LAW402A Contracts Exam

Buyer and Seller contract for the sale of 1000 barrels of oil (carefully specified as to grade, etc.) at a price of $50 a barrel, payment and delivery in 90 days.

On the payment/delivery date, oil is selling at $44 a barrel and Buyer refuses to go through with the transaction.

How much can Seller, injured party, recover?

$0 $50,000 $6,000

$6000, Expectation damage rule limits Seller’s claim to the difference between contract price of $50 and the market value of the goods at the contract date

Eleanor, an 82-year-old woman, had several badly deteriorated teeth that made chewing difficult. She consulted Dr. Patel, a

dentist who specialized in restorative dentistry. Eleanor told Dr. Patel that she was considering having all of her remaining

teeth extracted and receiving a set of permanent dental implants. During the consultation, Eleanor expressed concern

about undergoing extensive dental surgery at her age. Dr. Patel responded:

“You don't need to worry. I have performed this procedure many times. You will be able to eat normally again, and I

guarantee that when we are finished, you will have a completely comfortable, permanent set of teeth that will function just

like natural teeth.”

Eleanor asked whether there was any possibility that the implants would fail. Dr. Patel replied, “Not in your case. I

guarantee the result.”

Relying on Dr. Patel's statements, Eleanor agreed to undergo the procedure and paid him $38,000 in advance.

The procedure was unsuccessful. Eleanor experienced substantial pain, and several of the implants failed to fuse properly

with her jawbone. She ultimately required additional surgery and was left with a set of removable dentures that were

uncomfortable and made chewing more difficult than before the procedure. The reasonable market value of the dental

treatment Eleanor actually received was $12,000, while expert testimony established that the promised permanent, fully

functional dental implants would have been worth $45,000 to Eleanor.

Eleanor brings an action against Dr. Patel for breach of contract. Assume that the jurisdiction recognizes a contract claim

based upon a dentist's express promise concerning the result of dental treatment.

Which of the following is the BEST measure of Eleanor's expectation damages?

A. $33,000, representing the difference between the $45,000 value of the promised dental treatment and the $12,000 value of

the treatment she actually received.

B. $26,000, representing the difference between the $38,000 Eleanor paid for the treatment and the $12,000 value of the

treatment she actually received.

C. $38,000, representing the amount Eleanor paid Dr. Patel, because she is entitled to recover the entire price of the

unsuccessful procedure.

D. The reasonable value of Eleanor's pain, suffering, and physical discomfort resulting from the unsuccessful procedure,

because those losses are the natural consequences of Dr. Patel's breac

Correct Answer: A

Explanation

A is correct. Expectation damages seek to put the nonbreaching party in the position she would have occupied had the contract

been performed. Where a professional expressly promises a particular result and fails to provide it, the relevant comparison is

the value of the promised performance and the value of the performance actually received. Here, the promised treatment was

worth $45,000 to Eleanor, while the treatment she actually received was worth $12,000. Her expectation damages therefore

are $33,000.

This tracks the principle established in Hawkins v. McGee, where the court held that damages for breach of a physician's express

promise concerning the result of an operation were measured by the difference between the value of the promised result and the

value of the result actually obtained, together with appropriate incidental consequences

Rollem, an automobile retailer, had an adult daughter, Betsy, who needed a car in

her employment but had only $3,000 with which to buy one. Rollem wrote to her,

“Give me your $3,000 and I’ll give you the car on our lot that we have been using

as a demonstrator.” Betsy thanked her father and paid him the $3,000. Both

Rollem and Betsy knew, the demonstrator was reasonably worth $10,000. After

Betsy had paid the $3,000, but before the car had been delivered to her, one of

Rollem’s sales staff sold and delivered the same car to a customer for $10,000.

Neither the salesperson nor the customer was aware of the transaction between

Rollem and Betsy.

Does Betsy, after rejecting a tendered return of the $3,000 by Rollem, have an

action against him for breach of contract?

(A) Yes, because Rollem’s promise was supported by bargained-for

consideration.

(B) Yes, because Rollem’s promise was supported by the moral obligation a

father owes his child as to the necessities of modern life.

(C) No, because the payment of $3,000 was inadequate consideration to support

Rollem’s promise.

(D) No, because the salesperson’s delivery of the car to the customer made it

impossible for Rollem to perform.

A) Yes, because Rollem’s promise was supported by bargained-for

consideration

Paula Prospecter, who is a destitute

claimant to an Alaskan gold mine,

promises to pay Fran Financier $10,000

if Paula succeeds in reclaiming her mine,

in return for Fran Financier's payment of

$50 to help Paula to go to Alaska and try.

Is there consideration here?

Yes, Paula's promise is supported by adequate consideration because Fran provided $50, which is a tangible benefit to Paula, while Paula's promise to pay $10,000 is a return promise.

If the court in Kirksey v. Kirksey had applied the

modern four-part promissory estoppel test, would

Mrs. Kirksey likely have prevailed?

• Promissory Estoppel: Elements to be proven

– The promisor made a promise?

– The promisor should have reasonably expected

that promisee would rely on the promise?

– The promisee actually relied on the promise and

engaged in an action or forbearance of a right?

– Injustice would result if the promise were not

enforced?

Was there a promise?

Yes. Mr. Kirksey promised his widowed sister-in-law that if she came to live near him, he would provide

her with a place to raise her family. This was sufficiently definite to constitute a promise, even though the

nineteenth-century court treated it as a gratuitous one.

Should Mr. Kirksey reasonably have expected reliance?

Yes. Mr. Kirksey knew that she was a widow; she had several children; she was living approximately 60–

70 miles away; moving would require her to disrupt her existing life and residence; and she would have

to relocate her entire family to take advantage of his promise. A reasonable person in his position should

have expected that such a promise would induce substantial action.

Did Mrs. Kirksey actually and detrimentally rely on the promise?

Yes. Mrs. Kirksey abandoned her existing home and possession of land; gave up the opportunity to

remain and attempt to secure that property; moved herself and her children approximately 60–70 miles;

and reorganized her family's life in reliance upon her brother-in-law's promise. The original court itself

recognized that she had suffered substantial “loss and inconvenience” by breaking up her household

and moving. Justice Ormond expressly stated that he believed this detriment was sufficient to support

enforcement.

Is enforcement necessary to avoid injustice?

Yes. This element would likely favor Mrs. Kirksey because she was placed in a substantially worse

position after relying on the promise. She had uprooted herself and her children and surrendered her

previous living situation. After allowing her family to live on his land for two years, Mr. Kirksey eventually

required her to leave altogether. A modern court could reasonably conclude that allowing Mr. Kirks

Betsy owns a business in South City. Her friend, Walter, lived in Northville,

some distance away. Over the years, Betsy had often suggested to Walter

that he move to South City and work for her. A short time ago, Walter decided

to follow Betsy’s suggestion. He called Betsy and asked if she was still

interested in hiring him. Betsy replied, “Of course. Get down here as soon as

possible and we can see where you would fit in.” Walter agreed and told her

that he would give notice at his current job and would be in South City by the

end of the month.

Walter gave notice at work and shipped his furniture to South City at a cost of

$5,000 and bought a one-way plane ticket for $250.

When Walter called Betsy upon his arrival in South City, she told him that she

had just lost a major customer and had to impose rigorous cost-cutting. She

therefore could no longer employ him.

Walter tried for two months to find another job in South City but nothing was

available. Walter’s previous employer was willing to rehire him, so he moved

back to Northville, paying another $5,000 for movers and $250 for airfare.

1. Can Walter make a claim based on promissory estoppel against Betsy?

2. What damages, if any, should Walter be awarded? Discuss.

Promissory Estoppel is a substitute where consideration is lacking. A promise

made by the promisor which should reasonably expect to induce action or

forbearance on the part of the promisee and does induce such action or

forbearance (Restatement 90 includes of a substantially certain nature) is binding

if injustice can only be avoided by the enforcement of the promise.

Walter expressed his willingness to work for Betsy and suggested being hired by

Betsy and agreed to Betsy's communication "Get Down here as soon as possible

and we can see where you would fit in," indicating that Betsy, as the promisor,

was making a promise to Walter that he could move down and work for her, and

Betsy had a reason to expect to foreseeably induce Walter, as the promisee, into

moving from Northville, which is known by both to be some distance away, to

South City where Betsy is located and relocating all of his personal items with

him is so doing.

Furthermore, Walter told Betsy that he would give notice at his current job,

indicating that Betsy should reasonably expect to induce action on the part of

Walter, the promisee, to quit his job in reliance on Betsy's promise that she will

provide him with a job if he moves down.

The facts then state that Walter was so induced by Betsy's promise because he in fact did give

notice to his job, and quit, shipped his furniture to South City at a cost of $5000 and bought a one-

way place ticket for $250.

The facts then state that Betsy revoked her promise to Walter to work at her business located in

South City because she had lost a major customer and had to impose rigorous cost-cutting and

therefore could no longer employ Walter.

However, Walter had already relied on the promise to detriment by relocating himself and all of his

things to South City and quit his job in Northville. Therefore, there was injustice to Walter that

resulted from his reliance on Betsy's promise as a result of relocating himself and quitting his job

reasonably expecting to have a job with Betsy in South City.

The nature of the induced action and forbearance is reasonably certain and definite since it can be

shown that Walter quit his job, and paid money to relocate himself and his belongings to South City

from Northville.

Injustice could only be avoided by enforcing the promise since Walter was unable to work for Betsy

since she revoked her promise and Walter was unable to find a job elsewhere in South City since he

looked for two months and found nothing, indicating that he moved himself and all his belongs and

quit his job for no gain or benefit to his detriment in reliance on Betsy's promise.

Furthermore, Walter was forced to relocate himself back to Northville and pay another $5000 for

movers and $250 for airfare to get himself back to the place had the promise not occurred and back

to the only place in which he could reasonably find other employme

A baseball player and his agent negotiated a lucrative contract for the upcoming

season. As a result, the team owner orally promised the player a $100,000 bonus payable

after the last game of the regular season if the player showed his “good faith” in playing

his best all season. At the end of the season, the owner informed the player's agent that

because attendance was down and profits were not as large as he expected, the promised

bonus would not be paid. The player filed suit against the owner for breach of contract.

The player filed suit against the owner for breach of contract.

How is the court in a jurisdiction following the rule and reasoning of Woods v. Lucy Lady

Duff-Gordon most likely to rule regard the legal effect of the promise?

A. Enforceable, because the player conferred something of legal value—his “good faith

effort in playing his best all season,”—on the owner in exchange for the owner's promise

to pay a $100,000 bonus.

B. Enforceable, because the owner was legally obligated to pay the bonus as he promised.

C.Unenforceable, because the promise was an illusory promise not supported by legally

sufficient consideration.

D.Unenforceable, because the promise was not in writin

C. Unenforceable, because the promise was an illusory promise not supported by

legally sufficient consideration.

Discussion of correct answer: Donative promises generally are not enforceable

unless supported by consideration or a consideration substitute, such as

promissory estoppel. Here, the owner's promise was made in exchange for "work"

already performed by the player. [“…At the end of the season, the owner informed

the player's agent that because attendance was down and profits were not as large

as he expected, the promised bonus would not be paid.” ] Note that in a jurisdiction

following the rule and reason of Woods v. Lucy Lady Duff-Gordon, the player was

already under an implied “good faith” obligation to perform at his best. Thus his

promise was not supported by consideration, nor is their detrimental reliance. Since

past consideration is not considered to be good consideration, the owner's promise

to pay a bonus based on past good faith efforts would be unenforceable. (D) is not

correct because there is no reason why the promise must be in writing. The duration

of the promise would not be for longer than one year, and the only time the amount

of the promise can trigger the need for a writing is when the contract involves a sale

of goods. The Statute of Frauds does not apply - watch out for answers that distract

from the real issue - consideration.

Supplier and Retailer talked at length about Retailer agreeing to buy as many

bicycle chains from Supplier as Retailer would need each month. Finally,

Retailer stated to Supplier, that Retailer wanted to order bicycle chains from

Supplier, in an amount per month that would meet Retailer’s needs.

In a jurisdiction which follows the reasoning and the rule of Wood v. Lucy, Lady

Duff-Gordon, does sufficient consideration exist?

A. Yes, because a covenant of good faith and fair dealing will be implied in

interpreting a contract which does not require consideration.

B. No, because of the doctrine of illusory promise.

C. Yes, because a covenant of good faith and fair dealing which allows for

indefinite terms will be implied in interpreting the contract

D. No, because terms in an offer must be definite and certain

Yes, because a covenant of good faith and fair dealing which allows for indefinite terms

will be implied in interpreting the contract

Discussion of correct answer: For the legal detriment aspect of consideration, the

promisee must do something they do not have to do, or refrain from doing something they

have a right to do. The result must be a detriment to the promisee, a benefit to the

promisor, or both. Requirements and outputs contracts (here, e.g., the Retailer agreed to

order bicycle chains from Supplier, in an amount per month that would meet the

requirements of the Retailer’s needs), sometimes appear to have illusory promises.

However, the duty of good faith and fair dealing imputed in these contracts under the

reasoning and the rule of Wood v. Lucy, Lady Duff-Gordon,will often cure any otherwise

illusory promises. In this situation, legal detriment exists, because they formed a

requirements contract, and both parties will be held to an implied duty of good faith and

fair dealing under Wood v. Lucy, Lady Duff-Gordon. Answer A is incorrect because there

was consideration on both sides of the contract. Answer B is incorrect because under the

reasoning and the rule of Wood v. Lucy, Lady Duff-Gordon, the implied duty of good faith

will often cure any otherwise illusory promises. Answer D is incorrect because the

covenant of good faith and fair dealing allows for indefinite terms to be implied in

interpreting the contract.

Arnie, thinking of his Buick, agrees to sell "the car in

my driveway" to Bill for $400. Bill, thinking of Arnie’s

Mazda, agrees. It turns out the Mazda was in the

driveway. Is there a contract? For which car?

A. There is no contract because there is no meeting of the

minds.

B. There is a contract for the Buick because the offeror is

master of the offer and the Buick is the car Arnie was

thinking about.

C. There is a contract for the Mazda because it is the car Bill

was thinking about.

D. There is a contract for the Mazda because it was the car in

the driveway

. There is a contract for the Mazda because it was the car in the

driveway. (What if Bill forgot there were 2 cars parked in the driveway?)

Problem on Contract Formation:

Mutual Assent and Mutual Mistake

An artist was tired of living in the city. He placed the following classified

announcement in the local paper. "I am interested in selling my condo for any

reasonable price. I am moving to the country. First come, first served." When a local

real estate broker saw the ad, he could not believe his luck. The condo was in a great

location and would sell in no time allowing him to turn a huge profit for almost no

effort. He jumped on the subway and raced to the condo. As he stepped out of the

station, the broker saw the artist, who informed him that he was the first to come in

response to the announcement. The broker told the artist that he wanted to purchase

the condo the same day for $400,000 in cash with no contingencies. The fair market

value of the condo was $350,000. The artist told the broker that he had a spiritual

awakening and realized that he should not sell the condo. The broker was angry

because he had arranged to borrow the money at a 10% interest rate. He filed an

action seeking specific performance to compel the artist to sell him the property for

$400,000.

Who will prevail?

A. The broker, because he accepted the artist's offer by communicating his desire to

purchase the property and borrowing the money.

B. The broker, because he was the first person to respond to the announcement.

C. The artist, because his announcement was merely an invitation for an offer.

D. The artist, because the broker did not yet tender payment of the purchase pri

The correct answer is:

C. The artist, because his announcement was merely an invitation for an

offer.

Discussion of correct answer: The artist's announcement, which invited

interested parties to "I am interested in selling my condo for any

reasonable price. I am moving to the country. First come, first served."

was too vague to demonstrate an intent to be bound by a contract with

definite and certain terms. Instead, the ad would be considered an

invitation from the artist to receive valid and specific offers from

interested buyers. Given the lack of an actual offer by the artist, the

broker cannot prevail in a claim that he accepted an offer by appearing

at the condo and declaring a desire to purchase the property. Therefore,

even apart from the fact that an oral contract for the sale of real

property is generally unenforceable under the Statute of Frauds, under

the facts presented, the parties never even reached an oral agreement

regarding the purchase and sale of the property. Given the lack of an

actual offer or acceptance, the broker cannot prevai

Shazza offers her services as a journalist, but states "if Jones

Publishing desires to accept this offer, the acceptance must bear

the signatures of all members of the Executive Publishing

Board." Jones Publishing sends its acceptance which is signed

by only the Chairman of the Executive Publishing Board. Is there acceptance?

There is no acceptance when the offeree, Jones Publishing, has

not complied exactly with the requirements of the offer; that all

members of the Executive Publishing Board sign the acceptance

Frank Abbott, a senior partner in the law firm of Abbott and Abbott,

provides a letter of employment and hands it to Darcy. The letter states

that "This contract is not binding until accepted by signature of the

managing partner of Abbott and Abbott. " Darcy signs the letter and

hands it back to Frank Abbott, who also signs. Is there acceptance?

No acceptance. Here, only Frank Abbott has signed the letter.

Darcy’s signature would not be an acceptance of the letter, as the

letter stated that there would only be a contract once the Managing

Partner signed the letter

George's Restaurant is in need of repairs after a brawl broke

out between Cleaver and Darcy and offers the work to London

Construction, stating "This offer may be accepted by return

mail." Pamela, the owner of London Construction immediately

takes the acceptance over to George's Restaurant personally

Here there is an acceptance. In this situation, even though

the offeror has added an express requirement to the offer,

the language may be understood to mean that the

acceptance must arrive in the same time as return mail

would take. Here, personal delivery would even be faster

than return mail.