Owen telephones an order to Hillary's store for certain goods, which Hillary delivers to Owen. Neither party says anything about the price or payment terms. What are the legal obligations of Owen and Hillary
Implied Contracts. Owen and Hillary's agreement deals in goods, so the contract falls within the UCC. Omission of a stated price would require payment of a "reasonable" price with full payment being made when possession of the goods is obtained
Minth is the owner of the Hiawatha Supper Club, which he leased for two years to Piekarski. During the period of the lease, Piekarski contracted with Puttkammer for the resurfacing of the access and service areas of the supper club. The work, including labor and materials, had a reasonable value of $2,540, but Puttkammer was never paid because Piekarski went bankrupt. Puttkammer brought an action against Minth to recover the amount owed to him by Piekarski. Will Puttkammer prevail? Explain.
Quasi-Contract. No. Judgment for Minth. In order to establish a cause of action for unjust enrichment, Puttkammer must be able to demonstrate that (1) a benefit was conferred on Minth by Puttkammer; (2) Minth knew of or appreciated the benefit; and (3) Minth accepted or retained the benefit under circumstances making it inequitable for Minth to retain the benefit without paying for its value. Here, the first and second elements have been satisfied but not the third.
An action for unjust enrichment is based on the moral principle that one who has received a benefit has the duty to reimburse the other when to retain that benefit would be unjust. But it is not enough that the benefit was conferred and retained; the retention must also be unjust. Here, Puttkammer does not claim or imply that Minth ordered or ratified the work, that he performed the work expecting to be paid by Minth, that he was prejudiced by any misconduct or fault on Minth's part, or that Minth's interests were so intertwined with those of Piekarski that the contract could be said to have been executed on Minth's behalf. Rather, all that Puttkammer has alleged is that Minth knowingly acquiesced in the performance of the work. Puttkammer v. Minth, 83 Wis.2d 686, 266 N.W.2d 361 (1978).
Jonathan writes to Willa, stating "I'll pay you $150 if you reseed my lawn." Willa reseeds Jonathan's lawn as requested. Has a contract been formed? If so, what kind
Unilateral Contracts. Yes, this is an example of a unilateral contract. Jonathan's writing to Willa is an offer which is accepted when Willa reseeds the lawn. Jonathan must pay $150 to Willa.
Calvin uses fraud to induce Maria to promise to pay money in return for goods he has delivered to her. Has a contract been formed? If so, what kind? What are the rights of Calvin and Maria?
Valid, Void, Voidable and Uniforceable Contracts. This is a voidable contract. A contract has been formed; however, Maria, at her option, may rescind the contract. Calvin has no right to avoid the contract if Maria decides to not rescind.
Anna is about to buy a house on a hill. Prior to the purchase she obtains a promise from Betty, the owner of the adjacent property, that Betty will not build any structure that would block Anna's view. In reliance on this promise Anna buys the house. Is Betty's promise binding? Why or why not?
Promissory Estoppel. There is no contract. The essential elements of a contract are not present. However, the doctrine of promissory estoppel may be applicable. If a jury finds that Anna acted reasonably in reliance on Betty's promise, Betty's promise will be enforceable.
Mary Dobos was admitted to Boca Raton Community Hospital in serious condition with an abdominal aneurysm. The hospital called upon Nursing Care Services, Inc., to provide around-the-clock nursing services for Mrs. Dobos. She received two weeks of in-hospital care, forty-eight hours of postrelease care, and two weeks of at-home care. The total bill was $3,723.90. Mrs. Dobos refused to pay, and Nursing Care Services, Inc., brought an action to recover. Mrs. Dobos maintained that she was not obligated to render payment in that she never signed a written contract, nor did she orally agree to be liable for the services. The necessity for the services, reasonableness of the fee, and competency of the nurses were undisputed. After Mrs. Dobos admitted that she or her daughter authorized the forty-eight hours of postrelease care, the trial court ordered compensation of $248 for that period. It did not allow payment of the balance, and Nursing Care Services, Inc., appealed. Decision?
Quasi-Contract. These circumstances establish a contract implied in law or "quasi contract," which is imposed by law to prevent the unjust enrichment of one party at the expense of another. The principle of quasi contract is frequently applied in the area of work performed or services rendered, although liability is generally imposed only when the person for whose benefit the services were rendered requested them or knowingly and voluntarily accepted their benefits. Emergency aid, however, is an exception. In the present case, the services provided to Mrs. Dobos in the hospital were essential to her health and safety, and she was unable to consent to receiving them. Nursing Care Services, Inc., acted with intent to charge for the services and had no reason to know that Mrs. Dobos would not agree. Given these circumstances, the in-hospital services clearly fall within the emergency aid exception. As for the two weeks of at-home care, Mrs. Dobos knowingly and voluntarily accepted the benefits conferred, and thus obligated herself to pay for the reasonable value of the services. Nursing Care Services, Inc. v. Dobos, 380 So.2d 516, (Fla. 4th DCA 1980).
St. Charles Drilling Co. contracted with Osterholt to install a well and water system that would produce a specified quantity of water. The water system failed to meet its warranted capacity, and Osterholt sued for breach of contract. Does the U.C.C. apply to this contract
Contracts Outside the Code. The U.C.C. does not apply to contracts primarily for services. The test for inclusion is whether the contract's predominant purpose is the rendition of services with goods incidentally involved, or whether it is a sale of goods with labor incidentally involved. In this case the contract to install a water system was a service transaction and, therefore, not within the scope of the U.C.C. for two reasons. First, the parties had no agreement as to what specific component parts were to be installed, but rather the contractor undertook to install a system of indefinite description and of warranted capacity. Second, the language of the contract itself indicated that the arrangement was a service contract rather than a sale of goods. Osterholt v. St. Charles Drilling Co., 500 F.Supp. 529 (1980).
Helvey brought suit against the Wabash County REMC for breach of implied and express warranties. He alleged that REMC furnished electricity in excess of 135 volts to Helvey's home, damaging his 110-volt household appliances. This incident occurred more than four years before Helvey brought this suit. In defense, REMC pleads that the Uniform Commercial Code's Article 2 statute of limitations of four years has passed, thereby barring Helvey's suit. Helvey argues that providing electrical energy is not a transaction in goods under the U.C.C. but rather a furnishing of services that would make applicable the general contract six-year statute of limitations. Is the contract governed by the UCC? Why?
Uniform Commercial Code. Judgment for REMC. To be within the U.C.C.'s definition of a good, electricity must be (1) a thing, (2) existing, and (3) movable, with (2) and (3) occurring simultaneously. Electricity can be measured in order to establish a purchase price by the amount of current which passes through the meter, thus fulfilling the existing and movable requirements. Also, it is legally considered personal property, subject to ownership, and may be bartered, sold, and, in fact, stolen. Therefore, the sale of electricity is a sale of goods subject to U.C.C.'s Article 2's statute of limitations. Helvey v. Wabash County REMC, Court of Appeals of Indiana, First District, 1972. 151 Ind.App. 176, 278 N.E.2d 608.
Jack Duran, president of Colorado Carpet Installation, Inc., began negotiations with Fred and Zuma Palermo for the sale and installation of carpeting, carpet padding, tile, and vinyl floor covering in their home. Duran drew up a written proposal that referred to Colorado Carpet as "the seller" and to the Palermos as "the customer." The proposal listed the quantity, unit cost, and total price of each item to be installed. The total price of the job was $4,777.75. Although labor was expressly included in this figure, Duran estimated the total labor cost at $926. Mrs. Palermo orally accepted Duran's written proposal soon after he submitted it to her. After Colorado Carpet delivered the tile to the Palermo home, however, Mrs. Palermo had a disagreement with Colorado Carpet's tile man and arranged for another contractor to perform the job. Colorado Carpet brought an action against the Palermos for breach of contract. Does the UCC apply to this contract?
Uniform Commercial Code. The U.C.C. defines "goods" as "all things . . . which are movable at the time of identification to the contract for sale" and defines a "sale" as "the passing of title from the seller to the buyer for a price." In this case, the carpeting and other materials were movable when Colorado Carpet procured them for installation, and the agreement contemplated that title would pass to the Palermos. The contract included, however, not only the sale of goods as defined by the U.C.C., but also the performance of labor or service. Since goods and services are mixed, the primary purpose of the agreement is crucial in determining the nature of the contract. A number of factors point to the conclusion that the primary purpose of the contract was the sale of goods, with labor or service only incidentally involved. Colorado Carpet's proposal referred to the parties as "seller" and "customer." The charge for labor was a small percentage of one overall contractual price. Further, as noted above, the carpeting and other materials meet the U.C.C. definition of "goods." Since the contract is oral and for the sale of goods for more than $500, it is unenforceable. Colorado Carpet Installation, Inc. v. Palermo, 668 F.2d 1384 (Col. 1983).
On November 1, the Kansas City Post Office Employees Credit Union merged into the Kansas City Telephone Employees Credit Union to form the Communications Credit Union (Credit Union). Systems Design and Management Information (SDMI) develops computer software programs for credit unions, using Burroughs (now Unisys) hardware. SDMI and Burroughs together offered to sell to Credit Union both a software package, called the Generic System, and Burroughs hardware. Later, in November, a demonstration of the software was held at SDMI's offices, and the Credit Union agreed to purchase the Generic System software. This agreement was oral. After Credit Union was converted to the SDMI Generic System, major problems with the system immediately became apparent.
SDMI filed suit against Credit Union to recover the outstanding contract price for the software. Credit Union counterclaimed for damages based upon breach of contract and negligent and fraudulent misrepresentation. Does the UCC apply to this contract?
Uniform Commercial Code. Judgment for SDMI. We must determine whether the oral agreement between SDMI and Credit Union was for goods or services. The test when dealing with a mixed contract is "not whether they [goods or services] are mixed, but, granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of service, with goods incidentally involved . . . or is a transaction of sale, with labor incidentally involved."
Prior to entering into an agreement for the Generic System software, Credit Union attended a demonstration of the program at SDMI's place of business. Therefore, we conclude the software was movable at the time of identification to the contract, satisfying that requirement of the definition of goods. SDMI installed the Generic System software on Credit Union's computer and was present to attempt modifications and corrections of the program so the accounting system would run more efficiently. These services are incidental to the sale of the software because, without Credit Union buying the Generic System program, the services would not be necessary. Therefore, the sale of the software is predominant. SDMI remains the owner of the accounting program as intellectual property. Credit Union purchased only a reproduction or the result of the programmer's skill. Credit Union is interested only in the outcome of running the program and whether the program will perform the functions for which it was purchased.
We hold this software to be goods and subject to the provisions of the U.C.C. This holding is consistent with the purpose of the U.C.C. It simplifies commercial transactions. It provides a uniform rule for courts to follow.
Richardson hired J. C. Flood Company, a plumbing contractor, to correct a stoppage in the sewer line of her house. The plumbing company's "snake" device, used to clear the line leading to the main sewer, became caught in the underground line. To release it, the company excavated a portion of the sewer line in Richardson's backyard. In the process, the company discovered numerous leaks in a rusty, defective water pipe that ran parallel with the sewer line. To meet public regulations, the water pipe, of a type no longer approved for such service, had to be replaced either then or later, when the yard would have to be redug for such purpose. The plumbing company proceeded to repair the water pipe. Though Richardson inspected the company's work daily and did not express any objection to the extra work involved in replacing the water pipe, she refused to pay any part of the total bill after the company completed the entire operation. J. C. Flood Company then sued Richardson for the costs of labor and material it had furnished. Richardson argued that she only requested correction of a sewer obstruction and had never agreed to the replacement of the water pipe. Is Richardson correct in her assertion?
Express and Implied Contracts. No. Contracts are either expressed or implied-expressed when their terms are stated by the parties, implied when arising from a mutual agreement not set forth in words. An implied contract "may be presumed from the acts and conduct of the parties as a reasonable man would view them under all the circumstances." Here, Richardson made daily inspections yet failed to object to the replacement of the water pipe until after the work was completed. Although she did not expressly agree to this extra work, her acts and conduct indicate her consent to it. Therefore, she created an implied (in fact) contract obligating her to pay for the reasonable value of the company's services.
Insul-Mark is the marketing arm of Kor-It Sales, Inc. Kor-It manufactures roofing fasteners and Insul-Mark distributes them nationwide. Kor-It contracted with Modern Materials, Inc. to have large volumes of screws coated with a rust-proofing agent. The contract specified that the coated screws must pass a standard industry test and that Kor-It would pay according to the pound and length of the screws coated. Kor-It had received numerous complaints from customers that the coated screws were rusting, but Modern Materials unsuccessfully attempted to remedy the problem. Kor-It terminated its relationship with Modern Materials and brought suit for the deficient coating. Modern Materials counterclaimed for the labor and materials it had furnished to Kor-It. The trial court held that the contract (1) was for performance of a service, (2) not governed by the U.C.C., (3) governed by the common law of contracts, and (4) therefore barred by a two year statute of limitations. Insul-Mark appealed. Decision?
Contracts Outside the Code. The transaction is predominantly for the performance of a service and, therefore, is not governed by the Sales article of the U.C.C. Where a transaction is "mixed," that is it involves both goods and services, the Sales article of the U.C.C. will apply only where the "predominant thrust" of the transaction is a sale of goods with labor only incidentally involved. This court rejects the "bifurcation" approach, taken by some lower courts, whereby a mixed transaction is viewed as two transactions: one for the sale of goods governed by the U.C.C., and one for the performance of a service governed by the common law. The bifurcation approach is less sensitive to the parties' expectations than the predominant thrust approach and would not work where an agreement is not readily divisible.
Whether the predominant thrust of a transaction is the sale of goods or the performance of a service depends primarily on the language of the contract in light of the situation of the parties and the surrounding circumstances. Also relevant are the final product the purchaser bargained to receive and whether it may be described as a good or a service. Finally, the courts examine the costs involved for the goods and services, and whether the purchaser was charged only for a good or a price based on both goods and services.
The agreement between Kor-It and Modern Materials was predominantly for the performance of a service. The performance Kor-It contracted to obtain was the transformation of its screws from a non-coated form to a coated form with enhanced rust-resistance. Modern Materials' complex multi-step application process was the crucial element completing this transformation. The transfer of the coating material, a good, in the process was incidental to the larger service. This is evidenced by the fact that Kor-It did not involve itself in deciding which coating material Modern Materials would apply to the screws. Furthermore, the pricing method in this transaction reveals that its predominant thrust was the performance of a service: Kor-It was charged by the pound of screws coated rather than by the gallons of coating used.
In March, William Tackaberry, a real estate agent for Weichert Co. Realters, informed Thomas Ryan, a local developer that he knew of property Ryan might be interested in purchasing. Ryan indicated he was interested in knowing more about the property Tackaberry disclosed the property's identity and the seller's proposed price. Tackaberry also stated that the purchaser would have to pay Weichert a 10 percent commission. Tackaberry met with the property owner and gathered information concerning the property's current leases, income, expenses, and development plans. Tackaberry also collected tax and zoning documents relevant to the property. In a face-to-face meeting on April 4, Tackaberry gave Ryan the data he had gathered and presented Ryan with a letter calling for a 10 percent finder's fee to be paid to Weichert upon "successfully completing and closing of title." Tackaberry arranged a meeting, held three days later, where Ryan contracted with the owner to buy the land. Ryan refused, however, to pay the 10 percent finder's fee to Weichert. Weichert sues Ryan for the finder's fee. To what, if anything, is Weichert entitled to recover?
Quasi Contracts. Judgment for Weichert Co. Realtors. A contract arises from offer and acceptance, and must be sufficiently definite "that the performance to be rendered by each party can be ascertained with reasonable certainty."
Applying that principle, courts have allowed quasi-contractual recovery for services when a party confers a benefit with a reasonable expectation of payment. That type of quasi-contractual recovery is known as quantum meruit ("as much as he deserves"), and entitles the performing party to recoup the reasonable value of services.
Accordingly, a broker seeking recovery on a theory of quantum meruit must establish that the services were performed with an expectation that the beneficiary would pay for them, and under circumstances that should have put the beneficiary on notice that the plaintiff expected to be paid. Courts have allowed brokers to recover in quantum meruit when a principal accepts a broker's services but the contract proves unenforceable for lack of agreement on essential terms-for instance, the amount of the broker's commission.
Application of the foregoing principles to the transaction between Weichert and Ryan demonstrates that the record is insufficient to support a finding that Tackaberry and Ryan mutually manifested assent to the essential terms of the contract. First, Ryan never expressly assented to the terms of Tackaberry's offer. Although Ryan expressed interest in learning more about the Pitt property during the initial March phone call, neither his expression of interest nor his agreement to meet with Tackaberry to learn more about the transaction was sufficient to establish the "unqualified acceptance" necessary to manifest express assent. Moreover, Ryan refused to agree to the ten-percent figure during the April 4th meeting, and thereafter consistently rejected that term. Thus, the parties never formed an express contract.
Max E. Pass, Jr. and his wife, Martha N. Pass, departed in an aircraft owned and operated by Mr. Pass from Plant City, Florida, bound for Clarksville, Tennessee. Somewhere over Alabama the couple encountered turbulence, and Mr. Pass lost control of the aircraft. The plane crashed killing both Mr. and Mrs. Pass. Approximately four and a half months prior to the flight in which he was killed, Mr. Pass had taken his airplane to Shelby Aviation, an aircraft service company, for inspection and service. In servicing the aircraft, Shelby Aviation replaced both rear wing attach point brackets on the plane. Three and one half years after the crash, Max E. Pass, Sr., father of Mr. Pass and administrator of his estate, and Shirley Williams, mother of Mrs. Pass and administratrix of her estate, filed suit against Shelby Aviation. The lawsuit alleged that the rear wing attach point brackets sold and installed by Shelby Aviation were defective because they lacked the bolts necessary to secure them properly to the airplane. The plaintiffs asserted claims against the defendant for breach of express and implied warranties under Article 2 of the Uniform Commercial Code ("UCC"), which governs the sale of goods. Shelby Aviation contended that the transaction with Mr. Pass had been primarily for the sale of services, rather than of goods, and that consequently Article 2 of the UCC did not cover the transaction. Does the UCC apply to this transaction? Explain.
Uniform Commercial Code. No, plaintiffs' warranty claim dismissed. The problem in "mixed" transactions such as this one is to determine whether Article 2 governs the contract. The test for inclusion or exclusion in the U.C.C. is not whether the contracts are mixed, but granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of services with goods incidentally involved (e.g. contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g., installation of a water heater in a bathroom). In order to determine the predominant purpose of a mixed transaction, courts examine the language of the parties' contract, the nature of the business of the supplier of the goods and services, the reason the parties entered into the contract (i.e. what each bargained to receive), and the respective amounts charged under the contract for goods and for services. In this case, the written document evidencing the transaction is the invoice prepared by Shelby Aviation. In the top left hand corner is a preprinted paragraph that states that the owner is authorizing "the following repair work to be done along with the necessary material." As a whole, the invoice clearly emphasizes the repair and inspection aspect of the transaction, indicating that the predominant purpose was the sale of service, with the sale of goods incidental to that service.
Ames, seeking business for his lawn maintenance firm, posted the following notice in the meeting room of the Antlers, a local lodge: "To the members of the Antlers—Special this month. I will resod your lawn for two dollars per square foot using Fairway brand sod. This offer expires July 15." The notice also included Ames's name, address, and signature and specified that the acceptance was to be in writing.
Bates, a member of the Antlers, and Cramer, the janitor, read the notice and became interested. Bates wrote a letter to Ames saying he would accept the offer if Ames would use Putting Green brand sod. Ames received this letter July 14 and wrote to Bates saying he would not use Putting Green sod. Bates received Ames's letter on July 16 and promptly wrote Ames that he would accept Fairway sod. Cramer wrote to Ames on July 10, saying he accepted Ames's offer.
By July 15, Ames had found more profitable ventures and refused to resod either lawn at the specified price. Bates and Cramer brought an appropriate action against Ames for breach of contract. Decisions on the claims of Bates and Cramer?
Counteroffer. Ames wins both cases. The first letter from Bates was not an acceptance because it did not correspond with the terms of the offer. It was a counteroffer, as it called for Ames to use a different brand sod, and therefore constituted a rejection of the original offer which terminated the original offer. After Ames had rejected the counteroffer, Bates wrote on July 16 an acceptance of the original offer. This failed to form a contract as the original offer had been terminated by (a) the rejection, Restatement, Second, Contacts, §38 and (b) expiration of the time for acceptance as by its terms it expired July 15, Restatement, Second Contracts, §41.
Cramer cannot recover because he was not an offeree. The offer was addressed to members of the Antlers. The party making an offer has the right to determine with whom he will contract. It is immaterial whether the offeror had special reasons for contracting with the offeree rather than with someone else.
Garvey owned four speedboats named Porpoise, Priscilla, Providence, and Prudence. On April 2, Garvey made written offers to sell the four boats in the order named for $4,200 each to Caldwell, Meens, Smith, and Braxton, respectively, allowing ten days for acceptance. In which, if any, of the following four situations described was a contract formed?
(a) Five days later, Caldwell received notice from Garvey that he had contracted to sell Porpoise to Montgomery. The next day, April 8, Caldwell notified Garvey that he accepted Garvey's offer.
(b) On the third day, April 5, Meens mailed a rejection to Garvey which reached Garvey on the morning of the fifth day. But at 10:00 A.M. on the fourth day, Meens sent an acceptance by telegram to Garvey, who received it at noon on the same day.
(c) Smith, on April 3, replied that she was interested in buying Providence but declared the price asked appeared slightly excessive and wondered if, perhaps, Garvey would be willing to sell the boat for $3,900. Five days later, having received no reply from Garvey, Smith, by letter, accepted Garvey's offer and enclosed a certified check for $4,200.
(d) Braxton was accidentally killed in an automobile accident on April 9. The following day, the executor of Braxton's estate mailed an acceptance of Garvey's offer to Garvey.
(a) Where the offeror, after making an offer for sale, sells or contracts to sell the property to another person and the offeree acquires reliable information of this fact, before he has exercised his power of creating a contract by acceptance of the offer, the offer is revoked. Restatement, Second, Contracts, Section 43.
(b) A contract was formed on April 6. Rejection by mail or telegram does not destroy the power of acceptance until received by the offeror, but limits the power so that an authorized or unauthorized means of acceptance (this was an authorized means since the contracts fall under the U.C.C.) started after the sending of a prior rejection is only effective if the acceptance is received, as here, by the offeror before he receives the rejection.
(c) A contract. A counteroffer by the offeree, relating to the same matter as the offer, is a rejection of the original offer, unless the offeror in his offer or the offeree in his counteroffer manifest a different intention. Restatement, Second, Contracts, § 39. Here, Edward made a mere inquiry regarding the possibility of different terms or, stated somewhat differently, a request for a better offer. Edward's inquiry was not a counteroffer since it did not contain a promise. Edward's subsequent acceptance was therefore effective.
(d) No contract. The death of the offeree terminates a revocable offer because it thereby becomes impossible to accept it. Restatement, Second, Contracts, Section 48. A revocable offer can be accepted only by or for the benefit of the person to whom it is made.
Alpha Rolling Mill Corporation, by letter dated June 8, offered to sell Brooklyn Railroad Company 2,000 to 5,000 tons of fifty-pound iron rails upon certain specified terms, adding that, if the offer was accepted, Alpha Corporation would expect to be notified prior to June 20. Brooklyn Company, on June 16, by telegram, referring to Alpha Corporation's offer of June 8, directed Alpha Corporation to enter an order for 1,200 tons of fifty-pound iron rails on the terms specified. The same day, June 16, Brooklyn Company, by letter to Alpha Corporation, confirmed the telegram. On June 18, Alpha Corporation, by telegram, declined to fill the order. Brooklyn Company, on June 19, telegraphed Alpha Corporation: "Please enter an order for 2,000 tons rails as per your letter of the eighth. Please forward written contract. Reply." In reply to Brooklyn Company's repeated inquiries regarding whether the order for 2,000 tons of rails had been entered, Alpha denied the existence of any contract between Brooklyn Company and itself. Thereafter, Brooklyn Company sued Alpha Corporation for breach of contract. Decision?
Counteroffer. Decision for Alpha Rolling Mill Corporation and against Brooklyn Railroad Company. The offer was for a quantity of between 2,000 to 5,000 tons of iron rails. When the railroad company ordered 1,200 tons it was not accepting the offer but making a counter-offer. This counter-offer is a rejection of the original offer. After Alpha's refusal to accept the counter-offer, the railroad company attempted to accept 2,000 tons under the original offer. However, the original offer at this time was no longer in existence, having been terminated by the rejection. There was no offer open to the railroad company for acceptance after the rejection, and no contract was formed.
On April 8, Burchette received a telephone call from Bleluck, a truck dealer, who told Burchette that a new model truck in which Burchette was interested would arrive in one week. Although Bleluck initially wanted $10,500, the conversation ended after Bleluck agreed to sell and Burchette agreed to purchase the truck for $10,000, with a $1,000 down payment and the balance upon delivery. The next day, Burchette sent Bleluck a check for $1,000, which Bleluck promptly cashed.
One week later, when Burchette called Bleluck and inquired about the truck, Bleluck informed Burchette he had several prospects looking at the truck and would not sell for less than $10,500. The following day, Bleluck sent Burchette a properly executed check for $1,000 with the following notation thereon: "Return of down payment on sale of truck."
After notifying Bleluck that she will not cash the check, Burchette sues Bleluck for damages. Should Burchette prevail? Explain.
Definiteness. Decision for Burchette. The agreement made in the course of a telephone conversation between Burchette and truck dealer Bleluck was for the sale by Bleluck to Burchette at an agreed price of $10,000 for a new model truck. The trade description of the truck was known to both parties, as Burchette was interested in it, and dealer Bleluck had apparently ordered the new truck from the manufacturer as he told Burchette that he expected to receive delivery of it in one week. The price was payable $1,000 down, and the balance upon delivery. This is a valid oral contract for the sale of goods by description. Each party manifested to the other over the telephone assent to these terms, and Burchette promptly sent to Bleluck her check for $1,000 which Bleluck cashed. The mutual promises exchanged were definite and certain.
Note regarding the statute of frauds: Bleluck 's check for $1,000 payable to Burchette and Bleluck 's notation thereon fulfill all of the requirements of the statute of frauds and make the contract enforceable against Bleluck in that (1) the notation evidences a contract for the sale of goods; (2) the check bears Bleluck 's signature as drawer; and (3) the singular number of "truck" refers to the quantity of one truck.
On November 15, I. Sellit, a manufacturer of crystalware, mailed to Benny Buyer a letter stating that Sellit would sell to Buyer 100 crystal "A" goblets at $100 per goblet and that "the offer would remain open for fifteen (15) days." On November 18, Sellit, noticing the sudden rise in the price of crystal "A" goblets, decided to withdraw her offer to Buyer and so notified Buyer. Buyer chose to ignore Sellit's letter of revocation and gleefully watched as the price of crystal "A" goblets continued to skyrocket. On November 30, Buyer mailed to Sellit a letter accepting Sellit's offer to sell the goblets. The letter was received by Sellit on December 4. Buyer demands delivery of the goblets; what result?
Firm Offers Under the Code. Buyer prevails. Sellit's offer of Nov. 15, constituted a firm offer-it is a signed writing by a merchant promising to hold open an offer for 3 months or less (15 days in this case) and therefore cannot be revoked prior to Nov. 30. Thus, Sellit's revocation of Nov. 18, is ineffective and of no legal effect.
Buyer accepted Sellit's offer within the prescribed time period by dispatching his acceptance on November 30. Buyer's use of the mail for sending his acceptance is a reasonable means of acceptance (this is a UCC sale) and thus is effective upon dispatch.
On May 1, Melforth Realty Company offered to sell Greenacre to Dallas, Inc., for $1,000,000. The offer was made by telegraph and stated that the offer would expire on May 15. Dallas decided to purchase the property and sent a registered letter to Melforth on May 10, accepting the offer. Due to unexplained delays in the postal service, Melforth did not receive the letter until May 22. Melforth wishes to sell Greenacre to another buyer, who is offering $1,200,000 for the tract of land. Has a contract resulted between Melforth and Dallas?
Effective Moment: Acceptance By Dispatch. Under the Restatement, Second, Dallas' acceptance, via mail, is a reasonable means of acceptance and is effective upon dispatch. Thus, Dallas' acceptance, mailed on May 10, would have been effective prior to the offer's termination on May 15.
Under the traditional rule the acceptance would have been unauthorized, since it was not the means utilized by the offeror in making the offer, and therefore effective only when received by the offeror, provided it is received within the time period the authorized means would have arrived. Here the offer was not received (May 22) until the offer had already expired (May 15) and it was not received within the time frame that the authorized means (telegraph) would have been received within (probably no later than May 16).
Had Melforth stipulated that the acceptance be received by May 15, then the effective moment of acceptance would be upon receipt by Melforth, and there would no contract.
Rowe advertised in newspapers of wide circulation and otherwise made known that she would pay $5,000 for a complete set consisting of ten volumes of certain rare books. Ford, not knowing of the offer, gave Rowe all but one of the set of rare books as a Christmas present. Ford later learned of the offer, obtained the one remaining book, tendered it to Rowe, and demanded the $5,000. Rowe refused to pay. Is Ford entitled to the $5,000?
Intent. Ford is not entitled to the $5,000, as he did not accept Rowe's offer and therefore no contract was formed. The gift of the nine books by Ford to Rowe was not an acceptance because acceptance requires an intention on the part of the offeree to accept the offer, and since at the time of making the gift Ford had no knowledge of the offer, he did not have and could not have had such intention. Moreover, even if Ford had then known of the offer, his intention at that time was to give the nine books to Rowe as a Christmas present, and not to accept any offer
Scott, manufacturer of a carbonated beverage, entered into a contract with Otis, owner of a baseball park, whereby Otis rented to Scott a large signboard on top of the center field wall. The contract provided that Otis should letter the sign as Scott desired and would change the lettering from time to time within forty-eight hours after receipt of written request from Scott. As directed by Scott, the signboard originally stated in large letters that Scott would pay $1,000 to any ballplayer hitting a home run over the sign. Scott refuses to pay any of the three players. What are the rights of Scott, Hume, Perry, and Todd?
In the first game of the season, Hume, the best hitter in the league, hit one home run over the sign. Scott immediately served written notice on Otis instructing Otis to replace the offer on the signboard with an offer to pay $500 to every pitcher who pitched a no-hit game in the park. A week after receipt of Scott's letter, Otis had not changed the wording on the sign. On that day, Perry, a pitcher for a scheduled game, pitched a no-hit game while Todd, one of his teammates, hit a home run over Scott's sign.
Barnes accepted Clark's offer to sell to him a portion of Clark's coin collection. Clark forgot that his prized $20 gold piece at the time of the offer and acceptance was included in the portion which he offered to sell to Barnes. Clark did not intend to include the gold piece in the sale. Barnes, at the time of inspecting the offered portion of the collection, and prior to accepting the offer, saw the gold piece. Is Barnes entitled to the $20 gold piece?
Objective Standard for Intent. Yes. Mutual assent to the formation of a contract is operative as to the extent it is manifested. If the manifestation is at variance with the mental intent, the objective expression is controlling. It was Clark's intention to sell the coin collection as a whole and the parties mutually assented to this. See City of Everett v. Estate of Sumstad, 631 P.2d 366 (Wash. 1981). This transaction shows no evidence of fraud in the inducement, which would make this it voidable at Clark's choice.
Small, admiring Jasper's watch, asked Jasper where and at what price he had purchased it. Jasper replied: "I bought it at West Watch Shop about two years ago for around $85, but I am not certain as to that." Small then said: "Those fellows at West are good people and always sell good watches. I'll buy that watch from you." Jasper replied: "It's a deal." The next morning Small telephoned Jasper and said he had changed his mind and did not wish to buy the watch.
Jasper sued Small for breach of contract. In defense, Small has pleaded that he made no enforceable contract with Jasper (a) because the parties did not agree on the price to be paid for the watch, and (b) because the parties did not agree on the place and time of delivery of the watch to Small. Are either, or both, of these defenses good?
Definiteness of Acceptance. The first defense has merit, especially when combined with the second defense. The second defense will not stand alone, but when coupled with the lack of agreement as to price, it is less likely they intended to form a contract. Small's comments regarding the watch were not definite and certain. (a) Section 2-305, U.C.C., provides:
"Open Price Term. (1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if (a) nothing is said as to price." From the facts given, it would be difficult to a reasonable price.
As to the second argument of time and place for delivery the U.C.C. provides: "2-308. Absence of Specified Place for Delivery. Unless otherwise agreed (a) the place for delivery of goods is the seller's place of business or if he has none his residence; *** "2-309. Absence of Specific Time Provision; Notice of Termination. (1) The time for shipment or delivery of any other action under a contract if not provided in this Article or agreed upon shall be a reasonable time."
Jeff says to Brenda, "I offer to sell you my PC for $900." Brenda replies, "If you do not hear otherwise from me by Thursday, I have accepted your offer." Jeff agrees and does not hear from Brenda by Thursday. Does a contract exist between Jeff and Brenda? Explain.
Silence as Acceptance. Yes, there is a contract. Brenda's statement to Jeff is a conditional acceptance of his offer. Although silence generally cannot be an acceptance, Brenda's silence here is evidence that her acceptance is both positive and unequivocal.
On November 19, 1949, Hoover Motor Express Company sent to Clements Paper Company a written offer to purchase certain real estate. Sometime in December, Clements authorized Williams to accept. Williams, however, attempted to bargain with Hoover to obtain a better deal, specifically that Clements would retain easements on the property. In a telephone conversation on January 13, 1950, Williams first told Hoover of his plan to obtain the easements. Hoover replied: "Well, I don't know if we are ready. We have not decided, we might not want to go through with it." On January 20, Clements sent a written acceptance of Hoover's offer. Hoover refused to buy, claiming it had revoked its offer through the January 13 phone conversation. Clements then brought suit to compel the sale or obtain damages. Did Hoover successfully revoke its offer?
Revocation. Judgment for Hoover. Express notice of revocation before acceptance of an offer is not required. The offeror may implicitly revoke his offer through acts or communications to the offeree that are inconsistent with its continuance. If the offeree has knowledge of this inconsistent interest before he has accepted then the offer is revoked.
Here, Williams knew through the January 13 phone conversation that Hoover "thought they might not go through with it." This communication by Hoover to Williams effectively revoked its offer. Therefore, Clements' acceptance on January 20 came too late to bind Hoover to the sale. Hoover Motor Express Co. v. Clements Paper Co., 241 S.W.2d 851 (Tenn. 1951).
Walker leased a small lot to Keith for ten years at $1,000 a month, with a right for Keith to extend the lease for another ten-year term under the same terms except as to rent. The renewal option provided:
"Rental will be fixed in such amount as shall actually be agreed upon by the lessors and the lessee with the monthly rental fixed on the comparative basis of rental values as of the date of the renewal with rental values at this time reflected by the comparative business conditions of the two periods."
Keith sought to exercise the renewal right and, when the parties were unable to agree on the rent, brought suit against Walker. Who prevails? Why?
Option Contract. Decision for Walker. The renewal option provision did not constitute an option contract or any agreement giving Keith a unilateral right to accept the new contract for a second 10-year period of time. The renewal option was merely an agreement to attempt to negotiate in good faith a new lease agreement for the second 10-year period. If Walker acted reasonably and attempted to negotiate an extension of the lease in good faith, yet despite that effort the parties were unable to agree on the new rent, Walker has no liability.
The Brewers contracted to purchase Dower House from McAfee. Then, several weeks before the May 7 settlement date for the purchase of the house, the two parties began to negotiate for the sale of certain items of furniture in the house. On April 30, McAfee sent the Brewers a letter containing a list of the furnishings to be purchased at specified prices; a payment schedule, including a request for a $3,000 payment, due on acceptance; and a clause reading: "If the above is satisfactory, please sign and return one copy with the first payment."
On June 3, the Brewers sent a letter to McAfee stating that enclosed was a $3,000 check; that the original contract had been misplaced and could another be furnished; that they planned to move into Dower House on June 12; and that they wished the red desk to be included in the contract. McAfee then sent a letter dated June 8 to the Brewers, listing the items of furniture purchased.
The Brewers moved into Dower House in the middle of June. Soon after they moved in, they tried to contact McAfee at his office to tell him that there had been a misunderstanding relating to their purchase of the listed items. They then refused to pay him any more money, and he brought this action to recover the balance outstanding. Will McAfee be able to collect the additional money from the Brewers?
Mirror Image Rule. Here, McAfee did not indicate in his April 30 letter to the Brewers that a particular manner of acceptance was required. Therefore, the Brewer's letter of June 3, together with the enclosed $3,000 check, the amount due upon acceptance of the contract, manifested their assent to the items listed in the April 30 letter from McAfee. The June 3 letter was both definite and seasonable, and the reference to the red writing desk was not expressed in language making acceptance conditional upon inclusion of the desk. This item, then, was merely a proposal for an addition to the contract as McAfee requested, they did send a letter of their own. This was reasonable under the circumstances since they had misplaced the contract and, therefore, the letter constituted an effective acceptance of McAfee's offer. McAfee v. Brewer, 214 Va. 579, 203 S.E.2d 129 (1974
The Thoelkes were owners of real property located in Orange County, which the Morrisons agreed to purchase. The Morrisons signed a contract for the sale of that property and mailed it to the Thoelkes in Texas on November 26. The next day the Thoelkes executed the contract and placed it in the mail addressed to the Morrisons' attorney in Florida. After the executed contract was mailed but before it was received in Florida, the Thoelkes called the Morrisons' attorney in Florida and attempted to repudiate the contract. Decision?
Deposited Acceptance Rule. Decision for the Morrison's. There is a contract. Under the deposited acceptance rule, an unqualified offer was accepted when the letter was placed in the mail. The repudiation was ineffective, because a contract came into existence when the letter was mailed, even though it had not been received by the Morrison's attorney. This rule is also known as the "rule in Adams v. Lindsell," because that was the first case in which it was enunciated. Morrison v. Thoelke, 155 So.2d 889 (Fla. App. 1963).
Lucy and Zehmer met while having drinks in a restaurant. During the course of their conversation, Lucy apparently offered to buy Zehmer's 471.6-acre farm for $50,000 cash. Although Zehmer claims that he thought the offer was made in jest, he wrote the following on the back of a pad: "We hereby agree to sell to W. O. Lucy the Ferguson Farm complete for $50,000, title satisfactory to buyer." Zehmer then signed the writing and induced his wife Ida to do the same. She claims, however, that she signed only after Zehmer assured her that it was only a joke. Finally, Zehmer claims that he was "high as a Georgia pine" at the time but admits that he was not too drunk to make a valid contract. Does a contract exist between the Thoelkes and the Morrisons? Discuss
Offers/Objective Standard of Intent/Contractual Capacity. Judgment for Lucy. An agreement or mutual assent is essential to the formation of a valid contract. The mental assent of the parties is not requisite, however, unless one party's undisclosed intentions are not made known to the other party. If they are not, then the words and undisclosed intentions are judged by an objective standard to see if they manifest an intention to agree. Thus Zehmer cannot claim that he was merely jesting when his conduct and words would warrant a reasonable person in believing that he intended a real agreement. Zehmer's response to Lucy's offer, therefore, whether made in earnest or in secret jest constituted a binding contract. Zehmer had contractual capacity, because he was able to understand the nature and consequences of his actions. Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954).
Lee Calan Imports advertised a used Volvo station wagon for sale in the Chicago Sun-Times. As part of the information for the advertisement, Lee Calan Imports instructed the newspaper to print the price of the car as $1,795. However, due to a mistake made by the newspaper, without any fault on the part of Lee Calan Imports, the printed ad listed the price of the car as $1,095. After reading the ad and then examining the car, O'Brien told a Lee Calan Imports salesman that he wanted to purchase the car for the advertised price of $1,095. Calan Imports refuses to sell the car to O'Brien for $1,095. Is there a contract? If so, for what price?
Offers/Invitations, Offer. No contract. A newspaper ad is an invitation to make an offer, not an offer. Judgment for Lee Calan Imports. O'Keefe v. Lee Calan Imports, Inc., 262 N.E. 2d 758, 128 Ill. App.2d 410 (1970).
On May 20 cattle rancher Oliver visited his neighbor Southworth, telling him, "I know you're interested in buying the land I'm selling." Southworth replied, "Yes, I do want to buy that land, especially since it adjoins my property." Although the two men did not discuss the price, Oliver told Southworth he would determine the value of the property and send that information to him, so that Southworth would have "notice" of what Oliver "wanted for the land." On June 13, Southworth called Oliver to ask if he still planned to sell the land. Oliver answered, "Yes, and I should have the value of the land determined soon." On June 17, Oliver sent a letter to Southworth listing a price quotation of $324,000. Southworth then responded to Oliver by letter on June 21, stating that he accepted Oliver's offer. However, on June 24 Oliver wrote back to Southworth, saying "There has never been a firm offer to sell, and there is no enforceable contract between us." Oliver maintains that a price quotation alone is not an offer. Southworth claims a valid contract has been made. Who wins?
Essentials of an Offer/Intent. There is a valid and enforceable contract to sell the property. Despite the general rule that a price quotation alone is insufficient to constitute an offer, "there may be circumstances under which a price quotation, when considered together with facts and circumstances, may constitute an offer which, if accepted, will result in a binding contract." Whether Oliver has communicated his intent to enter into a contract must be judged on the basis of what a reasonable person in the position of Southworth has been led to believe. Here, the circumstances surrounding the letter of June 17 (of itself merely a price quotation) made it reasonable that Southworth believed Oliver had made an offer to sell the ranch lands. Southworth v. Oliver, 284 Or. 361, 587 P.2d 994 (1978).
On December 23, Wyman, a lawyer representing First National Bank & Trust (defendant), wrote to Zeller (plaintiff) stating that he had been instructed to offer a building to Zeller at a price of $240,000. Zeller had previously expressed an interest in purchasing the building for $240,000. The letter also set forth details concerning interest rates and loan fees.
After receiving the letter, Zeller instructed his attorney, Jamma, to send Wyman a written counteroffer of $230,000 with varying interest and loan arrangements. Jamma sent the written counteroffer as instructed on January 10. On the same day, Jamma telephoned Wyman and informed him of the counteroffer. Jamma then tried to telegraph acceptance of the original offer to Wyman. When Wyman refused to sell the property to him, Zeller brought this action to seek enforcement of the alleged contract. The trial court entered summary judgment against Zeller, and he appealed. Decision?
Counteroffer. Judgment for First National Bank. In order for an acceptance to create a binding contract, it must comply strictly with the terms of the offer. An acceptance requesting modification or containing terms that vary from those offered constitutes a rejection of the original offer and becomes a counteroffer that must be accepted by the original offeror before a valid, binding contract is formed. Here, in a telephone conversation on January 10, Jamma told Wyman of the $230,000 counteroffer, which operated as a rejection of the original offer and terminated Zeller's power of acceptance.
Finally, it matters not that the counteroffer was communicated orally in response to a written offer. If an offer requires a written acceptance, no other form will do. Here, however, no particular form of response was required, so the oral counteroffer was an effective rejection. As such, it is irrelevant that the written acceptance arrived prior to the written counteroffer since the oral counteroffer preceded them both.
On August 12, Mr. and Mrs. Mitchell, the owners of a small secondhand store, attended Alexander's Auction, where they bought a used safe for $50. The safe, part of the Sumstad estate, contained a locked inside compartment. Both the auctioneer and the Mitchells knew this fact. Soon after the auction, the Mitchells had the compartment opened by a locksmith, who discovered $32,207 inside. The Everett Police Department impounded the money. The city of Everett brought an action against the Sumstad estate and the Mitchells to determine the owner of the money. Who should receive the money? Why?
Auction Sales. Judgment in favor of the Mitchells. The subject matter transferred in a sale is determined by the intent of the parties as revealed by the terms of their agreement in light of the surrounding circumstances. The intentions of the parties are revealed by a reasonable interpretation of their words and acts. Any unexpressed intention is irrelevant. In this case, the Mitchells understood that all auction sales were final, and the auctioneer made no statement reserving rights to any contents of the safe to the estate. The reasonable conclusion is that the auctioneer intended to sell the safe and its contents and that the parties mutually assented to such a sale.
Irwin Schiff is a self-styled "tax rebel" who has made a career, and substantial profit, out of his tax protest activities. On February 7, Schiff appeared live on CBS News Nightwatch, a late-night program with a viewer participation format. During the broadcast Schiff repeated his assertion that nothing in the Internal Revenue Code stated that an individual was legally required to pay federal income tax. Schiff then challenged, "If anybody calls this show—I have the Code—and cites any section of this Code that says an individual is required to file a tax return, I will pay them $100,000." Call-in telephone numbers were periodically flashed on the screen. John Newman, an attorney, did not see Schiff's live appearance on Nightwatch. Newman did, however, see a two-minute videotaped segment, including Schiff's challenge, which was rebroadcast several hours later on the CBS Morning News. Newman researched the matter that same day, and on the following day, February 9, placed a call using directory assistance to CBS Morning News stating that the call was performance of the consideration requested by Mr. Schiff in exchange for his promise to pay $100,000. When Schiff refused to pay, Newman sued. Should Newman prevail? Explain.
Duration of Offers. Judgment for Schiff. The offeror is the master of the offer, and it is clear that Schiff by his words "if anybody calls this show..." limited his offer in time to remain open only for the duration of the live Nightwatch broadcast. The CBS Morning News report on Schiff's offer did not serve to renew or extend the original offer. Newman's attempted acceptance was therefore untimely, and no contract was formed
Anita and Barry were negotiating, and Anita's attorney prepared a long and carefully drawn contract, which was given to Barry for examination. Five days later and prior to its execution, Barry's eyes became so infected that it was impossible for him to read. Ten days thereafter and during the continuance of the illness, Anita called upon Barry and urged him to sign the contract, telling him that time was running out. Barry signed the contract despite the fact he was unable to read it. In a subsequent action by Anita, Barry claimed that the contract was not binding upon him because it was impossible for him to read and he did not know what it contained prior to his signing it. Should Barry be held to the contract?
Fraud. Yes, decision in favor of Anita and against Barry. Barry's defense that the contract was not binding upon him because he had not and could not have read it prior to signing it is not valid. Here, there was no misrepresentation of the contents of the contract Barry was requested to sign. There is nothing approaching fraud upon the part of Anita. Upon the facts stated, Barry's inability to read the contract because of impaired vision does not afford him a defense where his signature to the contract was voluntary, and was not induced by fraud or misrepresentation. Moreover, Barry could not prove a defense based upon duress since Anita did not physically compel nor force Barry by threats to manifest assent to the proposal. Barry could easily have had someone read the contract to him, or have it reviewed by his attorney.
(a) Johnson tells Davis that he paid $150,000 for his farm in 2004, and that he believes it is worth twice that at the present time. Relying upon these statements, Davis buys the farm from Johnson for $225,000. Johnson did pay $150,000 for the farm in 2004, but its value has increased only slightly, and it is presently not worth $300,000. On discovering this, Davis offers to reconvey the farm to Johnson and sues for the return of his $225,000. Result?
(b) Modify the facts in (a) by assuming that Johnson had paid $100,000 for the property in 2004. What result?
(a) Decision for Johnson; Davis is not entitled to the return of his $225,000 as long as Johnson actually believed his farm was worth approximately $300,000. Johnson's statement with respect to the value of the farm was merely the expression of an opinion and not the statement of a material fact upon which Davis had a right to rely. There is no indication of an appraisal or other expert opinion upon which Johnson's opinion is based.
(b) Decision for Davis. Johnson's statement to Davis that he paid $150,000 for the farm was an untrue statement of a material fact, upon which Davis had a right to and did rely.
On September 1, Adams in Portland, Oregon, wrote a letter to Brown in New York City, offering to sell to Brown one thousand tons of chromite at $48.00 per ton, to be shipped by S.S. Malabar sailing from Portland, Oregon, to New York City via the Panama Canal. Upon receiving the letter on September 5, Brown immediately mailed to Adams a letter stating that she accepted the offer. There were two ships by the name of S.S. Malabar sailing from Portland to New York City via the Panama Canal, one sailing in October and the other sailing in December. At the time of mailing her letter of acceptance Brown knew of both sailings and further knew that Adams knew only of the December sailing. Is there a contract? If so, to which S.S. Malabar does it relate?
Mistake. There is a contract, and it relates to the S.S. Malabar sailing in December. In the classic Peerless case (Raffles v. Wichelhaus, 2 Hurlstone and Coltman Reports 906) there were two ships sailing from Bombay both named "Peerless." The defendant knew only of the "Peerless" sailing in October and the plaintiff knew only of the "Peerless" sailing in December. There was no meeting of the minds and hence, no contract. Here, since Brown knew of both sailings and further knew that Adams did not know of the October sailing, she, Brown, will not be heard to say that she intended the chromite to be shipped on the S.S. Malabar sailing in October. Adams and Brown manifested their mutual intent to a sale of chromite to be shipped on the S.S. Malabar sailing in December. Restatement, Second, Sect. 20.
Adler owes Panessi, a police captain, $500. Adler threatens that unless Panessi discharges him from the debt, Adler will disclose the fact that Panessi has on several occasions become highly intoxicated and has been seen in the company of certain disreputable persons. Panessi, induced by fear that such a disclosure would cost him his position or in any event lead to social disgrace, gives Adler a release but subsequently sues to set it aside and recover on his claim. Will Adler be able to enforce the release?
Duress. No. The restatement, second, Contracts, Section 175, defines duress as a manifestation "induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim." Moreover, a "threat is improper if the resulting exchange is not on fair terms, and (a) the threatened act would harm the recipient and would not significantly benefit the party making the threat." Restatement, Second, Section 176(2). The facts presented in the problem state a clear-cut case of duress by the use of improper threats.
Harris owned a farm that was worth about $600 per acre. By false representations of fact, Harris induced Pringle to buy the farm at $1,500 per acre. Shortly after taking possession of the farm, Pringle discovered oil under the land. Harris, on learning this, sues to have the sale set aside on the ground that it was voidable because of fraud. Result?
Fraud in the Inducement. Decision in favor of Pringle. Because Pringle was fraudulently induced to buy the farm, Pringle had the right to disaffirm the transaction. All of the elements are present, including justifiable reliance on the statements made by Harris. The contract was voidable by Pringle only, not by Harris. Presumably Pringle will be content with the bargain even though induced by fraud to make the purchase. The right of avoidance rests entirely with Pringle and he may, if he so desires, abide by the contract. It should be noted, however, that Pringle would not prevail in a suit brought in tort since Pringle did not suffer an injury.
On February 2, Phillips induced Miller to purchase from her fifty shares of stock in the XYZ Corporation for $10,000, representing that the actual book value of each share was $200. A certificate for fifty shares was delivered to Miller. On February 16, Miller discovered that the book value on February 2 was only $50 per share. Will Miller be successful in a lawsuit against Phillips? Why?
Fraud in the Inducement. Yes, Miller will prevail against Phillips. The statement that the actual book value of the shares of stock in XYZ Corporation was $200 per share was a statement of material fact made to induce Miller to purchase the stock and which did, in fact, succeed in persuading Miller to buy the shares. The transaction meets the requirements of fraud in the inducement: (1) The representation related to a material fact; (2) It was knowingly false; (3) It was made with the intention that it be acted upon by the person to whom made; (4) It was justifiably relied upon; and (5) The false representation was the proximate cause of injury or damage.
Doris mistakenly accused Peter's son, Steven, of negligently burning down her barn. Peter believed that his son was guilty of the wrong and that he, Peter, was personally liable for the damage, since Steven was only fifteen years old. Upon demand made by Doris, Peter paid Doris $2,500 for the damage to her barn. After making this payment, Peter learned that his son had not caused the burning of Doris's barn and was in no way responsible for its burning. Peter then sued Doris to recover the $2,500 he had paid her. Will he be successful?
Mistake. Yes, judgment for Peter for $2500 against Doris. The payment was made under a mutual mistake of material fact. Both Peter and Doris mistakenly believed that Doris's barn had been negligently burned by Peter's son, Steven, while as a matter of fact Steven did not cause the burning of Doris's barn and was in no way responsible for its burning. A payment made under a mutual mistake of fact is recoverable under the doctrine of quasi-contract.
Jones, a farmer, found an odd-looking stone in his fields. He went to Smith, the town jeweler, and asked him what he thought it was. Smith said he did not know but thought it might be a ruby. Jones asked Smith what he would pay for it, and Smith said two hundred dollars, whereupon Jones sold it to Smith for $200. The stone turned out to be an uncut diamond worth $3,000. Jones brought an action against Smith to recover the stone. On trial, it was proved that Smith actually did not know the stone was a diamond when he bought it, but he thought it might be a ruby. Can Jones void the sale? Explain.
Mistake: Nature of Subject Matter. No, Jones cannot void the sale. Mutual ignorance upon the part of Jones and Smith of the value of the subject matter did not prevent the formation of a valid contract. They both understood that the two hundred dollars was to be exchanged for the stone. There was no mistake as to the subject matter of the agreement. There was neither fraud nor misrepresentation.
Decedent Judith Johnson, a bedridden, lonely woman of eighty-six years, owned outright Greenacre, her ancestral estate. Ficky, her physician and friend, visited her weekly and was held in the highest regard by Johnson. Johnson was extremely fearful of suffering and depended upon Ficky to ease her anxiety and pain. Several months before her death, she deeded Greenacre to Ficky for $5,000. The fair market value of Greenacre at this time was $125,000. Johnson was survived by two children and six grandchildren. Johnson's children challenged the validity of the deed. Should the deed be declared invalid due to Ficky's undue influence? Explain.
Undue Influence. Yes, decision for Decedent's children. Restatement,2nd, Contracts, §177(1) defines undue influence as the "unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that the person will not act in a manner inconsistent with his welfare." A contract induced by undue influence is voidable.
Dorothy and John Huffschneider listed their house and lot for sale with C. B. Property. The asking price was $165,000, and the owners told C. B. that the size of the property was 6.8 acres. Dean Olson, a salesman for C. B., advertised the property in local newspapers as consisting of six acres. James and Jean Holcomb signed a contract to purchase the property through Olson after first inspecting the property with Olson and being assured by Olson that the property was at least 6.6 acres. The Holcombs never asked for or received a copy of the survey. In actuality, the lot was only 4.6 acres. The Holcombs now seek to rescind the contract. Decision?
Fraud in the Inducement. Decision for James and Jean Holcomb. When Olson falsely represented that the property was at least 6.6 acres a fraud was committed. As the sales agent Olson had an obligation to disclose all material information to the purchasers as well as to respond truthfully to all inquiries. The agent had access to the survey and could have easily verified the actual acreage. His conduct can be characterized at a minimum as "recklessly indifferent" if not outright as an intended deception, so long as Dorothy and John Huffschneider did not provide C.B. Property with a fraudulent survey of the property.