Professor Sullivan/Professor Dimitriadis

Contracts
Spring 2020
Quiz 5

Question 1

In financial straits and needing $4,000 immediately, a nephew orally asked his uncle for a $4,000 loan.
The uncle replied that he would lend the money to the nephew only if the nephew's mother "guaranteed"
the loan. At the nephew's suggestion, the uncle then telephoned the nephew's mother, told her about the
loan, and asked if she would "guarantee" it. She replied, "Surely. Lend my son the $4,000 and I'll repay
it if he doesn't." The uncle then lent $4,000 to the nephew, an amount the nephew orally agreed to repay
in six weeks. The next day, the nephew's mother wrote to him and concluded her letter with the words,
"Son, I was happy to do you a favor by promising your uncle I would repay your six-week $4,000 loan
if you don't. /s/ Mother." Neither the nephew nor his mother repaid the loan when it came due and the
uncle sued the mother for breach of contract. In that action, the mother raised the statute of frauds as her
only defense.

Will the mother's statute-of-frauds defense be successful?

(A) No, because the amount of the loan was less than $5,000.
(B) No, because the mother's letter satisfies the statute-of-frauds requirement.
(C) Yes, because the mother's promise to the uncle was oral.
(D) Yes, because the nephew's promise to the uncle was oral.

Question 2

A seller and a buyer have dealt with each other in hundreds of separate grain contracts over the last five
years. In performing each contract, the seller delivered the grain to the buyer and, upon delivery, the
buyer signed an invoice that showed an agreed upon price for that delivery. Each invoice was silent in
regard to any discount from the price for prompt payment. The custom of the grain trade is to allow a
2% discount from the invoice price for payment within 10 days of
delivery. In all of their prior transactions and without objection from the seller, the buyer took 15 days to
pay and deducted 5% from the invoice price. The same delivery procedure and invoice were used in the
present contract as had been used previously. The present contract called for a single delivery of wheat
at a price of $300,000. The seller delivered the wheat and the buyer then signed the invoice. On the third
day after delivery, the buyer received the following note from the seller: "Payment in full in accordance
with signed invoice is due immediately. No discounts permitted." s/Seller.

Which of the following statements concerning these facts is most accurate?

(A) The custom of the trade controls, and the buyer is entitled to take a 2% discount if he pays within 10
days.

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(B) The parties' course of dealing controls, and the buyer is entitled to take a 5% discount if he pays
within 15 days.
(C) The seller's retraction of his prior waiver controls, and the buyer is entitled to no discount.
(D) The written contract controls, and the buyer is entitled to no discount because of the parol evidence
rule.

Question 3

In a telephone conversation, a jewelry maker offered to buy 100 ounces of gold from a precious metals
company if delivery could be made within 10 days. The jewelry maker did not specify a price, but the
market price for 100 ounces of gold at the time of the conversation was approximately $65,000. Without
otherwise responding, the company delivered the gold six days later.

In the meantime, the project for which the jewelry maker planned to use the gold was canceled. The
jewelry maker therefore refused to accept delivery of the gold or to pay the $65,000 demanded by the
company.

Is there an enforceable contract between the jewelry maker and the company?

(A) No, because the parties did not agree on a price term.
(B) No, because the parties did not put their agreement in writing.
(C) Yes, because the absence of a price term does not defeat the formation of a valid contract for the sale
of goods where the parties otherwise intended to form a contract.
(D) Yes, because the company relied on an implied promise to pay when it delivered the gold.

Question 4

An innkeeper, who had no previous experience in the motel or commercial laundry business and who
knew nothing about the trade usages of either business, bought a motel and signed an agreement with a
laundry company for the motel's laundry services. The one-year agreement provided for "daily service at
$500 a week." From their conversations during negotiation, the laundry company knew that the
innkeeper expected laundry services seven days a week. When the laundry company refused to pick up
the motel's laundry on two successive Sundays and indicated that it would not ever do so, the innkeeper
canceled the agreement. The laundry company sued the innkeeper for breach of contract. At trial, clear
evidence was introduced to show that in the commercial laundry business "daily service" did not include
service on Sundays.

Will the laundry company succeed in its action?

(A) No, because the laundry company knew the meaning the innkeeper attached to "daily service," and,
therefore, the innkeeper's meaning will control.

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(B) No, because the parties attached materially different meanings to "daily service," and, therefore, no
contract was formed.
(C) Yes, because the parol evidence rule will not permit the innkeeper to prove the meaning she attached
to "daily service."
(D) Yes, because the trade usage will control the interpretation of "daily service."

Question 5

A seller and a buyer entered into a contract obligating the seller to convey title to a parcel of land to the
buyer for $100,000. The agreement provided that the buyer's obligation to purchase the parcel was
expressly conditioned upon the buyer's obtaining a loan at an interest rate no higher than 10%. The
buyer was unable to do so, but did obtain a loan at an interest rate of 10.5% and timely tendered the
purchase price. Because the value of the land had increased since the time of
contracting, the seller refused to perform. The buyer sued the seller.

Will the buyer prevail?

(A) No, because an express condition will only be excused to avoid forfeiture.
(B) No, because the contract called for a loan at an interest rate not to exceed 10% and it could not be
modified without the consent of the seller.
(C) Yes, because the buyer detrimentally changed position in reliance on the seller's promise to convey.
(D) Yes, because the buyer's obtaining a loan at an interest rate no higher than 10% was not a condition
to the seller's duty to perform.

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