Business Law Chapter 10 Homework Davison Had Fully Performed The Contract Could

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CHAPTER 10

NATURE AND TERMINOLOGY

ANSWER TO CRITICAL ANALYSIS

QUESTION IN THE FEATURE

INSIGHT INTO ETHICS—CRITICAL THINKING—INSIGHT INTO THE SOCIAL ENVIRONMENT (PAGE 209)

Why would a company that changes its advertized prizes have to worry about its reputation? There are

so many blogs on the Internet, any disgruntled contest winner can make a posting, letting the whole

world know that a certain company did not act honestly or ethically. That company’s reputation will suf-

fer accordingly, which may lead to lower sales and profits in the future.

ANSWERS TO QUESTIONS

AT THE ENDS OF THE CASES

CASE 10.1—QUESTIONS (PAGE 214)

WHAT IF THE FACTS WERE DIFFERENT?

Suppose that Fisher had not ultimately obtained the properties (through Antonio and the assignment)

and had shown no further interest in the properties after he had rescinded the first contract. Would

Scheerer still have had a valid claim against Fisher for recovery in quantum meruit? Why or why not?

Scheerer would still have a claim against Fisher for the value of Scheerer’s services in negotiating the

THE LEGAL ENVIRONMENT DIMENSION

88 UNIT THREE: CONTRACTS AND E-CONTRACTS

Was Fisher’s unethical behavior (in misleading Scheerer into believing that he was still interested in mak-

ing a subsequent offer on the properties) a factor in the court’s decision? Explain. Fisher, by rescinding

CASE 10.2—QUESTIONS (PAGE 217)

1A. How might the result in this case have been different if the court had admitted the Wagners’ ex-

trinsic evidence of the Love Song contract? In this circumstances, the court might have construed the

language of the Charlie’s Angels contract to the same effect. But because Columbia acquired the movie

rights to the property independent of any right it might have had in relation to the television series, the

court might still have considered the acquisition separate from the exploitation rights covered by the

Wagner contract, and the result would have been the same.

2A. Under what circumstance would the Wagners have been entitled to a share of the profits from

the Charlie’s Angels movies even though the evidence of the Love Song contract was irrelevant? The

CASE 10.3—QUESTIONS (PAGE 219)

THE ETHICAL DIMENSION

Is it ethical for an insurer to refuse to pay a claim under the terms of a policy that the insurer drafted?

Discuss. Because there are many stakeholders to whom an insurer, or any other business, may owe a

duty, there are many circumstances in which a firm could act ethically in refusing to pay, or maintaining

any position, even if that ultimately leads to litigation and the position is “weak” in its truth or rightness.

A business’s owners are owed a return on their investment, its employees are owed jobs and payment

for their work, communities are owed vibrant economies, and so on. None of this would be possible if

the business at the core did not make a profit.

CHAPTER 10: NATURE AND TERMINOLOGY 89

WHAT IF THE FACTS WERE DIFFERENT?

Suppose that Tennessee Farmers’s policy had provided that foreclosure proceedings either voided the

coverage or required notification to continue it. Would the result have been different? Explain. Yes, the

ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE

AT THE END OF THE CHAPTER

1A. Requirements of a contract

The four requirements for any contract to be valid are agreement, consideration, capacity, and legality.

2A. Type of contract

Yes, Duncan had a valid contract with Mitsui for employment as credit development officer. The con-

tract was bilateral because it was a promise for a promise—to work in exchange for compensation. No

performance was necessary. The contract existed as soon as the promises were exchanged. The contract

was valid because the parties had an agreement, consideration (employment in exchange for payment),

capacity (presumed, especially with businesses and businesspersons), and the agreement was legal.

3A. Implied-in-fact contract

Implied contracts are contracts formed by the parties’ conduct rather than by their words. For an im-

plied-in-fact contract to exist, the plaintiff must furnish some property or service to the defendant ex-

pecting to be paid, the defendant must know or should know that the plaintiff expects to be paid, and

the defendant must have a chance to reject the property or service and does not.

90 UNIT THREE: CONTRACTS AND E-CONTRACTS

ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE AT THE END OF THE

CHAPTER

Companies should be able to make or break employment contracts whenever and however they

wish. Companies, especially large corporations, hold all of the cards with respect to their actual and fu-

ture employees. Absent statutes and case law that limits their abilities to break employment contracts

on a whim, employees would have no protections. Employees would face increased uncertainty about

the longevity of their jobs, which ultimately would reduce their productivity. There would be more

turnover in jobs, and more unemployment. Contracts are not made to be broken, but rather upheld—

and that is where the courts come in. The courts must be there to protect the rights of aggrieved former

employees.

ANSWERS TO QUESTIONS AND CASE PROBLEMS

AT THE END OF THE CHAPTER

10-1A. (Express versus implied contracts

(Chapter 10—Pages 210–212)

The facts presented here indicate the presence of all the elements necessary for a valid contract. There

are a serious offer and acceptance, consideration is exchanged (a candy bar for $1), both parties have

10-2A. QUESTION WITH SAMPLE ANSWER: Implied contract

According to the question, Janine was apparently unconscious or otherwise unable to agree to a con-

tract for the nursing services she received while she was in the hospital. As you read in the chapter,

10-3A. (Types of contracts

(Chapter 10—Pages 209–212)

In the modern view, most courts would hold that there was a contract between Davison and Burger Ba-

10-4A. Interpretation of contracts

(Chapter 10—Pages 215–217)

The court held that East Mill Associates (EMA) should not have to pay the costs associated with unfore-

seen events, reallocated the amount between the parties, and ordered EMA to pay $213,884.47. East

10-5A. CASE PROBLEM WITH SAMPLE ANSWER: Contract enforceability

The court granted a summary judgment in favor of Black Hills. Albertson’s appealed to a state interme-

diate appellate court, which affirmed the lower court’s judgment. The appellate court concluded in part

that “the contracts violated the prohibition codified in [the SMA] because they were contracts to sell

10–6A. Interpretation of contracts

(Chapter 10—Pages 215–219)

A court is bound to give effect to a contract according to the intent of the parties at the time that they

entered into it. This intent is determined by the parties’ expressions—the words of the contract—and

their plain, ordinary meaning. A contract is ambiguous if the intent of the parties cannot be determined

from its language, if it lacks a provision on a disputed issue, if a term is susceptible to more than one in-

terpretation, or if there is uncertainty about a provision. If a contract is ambiguous, outside evidence

may be considered, or an ambiguity will be interpreted against the party who drafted it or who asserts

it. A divorce settlement is a contract. In this problem, the type of college expenses that the Millers antic-

ipated are specified in the JCIP, as is the length of the obligation. But there is ambiguity in the phrasing.

When was Darrell to “begin setting funds aside?” How much was he to set aside? Where was he to de-

posit or invest the funds? Was he to be responsible for the entire cost of the children’s post-secondary

education? In other words, what exactly did the parties intend? The provision is ambiguous. Lisa, how-

10–7A. Quantum meruit

(Chapter 10—Pages 212–214)

“In New York, a contract must be sufficiently “definite” to be enforceable. ‘The doctrine of definiteness

or certainty is well established in contract law. In short, it means that a court cannot enforce a contract

10-8A. A QUESTION OF ETHICS

(a) The court issued a summary judgment in favor of IBM, holding that there was no contract

between the parties because they had not agreed on the commission arrangement. Jensen appealed to

the U.S. Court of Appeals for the Fourth Circuit, which affirmed the judgment of the lower court. The

appellate court acknowledged that “[a]n employer can make a unilateral offer to its employees, and the

10–9A. SPECIAL CASE ANALYSIS: Rules of interpretation

Case No. 10.2

Wagner v. Columbia Pictures Industries, Inc.

California Court of Appeal,

Second District, Division 7, 2007.

146 Cal.App.4th 586,

52 Cal.Rptr.3d 898.

(b) Rule of Law: What rule concerning the interpretation of a contract and the admission of

evidence did the court apply in this case? The court stated that an “agreement is the writing itself.” Ex-

trinsic evidence is not admissible “to show intention independent of an unambiguous written instru-

ment.” This is the plain meaning rule. Its application can significantly affect a court’s interpretation of

the language of a contract, which can in turn determine the result in a case.

in their contract affect the application of the rule of law? The court pointed out here that even if the

parties intended Wagner to share in the profits from all sources, “they did not say so in their contract.”

In other words, it was what the parties said in their contracts, not what they may have intended, that

determined the outcome in this case. Under the language of the contract between Wagner and SGP,

Wagner was entitled to share in the profits from the exercise of the movie rights to “Charlie’s Angels” if

those rights were exploited as “ancillary” or “subsidiary” to the primary “right to exhibit photoplays of

the series” but not if those rights were acquired separately. SGP’s contract with Goff and Roberts was

subject to the Writers Guild of America Minimum Basic Agreement, under which the writers kept the

movie rights, which the producer could buy if the writers opted to sell them within five years. SGP did

not acquire the movie rights to “Charlie’s Angels” by exercising this right within the five-year period. Co-

lumbia obtained those rights independently more than five years later.

(d) Conclusion: Did the court resolve the dispute in the plaintiff’s favor? Why or why not?