CONTRACTS

EXPLANATORY ANSWERS
 Contracts Answers 1.

Contracts Answers

Answer to Question 1

(A) The contractor’s best (and only) argument would be that the property owner’s silence while the
contractor deepened her well was an acceptance by silence of an implied-in-fact contract. An
implied-in-fact contract is formed by manifestations of assent other than oral or written language,
i.e., by conduct. Where a person knowingly accepts offered benefits, such conduct, viewed objec-
tively, may be said to manifest an agreement to the conferral of such benefits, resulting in a
contract implied in fact. While generally an acceptance must be communicated to an offeror to be
effective, courts will often find an acceptance where an offeree silently accepts offered benefits.
Here, the property owner’s purported belief that the work was being done by a county employee
at no charge is not plausible. The property owner had no prior notification from or contact with
any county employee, and it is not reasonable to believe that anyone, including an employee of
the government, would enter upon and disturb private property without prior consent. Moreover,
the property owner knew that her neighbors had not had their wells deepened by county workers
but had paid private contractors to do the work. Thus, the facts strongly suggest that the property
owner’s silence as she watched the contractor deepen her well was acceptance by silence of an
implied-in-fact contract. (B) is incorrect because promissory estoppel is inappropriate in this
case. Under the doctrine of promissory estoppel, as outlined in section 90 of the First Restate-
ment, a promise is enforceable to the extent necessary to prevent injustice if the promisor would
reasonably expect to induce action or forbearance of a definite and substantial character and
such action or forbearance is in fact induced. Here, the contractor and the property owner whose
well he deepened had never met or negotiated for services and had no communications with one
another prior to the contractor sending the property owner his bill, and the contractor did not even
realize that he was doing the work for that property owner’s benefit. Thus, promissory estoppel
is not proper. (C) and (D) are incorrect because mistake is a defense to formation of a contract
and is raised to render a contract voidable by the adversely affected party. Thus, mistake would
not be a ground on which relief could be granted. Even if the property owner’s purported mistake
were treated as credible by the court, there was no “mutual” mistake because the contractor and
the property owner were not mistaken about the same fact, but rather, each was mistaken about
a different fact (the contractor, that he was at the right address, and the property owner, that the
contractor was a county employee doing the work without charge). Nor could the facts be charac-
terized as a unilateral mistake, in which only one of the parties is mistaken about facts relating to
the agreement, because both parties were operating under a mistaken belief. Thus, both (C) and
(D) are incorrect.

Answer to Question 2

(B) The manufacturer will prevail because it never accepted the offer. For a communication to be an
offer, it must contain a promise, undertaking, or commitment to enter into a contract, rather than
a mere invitation to begin negotiations. The broader the communicating media, e.g., publications,
the more likely it is that the courts will view the communication as merely the solicitation of an
offer. An advertisement in a trade journal generally is construed as an invitation to submit offers,
not an offer itself. It is an announcement of the price at which the seller is willing to receive
offers. Thus, the store owner’s e-mail was an offer that was never accepted by the manufacturer.
(A) is wrong because the communications were definite and certain enough to form a contract.
Under the UCC, only the quantity term must be definite and certain (or capable of being made
so). Here, the quantity term, 100, was clear; the problem is that the offer containing it was not
accepted. (C) is wrong because, as discussed above, the ad is not an offer. (D) is wrong because
2. Contracts Answers

the ad in the trade journal was not a promise; hence, the store owner cannot rely on promissory
estoppel or detrimental reliance to recover.

Answer to Question 3

(C) Arguably, the company’s fax on July 15 could reasonably be interpreted as a rejection of the
landlord’s offer as to the Wood Street building, i.e., having accepted only the Main Street
property, the company was impliedly rejecting the rest. Once rejected, the offer is terminated
and the offeree’s power of acceptance is extinguished; thus, the July 18 attempt to accept would
be ineffective. None of the other alternatives makes sense. For impossibility of performance
in (A) to apply, the impossibility must be “objective”; i.e., the duties could not be performed
by anyone. Also, the impossibility must arise after the contract has been entered into. (D) is
wrong because a condition precedent must be distinguished from a promise. A condition is the
occurrence of an event that will create, limit, or extinguish the absolute duty to perform. In
this case, it would probably be determined that the intention of the parties was an exchange of
promises. (B) is wrong because a unilateral mistake in most cases will not prevent formation of
a contract. Only mutual mistake going to the heart of the bargain may prevent the formation of
the contract.

Answer to Question 4

(C) The low bidder is liable for nothing because no contract was formed between the contractor and
the low bidder. Formation of a contract requires mutual agreement between the parties (offer and
acceptance) and consideration. There was no contract here because there was no acceptance. The
low bidder’s bid constituted an offer—a certain and definite promise, undertaking, or commit-
ment to enter into a contract communicated to the offeree. An offer gives the offeree the power to
accept and create a contract until the offer is terminated. An offer can be terminated in a number
of ways, including through a counteroffer from the offeree. A counteroffer serves as both a rejec-
tion terminating the original offer and a new offer from the original offeree, thus reversing the
former roles of the parties and giving the original offeror the right to accept or reject the new
offer. Here, the contractor’s call constituted a rejection and a counteroffer that the low bidder
rejected, and so no contract was formed. Therefore, the low bidder cannot be held liable. (A) and
(B) are incorrect because, as stated above, a contract was never formed between the contractor
and the low bidder. Thus, it is irrelevant whether the mistake was unilateral or obvious. (Note
that the general rule is that a contract will not be set aside for a unilateral mistake unless the
nonmistaken party either knew or should have known of the mistake. Thus if the contractor had
not called the low bidder but had instead accepted his bid, the low bidder would be liable on the
contract despite his mistake because (B) the mistake was unilateral and (A) it was not obvious.)
(D) is incorrect for several reasons: First, it relies on the existence of a contract, and as stated
above, there is no contract here. Second, the premise that the low bidder could not renege on its
offer is untrue. The general rule is that offers are revocable until accepted. In a subcontractor bid
situation, a bid is treated as irrevocable for a reasonable amount of time because of detrimental
reliance (i.e., the general contractor will rely on the mistaken bid in preparing his bid). However,
here the contractor learned of the low bidder’s mistake before any reliance on the bid. Moreover,
it is unclear whether the contractor is complaining about the low bidder’s reneging on his bid; the
contractor appears to be complaining that the low bidder refused to lower the mistaken bid. The
low bidder would have no duty to lower its bid in any case. The final premise in (D) is irrelevant.
If the low bidder lacked the power to renege, the lack of power goes to the $75,000 bid; the fact
that no one would do the job for $70,000 has no bearing on the issue.
 Contracts Answers 3.

Answer to Question 5

(D) The contract arose when the balls were shipped. The general rule is that an offer can be accepted
by performance or a promise to perform unless the offer clearly limits the method of acceptance.
Here, the offer would be the bowling alley owner’s order, because a magazine ad is usually held
to be merely solicitation to accept offers rather than an offer. Thus, the manufacturer accepted and
the contract was formed when it shipped the balls. (A) is wrong because the bowling alley owner’s
order was an offer to buy, and no contract could be formed until that offer was accepted. (B) is
wrong because this is a case of crossing offers; even though both offers contain the same terms,
they do not form a contract. (C) is wrong because no contract will be formed until there has been
an acceptance, and, as stated, the bowling alley owner’s letter was merely an offer.

Answer to Question 6

(D) Noncommunication of acceptance would be least helpful because the contract with the woman
was unilateral and did not require a notice of acceptance; rather, performance was sufficient. (A)
is helpful because the fact that the dogcatcher was already under contract might have impact with
respect to the preexisting duty rule. (B) is helpful because the fact that the dogcatcher had been
compensated already would not have a bearing on a contract theory but might on a quasi-contrac-
tual theory. (C) is helpful because the publication of the revocation in the local newspaper may
have effectively revoked the woman’s offer.

Answer to Question 7

(A) The car dealership will succeed. The uncle made an offer, which was accepted by the car dealer-
ship by doing the requested act. The uncle’s offer was to guarantee the purchase price, up to
$10,000, of a car in exchange for the car dealership’s selling a car to the niece. This offer tradi-
tionally could be accepted by an act (the sale of the car), but could also be accepted by a promise
to sell the car to the niece. When a bilateral contract is accepted by performance, the offeree
must give the offeror notice within a reasonable time or the offeror may be discharged. Here,
the car dealership accepted the offer by selling the car, and a contract was formed at that time.
Although an acceptance must be communicated to the offeror, it is not always necessary for the
offeree to be the party to communicate it. It would be reasonable to assume that the niece would
communicate the fact of the sale to the uncle. The dealership would have no obligation to do more
unless it had reason to know that the uncle (the offeror) had no adequate means of learning of the
performance with reasonable promptness. Here, the dealership went beyond that by sending notice
within a reasonable time. Therefore, when the niece did not pay for the car, the dealership could
collect from the uncle or his estate. (B) is wrong because it relies on a promissory estoppel theory,
but here the uncle’s promise is supported by a bargained-for exchange (his promise in exchange
for the car dealership’s sale); thus, there is no need to rely on promissory estoppel. (C) is wrong
because the car dealership’s motive in selling the car to the niece is not relevant. The car dealer-
ship did something it was not under a duty to do (sell the car to the niece) and that is sufficient
consideration to support the uncle’s promise to guarantee payment. (D) is wrong because the offer
was accepted when the car dealership did the act, and the uncle was alive at that time.

Answer to Question 8

(C) The unilateral option contract between the plumber and the contractor to keep the plumber’s offer
open was effectively rescinded by the contractor’s expressed intent to make a gift of the obliga-
tion owed her. The typical case of rescission involves a bilateral contract where neither party has
4. Contracts Answers

yet performed; i.e., the duties of both parties are still executory. However, no contract to do the
plumbing work has been created yet, because the contractor has not communicated her accep-
tance of the bid to the plumber. Despite her use of the plumber’s bid to prepare her own bid,
the contractor is free to award the plumbing work to someone else if she is awarded the general
contract. Hence, the contract to do the plumbing cannot be rescinded because it has not been
created. Another contract is present under this fact pattern, however. Under section 87 of the
Restatement (Second) of Contracts, the plumber’s offer is binding as an option contract because
the contractor reasonably relied on it to submit her bid. The option contract here is unilateral:
The contractor’s acceptance of the option contract by using the bid also constituted performance
of her duties under the option contract. In a unilateral contract case, a rescission promise must
be supported by either (i) an offer of new consideration, (ii) elements of promissory estoppel
(i.e., detrimental reliance), or (iii) the offeree’s manifestation of an intent to make a gift of the
obligation owed her. The first two alternatives are absent in these facts, but the gift alternative is
indicated by the contractor’s statement that she will “forget” that the plumber ever made the bid.
The contractor’s response was an effective rescission of the option contract. (A) is an incorrect
choice even though it is a true statement. A discharge of contractual duties by means of a release
requires additional consideration or some substitute, such as a signed writing or reliance by the
offeror on the discharge. Here there is no additional consideration to support a release, as choice
(A) indicates, but the contractor will not win because a rescission has taken place. (B) is incorrect
because a large dollar amount for purposes of the Statute of Frauds is irrelevant unless there is a
contract for the sale of goods, which must be in writing if the goods are priced at $500 or more.
The agreement between the contractor and the plumber involved a contract for services, which
is not within the $500 provision of the Statute. (D) is incorrect because, as discussed above, a
release requires additional consideration, a signed writing, or detrimental reliance by the offeror.
Because none of these is indicated by the facts, a release has not taken place.
Answer to Question 9
(B) The classmate accepted the nurse’s offer when she mailed the letter on July 3; thus, a contract
was formed. Under the mailbox rule, acceptance of an offer by mail creates a contract at the
moment the acceptance is posted, properly stamped, and addressed. If the offeree sends both an
acceptance and a rejection, whether the mailbox rule will apply depends on which the offeree
sent first, the acceptance or the rejection. If the offeree first sends an acceptance and later sends
her rejection, the mailbox rule does apply. Thus, even if the rejection arrives first, the acceptance
is effective upon mailing (and so a contract is formed) unless the offeror changes his position in
reliance on the rejection. Here, the classmate first sent an acceptance, then called with her rejec-
tion. The mailbox rule applies, and because there is nothing in the facts to show that the nurse
relied on the rejection, a contract was formed. (A) is wrong because it implies that a rejection must
be in writing. There is no such requirement. Also, the rejection (absent detrimental reliance) has
no effect on the contract because the offer had already been accepted and the contract formed. (C)
is wrong because, as stated above, under the mailbox rule the fact that the rejection was received
before the acceptance is irrelevant (unless there has been detrimental reliance on the rejection,
which was not the case here). The contract was formed when the classmate sent her acceptance.
(D) is wrong because the description, although somewhat ambiguous, can be made reasonably
certain by evidence of the subjective understanding of the parties and extrinsic evidence of what
was in the house, which a court will consider to clarify an ambiguous term.
Answer to Question 10
(D) The parties do not have a contract, because the mailbox rule does not apply when the offeree
sends a rejection, followed by an acceptance. In such a case, whichever is received first controls.
 Contracts Answers 5.

Under the mailbox rule, acceptance by mail or similar means creates a contract at the moment of
posting, with a couple of exceptions not relevant here. Rejection, on the other hand, is effective
when received. So, if the mailbox rule had applied, there would have been a contract, because the
friend’s acceptance was mailed before his rejection letter was received. But because the mailbox
rule does not apply here, and the matter is decided based on which letter was received first,
there is no contract, because the friend’s rejection letter was received by the bicycle owner a day
before his acceptance letter was received by her. (A) is incorrect because, as discussed above, the
mailbox rule does not apply when a rejection is sent before an acceptance; rather, whichever is
received first controls. The fact that the bicycle owner did not read the rejection does not matter;
it still was received by her before the acceptance. [See Restatement (Second) Contracts §68] (B)
is incorrect because whether the friend paid for the bicycle is irrelevant. He sent the certified
check (and his acceptance) after he sent his rejection, and the rejection was received first. (C) is
incorrect because when a rejection by mail is followed by an acceptance by mail, the rule is that
whichever is received first controls, not whichever is dispatched first. Thus, although it is true that
there is no contract between the parties, it is because the friend’s rejection letter was received by
the bicycle owner first, rather than because it was mailed first.

Answer to Question 11

(C) The outcome would turn on the court’s determination as to whether the doll collector’s letter
had been received by the acquaintance before she had entrusted the letter of acceptance to the
mail carrier. At common law, an acceptance is effective upon dispatch (e.g., upon mailing a
properly addressed and stamped letter) under the mailbox rule. The mailbox rule does not apply
to revocations, however—revocations are effective only upon receipt. Receipt does not require
knowledge of the revocation, but merely possession of it. The communication need not be read by
the recipient to be effective. [See Restatement (Second) of Contracts §68] The facts here present
a close question as to whether there has been a dispatch of the acceptance before the receipt
of the revocation. The outcome of this question will depend on the court’s determination as to
what came first (the posting of the acceptance or receipt of the revocation). This will decide the
existence or nonexistence of the contract. (A) is incorrect because, as indicated above, revoca-
tion is effective only upon receipt, not mailing. (B) is incorrect because whether the acceptance is
effective depends on whether the revocation was received before the acceptance was dispatched,
and whether the revocation was received first is not dependent on whether the acquaintance had
knowledge of its contents, but rather it depends on whether she had possession of it. (D) is incor-
rect because the mailbox rule makes an acceptance effective upon posting, and there is no reason
to hold that handing a properly addressed, stamped letter to a mail carrier is not a valid posting.

Answer to Question 12

(D) The pianist’s letter to the store owner is an acceptance, and the store owner must store the piano.
This is a contract for a sale of goods and thus is governed by the UCC. Under the UCC, an
acceptance with additional terms does not constitute a rejection and counteroffer, but rather is an
effective acceptance unless made expressly conditional on the assent to the additional terms. Here,
the pianist expressly accepted the store owner’s offer and included an additional term adding one
month of storage. The acceptance was not expressly conditional on the store owner’s assent to the
storage term. Thus, the acceptance was sufficient to create a contract. Whether additional terms
become part of the agreement depends on whether both parties are merchants. If both parties
are merchants, the additional terms become part of the contract unless they materially alter the
terms of the offer, the offer expressly limited the acceptance to its terms, or they are objected to
within a reasonable time. A “merchant” is one who regularly deals in goods of the kind sold or
6. Contracts Answers

who otherwise by his occupation holds himself out as having knowledge or skill peculiar to the
practices or goods involved. For purposes of the UCC battle of the forms provisions, a merchant is
almost anyone in business because anyone in business has knowledge of business practices. Here,
the store owner is clearly a merchant. The pianist, by virtue of his occupation, has knowledge or
skill peculiar to the goods (piano) involved. He plays the piano professionally and has purchased
several pianos for this purpose. The additional term included in the pianist’s acceptance did not
materially alter the terms of the offer (i.e., it did not change a party’s risk or remedies), the offer
was not limited to its terms, and the facts indicate that the store owner did not object. Thus, the
additional term regarding storage becomes part of the agreement. (A) is incorrect because the
pianist did not make the acceptance conditional on the owner’s assent to the additional term.
(B) is incorrect because, unlike at common law, under the UCC, an acceptance that contains
additional terms (i.e., one that is not a mirror image of the offer) is not a rejection and counter-
offer. (C) would be the correct answer if the pianist were not a merchant. If one of the parties to a
contract is not a merchant, any additional terms in the acceptance will be ignored unless specifi-
cally accepted.

Answer to Question 13

(A) The conversation created a contract for 2,000 pounds of widgets now and 3,000 pounds next
month. Because the contract is for the sale of goods, the UCC governs. Under the UCC, a contract
is formed whenever it appears from the parties’ communications that they intended to enter into
a contract. Here, it is clear that the parties intended to enter into a contract, but the acceptance
contained terms additional to the offer terms. When this occurs, the UCC provides for which
terms govern: If the contract is between merchants, the additional terms in the acceptance are
included in the contract, unless (i) the additional terms materially alter the contract, (ii) the offer
expressly limits acceptance to the terms of the offer, or (iii) the offeror objects within a reasonable
time. Here, both parties are merchants, and we were told to assume that the delivery terms do not
materially alter the contract. There is no indication that the offer limited acceptance to the terms
of the offer or that the wholesaler objected to the terms; thus, there is a contract containing the
additional terms. (B) would be correct if one of the parties were not a merchant, because under
the UCC, when an acceptance proposes additional terms, a contract would be formed under the
terms of the offer unless both parties are merchants. (C) would be correct if the UCC did not
apply, because under the common law, an acceptance must mirror the offer (the “mirror image”
rule); if new terms are added in the acceptance, it is treated as a counteroffer. (D) is incorrect
because, under the UCC, no notice was necessary to form the contract. Notice would be required,
however, if the wholesaler did not want to be bound by the additional terms. Note that the fact that
this was an oral conversation does not prevent formation of the contract. To be enforceable, any
contract for the sale of goods priced at $500 or more must be evidenced by a writing signed by the
party to be charged. This affects enforceablility, not formation. For this contract to be enforceable,
some form of signed writing (e.g., a merchant’s confirmatory memo) would be necessary.

Answer to Question 14

(D) The collector’s power to accept lapsed because the option contract specified that the offer would
expire at 11:59 p.m. on September 30. Hence, the power had to be exercised prior to that time and
it was not. The mailbox rule does not apply to the exercise of options. In such cases, acceptance
is effective when received by the offeror, here on October 1. Thus, (D) is correct. (A) is wrong
because, for the reasons discussed above, the collector did not effectively accept before his option
expired. (C) is wrong for two reasons: (i) a revocation is not effective until received; and (ii)
because the contract is an option, the offeror’s power to terminate the offer through revocation is
 Contracts Answers 7.

limited. Even if the revocation had arrived earlier, the neighbor lacked the power to revoke. (B)
is irrelevant. Returning the consideration, in and of itself, would not give the offeror the power to
revoke in an option situation.

Answer to Question 15

(C) The manufacturer will prevail because the April 2 letter was sufficient to bind the store owner.
There are two issues involved here, the battle of the forms provisions of the UCC and the Statute
of Frauds. Generally, to be enforceable, a contract for the sale of goods priced at $500 or more
must be evidenced by a writing signed by the party sought to be bound. However, in contracts
between merchants, if one party, within a reasonable time after an oral agreement has been made,
sends to the other party a written confirmation of the understanding that is sufficient under the
Statute of Frauds to bind the sender, it will also bind the recipient if: (i) the recipient has reason to
know of the confirmation’s contents; and (ii) she does not object to it in writing within 10 days of
receipt. Here, both parties are merchants: one is a store owner and the other a manufacturer. The
day after the store owner’s oral order was placed, the manufacturer mailed a confirmation letter.
Assuming the letter was signed or on the manufacturer’s letterhead, it would be sufficient to bind
the sender. Since the store owner received the letter and read it, she had reason to know of its
contents and did not respond. Thus, the writing is sufficient under the Statute of Frauds to bind the
store owner as well as the manufacturer. There is also an issue with the fact that the confirmatory
memo contains a new term regarding shipping fees. If both parties to the contract are merchants,
additional terms in an acceptance or confirmation will be included in the contract unless: (i) they
materially alter the original terms of the offer (e.g., they change a party’s risk or the remedies
available); (ii) the offer expressly limits acceptance to the terms of the offer; or (iii) the offeror has
already objected to the particular terms, or objects within a reasonable time after notice of them is
received. The shipping term does not materially alter the terms of the offer, the offer did not limit
the acceptance to its terms, and the store owner has not objected. Thus, the new term will become
part of the contract. (A) is wrong because the shipping term is separate from the price term. There
was a meeting of the minds as to price. (B) is wrong because the confirmatory memo binds the
store owner despite the fact that she did not sign a writing. (D) is wrong. The Statute of Frauds
applies here because the total price of the contract was for $500 or more. However, as discussed
above, the April 2 letter was sufficient to bind the store owner.

Answer to Question 16

(D) The painter will be unable to recover the $500 because he did not satisfy the condition precedent
to payment under the contract. A party does not have a duty to perform if a condition precedent
to that performance has not been met. Here, the parties made the owner’s satisfaction with the
painter’s paint job a condition precedent to the owner’s duty to pay the $5,000. Because the
owner was not satisfied with the paint job, her duty to pay the painter never arose. The fact that
the owner offered to give the painter $4,500 if he repainted the porches has no effect on this
analysis, because the offer constituted a new contract, the owner having been excused from the
old one. (A) is wrong because it does not matter whether the painter indorsed under protest. The
indorsement will not change the result here because the new contract did not seek to discharge
any contractual duty—the owner was already excused from her duties because the condition
precedent was never met. (B) is wrong because the old contract, which provided for payment of
$5,000, is considered to be at an end. Under the terms of the new contract, the painter is entitled
to only $4,500, provided he repaints the porches. (C) is wrong because the condition precedent
to the payment of $5,000, the owner’s satisfaction, was not met. The courts have held such condi-
tions to be valid—not illusory promises—because of the promisor’s duty to exercise good faith in
8. Contracts Answers

assessing satisfaction. Here, the facts state that the owner believed in good faith that the painter
had done a bad job; thus, the painter is not entitled to payment under the original contract. Note
that since he has not performed under the new contract, he is in breach and not entitled to the
$4,500 already paid.

Answer to Question 17

(C) The appliance manufacturer will prevail because the limitation on the interest rate was placed
in the contract for his protection and he was free to waive it. The terms of the contract made the
contract contingent upon the appliance manufacturer obtaining a letter of credit from a feder-
ally insured bank. Thus, the letter of credit was a condition precedent to the contract. The limit
on interest was clearly for the appliance manufacturer—he would not have to enter into the
contract unless he could find a satisfactory loan. One having the benefit of a condition may by
words or conduct indicate that he will not insist upon the condition, and the courts will enforce
such a waiver. (A) is incorrect because while the 2.5% condition was not met, it was placed in
the contract for the appliance manufacturer’s benefit, and he was free to waive it. (B) is incorrect
because, while the UCC (which governs here because we have a contract for the sale of goods)
places a duty of good faith on all parties, it is not a breach of the duty for a party to waive a condi-
tion that was placed in the contract for that party’s benefit. The appliance manufacturer sought
and obtained a loan; so it acted in good faith. (D) is incorrect because while the extra .5% may be
immaterial, it would be sufficient as a condition to prevent the contract if the term were not for the
manufacturer’s benefit. The court would give the condition a literal meaning, and the fact that the
variance was small would not alter the fact that the condition precedent was not met.

Answer to Question 18

(C) The wholesaler will not recover the $1,200 because sale during the Christmas season was a condi-
tion precedent. A condition precedent is one that must occur before an absolute duty of immediate
performance arises in the other party. Based on the facts here, the intent of the parties was that
the retailer would have to pay for the dolls only if they sold during the Christmas season. Sale
during that time was a condition precedent to payment. Thus, the retailer had no obligation to pay
for the 80 dolls that had not sold by February 12 (well after the Christmas season). Thus, (C) is
correct, and (B) is wrong. (A) is wrong because the wholesaler refused the retailer’s tender of the
dolls, and the retailer is just holding them awaiting the wholesaler’s instructions. (D) is wrong
because accepting the check did not result in a waiver of any rights the wholesaler may have had.
If a monetary claim is uncertain or subject to a bona fide dispute, an accord and satisfaction can
be accomplished by a good faith tender and acceptance of a check when that check (or an accom-
panying document) conspicuously states that the check is tendered in full satisfaction of the debt.
Here, there is no indication that the retailer stated that the check was payment in full.

Answer to Question 19

(C) The destruction of the house discharges the plumber’s duties due to impossibility, but the plumber
has a right to recover for the reasonable value of the work he performed. Contractual duties are
discharged where it has become impossible to perform them. The occurrence of an unanticipated
or extraordinary event may make contractual duties impossible to perform. If the nonoccurrence
of the event was a basic assumption of the parties in making the contract, and neither party has
assumed the risk of the event’s occurrence, duties under the contract may be discharged. If there
is impossibility, each party is excused from duties that are yet to be performed. If either party
has partially performed prior to the existence of facts resulting in impossibility, that party has a
 Contracts Answers 9.

right to recover in quasi-contract for the reasonable value of his performance. While that value
is usually based on the benefit received by the defendant (unjust enrichment), it also may be
measured by the detriment suffered by the plaintiff (the reasonable value of the work performed).
Here, the house on which the plumber was to perform plumbing repairs was totally destroyed
in a flood. The facts indicate that this flood was of such an unexpected nature that its nonoccur-
rence was a basic assumption of the parties, and neither party was likely to have assumed the risk
of its occurrence. Thus, it has become objectively impossible for the plumber (or anyone else) to
complete the job. This impossibility will discharge both the homeowner and the plumber from
performing any contractual duties still to be fulfilled. Therefore, the plumber need not finish the
repair work, and the homeowner is not obligated to pay the entire amount of $1,200. However, the
plumber can recover under quasi-contract. (A) is incorrect because both parties are discharged.
(B) is incorrect because, as discussed above, the homeowner is obligated to pay for the value
of the plumber’s services to date, not the full contract price. (D) is incorrect because it fails to
account for the fact that the homeowner will have to pay the plumber for the value of the work
already performed.

Answer to Question 20

(A) The builder will not be able to recover anything from the couple under the contract because he
has not performed his duty. Under the parties’ contract, the builder’s completion of the house was
a condition precedent to the couple’s duty to pay. The condition precedent was not discharged
by the destruction of the work in progress because construction has not been made impossible,
but rather merely more costly—the builder can rebuild. Thus, he is not entitled to any recovery.
Note, however, that a number of courts will excuse timely performance because the destruc-
tion was not the builder’s fault. (B) is incorrect because the contract is not divisible (i.e., it is not
divided into an equal number of parts for each side, each part being the quid pro quo of the other);
thus, completion of one-half of the house did not entitle the builder to one-half of the price. (C)
is incorrect because it is not a correct measure of recovery. As stated above, the builder cannot
recover under the contract. However, he could recover restitution if he determined that he could
not perform under the contract by rebuilding. Restitution is a remedy that prevents unjust enrich-
ment by imposing on a recipient of requested goods or services a duty to pay for the benefit
received when there is a failed contract or no contractual relationship between the parties. The
measure of recovery here would be the fair market value of what remains of the house because
that is the benefit conferred—it would not be cut in half merely because the house was only half
completed. (D) is an incorrect contract recovery because the builder has not fulfilled the condi-
tion precedent to the couple’s duty to pay. The only way the builder could recover anything would
be in an action for restitution. Sometimes, in cases where there is little or no benefit to the other
party, the measure of restitutionary recovery is the detriment suffered by the plaintiff. However,
when the plaintiff is in breach, the courts that permit recovery limit it to the contract price less
damages caused by the breach. Because the builder only did half of the work, he is in breach by
not rebuilding the house. Hence, the couple’s damages, which involve building an entirely new
house, outweigh any possible restitution to the builder.

Answer to Question 21

(A) The film company will be able to recover damages from the advertising agency because the
agency’s failure to fly constituted a breach of contract. The parties entered into a bilateral
contract—the agency promised to fly with the streamer and the film company promised to pay for
the flight. The agency breached the contract by failing to fly on the designated Saturday. Its duty
to fly was not discharged by impossibility. A contractual duty to perform may be discharged by
10. Contracts Answers

objective impossibility (i.e., no one could have performed), but subjective impossibility (defen-
dant could not perform) is insufficient. Here, the defect in the plane constituted only subjective
impossibility (if it amounted to impossibility at all) because the agency could have obtained
another plane to pull the streamer. If the agency had been unable to fly the plane because of
weather (e.g., a severe ice storm), its performance would have been objectively impossible,
and the agency would have been discharged. However, under these facts, the film company is
entitled to damages for the agency’s breach. (B) is incorrect because the film company’s duty to
perform (pay $500) was subject to the condition precedent of the agency’s performance (flying),
and, as discussed above, the agency breached the contract by failing to fly. Therefore, the film
company’s duty to pay never arose. The fact that the engine problem was not the agency’s fault
does not change things. The agency’s inability to perform, even if it were due to impossibility,
would merely discharge the contract, and each party would be excused from performance; the
film company would not have to pay the $500. (C) is incorrect because, as determined above,
the agency’s duty was not discharged because performance was still possible. (If there had
been objective impossibility, (C) would have been the correct choice.) (D) is incorrect because
it suggests that the contract was a unilateral one (the offer to pay could be accepted only by
completion of performance). This interpretation is clearly contrary to the facts. Although the film
company offered to pay $500 for the flight, the agency accepted that offer by signing the contract.
A promise to pay was given in exchange for a promise to fly. Thus, there was a contract to which
both parties were bound.

Answer to Question 22

(B) By her statement to the builder, the homeowner waived the benefit of the condition requiring
the accountant’s approval of the design plans, and the builder detrimentally relied on the state-
ment by building the sauna. Thus, there is a binding waiver of the condition. A condition is an
event, other than the passage of time, the occurrence or nonoccurrence of which creates, limits,
or extinguishes the absolute duty to perform in the other contracting party. The occurrence of a
condition may be excused under a number of different circumstances. One such circumstance is
where the party having the benefit of the condition indicates by words or conduct that she will
not insist upon it. If a party indicates that she is waiving a condition before it happens, and the
person affected detrimentally relies on it, a court will hold this to be a binding estoppel waiver.
The promise to waive the condition may be retracted at any time before the other party has detri-
mentally changed his position. Here, the contract provided that the builder could not begin work
without the accountant’s prior approval. This approval was a condition that had to be met before
the homeowner’s duty to pay would arise. When the homeowner told the builder to commence
working on the sauna, even though the accountant had withheld his approval, the homeowner was
telling the builder that she was waiving the condition of the accountant’s approval. The builder
then acted in detrimental reliance on this statement by in fact starting and completing the building
of the sauna. While the homeowner could have retracted her statement and reinstated the condi-
tion prior to the builder’s detrimental reliance, she did nothing when the builder began working on
the sauna. Under such circumstances, the homeowner made a binding waiver of the condition and
will be estopped from asserting it. Thus, the builder is entitled to recover the full contract price.
(A) is incorrect because, as discussed above, the accountant’s approval was a condition precedent
for the parties’ contractual duties to arise. The builder’s duty to build the sauna and the homeown-
er’s duty to pay for it would not arise without the condition of the accountant’s approval either
being satisfied or being excused. (C) is incorrect because unjust enrichment is a quasi-contract
alternative that the builder could utilize if he did not have a contract remedy. Here, however, the
builder can recover the full contract price because the homeowner waived the condition and is
estopped from retracting the waiver. (D) is incorrect because the parol evidence rule does not
 Contracts Answers 11.

prohibit evidence of a subsequent modification of a written contract; the rule applies only to
prior or contemporaneous expressions. Consequently, it may be shown that the parties altered the
integrated writing after its making. The oral agreement between the homeowner and the builder
described in the facts was made subsequent to the writing. Therefore, the parol evidence rule is
inapplicable to this agreement.

Answer to Question 23

(D) The man has the option of defending in equity under a specific performance theory or waiting
until his colleague obtains a judgment against him and then suing her for breach. He has either
option available because his colleague is in breach of their accord agreement. An accord is an
agreement in which one party to an existing contract agrees to accept, in lieu of the perfor-
mance that she is supposed to receive from the other party, some other, different performance.
The accord must be supported by consideration, but the consideration is sufficient if it is of a
different type than called for under the original contract, even if the substituted consideration
is of less value. An accord suspends the right to enforce the original agreement. Performance
of the accord (i.e., satisfaction) cuts off the parties’ rights to enforce the original contract and
discharges the accord. Here, the accord was supported by sufficient consideration because the
man was giving a ring in lieu of some cash. The man’s duties under the accord were discharged
when he timely tendered delivery of the ring and cash. By refusing the ring and filing suit for
the part of the original debt that has not been paid, the colleague has breached the accord agree-
ment. If a creditor breaches an accord agreement, the debtor has the option of either raising the
accord agreement as an equitable defense in the creditor’s action and asking that it be dismissed,
or waiting until he is damaged (i.e., until the creditor is successful in an action on the original
contract) and then bringing an action at law for damages for breach of the accord contract. (A)
is incorrect because the amount of the debt does not have to be in dispute to have an enforceable
accord, as long as there was some alteration in the debtor’s consideration, as discussed above. (B)
is incorrect because the colleague would have the right to enforce the original contract only if the
man had breached the accord agreement. Here, the man’s tender of the ring discharged his duty
under the accord agreement, precluding his colleague from suing on the original contract. (C) is
incorrect because the man has both a breach of contract remedy and an equitable defense option
available to him. Also, whether the ring is unique does not affect his right to specific performance
of the accord agreement; he is simply raising the agreement as an equitable defense to prevent the
colleague from continuing with her suit on the original contract.

Answer to Question 24

(A) The homeowner may sue the buyer when he receives the letter because an anticipatory breach
situation exists. Anticipatory repudiation occurs where a promisor, prior to the time set for perfor-
mance of her promise, indicates that she will not perform when the time comes. Anticipatory
repudiation serves to excuse conditions if: (i) there is an executory bilateral contract with execu-
tory duties on both sides; and (ii) the words or conduct of the promisor unequivocally indicates
that she cannot or will not perform when the time comes. The requirements for anticipatory
repudiation are met here because the homeowner’s duty to deliver the deed and the buyer’s duty
to pay have yet to be performed, and the buyer’s writing unequivocally states that she will not pay
unless the homeowner performs extra tasks. In the case of anticipatory repudiation, the nonrepu-
diating party has the option to treat the contract as being breached and sue immediately. There-
fore, the homeowner may sue the buyer upon receipt of the letter. (B) is incorrect because, as
stated above, the homeowner need not wait until July 1 to sue because the buyer’s letter amounts
to anticipatory repudiation. The nonrepudiating party may treat this as a total repudiation and
12. Contracts Answers

sue immediately. The doctrine of anticipatory repudiation would not apply if both sides did not
have executory duties to perform. In such a case, the nonrepudiator must wait to sue until the
time originally set for performance by the repudiating party. However, as discussed above, the
homeowner’s duty was still executory at the moment of the buyer’s repudiation. Therefore, the
homeowner does not have to wait until July 1 to sue the buyer for breach. (C) is incorrect because
seeking adequate assurances of the buyer’s intent to perform is not necessary when the repudi-
ating party has stated unequivocally that she will not perform. A party may in writing demand
adequate assurance of due performance if “reasonable grounds for insecurity arise with respect to
the performance of” the other party, after which the nonrepudiating party can treat the contract
as repudiated if those assurances are not given within a reasonable time. However, here, it is clear
from the buyer’s writing that she is unwilling to perform and, therefore, the homeowner need
not seek assurances of an intent to perform. (D) is incorrect because the homeowner can sue the
buyer immediately because their promises are still executory. As discussed above, the doctrine
of anticipatory repudiation is applicable only if there are executory duties on both sides. Here, the
homeowner’s duty to deliver a deed and the buyer’s duty to pay are both executory, so the doctrine
applies and the homeowner can sue the buyer now.

Answer to Question 25

(C) Under the doctrine of substantial performance, contracts governed by the common law are
enforceable despite minor breaches. The contract here—to build a manufacturing plant—is
governed by the common law. In determining whether a breach is minor or substantial, courts
look to whether the party received the substantial benefit of the bargain. Here, the manufacturer
got a plant that was, perhaps, better than the one called for in the contract. Therefore, the contract
will be enforceable under the doctrine of substantial performance. (A) is incorrect because the
perfect tender doctrine applies only to contracts for the sale of goods—not to common law
contracts. (B) is incorrect. Under the divisibility doctrine, if a party performs one of the units of a
divisible contract, he is entitled to the agreed-on equivalent for that unit even if he fails to perform
the other units. It is not a condition precedent to the other party’s liability that the whole contract
be performed. For a contract to be divisible: (i) the performance of each party must be divided
into two or more parts under the contract, (ii) the number of parts due from each party must be
the same, and (iii) the performance of each part by one party is agreed on as the equivalent of the
other party’s corresponding part. Here, the payment is broken into two parts, but the payments
do not correspond to units of work performed by the contractor, so this contract is not divisible.
In any case, divisibility is unlikely to be of much help in deciding this case unless the installation
of the lights was a separate task under the contract, with a corresponding payment. (D) is incor-
rect because quasi-contract provides a remedy in some situations in which a contract fails (or is
absent) and the defendant would be unjustly enriched as a result. The doctrine is not applicable
here because, as discussed above, the contract will not fail due to a minor breach.