Business Law Test 2 Cases and Business Questions

15-3. Voluntary Consent. Discuss whether either of the following contracts will be unenforceable on the ground that voluntary consent is lacking: 1. Simmons finds a stone in his pasture that he believes to be quartz. Jenson, who also believes that the stone is quartz, contracts to purchase it for $10. Just before delivery, the stone is discovered to be a diamond worth $1,000. 2. Jacoby's barn is burned to the ground. He accuses Goldman's son of arson and threatens to have the prosecutor bring a criminal action unless Goldman agrees to pay him $5,000. Goldman agrees to pay.

15-3. Voluntary Consent. Discuss whether either of the following contracts will be unenforceable on the ground that voluntary consent is lacking: 1. Unenforceable because neither knew the true nature of the product. Furthermore, unenforceable because the issue is in a bilateral mistake. At its heart the question is a question of fact, and issues regarding contracts with bilateral questions of fact are generally voidable. 2. A contract entered into through a threat of criminal prosecution is generally held to be made under duress and is voidable, regardless of whether Goldman's son is guilty of arson.

Business Scenario 16-1

16-1. The One-Year Rule. On May 1, by telephone, Yu offers to hire Benson to perform personal services. On May 5, Benson returns Yu's call and accepts the offer. Discuss fully whether this contract falls under the Statute of Frauds in the following circumstances: (See Contracts That Require a Writing.) a. The contract calls for Benson to be employed for one year, with the right to begin performance immediately. b. The contract calls for Benson to be employed for nine months, with performance of services to begin on September 1. c. The contract calls for Benson to submit a written research report, with a deadline of two years for submission. a. No this would not fall under the statute because the contract regards something that is less than a year from the next day. b. This would fall under the statute of frauds because the contract ends more than 1 year from May 6th c. No performance is possible within one year

Old Business Scenario 11-3: re Anne / Commerce Weekly

By subscribing you agree to the terms of the user agreement - To read the terms, click agreement - Anne enters her email address but doesn't click on the "agreement" to read the terms. Has Anne entered into an enforceable contract to pay for e-commerce weekly? Yes most likely - although Anne didn't read the terms of the agreement, by entering her email she was implicitly agreeing to the terms of the contracts as stipulated in the aforementioned statement. Consumers are not required to read the contract and if they choose not too, that is their choice but it doesn't prevent agreement

Milicic v. Basketball Marketing Company, Inc.

Facts: After Darko Milicic, a Serbian basketball player, was drafted into the NBA as the second pick, he sought release from a contract he made with BMC when he was 16 years old. BMC refused to release him even though he made a buyout offer four days after his 18th birthday. After this decision, Milicic notified BMC that he was disaffirming the contract and he returned all the money and goods he had received from the company. Milicic sued BMC seeking an injunction on BMC claims of contract. Issue: Is Milicic entitled to a preliminary injunction? Rule: Four essential prerequistites necessary for injunctive relief: likelihood of success on merits, necessary to prevent immediate and irreparable harm that could not be adequately compensated by the awarding of monetary damages, greater injury would have occurred from denying the injunction than from granting the injunction, preliminary injunction restored the parties to the status quo that existed before the wrongful conduct. Analysis: Regarding likelihood of success, Pennsylvania law suggests that a contract entered by a minor is voidable if the minor disaffirms it within a reasonable time which Milicic did. Regarding immediate and irreparable damges, because Milicic could have an unknown and possibly incalculable dollar value of offers from other companies hoping to solicit his image, BMCs conduct regarding Milicic was causing the player irreparable harm. Because BMC negotiated with Milicic, not a guardian, public policy consideration underlying the rule which allows a child to disaffirm a contract within a reasonable time should be binding. Finally, as long as Milicic follows the rules of disaffirmation, both parties would be back to the status quo. Therefore, because Milicic did this, the preliminary injunction should be rewarded. Conclusion: Milicic won and the preliminary injunction was granted

Hamer v. Sidway

Facts: After an uncle and a nephew entered a contact, formed in the presence of family members, that stated if Story II didn't do activities such as using tobacco, swearing, playing cards or billiards, he would receive $5,000. Story completed his end of the agreement and on his 21st birthday, his uncle acknowledged the performance in a hand written letter. The $5,000 was left in the care of the uncle who kept it at a bank. After the uncle died, the executor of the uncle's estate claimed no valid consideration existed and therefore, the executor refused to pay the $5,000 to Hamer (who Story transferred the rights of the note to). Issue: Was there sufficient consideration to legally require the transfer of the $5,000 from the uncle's estate to Hamer? Rule: If something is promised, done, forborne, or suffered by the party to whom the promise is made as consideration for the promise made to him, there is a valid consideration. Analysis: In this situation, Story abandoned his right to use tobacco, drink liquor, and play cards. In exchange for abandoning these rights, Story was promised $5,000 on his 21st birthday. Because he restricted his lawful freedoms within certain prescribed limits upon the faith of his uncle's agreement, the agreement has sufficient consideration. Conclusion: Hamer won and was awarded the $5,000 (plus interest).

Reiser v. Dayton Country Club Company

Facts: At Dayton Country Club Company, hereafter referred to as the Club, the privilege to play golf is reserved to a special membership category. There is a waiting list of members. Magness and Redman were golfing members, and upon filing for bankruptcy, their trustee sought to assign by sale their rights under these membership. Bankruptcy court, however, found that the Club's rules governing membership were anti-assignment provisions and thus the membership couldn't be assigned. They appealed. Issue: Could the golf membership be assigned? Rule: An exception to the right to assign is if the contractual agreement is personal. If this is the case, these rights cannot be assigned. Analysis: In this case, because the right to a golf membership was something of a scarcity and it was a personal right for members of the club that they paid for, these contracts are considered personal, not commercial. Therefore, because Ohio law does not permit the assignment of personal contracts, the trustee's motion to assign the full golf membership should be denied. Conclusion: The trustee's motion was denied and the membership wasn't assigned for cash.

Case 14.3 Holmes v. Multimedia KSDK, Inc.

Facts: Colleen Holmes signed an entry form for the Susan G. Komen Race for the Cure. The agreement signed mentioned the broadcast of the event. Mrs. Holmes sued KDSK for damages after tripping and falling over an audio-visual box and sustaining injury. KDSK claimed that the language of the agreement covered the potential of injury by this equipment. Issue: Was the release ambiguous? Rule: For a release of liability for future negligence to be effective, it must identify every individual sought to be released by name. Analysis: Because the release states "any Event sponsors and their agents and employees" is released from liability for future negligence, all persons involved with the event are covered. Therefore the release is not ambiguous because it does not name each individual Event sponsor it purported to release from liability. Conclusion: The contract is not ambiguous and thus is valid.

Case 19.2 Kent State University v. Ford

Facts: Ford signed a five-year contract with Kent State to coach the basketball team. If Ford quit before the end of the term, he would be forced to pay liquidated damages to the school. The amount was his salary times the number of remaining years on the contact. Four years prior to the contract ending, Ford left to coach elsewhere. Kent filed alleging breach of contract. The court ruled Ford owed 1.2 million in damages. Ford appealed arguing that the liquidated damages were an unenforceable penalty. Issue: Was the liquidated damages clause in the contract enforceable? Rule: Enforceability of liquidated damages requires that when the contract was entered into, it was apparent that the damages would be difficult to estimate in the event of a breach, and the amount set as damages was a reasonable estimate and not excessive. If future damages from a breach are difficult to ascertain, but reasonable amount is agreed upon by both parties and placed in a contract as a liquidated damage clause, that clause will be enforceable. Analysis: Damages were reasonable. Finding a coach of similar skill and experience as Ford would have an increased cost (as evidenced that Ford accepted more money to coach elsewhere). Further, there was justification for seeking liquidated damages to compensate for Kent State's losses and thus there was a valid compensatory purpose for including the clause. Conclusion: Liquidated damages wasn't a penalty and thus was enforceable.

Hadley v. Baxendale

Facts: Hadley's ran a flour mill in England. Mill shut down after main crankshaft broke. Because a new shaft had to fit the engine, the crankshaft was sent ot a foundry located in another city. The defendant was a common carrier that transported the shaft. Baxendale promised to deliver the shaft after one day, but after several days it didn't. Hadley's sued to recover profits lost during that time. Baxendale contended that the loss of profits were "too remote" to be recoverable. Issue: Was Baxendale liable for consequential damages? Rule: If an injury occurs outside the usual course of events, it must be shown that the breaching party had reason to foresee the injury. Consequential damages the plaintiffs would have to have given express notice of the special circumstances that caused the loss of profit. Analysis: Here, the loss of profit cannot be reasonably considered such a consequence of the breach of contract as could have been fairly and reasonably contemplated by both the parties when they made this contract. Conclusion: Baxendale won.

Blackmon v. Iverson

Facts: In 1987, Blackmon met Iverson, who showed tremendous promise as a basketball player. Throughout their friendship, Blackmon supported Iverson and his family. In 1994, Blackmon suggested that Iverson should call himself "The Answer." Blackmon spent time, money, and effort to promote the brand. Iverson promised Mr. Blackmon twenty-five percent of all merchandising profits. While Blackmon demanded compensation that he felt he was due, Iverson never paid him. Iverson filed a motion to dismiss. Issue: Did Blackmon enter into an explicit contract with Iverson. Is Blackmon entitled to the 25% of proceeds? Was consideration sufficient? Rule: Under [the] law, a plaintiff must present clear and precise evidence of an agreement in which both parties manifested an intent to be bound, for which both parties gave consideration, and which contains sufficiently definite terms. Consideration confers a benefit upon the promisor or causes a detriment to the promisee and must be an act, forbearance, or return promise bargained for and given in exchange for the original promise. Under [the] law, past consideration is insufficient to support a subsequent promise. Analysis: The promise to pay came after the suggestion was made, thus representing past consideration which is no consideration. Therefore, no legal contract existed between the two parties. Conclusion: The file to dismiss was granted.

Jacob & Youngs v. Kent

Facts: Jacob & Youngs Inc. agreed to construct a house for Kent. The contract required that certain pipe, called 'standard pipe' of Reading manufacture, be used in the construction. The company used substantially similar pipe, but not the kind Kent requested. Kent became aware of this and he ordered the builder to replace the pipe which would require removing finished walls. The company refused, and Kent refused to pay. Jacob & Youngs sued Kent for payment. The trial court ruled for Kent, a ruling which was appealed in favor of Jacob & Youngs. Kent then appealed to the Court of Appeals of New York. Issue: Was the contract substantially performed? Should Kent be compelled to pay, or should the company agree to reinstall the plumbing? Rule: A party who in good faith performs substantially all of the terms of a contract can enforce the contract against the other party under the doctrine of substantial performance. The party must have performed in good faith, not vary greatly from the performance promised in the contract, and create substantially the same benefits as those promised in the contract. If it is concluded that substantial performance has occurred, the damages would be equal to the difference in value between performance rendered and performance that would have been rendered if the contract had been performed completely. Analysis: Because Jacob & Youngs performed in good faith and didn't intentionally omit the pipe Kent wanted, their performance was as expected except for the different pipe, and the pipe they used was substantially similar and was of the same quality, appearance, value, and cost as Reading pipe, substantial performance has occurred. Therefore, the damages awarded to Kent was the difference in value between what was provided and what was asked which equaled nothing. Therefore, the court ordered for Kent to pay. Conclusion: Jacob & Youngs won the appeal

Case 20.2 Jones v. Star Credit Corp

Facts: Joneses purchased a freezer for $900 after a salesperson visited their home. After making payments totaling $619.88 of a total price of $1,234.80, the Joneses brought a suit to New York state court on the grounds of an unconscionable contract under UCC. The freezer was found to have a maximum retail value of $300. Issue: Could this contract be denied enforcement on the ground of unconscionability? Rule: When the mathematical disparity between the maximum resale value of an item and its contract price is "exorbitant on its face," the contract can be deemed unconscionable. Analysis: The value disparity itself leads inevitably to the felt conclusion that knowing advantage was taken of the plaintiffs who were monetarily limited. Further, the $600 upcharge is exorbitant and the credit charges of $100 make up approximately 1/3 of the freezers price. The meaningfulness of choice essential to the making of a contract can be negated by a gross inequality of bargaining power. Conclusion: It was determined that the contract was unconscionable.

Case 16.3 Frewil, LLC

Facts: Madison Price and Smith were planning to attend college in South Carolina. They contacted Frewil, LLC, about renting an apartment. Although they asked if the apartment had appliances, but the lease didn't state that the unit contained these appliances. It did however say that the overflow of appliances were the responsibility of the tenants. When the pair moved in, there were no washer or dryer and no connections. After the two pulled out of the apartment, Frewil, LLC sued the pair for breach of contract. The defendants sought to introduce parol evidence to challenge Frewil's claim Issue: Can Price and Smith enter parol evidence? Rule: Where a contract is silent as to a particular matter, and ambiguity thereby arises, parol evidence may be admitted to supply the deficiency and establish the true intent. Generally parol evidence is admissible to show the true meaning of an ambiguous written contract. When an agreement is ambiguous, the court may consider the circumstances surrounding its execution in determining the intent. Analysis: As the applicances are mentioned and Price and Smith allege they were told the washer/dryer and the dishwasher were included, the lower court erred in concluding the lease. Conclusion: Price and Smith won

23.2 Webster v. Blue Ship Tea Room, Inc.

Facts: Priscilla Webster, a born and raised New Englander, went to Blue Ship Tea Room in Boston and ordered fish chowder. The chowder was milky in color and as a result, Webster was unable to see fish bones in her chowder one of which became lodged in her throat. She underwent two esophagoscopies, after the second a fish bone was found and removed. Webster sued the restaurant for breach of implied warranty of merchantability. Issue: If New England fish chowder is served with a fish bone in it, is it therefore not merchantable? Rule: What is considered merchantable food depends on the circumstances and the expectations of consumers, not on an absolute guarantee that natural food substances related to the product will not sometimes find their way into the product—here an occasional fish bone in fish chowder. Analysis: It is not too much to say that a person sitting down in New England to consume a good New England fish chowder embarks on a taste-related adventure which may entail the removal of some fish bones from the bowl as one proceeds. We should be prepared to cope with the hazards of fish bones, the occasional presence of which in chowders is, it seems to us, to be anticipated, and which, in the light of a hallowed tradition, do not impair their fitness or merchantability. Conclusion: Therefore, based on this, the court concluded that the New England fish chowder is merchantable even though it may contain fish bones.

Seawest Services Association v. Copenhaver

Facts: Seawest owned a water distribution service that was used by houses inside and outside of a housing development and thus classified its customers as "full members" if they were within the development, and "limited members" if they were outside of the district. In 2001, after the Copenhavers purchased a home outside of the housing district, they received water from Seawest and paid bills for this service despite not having an expressly laid out contract. However, in 2009, the family stopped paying and were subsequently sued. Issue: Were the Copenhavers limited members of Seawest and liable for the unpaid water bills? If so how could this be given that no contract existed between Seawest and the Copenhavers? Rule: As the book states a quasi contract exists when a person knowingly receives a benefit from another party and it would be inequitable for the person to retain the benefit without paying of its value. Analysis: Because the family had been receiving services from Seawest at a rate equivalent to that of a limited member and was qualified as such due to their home location, the court decided that they should be considered limited members. The court also decided that since the Copenhavers would be unjustly enriched by the services provided for by Seawest that remained unpaid, and knew they qualified as limited members of Seawest, a quasi contract existed between the two parties. Conclusion: Under their qualification as limited members and this quasi contract, the Copenhavers were required to pay for their outstanding water bills and assessments.

Vokes v. Arthur Murray, Inc.

Facts: The plaintiff Vokes is a 51-year-old widow who bought 2302 hours of lessons for $31,000 all at the same school in 1968. Issue: Whether statements made by instructors at the dance school to one of the school's students qualified as a statement of opinion or statement of fact. Is fraudulent misrepresentation possible with a statement of opinion. Rule: A statement of a party having superior knowledge be regarded as a statement of fact although it would be misrepresented statements of fact. Analysis: Because Vokes was misled by a dance instructor whom she trusted to accurately measure her dancing ability, the contract between the two parties was voidable. Conclusion: The court rule in favor of Vokes.

Lucy v. Zehmer

Facts: Zehmer owned a piece of property that Lucy wanted to buy. One night at Zehmer's bar, Lucy made an offer which Zehmer allegedly accepted. He and Lucy both signed a napkin which had specific details concerning the price and title of the land. Zehmer also had his wife sign it. Zehmer later contended that he was joking and that he didn't really want to sell. Issue: Is the contract valid even though Zehmer was intoxicated at the time the contract was formed? Rule: Mental reservations that aren't manifested don't impair obligations he purports to take. Analysis: Because Zehmer clearly undertook a number of steps in forming the contract such as writing out the terms and having his wife sign, his mental state wasn't impaired and thus the contract was deemed valid. Conclusion: The court held that the contract was valid

Business Scenario 11-1: Re Rocky Mountain Races - Rocky Mountain Races, Inc., sponsors the "Pioneer Trail Ultramarathon," with an advertised first prize of $10,000. The rules require the competitors to run 100 miles from the floor of Blackwater Canyon to the top of Pinnacle Mountain. The rules also provide that Rocky reserves the right to change the terms of the race at any time. Monica enters the race and is declared the winner. Rocky offers her a prize of $1,000 instead of $10,000. Did Rocky and Monica have a contract? Explain.

Generally, in situations such as this where one person enters into a competition with a company or corporation with an explicitly defined prize, this constitutes a unilateral contract. Unilateral contracts are defined by the offering of a reward for a specifically defined act, and this contract is accepted when the contractee completes the act. In this case, Rocky Mountain Races, Inc., and Monica did have a uniform contract. Furthermore, because Monica entered the race and was declared the winner, she fulfilled her end of the contract thus accepting the contract (and qualifying for the reward from the contractor). However, because Rocky Mountain Races, Inc., included a provision that they could change the terms of the race at any time, Monica isn't entitled to the $10,000 reward, she is entitled to whatever reward Rocky sees fit.

Business Scenario 17-4 Inez has a specific set of plans to build a sailboat. The plans are detailed, and any boatbuilder can construct the boat. Inez secures bids, and the low bid is made by the Whale of a Boat Corp. Inez contracts with Whale to build the boat for $4,000. Whale then receives unexpected business from elsewhere. To meet the delivery date in the contract with Inez, Whale delegates its obligation to build the boat, without Inez's consent, to Quick Brothers, a reputable boatbuilder. When the boat is ready for delivery, Inez learns of the delegation and refuses to accept delivery, even though the boat is built to her specifications. Discuss fully whether Inez is obligated to accept and pay for the boat. Would your answer be any different if Inez had not had a specific set of plans but had instead contracted with Whale to design and build a sailboat for $4,000? Explain.

I believe because of the nature of the project, and the lack of variability between the expected product and the delivered product, Inez wouldn't be within his rights to refuse delivery. Although Inez has a specific contract with Whale of a Boats Corp., the performance by the third party didn't vary materially from that expected by obligee as the boat was built to her specifications. Therefore, Inez cannot refuse delivery. If there was no specific set of plans and Inez chose Whale of a Boat Corp. based on their past work, a special trust has been placed in the obligor and the performance depends on the personal skill or talents of the obligor. In this case, Inez would be within his rights to refuse delivery.

Business Scenario 18-2

Junior owes creditor Iba 1000 dollars, which is due and payable on June 1. Junior has been in a car accident, has missed a great deal of work, and consequently will not have the funds on June 1. Junior's father, Fred, offers to charge Junior from any further liability on the debt. Iba accepts. Is this transaction a novation or an accord and satisfaction? Explain. Novation --> no disputed amount

20-2: 20-2. Additional Terms. Strike offers to sell Bailey one thousand shirts for a stated price. The offer declares that shipment will be made by dependable truck line. Bailey replies, "I accept your offer for one thousand shirts at the price quoted. Delivery to be by Yellow Express truck line." Both Strike and Bailey are merchants. Three weeks later, Strike ships the shirts by Dependable truck line, and Bailey refuses to accept delivery. Strike sues for breach of contract. Bailey claims that there never was a contract because his reply, which included a modification of carriers, did not constitute an acceptance. Bailey further claims that even if there had been a contract, Strike would have been in breach because Strike shipped the shirts by Dependable, contrary to the contract terms. Discuss fully Bailey's claims.

This would be an example of an offer conditioned on the offeror's assent. Because Bailey's acceptance of the sale depended on Strike's assent (to change the delivery method), the contract was not accepted by bailey. In order for it to be accepted, Strike would have had to assent to Bailey's terms of delivery. - There was a contract - Bailey's second contention is probably correct - three weeks after strike received the acceptance with the modification, he had still not notified bailey of his objection to the modification - Unless the change of truck lines is a material alteration (involving cost or availability, for example), the terms of shipment by Yellow Express have become a part of the contract, and Strike is in breach in using Dependable - Violation of small deal shouldn't negate contract - Arrived within a reasonable time, strictly conform to the contract terms, it is obvious both parties intended the contract - Full performance, substantial performance, or immaterially breach

20-3: Statute of Frauds. Fallsview Glatt Kosher Caterers ran a business that provided travel packages, including food, entertainment, and lectures on religious subjects, to customers during the Passover holiday at a New York resort. Willie Rosenfeld verbally agreed to pay Fallsview $24,050 for the Passover package for himself and his family. Rosenfeld did not appear at the resort and never paid the amount owed. Fallsview sued Rosenfeld for breach of contract. Rosenfeld claimed that the contract was unenforceable because it was not in writing and violated the UCC's Statute of Frauds. Is the contract valid? Explain. [Fallsview Glatt Kosher Caterers, Inc. v. Rosenfeld, 794 N.Y.S.2d 790 (N.Y.Super. 2005)]

While the UCC might suggest that a contract for the sale of goods could be enforceable even if it was only agreed to verbally, because this is instead a verbal agreement to a contract for the sale of services (as entertainment and lectures on religious subjects are both services), the UCC would likely rule that no contract exists. Based on the predominant factor test, the UCC would claim that this was a sale of services not goods and thus UCC Article 2 wouldn't apply. According to the author: probably. Contract was valid because the Statute of Frauds did not apply Although the contract involved the provision of goods