CONTRACTS § 4 Final Examination Dean R. Chen December 10, 2011 Time: 4 hours Fall 2011 Semester Instructions 1. This examination has 7 pages, including this one. Please count and make sure you have a complete exam. 2. Youwill have four and (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 four Parts. Part | of an essay question that constitutes 30% of the total points; Part I consists of an essay constituting 20% of the total, Part Ill consists of an essay constituting 20% of the total, and Part IV consists of six short answer questions and is worth 30% 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 may have your casebook (Dawson, Harvey & Henderson, 9th edition), 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 hornbooks or other commercial study aids. 5. For all Parts of this exam, assume that the 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 pattem refers to a particular state, assume that general principles of contract law apply, not the law of a particular jurisdiction. 6. If the 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. Do 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 assumptions that render the question meaningless. 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CONTRACTS §4 (Eve.) Dean Chen December 10, 2011 Time: 4 hours Fall 2011 Semester Page 2 of 7 PARTI (30%) Hogwarts School of Law, after years of using bluebooks and quills, is planning to require that all of its approximately 1000 students take their final exams using laptop computers. It therefore seeks bids from software vendors for examination security software that will allow students to use basic word processing software to type and submit their exams electronically, but which blocks access to the laptop's hard drive and prohibits access to the Internet while the exam is being administered. Hogwarts publishes these specifications and requirements and issues a Request for Bids ("RFB") from interested suppliers through a posting on its purchasing department's website. HardExam Inc. is a new startup software company that is seeking to break in to the academic software market. HardExam's CEO sees the Hogwarts RFB on the website, and hoping to acquire Hogwarts as a long term “anchor customer,” on October 1, 2011, telephones the dean of Hogwarts Law, Professor Bumblebore, and offers to supply its new exam software (still in development) for each of Hogwarts’ students for one academic year for free, starting with the Fall 2011 exam period. While of course HardExam hopes that Hogwarts will become a regular customer after this first year, Hogwarts is under no obligation or commitment to do so. HardExam's only condition, says its CEO, is that if Hogwarts chooses to use any exam administration software uring this trial year, it must be HardExam and not any other competing software. After learning about HardExam's capabilities by viewing its website, Professor Bumblebore calls HardExam’s CEO back on the telephone the next day and happily agrees, since other software vendors are charging $1.00 per test administration, and Hogwarts typically administers a total of approximately 2500 exams each semester. ‘As a matter of business routine, both HardExam and Hogwarts then send to each other their standard preprinted Invoice and Purchase Order forms. HardExam Inc. 123 Jefferson St. Newark, New Jersey INVOICE AND ORDER CONFIRMATION Purchaser: Hogwarts School of Law ttem: catalog Item # 314159 Description: HardExam 1.0 software CDs Quantity 1000 Delivery: 30 days Price: $0.00 (complimentary) Invoice Date: October 4, 2011 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 J ASSOCIATION. ALL LIABILITY FOR PRODUCT DEFECTS LIMITED TO REFUND OF PURCHASE PRICE. s HANOVER, NEW HAMPSHIRE 03755, Cog? Hogwarts School CF Law a4 PURCHASE ORDER Vendor: lardExan Inc., 123 Jefferson St., Newark, New Jersey Item: HardExam 1.0 software (Quantity 2000 Delivery 30 days from order Price: free Order Date: October 3, 2011 This transaction is governed by the laws, and all disputes arising hereunder shall be resolved by the | courts of the State of New Hampshire. EXAMINATION CONTINUES ON NEXT PAGECONTRACTS §4 (Eve.) December 10, 2011 Fall 2011 Semester Dean Chen Time: 4 hours Page 3 of 7 HardExam's software is still under development, and due to delays the software is not ready to be delivered until December 5. Hogwarts hurriedly distributes the installation CDs to all its students (without testing it first) and they install the program just in time for the first exams on December 10. When the first year students start taking their first in Contracts, however, a horrible defect in the HardExam software is discovered. Due to a keyboard translation coding error, each instance in which the student presses the character *e” is replaced by the commercial “at” sign “@". This error appears both on the laptop display screens in which students review their responses, and in the eventual printed copy of the exam answer that will be given to the professor. As an example of how distracting this error can appear, look at the first paragraph of this Question as it would appear under this scheme. Hogwarts School of Law, aft@r y@ars of using blu@books and quils, is planning to ’@quir@ that ali of its approximat@ly 1000 stud@nts tak@ th@ir final @xams using laptop comput@rs. It th@r@for@ S@@ks bids from softwar@ v@ndors for @xamination s@curity softwar@ that will allow stud@nts to us@ basic word proc@ssing softwar@ to typ@ and submit th@ir @xams @l@ctronically, but which blocks acc@ss to th@ laptop's hard driv@ and prohibits aoc@ss to th@ Int@m@t whil@ th@ @xam is b@ing administ@r@d. Hogwarts publish@s th@s@ sp@eifications and r@quir@m@nts and issu@s a 3t for Bids ("RFB") from int@r@st@d suppli@rs by posting on its purchasing d@partm After 10 minutes the students are in a panic and are rushing the Dean's Office, since the responses they are typing are barely intelligible, and search/replace or cut/paste functions are unavailing. The clever law school registrar soon discovers by process of deduction that if the student actually types “@” (usually the Shift Key +"2" on most keyboards), then the character “e” appears, but that is a time-consuming process for those accustomed to typing in the conventional way. Students are left with the choice of losing time on the exam through this somewhat clumsy solution, or else typing the exam with the substituted “@'s and then hoping their professors will be understanding during grading. It is overall a very bad situation. For all subsequent Fall 2011 exams after December 10, Hogwarts reverts to using paper bluebooks, but bluebooks are very expensive and the school has to pay $2000 to have an adequate quantity shipped overnight. Dean Bumblebore concludes that the Fall 2011 exam period is a disaster, and of course blames HardExam. He believes the only way to restore the integrity of the exam process for those unfortunate Contract students who took the exam on December 10 is to require their professor to write a new exam and readminister a new final after New Year's Day. This will detay the student's grades, causing them even more emotional trauma, and he will have to pay the professor an extra $3000 stipend to write a new exam. Hogwarts also reluctantly pays another software vendor $3000 to supply usable exam software for the Spring 2012 semester. Hogwarts brings suit in the Superior Court of New Hampshire. HardExam of course regrets the error, but denies that itis liable for any damages, and also moves to dismiss the lawsuit in court and compel arbitration before the AAA. Discuss Hogwarts School of Law v, HardExam Inc.. PART II (20%) Within the journalism profession, there apparently remains some confusion and disagreement on what basic terms describing the reporter's relationship with a source actually mean. Consider the following article from the American Journalism Review on the three terms ‘off the record”, “on background’, and “on deep background.” “On Deep Background" © American Journalism Review, December 1994 ‘Off the record, on background, on deep background — does everyone know exactly what these terms mean? Does everyone agree? Not entirely Off the Record - Edward Pound, reporter, U.S. News & World Report: "it means | can't use it uniess | can get it elsewhere... Most sources don't understand it They tend to think off the record and on background are the same thing.” ‘Steve Weinberg, reporter: "You can listen and you can do something with it but you can't in any Way attribute it or even vaguely suggest that it came from a source.” EXAMINATION CONTINUES ON NEXT PAGECONTRACTS §4 (Eve.) December 10, 2011 Fall 2011 Semester Darrell Christian, managing editor, Associated Press: "You dont use it under any circumstances.” Peter Prichard, editor, USA Today: ‘It means you can't use it. That's my opinion... Actually, it ‘means different things to different people.” On Background. Bob Woodward, author: “It means that I'm not going to identity the source but I'm going to use ital." David Hawpe, editor, Louisville Courier-Journal: "Well, that normally means you can use it only for your own information, just so you understand.” Karen Hosler, congressional correspondent, Baltimore's Sun: "On background means you can attribute word for word but you can't use the person's name. At the White House it always has to be a ‘senior administration official.’* Dean Chen Time: 4 hours Page 4 of 7 Michael Gartner, editor, Daily Tribune, Ames, lowa: "It means different things to different people. I've never understood it" Philip Scheffler, senior producer, 60 Minutes: "Hmmmm. Those distinctions are of much greater interest to people who work in Washington.” On Deep Background Hosler : "You can report as ‘it was learned,’ You can almost state it as fact. Sometimes you have to hedge your words." So, Are There Differences Between Off the Record and On Background? George Freeman, New York Times attomey: "Yes, there are, but I've never quite figured them ut. {tell reporters if they really want the source to understand, make it clear. But those words generally cause more confusion than anything else.” During the closing days of the 2011 mayoral race in Chatham, NJ,’ Ron Priest, a political operative employed with Eli Wheelock's mayoral campaign, approached Dan Beach, a reporter from the local newspaper, the Independent Press, and offered to provide documents relating to another candidate in the upcoming election. Priest first asked Beach if he could promise that their conversation would be “off the record,” and Beach responded that he would treat the information as “on background.” Believing that the two terms meant the same thing, Priest thereupon tured over copies of two public court records concerning Ingrid Dietrich, a competitor to Wheelock in the mayoral race. The first record indicated that Dietrich had been charged in 1969 with three counts of unlawful assembly, and the second that she had been convicted in 1970 of petit theft. Beach interviewed Dietrich for her explanation. Beach also went to the court clerk’s office and procured copies of the full court judgments on his own. As it turned out, the unlawful assembly charges arose out of Dietrich’s participation in a protest of an alleged failure to hire minority workers on municipal construction projects, and the charges were eventually dismissed. The petit theft conviction was for leaving a store without paying for $6.00 worth of sewing materials, when a passerby collapsed on the sidewalk outside the store and Dietrich rushed past the cash register to administer life-saving CPR. That conviction was later vacated. After consultation and debate, the editorial staff of the Independent Press decided to describe their source for the court records as an “operative employed by the Wheelock campaign’ as part of their printed story concerning Dietrich, and included in the story denials by Whitney campaign officials of any role in the matter. The story did not mention Priest by name, but given the small campaign staff, fingers immediately pointed to Priest, and the same day the story appeared, Priest was fired by Whitney campaign due to the negative political backlash. Priest sues Beach and the Independent Press, alleging breach of the promise to treat the information as “off the record,” which Priest argues meant that the information could not be attributed to any source, even if only by general description and not by name. Discuss Priest v. Beach & Independent Press. Do not discuss any constitutional (First Amendment) issues. "These facts are purely fictitious. Chatham uses a Township Committee form of government and thus there is no direct popular election for Mayor. EXAMINATION CONTINUES ON NEXT PAGECONTRACTS §4 (Eve.) Dean Chen December 10, 2011 Time: 4 hours Fall 2011 Semester Page 5 of 7 PART III (20%) In the central square of the town of Enterprise, Alabama (est. population 25,909), stands the famous Boll Weevil Monument, erected in 1919 to honor the insect pest that destroyed much of the South's cotton crop in the late. p>" 19" century. The town honored the boll weevil | because the destruction of the cotton crop led to | agricultural diversity, starting with peanuts, and eventually generated more economic prosperity than had ever come from cotton alone. Local residents say that it is only statue to an insect pest in the world, and no one would yet have reason to contradict that allegation. No longer! 1, Dean Chen, have bought a vacant lot in Short Hills, NJ, and wish to honor the Boll Weevil myself in the Garden State. | procure the original | plans of the monument from the Enterprise Alabama > clerk's office, and | enter into discussions with Bill Derr, president of Oddity Home Construction Co., a contractor that specializes in unique construction jobs, to build a replica of the Boll Weevil Monument on the lot. Derr examines the pictures and plans of the Boll Weevil monument, and visually inspects the lot (although he dispenses with a geologist’s report for this relatively small project), and then sends me a handwritten fax that says: Mr. Cher, Will do the Ball Weeodl job for £50,000 scckading foardation, Completion within 180 days of fital contact, Uf you accept we can execate the standard DCA contvactor & agreement, Bll Derm 12/1/10 | then immediately write on the bottom of the fax “Great! Let's do it! RK Chen,” and fax the page . back to Derr. No other documents (or money) have yet changed hands. The “DCA Contractor's Agreement” mentioned in Derr’s note is a standard sample agreement that is posted on the NJ State Department of Community Affairs website that is provided as a convenience by DCA for small residential home projects that don't require an architect. It contains standard provisions on items such as change orders, lien waivers, obligations to procure permits, insurance requirements, etc., that are universally included in small construction contracts without objection by either party. On December 5, however, Derr has a geologist go to the vacant lot to do a core sampling and he learns that the soil conditions are quite unstable, and it will be necessary to pour a five foot layer of concrete padding in addition to a normal foundation in order to insure that the Boll Weevil Monument does not tilt over time like the Tower of Pisa. This additional work will be very expensive, and cost an additional $20,000 in labor and materials. Derr originally estimated his construction costs would be $40,000, so the added expense would make the job unprofitable to him. He immediately faxes me that he must increase the cost of the job to $70,000. When Derr refuses to proceed without the extra payment, | find another contractor who will do the job for $67,000, and sue Derr in breach. By the way, the Boll Weevil monument has been named one of the 12 ugliest statutes in the world, and all real estate professionals in the area say it will lower property values for my lot and surrounding lots. Although the First Amendment will protect my right to erect the monument, local neighbors take up a collection to pay me not to erect it, but | nevertheless intend to proceed undeterred. Discuss Chen v. Oddity Home Construction Co.. EXAMINATION CONTINUES ON NEXT PAGECONTRACTS §4 (Eve.) Dean Chen December 10, 2011 Time: 4 hours Fall 2011 Semester Page 6 of 7 PART IV (30%, 5 pts each) A. Consider the following chronology: Day 1, offer for sale of 1000 widgets at $10.00 each received by offeree; Day 2, acceptance mailed by offeree; Day 3, rejection mailed by offeree; Day 4, rejection received by offeror; offeror purchases the widgets from another vendor at $1 1/widget, Day 5, acceptance received by offeror. Discuss the rights and liabilities of the parties on Day 6. Assume the following graph indicates the prevailing spot wholesale price of cotton per bushel in USD$ during the year 2011. It is relevant to Questions B, C, D and E below. 120 10 100 90 20 70 60 50 ajo 2pooa. 3/1/2011 afp2o11 5/1/2011 6/1/2011 7/1/2011 2/1/2011 9/2011 0/1/2014 41/1/2011 B. On January 1, 2010, David's Mills, a cotton fabric manufacturer, enters into a forward contract with Vera Charles, a cotton grower, for all her 2011 annual output of cotton (est. 1000 bushels in 2010) for delivery on November 1, 2010, at the price of $100 per bushel. Assume that Vera's cost of production of cotton (including overhead) is $50/bushel. On May 1, 2010, David's Mis informs Vera Charles that it is repudiating the contract due to the fluctuating price of cotton. Vera sues David's Mills. Describe all the remedies, if any, available to Vera. C. Same facts as B. above, except that on May 1 it is Vera who repudiates the contract due to the fact that she neglected to use insecticide for boll weevils (as every other cotton farmer in the South does) and inevitably her crop is destroyed. David's Mills does nothing until November 1, when it sues Vera for breach. Describe the remedy, if any, for David's Mills D. Same facts as B. above, except that On May 1, 2010, David's Mills secretly purchases substitute cotton (approx. 1000 bushels) from another grower at EXAMINATION CONTINUES ON NEXT PAGECONTRACTS §4 (Eve.) Dean Chen’ December 10, 2011 Time: 4 hours Fall 2011 Semester Page 7 of 7 $78/bushel, and then on November 1 repudiates the contract with Vera. Vera then sells her cotton harvest (1000 bushels) on the spot market for $105 a bushel, but expends another $2000 in transportation costs to deliver the goods to the new purchaser. Describe all the remedies, if any, available to Vera. E. On January 1, 2011, Hayley's Mills contracts with Hero Farms to purchase $500 bushels of cotton at $100/bushel, deliverable on April 1. On April 1, Hayley’s Mills refuses to accept delivery, due to the precipitous drop in price. Due to the sudden large surplus of cotton, after days of phone calls, Hayley’s is unable to. find a substitute buyer who will pay more than $50 per bushel on the spot market. The cotton is sitting in Hayley’s warehouse. Describe all the remedies, if any, available to Hayley's. F. Severus contracts with LeStrange Lawns, Inc. to install a lush green lawn in the four acres behind Severus’ house. The total price agreed upon is $10,000 for the complete project (labor and materials), payment in full at the end of the job. After LeStrange has finished three-quarters of the lawn he has already expended $9,000 in labor and materials, Severus fires LeStrange without justification and gets another lawn company to finish the job for $2000. Discuss the likely remedy that might be available to LeStrange under all plausible theories of recovery. END OF THE EXAMINATION Happy Holidays!