Murphy correct?

Creation of Agency. Decision for Holiday Inns. At issue is whether the terms of the license agreement satisfied the control best in establishing a principal-agent relationship. Held that the regulatory provisions, which included regulations on the architectural style of the buildings and the type and style of furnishings and equipment, did not give the defendant control over the day-to-day operations of Betsy-Len's motel and, therefore, did not constitute control within the definition of agency. Murphy v. Holiday Inns, Inc., 219 S.E.2d 874 (Virg. 1975).

Brian Hanson sustained a paralyzing injury while playing in a lacrosse match between Ohio State University and Ashland University. Hanson had interceded in a fight between one of his teammates and an Ashland player, William Kynast. Hanson grabbed Kynast in a bear hug, but Kynast threw Hanson off his back. Hanson's head struck the ground, resulting in serious injuries. An ambulance was summoned, and after several delays Hanson was transported to a local hospital where he underwent surgery. Doctors determined that Hanson suffered a compression fracture of his sixth spinal vertebrae. Hanson, now an incomplete quadriplegic, subsequently filed suit against William Kynast and Ashland University, maintaining that because Kynast was acting as the agent of Ashland, the university was therefore liable for Kynast's alleged wrongful acts under the doctrine of respondeat superior. Is Hanson correct?

Creation of Agency. Judgment for Ashland. The relationship of principal and agent exists only when one party exercises the right of control over the actions of another and those actions are directed toward the attainment of an objective which the former seeks. Here, however, Kynast and Ashland have a relationship typical of most students attending a university. A university such as Ashland offers classroom instruction in a great variety of subjects, as well as optional participation in events such as school clubs and sports. These offerings are designed to expand and enrich the overall educational experience. The student pays a fee and agrees to abide by the university's rules. In exchange, the university pro-vides the student with a worthwhile education. This relationship does not constitute a principal-agent relationship. The student is a buyer of education rather than an agent. While the degree of control necessary to establish agency has not been clearly defined, it is evident that there is no agency relationship between Kynast and Ashland. A student who attends a university of his choice, receives no scholarship or compensation, voluntarily becomes a member of the university's lacrosse team for which games no attendance fee is charged, who purchases his own equipment and who receives instruction from a coach while preparing and playing such games but is not otherwise controlled by the coach, and who participates in the game as a part of his total educational experience while attending school is not the agent of the university at the time he is playing the game of lacrosse. Ashland is therefore not liable to Hanson under the doctrine of respondeat superior.

L. D. Robertson bought a pickup truck from King and Julian, doing business as the Julian Pontiac Company. Robertson, at the time of purchase, was seventeen years old, living at home with his parents, and driving his father's truck around the county to different construction jobs. According to the sales contract, he traded in a passenger car for the truck and was given $723 credit toward the truck's $1,743 purchase price, agreeing to pay the remainder in monthly installments. After he paid the first month's installment, the truck caught fire and was rendered useless. The insurance agent, upon finding that Robertson was a minor, refused to deal with him. Consequently, Robertson sued to exercise his right as a minor to rescind the contract and to recover the purchase price he had already paid ($723 credit for the car plus the one month's installment). The defendants argue that Robertson, even as a minor, cannot rescind the contract since it was for a necessary item. Are they correct?

Disaffirmance by a Minor/Necessary Items. Judgment for Robertson. A minor may rescind a contract to purchase where the property involved is not a necessary. There was no evidence that Robertson, who lived at home with his parents, needed the truck in connection with any work he was doing. Since the defendant failed to prove that the truck was a necessary item, Robertson, as a minor, may rescind. Upon avoidance of the contract Robertson was then entitled to recover the car traded in on payment for the truck, but the defendants had already disposed of it. Robertson was therefore entitled to receive the actual value of the traded-in car. Nevertheless, the actual value of a trade-in may be less than the value stated in the contract. Neither party is bound by the contract value. Thus, Robertson is entitled to recover the reasonable market value of the car at the time of purchase ($250), rather than the value stated in the contract ($723). Robertson v. King, 225 Ark. 276, 280 S.W.2d 402 (1955).

Halbman, a minor, purchased a used Oldsmobile from Lemke for $1,250. Under the terms of the contract, Halbman would pay $1,000 down and the balance in $25 weekly installments. Upon making the down payment, Halbman received possession of the car, but Lemke retained the title until the balance was paid. After Halbman had made his first four payments, a connecting rod in the car's engine broke. Lemke denied responsibility, but offered to help Halbman repair it if Halbman would provide the parts. Halbman, however, placed the car in a garage where the repairs cost $637.40. Halbman never paid the repair bill Hoping to avoid any liability for the vehicle, Lemke transferred title to Halbman even though Halbman never paid the balance owed. Halbman returned the title with a letter disaffirming the contract and demanded return of the money paid. Lemke refused. Since the repair bill remained unpaid, the garage removed the car's engine and transmission and towed the body to Halbman's father's house. Vandalism during the period of storage rendered the car unsalvageable. Several times Halbman requested Lemke to remove the car. Lemke refused. Halbman sued Lemke for the return of his consideration, and Lemke countersued for the amount still owed on the contract. Decision?

Disaffirmance. Judgment for Halbman. Halbman, as a minor, had an absolute right to disaffirm the contract for the purchase of the car, since it is not a necessary item. He is also entitled to recover all consideration he has conferred incident to the transaction. As a disaffirming minor, he is under an enforceable duty to return only that much of the consideration as remained in his possession; he need not make restitution for that which he does not possess. If there was a misrepresentation by Halbman or willful destruction of the car, Lemke could have recovered damages in tort. Otherwise, to require a disaffirming minor to make restitution for diminished value is to bind the minor to a part of the obligation that by law he is privileged to avoid. Halbman v. Lemke, 298 N.W.2d 562 (Wisc. 1980).

Hunter Farms contracted with Petrolia Grain & Feed Company, a Canadian company, to purchase a large supply of the farm herbicide Sencor from Petrolia for resale. Petrolia learned from the U.S. Customs Service that the import duty for the Sencor would be 5 percent but that the final rate could be determined only upon an inspection of the Sencor at the time of importation. Petrolia forwarded this information to Hunter. Meanwhile, Hunter employed F. W. Myers & Company, an import broker, to assist in moving the herbicide through customs. When customs later determined that certain chemicals in the herbicide, not listed on its label, would increase the customs duty from $30,000 to $128,000, Myers paid the additional amount under protest and turned to Hunter for indemnification. Hunter refused to pay Myers, claiming that Myers breached its duty of care as an import broker in failing to inform Hunter that the 5 percent duty rate was subject to increase. Myers brought an action against Hunter, arguing that it was not employed to give advice to Hunter on matters of importation. Explain whether Myers had the duty to inform Hunter.

Duty of Diligence/Duty to Inform. Judgment affirmed. An agent must exercise such skill as is necessary to accomplish the objective of the agency relationship. This must be accomplished using reasonable care and skill measured according to the standard for the locality in which the work is performed. There was no evidence presented that importers bear a special duty to advise the importer unless requested to do so. They essentially draft papers to facilitate the process. Finally, Myers had no information regarding the criticality of the increased duty and had no duty of disclosure to Hunter.

Wilson engages Ruth to sell Wilson's antique walnut chest to Harold for $2,500. The next day, Ruth learns that Sandy is willing to pay $3,000 for Wilson's chest. Ruth nevertheless sells the chest to Harold. Wilson then discovers these facts. What are Wilson's rights, if any, against Ruth?

Duty to Inform. An agent is liable for any loss resulting from failure to give the principal information that is relevant to the authorized activity and that the principal would desire to have. Restatement, Section 381. However, if Ruth has reason to believe that Wilson desired only to sell the chest to Harold at the agreed upon price, then she fulfilled the terms of the agency. The problem may be interpreted either way.

Alice was Peter's traveling salesperson and was also authorized to collect accounts. Before the agreed termination of the agency, Peter wrongfully discharged Alice. Alice then called on Tom, an old customer, and collected an account from Tom. She also called on Laura, a new prospect, as Peter's agent, secured a large order, collected the price of the order, sent the order to Peter, and disappeared with the collections. Peter delivered the goods to Laura per the order. (a) What result if Peter sues Tom for his account? (b) What result if Peter sues Laura for the agreed price of the goods?

Effect of Termination of Agency Upon Authority. (a) Decision for Tom. Peter wrongfully terminated the agency. In such cases, the principal, in order to protect himself against possible future liability for the acts of his former agent, must give notice to third persons of the termination of the agency. Where, as here, a third person, Tom, has previously dealt on credit with Peter through his agent, Alice, Peter must give him actual notice. Since Tom did not receive notice from Peter, either oral or written, he had no reason to suspect that the agency relationship between Peter and Alice had been terminated and was justified in paying his account to Alice. (b) Decision in favor of Laura. Although the authority of Alice to collect had been terminated before Alice dealt with Laura, and Laura had not been a customer of Peter prior to such termination, if Laura knew of the agency while it was in force Alice had continuing apparent authority until Laura received constructive notice of the termination of the agency relationship. Since Peter did not publish such notice in a newspaper of general circulation in the place where the agency is conducted, Peter is bound by Alice's acts. If Laura had not known of the agency, then Alice was without apparent authority, but Peter's acceptance of the order and shipment of goods was a ratification of Alice's unauthorized act.

Bettye Gregg offered to purchase a house from Head & Seeman, Inc. (seller). Though she represented in writing that she had between $15,000 and $20,000 in equity in another home that she would pay to the seller after she sold the other home, she knew that she did not have such equity. In reliance upon these intentionally fraudulent representations, the seller accepted Gregg's offer and the parties entered into a land contract. After taking occupancy, Gregg failed to make any of the contract payments. The seller's investigations then revealed the fraud. Head & Seeman then brought suit seeking rescission of the contract, return of the real estate, and restitution. Restitution was sought for the rental value for the five months of lost use of the property and the seller's out-of-pocket expenses made in reliance upon the bargain. Gregg contends that under the election of remedies doctrine, the seller cannot both rescind the contract and recover damages for its breach. Is Gregg correct? Explain.

Election of Remedies. No. The election of remedies doctrine bars a plaintiff from maintaining inconsistent theories or forms of relief. Its purpose is to prevent a double recovery for the same wrong. Under the doctrine, a defrauded party must choose either (1) to rescind, or (2) to affirm the contract and seek damages. This rule applies where the defrauded party is seeking benefit-of-the-bargain damages. It does not, however, prevent a defrauded party from rescinding and recovering "restorative" damages that put the defrauded party back in his position prior to the making of the contract. Rescission and restitutionary (restorative) damages are consistent remedies, not subject to election of remedies doctrine. Here, the restoration of the rental value and out-of-pocket expenses works consistently with rescission of the contract to restore Head & Seeman to its precontract position. There is no possibility of the corporation obtaining an inconsistent or double recovery. The election of remedies does not apply.

Parker, the owner of certain unimproved real estate in Chicago, employed Adams, a real estate agent, to sell the property for a price of $25,000 or more and agreed to pay Adams a commission of 6 percent for making a sale. Adams negotiated with Turner, who was interested in the property and willing to pay as much as $28,000 for it. Adams made an agreement with Turner that if Adams could obtain Parker's signature to a contract to sell the property to Turner for $25,000, Turner would pay Adams a bonus of $1,000. Adams prepared and Parker and Turner signed a contract for the sale of the property to Turner for $25,000. Turner refuses to pay Adams the $1,000 as promised. Parker refuses to pay Adams the 6 percent commission. In an action by Adams against Parker and Turner, what judgment?

Fiduciary Duty. Decision against Adams. Adams owes an overriding duty of loyalty and good faith to Parker, his principal. The problem presents a flagrant violation of Adams's duty in this regard when he agreed with Turner to attempt to obtain Parker's signature to a contract to sell the property to Turner for $25,000 when Turner was willing to pay $28,000 for it. Even though authorized to sell the property for $25,000 he was under a duty to obtain a higher price if possible or at least inform the principal of Turner's willingness to pay a higher price. Adams's agreement with Turner, for all practical purposes, made him the agent of Turner as well as of Parker. A disloyal agent cannot recover compensation from either party. If permitted to recover the $1,000 from Turner, he would be under the duty of a fiduciary to account for the full $1,000 to Parker. A principal is entitled to recover secret profits from a disloyal agent.

Perry employed Alice to sell a parcel of real estate at a fixed price without knowledge that David had previously employed Alice to purchase the same property for him. Perry gave Alice no discretion as to price or terms, and Alice entered into a contract of sale with David upon the exact terms authorized by Perry. After accepting a partial payment, Perry discovered that Alice was employed by David and brought an action to rescind. David resisted on the ground that Perry had suffered no damage for the reason that Alice had been given no discretion and the sale was made upon the exact basis authorized by Perry. Discuss whether Perry will prevail.

Fiduciary Duty. Decision in favor of Perry. Although Alice had no discretion as to price or terms with respect to the sale of Perry's real estate she was representing two principals; she was a dual agent. In such cases, the interests of one of the principals are likely to suffer, particularly where, as in the problem, the agent represents both the buyer and the seller. Therefore, Alice has breached her fiduciary to both Perry and David. Upon discovery of the double or dual agency either of the principals may repudiate the contract made in their behalf by the common agent. If the contract has been performed, either party may have the transaction set aside. The agent is not entitled to compensation from either party. It appears that neither Perry nor David knew of the double agency. If one of the principals did not know that Alice was also the agent of the other party to the contract he has the absolute right to rescind the transaction upon learning the truth. It is not necessary for the principal to show any injury or intent to deceive.

A-1 Roofing Co. entered into a written contract with Jaffe to put a new roof on the latter's residence for $1,800, using a specified type of roofing, and to complete the job without unreasonable delay. A-1 undertook the work within a week thereafter, but when all the roofing material was at the site and the labor 50 percent completed, the premises were totally destroyed by fire caused by lightning. A-1 submitted a bill to Jaffe for $1,200 for materials furnished and labor performed up to the time of the destruction of the premises. Jaffe refused to pay the bill, and A-1 now seeks payment from Jaffe. Should A-1 prevail? Explain.

Impossibility. Decision for A-1 Roofing Co. As a general rule, and in the absence of a provision to the contrary in the contract, if the act to be performed is necessarily dependent upon the continued existence of a specific thing, its destruction before the time of performance, without the fault of the promisor, will excuse nonperformance of the contract, unless such destruction could have been reasonably anticipated. The rule is based on an implied condition of the continued existence of a particular thing. However, the out-of-pocket expenses present a question as to whether restitution is appropriate. In the United States, courts have generally taken the view that when a contract is discharged by impossibility or frustration the parties must make restitution for the benefits conferred upon them. Sometimes, the concept of "benefit" is stretched to include expenses incurred in preparation for performance. There is increasing recognition that restitution, when employed to unwind a contract that cannot be performed, is concerned with equitable readjustment of the gains and losses sustained by the parties and not merely the redressing of unjust enrichment.

The Perfection Produce Company entered into a written contract with Hiram Hodges for the purchase of 300 tons of potatoes to be grown on Hodge's farm in Maine at a stipulated price per ton. Although the land would ordinarily produce 1,000 tons and the planting and cultivation were properly done, Hodges was able to deliver only 100 tons because of a partial crop failure owing to an unprecedented drought. Hodges sued the produce company to recover an unpaid balance of the agreed price for 100 tons of potatoes. The produce company counterclaimed against Hodges for his failure to deliver the additional 200 tons. Who will prevail? Why?

Impossibility. Decision in favor of Hodges upon his claim for the unpaid balance and, also, for Hodges upon the counterclaim of the Perfection Produce Company. Impossibility of performance may arise from physical causes and excuses performance and discharges both parties from their contractual duties. The impossibility is objective because only potatoes grown upon a particular farm may be delivered under the contract. The failure of the crop to produce more than 100 tons of potatoes absolved Hodges from liability for his failure to deliver to the Perfection Produce Company any additional potatoes and Hodges is, therefore, entitled to the damages claimed by it. Section 265 of the Restatement, Second, Contracts, pertinently provides Where, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.

G.A.S. married his wife, S.I.S., on January 19, 1997. He began to suffer mental health problems in 2003, during which year he was hospitalized at the Delaware State Hospital for eight weeks. Similar illnesses occurred in 2005 and the early part of 2007, with G.A.S. suffering from such symptoms as paranoia and loss of a sense of reality. In early 2008, G.A.S. was still committed to the Delaware State Hospital, attending a regular job during the day and returning to the hospital at night. During this time, he entered into a separation agreement prepared by his wife's attorney. G.A.S., however, never spoke with the attorney about the contents of the agreement; nor did he read it prior to signing. Moreover, G.A.S. was not independently represented by counsel when he executed this agreement. Can G.A.S. disaffirm the separation agreement? Explain.

Incapacity. Yes he may disaffirm it. Only competent persons can make a contract, and where there is no capacity to understand, there is no contract. Although petitioner was still under commitment to Delaware State Hospital at the time of the separation agreement, he had not been judicially adjudicated mentally incompetent, and therefore the agreement is not void but may be voidable. The mental incapacity sufficient to permit the cancellation of an agreement must render the individual incapable of understanding the nature and effect of the transaction, and unable to properly, intelligently and fairly protect and preserve his property rights. The domestic relations court held that even if the mental weakness of the petitioner in this case did not rise to the level of contractual incapacity, such weakness is a circumstance that operates to make the separation agreement voidable when coupled with the evidence of lack of independent counsel, undue influence, drug ingestion and unfairness in the transaction that is present in this case. GAS v. SIS, 407 A.2d 253 (Del. 1978).

Haydocy Pontiac sold Jennifer Lee an automobile for $11,552, of which $10,402 was financed with a note and security agreement. At the time of the sale Lee, age twenty, represented to Haydocy that she was twenty-one years old, the age of majority, and capable of contracting. After receiving the car, Lee allowed John Roberts to take possession of it. Roberts took the car and has not returned. Lee has failed to make any further payments on the car. Haydocy has sued to recover on the note, but Lee disaffirms the contract, claiming that she was too young to enter into a valid contract. Can Haydocy recover the money from Lee? Explain.

Infancy. Judgment for Haydocy for the value of the automobile not to exceed its contract price. Although the law allows infants the privilege of disaffirming contracts which operate to their detriment, an infant is estopped from using this defense when the other party has contracted in good faith and it is the infant who induces the contract through false representation. The infant in such cases may not disaffirm the contract without returning the consideration to the other party. Haydocy Pontiac, Inc. v. Lee, 19 Ohio App.2d 217, 250 N.E. 2d 898 (1969).

Carol White ordered a $225 pair of contact lenses through an optometrist. White, an emancipated minor, paid $100 by check and agreed to pay the remaining $125 at a later time. The doctor ordered the lenses, incurring a debt of $110. After the lenses were ordered, White called to cancel her order and stopped payment on the $100 check. The lenses could be used by no one but White. The doctor sued White for the value of the lenses. Will the doctor be able to recover the money from White? Explain.

Infancy. Judgment for doctor in the amount of $150 (amount considered reasonable by the court). The contact lenses are considered necessaries and are of no value to anyone except White. Due to the nature of the goods, the doctor cannot be compensated for his loss except by payment of a reasonable amount. An infant may be held liable for the fair value of necessaries despite a contract to pay more. Cidis v. White, 71 Misc. 2d 481, 336 N.Y.S.2d 362 (1972).

Stuart contracts to act in a comedy for Charlotte and to comply with all theater regulations for four seasons. Charlotte promises to pay Stuart $1,800 for each performance and to allow Stuart one benefit performance each season. It is expressly agreed "Stuart shall not be employed in any other production for the period of the contract." During the first year of the contract, Stuart and Charlotte have a terrible quarrel. Thereafter, Stuart signs a contract to perform in Elaine's production and ceases performing for Charlotte. Charlotte seeks (a) to prevent Stuart from performing for Elaine, and (b) to require Stuart to perform his contract with Charlotte. What result?

Injunctions. (a) Injunction against Stuart's performing for Elaine would probably be granted if Elaine is a competitor of Charlotte and if Stuart's services are unique or extraordinary. Restatement, Second, Contracts, Section 367, Comment C. (b) Specific Performance, Page 318. Specific performance will not be granted. Restatement, Second, Contracts, Section 367 provides that "a promise to render personal services will not be specifically enforced." Otherwise, this would allow for involuntary servitude.

In a contract drawn up by Booke Company, it agreed to sell and Yermack Contracting Company agreed to buy wood shingles at $6.50. After the shingles were delivered and used, Booke Company billed Yermack Company at $6.50 per bunch of 900 shingles. Yermack Company refused to pay because it thought the contract meant $6.50 per thousand shingles. Booke Company brought action to recover on the basis of $6.50 per bunch. The evidence showed that there was no applicable custom or usage in the trade and that each party held its belief in good faith. Decision?

Interpretation of Contracts. Decision for Yermack Contracting Company. In the absence of an applicable custom or trade usage, the contract is ambiguous. As it was written by the seller, Booke Company, under ordinary rules of construction, it would be construed most strongly against Booke Company as the party drafting it. Booke Company in good faith believed that the price of the wood shingles was $6.50 per bunch of 900 shingles, whereas Yermack Contracting Company in good faith believed that each bunch contained 1,000 shingles. As the contract did not define the number of shingles to be contained in each bunch, Booke Company would not be able to recover at the rate of $6.50 per bunch of 900 shingles. Yermack Contracting Company is unable to establish any basis for its contention that each bunch should contain 1,000 shingles. It appears, therefore, that the parties never reached an agreement on the price. However, they did intend to make a contract, and the shingles were actually delivered to and used by the buyer. Consequently, Yermack Contracting Company is under a duty to pay the Booke Company a reasonable price for the shingles which it received. U.C.C. Section 2-305.

Daniel, while under the influence of alcohol, agreed to sell his 2000 automobile to Belinda for $8,000. The next morning, when Belinda went to Daniel's house with the $8,000 in cash, Daniel stated that he did not remember the transaction but that "a deal is a deal." One week after completing the sale, Daniel decides that he wishes to avoid the contract. What result?

Intoxicated Persons. Judgment for Belinda. Even if Daniel at the time of entering into the agreement had been unable to comprehend the nature and effect of the transaction because of intoxication, Daniel affirmed the contract the next morning and is thereby precluded from avoiding the contract.

Williamson, her mortgage in default, was threatened with foreclosure on her home. She decided to sell the house. The Matthewses learned of this and contacted her about the matter. Williamson claims that she offered to sell her equity for $17,000 and that the Matthewses agreed to pay off the mortgage. The Matthewses contend that the asking price was $1,700. On September 27, the parties signed a contract of sale, which stated the purchase price to be $1,800 (an increase of $100 to account for furniture in the house) plus the unpaid balance of the mortgage. The parties met again on October 10 to sign the deed. Later that day, Williamson, concerned that she had not received her full $17,000 consideration, contacted an attorney. Can Williamson set aside the sale based upon inadequate consideration and mental weakness due to intoxication?

Intoxicated Persons. The drunkenness of a party at the time of making a contract may render the contract voidable, but it does not render it void; and to render the contract voidable, it must be made to appear that the party was intoxicated to such a degree that he was, at the time of the contracting, incapable of exercising judgment, understanding the proposed engagement, and of knowing what he was about when he entered into the contract sought to be avoided. Proof merely that the party was drunk on the day the sale was executed does not per se, show that he was without contractual capacity; there must be some evidence of a resultant condition indicative of that extreme impairment of the faculties which amount to contractual incapacity. However, numerous factors combine to warrant the conclusion that the plaintiff was operating under diminished capacity. Testimony showed that Williamson's capacity to transact business was impaired, that she had a history of drinking, that she had been drinking the day she conducted negotiations, and that she had an apparent weakened will because she was pressured by the possibility of an impending foreclosure. Moreover, Williamson made complaint to an attorney only hours after the transaction. These factors are combined with a gross inadequacy of consideration. Williamson v. Matthews, 379 So.2d 1245 (Ala. 1980).

On March 1, Lucas called Craig on the telephone and offered to pay him $190,000 for a house and lot that Craig owned. Craig accepted the offer immediately on the telephone. Later in the same day, Lucas told Annabelle that if she would marry him, he would convey to her the property he then owned which was the subject of the earlier agreement. On March 2, Lucas called Penelope and offered her $25,000 if she would work for him for the year commencing March 15, and she agreed. Lucas and Annabelle were married on June 25. By this time, Craig had refused to convey the house to Lucas. Thereafter, Lucas renounced his promise to convey the property to Annabelle. Penelope, who had been working for Lucas, was discharged without cause on July 5; Annabelle left Lucas and instituted divorce proceedings in July 1984. What rights, if any, have (a) Lucas against Craig for his failure to convey the property; (b) Annabelle against Lucas for failure to convey the house to her; (c) Penelope against Lucas for discharging her before the end of the agreed term of employment?

Land Contract Provision. (a) Lucas has no rights against Craig for his failure to convey the property. To be enforceable, a contract for the sale of land must be in writing. (b) Annabelle has no rights against Lucas for failure to convey the property to her. No action shall be brought upon a promise or contract in consideration of marriage unless there is a written contract or a memorandum of the agreement signed by the party to be charged. There is no writing here. Marriage does not take the case out to statute of frauds.

Rose, a minor, bought a new Buick Riviera from Sheehan Buick. Seven months later, while still a minor, he attempted to disaffirm the purchase. Sheehan Buick refused to accept the return of the car or to refund the purchase price. Rose, at the time of the purchase, gave all the appearance of being of legal age. The car had been used by him to carry on his school, business, and social activities. Can Rose successfully disaffirm the contract?

Liability for Necessaries. Decision for Sheehan Buick. The car is a necessary item for Rose to carry out his schooling, business and other activities. Therefore, he cannot avoid the obligation. Rose v. Sheehan Buick, Inc., 204 So.2d 903 (1967).

(a) On March 20, Andy Small became seventeen years old, but he appeared to be at least twenty-one. On April 1, he moved into a rooming house in Chicago where he orally agreed to pay $300 a month for room and board, payable at the end of each month. (b) On April 4, he went to Honest Hal's Carfeteria and signed a contract to buy a used car on credit with a small down payment. He made no representation as to his age, but Honest Hal represented the car to be in A-1 condition, which it turned out not to be. (c) On April 7, Andy sold and conveyed to Adam Smith a parcel of real estate that he owned. On April 30, he refused to pay his landlady for his room and board for the month of April; he returned the car to Honest Hal and demanded a refund of his down payment; and he demanded that Adam Smith reconvey the land although the purchase price, which Andy received in cash, had been spent in riotous living. Decisions as to each claim?

Liability for Necessaries. (a) Even where a minor is liable for necessaries he is not liable at the contract rate but only for the reasonable value. Here, Andy is liable for the reasonable value of the room and board for April. (b) Liability for Misrepresentation of Age. Andy did not misrepresent his age. He may disaffirm the contract and, upon returning the car to Honest Hal, since he still has it, he will be entitled to a refund of his down payment, and will not be liable for the balance of the purchase price. Hal may be charged with fraudulent inducement if he had knowledge of the car's poor condition. (c) Disaffirmance. Where a minor sells real property he may not disaffirm the transaction until his majority. Upon reaching majority and within a reasonable time thereafter he may disaffirm the sale. A minor need only return the consideration received, under the majority rule, if he still has it in his possession at the time of disaffirmance.

On May 7, Roy, a minor, a resident of Smithton, purchased an automobile from Royal Motors, Inc., for $12,750 in cash. On the same day, he bought a motor scooter from Marks, also a minor, for $750 and paid him in full. On June 5, two days before attaining his majority, Roy disaffirmed the contracts and offered to return the car and the motor scooter to the respective sellers. Royal Motors and Marks each refused the offers. On June 16, Roy brought separate appropriate actions against Royal Motors and Marks to recover the purchase price of the car and the motor scooter. By agreement on July 30, Royal Motors accepted the automobile. Royal then filed a counterclaim against Roy for the reasonable rental value of the car between June 5 and July 30. The car was not damaged during this period. Royal knew that Roy lived twenty-five miles from his place of employment in Smithton and that he would probably drive the car, as he did, to provide himself transportation. Decision as to (a) Roy's action against Royal Motors, Inc., and its counterclaim against Roy; (b) Roy's action against Marks?

Liability for Necessaries. (a) Roy, a minor, had the right to disaffirm the contract for the purchase of the automobile, if it is a non-necessary. On the other hand, if the car is considered a necessary, as in Rose v. Shehan Buick, Roy would either be liable for the reasonable value of the automobile or if allowed to disaffirm for the reasonable value of use and depreciation of the automobile. Here, since Royal accepted the return of the automobile it may have forfeited its right to the former: the reasonable value of the automobile. (b) Disaffirmance. Decision for Roy and against Marks for the return of the purchase price of the motor scooter. The general rule that the contracts of a minor are voidable at his option applies to an executed contract between two minors. To hold the rule inapplicable, the court, in Hurwitz v. Barr, D.C. App., 193 A.2d 360 said: "would convert the privilege of infancy, which the law intends as a shield, to protect the minor, into a sword to be used to the possible injury of others." While Marks as a minor has the option of disaffirming the contract, this option cannot nullify any rights or privileges which Roy, also, a minor, is capable of asserting. Accordingly, Marks cannot destroy Roy's right to rescind, and the contract was therefore voidable by Roy.

California and Hawaiian Sugar Company (C and H) is an agricultural cooperative in the business of growing sugarcane in Hawaii and transporting the raw sugar to its refinery in California for processing. Because of the seasonal nature of the sugarcane crop, availability of ships to transport the raw sugar immediately after harvest is imperative. C and H lost the services of the shipping company it previously used, C and H decided to build its own ship, a Macababoo, which had two components, a tug and a barge. C and H contracted with Halter Marine to build the tug and with Sun Ship to build the barge. In finalizing the contract for construction of the barge, both C and H and Sun Ship were represented by senior management and by legal counsel. The resulting contract called for a liquidated damages payment of $17,000 per day that delivery of the completed barge was delayed. Delivery of both the barge and the tug were significantly delayed. Sun Ship paid the $17,000 per day liquidated damages amount and then sued to recover it, claiming that without the liquidated damages provision, C and H's legal remedy for money damages would have been significantly less than that paid by Sun Ship pursuant to the liquidated damages provision. Decision?

Liquidated Damages. The Court of Appeals affirmed. The liquidated damages provision was valid even though Halter had also failed to deliver the tug on time. Although the actual damages sustained ($368,000) were less than the liquidated damages ($4,403,000), C and H introduced evidence of consequential damages from loss of charter revenues, which it alleged amounted to $3,732,000. These losses influenced the parties' agreement on the amount of liquidated damages. The Code provides that liquidated damages are considered reasonable in light of the anticipated or actual harm. Moreover, exact damages to C and H were impossible to calculate at the inception of the contract, and the liquidated damages provision had been adopted by the parties after an arms-length negotiation in which they were all represented by sophisticated representatives. California and Hawaiian Sugar Company v. Sun Ship, Inc.

Watson agreed to buy Ingram's house for $355,000. The contract provided that Watson deposit $15,000 as earnest money and that "in the event of default by the Buyer, earnest money shall be forfeited to Seller as liquidated damages, unless Seller elects to seek actual damages or specific performance." The contract also stipulated that the "Buyer represents that Buyer has sufficient funds available to close this sale in accordance with this agreement, and is not relying on any contingent source of funds unless otherwise set forth in this agreement." In fact, Watson did not have sufficient funds available but planned to assume Ingram's mortgage on the house. When this arrangement did not materialize, Watson sought to modify the terms of sale to defer payment in exchange for giving Ingram a lien on certain real estate owned by Watson. Ingram rejected this modification and stated that he intended to strictly enforce the original terms. Watson secured other, contingent financing, but Ingram refused to grant Watson an extension, and the sale to Watson was not completed. Finally, nine months after the Watson sale was to occur, Ingram sold the house to a third party for $355,000. Is Ingram entitled to Watson's $15,000 earnest money as liquidated damages?

Liquidated Damages. Yes. The trial court found that the earnest money "was clearly intended by both parties to be non-refundable" if Watson defaulted and determined that $15,000 was a reasonable forecast by Ingram and Watson of damages that would be incurred if Watson failed to complete the purchase. Liquidated damages clauses are upheld if the amount fixed is a reasonable forecast of just compensation for the harm that is caused by the breach and the harm is such that it is incapable or very difficult of ascertainment.

Developers under a plan approved by the city of Rye had constructed six luxury cooperative apartment buildings and were to construct six more. In order to obtain certificates of occupancy for the six completed buildings, the developers were required to post a bond with the city to ensure completion of the remaining buildings. The developers posted a $100,000 bond upon which the defendant, Public Service Mutual Insurance Co., as guarantor or surety, agreed to pay $200 for each day after the contractual deadline, that the remaining buildings were not completed. Following the contractual deadline, more than 500 days passed without completion of the buildings. . Should the city prevail in its suit against the developers and the insurance company to recover $100,000 on the bond? Explain.

Liquidated Damages/Penalty Clause. Judgment for the insurance company. A contract may contain a liquidated damage provision, but the sum agreed upon must be a reasonable measure of the anticipated harm. The amount of the bond was not a reasonable estimate of probable monetary harm or damage to the city but rather was a penalty. The harm which the city contends it would suffer is minimal and speculative. Since the agreement to pay $200 a day was actually a penalty provision, the court will not enforce it. City of Rye v. Public Service Mutual Insurance Co., 34 N.Y.2d 470, 358 N.Y.S.2d 391, 315 N.E.2d 458 (1974).

Stuart Studio, an art studio, prepared a new catalog for the National School of Heavy Equipment, a school run by Gilbert and Donald Shaw. When the artwork was virtually finished, Gilbert Shaw requested Stuart Studio to purchase and supervise the printing of 25,000 catalogs. Shaw told the art studio that payment of the printing costs would be made within ten days after billing and that if the "National School would not pay the full total that he would stand good for the entire bill." Shaw was chairman of the board of directors of the school, and he owned 100 percent of its voting stock and 49 percent of its nonvoting stock. The school became bankrupt, and Stuart Studio was unable to recover the sum from the school. Stuart Studio then brought this action against Shaw on the basis of his promise to pay the bill. Is Shaw obligated to pay the debt in question? Explain.

Main Purpose Rule. Judgment for Stuart Studio. The statute of frauds requires promises to answer for the duties of another to be in writing to be enforceable. Where the promise is collateral and it appears that the promisor's main purpose in guaranteeing the obligation was to secure an advantage or economic benefit for himself, however, the promise is enforceable even though it was not in writing. The benefit accruing to a party merely by virtue of his position as a stockholder, officer, or director of a corporation alone is not such personal, immediate, and economic benefit as to invoke the main purpose rule. Rather, the court will examine the surety's position and ownership interest in the corporation to determine whether he has enough control of the corporation to benefit directly. Here, Gilbert Shaw exercised sufficient control over the National School to render his oral promise enforceable.

Ethel Greenberg acquired the ownership of the Carlyle Hotel on Miami Beach. Having had little experience in the hotel business, she asked Miller to participate in and counsel her operation of the hotel, which he did. He claims that because his efforts produced a substantial profit, Ethel made an oral agreement for the continuation of his services. Miller alleges that in return for his services, Ethel promised to marry him and to share the net income resulting from the operation of the hotel. Miller maintains that he rendered his services to Ethel in reliance upon her promises. The couple planned to wed in the fall of 1955, but Ethel, due to physical illness, decided not to marry. Miller sued for damages for Ethel's breach of their agreement. Is the oral contract enforceable? Discuss.

Marriage Provision. Judgment for Ethel Greenberg. Any oral promise or agreement made in consideration of marriage, other than a mutual promise to marry, is within the statute of frauds. If the marriage is not the real end or purpose of the agreement but a mere incident or condition, then the statute is not applicable. The statute applies in full force and effect when, despite other inducements, marriage is in whole or in part the real consideration for the agreement. In this case, the oral agreement was supported by two promises by Ethel-to marry and to share the net income of the hotel. Her promise of marriage was an essential element of the indivisible contract and cannot be removed without destroying the parties' intentions. Since the consideration of marriage was not merely incidental but was the real consideration for their agreement, the statute applies. Thus, their oral agreement is unenforceable. Miller v. Greenberg, 1958. 104 So.2d 457 (Fla. 1958).

Judy agreed in writing to work for Northern Enterprises, Inc. for three years as Superintendent of Northern's manufacturing establishment and to devote herself entirely to the business, giving it her whole time, attention, and skill, for which she was to receive $72,000 per annum, in monthly installments of $6,000. Judy worked and was paid for the first twelve months, when, through no fault of her own or Northern's, she was arrested and imprisoned for one month. It became imperative for Northern to employ another, and it treated the contract with Judy as breached and abandoned, refusing to permit Judy to resume work upon her release from jail. What rights, if any, does Judy have under the contract?

Material Breach. None. Judy's arrest and imprisonment constituted a substantial breach of the contract, which justified Northern Enterprises, Inc., the employer, in treating the contract as abandoned and in employing another person in her place. In order to recover on the contract without full performance upon the ground that his employer refused to allow her to serve out his time, she must allege and prove her ability, readiness and an offer to perform. This, Judy cannot do, and she cannot recover beyond the services actually rendered. The fact that Judy was unable to perform her part of the contract by reason of causes which she could neither foresee nor control does not aid Judy. Where neither party is at fault, the absence of the employee from her employment, irrespective of the cause, for an unreasonable length of time, will authorize the employer in treating the contract as abandoned. Here, the time was unreasonable. Restatement, Second, Sections 265, 267.

Ira, who in 2005 had been found innocent of a criminal offense because of insanity, was released from a hospital for the criminally insane during the summer of 2006 and since that time has been a reputable and well-respected citizen and businessperson. On February 1, 2007, Ira and Shirley entered into a contract in which Ira would sell his farm to Shirley for $100,000. Ira now seeks to void the contract. Shirley insists that Ira is fully competent and has no right to avoid the contract. Who will prevail? Why?

Mental Illness or Defect. Shirley should prevail. As Ira was not under guardianship, he would have to establish that he was unable to comprehend the subject of the contract, its nature and probable consequences in order to avoid the contract. The facts of this problem do not establish such a situation.

When Mr. McClam died, he left the family farm, heavily mortgaged, to his wife and children. In order to save the farm from foreclosure, Mrs. McClam planned to use insurance proceeds and her savings to pay off the debts. She was unwilling to do so, however, unless she had full ownership of the property. Mrs. McClam wrote her daughter, stating that the daughter should deed over her interest in the family farm to her mother and promising that all the children would inherit the farm equally upon their mother's death. The letter further explained that if foreclosure occurred, each child would receive very little, but if they complied with their mother's plan, each would eventually receive a valuable property interest upon her death. Finally, the letter stated that all the other children had agreed to this plan. Consequently, the daughter also agreed. Years later, Mrs. McClam tries to convey the farm to her son Donald. The daughter challenges, arguing that the mother is contractually bound to convey the land equally to all of the children. Donald says this was an oral agreement to sell land and is unenforceable. The daughter argues that the letter satisfies the statute of frauds, making the contract enforceable. Who gets the farm? Explain.

Methods of Compliance (Statute of Frauds). Judgment for the daughter, so all children share equally upon Mrs. McClam's death. The letter signed by Mrs. McClam, reasonably identifies the subject matter of the contract (here the family farm), sufficiently indicates the parties to the contract (here Mrs. McClam and all her children), and the essential terms of the contract can be ascertained with reasonable certainty. Smith v. McClam, 346 S.E.2d 720 (S.C. 1986).

Rogers was a nineteen-year-old (the age of majority then being twenty-one) high school graduate pursuing a civil engineering degree when he learned that his wife was expecting a child. As a result, he quit school and sought assistance from Gastonia Personnel Corporation in finding a job. Rogers signed a contract with the employment agency providing that he would pay the agency a service charge if it obtained suitable employment for him. The employment agency found him such a job, but Rogers refused to pay the service charge, asserting that he was a minor when he signed the contract. Gastonia sued to recover the agreed-upon service charge from Rogers. Should Rogers be liable under his contract? If so, for how much?

Minors: Necessaries. Yes. Judgment for Gastonia Personnel Corp. In general, a contract with a minor is voidable by the minor unless the contract is for necessaries. The law is based on the idea that society has a moral obligation to protect the interests of minors from overreaching adults. In its effort to protect "older minors" from improvident or unfair contract, however, the law should not deny them the opportunity and the right to obligate themselves for articles of property or services that are reasonably necessary to enable them to provide for the proper support of themselves and their dependents. Since the service provided by the employment agency in finding Rogers a suitable job qualifies as such a service, the contract is not voidable, and the agency can recover the charge.

On April 29, 2007 Kirsten Fletcher and John E. Marshall III jointly signed a lease to rent an apartment for the term beginning on July 1, 2007, and ending on June 30, 2008, for a monthly rent of $525 per month. At the time the lease was signed, Marshall was not yet eighteen years of age. Marshall turned eighteen on May 30, 2007. Two weeks later, the couple moved into the apartment. About two months later, Marshall moved out to attend college, but Fletcher remained. She paid the rent herself for the remaining ten months of the lease and then sought contribution for Marshall's share of the rent plus court costs in the amount of $2,500. Can Fletcher collect from Marshall?

Minors: Ratification. Yes. A contract of a minor is not void, but is voidable at the election of the minor. After attaining majority, a minor may either disaffirm or ratify a contract that he entered into while he was still a minor. Also, once a contract is ratified by the minor it cannot then be disaffirmed by subsequent conduct. Two weeks after becoming 18 years of age, Marshall moved into the apartment and paid rent. He lived in the apartment for about 1 1/2 months and never took any action to disaffirm the lease before moving out. Marshall's occupancy and payment of rent constitute unequivocal ratification of the lease. Because he had already ratified the lease, his later attempt to disaffirm it by moving out of the apartment and refusing to make further payments was of no effect. Accordingly, the trial court's judgment was against the manifest weight of the evidence. Marshall remained liable for the rent for the remainder of the lease term and is therefore liable to the Fletcher for the rent payments she made on his behalf.

Sharon contracted with Jane, a shirtmaker, for 1,000 shirts for men. Jane manufactured and delivered 500 shirts, which were paid for by Sharon. At the same time, Sharon notified Jane that she could not use or dispose of the other 500 shirts and directed Jane not to manufacture any more under the contract. Nevertheless, Jane proceeded to make up the other 500 shirts and tendered them to Sharon. Sharon refused to accept the shirts, and Jane then sued for the purchase price. Is she entitled t the purchase price? If not, is she entitled to any damages? Explain.

Mitigation of Damages. Jane may not recover the purchase price, but is entitled to recover such damages as she sustained not enhanced by her act in manufacturing the second lot of 500 shirts. When Sharon notified Jane that she could not use or dispose of the other 500 shirts and directed Jane to discontinue manufacturing them under the contract, Jane should have sought to minimize the damages. As said in the familiar case of Clark v. Marsiglia, 1 Denio, N.Y., 317, "the defendant, by requiring the plaintiff to stop work upon the paintings, violated his contract, and thereby incurred a liability to pay such damages as the plaintiff should sustain. Such damages would include a recompense for the labor done and materials used, and such further sum in damages as might, upon legal principles, be assessed for the breach of the contract; but the plaintiff had no right by obstinately persisting in the work, to make the penalty upon the defendant greater than it would otherwise have been." Accord: Restatement, Second, Contracts, Section 350. The UCC, Section 2-704 (2) provides: "Where the goods are unfinished an aggrieved seller may in the exercise of reasonable commercial judgment for the purposes of avoiding loss and of effective realization either complete the manufacture and wholly identify the goods to the contract or cease manufacture and resell for scrap or salvage value or proceed in any other reasonable manner." Comment 2 to this section states that "the seller is given express power to complete manufacture or procurement of goods for the contract unless the exercise of reasonable commercial judgment as to the facts as they appear at the time he learns of the breach makes it clear that such action will result in a material increase in damages. The burden is on the buyer to show the commercially unreasonable nature of the seller's action in completing manufacture.

El Dorado Tire Company fired Bill Ballard, a sales executive. Ballard had a five-year contract with El Dorado but was fired after only two years of employment. Ballard sued El Dorado for breach of contract. El Dorado claims that any damages due to breach of the contract should be mitigated because of Ballard's failure to seek other employment after he was fired. Explain whether El Dorado is correct in its contention.

Mitigation of Damages. Judgment for Ballard. The general rule is that an employee's damages for employer's breach of contract will be mitigated by the amount she would earn if she found similar employment immediately after termination. The burden of showing the availability of such employment, however, is of the breaching party. The defendant must raise the issue of mitigation and prove the availability of similar employment. El Dorado did not meet this burden. Ballard v. El Dorado Tire Co., 512 F.2d 901 (5th Cir. 1975).

Green was the owner of a large department store. On Wednesday, January 26, he talked to Smith and said, "I will hire you as sales manager in my store for one year at a salary of $28,000; you are to begin work next Monday." Smith accepted and started work on Monday, January 31. At the end of three months, Green discharged Smith. On May 15, Smith brings an action against Green to recover the unpaid portion of the $28,000 salary. Is Smith's employment contract enforceable?

One Year Provision. Decision in favor of Green. The oral contract of employment between Green and Smith was entered into on Wednesday, January 26, but Smith was not required to begin work until Monday, January 31, five days after the making of the contract. The agreement was thus not capable of performance within one year from the day on which it was made and is within the statute of frauds. The contract is, hence, not enforceable. Where a contract of service is for the term of a year beginning or which may begin on the day of the making of the contract, the statute of frauds is inapplicable. An oral contract for a year's services, as here, to begin more than one day after the contract is entered into is impossible of performance within one year from the date of making and is therefore unenforceable under the statute of frauds. Part performance of an oral contract not performable within a year does not take a contract out of the statute of frauds.

David and Nancy Songer planned to travel outside the United States and wanted to acquire medical insurance prior to departure. They spoke with an agent of Continental who requested that Nancy Songer undergo a medical examination based on a statement that she had a heart murmur. She promptly complied, and the Songers later met with the agent to complete the application. David Songer signed the application and tendered a check for the first six months' premium. The Songers also claim that the agent stated that a "binder" was in effect such that policy coverage was available immediately. The agent subsequently denied making this statement, relying, instead, on a clause in the contract that required home office acceptance. The Songers left the United States and sixty days later inquired as to the status of their application. At approximately the same time, Continental denied the application and sent a refund to the Songers. Nancy Songer was then severely injured in an automobile accident. When Continental refused to honor the policy, the Songers claimed that the oral representation constituted part of the contract due to the vagueness of the policy "acceptance" language. Is the evidence regarding the oral representations admissible?

Parol Evidence Rule. Judgment for Songer reversed and case remanded for retrial. The statements of the Continental agent could only have been considered to form a temporary contract with the Songers if such evidence did not violate the parol evidence rule. This rule states that "[i]n the absence of fraud or mistake, parol evidence is inadmissible to change, alter or vary the express terms in a written contract." The Songers correctly point out that parol evidence may be admitted to clarify documents that contain ambiguities or the potential for differing interpretations. In this case, however, the language in the insurance application is "too clear to admit of any doubt." The alleged representation by Continental's agent that the insurance would take effect immediately is clearly at odds with the express terms of the written contract, as provided in the application, that the insurance would take effect when the application was "accepted by the Company at its Home Office." Therefore, the parol evidence rule bars admission of the agent's statements. Continental Life and Acc. Co. v. Songer, 603 P.2d 921 (Ariz. 1979).

Butler Brothers Building Company sublet all of the work in a highway construction contract to Ganley Brothers, Inc. Soon thereafter, Ganley brought this action against Butler for fraud in the inducement of the contract. The contract, however, provided: "The contractor [Ganley] has examined the said contracts ..., knows all the requirements, and is not relying upon any statement made by the company in respect thereto." Can Ganley introduce into evidence the oral representations made by Butler?

Parol Evidence Rule/Evidence of Fraud in the Inducement. Decision for Ganley. Parol evidence is admissible to show that the making of the contract was procured by fraudulent representations. This does not vary the terms of the contract. It is merely to show the presence of fraud which permits an avoidance of the contract. The fact that the contract has been reduced to writing does not change the rule. The contract as written was induced by fraud. The law should not and does not permit a covenant of immunity to be drawn that will protect a person against his own fraud. No agreement of parties can preclude the defense that fraud in the inducement of the agreement renders the agreement voidable. Ganley Brothers, Inc. v. Butler Brothers Building Company, 170 Minn. 373, 212 N.W. 602 (1927).

Plaintiffs leased commercial space from the defendant to open a florist shop. After the lease was executed, the plaintiffs learned that they could not place a freestanding sign along the highway to advertise their business because the Deschutes County Code allowed only one freestanding sign on the property, and the defendant already had one in place. The plaintiffs filed this action, alleging that defendant had breached the lease by failing to provide them with space in which they could erect a freestanding sign. Paragraph 16 of the lease provides as follows: "Tenant shall not erect or install any signs visible from outside the leased premises with out [sic] the previous written consent of the Landlord." Explain whether this evidence is admissible.

Parol Evidence. Yes, the evidence is admissible. The parol evidence rule is a rule of integration. It prohibits oral evidence of those aspects of the bargain that the parties intended to memorialize in their written agreement. If the parties did not intend the writing to represent their entire agreement, the agreement is only partially integrated, and prior consistent additional terms not evidenced by the writing may still form part of the entire agreement. An oral agreement is not integrated in a contemporaneous writing if it is not inconsistent with the written agreement and is such an agreement as the parties might naturally make as a separate agreement. We start with a presumption that the parties intend the writing to be a complete integration. The integration clause in the lease indicates that the lease was intended to be a complete agreement, but it is not conclusive. Defendant testified that he told plaintiffs that they could have a sign and that he did not require them to obtain his written consent, despite the words in paragraph 16 of the lease. There was evidence to support the trial court's holding that the parties did not intend the written lease to reflect their entire agreement, thereby overcoming the presumption of integration. The next question is whether a separate oral agreement to allow a freestanding sign was inconsistent with the written lease. No provision of the lease prohibits a freestanding sign, thus, the disputed parol evidence was not inconsistent with the written agreement.

Van D. Costas, Inc. (Costas) entered into a contract to remodel the entrance of the Magic Moment Restaurant owned by Seascape Restaurants, Inc. Rosenberg, part owner and president of Seascape, signed the contract on a line under which was typed "Jeff Rosenberg, The Magic Moment." When a dispute arose over the performance and payment of the contract, Costas brought suit against Rosenberg for breach of contract. Rosenberg contended that he had no personal liability for the contract and that only Seascape, the owner of the restaurant, was liable. Costas claimed that Rosenberg signed for an undisclosed principal and, therefore, was individually liable. Is Rosenberg liable on the contract? Explain.

Partially Disclosed Principal. Judgment for Costas. (Rosenberg individually liable.) To avoid personal liability, an agent must disclose both that he is acting as an agent and the identity of his principal. If the contracting party knows the identity of the principal for whom the agent is acting, the principal is considered disclosed. It is not the contracting party's duty to seek out the identity of the principal. Here, nothing indicates that Costas had ever heard of Seascape at the time the contract was signed. Moreover, use of a trade name (here, Magic Moment) is not sufficient disclosure of the identity of the principal. Rosenberg knew that Seascape was the owner, and he could have avoided personal liability by properly disclosing the identity of his principal. Since he did not, Rosenberg is personally liable.

Chapter 11

Poof

Jacobs, owner of a farm, entered into a contract with Earl Walker in which Walker agreed to paint the buildings on the farm. Walker purchased the paint from Jones. Before the work was completed, Jacobs without good cause ordered Walker to stop. Walker made offers to complete the job, but Jacobs declined to permit Walker to fulfill his contract. Explain whether Walker will be successful in an action against Jacobs for breach of contract?

Prevention of Performance. Judgment for Jones and Walker. By her order to Walker to cease work and by refusing to permit either Walker or Jones to complete the work, which they were willing to do, Jacobs breached the contract and excused further performance on the part of Walker. Under the circumstances the law implies a promise on the one party not to prevent, hinder, or delay the performance of the other party. Under the facts, Jones was entitled to be paid for the value of the paint furnished and used upon Jacobs's barns and house, and Walker was entitled to recover for the reasonable value of the work completed by him in accordance with the contract. Jacobs v. Jones, 161 Colo. 505, 423 P.2d 321 (1967).

STILL KILLING SHIT THOUGH

RANDOM RAP LYRIC BREAK CUZ I GOT THESE LAWS ON LOCK

Rebecca entered into a written contract to sell certain real estate to Mary, a minor, for $80,000, payable $4,000 on the execution of the contract and $800 on the first day of each month thereafter until paid. Mary paid the $4,000 down payment and eight monthly installments before attaining her majority. Thereafter, Mary made two additional monthly payments and caused the contract to be recorded in the county where the real estate was located. Mary was then advised by her attorney that the contract was voidable. After being so advised, Mary immediately tendered the contract to Rebecca, together with a deed reconveying all of Mary's interest in the property to Rebecca. Also, Mary demanded that Rebecca return the money she had paid under the contract. Rebecca refused the tender and declined to repay any portion of the money paid to her by Mary Can Mary cancel the contract and recover the amount paid to Rebecca? Explain.

Ratification. No. Decision in favor of Rebecca. A minor may disaffirm a contract for the sale of real property made by him during minority within a reasonable time after attaining his majority and he may, by acts recognizing the contract after becoming of age, ratify it. Since Mary had made two payments and caused the contract to be recorded, after she became of age, she arguably ratified the contract and will not be permitted to say that she performed these acts of ratification in ignorance of her right to disaffirm. She was not induced by fraud or misrepresentation to enter into the contract. The two payments after attaining her majority evidenced Mary's intention to comply with the contract and constituted a ratification of it, unless the fact that she did not then know the law authorized her to disaffirm thereafter. Mary is presumed to know the law, and cannot be heard to say that she was ignorant of her legal right in that respect.

Langstraat, age seventeen, owned a motorcycle that he insured against liability with Midwest Mutual Insurance Company. He signed a notice of rejection attached to the policy indicating that he did not desire to purchase uninsured motorists' coverage from the insurance company. Later he was involved in an accident with another motorcycle owned and operated by a party who was uninsured. Langstraat now seeks to recover from the insurance company, asserting that his rejection was not a valid rejection because he is a minor. Can Langstraat recover from Midwest? Explain.

Ratification/Disaffirmance. Judgment for Midwest Mutual Insurance Company. This is not a case in which the minor seeks to disaffirm a contract. What Langstraat seeks here is to ratify and retain the benefits of the policy but to avoid the one provision which has become burdensome. A minor is not permitted this selective choice. Ratification and disaffirmance go to the whole contract. Since Langstraat did not wish to disaffirm the insurance policy, the notice of rejection is valid, and he is not entitled to recover. Langstraat v. Midwest Mutual Ins. Co., 217 N.W.2d 570 (Iowa 1974).

In 1952, the estate of George Bernard Shaw granted to Gabriel Pascal Enterprises, Limited, the exclusive rights to produce a musical play and a motion picture based on Shaw's play Pygmalion. The agreement contained a provision terminating the license if Gabriel Pascal Enterprises did not arrange for well-known composers, such as Lerner and Loewe, to write the musical and produce it within a specified time. George Pascal, owner of 98 percent of the Gabriel Pascal Enterprise's stock, attempted to meet these requirements but died in July 1954 before negotiations had been completed. In February 1954, however, while the license had two years yet to run, Pascal sent a letter to Kingman, his executive secretary, granting to her certain percentages of his share of the profits from the expected stage and screen productions of Pygmalion. Subsequently, Pascal's estate arranged for the writing and production of the highly successful My Fair Lady, based on Shaw's Pygmalion. Kingman then sued to enforce Pascal's gift assignment of the future royalties. Decision?

Requirements of an Assignment. Judgment for Kingman affirmed. Assignments of rights to sums that are expected to become due to the assignor are enforceable. To make a gift of such an assignment, the donor need only demonstrate a present intent to transfer irrevocably his right to the donee. Although at the time of the delivery of the letter there was no musical play or motion picture in existence, Pascal's letter was intended to transfer irrevocably by assignment a percentage of the royalties from the future productions to Kingman. Therefore, the assignment is enforceable as a valid gift.

Virginia and her husband, Ronnie Hulbert, were involved in an accident in Mobile County when their automobile collided with another automobile, driven by Dr. Murray's nanny. The nanny's regular duties of employment included housekeeping, supervising the children, and taking the children places that they needed to go. At the time of the collision, the nanny was driving her own car and was following Dr. Murray and her family to Florida from Louisiana to accompany Dr. Murray's family on their vacation. One of Dr. Murray's daughters was in the automobile driven by the nanny. Virginia Hulbert sued Dr. Murray under the doctrine of respondeat superior, alleging that the nanny was acting within the scope of her employment when the automobile accident occurred. Should she be able to recover from Dr. Murray? Explain.

Respondeat Superior. To recover from a tortfeasor's employer on the theory of respondeat superior, the plaintiff must show by substantial evidence that the employee's act was within the scope of the employee's employment. An act is within an employee's scope of employment if the act is done as part of the duties the employee was hired to perform or if the act confers a benefit on his employer. Dr. Murray and the nanny assert that the nanny was on vacation at the time of the accident and that while on vacation she was not to perform any of the duties she had been hired to perform. Hulbert responded with four pieces of evidence. First, Hulbert proffered an affidavit from her husband in which he stated that shortly after the accident both Dr. Murray and the nanny had stated that the nanny was going to the beach with the Murray family to help Dr. Murray take care of the children a duty the nanny was hired to perform. Second, it is undisputed that one of Dr. Murray's daughters was a passenger in the car with the nanny at the time of the accident. Third, it is undisputed that the nanny was to receive her regular salary for the week spent at the beach. Fourth, although the nanny was driving her own car, Dr. Murray was to pay for the lodgings, which the nanny was to share at the beach. While Dr. Murray asserts that her daughter rode with the nanny for personal reasons and that the pay received by the nanny was vacation pay, these contentions merely underscore that there is a genuine issue of material fact as to whether at the time of the accident the nanny was acting for personal motives or for employment motives.

James contracts to make repairs to Betty's building in return for Betty's promise to pay $12,000 upon completion of the repairs. After partially completing the repairs, James is unable to continue. Betty hires another builder, who completes the repairs for $5,000. The building's value to Betty has increased by $10,000 as a result of the repairs by James, but Betty has lost $500 in rents because of the delay caused by James's breach. James sues Betty. How much, if any, may James recover in restitution from Betty?

Restitution. James may recover $4,500 in restitution from Betty: $10,000 benefit conferred by James -5,000 damages sustained by Betty in hiring another builder - 500 damages sustained by Betty because of delay $ 4,500 amount recoverable in restitution

In which of the following situations is specific performance available as a remedy? (a) Mary and Anne enter into a written agreement under which Mary agrees to sell and Anne agrees to buy for $10 per share 100 shares of the 300 shares outstanding of the capital stock of the Infinitesimal Steel Corporation, whose shares are not listed on any exchange and are closely held. Mary refuses to deliver when tendered the $1,000. (b) Modifying (a) above, assume that the subject matter of the agreement is stock of the United States Steel Corporation, which is traded on the New York Stock Exchange. (c) Modifying (a) above, assume that the subject matter of the agreement is undeveloped farmland of little commercial value.

Specific Performance. (a) Decision for Anne. Where shares of stock in a corporation have no market value and are not on the market for sale, money damages do not afford an adequate remedy for breach of contract for the sale of a part of these corporate shares and the purchaser may obtain specific performance of the contract. Hills v. McMunn, 232 Ill. 488, 83 N.E. 963. In accord, Restatement, Second, Contracts, Section 360. (b) Decision for Mary. Specific performance is denied where the remedy at law is adequate. Money damages may be recovered in an action at law for breach of contract. Shares of U.S. Steel Corporation are readily available on the market. Therefore, the legal remedy is adequate. (c) Decision for Anne. A contract for the sale of land may be specifically enforced in equity. Land is unique, and one parcel of land is not the same as any other parcel. The lack of commercial value, or the underdeveloped condition, of the land is immaterial.

Felch was employed as a member of the faculty of Findlay College on a continuing basis. He was dismissed by action of the president and board of trustees, who did not comply with a contractual provision for dismissal that requires a hearing. Felch requested the court to enjoin Findlay College to continue Felch as a member of the faculty and to pay him the salary agreed upon. Should Felch be entitled to injunctive relief? Explain.

Specific Performance/Personal Service Contract. Judgment for Findlay College. Equity will not grant specific performance of affirmative promises in a personal service contract on the grounds that (1) mischief is likely to result from enforced continuance of the relationship after it has become obnoxious to one of the parties, and (2) the enforcement of a decree requiring specific performance of such a contract would impose too great a burden on the courts. However, it is claimed by Felch that the provision requiring a hearing before dismissal is a negative covenant and, as such, may be enforced by injunction. Negative covenants may, under some circumstances, be enforced by injunction, but not if the covenant indirectly enforces an affirmative duty, which duty would not be enforced by a decree of specific performance. Felch v. Findlay College, 119 Ohio App. 357, 200 N.E.2d 353 (1963).

On July 5, 1997, Richard Price signed a written employment contract as a new salesman with the Mercury Supply Company. The contract was of indefinite duration and could be terminated by either party for any reason upon fifteen days' notice. Between 1997 and 2005, Price was promoted several times. In 2002, Price was made vice president of sales. In September of 2005, however, Price was told that his performance was not satisfactory and that if he did not improve he would be fired. In February of 2008, Price received notice of termination. Price claims that in 2002 he entered into a valid oral employment contract with Mercury Supply Company wherein he was made vice president of sales for life or until he should retire. Is the alleged oral contract barred by the one-year provision of the statute of frauds?

Statute of Frauds. Judgment for Mercury Supply Co. The statute of frauds requires that all contracts that cannot possibly be completed within a year must be in writing in order to be enforceable. Conversely, contracts that can possibly be performed within a year may still be enforced even if they are oral. The alleged oral contract of 2002 could be performed within a year because Price could have died or chosen to retire within that first year. The evidence, however, showed that the alleged oral contract, if actually made, was still a terminable-at-will employment contract. Therefore, Mercury Supply Company could discharge Price at any time without breaching the oral contract.

On August 20, Hildebrand entered into a written contract with the city of Douglasville whereby he was to serve as community development project engineer for three years at an "annual fee" of $19,000. This salary figure could be changed without affecting the other terms of the contract. One of the provisions for termination of the contract was written notice by either party to the other at any time at least ninety days prior to the intended date of termination. The contract listed a number of services and duties Hildebrand was to perform for the city, among which were (1) keeping the community development director (Hildebrand's supervisor) informed at all times of his whereabouts and how he could be contacted and (2) attending meetings at which his presence was requested. Two years later, on September 20, by which time Hildebrand's annual fee had risen to $1,915.83 per month, the city fired Hildebrand effective immediately, citing "certain material breaches...of the...agreement." The city specifically charged that he did not attend the necessary meetings although requested to do so and seldom if ever kept his supervisor informed of his whereabouts and how he could be contacted. Will Hildebrand prevail in a suit against the mayor and city for damages in the amount of $5,747.49 because of the city's failure to give him ninety days' notice prior to termination?

Substantial Performance. Judgment for Hildebrand affirmed. The only way the city could repudiate the contract without giving proper notice is in response to a material breach or substantial failure to perform on the part of Hildebrand. An incidental breach, or one that does not defeat the object of the parties in forming the contract, does not warrant a termination. In order to trigger the right to terminate, "the act failed to be performed must go to the root of the contract." The two specific charges made against Hildebrand by the city neither alone nor collectively constitute substantial and fundamental noncompliance. Since Hildebrand substantially performed his duties under the contract, the city was obliged to give him ninety days' notice of termination. Hildebrand may recover damages for his actual contractual loss of three months' compensation. Mayor & City of Douglasville v. Hildebrand, 333 S.E.2d 674 (Ga. Ct. App. 1985).

Rafferty was the principal shareholder in Continental Corporation, and, as a result, he received the lion's share of Continental's dividends. Continental Corporation was eager to close an important deal for iron ore products to use in its business. A written contract was on the desk of Stage Corporation for the sale of the iron ore to Continental. Stage Corporation, however, was cautious about signing the contract; and it did not sign until Rafferty called Stage Corporation on the telephone and stated that if Continental Corporation did not pay for the ore, he would. Business reversals struck Continental Corporation, and it failed. Stage Corporation sues Rafferty. What defense, if any, has Rafferty?

Suretyship Provision. Main Purpose Doctrine. Rafferty has the defense that his oral agreement to pay for the iron ore was a contract to guarantee the payment of the debt of another which the statute of frauds requires to be in writing to be enforceable. Rafferty's oral promise to pay Continental Corporation's debt was collateral to the debt or liability of Continental Corporation. Rafferty's promise cannot be said to be an original promise or undertaking even though he was the principal shareholder in Continental Corporation. However, the main purpose doctrine will be available to Stage Corporation and bind Rafferty to his oral promise.

Rowe was admitted to the hospital suffering from a critical illness. He was given emergency treatment and later underwent surgery. On at least four occasions, Rowe's two sons discussed with the hospital the payment for services it was to render. The first of these four conversations took place the day after Rowe was admitted. The sons informed the treating physician that their father had no financial means but that they themselves would pay for such services. During the other conversations, the sons authorized whatever treatment their father needed, assuring the hospital that they would pay for the services. After Rowe's discharge, the hospital brought this action against the sons to recover the unpaid bill for the services rendered to their father. Are the sons' promises to Peterson enforceable? Explain.

Suretyship Provision: Collateral Promises. Decision for the hospital. The promise of the sons is not to answer for the debt of another. The oral promise of the sons is an original undertaking by themselves to pay the hospital expenses to be incurred by Rowe. The sons did not guarantee to pay the hospital in the event Rowe did not pay the bill; they agreed, instead, in the first instance, to pay the father's bill. Peterson v. Rowe, 63 N.M. 135, 314 P.2d 892 (1957).

Green, a licensed real estate broker in Illinois, and Jones, also an Illinois resident, while both were in New York, signed a contract whereby Green agreed to endeavor to find a buyer for certain Illinois real estate owned by Jones, who agreed to pay Green a commission of $10,000 in the event of a sale. Green found a buyer, a resident of New York, to whom the land was sold. Thereafter, when Jones refused to pay the commission, Green commenced an action in Illinois to recover it. Jones defended on the sole ground that the brokerage contract was unenforceable because Green was not a licensed real estate broker in New York. Relevant provisions of the applicable New York statute forbid any person from holding himself out or acting temporarily as a real estate broker or salesman without first procuring a license. A violation is declared to be a misdemeanor, and the commission of a single prohibited act is a violation for which the statute provides a penalty. For whom should judgment be rendered?

Termination of Agency: Change of law. Judgment for Jones. As a general proposition, a contract in violation of a criminal statute is unenforceable, even though the statute does not by its terms prohibit the act or acts upon which it is based. In Frankel v. Allied Mills, Inc., 17 N.E.2d 570 (Ill.1938), the court stated: "The validity, construction and obligation of a contract must be determined by the law of the place where it is made or is to be performed. The remedy is governed by the law of the forum. If a contract is not valid under the law of the place where it is made, it will not be enforced in another state in which it would have been valid if made there. Where a statute declares that it shall be unlawful to perform an act, and imposes a penalty for its violation, contracts for the performance of such act are void and incapable of enforcement. It is immaterial that the business regulated is carried on by a non-resident. We have not been referred to a New York case which holds expressly that the statute applies to non-residents who negotiate an isolated sale of Illinois real estate in New York, but such contracts as applied to residents of New York are held to be void. (Citations.) The object of the statute is to promote the public welfare by permitting only persons with the necessary qualifications to act as real estate brokers and salesmen. The location of the land outside the state of New York does not affect the policy of the statute, since it is the vendor and the purchaser who sought to be protected. The statute does not in any way seek to regulate the sale of Illinois real estate, but operates only on the brokerage contract. The brokerage contract was invalid in New York, where it was made. It will not be enforced in the courts of Illinois."

Packer owned and operated a fruit cannery in Southton, Illinois. He stored a substantial amount of finished canned goods in a warehouse in East St. Louis, Illinois, owned and operated by Alden, in order to have goods readily available for the St. Louis market. On March 1, he had 10,000 cans of peaches and 5,000 cans of apples in storage with Alden. On the day named, he borrowed $5,000 from Alden, giving Alden his promissory note for this amount due June 1 together with a letter authorizing Alden, in the event the note was not paid at maturity, to sell any or all of his goods in storage, pay the indebtedness, and account to him for any surplus. Packer died on June 2 without having paid the note. On June 8, Alden told Taylor, a wholesale food distributor, that he had for sale as agent of the owner 10,000 cans of peaches and 5,000 cans of apples. Taylor said he would take the peaches and would decide later about the apples. A contract for the sale of 10,000 cans of peaches for $6,000 was thereupon signed "Alden, agent for Packer, seller; Taylor, buyer." Both Alden and Taylor knew of the death of Packer. Delivery of the peaches and payment were made on June 10. On June 11, Alden and Taylor signed a similar contract covering the 5,000 cans of apples, delivery and payment to be made June 30. On June 23, Packer's executor, having learned of these contracts, wrote Alden and Taylor stating that Alden had no authority to make the contracts, demanding that Taylor return the peaches, and directing Alden not to deliver the apples. Discuss the correctness of the contentions of Packer's executor.

Termination of Agency: Death. Packer's executor is incorrect as to the first contract for the sale of the peaches, but correct as to the second contract for the sale of the apples. Death of the principal terminates an agency unless the agency is coupled with an interest of the agent in the subject matter. Packer's grant of authority to Alden to sell the canned goods was an agency coupled with an interest of the agent in the subject matter. Packer's grant of authority to Alden to sell the canned goods was an agency coupled with an interest. Alden had an interest in the prospective proceeds of the execution of the agency in that he could pay himself therefrom the debt owed to him. He also had an interest in the subject matter of the agency, the canned goods, in that he had possession thereof. Since the interest was not only in the proceeds but also in the subject matter he had a true "agency coupled with an interest" and it was irrevocable even by the death of the principal. The result is different with respect to the second contract for the apples. Alden, as a result of the concluded sale of the peaches, had $6,000 which more than covered the indebtedness to him. He therefore had no further interest in the proceeds of the sale of the apples even though he still had possession thereof. At the time he made the contract to sell the apples, he no longer had an agency coupled with an interest, and hence, no agency because the death of the principal terminated the agency.

Chris Zulliger was a chef at the Plaza Restaurant in the Snowbird Ski Resort in Utah. The restaurant is located at the base of a mountain. As a chef for the Plaza, Zulliger was instructed by his supervisor and the restaurant manager to make periodic trips to inspect the Mid-Gad Restaurant, which was located halfway up the mountain. Because skiing helped its employees to get to work, Snowbird preferred that its employees know how to ski and gave them ski passes as part of their compensation. Prior to beginning work at the Plaza, Zulliger went skiing. The restaurant manager asked Zulliger to stop at the Mid-Gad before beginning work that day, and Zulliger stopped at the Mid-Gad during his first run and inspected the kitchen. He then skied four runs before heading down the mountain to begin work. On the last run, Zulliger decided to take a route often taken by Snowbird employees. About midway down, Zulliger decided to jump off a crest on the side of an intermediate run. Because of the drop, a skier above the crest cannot see if there are skiers below, and Zulliger ran into Margaret Clover, who was below the crest. The jump was well known to Snowbird; the resort's ski patrol often instructed people not to jump, and there was a sign instructing skiers to take it slow at that point. Clover sued Zulliger and, under the doctrine of respondeat superior, Snowbird, claiming that Zulliger had been acting within the scope of his employment. Who is laible? Explain.

Tort Liability of the Principal. Judgment for Clover.Under the circumstances of the instant case, it is entirely possible for a jury to reasonably believe that at the time of the accident, Zulliger had resumed his employment and that Zulliger's deviation was not substantial enough to constitute a total abandonment of employment. First, a jury could reasonably believe that by beginning his return to the base of the mountain to begin his duties as a chef and to report to Mandler concerning his observations at the Mid-Gad, Zulliger had resumed his employment. In past cases, in holding that the actions of an employee were within the scope of employment, we have relied on the fact that the employee had resumed the duties of employment prior to the time of the accident. This is an important factor because if the employee has resumed the duties of employment, the employee is then "about the employer's business" and the employee's actions will be "motivated, at least in part, by the purpose of serving the employer's interest." The fact that due to Zulliger's deviation, the accident occurred at a spot above the Mid-Gad does not disturb this analysis. In situations where accidents have occurred substantially within the normal spatial boundaries of employment, we have held that employees may be within the scope of employment if, after a personal detour, they return to their duties and an accident occurs.

Rubin was driving on one of the city's streets when he inadvertently obstructed the path of a taxicab, causing the cab to come into contact with his vehicle. Angered by the Rubin's sudden blocking of his traffic lane, the taxi driver exited his cab, approached Rubin, and struck him about the head and shoulders with a metal pipe. Rubin filed suit against the cab driver to recover for bodily injuries resulting from the altercation. He also sued the Yellow Cab Company, asserting that the company was vicariously liable under the doctrine of respondeat superior. Is the Yellow Cab Company liable? Explain.

Tort Liability of the Principal. Judgment for Yellow Cab affirmed. It is well established that an employer may be held vicariously liable under the doctrine of respondeat superior for the negligent, willful, malicious, or criminal acts of its employees where such acts are committed in the course of employment and in furtherance of the business of the employer. However, when the acts complained of are committed solely for the benefit of the employee, the employer will not be held liable to an injured third party. The plaintiff contends that the driver's acts were committed within the course and scope of his employment, and were designed to further the business purposes of Yellow Cab. Plaintiff asserts that the driver's act (1) fulfilled his obligation to investigate and report accidents damaging company property, (2) were performed pursuant to his obligation to protect property owned by Yellow Cab, and (3) were meant to prevent plaintiff and others from delaying his progress to obtain fares. The court flatly rejected the plaintiff's argument. The driver's act of hitting the plaintiff has no relation whatsoever to the business of driving a cab. The nature of some jobs, such as a bouncer or bartender, makes the use of force during the course of employment highly probable. The assault on plaintiff in this case, however, amounted to a deviation from the conduct generally associated with the enterprise of cab driving. The driver was not acting to further the business purposes of Yellow Cab. Accordingly, Yellow Cab is not vicariously liable for the battery of the plaintiff by the driver.

Harris, owner of certain land known as Red Bank, mailed a letter to Byron, a real estate broker in City X, stating: "I have been thinking of selling Red Bank. I have never met you, but a friend has advised me that you are an industrious and honest real estate broker. I therefore employ you to find a purchaser for Red Bank at a price of $35,000." Ten days after receiving the letter, Byron mailed the following reply to Harris: "Acting pursuant to your recent letter requesting me to find a purchaser for Red Bank, this is to advise that I have sold the property to Sims for $35,000. I enclose your copy of the contract of sale signed by Sims. Your name was signed to the contract by me as your agent." Is Harris obligated to convey Red Bank to Sims?

Types of Authority. No. Byron was not authorized by the letter to Harris to effect a sale of Red Bank. He was merely authorized to find a buyer. The problem is silent regarding the existence of a custom in the real estate business that the broker has the authority to effect a sale. Byron is a special agent and the duty rested upon Sims to ascertain precisely Byron's authority unless there is a custom in the real estate brokerage business in the community where the transaction occurred that the real estate broker had the authority to make a sale. Restatement, Agency, Section 50, states: Unless otherwise agreed, authority to make a contract is inferred from authority to conduct a transaction, if the making of such a contract is incidental to the transaction, usually accompanies such a transaction, or is reasonably necessary to accomplish it. Illustration: P employs A, a real estate broker, to find a purchaser for Blackacre, at a stated price. A has no authority to contract for its sale.

Ames, Bell, Cain, and Dole each orally ordered color television sets from Marvel Electronics Company, which accepted the orders. Ames's set was to be specially designed and encased in an ebony cabinet. Bell, Cain, and Dole ordered standard sets described as "Alpha Omega Theatre." The price of Ames's set was $1,800, and the sets ordered by Bell, Cain, and Dole were $700 each. Bell paid the company $75 to apply on his purchase; Ames, Cain, and Dole paid nothing. The next day, Marvel sent Ames, Bell, Cain, and Dole written confirmations captioned "Purchase Memorandum," numbered 12345, 12346, 12347, and 12348, respectively, containing the essential terms of the oral agreements. Each memorandum was sent in duplicate with the request that one copy be signed and returned to the company. None of the four purchasers returned a signed copy. Ames promptly sent the company a repudiation of the oral contract, which it received before beginning manufacture of the set for Ames or making commitments to carry out the contract. Cain sent the company a letter reading in part, "Referring to your Contract No. 12347, please be advised I have canceled this contract. Yours truly, (Signed) Cain." The four television sets were duly tendered by Marvel to Ames, Bell, Cain, and Dole, all of whom refused to accept delivery. Marvel brings four separate actions against Ames, Bell, Cain, and Dole for breach of contract. Decide each claim.

U.C.C. (a) Decision for Ames. The U.C.C. has tightened the so-called special order rule. The Code requires, in order that such an oral contract be enforceable against the buyer, that the seller, before receiving notice of repudiation and under circumstances which reasonably indicate that the goods are for the buyer, either make a substantial beginning of their manufacture or commitments for their procurement. Section 2-201 (3). Ames repudiated before Marvel commenced manufacture of the set or made commitments for procurement of the goods. (b) Decision for Marvel. Bell has made part payment of the purchase price. Section 2-201(3) (c) of the U.C.C. provides that a contract which does not satisfy the requirements of the U.C.C. statute of frauds but which is valid in other respects is enforceable "with respect to goods for which payment has been made and accepted or which have been received and accepted." Where the contract is indivisible, as here, there is a division of authority as to whether part payment makes the whole contract enforceable. The majority rule is that part payment and acceptance makes the entire contract enforceable. (c) Decision for Marvel. Cain has signed a writing sufficient to indicate that a contract for sale has been made between Marvel and himself. Section 2-201(1). (d) Decision for Dole. Dole is not liable on the contract. He has done nothing to make his oral contract enforceable.

Presti claims that he reached an oral agreement with Wilson by telephone in October 2007 to buy a horse for $60,000. Presti asserts that he sent Wilson a bill of sale and a postdated check, which Wilson retained. Presti also claims that Wilson told him that he wished not to consummate the transaction until January 1, 2008, for tax reasons. The check was neither deposited nor negotiated. Wilson denies that he ever agreed to sell the horse or that he received the check and bill of sale from Presti. Presti's claim is supported by a copy of his check stub and by the affidavit of his executive assistant, who says that he monitored the telephone call and prepared and mailed both the bill of sale and the check. Wilson argues that the statute of frauds governs this transaction, and because there was no writing, the contract claim is barred. Is Wilson correct? Explain.

UCC Statute of Frauds/Writing Requirement. Decision for Wilson. The sale of a horse is governed by the Uniform Commercial Code covering sales of goods. Presti sought to avoid the writing requirement of 2-201 based on two exceptions found in 2-210: first, that the statute does not apply if Wilson admitted the contract was made; and second, that it does not apply where payment was made and accepted. However, Wilson denied under oath that any agreement was made. The exception for part performance or for payment and acceptance involves mutual participation and not unilateral acts. It requires objective evidence of the assent of both parties. That evidence is missing here, because the only evidence of payment was Presti's testimony that the check was to be held until 2008 to gain a tax advantage. The check was never deposited in the defendant's account or negotiated by him. The testimony that exists is evidence that the plaintiff could create, and therefore, it is not an objective manifestation of assent to the contract such as to make it enforceable without a writing. Presti v. Wilson, 348 F. Supp. 543 (N.D.N.Y. 1972).

Linda induced Sally to enter into a purchase of a home theater receiver by intentionally misrepresenting the power output to be seventy-five watts when in fact the unit delivered only forty watts. Sally paid $450 for the receiver. Receivers producing forty watts generally sell for $200, whereas receivers producing seventy-five watts generally sell for $550. Sally decides to keep the receiver and sue for damages. How much may Sally recover in damages from Linda?

Under the "American rule," Sally may recover $350 in damages from Linda: $ 550 value of amp as promised - 200 value of amp delivered $ 350 damages (benefit of bargain)

Thomson Printing Company is a buyer and seller of used machinery. On April 10, the president of the company, James Thomson, went to the surplus machinery department of B.F. Goodrich Company in Akron, Ohio, to examine some used equipment that was for sale. Thomson discussed the sale, including a price of $9,000, with Ingram Meyers, a Goodrich employee and agent. Four days later, on April 14, Thomson sent a purchase order to confirm the oral contract for purchase of the machinery and a partial payment of $1,000 to Goodrich in Akron. The purchase order contained Thomson Printing's name, address, and telephone number, as well as certain information about the purchase, but did not specifically mention Meyers or the surplus equipment department. Goodrich sent copies of the documents to a number of its divisions, but Meyers never learned of the confirmation until weeks later, by which time the equipment had been sold to another party. Thomson Printing brought suit against Goodrich for breach of contract. Goodrich claimed that no contract had existed and that at any rate the alleged oral contract could not be enforced because of the statute of frauds. Is the contract enforceable? Why?

Written Confirmation. Judgment for Thomson Printing. The merchants' confirmation exception to the statute of frauds provides that an oral contract between merchants may be enforced by the sender of a written confirmation of the agreement where the recipient of the confirmation has reason to know its contents and does not object to them in writing within ten days. Goodrich acknowledged receipt of the purchase order but claimed that it was not received by anyone who had reason to know its contents and that Thomson erred in not designating Meyers or the surplus equipment department on any of the materials it sent. The "merchants'" exception, however, does not expressly require that the confirmation be received by a particular individual. Moreover, even if such a requirement were in force, Section 1-201 of the Uniform Commercial Code states that notice received by an organization "is effective . . . from the time when it would have been brought to [the attention of the individual conducting that transaction] if the organization had executed due diligence." If Goodrich had exercised due diligence in this situation, the items would have come to Meyer's attention reasonably promptly. The purchase order should have immediately alerted the mailroom to the type of transaction involved and the intended destination of the documents. Alternatively, the mailroom could have placed a simple phone call to Thomson Printing.

(a) Johnson tells Davis that he paid $150,000 for his farm in 2004, and that he believes it is worth twice that at the present time. Relying upon these statements, Davis buys the farm from Johnson for $225,000. Johnson did pay $150,000 for the farm in 2004, but its value has increased only slightly, and it is presently not worth $300,000. On discovering this, Davis offers to reconvey the farm to Johnson and sues for the return of his $225,000. Result? (b) Modify the facts in (a) by assuming that Johnson had paid $100,000 for the property in 2004. What result?

(a) Decision for Johnson; Davis is not entitled to the return of his $225,000 as long as Johnson actually believed his farm was worth approximately $300,000. Johnson's statement with respect to the value of the farm was merely the expression of an opinion and not the statement of a material fact upon which Davis had a right to rely. There is no indication of an appraisal or other expert opinion upon which Johnson's opinion is based. (b) Decision for Davis. Johnson's statement to Davis that he paid $150,000 for the farm was an untrue statement of a material fact, upon which Davis had a right to and did rely.

Garvey owned four speedboats named Porpoise, Priscilla, Providence, and Prudence. On April 2, Garvey made written offers to sell the four boats in the order named for $4,200 each to Caldwell, Meens, Smith, and Braxton, respectively, allowing ten days for acceptance. In which, if any, of the following four situations described was a contract formed? (a) Five days later, Caldwell received notice from Garvey that he had contracted to sell Porpoise to Montgomery. The next day, April 8, Caldwell notified Garvey that he accepted Garvey's offer. (b) On the third day, April 5, Meens mailed a rejection to Garvey which reached Garvey on the morning of the fifth day. But at 10:00 A.M. on the fourth day, Meens sent an acceptance by telegram to Garvey, who received it at noon on the same day. (c) Smith, on April 3, replied that she was interested in buying Providence but declared the price asked appeared slightly excessive and wondered if, perhaps, Garvey would be willing to sell the boat for $3,900. Five days later, having received no reply from Garvey, Smith, by letter, accepted Garvey's offer and enclosed a certified check for $4,200. (d) Braxton was accidentally killed in an automobile accident on April 9. The following day, the executor of Braxton's estate mailed an acceptance of Garvey's offer to Garvey.

(a) Where the offeror, after making an offer for sale, sells or contracts to sell the property to another person and the offeree acquires reliable information of this fact, before he has exercised his power of creating a contract by acceptance of the offer, the offer is revoked. Restatement, Second, Contracts, Section 43. (b) A contract was formed on April 6. Rejection by mail or telegram does not destroy the power of acceptance until received by the offeror, but limits the power so that an authorized or unauthorized means of acceptance (this was an authorized means since the contracts fall under the U.C.C.) started after the sending of a prior rejection is only effective if the acceptance is received, as here, by the offeror before he receives the rejection. (c) A contract. A counteroffer by the offeree, relating to the same matter as the offer, is a rejection of the original offer, unless the offeror in his offer or the offeree in his counteroffer manifest a different intention. Restatement, Second, Contracts, § 39. Here, Edward made a mere inquiry regarding the possibility of different terms or, stated somewhat differently, a request for a better offer. Edward's inquiry was not a counteroffer since it did not contain a promise. Edward's subsequent acceptance was therefore effective. (d) No contract. The death of the offeree terminates a revocable offer because it thereby becomes impossible to accept it. Restatement, Second, Contracts, Section 48. A revocable offer can be accepted only by or for the benefit of the person to whom it is made.

Richard Brobston was hired by Insulation Corporation of America (ICA) in 1995. Initially, he was hired as a territory sales manager but was promoted to national account manager in 1999 and to general manager in 2003. In 2005, ICA was planning to acquire computer-assisted design (CAD) technology to upgrade its product line. Prior to acquiring this technology, ICA required that Brobston and certain other employees sign employment contracts that contained restrictive covenants or be terminated. These restrictive covenants provided that in the event of Brobston's termination for any reason, Brobston would not reveal any of ICA's trade secrets or sales information and would not enter into direct competition with ICA within three hundred miles of Allentown, Pennsylvania, for a period of two years from the date of termination. The purported consideration for Brobston's agreement was a $2,000 increase in his base salary and proprietary information concerning the CAD system, customers, and pricing. Brobston signed the proffered employment contract. In October 2005, Brobston became vice president of special products, which included responsibility for sales of the CAD system products as well as other products. Over the course of the next year, Brobston failed in several respects to properly perform his employment duties and on August 13, 2006, ICA terminated Brobston's employment. In December 2006, Brobston was hired by a competitor of ICA who was aware of ICA's restrictive covenants. Can ICA enforce the employment agreement by enjoining Brobston from disclosing proprietary information about ICA and by restraining him from competing with ICA? If so, for what duration and over what geographic area?

Answer: Restrictive Covenants/Employment Relationship. Preliminary injunction affirmed to the extent it enjoins Brobston from disclosing trade secrets and reversed to the extent that it restricts Brobston from competing with ICA. In order for a "non-competition" covenant to be valid, it must relate to a contract for employment, be supported by adequate consideration and be reasonably limited in both time and territory. More specifically, where a restrictive covenant has been entered into between an employer and its employee, courts have permitted the enforcement of post-employment restraints only where they are ancillary to an employment relationship between the parties, the restrictions are reasonably necessary to protect the employer, and the restrictions are reasonably limited in duration and geographic extent. Brobston's agreement was ancillary since it was supported by new consideration in the form of the $2,000 annual raise and a change in employment status from "at-will" to a written year to year contract. The more salient issue in this case is whether the restrictions in Brobston's contract were reasonable. The determination of reasonableness involves the weighing of competing interests--that of the employer's need for protection--against the hardship of the restriction upon the employee. Notably, there is a significant factual distinction between the hardship imposed by the enforcement of a restrictive covenant on an employee who voluntarily leaves his employer and that imposed upon an employee who is terminated for failing to do his job. In this case, Brobston was terminated for poor performance. Where an employer determines that an employee has failed to promote the employer's legitimate business interests, it clearly suggests an implicit decision on the part of the employer that its business interests are best promoted without the employee in its service. Such a determination by an employer diminishes the employer's need to protect itself and it is unreasonable as a matter of law to permit the employer to retain unfettered control over that which it has effectively deemed worthless to its business interests. Moreover, the non-disclosure agreement in this case renders the non-competition agreement unnecessary. As the agreement states, its purpose was to protect the proprietary CAD technology. However, Brobston never actually received sufficient training to operate the CAD technology. He had access only to sales and profit margin information, the security of which is addressed adequately by the non-disclosure agreement. Therefore in this case, ICA's interests are sufficiently protected without enforcement of the non-competition agreement.

On August 12, Mr. and Mrs. Mitchell, the owners of a small secondhand store, attended Alexander's Auction, where they bought a used safe for $50. The safe, part of the Sumstad estate, contained a locked inside compartment. Both the auctioneer and the Mitchells knew this fact. Soon after the auction, the Mitchells had the compartment opened by a locksmith, who discovered $32,207 inside. The Everett Police Department impounded the money. The city of Everett brought an action against the Sumstad estate and the Mitchells to determine the owner of the money. Who should receive the money? Why?

Auction Sales. Judgment in favor of the Mitchells. The subject matter transferred in a sale is determined by the intent of the parties as revealed by the terms of their agreement in light of the surrounding circumstances. The intentions of the parties are revealed by a reasonable interpretation of their words and acts. Any unexpressed intention is irrelevant. In this case, the Mitchells understood that all auction sales were final, and the auctioneer made no statement reserving rights to any contents of the safe to the estate. The reasonable conclusion is that the auctioneer intended to sell the safe and its contents and that the parties mutually assented to such a sale.

In consideration of $1800 paid to him by Joyce, Hill gave Joyce a written option to purchase his house for $180,000 on or before April 1. Prior to April 1, Hill verbally agreed to extend the option until July 1. On May 18, Hill, known to Joyce, sold the house to Gray, who was ignorant of the unrecorded option. Is there a contract between Joyce & Hill? Explain.

Bargained-for Exchange. No. Consideration was paid to Hill for holding the property for the specified time subject to the right of Joyce to exercise the option whether to buy or not. When the time limit expired, the contract was at an end and the right under the option was extinguished. Of course, if that right were extended by some valid binding agreement, then it could be enforced. Joyce did not attempt to exercise the option and complete a contract of purchase within the time limited by the written agreement. It is true that before the expiration of the time stated, Hill verbally agreed or promised to extend the time for the exercise of the option from April 1 to July 1, and that it was within this latter or extended period and after the property had been sold and conveyed to Gray that Joyce presented himself ready to accept the property and pay the price. However, such acceptance came too late. There was no consideration for the verbal promise or agreement to extend the time, and such promise was therefore not enforceable. After April 1 the verbal agreement operated simply as a mere offer continuing until withdrawn or otherwise ended by some act of the offeror, Hill. The sale to Gray was known to Joyce and resulted in a revocation of the offer. (NOTE: In addition, the Statute of Frauds would require an extension of the option to be in writing because such an option deals with an "interest in" or "concerns" land.)

Johnson and Wilson were the principal shareholders in XYZ Corporation, located in the city of Jonesville, Wisconsin. This corporation was engaged in the business of manufacturing paper novelties, which were sold over a wide area in the Midwest. The corporation was also in the business of binding books. Johnson purchased Wilson's shares of the XYZ Corporation and, in consideration thereof, Wilson agreed that for a period of two years he would not (a) manufacture or sell in Wisconsin any paper novelties of any kind that would compete with those sold by the XYZ Corporation or (b) engage in the bookbinding business in the city of Jonesville. Discuss the validity and effect, if any, of this agreement.

Common Law Restraint of Trade. (a) The agreement to refrain from doing business in the State of Wisconsin was no more than necessary to prevent competition upon the part of Wilson. The restraints as to both time and territory are reasonable. See Restatement, Second, Sections 186 and 188. The view has been taken, however, in some cases that agreements to refrain from doing business in an entire state, even though no more than necessary to prevent competition, are invalid and unenforceable for the reason that it is against the policy of the state that the people of the whole state should be deprived of the industry and skill of a person in an employment useful to the public, or that such person should be compelled either to engage in another business or move from the state and cease to be a citizen thereof. (b) Even if contracts in general restraint of trade are deemed void, as being contrary to public policy, contracts in partial restraint of trade are valid if the restraint imposed is reasonable both as to time and as to limits of the area in which such restraint is imposed. Agreements not to engage in a particular business within a city for a period of two years have generally been held to be valid and enforceable. The second portion of Wilson's agreement would be binding upon him.

Charles Leigh, engaged in the industrial laundry business in Central City, employed Tim Close, previously employed in the home laundry business, as a route salesman on July 1, 1984. Leigh rents linens and industrial uniforms to commercial customers; the soiled linens and uniforms are picked up at regular intervals by route drivers and replaced with clean ones. Every employee is assigned a list of customers. The contract of employment stated that in consideration of being employed, upon termination of his employment, Close would not "directly or indirectly engage in the linen supply business or any competitive business within Central City, Illinois, for a period of one year from the date when his employment under this contract ceases." On May 10 of the following year, Leigh terminated Close's employment for valid reasons. Thereafter, Close accepted employment with Ajax Linen Service, a direct competitor of Leigh in Central City. He commenced soliciting former customers whom he had called on for Leigh and obtained some of them as customers for Ajax. Will Leigh be able to enforce the provisions of the contract?

Common Law Restraint of Trade. Leigh is entitled to the relief sought. Close was permitted, under the contract, to engage in the home laundry business in which he was previously employed before entering Leigh's employment. He was not being deprived of this means of earning a living. The restriction was held to be reasonable in that it was only for one year and applied only to laundry business with commercial customers. In Bailey v. King, 398 S.W. 2d 906, the court stated:

The Dear Corporation was engaged in the business of making and selling harvesting machines. It sold everything pertaining to its business to the ABC Company, agreeing "not again to go into the manufacture of harvesting machines anywhere in the United States." The seller, which had national and international goodwill in its business, now begins the manufacture of machines contrary to its agreement. Should the court enjoin it?

Common Law Restraint of Trade. The question is whether the restraint is reasonable and therefore binding upon Dear Corporation. Since Dear Corp. sells harvesting machines throughout the country, the nationwide restraint arguably amounted merely to reasonable protection to the purchaser of the business, the ABC Company. The purchaser of a business may protect the good will by exacting a restrictive covenant that is reasonable with respect to the area within which it operates. The controlling fact that determines the reasonableness of the area is the territorial extent of the business of the purchased company. Restatement, Second, Contracts, Section 188. A more serious problem to the validity of the restraint is the fact that the covenant is not limited as to its duration, but lasts into perpetuity. Thus, the covenant is of dubious validity. An argument that can be raised in favor of its validity is the fact that it prohibits the manufacture but not the sale of machines in the United States.

St. Charles Drilling Co. contracted with Osterholt to install a well and water system that would produce a specified quantity of water. The water system failed to meet its warranted capacity, and Osterholt sued for breach of contract. Does the U.C.C. apply to this contract

Contracts Outside the Code. The U.C.C. does not apply to contracts primarily for services. The test for inclusion is whether the contract's predominant purpose is the rendition of services with goods incidentally involved, or whether it is a sale of goods with labor incidentally involved. In this case the contract to install a water system was a service transaction and, therefore, not within the scope of the U.C.C. for two reasons. First, the parties had no agreement as to what specific component parts were to be installed, but rather the contractor undertook to install a system of indefinite description and of warranted capacity. Second, the language of the contract itself indicated that the arrangement was a service contract rather than a sale of goods. Osterholt v. St. Charles Drilling Co., 500 F.Supp. 529 (1980).

Insul-Mark is the marketing arm of Kor-It Sales, Inc. Kor-It manufactures roofing fasteners and Insul-Mark distributes them nationwide. Kor-It contracted with Modern Materials, Inc. to have large volumes of screws coated with a rust-proofing agent. The contract specified that the coated screws must pass a standard industry test and that Kor-It would pay according to the pound and length of the screws coated. Kor-It had received numerous complaints from customers that the coated screws were rusting, but Modern Materials unsuccessfully attempted to remedy the problem. Kor-It terminated its relationship with Modern Materials and brought suit for the deficient coating. Modern Materials counterclaimed for the labor and materials it had furnished to Kor-It. The trial court held that the contract (1) was for performance of a service, (2) not governed by the U.C.C., (3) governed by the common law of contracts, and (4) therefore barred by a two year statute of limitations. Insul-Mark appealed. Decision?

Contracts Outside the Code. The transaction is predominantly for the performance of a service and, therefore, is not governed by the Sales article of the U.C.C. Where a transaction is "mixed," that is it involves both goods and services, the Sales article of the U.C.C. will apply only where the "predominant thrust" of the transaction is a sale of goods with labor only incidentally involved. This court rejects the "bifurcation" approach, taken by some lower courts, whereby a mixed transaction is viewed as two transactions: one for the sale of goods governed by the U.C.C., and one for the performance of a service governed by the common law. The bifurcation approach is less sensitive to the parties' expectations than the predominant thrust approach and would not work where an agreement is not readily divisible. Whether the predominant thrust of a transaction is the sale of goods or the performance of a service depends primarily on the language of the contract in light of the situation of the parties and the surrounding circumstances. Also relevant are the final product the purchaser bargained to receive and whether it may be described as a good or a service. Finally, the courts examine the costs involved for the goods and services, and whether the purchaser was charged only for a good or a price based on both goods and services. The agreement between Kor-It and Modern Materials was predominantly for the performance of a service. The performance Kor-It contracted to obtain was the transformation of its screws from a non-coated form to a coated form with enhanced rust-resistance. Modern Materials' complex multi-step application process was the crucial element completing this transformation. The transfer of the coating material, a good, in the process was incidental to the larger service. This is evidenced by the fact that Kor-It did not involve itself in deciding which coating material Modern Materials would apply to the screws. Furthermore, the pricing method in this transaction reveals that its predominant thrust was the performance of a service: Kor-It was charged by the pound of screws coated rather than by the gallons of coating used.

Plaintiff, Brenner, entered into a contract with the defendant, Little Red School House, Ltd., which stated that in return for a nonrefundable tuition of $1,080 Brenner's son could attend defendant's school for a year. When Brenner's ex-wife refused to enroll their son, plaintiff sought and received a verbal promise of a refund. Defendant now refuses to refund plaintiff's money for lack of consideration. Did mutual consideration exist between the parties? Explain.

Contractual Modification. Yes, judgment for Brenner. A contract modification must be supported by consideration to be binding. Such consideration can be found in the promisee refraining from doing anything he has a legal right to do in exchange for the modification. Here, Brenner relinquished the right to have his son attend the Little Red School House. This detriment constituted sufficient consideration to support the school's promise to refund his money

Michael is interested in promoting the passage of a bill in the State legislature. He agrees with Christy, an attorney, to pay Christy for her services in drawing the required bill, procuring its introduction in the legislature, and making an argument for its passage before the legislative committee to which it will be referred. Christy renders these services. Subsequently, upon Michael's refusal to pay her, Christy sues Michael for damage for breach of contract. Will Christy prevail? Explain.

Corrupting Public Officials. Decision in favor of Christy. There is nothing in the agreement which offends public policy. It is perfectly legitimate for a citizen to seek to have a bill introduced in the legislature and to promote its passage. Here, Christy merely agreed to engage what she considered services more competent for procuring the legislation desired. The services were legal in nature and Christy is entitled to remuneration from Michael.

Ames, seeking business for his lawn maintenance firm, posted the following notice in the meeting room of the Antlers, a local lodge: "To the members of the Antlers—Special this month. I will resod your lawn for two dollars per square foot using Fairway brand sod. This offer expires July 15." The notice also included Ames's name, address, and signature and specified that the acceptance was to be in writing. Bates, a member of the Antlers, and Cramer, the janitor, read the notice and became interested. Bates wrote a letter to Ames saying he would accept the offer if Ames would use Putting Green brand sod. Ames received this letter July 14 and wrote to Bates saying he would not use Putting Green sod. Bates received Ames's letter on July 16 and promptly wrote Ames that he would accept Fairway sod. Cramer wrote to Ames on July 10, saying he accepted Ames's offer. By July 15, Ames had found more profitable ventures and refused to resod either lawn at the specified price. Bates and Cramer brought an appropriate action against Ames for breach of contract. Decisions on the claims of Bates and Cramer?

Counteroffer. Ames wins both cases. The first letter from Bates was not an acceptance because it did not correspond with the terms of the offer. It was a counteroffer, as it called for Ames to use a different brand sod, and therefore constituted a rejection of the original offer which terminated the original offer. After Ames had rejected the counteroffer, Bates wrote on July 16 an acceptance of the original offer. This failed to form a contract as the original offer had been terminated by (a) the rejection, Restatement, Second, Contacts, §38 and (b) expiration of the time for acceptance as by its terms it expired July 15, Restatement, Second Contracts, §41. Cramer cannot recover because he was not an offeree. The offer was addressed to members of the Antlers. The party making an offer has the right to determine with whom he will contract. It is immaterial whether the offeror had special reasons for contracting with the offeree rather than with someone else.

Alpha Rolling Mill Corporation, by letter dated June 8, offered to sell Brooklyn Railroad Company 2,000 to 5,000 tons of fifty-pound iron rails upon certain specified terms, adding that, if the offer was accepted, Alpha Corporation would expect to be notified prior to June 20. Brooklyn Company, on June 16, by telegram, referring to Alpha Corporation's offer of June 8, directed Alpha Corporation to enter an order for 1,200 tons of fifty-pound iron rails on the terms specified. The same day, June 16, Brooklyn Company, by letter to Alpha Corporation, confirmed the telegram. On June 18, Alpha Corporation, by telegram, declined to fill the order. Brooklyn Company, on June 19, telegraphed Alpha Corporation: "Please enter an order for 2,000 tons rails as per your letter of the eighth. Please forward written contract. Reply." In reply to Brooklyn Company's repeated inquiries regarding whether the order for 2,000 tons of rails had been entered, Alpha denied the existence of any contract between Brooklyn Company and itself. Thereafter, Brooklyn Company sued Alpha Corporation for breach of contract. Decision?

Counteroffer. Decision for Alpha Rolling Mill Corporation and against Brooklyn Railroad Company. The offer was for a quantity of between 2,000 to 5,000 tons of iron rails. When the railroad company ordered 1,200 tons it was not accepting the offer but making a counter-offer. This counter-offer is a rejection of the original offer. After Alpha's refusal to accept the counter-offer, the railroad company attempted to accept 2,000 tons under the original offer. However, the original offer at this time was no longer in existence, having been terminated by the rejection. There was no offer open to the railroad company for acceptance after the rejection, and no contract was formed.

On December 23, Wyman, a lawyer representing First National Bank & Trust (defendant), wrote to Zeller (plaintiff) stating that he had been instructed to offer a building to Zeller at a price of $240,000. Zeller had previously expressed an interest in purchasing the building for $240,000. The letter also set forth details concerning interest rates and loan fees. After receiving the letter, Zeller instructed his attorney, Jamma, to send Wyman a written counteroffer of $230,000 with varying interest and loan arrangements. Jamma sent the written counteroffer as instructed on January 10. On the same day, Jamma telephoned Wyman and informed him of the counteroffer. Jamma then tried to telegraph acceptance of the original offer to Wyman. When Wyman refused to sell the property to him, Zeller brought this action to seek enforcement of the alleged contract. The trial court entered summary judgment against Zeller, and he appealed. Decision?

Counteroffer. Judgment for First National Bank. In order for an acceptance to create a binding contract, it must comply strictly with the terms of the offer. An acceptance requesting modification or containing terms that vary from those offered constitutes a rejection of the original offer and becomes a counteroffer that must be accepted by the original offeror before a valid, binding contract is formed. Here, in a telephone conversation on January 10, Jamma told Wyman of the $230,000 counteroffer, which operated as a rejection of the original offer and terminated Zeller's power of acceptance. Finally, it matters not that the counteroffer was communicated orally in response to a written offer. If an offer requires a written acceptance, no other form will do. Here, however, no particular form of response was required, so the oral counteroffer was an effective rejection. As such, it is irrelevant that the written acceptance arrived prior to the written counteroffer since the oral counteroffer preceded them both.

On July 5, 2008, Barbara and Kitty entered into a bet on the outcome of the 2008 presidential election. On January 28, 2009, Barbara, who bet on the winner, approached Kitty, seeking to collect the $3,000 Kitty had wagered. Kitty paid Barbara the wager but now seeks to recover the funds from Barbara. Result?

Decision for Barbara. As the wager was illegal the contract was unenforceable on grounds of public policy. Neither party can successfully sue the other for breach nor recover for any performance rendered. The courts will not aid one wrong doer by granting him restitution of a benefit conferred upon another party.

Small, admiring Jasper's watch, asked Jasper where and at what price he had purchased it. Jasper replied: "I bought it at West Watch Shop about two years ago for around $85, but I am not certain as to that." Small then said: "Those fellows at West are good people and always sell good watches. I'll buy that watch from you." Jasper replied: "It's a deal." The next morning Small telephoned Jasper and said he had changed his mind and did not wish to buy the watch. Jasper sued Small for breach of contract. In defense, Small has pleaded that he made no enforceable contract with Jasper (a) because the parties did not agree on the price to be paid for the watch, and (b) because the parties did not agree on the place and time of delivery of the watch to Small. Are either, or both, of these defenses good?

Definiteness of Acceptance. The first defense has merit, especially when combined with the second defense. The second defense will not stand alone, but when coupled with the lack of agreement as to price, it is less likely they intended to form a contract. Small's comments regarding the watch were not definite and certain. (a) Section 2-305, U.C.C., provides: "Open Price Term. (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if (a) nothing is said as to price." From the facts given, it would be difficult to a reasonable price. As to the second argument of time and place for delivery the U.C.C. provides: "2-308. Absence of Specified Place for Delivery. Unless otherwise agreed (a) the place for delivery of goods is the seller's place of business or if he has none his residence; *** "2-309. Absence of Specific Time Provision; Notice of Termination. (1) The time for shipment or delivery of any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time."

On April 8, Burchette received a telephone call from Bleluck, a truck dealer, who told Burchette that a new model truck in which Burchette was interested would arrive in one week. Although Bleluck initially wanted $10,500, the conversation ended after Bleluck agreed to sell and Burchette agreed to purchase the truck for $10,000, with a $1,000 down payment and the balance upon delivery. The next day, Burchette sent Bleluck a check for $1,000, which Bleluck promptly cashed. One week later, when Burchette called Bleluck and inquired about the truck, Bleluck informed Burchette he had several prospects looking at the truck and would not sell for less than $10,500. The following day, Bleluck sent Burchette a properly executed check for $1,000 with the following notation thereon: "Return of down payment on sale of truck." After notifying Bleluck that she will not cash the check, Burchette sues Bleluck for damages. Should Burchette prevail? Explain.

Definiteness. Decision for Burchette. The agreement made in the course of a telephone conversation between Burchette and truck dealer Bleluck was for the sale by Bleluck to Burchette at an agreed price of $10,000 for a new model truck. The trade description of the truck was known to both parties, as Burchette was interested in it, and dealer Bleluck had apparently ordered the new truck from the manufacturer as he told Burchette that he expected to receive delivery of it in one week. The price was payable $1,000 down, and the balance upon delivery. This is a valid oral contract for the sale of goods by description. Each party manifested to the other over the telephone assent to these terms, and Burchette promptly sent to Bleluck her check for $1,000 which Bleluck cashed. The mutual promises exchanged were definite and certain. Note regarding the statute of frauds: Bleluck 's check for $1,000 payable to Burchette and Bleluck 's notation thereon fulfill all of the requirements of the statute of frauds and make the contract enforceable against Bleluck in that (1) the notation evidences a contract for the sale of goods; (2) the check bears Bleluck 's signature as drawer; and (3) the singular number of "truck" refers to the quantity of one truck.

The Thoelkes were owners of real property located in Orange County, which the Morrisons agreed to purchase. The Morrisons signed a contract for the sale of that property and mailed it to the Thoelkes in Texas on November 26. The next day the Thoelkes executed the contract and placed it in the mail addressed to the Morrisons' attorney in Florida. After the executed contract was mailed but before it was received in Florida, the Thoelkes called the Morrisons' attorney in Florida and attempted to repudiate the contract. Decision?

Deposited Acceptance Rule. Decision for the Morrison's. There is a contract. Under the deposited acceptance rule, an unqualified offer was accepted when the letter was placed in the mail. The repudiation was ineffective, because a contract came into existence when the letter was mailed, even though it had not been received by the Morrison's attorney. This rule is also known as the "rule in Adams v. Lindsell," because that was the first case in which it was enunciated. Morrison v. Thoelke, 155 So.2d 889 (Fla. App. 1963).

Irwin Schiff is a self-styled "tax rebel" who has made a career, and substantial profit, out of his tax protest activities. On February 7, Schiff appeared live on CBS News Nightwatch, a late-night program with a viewer participation format. During the broadcast Schiff repeated his assertion that nothing in the Internal Revenue Code stated that an individual was legally required to pay federal income tax. Schiff then challenged, "If anybody calls this show—I have the Code—and cites any section of this Code that says an individual is required to file a tax return, I will pay them $100,000." Call-in telephone numbers were periodically flashed on the screen. John Newman, an attorney, did not see Schiff's live appearance on Nightwatch. Newman did, however, see a two-minute videotaped segment, including Schiff's challenge, which was rebroadcast several hours later on the CBS Morning News. Newman researched the matter that same day, and on the following day, February 9, placed a call using directory assistance to CBS Morning News stating that the call was performance of the consideration requested by Mr. Schiff in exchange for his promise to pay $100,000. When Schiff refused to pay, Newman sued. Should Newman prevail? Explain.

Duration of Offers. Judgment for Schiff. The offeror is the master of the offer, and it is clear that Schiff by his words "if anybody calls this show..." limited his offer in time to remain open only for the duration of the live Nightwatch broadcast. The CBS Morning News report on Schiff's offer did not serve to renew or extend the original offer. Newman's attempted acceptance was therefore untimely, and no contract was formed

William Schmalz entered into an employment contract with Hardy Salt Company. The contract granted Schmalz six months' severance pay for involuntary termination but none for voluntary separation or termination for cause. Schmalz was asked to resign from his employment. He was informed that if he did not resign, he would be fired for alleged misconduct. When Schmalz turned in his letter of resignation, he signed a release prohibiting him from suing his former employer as a consequence of his employment. Schmalz consulted an attorney before signing the release and upon signing it received $4,583.00 (one month's salary) in consideration. Schmalz now sues his former employer for the severance pay, claiming that he signed the release under duress. Is Schmalz correct in his assertion?

Duress. No. A person with business experience who understands the nature of what he is signing and who has sought the advice of counsel may not claim duress. The claim of duress is reserved for those who truly have been deprived of their free will. In this case, Schmalz signed the release with the full knowledge of its implications, accepted the salary payment, and did not repudiate until much later. These factors constitute a ratification of the release. Schmalz v. Hardy Salt Company., 739 S.W. 2d 765 (Mo. App. 1987).

Adler owes Panessi, a police captain, $500. Adler threatens that unless Panessi discharges him from the debt, Adler will disclose the fact that Panessi has on several occasions become highly intoxicated and has been seen in the company of certain disreputable persons. Panessi, induced by fear that such a disclosure would cost him his position or in any event lead to social disgrace, gives Adler a release but subsequently sues to set it aside and recover on his claim. Will Adler be able to enforce the release?

Duress. No. The restatement, second, Contracts, Section 175, defines duress as a manifestation "induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim." Moreover, a "threat is improper if the resulting exchange is not on fair terms, and (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat." Restatement, Second, Section 176(2). The facts presented in the problem state a clear-cut case of duress by the use of improper threats.

Ronald D. Johnson is a former employee of International Business Machines Corporation (IBM). As part of a downsizing effort, IBM discharged Johnson. In exchange for an enhanced severance package, Johnson signed a written release and covenant not to sue IBM. IBM's downsizing plan provided that surplus personnel were eligible to receive benefits, including outplacement assistance, career counseling, job retraining, and an enhanced separation allowance. These employees were eligible, at IBM's discretion, to receive a separation allowance of two weeks' pay. However, employees who signed a release could be eligible for an enhanced severance allowance equal to one week's pay for each six months of accumulated service with a maximum of twenty-six weeks' pay. Surplus employees could also apply for alternate, generally lower-paying, manufacturing positions. Johnson opted for the release and received the maximum twenty-six weeks' pay. He then alleged, among other claims, that IBM subjected him to economic duress when he signed the release and covenant-not-to-sue, and he sought to rescind both. What will Johnson need to show in order to prove his cause of action?

Duress. To constitute duress, there must be an application of such pressure or constraint as compels someone to go against their free will. Parties to a contract must freely and mutually consent to its terms. If consent to a contract is not freely given, the contract may be rescinded by the parties. In order to establish a claim for economic duress, the Plaintiff must prove by a preponderance of evidence the following elements: (1) the Defendant engaged in a sufficiently coercive wrongful act such that; (2) a reasonably prudent person in Plaintiff's economic position would have had no reasonable alternative but to succumb to Defendant's coercion; (3) Defendant knew of Plaintiff's economic vulnerability; and (4) Defendant's coercive wrongful act actually caused or induced plaintiff to enter into a contract. Johnson's case fails to meet these elements. First, IBM did not commit a wrongful act by designating Johnson a surplus employee or by requiring that he choose between severance options. Although the wrongful act need not be criminal or tortious, being allowed a voluntary choice of perfectly legitimate alternatives is the antithesis of duress. Encouragement or incentives is a far cry from coercion or denial of choice. Second, Johnson had reasonable alternatives to signing the release. In determining whether a reasonable alternative was available, courts employ an objective test dependent on the circumstances of each case. Johnson was not facing imminent bankruptcy or financial ruin. Regardless of what he may have subjectively believed, Johnson had reasonable alternatives available. Third, IBM had no knowledge of Johnson's particular economic circumstances nor of any peculiar economic vulnerability he had. Finally, Johnson's decision was his own and was not caused by any unfair action on the part of IBM. Therefore, at the time he signed the release, Johnson was not subject to economic duress.

International Underwater Contractors, Inc. (IUC), entered into a written contract with New England Telephone and Telegraph Company (NET) to assemble and install certain conduits under the Mystic River for a lump sum price of $149,680. Delays caused by NET forced IUC's work to be performed in the winter months instead of during the summer as originally bid, and as a result a major change had to be made in the system from that specified in the contract. NET repeatedly assured IUC that it would pay the cost if IUC would complete the work. The change cost IUC an additional $811,810.73; nevertheless, it signed a release settling the claim for a total sum of $575,000. IUC, which at the time was in financial trouble, now seeks to recover the balance due, arguing that the signed release is not binding because it was signed under economic duress. Is IUC correct?

Duress. Yes, judgment for IUC. A release signed under duress is not binding. To prove that there was duress, IUC must show that (1) one side involuntarily accepted the terms of another; (2) the circumstances permitted no other alternative; and (3) the circumstances were the result of coercive acts of the other party. Just taking advantage of another's financial difficulty is not duress; the party claiming duress must show that its financial difficulty was contributed to or caused by the one accused of coercion. Here, NET insisted on the change in the contract and repeatedly assured IUC that it would pay the substantial additional cost, if IUC would complete the work. Furthermore, NET refused to make payments for almost a year, which in turn caused IUC's financial difficulties. Other factors also indicate the existence of economic duress, including the unequal bargaining power of the two parties and the disparity among IUC's actual costs ($811,816), the amount NET's engineers had recommended for settlement ($775,000) and the final amount offered as a "take-it-or-leave-it" with the release ($575,000).

On May 1, Melforth Realty Company offered to sell Greenacre to Dallas, Inc., for $1,000,000. The offer was made by telegraph and stated that the offer would expire on May 15. Dallas decided to purchase the property and sent a registered letter to Melforth on May 10, accepting the offer. Due to unexplained delays in the postal service, Melforth did not receive the letter until May 22. Melforth wishes to sell Greenacre to another buyer, who is offering $1,200,000 for the tract of land. Has a contract resulted between Melforth and Dallas?

Effective Moment: Acceptance By Dispatch. Under the Restatement, Second, Dallas' acceptance, via mail, is a reasonable means of acceptance and is effective upon dispatch. Thus, Dallas' acceptance, mailed on May 10, would have been effective prior to the offer's termination on May 15. Under the traditional rule the acceptance would have been unauthorized, since it was not the means utilized by the offeror in making the offer, and therefore effective only when received by the offeror, provided it is received within the time period the authorized means would have arrived. Here the offer was not received (May 22) until the offer had already expired (May 15) and it was not received within the time frame that the authorized means (telegraph) would have been received within (probably no later than May 16). Had Melforth stipulated that the acceptance be received by May 15, then the effective moment of acceptance would be upon receipt by Melforth, and there would no contract.

On May 20 cattle rancher Oliver visited his neighbor Southworth, telling him, "I know you're interested in buying the land I'm selling." Southworth replied, "Yes, I do want to buy that land, especially since it adjoins my property." Although the two men did not discuss the price, Oliver told Southworth he would determine the value of the property and send that information to him, so that Southworth would have "notice" of what Oliver "wanted for the land." On June 13, Southworth called Oliver to ask if he still planned to sell the land. Oliver answered, "Yes, and I should have the value of the land determined soon." On June 17, Oliver sent a letter to Southworth listing a price quotation of $324,000. Southworth then responded to Oliver by letter on June 21, stating that he accepted Oliver's offer. However, on June 24 Oliver wrote back to Southworth, saying "There has never been a firm offer to sell, and there is no enforceable contract between us." Oliver maintains that a price quotation alone is not an offer. Southworth claims a valid contract has been made. Who wins?

Essentials of an Offer/Intent. There is a valid and enforceable contract to sell the property. Despite the general rule that a price quotation alone is insufficient to constitute an offer, "there may be circumstances under which a price quotation, when considered together with facts and circumstances, may constitute an offer which, if accepted, will result in a binding contract." Whether Oliver has communicated his intent to enter into a contract must be judged on the basis of what a reasonable person in the position of Southworth has been led to believe. Here, the circumstances surrounding the letter of June 17 (of itself merely a price quotation) made it reasonable that Southworth believed Oliver had made an offer to sell the ranch lands. Southworth v. Oliver, 284 Or. 361, 587 P.2d 994 (1978).

Adrian rents a bicycle from Barbara. The bicycle rental contract Adrian signed provides that Barbara is not liable for any injury to the renter caused by any defect in the bicycle or the negligence of Barbara. Injured when she is involved in an accident due to Barbara's improper maintenance of the bicycle, Adrian sues Barbara for her damages. Will Barbara be protected from liability by the provision in their contract?

Exculpatory Clauses. Decision for Adrian. Most courts would hold that this exculpatory clause is void against public policy. In deciding this question courts look at such factors as: "(1) It concerns a business of a type generally thought suitable for public regulation. (2) The party seeking exculpation is engaged in performing a service of great importance to the public which is often a matter of practical necessity for some members of the public. (3) The party holds himself out as willing to perform this service for any member of the public who seeks it, or at least any member coming within certain established standards. (4) As a result of the essential nature of the service, in the economic setting of the transaction, the party invoking exculpation possesses a decisive advantage of bargaining strength against any member of the public who seeks his services. (5) In exercising a superior bargaining power the party confronts the public with a standardized adhesion contract of exculpation, and makes no provision whereby a purchaser may pay additional fees and obtain protection against negligence. (6) Finally, as a result of the transaction, the person or property of the purchaser is placed under the control of the seller, subject to the risk of carelessness by the seller or his agents." See Tunkl v. Regents of the University of California (1963) 60 Cal.2d 92, 32 Cal. Rptr. 33, 383 P. 2d 441.

Richardson hired J. C. Flood Company, a plumbing contractor, to correct a stoppage in the sewer line of her house. The plumbing company's "snake" device, used to clear the line leading to the main sewer, became caught in the underground line. To release it, the company excavated a portion of the sewer line in Richardson's backyard. In the process, the company discovered numerous leaks in a rusty, defective water pipe that ran parallel with the sewer line. To meet public regulations, the water pipe, of a type no longer approved for such service, had to be replaced either then or later, when the yard would have to be redug for such purpose. The plumbing company proceeded to repair the water pipe. Though Richardson inspected the company's work daily and did not express any objection to the extra work involved in replacing the water pipe, she refused to pay any part of the total bill after the company completed the entire operation. J. C. Flood Company then sued Richardson for the costs of labor and material it had furnished. Richardson argued that she only requested correction of a sewer obstruction and had never agreed to the replacement of the water pipe. Is Richardson correct in her assertion?

Express and Implied Contracts. No. Contracts are either expressed or implied-expressed when their terms are stated by the parties, implied when arising from a mutual agreement not set forth in words. An implied contract "may be presumed from the acts and conduct of the parties as a reasonable man would view them under all the circumstances." Here, Richardson made daily inspections yet failed to object to the replacement of the water pipe until after the work was completed. Although she did not expressly agree to this extra work, her acts and conduct indicate her consent to it. Therefore, she created an implied (in fact) contract obligating her to pay for the reasonable value of the company's services.

On November 15, I. Sellit, a manufacturer of crystalware, mailed to Benny Buyer a letter stating that Sellit would sell to Buyer 100 crystal "A" goblets at $100 per goblet and that "the offer would remain open for fifteen (15) days." On November 18, Sellit, noticing the sudden rise in the price of crystal "A" goblets, decided to withdraw her offer to Buyer and so notified Buyer. Buyer chose to ignore Sellit's letter of revocation and gleefully watched as the price of crystal "A" goblets continued to skyrocket. On November 30, Buyer mailed to Sellit a letter accepting Sellit's offer to sell the goblets. The letter was received by Sellit on December 4. Buyer demands delivery of the goblets; what result?

Firm Offers Under the Code. Buyer prevails. Sellit's offer of Nov. 15, constituted a firm offer-it is a signed writing by a merchant promising to hold open an offer for 3 months or less (15 days in this case) and therefore cannot be revoked prior to Nov. 30. Thus, Sellit's revocation of Nov. 18, is ineffective and of no legal effect. Buyer accepted Sellit's offer within the prescribed time period by dispatching his acceptance on November 30. Buyer's use of the mail for sending his acceptance is a reasonable means of acceptance (this is a UCC sale) and thus is effective upon dispatch.

Dorothy and John Huffschneider listed their house and lot for sale with C. B. Property. The asking price was $165,000, and the owners told C. B. that the size of the property was 6.8 acres. Dean Olson, a salesman for C. B., advertised the property in local newspapers as consisting of six acres. James and Jean Holcomb signed a contract to purchase the property through Olson after first inspecting the property with Olson and being assured by Olson that the property was at least 6.6 acres. The Holcombs never asked for or received a copy of the survey. In actuality, the lot was only 4.6 acres. The Holcombs now seek to rescind the contract. Decision?

Fraud in the Inducement. Decision for James and Jean Holcomb. When Olson falsely represented that the property was at least 6.6 acres a fraud was committed. As the sales agent Olson had an obligation to disclose all material information to the purchasers as well as to respond truthfully to all inquiries. The agent had access to the survey and could have easily verified the actual acreage. His conduct can be characterized at a minimum as "recklessly indifferent" if not outright as an intended deception, so long as Dorothy and John Huffschneider did not provide C.B. Property with a fraudulent survey of the property.

Harris owned a farm that was worth about $600 per acre. By false representations of fact, Harris induced Pringle to buy the farm at $1,500 per acre. Shortly after taking possession of the farm, Pringle discovered oil under the land. Harris, on learning this, sues to have the sale set aside on the ground that it was voidable because of fraud. Result?

Fraud in the Inducement. Decision in favor of Pringle. Because Pringle was fraudulently induced to buy the farm, Pringle had the right to disaffirm the transaction. All of the elements are present, including justifiable reliance on the statements made by Harris. The contract was voidable by Pringle only, not by Harris. Presumably Pringle will be content with the bargain even though induced by fraud to make the purchase. The right of avoidance rests entirely with Pringle and he may, if he so desires, abide by the contract. It should be noted, however, that Pringle would not prevail in a suit brought in tort since Pringle did not suffer an injury.

Mrs. Audrey E. Vokes, a widow of fifty-one years and without family, purchased fourteen separate dance courses from J. P. Davenport's Arthur Murray, Inc., School of Dance. The fourteen courses totaled in the aggregate 2,302 hours of dancing lessons at a cost to Mrs. Vokes of $31,090.45. Mrs. Vokes was induced continually to reapply for new courses by representations made by Mr. Davenport that her dancing ability was improving, that she was responding to instruction, that she had excellent potential, and that they were developing her into an accomplished dancer. In fact, she had no dancing ability or aptitude and had trouble "hearing the musical beat." Mrs. Vokes brought action to have the contracts set aside. Should she prevail on her claim? Explain.

Fraud in the Inducement. Judgment for Mrs. Vokes. Ordinarily, for a misrepresentation to be actionable, it must be one of fact rather than of opinion. Where, as here, however, a statement is made by a party having superior knowledge, that statement may be taken as one of fact, although it would be considered as one of opinion if the parties were dealing on equal terms. Here it could be said that Mr. Davenport had superior knowledge as to Mrs. Vokes' dancing potential and as to her degree of improvement and that he set forth those "facts" in a greatly exaggerated fashion to induce her to enter into new contracts. Even in contractual situations where a party to a transaction owes no duty to disclose facts within his knowledge or to answer inquires as to those facts, if he undertakes to speak, he must disclose the whole truth. Because of his superior knowledge, Davenport's statements regarding Mrs. Vokes' dancing ability and potential may be taken as statements of fact.

On February 2, Phillips induced Miller to purchase from her fifty shares of stock in the XYZ Corporation for $10,000, representing that the actual book value of each share was $200. A certificate for fifty shares was delivered to Miller. On February 16, Miller discovered that the book value on February 2 was only $50 per share. Will Miller be successful in a lawsuit against Phillips? Why?

Fraud in the Inducement. Yes, Miller will prevail against Phillips. The statement that the actual book value of the shares of stock in XYZ Corporation was $200 per share was a statement of material fact made to induce Miller to purchase the stock and which did, in fact, succeed in persuading Miller to buy the shares. The transaction meets the requirements of fraud in the inducement: (1) The representation related to a material fact; (2) It was knowingly false; (3) It was made with the intention that it be acted upon by the person to whom made; (4) It was justifiably relied upon; and (5) The false representation was the proximate cause of injury or damage.

Division West Chinchilla Ranch advertised on television that a five-figure income could be earned by raising chinchillas with an investment of only $3.75 per animal per year and only thirty minutes of maintenance per day. The minimum investment was $2,150 for one male and six female chinchillas. Division West represented to plaintiffs that chinchilla ranching would be easy and that no experience was required to make ranching profitable. Plaintiffs, who had no experience raising chinchillas, each invested $2,150 or more to purchase Division's chinchillas and supplies. After three years without earning a profit, plaintiffs sue Division for fraud. Do these facts sustain an action for fraud in the inducement?

Fraud. Yes, judgment for plaintiffs. Division knew that plaintiffs had no experience in chinchilla ranching and it was unlikely that they would make a profit without experience and skill. The parties in this case were not bargaining with equal knowledge. Division exploited its superior position by exploiting the plaintiffs-this constitutes fraud. Fisher v. Division West Chinchilla Ranch, 310 F. Supp. 424 (D. Minn. 1970).

On February 10, Mrs. Sunderhaus purchased a diamond ring from Perel & Lowenstein for $6,990. She was told by the company's salesman that the ring was worth its purchase price, and she also received at that time a written guarantee from the company attesting to the diamond's value, style, and trade-in value. When Mrs. Sunderhaus went to trade the ring for another, however, she was told by two jewelers that the ring was valued at $3,000 and $3,500, respectively. Mrs. Sunderhaus knew little about the value of diamonds and claims to have relied on the oral representation of the Perel & Lowenstein's salesman and the written representation as to the ring's value. She seeks rescission of the contract or damages in the amount of the sales price over the ring's value. Decision?

Fraud/Misrepresentation of Fact/Opinion of Expert as to Value. Decision for Mrs. Sunderhaus. Although in general a statement of opinion as to value is not considered to be a statement of fact, the opinion here was given by a jeweler who was an "expert" upon whose advice Mrs. Sunderhaus relied. Whenever a party states a matter, which might otherwise be only an opinion, and does not state it as the mere expression of his own opinion, but affirms it as an existing fact material to the transaction, so that the other party may reasonably treat it as a fact, and rely and act upon it as such, then the statement clearly becomes an affirmation of fact within the meaning of general rule, and may be fraudulent misrepresentation. The layman must of necessity rely upon the integrity of the jeweler in purchasing a diamond or other precious stone. Mrs. Sunderhaus was in no position to make her own determination as to the weight and value of the stones. She relied upon the jeweler's statement of value and had a right to rely upon the statement of value. The written guarantee of the ring's value, style and trade-in value is a statement of fact for purposes of fraud. Sunderhaus v. Perel & Lowenstein, 215 Tenn. 619, 388 S.W. 2d 140 (1965).

Columbia University brought suit against Jacobsen on two notes signed by him and his parents, representing the balance of tuition he owed the University. Jacobsen counterclaimed for money damages due to Columbia's deceit or fraudulent misrepresentation. Jacobsen argues that Columbia fraudulently misrepresented that it would teach wisdom, truth, character, enlightenment, and similar virtues and qualities. He specifically cites as support the Columbia motto: "in lumine tuo videbimus lumen" ("In your light we shall see light"); the inscription over the college chapel: "Wisdom dwelleth in the heart of him that hath understanding"; and various excerpts from its brochures, catalogues, and a convocation address made by the University's president. Jacobsen, a senior who was not graduated because of poor scholastic standing, claims that the University's failure to meet its promises made through these quotations constituted fraudulent misrepresentation or deceit. Decision?

Fraud: False Representation. Judgment for Columbia University. The necessary elements of an action for deceit are: (1) a false representation; (2) knowledge or belief on the part of the person making the representation that it is false; (3) an intention that the other party act thereon; (4) reasonable reliance by such party in so doing; and (5) resultant damage to him. Here, the quotations in the University's brochures and catalogues, inscriptions over its buildings, and speech by its president merely indicated Columbia's objectives, desires, and hopes together with factual statements as to the nature of some of the courses included in its curricula. There is nothing in these statements to establish that Columbia represented that it would teach wisdom. Jacobsen's interpretation of them as a representation, express or implied, that it could or would teach wisdom and the like is entirely subjective and irrational. Wisdom is not a subject that can be taught and no reasonable person would accept such a claim made by any man or institution. Therefore, there is no false representation upon which to base an action in deceit.

Plaintiff, Gibson, entered into negotiation with W. S. May, president of Home Folks Mobile Home Plaza, Inc., to buy Home Plaza Corporation. Plaintiff visited the mobile home park on several occasions, at which time he noted the occupancy, visually inspected the sewer and water systems, and asked May numerous questions concerning the condition of the business. Plaintiff, however, never requested to see the books, nor did May try to conceal them. May admits making the following representations to the plaintiff: (1) the water and sewer systems were in good condition and no major short-term expenditures would be needed; (2) the park realized a 40 percent profit on natural gas sold to tenants; and (3) usual park vacancy was 5 percent. Additionally, May gave plaintiff the park's accountant-prepared income statement, which showed a net income of $38,220 for the past eight months. Based on these figures, plaintiff projected an annual net profit of $57,331.20. Upon being asked whether this figure accurately represented income of the business for the past three years, May stated by letter that indeed it did. Plaintiff purchased the park for $275,000. Shortly thereafter, plaintiff spent $5,384 repairing the well and septic systems. By the time plaintiff sold the park three years later, he had expended $7,531 on the wells and $8,125 on the septic systems. Furthermore, in the first year, park occupancy was nowhere near 95 percent. Even after raising rent and the charges for natural gas, plaintiff still operated at a deficit. Plaintiff sued defendant, alleging that May, on behalf of defendant, made false and fraudulent statements on which plaintiff relied when he purchased the park. Decision?

Fraud: Justifiable Reliance. Defendant's motion for summary judgment denied. The essential elements of fraud are: "(1) false representation made by the defendant; (2) scienter; (3) an intention to induce the plaintiff to act or refrain from acting in reliance by the plaintiff; (4) justifiable reliance by the plaintiff; (5) damage to the plaintiff." Home Plaza claims that Gibson was not justified in relying upon the false representations of May because Gibson failed to exercise ordinary diligence and prudence before acting on the alleged misrepresentations. A lack of diligence may be apparent as a matter of law when the defrauded party blindly and carelessly relies upon the representations of another or had notice of the allegedly misrepresented fact and proceeded anyway. However, the law of Georgia "does not require a defrauded party to exhaust all means at his disposal to ascertain the truth of representations before acting thereon." Gibson visited the park several times and communicated extensively with May, Gibson tried to verify a number of items, among them the eight-month income statement and the projection of annual income. This behavior is not blind reliance as a matter of law. Gibson had a right to rely upon the truth of May's statements without seeking verification from other sources, since the statements related to matters apparently within May's knowledge.

In February, Gardner, a schoolteacher with no experience in running a tavern, entered into a contract to purchase for $40,000 the Punjab Tavern from Meiling. The contract was contingent upon Gardner's obtaining a five-year lease for the tavern's premises and a liquor license from the State. Prior to the formation of the contract, Meiling had made no representations to Gardner concerning the gross income of the tavern. Approximately three months after the contract was signed, Gardner and Meiling met with an inspector from the Oregon Liquor Control Commission (OLCC) to discuss transfer of the liquor license. Meiling reported to the agent, in Gardner's presence, that the tavern's gross income figures for February, March, and April were $5,710, $4,918, and $5,009, respectively. The OLCC granted the required license, the transaction was closed, and Gardner took possession on June 10. After discovering that the tavern's income was very low and that the tavern had very few female patrons, Gardner contacted Meiling's bookkeeping service and learned that the actual gross income for those three months had been approximately $1,400 to $2,000. Will a court grant Gardner rescission of the contract? Explain.

Fraudulent Misrepresentation/Justifiable Reliance. No. To sustain a case of fraudulent misrepresentation, the injured party must prove that he actually relied upon the false representation, causing him to enter into the bargain. Meiling's only representations concerning the Tavern's gross income were made months after the contract was formed. Since these misrepresentations came after the binding agreement of February, they could not have been relied upon by Gardner in making the agreement. Therefore, rescission of the contract is not permitted. Gardner v. Meiling, 280 Or. 665, 572 P.2d 1012 (1977).

Baker entered into an oral agreement with Healey, the State distributor of Ballantine & Sons liquor products, that Ballantine would supply Baker with its products on demand and that Baker would have the exclusive agency for Ballantine within a certain area of Connecticut. Shortly thereafter the agreement was modified to give Baker the right to terminate at will. Eight months later, Ballantine & Sons revoked its agency, May Baker enforce the oral agreement?

Illusory Promises. No. To agree to do something and reserve the right to cancel the agreement at will is no agreement at all. By the valid addition to their oral agreement, Baker had an unconditional right to terminate the contract at will. His promise under the agreement, then, was merely illusory. As such, it was insufficient consideration to support Ballantine's promise of an exclusive agency to Baker. R.F. Baker & Co., Inc. v. P. Ballantine & Sons. Supreme Court of Errors of Connecticut. 127 Conn. 680, 20 A.2d 82. (1941).

The Snyder Mfg. Co., being a large user of coal, entered into separate contracts with several coal companies. In each contract it was agreed that the coal company would supply coal during the entire year in such amounts as the manufacturing company might desire to order, at a price of $35 per ton. In February, the Snyder Company ordered 1,000 tons of coal from Union Coal Company, one of the contracting parties. Union Coal Company delivered 500 tons of the order and then notified Snyder Company that no more deliveries would be made and that it denied any obligation under the contract. In an action by Union Coal to collect $35 per ton for the 500 tons of coal delivered, Snyder files a counterclaim, claiming damages of $1,500 for failure to deliver the additional 500 tons of the order and damages of $4,000 for breach of agreement to deliver coal during the balance of the year. What contract, if any, exists between Snyder and Union?

Illusory Promises. Snyder Mfg. Co. owes Union the rate of $35 per ton for 500 tons of coal already delivered. Moreover, the alleged contracts, to the extent executory, are probably not binding on either party. These agreements to supply Snyder with such amounts of coal as "it might desire to order" contain illusory promises. Snyder did not agree to order or to buy any coal. It was therefore not contractually bound to do so. Where one party to an agreement is not bound, neither party is bound. Even though the contracts come within the UCC, its good faith provisions could, but probably would not validate these illusory promises. Furthermore, these alleged contracts would not constitute requirements contracts.

Owen telephones an order to Hillary's store for certain goods, which Hillary delivers to Owen. Neither party says anything about the price or payment terms. What are the legal obligations of Owen and Hillary

Implied Contracts. Owen and Hillary's agreement deals in goods, so the contract falls within the UCC. Omission of a stated price would require payment of a "reasonable" price with full payment being made when possession of the goods is obtained

Frank Berryessa stole funds from his employer, the Eccles Hotel Company. His father, W. S. Berryessa, learned of his son's trouble and, thinking the amount involved was about $2,000, gave the hotel a promissory note for $2,186 to cover the shortage. In return, the hotel agreed not to publicize the incident or notify the bonding company. (A bonding company is an insurer that is paid a premium for agreeing to reimburse an employer for thefts by an employee.) Before this note became due, however, the hotel discovered that Frank had actually misappropriated $6,865. The hotel then notified its bonding company, Great American Indemnity Company, to collect the entire loss. W. S. Berryessa claims that the agent for Great American told him that unless he paid them $2,000 in cash and signed a note for the remaining $4,865, Frank would be prosecuted. Berryessa agreed, signed the note, and gave the agent a cashier's check for $1,500 and a personal check for $500. He requested that the agent not cash the personal check for about a month. Subsequently, Great American sued Berryessa on the note. He defends against the note on the grounds of duress and counterclaims for the return of the $1,500 and the cancellation of the uncashed $500 check. Who should prevail?

Improper Threats. In an action on the note, Berryessa (Frank was not served with summons) resisted liability upon the grounds of duress and lack of consideration. He counterclaimed for the return of the $1,500 and the cancellation of the uncashed check for $500. Held (1) that the note having been given to suppress a criminal prosecution was against public policy and not enforceable between the parties because of duress of illegal consideration; (2) that there was not duress as to the uncashed check for $500 and the payment of $1,500 cash which were substituted for the $2,186 note that had been given by defendant to the hotel employer without any duress or threat of prosecution.

Scott, manufacturer of a carbonated beverage, entered into a contract with Otis, owner of a baseball park, whereby Otis rented to Scott a large signboard on top of the center field wall. The contract provided that Otis should letter the sign as Scott desired and would change the lettering from time to time within forty-eight hours after receipt of written request from Scott. As directed by Scott, the signboard originally stated in large letters that Scott would pay $1,000 to any ballplayer hitting a home run over the sign. Scott refuses to pay any of the three players. What are the rights of Scott, Hume, Perry, and Todd?

In the first game of the season, Hume, the best hitter in the league, hit one home run over the sign. Scott immediately served written notice on Otis instructing Otis to replace the offer on the signboard with an offer to pay $500 to every pitcher who pitched a no-hit game in the park. A week after receipt of Scott's letter, Otis had not changed the wording on the sign. On that day, Perry, a pitcher for a scheduled game, pitched a no-hit game while Todd, one of his teammates, hit a home run over Scott's sign.

Rowe advertised in newspapers of wide circulation and otherwise made known that she would pay $5,000 for a complete set consisting of ten volumes of certain rare books. Ford, not knowing of the offer, gave Rowe all but one of the set of rare books as a Christmas present. Ford later learned of the offer, obtained the one remaining book, tendered it to Rowe, and demanded the $5,000. Rowe refused to pay. Is Ford entitled to the $5,000?

Intent. Ford is not entitled to the $5,000, as he did not accept Rowe's offer and therefore no contract was formed. The gift of the nine books by Ford to Rowe was not an acceptance because acceptance requires an intention on the part of the offeree to accept the offer, and since at the time of making the gift Ford had no knowledge of the offer, he did not have and could not have had such intention. Moreover, even if Ford had then known of the offer, his intention at that time was to give the nine books to Rowe as a Christmas present, and not to accept any offer

Ben Collins was a full professor with tenure at Wisconsin State University in 2002. In March of 2002 Parsons College, in order to lure Dr. Collins from Wisconsin State, offered him a written contract promising him the rank of full professor with tenure and a salary of $55,000 for the 2002-03 academic year. The contract further provided that the College would increase his salary by $2,000 each year for the next five years. In return, Collins was to teach two trimesters of the academic year beginning in October 2002. In addition, the contract stipulated, by reference to the College's faculty bylaws, that tenured professors could only be dismissed for just cause and after written charges were filed with the Professional Problems Committee. The two parties signed the contract, and Collins resigned his position at Wisconsin State. In February of 2004, the College tendered a different contract to Collins to cover the following year. This contract reduced his salary to $45,000 with no provision for annual increments, but left his rank of full professor intact. It also required that Collins waive any and all rights or claims existing under any previous employment contracts with the College. Collins refused to sign this new contract and Parsons College soon notified him that he would not be employed the following year. The College did not give any grounds for his dismissal; nor did it file charges with the Problems Committee. As a result, Collins was forced to take a teaching position at the University of North Dakota at a substantially reduced salary. He sued to recover the difference between the salary Parsons College promised him until 2007 and the amount he earned. Will Collins prevail?

Legal Sufficiency. Yes, judgment for Collins. The College's promise to employ Collins permanently (with tenure), at a specified salary with increments to 2001, must be supported by consideration from Collins to be enforceable. Collins did not promise to serve permanently or even until 2001 in exchange for the College's promise. Consideration, however, may consist of a detriment to the promisee (Collins) and benefit need not move to the promisor (the College). Parsons College promised Collins tenure, knowing that he would have to resign his permanent, tenured position at Wisconsin State. Therefore, Collins' surrender of his former position to accept the College's offer constituted binding consideration.

Wilkins, a resident of and licensed by the State of Texas as a certified public accountant, rendered service in his professional capacity in Louisiana to Coverton Cosmetics Company. He was not registered as a certified public accountant in Louisiana. His service under his contract with the cosmetics company was not the only occasion on which he had practiced his profession in that State. The company denied liability and refused to pay him, relying upon a Louisiana statute declaring it unlawful for any person to perform or offer to perform services as a CPA for compensation until he has been registered by the designated agency of the State and holds an unrevoked registration card. Provision is made for issuance of a certificate as a CPA without examination to any applicant who holds a valid unrevoked certificate as a CPA under the laws of any other State. The statute provides further that rendition of services of the character performed by Wilkins, without registration, is a misdemeanor punishable by a fine or imprisonment in the county jail, or both. Discuss whether Wilkins would be successful in an action against Coverton seeking to recover a fee in the amount of $1,500 as the reasonable value of his services.

Licensing Statute. Decision in favor of Coverton Cosmetics Company. The statute is a regulatory measure designed to protect the public by permitting only persons with the necessary qualifications to practice accounting. The statute declares that it shall be unlawful for a person to perform services as a CPA for compensation without a license, and prescribes a penalty for its violation. Contracts for the rendition of services as a CPA by an unlicensed person are void and incapable of enforcement. Where the statute does not contain an express provision rendering void a contract entered into by one not qualified under its provisions but, as in the problem, imposes a penalty for its violation, it is generally held that the penalty implies the prohibition. Restatement, Second, Contracts, Section 181.

Tovar applied for the position of resident physician in Paxton Community Memorial Hospital. The hospital examined his background and licensing and assured him that he was qualified for the position. Relying upon the hospital's promise of permanent employment, Tovar resigned from his job and began work at the hospital. He was discharged two weeks later, however, because he did not hold a license to practice medicine in Illinois as required by State law. He had taken the examination but had never passed it. Tovar claims that the hospital promised him a position of permanent employment and that by discharging him it breached their employment contract. Discuss.

Licensing Statute. Judgment for Paxton Hospital. The purpose of the licensing statute is not to generate revenue but rather to protect the public by assuring them of adequately trained physicians. Since the purpose of the licensing requirements is to protect the public from unqualified persons, any contract relating to the licensed activity and entered into with an unlicensed person is illegal. The contact between the hospital and Tovar was illegal, and therefore is unenforceable as against public policy. Tovar v. Paxton Community Memorial Hospital, 29 Ill. App. 3d 218, 330 N.E.2d 247 (1975).

In February, Brady contracted to construct a house for Fulghum for $106,850. Brady began construction on March 13. Neither during the negotiation of this contract nor when he began performance was Brady licensed as a general contractor as required by North Carolina law. Brady was awarded his builder's license on October 22, having passed the examination on his second attempt. At that time, he had completed two-thirds of the work on Fulghum's house. Fulghum paid Brady $104,000. Brady brought suit, seeking an additional $2,850 on the original contract and $28,926 for "additions and changes" Fulghum requested during construction. Is Fulghum liable to Brady? Explain.

Licensing Statute. Judgment for the Fulghums. Generally, contracts entered into by unlicensed general contractors, in violation of a statute passed for the protection of the public, are unenforceable by the contractor. Since a contractor must rely on his illegal act (contracting and working without a license) to enforce the contract, courts have held that there is no legal remedy for that which is illegal itself. Furthermore, the contract cannot be validated by the subsequent procurement of a license. Even though Brady eventually obtained his license before completing the house, he did not have one when he negotiated the contract or began construction. Also, Brady is not entitled to recover for extras, additions, or changes made pursuant to this contract. However, it must be noted that the contract is not void. Others not regulated by the licensing contract, which was passed for their own protection, do not act illegally in becoming parties to such contracts. Therefore, other parties may enforce the contract against the unlicensed contractor. Brady v. Fulghum, 308 S.E.2d 327 (N.C. 1983).

The Brewers contracted to purchase Dower House from McAfee. Then, several weeks before the May 7 settlement date for the purchase of the house, the two parties began to negotiate for the sale of certain items of furniture in the house. On April 30, McAfee sent the Brewers a letter containing a list of the furnishings to be purchased at specified prices; a payment schedule, including a request for a $3,000 payment, due on acceptance; and a clause reading: "If the above is satisfactory, please sign and return one copy with the first payment." On June 3, the Brewers sent a letter to McAfee stating that enclosed was a $3,000 check; that the original contract had been misplaced and could another be furnished; that they planned to move into Dower House on June 12; and that they wished the red desk to be included in the contract. McAfee then sent a letter dated June 8 to the Brewers, listing the items of furniture purchased. The Brewers moved into Dower House in the middle of June. Soon after they moved in, they tried to contact McAfee at his office to tell him that there had been a misunderstanding relating to their purchase of the listed items. They then refused to pay him any more money, and he brought this action to recover the balance outstanding. Will McAfee be able to collect the additional money from the Brewers?

Mirror Image Rule. Here, McAfee did not indicate in his April 30 letter to the Brewers that a particular manner of acceptance was required. Therefore, the Brewer's letter of June 3, together with the enclosed $3,000 check, the amount due upon acceptance of the contract, manifested their assent to the items listed in the April 30 letter from McAfee. The June 3 letter was both definite and seasonable, and the reference to the red writing desk was not expressed in language making acceptance conditional upon inclusion of the desk. This item, then, was merely a proposal for an addition to the contract as McAfee requested, they did send a letter of their own. This was reasonable under the circumstances since they had misplaced the contract and, therefore, the letter constituted an effective acceptance of McAfee's offer. McAfee v. Brewer, 214 Va. 579, 203 S.E.2d 129 (1974

On September 1, Adams in Portland, Oregon, wrote a letter to Brown in New York City, offering to sell to Brown one thousand tons of chromite at $48.00 per ton, to be shipped by S.S. Malabar sailing from Portland, Oregon, to New York City via the Panama Canal. Upon receiving the letter on September 5, Brown immediately mailed to Adams a letter stating that she accepted the offer. There were two ships by the name of S.S. Malabar sailing from Portland to New York City via the Panama Canal, one sailing in October and the other sailing in December. At the time of mailing her letter of acceptance Brown knew of both sailings and further knew that Adams knew only of the December sailing. Is there a contract? If so, to which S.S. Malabar does it relate?

Mistake. There is a contract, and it relates to the S.S. Malabar sailing in December. In the classic Peerless case (Raffles v. Wichelhaus, 2 Hurlstone and Coltman Reports 906) there were two ships sailing from Bombay both named "Peerless." The defendant knew only of the "Peerless" sailing in October and the plaintiff knew only of the "Peerless" sailing in December. There was no meeting of the minds and hence, no contract. Here, since Brown knew of both sailings and further knew that Adams did not know of the October sailing, she, Brown, will not be heard to say that she intended the chromite to be shipped on the S.S. Malabar sailing in October. Adams and Brown manifested their mutual intent to a sale of chromite to be shipped on the S.S. Malabar sailing in December. Restatement, Second, Sect. 20.

Doris mistakenly accused Peter's son, Steven, of negligently burning down her barn. Peter believed that his son was guilty of the wrong and that he, Peter, was personally liable for the damage, since Steven was only fifteen years old. Upon demand made by Doris, Peter paid Doris $2,500 for the damage to her barn. After making this payment, Peter learned that his son had not caused the burning of Doris's barn and was in no way responsible for its burning. Peter then sued Doris to recover the $2,500 he had paid her. Will he be successful?

Mistake. Yes, judgment for Peter for $2500 against Doris. The payment was made under a mutual mistake of material fact. Both Peter and Doris mistakenly believed that Doris's barn had been negligently burned by Peter's son, Steven, while as a matter of fact Steven did not cause the burning of Doris's barn and was in no way responsible for its burning. A payment made under a mutual mistake of fact is recoverable under the doctrine of quasi-contract.

Jones, a farmer, found an odd-looking stone in his fields. He went to Smith, the town jeweler, and asked him what he thought it was. Smith said he did not know but thought it might be a ruby. Jones asked Smith what he would pay for it, and Smith said two hundred dollars, whereupon Jones sold it to Smith for $200. The stone turned out to be an uncut diamond worth $3,000. Jones brought an action against Smith to recover the stone. On trial, it was proved that Smith actually did not know the stone was a diamond when he bought it, but he thought it might be a ruby. Can Jones void the sale? Explain.

Mistake: Nature of Subject Matter. No, Jones cannot void the sale. Mutual ignorance upon the part of Jones and Smith of the value of the subject matter did not prevent the formation of a valid contract. They both understood that the two hundred dollars was to be exchanged for the stone. There was no mistake as to the subject matter of the agreement. There was neither fraud nor misrepresentation.

The parties entered into an oral contract in June, under which plaintiff agreed to construct a building for defendant on a time and materials basis, at a maximum cost of $56,146, plus sales tax and extras ordered by defendant. When the building was 90 percent completed, defendant told plaintiff he was unhappy with the whole job as "the thing just wasn't being run right." The parties then on October 17 signed a written agreement lowering the maximum cost to $52,000 plus sales tax. Plaintiff thereafter completed the building at a cost of $64,155. The maximum under the June oral agreement, plus extras and sales tax, totaled $61,040. Defendant contended that he was obligated to pay only the lower maximum fixed by the October 17 agreement. Decision?

Modification. The Supreme Court of Washington held that the October 17th modification agreement was not binding for lack of consideration and plaintiff was entitled to recover under the original agreement, stating: "Applying our holding to the facts in this case, we must conclude that no consideration existed to support the October 17th agreement. Under the oral contract plaintiff had an antecedent duty to complete the building; defendant had an antecedent duty to pay a maximum of $56,146 plus extras, plus sales tax. Under the October 17th agreement plaintiff had the same duty while defendant had a lesser duty, unsupported by consideration. This is not a case of the mutual surrender of rights constituting consideration."

Christine Boyd was designated as the beneficiary of a life insurance policy issued by Aetna Life Insurance Company on the life of Christine's husband, Jimmie Boyd. The policy insured against Jimmie's permanent total disability and also provided for a death benefit to be paid on Jimmie's death. Several years after the policy was issued, Jimmie and Christine separated. Jimmie began to travel extensively, and Christine therefore was unable to keep track of his whereabouts or his state of health. Jimmie, however, continued to pay the premiums on the policy until Christine tried to cash in the policy to alleviate her financial distress. A loan had previously been made on the policy, however, leaving its cash surrender value, and thus the amount that Christine received, at only $4.19. Shortly thereafter, Christine learned that Jimmie had been permanently and totally disabled before the surrender of the policy. Aetna also was unaware of Jimmie's condition, and Christine requested that the surrendered policy be reinstated and that the disability payments be made. Jimmie died soon thereafter, and Christine then requested that Aetna pay the death benefit. Decision?

Mutual Mistake of Fact. Decision for Mrs. Boyd. As a matter of equity, the surrender agreement had to be rescinded. Had Mrs. Boyd known the true facts at the time she surrendered the policy, she certainly would not have done so. Since her mistaken belief that her husband was not disabled was a material mistake of fact, her rescission was not effective. In the opinion of the court, "The supposed elements of doubt as to the health of Mr. Boyd never entered into the contemplation of either party, nor did it form any part of the consideration for the cancellation and surrender of the policy. Since the policy was in full force and effect at the time of total permanent disability," the defendant insurance company is liable. Boyd v. Aetna Life Insurance Co., 310 Ill. App. 547, 35 N.E. 2d 99 (1941).

At the time of her death, Olga Mestrovic was the owner of a large number of works of art created by her late husband, Ivan Mestrovic, an internationally known sculptor and artist whose works were displayed throughout Europe and the United States. By the terms of Olga's will, all the works of art created by her husband were to be sold and the proceeds distributed to members of the Mestrovic family. Also included in the estate of Olga Mestrovic was certain real property that 1st Source Bank (the Bank), as personal representative of the estate of Olga Mestrovic, agreed to sell to Terrence and Antoinette Wilkin. The agreement of purchase and sale made no mention of any works of art, although it did provide for the sale of such personal property as dishwasher, drapes, and French doors in the attic. Immediately after closing on the real estate, the Wilkins complained to the Bank of the clutter left on the premises; the Bank gave the Wilkins an option of cleaning the house themselves and keeping any personal property they desired, to which the Wilkins agreed. At the time these arrangements were made, neither the Bank nor the Wilkins suspected that any works of art remained on the premises. During clean-up, however, the Wilkins found eight drawings and a sculpture created by Ivan Mestrovic to which the Wilkins claimed ownership based upon their agreement with the Bank that, if they cleaned the real property, they could keep such personal property as they desired. Who is entitled to ownership of the art work?

Mutual Mistake of Fact. Judgment for 1st Source Bank; the art works must be sold and the proceeds distributed to the family. The parties in this case shared a common presupposition as to certain facts which proved false. The Bank and Wilkins considered the real estate which Wilkins had purchased to be cluttered with items of personal property variously characterized as "junk," "stuff" or "trash." Neither party suspected that Mestrovic works of art remained on the premises, and the discovery of those works of art by Wilkins was unexpected. Where both parties share a common assumption about a vital fact, upon which they based their bargain, the transaction may be avoided if, because of the mistake, a quite different exchange of values occurs from the exchange of values contemplated by the parties. The gain to the Wilkins and the loss to the Bank were not contemplated when they made their agreement, and so a true meeting of the minds never occurred, allowing the Bank to avoid the agreement.

Treasure Salvors and the State of Florida entered into a series of four annual contracts governing the salvage of the Nuestra Senora de Atocha. The Atocha is a Spanish galleon that sank in 1622, carrying a treasure now worth well over $250 million. Both parties had contracted under the impression that the seabed on which the Atocha lay was land owned by Florida. Treasure Salvors agreed to relinquish 25 percent of the items recovered in return for the right to salvage on State lands. In accordance with these contracts, Treasure Salvors delivered to Florida its share of the salvaged artifacts.Subsequently, the United States Supreme Court held that the part of the continental shelf on which the Atocha was resting had never been owned by Florida. Treasure Salvors then brought suit to rescind the contracts and to recover the artifacts it had delivered to the State of Florida. Should Treasure Salvors prevail?

Mutual Mistake of Fact. Yes, judgment for Treasure Salvors. Both parties based their contracts upon the erroneous assumption that the state of Florida owned the land in question. But for this belief neither party would have entered into the agreements. The contracts are therefore voidable under the doctrine of mutual mistake of fact. Accordingly, Treasure Salvors may rescind the contracts and recover the artifacts delivered to the state of Florida. State of Florida, Dept. of State v. Treasure Salvors, Inc., 621 F.2d 1340 (5th Cir. 1980).

Barnes accepted Clark's offer to sell to him a portion of Clark's coin collection. Clark forgot that his prized $20 gold piece at the time of the offer and acceptance was included in the portion which he offered to sell to Barnes. Clark did not intend to include the gold piece in the sale. Barnes, at the time of inspecting the offered portion of the collection, and prior to accepting the offer, saw the gold piece. Is Barnes entitled to the $20 gold piece?

Objective Standard for Intent. Yes. Mutual assent to the formation of a contract is operative as to the extent it is manifested. If the manifestation is at variance with the mental intent, the objective expression is controlling. It was Clark's intention to sell the coin collection as a whole and the parties mutually assented to this. See City of Everett v. Estate of Sumstad, 631 P.2d 366 (Wash. 1981). This transaction shows no evidence of fraud in the inducement, which would make this it voidable at Clark's choice.

Lee Calan Imports advertised a used Volvo station wagon for sale in the Chicago Sun-Times. As part of the information for the advertisement, Lee Calan Imports instructed the newspaper to print the price of the car as $1,795. However, due to a mistake made by the newspaper, without any fault on the part of Lee Calan Imports, the printed ad listed the price of the car as $1,095. After reading the ad and then examining the car, O'Brien told a Lee Calan Imports salesman that he wanted to purchase the car for the advertised price of $1,095. Calan Imports refuses to sell the car to O'Brien for $1,095. Is there a contract? If so, for what price?

Offers/Invitations, Offer. No contract. A newspaper ad is an invitation to make an offer, not an offer. Judgment for Lee Calan Imports. O'Keefe v. Lee Calan Imports, Inc., 262 N.E. 2d 758, 128 Ill. App.2d 410 (1970).

Lucy and Zehmer met while having drinks in a restaurant. During the course of their conversation, Lucy apparently offered to buy Zehmer's 471.6-acre farm for $50,000 cash. Although Zehmer claims that he thought the offer was made in jest, he wrote the following on the back of a pad: "We hereby agree to sell to W. O. Lucy the Ferguson Farm complete for $50,000, title satisfactory to buyer." Zehmer then signed the writing and induced his wife Ida to do the same. She claims, however, that she signed only after Zehmer assured her that it was only a joke. Finally, Zehmer claims that he was "high as a Georgia pine" at the time but admits that he was not too drunk to make a valid contract. Does a contract exist between the Thoelkes and the Morrisons? Discuss

Offers/Objective Standard of Intent/Contractual Capacity. Judgment for Lucy. An agreement or mutual assent is essential to the formation of a valid contract. The mental assent of the parties is not requisite, however, unless one party's undisclosed intentions are not made known to the other party. If they are not, then the words and undisclosed intentions are judged by an objective standard to see if they manifest an intention to agree. Thus Zehmer cannot claim that he was merely jesting when his conduct and words would warrant a reasonable person in believing that he intended a real agreement. Zehmer's response to Lucy's offer, therefore, whether made in earnest or in secret jest constituted a binding contract. Zehmer had contractual capacity, because he was able to understand the nature and consequences of his actions. Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954).

Walker leased a small lot to Keith for ten years at $1,000 a month, with a right for Keith to extend the lease for another ten-year term under the same terms except as to rent. The renewal option provided: "Rental will be fixed in such amount as shall actually be agreed upon by the lessors and the lessee with the monthly rental fixed on the comparative basis of rental values as of the date of the renewal with rental values at this time reflected by the comparative business conditions of the two periods." Keith sought to exercise the renewal right and, when the parties were unable to agree on the rent, brought suit against Walker. Who prevails? Why?

Option Contract. Decision for Walker. The renewal option provision did not constitute an option contract or any agreement giving Keith a unilateral right to accept the new contract for a second 10-year period of time. The renewal option was merely an agreement to attempt to negotiate in good faith a new lease agreement for the second 10-year period. If Walker acted reasonably and attempted to negotiate an extension of the lease in good faith, yet despite that effort the parties were unable to agree on the new rent, Walker has no liability.

Anna Feinberg began working for the Pfeiffer Company in 1960 at age 17. By 1997 she had attained the position of bookkeeper, office manager, and assistant treasurer. In appreciation for her skill, dedication and long years of service, the Pfeiffer Board of Directors resolved to increase Feinberg's monthly salary to $1,400.00 and to create for her a retirement plan. The plan allowed that Feinberg would be given the privilege of retiring from active duty at any time she chose and that she would receive retirement pay of $700.00 per month, although the Board expressed the hope that Feinberg would continue to serve the company for many years. Feinberg, however, chose to retire two years later, in 1999. The Pfeiffer Company paid Feinberg her retirement pay until 2006. The company discontinued payments alleging that no contract had been made by the Board of Directors since there had been no consideration paid by Feinberg, and that the resolution was merely a promise to make a gift. Feinberg sued. Is the promise supported by consideration? Is the promise enforceable? Explain.

Past Consideration/Promissory Estoppel. Judgment for Feinberg. The law is clear that past services performed do not constitute valid consideration for the formation of a contract. Here, promises made in appreciation of Feinberg's many years of work do not render those promises enforceable against the company. However, a promise which the promisor should reasonably expect to induce action or forbearance of a definite and substantial character on the part of the promisee, and which does induce such action or forbearance, is binding if injustice can be avoided only by enforcement of the promise. This doctrine is called promissory estoppel. Feinberg reasonably relied on the promise of $700 per month retirement pay, and thereby abandoned her opportunity to continue in gainful employment. At the time payments were discontinued, Feinberg was 63 years old. Her chance of finding satisfactory employment, much less a position comparable to the one she gave up when she retired, is virtually nonexistent. Feinberg's reasonable and detrimental reliance upon the company's promise has created an enforceable contract.

Discuss and explain whether there is valid consideration for each of the following promises: (a) A and B entered into a contract for the purchase and sale of goods. A subsequently promised to pay a higher price for the goods when B refused to deliver at the contract price. (b) A promised in writing to pay a debt, which was due from B to C, on C's agreement to extend the time of payment for one year. (c) A orally promised to pay $150 to her son, B, solely in consideration of past services rendered to A by B, for which there had been no agreement or request to pay.

Pre-existing Contractual Obligation. (a) At common law there would be no legally sufficient consideration. A's promise to pay a higher price is not supported by anything other than what B had already agreed to do. The consideration on the part of the promisee does not involve any legal detriment to him. However, under Section 2-209 (1) of the Code, the new agreement would be binding without consideration if it was entered into voluntarily and in good faith. (b) Valid consideration. Agreement to extend the time of payment is a legal detriment. (c) No valid consideration. In general, past consideration is no consideration.

On February 5, Devon entered into a written agreement with Gordon whereby Gordon agreed to drill a well on Devon's property for the sum of $5,000 and to complete the well on or before April 15. Before entering into the contract, Gordon made test borings and had satisfied himself as to the character of the subsurface. After two days of drilling, Gordon struck hard rock. On February 17, Gordon removed his equipment and advised Devon that the project had proved unprofitable and that he would not continue. On March 17, Devon went to Gordon and told Gordon that he would assume the risk of the enterprise and would pay Gordon $100 for each day required to drill the well, as compensation for labor, the use of Gordon's equipment, and Gordon's services in supervising the work, provided Gordon would furnish certain special equipment designed to cut through hard rock. Gordon said that the proposal was satisfactory. The work was continued by Gordon and completed in an additional fifty-eight days. Upon completion of the work, Devon failed to pay, and Gordon brought an action to recover $5,800. Devon answered that he had never become obligated to pay $100 a day and filed a counterclaim for damages in the amount of $500 for the month's delay based on an alleged breach of contract by Gordon. Decision?

Pre-existing Contractual Obligation. Decision in favor of Gordon. As a general rule, a promise to do what one is already bound to do by a valid contract will not be sufficient consideration for a new agreement. However, Section 89 of the Restatement, Second, Contracts provides that a "promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in view of the circumstances not anticipated by the parties when the contract was made . . ." Alternatively, although of dubious validity in this problem, the same result may be reached on the ground of a substituted contract: that the original contract was rescinded by mutual agreement and that new promises were then made which furnished consideration for each other.

Nancy owed Sharon $1,500, but Sharon did not initiate a lawsuit to collect the debt within the time prescribed by the statute of limitations. Nevertheless, Nancy promises Sharon that she will pay the barred debt. Thereafter, Nancy refuses to pay. Sharon brings suit to collect on this new promise. Is Nancy's new promise binding? Explain.

Promise to Pay Debt Barred by the Statute of Limitations. Decision in favor of Sharon. Section 82 of the Restatement, Second, Contract provides: (1) A promise to pay all or part of an antecedent contractual or quasi-contractual indebtedness owed by the promisor is binding if the indebtedness is still enforceable or would be except for the effect of the statute of limitations. It should be noted that a number of states require by statute that such a promise be in writing to be binding.

(a) Judy orally promises her daughter, Liza, that she will give her a tract of land for her home. Liza, as intended by Judy, gives up her homestead and takes possession of the land. Liza lives there for six months and starts construction of a home. Is Judy bound to convey the real estate? (b) Ralph, knowing that his son, Ed, desires to purchase a tract of land, promises to give him the $25,000 he needs for the purchase. Ed, relying on this promise, buys an option on the tract of land. Can Ralph rescind his promise?

Promissory Estoppel. (a) Yes, decision for Liza. Usually, gift promises are ruled as lacking consideration and are not binding agreements. In this case, Liza justifiably relied on the promise and acted to her detriment by selling her home, moving onto the property, and starting construction of a new house. The doctrine of promissory estoppel applies to such promises that induce action by the promisee that would be reasonably expected by the promisor. Judy becomes liable for having induced the change in position by Liza. (b) Yes, judgment for Ralph. The doctrine of promissory estoppel does not make every gift promise binding just because the promisee has changed positions. There must be a justifiable reliance on the promise to the extent that the promisee takes definite and substantial action. Since Ed purchased only an option to buy the property, this probably would not be construed as a substantial action on his part.

Anna is about to buy a house on a hill. Prior to the purchase she obtains a promise from Betty, the owner of the adjacent property, that Betty will not build any structure that would block Anna's view. In reliance on this promise Anna buys the house. Is Betty's promise binding? Why or why not?

Promissory Estoppel. There is no contract. The essential elements of a contract are not present. However, the doctrine of promissory estoppel may be applicable. If a jury finds that Anna acted reasonably in reliance on Betty's promise, Betty's promise will be enforceable.

Red Owl Stores told the Hoffman family that, upon the payment of approximately $118,000, a grocery store franchise would be built for them in a new location. Upon the advice of Red Owl, the Hoffmans bought a small grocery store in their hometown in order to get management experience. After the Hoffmans operated at a profit for three months, Red Owl advised them to sell the small grocery, assuring them that Red Owl would find them a larger store elsewhere. Although selling at that point would cost them much profit, the Hoffmans followed Red Owl's directions. Additionally, to raise the money required for the deal, the Hoffmans sold their bakery business in their hometown. The Hoffmans also sold their house, and moved to a new home in the city where their new store was to be located. Red Owl then informed the Hoffmans that it would take $124,100, not $118,000, to complete the deal. The family scrambled to find the additional funds. However, when told by Red Owl that it would now cost them $134,000 to get their new franchise, the Hoffmans decided to sue instead. Should Red Owl be held to its promises? Explain.

Promissory Estoppel. Yes. All the requirements of promissory estoppel are present in these facts. 1) Was the promise one which the promisor should reasonably expect to induce action or forbearance of a substantial character by the promisee; 2) Did the promise in fact induce such action or forbearance; and 3) Can injustice be avoided only by enforcement of the promise? Note that the promise need not be so definite as to translate into an offer were consideration exchanged. Hoffman v. Red Owl Stores, Inc., 26 Wis.2d 683, 133 N.W.2d 267 (1965).

Michelle Marvin and actor Lee Marvin began living together, holding themselves out to the general public as man and wife without actually being married. The two orally agreed that while they lived together they would share equally any and all property and earnings accumulated as a result of their individual and combined efforts. In addition, Michelle promised to render her services as "companion, homemaker, housekeeper and cook" to Lee. Shortly thereafter, she gave up her lucrative career as an entertainer in order to devote her full time to being Lee's companion, homemaker, housekeeper, and cook. In return he agreed to provide for all of her financial support and needs for the rest of her life. After living together for six years, Lee compelled Michelle to leave his household but continued to provide for her support. One year later, however, he refused to provide further support. Michelle sued to recover support payments and half of their accumulated property. Lee contends that their agreement is so closely related to the supposed "immoral" character of their relationship that its enforcement would violate public policy. The trial court granted Lee's motion for judgment on the pleadings. Decision?

Public Policy. Judgment for Michelle Marvin. Adults who voluntarily live together and engage in sexual relations can, nonetheless, make arrangements concerning their earnings and property rights. They cannot, however, contract to pay for the performance of sexual services; such a contract is essentially an agreement for prostitution and is illegal. Here, the Marvins' agreement does not rest, explicitly or entirely, upon a promise of sexual services or any other illicit consideration. The allocation of their finances and property rights as they choose does not violate public policy. Therefore, their agreement furnishes a suitable basis upon which a trial court can render relief.

In March, William Tackaberry, a real estate agent for Weichert Co. Realters, informed Thomas Ryan, a local developer that he knew of property Ryan might be interested in purchasing. Ryan indicated he was interested in knowing more about the property Tackaberry disclosed the property's identity and the seller's proposed price. Tackaberry also stated that the purchaser would have to pay Weichert a 10 percent commission. Tackaberry met with the property owner and gathered information concerning the property's current leases, income, expenses, and development plans. Tackaberry also collected tax and zoning documents relevant to the property. In a face-to-face meeting on April 4, Tackaberry gave Ryan the data he had gathered and presented Ryan with a letter calling for a 10 percent finder's fee to be paid to Weichert upon "successfully completing and closing of title." Tackaberry arranged a meeting, held three days later, where Ryan contracted with the owner to buy the land. Ryan refused, however, to pay the 10 percent finder's fee to Weichert. Weichert sues Ryan for the finder's fee. To what, if anything, is Weichert entitled to recover?

Quasi Contracts. Judgment for Weichert Co. Realtors. A contract arises from offer and acceptance, and must be sufficiently definite "that the performance to be rendered by each party can be ascertained with reasonable certainty." Applying that principle, courts have allowed quasi-contractual recovery for services when a party confers a benefit with a reasonable expectation of payment. That type of quasi-contractual recovery is known as quantum meruit ("as much as he deserves"), and entitles the performing party to recoup the reasonable value of services. Accordingly, a broker seeking recovery on a theory of quantum meruit must establish that the services were performed with an expectation that the beneficiary would pay for them, and under circumstances that should have put the beneficiary on notice that the plaintiff expected to be paid. Courts have allowed brokers to recover in quantum meruit when a principal accepts a broker's services but the contract proves unenforceable for lack of agreement on essential terms-for instance, the amount of the broker's commission. Application of the foregoing principles to the transaction between Weichert and Ryan demonstrates that the record is insufficient to support a finding that Tackaberry and Ryan mutually manifested assent to the essential terms of the contract. First, Ryan never expressly assented to the terms of Tackaberry's offer. Although Ryan expressed interest in learning more about the Pitt property during the initial March phone call, neither his expression of interest nor his agreement to meet with Tackaberry to learn more about the transaction was sufficient to establish the "unqualified acceptance" necessary to manifest express assent. Moreover, Ryan refused to agree to the ten-percent figure during the April 4th meeting, and thereafter consistently rejected that term. Thus, the parties never formed an express contract.

Minth is the owner of the Hiawatha Supper Club, which he leased for two years to Piekarski. During the period of the lease, Piekarski contracted with Puttkammer for the resurfacing of the access and service areas of the supper club. The work, including labor and materials, had a reasonable value of $2,540, but Puttkammer was never paid because Piekarski went bankrupt. Puttkammer brought an action against Minth to recover the amount owed to him by Piekarski. Will Puttkammer prevail? Explain.

Quasi-Contract. No. Judgment for Minth. In order to establish a cause of action for unjust enrichment, Puttkammer must be able to demonstrate that (1) a benefit was conferred on Minth by Puttkammer; (2) Minth knew of or appreciated the benefit; and (3) Minth accepted or retained the benefit under circumstances making it inequitable for Minth to retain the benefit without paying for its value. Here, the first and second elements have been satisfied but not the third. An action for unjust enrichment is based on the moral principle that one who has received a benefit has the duty to reimburse the other when to retain that benefit would be unjust. But it is not enough that the benefit was conferred and retained; the retention must also be unjust. Here, Puttkammer does not claim or imply that Minth ordered or ratified the work, that he performed the work expecting to be paid by Minth, that he was prejudiced by any misconduct or fault on Minth's part, or that Minth's interests were so intertwined with those of Piekarski that the contract could be said to have been executed on Minth's behalf. Rather, all that Puttkammer has alleged is that Minth knowingly acquiesced in the performance of the work. Puttkammer v. Minth, 83 Wis.2d 686, 266 N.W.2d 361 (1978).

Mary Dobos was admitted to Boca Raton Community Hospital in serious condition with an abdominal aneurysm. The hospital called upon Nursing Care Services, Inc., to provide around-the-clock nursing services for Mrs. Dobos. She received two weeks of in-hospital care, forty-eight hours of postrelease care, and two weeks of at-home care. The total bill was $3,723.90. Mrs. Dobos refused to pay, and Nursing Care Services, Inc., brought an action to recover. Mrs. Dobos maintained that she was not obligated to render payment in that she never signed a written contract, nor did she orally agree to be liable for the services. The necessity for the services, reasonableness of the fee, and competency of the nurses were undisputed. After Mrs. Dobos admitted that she or her daughter authorized the forty-eight hours of postrelease care, the trial court ordered compensation of $248 for that period. It did not allow payment of the balance, and Nursing Care Services, Inc., appealed. Decision?

Quasi-Contract. These circumstances establish a contract implied in law or "quasi contract," which is imposed by law to prevent the unjust enrichment of one party at the expense of another. The principle of quasi contract is frequently applied in the area of work performed or services rendered, although liability is generally imposed only when the person for whose benefit the services were rendered requested them or knowingly and voluntarily accepted their benefits. Emergency aid, however, is an exception. In the present case, the services provided to Mrs. Dobos in the hospital were essential to her health and safety, and she was unable to consent to receiving them. Nursing Care Services, Inc., acted with intent to charge for the services and had no reason to know that Mrs. Dobos would not agree. Given these circumstances, the in-hospital services clearly fall within the emergency aid exception. As for the two weeks of at-home care, Mrs. Dobos knowingly and voluntarily accepted the benefits conferred, and thus obligated herself to pay for the reasonable value of the services. Nursing Care Services, Inc. v. Dobos, 380 So.2d 516, (Fla. 4th DCA 1980).

Merrill Lynch employed Post and Maney as account executives. Both men elected to be paid a salary and to participate in the firm's pension and profit-sharing plans rather than take a straight commission. Thirteen years later, Merrill Lynch terminated the employment of both Post and Maney. Both men began working for a competitor of Merrill Lynch. Merrill Lynch then informed them that all of their rights in the company-funded pension plan had been forfeited pursuant to a provision of the plan that permitted forfeiture in the event an employee directly or indirectly competed with the firm. Is Merrill Lynch correct in their assertion?

Restrictive Covenants/Employment Relationship. Judgment for Post and Maney. Employment contracts prohibiting competition create a tension between the freedom of individuals to contract and the reluctance to see one barter away his freedom. Nevertheless, the state will enforce limited restraints on an employee's employment mobility where a mutuality of obligation is freely bargained for by the parties. An essential aspect of that relationship, however, is the employer's continued willingness to employ the party while he does not compete. Where the employer terminates the employment relationship without cause, his action necessarily destroys the mutuality of obligation on which the covenant rests as well as the employer's ability to impose a forfeiture. Thus the forfeiture of the pension benefits is unreasonable as a matter of law, and Post and Maney are entitled to the benefits due. Post v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 48 N.Y.2d 84

On November 19, 1949, Hoover Motor Express Company sent to Clements Paper Company a written offer to purchase certain real estate. Sometime in December, Clements authorized Williams to accept. Williams, however, attempted to bargain with Hoover to obtain a better deal, specifically that Clements would retain easements on the property. In a telephone conversation on January 13, 1950, Williams first told Hoover of his plan to obtain the easements. Hoover replied: "Well, I don't know if we are ready. We have not decided, we might not want to go through with it." On January 20, Clements sent a written acceptance of Hoover's offer. Hoover refused to buy, claiming it had revoked its offer through the January 13 phone conversation. Clements then brought suit to compel the sale or obtain damages. Did Hoover successfully revoke its offer?

Revocation. Judgment for Hoover. Express notice of revocation before acceptance of an offer is not required. The offeror may implicitly revoke his offer through acts or communications to the offeree that are inconsistent with its continuance. If the offeree has knowledge of this inconsistent interest before he has accepted then the offer is revoked. Here, Williams knew through the January 13 phone conversation that Hoover "thought they might not go through with it." This communication by Hoover to Williams effectively revoked its offer. Therefore, Clements' acceptance on January 20 came too late to bind Hoover to the sale. Hoover Motor Express Co. v. Clements Paper Co., 241 S.W.2d 851 (Tenn. 1951).

George owed Keith $800 on a personal loan. Neither the amount of the debt nor George's liability to pay the $800 was disputed. Keith had also rendered services as a carpenter to George without any agreement as to the price to be paid. When the work was completed, an honest and reasonable difference of opinion developed between George and Keith with respect to the value of Keith's services. Upon receiving from Keith a bill of $600 for the carpentry services, George mailed in a properly stamped and addressed envelope his check for $800 to Keith. In an accompanying letter, George stated that the enclosed check was in full settlement of both claims. Keith indorsed and cashed the check. Thereafter, Keith unsuccessfully sought to collect from George an alleged unpaid balance of $600. May Keith recover the $600 from George?

Settlement of Disputed/Undisputed Debts. Decision, in part, in favor of Keith. This common law problem presents questions attending the payment or settlement of (1) a past due, undisputed or liquidated debt and (2) a disputed debt. In Pinnel's Case, 5 Coke 117, and Cumber v. Wayne, 1 Strange, 426, the question presented and decided was "that payment of a lesser sum on the day in satisfaction of a greater, cannot be in satisfaction for the whole," although the parties agreed that such payment should satisfy the whole. An accord and satisfaction is a contract and like any other contract must be supported by a valid consideration. Consideration consists of a benefit to the promisor or a detriment to the promisee. Because of the past due undisputed debt, George was under legal obligation to pay $800. By paying $800 in full settlement of both obligations, George did not suffer a legal detriment as to the second (carpentry) contract. George merely did something which he was already legally bound to do. The payment of the $800 discharged the undisputed obligation but, since it did not constitute consideration for the disputed debt, that debt remains. In short, Keith still had a claim for $600 which George could, of course, contest, as to the amount. Had George paid an amount greater than $800, he would have a better argument as to settlement of both debts.

PLM, Inc. entered into an oral agreement with Quaintance Associates, an executive "headhunter" service, for the recruitment of qualified candidates to be employed by PLM. As agreed, PLM's obligation to pay Quaintance did not depend on PLM's actually hiring a qualified candidate presented by Quaintance. After several months Quaintance sent a letter to PLM, admitting that it had so far failed to produce a suitable candidate, but included a bill for $9,806.61, covering fees and expenses. PLM responded that Quaintance's services were only worth $6,060.48, and that payment of the lesser amount was the only fair way to handle the dispute. Accordingly, PLM enclosed a check for $6,060.48, writing on the back of the check "IN FULL PAYMENT OF ANY CLAIMS QUAINTANCE HAS AGAINST PLM, INC." Quaintance cashed the check and then sued PLM for the remaining $3,746.13. Decision?

Settlement of a Disputed Debt. Judgment for PLM, Inc. When there is a good faith dispute as to the amount due, it makes no difference that the creditor protests or states that he does not accept the amount offered in full satisfaction of the debt. The creditor either must accept what is offered with the condition upon which it is offered, or refuse the payment entirely. Quaintance Associates, Inc. v. PLM, Inc., 95 Ill.App. 818, 420 N.E.2d 567 (1981).

Alan purchased shoes from Barbara on open account. Barbara sent Alan a bill for $10,000. Alan wrote back that 200 pairs of the shoes were defective and offered to pay $6,000 and give Barbara his promissory note for $1,000. Barbara accepted the offer, and Alan sent his check for $6,000 and his note, in accordance with the agreement. Barbara cashed the check, collected on the note, and one month later sued Alan for $3,000. Is Barbara bound by her acceptance of the offer?

Settlement of a Disputed Debt. Yes, decision in favor of Alan and against Barbara. The problem indicates that a genuine dispute occurred between Alan and Barbara. Where a check is tendered by the debtor to the creditor in full payment or settlement, the cashing of the check constitutes an accord and satisfaction. Revised 3-311. The fact that Alan gave Barbara his promissory note for $1,000 and that Barbara collected on the note strengthens the conclusion stated. Moreover, under UCC Section 2-209(1), consideration is not needed.

(a) Ann owed $500 to Barry for services Barry rendered to Ann. The debt was due June 30, 2007. In March 2008, the debt was still unpaid. Barry was in urgent need of ready cash and told Ann that if she would pay $150 of the debt at once, Barry would release her from the balance. Ann paid $150 and stated to Barry that all claims had been paid in full. In August 2008, Barry demanded the unpaid balance and subsequently sued Ann for $350. Result? (b) Modify the facts in (a) by assuming that Barry gave Ann a written receipt stating that all claims had been paid in full. Result? (c) Modify the facts in (a) by assuming that Ann owed Barry the $500 on Ann's purchase of a motorcycle from Barry. Result?

Settlement of an Undisputed Debt. (a) Decision for Barry. As this debt arose out of a contract for services, the common law of contracts would apply. At common law the payment of a lesser sum of money in full satisfaction of a liquidated, undisputed debt in a greater amount is legally insufficient consideration for a promise of the creditor to discharge the entire debt. There is no legal detriment to the promisee or legal benefit to the promisor. UCC: Renunciation. (b) Decision for Barry unless UCC Section 1-107 applies. It is unclear whether Section 1-107 applies to transactions outside of the Code. If it does not, then the written receipt would not change the result in question 2a. If Section 1-107 applies, then the written receipt would constitute a written waiver or renunciation signed and delivered by the aggrieved party and would discharge the debt. Modification of a Pre-existing Contract. (c) This transaction would be subject to the Uniform Commercial Code. Under Section 2-209 (1) a contract for the sale of goods can be validly modified by the parties without new consideration provided they so intend and act in good faith. This problem presents a question of intent and good faith. Since payment was already due and Barry was acting under economic urgency, the modification is probably not binding. However, if Barry gave Ann a written release as was done in (2) (b), the result would most likely differ. UCC Section 1-107 expressly provides that any claim or right arising out of any breach can be discharged in whole or in part "without consideration" by a written waiver or renunciation signed and delivered by the aggrieved party. Consequently, under the Code, consideration is no longer required to discharge a debt. The only requirement is that the creditor sign and deliver a sufficient writing, which Barry did. Barry's only defense would be that of economic duress, which should be found to exist under the facts as stated.

Jeff says to Brenda, "I offer to sell you my PC for $900." Brenda replies, "If you do not hear otherwise from me by Thursday, I have accepted your offer." Jeff agrees and does not hear from Brenda by Thursday. Does a contract exist between Jeff and Brenda? Explain.

Silence as Acceptance. Yes, there is a contract. Brenda's statement to Jeff is a conditional acceptance of his offer. Although silence generally cannot be an acceptance, Brenda's silence here is evidence that her acceptance is both positive and unequivocal.

Jonnel Enterprises, Inc., contracted to construct a student dormitory at Clarion State College. On May 6, Jonnel entered into a written agreement with Graham and Long as electrical contractors to perform the electrical work and to supply materials for the dormitory. The contract price was $70,544.66. Graham and Long claim that they believed the May 6 agreement obligated them to perform the electrical work on only one wing of the building, but that three or four days after work was started, a second wing of the building was found to be in need of wiring. At that time Graham and Long informed Jonnel that they would not wire both wings of the building under the present contract, so a new contract was orally agreed upon by the parties. Under the new contract Graham and Long were obligated to wire both wings and were to be paid only $65,000, but they were relieved of the obligations to supply entrances and a heating system. Graham and Long resumed their work, and Jonnel made seven of the eight progress payments called for. When Jonnel did not pay the final payment, Graham and Long brought this action. Jonnel claims that the May 6 contract is controlling. Is Jonnel correct in its assertion? Why?

Substituted Contracts. No. The substituted contract was enforceable. It was entered into to settle a disputed claim. Graham v. Jonnel Enterprises, Inc. 435 Pa. 396, 257 A.2d 256 (1969).

Carl, a salesman for Smith, comes to Benson's home and sells him a complete set of "gourmet cooking utensils" that are worth approximately $300. Benson, an eighty-year-old man living alone in a one-room efficiency apartment, signs a contract to buy the utensils for $1,450, plus a credit charge of $145, and to make payment in ten equal monthly installments. Three weeks after Carl leaves with the signed contract, Benson decides he cannot afford the cooking utensils and has no use for them. What can Benson do? Explain

Unconscionable Contracts. Benson is not bound to his obligation. The doctrine of "unconscionability" as set forth in the UCC would probably apply here. If it did, Benson could obtain release from the obligation for that reason. Smith may have used high pressure tactics and taken advantage of Benson's malleability as evidenced by the unreasonable price agreed to by Benson. As in Williams v. Walker-Thomas Furniture Company, 350 F. 2d 445: Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction. In many cases the meaningfulness of the choice is negated by a gross inequality of bargaining power. The manner in which the contract was entered is also relevant to this consideration.

Conrad Schaneman was a Russian immigrant who could neither read nor write the English language. In 1975 Conrad deeded (conveyed) a farm he owned to his eldest son, Laurence, for $23,500, which was the original purchase price of the property in 1945. The value of the farm in 1975 was between $145,000 and $160,000. At the time he executed the deed, Conrad was an eighty-two-year-old invalid, severely ill, and completely dependent on others for his personal needs. He weighed between 325 and 350 pounds, had difficulty breathing, could not walk more than fifteen feet, and needed a special jackhoist to get in and out of the bathtub. Conrad enjoyed a long-standing, confidential relationship with Laurence, who was his principal adviser and handled Conrad's business affairs. Laurence also obtained a power of attorney from Conrad and made himself a joint owner of Conrad's bank account and $20,000 certificate of deposit. Conrad brought this suit to cancel the deed, claiming it was the result of Laurence's undue influence. The district court found that the deed was executed as a result of undue influence, set aside the deed, and granted title to Conrad. Laurence appealed. Decision?

Undue Influence. Judgment for Schaneman. A confidential or fiduciary relationship exists between two persons if one has gained the confidence of the other and purports to act or advise with the other's interest in mind. In such a relationship, the court will scrutinize critically any transaction between the two parties, especially where age, infirmity, and instability are involved, to see that no injustice has occurred. Here, the evidence shows that a confidential relationship existed between Conrad and Laurence and that due to age and physical infirmities, Conrad was, for all intents and purposes, an invalid at the time of the conveyance. It further supports a finding that Conrad's mental acuity was impaired at times and that he sometimes suffered from disorientation and lapse of memory. Conrad was subject to the influence of Laurence, who was acting in a confidential relationship; the opportunity to exercise undue influence existed; there was a disposition on the part of Laurence to exercise such undue influence; and the conveyance appeared to be the effect of such influence. Accordingly, the deed is canceled for undue influence.

Decedent Judith Johnson, a bedridden, lonely woman of eighty-six years, owned outright Greenacre, her ancestral estate. Ficky, her physician and friend, visited her weekly and was held in the highest regard by Johnson. Johnson was extremely fearful of suffering and depended upon Ficky to ease her anxiety and pain. Several months before her death, she deeded Greenacre to Ficky for $5,000. The fair market value of Greenacre at this time was $125,000. Johnson was survived by two children and six grandchildren. Johnson's children challenged the validity of the deed. Should the deed be declared invalid due to Ficky's undue influence? Explain.

Undue Influence. Yes, decision for Decedent's children. Restatement,2nd, Contracts, §177(1) defines undue influence as the "unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that the person will not act in a manner inconsistent with his welfare." A contract induced by undue influence is voidable.

Jane Francois married Victor H. Francoi. At the time of the marriage, Victor was a 52 year-old bachelor living with his elderly mother, and Jane was a 30-year-old, twice-divorced mother of two. Victor had a relatively secure financial portfolio; Jane, on the other hand, brought no money or property to the marriage. The marriage deteriorated quickly over the next couple of years, with disputes centered on financial matters. During this period, Jane systematically gained a joint interest in and took control of most of Victor's assets. Three years after they married, Jane contracted Harold Monoson, an attorney, to draw up divorce papers. Victor was unaware of Jane's decision until he was taken to Monoson's office, where Monoson presented for Victor's signature a "Property Settlement and Separation Agreement." Monoson told Victor that he would need an attorney, but Jane vetoed Victor's choice. Monoson then asked another lawyer, Gregory Ball, to come into the office. Ball read the agreement and strenuously advised Victor not to sign it because it would commit him to financial suicide. The agreement transferred most of Victor's remaining assets to Jane. Victor, however, signed it because Jane and Monoson persuaded him that it was the only way that his marriage could be saved. In October the following year, Jane informed Victor that she had sold most of his former property and that she was leaving him permanently. Can Victor have the agreement set aside as a result of undue influence?

Undue Influence. Yes, decision for Victor. The essence of undue influence is the subversion of another's free will in order to obtain assent to an agreement. The degree of persuasion that is necessary to constitute undue influence varies from case to case. The proper inquiry is not just whether persuasion induced the transaction but whether the result was produced by the domination of the will of the victim by the person exerting undue influence. Hence, the particular transaction must be scrutinized to determine if the agreement was truly the product of a free and independent mind. The fairness of the agreement must be shown by clear and convincing evidence. Because the agreement was clearly unfair, and the agreement was contrary to Victor's own best interests, it is clear that Victor would not have signed the agreement but for undue influence. Francois v. Francois, 599 F.2d 1286 (1979).

Helvey brought suit against the Wabash County REMC for breach of implied and express warranties. He alleged that REMC furnished electricity in excess of 135 volts to Helvey's home, damaging his 110-volt household appliances. This incident occurred more than four years before Helvey brought this suit. In defense, REMC pleads that the Uniform Commercial Code's Article 2 statute of limitations of four years has passed, thereby barring Helvey's suit. Helvey argues that providing electrical energy is not a transaction in goods under the U.C.C. but rather a furnishing of services that would make applicable the general contract six-year statute of limitations. Is the contract governed by the UCC? Why?

Uniform Commercial Code. Judgment for REMC. To be within the U.C.C.'s definition of a good, electricity must be (1) a thing, (2) existing, and (3) movable, with (2) and (3) occurring simultaneously. Electricity can be measured in order to establish a purchase price by the amount of current which passes through the meter, thus fulfilling the existing and movable requirements. Also, it is legally considered personal property, subject to ownership, and may be bartered, sold, and, in fact, stolen. Therefore, the sale of electricity is a sale of goods subject to U.C.C.'s Article 2's statute of limitations. Helvey v. Wabash County REMC, Court of Appeals of Indiana, First District, 1972. 151 Ind.App. 176, 278 N.E.2d 608.

On November 1, the Kansas City Post Office Employees Credit Union merged into the Kansas City Telephone Employees Credit Union to form the Communications Credit Union (Credit Union). Systems Design and Management Information (SDMI) develops computer software programs for credit unions, using Burroughs (now Unisys) hardware. SDMI and Burroughs together offered to sell to Credit Union both a software package, called the Generic System, and Burroughs hardware. Later, in November, a demonstration of the software was held at SDMI's offices, and the Credit Union agreed to purchase the Generic System software. This agreement was oral. After Credit Union was converted to the SDMI Generic System, major problems with the system immediately became apparent. SDMI filed suit against Credit Union to recover the outstanding contract price for the software. Credit Union counterclaimed for damages based upon breach of contract and negligent and fraudulent misrepresentation. Does the UCC apply to this contract?

Uniform Commercial Code. Judgment for SDMI. We must determine whether the oral agreement between SDMI and Credit Union was for goods or services. The test when dealing with a mixed contract is "not whether they [goods or services] are mixed, but, granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved . . . or is a transaction of sale, with labor incidentally involved." Prior to entering into an agreement for the Generic System software, Credit Union attended a demonstration of the program at SDMI's place of business. Therefore, we conclude the software was movable at the time of identification to the contract, satisfying that requirement of the definition of goods. SDMI installed the Generic System software on Credit Union's computer and was present to attempt modifications and corrections of the program so the accounting system would run more efficiently. These services are incidental to the sale of the software because, without Credit Union buying the Generic System program, the services would not be necessary. Therefore, the sale of the software is predominant. SDMI remains the owner of the accounting program as intellectual property. Credit Union purchased only a reproduction or the result of the programmer's skill. Credit Union is interested only in the outcome of running the program and whether the program will perform the functions for which it was purchased. We hold this software to be goods and subject to the provisions of the U.C.C. This holding is consistent with the purpose of the U.C.C. It simplifies commercial transactions. It provides a uniform rule for courts to follow.

Max E. Pass, Jr. and his wife, Martha N. Pass, departed in an aircraft owned and operated by Mr. Pass from Plant City, Florida, bound for Clarksville, Tennessee. Somewhere over Alabama the couple encountered turbulence, and Mr. Pass lost control of the aircraft. The plane crashed killing both Mr. and Mrs. Pass. Approximately four and a half months prior to the flight in which he was killed, Mr. Pass had taken his airplane to Shelby Aviation, an aircraft service company, for inspection and service. In servicing the aircraft, Shelby Aviation replaced both rear wing attach point brackets on the plane. Three and one half years after the crash, Max E. Pass, Sr., father of Mr. Pass and administrator of his estate, and Shirley Williams, mother of Mrs. Pass and administratrix of her estate, filed suit against Shelby Aviation. The lawsuit alleged that the rear wing attach point brackets sold and installed by Shelby Aviation were defective because they lacked the bolts necessary to secure them properly to the airplane. The plaintiffs asserted claims against the defendant for breach of express and implied warranties under Article 2 of the Uniform Commercial Code ("UCC"), which governs the sale of goods. Shelby Aviation contended that the transaction with Mr. Pass had been primarily for the sale of services, rather than of goods, and that consequently Article 2 of the UCC did not cover the transaction. Does the UCC apply to this transaction? Explain.

Uniform Commercial Code. No, plaintiffs' warranty claim dismissed. The problem in "mixed" transactions such as this one is to determine whether Article 2 governs the contract. The test for inclusion or exclusion in the U.C.C. is not whether the contracts are mixed, but granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of services with goods incidentally involved (e.g. contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g., installation of a water heater in a bathroom). In order to determine the predominant purpose of a mixed transaction, courts examine the language of the parties' contract, the nature of the business of the supplier of the goods and services, the reason the parties entered into the contract (i.e. what each bargained to receive), and the respective amounts charged under the contract for goods and for services. In this case, the written document evidencing the transaction is the invoice prepared by Shelby Aviation. In the top left hand corner is a preprinted paragraph that states that the owner is authorizing "the following repair work to be done along with the necessary material." As a whole, the invoice clearly emphasizes the repair and inspection aspect of the transaction, indicating that the predominant purpose was the sale of service, with the sale of goods incidental to that service.

Jack Duran, president of Colorado Carpet Installation, Inc., began negotiations with Fred and Zuma Palermo for the sale and installation of carpeting, carpet padding, tile, and vinyl floor covering in their home. Duran drew up a written proposal that referred to Colorado Carpet as "the seller" and to the Palermos as "the customer." The proposal listed the quantity, unit cost, and total price of each item to be installed. The total price of the job was $4,777.75. Although labor was expressly included in this figure, Duran estimated the total labor cost at $926. Mrs. Palermo orally accepted Duran's written proposal soon after he submitted it to her. After Colorado Carpet delivered the tile to the Palermo home, however, Mrs. Palermo had a disagreement with Colorado Carpet's tile man and arranged for another contractor to perform the job. Colorado Carpet brought an action against the Palermos for breach of contract. Does the UCC apply to this contract?

Uniform Commercial Code. The U.C.C. defines "goods" as "all things . . . which are movable at the time of identification to the contract for sale" and defines a "sale" as "the passing of title from the seller to the buyer for a price." In this case, the carpeting and other materials were movable when Colorado Carpet procured them for installation, and the agreement contemplated that title would pass to the Palermos. The contract included, however, not only the sale of goods as defined by the U.C.C., but also the performance of labor or service. Since goods and services are mixed, the primary purpose of the agreement is crucial in determining the nature of the contract. A number of factors point to the conclusion that the primary purpose of the contract was the sale of goods, with labor or service only incidentally involved. Colorado Carpet's proposal referred to the parties as "seller" and "customer." The charge for labor was a small percentage of one overall contractual price. Further, as noted above, the carpeting and other materials meet the U.C.C. definition of "goods." Since the contract is oral and for the sale of goods for more than $500, it is unenforceable. Colorado Carpet Installation, Inc. v. Palermo, 668 F.2d 1384 (Col. 1983).

Jonathan writes to Willa, stating "I'll pay you $150 if you reseed my lawn." Willa reseeds Jonathan's lawn as requested. Has a contract been formed? If so, what kind

Unilateral Contracts. Yes, this is an example of a unilateral contract. Jonathan's writing to Willa is an offer which is accepted when Willa reseeds the lawn. Jonathan must pay $150 to Willa.

Rodney and Donna Mathis (Mathis) filed a wrongful death action against St. Alexis Hospital and several physicians, arising out of the death of their mother, Mary Mathis. Several weeks before trial, an expert consulted by Mathis notified the trial court and Mathis's counsel that, in his opinion, Mary Mathis's death was not proximately caused by the negligence of the physicians. Shortly thereafter, Mathis voluntarily dismissed the wrongful death action. Mathis and St. Alexis entered into a covenant-not-to-sue in which Mathis agreed not to pursue any claims against St. Alexis or its employees in terms of the medical care of Mary Mathis. St. Alexis, in return, agreed not to seek sanctions, including attorney fees and costs incurred in defense of the previously dismissed wrongful death action. Subsequently, Mathis filed a second wrongful death action against St. Alexis Hospital, among others. Mathis asked the court to rescind the covenant-not-to-sue, arguing that because St. Alexis was not entitled to sanctions in connection with the first wrongful death action, there was no consideration for the covenant-not-to-sue. Are they correct in this contention? Explain.

Unilateral Contracts: Consideration. No, they are wrong, and so the trial court granted summary judgment for St. Alexis. A promise to forbear pursuit of a legal claim can be sufficient consideration to support a contract when the promisor has a good faith belief in the validity of the claim. Mathis argues that any sanctions award should have been against Mathis' attorney. However, under the rules of civil procedure an award of reasonable attorney's fees may be made against a party, his attorney or both. Therefore, sanctions could have been awarded against Mathis. Mathis also argues that St. Alexis has not shown that Mathis engaged in any frivolous conduct. However, the standard for evaluating the validity of a foreborne claim is a subjective one. St. Alexis sufficiently asserted a good faith belief in the validity of its sanctions claims. St. Alexis asserted that its belief in the validity of its sanctions claim was based on Mathis' complete failure to produce any expert testimony on the issue of proximate cause. Since the only expert testimony presented on the issue indicated that St. Alexis' actions did not proximately cause Mary Mathis' death, St. Alexis' belief in the validity of its sanctions claim was reasonable. Thus, foregoing the claim would constitute sufficient consideration for the covenant-not-to-sue.

Abramowitz obtained a one-year mortgage loan from Barnett Bank for $400,000 at 9 percent interest with a 1 percent "point" or service fee. The maximum lawful rate of interest on such a loan is 10 percent. The bank deducted the $4,000 service fee from the loan proceeds, actually disbursing only $396,000 to Abramowitz. During the one-year term of his loan, Abramowitz was charged and he paid $36,347.78 in interest. He claims the loan was usurious since the $4,000 "service fee" plus the $36,347 interest charge exceeded the 10 percent limit on total interest. Is the loan usurious? Explain.

Usury Statutes. Judgment for Abramowitz. If the $4,000 was "interest," Abramowitz paid more than $40,000, or 10 percent in total interest charges on his $400,000 loan. If the loan was a "discount" loan, with interest paid in advance, then the rate should be properly gauged on the amount of principal disbursed to Abramowitz plus the legitimate expenses incurred by the bank. These expenses must be the actual, reasonable expenses of making this particular loan and may not include the general overhead of the bank. The only reasonable, legitimate expense the bank suffered in making this loan amounted to $300. Thus the lawful amount of interest on Abramowitz's loan is $39,630 (10 percent of the actual principal disbursed plus the $300). But Abramowitz paid $36,347 plus the interest in advance of $37,000 ($4,000 less the $300 expense) which is greater than the lawful amount of $39,630. Abramowitz v. Barnett Banks of West Orlando 394 So.2d 1033 (1981).

Anthony promises to pay McCarthy $10,000 if McCarthy reveals to the public that Washington is a Communist. Washington is not a Communist and never has been. McCarthy successfully persuades the media to report that Washington is a Communist and now seeks to recover the $10,000 from Anthony, who refuses to pay. McCarthy initiates a lawsuit against Anthony. What result?

Violation of Public Policy: Tortious Conduct. Decision for Anthony. The promise is unenforceable on grounds of public policy. A promise to commit, or induce commission of, a tort is unenforceable. Restatement, Second, Contracts, Section 192. In this case the tort is defamation.