CONTRACTS MID TERM EXAMINATION FALL 2015 SANTA BARBARA AND VENTURA COLLEGES OF LAW INSTRUCTOR: CRAIG SMITH QUESTION 1

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1 Question 1, consists of 4 subparts or scenarios. CONTRACTS MID TERM EXAMINATION FALL 2015 SANTA BARBARA AND VENTURA COLLEGES OF LAW INSTRUCTOR: CRAIG SMITH QUESTION 1 1. Ashley and Bob: A lamp and a chair were the only remaining items at Ashley s garage sale. Bob asked Ashley how much she wanted for the lamp. Ashley pointed at the lamp and said, I will take $100 for that chair. Bob was certain that Ashley intended to offer him the lamp for $100, not the chair, and that she had misspoken when she said chair instead of lamp. Nevertheless, Bob said, I accept, and tendered Ashley $100 for the lamp, which she refused. Ashley claims formation of a contract with Bob to sell him the chair for $100. Bob claims formation of a contract with Ashley to purchase the lamp for $ Connie and Debby: Connie offered to sell Debby a donkey named Egor for $500 and, in exchange for $60 from Debby, Connie agreed to keep that offer open for five days. On the third day, Connie walked up to Debby and said, Egor is not for sale anymore and I will pay you back the $60. Debby replied, that doesn t work for me! The next day, Debby tendered $500 to Connie for Egor, which Connie refused, claiming that the offer to sell had been properly revoked. 3. Fannie and Graham: Fannie had valuable beads. Graham asked Fannie how much she wanted for the beads. Fannie replied, Make me an offer. Graham said, I accept, and the price is $1,000. Fannie said, No, I will sell the beads for $1,800. Graham said, I accept, but I thought we just had a deal for $1,000? Fannie replied, Never mind, the price is now $2,000. Graham claims formation of a contract to purchase the beads for either $1,000 or $1,800, while Fannie claims formation of a contract to sell the beads to Graham for $2, Hawk, Ike, and Judd: Hawk, an auctioneer, conducted an auction at which every item was put up for bid to the highest bidder. The first item for auction was a Danish tea set. Ike and Judd got into a bidding war for the item through back and forth successive bids. Ike s final bid was $3,000, but Judd outbid him at $3,100. Before Hawk could bang the gavel to announce completion of the sale, Judd exclaimed, I revoke my bids and I m out. Ignoring Judd, Hawk banged the gavel and announced that the item had been sold to Judd based on his highest bid of $3,100. Hawk claims a contract with Judd for the sale of the tea set for $3,100. Alternatively, Hawk claims a contract with Ike for the sale of the item for $3,000, because Ike was the highest bidder aside from Judd when the gavel came down to complete the sale. Ike and Judd dispute the existence of any such contracts. Based on ordinary principles of contract formation, was a contract formed in each of the foregoing scenarios? Explain your answers fully. Do not discuss contract enforcement/statute of Frauds issues.

2 QUESTION 2 On July 25, ABC agreed to cater Moe s 50th birthday party to be held on August 15. That same day, ABC s catering manager telephoned Betty, the president of Meat Supply, Inc., and agreed to pay Meat Supply $7,500 for Meat Supply to provide all of the meat for the party. Immediately thereafter, Betty sent ABC an confirming the date and quantity of meat to be supplied to ABC. On August 14, Moe called ABC and told ABC that the birthday party had been cancelled. On August 15, Meat Supply delivered the meat to ABC, but ABC refused to pay. Meat Supply commenced an action against ABC for breach of contract. ABC answered and raised the statute of frauds as a defense. Did the agreement between ABC and Meat Supply violate the statute of frauds?

3 MODEL ANSWER TO QUESTION 1 1. The issue is whether Bob had a contract to buy the lamp, when Ashley and Bob meant different things when Bob purported to accept. A contract requires mutual assent, that is agreement to the same thing. If each party has a different meaning in mind and neither party has reason to know the meaning attached by the other party, there is no contract. Here, Bob thought Ashley was offering to sell him the lamp for $100. However, Ashley actually was intending to offer the chair for that price. Since neither party had the same thing in mind as to what the offer of $100 was for (Bob the lamp and Ashley the chair) no contract was formed. 2. The issue is whether the offer to sell the donkey could be revoked when the offeree paid $60 to keep the offer open for 5 days. The general rule is that an offer may be withdrawn anytime prior to acceptance. A promise not to withdraw or revoke for a stated period of time is a gratuitous promise if the promise not to withdraw or revoke is not supported by separate consideration. However, if the offeree pays separate consideration to keep the offer open, then an irrevocable option contract is formed meaning that the offer cannot be withdrawn or revoked during the stated period of time. In this case, Debby paid Connie $60 in exchange for Connie's promise to keep the offer open for 5 days. The offer therefore became irrevocable under the rule stated above. When Connie broke her promise not to withdraw the offer she breached the option contract as she had no right to revoke the offer. 3. The issue is whether Fannie made an offer to sell the beads when she said, "make me an offer." An offer is a manifestation of willingness to enter into a bargain which creates in the offeree the power of acceptance. An essential element of an offer is that it must empower the offeree to conclude the bargain by accepting. Invitations to make offers are not offers. Here, when Fannie said, "make me an offer" she was not empowering Graham to conclude the bargain by accepting. There was no agreement or mutual assent to a price, an essential element of a contract. Rather, Fannie was only making an invitation to make an offer. Hence, no contract was formed at the price of $1,000. The issue is whether an offer was made when Fannie said, "No, I will sell the beads for $1800." Here, under the rule stated above, Fannie is now empowering Graham to conclude a deal for $1800 by accepting. The essential elements of a contract are present, subject (beads) quantity (1) price ($1800) terms (cash). This was an offer that was capable of acceptance. The issue is whether Graham accepted when he stated I accept, but I thought we just had a deal for $1,000?

4 An acceptance is a manifestation of willingness to be bound by the terms of the offer made in the manner invited or required by the offer. Here, Bob's statement "I accept" signaled his agreement to pay Fannie's price. Everything following that manifestation, starting with "but," was merely an inquiry about the nature of her earlier communication and can be disregarded. A contract for the beads was concluded at $1800. The issue is whether Fannie revoked her offer when Fannie replied, Never mind, the price is now $2,000. An offer can be revoked anytime prior to acceptance, However, a valid acceptance results in formation of a contract, both parties are bound and neither party can withdraw from the bargain without incurring liability to the other. In this case, a contract was formed when Bob said "I accept." Fannie's statement of Never mind, the price is now $2,000. came after an enforceable contract was formed. It was too late for her to revoke her offer. 4. The issue is whether Judd timely withdrew his offer when Judd exclaimed, I revoke my bids and I m out. just prior to the gavel falling. An offer may be revoked anytime prior to acceptance. Acceptance is a manifestation of willingness to be bound by the terms of an offer made in the manner invited or required by the offer. In this case, the auctioneer's manifestation of willingness to be bound would have been manifested after the fall of the gavel and his statement of "sold." However, this occurred after Judd said, "I revoke." As a result no contract was formed. The issue is whether a contract was formed with Ike for $3,000, because Ike was the highest bidder aside from Judd when the gavel came down to complete the sale. A rejection of an offer terminates the power of acceptance. A party that has rejected an offer cannot later purport to accept the rejected offer. When the auctioneer attempted to bang the gavel to accept Judd's bid he indirectly communicated his rejection of all prior bids. Having made an effective rejection, Hawk lost the power to accept that offer. There was no contract for $3,0000 with Ike.

5 MODEL ANSWER TO QUESTION 2 The issue is whether the statute of frauds writing requirement was satisfied when there was no note or memorandum signed by ABC, the party who was trying to avoid the contract. The statute of frauds is a collective term that requires that certain contracts be evidenced by a note or memorandum, signed by the party to be charged. Contracts for the sale of goods for a price of $500 or more are within the statute of frauds and must comply with the statute's writing requirement. Here, the contract was for the price of $7,500 and meat is a good and thus covered by the UCC. Although the confirming the date and quantity of meat to be supplied to ABC otherwise satisfied the writing requirement (it evidenced a contract of sale, stated a quantity term, and was signed by the sender) it did not have the signature of ABC, the party against whom the contract is sought to be enforced. Unless, there is an exception to the writing requirement, the statute of frauds will be a valid defense. The non objecting merchant rule (UCC 2 201(2) says, that between merchants, if one of them, within a reasonable time of agreeing to an oral contract, sends a confirmatory memorandum that would satisfy the writing requirement as to the sender, if the recipient receives it, has reason to know of its contents and fails to object to it within 10 days, it satisfies the writing requirement as to the recipient, even though the recipient hasn't signed it. Here, both parties are merchants. A caterer and a meat supplier both deal in food items and merchants are defined as those who deal regularly in goods of the kind or hold themselves out as having special expertise with regard to the goods. An qualifies as a "writing" (an intentional reduction to tangible form) Presumably it had Betty's name (which would count as a signature) or the name of Meat Supply. As long as either was affixed to the they would count as the mark placed on the writing with the intent to authenticate it. It was sent out within a reasonable time of the oral transaction ("immediately thereafter") and ABC failed to respond to it within the 10 days. It therefore satisfied the writing requirement as to to the recipient and the statute of frauds is not a defense.