CONTRACTS EXAM ANSWERS 1.

ANSWERS TO EXAM QUESTIONS

ANSWER TO EXAM QUESTION NO.1
Tenant v. Shore
Effect of Shore's Letter to Tenant: Shore's letter to Tenant probably constitutes an effective offer
creating a power of acceptance in Tenant as offeree. This can be inferred from use of the words, "I will
let you have" and from the fact that Shore asks for a "reply in a week" -suggesting a present intent to
contract. Although the price is left open, this does not impair the requisite certainty of terms; assuming
the letter incorporates by reference the terms of the previous year's occupancy, the past dealings
between the parties can be used to make the terms of the offer complete.
Effect of Tenant's Letter to Shore: The issue here is whether a timely acceptance has been
communicated sufficient to form a contract between the parties. An acceptance can form a valid
contract only if it takes effect prior to termination of the offer.
Although Tenant replied unequivocally to Shore that he would take Shore House, this response
was not dispatched until May 18. Prior thereto, on May 17, Tenant acquired indirect knowledge that
Shore had sold the house to Jones. If the source of this information was reliable (and there is nothing
stated in the facts to indicate that it was not), an effective revocation thereby occurred, extinguishing
Tenant's power to accept. Even though Shore requested a reply within a week, he made no promise to
hold the offer open for that period (and even if he did, the promise probably would not be enforceable
because no consideration was given in exchange for keeping the offer open). Therefore, Tenant's
purported acceptance was too late to form an executory contract, and he has no rights against Shore.
Tenant v. Cliff
On May 15, Cliff apparently extended a sufficient offer to rent either of his properties at specified
prices. Parol evidence can be received to supply the details incorporated by direct reference.
Effect of Tenant's Letter to Cliff: The problem raised is whether Tenant manifested an unequivocal
assent required for a valid acceptance. Arguably, he has made no present commitment in accordance
with the terms of Cliff's offer, but is only "haggling" for lower prices and inviting further negotiations
with Cliff. However, his "haggling" is accompanied by an agreement to pay the requested $3,000 for
Lo- Vu. The request for some concession does not condition the assent; hence, it can be inferred from
the language used that Tenant's intent is to accept in any event-whether or not Cliff agrees to the
concession.
Thus, the better argument is that Tenant dispatched an operable acceptance-albeit a "grumbling"
one.
Effect of Cliff's Letter of May 16: Cliff sent a letter calling the deal off on May 16, thereby
attempting a revocation of his offer. However, a revocation is not effective until received. Here, Tenant
did not receive the notice of revocation until one day after he had mailed his acceptance, and since the
acceptance was sent via an impliedly authorized mode of communication (letter), it was effective upon
dispatch. Thus, Cliff's purported rejection was not timely and was of no legal effect. Tenant's accep-
tance, therefore, effectively formed a binding contract to rent Lo- Vu for $3,000.

ANSWER TO EXAM QUESTION NO.2

U.C.C. Governs
Clearly, this is an agreement for the sale of goods and thus falls within the provisions of the
Uniform Commercial Code. It can also be inferred from the facts that both parties are merchants:
2. CONTRACTS EXAM ANSWERS

Since Seller offered to supply Buyer with "any" #2 fuel oil, he must have been in the business of
supplying this oil, and since Buyer directed his inquiry to Seller for an annual price, it is more likely
than not that he, too, is a merchant. Therefore, the rights and liabilities of the parties will also turn on
those pertinent V.C.e. provisions concerning merchants.

Formation of the Agreement

Offer: Apparently, in response to Buyer's inquiry, Seller has made what he intended as an offer to
sell He not only has unequivocally used the word "offer," but also has included the essential time and
price terms. Although nothing is mentioned as to place, a court will rely on the V.e.e. and imply that
delivery is to be at Seller's place of business. Moreover, even though quantity is left open, when viewed
as part of the unilateral contract (see below), the term becomes definite by Buyer's act of ordering.
Since Seller is asking for orders from Buyer, he is requesting an act in exchange for his promise and,
hence, has seemingly made an offer for a series of unilateral contracts. Each order by Buyer can
therefore potentially form a contract to buy and sell #2 fuel oil at 64!t per gallon.
Acceptance: A proper and timely manifestation of assent to the terms of the offer forms a valid
contract. Here, an issue is posed as to the method of acceptance called for by the offer (i.e., act vs.
promise). Buyer will argue that a valid contract was formed on December 22, when he wrote Seller, "I
accept." However, whether this position will prevail turns on whether Seller was in fact bargaining for
a return promise.
As indicated earlier, since Seller requested orders, Seller has apparently contemplated that only
the act of ordering would constitute a valid acceptance. Although the V.C.C. authorizes acceptance by a
promise or an act in contracts for the sale of goods, this is only true where the offeror's intent is
ambiguous. Here, however, it does not appear that Seller's intent was equivocal, since his offer per-
tained only to fuel ordered by Buyer. Thus, the purported written "acceptance" by Buyer did not form a
contract.
Nonetheless, beginning in January, Buyer did perform the requested act (ordering). As to the
dispute over the March orders, Buyer's rights turn on whether these orders were timely.
[Note: If viewed as a bilateral contract situation, an issue is raised as to a possible illusory agree-
ment. Since the quantity term was left open, and Buyer's written acceptance adds no clarification,
Buyer has not really committed himself to purchase any oil at all from Seller. Similarly, Buyer's failure
to indicate Seller as his exclusive source of #2 fuel oil leaves little room for inferring a requirements
contract. Following this view, Seller may convince a court that there is no contractual liability
on his part for the entire year.] .

Timeliness; "Firm Offer"

Seller's position will be that his letter of March 9 revoked the offer so that any orders thereafter
should be deemed of no legal effect. However, Seller stated that in consideration of Buyer's past favors,
his offer would not be withdrawn during the year. Past favors, however, are not adequate consideration
for such a promise; so this brings into play the V.e.e. section on "firm offers." V.C.e. section 2-205
provides that an offer by a merchant in a signed writing, which gives assurance that it will remain open
for a specified period of time, is not revocable, even though not supported by separate consideration;
however, the period of irrevocability cannot exceed three months.
The "firm offer" provision consequently protects Buyer for three months. Since the offer became
effective December 24-when received-Seller's power to revoke resumes on March 24. Here, Buyer
received notice of revocation on March 16; hence, his March 30 order for 100 tank cars was not timely-
i. e., it was a late acceptance. However, his March 10 and March 17 orders did form valid unilateral
contracts (offer not yet revocable), so that as to them, Seller's refusal to fill was a breach of contract.
 CONTRACTS EXAM ANSWERS 3.

Damages
As an aggrieved purchaser, Buyer is permitted under the Code to "cover": He can in good faith
procure replacement goods and then recover from Seller the difference between the cost of cover and
the contract price.
Arguably, Buyer did not act in good faith by covering at 681t per gallon in that he admits he could
have procured the oil at 671t per gallon. If a court agrees, Buyer's recovery will be limited to $9,000
(300,000 gal. x 31t). This result is also in conformity with his duty to mitigate damages. On the other
hand, if the 681t cover price is held reasonable, Seller will be held accountable at the 681t figure, or
$12,000.

ANSWER TO EXAM QUESTION NO.3

The major issues raised by this question are whether either Bland or Star can be held in breach of
the contract and whether the purported "liquidated damages clause" would be enforceable against Star.
Formation of Contract
There appear to be no problems as to the formation of an executory bilateral contract between
Star and Bland on April I. There was a writing stating the essential terms signed by the parties, and
the promise to perform in return for the promise to pay $1,000 represents legally sufficient consider-
ation on both sides of the agreement.

Effect of April 10 Communication

Star's notice to Bland on April l0 that she probably would not be able to appear as scheduled
raises the issue of breach by anticipatory repudiation. Where in advance of the time set for perfor-
mance either party to an executory bilateral contract manifests an unconditional, unequivocal refusal
to perform as promised, there is a present material breach, giving the other party the right to bring
immediate suit. Here, however, Star's letter falls short of an express repudiation. The fact that she
"probably" would not be able to perform does not approach a notification that she will not or cannot
perform. Her expression of mere doubt is not enough to constitute the requisite repudiation, and
hence, at this juncture, the contract remained intact as to both parties.
Effect of April 15 Communication
Even if it were held that Star's notice amounted to an anticipatory breach, Star's communication
to Bland on April 15 would constitute a valid retraction and "revive" the contract. According to the
general view, the repudiator can withdraw a repudiation any time before the other party has changed
position in reliance thereon. Since Bland neither commenced suit nor otherwise suffered any detri-
ment in the interim, any threatened breach at this point has been cured.

Effect of April 23 and April 28 Communications

When Bland informed Star that it would not be requiring her services, this amounted to an express
repudiation. Having couched its intent in unequivocal language, Bland could have been held liable for
anticipatory breach. However, Star did not bring suit and the facts in no way indicate that she changed
her position (e.g., by procuring another job). Thus, the subsequent wire from Bland deciding to hold
Star to the original contract was a communication of its firm intention to abide by the agreement and,
hence, was a valid retraction of the repudiation. The agreement, therefore, remained in force.
4. CONTRACTS EXAM ANSWERS

Defense of Discharge by Impossibility of Performance

Where after the formation of a contract either party's performance becomes objectively impos-
sible to fulfill through no fault of his own, the contract is discharged, and neither can be held in breach.
In this case, on May 1 both Star and Bland were apparently ready, willing, and able to perform,
yet the supervening EC.C. order rendered their performances impossible. Such a development consti-
tutes an act of government that excuses the obligations of both parties under the doctrine of impossi-
bility of performance. Thus, neither Bland nor Star has any contractual rights against the other.
[Note: Arguably, the doctrine offrustration of purpose also applies to discharge the contract since
the purpose for which Bland entered the agreement was thwarted by the supervening and un-
foreseeable EC.C. order.]

Status of Liquidated Damages Clause

Since neither party can be held in breach, the status of the damages clause in the contract is really
a moot question. Briefly, however, its enforceability would depend on whether it is found to be a valid
liquidated damages clause or void as an attempted penalty. Two conditions must be met for the clause
to be upheld: (i) at the time of contracting, both parties must have recognized that actual damages in the
event of breach would be extremely difficult to ascertain; and (ii) the amount adopted must be a
reasonable forecast of actual damages. Here, it is likely that the first condition was met, since there are
so many variables in the television industry that could affect the consequences to Bland should Star not
perform. Whether $25,000 is a reasonable estimate of actual loss would be a jury question (although
use of the word "forfeit" is suspect terminology).

ANSWER TO EXAM QUESTION NO.4

This question raises major formation and assignment issues, both of which will be discussed in
the context of the various possible suits between the parties.

D v. P
A suit by D against P for breach of the alleged contract is foreclosed on the ground that D no
longer has any standing to sue. Although he was an original party to the contract, as will be discussed
below, an operable assignment transpired prior to any tender by D, which extinguished both his right to
receive performance from P and his right to pursue a cause of action on the contract.

A v. D
Standing to Sue: Since A was not a party to the alleged contract, his rights to sue, if any, are as an
assignee pursuant to an operable assignment. This requires a showing of a present transfer of an
assignable right. Although the right to purchase land is often held too "personal" to assign, this is
generally only true with credit transactions (obligor should not be subject to variation in risk that he
will be paid). Apparently, however, a sale of Blackacre on credit was not contemplated here. Moreover,
P in no way indicated in his letter that any attempted assignment would be void. Hence, at this point, A
has succeeded to D's rights by way of an operable assignment.
However, the facts state that D subsequently made a similar assignment to B. This poses the
problem of whether A thereby lost his standing to sue by virtue of the law of successive assignments.
Under the majority rule, where, as in this case, the equities are equal between the parties (i.e., both
A and B paid consideration for delivery of a written assignment), the first assignee in time prevails.
The
 CONTRACTS EXAM ANSWERS 5.

rationale is that thereafter the assignor had nothing left to transfer. Hence, in most jurisdictions A is
now the proper party to bring suit.
Formation of Contract: The problem here is whether the offer terminated either by its own tenns
or by notice of revocation prior to the dispatch of a timely acceptance by D.
Termination by Lapse of Time? P's promise to keep the offer open for 10 days could arguably be
construed as restricting D's power to accept it within 10 days after the letter was (a) dated, (b) nonnally
would have been received, or (c) actually was received. Moreover, it is also plausible that P meant that
he had to be aware of D's acceptance within 10 days. Nevertheless, where, as here, it is not clear what P
intended, the interpretation turns on what a reasonable offeree would understand P's statement to mean
(objective theory of contracts). According to the facts, D was given 10 days to think over the offer.
Since it obviously takes time for mail to travel, P probably intended the offer to remain open for 10
days after receipt in the normal course of post (one day). Thus, since as a reasonable person D would be
expected to have read the date on the letter (February 1), thereby realizing it was delayed in transit, he
would have only until February 12 to accept the offer. The facts state that D did post an acceptance on
February 12; hence, the offer had not yet terminated by lapse of time.
Termination by Revocation? Although P promised to hold his offer open for 10 days, this
commitment was not binding because it was not supported by consideration. P therefore retained the
power to revoke and in fact attempted to do so in his February 8 letter, received by D on February 12,
but after D had dispatched his acceptance. According to the weight of authority, a revocation is not
effective until received, and an acceptance is effective upon dispatch through an authorized mode of
communication. Since the offeree is impliedly authorized to use any means of transmission comparable
to that used by the offeror (here, mail), D's acceptance became effective when posted (as discussed
above, the offer had not yet terminated). Therefore, being that the revocation was not received until a
few hours later, in most jurisdictions a valid contract was formed for the conveyance of Blackacre.
Consequently, P is obligated to follow through with his promise to sell.

B v. D
As indicated above, in most jurisdictions assignee A is the sole party in possession of the contract
right against P. However, B (the losing assignee), having paid consideration for the assignment, can sue
D for breach of implied warranty that the assigned right exists (i.e., that it was not previously
transferred). Under the minority rule, where B would prevail over A, A can pursue an action against D
for breach of implied warranty that he would not make a subsequent assignment.