FINAL EXAMINATION IN CONTRACTS Fall Semester, 2007 Professor Maggs Question 1 (thirty-six minutes) In January 2007, Dan, a farmer, and Paula, a farm services contractor, discussed work needed during the 2007 growing season on Dan's farm. They exchanged emails, in which they agreed that Paula would do some ploughing work to be agreed upon and that in addition to whatever price was agreed, Paula would receive a bonus of 1% of the gross receipts when the crops were sold after the fall 2007 harvest. Eventually they signed a written contract containing the following payment term: Between April 1 and April 15, 2007, Paula will plough Dan's corn fields and soybean fields east of Route 45. Upon completion of this work, Dan will pay Paula $50 per acre. Paula started ploughing on April 10. By April 15, she had ploughed all of Dan's corn fields east of Route 45 (totaling 160 acres) and all of Dan's soybean fields east of Route 45 (totaling 160 acres). Dan refused to pay anything, pointing out that Paula had done nothing with Dan's corn fields west of Route 45 (totaling 80 acres). Dan hired Sam to do this work on an crash basis (because the planting season had started), and paid Sam $6000. The crops have been harvested. The corn from the fields east of Route 45 sold for $100,000; the corn from the fields west of Route 45 sold for $50,000, and the soybeans from the fields east of Route 45 sold for $70,000. Paula has sued Dan for breach of contract. You are law clerk to the judge hearing the case. He is familiar with the facts, but has asked you to write a memorandum on the legal issues involved. Question 2 (thirty-six minutes) In the spring of 2005, in response to a request by George Green, Design-Build submitted a proposal for the construction of a new home for Green. Green had made a similar request of several other builders. Among the many details Green had required of the proposals was that "all floors be made of bamboo." When Design- Build's president asked Green if he had any particular kind of bamboo in mind, Green replied "Any kind of bamboo will do." When Design-Build's president prepared the bid, a staff member contacted one of Design-Build's regular suppliers, and, because of the good price, hired the supplier to supply something the supplier called "teak bamboo", got a faxed quote ($30,000) and plugged the cost into the bid as "bamboo," not realizing that "teak bamboo" was imitation bamboo made of teak wood. The supplier had not mentioned this, assuming everyone in the constrution business knew the difference. In fact the supplier had emphasized how "teak bamboo is superior to most bamboos in terms of low cost, stain resistance and ease of polishing." When Design-Build's president reviewed all the bid components, she noticed that the flooring cost was a bit low, but assumed that since it was from its regular supplier, she was just getting a good deal. She meant to call to double check, but didn't have time before the bid was due. Her bid simply reiterated the proposal request that the "all floors be made of bamboo." Design-Build's construction bid of $550,000 was the lowest by $30,000, about $20,000 of which was due to the cheaper flooring. It was awarded the bid and completed the house by the summer of 2006. Owner and his family were extremely pleased with the finished house, especially with the beauty of the floors. Green happily paid Design-Build the final installment of the contract price. Just last week, a visitor to Green's house mentioned that the teak bamboo floors looked like real bamboo and would be really durable, but that it was a shame that a tropical forests had to be cut down to make such floors, when real bamboo, a renewable crop could have been used. After double-checking the facts Green called Design-Build's president and told her she was "going to have to replace every square inch of the fake stuff with real bamboo or else I'll warn all my environmentalist friends about your company's sneaky tactics." Design-Build's president, chagrined and embarrassed, immediately promised that she would replace all the flooring with real bamboo. After making her promise, Design-Build's president discovered that real bamboo prices have skyrocketed and that there is no way to salvage the installed teak bamboo. It would cost approximately $80,000 to redo all the flooring in the home. Design-Build's president has hired your law firm for legal advice. Your research shows that only an expert can tell "teak bamboo" from real bamboo and that "teak bamboo" is more durable than real bamboo. A senior partner, who is familiar with the facts, has asked you to write a discussion of Design-Build's possible liability to Green. The partner has asked you not to consider any possible liability of the supplier. A different associate is researching that question. Question 3 (thirty-six minutes) Sally Jones was a blue-collar worker construction worker employed by Drizzle, Inc. Jones suffered a severe injury when hit by an uninsured, unlicensed, penniless drunk driver while Jones was carefully driving her own car from one Drizzle worksite to another. It was unclear under local workman's compensation law whether Drizzle was or was not liable for her injuries. After the accident, Jones was taken to the Philo Rehab Institute, which specialized in in- patient therapy for accident victims. During the admission process, when it became apparent that Jones had no money and no insurance, the manager of the Philo Rehab Institute called the president of Drizzle, who said, "Don't worry, we'll pay her bill for up to three month's treatment." After two months treatment, Jones was discharged, completely cured. She was unable to pay any of the Philo Rehab Institute's charges, which at the Institute's standard rate came to $150,000. (This rate was somewhat high. The going rate for such treatment in the area was $100,000.) The Institute has now filed suit against Drizzle to recover the $150,000. You are clerk to a judge considering the case. The judge has asked you to provide him with a written discussion of the law applicable to the facts. Question 4 (thirty-six minutes) The City of Urbana published a request for bids for building a bridge across the Boneyard Creek. Bids were due at 5:00 p.m. on October 1, 2007. Constructor was interested in bidding on the contract and contacted Steel about doing the metal work for the bridge. Steel studied the City's published specifications and faxed the following message to Constructor at 10:00 a.m. on October 1: Steel will do the metal work on the Urbana Bridge for $50,000. Subject to agreement on contract details. Constructor used this bid and bids of other subcontractors and submitted a total bid to the City of Urbana in the amount of $95,000. This was the lowest bid. The City formally accepted the bid at 10:00 a.m. on October 2. The same day, Constructor telephoned Steel. Steel said that it would be glad to do the work, but mentioned that cleanup after the steelwork was not included in the City's specifications, and so was not included in Steel's price quote. Constructor said, "O.K., we won't hold you responsible for cleanup." After hanging up, Constructor, during the next 15 minutes, contacted three other steel contractors, but none was willing to beat Steel's price. Constructor then faxed a draft contract to Steel. One clause in the contract required Steel to clean up the work site, removing all scraps of metal and other material from the work site. Steel signed the draft contract without reading it and dropped it into the mail to Contractor. Then Steel read the contract and saw the clause about cleanup. Steel faxed Constructor, "Withdrawing my acceptance, won't do cleanup." Constructor then telephoned Steel and left a message on his voicemail saying, "Don' worry, you won't have to do the cleanup." Steel has now realized that the City's specifications called for the use of stainless steel, rather than painted steel. This would be much more expensive and would cause Steel to lose at least $40,000 if it went through with the job. Steel would like to get out of the contract. He seeks the advice of your law firm. What do you advise him and why? Question 5 (thirty-six minutes) The Chambana Bar Association negotiated with the Lakeside Resort Hotel for accommodations for the Association's annual conference. The association's president, who was authorized to bind the association, signed the Hotel's contract, which was on a standard form with some blanks that were filled in. The form provided in part (filled-in items are underlined): Chambana Bar Association (Customer) and Lakeside Resort Hotel (Hotel) agree: Hotel will provide rooms for up to 100 guests for the nights of June 22 and 23, 2007 at a price of $100 per room per night. Customer will pay for at least 90 rooms each night, regardless of the number of rooms actually occupied. The back of the form contained the following in small print: Customer agrees to pay in addition to the amounts on the front of this form a service charge of $20 per room per night and an energy price increase charge of $10 per room per night. The Bar Association was only able to find 80 lawyers who wanted to attend the conference. On June 22, there a tornado warning was broadcast by the United States Government's National Weather Service. The warning urged that all non-essential driving on highways in the area (which included the highway between Chambana and the Hotel) be avoided. As a result, only 50 lawyers actually showed up at the Hotel for the conference. Luckily for the hotel, motorists seeking cover from the storm filled all rooms not occupied by the lawyers, and paid the standard rate of $200 a night. The Hotel is now demanding payment from the Association in accordance with the contract terms. You are an associate in the law firm representing the Association. A senior partner familiar with the facts asks you to provide her with a discussion of the legal issues involved. FINAL EXAMINATION IN CONTRACTS Fall Semester, 2006 Professor Maggs Question 1 (thirty-six minutes) Paula signed up for a "Learn to SCUBA Safely" trip to Daytona Beach for spring vacation at the website of "Daytona Divers," paying $400 on her credit card for the trip, which the website said included round-trip bus transportation from Urbana to Daytona beach, a shared room at a cheap motel for 5 nights, and 5 beginners' SCUBA diving lessons. The travel agent gave her an envelope which contained a bus ticket, a voucher for a 5 day stay at the Happy Days Motel, and 5 vouchers for diving lessons. The week went well, but soon after leaving Daytona on the return trip, the bus driver missed a turn, went off the road, and the bus crashed. Paula was seriously injured. She has retained your law firm. Your firm has learned: (1) students on the trip observed the bus driver having a few beers "for the road" just before leaving Daytona; (2) the bus driver's contract with Daytona Drivers said "Driver agrees not to drink any alcohol less than 24 hours before driving"; (3) the back of the bus ticket (which Paula had not read), said "Customer releases Daytona Drivers and its employees from all liability for personal injury."; (4) the bus driver recently inherited a million dollars; (5) under the applicable tort law both the employer and the employee are liable if the employee negligently causes injury in the scope of employment. You are working with a senior partner who is familiar with all the facts. He has asked you to write a discussion of possible contract law issues. Question 2 (thirty-six minutes) Dave ran a cleaning business. At Christmas services, on December 25, 2005, Dave talked to the priest of St. Peter's church and they agreed that he (Dave) would clean the Church every Saturday night during the calendar year 2006, in preparation for Sunday church services and that he would be given a check for $500 for each time he cleaned the Church, plus a $1000 bonus on Sunday, December 31. Everything went well until Saturday, July 1, 2006. On July 1, Dave's vacuum cleaning and floor washing equipment broke down. Dave called the priest at St. Peter's and lied, saying that he (Dave) was sick and wouldn't be able to clean that night. Dave managed to fix his equipment and cleaned the church for the next four Saturday nights. At that point the equipment again broke down, and Dave failed to clean the Church the next Saturday night. The Priest called him Sunday morning and said, "I really need to know what the problem is and what you are going to do about it." Dave went out bought new equipment for $5000, but when he got back home, he found a e- mail from the Priest, saying "I've thought it over. This can't go on for the rest of the year, you're fired." Dave consults you as to his legal situation. What do you advise him and why? Question 3 (thirty-six minutes) Owner hired builder to put a wooden fence around owner's back yard for $10,000, with $4000 to be paid in advance, $4000 when the fence was up (but not yet varnished) and $2000 to be paid on completion. The written contract called for the fence to be made of cedar and to be covered with a polyethylene varnish to avoid discoloration. Owner paid the $4000 advance payment. Builder promptly put up the fence, and was paid another $4000 by Owner. Builder delayed so long in varnishing that the fence became quite discolored. Owner told Builder that it was too late to varnish the fence and revoked Builder's permit to enter the gated community where Owner's property was located. Owner has not paid the final $2000. Because of strong demand for fences, prices have gone up. Today a similar fence would cost $11,000 if unvarnished, $14,000 if varnished. It would cost $5000 to sand the fence to bare wood and then varnish it, but the result would not be as good as if the fence had originally been varnished properly. Most landscape architects and environmentalists think that a natural, unvarnished fence is more beautiful than a varnished fence. What are the rights of the parties and why? Question 4 (thirty-six minutes) Owner signed a contract with a Agent (a real estate agent) giving Agent the exclusive right to sell owner's house for 90 days, with Agent to be paid a 6% commission. The contract was on a 3-page standard form supplied by Agent except for blanks that were filled in with the description of the house, the date, and Owner's name. Before making the contract, Owner and Agent, by an exchange of e-mails, agreed that Agent, immediately after the contract was signed, would hire a professional photographer to make a "video tour" of the house and that Agent would post this video on Agent's website. When Agent failed to do so, Owner called and complained. Agent said, "There is a $400 extra charge for making the 'video tour'." Owner agreed to pay this. Agent then did have the "video tour" made and posted on the website. When Owner noticed that no one was coming to look at the house, she called Agent and got a recorded message saying, "I've gone on a Carribean cruise - will be back in a couple of weeks." Neighbor then approached Owner and offered to buy the house. Owner sold the house to Neighbor for $500,000. What are the rights of the parties and why? Question 5 (thirty-six minutes) City and Contractor entered into a written contract whereby for $1,000,000 Contractor was to construct a levee around a City sewage treatment plant and excavate an area to create a storm water detention lake. The contract provided: "Contractor may use the material extracted from the lake bed as fill material for the levees." Shortly after work began, Contractor discovered that the material in the lake bed designated by the contract were not suitable as fill for the levees. Because the excavation did not yield suitable material, Contractor manufactured fill material by buying sand and clay and mixing them together. This substantially decreased Contractor's productivity and increased its costs. The contract did not address manufacturing fill material. The parties discussed using fill from other, distant sites, but Contractor believed the contract did not designate those sites as sources for fill material. Using those sites would have been more expensive than the manufacturing process, and Contractor persisted in manufacturing fill. Finally, City agreed to pay Contractor $300,000 extra. Contractor has completed the work, but City refuses to pay the extra $300,000. What are the rights of the parties and why? Fall Semester, 2005 Professor Maggs Write your Exam ID Number, but not your name, on the front page of your answers. If you use several exam booklets, number them in a pattern like: "#1 of 3; #2 of 3; #3 of 3." This is an open-book, open-notes, open-computer, closed-network examination. You may bring and use any printed, typed, photocopied, or handwritten material, whether prepared by yourself or others. You may bring a computer and use information (whether prepared by yourself or others) stored on its hard disk or other storage media, but may not connect to the law school network, to the Internet, to Westlaw, to Lexis, to other databanks, to e-mail, to chat, etc. This is a three-hour examination (except for students for whom the appropriate authorities have authorized extra time). There are five questions. You should allot thirty-six minutes to each question. Question 1 (thirty-six minutes) Harry and his wife Louise and Louise's mother Georgia lived in Harry and Louise's small house in Urbana. Georgia was an artist, but couldn't paint, because the house lacked a studio with adequate space and lighting. At Georgia's request Builder came and discussed addition of a studio to the house with Harry, Louise, and Georgia. After a few days Builder returned with blueprints for the studio and an attached form. The form indicated that it was an "offer" by Georgia for addition of the studio for a price of $20,000, to be paid at the rate of $1000 a month starting with the month after completion of the work. The form said, "This offer will remain open for 30 days. This agreement shall become binding only upon written acceptance by Builder or upon commencing performance of the work." Georgia knew that Builder would have to check her credit rating before starting work. Georgia also know that her credit rating was shaky, because she had "maxed out" her credit cards partying in nightclubs with fellow artists. For two weeks, Georgia did not hear from Builder. She assumed that her credit rating was unacceptable and that the deal was off. Georgia mailed a letter to Builder saying: "I have changed my mind and no longer want the construction work done which we discussed." Unfortunately, the U.S. Postal Service temporarily mislaid this letter. It didn't arrive at Builder's office until 2 weeks after it was sent. Shortly after sending the letter, Harry, Louise, and George left for a 4 week expedition in the Amazon jungle, where they were completely out of touch. About three weeks after their meeting, Builder finally received Georgia's credit information, and although it wasn't perfect, it seemed acceptable for this project. He immediately dispatched a crew of workers to the the house to build the studio. No one was home (which wasn't unusual since many people travel or visit relatives over the holidays) but they found the hidden house key where Georgia had told Builder it would be. In 4 days they finished the project. Only later did Builder receive Georgia's letter. When the family returned from their trip, they discovered the studio and a bill from Builder with the first payment due in February. Georgia has just telephoned Builder and said, "I'm sorry, none of my paintings have sold, so I'm probably never going to be able to pay you. Advise Builder if he has enforceable contract rights against Georgia. Question 2 (thirty-six minutes) Assume the same facts as in Question 1. Assume further (regardless of how you answered Question 1) that Builder had a binding contract with Georgia. Builder soon realized that even if he had a legal right to collect from Georgia, he had no practical way to collect from her. At this point Georgia's son-in-law, Harry, met with Builder. In front of several witnesses he said, "Don't worry, I'll see that you get paid." Builder is upset. He realizes that he charged far too little. He knows now that other builders would have charged $40,000 for the studio and that the studio undoubtedly increased the value of the house by at least $30,000. Harry has just indicated that he has changed his mind will not pay anything. Incidentally, Builder has learned that Harry is now renting the studio to a talented young artist (not Georgia) for $1000 a month. Advise Builder on his rights (if any) against Harry and/or Louise. Question 3 (thirty-six minutes) Baxendale owned all the shares of stock in Downstate Office Products. In 1995, Downstate hired Mellish as sales manager and Cohen as a salesperson. In 1999, with Downstate Office Products's sales on the rise, Baxendale, Downstate Office Products, Mellish and Cohen executed a "Stock Purchase Agreement" by which Baxendale agreed to sell, and Mellish and Cohen agreed to buy, all Baxendale's Downstate Office Products stock "[i]n the event of [his] death, retirement or should he become disabled." The Stock Purchase Agreement specified that, contingent on their continued employment with Downstate Office Products at the time of a triggering event, Mellish was obligated to purchase 1,200 shares, and Cohen, 800 shares. The Stock Purchase Agreement also specified the price ($500 a share, so the total for 1200+800 shares was $1,000,000) and payment of the purchase price in 120 equal monthly installments to be deducted from their respective salaries. In October 2005, Baxendale announced his intent to retire on December 1, 2005, and offered Mellish six months salary if he would "move-on." Mellish declined, but he and Cohen offered to buy all of Baxendale's Downstate Office Products' stock under the terms of the agreement. Baxendale told Mellish and Cohen that they could buy Baxendale's stock for one lump sum of $1,000,000 payable immediately to become the sole owners, subject to a first-right-of-refusal by Baxendale's daughter, Hadley. When Mellish and Cohen insisted on their rights under the Stock Purchase Agreement, Baxendale fired them. Mellish and Cohen brought suit against Baxendale and Downstate Office Products. They presented evidence clearly showing that the stock was worth $2,000,000 and that their salaries at the time they were fired were $200,000 a year each. They further presented evidence clearly showing that Baxendale was in very ill health, and that since September 2005 Baxendale not devoted any substantial time to the management and operation of Downstate Office Supply. What result and why? Question 4 (thirty-six minutes) Yummy Restaurant operated a restaurant on Green Street in Champaign, on property owned by Smith. Monster Video approached Smith midway through 2004 about purchasing the property for use as a video rental shop. Yummy Restaurant's lease ran through December 31, 2005. Monster Video negotiated with Yummy Restaurant about buying out the lease at the same time it was negotiating with Smith about purchasing the property. Late in 2004, the owners of Yummy Restaurant and Monster Video agreed on some terms regarding a buyout, including the $35,000 price. Both parties knew that the oral agreement was to be finalized in written form. On August 25, 2004, Monster Video delivered a letter to Yummy Restaurant's owners, outlining the proposed buyout. Yummy's owners testified that the letter memorialized the oral agreement. The letter said the following: "As discussed, Monster Video, Inc. has entered into a Purchase Agreement to purchase said premises. We have the right to confirm our ability to use the property for a video rental shop under zoning regulations. . . . Until a title has been delivered to us, and in the event we do not purchase said premises, you are obligated to fulfill the terms and conditions of your Lease Agreement with Smith. After closing, you will have ninety days (90) to vacate the premises. At such time that you vacate the premises and deliver possession to Monster Video, Inc., Monster Video, Inc. agrees to pay you the full sum of Thirty-five Thousand and 00/100 Dollars, ($35,000.00)." The letter contained a space for the Yummy's owners to sign, indicating "I agree with the above terms and conditions." On September 20, 2004, the building housing Yummy Restaurant burned to the ground as a result of arson. Yummy's lease with Smith stated the following: "In the event the premises shall be destroyed or so damaged or injured by fire or other casualty during the life of this agreement, whereby the same shall be rendered untenantable, then the Lessor shall have the right to render said premises tenantable by repairs within ninety (90) days therefrom. If said premises are not rendered tenantable within said time, it shall be optional with either party hereto to cancel this lease, and in the event of such cancellation the rent shall be paid only to the date of such fire or casualty. The cancellation herein mentioned shall be evidenced in writing." Two days after the fire, the Yummy's owners signed the offer letter they had received from Monster Video in August, indicating that they "agree[d] with" the terms and conditions of the buyout proposed by Monster Video. They signed the offer letter on the advice of their attorney. The next day, Yummy Restaurants' attorney wrote to Monster Video indicating "we are cancelling the lease with Smith, conditioned upon payment of the agreed upon amount." The day after that, the Yummy's owners wrote Smith to state that Yummy Restaurant was cancelling the lease. The letter further stated: "This cancellation shall be conditioned upon the payment by the Monster Video store of $35,000 to relocate the restaurant. We have agreed to accept this sum to relocate." Yummy Restaurant paid no rent after the date of the fire. A few days later Smith wrote to the Yummy's owners, stating that he had received Yummy Restaurant' cancellation of the lease and "must agree that the building is completely untenantable and we don't foresee any possibility of reconstruction within the 90 day period." Smith's letter stated that it also operated as cancellation of the lease. Yummy Restaurant has sought payment of the $35,000 from Monster Video, but no payment has occurred. The restitution order that was part of the sentence received by the arsonists requires that the arsonists pay Yummy Restaurant $35,000. Yummy Restaurant has as yet received no payment under that order. Yummy Restaurant sued Monster Video, alleging that a contract was formed and that Monster Video should pay Yummy Restaurant the $35,000 contemplated by the contract. What result and why? Question 5 (thirty-six minutes) Seller owned a building suitable for a retail store in downtown Chambana. Buyer was interested in buying it. Seller and buyer signed a short written document which read as follows in its entirety: "Seller agrees to sell his lot and store building at 504 East Pennsylvania Avenue in Chambana to Buyer for $100,000, which Buyer agrees to pay. No modifications to this agreement are valid unless made in writing and signed by both Buyer and Seller." Under state law, sale of real property includes all buildings located on the property and all "fixtures" (defined as items attached to the property that cannot be removed without damage to themselves or the property). Buyer learned from his friend Carpenter that seller was planning to remove the shelving and counters from the premises. Carpenter told buyer that the shelving and counters were set in concrete and that removing them would require sawing them in pieces with a power saw and breaking the concrete with a jackhammer. Since Buyer was planning to use the premises for a store, Buyer wanted the shelving and counters left, because replacing them would cost $40,000. Buyer asked Seller to not to remove the shelving and counters, but Seller said he was going to remove them. Buyer then informed Seller that Buyer would not go through with the contract. Seller sued Buyer for damages for breach of contract and Buyer counterclaimed for damages. Seller offered evidence that Seller and Buyer had orally agreed that Seller could remove the shelving and counters. Seller offered further evidence that after the contract was signed, Seller and Buyer had orally agreed that Buyer would pay $25,000 to have the fixtures left in place. Buyer denied that these agreements ever occurred. The case went to trial on the above facts before a judge without a jury. What result and why if the judge believes that Seller was telling the truth about both oral agreements? FINAL EXAMINATION IN CONTRACTS Fall Semester, 2004 Professor Maggs Write your ID Number, but not your name, on the front page of your answers. If you use several exam booklets, number them in a pattern like: "#1 of 3; #2 of 3; #3 of 3." This is an open-book, open-notes, open-computer, closed-network examination. You may bring and use any printed, typed, photocopied, or handwritten material, whether prepared by yourself or others. You may bring a computer and use information (whether prepared by yourself or others) stored on its hard disk or other storage media, but may not connect to the law school network, to the Internet, to Westlaw, to Lexis, to other databanks, to e-mail, to chat, etc. This is a three-hour examination (except for students for whom the appropriate authorities have authorized extra time). There are five questions. You should allot thirty-six minutes to each question. Question 1 (thirty-six minutes) Marsha lived with her husband John in East St. Louis, Illinois, where John was a bank clerk and Marsha was a schoolteacher. Marsha's father, a successful lawyer, said to Marsha, "Now that your kids are grown up, why don't you go to law school, so you can get a good job. If you can get into my alma mater, the University of Illinois College of Law, I'll pay all your living expenses. You can just take out a student loan for the in-state tuition." Marsha took the LSAT and easily was admitted to the University of Illinois College of Law. In mid-August she went to Champaign and found an inexpensive one-room apartment. She called her father and asked if he could provide money for the $500 deposit that the landlord wanted on a year's lease. The father sent her a check. Marsha took out a student loan for tuition, used her credit card to buy casebooks, a computer, and food. She also got a cash advance on her credit card for the first month's rent payment. In late September, she asked her father to send money for her rent and food. He said that she should keep an expense diary for a month, so he could know what the expenses would be. During the fall semester, she called her father several times, but he was always in court or meeting with clients, so she never got to talk with him. She completed the semester with all "A's". She got a job in Urbana sorting mail over the Christmas break, and then went to see her father in early January. She said to her father, "My living expenses for the fall semester were $3000, when are you going to pay?" He said, "I was just trying to encourage you to do something for your own good, and you are doing fine. I wasn't making a legally binding promise." You are an attorney to whom Marsha has come for legal advice. She suspects the reason her father isn't paying is that he has just divorced her mother and married his massage therapist. She is quite ready to sue her father. Please evaluate what the result of such a lawsuit might be. Question 2 (thirty-six minutes) Sam is a free lance writer and photographer based in Chicago. Midwestern International Airlines gave Sam a free ticket to Rio de Janeiro and promised to reimburse him for the cost of a camera, film, developing, hotel, and meals, and pay him $2000, if he would go to Rio de Janeiro for Carnival, write a story for the airline's magazine and provide high-quality glossy photographic prints that could be used for illustrations for the story. Sam bought an excellent camera for $500, flew to Rio, enjoyed the Carnival, took lots of notes and snapped three rolls of film. When he got back to Chicago, he decided that the films should get deluxe processing, so he left them at the very high priced SuperPhotoLabs for developing and for printing of enlargements. When he left the pictures, he was given a receipt, which he put in his wallet without looking at it. Four days later, when the prints were supposed to be ready, he returned to the lab. Only two of the films were done. The clerk explained that things were backed up because of a huge, last-minute order from a regular customer. And the prints were murky. (A clerk said, "Either something was wrong with your camera or something was wrong with our equipment.) The store agreed to do the prints over and to complete the other roll. When Sam returned a few days later, only a few of the bad photos had been reprinted. To make matters worse, all the negatives had been lost. The clerk gave Sam a bill for $200 for printing the two rolls. He said, "You have to pay for the prints. With respect to the negatives, the clerk said, "We are not responsible for any loss or damage to the material we receive. That's what it says on the back of your receipt and here." He pointed at the wall across the reception desk. A framed "Important Notice to Customers: Business Policy and Exclusion of Liability" was hanging on the wall surrounded by more than 30 pictures of rock stars. Sam looked at the back of the receipt he had received. It said, "Subject to SuperPhotoLabs' business policy and standard exclusion of liability." He got closer to the wall and read the notice: "SuperPhotoLabs is not responsible for any losses or damage to materials received from customers. Customers waive any claims with respect to negligence, breach of contract or breach or any statutory duty of care on the part of "SuperPhotoLab's employees, agents and representatives. Customers also assume all risk of personal injury, death or property loss resulting from any cause while being at the premises of SuperPhotoLabs." Sam said that she would like to talk to the manager. Lucy, the manager, came and said that she was sorry they could not find Sam's negatives, but that Sam had to pay for the prints they had made. Lucy said, however, that she could offer Sam three free rolls of film. Sam yelled: "I am not paying this. This is not what I came here for." Lucy then said: "I am afraid we'll see you in small claims court then. we'll sue you for the price." Sam left without saying anything and went straight to you, his lawyer. Sam said to you, "I think I should pay nothing to the store, and that they should repay me the cost of the film, the cost of the camera, and the $1000 that I was promised by the airline. And also something for the pain and suffering this has caused me." What do you advise Sam and why? Question 3 (thirty-six minutes) William left law school after the first semester of the first year to pursue a new career as a restaurant owner. He chose Elmer's company, "BuildAll" to restructure an old warehouse building on University Avenue into a eating place. William hoped to open the restaurant in early fall 2004. William promised to pay Elmer $150,000 for the demolition and reconstruction job. On January 10, 2004 Elmer faxed a letter containing his standard terms of business and agreed, in the letter, to do the work for William for $150,000. One of the terms in Elmer's letter was that the initially agreed contract price might be varied according to the cost and availability of materials. William faxed his reply to Elmer on January 11, 2004. William's letter was based on a standard form contract which he found in the Internet. The terms in William's letter did not include a price variation clause. It did however have a clause that the contract would not be concluded unless signed and confirmed by mail by February 1, 2004. Elmer, who had already pre-ordered materials for reconstruction, posted a confirmation letter to William on January 20, 2004 without really reading William's document. However, he made a mistake in the zip code and the letter did not arrive until March 1, 2004. On February 7, 2004 Elmer also started demolishing some walls in the building on University Avenue and made significant progress in preparing the place for Jane's interior design work. After performing approximately half of the contract, Elmer refused to continue unless he received 50% more than the amount originally promised, citing the variation clause included in his faxed letter of January 10, 2004.William disputed not only the price variation clause but also the existence of contract as a whole. However, he promised orally to Elmer that he would pay him the additional money to avoid delaying the restaurant's opening and the need to hire another builder to complete the work. After Elmer finally finished his work on time, William refused to pay the promised additional amount and Elmer threatened to sue him for breach of contract. William seeks your advice. What do you advise William and why? Question 4 (thirty-six minutes) Dan wanted to build a gazebo in his back yard. He looked on the Internet and found a gazebo he liked. The price of a kit with all the parts for the gazebo was $4000, including shipping to Dan's property. Dan decided to hire Pamela, who had done home remodeling work for him before, to lay a concrete base and to construct the gazebo on it. At Dan's suggestion, Pamela studied the gazebo manufacturer's website to see what would be involved in construction. In a telephone conversation, Dan and Pamela agreed that for $5000, Pamela would lay the foundation and would have the gazebo ready by June 1. (This was the date when Dan was planning to have a small garden wedding reception for his daughter.) Pamela and Dan met and Pamela presented Dan with her standard form contract. In a blank she had written in "Customer is to supply a gazebo kit matching the attached plans and specifications. Builder is to construct the gazebo on Customer's property for $5000." Attached were the plans and specifications for the gazebo, as printed out from the seller's website. A clause in the printed contract stated, "Changes to this contract may be made only a writing signed by both parties." After signing the contract, Dan realized that there would be a lot of mosquitoes on June 1, so he telephoned Pamela and she agreed to install screens on the gazebo for an extra $300. The kit arrived and construction began, but slowly. At one point, Pamela casually remarked to Dan, "The gazebo should be ready by the Fourth of July." Dan replied, "But we agreed on June 1. My daughter's wedding reception is that day." Pamela said, "I didn't know about the wedding reception. I can't possibly be done before June 20. And by the way, the screens are a lot more expensive than I thought. If you want screens I'm going to need $1000 instead of $300 for them. Dan got angry and told Pamela to remove her equipment and not come back. Dan hired Swift, who, for a fee of $3000, finished the gazebo by June 1 and for another $1000 installed screens. It was a beautiful wedding and reception, but just as Dan was toasting the bride and groom, a process server appeared, notifying Dan that Pamela had filed suit against him for breach of contract. Dan seeks your advice. What do you advise him and why? Question 5 (thirty-six minutes) Cosmic Pharmaceuticals holds the patent on Cosmagra, a wonder drug that reverses certain aspects of the aging process. In March 2004, it received approval of the U.S. Food and Drug Administration for distribution of the product by doctors' prescriptions. The drug immediately became a huge success. To encourage further use of the drug, Cosmic decided to organize a large conference from August 1 to 5, 2004. The conference was planned to include reports from leading scientists on the use and effects of the drug. Cosmic concluded a contract with the luxurious beachfront Maui Ono Loa Hotel in Hawaii for the rental of 200 rooms and 5 conference halls for this period at a rate of $200 a day per room and $1000 per day per conference hall. In the contract the hotel agreed to prepare signs designating the conference as the "Cosmagra Applications Medical Seminar." Cosmic also concluded a contract with Wikiwiki Airlines under which Cosmic got a discount in return for agreeing to buy 200 tickets to Maui. Under the contract, Wikiwiki was to greet each passenger with a floral lei decorated with the word "Cosmagra.". Cosmic sent invitations to doctors to attend the conference at Cosmic's expense. By July 1, Cosmic had received 180 acceptances. That same day, the U.S. government's Food and Drug Administration banned sales of Cosmagra because a just-published independent research study showed that Cosmagra caused strokes. To avoid legal liability, Cosmic immediately withdrew Cosmagra from the market. On July 2, Cosmic contacted the hotel and airline, indicating that it was canceling the conference and did not need the hotel rooms, conference halls, or tickets. Both the hotel and airline asked Cosmic to change its mind, but when it didn't the hotel and airline immediately resold the respective hotel rooms and plane tickets to travel wholesalers at half the price that Cosmic had agreed to pay. On July 6 both filed suit against Cosmic for breach of contract. To make matters worse, a plaintiff's lawyer has organized a class action against Cosmic on behalf of the 180 doctors who had accepted the invitation. Cosmic consults you. What do you advise it and why? FINAL EXAMINATION IN CONTRACTS Fall Semester, 2003 Professor Maggs Write your ID Number, but not your name, on the front page of your answers. If you use several exam booklets, number them in a pattern like: "#1 of 3; #2 of 3; #3 of 3." This is an open-book, open-notes, open-computer, closed-network examination. You may bring and use any printed, typed, photocopied, or handwritten material, whether prepared by yourself or others. You may bring a computer and use information (whether prepared by yourself or others) stored on its hard disk or other storage media, but may not connect to the law school network, to the Internet, to Westlaw, to Lexis, to other databanks, to e-mail, to chat, etc. This is a three-hour examination (except for students for whom the appropriate authorities have authorized extra time). There are five questions. You should take thirty-six minutes for each question. Question 1 (thirty-six minutes) Railroad terminated its operations in Windy City, so that it no longer needed 20 acres of railroad yards in a prime downtown location. Developer contacted Railroad and explained that she was interested in the property as the location for a luxury townhouse community that would appeal to suburbanites tired of commuting. In a written contract, signed by both parties, Railroad agreed to sell the railroad yards to Developer for $10,000,000. In accordance with a provision of the contract, Developer paid $2,000,000 in "earnest money" to Railroad. After the contract was signed, the State Railway Safety Agency, as a part of routine inspection of railroad premises, discovered that huge amounts of toxic waste had apparently leaked from tank cars onto the railroad yards over the past 100 years. It published its findings. Developer, then realizing that she could not use the property for residential purposes without a multi-million dollar cleanup, telephoned the president of Railroad, who (acting with appropriate authorization on behalf of Railroad) agreed during the telephone conversation to reduce the price to $7,000,000. Soon thereafter real estate values doubled in downtown Windy City. Railroad now refuses to go through with the price reduction. Developer refuses to pay the higher price. Railroad refuses to return Developer's earnest money. Developer has come to your law firm for assistance. Please write a memorandum for a senior partner in your law firm, outlining the legal situation. Question 2 (thirty-six minutes) Mary and Paul consult you about their negotiations on a condominium apartment in downtown Windy City. Prices for condos were high in July 2003, when they signed the a written offer on a form supplied by a sales agent on the condo developer's staff. The building was touted by the sales agent as the "last chance to live in luxury on the Lake at a reasonable price." The units were offered for sale before construction began. Mary and Paul went to look at the Condo. The agent extolled the high quality of the units, the fabulous views, and the plans for the amazingly equipped fitness center. The agent said several times, "The real estate market is rising you'll be happy that you've locked in this great price." Mary and Paul decided to sign a written offer then and there to purchase a unit on the fifteenth floor of the building. The price was $400,000. A deposit of $40,000 was payable within two weeks after the developer's acceptance of the offer to purchase. The balance was payable in full on the closing date. This was stated in the document as "expected to be January 31, 2004", but because the construction schedule could not be predicted with certainty, the developer had the right to fix the definitive closing date by giving three months' notice. The offer to purchase contained all the terms of the contract of purchase. It was three pages long and had fairly small print. Clause 37 of the contract reads: "37. This offer when accepted shall constitute a binding contract of purchase and sale. It is agreed that there is no representation, warranty, collateral agreement or condition affecting this agreement or the real property or supported hereby other than as expressed herein in writing whether contained in any sales brochures or made by any sales representatives or agents." According to the terms of the written offer to purchase, the offer would lapse if Lakeview did not accept the offer within 15 days. Mary and Paul received notice of Lakeview's acceptance after 28 days, but happily paid the $40,000 deposit in response. A few months thereafter the condominium market suffered a sharp downturn shortly afterwards, from which it has still not recovered. Mary and Paul heard in late 2003 that new buyers were getting much lower prices from the developer than they had agreed to pay. Construction was also slower than expected. Mary and Paul received notice on November 15, 2003, that their condo will be ready and the closing date for their purchase will be February 28, 2004 They have learned that, due to rising construction costs, the fitness center will be scaled back in size and equipment. By now (December 19, 2003) the real estate market has nosedived, and value of the unit for which they had agreed to pay $400,000 has fallen to about $325,000. Furthermore, due to the poor economic situation, both have had to take pay cuts, so that it will be difficult for them to afford the condo. Advise Mary and Paul as to their contractual rights. Question 3 (thirty-six minutes) Jane had worked for many years as an (employee-at-will) executive for Megacorp at its headquarters in Windy City, a major center of culture and the arts. In 2001 Megacorp announced that it planned to move its headquarters in the summer of 2003 to the small, sleepy town of Chambana. In a talk in the company auditorium (on July 1, 2001), which Jane attended, Megacorp's president (and major stockholder) indicated said that if executives continued to work until the summer of 2003, they would be offered the choice of (1) moving to Chambana and receiving a $70,000 cash relocation allowance or (2) receiving $50,000 in severance pay. However, in the summer of 2002, there were news reports that Megacorp was in financial difficulties. Jane went to see the president, who said, "Don't worry, I'll personally guaranty that you get your relocation allowance or severance pay if you'll stay until the summer of 2003." Jane said she would stay. In January 2003, Megacorp announced that it would be unable to pay the severance pay, but would pay the cash relocation allowance. Jane immediately quit and took a job with Megacorp's competitor, Minicorp, at Minicorp's head office in Windy City, but the job paid $10,000 a year less than she had been getting from Megacorp. The only substitute Megacorp could find to fill Jane's key role cost it $30,000 a year more than Jane had been paid. Jane has asked your law firm for advice about her situation . Please write a memorandum for a senior partner in your law firm, outlining the legal situation. Question 4 (thirty-six minutes) Farmer hired Painter to paint farmer's rather large barn. They signed a contract providing a total price for painting the barn of $5000. The contract provided that the painting was to begin on November 1, 2003, and be done by November 30, 2003. Painter was to receive $100 bonus for each day the painting was finished early and pay $200 damages for each day the after November 30 that the painting was still unfinished. Painter began painting on November 10. Unprecedented bad weather - 15 straight days of freezing rain - prevented painting from November 11 through November 25. By December 10, painter was only 60% done. Farmer ordered Painter off the job and hired Quickart to finish the job, which it did in five days, for a fee of $3000. What are the rights of the parties and why? Question 5 (thirty-six minutes) Three couples: (1) Jack and Jill and (2) John and Marsha and (3) Harry and Sally, were among the entrants to the 2003 National Amateur Ballroom Dance Championship. There was an entry fee of $500 and a $50,000 grand prize for the couple whom the judges would find to be "best dancers." The entry form, which all entrants had to complete and sign, contained the contest rules. One rule stated, "All decisions of the judges shall be final." Another rule was that entrants had to be amateurs who had never danced professionally. There was also a specific question on the entry form, "Have you ever danced professionally." Only those who answered "no" to this question were accepted as entrants. Jack and Jill answered "no" even though in fact they had worked as professional dancers for a number of years. John and Marsha and also Harry and Sally truthfully answered "no" to this question, since none of them had ever danced professionally. The above-mentioned three couples were the only ones to make it to the final round of the dance contest. The judges found Jack and Jill to be the best dancers. But when this was announced, several people in the audience jumped up to protest, pointing out that Jack and Jill were professionals and were therefore ineligible. The judges then announced that no prize would be awarded in 2003. John and Marsha have consulted you about their rights. What do you advise them and why? FINAL EXAMINATION IN CONTRACTS Fall Semester, 2002 Professor Maggs Write your ID Number, but not your name, on the front page of your answers. If you use several exam booklets, number them in a pattern like: "#1 of 3; #2 of 3; #3 of 3." This is an open-book, open-notes, open-computer, closed-network examination. You may bring and use any printed, typed, photocopied, or handwritten material, whether prepared by yourself or others. You may bring a computer and use information (whether prepared by yourself or others) stored on its hard disk or other storage media, but may not connect to the law school network, to the Internet, to Westlaw, to Lexis, to other databanks, to e-mail, to chat, etc. Because ordinary word processors provide inadequate backup capabilities, you are be required to write your answers using the "ExamSoft" word processing software supplied by the law school. This is a three-hour examination (except for students for whom the appropriate authorities have authorized extra time). There are five questions. You should take thirty-six minutes for each question. Question 1 (thirty-six minutes) Hadley borrowed $100,000 from Lender to start an Internet store selling pickles. Lender was very trusting the loan was made on the basis of a handshake with nothing in writing. Lender wrote a check for the $100,000, which Hadley deposited in her bank account. Hadley spent most of the money setting up a beautiful Internet site, "www.superpickles.com." Unfortunately the venture went sour because few wanted to buy pickles over the Internet. The loan was due on September 1, 2002. At Hadley's request, her rich uncle Baxendale called Lender on September 1 and told Baxendale that he, Baxendale, would guaranty repayment if Lender would refrain from collecting for a while. Lender said "O.K." On October 15, Lender filed suit against Hadley and Baxendale to recover the debt. On October 21, Baxendale wrote Lender and said, "By a refraining from collecting for a while, I meant at least until sometime next year." Between September 1 and October 15, Hadley's net worth fell from $50,000 to zero she spent the money on an unsuccessful advertising campaign meant to bring business to her website. You are an associate in a law firm representing Baxendale. Write a memorandum on the legal issues involved. Question 2 (thirty-six minutes) Ma and Pa hired Remodeler to remodel a store that they had bought for a total price of $80,000. They were planning to open a cigar store like one that they had operated years ago when they lived in another state. Because the store they had just bought was in bad condition, the written contract required Remodeler to completely gut the inside of the store and to put in new electric wiring, new wall paneling, and a new hardwood floor. The contract also required Remodeler to build an all-wood, walk-in humidor with equipment to maintain the perfect temperature and humidity for storing cigars. The contract provided for completion 3 months after the date of signing, and for a "penalty of $100 a day" beyond the deadline. Ma and Pa were speculating that the United States would soon lift the embargo against the import of Cuban cigars and that they (Ma and Pa) could make huge profits from the pent-up demand for Cuban cigars. Remodeler encountered a problem when it was discovered that the old flooring was vinyl-asbestos, necessitating the payment of $3000 to a licensed asbestos abatement contractor. Ma and Pa agreed to pay $3000 extra for this work. Remodeler had also underestimated the complexity of the humidor, with the result that he completed the job 60 days after the deadline. The United States, in the meantime, had authorized the import of Cuban cigars; Ma and Pa think they lost out on the $20,000 profits that they had hoped to make from the initial demand for Cuban cigars, since the store was not ready when their competitors started selling Cuban cigars. To make matters worse, Remodeler used soft pine flooring rather than the hardwood flooring called for by the contract. It would cost $5000 to rip up the soft pine flooring and replace it with hardwood flooring. You are an associate in a law firm representing Ma and Pa. Write a memorandum on the legal issues involved. Question 3 (thirty-six minutes) Diana saw a newspaper advertisement indicating that Paul's house in Urbana was for sale for $100,000. She send a letter to Paul, stating, "I accept your offer to sell your house for $100,000." Paul sent a letter in reply stating, "Several people are interested in my house, what is the most you would pay? Diana telephoned Paul and said, "I could offer you $120,000 if you agree to put on a new roof." Paul said, "It's a deal." Paul immediately hired a roofing company and paid it $10,000 to put a new roof on the house. Soon thereafter, property values fell sharply due to the neighborhood having been chosen as the site for a toxic waste dump. Now Diana refuses to go through with the deal. You are an associate in a law firm representing Diana. Write a memorandum on the legal issues involved. Question 4 (thirty-six minutes) Subcontractor and Contractor were negotiating on a bid by Subcontractor to do the electrical work on a new factory to be built for Endrun. Both were aware that Endrun was in a somewhat shaky financial situation. During a telephone conversation they agreed that Subcontractor would be paid if and only if Endrun paid Contractor. Subcontractor submitted a bid for $200,000 for the electric work. The bid document stated, "payment to be made by Contractor upon receipt of payment from Endrun." After submitting the bid, Subcontractor realized that he had forgotten to include anything for wiring the basement of the factory. Subcontractor phoned Contractor and said, "I need to add $50,000 for wiring the basement to my bid." Contractor said, "It's too late, I've already used your bid in making my bid to Endrun." Contractor won the bid with Endrun. He asked Subcontractor to begin work under the contract, and reminded subcontractor that subcontractor would receive nothing unless Endrun paid Contractor. Subcontractor refused to start work. Contractor then took the next lowest bid from Subtwo of $240,000 for the whole electrical job. This bid included a "hell or high water clause" stating "Contractor will pay Subtwo in full within 10 days after Subtwo completes work, regardless of whether or not Contractor is paid by Endrun." Subtwo has completed the electric work and has been paid by Contractor. Endrun has paid nothing. It has now been discovered that Endrun has been concealing losses in dummy offshore partnerships and has falsified income statements. Endrun currently has $100 in assets and $3,000,000,000 in debts. You are an associate in a law firm representing Subcontractor. Write a memorandum on the legal issues involved. Question 5 (thirty-six minutes) John had a life insurance policy which provided for payment of $20,000 to his wife Marsha in the even of his death; with the payment to be $40,000 in case the death was accidental. This insurance was provided by Insurco. John paid the premium by payroll deduction of $20 a month through his employer, Empco. John had to quit work because of a disabling, life- threatening illness. Empco informed Marsha that it would continue payments for the insurance if she would pay Empco $20 a month. Marsha continued to pay $20 a month to Empco. Unfortunately a year and a half after he had quite work, John was run over by a bus and died instantly. Insurco has refused to pay, pointing out that its group policy with Empco provided, "this policy only covers full-time employees; former employees may continue with individual coverage by paying a 50% higher premium." You are an associate in a law firm representing Marsha. Write a memorandum on the legal issues involved. FINAL EXAMINATION IN CONTRACTS Fall Semester, 2001 Professor Maggs This is a three-hour examination (except for students for whom the appropriate authorities have authorized extra time). There are five questions. You should take thirty-six minutes for each question. Question 1 (thirty-six minutes) Susie told Bill that her farm might be for sale. Bill asked Susie if he could purchase the farm. Susie agreed to sell the farm to Bill for $500,000. Later in the conversation, Susie asked Bill if he would agree to pay off a $10,000 debt owed to Susie by Bill's brother, Andy. Bill agreed. Bill said that he would have his lawyer prepare the agreement for the farm purchase and that he would deliver it. Bill got a $510,000 loan from his rich but greedy uncle, agreeing to repay the loan after six months plus interest at a rather high rate. Bill then signed the agreement prepared by his lawyer and left it at Susie's house. Before Susie had time to read or sign the agreement, Anne learned that the farm was being sold to Bill and the terms of that transaction. Anne called Susie and made an offer of $600,000 for the farm on the condition that Susie repaint the main house and erect a fence around the barn on the farm prior to closing. Susie accepted Anne's offer, and a written agreement was signed by Susie and Anne which contained a provision requiring the main house to be repainted prior to closing. Susie's lawyer had prepared the agreement. After the written agreement with Anne was signed, Anne asked Susie if Susie would also paint the barn, and she agreed that she would. Bill, upon learning what had occurred, filed suit for specific performance of the written agreement that he had delivered to Susie. Susie answered denying Bill's claims, and she filed a counterclaim against Bill for the amount of the debt Andy owed Susie. Anne, who had been named a defendant, answered, denying Bill's claims, and asking the court to affirm her agreement with Susie and further order that Susie repaint the main house and the barn and erect the fence. You are law clerk to a judge, who has asked you to write a memorandum on the contracts law issues involved in this case. Write the memorandum. Question 2 (thirty-six minutes) A contract dispute has arisen between ESPN, Inc. ("ESPN"), an all-sports cable television network, and The Office of Major League Baseball ("Baseball"), which acts on behalf of the Major League Baseball clubs. In 1996, the parties entered into a telecasting agreement (the "1996 Agreement") pursuant to which Baseball granted ESPN the right to telecast regular season major league baseball games on its primary cable service. In exchange, ESPN agreed, among other things, to pay Baseball yearly rights fees and to produce baseball game telecasts on Wednesday and Sunday nights during the regular season. The 1996 Agreement includes two provisions that are the primary focus of this litigation. The first is a representation by ESPN that "it has not made nor will it make any contractual or other commitments that conflict with or will prevent full performance [of the 1996 Agreement]." The second provision permits ESPN to preempt up to ten baseball games a season with Baseball's prior written approval, which may not be unreasonably withheld. The preemption provision states: "With the prior written approval of Baseball, which shall not be unreasonably withheld or delayed, ESPN may ... preempt any [Baseball game telecast] hereunder, up to a maximum of ten [Baseball game telecasts] per year, for an event of significant viewer interest. Baseball may telecast the preempted baseball games on ESPN's secondary cable service, ESPN2. On January 13, 1998, ESPN entered into a telecasting contract with the National Football League ("NFL") whereby ESPN obtained the rights to broadcast regular season NFL games on Sunday nights. On January 30, 1998, ESPN requested Baseball's approval to telecast NFL games in place of baseball games on three Sunday nights in September 1998. See id. at 23, 43. Baseball declined to approve ESPN's request. Despite Baseball's disapproval, however, ESPN substituted NFL games for baseball games on the three Sunday nights in question. Baseball refused to allow ESPN to broadcast the preempted baseball games on ESPN2. This exact series of events repeated itself in January 1999, when ESPN again sought Baseball's approval to replace three baseball games scheduled for Sunday nights in September 1999 with football games. Baseball denied ESPN's preemption request; ESPN preempted the three September 1999 baseball games in favor of football games; and Baseball refused to allow ESPN to broadcast the preempted games on ESPN2. In October 1999, Baseball notified ESPN that the 1996 Agreement was terminated. Baseball and ESPN have sued each other for breach of contract. What result and why? Question 3 (thirty-six minutes) Roadbuilder negotiated with Farmer for the right to take a substantial amount of dirt from farmer's farm to use in leveling the roadbed for a highway that Roadbuilder was building under a contract with the state. In their discussions prior to the signing of the contract, Roadbuilder agreed to save the topsoil from the farm and to replace it after removing the dirt. The written contract however, did not mention the topsoil replacement. It stated, "Farmer agrees to allow Roadbuilder to remove between 20,000 and 50,000 cubic yards of dirt for the state highway job from Farmer's farm at a price of one dollar per cubic yard. Roadbuilder shall have unhindered access to the farm throughout the calendar year 1999, but shall vacate the farm to allow farmer to resume farming on January 1, 2000." Roadbuilder removed only 15,000 cubic yards of dirt, and paid $15,000. Roadbuilder left the ground uneven and replaced only a small portion of the topsoil. As a result, the land, which previously had been good for growing highly profitable vegetable crops, could only support a very weak and unprofitable growth of hay. The cost of replacing the topsoil would be $50,000. The land in its current condition is worth about $30,000. With the topsoil replaced it would be worth $60,000. Farmer has a substantial amount of equipment suitable for vegetable farming, but not for hay-growing. Farmer consults your law firm about her rights. Write a memo for a senior partner in your firm on the legal issues involved and the possible outcomes. Question 4 (thirty-six minutes) Ken J. Phillips, the plaintiff, wrote to the defendants, Cosmic Texas, on October 6, 1997, offering to negotiate for oil concessions on its behalf with the government in Turkmenistan. The letter apparently incorporated oral arrangements made earlier the same day. The terms, basically, were that Phillips would try to obtain a concession in a "Preferential Area" in Turkmenistan for the companies under specified royalty terms. Cosmic Texas agreed to pay Phillips $500 a day plus $200 a day in expenses while he was negotiating, for a maximum period of a year. Cosmic Texas would also pay his travel and "the cost of presents for distribution in Turkmenistan up to $5000". The companies could terminate the contract upon written notice at any time after thirty days. Additionally, Cosmic Texas would pay Phillips two cents a barrel on the concession up to $2,500,000, provided that he obtain the particular sort of "Preferential Area" concession described in the letter. Thus the letter provided two types of compensation: 1) fixed per diem payments and 2) contingent fees depending upon Phillips' negotiating success. Representatives of the companies accepted Phillips' offer by signing the letter and returning it. The President of Cosmic Texas, J. Howard Shallmar, wrote to Phillips in Ashgabat, Turkmenistan, on July 23, 1998. He noted the lack of "tangible evidence of likely results" at that point, and said that he was "holding up the balance of the per diem until we know something more definite about where we are going'. After that the companies continued to pay only Phillips" expense allowance, without the $500 a day for his services. They stopped paying the expense in November 1998. Phillips stayed on in Turkmenistan at his own expense, however, and continued to report to the companies, apparently with some encouragement from Shallmar. (Shallmar wrote Phillips on February 4, 2000, saying, "Keep up the good work and let us know how you progress." On March 17, 2000, he again wrote: "Keep up the good work and let us know how your progress develops.")] Phillips ran into trouble with his hotel bill in May 2001, however, and needed a personal loan from Shallmar to avoid suit. By that time, however, the companies had decided that Phillips' continued presence in Ashgabat, even at his own expense, would only embarrass their dealings with the Saudi government. Phillips met with Shallmar and another official at the Turkmen Palace Hotel on April 22, 2001. Shallmar wrote a letter and faxed it to him on June 21, 2001, urging him to leave the country. That letter, based on the Turkmen Palace Hotel discussions, reads as follows: Dear Ken: We were very disappointed to learn that after we went so far as to lend you funds necessary to clear up your hotel indebtedness you still have not left Turkmenistan. As you know, we had no legal or moral obligation to extricate you from the situation in which you have placed yourself, but upon being told about your problem, we reluctantly arranged for the loan required to clear yourself of your indebtedness so that you might honorably leave the country. Now, we find you probably are getting yourself back into the same predicament from which you have been recently extricated. As we explained to you at the Turkmen Palace Hotel, and on many other occasions, you have, in our opinion, rendered all the service you can in connection with our efforts to obtain a concession, and we feel you should not stay in Turkmenistan. In any event, we have no choice but to inform you that we are in no way responsible for any of your costs or expenses or problems that may arise, and if you insist on staying in Turkmenistan, we have no obligations to you of any nature. In view of the wide difference in the nature of the concession which now seems possible from that you originally represented to be possible, we have no legal obligation to pay you any fees arising out of the type of concession which may now be secured. Nevertheless, we did inform you that we were honoring the terms of our original agreement with you as a matter of moral obligation. However, if you persist in remaining in Arabia, we very much believe this is likely to jeopardize our chances of securing any concession at all. Accordingly, unless you arrange to return home promptly-- say, at most, within a week, we shall reluctantly be compelled to withdraw even our moral commitment to pay you the fees which we had originally agreed upon for the successful awarding of a different and more desirable concession than that which now seems possible. Yours very truly, J. Howard Shallmar J. Howard Shallmar Phillips left the Turkmenistan on July 1, 2001. According to his affidavit, his departure forced him to drop negotiations on behalf of other American interests. Cosmic Texas failed to obtain the concessions. Phillips later demanded that Cosmic Texas pay him at the agreed rate of $500 per day for his time in Turkmenistan. They refused. He filed this suit on October 1, 2001. You are law clerk to the judge in this case. The judge has already decided that all issues will be governed by United States law, not Turkmenistan law. The judge asks you to write a memo on the contracts law issues involved. Question 5 (thirty-six minutes) Paula was crossing the street, ignoring a "Don't Walk" sign when she was hit by a car driven by Dan. She was knocked down and bruised. A policeman called an ambulance, which took her to a hospital. She had no insurance, so she paid the hospital bill of $2500 herself. She is still sore and bruised but has suffered no permanent injuries. Paula filed suit against Dan for personal injury caused by his alleged negligence in failing to see her crossing the street. Dan's insurance company, Insureco, sent Paula a written offer "to this settle this case for $7,500." Paula called Insureco and left a message for the settlement agent saying, "If you'll make it 10 this thing can go away." Insureco did not respond to this message. Paula then sent Insureco a letter saying, "I accept your $7,500 settlement offer." Insureco, after learning that Paula had been in a bar just before the accident celebrating an Illinois football victory and had been drunk at the time of the accident, refused to pay, and brought a counterclaim for $5,000 that it had paid to Dan for damage to his car. Paula has asked your law firm for assistance. A senior partner has asked you to write a memo on the contracts issues involved. Write the memo. FINAL EXAMINATION IN CONTRACTS Fall Semester, 2000 Professor Maggs Write your ID Number, but not your name, on the front page of your answers. If you use several exam booklets, number them in a pattern like: þ#1 of 3; #2 of 3; #3 of 3.þ This is an open-book, open-notes, open-computer, closed- network examination. You may bring and use any printed, typed, photocopied, or handwritten material, whether prepared by yourself or others. You may bring a computer and use anything (whether prepared by yourself or others) stored on its hard disk or other storage media, but may not connect to the law school network, to the Internet, to Westlaw, to Lexis, to other databanks, to e-mail, to chat, etc. This is a three-hour examination (except for students for whom the appropriate authorities have authorized extra time). There are five questions. You should take thirty-six minutes for each question. Question 1 (thirty-six minutes) Paul and Dolores signed a contract under which Dolores promised to build a house with a detached garage on Paul's lot. The contract stated, "Paul will pay a total of $170,000 -- $50,000 upon completion of the house foundation, $50,000 upon completion of the outside walls and roof of the house, $50,000 upon completion of all work on the house, and $20,000 upon completion of the garage." Dolores built the garage first. However, she abandoned the job without building the house, so as to be able to take the immensely profitable opportunity of building the new courtroom wing that a rich alumna was financing for the College of Law. Furthermore, Dolores failed to install an electric garage door opener as called for by the contract, and she built the garage a foot shorter and a foot narrower than specified by the contract. Paul's Rolls Royce would not fit in the garage and suffered $10,000 of weather damage by being parked outdoors. Paul has received bids from several contractors, each of whom would charge $1000 for the garage door opener and $15,000 for widening and lengthening the garage. Paul also has an offer from a used garage dealer who would take the garage away and pay Paul $6000. The lowest bid Paul has obtained from another contractor to build the house is $140,000. Paul has paid nothing to Dolores. What are the rights of the parties? Explain. Question 2 (thirty-six minutes) Phillip suffered a back injury while lifting heavy packages on the job for his employer Distributor, Inc. Phillip filed a claim with Insure, Inc., Distributor's insurance company. (Under applicable state worker's compensation law, employees injured on the job are entitled to compensation from the employer's insurer regardless of fault.) Phillip sought damages for temporary disability from the time of injury until the date of claim and for permanent disability thereafter. Insure's representative informed Phillip that it would fight a permanent disability claim in court because the medical evidence showed, in Insure's opinion, only a 20% temporary disability that would last only six months. However, Insure's representative offered Phillip a check for his full wages for a year ($30,000) if Phillip would sign a contract that included a clause that read, "I acknowledge receipt of $30,000 in settlement of my disability claim.") Phillip signed the contract and cashed the check. A few months later, Phillip underwent a new medical examination using new high-tech equipment. The examination conclusively showed that Phillip indeed has an irreparable back injury that permanently disables him for all types of work. Phillip has approached your law firm about the possibility of its taking his claim on a contingent fee basis. A senior partner has asked you to write a memorandum on the legal issues Question 3 (thirty-six minutes) Delila owned one of 15 townhouses in a townhouse condominium development. The townhouses were all in a row, with no space between them. She owned Townhouse "D". Townhouse "C" was just to the left of her townhouse. Townhouse "E" was just to the right of her town house. Delila liked the neighborhood, but decided that she needed more room. So she got the idea of buying one of the adjacent townhouses and cutting a passageway through the walls on each floor. She knew that under the rules of the Condominium Association that this could be done only with the approval of a majority of the Condominium Association Board. She wrote two letters, one addressed to the owner of Townhouse "C" and the other addressed to the owner of Townhouse "E". Each letter said, "I am willing to pay you $200,000 for your townhouse." The letters were written on her office letterhead, which listed her office telephone number. Upon getting his letter, Charlie, the owner of Townhouse "C" immediately phoned the office telephone number and left a message on the voicemail, saying "I accept your offer of $200,000 for Townhouse C." Upon getting his letter, Ed, the owner of Townhouse "E" went next door to Delila's townhouse. Delila explained that she would need the approval of the Condominium Association Board to combine the two townhouses. She and the owner of Townhouse "E" signed a contract which read "Ed agrees to sell Townhouse E to Delila who agrees to pay $200,000 for it." After signing the contract Delila checked her office voicemail and for the first time heard the message from Charlie. That evening she went to the Board meeting and requested permission to cut passageways through the walls, but the Board unanimously voted to deny permission. The next morning the newspaper headline read, "Decision to Close State University Will Cause Local Real Estate Values to Crash." Delila has refused to pay for either townhouse. Both Charlie and Ed have sued for breach of contract. You are law clerk to the judge assigned to hear the cases. Write a memo on the legal issues that may arise. Question 4 (thirty-six minutes) Anna Smith was employed by Megacorp. Her employer paid for group life insurance from Insureco. Anna filled out a form designating her husband John Smith as beneficiary. On the first working day of each year, Anna received an insurance certificate, which stated "Under the terms of the Group Policy #1123 between Megacorp and Insureco, your life is insured for $100,000 ($200,000 in case of accidental death) in favor of John Smith, your designated beneficiary." In February 2000, Anna took a year's leave of absence without pay so she could study under a guru in Eastern Bhutan. But, when traveling through Assam to reach East Bhutan, she ignored the warning of the Lonely Planet Guidebook: However, travel in Assam is seriously discouraged due to intense security problems posed by Indian separatist groups such as the United Liberation Front of Assam (ULFA) who are seeking their own independent homeland. There is a highly visible Indian army presence in Assam. If you choose, or are forced by road closure, to travel through this area, take extreme caution. Do not take inspections lightly - the Indian army is under continuous attack and understandably jittery. When she didn't stop for an inspection, she was shot and killed by a jittery soldier. Her widower John Smith presented a claim to Insureco for $200,000. Insureco wrote back a letter saying, "We will only pay $100,000 - this was not an accident." John Smith filed suit for $200,000. Insureco answered that it was liable for nothing, because Group Policy #1123 contained a clause stating, "life insurance coverage shall apply only to full-time, paid employees of Megacorp." What result and why? Question 5 (thirty-six minutes) Owner hired Mechanic to rebuild the decrepit1934 Buick that Owner had bought at an Internet auction site for $2000. In their written contract Mechanic agreed to rebuild the Buick to "prize- winning condition." (The high standards used by judges in antique auto shows are well know to automobile collectors.) Owner agreed to pay mechanic $10,000 when all mechanical and electrical parts of the car were in working order and another $10,000 when the car was in "prize-winning" condition. Mechanic started to work on the car, but discovered a number of unanticipated problems. There was bad rust in the rear axle and the steering system, which meant that every single rear axle and steering part would have to be removed and remachined. Worst of all, however, removal of the rust on the motor revealed the serial number of a 1936 Chevrolet motor. While the motor was in generally good shape, auto show judges never award prizes to cars with non- authentic motors. The cheapest rebuildable 1934 Buick motor was selling for $15,000. The mechanic told the owner - I'm going to need another $20,000 - and even then the project is going to take me over a year to finish. The owner said, "O.K. - I guess I have no choice." When mechanic got the car running he went to owner and asked for $10,000. But owner refused to pay because mechanic had carelessly broken the original glass windshield of the car and had not yet replaced it. After 18 months of work, Mechanic finished the job. He entered the car in the North American Antique Car Competition, where it won second prize in the Buick Division. (The first prize car had its original motor.) Comparative shopping shows that the restored car now has a market value of $50,000. Owner has taken possession of the car, but still not paid anything to Mechanic. Mechanic consults you as to what claim, if any, he has for damages against owner. What do you advise him and why. FINAL EXAMINATION IN CONTRACTS Fall Semester, 1999 Professor Maggs Write your ID Number, but not your name, on the front page of your answers. If you use several exam booklets, number them in a pattern like: "#1 of 3; #2 of 3; #3 of 3." This is a completely open-book, open-notes, open-computer examination. You will be expected to bring the Casebook and Statutory Supplement assigned for the course. You may bring and use any printed, typed, photocopied, or handwritten material, whether prepared by yourself or others. You may bring a computer and use anything (whether prepared by yourself or others) stored on its hard disk or other storage media, but may not connect to the law school network, to the Internet, to Westlaw, to Lexis, to other databanks, to e-mail, to chat, etc. This is a three-hour examination (except for students for whom the appropriate authorities have authorized extra time). There are five questions. You should take thirty-six minutes for each question. Question 1 (thirty-six minutes) Plaintiffs are 24-year-old Juliet Johnson (hereinafter the daughter) and her mother Mary Johnson (hereinafter the mother). Defendant is Juliet's father, Mary's ex-husband, William Johnson (hereinafter the father). In 1998 they were planning Juliet's wedding. In connection with the wedding plans, the father executed a contract with Dionysus Caterers (hereinafter Dionysus), paying a deposit of $2,000. Dionysus agreed to provide service and food for Susan's wedding at a club in Champaign. Although the father had agreed to pay two more installments before the wedding date for a total contract price of $21,000, he failed to do so. The mother, who had separately contracted with other wedding service providers (florists, musicians, etc.), paid these other providers $14,000 and also paid Dionysus its remaining $19,000 on the morning of the wedding day, because Dionysus had threatened not to provide service and food if it was not paid. The daughter was married in September 1999. All the wedding service providers, including Dionysus, performed perfectly. Early in 1998, the father had said to the daughter, "I'll pay for your wedding," and a few months before the wedding he had had said to the mother, "Let me know what your expenses are for the wedding." The mother and the daughter brought an action against the father, pleading the above facts. You are law clerk for the judge who is to try the case. He has asked you for a memorandum on legal issues that may arise in the case. Question 2 (thirty-six minutes) This case arose out of plaintiff's lease of commercial property on East 5th Street in Urbana to defendants for use as a tavern and restaurant in December 1992. The written lease agreement provided for a five-year term from January 1, 1993 through December 31, 1997 at fixed rent for the first two years ($975 payable monthly) and thereafter at a variable rent indexed to the Consumer Price Index. The leased premises were part of a commercial strip of which plaintiff was the lessor. Although the lease provided that the premises were let "together with the right to use the area behind the said premises for parking purposes of LESSEE and LESSEE'S employees," the lease was silent on arrangements for where the lessees' patrons of the tavern and restaurant would park. The lease was also silent on what zoning conditions may have inhibited the operation or use of the facility for tavern and restaurant purposes. The premises had previously been occupied by a shoe store. The form lease was apparently drafted and prepared by lessor's (plaintiff's) agent - who was plaintiff's attorney, but was negotiated with various attorneys for defendants. According to testimony at the bench trial, defendants began renovating the property as soon as they took possession in January 1993. They tore down a wall that divided the interior and walls around two lavatories. They tore down a set of fluorescent lights, took out basement wiring, and dug a three-foot- deep hole that was two feet wide and six feet long in the cement floor in order to put in pipes for a larger bathroom. After about two months, the defendants discovered that the roof leaked and that the basement joists had been ruined by a previous fire. The defendants told plaintiff's attorney about these problems, but according to them, the problems were never fixed. According to plaintiff's attorney, the leaky roof was fixed as soon as the weather permitted, and there was nothing wrong with the basement joists. The defendants submitted their floor plans to the Urbana building inspector in January or February 1993. When the inspector saw the plans and discovered that the defendants' tavern was to seat between eighty and one hundred people, the inspector informed them that they were going to have parking problems, as the city zoning ordinances required one parking space for every four people, and one parking space for each employee. The whole shopping strip had only eight parking spaces allotted to the common parking area behind the strip. The defendants informed Plaintiff's attorney about the parking problem and were informed that they could have five of the eight spaces in the back of the building and that they should talk to the owner of the parking lot across the street to obtain more parking space. The defendants contacted the parking lot owner to see if they could lease thirty spaces. The owner refused to lease them the additional space. They also tried to rent spaces from other private parking lot owners near the property without success. Defendants also had several conversations with Urbana Councilman Smith, who told them that the Town Association, an organization of local merchants, did not want another tavern on East 5th and that he would do everything he could to make sure their tavern did not go in there. Defendants admitted that although they considered making the tavern a topless bar, they considered doing that only if the tavern was not making enough money. Since Smith was strongly opposed to such a bar, they agreed they would not run that type of establishment. Defendants admitted that they never filed for a variance from the parking requirements, because their discussions with Smith and the building inspector led them to believe such an act would be hopeless. Defendants also admitted that they have not returned the premises to their original condition as required by the lease. They did, however, offer to have it fixed up, but plaintiff's attorney never responded to their offer. In the fall of 1993, defendants informed plaintiff's attorney that due to problems they were having, they would not be able to use the property as a tavern and no longer wanted the premises. Plaintiff's attorney informed them he needed a letter from them stating their desire to get out of the lease, so that he would have authority to try to find another lessee for the premises. On October 25, 1993, plaintiff's attorney drafted and sent a letter to defendants to sign. The letter was addressed to plaintiff's attorney and stated as follows: "The purpose of this letter is to confirm our telephone conversation relating to the storeroom which we lease from your client and which is located at 692-694 East 5th Street. As you know the lease on the premises expires on December 31, 1997. "You are aware of the fact that we have not been able to transfer a liquor license to the premises as originally contemplated. For that reason we would appreciate it if you would attempt to lease the premises to another lessee. We understand that we are obligated for the obligations on the lease for the balance of the lease term and for any costs that might be incurred in re-leasing the premises to an acceptable tenant but we do expect you to mitigate our damages as much as possible. Obviously, any rent collected from another tenant would be utilized to reduce any obligations that we might have. "We will make arrangements to restore the premises to the condition in which we found them at the time of our first occupancy and we will vacate the premises promptly upon notification of another tenant." It was signed by both defendant lessees. After signing the letter, the defendants quit the premises and paid no further rent, and they did not restore the property to its original condition. Plaintiff filed suit for past due rent and the cost of restoring the premises. The defendants counterclaimed for the rental paid from the inception of lease and the cost of renovations. You are law clerk for the judge who is to try the case. She has asked you for a memorandum on legal issues that may arise in the case. Question 3 (thirty-six minutes) Andrewz is a small, closely held corporation owned by the Andrews family. In March of 1980, Andrewz executed a promissory note to National Life Assurance Society in the amount of $700,000. Andrewz secured the loan with property (farm) located in Platte County, pursuant to a deed of trust. Andrewz both occupied and worked the farm, which had been in the Andrews family for some time. In early 1988, Andrewz defaulted on the promissory note. One of the defendants, D.B. Cooper (Investor), approached Andrewz with a proposal for an agreement which would eventually allow Andrewz to repurchase the farm from Investors. Under the terms of the repurchase agreement which Andrewz and National and Investors executed, encompassed a series of agreements in February, 1988 whereby: (1) Andrewz would transfer the farm to National in lieu of subjecting it to foreclosure proceedings; (2) National would transfer the Farm to Investors in return for a promissory note signed by Investors; and (3) Investors would lease the farm back to Andrewz for two years. Included in this agreement were the following documents: (1) property transfer agreement between the three parties; (2) settlement agreement between Andrewz and National; (3) lease between Andrewz and Investors; (4) option agreement and right of first refusal; and (5) a memorandum of the option agreement and right of first refusal. Of particular concern in this case is the option agreement. The option provided Andrewz the opportunity to repurchase the farm from Investors for a purchase price of ten thousand dollars. It contained language which would make the offer in the option irrevocable. "In consideration of $50.00 from buyer to seller ... will cement the option." At the time that the option was executed, it is uncontested that the $50.00 consideration had not been paid, nor was payment requested by Investors. The existence of the option agreement was recorded in a memorandum between seller and buyer. This memorandum provided that "in consideration of the premises, the agreements contained in the option agreement and herein, the payment by Buyer to Seller of FIFTY DOLLARS ($50.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto...." At the time the memorandum was recorded, the $50.00 had not been paid. Andrewz later, in the fall of 1988, tried to pay the $50.00 to Investors, but Investors refused to accept it, stating that the payment was not necessary. In February of 1989, Andrewz decided to exercise the option and tendered a check for $10,000 to Investors. Included was a letter of intent pursuant to the option directing Investors to convey title of the farm to Andrewz. Investors refused to accept the tendered amount or to execute the deed to the farm, stating the option was unenforceable because the $50.00 had not been paid. What result and why? Question 4 (thirty-six minutes) The Hawkinses and McGee entered into a building contract whereby McGee would construct a home for the Hawkinses for a total price of $150,000. The contract provided that McGee would construct the house according to a house plan and certain specifications. Mulligan Lumber Company drew up the house plans with input from the Hawkins and McGee and provided the majority of building materials. The Hawkinses, accompanied by McGee, met several times with Mulligan' personnel. As the site was being prepared for excavation, Mr. Hawkins requested that the garage be made two feet wider. McGee consented. The plans and drawings were not, however, changed to reflect the wider garage. McGee communicated to Mulligan that the garage would be two feet larger, and Mulligan ordered an additional roof truss, believing the garage was being expanded in length rather than width. No one measured the actual foundation, which was two feet wider than provided for in the original plans, although when the truss manufacturer's representative asked if he should, he was told by McGee's personnel that there was no need to do so. The roof trusses that ultimately arrived conformed to the original plan and were therefore built for a garage two feet narrower than existed. At that point, Mulligan and McGee met and discussed several options to address the problem. Neither discussed the matter with the Hawkins. Ultimately, McGee opted to use a girder truss and hand-frame the truss system. This resulted in the garage peak being one foot off-center. The Hawkins did not notice the defect until the siding was placed on the house. Despite discussions, nothing was done to reconstruct the roof. The home was largely complete in 1998. McGee sent a final billing in May. The Hawkins sent McGee several letters in June outlining items that needed to be repaired or replaced or completed. The Hawkins retained a building inspector, who found sixteen building code violations during his inspection. They also retained a building contractor, Dan O'Connor, to inspect the home. O'Connor prepared a list of items that needed repair and provided cost estimates. Among the defects O'Connor found in the house were: (1) the roof was wavy due to inadequate gapping between the roof sheathing; (2) the garage slab settled toward the house and was no longer pitched toward the floor drain; (3) the basement floor was uneven and cracked; (4) the interior drywall was bowed in places and had a number of "nail pops"; (5) the interior floors were uneven between rooms as a result of McGee's failure to install subfloors of adequate thickness; and (7) the garage roof peak was off center. Early in 1999, the Hawkinses filed suit against McGee to recover for breach of contract for alleged defects in the home, including $14,910 for the cost of reconstructing the garage roof, . , $22,140 for the cost of correcting the building code violations, $13,500 for the cost of correcting the other problems, and also $25,000 for mental distress. McGee counterclaimed for the balance due under the contract. The Hawkinses subsequently joined Mulligan as a defendant in connection with the off- center garage peak. Mulligan and McGee cross-claimed against each other on this defect as well. You are law clerk for the judge who is to try the case. He has asked you for a memorandum on legal issues that may arise in the case. Question 5 (thirty-six minutes) Plaintiff, Raffles Construction, filed a five-count petition against defendants, George and Betsy Wichelhaus, arising out of the defendants' refusal to pay plaintiff the balance on a contract for the construction of the defendants' house. Defendants filed a counter-claim, alleging that plaintiff breached its obligations under the contract. The trial court entered judgment in favor of defendants on both plaintiff's claim and their counter- claim and ordered plaintiff to pay defendants $5,155.19. Plaintiff appeals from the trial court's judgment. Viewing the record in the light most favorable to the trial court's judgment, the following evidence was adduced at trial. A fire destroyed defendants' home in September 1993. In late November 1993 plaintiff agreed to rebuild defendants' home in exchange for $105,000. The contract specified that the defendants would pay plaintiff $35,000 at the inception of construction, $35,000 after plaintiff put on the roof, $30,000 after plaintiff completed construction and $5,000 after plaintiff completed a "walk-thru". Defendants timely made the first two installment payments of $35,000. Plaintiff then sent defendants an invoice in September 1994 after it had completed construction of the residence. In this invoice, plaintiff credited defendants' account in the amount of $10,472 for their purchase of materials from subcontractors that plaintiff was responsible for. Also, plaintiff charged defendants $3,911.23 for additional work that plaintiff alleged the defendants had ordered. Thus, plaintiff's invoice showed that defendants owed plaintiff a balance of $28,439.23 on the contract. The defendants refused to pay any additional amount above the $70,000 they had already paid, asserting that the quality of plaintiff's work was unacceptable and that plaintiff had not conducted the walk-thru. Plaintiff counterclaimed for the amounts included in its September 1994 invoice. Defendants filed a counter-claim against plaintiff, asserting that plaintiff breached the contract by failing to perform its work in a workmanlike manner and that plaintiff failed to provide for some of the materials required in the contract. The contract between defendants and plaintiff required plaintiff to obtain a written work order and defendants' signatures before doing the extra work. Plaintiff failed to obtain such a work order. Plaintiff's vice- president, Sam Raffles, did testify that defendants consented to the additional work and agreed to pay for it. However, Mrs. Wichelhaus testified that neither she nor her husband consented to the additional work that was not in a written work order. Raffles's foreperson on the job testified that Mr. Wichelhaus prohibited his crew from completing the walk-thru by threatening to shoot them. Wichelhaus denied this Also, Raffles's Vice President, Sam Raffles, testified that he decided not to perform any further work on the project because Mr. Wichelhaus notified him that he was suffering financial problems and could not make any additional payments. You are law clerk for the judge who is to try the case. She has asked you for a memorandum on legal issues that may arise in the case. ENDNOTE All questions are based on actual cases. Names and facts have been changed. FINAL EXAMINATION IN CONTRACTS (Law 301) Fall Semester 1998 - Professor Maggs Write your Exam-taking ID Number, but not your name nor your social security number, on each exam booklet you use. If you forget and write your name or social security number, obliterate it! If you use several exam booklets, number them in the pattern, "#1 of 3; #2 of 3; #3 of 3," and nest them together. Return your exam booklets to the box at the front of the room by the ending time for the exam. TYPISTS: report to the room where you would have reported if you were planning to handwrite your exam. Take a seat and get an exam like everyone else. After I have handed out the exams and left, you may take the exam to the typing room. When you are done, leave the exam booklets in the box at the front of the room where you picked up the exam by the ending time for the exam. TYPISTS, IT IS YOUR RESPONSIBILITY TO RETURN THE EXAMS ON TIME. I WILL NOT COME INTO THE TYPING ROOM TO REMIND YOU OF THE TIME! This is fully open-book, open notes examination. You can use any printed or written materials whether or not assigned for the course or prepared by you. You may not use a computer. This is a three-hour examination. (Foreign LL.M. students may take an extra hour; all other exceptions require the approval of the appropriate law school administrator.) Very Important. The questions do NOT have equal weight. Questions 1 and Question 2 are 36-minute questions. Question 3 and Question 4 are 54- minute questions. Question 3 and Question 4 will each be weighted 50% more in grading than Question 1 and Question 2. Important: Regardless of the dates in the questions, assume that the relevant statutes of limitations have not expired. QUESTION 1 (36 minutes) ATACS Corporation engages in the business of integrating or customizing mobile enclosures with communications or other equipment for military use. Trans World engages in designing, manufacturing, and selling of high frequency radio equipment into communications shelters and for other uses. The history underlying the transactions subject to dispute between ATACS and Trans World begins in October of 1989, when the Greek government opened bidding to manufacture 61 communication shelters for the Hellenic Army General Staff. A Request for Proposal ("RFP") prepared by the Greek government outlined various specifications for the communications shelters as well as certain financial requirements for all bidders. ATACS considered bidding on the contract as the prime contractor, but they lacked the requisite assets to meet the financial obligations enumerated in the Greek RFP. Trans World also investigated bidding on the project as prime contractor, but it did not command significant technical experience in this particular field and generally lacked foreign government contracting knowledge to bid and perform the contract on its own. Given the comparative strengths of the parties, a strategic alliance was born on February 26, 1990, where Trans World wrote ATACS stating that "[t]his letter will serve as confirmation that Trans World Communications intends to team with ATACS Corporation on the Greek Shelter program." While Trans World professed that the "details need[ed] to be worked out," and that "this [letter] is only a preliminary look at our various responsibilities," Trans World sought a commitment from ATACS before any quotations were issued. Further discussions proved fruitful, and the parties agreed that Trans World would bid for the Greek RFP as the prime contractor and ATACS would be the major subcontractor. By April 25, 1990, Trans World communicated to ATACS a basic outline for the new arrangement whereby Trans World agreed to assume the role of prime contractor, assume complete responsibility for the financial requirements of the Greek RFP, and give ATACS a subcontract for the shelter system. In return, ATACS was expected to "assist in the final proposal preparation," submit a price quotation on their portion of the program, and introduce Trans World to their Greek agent who would facilitate the bid. The parties agreed to circulate a draft contract and initiate the process of formalizing this agreement. For the next three months, the parties circulated draft subcontracts, none of which were executed. In the exchange of drafts, however, the parties had substantially agreed to the basic understanding of the transaction. In particular, the parties agreed that: 1. Trans World will be the Prime Contractor and will assume complete responsibility for the Program including any Letters of Credit which may be required. ATACS will be a sub-contractor to Trans World and will be responsible for the shelters. 2. Axon Inc. is ATACS' agent in Greece that would facilitate Trans World's bid for the Greek RFP. Axon Inc. will be the sole agent for this program. ATACS will introduce Trans World to Axon May 1, 1990. 3. ATACS has accomplished significant work developing a Technical Proposal. In addition, ATACS has also reviewed the agent's Consulting Agreement and the Offset Agreement. This information will be made available to Trans World. Trans World will reimburse ATACS for their cost associated with our Technical Proposal and for legal expenses associated with the review of Offsets and Consulting Agreements. The parties agree that any reimbursement for ATACS' services under this provision would be built into the proposal submitted to Trans World. 4. ATACS will submit a quotation to Trans World for the shelters. It is agreed that Trans World will flow down to ATACS no less favorable payment terms and conditions than it receives from the Greek Government. ATACS will in turn flow down these same terms and conditions to its Prime vendors. 5. ATACS agrees to work exclusively with Trans World on this project. Trans World agrees to work exclusively with ATACS relative to the ATACS Scope of Work set forth in paragraph 1 above. .... 7. ATACS agrees to assist Trans World as needed in the final proposal preparation. In accordance with their understanding, ATACS introduced Trans World to their Greek agent who ultimately proved to be influential in getting Trans World the final contract. After more draft subcontracts and price quotations, none of which were executed by the parties, ATACS submitted their final price proposal to Trans World, which totaled approximately $3.8 million. On July 16, Trans World submitted its own proposal to the Greek government. As the prime contractor bidding for the Greek RFP, Trans World represented that ATACS would be "the primary subcontractor in our proposal," as well as a member of the "team" working on the project. It is not disputed on appeal that Trans World included in its bid ATACS' final prices plus a 30% profit margin. Several months after the submission of the bid for the Greek RFP, Trans World learned that its proposal for the project remained competitive. Nevertheless, in early December of 1990, Trans World contacted Craig Systems ("Craig"), a manufacturer of bare shelters, shelter integrator, and competitor to ATACS. When Craig expressed an interest in performing the shelter integration work on the Greek project--the same work that had been promised to ATACS--Trans World sent to Craig all of the information, design notes, general correspondence, and ATACS' technical proposal regarding the Greek RFP. Trans World then asked Craig to submit a bid for the shelter work, and Craig ultimately submitted its final proposal and price quotation in late January of 1991. On January 24, 1991, ATACS' Greek agent forwarded Trans World the results of the Greek government's review of the various bids, which indicated that the Trans World's bid was the lowest among the competitors. Although Trans World at this point was confident that it would win the contract, it realized that the final award would require further negotiations with the Greek government. (Negotiations between the government and contractors even after the unsealing of the bids are typical in this field of government contracting.) For the next several months, Trans World negotiated with Greek authorities to determine the final technical specifications and price concessions. Then, on May 13, 1991, Trans World sent all its potential subcontractors, including ATACS, a form letter which stated: We have recently been called by the Greek government to negotiate the final terms and conditions for this shelter contract. Therefore, we ask that your firm please REQUOTE YOUR OFFER to us as soon as possible, and extend the quote validity date to at least August 31, 1991. ... ... All outside vendor equipment and service is being bid in a competitive environment and Trans World will chose the supplier, based on the price of goods, quality, service and technical/manufacturing capabilities. On the same date, Trans World sent ATACS another letter which, "encourage[d] you to make your bid as competitive as possible. While we were encouraged in our earlier preliminary discussions by the cost estimates you provided us for planning purposes, your later formal proposal was disappointingly high and was not competitive with other proposals which we have received." This letter was the first communication to ATACS by Trans World indicating that Trans World had in fact been soliciting other proposals for the shelter integration and air conditioning portions of the project. It was also the first time ATACS had learned that Trans World considered ATACS' proposal "disappointingly high," even though Trans World's bid for the Greek RFP was the lowest of all bidders. Shocked at Trans World's position, ATACS responded to these letters by confirming the validity of their price proposals submitted on June 28, 1990. Although ATACS indicated that they were "not and never have been unwilling to discuss with you an equitable adjustment to our proposed pricing if such an adjustment is required in obtaining the award," they emphasized that "[t]here was an agreement between Trans World and ATACS that ATACS would be the sole source shelter integrator and supplier..." Trans World did not respond to ATACS' letters or other attempts at communication. By December 11, 1991, Trans World completed negotiations with the Greek government and executed a contract in the amount of $23,006,319, which closely corresponded to the original bid from Trans World, absent minor adjustments to hardware, training, and technical specifications. Nearly a month later, Trans World sent another letter to potential subcontractors, including ATACS, explaining the technical changes and requesting an updated quote on the revised shelter design specifications. While ATACS did not respond, Trans World received quotations from three other companies, including Craig, for the shelter integration work. These proposals quoted prices significantly lower than ATACS' final price quote, and included proposals for bare shelters, which was not included in the ATACS' package. Trans World ultimately executed subcontracts with Craig for the shelter integration work and Airflow for the air conditioner portion of the project. The total price difference between the Craig/Airflow contracts and the ATACS' proposals totaled $1,887,104. ATACS has contacted the law firm where you are a summer associate concerning the possibility of suing Trans World. A senior partner in your firm has asked you to write a memorandum on the legal issues involved. QUESTION 2 (36 minutes) There was a contract dispute between Local Motion (a Hawaiian company) and Niescher regarding the distribution of Local Motion surfing-related merchandise in Germany. After agreeing to the cancellation of its Licensing Agreement with Local Motion, Niescher maintained she still had a separate Distribution Agreement with the company. She relied on language appearing in the Cancellation Agreement that provided that "[t]he parties understand, however, that there is a separate Distribution Agreement between them and by which they are bound." Local Motion contended that this language was left there inadvertently, and that there was no Distribution Agreement that survived the Cancellation Agreement. In the Distribution Agreement Local Motion had promised to grant Niescher a three-year exclusive distribution right to sell Local Motion merchandise in Germany. The document also provided that were Niescher to buy a certain dollar value of merchandise, she "[would] be granted the option to extend her distribution rights to three more years at the same terms." (emphasis added) (handwritten and initialed in the original). Niescher asserted that she understood the renewal arrangement to apply indefinitely for as long as she satisfied the volume requirements. Local Motion viewed the phrase as referring to a one-time only three-year extension. You are clerk to the District Court judge hearing this case. Please prepare a memorandum on the legal issues for your judge. QUESTION 3 (54 minutes) Fleming is an attorney who has practiced in the area of trusts and estates for several years. In 1990, Fleming and Arnold, his domestic partner, purchased a home in Seattle. When Fleming and Arnold purchased their home, they obtained a mortgage through First Interstate Mortgage Company ("FIMC"). Monumental issued a Group Policy ("Group Policy") to the Trustees of the National Homeowners' Group Insurance Trust in care of FIMC. The Group Policy provided mortgage life insurance and was available to mortgagors of FIMC. In 1993, Fleming and Arnold purchased mortgage life insurance from Monumental through FIMC. At this time, Arnold had been diagnosed with AIDS. In June 1993, Monumental issued Certificate Number 000041556 ("Certificate") to Fleming and Arnold. Monumental did not require a medical examination or other evidence of insurability prior to issuing the Certificate. Neither Fleming nor Arnold ever saw or received a copy of the Group Policy. The Group Policy and the Certificate contained a "conversion privilege" that allowed policy holders to convert their group coverage to an individual policy. The conversion privilege in the Certificate stated in relevant part: If your coverage ends ... you may convert your coverage to an individual policy without Evidence of Insurability. You must apply for the policy and pay the first premium within 31 days. The policy will be issued subject to the following: (a) The policy will be on one of the forms we currently offer for conversion. (b) The amount of the policy may not exceed the amount of insurance which ends. (c) The premium for the policy will be our usual rate. It will be based on the amount of insurance, risk class, type of policy and age at the policy issue date.... If you die during the time in which you are entitled to convert, we will pay the benefit that you had under the Policy. This will be done whether or not you actually applied for the individual policy. In early 1995, Fleming and Arnold learned FIMC was changing group insurance carriers, and coverage under the Group Policy would end. On March 9, 1995, Fleming and Arnold wrote to Monumental and indicated their intent to exercise their conversion privilege. On May 9, 1995, Robin Fitzhenry, a client service associate at Monumental, responded by mailing applications to both Fleming and Arnold. On Arnold's application, Fitzhenry filled in information such as Arnold's name, address, date of birth, group policy number, and most importantly, the amount of insurance desired--$221,463. The applications themselves listed an insurance amount of $221,463.00--$10,000 less than the cover letter. As the applications contained a table of premium rates, Fleming used those tables to determine that based on the premium quoted, Fitzhenry made a scrivener's error on the applications. Fleming corrected the amount on the application to $231,463.00. Fitzhenry understood this amount to be the outstanding balance on the mortgage held by Fleming and Arnold. The application itself also stated: It is understood and agreed that: 1. The Individual Life Insurance policy hereby applied for shall not be effective unless: (a) said policy is available under the Conversion Privilege of the Group Policy, and (b) the Proposed Insured is living on the effective date, and (c) the full first premium for the policy hereby applied for shall have been paid within 31 days of the date of termination of insurance under the Group Policy. * * * 4. Any Individual policy issued on this application shall not be deemed to be a continuation of the insurance under the Group Policy specified above, but shall be a new and separate contract, all of whose terms and conditions shall be operative beginning on the effective date of said policy. In addition, Fitzhenry sent Fleming a cover letter with the applications that stated, in relevant part: Enclosed please find applications for an individual policy for Life Paid Up at 95 for yourself and Paul Arnold. Please complete the sections indicated and return along with a remittance of $358.77 for yourself and $312.48 for Paul Arnold, representing 1 monthly premium(s). This amount was calculated for your attained ages and an insurance coverage amount of $231,463.00. In order to take advantage of the conversion privilege, your response should be received in our office within 30 days. On May 25, 1995, Arnold submitted his completed application along with a personal check to cover the premium due for the first month. [Fleming chose not to submit a completed application for life insurance in his name.] Monumental began processing the application, and Arnold's check cleared his account on July 3, 1995. Monumental did not immediately send the policy to Arnold. In June 1995, Fleming called Fitzhenry to determine when Monumental would send the policy to Arnold. After waiting another month without receiving the policy, Fleming called Fitzhenry on July 24, 1995. Fleming claims that during that conversation, Fitzhenry agreed with his calculation that the effective date of Arnold's policy was June 9, 1995, and she told him the policy would issue. Fleming memorialized this conversation in a letter to Fitzhenry dated August 1, 1995. Fitzhenry stated that she believed Fleming's letter accurately reflected the conversation she and Fleming had on July 24, 1995. Arnold died on July 26, 1995. On August 8, 1995, Colleen Gizinski of Monumental wrote a letter to Arnold indicating that although his conversion application requested coverage in the amount of $231,463, "according to the Conversion privilege your coverage may not exceed the amount of insurance which ends, or $18,000." The letter indicated that Arnold's individual insurance coverage was effective April 1, 1995. Gizinski enclosed with the letter Arnold's signed application on which she had crossed out $231,463 and substituted $18,000 in the space marked "Insurance Amount Desired." She also included a check for $155.88, which she said represented overpayment of premium. On August 25, 1995, Fleming wrote to Gizinski. In his letter, Fleming informed Monumental of Arnold's death, enclosed Arnold's death certificate, returned the $155.88 refund check, and demanded death benefits in the amount of $231,463. Monumental refused Fleming's demands. Fleming has brought suit against Monumental. What result and why? QUESTION 4 (54 minutes) Leonard Saffir created Hollywood Fantasy and served as its chief executive officer. The company Mr. Saffir created charged each vacation "client" $7,500 for a week of "pampering," instruction on making movies, rehearsals, and a "starring" role in a short videotaped film with a "nationally known" television or movie star. Mr. Saffir hoped that "bloopers" and "outtakes" from the videotapes would ultimately become the basis for a television series. A new venture, Hollywood Fantasy had conducted only one vacation event before the package scheduled to take place in San Antonio in May 1991. The first event, held in Palm Springs, California, had received some media coverage, but had lost money. Hollywood Fantasy sent a letter to Zsa Zsa Gabor dated March 4, 1991. The letter opened with the following language: This will confirm our agreement whereby Hollywood Fantasy Corporation (HFC) will employ you under the following terms and conditions: ... The letter set out the terms and conditions of Ms. Gabor's appearance in fourteen numbered paragraphs. The terms and conditions specified the dates of employment; the hours of work; the duties required; the payment; and certain perquisites to be provided. The letter stated that "Ms. Gabor was to be employed from May 2-4, 1991, in San Antonio, Texas;" was to"be on call" from after breakfast until before dinner each day; was to act in videotaped "movie" scenes with the clients, using scripts and direction provided by Hollywood Fantasy, and was to join the clients for lunch and dinner; was to allow Hollywood Fantasy to use her name and photograph for publicity; and was to provide media interviews "as appropriate" during her stay in San Antonio. Hollywood Fantasy was to pay Ms. Gabor a $10,000 appearance fee and $1,000 for miscellaneous expenses. Hollywood Fantasy would also provide Ms. Gabor two first-class round- trip plane fares from Los Angeles; transportation to the Los Angeles airport and in San Antonio; hair and makeup services; meals; hotel expenses, excluding long distance telephone calls; and a hotel suite with "two bath rooms if available." Ms. Gabor made three handwritten changes to this letter before signing and returning it to Mr. Saffir. She inserted the word "one" into the sentence stating that she would make herself available for media interviews; inserted the words "two bedroom" above the sentence describing the hotel suite that was to be provided in San Antonio; and added the words "wardrobe to be supplied by Neiman Marcus" to the paragraph outlining the perquisites. The last paragraph of the terms and conditions provided an "out clause": [Hollywood Fantasy] agrees that if a significant acting opportunity in a film comes up [Gabor] will have the right to cancel [her] appearance in San Antonio by advising [Hollywood Fantasy] in writing by April 15, 1991. The final paragraph of the letter stated: "Please sign a copy of this agreement and fax it to me ... as soon as possible so we can proceed." Ms. Gabor signed the letter in a signature blank above the words "Agreed and accepted," and sent it back to Leonard Saffir, who had already signed as the chief executive officer for Hollywood Fantasy. On April 10, Ms. Gabor and Mr. Saffir talked by telephone. The parties differ as to the substance of that conversation. Mr. Saffir asserts that they discussed the changes Ms. Gabor had made and "everything was agreed." Ms. Gabor asserts that Mr. Saffir acted as if the original offer had been accepted. The parties agree that Ms. Gabor sent Mr. Saffir a telegram dated April 15, 1991, stating: In accordance with the contract that exists between us the purpose of this telegram is to inform you that I must terminate it because I am due to be involved in preproduction and a promotion film for a motion picture I am contracted to do. The name of the film is Queen of Justice produced by Metro Films of Los Angeles.... I am very sorry to cause you any discomfort but