In January Marcus, a CEO of a large corporation located in Canada, contacted Samuel to

secure a condo in Hawaii, for July1,2,3, 4 and 5th for his corporate annual meeting with the
board of directors. The meeting generally is two half days, and on the last day there is a party
to thank all for attending the annual meeting. Marcus wanted to continue his stay throughout
the holiday weekend. As in the past, Marcus wants to have the party in the condo. Marcus
called Samuel and was advised that for the specific dates he is requesting, there is only a 5
bedroom home available at $2,000 per day instead of the condo which was a rate of $1,000
per day. Marcus responded, "I don't need a five-bedroom house. What if I only use one of the
bedrooms?" Samuel replied, "That would be O. K. Since we want to do everything possible to
satisfy you since you have been such a good customer, we'll let you have the house under the
condition that you are using only one bedroom. We can honor a special price for $1,500 per
day." Marcus said, "Thanks, and instructed Samuel to send the bill to his office." 

In late March Marcus was offered a new job and decided to take it, knowing he booked the
house in Hawaii for his corporate meeting, and due to his new job, he is unable to attend the
meeting. He offered the house to his friend, Thomas, who has always wanted to take a
vacation to Hawaii. Thomas accepted. Marcus told Thomas: "It's $1,500 a day. After your
stay, tell Samuel to send you the bill." Marcus neglected to tell Thomas about the condition
that he could only use one bedroom.

Thomas arrived and stayed in the house for the 5 days. At the end of his stay, Samuel sent a
bill for $10,000, $2,000 per day to Marcus. Marcus has refused to pay the bill, and Thomas
claims that he is only responsible for $1,500 per day.

What rights, if any, does Samuel have against Marcus and/or Thomas? Discuss.

Samuel v. Marcus

Formation

For an enforceable contract, there must be mutual assent, often reached by an offer and an
acceptance, plus consideration with no defenses to formation.

Preliminary Negotiation

A preliminary negotiation is merely an invitation to deal

Marcus, CEO of a large corporation, contacted Samuel in January to secure a condo in Hawaii
for July 1st-5th for his corporation’s annual meeting with the board of directors, party to thank
all attending members, and a few extra days for Marcus to enjoy the holiday. Thus, Marcus
was inviting Samuel to negotiate a deal for a place to hold the meeting and party that met his
needs.

There are no sufficient "words of commitment," or "sufficiently definite terms," yet.

Therefore, no offer exists at this point, but rather mere preliminary negociations.
SAMUEL v. MARCUS

Offer

An offer is an outward manifestation of present contractual intent with definite and certain
terms which was communicated to the offeree.

In January Marcus, a CEO of a large corporation located in Canada, contacted Samuel to

secure a condo in Hawaii, for July 1 through the 5th for his corporate annual meeting with the
board of directors. Marcus called Samuel to book the condo and was advised that for the
specific dates he is requesting, there is only a 5 bedroom home available at $2,000 per day
instead of the condo which was a rate of $1,000 per day. Samuel’s response to Marcus’
request shows Samuel’s outward manifestation of present contractual intent to rent Marcus
the five bedroom house in Hawaii.

The terms were described as: one five bedroom house, quantity; July 1 through the 5 th is the
time period; Samuel and Marcus are the parties; $2000 per day is the price; and house is the
subject matter. Since the terms are stated with sufficient particularity, the terms are definite
and certain.

Samuel’s conversation with Marcus evidenced a communication to the offeree.

Therefore, there was a valid offer.

1Counter Offer

A counter offer is a rejection of the original offer and a creation of new offer.

Marcus responded to Samuel’s offer I don't need a five bedroom house, “What if I only use
one of the bedrooms?" Marcus’ statement of using only one bedroom created a new offer
which was conditional on him obtaining the rental house with only using one bedroom out of
the five. Hence, a creation of a new offer.

Thus, there was a counter offer.

Acceptance

An acceptance is an unequivocal assent to the terms of the offer.

Samuel responded “That would be O.K. Since we want to do everything possible to satisfy
you since you have been such a good customer, we'll let you have the house under the
condition that you are using only one bedroom. We can honor a special price for $1500 per
day,” showing an unequivocal assent to the terms of the offer.

Thus, there was a valid acceptance.

Consideration

Consideration is that which is bargained for and given in exchange for a return promise,
requiring a benefit and a legal detriment to all parties.
Marcus bargained for a five bedroom rental house in Hawaii in exchange for Samuel’s return
promise to supply the house from July 1 through July 5th. Samuel bargained giving a rental
house in Hawaii in exchange for Marcus’ return promise to pay Samuel $1,500 per day.

Samuel obligated himself to supply a house in Hawaii, which he was not previously obligated
to do. Samuel incurred a legal detriment of supplying a house in Hawaii, in exchange for a
legal benefit of receiving $1,500 per day for the house from Marcus. Conversely, Marcus was
required to pay $1,500 per day which he was not previously obligated to do. Marcus will
receive the legal benefit of the house in Hawaii in exchange for a legal detriment of paying
$1,500 per day.

Therefore, consideration exists between the parties.

Therefore a valid contract was created.

Breach

A breach is an unjustified failure to perform which goes to the essence of the bargain.

Samuel allowed the house in Hawaii to be used for the contracted period of July 1 through
July 5th. Marcus did assign his rights to the Hawaii house to Thomas. However he did not tell
Thomas of the promise that he could only use one of the five bedrooms. Since Marcus
assigned his rights to the house to Thomas, and did not get a novation, nor did he disclose the
promise of only using one bedroom, Marcus will be secondarily liable under the contract.
Thus, Marcus’ failure to pay goes to the essence of the bargain.

Therefore, the Marcus is in breach of contract.

Damages
General damages are the expectation under the terms of the contract.

Samuel can sue for the contract price of $1,500 per day for the house in Hawaii. However, if
the court finds that Thomas’ use to all of the bedrooms gave Thomas an unjust enrichment,
Samuel will be able to recover $2,000 per day for the rental house.

Samuel vs. Thomas

Assignment

An assignment is a transfer of an existing right under the terms of an existing contract.

Are the Rights Assignable?

Contract rights are assignable if they are not too personal in nature, prohibited by contract, or
prohibited by law.

Marcus will contend that the contract right to be assigned was the right to receive the house in
Hawaii from July 1 through July 5th from Samuel. The assignment of receiving the house is
not too personal in nature to assign.
Therefore, the right to receive the house in Hawaii is not too personal in nature.

Further, there are no facts that state the contract prohibited the assignment of the contract. In
addition, the assignment of receiving a rental house is not prohibited by law.

Therefore, Marcus had the power to assign his rights to Thomas although he would remain
liable for damages resulting from any breach under the terms of the contract.

Has There Been a Valid Present Assignment?

An assignment requires a present intention to transfer existing rights from the assignor to the
assignee.

When Marcus assigned his contract with Samuel to Thomas, Thomas undertook to use the
home in Hawaii from July 1 through July 5 th. The act of Thomas undertaking the use of the
rental house, and actually traveling to Hawaii and using the house shows that Marcus, the
assignor, had the present intent to transfer his existing right to receive the Hawaii rental house
to Thomas, the assignee.

Based on Thomas’ conduct of using the Hawaii rental house and Marcus’ conduct of allowing
Thomas the right to use the house and transferring the existing right to Thomas shows that
Thomas has stepped into Marcus’ shoes and assumed all the rights of enforcement that
Marcus had prior to the transfer.

Therefore, there was a valid present assignment.

Delegation of Duty

A duty may be delegated unless the duty is too personal in nature, prohibited by contract, or
prohibited by law.

Marcus will contend the contractual duty to be delegated was the duty to pay the $1,500 a day
for the rental house in Hawaii, which was not too personal in nature to delegate.

Samuel will argue that the contract for renting the house in Hawaii was entered into with
Marcus. Since the contract was entered into between Marcus and Samuel the delegation of
the duty to Thomas alters the performance under the terms of the contract.

However, in this instance payment of money does not material alteration the contract. Nor is
the payment of money too personal in nature. Thus, the delegation of the duty would not be a
material alteration under the terms of the contract.

Therefore, the payment of the $1,500 a day is not too personal to delegate to Thomas.

Further, there are no facts stating that the contract prohibited the delegation of the duty or that
the assignment of payment under the contract is prohibited by law. Therefore, the contract
was properly delegated to Thomas.

Thus, a valid delegation.

Was the Duty Assumed by Thomas?

An assumption of a duty takes place if a promise is given for consideration to perform

another’s duty.

Marcus assigned his contract with Samuel to Thomas. Thomas did use the house for the
period of time contracted for. Thus, by Thomas’ performance he has promised to perform
under the terms of the Marcus and Samuel contract. Therefore, the duty was assumed.

Having Found a Valid Assignment between Marcus and Thomas, Does It Raise Rights in
Samuel as a Third Party Beneficiary?

Third Party Beneficiary

A third party beneficiary contract is one wherein performance by the promisor will benefit a
third party. His status arises at the formation stage of the contract.

As part of his assignment and delegation with Marcus, Thomas agreed to pay the daily rental
rate for the house in Hawaii to Samuel. The performance of this promise was meant to fulfill
Thomas’ pledge which would act to the benefit of Samuel, the third party.

Samuel’s rights were created at the time that Marcus assigned the contract to Thomas.
Samuel’s status arose at the formation stage of the contract, i.e., the assignment and
delegation.

Therefore, Samuel may have enforceable rights as a third party beneficiary.

Privity of Contract

Privity of contract is the interest or relationship which exists between two or more contracting
parties.

Thomas will assert that Samuel was not a party to the assignment and delegation and,
therefore, has no interest or relationship in the contract upon which to sue since Thomas made
his promise to pay for the rental house to Marcus, and not Samuel.

Samuel will rebut that although he was not a party to the Marcus-Thomas assignment and
delegation, privity is not required for him to assert his rights as a third party beneficiary under
Lawrence v. Fox.

Thus, the lack of privity will not bar Samuel from asserting his rights.

Intent to Benefit
Intent to benefit is defined as the promisee’s intent to extract a promise from the promisor to
benefit a third party.

Samuel will contend that when Marcus extracted Thomas’ promise to pay for the rental house
to Samuel, Marcus intended to benefit Samuel. This promise was made at the time of the
Marcus-Thomas contract which further demonstrates Marcus’ beneficial intent.

Classification - Creditor Beneficiary

If the promisee’s primary intent is to discharge a duty owed to the third party, the third party
is a creditor beneficiary.

Samuel will argue that Marcus’ assignment of his rights under the terms of the Marcus-
Samuel contract created a debt owed to Samuel. Marcus believed the obligation to pay
Samuel the $1500 a night for the Hawaii rental house had to be satisfied as demonstrated by
his agreement with Thomas. When Marcus contracted to have Thomas use the home and pay
the rental fee to Samuel, Marcus intended to discharge his obligation actually owed to Samuel
under the terms of the Marcus-Samuel contract.

Therefore, Samuel would be classified as a creditor beneficiary.

Vesting

A creditor beneficiary rights vest when they have notice and assent to the promise, or brings
suit to enforce the promise or materially changes position in justifiable reliance thereon.

If the court should rule that Samuel was a creditor beneficiary, Samuel will argue that
although he had no notice of the assignment and he did not assent to the Marcus-Thomas
assignment contract, when the rental home was used for the stated period of time, July 1
through July 5th, such conduct caused Samuels’ rights to vest as a third party creditor
beneficiary.

Hence, Samuel can still sue Marcus under the original obligation.

Covenant

A covenant is a promise to do or refrain from doing an act.

When Marcus and Samuel entered into the contract Marcus promised that he would only use
one bedroom out of the five. However, all five bedrooms were used.
Therefore, Marcus failed to comply with the covenant and is breach.

Breach

A breach is an unjustified failure to perform which goes to the essence of the bargain.

Thomas used all of the bedrooms and failed to pay anything for the rental house. Thomas will
argue that Marcus never told him that he could not use all of the bedrooms, and he was told
the rate was $1,500 a day for the rental. However, by using all of the bedrooms Thomas
received a benefit, which he shall have to pay for. Although using of the bedrooms does not
seem to confer a benefit on Thomas, especially since he was not told of the covenant, his
failure to pay Samuel establishes an unjustified failure to perform going to the essence of the
contract.

Therefore, there is a major breach by Thomas.

General Damages

General damages are damages that flow from a breach of the contract. The non-breaching
party is entitled to expectancy damages under the contract.
As discussed supra, Samuel can sue for the contract price of $1,500 per day for the house in
Hawaii.
Multiple choice questions: (Please note that the suggested answers are highlighted in
Yellow.)

1. Builder agrees to build a house for Homer according to plans. Builder completes 90% of
the house and then a fire burns it down. Builder refuses to start over since he has another job
commitment. If Homer sues Builder for specific performance who will prevail?

(A) Builder, because the contract is void because the subject matter of the contract was
destroyed through no fault of either party.

(B) Builder, because the contract is void because of impossibility of performance. 

(C) Homer, but Builder would be entitled to quantum meruit reimbursement from Homer for
the work he did before the fire. 

(D) Homer, because Builder must perform the original contract without any compensation for
the destruction caused by the fire. 

2. Mark got an unusually high water bill for January. He contacted the water company to find
out why, and they confirmed that it was from his water usage. Mark knew that he had not
used as much water since he was out of town for over 15 days for the holidays. Mark decided
there must be a leak in the waterline and he hired a plumber who discovered the leak in the
main water pipe leading from Mark's house out to the sewer connection. Plummer tells Mark
it was a hazard since the pipe could burst if not repaired and that he had to fix it as quickly as
possible. Mark agreed to hire Plummer to fix the leak for $2,500. Plummer estimated the job
would take him about 10 hours but was uncertain when he could start. Plummer promised to
quickly call Mark back to arrange a day to do the work. Plummer failed to call Mark for two
weeks, and Mark called him on February 1. At that time Plummer scheduled the work for
February 17, a day when Mark would be home. When Plummer arrived to do the work on
February 17 Mark was not there because he was rushed to the hospital with appendicitis the
day before for emergency surgery. Plummer could not get in the house so he left without
doing any work. Mark did not get released from the hospital until February 20. When he
arrived at his house he found it had been flooded the day before because the water line had
burst. Plummer demands payment of $2,500 and Mark refuses to pay. Plummer files an action
for breach of contract. Will Plummer succeed?

(A) Yes, because Mark made and breached an implied-in-fact promise to let Plummer into the
house on February 17.

(B) Yes, but any recovery by Plummer will be subject to an offset to Mark on account of his
damage from the flood. 

(C) No, because Plummer did not perform any services conferring a benefit to Mark. 

(D) No, because Mark's obligations under the contract were subject to an implied condition
precedent that failed because of supervening impossibility. 

3. Ped was crossing the street when he was struck and badly injured by a hit-and-run Drunk
driver. Ambi Ambulance was called to the scene and it transported unconscious Ped to St
Mary's Hospital. Unfortunately he was dead on arrival. Ambi sent Ped's family a bill for the
ambulance service. Ped's estate refuses to pay and Ambi files an action against his estate.

Will Ambi succeed in the action against Ped's estate?

(A) No, if Ped was unconscious and did not knowingly accept Ambi's services.

(B) No, because Ped did not receive an unjust enrichment. 

(C) Yes, because Ped was legally obligated to pay Ambi's claim. 

(D) Yes, based on an implied-in-law contract between Ambi and Ped. 

4. Bob agreed to replace the transmission on Tony's classic 1975 Trans Am. He gave an
estimate of $2,300 and told Tony the car would be done by Friday. Instead of doing the work
himself Bob asked Carlos to perform the work. He told Carlos it was his own personal auto to
get a discount, and that he needed it back by Friday. Carlos said he would do the work for
$2,000 and have the car done by Friday. When Bob went to pick up the car on Friday he was
told that the car was not done because of previous commitments to other customers. Tony
finds out about the agreement between Bob and Carlos, and has Tranco do the job for $2,500.
Tony files an action against Carlos. Who will prevail?

(A) Carlos is liable to Tony as a third-party beneficiary of the contract assignment.

(B) Carlos is the only party liable to Tony because he breached the contract. 

(C) Carlos is not liable to Tony. 

(D) Carlos is liable to Bob only. 

5. Orlando Resort and Spa had a contract with Disney World. It paid Disney World $5,000 a
month and in return Resort guests could get tickets to Disney World at a discount price. Tom
booked a room for his family at Resort by Internet without knowledge of this arrangement. He
only learned of it when he arrived and checked in. When Tom took his family to Disney
World the next day he was denied entrance for the discount price and told he had to pay the
regular admission price because Resort had defaulted on its monthly payments. If Tom sues
Resort:

(A) He will win because he was an intended third-party beneficiary of the Resort-Disney
contract.
(B) He will lose because Resort had a right to rescind the Resort-Disney contract. 

(C) He will lose because the hotel guests were donee beneficiaries of the Resort-Disney
contract. 

(D) He will lose because he did not detrimentally rely on the Resort-Disney contract when he
booked his room 

6. Stuart decided to buy a new car. His old Mustang was worth more than $10,000, but he
wanted to do his friend, Bill a favor. So he sent Bill an email that said, "I am going to get a
new car. I will sell my Mustang to you for $10,000. This is a special deal just because you are
my friend." Bill emailed back, "Your car is a piece of junk. But it's a deal if you have it
detailed and throw in a tank of gas. Deal?" Stuart was hurt and replied, "Maybe I'll talk to you
about it tomorrow." The next day Bill came to Stuart with a check for $10,000 and said, "Hey
man, I wasn't serious. I had a few beers and was just kidding." If Stuart refuses to take Bill's
check:

(A) He is not in breach because Bill made a counteroffer.

(B) He is in breach because the UCC allows acceptance with varying terms. 

(C) He is in breach because he never revoked his offer. 

(D) He is in breach because Bill was joking. 

7. On October 1 Larry's Music sent Yamaha Exports a letter that said, "Please enclosed find a
signed order memo for your acceptance." Enclosed was a typed memo with the heading
"Order Memo" that listed "5 Model 2B Base guitars with black onyx inlays on the frets and
shoulder straps in assorted colors, $225.00 each, F.O.B. California net 30. At the bottom of
the form was a statement "THIS OFFER WILL BE HELD OPEN FOR FOUR MONTHS".
On November 1 Yamaha faxed Larry's Music the following: "We will sell you the guitars you
ordered on 10/1 except they will have to be model 2C guitars with abalone shell inlays on the
frets instead of black onyx and black shoulder straps. Please notify you accept these terms by
November 15." On November 15 Larry's Music faxed an acceptance to Yamaha stating,
"Your terms of 11/1 are accepted." Was a contract formed between Larry's music and Yamaha
on 11/1?

(A) No because Larry's 10/1 offer has not been accepted by Yamaha.

(B) No, because Yamaha's 11/1 fax stated additional or different terms. 

(C) Yes, because Larry accepted Yamaha's terms on 11/1. 

(D) Yes, because Yamaha's offer was a firm offer between merchants. 

8. Tom told Willy that Harvey's Art Gallery was offering an oil painting called "Mister" by
Vanberg for $30,000, which was worth far more because Vanberg had recently died in very
scandalous circumstances in a convent. Willy sent Harvey a telegram saying, "I WILL BUY
MISTER BY VANBERG FOR $30,000. PAYMENT ENCLOSED. SHIP IMMEDIATELY
TO MY ADDRESS - Willy." Willy did not realize Harvey was also offering a series of
watercolor prints by Vanberg in various states of undress for $30,000 each. Harvey, acting in
good faith, packed up a watercolor of the Mister of the Vanberg prints and sent them to Willy.
Then he sold the oil painting to another customer. In response to an action by Willy, Harvey
denies they had an enforceable contract. Did Willy's telegram satisfy the Statute of Frauds?

(A) No, because Willy should have been more explicit in his telegram.

(B) Yes, because Willy's telegram to Harvey was in writing. 

(C) Yes, because Harvey made a mistake and should have realized he was wrong. 

(D) No, because Harvey did not sign the telegram. 

9. On January 3, Homer and Painter entered into a written contract where Painter promised to
paint the exterior of Homer's home for $3,500. Pursuant to the agreement Homer was to pay
the money to, Painter's son Payne. Painter wants Payne to have the money in order to pay for
his medical school tuition. 

Prior to signing the contract Homer and Painter agreed that their agreement would be null and
void unless Homer could obtain a home equity loan in the amount of $25,000 before February
1. Payne was unaware of this agreement between Homer and Painter. On January 29, Homer
was informed that his loan was denied. The next day Homer phoned Painter and informed him
that the deal was off. 

If Painter brings an action for breach of contract against Homer, would his inability to secure
a loan be a valid defense? 

(A) Yes, because the agreement regarding the loan constituted a valid modification of the
writing.

(B) Yes, because the loan agreement was a condition precedent to the existence of the
contract. 

(C) No, because the agreement regarding the loan varied the express terms in writing. 

(D) No, because Homer is stopped to deny the validity of the written contract. 
10. Builder agrees to build a house for Homer on a lot by the sea according to specific plans.
A storm causes the seashore to collapse and Homer's lot is under water. Is Builder still bound
by the contract?

(A) No, Builder is discharged from his obligation because performance is impossible.

(B) No, the contract is void because the subject matter of the contract was destroyed through
no fault of either party. 

(C) Yes, if Homer can buy a similar, alternative building lot in the same area within a
reasonable period of time. 

(D) No, the contract is void because of mutual mistake.