CONTRACTS MID-TERM EXAMINATION Santa Barbara/Ventura Colleges of Law Instructor: Craig Smith Fall 2013 QUESTION 1 Moe, the owner of Blackacre, a single-family home, told Curly that he wanted to sell Blackacre for $300,000. Curly said to Moe that he would try to find a purchaser if Moe would agree to pay him a commission of 6%, and Moe orally agreed. Curly is not a licensed real estate broker. Thereafter, without Curly s knowledge, Moe and Larry entered into negotiations for the sale of Blackacre. Larry faxed to Moe a signed letter stating that he offered to buy Blackacre for $250,000 in cash to be paid at the closing to take place in 90 days. The letter described Blackacre by street address and dimensions. Moe responded by mailing a signed letter to Larry stating that he was refusing Larry s offer but would agree to sell Blackacre to him for $275,000 on the same terms. Larry immediately responded by mailing a signed letter to Moe stating that he agreed to the higher price. Before Moe received that letter from Larry, Curly presented Moe with a proposed contract for the sale of Blackacre to another prospective buyer for $300,000. Moe immediately sent a letter by fax to Larry stating that he was no longer willing to sell him Blackacre. Larry received this letter before Moe received Larry s letter agreeing to the higher price. Larry then called Moe to confirm his willingness to buy Blackacre for $275,000, but Moe said he was now unwilling to sell Blackacre to him. Subsequently, Larry duly commenced an action against Moe for specific performance. The complaint alleged the foregoing pertinent facts. Moe has moved to dismiss the complaint on the grounds that (a) a cause of action was not stated because no contract was formed between Larry and Moe, and (b) even if a contract was formed, it was not enforceable because the statute of frauds was not satisfied. Curly has demanded Moe pay his commission, but Moe has refused. (1) Was a contract formed between Moe and Larry? (2) Assuming a contract was formed, was the statute of frauds satisfied? (3) May Curly successfully maintain an action to recover his commission?
QUESTION 2 Burt contacted Ernie, a salesman who works for Luxe, a company that sells luxury boats, and told him that he was interested in purchasing a luxury boat. After shopping at Luxe's showroom, Burt became interested in the Wind Catcher model priced at $200,000. Ernie explained to Burt the features of the Wind Catcher and told him that it was state of the art. Ernie gave Burt a one-page purchase order form on which the words Wind Catcher were written in the blank space marked Boat Model, and $200,000 was written in the blank space marked Price. Burt told Ernie he would think about it. The next day Ernie called Burt to tell him that he had just learned that Luxe was about to raise its prices, but that he could order the Wind Catcher at the current price if he quickly returned the purchase order form he had received the night before. Burt checked prices on the internet for comparable boats and decided the price quoted by Luxe for the Wind Catcher was a good deal. He signed and faxed the purchase order form to Luxe. After receiving the purchase order form from Burt, Ernie prepared the documents that Burt would need to register the boat and went to the boat harbor where Burt planned to keep the boat to make sure that the docking facilities were adequate for the Wind Catcher. Ernie noticed that Burt's slip was 10 feet short of what was required to accommodate the boat. Afraid of losing a sale Ernie decided not to tell Burt about the short slip. A few days later, Burt learned that, despite what Ernie had said, Luxe had no plans to raise its prices and that the Wind Catcher was an older model without the navigation and safety features available on newer models. He immediately faxed a letter to Luxe stating that he did not want to make the purchase. Assume that a valid contract was formed when Burt faxed back the completed purchase order. Does Burt have any basis for avoiding the contract for the purchase of the boat? Discuss fully.
SAMPLE ANSWER TO QUESTION 1 1. Was a contract formed between Moe and Larry? A valid contract requires: (1) offer and acceptance (i.e., a "meeting of the minds"), (2) consideration and (3) no defenses to enforceability. A bilateral contract is a contract in which one party's promises to do (or not do) something in exchange for the other's promise to do (or not do) something. Consideration is a bargained-for exchange in which there is a benefit or determinant to one or more of the contracting parties. The mailbox rule provides that acceptance to an offer (sent by mail) is deemed accepted once it is in the mail. Absent a signed, written agreement to keep an offer open for a certain time period, an offer may be revoked at any time prior to acceptance. Larry's initial letter to Moe was an offer to purchase Blackacre for $250,000; and Moe's responsive letter was a rejection and counteroffer to Larry's initial offer. Larry accepted Moe's counter-offer to purchase Blackacre at $275,000 and a valid, enforceable contract was formed when he placed his letter of acceptance in the mail. It is irrelevant to the contract's enforceability that Moe sent a fax to Larry (prior to his receipt of Larry's acceptance letter at $275,000) or that Moe had not yet received the acceptance letter because a contract was formed when Larry placed it in the mail. Accordingly, a valid, enforceable contract for the sale and purchase of Blackacre for $275,000 was formed between Moe and Larry. 2. Assuming a contract was formed, was the Statute of Frauds satisfied? Pursuant to the Statute of Frauds, certain contracts formed between parties must be in writing and signed by the party to be charged. One such category of contracts includes contracts for the purchase and sale of land. In addition, the contract must adequately describe the real property to be sold and bought. A sufficient description for real property may be accomplished by describing it in metes and bounds; however, a street address will suffice as well. There must also be included a price. Furthermore, and pursuant to the Statute of Frauds, there is no requirement that the contract be confined to one writing; it may consist of more than one writing, so long as the chronology and events of the writing clearly indicate that there was an offer, acceptance, and consideration by and between the contracting parties. Here, Larry's initial offer letter included a description of Blackacre "by street address and dimensions." Thereafter, Moe rejects and counters in a letter to Larry, which Larry then accepts in a third letter correspondence to Moe. Moe's rejection and counter-offer letter was in writing and signed, Larry's acceptance was in writing and signed, and contained an the agreed-to price. Accordingly, the statute of frauds for this contract was satisfied as all material terms to the sale of Blackacre were defined and agreed-to and evidenced by Moe and Larry's back-and-forth signed, written correspondence evidencing the valid formation of the contract. 3. May Curly successfully maintain an action to recover his commission? As previously stated, the Statute of Frauds requires that certain types of contracts must be reduced to a writing and signed by the party to be charged. A promise to pay a party a commission for the negotiation of a loan or the purchase of real property or a business must be in
writing and signed by the party to be charged. Here, Moe orally agreed to pay Curly a 6% commission for the sale of Blackacre. However, the agreement was never reduced a writing and signed by Moe. Therefore, it fails to satisfy the writing requirement of the Statute of Frauds. Sometimes, a party who has relied to their detriment on an oral contract that is within the Statute of Frauds may nevertheless enforce it. (Rest.2d 139). However, even if Curly could show that he changed his position in reliance on the oral promise and that the only way to avoid injustice is by enforcing the promise,, Curly was not a licensed real estate agent. A party who is not licensed to perform services may be barred from enforcing a contract on public policy grounds. If the underlying purpose of the licensing statute is to ensure minimum levels of competency in order to protect the public, lack of a license is a bar. On the other hand, if the purpose of the statute is merely to raise revenue, then lack of a license is not a bar. Here, the statute that requires broker's to be licensed is obviously designed to protect the public. Accordingly, Curly will not be able to maintain a successful action against Moe to recover his commission because the agreement between them is barred by the Statute of Frauds and he was an unlicensed individual.
SAMPLE ANSWER TO QUESTION 2 Burt has two possible ways of avoiding this contract: misrepresentation and concealment. The issue is whether Burt can avoid the contract when Ernie told him the boat was state of the art and that the price of the boat would being going up, when neither fact was true. A misrepresentation is a statement that is not in accord with the facts. The victim of a misrepresentation may rescind the contract. Here, Ernie told Burt two things which were not in accord with the facts. That prices were about to go up (it turned out they weren't) and that the boat was state of the art when in fact it was an older model and lacked some of the latest features. If these statements were material and Burt relied upon them he may rescind for misrepresentation. A statement is material when it would impact the other party's decision as to whether to enter into the bargain. Reliance occurs when the listener incorporates the information into his decision making process. Here, Burt appeared to be on the fence when told about the impending price hike and after hearing this information he went ahead and made a decision to buy. Hence, there was reliance on this material fact. Ernies' best argument would be that his assertion that the boat was state of the art, was one of opinion and not fact. Only statements of fact are actionable as misrepresentations, statements of opinion are not. The issue is whether Burt can rescind when Ernie failed to tell him that his slip was too short for the boat. Concealment is the suppression of a material fact. Is is a failure to disclose when there is a duty to do so. Whether there is a duty to disclose depends on the answer to the following question:. Is one party possessed of superior knowledge? Is the fact in question material? Does the party of superior knowledge have reason to believe that the party of inferior knowledge has no means of learning the material fact? If the answer to all three questions is yes, then there is a duty to disclose. Here, the fact in question was material as Burt may not have wanted a slip that was too short for his boat. At the time of discovery, apparently only Ernie knew of this fact, Burt did not. But, Burt certainly had the ability to measure the slip himself and this he did not do. Furthermore, This fact was not discovered until after the contract for purchase had been formed. Hence, Burt cannot rescind on the ground of concealment.