ANSWERS TO PROBLEMS ? chapter 12 In consideration of $1800 paid to him by Joyce, Hill gave Joyce a written option to purchase his house for $180,000 on or before April 1. Prior to April 1, Hill verbally agreed to extend the option until July 1. On May 18, Hill, known to Joyce, sold the house to Gray, who was ignorant of the unrecorded option. Is there a contract between Joyce & Hill? Explain. Answer: Bargained-for Exchange. No. Consideration was paid to Hill for holding the property for the specified time subject to the right of Joyce to exercise the option whether to buy or not. When the time limit expired, the contract was at an end and the right under the option was extinguished. Of course, if that right were extended by some valid binding agreement, then it could be enforced. Joyce did not attempt to exercise the option and complete a contract of purchase within the time limited by the written agreement. It is true that before the expiration of the time stated, Hill verbally agreed or promised to extend the time for the exercise of the option from April 1 to July 1, and that it was within this latter or extended period and after the property had been sold and conveyed to Gray that Joyce presented himself ready to accept the property and pay the price. However, such acceptance came too late. There was no consideration for the verbal promise or agreement to extend the time, and such promise was therefore not enforceable. After April 1 the verbal agreement operated simply as a mere offer continuing until withdrawn or otherwise ended by some act of the offeror, Hill. The sale to Gray was known to Joyce and resulted in a revocation of the offer. (NOTE: In addition, the Statute of Frauds would require an extension of the option to be in writing because such an option deals with an ?interest in? or ?concerns? land.) (a) Ann owed $500 to Barry for services Barry rendered to Ann. The debt was due June 30, 2007. In March 2008, the debt was still unpaid. Barry was in urgent need of ready cash and told Ann that if she would pay $150 of the debt at once, Barry would release her from the balance. Ann paid $150 and stated to Barry that all claims had been paid in full. In August 2008, Barry demanded the unpaid balance and subsequently sued Ann for $350. Result? (b) Modify the facts in (a) by assuming that Barry gave Ann a written receipt stating that all claims had been paid in full. Result? (c) Modify the facts in (a) by assuming that Ann owed Barry the $500 on Ann's purchase of a motorcycle from Barry. Result? Answer: Settlement of an Undisputed Debt. (a) Decision for Barry. As this debt arose out of a contract for services, the common law of contracts would apply. At common law the payment of a lesser sum of money in full satisfaction of a liquidated, undisputed debt in a greater amount is legally insufficient consideration for a promise of the creditor to discharge the entire debt. There is no legal detriment to the promisee or legal benefit to the promisor. UCC: Renunciation. (b) Decision for Barry unless UCC Section 1-107 applies. It is unclear whether Section 1-107 applies to transactions outside of the Code. If it does not, then the written receipt would not change the result in question 2a. If Section 1-107 applies, then the written receipt would constitute a written waiver or renunciation signed and delivered by the aggrieved party and would discharge the debt. Modification of a Pre-existing Contract. (c) This transaction would be subject to the Uniform Commercial Code. Under Section 2-209 (1) a contract for the sale of goods can be validly modified by the parties without new consideration provided they so intend and act in good faith. This problem presents a question of intent and good faith. Since payment was already due and Barry was acting under economic urgency, the modification is probably not binding. However, if Barry gave Ann a written release as was done in (2) (b), the result would most likely differ. UCC Section 1-107 expressly provides that any claim or right arising out of any breach can be discharged in whole or in part ?without consideration? by a written waiver or renunciation signed and delivered by the aggrieved party. Consequently, under the Code, consideration is no longer required to discharge a debt. The only requirement is that the creditor sign and deliver a sufficient writing, which Barry did. Barry?s only defense would be that of economic duress, which should be found to exist under the facts as stated. (a) Judy orally promises her daughter, Liza, that she will give her a tract of land for her home. Liza, as intended by Judy, gives up her homestead and takes possession of the land. Liza lives there for six months and starts construction of a home. Is Judy bound to convey the real estate? (b) Ralph, knowing that his son, Ed, desires to purchase a tract of land, promises to give him the $25,000 he needs for the purchase. Ed, relying on this promise, buys an option on the tract of land. Can Ralph rescind his promise? Answer: Promissory Estoppel. (a) Yes, decision for Liza. Usually, gift promises are ruled as lacking consideration and are not binding agreements. In this case, Liza justifiably relied on the promise and acted to her detriment by selling her home, moving onto the property, and starting construction of a new house. The doctrine of promissory estoppel applies to such promises that induce action by the promisee that would be reasonably expected by the promisor. Judy becomes liable for having induced the change in position by Liza. (b) Yes, judgment for Ralph. The doctrine of promissory estoppel does not make every gift promise binding just because the promisee has changed positions. There must be a justifiable reliance on the promise to the extent that the promisee takes definite and substantial action. Since Ed purchased only an option to buy the property, this probably would not be construed as a substantial action on his part. George owed Keith $800 on a personal loan. Neither the amount of the debt nor George's liability to pay the $800 was disputed. Keith had also rendered services as a carpenter to George without any agreement as to the price to be paid. When the work was completed, an honest and reasonable difference of opinion developed between George and Keith with respect to the value of Keith's services. Upon receiving from Keith a bill of $600 for the carpentry services, George mailed in a properly stamped and addressed envelope his check for $800 to Keith. In an accompanying letter, George stated that the enclosed check was in full settlement of both claims. Keith indorsed and cashed the check. Thereafter, Keith unsuccessfully sought to collect from George an alleged unpaid balance of $600. May Keith recover the $600 from George? Answer: Settlement of Disputed/Undisputed Debts. Decision, in part, in favor of Keith. This common law problem presents questions attending the payment or settlement of (1) a past due, undisputed or liquidated debt and (2) a disputed debt. In Pinnel?s Case, 5 Coke 117, and Cumber v. Wayne, 1 Strange, 426, the question presented and decided was ?that payment of a lesser sum on the day in satisfaction of a greater, cannot be in satisfaction for the whole,? although the parties agreed that such payment should satisfy the whole. An accord and satisfaction is a contract and like any other contract must be supported by a valid consideration. Consideration consists of a benefit to the promisor or a detriment to the promisee. Because of the past due undisputed debt, George was under legal obligation to pay $800. By paying $800 in full settlement of both obligations, George did not suffer a legal detriment as to the second (carpentry) contract. George merely did something which he was already legally bound to do. The payment of the $800 discharged the undisputed obligation but, since it did not constitute consideration for the disputed debt, that debt remains. In short, Keith still had a claim for $600 which George could, of course, contest, as to the amount. Had George paid an amount greater than $800, he would have a better argument as to settlement of both debts. The Snyder Mfg. Co., being a large user of coal, entered into separate contracts with several coal companies. In each contract it was agreed that the coal company would supply coal during the entire year in such amounts as the manufacturing company might desire to order, at a price of $35 per ton. In February, the Snyder Company ordered 1,000 tons of coal from Union Coal Company, one of the contracting parties. Union Coal Company delivered 500 tons of the order and then notified Snyder Company that no more deliveries would be made and that it denied any obligation under the contract. In an action by Union Coal to collect $35 per ton for the 500 tons of coal delivered, Snyder files a counterclaim, claiming damages of $1,500 for failure to deliver the additional 500 tons of the order and damages of $4,000 for breach of agreement to deliver coal during the balance of the year. What contract, if any, exists between Snyder and Union? Answer: Illusory Promises. Snyder Mfg. Co. owes Union the rate of $35 per ton for 500 tons of coal already delivered. Moreover, the alleged contracts, to the extent executory, are probably not binding on either party. These agreements to supply Snyder with such amounts of coal as ?it might desire to order? contain illusory promises. Snyder did not agree to order or to buy any coal. It was therefore not contractually bound to do so. Where one party to an agreement is not bound, neither party is bound. Even though the contracts come within the UCC, its good faith provisions could, but probably would not validate these illusory promises. Furthermore, these alleged contracts would not constitute requirements contracts. On February 5, Devon entered into a written agreement with Gordon whereby Gordon agreed to drill a well on Devon's property for the sum of $5,000 and to complete the well on or before April 15. Before entering into the contract, Gordon made test borings and had satisfied himself as to the character of the subsurface. After two days of drilling, Gordon struck hard rock. On February 17, Gordon removed his equipment and advised Devon that the project had proved unprofitable and that he would not continue. On March 17, Devon went to Gordon and told Gordon that he would assume the risk of the enterprise and would pay Gordon $100 for each day required to drill the well, as compensation for labor, the use of Gordon's equipment, and Gordon's services in supervising the work, provided Gordon would furnish certain special equipment designed to cut through hard rock. Gordon said that the proposal was satisfactory. The work was continued by Gordon and completed in an additional fifty-eight days. Upon completion of the work, Devon failed to pay, and Gordon brought an action to recover $5,800. Devon answered that he had never become obligated to pay $100 a day and filed a counterclaim for damages in the amount of $500 for the month's delay based on an alleged breach of contract by Gordon. Decision? Answer: Pre-existing Contractual Obligation. Decision in favor of Gordon. As a general rule, a promise to do what one is already bound to do by a valid contract will not be sufficient consideration for a new agreement. However, Section 89 of the Restatement, Second, Contracts provides that a ?promise modifying a duty under a contract not fully performed on either side is binding (a) if the modification is fair and equitable in view of the circumstances not anticipated by the parties when the contract was made . . .? Alternatively, although of dubious validity in this problem, the same result may be reached on the ground of a substituted contract: that the original contract was rescinded by mutual agreement and that new promises were then made which furnished consideration for each other. Discuss and explain whether there is valid consideration for each of the following promises: (a) A and B entered into a contract for the purchase and sale of goods. A subsequently promised to pay a higher price for the goods when B refused to deliver at the contract price. (b) A promised in writing to pay a debt, which was due from B to C, on C's agreement to extend the time of payment for one year. (c) A orally promised to pay $150 to her son, B, solely in consideration of past services rendered to A by B, for which there had been no agreement or request to pay. Answer: Pre-existing Contractual Obligation. (a) At common law there would be no legally sufficient consideration. A?s promise to pay a higher price is not supported by anything other than what B had already agreed to do. The consideration on the part of the promisee does not involve any legal detriment to him. However, under Section 2-209 (1) of the Code, the new agreement would be binding without consideration if it was entered into voluntarily and in good faith. (b) Valid consideration. Agreement to extend the time of payment is a legal detriment. (c) No valid consideration. In general, past consideration is no consideration. Alan purchased shoes from Barbara on open account. Barbara sent Alan a bill for $10,000. Alan wrote back that 200 pairs of the shoes were defective and offered to pay $6,000 and give Barbara his promissory note for $1,000. Barbara accepted the offer, and Alan sent his check for $6,000 and his note, in accordance with the agreement. Barbara cashed the check, collected on the note, and one month later sued Alan for $3,000. Is Barbara bound by her acceptance of the offer? Answer: Settlement of a Disputed Debt. Yes, decision in favor of Alan and against Barbara. The problem indicates that a genuine dispute occurred between Alan and Barbara. Where a check is tendered by the debtor to the creditor in full payment or settlement, the cashing of the check constitutes an accord and satisfaction. Revised 3-311. The fact that Alan gave Barbara his promissory note for $1,000 and that Barbara collected on the note strengthens the conclusion stated. Moreover, under UCC Section 2-209(1), consideration is not needed.
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