Bar Exam (US) Contracts: Question below is based on the following fact situation. On December 16...

Question

Question below is based on the following fact situation.

On December 16, 2004, Franco, owner and operator of Pizza Palace, entered into a written contract with Mario that provided that Mario would be employed as manager of the Pizza Palace for a period of three years. The contract provided that Mario would commence working in January 2005 and that Franco was "to pay Mario a salary of $1500 per month, payable one-third to Mario, one-third to Mario's elderly mother, Mia, and one-third to the Venice National Bank (to whom Mario was indebted in the sum of $50,000, which was secured by a mortgage on Mario's oceanfront villa)." In addition, the employment contract provided that Franco would pay Mario an annual bonus "to be determined by the parties hereto within two weeks after the year's profits have been ascertained." The contract further stipulated that "the monies due hereunder shall not be assignable."

When Mia learned of this contract, she wrote a letter to Franco stating, "Kindly pay the amounts due me under your contract with my son directly to the Pine Creek Nursing Home, where I am presently a patient." During the first year of the contract, Franco paid $500 per month to Mario, $500 per month to the Pine Creek Nursing Home, and $500 per month to the Venice National Bank. At the end of 2005, Pizza Palace's net profit was $50,000. Accordingly, Mario and Franco agreed that Mario should receive a bonus of $5,000; this amount was subsequently paid to Mario.

In January, 2006, Pizza Hut, a new pizza franchise, opened a restaurant across the street from the Pizza Palace. During the next few months, business at the Pizza Palace steadily declined. As a result of the loss in business, Franco informed Mario that unless he agreed to take a cut in his salary, Mario would be fired. Reluctantly, on May 20, 2006, Mario orally consented to a salary reduction of $500 per month. By the terms of their verbal agreement, Franco promised to continue to pay $500 per month to the Venice National Bank. However, their new agreement provided that beginning June 1st, Franco would no longer be obligated to pay $500 per month to the Pine Creek Nursing Home. Thereafter, Franco discontinued his $500 per month payments to Pine Creek Nursing Home.

At the end of 2006, Pizza Palace realized a net profit of $10,000. On January 3, 2007, Franco telephoned Mario and offered him a second year bonus of $1,000. Mario refused and requested a bonus of $2,000. Moreover, Mario stated that he would no longer be bound by the salary adjustment and demanded that Franco thereafter pay him, his mother, and Venice National Bank on the basis of $1,500 per month. Franco refused Mario's demand and immediately terminated his employment.

In June 2006, the Pine Creek Nursing Home brings suit against Franco for breach of contract. Judgment for

AnswerChoose the correct answer.Choose all that apply. Correct Partially correct Incorrect Don't Know

  1. A
    Correct Answer
    Franco, since Mia's assignment to Pine Creek was void as violative of the anti-assignment clause in the Franco-Mario contract.
  2. B
    Correct Answer
    Franco, since the May 20 agreement between Franco and Mario released Franco of any further obligations to Pine Creek.
  3. C
    Correct Answer
    Pine Creek, since Mia's assignment would be enforceable despite the May 20 release.
  4. D
    Correct Answer
    Pine Creek, since Mia's gratuitous assignment was irrevocable.
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