Contracts II Module

(Module 2) (Question 1)

Tenant purchased a business and assumed its lease, with the Landlord's approval, which had 5 years remaining and a renewal option for another 20 years, given a 6-month advance notice. The business prospered and Tenant made significant enhancements to the premises. Two months before the lease's end, Landlord emailed Tenant inquiring about plans to vacate. Tenant then exercised the renewal option and sued for specific performance. What is the probable outcome of Tenant's lawsuit?

a) Since the option was express and tenant did not strictly perform and missed the option notice date, tenant's application was denied.

b) Since landlord advised tenant it had missed the option notice date, landlord did not waive any rights under the contract and tenant's application was denied.

c) Since tenant responded as soon as landlord advised tenant that tenant did not comply with the option notice requirement, it was only fair that tenant's application was granted.

d) Since tenant was not willfully negligent, the delay was slight and tenant would suffer severe hardship, tenant's application was granted.

D.

It includes the requirements for avoiding extreme forfeiture, the three-part objective test found in R & R of Connecticut, Inc. v. Stiegler. A and B are incorrect, as the loss of the premises would be an extreme forfeiture, and there are circumstances present that allow the Tenant to avoid extreme forfeiture. C is incorrect, as fairness alone is not sufficient to avoid extreme forfeiture. See R & R of Connecticut, Inc. v. Stiegler.

(Module 2) (Question 2)

Plaintiff borrowed $100,000 from Defendant, repayable over 10 years in monthly installments. Initially, payments were punctual, but Plaintiff began to pay late after three years without protest from Defendant. After two years of accepting late payments, Defendant rejected one and terminated the contract based on a clause regarding punctuality of payments. The contract included a clause stating: "No waiver of a breach or any term or condition shall be a waiver of any other or subsequent breach of the same or any other term or condition." If Plaintiff sues to enforce the contract, what will be the result?

a) Judgment for Defendant because "time of the essence" clauses are not valid in promissory notes.

b) Judgment for Defendant because the Defendant was acting within the rights under the contract and did not waive the right to insist on timely payment.

c) Judgment for Plaintiff, if Plaintiff justifiably changed position in reliance on the right to make late payments and Defendant was estopped to insist on timely performance without providing reasonable notice.

d) Judgment for Plaintiff because "time of the essence" clauses are strictly enforceable.

C.

Because repeated waivers of a condition in a contract may preclude a party from insisting on fulfillment of a condition as to future performance, even if the contract contains a "no waiver" clause. The effect of repeated waivers will depend on whether the recipient party has justifiably relied on the repeated waivers. If so, the waiving party is estopped from insisting the satisfaction of the condition as a prerequisite to future performance absent reasonable notice (allowing time to comply) to the recipient party that strict compliance with the terms of the contract will be required. A is incorrect, "time is of the essence" clauses can be valid in promissory notes. B is incorrect, Defendant's actions are a waiver, notwithstanding the express language of the contract. D is incorrect, "time is of the essence" clauses can be altered by waiver.

Review Hornbook Section 11.31(a).

(Module 2) (Question 3)

Handy contracted with Fleet Company so that Handy would maintain and repair Fleet's cars used by its sales force. In the agreement, Handy promised to "perform in a workmanlike manner and to the satisfaction of an independent automotive consultant as evidenced by said consultant's written certification." Handy performed the work and obtained an appropriate written certificate from an independent consultant. Fleet did not pay Handy and Handy sued. At trial Fleet offered proof that Handy's work had not been performed in a workmanlike manner. Is this evidence admissible?

a) No, the evidence fails to address whether the consultant was satisfied.

b) Yes, because the contract is ambiguous.

c) Yes, to show that the consultant may have acted dishonestly or in bad faith.

d) No, because Handy obtained the certificate pursuant to the terms of the contract.

C.

Because even though the court cannot substitute the approval of the judge or jury for that of the expert the parties have chosen by the terms of their contract, the court will permit a party to show that the expert has acted dishonestly or in bad faith in choosing to provide or withhold approval. A is incorrect, the evidence may be admissible to show that the consultant acted in bad faith. B is incorrect, the contract is not ambiguous. D is incorrect, Handy did not obtain the certificate according to the terms of the contract.

Review Hornbook Section 11.37(c).

(Module 2) (Question 4)

Alfred moved from Houston to Denver and contracted with Clarece Movers to move his furniture. The following provision was in the agreement: "Clarece Movers shall not be liable for damages unless written notice of claim for loss is given within 60 days of delivery of the goods." Alfred's furniture was damaged in transit while under the care of Clarece Movers. Clarece Movers was well aware of the damage. Thirty days after delivery, Alfred called Clarece Movers and gave notice of claim. Clarece movers immediately inspected the furniture. Alfred gave written notice of claim 90 days after delivery. Is Alfred barred from recovery against Clarece Movers?

a) Yes, because Alfred did not give written notice to Clarece Movers of a claim for loss within 60 days of delivery.

b) No, because Clarece Movers had notice of loss within 60 days of delivery.

c) No, if Alfred would suffer an extreme forfeiture if the claim is denied.

d) Yes, because written notice of claim within 60 days of delivery is a specific condition precedent to recovery.

C.

Because a condition (i.e., written notice of a claim of loss) may be excused if requiring the condition would involve extreme forfeiture or penalty and its existence or occurrence forms no essential part of the exchange for the promisor's performance, which is why A and D are incorrect. B is incorrect, while Clarece Movers had notice of loss within 60 days of delivery, that alone will not excuse the failure of the condition.

Review Hornbook Section 11.35.

(Module 2) (Question 5)

Under their agreement, Defendant assembled and sold a sophisticated computer to Plaintiff. After Defendant had completed the computer, Plaintiff's computer consultant approved the computer, causing Plaintiff to accept it. Thereafter, the computer would not function properly. Defendant tried to repair the computer, but failed. There was evidence that the computer contained an irreparable defect. If Plaintiff sues for damages, what will be the result?

a) Judgment for Plaintiff, even after acceptance a party may bring suit for material breach of contract.

b) Judgment for Defendant, Plaintiff's formal acceptance coupled with Defendant's attempt to cure satisfied the condition precedent to Plaintiff's obligation to pay.

c) Judgment for Defendant, because Plaintiff relied on his own consultant.

d) Judgment for Plaintiff, because there was a mutual mistake.

A.

Because by accepting (and paying for) the performance of the other party, a party has not waived the right to insist on substantial performance of the contract. If there are defects in performance that the aggrieved party was not reasonably aware of, that party may bring suit for breach of contract based on those defects. Here, Defendant failed to supply a functional computer and could not repair the defects. This would permit Plaintiff to sue for material breach of contract. B is incorrect, the unsuccessful attempt at cure does not satisfy the condition precedent. C is incorrect, Plaintiff's reliance on an outside consultant does not deprive Plaintiff of a remedy. D is incorrect, there was no mutual mistake (that is, there is nothing that indicates the Defendant was mistaken).

Review Hornbook Sections 11.33 and 11.34.

(Module 2) (Question 6)

Defendant hired Plaintiff to manufacture a certain machine to specifications. Time was made of the essence in the contract. Half way through the work Defendant told Plaintiff that he would not hold Plaintiff to the time frame so Plaintiff worked on other projects causing a delay. Later, but before the original time frame had expired, Defendant told Plaintiff "things have changed" and that Defendant needed the machine by the original deadline. If Plaintiff could not complete the job by the original deadline, would Plaintiff succeed in an action to collect the contract price from Defendant?

a) No, because a waiver of an immaterial part of a contract may be withdrawn or modified.

b) Yes, because Defendant would not be permitted to reimpose the "time is of the essence" clause.

c) Yes, because the modification to change the due date was not valid.

d) No, because courts do not favor "time of the essence" clauses.

B.

Because even though an immaterial part of a contract that has been waived can be withdrawn or modified, the waiver cannot be withdrawn or modified if the other party has changed his or her position in reliance on the original waiver. Here, when Plaintiff delayed in response to Defendant's statement that he would not hold Plaintiff to the deadline, Plaintiff changed position in reliance on the waiver and thus precluded any withdrawal or modification of the waiver. A is incorrect, because the ability to withdraw or modify the waiver of an immaterial part of a contract is not absolute. C is incorrect, the modification was valid. D is incorrect, while court's strictly construe time is of the essence clauses, that does not make them unenforceable.

Review Hornbook Section 11.31(b).

(Module 2) (Question 7)

Defendant hired Plaintiff to manufacture a certain machine to specification. Time was made of the essence in the contract and Plaintiff did not complete the project until 45 days after the contract completion date. Defendant cancelled the contract and refused to pay. Plaintiff files suit claiming Defendant made a change in the specifications that caused the delay. What would be the result?

a) Judgment for Plaintiff because he completed the project.

b) Judgment for Defendant because Plaintiff could have refused the changes and completed on time.

c) Judgment for the Defendant, because time was expressly made of the essence in the contract.

d) Judgment for the Plaintiff, if the Defendant changed the specifications in an untimely manner and caused the delay.

D.

Because a "time is of the essence" clause in a contract is a condition precedent which can be excused if the wrongful conduct of a party prevents the condition from occurring. If the Defendant changed the specifications and caused the delay, then the Plaintiff's duty to complete the building on time would be excused, which is why C is incorrect. A is incorrect, Plaintiff did not fulfill the requirements for completion, that it be completed on time. B is incorrect, the Plaintiff does not have ability to unilaterally ignore the Defendant's specifications.

Review Hornbook Section 11.28.

(Module 2) (Question 8)

A construction contract conditioned payments upon receipt of the certificate of the architect. The architect refused to issue a certificate stating: "The owner has instructed me to install trim of a specific type. I have never seen the type of trim specified, but at the same time the owner states that no other type of trim will be accepted, meaning that no alternative is possible. Therefore, I cannot issue a certificate until that has been done." What rule should apply to the architect's refusal to issue a certificate?

a) If a condition is express and called for the approval of an expert, such approval or non-approval must be upheld by a court.

b) If an expert acted in bad faith, the condition of the expert's approval will be excused.

c) If it is not expressed in the contract that an expert's approval must be made in good faith, then such expert can withhold such approval for any legal reason.

d) Where an expert's client instructed the expert not to approve an express satisfaction condition, the court must uphold the expert's refusal to approve and find the condition was not satisfied.

B.

If the architect has acted in bad faith in making this statement, the condition will be excused. A is incorrect, because there are exceptions to the requirement of expert approval under an express condition. C is incorrect, the duty of good faith cannot be avoided. D is incorrect, because there is nothing to indicate that the owner has communicated to the architect.

See Hornbook Section 11.37(c).

(Module 2) (Question 9)

Where a provision in a contract requires the approval of an attorney and the attorney's client tells the attorney not to approve the contract, which one of the following statements best describes the general rule?

a) The attorney's disapproval for any reason is final.

b) The attorney's disapproval will be upheld if the client made the request in good faith.

c) The attorney's disapproval will be upheld if the attorney's disapproval was made in good faith.

d) The attorney's disapproval will not be upheld.

A.

The special rule for attorney approval represents an exception from the usual approach for expert approval, which is why D is incorrect. B and C are incorrect, as no such limitations apply to attorney approval requirements.

See Hornbook Section 11.37(c).

(Module 2) (Question 10)

Dick wanted to sell his car, but was having no luck in so doing. Dick entered into an agreement with Pauline, whereby Pauline would procure a buyer at given terms and, if so, she would receive a commission at closing. Pauline procured a buyer, but Dick could not locate the title for his car and refused to apply for a lost title certificate from the appropriate government agency. The buyer backed out of the purchase. If Pauline files suit for her commission, what will be the result?

a) Judgment for Pauline, because she obtained a purchaser for Dick's car as required by the contract and the "closing" condition was excused by Dick's refusal to apply for a lost title certificate.

b) Judgment for Dick, because of the failure of an express condition precedent - the closing.

c) Judgment for Pauline, if she can get the buyer to recommit to the contract.

d) Judgment for Dick, because the buyer backed out of the contract.

A.

Because the occurrence of a condition precedent may be excused by the wrongful conduct of a party if the party prevents the condition from occurring. Here, the condition precedent to Dick's duty to pay the commission was the closing. However, this condition was excused by Dick's refusal to apply for lost title, which is why B is incorrect. C is incorrect, the recommitment of the buyer is not a requirement for Pauline's recovery. D is incorrect, due to the impact of Dick's wrongful prevention.

Review Hornbook Section 11.28.

(Module 5) (Question 1)

Where the non-breaching party has completed performance, determining the amount of damages owed is based on:

a) the reasonable value of the labor or services rendered or the property transferred.

b) the agreed price.

c) punishing the breaching party.

d) preventing unjust enrichment.

B.

A party who has completed performance has earned the agreed price. A is incorrect; A accurately states the basis for determining the amount of damages where the non-breaching party's performance is incomplete. C is incorrect, as a general rule punitive damages are not part of contract damages. D is incorrect, while preventing unjust enrichment is the reason for allowing recovery in many instances, it is not the basis for determining the specific amount of damages payable by the defendant.

See Hornbook Section 14.1.

(Module 5) (Question 2)

Daughn owns a building that was in need of extensive repair and hired Pratt to perform the repairs. When the repairs were two-thirds done, the building and all of the building materials Pratt had used to make the repairs were destroyed by fire after the building was struck by lightning. If Pratt sues Daughn, what (if anything) can Pratt recover?

a) Pratt can recover for the value of his labor only, apportioned by the amount of repairs completed.

b) No recovery, because performance was not complete.

c) Pratt can recover for the value of his labor and materials.

d) Pratt can recover two-thirds of the contract price and the value of his materials.

C.

In a contract to repair an existing structure, if the structure is destroyed through no fault of the contractor, where the contractor's performance is executory (incomplete), the contractor is excused from performance and entitled to quasi-contractual recovery for the value of the contractor's services and materials (quantum meruit), which is why A and B are incorrect. D is incorrect, where performance is incomplete, the performing party's remedy is in quantum meruit (the value of the services and materials), and is not determined with reference to the contract price.

See Hornbook Sections 13.3 and 14.28.

(Module 5) (Question 3)

Pauly contracted with Dorff whereby Dorff was to supply bread to Pauly for his restaurant. Dorff was not aware that this bread was used as a part of a holy festival which Pauly catered during July and August of each year. Dorff was unable to make timely delivery of the bread, causing Pauly to cancel his service with the festival. Dorff was also unaware that Pauly had no other customers during July and August because of the size of the festival and the economic advantage of catering to the festival. Pauly had to lay off employees and shut down for two months. What will be the result if Pauly sues for lost profits he would have made during this period?

a) Dorff prevails because Dorff had no reason to foresee this loss of profits suffered by Pauly as a result of later delivery.

b) Pauly prevails because Dorff was late.

c) Pauly prevails because Pauly has suffered damages as a result of Dorff's breach of contract.

d) Dorff prevails because Pauly should not have exclusively catered to the festival.

A.

Pauly's lost profits would be considered consequential damages, which are not recoverable unless foreseeable by the breaching party at the time the contract was entered into. B and C are incorrect, neither Dorff's lateness nor Pauly's damages do away with the requirement of foreseeability. D is incorrect, because Pauly's decision to contract with the festival has no impact on whether Pauly can recover for Dorff's breach.

Review Hornbook Section 14.5(a).

(Module 5) (Question 4)

Wholesaler contracted with Foundry to buy all of Wholesaler's annual requirements for certain types of valves from Foundry. The contract had no duration term, but the parties performed under it for several years before Wholesaler repudiated their agreement. In Foundry's suit against Wholesaler, Foundry's damages will be:

a) to sell an amount equal to Wholesaler's usual requirements for a year to another buyer, and recover the difference between the contract price and the market price.

b) to sell an amount equal to Wholesaler's usual requirements for a year to another buyer at a discount, because Wholesaler selected specific valves, and recover the difference between the contract price and the market price.

c) lost volume profits based on Wholesaler's usual requirements for a year from the cancelled contract, because Foundry is a lost volume seller.

d) not lost volume profits based on Wholesaler's usual requirements for a year from the cancelled contract, because Foundry is not a lost volume seller.

C.

As Foundry has an essentially limitless supply of valves, Foundry is a lost volume seller who can recover the lost profits from the cancelled contract (which is why D is incorrect). A is incorrect, as selling the same valves to another buyer (absent more information) would yield the same as the price from the cancelled contract, meaning that the standard measure of damages will not compensate Foundry for the loss of the contract. B is incorrect for the same reason as A, and because Foundry's choice of certain types of valves does not make the valves specially manufactured goods that could only be sold to another person at a discount.

See National Controls, Inc. v. Commodore Business Machines, Inc.and Hornbook Section 14.24.

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(Module 5) (Question 5)

Wholesaler contracted with Foundry to buy all of Wholesaler's annual requirements for a range of valves manufactured to stated requirements from Foundry. The contract was for four years, with an option to extend for an additional two years, and the parties performed under it for three years before Wholesaler repudiated their agreement. In Foundry's suit against Wholesaler, Foundry's damages will be:

a) to sell an amount equal to Wholesaler's usual requirements for one year to another buyer, and recover the difference between the contract price and the market price.

b) to sell an amount equal to Wholesaler's usual requirements for one year to another buyer at a discount, because the valves were manufactured to Wholesaler's stated requirements, and recover the difference between the contract price and the market price.

c) lost volume profits based on Wholesaler's usual requirements for one year from the cancelled contract, because Foundry is a lost volume seller.

d) lost volume profits based on Wholesaler's usual requirements for three years from the cancelled contract, because Foundry is a lost volume seller.

B.

Because the valves are specially manufactured goods that can only be sold at a discount. A is correct as far as it goes, but because B provides a more complete explanation of the issues involving specially manufactured goods, B is the best answer. C and D are incorrect, because the valves are specially manufactured goods, Foundry is not a lost volume seller and will not be able to recover lost volume profits. Also, regarding D, since the option to extend the contract by two years had not been exercised before the breach, recovery will be limited to the one year remaining on the original four year term of the contract.

See Hornbook Section 14.27.

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(Module 5) (Question 6)

Mai was a highly skilled professional who entered into a two-year contract to work for Employer in a city where work in her field was uncommon. Eight months into the contract, Employer fired Mai without cause. Mai spent $2,000 travelling to interviews for comparable positions, but was unable to find full-time employment in her field. Mai was, however, able to secure a six-month contract for comparable work at a lower rate of pay. When Mai sues Employer for breach of contract, Mai will recover:

I. $2,000 spent travelling to interviews for comparable positions.

II. compensation equal to 16 months of the breached contract.

III. compensation equal to 10 months of the breached contract.

IV. compensation equal to 6 months of the breached contract, offset by earnings from the six-month contract.

a) I and II.

b) II only.

c) III and IV.

d) I, III, and IV.

D.

Mai will be able to recover the costs she incurred attempting to find a comparable position, and (because Mai acted in good faith to mitigate damages by seeking comparable employment) the compensation she would have received for the balance of the contract offset by the earnings from other comparable employment. Mai would only be able to recover the full value of the remaining months of the contract with Employer if her attempts to finds comparable work were completely unsuccessful.

See Hornbook Sections 14.15, 14.17, and 14.18.I.

(Module 5) (Question 7)

Port hired Builder to expand its existing container ship terminal to Port's specifications for $2,500,000, to serve as a terminal for larger containerships. Builder failed to follow Port's specifications regarding foundations, meaning that the terminal could not be expanded again (which was part of Port's long-term business plan). The cost to hire another contractor to fix the foundations to meet Port's specifications is $500,000. While the present value of the terminal is the same with or without the conforming foundations, the conforming foundations are estimated to reduce the cost of future expansion by at least $1,000,000. When Port sues Builder, Port will recover:

a) all amounts paid to Builder, up to $2,500,000.

b) all costs paid to fix the foundations.

c) all costs paid to fix the foundations, because the cost of fixing the problem is less than the value of the conforming performance.

d) none of the costs to fix the foundations, because the present value of the terminal is unaffected by whether the foundations are fixed or not.

C.

Because it is accurate and because it explains both the reason for, and the limits on, Port's ability to recover for Builder's non-conforming performance. A is incorrect, Port will not be able to recover all costs paid to Builder, since Port was contractually obligated to pay Builder $2,500,000. B is correct as far as it goes, but C is the best answer as it explains the reason for and limits of recovery. D is incorrect, the limitation on recovery is measured by the value of the conforming performance, which may be understood in terms of either present value of the performance or the benefit expected to be created by the performance (e.g., Port's plans for future expansion).

See Peevyhouse v. Garland Coal & Mining Company and Hornbook Section 14.29.

(Module 5) (Question 8)

Eight foot, 11 inch tall Wadlow ordered a made-to-measure suit from Tailor. The same day that Wadlow's chosen fabric arrived at Tailor's shop, Tailor received an email from Wadlow cancelling the order. Tailor:

I. can mitigate damages by cutting the fabric to Wadlow's measurements and finishing the suit.

II. can mitigate damages by not cutting the fabric to Wadlow's measurements and using the fabric for other projects.

III. will be able to recover the contract price, if the suit is not reasonably resalable.

IV. will be able to recover the contract price, less the salvage value of the fabric.

a) I and III.

b) I and IV.

c) II and III.

d) II and IV.

D.

Because the fabric has not yet been cut to Wadlow's unique measurements, the duty to mitigate requires Tailor to not commit the fabric to a project that is not reasonably resalable; Tailor will be able to recover the full contract price less proceeds from other uses of the fabric. A and B are incorrect, because of Wadlow's unique measurements a suit made for him will not be reasonably resalable, and committing the fabric to the project will not fulfill Tailor's duty of mitigation. C is incorrect, because resalability cannot be considered where the goods have not been manufactured.

See Hornbook Sections 14.15 and 14.27.

(Module 5) (Question 9)

Eight foot, 11 inch tall Wadlow ordered a made-to-measure suit from Tailor. Just after Tailor had cut the fabric to Wadlow's measurements, Tailor received an email from Wadlow cancelling the order. Tailor must mitigate damages by:

a) finishing the suit.

b) not finishing the suit.

c) not finishing the suit and salvaging the cut fabric.

d) acting reasonably to minimize losses from the breach.

D.

Tailor has a duty to mitigate. In fulfilling that duty, Tailor must act reasonably to minimize losses from the breach - which specific response meets this requirement (whether finishing or not finishing the suit is the correct mitigation) will depend on the context. A, B, and C are correct as far as they go, as each represents a response that could (depending on the facts) fulfill Tailor's duty to mitigate; between B and C, C is the best approach, as it explains the additional actions that need to be taken if the suit is not finished in order to fulfill the duty of mitigation.

See Hornbook Sections 14.15 and 14.27.

(Module 5) (Question 10)

Inventor contracts with Factory to have Factory produce Investor's new product, with Factory to receive a set price per each unit produced. In order to begin production of Inventor's new product, Factory must retool its assembly line, a process that takes one week and which requires Factory to shut down the assembly line. After completing retooling but before beginning production, Inventor calls Factory to cancel the contract. When Factory sues Inventor for breach, Factory will be able to recover:

I. the direct cost of retooling.

II. profits lost when the assembly line was being retooled.

III. the cost of raw materials purchased for production.

IV. commissions paid to resell raw materials purchased for production.

a) I and II.

b) I, II, and III.

c) I, III, and IV.

d) I, II, III, and IV.

C.

Factory will be able to recover incidental damages arising from Inventor's breach, including the direct cost of retooling to produce Inventor's new product, the cost of raw materials purchased for production, and any commissions paid to resell raw materials purchased for production. Note that the cost of raw materials and commissions paid to resell them would be offset by any proceeds from their resale. Lost profits would not be recoverable, as consequential damages are not recoverable by sellers under the UCC.

See Hornbook Section 14.25.

(Module 7) (Question 1)

Owner hires Contractor to build and landscape an in-ground swimming pool, with half of the price payable upfront and the balance due on completion. After receiving the upfront payment and months of delays, but before commencing work, Contractor abandons the job. If Owner decides not to have someone else build the pool, when Owner sues Contractor, Owner will recover:

a) the difference between the market price and the contract price.

b) the amount of the upfront payment.

c) incidental expenses related to Contractor's breach.

d) Both B and C.

B.

Owner will recover the amount of the upfront payment. A is incorrect, because Owner has not sought substitute performance, there is no market price to compare the contract to, making the standard measure of damages ineffective as a remedy. C is incorrect, because there is nothing in the facts to indicate that Owner had any incidental expenses related to Contractor's breach.

See Hornbook Section 15.4.

(Module 7) (Question 2)

Owner hires Contractor to build and landscape an in-ground swimming pool, with half of the price payable upfront and the balance due on completion. Contractor receives the upfront payment, clears the site, and excavates the hole for the pool before abandoning the job. It costs Owner $2,000 to fill the hole. If Owner decides not to have someone else build the pool, when Owner sues Contractor, Owner will recover:

a) the amount of the upfront payment.

b) the amount of the upfront payment, plus the cost of filling the hole.

c) the amount of the upfront payment, plus the cost of filling the hole, offset by the value of having the site cleared.

d) None of the above.

B.

Owner will recover the amount of the upfront payment, plus the cost of filling the hole as expenses incidental to Contractor's breach. A is correct as far as it goes, but leaves out Owner's ability to recover incidental damages. C is incorrect, as (under the majority rule) there is no offset for the benefit of the breaching party's performance.

See Hornbook Section 15.7.

(Module 7) (Question 3)

Musician ordered Store's best-selling piano model. With the options that Musician selected, delivery took six weeks. When Store emailed to let Musician know that the piano had arrived, Musician was no longer interested in buying the piano. Store is able to resell the piano for the same price. If Store sues Musician for breach of contract, Store will be able to recover:

a) the profits lost from the sale to Musician.

b) the difference between the market price and the contract price.

c) any incidental expenses incurred to resell the piano.

d) Both A and C.

D.

As a lost volume seller, Store will recover the profits lost from the sale to Musician together with any incidental expenses incurred to resell the piano. B is incorrect; since the piano was resold for the same price, the standard measure of damages would provide no remedy for Store.

See Hornbook Section 14.23 and Neri v. Retail Marine Corporation.

(Module 7) (Question 4)

Dairy contracts with Packer to package all of Dairy's output of ice cream for a year. The contract provides that Dairy will pay Packer for a minimum stated amount of packaging, regardless of whether Diary actually ships that amount of ice cream for packaging. Due to production problems, Dairy's ice cream production for the year is less than half of the stated amount. When Packer sues Dairy for payment of the minimum stated amount, Packer will:

a) prevail, because the parties agreed that Dairy would pay Packer for a minimum stated amount of packaging.

b) prevail, because Dairy has breached the contract.

c) not prevail, because the provision that Dairy would pay Packer for a minimum stated amount of packaging is an unenforceable penalty.

d) not prevail, because Dairy provided a lesser amount in good faith.

C.

The provision of the contract under which Dairy would pay Packer for a minimum stated amount of packaging is an unenforceable penalty because it is not reasonably related to the actual amount of loss suffered (which is why A is incorrect). B is incorrect; Dairy has not breached the contract. D is incorrect, because while Dairy did provide a lesser amount in good faith, this fact is irrelevant to whether the stated minimum amount of compensation is a penalty.

See Lake River Corp. v. Carborundum Co.

(Module 7) (Question 5)

Hoping to build on his fame as a three-time winner of the Tour de France, Cyclist decides to go into the bicycle business and enters into a five-year lease with Owner for retail space for Cyclist's new bicycle shop. In the lease, the parties agree that in the event of breach, damages shall be $50,000. On the date for move in, Owner has leased the premises to another party and refuses to give Cyclist access to the premises. Cyclist is able to lease other premises and six months later opens the business; in the first six months of business, Cyclist's net profit is $53,000. When Cyclist sues Owner for breach of contract, Cyclist will recover:

a) the profits from Owner's lease of the premises to another party.

b) $53,000.

c) $50,000.

d) A and B.

C.

Cyclist will be able to recover liquidated damages of $50,000. The liquidated damages clause will be enforceable because (a) damages were difficult to estimate at the time of contract formation (Cyclist had never operated a bicycle shop before) and (b) the amount of liquidated damages ($50,000) is reasonably related to the actual losses suffered - profits from the first six months of business ($53,000). A and B are incorrect; where there is an enforceable liquidated damages clause, it will be the exclusive remedy for the any breach to which it is applicable.

See Hornbook Section 14.31.

(Module 7) (Question 6)

After analyzing the market in City, Velodrome, a national chain of bicycle shops, enters into a five-year lease with Owner for retail space in City for Velodrome's latest location. In the lease, the parties agree that in the event of breach, damages shall be $500,000. Velodrome spends $50,000 ordering signs and advertising for the location. On the date for move in, Owner has leased the premises to another party and refuses to give Velodrome access to the premises. Velodrome decides not to open a location in City. When Velodrome sues Owner for breach of contract, Velodrome will recover:

a) $500,000.

b) Consequential damages arising from Owner's breach.

c) Incidental damages arising from Owner's breach.

d) None of the above.

C.

Velodrome will be able to recover $50,000 in incidental damages arising from Owner's breach (incidental damages include expenses made in reliance on the contract), which is why D is incorrect. A is incorrect; Velodrome will not be able to recover liquidated damages, because (a) damages were not difficult to estimate at the time of contract formation (Velodrome is a national chain that had done a market analysis, making it easy to estimate the losses that would arise from Owner's breach), and (b) the amount of liquidated damages ($500,000) is not reasonably related to the actual losses suffered ($50,000). B is incorrect; consequential damages are only recoverable if they are foreseeable; here, there is no information regarding consequential damages, much less their foreseeability.

See Hornbook Section 14.31.

(Module 7) (Question 7)

Giant contracts to buy Parts, a regional chain of auto parts stores, from Mega for $100,000,000, intending to re-brand the stores and add them to Giant's competing auto parts store chain, Gasket. Because of the risk of brand dilution and potential for loss of good will and customers if the deal falls through, Giant insists that the contract include a provision capping Giant's liability at $25,000,000. After numerous delays, and much bad publicity from social media speculation over possible store closures, Giant is unable to obtain favorable financing terms and cancels the deal. A few months later, Mega is able to sell Parts to another buyer for $70,000,000. In a suit for breach of contract, Mega will be able to recover:

a) $25,000,000.

b) $30,000,000.

c) $70,000,000.

d) $100,000,000.

A.

While Mega's losses from the breach are $30,000,000, because this is a commercial contract between private parties, the limitation on damages will be enforceable and Mega's recovery will be limited to $25,000,000 (which is why B is incorrect). C and D are incorrect; the correct measure of damages (absent a limitation on damages) would be the contract price minus the market price (in this case, $30,000,000), not either the market price or the contract price.

See Wedner v. Fidelity Security Systems, Inc.

(Module 7) (Question 8)

Singer contracts with Casino to perform two shows a night, six days a week, for a year for $15,000,000. In anticipation of Singer's performances, Casino spends $3,000,000 on advertising and publicity, including modifications to Casino's marquee to display Singer's name and likeness. Before opening night, Casino learns that Singer has signed a $25,000,000 deal with one of Casino's competitors and won't be performing at Casino. When Casino sues Singer for breach of contract, the court will order Singer to:

a) perform as promised.

b) pay Casino $3,000,000.

c) pay Casino $10,000,000.

d) Both A and B.

B.

Casino will be able to recover incidental damages for Singer's breach (including expenses made in reliance on the contract). A is incorrect, because the contract is for personal services, the court will not order specific performance. C is incorrect; Casino will not be able to recover Singer's additional compensation from the other contract.

See Hornbook Section 16.5.

(Module 7) (Question 9)

Martin enters into a contract to sell Lindenwald, his home, to William with a 10% down payment. When the day comes for the closing (the meeting at which the price is paid and ownership is transferred), Martin refuses to sell. When William sues Martin for breach of contract, the court will order Martin to:

a) refund William's 10% deposit.

b) transfer ownership of Lindenwald to William.

c) transfer ownership of Lindenwald to William, with William paying the remaining 90% of the price.

d) pay William the difference between the market price and the contract price.

C.

As a contract for the purchase of real property, money damages and restitution are both inadequate remedies, meaning that the buyer will be able to receive specific performance. C is the best answer because it articulates the responsibility of the buyer when specific performance is ordered (that is, to complete performance, if performance is incomplete). A is incorrect; restitution in the amount of William's deposit is an inadequate remedy for a buyer seeking a specific piece of real property. B is correct as far as it goes, but C more fully articulates the approach that specific performance will require and is the best answer. D is incorrect, as William cannot purchase Lindenwald from anyone else, there is no market price with which to compare to the contract price and the standard measure of damages will not provide a remedy.

See Hornbook Section 16.2.

(Module 7) (Question 10)

Martin enters into a contract to sell Lindenwald, his home, to William with a 10% down payment. After signing the contract but before the closing, William emails to let Martin know that he is no longer interested in Lindenwald and wants his money back. Martin is able to sell Lindenwald to Andrew, but for substantially less than William had agreed to pay. When Martin sues William for breach of contract, the court will order:

a) Martin to refund William's 10% deposit.

b) William to pay the remaining 90% of the price.

c) William to pay the remaining 90% of the price, with Martin transferring ownership of Lindenwald to William.

d) between the contract price and the price paid by Andrew.

D.

Although the contract is for real property, the non-breaching party is the seller (who would have received money had the contract been performed as planned), meaning that money damages will be an adequate remedy - and because Martin was able to find a substitute buyer, the standard measure of damages will be used. A is incorrect; Martin is the non-breaching party and will not be required to pay restitution to William. B and C are incorrect. Because money damages are an adequate remedy, specific performance will not be awarded.

See Hornbook Section 16.1.

(Module 11) (Question 1)

Developer and Owner contract to develop and sell Owner's land as an upscale subdivision built around a golf course. When the subdivision is developed, the adjacent land owned by Farmer will dramatically increase in value. If the deal between Developer and Owner falls through, Farmer will be able to bring an action against:

a) Developer, because Farmer is a donee beneficiary.

b) Owner, because Farmer is a donee beneficiary.

c) Developer and Owner, because Farmer is a creditor beneficiary.

d) No one, because Farmer is an incidental beneficiary.

D.

The fact that there is neither an intent to benefit Farmer nor performance running to Farmer under the Developer-Owner contract means that Famer cannot be an intended third party beneficiary. Farmer is an incidental beneficiary and has no enforceable rights under the Developer-Owner contract (which is why A, B, and C are incorrect).

See Module 9 Video 1 and Hornbook Section 17.2.

(Module 11) (Question 2)

Developer and Owner contract to develop and sell Owner's land as an upscale subdivision built around a golf course. The development agreement includes the construction of a model home, which the contract provides will pass to Owner's Daughter when all of the other lots in the subdivision are sold. If the deal between Developer and Owner falls through, Daughter will be able to bring an action against:

a) Developer, because Daughter is a donee beneficiary.

b) Owner, because Daughter is a donee beneficiary.

c) Developer and Owner, because Daughter is a creditor beneficiary.

d) No one, because Daughter is an incidental beneficiary.

A.

Daughter is a donee beneficiary and has recourse only against the promisor, Developer (which is why B is incorrect). C is incorrect, as there are no facts to indicate that Daughter is a creditor beneficiary. D is incorrect, Daughter is an intended beneficiary.

See Module 9 Video 1 and Hornbook Section 17.3.

(Module 11) (Question 3)

Developer and Owner contract to develop and sell Owner's land as an upscale subdivision built around a golf course. The development agreement includes the construction of a model home, which the contract provides will pass to Owner's Daughter when all of the other lots in the subdivision are sold. Developer asks Daughter to choose the carpet and paint colors for the model home, and Daughter sends a thank you note to Owner. If the deal between Developer and Owner falls through, Daughter will:

a) be able to bring an action to enforce her rights, because Daughter relied to her detriment on the promised performance.

b) be able to bring an action to enforce her rights, because Daughter assented to the promised performance.

c) not be able to bring an action to enforce her rights, because Daughter assented to the promised performance using the correct form.

d) not be able to bring an action to enforce her rights, because Daughter is a donee beneficiary.

B.

Daughter's rights as a third party beneficiary vested when she learned of the promised performance (through Developer) and assented to receiving that performance (through her thank you note to Owner). A is incorrect; there is nothing to indicate that Daughter has relied to her detriment on the promised performance. C is incorrect; the contract did not specify a form of assent, meaning that Daughter can assent by any reasonable means. D is incorrect; the fact that Daughter is a donee beneficiary does not prevent her from enforcing her rights once they have vested.

See Module 10 Video 1 and Hornbook Section 17.11.

(Module 11) (Question 4)

Developer and Owner contract to develop and sell Owner's land as an upscale subdivision built around a golf course. The development agreement includes the construction of a model home, which the contract provides will pass to Owner's Daughter when all of the other lots in the subdivision are sold. The agreement also requires Daughter to assent to receiving the model home by signing a waiver relieving Developer of any liability for defects in the construction of the model home. Developer asks Daughter to choose the carpet and paint colors for the model home, and Daughter sends a thank you note to Owner. If the deal between Developer and Owner falls through, Daughter will:

a) be able to bring an action to enforce her rights, because Daughter relied to her detriment on the promised performance.

b) be able to bring an action to enforce her rights, because Daughter assented to the promised performance.

c) not be able to bring an action to enforce her rights, because Daughter has not assented to the promised performance using the correct form.

d) not be able to bring an action to enforce her rights, because Daughter is an incidental beneficiary.

C.

When a contract specifies a particular form or means by which the third party must assent to the promised performance, no other means of assent will be effective to vest the rights of the third party. While Daughter assented via her thank you note to Owner, Daughter did not sign the waiver required for assent under the development agreement, meaning that she has not effectively assented for purposes of the vesting of her rights as a third party (which is why B is incorrect). A is incorrect; there is nothing to indicate that Daughter has relied to her detriment on the promised performance. D is incorrect, Daughter is an intended beneficiary.

See Module 10 Video 1 and Hornbook Section 17.11.

(Module 11) (Question 5)

Store contracts to rent retail space from Landlord. To pay off a loan, Landlord assigns the right to receive the rent payments to Bank. Landlord never tells Store about the assignment to Bank, and Store makes rent payments to Landlord for the period of the lease. If Landlord never forwards the payments to Bank:

a) Bank cannot enforce the assignment, because Store was never informed of the assignment.

b) Bank cannot enforce the assignment, because Landlord has revoked the assignment by the conduct of retaining the rent payments.

c) Bank can enforce the assignment, but only because the assignment was for consideration.

d) Bank can enforce the assignment, even though Store was never informed of the assignment.

D.

The assignment is enforceable without notice to the obligor, but the assignee's recovery will be through an action against the assignor. A is incorrect; the failure of the assignor to inform the obligor of the assignment does not prevent the assignment from being enforced. B is incorrect; assignments for consideration (here, the forgiveness of a loan by Bank) cannot be revoked. C is incorrect, both gratuitous assignments and assignment for consideration are enforceable. See Module 11 Video 1 and Hornbook Section 18.3.

(Module 11) (Question 6)

Baker contracts with Restaurant to make pastries for Restaurant's Sunday brunch buffet. The contract requires Baker to do final baking and assembly on Restaurant's premises, and to oversee the presentation of the pastries on the buffet. Restaurant publicizes its use of Baker's pastries in its advertising. After contracting to make pastries for Hotel's Sunday brunch buffet, Baker delegates the duty to perform the contract with Restaurant to Boulanger. The delegation to Boulanger:

a) is invalid, because it was done without Restaurant's consent.

b) is invalid, if Baker's performance under the Baker-Restaurant contract is a personal service.

c) is valid, if Baker's performance under the Baker-Restaurant contract is not a personal service and Boulanger's skills are equal to that of Baker.

d) Either B or C.

D.

Whether Baker's performance can be validly delegated to Boulanger will depend first on whether that performance is a personal service (a question that the facts do not allow us to definitively resolve). If Baker's performance is a personal service, then the duty cannot be validly delegated (which is why B is a correct answer). If Baker's performance is not a personal service, then the duty can be validly delegated - provided that Boulanger has the same level of skill and ability in baking as Baker (which is why C is a correct answer). As B and C are mutually exclusive options that depend upon an unknown legal conclusion, the best answer includes both options together with the information needed to determine the applicability of each. A is incorrect; the consent of the obligee (Restaurant) is not required in order for a delegation to be valid.

See Module 11 Video 1 and Hornbook Sections 18.26 and 18.28.

11 7

Barry owned an office & wanted Watson to repair fire damage. A clause stated Barry "promises to pay anyone who provides goods and materials to Watson for use in the repair of the building." Contract is also stated to be non-assignable. Watson didn't pay the last 1,000 for lumber, prompting him to inform the supplier about the contract.
Watson asked Barry to pay, but Barry didn't. Barry told Watson that he was selling the building to Carla & wanted a release from the contract. Watson released him from the contract whilst agreeing to complete the repairs for Carla. Watson sent a copy of this letter to the supplier. Watson completed the work & then Barry paid the total contract price excluding the 1000 to supplier. Watson ran out of money before he paid the supplier.
In an action by supplier against Barry, on the Barry-Watson contract, Barry's best defense is:

a) The non-assignment clause in Barry-Watson contract is void as against public policy.

b) The supplier has not materially changed its position in reliance upon the Barry-Watson contract.

c) Third parties cannot acquire valid claims under this type of contract.

d) Barry relied to his detriment on Watsons letter of release.

B.

The rights of a third party beneficiary may be terminated or modified by the original parties to the contract until the beneficiary's rights have vested. Under the First Restatement, the rights of a creditor beneficiary, such as the supplier here, will vest when he changes position in reliance on the contract. If the supplier has not materially changed its position in reliance on the contract, its rights have not vested yet and the original parties were free to modify their arrangement. Thus, the release would arguably terminate Barry's liability to the supplier under the original Barry-Watson contract. A is incorrect, as the non-assignment clause in Barry-Watson contract is not void as against public policy. C is incorrect, because third parties can acquire claims under this type of contract. D is incorrect, Barry's reliance provides a basis for Barry's rights, but it would not protect him against the claims of the supplier.

See Hornbook Sections 17.11 and 17.13.

11 8

Fetterman leased property to Connie's Construction from 2013-2028, with $100,000 payments every 5 years. Fetterman had the power to change the beneficiary & assign the agreement. In 2014, Connie's subcontracted their lease obligations to Arnie's Construction. In 2015, Fetterman listed Steven as beneficiary. Steven informed Connies & Arnies about this also saying "in light of my dads decision, I left my previous job to become a painter." In 2016, Fetterman borrowed 15,000 from his bank & used the lease as security. In 2017, Connie's ended the subcontract with Arnies. In 2018, Connie's missed a 100,000 payment. The bank then sued Connies for $15,000, but Steven intervened. Who wins?

a) The bank, it is entitled to the $15,000, because consideration was given for the assignment.

b) Steven, because he was named beneficiary before Fetterman made the assignment, & the beneficiary, being first in time, prevails over the assignee.

c) The bank, it is entitled to the $15,000 because Fetterman reserved power to change the beneficiary & to assign the agreement.

d) Steven, because he is a donee beneficiary & the promisee cannot modify or rescind any part of a donee beneficiary's right.

C.

In a partial assignment, the assignor must transfer the right assigned completely, but may divide rights due him from the obligor and assign one or more of them to one or more assignees. Here, the lease agreement stated that Fetterman had the power to change the beneficiary and to assign the policy. The assignment is viewed as an exercise of the power to assign, even though it was only a partial assignment (which is why A is incorrect). B is incorrect, while Steven's rights as a third party beneficiary have vested, they are enforceable against Fetterman and do not take priority over the rights of the bank. D is incorrect; due to his detrimental reliance, Steven is not a donee beneficiary. If you missed this question.

See Hornbook Section 18.3.

(Module 11) (Question 9)

Fetterman leased property to Connie's Construction from 2013-2028, with $100,000 payments every 5 years. Fetterman had the power to change the beneficiary & assign the agreement. In 2014, Connie's subcontracted their lease obligations to Arnie's Construction. In 2015, Fetterman listed Steven as beneficiary. Steven informed Connies & Arnies about this also saying "in light of my dads decision, I left my previous job to become a painter." In 2016, Fetterman borrowed 15,000 from his bank & used the lease as security. In 2017, Connie's ended the subcontract with Arnies. In 2018, Connie's missed a 100,000 payment. If Steven sued Connie's Construction Company to collect the $100,000, who will win?

a) Steven wins because he is subrogated to Connie's right against Arnie's.

b) Steven loses because he should have sued Arnie's Construction Company before proceeding against Connie's Construction Company.

c) Steven loses because he should have sued Connie's Construction Company and Arnie's Construction Company jointly.

d) Steven wins because he has a right against Connie's and Arnie's and he may elect to bring suit against Connie's.

D.

A third party beneficiary whose rights have vested may enforce the contract in an action against the promisor. Here Steven, the third party beneficiary, had learned of, accepted, and relied upon the Fetterman-Connie's contract, and thus his rights under that initial contract had vested. This gives Steven a direct cause of action against Connie's the promisor under the Fetterman-Connie's contract, when Connie's failed to perform. In addition, Steven had vested rights under the Connie's-Arnie's contract because he also learned of, accepted and relied on that contract before the concrete companies attempted to rescind it. This means that the attempted rescission was ineffective to terminate Steven's vested rights under the second contract. Because there was no express or implied novation when Connie's entered into the contract with Arnie's, the original promisor, Connie's, remains liable to Steven, as is Arnie's. Thus Steven may elect to sue either Connie's or Arnie's or both (although he can recover only once). A is incorrect, because Steven has the right to recover against Connie's and Arnie's, without regard to subrogation. B and C are incorrect, because Steven may elect to sue either Connie's or Arnie's or both.

See Hornbook Section 18.26.

(Module 11) (Question 10)

Fetterman leased property to Connie's from 2013-2028, with $100,000 payments every 5 years. In 2014, Connie's subcontracted their lease obligations to Arnie's. In 2015, Fetterman listed Steven as beneficiary. In 2016, Fetterman borrowed 15,000 from his bank & used the lease as security. In 2017, Connie's ended the subcontract with Arnies. In 2018, Connie's missed a 100,000 payment. If Steven sued Connie's Construction Company to collect the $100,000, who will win? If Steven sued Arnie's Construction Company for the payment, how should the court rule?

a) Against Steven, because the change of beneficiary clause in the lease agreement prevented Steven's right under contract between the two concrete companies from vesting prior to time rent became due and the two companies rescinded their contract.

b) Against Steven, because Steven is an incidental beneficiary of the contract between the two concrete companies.

c) For Steven, because Steven is a donee beneficiary of Arnie's promise and assent is presumed.

d) For Steven, because Steven is a creditor beneficiary of Arnie's promise, notice was given to Steven, and he assented and changed his position in reliance.

D.

Under the First Restatement, a creditor beneficiary's rights vest when he changes position in reliance on the contract. Under the Second Restatement, which is followed by a majority of the courts, an intended third party beneficiary's rights vest when he learns of the contract, assents to it, or materially changes position in justifiable reliance on the promise, or brings suit to enforce the promise. Here, Steven received notice from his father of the fact that he had been named beneficiary, consented to the arrangement via his letter, and relied on the promise when he quit his job. Since Steven is a creditor beneficiary of the Connie's-Arnie's contract under the First Restatement, and an intended third party beneficiary under the Second Restatement, and since his actions satisfy the requirements of either Restatement, Steven will receive a judgment against Arnie's. A is incorrect; the change in the beneficiary clause did not prevent Steven's right from timely vesting. B is incorrect, Steven is an intended beneficiary. C is incorrect; Steven is a creditor beneficiary due to his detrimental reliance.

See Hornbook Sections 17.11 and 17.13.

(Module 13) (Question 1)

Over the years, Inventor has ordered both small and large production runs of Inventor's latest invention from Manufacturer. Inventor pays Manufacturer from the sale proceeds as the items are sold. During negotiations to buy Manufacturer's business, Corporation requests information on all of Manufacturer's accounts receivable, causing Manufacturer and Inventor to agree on a total amount as the balance due for all of Inventor's orders to date. After Corporation buys Manufacturer's business, Corporation discovers an order that Manufacturer accidentally overlooked when agreeing on the balance due for all of Inventor's orders to date. Corporation will:

a) be able to recover the additional amount, because Manufacturer provided the items to Inventor.

b) be able to recover the additional amount, provided Inventor has sold the items from the overlooked order.

c) not be able to recover the additional amount, because Inventor's contracts were with Manufacturer.

d) not be able to recover the additional amount, because Manufacturer and Inventor agreed to an account stated for the period of time within which the overlooked order occurred.

D.

Manufacturer and Inventor created an account stated when they reached an agreement on the outstanding balance due for their series of partially repaid orders. Once an account stated is created, no additional claims can be added by the actions of the creditor (which is why A is incorrect) or the debtor (which is why B is incorrect). C is incorrect; in buying Manufacturer's business, Corporation steps into the shoes of Manufacturer and can asset the contractual rights of Manufacturer.

See Module 12 Video and Hornbook Section 21.9.

(Module 13) (Question 2)

Bakery and Market have being doing business for years. They resolve their dispute over the price for standard breads that Market wants included in every delivery under their current contract by entering into a new contract at Bakery's preferred price, but which includes a changing assortment of seasonal and specialty breads within that price. Market and Bakery have resolved their dispute through:

a) an account stated.

b) a novation.

c) an accord and satisfaction.

d) mutual rescission.

C.

Market and Bakery have entered into an accord and satisfaction. A is incorrect, the dispute is not over an uncertain balance due from a series of transactions (which is the focus of an account stated), rather a dispute over a current contract is being resolved by entering into a new contract (which is the focus of accord and satisfaction). B is incorrect, no new parties are replacing either of the original parties to the contract. D is incorrect, the parties have agreed to a new contract to replace their current contract, not simply to cancel their current contract.

See Module 12 Video and Hornbook Sections 21.5 and 21.6.

(Module 13) (Question 3)

Bakery and Market have being doing business for years. They resolve their dispute over the price for standard breads that Market wants included in every delivery under their current contract by entering into an executory accord at Bakery's preferred price, but which includes a changing assortment of seasonal and specialty breads within that price. Market and Bakery's claims under the current contract will be resolved:

a) upon payment of the first installment under the executory accord.

b) upon signing the executory accord.

c) upon completing performance under the executory accord.

d) none of the above.

C.

An executory accord resolves the claims under the prior contract when the new contract (the executory accord) is completely performed (which is why A and D are incorrect). B is incorrect, as it states what would have happened had the parties entered into a substituted agreement and release instead of a substituted agreement and release.

See Module 12 Video and Hornbook Sections 21.5 and 21.6.

(Module 13) (Question 4)

Deb hires Tailor to create a highly-customized dress to her measurements and makes a $500 deposit. After forming their contract, Deb realizes it's unlikely that she will ever wear a dress that elaborate and Tailor realizes that he made an error in his cost estimate and will lose money performing the contract. Deb and Tailor agree to cancel the contract; they have resolved their problems by:

a) an accord and satisfaction.

b) a novation.

c) mutual rescission.

d) mutual rescission, which will require Tailor to refund the deposit.

D.

By agreeing to cancel the contract, Deb and Tailor have entered into a mutual rescission, ending their obligations under the contract (which is why A and B are incorrect). In order to complete the mutual rescission, the parties must restore to each other any benefit received from them (here, the $500 deposit). C is correct as far as it goes, but D is the best answer because it explains what must be done to restore the parties to their pre-contract positions.

See Module 12 Video and Hornbook Section 21.2.

(Module 13) (Question 5)

Owner agrees to sell her house to Buyer, with Buyer making monthly payments directly to Owner and Owner paying the property taxes and insurance until the final installment is received. In need of cash to finance her new business, Owner sells her interest to Lender and enters into an agreement with Buyer and Lender for Lender to replace Owner as a party to the contract with Buyer. Under the contract with Buyer, Owner is:

a) still obligated, as the guarantor of any required performance delegated to Lender.

b) no longer obligated, due to the parties' mutual rescission.

c) no longer obligated, due to the parties' novation.

d) no longer obligated, due to the parties' substituted agreement and release.

C.

The parties have created a novation by their mutual agreement, with Lender replacing Owner as a party and Owner being released from all liability. A is incorrect, because of the novation, Owner is released from liability under the contract with Buyer (although without a novation, Owner would still be the guarantor of any performance delegated to Lender). B and D are incorrect, because the parties have created a novation, by mutually agreeing to continue the contract but substituting one of the parties.

See Module 12 Video and Hornbook Section 21.8.

(Module 13) (Question 6)

To ruin her competitor's business, Cook entered into an agreement with Grocer to stock only second-quality versions of the fresh produce Cook's competitor, Chef, needed to produce her signature dishes. As part of the agreement, Grocer agreed to order only second-quality produce and if Grocer did receive a shipment of first-quality produce, Cook agreed to buy all of it at Grocer's cost plus an agreed profit. After paying for three shipments of first-quality produce in a week, Cook refused to pay for a fourth shipment. If Grocer sues Cook for breach of contract:

a) Grocer will prevail, because Cook has willfully breached their contract
.
b) Cook will prevail, because their contract violates public policy.

c) Grocer will prevail, because Cook has received a benefit from Grocer's performance.

d) Cook will prevail, because Grocer is abusing their agreement.

B.

While the contract itself is not necessarily a tort, Cook's purpose for the contract (which Grocer is aware of) means that the contract violates public policy and cannot be enforced (which is why A and C are incorrect). D is incorrect, while Cook will prevail, the reason that Cook will prevail is due to the public policy violation.

See Module 13 Video and Hornbook Section 22.2.

(Module 13) (Question 7)

Owner hires Contractor (a licensed and bonded electrician) to re-wire her entire house, an expensive project. After Contractor completed the work but before Owner paid, Owner discovered that Contractor's bond had expired and that Contractor's license had been suspended, but only because of the expiration of the bond. If Owner decides not to pay and Contractor sues for breach:

a) Owner will prevail, because Contractor was not licensed to do electrical work.

b) Owner will prevail, because the contract was illegal.

c) Contractor will prevail, because Owner's breach was willful.

d) Contractor will prevail, because Contractor has substantially complied with the requirements of the licensing law, and because the loss to Contractor and the windfall to Owner would be too great if Owner was not required to pay for the benefit received.

D.

Notwithstanding Contractor's expired license, Contractor would prevail because Contractor has substantially complied with the requirements of the licensing law, and because the loss to Contractor and the windfall to Owner would be too great if Owner was not required to pay for the benefit received (which is why A and B are incorrect). C is incorrect, although Owner's breach is willful, this is irrelevant to why Contractor will prevail; the contract would be unenforceable but for Contractor's substantial compliance with the requirements of the licensing law.

See Module 13 Video and Hornbook Section 22.3.

(Module 13) (Question 8)

Owner hires Contractor to re-wire her entire house, an expensive project. After Contractor completed the work but before Owner paid, Owner discovered that Contractor was not a licensed and bonded electrician, and the re-wiring was improperly done in part and will have to be repaired. If Owner decides not to pay and Contractor sues for breach:

a) Owner will prevail, because Contractor was not licensed to do electrical work.
b) Owner will prevail, because Contractor's performance was imperfect.

c) Contractor will prevail, because Owner's breach was willful.

d) Contractor will prevail, because the loss to Contractor and the windfall to Owner would be too great if Owner was not required to pay for the benefit received.

A.

Contractor is not a licensed and bonded electrician and Contractor's work was not on the level of quality that a licensed and bonded electrician would have provided, exactly the sort of problem the licensing statute was intended to prevent (which is why C and D are incorrect). B is incorrect, although the Contractor's performance was imperfect (which would be a basis for offsetting the payment to Contractor by the cost of repairing the substandard work, not for avoiding paying anything), the contract is void and unenforceable in its entirety due to Contractor's lack of a license.

See Module 13 Video and Hornbook Section 22.3.

(Module 13) (Question 9)

Mug, a popular local restaurant and bar, made a proposal to Brewery to become the exclusive seller of Brewery's craft beers in City. While Brewery was reviewing Mug's offer, City revoked Mug's liquor license. Brewery then mailed a letter accepting Mug's offer, which Mug received. Between Mug and Brewery:

a) an enforceable contract has been formed.

b) no contract was formed, as no valid offer was ever made.

c) no contract was formed, because supervening illegality revoked the offer.

d) a contract was formed, but the duty to perform has been discharged due to illegality.

C.

At the time Mug made the offer, Mug had a valid liquor license and could perform the contract; the subsequent revocation of Mug's liquor license is a supervening illegality that revoked Mug's offer - meaning that there was no offer for Brewery to accept and no contract could be formed (which is why A and D are incorrect). B is incorrect, while no contract was formed because of the revocation of Mug's due to the supervening illegality, Mug's offer was initially valid.

See Module 13 Video and Hornbook Section 22.9.

(Module 13) (Question 10)

Owner hires Mechanic to do body work on Owner's car. Owner is aware that Mechanic is not licensed to do auto body work, and Owner is getting the work done at a fraction of what a licensed auto body repair shop would charge. If Owner refuses to pay because of a dispute over the quality of Mechanic's work, when Mechanic sues Owner, the court will:

a) require Owner to pay, less an offset for the cost of fixing any substandard work by Mechanic.

b) require Owner to pay in full, as Mechanic has performed as promised.

c) leave the parties where the court finds them, as the parties are in pari delicto.

d) Either A or B.

C.

As both parties are in pari delicto, the court will leave them where it finds them. A and B are incorrect, as no remedy can be provided where the parties are in pari delicto.