Objective Standard” Interpretation of Contracts

PART ONE – “Objective Standard” Interpretation of Contracts

Last week you attended a party with some of your friends. There were also people you had never met at the party.  No one was intoxicated or drinking alcohol at this party. A friend of yours asked you how you like your new Mercedes SL-Class Roadster automobile.  You purchased the car last month, but it has been in the shop for the past two weeks while the dealer tries to figure out the problem with the engine.  Your response is:  “I’m so frustrated with it that I would sell it for $100 to anyone dumb enough to give me $100 for it.”   Terry, a person you never met before, hears your statement and says:  “I’ll give you $100 for your car.”  You laugh and shake his hand and say “It’s a deal.”   Nothing more is said about it.  Two days later Terry knocks on your door.  When you answer it, Terry holds out a $100 bill and says: “Here is my $100 payment for your car.  I’ll wait here while you sign over the title to me.”  You are shocked.  You begin to review in your mind all of the elements of a valid enforceable contract (which you learned in your favorite class – Legal Environment and Contract Law) and wonder if indeed you and Terry have a valid contract. 


Describe the elements of a contract and explain whether each element is present in this scenario.  Be sure to consider all of the elements and any defenses that might apply in this situation.  What is Terry’s best argument that you have a contract?    What is your best argument that you do not?   Give a conclusion about whether or not you are obligated to accept the $100 and transfer your car title to Terry.



PART TWO – Mistake


1. What is a unilateral mistake? When would a mistaken party be able to rescind or avoid a contract based on having been mistaken about a material factor in the contract? Explain how a mistake of fact differs from a mistake of value. Does the law treat these two kinds of mistakes the same or differently? Explain your answer fully.


2. Kara inherited a jewelry box from her grandmother and in it she finds a big ring with a green stone.  She shows it to Larry, who says “Wow! That could be valuable.”  Neither Kara nor Larry knows what the ring is made of or whether it is valuable.  Kara sells the ring to Larry for $100 saying “Don’t come griping to me if it turns out to be worth two dollars.”  Larry takes the ring to a jeweler who tells him it is an unusually perfect emerald and worth at least $3,000.  Kara sues to rescind her sale of the ring to Larry.  What is Larry’s best argument that he should be able to keep the ring?  What is Kara’s best argument that she should be able to rescind the sale?  Which side you believe will win and why?


PART THREE – Legal Capacity of Minors to Contract


1. What is the reason for requiring legal capacity in order to form a valid contract? Who are we, as a society, trying to protect? What are the two most common situations where legal capacity is missing from a contract? What happens to the contract? Can the person who lacks legal capacity enforce the contract anyway? Why or why not?


2. Angie is a student attending college 1500 miles away from home. Angie attends school and works part-time at a restaurant. Using the money she earned, she made the following purchases and agreements. On Angie’s 18th birthday (the age of majority in her home state and in the state where she attends school), Angie informed her parents that she wanted to move back home and attend school locally. Angie’s parents agreed and she began to make plans to move back home. She decided that she will handle each of her recent purchases and agreements in the manner noted below. All of these transactions occurred in the state where Angie is attending college.


     a) A year ago (while still 17) she rented an apartment for $500 per month rent. She signed a two-year lease agreement. She paid a security deposit of $500 and has paid monthly rent in the amount of $500 per month for a full year. Now she wants to move out and get a full refund of all the rent she has paid, plus the security deposit she paid. She also wants to be relieved from any obligation for the remaining year of the lease agreement.


     b) A year ago (while still 17) she bought a big screen television for $3,000 (she loves Husker volleyball!) She paid $800 down and made monthly payment on the balance until it was paid in full. Now that she is moving back home, she wants to return the television and get a full refund of her $3,000. The television is in good working order.


     c) Two months ago (while still 17), Angie bought a used car to get her to work. She paid $200 down and is making monthly payments of $200 over a period of five months, for a total purchase price of $1,200. Now, she decides she doesn’t want the car any longer. The car still runs fine, but it has a big dent in the door where another car crashed into it from the side. She wants to return the car and get a refund of the money she has already paid. She also wants to be relieved from having to make the remaining payments.


     d) A year ago (while still 17) Angie joined a health club that is located right across the street from her apartment. She pays a monthly fee of $40. She signed a three-year membership contract. After turning 18 and before moving back to her parents, Angie visited and used the health club facility three times and made a monthly payment for the current month. Angie now wants to cancel her contract and get a full refund of all the money she paid to the health club.


     e) A week before she turned 18, Angie stocked up on groceries. She bought $78 worth of food and personal items (toiletries, paper goods, cleaning products, etc.) and she has used or eaten most of it, or shared it with friends. She wants to get a refund of the $78 she paid for the food, but she has nothing left to return.


Instructions: Consider each of the transactions described above and discuss fully Angie’s obligations and rights with respect to each transaction. Be sure to consider and discuss all of Angie’s options with respect to each transaction. Keep in mind that there may be differences depending on state laws. You should make note of these as you answer the questions.


PART FOUR – The Required Element of Consideration


As you know, consideration on both sides of a transaction is required in order for a contract to be legally enfoeceable.   The following five scenarios are not enforceable contracts because they do not include consideration on at least one side of the transaction.  Provide a full explanation about why each one lacks consideration on at least one side of the transaction.  Be sure to use proper terminology and to explain your reasoning fully. Assume that all parties are adults with full legal capacity to enter into binding contracts.


     a) A husband enters into an agreement with his wife that he will refrain from his use of illegal drugs for at least 6 months and, in return, she will buy him a new motorcycle.  Why is this not an enforceable contract?


     b) Susan is walking by a park and she sees a child playing in a busy street with a speeding car approaching. Susan rescues the child moments before he is hit by the car. The thankful mother of the child promises to give Susan her diamond earrings in return for saving her child’s life.  Why is this not an enforceable contract?


     c) Sally promises to buy her best friend, Jodi, an iPod for her birthday. On Jodi’s birthday, Sally is broke and gives Jodi only a musical greeting card, suggesting that Jodi carry the card around for musical entertainment.  Why is this not an enforceable contract?


     d) In September, Jack agrees to purchase Mark’s old jet ski for “as much as I can afford to pay after I receive my year-end bonus.”   Mark gets tired of waiting and decides to sell his jet ski to someone else in October, two months before Jack gets his bonus.   Why is this not an enforceable contract?


     e) Best Buy pays a delivery company in full to deliver a plasma television to the Smith’s home. Upon arrival, the deliveryman tells the Smiths that he will unload the television only if the Smiths agree to pay him an extra $100 cash. The Smiths agree to make the payment. After the television is in the home, the Smiths refuse to hand over the $100 cash payment.   Why is this not an enforceable contract?

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