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ANSWERS TO PROBLEMS
1. 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.
2. (a) Ann owed $2,500 to Barry for services Barry rendered to Ann. The debt was due June 30,
2013. In March 2014, the debt was still unpaid. Barry was in urgent need of ready cash and told
Ann that if she would pay $1,500 of the debt at once, Barry would release her from the balance.
Ann paid $1,500 and stated to Barry that all claims had been paid in full. In August 2014, Barry
demanded the unpaid balance and subsequently sued Ann for $1,000. 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 $2,500 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
3. (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
4. 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,
5. 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 $55 per ton. In February the Snyder Company ordered one thousand tons of coal from Union
Coal Company, one of the contracting parties. Union Coal Company delivered five hundred 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 $55 per ton
for the five hundred tons of coal delivered, Snyder files a counterclaim, claiming damages of
$1,500 for failure to deliver the additional five hundred 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 $55 per ton for 500 tons of
coal already delivered. Moreover, the alleged contracts, to the extent executory, are probably not
6. 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
7. 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
8. Alan purchased shoes from Barbara on open account. Barbara sent Alan a bill for $10,000. Alan
wrote back that two hundred 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
9. Nancy owed Sharon $1,500, but Sharon did not initiate a lawsuit to collect the debt within the
time prescribed by the statute of limitations. Nevertheless, Nancy promises Sharon that she will
pay the barred debt. Thereafter, Nancy refuses to pay. Sharon brings suit to collect on this new
promise. Is Nancy’s new promise binding? Explain.
Answer: Promise to Pay Debt Barred by the Statute of Limitations. Decision in favor of Sharon.
10. Anthony lends money to Frank. Frank dies without having paid the loan. Frank's widow, Carol,
promises Anthony to repay the loan. Upon Carol's refusal to pay the loan, Anthony brings suit
against Carol for payment of the loan. Is Carol bound by her promise to pay the loan?
Answer: Moral obligation. No. The general rule is that where a promise is made to satisfy a
11. The parties entered into an oral contract in June, under which plaintiff agreed to construct a
building for defendant on a time and materials basis, at a maximum cost of $56,146, plus sales
tax and extras ordered by defendant. When the building was 90 percent completed, defendant
told plaintiff he was unhappy with the whole job as “the thing just wasn't being run right.” The
parties then on October 17 signed a written agreement lowering the maximum cost to $52,000
plus sales tax. Plaintiff thereafter completed the building at a cost of $64,155. The maximum
under the June oral agreement, plus extras and sales tax, totaled $61,040. Defendant contended
that he was obligated to pay only the lower maximum fixed by the October 17 agreement.
Decision?
Answer: Modification. The Supreme Court of Washington held that the October 17th modification
agreement was not binding for lack of consideration and plaintiff was entitled to recover under
the original agreement, stating:
12. Taylor assaulted his wife, who then took refuge in Ms. Harrington's house. The next day, Mr.
Taylor entered the house and began another assault on his wife, who knocked him down and,
while he was lying on the floor, attempted to cut his head open or decapitate him with an ax.
Harrington intervened to stop the bloodshed, and the ax, as it was descending, fell upon her
hand, mutilating it badly, but sparing Taylor his life. Afterwards, Taylor orally promised to
compensate Harrington for her injury. Is Taylor’s promise enforceable? Explain.
Answer: Moral Obligation. No. Taylor may have a moral obligation to honor his promise but not a
13. Jonnel Enterprises, Inc., contracted to construct a student dormitory at Clarion State College.
On May 6, Jonnel entered into a written agreement with Graham and Long as electrical
contractors to perform the electrical work and to supply materials for the dormitory. The
contract price was $70,544.66. Graham and Long claim that they believed the May 6 agreement
obligated them to perform the electrical work on only one wing of the building, but that three or
four days after work was started, a second wing of the building was found to be in need of
wiring. At that time Graham and Long informed Jonnel that they would not wire both wings of
the building under the present contract, so a new contract was orally agreed upon by the parties.
Under the new contract Graham and Long were obligated to wire both wings and were to be
paid only $65,000, but they were relieved of the obligations to supply entrances and a heating
system. Graham and Long resumed their work, and Jonnel made seven of the eight progress
payments called for. When Jonnel did not pay the final payment, Graham and Long brought this
action. Jonnel claims that the May 6 contract is controlling. Is Jonnel correct in its assertion?
Why?
Answer: Substituted Contracts. No. The substituted contract was enforceable. It was entered into
14. Baker entered into an oral agreement with Healey, the State distributor of Ballantine & Sons
liquor products, that Ballantine would supply Baker with its products on demand and that Baker
would have the exclusive agency for Ballantine within a certain area of Connecticut. Shortly
thereafter the agreement was modified to give Baker the right to terminate at will. Eight months
later, Ballantine & Sons revoked its agency, May Baker enforce the oral agreement?
Answer: Illusory Promises. No. To agree to do something and reserve the right to cancel the
15. PLM, Inc. entered into an oral agreement with Quaintance Associates, an executive
“headhunter” service, for the recruitment of qualified candidates to be employed by PLM. As
agreed, PLM's obligation to pay Quaintance did not depend on PLM's actually hiring a
qualified candidate presented by Quaintance. After several months Quaintance sent a letter to
PLM, admitting that it had so far failed to produce a suitable candidate, but included a bill for
$9,806.61, covering fees and expenses. PLM responded that Quaintance's services were only
worth $6,060.48, and that payment of the lesser amount was the only fair way to handle the
dispute. Accordingly, PLM enclosed a check for $6,060.48, writing on the back of the check “IN
FULL PAYMENT OF ANY CLAIMS QUAINTANCE HAS AGAINST PLM, INC.” Quaintance
cashed the check and then sued PLM for the remaining $3,746.13. Decision?
Answer: Settlement of a Disputed Debt. Judgment for PLM, Inc. When there is a good faith dispute
16. Red Owl Stores told the Hoffman family that, upon the payment of approximately $518,000, a
grocery store franchise would be built for them in a new location. Upon the advice of Red Owl,
the Hoffmans bought a small grocery store in their hometown in order to get management
experience. After the Hoffmans operated at a profit for three months, Red Owl advised them to
sell the small grocery, assuring them that Red Owl would find them a larger store elsewhere.
Although selling at that point would cost them much profit, the Hoffmans followed Red Owl’s
directions. In addition, to raise the money required for the deal, the Hoffmans sold their bakery
business in their hometown. The Hoffmans also sold their house, and moved to a new home in
the city where their new store was to be located. Red Owl then informed the Hoffmans that it
would take $624,100, not $518,000, to complete the deal. The family scrambled to find the
additional funds. However, when told by Red Owl that it would now cost them $654,000 to get
their new franchise, the Hoffmans decided to sue instead. Should Red Owl be held to its
promises? Explain.
Answer: Promissory Estoppel. Yes. All the requirements of promissory estoppel are present in these
17. Plaintiff, Brenner, entered into a contract with the defendant, Little Red School House, Ltd.,
which stated that in return for a non-refundable tuition of $1,080 Brenner's son could attend
defendant's school for a year. When Brenner's ex-wife refused to enroll their son, plaintiff sought
and received a verbal promise of a refund. Defendant now refuses to refund plaintiff's money for
lack of consideration. Did mutual consideration exist between the parties? Explain.
18. Ben Collins was a full professor with tenure at Wisconsin State University in 2009. In March
2009 Parsons College, in an attempt to lure Dr. Collins from Wisconsin State, offered him a
written contract promising him the rank of full professor with tenure and a salary of $55,000 for
the 2009 –10 academic year. The contract further provided that the College would increase his
salary by $2,000 each year for the next five years. In return, Collins was to teach two trimesters
of the academic year beginning in October 2009. In addition, the contract stipulated, by
reference to the College’s faculty bylaws, that tenured professors could be dismissed only for just
cause and after written charges were filed with the Professional Problems Committee. The two
parties signed the contract, and Collins resigned his position at Wisconsin State.
In February 2011, the College tendered a different contract to Collins to cover the following year.
This contract reduced his salary to $45,000 with no provision for annual increments, but left his
rank of full professor intact. It also required that Collins waive any and all rights or claims
existing under any previous employment contracts with the College. Collins refused to sign this
new contract, and Parsons College soon notified him that he would not be employed the
following year. The College did not give any grounds for his dismissal; nor did it file charges
with the Professional Problems Committee. As a result, Collins was forced to take a teaching
position at the University of North Dakota at a substantially reduced salary. He sued to recover
the difference between the salary Parsons College promised him until 2014 and the amount he
earned. Decision? Will Collins prevail? Explain?
Answer: Legal Sufficiency. Yes, judgment for Collins. The College’s promise to employ Collins
permanently (with tenure), at a specified salary with increments to 2011, must be supported by
19. Rodney and Donna Mathis (Mathis) filed a wrongful death action against St. Alexis
Hospital and several physicians, arising out of the death of their mother, Mary Mathis. Several
weeks before trial, an expert consulted by Mathis notified the trial court and Mathis’s counsel
that, in his opinion, Mary Mathis’s death was not proximately caused by the negligence of the
physicians. Shortly thereafter, Mathis voluntarily dismissed the wrongful death action. Mathis
and St. Alexis entered into a covenant-not-to-sue in which Mathis agreed not to pursue any
claims against St. Alexis or its employees in terms of the medical care of Mary Mathis. St.
Alexis, in return, agreed not to seek sanctions, including attorney fees and costs incurred in
defense of the previously dismissed wrongful death action. Subsequently, Mathis filed a second
wrongful death action against St. Alexis Hospital, among others. Mathis asked the court to
rescind the covenant-not-to-sue, arguing that because St. Alexis was not entitled to sanctions in
connection with the first wrongful death action, there was no consideration for the
covenant-not-to-sue. Are they correct in this contention? Explain.
Answer: Unilateral Contracts: Consideration. No, they are wrong, and so the trial court
granted summary judgment for St. Alexis. A promise to forbear pursuit of a legal claim can
be sufficient consideration to support a contract when the promisor has a good faith belief in
20. Harold Pearsall and Joe Alexander were friends for over twenty-five years. About twice a week
they would get together after work and proceed to a liquor store, where they would purchase
what the two liked to refer as a “package”—a half-pint of vodka, orange juice, two cups, and
two lottery tickets. Occasionally these lottery tickets would yield modest rewards of two or three
dollars, which the pair would then “plow back” into the purchase of additional tickets. On
December 16, Pearsall and Alexander visited the liquor store twice, buying their normal
“package” on both occasions. For the first package, Pearsall went into the store alone, and
when he returned to the car, he said to Alexander, in reference to the tickets, “Are you in on it?”
Alexander said, “Yes.” When Pearsall asked him for his half of the purchase price, though,
Alexander replied that he had no money. When they went to Alexander’s home, Alexander
snatched the tickets from Pearsall’s hand and “scratched” them, only to find that they were both
worthless. Later that same evening Alexander returned to the liquor store and bought a second
“package.” This time, Pearsall snatched the tickets from Alexander and said that he would
“scratch” them. Instead, he gave one to Alexander, and each man scratched one of the tickets.
Alexander’s was a $20,000 winner. Alexander cashed the ticket and refused to give Pearsall
anything. Can Pearsall recover half of the proceeds from Alexander? Explain.
Answer: Legal Sufficiency. Yes. The record supports Pearsall’s contention that an agreement to
share the proceeds existed. The conduct of the two men on December 16, when the ticket was
purchased, clearly demonstrates a meeting of the minds. After purchasing the first pair of tickets,
ANSWERS TO “TAKING SIDES” PROBLEMS
Anna Feinberg began working for the Pfeiffer Company in 1966 at age seventeen. By 2004, she
had attained the position of bookkeeper, office manager, and assistant treasurer. In appreciation
for her skill, dedication, and long years of service, the Pfeiffer board of directors resolved to
increase Feinberg’s monthly salary to $4,000 and to create for her a retirement plan. The plan
allowed that Feinberg would be given the privilege of retiring from active duty at any time she
chose and that she would receive retirement pay of $2,000 per month for life, although the Board
expressed the hope that Feinberg would continue to serve the company for many years. Feinberg,
however, chose to retire two years later. The Pfeiffer Company paid Feinberg her retirement pay
until 2013. The company thereafter discontinued payments.
(a) What are the arguments that the company’s promise to pay Feinberg $2,000 per month for
life is enforceable?
(b) What are the arguments that the company’s promise is not enforceable?
(c) What is the proper outcome? Explain.
ANSWER:
(a) Plaintiff could argue that her continuing to work for the defendant for
another two years, on which date she retired, was consideration for the
defendant’s promise and that the promise therefore was enforceable as a
