Consideration and reliance: what promises are enforceable?
Contracts || Prof. Widen || (c) 2018
Seller and Buyer signed a written contract in which Seller agreed to sell Buyer 100 plexico widgets for a total price of $300. Seller imports plexonium minerals from Upper Plexonia to make widgets. Shortly thereafter, a revolutionary group replaced Upper Plexonia's government in a coup, halting all exports from that country. Seller called Buyer on the telephone and explained that it must now use more expensive minerals from Lower Plexonia to make the widgets. Seller asked that Buyer agree to a price increase of $150 to reflect its increased manufacturing costs. Though surprised by the manufacturing details, Buyer agreed to the price change on the telephone call. Seller shipped the widgets to Buyer. Buyer mailed Seller a check for $300 that it marked “payment in full.” Upon receiving the check, Seller called Buyer and demanded the additional $150 that had been agreed on the telephone call. Would you expect Seller to be successful in a lawsuit against Buyer to recover the increased purchase price for the plexico widgets?
No, because the modification to increase the price was not supported by consideration.
No, because the parol evidence rule would bar testimony about the telephone call.
Yes, because Buyer accepted the price change in good faith.
Yes, unless Seller cashed the check from Buyer.
In Florida, Mitch applies to Farm Distro Inc., a seller of farm goods made by Old McDonald Co., for a franchise to sell farm goods. Over 100 of these businesses operate all over Florida. These franchises are revocable “at will upon one year's prior written notice.” Farm Distro Inc. promises to process the application but then incorrectly informs Mitch that Old McDonald has accepted Mitch’s application and soon will grant the franchise and suggests that Mitch “get ready for business.” Mitch spends $3,000 to prepare for a grand opening before learning that the franchise has not been granted. What damages might Mitch reasonably attempt to recover from Farm Distro on these facts?
None, because Farm Distro’s promise was an illusory gift made without consideration.
$3000, plus lost profits expected to be earned in the farm goods business for a one year period.
$3000, plus lost profits expected to be earned in the farm goods business for a one year period but only if Mitch had previously owned or operated a farm goods business.
Mitch can only sue to recover the $3000 because justice demands a limitation of the remedy when recovery is sought on a reliance or promissory estoppel theory.
Strangelove hired Lemay to build a bomb shelter in his back yard. Lemay had built bomb shelters in the neighborhood for other nervous families worried about global nuclear war at a fixed price of $25,000 each. Lemay quoted Strangelove the standard price. While digging, Lemay hit unstable ground, including quicksand. He truthfully told Strangelove that he could still build the structure but would need to pour extra reinforced concrete, increasing the price to $40,000. Afraid that nuclear war might break out at any moment, Strangelove told Lemay to go ahead, paying the additional sum. When the structure was complete, Strangelove sued Lemay to recover the extra $15,000. What sentence best describes the legal status of the contract between Strangelove and Lemay?
Lemay may retain the additional $15,000 because the modification appears to have been made in good faith to address an unanticipated circumstance and Lemay relied on the promise in continuing work.
Lemay may retain the additional $15,000 because no consideration is required to modify a contract for a sale of goods transaction (applying the predominant purpose test to this contract).
Lemay must return the additional $15,000 because the risk of additional expense had been allocated to Lemay by virtue of a fixed price contract.
Lemay must return the additional $15,000 because Strangelove agreed to make the payment without consideration.
Banque loaned $300 to Deadbeat. The maturity date of the loan was 2 years from the day Banque advanced the money. After 1 year and 10 months of making interest payments on time, Deadbeat fell on hard times and stopped making payments. Banque told Deadbeat, “If you pay me $200 next month (i.e. on the maturity date), I will forgive the balance of the loan.” Deadbeat made the $200 payment on time. A month later, Banque sued Deadbeat for the $100 balance, plus accrued interest. Under common law, what best describes the likely outcome of Banque's suit?
Banque wins: the promise is not binding because at common law such a settlement deal must have been in writing.
Banque wins: the promise is not binding because it lacks consideration.
Deadbeat wins: the promise is binding because it constitutes settlement of a claim.
Deadbeat wins: the promise is supported by consideration adequate for Banque and the law will generally not inquire into the adequacy of consideration if Banque is satisfied.
Contractor submitted a bid to City to construct a town swimming pool. In creating its bid to City, Contractor used a proposal from Drennan Tile to supply and install bathroom and shower tile for $50,900. After Contractor submitted the bid, Drennan Tile called Contractor and said, “My calculation was wrong—the amount should have been $59,090—I withdraw my earlier estimates.” Two days later, City awarded the bid to Contractor. Contractor then called Drennan Tile and said, “I accept your bid at $50,900.” What best describes the contract law status of the relationship between Contractor and Drennan Tile?
Drennan Tile is bound to perform for $50,900 only if separate consideration was given by Contractor to Drennan Tile to keep the bid open.
Drennan Tile is not bound because Drennan Tile withdrew its offer before Contractor accepted it.
Drennan Tile is not bound because Drennan Tile withdrew its offer at a time when Contractor could, as a practical matter, still withdraw or amend Contractor's bid to City.
Drennan Tile is bound to perform for $50,900 even if Contractor did not give separate consideration to Drennan Tile to keep the offer open.
Buyer and Seller argue over a sale of goods for a price of $600. Buyer announces that he will sue Seller for failure to deliver 100 widgets on June 1, 20XX. Seller protests that Buyer never specified a quantity in the signed contract. Buyer claims he told Seller the quantity in a telephone conversation. To settle the dispute, Buyer and Seller enter into a signed agreement in which Buyer agrees to drop her claim and Seller agrees to provide a 10% discount on the next two widget orders. Later, Seller regrets agreeing to the discount. What result under US domestic law?
Seller is not bound because on these facts there was no consideration for the settlement—there having been a failure to specify a quantity term in the first contract for sale and it not being evidenced by a signed writing of some sort.
Seller is bound because no consideration is necessary to modify a contract for the sale of goods.
Seller is bound because Buyer gave consideration by dropping her claim even though the underlying contract for sale may have been unenforceable.
On these facts, Seller is not bound because the settlement agreement should have specified the quantity of widgets for the next two orders and the agreement is not enforceable beyond the quantity stated.
A group of legal migrant workers signed a contract with Key West Fishing Co. to harvest stone crabs for the upcoming season, working off the coast of Florida in United States territorial waters. Each worker was to earn a fixed fee per day of work of $80. Upon arriving at the marina from which they would work, they discovered that the traps and other equipment were different than they were used to working with in their home country. Moreover, they learned local workers doing the same job were paid $100 per day. They demanded an increase in wages to $100 per day. Key West argued but eventually agreed to the wage increase in an additional signed writing because fishing season was about to start, and it worried about the hassle of hiring replacement workers. At the end of the season, Key West refused to pay the increased wages despite the additional signed document. The migrant group sued for breach of contract. How would you expect a court to decide the case under the common law?
No extra wages are due because, on these facts, the agreement to pay the increased wages lacks consideration no matter how the agreement for higher wages was documented.
Extra wages likely would be due if the migrant group and Key West had agreed to terminate the existing agreement and then, shortly thereafter, entered into a new agreement specifying the higher wage.
Extra wages likely would be due if the migrant group and Key West had agreed to amend the existing agreement to provide for the higher wages because no consideration is likely needed for an amendment under the modern interpretation of the common law on these facts.
No extra wages are due on these facts because the migrant worker group and Key West should have entered into a settlement agreement, rather than an amendment or a new agreement.
While attending a class reunion, Rachel Rich, an alumna of Small College, made a pledge to donate $1 million to Small College—payable over 10 years in equal installments. After returning home, Rachel had second thoughts about her pledge. She called Small College one month after the reunion (and prior to making any payment) and said, “I hereby cancel and rescind my pledge to donate $1 million.” The president of Small College told her, “You may not do that. Your promise is binding. I will need to bring a legal action against you to enforce your pledge. Please reconsider.” What advice to Rachel most correctly states the legal status of her pledge?
Under the current state of the law (as reflected in R2d), the promise to make the donation will not be enforced unless Small College had relied on the promise (for example, by committing to make scholarships).
Under the current state of the law (as reflected in R2d), the promise to make the pledge is an unenforceable gift, lacking consideration.
Under the current state of the law (as reflected in R2d), the pledge should be enforceable on a doctrine of “moral” consideration.
Under the current state of the law (as reflected in R2d), the pledge could be enforced without any need to show detrimental reliance by Small College (either by action or forbearance).
A general contractor who suspects (but is not sure) that a subcontractor's bid is a mistake can still enforce the bid if he takes action in reliance on it.
TRUE.
FALSE.
A general contractor who suspects (but is not sure) that a subcontractor's bid is a mistake can still enforce the bid if he takes action in reliance on it.Under the UCC, a party who uses a seal on the written agreement makes it clear that consideration need not be proven for the contract to be enforceable so long as the agreement recites a valid consideration that is more than nominal.