Author(s): Prof. Christopher N. Doval & Simon A. Gugerli
Title: According to Meredith: A Contracts Fiasco
Subject: Contracts: Option Contracts; Quasi Contracts; Breach of Contracts; Statute of Frauds
Activity overview. Students will read the following fact pattern, a true story, in which two parties negotiate an awkward exchange of an automobile. This activity intends to assist students in breaking down facts and legal principles to settle a contracts dispute and come to a reasonable solution for all parties.
Ingredients. The following fact pattern:
“Scott owns a small restaurant in Richmond, Virginia, and it has been doing well. Before owning his business, he purchased a 1994 Honda Accord as a daily driver (any casual observer can tell it’s in questionable condition) and has decided to purchase something more appropriate for the business that could potentially be used to cater. Subsequently, Scott buys a relatively new SUV for the company and no longer needs his previous vehicle.
As a local business owner in a small part of town, Scott knows other restaurant and bar owners in the area and tries to visit and socialize in order to, support other small businesses. Scott walks into one of these local watering holes and talks to Meredith, a bartender he has known for many years. Meredith mentions in passing that she and her friends intend to take a road trip across the United States and are in the market for a vehicle for the journey. Scott shares that he is currently looking to get rid of his 1994 Honda Accord, claims that it has been a good car to him despite some issues, and that he would be willing to sell it for $5000, its current Bluebook price.
Meredith mulls over the exchange briefly and tells Scott, “How about this, here’s $500, if my mechanic thinks it’s a good purchase, I’ll buy the car.” Scott takes the $500 and hands over the keys to the vehicle, and says, “No problem.”
As a small business owner, Scott is a busy man and doesn’t think much about the transaction until he realizes he hasn’t seen Meredith in 3 months. Later that week, Scott walks into the very same watering hole to see Meredith behind the bar and orders his usual. After some meaningless chit chat, Meredith says to Scott, “Man, just got back from our trip, and it was incredible. But hey, I spoke to my mechanic, and he says that 5K is too much and, ultimately, I don’t think it’s a good idea. Here are the keys; I’ll need my $500 back.”
After learning that Meredith had used his car to complete her road trip, Scott refuses to pay Meredith the $500, stating “I’m pretty sure you bought yourself a car when you left for 3 months with it, when can I get the rest of the $4,500 you owe me?!”
After some argument, Scott, disappointed, pockets his keys, pays for his bar tab, and gives Meredith a $100 tip as a kind gesture that this is all water under the bridge. She takes the tip begrudgingly.
Meredith asks for legal advice. She claims she’s been swindled, and that Scott owes her $400.”
Running the activity. Ideally, students have read through their Introduction to Contracts chapter and tested their Contracts knowledge prior. At the beginning of the session, students are broken up into groups of 3-4 and are provided the fact pattern for review. Groups should discuss and answer the following questions. Their answers will be shared and aggregated after 20-30 minutes to compare student group positions.
- How many contracts exist? How many are enforceable?
- What damages or remedies are available, and for whom?
- As Meredith’s lawyer, what legal and non-legal advice would you provide her?
Once you have the number of contracts and dollar amounts, as the facilitator, you should have students justify their answers based on the law they have learned. Provided below are the most relevant items from the UCC and Restatements of Contracts, 2d that you can use to challenge your students to think more critically about whether these contracts are enforceable and how people may be compensated for damages.
Substitutions: Over the years, this fact pattern has shown to be too difficult for an undergraduate exam question but excellent for conversations to improve understanding.
Potential alterations to the fact pattern to promote discussion:
- “Having overheard the dispute between Scott and Meredith, a cook in the back offers Scott, as he walks out, $4900 for the Accord, and Scott accepts it for cash on the spot.”
- The $5000 cost of the car will trigger the Statute of Frauds; changing the price of the car will create a different conversation altogether. Changing all the numbers makes for different conversations.
- Change the state and require students to do case law research in your jurisdiction of choice.
- The fact pattern is written to be interpreted and casual. Clients never describe the facts accurately or in a fashion that easily satisfies the elements. In this case, we may have unreliable clients. Have your students play the lawyer and identify the best next questions to ask and provide a means to future proof against this sort of scenario happening again for all parties.
Review or follow-up. These concepts and definitions are provided as references:
|Option Contracts||Definition: A promise to keep an offer open that is paid for. With an|
option contract, the offeror is not permitted to revoke the offer because,
with the payment, he is bargaining away his right to revoke the offer.
|Citations:||Restatement (Second) Of Contracts § 37 (1979).Restatement of Contracts § 47 (1932).|
“Breach of option contract leaves optionee with a claim for damages equal to the difference between the option price and market value of shares at the time of the breach.” In re Riodizio, Inc., 204 B.R. 417 (Bankr. S.D.N.Y. 1997).
“When confronted with an anticipatory repudiation, the non-repudiating party has two mutually exclusive options. He may (a) elect to treat the repudiation as an anticipatory breach and seek damages for breach of contract, thereby terminating the contractual relationship between the parties, or (b) he may continue to treat the contract as valid and await the designated time for performance before bringing suit.” Lucente v. Int’l Bus. Machines Corp., 310 F.3d 243, 258 (2d Cir. 2002).
|Reasonable Time Standard|
Definition: “In the absence of a contrary indication, just as acceptance may be made in any manner and by any medium which is reasonable in the circumstances (§30), so it may be made at any time which is reasonable in the circumstances. The circumstances to be considered have a wide range: they include the nature of the proposed, the purposes of the parties, the course of dealing between them, and any relevant usages of trade. In general, the question is what time would be thought satisfactory to the offeror by a reasonable man in the position of the offeree; but circumstances not known to the offeree may be relevant to show that the time actually taken by the offeree was satisfactory to the offeror.”
|Citations:||The Restatement (Second) Of Contracts § 41|
|Case Law:||“Following this guidance, most cases applying the Restatement rule have abjured efforts to create a hypothetical bargain among the parties as to the missing term, in favor of determining what is reasonable by reference to relevant standards of fairness and equity, including those supplied by usage and custom.” Schortmann v. the United States, 92 Fed. Cl. 154, 164 (2010).|
|Mirror Image rule||Definition: Any acceptance of an agreement, is to be an unconditional assent to the terms of the offer (regardless of change from offer to agreement)|
|Citations:||The Restatement (Second) of Contracts § 59|
|Case Law:||“Under the mirror-image rule, a party does not have to object to a proposed modification in order to keep it from being incorporated; any term that is not mirrored in the offer and acceptance is excluded.” VLM Food Trading Int’l, Inc. v. Illinois Trading Co., 811 F.3d 247 (7th Cir. 2016).|
“The terms proposed in an offer must be met exactly, precisely, and unequivocally for its acceptance to result in the formation of a binding contract.” Siegel v. Warner Bros. Ent. Inc., 542 F. Supp.2d 1098 (C.D. Cal. 2008).
|Merchant||Definition: A person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction or to whom such knowledge or skill may be attributed by his employment of an agent or broker or another intermediary who by his occupation holds himself out as having such knowledge or skill.|
|Citation:||U.C.C. § 25-2-104 (Am. L. Inst. & Unif L. Comm’n 1977).|
|Promissory Estoppel||Definition: A party may recover based on a promise made when the party’s reliance on that promise was reasonable, and the party attempting to recover detrimentally relied on the promise.|
|Citations:||The Restatement (Second) of Contracts § 139|
The Restatement (Second) of Contracts § 84
|Case Law:||“[W]here the terminable at will doctrine is concerned, the promise for promissory estoppel must be a clear and definite promise.” Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996).|
“Neither party disputes that the lease agreement was not in writing; therefore, given the contract’s subject matter, the district court correctly concluded that the statute of frauds was implicated. The doctrine of promissory estoppel “may … function to take an agreement outside of the statute of frauds” InCompass IT, Inc. v. XO Commc’ns Servs., Inc., 719 F.3d 891, 897 (8th Cir. 2013).
|Quasi Contract||Definition: An obligation imposed by law to prevent unjust|
|“Unjust Enrichment”||enrichment; may be presumed in court in the absence of an actual contract|
|Citations:||The Restatement (Second) of Contracts § 4(B)|
|Case Law:||“If money be expended by one person on behalf of another the law will impose a duty to compensate on the person thereby benefited, if on general principles of equity the money should have been paid in the first instance, in whole or in part, by him rather than by the plaintiff.” United States v. P/B STCO 213, ON 527 979, 756 F.2d 364, 371 (5th Cir. 1985).|
“An “implied-in-fact contract” is a true contract, containing all necessary elements of a binding contract and it differs from other contracts only in that it has not been committed to writing or stated orally in express terms, but rather is inferred from the conduct of parties in the milieu in which they dealt.” Bloomgarden v. Coyer, 479 F.2d 201 (D.C. Cir. 1973).
|Statutes of Fraud||Definition: |
Classes of Contracts Covered
– contract of an executor or administrator to answer for a duty of his decedent
– contract to answer for the duty of another
– contract made upon the consideration of marriage
– contract for the sale of an interest in land
– contract that is not to be performed within one year from the making thereof
Classes of Contracts covered under the States of Fraud provision of the Uniform Commercial Code
– contract for the sale of goods for the price of $500 or more
– contract for the sale of securities
– contract for the sale of personal property not otherwise covered, to the extent of enforcement by way of action or defense beyond $5,000 in amount or value of remedy
The Uniform Commercial Code requires a writing signed by the debtor for an agreement that creates or provides for a security interest in personal property or fixtures not in possession of the secured party
Required in writing
|Citations:||The Restatement (Second) of Contracts § 110|
|Case Law:||“The Oklahoma statute of frauds provides that “[t]he following contracts are invalid, unless the same, or some note or memorandum thereof, be in writing and subscribed by the party to be charged … (5) An agreement for … the sale of real property, or of an interest therein….” Okla. Stat. Ann., tit. 15, § 136 (West 1996). Although the writing need not be thorough or complete in its detail, it must contain all material terms of the alleged contract so that resort to parol evidence is not necessary to establish them.” GFF Corp. v. Associated Wholesale Grocers, Inc., 130 F.3d 1381, 1385 (10th Cir. 1997).|
“The principle behind the Statute of Frauds is to ensure the existence of a valid agreement, rather than to supply every item that the parties could have conceivably included. Moreover, “[t]he Statute of Frauds was not enacted to afford persons a means of evading just obligations; nor was it intended to supply a cloak of immunity to hedging litigants lacking integrity; nor was it adopted to enable defendants to interpose the Statute as a bar to a contract” Cleveland Wrecking Co. v. Hercules Const. Corp., 23 F. Supp.2d 287, 300 (E.D.N.Y. 1998).
|Damages and Remedies||Definition: Basic remedies available for breach of contract|
|Applications:||Applications: The injured party part has a right to damages based on his expectation interest as measured by:|
The loss in the value to him of the other party’s performance is caused by its failure or deficiency. Plus
Any other loss, including incidental or consequential loss, caused by the breach, less
Any cost or other loss that he has avoided by not having performed
Alternatives to Loss in Value of Performance
If a breach delays the use of the property and the loss in value to the injured party is not proved with reasonable certainty, he may recover damages based on the rental value of the property or on interest on the value of the property.
|Citations:||The Restatement (Second) of Contracts §§ 345, 346 & 348|
“When one party to a contract commits a material breach, the non-breacher has the option of either continuing the contract and suing for partial breach or terminating the agreement in its entirety; however, in the case of a non-material breach, the termination option is not open to the non-breacher.” Gen. Motors Corp. v. New A.C. Chevrolet, Inc., 263 F.3d 296 (3d Cir. 2001.)
|Gift||Definition: a definite, voluntary transfer of property from one party to another. The transfer must be made without any consideration (that is, without an expectation of receiving compensation in return. There should be no obligation from any party.|
|Case Law:||“Unrestricted grants, gifts, and income from endowments are funds, cash or otherwise, given to a provider without restriction by the donor as to their use.” Heckler v. Cmty. Health Servs. of Crawford Cty., Inc., 467 U.S. 51, 56 (1984).|
“A gift completely executed is irrevocable and property conveyed by it becomes as against the donor, the absolute property of the donee, and no subsequent change of donor’s intention can change rights of donee” Trustees of Dartmouth Coll. v. Woodward, 17 U.S. 518 (1819).