Question

Amy, a baker, has found her dream home, but cannot afford the down payment. Amy’s brother agrees to loan her $3000 for the down payment, and Amy agrees to pay him back in one year. Next year, Amy offers to bake her brother’s wedding cake for his wedding next month instead of paying back the loan, so that she can buy new equipment for her bakery. Amy’s brother agrees and accepts the cake. How much money does Amy now owe her brother? $3000, because agreements to accept less than full payment of liquidated debt are non-binding. $3000 less the cost of the wedding cake, because agreements to accept less than full payment of liquidated debt are non-binding. $0 because an agreement to accept different performance in lieu of full payment of liquidated debt is binding. $3000.

Answer 1

Answer:

$0 because an agreement to accept different performance in lieu of full payment of liquidated debt is binding.

Explanation:

Since there is an agreement between Amy, a baker, and her brother, she owes him $0.

At first, Amy gets a loan of $3,000 from her brother to pay for her dream home. She agrees to pay him back in one year, and that agreement was binding. During the time to pay back the loan, Amy offers to bake her brother's wedding cake instead of paying back the loan and her brother accepts. This has presented a new agreement that overrules the previous agreement. Now instead of paying back the $3,000, she would bake a wedding cake for him. This implies that the wedding cake is equal to $3,000.

Therefore, she owes him $0.