Contracts question 1

Question One

Bob, a financial advisor, is selling his secret customer list because he is retiring.

May 25, 2020. Bob negotiates with Ernie, an agent for an undisclosed buyer. Bob writes a contract that

appears valid in all respects, signs it, and gives it to Ernie to bring to the undisclosed buyer for signing.

Kyle, age 17, is the undisclosed buyer. Kyle signs the contract on May 30, 2020. His birthday is the next

day. On Kyle’s birthday he assigns all his rights to the customer list to Ernie, the agent (who is Kyle’s

uncle) as the two had planned. Bob knows none of this.

Essential terms of the May 25 contract: There are 150 client names on the list. Price: $200,000 payable

June 1, 2020, “… plus 15% of buyer’s profits at the end of a year.” The $200,000 payment was made

when due.

One year later (May 30, 2021) . . . .

Bob writes to Ernie the agent, demanding his client’s 15% payment.

Ernie responds: “You’re only owed money at the end of a year.”

Bob writes: “It’s been a year. Pay me or I’ll sue.”

Ernie grossed only $100,000 by the end of May 2021, netting only $50,000 – but his 2021 calendar year

(meaning January 1, 2021 to December 31, 2021) gross income was $500,000, with a net profit of

$350,000.

Bob, having discovered Kyle’s role, sues Kyle and Ernie (filing his complaint on January 2, 2022), claiming

that one or both had breached the May 25 contract by not paying Bob the 15% he is owed, and that:

1. Under the terms of the contract, the 15% payment calculation should be for the calendar

year (January 1, 2021 to December 31, 2021).

2. 15% of the “profits” means 15% of gross profits.

3. “Buyer’s profits at the end of a year” means all profits, not just those produced by the