10 uw R 3 4 15 16 v7 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 aL 42 43 45, 46 47 48 49 50 51 52 53 54 55, 56 57 CONTRACTS §7 Final Examination Déan R. Chen December 19, 2009 Time: 4 hours Fall 2009 Semester Instructions 1. This examination has 7 pages, including this one. For ease of reference, | have included line numbers in the left margin, which may be used in your answers as shorthand reference to parts of the exam, if you find that helpful. 2. You will have four hours (240 minutes) to complete this exam. You must stay in the examination room, subject to such rules and exceptions as are contained in law school examination regulations. 3. This exam consists of three Parts. Part | is an essay question that constitutes 30% of the total points; Part II is an essay question constituting 30% of the total, and Part Il consists of eight short answer questions and is worth 40% of the total (5 points each). One or two paragraphs should be sufficient to answer each short answer question. 4. This is a limited open book examination. You must have your casebook (Dawson, Harvey & Henderson, Sth edition) with you, and you may also have your statutory supplement or any common printing of the Uniform Commercial Code and the RESTATEMENT (SECOND) OF CONTRACTS, your class notes, and outlines prepared by you or your study group. You may also have a dictionary or law dictionary. You may not have hombooks or other commercial study aids. 5. For all Parts of this exam, assume that the existing pre-2002 version of the Uniform Commercial Code has been enacted into law. Apart from the Statute of Frauds, assume no other relevant statutes are in effect. Cases and authorities we referred to during the semester, including the RESTATEMENT (SECOND) OF CONTRACTS, are of persuasive but not binding authority, and you may cite them or not as you see fit. Even if the fact pattern refers to a particular state, assume that general principles of contract law apply, not the law of a particular jurisdiction. 6. Ifthe UCC has direct applicability, | expect reference to precise section numbers. It is important that you make clear when you are applying the UCC directly as providing a binding rule of decision, and when you are using it as a persuasive source of trends in the law. 7. Record your answers in bluebooks, or else type your exam under applicable law school procedures. Please use pen, not pencil, and double space your writing. Begin each new Part of the exam in a new bluebook. Mark each bluebook with "Book ___ of __". You must not mark your responses with your name or any other remark by which you might be identified. 8. Once the examination begins, no questions regarding the substance of the exam will be answered. If you believe that the exam is ambiguous or requires further information in order to answer, make plausible assumptions, but make those assumptions explicit in your answer. Do not make an assumption that renders the question meaningless or that converts the question to one that you would prefer to answer. Address all the issues raised by the facts presented, even if you think the result has already been dictated by another part of the analysis. 9. Always try to relate legal theories and doctrine to the facts presented in the question. Do not simply regurgitate abstract law, nor merely repeat the facts of the question. 10. Unless you are specifically directed otherwise, always include in your answer a discussion of the appropriate remedy. END OF INSTRUCTIONS EXAMINATION BEGINS ON NEXT PAGE.58 59 61 62 63 6a 65 66 67 68 69 70 mn 2 2B 74 75 76 7 78 79 80 81 82 83 84 85, 86 87 88 89 90 91 92 93 94 95, 96 97 98 99 100 101 102 103 104 105 106 107 108 109 a0 11 112 13 114 115 116 CONTRACTS § 7 (Eve.) Dean Chen December 19, 2009 Time: 4 hours Fall 2009 Semester Page 2 0f7 PARTI (30% of total) Brett DnovSek is the owner of the Politically incorrect Novelty Stores ("PINS"), a chain of retail outlets in the west coast of the United. States that specializes in various souvenirs and collectibles adorned with the images of celebrities. PINS has been extremely profitable in Los Angeles, San Francisco, and Seattle, even during the recent economic crisis. The people, or at least West Coast types, seem to crave its irreverent line of merchandise. Dmovéek therefore plans to expand into the Northeast US market, starting with a new outlet in the Short Hills Mail in Millburn, NJ. The PINS research department has done exhaustive consumer focus groups and surveys of the coveted 12-34 age group category in the New York metropolitan area, and they confidently predict to Drnov8ek that dinner place mats: decorated with a picture of the American socialite, heiress, media personality, model, singer, author, fashion designer and actress, Paris Hilton (pronounced “PAA riss HILL tunn,” emphasis on first syllable in both names, and an “s" sound at the end of the first name), will sell ike hotcakes in the new Short Hills store. On October 31, DnovSek calls his childhood friend Jane Pahor, the president of Novelty Manufacturing Company ("NMC"). DrovSek and Pahor were both born and raised in the same town in Slovenia, and emigrated to the United States twenty-five years ago when they were teenagers. Since they are lifelong friends and both entered the novelty business ~ one as a retailer and another as a manufacturer -- they have dealt with each other both on business and personal matters constantly for the past three decades. They both speak fluent, but nevertheless accented English, and when they speak between each other, they often lapse into Slovene, the mother tongue of their youth, Drnovsek calls Pahor on the telephone and tells him that he wants to order “1000 Paris Hilton place mats,” which is listed in NMC’s general catalog for $2.00 per place mat. The entire conversation took place in Slovene, and when he described these items, he pronounced the name “puh REEEZZ HEEL tawn” (phonetic translation), consistent with how a Slovene speaker would best approximate the phoneticization of the name. Pahor responds in Slovene, “Fine, we can start production right away for 30 day delivery. | need a $500 deposit. Because we are friends, | will give you a $10% discount off our catalog price.” DovSek responds “Hvala!” which is Slovene for “Thank youl,” and they- conclude the extremely cordial conversation ‘Alas, when Pahor took down the order, she misunderstood DrnovSek to be referring to gossip blogger and television personality Perez Hilton (pronounced “puh REZZ HILL tunn"). Perez Hilton (whose real name is Mario Armando Lavandeira, Jr. but who assumed the blog name Perez Hilton to honor Paris Hilton), while also a type of Hollywood celebrity, is very different from Paris Hilton in public persona and popular following. DmovSek has never heard of Perez Hilton (not being the blogging or gossip type). But Pahor (whose husband reads www.perezhilton.com daily) has heard both of Perez Hilton and Paris Hilton, and indeed, NMC has a listing for both Perez Hilton and Paris Hilton place mats in its wholesale catalog at the same price ($2.00 per place mat). But since demand is quite limited for the Perez Hilton place mats, NMC does not actually produce them except when specifically ordered. Paris Hilton place mats are kept in abundant supply, ready for immediate delivery. Thus, Pahor writes down “1000 Perez Hilton place mats ordered by PINS" on an office memo pad and sends the note down to her accounting department for invoicing. She forgets to note the 10% discount she promised Dnov8ek. The invoice shown below is sent by regular mail by NMC on November 1, which is received on November 3. Dmovsek sends an internal email to his purchasing department instructing them to issue a purchase order for “1000 Paris Hilton Placemats, catalog price - 10%. Send $500 deposit." The PINS purchasing department, which had the NMC catalog in its office, did the math, and on November 2, sends the purchase order by fax shown below, along with a check for the $500 deposit. EXAMINATION CONTINUES ON NEXT PAGE417 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135, 136 137 138 139 140 441 142 143, 144 CONTRACTS § 7 (Eve.) Dean Chen December 19, 2009 Time: 4 hours Fall 2009 Semester Page 3 of 7 Novelty Manufacturing Company | INVOICE AND ORDER CONFIRMATION Purchaser: Politically Incorrect Novelty stores tem: catalog item # 314159 Description: PEREZ HILTON PLACE MAT Quantity: 1000 Delivery 30 days from receipt of signed acknowledgment Price: $2.00 per piece Invoice Date: November 1, 2008 ACCEPTANCE OF THIS ORDER IS EXPRESSLY CONDITIONAL UPON ASSENT TO ALL TERMS CONTAINED HEREIN. ALL DISPUTES REGARDING THIS ORDER TO BE RESOLVED BY ARBITRATION CONDUCTED BY AMERICAN ARBITRATION ASSOCIATION. YOU MUST SIGN AND RETURN ACKNOWLEDGEMENT COPY BELOW. Acknowledged and agreed to by purchaser: POLITICALLY INCORRECT NOVELTY STORES PURCHASE ORDER Vendor: Novelty Manufacturing Co tem: NMS # 2761828 Description: PARTS HILTON PLACE MAT Quantity: 1000 Dolivery: 30 days from order Price: $1.80 per piece Order Date: November 1, 2009 THIS PURCHASE ORDER IS EXPRESSLY CONDITIONAL UPON ASSENT TO ALL TERMS | CONTAINED HEREIN. YOU MUST SIGN AND RETURN ACKNOWLEDGEMENT COPY BELOW. 1 Acknowledged and agreed to by vendor: Because PINS and NMC do so much routine business together, and because employees of both companies know of the personal friendship between Drnovsek and Pahor, the accounting and purchasing departments of NMS and PINS, respectively, both execute the acknowledgment copies of the other company's preprinted form and return them without reading them, and thus neither notices the discrepancies between the two. NMS begins production of the Perez Hilton place mats. On December 1, Dmov8ek plans to open his new store amid the holiday season fanfare. When he opens the boxes that had just been delivered from NMS, however, he discovers to his horror the unexpected image of Perez Hilton on the place mats. He calls Pahor immediately and demands that NMC replace the Perez Hilton placemats with 1000 Paris Hilton place mats. Because of the holiday season, he desperately wants to carry the Paris Hilton placemats in his Short Hills store. Because of the high consumer demand and the need for immediate delivery, the only available alternate supplier would charge PINS $5.00 per Paris Hilton place mat. Drnovek had planned to charge $4.00 per place mat for his retail customers, already a hefty 100% markup from his cost from NMC. Although other novelty stores in the NY metropolitan area have been selling out of the Paris Hilton placemats at $4.50, Drovéek believes that demand will shrink to nothing if he charges more than $5.00 per placemat, and of course if he did so he would be selling at cost, with no profit. Pahor, on the other hand, is concerned that he may be stuck with 1000 Perez Hilton placemats for which there is no demand, although surprisingly Perez Hilton paraphernalia made by other manufacturers are selling at a brisk pace at nearby competing stores. She is currently selling the Paris Hilton placemats to retailers at $2.50 per placemat. PINS and NMC sue and countersue each other for breach. Discuss. EXAMINATION CONTINUES ON NEXT PAGE145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 a 172 173 174 175 176 477 178 179) 180 381 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 CONTRACTS § 7 (Eve.) Dean Chen December 19, 2009 Time: 4 hours Fall 2009 Semester Page 4 of 7 PART I (30%) Micronet Corp., Satstar Corp. and Flemington Internet,’ Inc. (“Flem-Net’), all provide broadband Internet access to customers by microwave transmissions, bypassing the cables and wires often used to convey such signals. Micronet has operated principally in northwest Connecticut, but is trying to expand its operations; Satstar operates nationwide, and Flem-Net has the soie license to transmit microwave broadband signals within Hunterdon County, New Jersey. All these companies specialize in serving sparsely populated but affluent areas, such as Hunterdon County, where the low population density makes high speed Intemet access through cable, DSL or FiOS land lines economically unfeasible due to the high capital costs of stringing the necessary wires on utility poles. Yet these areas are also home to affluent households who are willing to pay top dollar to have broadband access, rather than face the ignominy of being relegated to obsolete dialup internet access. Micronet, Satstar and Flem-Net typically charge double what it normally costs to receive broadband access through cable or fiber optic delivery, but their technology often represents the only method by which rural areas can receive Internet access. Their assets include microwave transmitters and repeaters discretely located on local hilltops, licenses from the FCC and local governments to set up transmission and reception equipment, and of course contracts with customers. In late spring 2009, Walker Carson, the president and sole stockholder of Flem-Net, decided that he wanted to “cash out,” or in other words retire enjoy the fruits of his labor ‘on some sunny beach. He was a close friend of Gerald O'Reilly, the president and sole stockholder of Micronet, and therefore Carson contacted O'Reilly to inquire whether Micronet wanted to open negotiations with Flem-Net to sell Flem-Net’s assets to Micronet, O'Reilly was indeed very interested in expanding into the lucrative Hunterdon County market. On June 29, 2009, Carson faxed O'Reilly a signed letter granting Micronet or its assignee the “right to negotiate” further conceming Flem-Net's stock. The letter called for Micronet to “negotiate in good faith” during the negotiation period, during which Micronet would have exclusive negotiating rights with Flem-Net through August 31, 2009. O'Reilly quickly wrote “Accepted! Gerald O'Reilly for Micronet Corp.” on the bottom of the letter and faxed it back to Carson. Satstar, like Micronet, was interested in the Hunterdon County market. As a company that operated nationwide, Satstar’s assets were many times those of Micronet and Flem-Net combined. Shortly after signing the June 29 agreement between Flem-Net and Micronet, O'Reilly called the president of Satstar to offer Micronet's assets. Although he did not want to retire, he did want to cash out, make a huge amount of money, and then continue in the business as a lavishly compensated employee. The negotiations between Micronet and Satstar progressed quickly. After intensive negotiations lasting several weeks, Satstar sent a letter to Microstar on August 1, which is excerpted below: 1. This letter sets out the terms and conditions of Satstar’s agreement in principle to acquire the assets of Micronet 2. Your [O'Reilly's] signature on this letter will indicate your and Micronet’s acquiescence and agreement to the terms and conditions outlined herein. 3. Satstar will give you, Gerald O'Reilly, 200,000 shares of Satstar stock and employ you for three years, at a salary to be agreed upon that is, commensurate with your experience. 4. Micronet shall, by the time of the final acquisition, reduce its debt liabilities to no more than $1,000,000. 5. Micronet shall make available to Satstar all its financial and business records, and this agreement is conditioned upon the intended business operations being found practicable and satisfactory by Satstar. 6. You [O'Reilly] are warranting that you hold the sole ownership of Micronet, Inc., which is in the final stages of a negotiation to purchase shares of stock in Flemington - Internet, Inc. (the "Flem-Net EXAMINATION CONTINUES ON NEXT PAGE203 204 205 206 207 208 209 210 21 212 213 214 215 216 207 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235, 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255, 256 257 258 259 CONTRACTS § 7 (Eve.) Dean Chen December 19, 2009 Time: 4 hours Fall 2009 Semester Page 5 of 7 Agreement”). Satstar shall have the right to continue the negotiations ‘on the Flem-Net Agreement in place of Micronet, Inc. 7. You [O'Reilly] promise not to disclose the terms, conditions, or "even the existence of these negotiations” and a pledge by O'Reilly that “there will be no other negotiations by you with any other entity concerning these business transactions during the course of these negotiations with Satstar." 8. This agreement in principle shall be memorialized by a formal acquisition agreement to be signed as soon as all further terms of the agreement are finalized, and we envision that the purchase of the Micronet’s assets will be completed on or before September 15, 2009, OReilly signed this letter on August 5, 2009, under the word "Accepted" that Satstar had typed at the close. He returned it to Satstar. He also put Satstar in touch with Mr. Carson of Flem-Net, ceased negotiating with Flem-Net himself, and advised Satstar how it might deal with an unsolicited rival bidder for Flem-Net. Satstar continued the negotiations with Carson, made him an offer he couldn't refuse, and formally acquired Flem-Net on August 25. But then all did not go well between Satstar and Micronet, The deal did not close on September 15. O'Reilly was barely unable to reduce Micronet's debt to the level specified, although a certified accountant found that the amount of Micronet's debt on September 15 was $1,003,000, a somewhat trivial deviation from the specified amount. O'Reilly's lawyer also declined to complete the deal on the ground that the 200,000 shares of Satstar stock would not be liquid and resellable due to SEC regulations. O'Reilly chafed at any restrictions on reselling this stock and suggested substituting either registered and thus resellable Satstar stock, or else $700,000 in cash. Satstar did not accept either alternative. The deal came apart. Satstar asserted that Micronet was hot sufficiently profitable and thus invoked paragraph 5 of the August 1 letter. Satstar walked away with the Flem-Net license (obtained directly from Flem-Net); O'Reilly was left with Micronet and hurt feelings. OReilly now believes that the negotiations were a ruse to acquire the Flem-Net license and that Satstar never intended to close. He initiates suit for breach of contract and seeks all available remedies. Discuss. PART Itt (40% total, 5% each) 1. Consider the following hypothetical statement of law, and discuss where this statement is incorrect or incomplete. ‘A writing that is intended as a final written expression of the intent of the parties can be explained by prior oral negotiations, trade usage or custom, only if the agreement is between merchants, and if the writing is intended not only as a final, but also as the complete and exclusive understanding of the parties 2. Dartmouth College is building a new football stadium and sends out a request for bids to all local general contractors. Kemeny Construction, one such contractor, in turn sends out requests for bids ("RFB") to all local providers of plastic stadium seats to provide 20,000 seats. The RFB document sent by Kemeny states that “all bids must be submitted on accompanying bid form,” and the bid form provided states: "This bid shall remain firm and irrevocable for 15 days.” Ergo Seat Co. does not abide by the instructions, however, and mail its bid to Kemeny using its own form. Ergo submits the low bid of $10 per seat, Kemeny then uses the Ergo bid in computing its own bid the next day, and five days after that Kemeny is awarded the general contract by Dartmouth. But before Kemeny can communicate with Ergo, Ergo faxes a letter to Kemeny seeking to revoke its bid and replace it with a bid of $12.00 per seat. All other available vendors would charge $14.00 per seat. Kemeny sues Ergo. Discuss. EXAMINATION CONTINUES ON NEXT PAGE260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 a7 278 279 280 281 282 283 284 285 286 287 288 289 280 291 292 293 294 295 296 297 298 239 300 CONTRACTS § 7 (Eve.) Dean Chen December 19, 2009 Time: 4 hours Fall 2009 Semester Page 6 of 7 Assume the following graph indicates the prevailing spot price of a standard ream of 8% x 11 copy paper (500 sheets) in the year 2009, as used in countless printers and copiers in North America. It is relevant to questions 3 and 4 below. | $3.00 | 2.90 ane 1eoos nes cee eel on eae oct-o9 | 3. On January 1, 2009, Rutgers University enters into a forward contract with Clips Stationery Warehouse for the purchase of 10,000 reams of 8% x 11 copy paper for delivery on September 1, 2009, at the price of $2.10 per ream. On April 1, 2009, Clips informs Rutgers that it is repudiating the contract due to the wildly fluctuating price of paper. Rutgers sues Clips. Assuming that it establishes the fact of breach, describe the remedies available to Rutgers 4. On May 4, 2008, Princeton University enters into a forward contract with Worthwhile Paper Co. for 10,000 reams of 8% x 11 copy paper for delivery on October 1, 2009, at a price of $2.60 per ream. The actual cost to Worthwhile, including reasonable overhead and similar fixed costs, fluctuates with the price of paper pulp, but it is always $0.50 per ream less than the prevailing spot price. On October 1, Princeton refuses delivery of the paper, having struck a deal with a competing vendor to buy the paper at $2.30 per ream. Worthwhile sues. Describe available remedies. 5. Consider the following chronology: Day 1, offer for sale of 100 widgets at $1.00 each received by offeree; Day 2, rejection mailed by offeree; Day 3, acceptance mailed by offeree; Day 4, rejection received by offeror, who is disappointed; Day 5, acceptance received by offeror, who is now confused. Discuss the rights and liabilities of the parties. 6. Discuss whether you believe Hartington v. Taylor (the note case in your casebook following Webb v. McGowin), was correctly decided, and why. 7. Rutgers contracts with B.B. Construction Co. in writing to replace the pale yellow “Spandrel” glass on the exterior of the Law School building with scarlet (i.e. the Rutgers color) “Spandre!” glass. The purpose of this job is purely cosmetic. The different color glass will not affect the functionality or the value of the building in the least, and indeed most people from Mayor Booker to Conan O'Brien agree that the scarlet color will be aesthetically jarring to the senses and will detract from the value of the building, The agreed upon price is $400,000, including the material cost of the replacement glass, which is $100,000. 8.8. orders and pays for the glass, which is EXAMINATION CONTINUES ON NEXT PAGE301 302 303 304 305 306 307 308 309 310 Bu 312 313 314 315 316 317 CONTRACTS § 7 (Eve.) Dean Chen December 19, 2009 Time: 4 hours Fall 2009 Semester Page 7 of 7 delivered to the site. Before it begins work, however, B.B. makes a closer inspection of the metal framing that fastens the glass to the building exterior and discovers that disassembly of the frames will require use of blow torches, rather than the large screwdrivers that B.B. thought would be sufficient. This unwelcome discovery means that the total labor costs will increase from $150,000 to $300,000. B.B. therefore suspends performance and demands an extra $150,000 to do the job. Rutgers refuses, and 8.B. walks off the job and takes the replacement Spandrel glass with it for future use on other jobs, The lowest bid from other contractors to do the job is $550,000. Discuss the rights and liabilities of the parties. 8. Assume all the same facts as in Question 7 above, except that it is Rutgers that changes its mind, after hearing Mayor Booker’s plea, and it repudiates the contract with B.B. Discuss the rights and liabilities of the parties. END OF EXAMINATION HAPPY HOLIDAYS