Chapter 9 Introduction to Contracts 117

Practice Test

1. Interactive Data Corp. hired Daniel Foley as an assistant product manager at a starting salary of
$18,500. Over the next six years, Interactive steadily promoted Foley until he became Los Angeles
branch manager at a salary of $56,116. Interactive’s officers repeatedly told Foley that he would have
his job as long as his performance was adequate. In addition, Interactive distributed an employee
handbook that specified “termination guidelines,” including a mandatory seven-step pre-termination
procedure. Two years later, Foley learned that his recently hired supervisor, Robert Kuhne, was under
investigation by the FBI for embezzlement at his previous job. Foley reported this to Interactive
officers. Shortly thereafter, Interactive fired Foley. He sued, claiming that Interactive could only fire
him for good cause, after the seven-step procedure. What kind of a claim is he making? Should he
succeed?
Foley is arguing that he has an implied contract with Interactive based on the informal dis cussions
concerning his future and the employee handbook. His argument convinced the California Supreme
Court. Foley v. Interactive Data Corp., 47 Cal. 3d 654, 765 P.2d 373 (1988). Foley had no express
contract for any period, and thus he started work as an employee-at-will. But the company’s repeated
assurances, plus the handbook, created an implied contract.

3. Academy Chicago Publishers (Academy) approached the widow of author John Cheever about
printing some of his unpublished stories. She signed a contract, which stated:
The Author will deliver to the Publisher on a mutually agreeable date one copy of the manuscript of
the Work as finally arranged by the editor and satisfactory to the Publisher in form and content. . . .
Within a reasonable time and a mutually agreeable date after delivery of the final revised
manuscript, the Publisher will publish the Work at its own expense, in such style and manner and at
such price as it deems best, and will keep the Work in print as long as it deems it expedient.

Within a year, Academy located and delivered to Mrs. Cheever more than 60 unpublished stories.
She refused to go ahead with the project. Academy sued for the right to publish. The trial court ruled
that the agreement was valid; the appeals court affirmed; and the case went to the Illinois Supreme
Court. Was the contract enforceable?
Mrs. Cheever won. The court held that all of the key terms were missing. A court might be willing to
supply a missing term, where the parties stated most of the contract provisions and provided a clear
basis for adding additional ones. Here, however, the key terms were absent. Consequently, there was
no basis on which a court could craft a contract. Academy Chicago Publishers v. Cheever, 144 Ill.2d
24, 578 N.E.2d 981 (Sup. Ct. Ill. 1991).
5. An aunt saw her eight-year-old nephew enter the room, remarked what a nice boy he was, and said, “I
would like to take care of him now.” She promptly wrote a note, promising to pay the boy $3,000
upon her death. Her estate refused to pay. Is it obligated to do so?
No. There is no consideration for this promise to pay: the aunt neither asked nor received anything
and the nephew neither promised to do something nor offered anything of value. Additionally, the
parties never engaged in any bargaining or any exchange. Dougherty v. Salt, 227 N.Y. 200, 125 N.E.
94 (1919).

7. Guyan Machinery, a West Virginia manufacturing corporation, hired Albert Voorhees as a salesman
and required him to sign a contract stating that if he left Guyan he would not work for a competing
corporation anywhere within 250 miles of West Virginia for a two-year period. Later, Voorhees left
Guyan and began working at Polydeck Corp., another West Virginia manufacturer. The only product
Polydeck made was urethane screens, which comprised half of 1 percent of Guyan’s business. Is
Guyan entitled to enforce its noncompete clause?
The noncompete clause is unenforceable, because the two companies are not really in competition.
Guyan, therefore, has no confidential information or customer lists to protect. Voorhees v. Guyan
Machinery Co., 191 W. Va. 450, 446 S.E.2d 672 (1994).

9. The McAllisters had several serious problems with their house, including leaks in the ceiling, a
buckling wall, and dampness throughout. They repaired the buckling wall by installing I-beams to
support it. They never resolved the leaks and the dampness. When they decided to sell the house, they
said nothing to prospective buyers about the problems. They stated that the I-beams had been added
for reinforcement. The Silvas bought the house for $60,000. Soon afterwards, they began to have
problems with leaks, mildew, and dampness. Are the Silvas entitled to any money damages? Why or
why not?
The Silvas are entitled to damages for fraud (saying the I-beams had been added merely for
reinforcement) and nondisclosure (not mentioning the problems). The jury awarded $21,000 damages
and $15,000 punitive damages, and the state supreme court affirmed the verdict. Silva v. Stevens, 156
Vt. 94, 589 A.2d 852 (1991).