Multiple Choice Practice

Tony sends an email to Maggie, a friend who does construction jobs, and says, “I’ll pay you $20,000 if you fix the roof of my house. Take as long as you need to decide.” Maggie immediately sends a reply email saying, “I’d do it for $22,000,” but does not hear back from Tony. That evening, Maggie decides that $20,000 is enough money to make the job worth her while and loads up her truck with all the tools she would typically use for a roofing job. At 6 am the following morning, though, Tony calls Maggie to inform her that Tony’s cousin has agreed to fix the roof for free and that he no longer needs her help. Maggie drives to Tony’s house anyway and tries to start work on the roof, but Tony turns her away.

Which of the following statements most likely reflects how a court would assess the parties’ legal rights?

A contract was not formed because Maggie rejected Tony’s offer.

Donna owns a beachside hotel. Rose, the manager of the hotel, is a chain smoker, and Donna hates the smell of cigarettes. Donna tells Rose, “I really think you should give up smoking. Think about it. If you decide to give it a try, come and find me once you’ve made it three months without smoking and I’ll give you $1,000.” Rose had successfully managed without a cigarette for two months when Harriett told her that she was withdrawing her offer on the ground that she had suffered an unforeseen disaster on the stock market and could no longer afford to throw money away frivolously. Rose nevertheless continued to abstain from smoking and after the three months demanded $1,000 from Donna. Donna refuses to pay up.

In a state that follows the approach of the Second Restatement of Contracts, which of these statements most accurately describes how a court is likely to rule if Rose sues for the $1,000?

Rose will win because, though no contract was formed initially, by starting to abstain from smoking, Rose made Donna’s offer irrevocable.

Bluth, Inc. runs a department store. It places an ad in a local newspaper detailing a special sale the following day. The ad includes the following text:
SPECIAL OFFER! THE FIRST THREE CUSTOMERS TO VISIT OUR STORE TOMORROW MAY PURCHASE ANY HAT IN THE STORE FOR $1.
Lucille is the first customer at the store on the next day. She picks out a hat worth $200 and brings it to a checkout desk, along with a dollar bill that she tenders to the clerk. The checkout clerk says that he has been instructed by his managers that the special offer applies only to hats worth less than $50, and says that Lucille must pay full price for the hat she selected. Lucille wants to know if a contract was formed giving her a right to buy her chosen hat for $1.

If Lucille sues, which of the following most likely describes how a court hearing the case would rule?

A contract was formed because Bluth’s ad manifested an intention to be bound if Lucille accepted.

Lisa runs a business that sells medical supplies. She hires Greg to run her sales department. Lisa and Greg sign a contract providing that Greg will work for Lisa for 36 months. The contract provides that Greg will be paid a low monthly salary, but that the bulk of his compensation will come from commissions on every order that he secures for Lisa’s company. Because Greg wants to ensure that he is not let go before he has had time to build a book of business and secure some big orders, he negotiates a liquidated damages clause. That clause stipulates that if Greg is fired before the end of the contract, he shall be entitled to liquidated damages in the amount of $10,000 for every month remaining until the contract’s expiration date.

After 15 months, Lisa decides to replace Greg with another salesman and fires him. Greg immediately sues, seeking $210,000 in damages.

Which of the following facts, if proven, would be least helpful to Lisa in establishing that the liquidated damages clause in Greg’s contract is in fact an unenforceable penalty?

At the time Greg was fired and since, the job market has been extremely uncertain and it is wholly unclear when he will be able to find other employment.

Goya, a temperamental but talented artist, enters into a contract with Maisie Monroe, a world-famous actress and model, to make a sculpture of her. The contract provides that, subject to Maisie’s final approval of the sculpture, not to be unreasonably held, Maisie will pay $50,000 for the finished piece. Goya decides that the sculpture should be made of marble and spends $5,000 on a shipment of fine Italian marble to use for the artwork.

Goya has been sculpting for about two weeks when he learns from Maisie that she has had a sudden financial calamity and can no longer afford to pay for the sculpture. The sculpture has not yet advanced to the point where it clearly resembles Maisie and in its half-finished state, the sculpture is not worth anything. Goya’s work is in high demand, so he believes that he could likely finish the sculpture to make it look like a generic figure of a woman and sell it to a commercial art gallery for $20,000. Goya is so disgusted at Maisie’s decision to back out of the contract, though, that he can’t bear the thought of a sculpture originally intended to be her existing in the world. He destroys the half-finished sculpture, then sues Maisie for the unpaid $50,000 fee.

Which of the following reflects how a court would most likely rule on Goya’s request for damages?

Goya will recover $30,000 in damages because he had the ability partially to avoid loss

A hotel chain paid a construction company $10,000,000 to build a new hotel. After completing half of the construction, the construction company breached the contract. The hotel chain had paid the construction company $5,000,000 for the work it already had completed. The hotel chain had to pay $6,000,000 to a different company to finish the job. Additionally, the hotel’s opening was delayed by one month. The hotel chain offered evidence of advanced reservations showing that it would have earned $500,000 in profits during that month. The hotel chain sued the construction company for breach of contract, seeking expectation damages.

Which of these statements accurately describes how a court is likely to calculate expectation damages?

The amount the hotel chain had to pay the second construction company, minus the amount the hotel saved by not paying the first construction company, plus the lost profits from the month delay in opening (or $1,500,000)