Contracts MBE Practice Test 2017
A woman asked a male friend to hold her valuable antique jewelry in safe storage for her while she traveled in a foreign country. He owned a jewelry store and graciously offered to store the collection for free. He also volunteered to get the jewelry insured at his own expense. She relied on the promises, and turned over the collection to him without the payment of monetary consideration. He forgot to get the jewelry insured, and the collection was stolen in an armed robbery of the jewelry store. When she returned, he refused to compensate her for the stolen collection. Which one of the following legal principles would be her strongest and most accurate claim for remuneration under these facts?
If a person makes a gratuitous promise, and then enters upon the performance of it, he may be held to a contractual obligation under promissory estoppel. When she relied on his promise and turned the jewelry over to him, the law implied a contract. Promissory estoppel makes a promise binding where "all the other elements of a contract exist, but consideration is lacking." Dumas v. Infinity Broadcasting Corp., 416 F.3d 671, 677 (7th Cir. 2005). To establish the elements of promissory estoppel, the plaintiff must prove that (1) defendant made an unambiguous promise to plaintiff, (2) plaintiff relied on such promise, (3) plaintiff's reliance was expected and foreseeable by defendants, and (4) plaintiff relied on the promise to the plaintiff’s detriment. Newton Tractor Sales, Inc. v. Kubota Tractor Corp., 233 Ill.2d 46, 329 Ill. Dec. 322, 906 N.E.2d 520, 523-24 (2009); Wigod v. Wells Fargo Bank, NA, 673 F. 3d 547, 566 (7th Cir. 2012). Here, there has been a justifiable reliance, which induces action or forbearance, and there would be an injustice if the promise is not enforced.
An offeror offers to sell a parcel of land to an offeree for $10,000, stating that the offer shall remain open for 30 days. The offeree replies that she will keep the offeror’s offer under advisement but says, “We can wrap this up immediately if you’ll take $9,000.” The offeror does not reply, but within the 30-day period the offeree accepts the original offer. The offeror, however, replies that he now wants $12,500. Was a contract formed when the offeree accepted the $10,000 offer?
See the Restatement of Contracts, Second, Sec. 39, Illustration, for the principle that the offeree may state that he’s holding the offer under advisement (for the remainder of the 30 days) but if the offeror wants to close immediately he’ll take it for a lower amount. Such an answer does not abrogate the original offer. Of course, if the offeror tells the offeree, before the $10,000 is accepted, that the price has been increased to $12,500 then that will be effective. In this case, however, the offeror didn’t try to increase the price until after the offeree accepted the original offer and created an enforceable contract.
An auto retailer started a marketing promotion on a new hybrid model sedan. It advertised that anyone who purchased the car in 2013 and did not get at least 50 miles per gallon average gas mileage during the first 60 days, would receive a payment of $10,000 cash from the company. Record-keeping and inspection procedures were required to assure accurate reporting by the vehicle owner. The promotion was widely publicized. A female customer purchased a hybrid model during the promotion period, followed all the rules, and recorded only 42 mpg in the first 60 days. She demanded the rebate but the company stalled for months and then stopped responding to her inquiries. Does she have a contractual right to collect the $10,000?
This is a unilateral contract where the offeree accepts the offer by performing an act which indicates his or her agreement with the bargain. In this case, it’s clear that the offeror was intending to contract with anyone who was willing to perform the action requested. That’s why rules and inspections were set up. This is to be distinguished from a bilateral contract which is an exchange of promises between the parties.
A drywall subcontractor submitted an offer to a general contractor for proposed drywall work on a small office building being constructed. The bid was for $20,000 for all drywall supplies and labor. The contractor factored the experienced subcontractor’s bid into its final bid and was awarded the contract. A few days later the subcontractor informed the contractor that it had worked on the figures and realized that it underestimated the cost of the project. The subcontractor refused to do the job for less than $35,000. The contractor hired another subcontractor to do the work for $30,000 and sued the first subcontractor for the $10,000 difference over the original bid of $20,000. Will the court likely award the $10,000 to the contractor and against the first subcontractor?
An offer that the promisor should reasonably expect to induce action or forbearance by the promisee, and which does induce such action or forbearance, is binding if injustice can be avoided only by enforcing the promise. See Restatement (2d) of Contracts 90. In order for promissory estoppel to apply there must be: 1) a clear and definite offer; 2) a reasonable expectation that the offer will induce reliance in the other party; 3) actual and reasonable reliance by the offeree; and 4) a detriment which only can be avoided by enforcement of the offer.
A 16-year-old minor went to a used car dealer with his aunt and grandmother. The minor purchased a used car in “as is” condition. The purchaser was listed as the minor; his relatives were not on the agreements. The boy discovered later that the drive shaft was bent and he returned the car with a demand for a refund of the $2,000 purchase price. The dealer refused to give a refund, citing the assistance and verbal assurances by the aunt and grandmother. They also gave him funds to make the purchase. Is the contract still voidable by the minor so that he can get a refund of the purchase price?
A purchase contract by a minor is voidable despite the participation of an adult in the transaction. The participation of the boy’s aunt and grandmother in the transaction did not change the rule that contracts by a minor regarding personal property are voidable. In this case, the sale was made between the minor and the dealer, and not one of the adults. The dealer was fully aware of the minor’s age and knew of the minor’s disaffirmation rights when the sale was negotiated. The dealer would have the burden of showing that the car was a necessity but there are no facts indicating that was done.
A married couple had a rocky relationship but remained together for many years. There was a prenuptial agreement protecting the husband’s substantial separate property from the wife’s potential claims. The husband got cancer and was fighting a battle for survival. He asked her to remain at home and take care of him, as he feared being sent to a nursing home or a hospice. She agreed, but only if he gave her several additional parcels of property. He died soon thereafter, without having made deeds or changes to his will regarding the promised properties. She later sued the decedent’s estate for the properties, claiming a contract. She asserted she would likely have left him if he hadn’t promised the additional properties. What is the most likely decision of the court?
The contract in question does violate public policy, which supports marriage and contemplates certain values including to stay by one’s spouse “in sickness and in health.” In order for title of property to properly pass from one spouse to another in similar situations, it must be expressly written into a will or other document stating intent. To transfer property in this situation deeds or a will would have been appropriate.
A woman contracted with a company to install central air in her home. The contract contained the details of performance and payment provisions. The agreement stated that it was to become binding upon approval of credit for financing the new system. The credit was approved 4 days later and notification was left on the woman’s voicemail. A crew went out the same day to get started but arrived only to find a competitor on the premises installing a new system. The company sued the woman for breach of contract damages. She claimed that the company delayed too long. An offer generally expires after a reasonable time. What is the best and most likely decision of the court regarding whether the woman and the company had a binding contract?
The power to create a contract by acceptance of an offer terminates at the time specified in the offer, or after a reasonable time if no time is specified. A reasonable time is a question of fact based on the nature of the contract proposed, the usages of business, and other circumstances surrounding the offer. There was no unreasonable delay here, i.e., a reasonable time had not yet transpired. Further, the parties understood that there would be a delay in processing the financing. The delays sustained under these facts were not unusual. D breached the contract by having others perform the work.
A publisher contracted to publish and market an author’s recent book. The publisher had the exclusive right to publish and distribute the book, including to decide the number of books published and the advertising budget. The author obtained a cash advance and royalty rights. However, the publisher’s internal post-contract review concluded that the book was polarizing and could offend some business and private interests. The publisher slashed the number of books to be printed and cut the advertising budget to the bare-bones. It simultaneously published and vigorously marketed a book written in-house which required no royalty and was directly contradictory to the factual foundations of the author’s book. The author sued the publisher for breach of contract for failing to deliver on its promise to use its “best efforts” to promote and distribute the book. Does the author have a likely right to collect breach of contract damages from the publisher?
There is a duty of good faith and fair dealing attributed to each party in a contract. In this case, the reasons to cut drastically the marketing were not particularly ethical reasons. That was a violation of the publisher’s duty to act in good faith and fair dealing toward the author. See Zilg v. Prentice-Hall, Inc., 717 F.2d 671 (2d Cir.1983), cert. denied, 466 U.S. 938, 104 S.Ct. 1911, 80 L.Ed.2d 460 (1984) (publisher must make good faith initial promotional efforts notwithstanding contract clause giving it sole authority as to number of volumes printed and amount of advertising expenditures).
A woman owes a co-worker $2000 on a personal debt. The woman’s first cousin promises to pay the co-worker the full debt if the woman will give the cousin’s children dance lessons. She faithfully provides dance lessons regularly over an extended period. Can the co-worker sue the cousin for not paying the debt?
This is a third-party contract in which the two contracting parties, the woman and the first cousin, have established in effect a right to a third party, the co-worker, to sue on the contract if the debt to the co-worker is not paid.
A contractor agreed with a city government to build it a bridge. The contractor was guilty of undue delay in getting the construction finished. The contract specified liquidated damages of a deduction from the contract price for each day of delay based on how much traffic flow was turned away. The city tried to deduct the damages from the contract price. The contractor, however, pointed out that the city had not yet connected a road to the bridge so that there was no traffic flow and hence no damage to the city. Will the court uphold the liquidated damages clause in favor of the city?
If the contingency upon which the presupposition of damages is based never happens, then the presupposition is no longer valid. The presupposition was that the city would lose revenue and otherwise not service its citizens if the bridge was late, but that became a non-event and an impossibility when the city failed to have a road for traffic to the bridge. See City of Boston v. New England Sales & Mfg. Corp., 386 Mass. 820, 438 N.E.2d 68 (1982).
A man purchased a pickup truck from a used car dealer. He made it clear to the salesperson that he needed a vehicle powerful enough to be used in his timber hauling business. The agent represented that the truck would last for hauling timber, because the engine was totally rebuilt and like new. Based on such assurances, the man purchased the truck. The sales contract papers did not mention any warranties nor did it exclude any. After hauling timber for three months with the pickup, it stopped running one day while carrying a full load. The engine had cracked and was rendered useless. The purchaser sued the seller of the truck asking for damages, including what it cost to purchase and install a new engine. The purchaser claimed a breach of implied warranties. The court held a bench trial. Which of the following is the most likely and most applicable decision, considering applicable U.C.C. principles?
There were the two implied warranties in this case. Section 2-314 of the U.C.C. provides that a warranty of merchantability is implied in a contract of sale (unless excluded or modified) "if the seller is a merchant with respect to goods of that kind." Moreover, to be merchantable, the goods "must be at least such as . . . are fit for the ordinary purposes for which such goods are used. . . ." The U.C.C. does not exclude used items in either of the implied warranty sections at issue. Further, Sec. 2-315 of the U.C.C. provides that "[w]here the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose."
A man (offeror) sent an offer by letter to sell his 2010 Mercedes Benz to a prospective buyer (offeree), and stated, “I suggest that you mail me your response quickly and advise whether you accept this offer.” The offeree immediately accepted by leaving a message on the offeror’s answering machine, at the phone number the parties had previously used to communicate with each other in prior transactions. The offeree didn’t know that the offeror sometimes neglected to check his phone messages in a timely manner. Thinking that he received no response, the offeror signed three days later to sell to another party. On the fourth day the offeree came to the offeror’s house with the cash, demanding to take the car. He was turned away and sued the offeror for specific performance. Does the offeree have a superior contractual right to the car?
The Restatement Second of Contracts (1981), Sec. 60, says that when an offer prescribes the place, time or manner of acceptance this must be complied with to create a contract. However, if an offer merely suggests a permitted place, time or manner of acceptance, another method of acceptance is not precluded. Here, the mention of return mail is not stated in the kind of unconditional terminology that would indicate exclusivity. The phone number was given to him by the seller and a course of dealing using that method of communicating was established.
The owner of an engineering design company recruited a young man to work as a design engineer in the business development section of the business for two years. The man agreed to relocate from another state. He started working as soon as he arrived, and due to the pressing volume of work the parties never put the agreement in writing. Three months later, the owner fired the young man. The young man sued for damages, claiming that he had a legal right to the job for two years, unless fired for just cause, which the owner did not have. The owner countered that the alleged agreement was in violation of the Statute of Frauds and was void. Which one of the following legal principles did the trial court most likely cite in support of its ruling that the agreement was excepted from the Statute of Frauds and would be enforced?
An oral promise which the promisor should reasonably expect to induce either action or forbearance on the part of the promisee is enforceable when injustice can be avoided only by enforcing the contract. See Restatement (Second) of Contracts § 217A. If a party has relied on an oral promise to his detriment, and rendered part performance the other party should be estopped from asserting the Statute of Frauds.
A roofer offers to completely refurbish a homeowner’s roof for $1,000. The next day the roofer realizes he’s not going to make much, and he sends a revocation of the offer in the mail to customer. On the third day the homeowner puts a letter in the mailbox accepting the offer. On the fourth day the homeowner receives the roofer’s revocation letter. Was a contract formed between the homeowner and the roofer or was the revocation effective?
The letter of revocation can be effective only when received. However, an acceptance is effective when put in the mailbox so that a contract was formed on Day 3 when the letter of acceptance was posted. That is pursuant to what is typically called the “mailbox rule.” At that point, it was too late for the roofer to revoke the contract.
An amateur golfer was playing in an amateur golf tournament. When she arrived at the ninth tee she found a new car with signs on it that said: "HOLE-IN-ONE Wins this 2014 luxury sedan.” The name of the a dealership appeared on the sign. Much to everyone’s amazement she inexplicably shot a hole-in-one. She attempted to claim her prize. The dealer refused, claiming that the car had been there from a charity tournament that was held two days earlier. The company admitted to neglecting to remove the car and posted no signs prior to the golfer’s hole-in-one. The golfer sued the dealership demanding delivery of the car. What is the likely decision of the court?
An offer to award a prize in a contest will result in an enforceable unilateral contract if the offer is properly accepted by the requested performance prior to revocation. The only acceptance of the offer that is necessary is the performance of the act requested to win the prize. The contract does not fail for lack of consideration because this is nothing more than a requirement that there be a bargained for exchange. The car was to be given in exchange for the making a hole-in-one, which was adequate consideration to support the contract.
A candy manufacturer used pre-printed purchase order forms to purchase separate orders of baking sugar from a supplier. The supplier responded to each order by sending the shipment along with its own printed form confirming the shipment and the terms. According to the manufacturer, the last shipment contained spoiled sugar. The manufacturer filed a complaint in state court alleging breach of contract and damages. The supplier filed a motion to have the dispute transferred to arbitration. The manufacturer’s purchase order forms were silent as to the mode of settling disputes, but the supplier’s form contained a clause calling for “any controversy or claim” to be settled by arbitration. The manufacturer was silent as to the arbitration clause. What is the likely decision of the court?
UCC Section 2-207 provides that a definite and seasonable acceptance with new terms forms a contract unless the acceptance was made expressly conditional on the new terms. That was not the case so there was a contract formed. The additional term, however, did not automatically become a part of the contract under 2-207(2) because it materially altered the agreement. 2-207(2)(b). In most instances, an arbitration clause materially alters the contract because it prohibits the parties from using the courts to resolve their dispute. There is a related doctrine that requires acceptance of an arbitration clause to be explicit and not by implication. The parties must clear and affirmative express consent to the clause.
A dealer ordered “one truckload of western regional first-grade widgets, usual terms and conditions” on a standard order form that he sent to his usual wholesale supplier. The dealer and the supplier had a practice that all shipments would contain standard-sized widgets unless otherwise stated. The truckload arrived and was unloaded but later discovered to contain “extra-large” size widgets, which the dealer could not use. The dealer refused to pay and the manufacturer sued for the ticket price of $223,000. The dealer soon learned that industry standards re-classified the extra-large widgets as “discontinued” and essentially obsolete. At trial, the dealer offered to testify to his standard practices in ordering so as to clarify what he intended to order. The manufacturer objected based on the parol evidence rule. What is the best and most likely decision of the court regarding the objection?
The parol evidence rule prohibits oral testimony regarding material already covered in the writing. However, testimony to explain what the parties really intended, or to interpret the meaning of the writing is generally allowed.
A contractor was performing re-modeling work for a nursing home. The written contract called for a 30-day project in which several common social areas would be refurbished, including dry wall, insulation, carpeting, and painted, along with minor plumbing and cosmetic improvements, for $50,000. About a week after work started, the nursing home director asked the foreman on the job to put in natural wood paneling over the dry wall, and to reduce the total area to be painted. The director also told the foreman to upgrade certain bathroom fixtures. At the end of the project, the final bill was $72,000. The nursing home’s board refused to pay that amount and tendered the $50,000 contract price, claiming that a contract could not be modified without another writing. At trial, the nursing home objected to testimony from the foreman and the nursing home director on the basis of the parol evidence rule. Do you think that the court would order the nursing home to pay the additional money?
Generally, all oral communications are integrated into a subsequent writing and thus such extraneous material is prohibited by oral testimony to modify or change the terms of the contract. The need for the rule is not necessary after the written contract is signed. Furthermore, oral modifications to the terms of the written contract are allowed as long as the oral modifications can be proved by clear and convincing evidence.
A regular customer left his car at an auto mechanic’s shop with instructions to: check the engine and tune it up; make sure the brakes were all in good working order; examine the tires; and, to otherwise check and repair all major systems because the customer was going on a long driving tour through other states. No discussion of price or words of agreement were spoken between the parties. When the customer picked up the car, there was a bill for $5,000 left on the seat to his attention. All of the services and parts listed pertained to the areas stated in the customer’s instructions. He refused to pay, claiming that there was no agreement and that the mechanic didn’t get advance approval for all of the repairs. Can he be held responsible for contractual service performed?
The instructions were definite in telling the mechanic to “check and repair”, and to “make sure” and to “tune it up” so that, along with a similar course of conduct in the past, the mechanic did not act outside of his normal and reasonable expectation of authority. The circumstances imply a contract when the facts are taken as a whole. The conduct of the parties, including through past experience, implied that there was a meeting of the minds and a contract between them.
A paving company contracted with a retail store to pave the parking lot for a new store being built. It was scheduled to open in 60 days, and the paving company agreed to finish by then. Time was stated to be of the essence. However, there were numerous rainy days and, although the store opened on time, the paving was only partially completed. Some customers were inconvenienced and had to walk from nearby parking areas to get to the new store. The retailer sued the paving company for breach of contract, which included a demand for consequential damages for three weeks of partial lost profits. The store proved lower than projected customers, sales and profits but presented no evidence regarding causation. What is the most likely decision of the court after a bench trial on the issues?
Consequential damages such as for lost profits will not be awarded if they are based on general speculation. Such losses must be specifically proved and attributed to the breaching party. However, here that proof was not submitted and in addition, people had other access through adjoining parking which made it doubtful that any possible losses were due to the paver.
A young woman incurred credit card and medical debts that were overwhelming. She filed bankruptcy and discharged the debts. After receiving her final discharge, she contacted her dentist who had been listed in the bankruptcy for a debt of $10,000. That debt was now discharged and not owed. She said to the dentist, “I know I owe you $10,000 and I’m going to pay it off in the future. Can the dentist successfully sue the young woman for the $10,000 after she fails to perform on her new promise?
A promise is said to be given for moral or past consideration when the promisor’s motivation for making the promise is a past benefit he received that now gives rise to a subsisting moral, but not legal, obligation to make compensation. The general rule is that a promise to pay a debt that is based on moral obligation is unenforceable. However, there are exceptions and one of those is where a debtor reaffirms a promise to pay on a debt previously discharged in bankruptcy. That is generally treated as an enforceable promise based in effect on “moral obligation,” despite the technical absence of consideration.
A man and woman lived together unmarried for 19 years. He assured her that they would live together as husband and wife but without the restriction of an official marriage license. She relied on those promises when giving up plans for a career in business. She assisted him in many substantial ways over the years as he progressed to becoming a successful neurosurgeon. During the years they displayed all of the trappings of being a married couple. When they split up, he refused to give her anything, saying that it was a meretricious relationship. She sued in state court claiming an interest in his income, profits and property. She claimed an express contract or an implied-in-fact agreement to share the economic wealth that was accumulated. The trial court dismissed, saying there could be no claim if there was no marriage. What is the most likely decision of the appellate court?
The presumed intention of the parties was established by implication from the clear history of the facts. It was not essentially a meretricious undertaking, but was based founded legally on principles of contract. There was offer, acceptance and consideration. The contractual relationship was formed by contracting parties independently of any issue of whether there was a marriage. Courts don’t favor “common law” marriages but the formation of a contract is a much easier legal conclusion based on the outward manifestations and intentions of the parties.
A farmer contracted to sell 100 tons of his home-grown cucumbers to a wholesaler. An invasion of cucumber-eating insects attacked the crop and made it a poor season. The farmer delivered only 60 tons. The wholesaler claimed a breach of contract due to his being shorted 40 tons. The farmer sued the wholesaler for payment on the 60 tons, and the wholesaler counterclaimed for damages caused by the loss of the additional 40 tons. What is the most likely decision of the court?
There was an implied condition, known to the parties through a course of dealing in the farming industry, that the amount of production could vary by natural causes. See, for example, Snipes Mountain Co. v. Benz Bros. & Co., 162 Wash. 334, 298 P. 714 (1931)
A building owner hired a painter to paint 20 office units that were vacant and being refurbished. They agreed to terms in writing, and the painter started on the work. After completing only two units, he received a written message from the owner repudiating their agreement and stating that his services were no longer needed. The painter ignored the message because he believed that his contract guaranteed him the full 20 units of work. He finished all units and sent a bill to the owner, who responded with a check for the first two units only. The painter sued the building owner for the full balance due. The building owner countered that he only owed up to the point that he repudiated the contract. Which of the following most closely states the probable decision of the court?
The painter cannot collect the full amount because a party must mitigate damages when an advance repudiation is communicated. The party must prevent all “avoidable consequences” when told to cease performance in a service contract. The painter is entitled to breach of contract damages for labor, supplies and probably for loss of the expectation interest, i.e., for lost profits. Alternatively, if the owner received and enjoyed the benefits of the painter’s work, despite the order to stop, there may be a claim for unjust enrichment or restitution by the painter against the owner for the value of the work received and not compensated.
A bill collector came to the door of an elderly widow. The collector showed her a credit card bill for $20,000 owed by her recently deceased husband. He told the widow that she could be arrested and prosecuted if the bill, which was now her responsibility, was not paid. He left her a promissory note for $20,000 with interest and urged that she sign and send it back to him. After a few days, the widow signed the note, hoping in her mind to restore and maintain her husband’s good name. Six months later, the collection company sued on the note because the widow had made no payments. The widow’s attorney filed a motion to have the note declared void due to duress. What is the most likely decision of the court based on the principles of duress?
Duress is pressure so strong that it prevents free action and destroys the ability to reject a contract. It must be imminent, without present means of protection and such as would operate on the mind of a person of reasonable firmness. Here, however, there is no evidence to say that the widow was particularly frail, incapacitated or otherwise lacking in enough sense to protect herself by seeking legal assistance. She had a few days to think about it and signed it thinking that she was going to restore her husband’s good name instead of being in fear of going to jail.
A professional hockey player was traded from one team to another, with his existing contract being assigned to the new team. The contract had an option to require the four-time all-star player to sign a new three-year contract at a newly negotiated amount. The new team exercised the option. After successful negotiations, they agreed on and signed a three-year contract. However, that team later discovered that the player also signed a one-year contract with another team. Despite demands, the player has failed to assure his new team that he is going to honor the three-year contract. For that reason, the team filed an action requesting injunctive relief. What will the court most likely decide?
Such option contracts as applied players being traded are generally enforceable and so was this one absent any facts calling it into question. Team number two was entitled to an injunction to prevent the irreparable damage it would have suffered if the injunctive relief had not been issued. Money damages would not suffice to compensate team number two for the loss of the all-star player’s highly unique and specialized services.
A small business sued an insurance company in federal court for failing to pay certain claims made. After completion of discovery, the insurer filed a motion for summary judgment, requesting dismissal of the lawsuit. In the meantime, the parties went to a scheduled settlement conference with the federal magistrate judge and agreed to settle for $75,000. The district court judge had, however, granted the pending summary judgment motion and issued an order of dismissal a day earlier. The dismissal order, however, had not been docketed and no judgment was entered of record. When the district judge learned of the settlement, she rescinded the order of dismissal and instead ordered the settlement agreement to be docketed. The insurer’s attorney then moved to have the settlement rescinded on the basis of mutual mistake. What is the best and most likely decision of the United States Court of Appeals when it hears the case on appeal?
A party may not avoid a contract on the grounds of mutual mistake when it assumed the risk of that mistake. Winter v. Skoglund, 404 N.W.2d 786, 793 (Minn.1987) (citing Restatement (Second) of Contracts § 152 (1981)). Practically every settlement involves the element of chance as to future consequences and developments. There are usually unknown and unknowable conditions that may affect the ultimate recovery or failure of recovery. Mutual ignorance of their existence cannot constitute mutual mistake. See, for example, Sheng v. Starkey Laboratories, Inc., 117 F. 3d 1081 (8th Cir. 1997).
A retail store runs an advertisement in the local newspaper stating: “Only 3 cashmere sweaters remaining; highest quality; real Polo; one grey, one maroon and one beige; on closeout, starting 9 a.m. Saturday, $5.00 each, first-come, first-served.” A store customer was the first to arrive on Saturday morning. He located the three advertised sweaters, picked them up, handed $15.00 to the clerk, and demanded all three sweaters at $5 each. The clerk stated that the store’s price on each sweater was actually $50 each. The customer demanded the advertised price. Who has the superior legal position?
The ad is usually considered to be an invitation to the customer to come in and make an offer. However, in this case the terms were so specific and definitive, that it was likely to be considered a legal offer. That there must have been some kind of clerical or typographical mistake does not save the seller, because the seller bears the risk. The seller could have informed the buyer before he picked up the sweaters and brought them to ring up a sale.
A manufacturer of widgets sent a letter to an international widget retailer offering to sell ten truckloads of construction-quality widgets for $1,000 per truck. The retailer emailed a note back saying “Please send 10 truckloads as promised.” No shipment was sent, but four months later when the market demand for widgets skyrocketed, the retailer sued the manufacturer for breach claiming that the retailer suffered damages by not having received the shipment of ten trucks as agreed. Does the retailer have a legal right to collect damages under these facts?
There appears to be the basic elements of contract formation: there is a definitive offer setting forth specific terms, and the offeree's acceptance of those terms. The other two elements, consideration and an intent to create a binding agreement are objectively seen as being present. Although a date of delivery is left out, under the circumstances where there is sufficient specificity of the other terms, the date will be deemed to take place within a “reasonable time.”
A husband applied for a life insurance policy for $50,000 on his life, listing his wife as the beneficiary. He paid the insurance company an initial amount of $100 at the time of submitting the application. The agent accepted the down payment, which represented two months of the premium payment. In exchange for this payment, the agent gave the husband a "conditional receipt." A few days later the husband died in an auto accident. The wife as beneficiary demanded payment despite the fact that the insurance company had not officially issued a policy and the husband had not taken a required medical examination required in the wording of the application. The company denied liability, asserting that certain conditions contained in the application and in the conditional receipt (namely the taking of the medical examination) had not been fulfilled by the applicant. The insurer claimed that the condition precedent (the medical examination) was never performed and the contract was not formed. What is the most likely decision of the court?
Temporary insurance contracts are standard in the industry. Generally, an application for insurance coverage, a deposit premium receipt, and some kind of interim or conditional receipt constitutes a contract to provide temporary insurance for the period of time between the delivery of the certificate and the subsequent decision of the insurer at its home office of whether to issue the policy applied for or reject the application.
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