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Questions & Answers Series 
Contracts Topics: Consideration; Offer and Acceptance; Terms Implied by Law; Terms of the Agreement (Parol Evidence) Question: Romeo had been courting Juliet for several years. Finally, he decided to propose marriage. Romeo shopped around to find the best deal on the right ring. Romeo found the ring he sought at Old Will's Jewelers for $10,000. Romeo was unable to pay the entire purchase price immediately. Old Will, the sole proprietor of Old Will's Jewelers, agreed to sell Romeo the ring for $2,500 down and $7,500 to be paid in ten equal monthly installments. Romeo asked Old Will to hold the ring for him and promised to return the next day with the down payment. When Old Will subsequently questioned Romeo's creditworthiness and demanded that Romeo pay the full purchase price in cash or the deal was off, Romeo bought a ring of comparable size and quality from another jeweler, Fennyman's Fine Jewelry, for $12,500, proposed to Juliet, she accepted, and they lived happily ever after (at least, so far). Romeo then sued Old Will's Jewelers to recover the difference between the price of the replacement ring and the price of the ring that Old Will had promised to sell Romeo. Shortly after Romeo filed his suit, Juliet accidentally broke one of the prongs on the replacement ring Romeo gave her. Wanting to get the ring fixed without telling Romeo, and unaware that he had ever considered purchasing a different ring for her (much less that he was involved in litigation over it), Juliet stopped during lunch at the jeweler's store just around the corner from her office - the aforementioned Old Will's Jewelers - to have the ring repaired. The clerk, Henslowe, who took the ring told her it would be ready for her to pick up after 5:00 p.m. He then tagged the ring and left it on the repair box. Old Will, who was handling repairs that afternoon, read the name on the repair tag, put two and two together, and realized whose ring it was that had been left for him to fix. Steaming over Romeo's suit, Old Will fixed the prong and then put the ring in a display case, at a bargain price, hoping some lucky soul would come along and buy it. Before that could happen, however, one of Old Will's customers, Rosaline, saw the ring and recognized it as one of several that had been stolen from her house several months earlier. Further investigation revealed that the thief had pawned the ring at Fennyman's Friendly Pawn Shop, which had then "sold" it to its more respectable sister, Fennyman's Fine Jewelry, which, in turn, sold it to Romeo, who gave it to Juliet. Assuming that the ring was stolen from Rosaline, can Romeo sue Fennyman's Fine Jewelry for breaching the implied warranty of good title? (A) No, because Fennyman's Fine Jewelry did not know the ring was stolen. (B) No, because Fennyman's Friendly Pawn Shop took voidable title in the ring, and Fennyman's Fine Jewelry, a good faith purchaser for value, could transfer good title to Romeo as a buyer in the ordinary course of business. (C) No, because Fennyman's Fine Jewelry had voidable title in the ring, and could transfer good title to Romeo as a buyer in the ordinary course of business. (D) Yes, because one who takes possession of a stolen item can never pass anything but void title; and, therefore, Fennyman's Fine Jewelry sold Romeo a ring in which Fennyman's could not give Romeo good title. Answer: Answer (D) is the best answer. A thief takes void title. Someone with void title can never pass anything other than void title to a subsequent purchaser, no matter how innocent. Whether the seller knows it is selling stolen goods is irrelevant for these purposes. Therefore, Answer (A) is incorrect. Because a seller of goods impliedly warrants that (1) the title conveyed is good, (2) the transfer of title is rightful, and (3) the goods are free of any encumbrance, UCC § 2-312(1), a seller who sells goods for which one or more of the foregoing statements is untrue breaches the implied warranty of good title. Neither Fennyman's establishment could have voidable title if the ring came - no matter how indirectly - from a thief. Therefore, Answers (B) and (C) are incorrect because Fennyman's had void title, not voidable title, and was incapable of passing good title to Romeo. Terms of the Agreement (Parol Evidence) Question: Leon James is developing a subdivision near Houston. On February 14, 2003, he entered into a written contract to sell a lot in the subdivision to Paola Thomas for $50,000. During negotiations, Leon assured Paola that the property was zoned outside of the 50-year flood plain. The written contract, which contained a conspicuous merger clause, made no mention of this. When, after signing the contract and paying Leon for the lot, Paola applied for a building permit, she was notified that the lot was within the 50-year flood plain (meaning both that it was substantially more prone to flooding and that it would be much more expensive to insure the house that Paola intended to build on the lot). If Paola sued Leon for breach of contract, would evidence of Leon's oral representation be admissible at trial, notwithstanding the parol evidence rule? Answer: Yes. Even if the trial court finds the contract to be unambiguous and fully integrated as a matter of law, there are numerous parol evidence rule exceptions that might permit the admission of Leon's oral assurance to Paola that the property was zoned outside of the 50-year flood plain. At least five might apply in this case. First, if both Leon and Paola were mistaken when they entered into the contract as to the flood-plain zoning of the property, and that zoning materially affected the value of the transaction to one or both parties, parol evidence may be admissible to establish a mutual mistake that would allow either party to avoid the contract. Second, if Leon should have known that the property was within the 50-year flood plain, or did not know one way or the other whether the property was outside the 50-year flood plain, parol evidence may be admissible to establish a material misrepresentation that would allow Paola to avoid the contract. Third, if Leon knew that, in fact, the property was inside the 50-year flood plain, parol evidence may be admissible to establish fraudulent inducement. Fourth, if Paola would never have purchased the property if she had known it was zoned within the 50-year flood plain, but did so believing that she was receiving a property that was not flood-prone in exchange for her promise to pay Leon, parol evidence may be admissible to establish lack or failure of consideration. And, fifth, if Paola's agreement to purchase the property was conditioned on its not being situated within the 50-year flood plain, parol evidence may be admissible to establish the existence of an unsatisfied condition precedent. Question: Methuselah was getting along in years and wanted to provide for his grandson Noah's future. Over dinner one evening, Methuselah asked Noah what he would like Methuselah to leave him after Methuselah died. Noah replied that he was very fond of Methuselah's chinchilla ranch. "Very well," said Methuselah, "I will change my will to leave you the chinchilla ranch." "Thanks, Grandpa," Noah replied. "I'll make you proud." Did Methuselah and Noah form a contract obligating Methuselah to amend his will to leave the chinchilla ranch to Noah? (A) No, because Methuselah suffered no detriment from his promise. (B) No, because Noah's promise to make Methuselah proud did not induce Methuselah to promise to will the chinchilla ranch to Noah. (C) No, because Methuselah did not seek Noah's promise or performance in exchange for Methuselah's promise to will the chinchilla ranch to Noah. (D) Yes, because Methuselah was morally obligated to keep his promise to Noah. Answer: Answer (C) is the best answer. While Methuselah may have offered the ranch to Noah, and Noah may have accepted it - though the former is certainly questionable - there was no consideration to support any promise Methuselah may have made to Noah. At pre-Restatement common law, consideration was defined as a benefit to the offeror or a detriment to the offeree. See Restatement (Second) § 79 cmt. b. Because Methuselah would not benefit (in this lifetime, at least) from willing the chinchilla ranch to Noah, nor would Noah have to suffer any detriment in order to get the ranch, Methuselah's promise was not supported by consideration and Noah had no contractual right to the ranch under pre-Restatement law. The Restatement (Second) dispenses with the requirement that, to be consideration, something must be a benefit to the offeror, a detriment to the offeree, or both. See Restatement (Second) § 79(a). Therefore, Answer (A) is incorrect both because it relies upon an outdated concept of consideration and because it misstates the concept as requiring a detriment to the offeror, when in fact it required a detriment to the offeree. The Restatement also disavows the pre-Restatement views that the consideration must have induced the offeror to make the offer and that the offer must have induced the offeree to give the consideration. See Restatement (Second) § 81. Therefore, Answer (B) is incorrect. The Restatement focuses more on process than substance, defining consideration as a return promise or performance sought by the offeror in exchange for his or her offer and given by the offeree in exchange for (but not necessarily as an inducement for) the offeror's offer. Restatement (Second) § 71(2). Performance, in turn, may take the form of (1) engaging in some act other than making a promise, including paying money or other value, (2) forbearing from acting in a way that is otherwise legally permissible, or (3) creating, modifying, or destroying a legal relation. See Restatement (Second) § 71(3). Noah neither promised, acted, refrained from acting, created, modified, or destroyed a legal relation, nor paid his grandfather any money in exchange for Methuselah's promise, nor did Methuselah seek any of the foregoing from Noah. Therefore, there was no "bargained for" consideration, and Noah had no contractual right to the ranch under the Restatement approach. While a number of scholars and a handful of contemporary courts have advocated a "moral obligation" theory of enforcing promises that are otherwise unenforceable for lack of consideration, the Restatement clearly rejects the idea that a moral obligation to honor one's promises, without more, suffices for, or dispenses with, the need for consideration. See, e.g., Estate of Graham v. Morrison, 576 S.E.2d 355 (N.C. Ct. App. 2003). See generally Jean Fleming Powers, Rethinking Moral Obligation as a Basis for Contract Recovery, 54 Me. L. Rev. 1 (2002). Therefore, Answer (D) is not the best answer. Question: Sandra Ypres is a realtor living and working in San Dimas, California. Bosworth Hallifax, a personal injury attorney based in nearby Riverside, knows Sandra casually through mutual acquaintances. At 9:00 a.m. on Monday, June 30, 2003, Sandra faxed Bosworth a letter stating that she had 100 acres of undeveloped land, at the intersection of Wyld Stallyns Drive and No Way, which she would sell him for $1,000 per acre. Sandra's letter also stated: "Unless I receive your written acceptance by 5:00 p.m. on Thursday, July 3, 2003, my offer will expire. I will not offer this same acreage to any other prospective buyer until 5:00 p.m. on Thursday, July 3, 2003, or until you reject this offer, whichever occurs first." Across the bottom of Sandra's letter was printed "Sandra Ypres, Realtor - 2400 Baja Grande Dr., Suite 150, San Dimas, CA 90735 - Tel: (562) 555-1234 - Fax: (562) 555-9876 - E-Mail: sandra2400@yippie.com." At 1:00 p.m. on July 3rd, just before he rushed out of the house to catch a flight to Akron, Bosworth sent an e-mail to "sandra2400@yippie.com" stating: "I agree to buy your 100 acres for $1,000 per acre. Have a great Fourth of July!" Bosworth's e-mail reached Sandra's e-mailbox less than a minute later, but she did not check her e-mail until after 5:00 p.m. on July 3rd. Was Sandra's fax an offer to sell Bosworth 100 acres of undeveloped land for $1,000 per acre? Answer: |
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