Contractual Relationships I: Practice Test

Front 1

1. What is the purpose of a contract?

Back 1

Contracts exist to make business matters more predictable.

Front 2

2. Pennsylvania contracted with Envirotest Systems, Inc., an Arizona company, to build 86 automobile emissions inspection stations in 25 counties, and operate them for seven years. This contract is worth hundreds of millions of dollars to Envirotest. But suddenly Pennsylvania legislators opposed the entire system, claiming that it would lead to long delays and high expenses for motorists. These lawmakers urged that Pennsylvania simply stop construction of the new system. Was Pennsylvania allowed to get out of the contract because its legislators concluded the whole system is unwise?

Back 2

A: No. They were in a legally binding contract.
1. Is it certain that the defendant promised to do something? Y
2. If she did promise, is it fair to make her honor her word? Y
3. If she did not promise, are there unusual reasons to hold her liable anyways?

Front 3

3. Central Maine Power Co. made a promotional offer in which it promised to pay a substantial sum to any homeowner or builder who constructed new housing heated with electricity. Motel Services, Inc., which was building a small housing project for the city of Waterville, Maine, decided to install electrical heat in the units in order to qualify for the offer. It built the units and requested payment for the full amount of the promotional offer. Is Central Maine obligated to pay? Why or why not?

Back 3

A: Yes. They were in a unilateral contract. Central Maine made an offer and Motel Services fulfilled it by their actions.

Front 4

4. Interactive Data Corp. hired Daniel Foley as an assistant product manager at a starting salary of $18,500. Over the next six years Interactive steadily promoted Foley until he became Los Angeles branch manager at a salary of $56,116. Interactive's officers repeatedly told Foley that he would have his job as long as his performance was adequate. In addition, Interactive distributed an employee handbook that specified “termination guidelines,” including a mandatory sevenstep pre-termination procedure. Two years later Foley learned that his recently hired supervisor, Robert Kuhne, was under investigation by the FBI for embezzlement at his previous job. Foley reported this to Interactive officers. Shortly thereafter, Interactive fired Foley. He sued, claiming that Interactive could only fire him for good cause, after the seven-step procedure. What kind of a claim is he making? Should he succeed?

Back 4

A: Foley is arguing that he had an implied contract based on the informal discussion concerning his future and the employee handbook. Foley had no express contract for any period and so he started as an employee at will. But the company's repeated assurances, plus the handbook, created an implied contract.

Front 5

5. The Hoffmans owned and operated a successful small bakery and grocery store. They spoke with Lukowitz, an agent of Red Owl Stores, who told them that for $18,000 Red Owl would build a store and fully stock it for them. The Hoffmans sold their bakery and grocery store and purchased a lot on which Red Owl was to build the store. Lukowitz then told Hoffman that the price had gone up to $26,000. The Hoffmans borrowed the extra money from relatives, but then Lukowitz informed them that the cost would be $34,000. Negotiations broke off and the Hoffmans sued. The court determined that there was no contract because too many details had not been worked out—the size of the store, its design, and the cost of constructing it. Can the Hoffmans recover any money?

Back 5

A: Yes. Promissory Estoppel.
1. The defendant made a promise knowing that the plaintiff would likely rely on it. Y
2. The plaintiff did rely on the promise. Y
3. The only way to avoid injustice is to enforce the promise. Y

Front 6

6. ETHICS You want to lease your automobile to a friend for the summer but do not want to pay a lawyer to draw up the lease. Joanna, a neighbor, is in law school. She is not licensed to practice law. She offers to draft a lease for you for $100, and you unwisely accept. Later, you refuse to pay her fee and she sues to collect. Who will win the lawsuit, and why? Apart from the law, was it morally right for the law student to try to help out by drafting the lease? Was she acting helpfully, or foolishly, or fraudulently? Is it just for you to agree to her fee and then refuse to pay it? What is society's interest in this dispute? Should a court be more concerned with the ethical issue raised by the conduct of the two parties or with the social consequences of this agreement?

Back 6

A: 1) Joanna will not win because it is a void agreement since she is not licensed to practice.
2) It was morally right for Joanna to help draft the lease.
3) Joanna was acting foolishly since she did not have a license.
4) It is not just for me to agree to pay then to not.
5) Society's intrest is whether or not the law student can draft a lease.
6) The court should be concerned about the ethical issues.

Front 7

7. Describe the role each of the following plays in contract law: the common law, the UCC, and the Restatement (Second) of Contracts.

Back 7

A: 1) Common law: Judge made law, the body of all decisions made by courts.
2) UCC: addresses most aspects of commercial law
3) Restatement of Contracts: reflects the changes in society, business and law.

Front 8

8. YOU BE THE JUDGE WRITING PROBLEM John Stevens owned a dilapidated apartment that he rented to James and Cora Chesney for a low rent. The Chesneys began to remodel and rehabilitate the unit. Over a four-year period, they installed two new bathrooms, carpeted the floors, installed new septic and heating systems, and rewired, replumbed, and painted. Stevens periodically stopped by and saw the work in progress. The Chesneys transformed the unit into a respectable apartment. Three years after their work was done, Stevens served the Chesneys with an eviction notice. The Chesneys counterclaimed, seeking the value of the work they had done. Are they entitled to it? Argument for Stevens: Mr. Stevens is willing to pay the Chesneys exactly the amount he agreed to pay: nothing. The parties never contracted for the Chesneys to fix up the apartment. In fact, they never even discussed such an agreement.

Back 8

Continue on next card.

Front 9

The Chesneys are making the absurd argument that anyone who chooses to perform certain work, without ever discussing it with another party, can finish the job and then charge it to the other person. If the Chesneys expected to get paid, obviously they should have said so. If the court were to allow this claim, it would be inviting other tenants to make improvements and then bill the landlord. The law has never been so foolish. Argument for the Chesneys: The law of quasi-contract was crafted for cases exactly like this. The Chesneys have given an enormous benefit to Stevens by transforming the apartment and enabling him to rent it at greater profit for many years to come. Stevens saw the work being done and understood that the Chesneys expected some compensation for these major renovations. If Stevens never intended to pay the fair value of the work, he should have stopped the couple from doing the work or notified them that there would be no compensation.

Back 9

Continue on next card.

Front 10

It would be unjust to allow the landlord to seize the value of the work, evict the tenants who did it, and pay nothing.

Back 10

A: Under quasi-contract the plaintiffs would be entitled to the amount the invested into the property. The defendant knew of the work they were doing and he benefitted from it. It would be unjust not to pay for the work done. It was foolish of the plaintiffs not to get into a contract before starting the work.

Front 11

9. Honeywell, Inc., and Minolta Camera Co. had a contract providing that Honeywell would give to Minolta various technical information on the design of a specialized camera lens. Minolta would have the right to use the information in its cameras provided that Minolta also used certain Honeywell parts in its cameras. Honeywell delivered to Minolta numerous technical documents, computer software, and test equipment, and Honeywell engineers met with Minolta engineers at least 20 times to discuss the equipment. Several years later, Honeywell sued, claiming that Minolta had taken the design information but failed to use Honeywell parts in its cameras. Minolta moved to dismiss, claiming that the UCC required lawsuits concerning the sale of goods to be filed within four years of the breach and that this lawsuit was too late. Honeywell answered that the UCC did not apply and that therefore Minnesota's six-year statute of limitations governed. Who is right?

Back 11

A: UCC does not apply because the main point of the contract was not the honeywell part but the information and technology of the lens.

Front 12

10. Explain the difference between judicial restraint and judicial activism in contract law.

Back 12

A: Judicial restraint is when the court abstains from ruling on major social issues and leaves it up to legislature. Judicial activism is when the court willingly decides issues of public policy, such as questions of the constitution and matters of contract fairness.