Problems Reviewed and Solutions
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1101
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Accounting
Date
Jan 9, 2024
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27
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Problems Covered So Far
Questions and Correct Solutions
12/23/2023
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1
Additional Problem #9
On October 1, Tsering received the following letter from Shoshanna: “I understand that you are interested in buying a pick-up truck, I will sell you mine for $10,000 all cash, and will have it ready for delivery to you on November 15. (Signed) Shoshanna. Later that day Tesering telephoned Shoshanna and inquired: “Can I have 20 days to think over your offer?” Shoshanna replied replied: “O.K., you have an irrevocable option for 20 days. Write to me when you decide.” On October 6, Tsering wrote Shoshanna: “I am still very much interested in your offer. I’m a little short of cash at the moment and would like to know if you would consider taking $5,000 cash and my 30-day note for the other $5,000? (Signed) Tsering.” Shoshanna did not reply.
On October 10, without Tsering’s knowledge, Shoshanna sold and delivered the truck to Mario for $11,000 cash. On October 15, Tsering wrote Shoshanna: “I have decided to accept your offer and will pay you $10,000 in cash when I pick up the truck on Nov.15. (Signed) Tsering.” Shoshanna wrote back: “The truck is sold.” Tsering sued Shoshanna for damages for breach of
Additional Problem #9
Issues: •
Offer made by Shoshanna on Oct. 1 and accepted on October 15. Was this acceptance valid? •
Letter of Oct. 6 written by Tesering to Shoshanna was an inquiry and NOT a counteroffer that operated as a rejection of the offer
•
Twenty-day “option” given by Shoshanna to Tesering was not an irrevocable offer b/c it was not supported by consideration nor was it in a signed writing. •
The sale of the Truck on Oct. 10 was not effective revocation of the offer b/c Tsering did not learn of the sale until after he had accepted the offer. •
Judgment for Tsering
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Additional Problem #11
Sara, a wholesale fruit dealer, sent the following letter to Bud, a fruit merchant: “Feb. 1, offer 1,000 boxes of Los Angeles, San Gabriel oranges, at $10.60 per box, F.O.B. Los Angeles: March delivery. Unless I receive your acceptance by 2 P.M. on Feb. 4, I will dispose of them elsewhere. (Signed Sara).” Sara’s letter was received by Bud on Feb. 2, at 3 P.M. At 1 P.M. on Feb. 2, Sara mailed Bud the following letter. “I regret to inform you that I am compelled to withdraw my offer dated Feb. 1.” Sara’s second letter was not received by Bud until Feb. 3. Meanwhile at 5 P.M. on Feb. 2, Bud mailed the following letter to Sara: “I accept your offer dated Feb. 1. (Signed Bud).” Because of a severe snowstorm, which disrupted all means of communication, Bud’s letter was not delivered to Sara until 4 P.M. on Feb. 4. (a)
Is there a contract between Sara and Bud? Explain. (b)
(b) Assume that the words “Unless I receive your acceptance by 2 P.M. on Feb 4, I will dispose of them elsewhere” were not included in Sara’s Feb. 1 letter to Bud. Is there a contract between Sara and Bud? Explain.
Additional Problem #11
(a)
Is there a contract between Sara and Bud? Explain. (a)
In her offer, Sara made her made acceptance by Bud conditional upon Sara actually receiving her acceptance by 2 pm on February 4. Sara had appropriately and successfully altered the basic mechanism of offer and acceptance. Consequently, Sara’s second letter revoked her offer when it was received by Bud on February 3, even though Bud had posted a letter of acceptance prior to his receipt of the letter of revocation. Note: even if Sara had not revoked her offer, Bud’s acceptance is still ineffective because it was received by Sara after 2 pm on February 4. The offer, by that time had already terminated by its terms. (b)
(b) Assume that the words “Unless I receive your acceptance by 2 P.M. on Feb 4, I will dispose of them elsewhere” were not included in Sara’s Feb. 1 letter to Bud. Is there a contract between Sara and Bud? Explain.
(a)
YES! Bud’s acceptance would be effective upon dispatch on Feb. 2. The attempted revocation would not have been effective when received by Bud on Feb 3, because a contract would already have been formed on Feb. 2 at
Additional Problem #1
Danforth Corporation entered into a written employment agreement with Eva on September 1, which provided in part that employment would commence on the following January 1 and “will continue for a period of time to be mutually agreed upon”. One month before January 1, Danforth Corporation notified Eva that it had changed its mind and would not employ Eva. In Eva’s action against Danforth for breach of contract, Danforth contends that there is no contract. Judgment for whom? Explain.
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Additional Problem #1
The duration of an employment contract is a material term. The parties do not appear to have agreed on an employment term, so there is no contract. Judgement for Danforth Corporation.
Additional Problems #1 Chapter 12
The chairman of the board of directors of Xerxes Corp. wrote a signed letter to Pablo, the president, who is 68 years old and planned to retire at the end of the year. “The corporation will pay you a pension of $100,000 a year for life if you retire as planned, and agree not to take another job in this industry.” Pablo replied, “I promise to do as you wish.” Two years later, Xerxes Corp. stopped the pension payments. Pablo sues Xerxes Corp. for the current installment.
•
(a) May he recover? Explain.
Additional Problems #1 Chapter 12
The act of retirement and the promise to not compete are valid consideration for the promise to pay a pension. Bargained for exchange with both legal detriment and legal benefit. Pablo promised NOT to do what he had a legal right to do
He was not obligated to retire or to promise not to take other employment in the industry.
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Additional Problems #1 Chapter 12
(b) Instead of the above letter, assume that at Pablo’s retirement dinner, the chairman of the board of directors of Xerxes Corp., in his speech, said “In view of the fact that you have been faithful to Xerxes Corp. for 30 years and have resisted efforts of our competitors to hire you away from us, the corporation promises to pay you a pension of $100,000 a year for life.” Pablo stood up and said, “I accept your pension promise with gratitude.” Is Xerxes Corp.’s promise enforceable by Pablo and if not, what would be necessary to make it enforceable? Explain.
Additional Problems #1 Chapter 12
Pablo had already rendered the service at the time the promise was made. The service was not induced by or given in exchange for the promise. This is past consideration, which is not consideration at all. However according to NY GOL: the promise would have to be in writing and state the past consideration to be effective, BUT that is missing here.
Additional Problems #2 Chapter 12
Alfalfa, a novice rock climber, decided to go on a very difficult climb. Halfway up, he found himself in trouble. Darla, a more experienced climber, at great peril to herself, rescued Alfalfa from almost certain serious injury, if not death. Alfalfa was so grateful for what Darla had done that he promised to send her a check for $1,000. Alfalfa failed to send the check and Darla sues him for breach of contract. Judgment for whom? Explain.
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Additional Problems #2 Chapter 12
The promise was given after the rescue. Therefore, it did not induce nor was it given in exchange for Darla’s efforts. This is past consideration, which is no consideration at all.
The promise is not enforceable.
Additional Problems Chapter 12: #7(a)
Eva and Maria entered into a written contract pursuant to which Eva was to render decorating services for Maria for a total price of $75,000. After the services had been performed, a good faith dispute arose between Eva and Maria over whether all of the services had been properly performed. Eva claimed that the full amount was due, but Maria argued that only $50,000 worth of services had been performed. After several weeks of argument, Maria sent a check for $60,000 to Eva on which Maria had written “payment in full for decorating services.”
(a) Eva endorsed the check, without making any further notations on it, deposited it and sued Maria for the remaining $15,000 she claims is due. Judgment for whom?
Additional Problems Chapter 12: #7(a)
a) Judgment for Maria. There was a good faith dispute which means that the debt is unliquidated. Eva’s (the creditor’s) acceptance of the check that was offered in full satisfaction constitutes an accord and satisfaction that discharges the debt.
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Additional Problems Chapter 12: #7(b)
(b) Instead of the facts in (a) assume that Eva wrote “under protest” on the check when she endorsed it and, after depositing it, sues Maria for $15,000. What result? Explain.
Additional Problems Chapter 12: #7(b)
Judgment for Eva. When a debtor tenders a full satisfaction check, the creditor may avoid an accord and satisfaction by expressly reserving her rights on the negotiable instrument, as Eva did here.
Additional Problems Chapter 12: #7(c)
(c) Instead of the facts in (a) and (b), assume that Eva and Maria had a telephone conversation in which Eva agreed to take $60,000 in full satisfaction of Maria’s obligation under the contract. Maria then sent the check, with a letter referencing the telephone conversation. Eva wrote “under protest” on the check, endorsed and deposited it, and then sued Maria for $15,000. What result? Explain.
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Additional Problems Chapter 12: #7(c)
Judgment for Maria. The conversation in which Eva agreed to take less in full satisfaction constituted an accord. The settlement of a disputed or unliquidated debt is deemed to be considered consideration for such a promise, thus the agreement was binding. The sending of the check and deposit by Eva is the satisfaction, ie, the performance of the accord. Thus, there has been an accord and satisfaction, and the debt is discharged. Eva’s attempt to reserve her rights is ineffective. •
Note the very important concept of sending a written confirmation of the oral agreement. Maria’s confirmation letter (“CYA letter”) can serve as evidence of the conversation, even though the letter is not legally
Additional Problems Chapter 12: #8(a)
Digna owed Cecelia $10,000 under a valid loan agreement. Payment was due on September 1. Digna informed Cecelia that she was unable to pay on September 1.
(a) Assume that on September 5, Cecelia orally agreed to accept $8,000 plus the transfer of Digna’s stamp collection (which Cecelia admired) as payment in full, if Digna would do so by September 10. Digna did pay the $8,000 and transferred the stamp collection to Cecelia on September 8. The stamp collection had a market value of $1,000. On September 15, Cecelia sued Digna for the $1,000 balance Cecelia claims is due. How much, if anything, will Cecelia recover from Digna? Explain.
Additional Problems Chapter 12: #8(a)
Nothing. Cecelia’s agreement to take $8000 plus Digna’s stamp collection in enforceable as there is a new consideration being furnished by Digna, i.e., the transfer of her stamp collection, which she was not previously legally obligated to do. The value of the stamp collection (adequacy of consideration) is irrelevant.
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Additional Problems Chapter 12: #8(b)
(b) Instead of the assumption in (a), assume that on September 5, Cecelia orally agreed to accept $9,000 in full payment of Digna’s debt if Digna paid before September 10. Digna paid Cecelia $9,000 on September 8. On September 15, Cecelia sued Digna for $1,000. How much, if anything, will Cecelia recover from Digna? Explain.
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Additional Problems Chapter 12: #8(b)
Cecilia will recover $1000 from Digna. The $10,000 debt was liquidated and past due. Digna’s payment of $9000 on Sept. 8 did not constitute consideration for Cecelia’s oral agreement to accept $9000 in full payment of Digna’s debt because Digna was already under a pre-existing legal duty to pay $10,000.
•
Note that the debt was fully matured on Sept. 1, so Digna was not paying before the due date, which would constitute
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Additional Problems Chapter 12: #8(c)
(c) Would your answer to (b) be different if Cecelia agreed in a signed writing to accept $9,000 in full payment of Digna’s debt? Explain.
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Additional Problems Chapter 12: #8(c)
Yes, GOL § 5-1103 applies to bar Cecelia from collecting the $1000 because Cecelia’s agreement to discharge Digna’s obligation is in writing and signed by Cecelia and requires no consideration to be enforceable.
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Pre-existing Contractual Duty: SUMMARY
How do parties modify a contract? •
The parties must agree to modify the contract and: 1.
The modification must be supported by consideration, such as
1.
New and different consideration (the stamp collection in problem 8a) OR
2.
Settlement of an unliquidated debt (problem 7a and 7c), OR
2.
The modification (if not supported by consideration) must be in writing and signed by the party against whom it is sought to enforce the modification, as provided in the GOL (problem 8c and 9b), OR
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Pre-existing Contractual Duty: SUMMARY
NOTE: For agreements seeking to modify a pre-
existing contract, an oral agreement not supported by consideration is not legally binding (problem 8b and 9a)
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