Contracts § § 2, 4, and 5
Comments on the Final
Exam
[The facts of the exam problem are reproduced at the end of
these comments.]
A few
students wrote very fine exam papers, while a few at the other end of the
spectrum did unacceptable work. Most
students wrote papers that were in the mid range, usually not bad, but often
missing important issues or handling rules and principles awkwardly, if not
misstating them. In some cases, students
simply did not understand the rule or principle involved. Some people had trouble organizing their
discussion. A few students need real
help with their writing. The most common
problems are mentioned below. These
comments do not apply equally to everyone, but anyone who hopes to improve
should look over his or her bluebook and any written comments that appear on it
and consider the extent to which he or she has made the errors that are
described below.
Question number one is obviously the most complex and
difficult of the three. In discussing
it, the student should consider first any theory that LLS might use to support
a breach of contract claim and the defenses that Anna might assert. The LLS case is pretty simple: Anna agreed to teach, but refused to do so at
the last minute. The college will claim
to have suffered at least $10,000 in damages (its expectation loss) because it
had to pay Anna’s replacement that much more than it would have paid her.
Anna’s first
potential defense probably will be that the statute of frauds has not been satisfied. The student should explain what the statute
of frauds is and focus on the one-year
provision. [Some students merely used the term “statute of frauds” as if that
explained everything; some explained that the statute says that certain contracts
are not enforceable unless they are evidenced by some sort of writing. Some listed the types of contracts that the
statute covers, while others went directly to the applicable portion. In both cases, a number of people used
shorthand phrases or words rather than stating the requirement fully. This is a mistake. A careless statement of the rule suggests
that the writer does not really understand it.]
It is
impossible for this contract to be performed according to its terms within one
year of the date of the making of the contract.
The contract was made in February, 2002.
It could not be completed until June, 2003, when the 2002-03 academic year would end. [A few people didn’t understand the
requirement; a couple writers said that the statute didn’t apply because Anna
would be teaching for a period that is shorter than twelve months. This of
course was incorrect, as the contract was formed in February.] Thus, if Anna pleads the statute, LLS must
come up with a writing that will satisfy
the statute. The only writing here
seems to be the form that Fairly sent to Anna and the
cover letter that accompanied it.
In order to
satisfy the statute, the document must be signed by the party to be charged
(Anna), indicate that a contract has been made between the parties, and contain
at least the essential (or fundamental or basic) terms of the agreement. Although Anna signed the document, she
retained possession of it; LLS may obtain it through discovery, as it clearly
is entitled to do. Even if the document
has been destroyed, if it can be shown to have existed, that would be enough to
satisfy the statute if the other requirements were met. [Some
students said that if Anna did not produce the document LLS could not
recover. This is clearly wrong. Think about it: If that were true, any unscrupulous person
could avoid obligation under a written agreement simply by destroying it.]
The problem
here is that the document doesn’t contain a starting date or another critical term—the
salary. Anna might argue that at least
the salary term is so crucial that the writing omitting it fails to satisfy the
statute. If she is correct, the contract
would not be enforceable against her. [Some students ignored the requirement that
the writing must contain the essential terms.
Some talked about the possibility of using both the letter and the form
contract together and discussed the rule about using more than one piece of
paper to satisfy the statute, a good point, but one that seems to help little
if at all here. Neither of the two
writings provides the salary term, which, at least in some courts, might prove
fatal. A number of people slid into a
parol evidence rule discussion without clearly explaining why they were
resorting to parol evidence. They seemed
to be trying to fill in the blanks in the writing, for statute of frauds
purposes, by using parol evidence. While
some courts have been willing to allow this, it seems to run counter to the
statute’s requirement that there be a writing reflecting the fundamental terms
of the agreement. While a reasonable
argument could have been made either way on the question of the sufficiency of
the “memorandum” here to satisfy the statute of frauds, the real problem was
that most students who resorted to parol evidence to fill in the blanks here
did not really explain what they were trying to do. A number of students got the statute of
frauds and the parol evidence rule pretty tangled up here.]
Of course, if
Anna adopts the approach that the contract must fail for lack of a sufficient
writing to satisfy the statute of frauds, she will be giving up her potential
counterclaim, as she will not be allowed to assert that an enforceable contract
exists for purposes of recovering on
her counterclaim, while asserting that it does
not exist while she is defending against LLS’s
claim. [Some students argued promissory or equitable estoppel as a way of
dealing with the statute of frauds problem here. These are, at least in some courts, ways of
avoiding the harsh effects of the statute, and LLS might have a fair argument
for promissory estoppel. Since
promissory estoppel was not a topic of study in this semester’s material, however,
it was not necessary for you to discuss it here.
A few students suggested that LLS
would make the argument that the statute of frauds has not been satisfied, but
this would of course make no sense. It
is LLS that has sued, and to recover, it must show that an enforceable contract
does exist.]
Anna, even if
she loses the statute of frauds argument, should consider arguing the theory
that a condition precedent to her
obligation to perform has failed.
The student should explain the principles of conditions—what they are
and how they work. She should then
determine whether this is an express
or implied condition, if it is a
condition at all, and explain the consequences of the failure of a condition. [Here, as elsewhere, some writers did a poor
job of explaining the rules. They did
not discuss what a condition is and what the effect of a failure of a condition
would be.] Anna may take the
position that her performance was conditioned on LLS’s
offering and assigning to her the Vegetable Rights course. The student should consider whether the
parties’ language (Anna: “If I can’t
teach Vegetable Rights I just couldn’t do it,” and “That course is an absolute
must.” Fairly: “You will get your course . . . all will be
well.”) demonstrates that they have agreed to an express condition or, if not, whether
this, together with their actions, might give rise to an implied condition.
If such a
condition, either express or implied, existed, it has failed, and as a
consequence Anna will argue that she is no longer required to perform. It looks as though this is a pretty good
argument if she can avoid the problem
of the parol evidence rule
(discussed below). The condition, if
that is what it is, is likely to be viewed as a condition precedent to performance.
(Anna would not have to perform unless she gets the course.) A few people suggested that this would be a condition precedent to the formation of the
contract. While this doesn’t look
like a great argument in light of the parties’ actions and statements, it is an
arguable position, and it would lead to a different outcome of the parol
evidence problem here.
As a number
of people pointed out, there might well be another condition here. The parties’ discussion may be interpreted as
implying that LLS’s obligation to give Anna the
Vegetable Rights course was conditioned on sufficient student
registration. Thus, these students
suggested, the deal was that Anna would teach no matter what, but LLS’s promise to give her the course she wanted would
depend on there being sufficient registration.
This seems a little thin, since it appears that
the Vegetable Rights course was an absolute deal-breaker for Anna. A better argument some students made is that
the low student registration would give rise to impracticability, which would give LLS an excuse for the failure of the other condition of assigning the
course to Anna. The order and nature of
the oral discussion suggests that if sufficient registration is a condition at
all, it would be another condition precedent to Anna’s teaching at LLS, rather
than a condition precedent to LLS’s obligation to
assign the Vegetable Rights course to her.
In any case, Anna’s
major hurdle to getting these earlier, oral negotiations admitted as part of
the contract will be the parol evidence
rule. The student should explain
that the parol evidence rule says that when the parties have created a document
that is at least partially integrated, any alleged agreement that was entered
into before the creation of that document cannot be a part of the contract if
it would contradict what the document says.
If this document is meant to be the final
statement of the terms that appear in the document, it is partially integrated, though it almost
certainly is not fully integrated. There clearly are terms that are not spelled
out; the writing can hardly be said to be the complete and exclusive statement
of all of the terms that the parties have agreed to, whatever approach is used
in the making of that decision.
One might
argue that the “four corners” approach to determining integration is too
narrow, and that the court should consider all of the facts and circumstances
in determining whether the parties meant the writing to be the final word on
either all or part of their agreement. A
few people suggested that the document is not integrated at all. Indeed, some courts might find that the discussions
that preceded the creation of the written agreement demonstrate that the
writing was not meant to include a final statement of the terms that appear in it. Even the Dean’s cover letter says that the
document is simply “something for our records.”
If that were to be the court’s holding, all of the oral negotiations
could come in, and agreements made in the oral discussion could become part of
the contract. [Here a number of people slid into a rather murky discussion about the
“four corners” approach and the “look at everything” approach, two ways in which courts decide initially whether the writing
is integrated, and if so whether it is completely integrated. These students blurred the concept of
integration (which is decided as a preliminary matter by the court) with the
application of the rule itself, which determines whether or not the parol
terms—the agreements made in the oral discussions here—should be included in
the contract. Some students also got
confused about the use of parol evidence to clarify an apparent ambiguity, a
completely different problem not present here.]
The written
document seems pretty clear: Anna has an absolute obligation to teach whatever
courses the college may assign to her.
The oral agreement was that Anna would definitely be assigned to teach
Vegetable Rights. This condition to her
performance would contradict the
writing and thus could not be a part of the contract if, indeed, the writing is
integrated partially or fully. Anna
might argue that even if the writing is
partially integrated, the promise to give her the Vegetable Rights course does
not contradict, but is consistent with, the written term in the document. She might argue that, even admitting that LLS
can assign any course that it wishes, Fairly has in
fact made such an assignment during their conversation. This is pretty weak, however, as the document
says that the college has unbridled discretion, and if that is the case, surely
it would be able to change its mind. If
Fairly is telling the truth about the low registration, however, perhaps the
college should be relieved from assigning her the course in any case, on
impracticability grounds, because only
one student has signed up for it. To
hold the college to this term in the contract would result in a forfeiture as
it would be required to pay Anna this huge salary for teaching just one
student.
LLS might
argue that if evidence of the oral conversations is admitted, the college should be held only to a promise to give her the course; it should
not be considered as having agreed to a condition. If that were the case, the college would be
liable for damages for breach, but this would not relieve Anna of her
contractual obligations. Anna’s argument
in response would then be that even if this did not create a condition, by
failing to assign her the course, the college has committed a material breach of the contract, thus
relieving her of her obligation to perform.
All contracts carry an implied condition that each party will perform at
least to the point of substantial
performance; if that does not happen, there is a material breach that
justifies the other party’s refusal to perform.
This could
give rise to Anna’s counterclaim. She
might assert that because of the college’s alleged breach she has been out of
work for an academic year. She would
claim that she is entitled to full payment.
In cases like this, the victim of the breach is entitled to the pay that
she would have received had the college performed. The college would argue that even if that
were true, the doctrine of mitigation of
damages should apply. The plaintiff
cannot recover for damages that she reasonably could have avoided. The student should explain that in employment
situations the wrongly discharged employee who could have, but has not, taken a
substitute comparable job that would not have been demeaning or dangerous will
not be allowed to recover damages for the pay that she would have received had
she taken the substitute job. [The burden is normally on the employer to
prove that the substitute job was not demeaning, etc. Some writers erroneously said that Anna would
have to prove that the job was demeaning.]
Thus, perhaps
Anna’s recovery, if she were entitled to any recovery at all, would be only
$25,000 unless the job of assistant dean is markedly different from or more
dangerous than the job of teaching, or unless it would be demeaning to Anna
were she to fall to such a level. If the
court is convinced that law school administration is demeaning or, more likely,
that it is significantly different in nature from law school teaching, Anna
might be able to recover full damages.
This, however, seems unlikely. [Some students seemed to say that both
parties could recover—that Anna would get $25,000—her loss—less $10,000—the college’s
loss. This makes little sense. Whichever party breached, the breach was
almost surely a material breach, which would relieve the other party from the
duty to perform.]
Question number two is much easier. This looks like a straight impossibility or impracticability
situation. [Some people called this a mutual mistake or a unilateral mistake. This is not correct. See the comments about the third question,
below.] Because the city has banned
fireworks, this show, notwithstanding the old theater adage, must not go
on. The student should state the general
rule—when, without the fault of either party, an unforeseen (and unforeseeable)
event occurs, and that event makes performance as agreed impossible or
impracticable, both parties are discharged, and neither can recover damages,
provided that neither party caused the problem and neither was assigned the
risk that the event might occur. [Some people discussed this in terms of
conditions. While the basis for the rule
of impracticability is that there is an implied condition that the occurrence
that causes the impracticability will not occur, the student who mentioned
conditions but did not discuss the rules covering impracticability or
impossibility did not do an adequate job on this part of the question.]
Therefore,
there having been no breach, neither
LLS nor Bud can recover for breach. This
can be viewed as an impracticability problem, as it is physically possible that Bud could set off the
fireworks, but the legal consequences would make it inappropriate for him to do
so. Some courts instead describe this
situation—where performance under the contract has become illegal—as one
creating an impossibility. Either one will discharge the obligations of
both parties to the contract, if the other requirements of the rule have been
satisfied, as they seem to have been here.
It seems unlikely that either party could have anticipated the emergency
action of the City Council, or have somehow taken on the risk of such an
eventuality. To the extent that either
party might be assigned the risk, probably that party should be Bud, as he is
the professional who knows about these things and should perhaps anticipate
them—at least, that would be the argument.
Remember that
since there has been no breach, there are no damages, as such, to either party,
but this question raised the issue of reliance expenditures, and the important
distinctions between the concepts of reliance
and restitution. Bud has received a down payment, and it seems
logical and fair that LLS should be allowed to recover what it has paid to him on
an obligation that has been discharged.
On the other hand, Bud in good faith has incurred expenses that may be
lost for reasons beyond his control. (We
don’t know if he can use the fireworks for other shows elsewhere.) His are pure reliance expenditures, and the
law seems to be that he cannot recover them, now that the contract obligations
have been discharged with neither party in breach. On the other hand, the down payment LLS has
made to Bud will probably have to be given back to LLS, in restitution,
since allowing Bud to retain it would result in his unjust enrichment, something courts will try to prevent, even in
the absence of a breach.
If Bud were to recover, however unlikely that
is, he would certainly receive only his
reliance damages ($3,000, which
would reflect the amount of his expenditures less the advance payment). [Many
people called this restitution. This was
a significant error. For some reason
there seemed to be confusion about the important difference between reliance
damages, which cover expenditures--normally payments to third parties—made in
anticipation of the performance of the contract, and restitution, which allows
a party to recover for the benefit that he has conferred on the other party to
the contract. Nothing in this problem
suggests that LLS received any benefit from Bud’s purchase of the fireworks or
preparation for the event.] Bud
might, of course, argue for expectation
damages (probably $8,000,which would be the
contract price less the advance payment), but that measure of relief would only
be available if LLS had breached. Since
there has been no breach, there is nothing in the facts to justify an award of
expectation damages. [Some people believed that an equitable
result would be a split of the loss; that is, they suggested that, assuming
that the fireworks would not be usable elsewhere or of any value as scrap, LLS
pay an additional $500 so that the loss be shared
equally. This seems like a good idea,
and perhaps one might consider this to be an appropriate result in a negotiated
settlement, but, unfortunately, it doesn’t seem consistent with the current
state of the law.]
Question number three raises issues of possible illegality and frustration of purpose.
Ralph seems to be concerned when he enters into the deal that the
transaction might violate the ticket-scalping statute. If he is correct, what effect would that have
on the parties’ obligations? Generally,
illegal transactions are unenforceable.
When both parties are involved in a deal like this one, the courts will
“leave the parties as it finds them,” assisting neither in enforcing—or avoiding—the
illegal deal. Therefore, if this is
indeed an illegal transaction, Ralph will have no way to get payment for the
tickets.
But is this in the strict
sense an illegal transaction—that is, does it contravene the
statute? Ralph is clearly charging the
tickets for a price greater that that charged or printed on the ticket. The statute, however, lists some specific
events, none of which is the kind of program involved here, and then uses the
catchall phrase, “other entertainment or amusement.” One might argue pretty convincingly that the
speech of a U.S. Supreme Court Justice, however urbane or witty she might be,
does not qualify as entertainment or amusement, and thus that the statute does
not apply. Furthermore, one might argue
that the program does not qualify as an “event” because the “general public” is
not admitted, the limited number of tickets having been distributed only to
people connected somehow with the college.
This,
however, should not end the inquiry.
Even if the transaction technically does not violate the statute, a
court still might find that it would be unenforceable. The court may conclude that it would be contrary to public policy to enforce a
ticket-scalping contract even though it is not, strictly speaking,
illegal. The statute seems to
demonstrate that society frowns on this type of conduct. Even though Ralph might avoid being
prosecuted under the criminal law, the court may well conclude that general
public policy values would justify the refusal to enforce the contract.
Lilly might
also resist an attempt to enforce the contract with the defense of frustration of purpose. This rule is similar to the
impracticability rule discussed above.
The major difference is that in this situation, the contract can be
performed—Ralph can deliver the tickets and Lilly can pay—but the transaction
has become pointless. Obviously the
basic purpose of the transaction is to allow Lilly to see and hear Justice
North. In fact, the major attraction of
the program is Justice North’s speech, as is demonstrated by the fact that the
tickets immediately became valueless upon notice of the cancellation. Justice North’s absence seems similar to the
cancellation of the King’s coronation parade in Krell v. Henry, the case that we studied in class.
Perhaps the
cancellation was foreseeable; one might argue that, given a Supreme Court
Justice’s many important assignments, a last minute cancellation is
foreseeable, and that the risk of that happening should fall upon the person
who made an absolute promise to buy the tickets. This, too, seems to be a thin argument,
however. [Here, as in problem #2, some students said that this was a mutual
mistake problem. The rules of mutual
mistake involve a mistake about a material fact relating to the subject matter
of the transaction, not a mistake in predicting what will happen in the
future. If, for example, there had been two people called Justice
North and confusion between Ralph and Lilly about which of the two Justices was
being referred to, a discussion of mutual mistake might have been
appropriate. A few people also argued that Ralph
would suffer no damages here because he had received the tickets free. This demonstrates a staggering
misunderstanding of contract law and the basis for damages in a breach of
contract case. Overall, a number of
students handled this question rather poorly; they either did not discuss the
only real issues here—illegality and frustration of purpose—or they made a
series of rather careless, offhand statements that suggested other issues not
raised by the problem.]
Facts
[N.B.
Dean Fairly at all times has full authority to speak for and act on
behalf of LLS.]
One such
person, Anna Steele, expressed great interest.
After some discussion, Fairly and Anna agreed
that Anna would come to LLS as a “distinguished visitor” and teach for the
2002-03 academic year (
“Well, I
certainly hope so,” Anna replied. “I really
couldn’t teach any of those dreary traditional courses such as Torts or, God
forbid, Contracts.” As she uttered the word, “contracts,” she
shivered slightly and her face assumed the look of a person who has just bitten
into a particularly sour lemon. “If I
can’t have Vegetable Rights, I just couldn’t do it. That course is an absolute must.” Dean Fairly assumed his most endearing avuncular
attitude. “Never fear, Anna. Never fear.
I know how important this is to you.
You will get your course. Trust
me, you will get your course--all will be well.” All of the other terms of the deal having
been agreed upon, Fairly and Anna shook hands. “It’s settled, then,” said Fairly. “I will send our standard written contract in
the mail.” With that they separated.
Upon his
return to
Fairly’s
cover letter said, “As you see, I have signed the contract document on behalf
of LLS. Please sign it and send it back
or bring it along when you come in August so that we have something for our
records. We look forward to having you
with us next year.” Anna scanned the
letter and contract form and set them aside.
In the press of her work on her groundbreaking law review article, “The
Pain of the Potato; Towards a Theory of Compost-sation,”[1]
she forgot about the matter until mid July, when, her work on the article
having been finished, her thoughts turned to her fall teaching
obligations. She decided not to review
the contract in detail, but to sign it later in the summer and bring it with
her to
Meanwhile,
back at LLS, Fairly was having trouble with Bud, a creator of fireworks
displays. Because LLS was preparing to
celebrate its 150th anniversary in September, Fairly had conceived of a series
of celebrations to mark the event. One
of the proposed programs was to include a fireworks display, the culmination of
which would be a representation of Dean Fairly’s smiling face in red, white,
and blue fireworks on the front lawn of the law school building. Although the parties had agreed in May to all
of the details of the display, including the date and time—10 PM on the night
of
Another major
event planned for the celebration was a special program to be held on September
14 featuring a speech by the college’s most eminent alumna, Sarah North, who
had recently been named to the United States Supreme Court. The college had arranged for the printing of
1,000 tickets to this event, as the seating was limited in the hall where it
was to be held. These tickets were given
without charge to certain friends and supporters of the college and to college
faculty and staff members. Ralph
Peterson, a faculty member, had acquired several tickets. All tickets having been distributed, a brisk
market developed among members of the bar who had not previously been favored
with an opportunity to acquire a ticket.
One of these lawyers, Lilly White, a great admirer of Sarah North,
approached Ralph and asked whether he might be willing to sell her “a couple of
tickets.” After some negotiation, they
agreed that Lilly would pay Ralph $400 for the two tickets. They agreed that they would meet in Ralph’s
office and exchange money for tickets on the afternoon of September 13. Following this discussion, Ralph looked
furtively over his shoulder. “Don’t say
anything to anyone about this,” he told Lilly.
“I haven’t checked the statute,[2]
but I think that I could get in trouble for doing this.” Lilly smiled as she drew her right hand
across her mouth. “Don’t worry, Ralph,”
she whispered. “My lips are
sealed.”
Additional Facts and Questions
1. On August 10, Anna showed up in
“Oh no, you
don’t, Buster,” snapped Anna. “We had a
deal. If I can’t teach what you
promised, you can just pay me anyway.”
“Like Hell I
will, Anna,” Fairly shouted. “Either you
show up for class on August 15 or I will sue you into the middle of next
week.”
At this
point, the conversation deteriorated.
Anna crushed the signed contract form into a tight ball and jammed it
into her pocket. She returned to her
home in
LLS sues Anna for breach and she seeks your advice, asking
whether she is liable for breach and whether she might have the basis for
asserting a counterclaim. What will you
tell her? In advising her, discuss all
reasonable arguments that each side might consider making, give your advice
about the likelihood of success of each argument, and explain what damages
would be available should either side prevail.
2. If Bud sues LLS for damages, who will win and
why? If Bud were to win, how much should
he recover? Raise and resolve all
reasonable arguments that either party may make.
3. On September 12, Justice North announced that
owing to the press of her judicial duties she would have to cancel her
speech. The desperate college hurriedly
announced that Adrian DeWind, a pompous local trial
court judge with a reputation for falling asleep on the bench, would substitute
for Justice North. Lilly refused to
accept or pay for the tickets, the market value of which had plunged to
zero. If Ralph sues Lilly, who will win
and why? Raise and resolve all
reasonable arguments that either party may make.
Grade Spread
§2 §4 §5
A 1 A 2 3 A
A- 4 A- 1 2 A-
B+ 7 B+ 4 5 B+
B 6 B 6 9 B
B- 11 B- 13 3 B-
C+ 7 C+ 4 10 C+
C 19 C 3 4 C
C- 7 C- 4 12 C-
D+ 1 D+ 4 4 D+
D 5 D 0 2 D
D- D- 1 3 D-
F 4 F 2 3 F
________ ________ ________
n 72 n 44 n 60
mean=2.25 mean=2.40 mean=2.20
median=C/C+
median=B- median=loC+
Overall for
§§ 2&5:
n=132
mean=2.23
median=loC+
[1]
Anna contemplated submitting a French version of the article to a law journal
in
[2] Ralph refers to Minn. Stat. 609.805, which says that one who “sells or offers to sell a ticket to an event at a price greater than that charged at the place of admission or printed on the ticket” will be guilty of a misdemeanor. The statute defines an event as “a theater performance or show, circus, athletic contest or other entertainment or amusement to which the general public is admitted.”