Deck 12: Practical Contracts

Question 1

YOU BE THE JUDGE WRITING PROBLEM Chip bought an insurance policy on his house from Insurance Co. The policy covered damage from fire but explicitly excluded coverage for harm caused "by or through an earthquake." When an earthquake struck, Chip's house suffered no fire damage, but the earthquake caused a building some blocks away to catch on fire. That fire ultimately spread to Chip's house, burning it down. Is Insurance Co. liable to Chip? Argument for Insurance Co.: The policy could not have been clearer or more explicit. If there had been no earthquake, Chip's house would still be standing. The policy does not cover his loss. Argument for Chip: His house was not damaged by an earthquake; it burned down. The policy covered fire damage. If a contract is ambiguous, it must be interpreted against the drafter of the contract.

Answer 1

Decision regarding the case issue is explained below:
In this case, the insurance company is liable to C, because the insurance policy has only fire damages. The court can rule this case under the provision of ambiguity. Therefore, it must be interpreted against the drafted contract.

Question 2

A contract states (1) that Buzz Co. legally exists and (2) will provide 2,000 pounds of wild salmon each week. Which of the following statements is true?

A) Clause 1 is a covenant and Clause 2 is a representation.
B) Clause 1 is a representation and Clause 2 is a covenant.
C) Both clauses are representations.
D) Both clauses are covenants.

Answer 2

Covenant and representation:
Covenant is a promise given in contract. A representation is that statement, which carries facts related to present and past.
Here, clause 1 states that B legally exists and clause 2 states that 2,000 pounds will be provided to WS every week.
Clause 1 is a representation that talks about the present feature of an organization. But, clause 2 is a covenant that promises 2,000 pounds to a person or a company. Hence, Option
clause 1 is representation and clause 2 is covenant is correct.
Since (b) is correct, options (a), (c), and (d) are incorrect, as they do not comply with the case requirements or given definitions.

Question 3

In the movie contract, which side was the more successful negotiator? Can you think of any terms that either party left out? Are any of the provisions unreasonable?

Answer 3

Decisions made for the movie contract case is explained below:
In a movie contract, the success of one party does not prohibit a positive outcome for the other side. This is one side for a more successful negotiator.
The term that the "either party left out" denotes a lawyer. A lawyer is appointed to draft and develop a contract.
There are no particular provisions that either side of the movie contract behaved unreasonable in the contract.

Question 4

List three types of contracts that should definitely be in writing, and one that probably does not need to be.

Question 5

In the Quake case, the appellate court ruled:

A) the letter of intent was a valid contract.
B) letters of intent are never a valid contract.
C) a letter of intent can be a valid contract, but this one was not.
D) the trial court had to determine if the letter of intent was a valid contract.

Question 6

What are the advantages and disadvantages of hiring a lawyer to draft or review a contract?

Question 7

Make a list of provisions that you would expect in an employment contract.

Question 8

In the Cipriano case, what happened?

A) The jury decided in favor of Cipriano because arson is vandalism.
B) The jury decided against Cipriano because arson is not vandalism.
C) The judge dismissed the motion for summary judgment because the contract was ambiguous.
D) The judge granted the motion for summary judgment because the contract was not ambiguous.

Question 9

What are the penalties if Artist breaches the movie contract? Are these reasonable? Too heavy? Too light?

Question 10

List three provisions in a contract that would be material, and three that would not be.

Question 11

In the case of a scrivener's error, what happens?

A) A court will not reform the contract. The parties must live with the document they signed.
B) A court will reform the contract if there is clear and convincing evidence that the clause in question does not reflect the true intent of the parties.
C) A court will reform the contract if a preponderance of the evidence indicates that that the clause in question does not reflect the true intent of the parties.
D) A court will invalidate the contract in its entirety.

Question 12

ETHICS In the Heritage case, the two companies had agreed to a price change of$0.01. When Heritage's lawyer pointed out to his client the change to $0.10, the Heritage officer did not tell Phibro. The change was subtle in appearance but important in its financial impact. Was Heritage's behavior ethical? When the opposing side makes a mistake in a contract, do you have an ethical obligation to tell them? What Life Principles would you apply in this situation?

Question 13

Slimline and Distributor signed a contract providing that Distributor would use reasonable efforts to promote and sell Slimline's diet drink. Slimline was already being sold in Warehouse Club. After the contract was signed, Distributor stopped conducting in-store demos of Slimline. It did not repackage the product as Slimline and Warehouse requested. Sales of Slimline continued to increase during the term of the contract. Slimline sued Distributor, alleging a violation of the agreement. Who should win?

Question 14

In the LeMond case, the court ruled:

A) PTI's failure to supply marketing and media plans was a material breach of the contract because without those plans, LCI could not monitor sales.
B) PTI's failure to supply marketing and media plans was a material breach of the contract because PTI had agreed to supply the plans.
C) The requirement that PTI use commercially reasonable means to promote the product line was not enforceable because the term was ambiguous.
D) PTI's failure to supply marketing and media plans was not a material breach of the contract.

Question 15

Blair Co.'s top officers approached an investment bank to find a buyer for the company. The bank sent an engagement letter to Blair with the following language:
If, within 24 months after the termination of this agreement, Blair is bought by anyone with whom Bank has had substantial discussions about such a sale, Blair must pay Bank its full fee.
Is there any problem with the drafting of this provision? What could be done to clarify the language?