Question

Farmer Smith hires Joe to drill a new well. Joe looks at the drilling site and quotes Smith a price of $500 for the new well. After drilling a short distance, Joe discovers hard bedrock, which is unexpected in this locality. To drill through this would take substantially more time and cost more. Joe says he will continue, but only if Smith pays him $2,000. Smith agrees. Smith's promise to pay an increased amount is enforceable because:

a. This is a valid settlement of a liquidated debt.
b. This is an unforeseen circumstance.
c. This is a Uniform Commercial Code modification.
d. This is a preexisting duty.
e. This is a novation.

Answer 1

The agreement between Farmer Smith and Joe to increase the price for drilling the well is a valid settlement of a liquidated debt. The correct answer is option a.

Step-by-step explanation:

The correct answer is option a. This is a valid settlement of a liquidated debt.

A liquidated debt refers to a debt for a fixed, certain, and agreed-upon amount. In this case, Joe and Smith had a contract for drilling a well for a price of $500. However, the unexpected hard bedrock presented a new circumstance that would substantially increase the time and cost of drilling. Therefore, by agreeing to pay Joe $2,000, Smith is settling the increased cost of drilling, which is a valid settlement of a liquidated debt.