CONTRACTS WORKSHOP 17.

EXPLANATORY ANSWERS

Answer to Question 1

(C) The friend cannot recover because she did not know of the offer. Although the collector’s place-
ment of the ad was an offer, his friend did not accept by giving the requested information,
because she did not know about the ad when she gave the collector the lead on the weather vane.
The general rule on public offers is this: an offer of reward is an offer to enter into a unilateral
contract, and if made to the public generally, it may be accepted by anyone to whom it becomes
known. One who performs the requested act has done all that is necessary for acceptance, but
if he does not intend that his acts constitute an acceptance, no contract results. Thus, where he
has no knowledge of the offer, no act of his can be deemed an acceptance. [See Restatement of
Contracts §§23 comment (c); 51 comment (a)] (A) and (B) are incorrect because they reach the
wrong result; there is no contract with the friend for the reasons above. The fact that the revoca-
tion may have been ineffective begs the issue, because even though the offer was still in existence
until effectively revoked, there can be no contract without the proper form of acceptance as noted
above. (D) states the rationale incorrectly; the friend loses because she did not accept, not because
of a defect in the offer. This ad was specific enough to constitute an offer.

Answer to Question 2

(D) The homeowner is not obligated to pay the painter. The painter’s June 5 communication was a
rejection of the offer for employment by the homeowner on June 1. The painter’s June 10 commu-
nication, therefore, created a new offer that would require some further manifestation of accep-
tance by the owner in order to form a contract. Note that the language “unless I hear from you
differently” has no effect on the outcome. Thus, (A) and (B) are wrong. (C) is wrong because it
states a battle of the forms provision under the UCC, which does not apply because this is not a
contract for the sale of goods. Under the common law mirror image rule, the acceptance must
contain the same terms as the offer. Any variance results in a rejection and counteroffer. The
painter may have a cause of action against the homeowner under an unjust enrichment theory.
However, the question asks if the homeowner has a contractual obligation to pay, to which the
answer is clearly no.

Answer to Question 3

(B) The man can recover $500 if he returns the dog. The man has not accepted the offer until he
performs the requested act, i.e., returning the dog. Once he returns the dog, he has not only
accepted the offer but fully completed his performance. At that point, the dog owner must
perform his obligation under the contract to pay the man who found the dog $500. (A) is incor-
rect because it fails to make clear that the man who found the dog must return the dog before he
has a right to the money. Finding the dog alone does not entitle the man who found the dog to the
reward money. The dog owner has made a unilateral offer, i.e., one that requires acceptance by the
doing of an act. The act required for acceptance is the return of the dog. Until the man who found
the dog actually returns the dog, he is not entitled to the reward money. (C) is incorrect because
the finder’s knowledge at the time of finding the dog is not material; only his knowledge at the
time of performing the act required for acceptance (i.e., returning the dog) is relevant. Perfor-
mance of an act requested by an offer made before the offeree has knowledge of the offer does not
form a contract; however, where, as here, the offeree has only partially completed performance
(finding the dog), completion of the requested performance (returning the dog) with knowledge
acts as acceptance. If the man who found the dog had also returned the dog without knowing

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 18. CONTRACTS ANSWERS

of the dog owner’s offer of a reward for his return, he would have no contractual claim for the
reward money. (D) is incorrect because this contract does not fall within the Statute of Frauds.
The Statute of Frauds provides that certain contracts are enforceable only if they are evidenced by
a written memorandum, signed by the party to be charged. The Statute of Frauds would cover a
contract for the sale of goods where the price is $500 or more, but this question does not involve a
sale of goods, because the man who found the dog does not have title to the dog. Neither does this
transaction come under any other provision of the Statute of Frauds. Therefore, no written signed
memorandum is necessary to the dog finder’s recovery.

Answer to Question 4

(B) Even if the post office loses the acceptance, a contract is formed. Under the mailbox rule, the
acceptance becomes effective when the letter is put out of the possession of the offeree, i.e., when
it is properly posted. This is true if the offeror at least implicitly authorized the offeree to use
the mails in accepting and the mails are a reasonable means of responding to the offer. Here, the
homeowner’s mailing of her offer authorized the buyer to use the same method in accepting. (A)
is incorrect. If the homeowner telephones the buyer on January 18, revoking the offer, the revoca-
tion is good and the attempted acceptance on January 19 is too late. The mailbox rule applies
here, and stands for the principle that the acceptance takes effect as soon as it is put out of the
possession of the offeree. Thus, the buyer’s acceptance would only become effective when she
mails it on January 19, which is too late under the additional facts presented in this choice. Unless
the offer is irrevocable or a firm offer, the offeror retains the right to revoke the offer at any time
prior to acceptance by the offeree. Such revocation is effective upon receipt by the offeree, which
is January 18 here. (C) is incorrect. Under the mailbox rule, the acceptance becomes effective
when the letter is properly posted. However, where, as here, the envelope is misaddressed, then
the rule that the acceptance becomes effective at the time of posting no longer applies. In such
a case, the acceptance becomes effective only when received, which is too late in this case. (D)
is incorrect because an offeree cannot accept the offer when the offeree knows or has reliable
information that the offeror has done some act, usually selling the property, which is inconsistent
with an outstanding offer. Revocation of an offer may occur prior to the time of acceptance when
the offeree acquires information which would indicate to a reasonable person that the offeror no
longer wishes to keep the offer open. Here, the buyer’s knowledge that the homeowner sold her
house to a third party before the buyer accepted the offer means that the offer was revoked, and
the buyer’s power of acceptance was terminated.

Answer to Question 5

(C) The coworker will not prevail in his suit against the accountant, because the offer was effec-
tively terminated by the indirect revocation of the offer that occurred when the accountant sold
the motorcycle to his brother-in-law and the coworker learned of the sale from a reliable source.
The revocation of an offer terminates the offeree’s power of acceptance if it is communicated to
him before he accepts. An offer may be effectively terminated if the offeree indirectly receives
(i) correct information, (ii) from a reliable source, (iii) of acts of the offeror that would indicate
to a reasonable person that the offeror no longer wishes to make the offer. This is what happened
when the coworker heard from a reliable source that the accountant had sold the motorcycle. (A)
is incorrect because, as explained above, the revocation of an offer can be indirect; it need not be
express. (B) is incorrect because, notwithstanding his promise to hold onto the motorcycle until
he heard from the coworker, the accountant’s offer was not an irrevocable “firm offer” under the
U.C.C. because the accountant was not a merchant and the offer was not in a signed writing. Nor
did the coworker detrimentally rely on the accountant’s promise or pay consideration to keep the

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offer open. (D) is incorrect because, had the offer been irrevocable—as a merchant’s firm offer,
because of consideration paid to keep the offer open, or because of detrimental reliance—the
accountant would not have had a right to sell the motorcycle to another, even one who was willing
to pay a higher price for it.

Answer to Question 6

(A) The farm will prevail. Under U.C.C. section 2-306(1), quantities subject to requirements contracts
may not be unreasonably disproportionate to any stated estimate or, in the absence of any stated
estimate, to any normal or otherwise comparable prior requirements. Here, the January order
was four to five times larger than the previous orders over a two-year period and, therefore, the
size of this order is unreasonably disproportionate to comparable prior requirements. Thus, (A) is
correct. (B) is incorrect because a requirements contract is a special case. Even though no specific
quantity is mentioned in an offer for a requirements contract, it is sufficiently definite because
the quantity term is capable of being made certain by reference to objective, extrinsic facts (i.e.,
the buyer’s actual requirements). (C) is incorrect because, although the buyer’s requirements are
measured by actual requirements as may occur in good faith, under U.C.C. section 2-306(1), they
may not be unreasonably disproportionate to any stated estimate or to any normal or otherwise
comparable prior requirements. (D) is incorrect because the rule regarding unreasonably dispro-
portionate orders must be followed even when the change in demand was unforeseeable when the
parties entered into the contract.

Answer to Question 7

(C) The investor owns the painting. While it is true that the buyer had a valid option contract with
the collector, she did not effectively accept the collector’s offer to sell the painting when she
dropped the check into the mailbox on September 8. The majority view is that acceptance of an
option is effective only when received by the offeror, so the usual “mailbox rule” does not apply
to make the acceptance effective on dispatch. This means that the buyer did not effectively accept
the option within the stated period, i.e., by September 8. When, as here, the time the offer will
remain open is specified in the option, if it is not accepted within that time, the offer terminates
due to lapse of time. (A) is incorrect because, as discussed above, the buyer does not own the
painting because acceptance of an option is effective only when received by the offeror, and here
the collector would not have received the buyer’s acceptance until it was too late. (B) is incorrect
because the consideration exchanged by the offeree (the buyer) for the offeror’s (the collector’s)
promise not to revoke need not be “adequate”—generally, consideration of any value is sufficient
to support an option. (D) is incorrect because the collector sold the painting to the investor. While
this choice accurately sets forth the Statute of Frauds rule for the sale of goods, the outcome of
the dispute here does not turn on this issue. Perhaps if the collector had changed his mind about
selling the painting to the investor, he could assert that the Statute of Frauds required the agree-
ment to be in writing to be enforceable. However, the facts do not present that situation, nor do
they indicate whether the sale was oral or in writing.

Answer to Question 8

(D) The daughter will lose because there is no consideration to support the promise. Promises to make
gifts in the future are unenforceable even if they are in writing and are intended by the promisor
to be enforceable. Hence, (C) is incorrect. A promise to make a gift does not involve a bargained-
for exchange, and the requirement of consideration is not fulfilled. (A) is incorrect. This answer
states the principle of promissory estoppel. Under the doctrine of promissory estoppel, where

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 20. CONTRACTS ANSWERS

there is substantial detrimental reliance by a party on a promise of the promisor, the promise will
be enforceable even absent consideration. It is unlikely that the daughter’s continuation of her
calling and visiting her mother would constitute substantial detrimental reliance. Absent consid-
eration or a substitute, the mother’s original promise would not be enforceable, and her daughter
would be unsuccessful in her suit against the executor. (B) is incorrect because the emotional
support given to the mother by her daughter was not bargained-for consideration. It was volun-
tarily given before there was any promise to leave property by will, and therefore does not make
the promise enforceable. In order to be part of the bargain, the element of consideration must be
part of the bargained-for exchange. Thus, if the mother had said to her daughter, “If you will give
me emotional support, I will leave you half my estate,” the emotional support thereafter given
by the daughter would have been bargained for by the mother in exchange for part of her estate.
Because the daughter gave her support gratuitously before the promise, the mother’s promise did
not induce the legal detriment, and was therefore not supported by consideration.

Answer to Question 9

(C) The estate’s best defense is that the contract was oral. Generally, contracts need not be in writing
to be enforceable; however, under the Statute of Frauds, certain contracts must be evidenced
by a writing signed by the party to be charged to be enforceable. Contracts in which one party
promises to pay the debt of another, such as this contract, must be in writing. The mother
promised to pay her son the amount owed to him by his father if the father did not pay him.
Thus, there was a suretyship promise that had to be in writing under the Statute of Frauds, and
this one was not. Therefore, (C) is correct. (A) is incorrect because the promise was not illusory.
A promise is illusory when there is not consideration on both sides of the contract. Here, the son
will receive $1,000 if he performs (i.e., refrains from playing video games for a specified time
period), and the mother will receive the son’s detriment of not doing something that he has a right
to do, which is valid consideration (the benefit to the promisor need not have economic value).
The son’s performance is valid consideration even though he has already promised his father that
he would give up video games (i.e., it is not a preexisting duty), because the son was not bound by
his promise to his father. The father’s offer was for a unilateral contract (i.e., one seeking perfor-
mance rather than a promise to perform), and so could be accepted only by performance. The
son had not yet performed when his mother made her promise to pay him if his father did not, so
the son had not yet accepted his father’s offer and was not bound by his promise to quit playing
video games. Therefore, he was not under a preexisting duty, and his mother’s promise served
as additional consideration for the son’s performance. Note also that a surety such as the mother
will be bound by her promise to pay another’s debt as long as she makes her promise before the
creditor (the son) performs or promises to perform; the surety need not receive any separate
consideration. (B) is incorrect because the son’s giving up what he had a legal right to do—even
if it is detrimental—is sufficient consideration to support a contract, so the mother is bound to pay
even though the contract was beneficial to the son. (D) is incorrect because a contract between
an infant (i.e., a person under the age of 18) and an adult is binding on the adult, even though it
is voidable by the infant. Courts abide by the legal fiction of mutuality of consideration in cases
involving infant-adult contracts for reasons of public policy, so such contracts may be made and
acted on.

Answer to Question 10

(D) The producer’s reply is a conditional acceptance, which is a rejection of the offer. This question
deals with the “battle of the forms” provision of the UCC. Under section 2-207 of the UCC, an
acceptance containing additional or different terms is effective as between merchants unless

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the offeree expressly makes his acceptance conditional on assent by the offeror to the additional
terms. When an acceptance is made expressly conditional on the acceptance of new terms, it is
a rejection of the offer. The conditional acceptance is essentially a new offer, and the original
offeror may form a contract by expressly assenting to the new terms. Here, both parties are
merchants, but the producer made his acceptance conditional on the distributor’s assent to the
10% discount. Thus, his communication is a rejection of the distributor’s offer. (A) is incorrect
because this is not an acceptance. The rule stated in (A) is the one used for a nonmerchant when
an acceptance contains an additional term. (B) would have been correct had the acceptance not
been conditional. Because the parties are merchants, an acceptance with an additional term would
result in the term becoming part of the contract unless (i) it materially altered the original terms
of the offer; (ii) the offer had expressly limited acceptance to the terms of the offer; or (iii) the
offeror objected to the terms within a reasonable time after notice of it. (C) is incorrect because at
this point there is no contract to be modified; there is no acceptance of the offer.

Answer to Question 11

(C) The creditor will prevail. The mother made a gratuitous promise to the creditor; she received no
consideration for it (she did not ask for anything in return for her promise). The creditor’s reliance
in allowing the statute of limitations to lapse was not exchanged for the promise. However, even
without consideration, under section 90 of the Restatement (Second) of Contracts, the creditor
could enforce the mother’s promise because he reasonably and foreseeably relied on the promise
in declining to sue the debtor within the limitations period. (A) is incorrect because, although
the statute of limitations has run on the debtor’s debt, the creditor is not suing the debtor on his
promise, but rather the mother on hers. (B) is incorrect because, while it is true that the mother
received no consideration for her promise, the promise is enforceable under promissory estoppel
principles. (D) is incorrect because there is no “main purpose” exception to the statute of limita-
tions. The main purpose rule is an exception to the Statute of Frauds; however, that is not an issue
here because the mother’s promise was in writing.

Answer to Question 12

(C) The wholesaler will prevail if the proprietor had reason to know of the mistake. Where one party
makes a unilateral mistake about a basic assumption on which the contract is based, and the other
party knew or had reason to know of the mistake, the mistaken party will be allowed to rescind
the contract. In this case, there is a substantial disparity between the contract price of $4 per shirt
and the market value of the shirts at wholesale, which seems to be $8 per shirt. If the proprietor,
because of the disparity in price, was or should have been aware that the wholesaler had made
a mistake, the wholesaler will be able to rescind the contract and therefore will prevail. Hence,
choice (D) is incorrect. (A) also is incorrect. This is a case where the wholesaler made a unilateral
mistake in quoting the wrong price to the proprietor. Making a unilateral mistake alone, however,
is not sufficient to allow the mistaken party to rescind the contract. A contract can be rescinded
for unilateral mistake only when the other party knew of the mistake or when the mistake was so
obvious that the other party should have known that the first party made a mistake. (B) is incor-
rect because there is no mutual mistake. Mutual mistake occurs when both parties to a contract
are mistaken about existing facts relating to a basic assumption on which the contract is made.
Unilateral mistake occurs when there is a mistake by only one of the two parties as to a basic
assumption upon which the contract is made. The facts of this question present a typical case of
unilateral mistake, evidenced by the wholesaler’s quoting the wrong price for the shirts. There is
no mistake on the part of the proprietor, and the wholesaler will be able to rescind the contract
only if it can be shown that the proprietor knew or should have known of the wholesaler’s mistake.

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Answer to Question 13

(A) The modification is enforceable because it was made in good faith. Article 2 of the U.C.C. applies
because coal is a movable good. Under section 2-209 of the U.C.C., consideration is not required for
an enforceable modification; however, any modification will be subject to the general Code require-
ment of good faith and fair dealing, which requires honesty in fact and conformity with reasonable
commercial standards. It appears that the coal company was being honest in informing the agent
of the clerical error and that both parties made the modification freely. There is no indication that
the modified price is commercially unreasonable, despite the required assumption that the disparity
was not sufficient to indicate any mistake to the agent. (B) is incorrect because it is not true that the
law will only support modifications of otherwise unconscionable contracts. (C) is incorrect because
U.C.C. Article 2 abolishes the preexisting duty rule and the requirement of additional consideration
to support a modification. (D) is incorrect because Article 2 does not require changed circum-
stances in order to support a valid modification. All that is required is good faith.

Answer to Question 14

(B) The manufacturer has a cause of action for breach of contract. Because the contract was for goods
priced at $500, the Statute of Frauds must be satisfied under U.C.C. section 2-201. Because both
the retailer and the manufacturer are merchants, a memorandum of the terms of the sale sent by
the manufacturer to the retailer satisfies the Statute of Frauds unless the retailer objects within
10 days, which she did not do. (A) is incorrect because identifying the goods to the contract and
tendering the goods does not satisfy the Statute of Frauds. (C) is incorrect because, while the
price makes the Statute of Frauds applicable, it is satisfied by the memorandum written by the
manufacturer to the retailer, which was never rejected. (D) is incorrect because neither payment
for nor acceptance of goods is necessary to make a contract enforceable, which it is here because
the Statute of Frauds was satisfied by the memorandum sent by the manufacturer to the retailer.

Answer to Question 15

(B) The association may reject the softballs and sue for damages. Softballs obviously are movable
goods; therefore, Article 2 of the U.C.C. applies. According to section 2-206(1)(b), an order for
“prompt shipment” may be accepted by shipment of either conforming or nonconforming goods,
and a contract is created upon such shipment. This alters the traditional rule that a shipment of
nonconforming goods was a counteroffer which the buyer accepted upon taking delivery. The
association may reject the nonconforming shipment [U.C.C. §2-601] and sue for damages. It may
also, if it wishes, accept the shipment [U.C.C. §2-601], notify the seller of the breach [U.C.C.
§2-607(3)], pay the contract price [U.C.C. §2-607(1)], and seek damages even after accepting
the nonconforming goods [U.C.C. §2-7l4]. (A) is incorrect because, while a contract was indeed
formed by shipment under U.C.C. section 2-206(1)(b), the association is not required to accept
shipment, but may reject it. [U.C.C. §2-601] (C) is incorrect because the shipment constitutes
an acceptance, not a counteroffer, as described above. Additionally, even where a buyer right-
fully rejects a nonconforming tender, the buyer is under no obligation to reship prior to receipt
of reasonable instructions from the seller. [U.C.C. §2-603] (D) is incorrect because, as discussed
above, the shipment constitutes an acceptance, not a counteroffer.

Answer to Question 16

(C) The supplier will recover $260. Dishes are movable goods, and so Article 2 of the U.C.C. applies.
Under Article 2, when goods fail in any respect to conform to the contract, the buyer may accept

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the goods [U.C.C. §2-601] and pay the contract price for the goods accepted [U.C.C. §2-607].
However, the buyer has a right to offset its damages. When a seller fails to deliver goods as
promised, the buyer may “cover” under U.C.C. section 2-712 by making a reasonable purchase
of substitute goods, and then may recover as damages the difference between the contract price
and the “cover” price. Here, the difference between the contract price and the cover price is $40
(2,000 plates × $.02). (A) is incorrect because the U.C.C. permits a buyer to accept a noncon-
forming or partial delivery without waiving the right to sue for damages; thus, there is no need for
an express reservation of rights at the time the goods are accepted. (B) is incorrect because the
correct measure of damages is not based on the reasonable value of the goods accepted, but rather
on the contract price. [See U.C.C. §2-607(1)] (D) is incorrect because the U.C.C. requires that the
buyer pay for any goods accepted. [U.C.C. §2-607] The common law rule, which discharges the
buyer’s obligation to pay if there has been a material breach, is displaced by U.C.C. section 2-607.

Answer to Question 17

(D) This is a favorite MBE question. The airline will prevail because the supplier’s rights had not
vested at the time of the modification. The rights of the third-party beneficiary do not vest until:
(i) it manifests assent in a manner invited or requested by the parties; (ii) it learns of the contract
and detrimentally relies on it; or (iii) it brings a lawsuit to enforce its rights. Until a third party’s
rights have vested, a modification of the contract can take place without the consent of the third
party. The proper analysis is that the supplier’s rights have not vested. Even if the supplier was
aware of the contract, and even if the supplier was pleased with it, the supplier had not assented to
the contract in any manner, had not detrimentally relied, and had not brought suit on the contract
before it was modified. Therefore, the supplier’s rights had not vested, and the contracting parties
were free to modify the contract. Moreover, notwithstanding the oral modification clause, while
the oral modification will be enforceable between the food company and the airline only if an
exception to the Statute of Frauds applies (e.g., the parties admit the modification or perform the
contract as modified), it is doubtful that a court would allow the supplier to use the Statute to
prevent the parties from admitting their modification. Thus, the modification is valid, and (A) is
wrong. (B) is wrong because the supplier’s rights had not vested. (C) is a true statement, but (D) is
a better answer, because it states the specific reason that the supplier’s rights had not vested.

Answer to Question 18

(C) The banker will prevail because he could not acquire the house. In general, the parol evidence
rule bars oral evidence contradicting a written agreement which was intended to be a final and
exclusive embodiment of the parties’ agreement. However, one exception to this general rule
provides that parol evidence is admissible to show a condition precedent to the existence of a
contract. Here, the contract between the banker and the dealer for the sale and purchase of the
rug was only to be effective if the banker acquired the house he wanted. This condition precedent
may be shown by the banker despite the fact that it was not reduced to writing. (A) is incorrect.
This contract must be in writing because it is for the sale of goods of more than $500 in value.
However, there is a written agreement here and the question is whether the written agreement
precludes proof of the oral agreement. Under the parol evidence rule, a written agreement can
prevent proof of an oral agreement even if the agreement does not have to be in writing. (B) is
incorrect because a condition precedent to a written agreement’s enforceability may be shown by
parol evidence. (D) is incorrect because specific performance is not the issue here; whether the
contract is enforceable at all is the issue. If this contract is enforceable, specific performance may
be available because the rug might be considered unique.

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Answer to Question 19

(C) The property owner will win because the contractor breached. When the contractor notified the
property owner on March 1 that he would not perform his obligations on a binding contract unless
he was given more money, he committed an anticipatory breach. That breach gave the property
owner the right both to terminate the contract and to engage a new contractor to complete the
work. The property owner was not required to give notice to the contractor to exercise that right,
which is why choice (A) is incorrect. (B) is incorrect because, when the contractor notified the
property owner on March 1 that he would not perform his obligations on a binding contract unless
he was given more money, he committed an anticipatory breach. That breach gave the property
owner the right to terminate the contract and engage a new contractor to complete the work,
without giving notice to the contractor. The contractor had no right to perform the contract once
he had breached it; therefore, the fact that he showed up ready to perform the work on the day
required by the contract is irrelevant. (D) is incorrect because the price at which the property
owner was able to obtain a replacement contractor has no bearing on whether the property owner
had the right to terminate the contractual rights of the original contractor. Indeed, after the
contractor’s breach, he could have chosen not to have the dock repaired at all, or if the lowest bid
was from someone who would only do the work for more than $80,000, he could have accepted
that bid and charged the contractor for the difference between the contract price and the cost of
the cover.

Answer to Question 20

(B) This is a favorite MBE question. The best advice is not to file suit because the golf pro’s e-mail
does not constitute an anticipatory repudiation. Language may constitute an expression of doubt
as to one’s ability to perform under the contract without being an outright refusal. This will not be
an anticipatory repudiation, but a prospective inability to perform. If there is an anticipatory
repudiation, then the nonbreaching party can (i) sue for damages, (ii) contract with a third party,
or (iii) do nothing. If the fact pattern language amounts to a prospective inability to perform, the
innocent party may suspend performance until he receives adequate assurances that performance
will be forthcoming. Here, the golf pro’s e-mail does not constitute an anticipatory repudiation
because he merely states that he “may not” get to the club by April 1. Thus, (B) is correct, and
(D) is incorrect. (A) is an incorrect statement of law because a repudiation can be by any means:
oral, written, or by actions. An e-mail message clearly stating an intent not to perform would be
sufficient. (C) is also incorrect because the golf pro’s actions constitute a prospective inability to
perform, which allows the club to suspend performance to the golf pro and demand assurances; it
does not result in an immediate breach.

Answer to Question 21

(C) The storm delay would best support the manufacturer’s case. The storm may have made delivery
on time impossible, which may excuse performance under either the doctrine of impracticability
of performance or the doctrine of impossibility of performance. These defenses can be used not
only to excuse performance totally, but also to excuse the delay in performance. (A) is incor-
rect because an oral agreement made prior to a written agreement on the same subject will not
be admissible to alter the written agreement under the parol evidence rule. Therefore, the oral
agreement does not modify the terms of the written contract and this contention will not help the
manufacturer’s case. (B) is incorrect. The fact that goods are specially made creates an exception
to the Statute of Frauds, but it does not excuse the obligation to tender conforming goods in the
correct quantity at or before the time specified for delivery. The perfect tender rule is incorporated

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into every contract for the sale of goods except where the contract specifies different terms or
where there is an explicit installment contract. (D) is incorrect. If the buyer became insolvent, the
manufacturer could, under the U.C.C., require that the buyer pay cash upon delivery or give assur-
ances of payment. Here, however, the manufacturer has not requested that payments be made in
cash or that the buyer give assurances. Moreover, the buyer only suffered a decrease in his credit
rating; he is not insolvent. Therefore, the manufacturer would have had no basis for making either
request. The manufacturer is not excused from performance by the buyer’s decreased credit rating.

Answer to Question 22

(B) The shopkeeper validly assigned his right to receive the money to his nephew. However, this
assignment was revocable, and it was revoked when the shopkeeper accepted the money from the
employee. A creditor’s right to receive money due from a debtor is a right that can be assigned,
regardless of whether the debt is evidenced by a writing. By telling the employee to pay the
money to the nephew, the shopkeeper manifested an intent to transfer his rights completely and
immediately to the nephew. Neither a writing nor consideration was required for this assignment
to be valid. However, these factors do not affect revocability. This assignment was not given for
value. Such a gratuitous assignment is generally revocable. An exception to this rule arises when
the assignor is estopped from revoking because he should reasonably foresee that the assignee
will change his position in reliance on the assignment and such detrimental reliance occurs.
Here, there is no indication that the nephew in fact changed his position detrimentally in reliance
on the assignment. Consequently, the general rule of revocability of a gratuitous assignment
applies. One way in which a gratuitous revocable assignment may be terminated is by the assignor
taking performance directly from the obligor. By accepting the money from the employee, the
shopkeeper (the assignor) took direct performance from the obligor, thereby revoking the assign-
ment. As a result, the nephew has no right to the money. (A) is incorrect because it fails to account
for the fact that, although the shopkeeper effectively assigned his right, he later revoked this
assignment. (C) is incorrect because, as discussed in (B) above, a gratuitous assignment (i.e., an
assignment not supported by consideration) is effective, although revocable except under certain
circumstances not applicable here. (D) is incorrect because the facts do not indicate that there
has been a novation. There is a novation when a new contract substitutes a new party to receive
benefits and assume duties that had originally belonged to one of the original parties under
the terms of the old contract. Here, the original agreement was between the employee and the
shopkeeper. The employee’s payment of the money to the shopkeeper and the shopkeeper’s accep-
tance thereof did not substitute any new parties or extinguish contractual duties as between the
original contracting parties. Thus, there was no novation.

Answer to Question 23

(C) The landscaper may recover $80,000 less the developer’s damages resulting from the breach. A
contract is divisible if it is possible to apportion the parties’ performances into corresponding
pairs. Here the landscaper’s and developer’s performances can be apportioned into corresponding
pairs: for each house landscaped by the landscaper, there is a corresponding payment of $4,000
owed by the developer. The contract itself states the price as $4,000 per house, rather than
$120,000 for the entire job. If a party performs some of the units of a divisible contract, he is
entitled to the agreed-on price for those units even if he fails to perform the other units. However,
the right to the contract price for the units performed is offset by the damages arising from the
breach of the remaining units. (A) is incorrect because the provision for payment upon comple-
tion of all houses is construed by most courts as merely stating a time for payment rather than
imposing a condition. This language does not establish that the parties intended the contract to

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 26. CONTRACTS ANSWERS

be indivisible. (B) is incorrect because materiality of the breach does not affect the landscaper’s
ability to recover under a divisible contract or in restitution. In any case, (A) and (B) are both
incorrect because the developer would be unjustly enriched if he were allowed to keep the
landscaping without paying for it. Thus, even if a court were to find that the contract was not
divisible, the landscaper could recover in restitution either the reasonable value of the services
he performed (the detriment suffered) or the increase in value of the properties (the benefit
conferred). Under either measure, his recovery would again be offset by the developer’s damages
incurred in completing the job. (D) misstates the proper measure of damages.

Answer to Question 24

(C) The marketer should recover $2,000. The primary objective of contract damages is to put the
nonbreaching party in the same position that he would have been in had the contract been
performed. The normal measure of damages is expectation damages. The marketer has a legally
enforceable right to have the work under the printer contract performed for $20,000. Because the
marketer paid the printer $10,000 and needed to spend $12,000 to have the printing completed by
a third party, the marketer has spent $22,000. This establishes the marketer’s right to seek $2,000
from the printer for its breach. (A) and (B) are incorrect because the purpose of contract damages
is to put the nonbreaching party where he would have been had the promise been performed.
For the printer to recover anything, he would have to prove that he is entitled to restitution. The
breaching party will prevail in a restitution action only if the nonbreaching party seeks to keep the
value of the benefit conferred without paying and, therefore, is unjustly enriched. The marketer
had to pay $2,000 more than the price stated in the contract with the printer. The marketer was
not unjustly enriched and, in fact, had damages of $2,000 from the breach. The printer’s costs are
not relevant. The printer is not entitled to recover anything. (D) is incorrect. To provide no remedy
to either party on the theory stated in (D) is to make the marketer pay a total of $22,000 for the
performance that was promised by the printer for $20,000. The primary objective of contract
damages is to put the nonbreaching party in the same position that he would have been in had the
contract been performed. Therefore, this theory fails.

Answer to Question 25

(C) The customer should recover $40,000 minus the retailer’s lost profit. The correct measure of
damages is the lost profits of the retailer. That amount should be deducted from the deposit and
the balance returned. The U.C.C. authorizes four different measures of damages when a buyer
defaults after putting down a deposit. First, the Code allows the deposit to serve as liquidated
damages if the contract so provides, within certain limits. However, this rule is inapplicable in
this case because a liquidated damages clause was not included in the contract. Second, the Code
provides in section 2-718(2) that when a deposit is given and there is no liquidated damages
provision, the seller may keep 20% of the contract price or $500, whichever is less. In this case,
the $500 limitation would control. However, if actual damages are more, as they are in this case,
the seller may collect actual damages rather than the statutory amount. In section 2-708, the
Code provides two measures of actual damages when the buyer defaults. The first is the tradi-
tional expectancy measure of damages, resale price minus contract price. In a case such as this,
there are no damages under this measure because the boat was resold for the contract price. The
second alternative under section 2-708 applies here. When the seller is a dealer and the tradi-
tional measure of damages is inadequate to put him in as good a position as he would be in if the
sale went through, then the measure of damages is lost profit. Here, since the dealer could have
ordered as many boats as there were buyers, he actually lost his profit on this sale. (A) is incorrect
because even a defaulting party has the right to recover a portion of the deposit back in restitution

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 CONTRACTS WORKSHOP 27.

if the amount of the deposit exceeds the contract damages to which the non-defaulting party is
entitled. (B) is incorrect. While it is true that the retailer would have made profits on two boat
sales instead of one if the customer had not defaulted, it did make the profit on the second sale,
and cannot collect this from the customer. The lost profit on the first sale amounts to $29,500, less
than the $40,000 advance. Therefore, the customer is entitled to $10,500, the difference between
the amount of advance and the profit actually lost. (D) is incorrect because, as discussed above,
actual damages allowed under U.C.C. section 2-708 exceed the $500 allowed under U.C.C. section
2-718(2), so the higher amount of damages would be awarded.

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