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Shelter Principle

Shelter Principle

Explain the applicability of the shelter principle in this situation

The shelter principle is applicable in the case of Bobby Brush and Harry because numerous parties were involved that influenced the contract. However, Brush is fraudulent, and despite defrauding people by entering into a contract and failing to deliver, Beth vouches for him, thus influencing Harry’s decision by making him trust Bobby and, in turn, write him a check worth $3,000. In this case, Beth is liable for sheltering Bobby, while Allison is also liable for receiving the check as payment for the car despite knowing that Bobby is fraudulent (Goldman, & Sigismond, 2007). If Harry was convinced that Bobby was not trustworthy, he wouldn’t have entered into a contract, but Beth convinced him otherwise. In this case, novation exists because Bobby accepts $3000 as payment for the services he will render in the future.

Discuss the liability of Mary and the corporation with regard to these contracts Mary has made.

Mary is liable to provide a platform for the artists to showcase their arts regardless of whether her company will be incorporated. In this case the contract will not fail because her company has received incorporation thus she can honor her contract with the artists.

Discuss novation based upon the above fact situation

In Mary’s case, she entered into a contract with numerous artists where she offered them a chance to showcase their art by providing them with a platform. Mary’s promise to the artists that she will provide a platform for the artists to showcase their art, in this case, qualifies to be a novation because there is a promise that the parties are bound to enter into a contract in the future, and thus both parties are liable for the agreements of the contract (Miller, & Jentz, 2008). If it happens that Mary’s Company is not incorporated, she will have to use other means to address the contract with the artists.


Goldman, A. J., & Sigismond, W. D. (2007). Business law: Principles and practices. Boston: Houghton Mifflin.

Miller, R. L. R., & Jentz, G. A. (2008). Business law today: The essentials : text & summarized cases–e-commerce, legal, ethical, and international environment. Australia: Thomson/South-Western West.


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Shelter Principle

(TCO E, H) Bobby Brush agreed to paint Harry Resident’s house for $5,000. Bobby never planned to actually paint the house, but made a habit of entering into contracts, taking partial or complete payment in advance, and never doing the work. Bobby got his friend, Beth, to talk to Harry about how competent and honest Bobby was, and explain that Harry should not be concerned about the quality of work or paying Bobby in advance. Harry wrote Bobby a $3,000 check one week before the painting was to be started. Bobby transferred the check to Allison in exchange for Allison’s car, which was worth $2,800. Before Allison had a chance to deposit the check, there were several news stories about Bobby and all the fraud he had been committing. Allison then transferred the check to Beth, who then transferred it to Cathy. Beth gave Allison value for the check, and Cathy gave Beth value. Explain the applicability of the shelter principle in this situation.

Shelter principle

Shelter principle

(TCO C, D, G) Mary wishes to create a corporation to operate an art gallery. She completes the articles of incorporation and mails them to the appropriate state office. Then, she leases space, hires a receptionist, buys supplies, and contracts with artists to exhibit their artwork, all on behalf of her corporation. Sometime later, the state issues its certificate of incorporation.

  1. Discuss the liability of Mary and the corporation with regard to these contracts Mary has made.
  2. Discuss novation based upon the above fact situation.

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