Exam 4: Enforceability of Contractual Rights

Ray wished to purchase a motor vehicle from Rita on credit,but Ray was unemployed,and Rita was hesitant to sell to him for that reason.Ziggy,who was quite wealthy,said to Rita: "Sell Ray the automobile on credit,and if Ray does not pay you,I will." -If Ziggy made the guarantee in writing,and signed the document,the guarantee would not be enforceable until Ray defaulted on a demand for payment by Rita.

Linda and Ralph moved to a large farm they recently purchased.The couple wish to subdivide some of the land and sell a lot.They contracted a local surveyor who completed the survey of the perspective lot to be severed.After the deal had been completed and the lot sold,the couple were confronted by the new lot owner,and a neighbour of the farmer.They produced an older deed showing the newly severed lot belonged to the neighbour's farm and did not belong to Linda and Ralph's.With the threat of legal action looming,the couple confronted the surveyor who told them they cannot sue him because he is an unlicensed professionaland is free from any responsibility for the services he renders.

While Connor was visiting his physician,he mentioned to him that he wished to sell his expensive sailboat.The physician expressed an interest in buying the boat,and offered to pay Conner $10,000 for it.Conner had intended to advertise the boat for $12,000 in the local newspaper,but agreed to sell it to the physician for $10,000.Some weeks after the boat had been sold,Conner wished to avoid the contract. -The physician could rebut the presumption of undue influence by proving that he paid a reasonable price for the sailboat,and that Conner had freely offered to sell him the boat.

Martin enters into a verbal contract with Smith Ltd.to investigate its operations and accounting systems,make recommendations as to how to improve them,and help implement the changes Smith accepts.In the negotiations,Martin makes it clear that he cannot give Smith a definite timetable and that it is clear that the whole process will take longer than a year.Part of their agreement is that either party may terminate the contract on 60 days' written notice to the other if the work is progressing unsatisfactorily. Which of the following is most correct based on the above scenario?

In the presence of several witnesses,Quentin verbally agreed to purchase Trevor's farm for $175,000.The next day,Trevor changed his mind,and refused to sell the farm to Quentin.On the strength of the verbal agreement of purchase and sale made in the presence of witnesses,Quentin sued Trevor for breach of contract,and for a decree of specific performance to compel Trevor to sell him the farm. -If Quentin had given Trevor $10 in cash as a deposit the agreement would be enforceable.

Simon bought a used yacht from Marvel's Marina and Boatyard for $70,000 to be paid in instalments over six years.He traded in his smaller yacht for $10,000 at the same time,but Marvel wanted to keep the two transactions separate for financial reasons and he promised to issue a cheque to Simon for the trade-in.Marvel assigned the $70,000 contract to Strait and Naro Finance (S&N).The first Simon knew of this was when he received copies of both contracts and a notice to pay the payments to S&N. -Assume there was a valid assignment.Simon still has not received the $10,000 and,when he calls Marvel,he finds the Marina has been sold to someone else and Marvel's whereabouts is unknown.He has a copy of the trade-in contract.

Creighton owned a commercial property on the main street of a large city.He leased the property for 15 years to a franchise of a nationwide department store.The lease contained a covenant prohibiting the department store tenant from establishing another one of its stores within a 10-mile radius of its current location.The main reason for the restrictive covenant was to protect the landlord's rental revenues.The rent for the property was set at a $24,000 minimum per year plus 3 percent of gross sales receipts.In reality,another franchisee of the department store had been operating a store within 6 blocks of Creighton's property for the last 10 years.Creighton was well aware of this fact,but had never taken any steps to enforce the covenant in his lease. In December,Creighton sold his property to Murdock and assigned the lease in its entirety.Creighton and Murdock arranged the deal such that Murdock made a lump-sum down payment and Creighton held a mortgage that Murdock would pay,in part,with the monthly rental revenues from the property.The assignment was executed under seal and immediately written notice was sent to both the store manager at the leased property and to the national office of the department store chain.The notice informed the tenant that the assignment had occurred and that all future rental payments were to be directed to Murdock.The tenant properly forwarded its monthly payments to Murdock for several months. In March,Murdock telephoned the tenant to inform it that he had reassigned the right to receive the rental income to Creighton and that future payments should again be made directly to Creighton.The purpose of the reassignment was to reduce the length of time it took each month to get the payments processed from the tenant to Murdock and on to Creighton.In return,Creighton reduced the rate on Murdock's mortgage by 0.25 percent.Murdock pointed out,however,that he retained his capacity as landlord,having assigned only the rental income back to Creighton. One week later Creighton brought an action against the tenant for damages for breach of the lease's covenant prohibiting the existence of the second store within 10 miles.Creighton sought damages in the amount equal to lost rental revenue for the previous 10 years. What legal issues are raised in this case? What arguments will be used by both Creighton and the tenant and what will be the likely outcome?

Susan,who is functionally illiterate,asks her friend Jane to read a document aloud to her.She is to sign it in order to purchase chinchillas from Patricia to start a breeding farm.Actually it is a deed transferring ownership of Susan's farm to Patricia and,unknown to Susan,Patricia and Jane have made a secret agreement to sell the farm and share the proceeds. -If Susan is successful in her defence of non est factum,the courts will grant rectification of the deed transferring the land,and Susan will be able to keep the farm.

Mary verbally agrees to purchase Martha's cottage for $75,000 and gives her a deposit cheque for $7,500.Martha later sends her a letter thanking her for the cheque and confirming all the details of the contract.Mary later refuses to go through with the deal.

On March 6,the Limestone Student Society entered into a contract with the Stumbling Stones,a rock group,to give a performance at the Limestone U Students' Union on March 31.On March 29,the Stumbling Stones fell ill with the flu,and were unable to travel to Limestone City.Another rock group was contacted by the Stumbling Stones to appear in their place,and arrived at the Student' Union in time to perform. -The privity of contract rule entitles the Limestone Students' Society to reject the substitute rock group,and prevent them from performing.

Innis Ltd.reaches a verbal agreement with McKenzie Co.to sell the company 16 tons of first-grade steel for $2,100 per ton.At the request of McKenzie,Innis drew up a written version of the contract and both parties signed it.Shortly after delivery,Innis received a cheque for $19,200,in full settlement of the account,from McKenzie and was horrified to discover that the numerals 1 and 2 had been reversed in the written contract and the price read "$1,200 per ton" instead of "$2,100 per ton",and neither party had noticed it at the time. Discuss what Innis Ltd.may do in this case.

The arol evidence rule:

If Martin bought a property from Nevin,knowing (because it was noted on the title deeds)that Nevin had agreed to a restrictive covenant in his contract to purchase the property from Olan,Martin must conform to the restrictive covenant even if it is not included in his contract with Nevin.

On March 6,the Limestone Student Society entered into a contract with the Stumbling Stones,a rock group,to give a performance at the Limestone U Students' Union on March 31.On March 29,the Stumbling Stones fell ill with the flu,and were unable to travel to Limestone City.Another rock group was contacted by the Stumbling Stones to appear in their place,and arrived at the Student' Union in time to perform. -The Limestone Student Society must allow the substitute rock group to perform by virtue of the legal doctrine of vicarious performance.

Anne met Adriana while shopping,and in the course of conversation,mentioned that she had a motorcycle for sale.Adriana was familiar with Anne's motorcycle,and offered to purchase it for $500.Anne accepted the offer,and Anne and Adriana walked to Anne's home to get the motorcycle.When they reached Anne's house,they were told by Anne's father that the motorcycle had been stolen earlier in the day,and was subsequently found by the police in a badly damaged condition in a local stone quarry. -Adriana is bound in contract,and must purchase the motorcycle even though it is badly damaged.

John was indebted to Stan on a loan for $1,000.Stan assigned John's promise to pay to Bob. -The assignment must be of the entire agreement between John and Stan.

Krishna,a neighbour of Dominic,wished to borrow a sum of money from a local bank.Dominic was quite wealthy,but elderly,with very poor eyesight.He frequently requested Krishna to read his newspaper to him when Krishna would drop by for a visit,because reading bothered his eyes.One evening,Krishna placed a paper before Dominic,and explained to him that he wished to borrow a sum of money,but required a letter of reference before the bank would make the loan.She requested Dominic to sign the paper to satisfy this requirement.Dominic trusted his friend Krishna,and signed the paper without reading it.Unknown to Dominic,the paper was a guarantee of Krishna's indebtedness,and not a letter of reference.Krishna later defaulted on her debt. -Dominic may plead non est factum as a defence to a claim by Krishna's creditor on the guarantee.

While Connor was visiting his physician,he mentioned to him that he wished to sell his expensive sailboat.The physician expressed an interest in buying the boat,and offered to pay Conner $10,000 for it.Conner had intended to advertise the boat for $12,000 in the local newspaper,but agreed to sell it to the physician for $10,000.Some weeks after the boat had been sold,Conner wished to avoid the contract. -Conner may raise the claim of undue influence in an attempt to recover the sailboat.

Acme Engineering needed cash and on March 14 assigned a block of its accounts receivable to Wellington Finance Company.On March 21,it assigned another block to Bagot Finance Company.By an oversight,the second block contained an account,a receivable from Smith,that Acme had already assigned to Wellington.The notice of assignment from Bagot arrived at the Smith offices on March 24,and Wellington's notice arrived on March 28.What is the most correct action that Smith should take?

John was indebted to Stan on a loan for $1,000.Stan assigned John's promise to pay to Bob. -Josephine is the executor of her father's will.She does not want to liquidate any part of his stock portfolio at this time to pay off a large debt he owed Tom,because the market is very low right now and she would likely get a better price later in the year.Her verbal promise to Tom that she will repay him herself is unenforceable.