This is a closed-book, two-hour
exam. There is an additional ½ hour for
you to read and organize your thoughts.
Do not begin writing your exam until you have spent that first half-hour
planning your answer. You may not use
any material or consult anyone during the exam.
Be sure to discuss all reasonable contract law
claims and defenses that either party may raise unless the instructions with
the question limit your discussion to certain issues. Be sure to state reasons for all your conclusions. It is not possible to test you in two hours
on everything we studied during the semester.
Do not expect to see issues on everything you know about contract law
raised in this fact scenario.
If you believe that you need more facts, you may
make any reasonable assumptions consistent with the given facts, but be sure to
state your assumptions as such and say why they are important to the resolution
of the problem.
If you discuss an issue and you believe that the
same issue appears in another place in the exam, you need not repeat your
discussion of the basic aspects of that issue, but you may instead refer to
your earlier discussion and explain how it applies in the later problem.
This exam is graded as a whole,
with issues of different weight. You
must decide on the relative effort and time to devote to each issue you
identify. This is a timed exam. You must turn in your blue book(s), and this
exam, tucked inside the blue book(s), at the end of the two and ½ hours, whether
you have finished the test or not.
Good luck, enjoy the holidays and
we’ll see you in 2000!
Contracts
Fall, 1999
Final
Exam
Steve and Marty, doing business as S
& M Restorations, were two young men who specialized in paint restoration
of historic houses. One lovely fall
Sunday afternoon, as they cruised along a beautiful old St. Paul Street of
perhaps 6 blocks, they observed that some 40 houses were in dire need of
painting, though most were quite grand in all other respects. The boys decided to hit their new business
computer and send out a mailing to those 40 homeowners, offering their services
as restoration painters. They got the
owners’ names from a by-street phone directory and sent an identical letter to
each. With their computer, of course,
they inserted the name of each owner on his or her letter. The letters were mailed out on September 20. Each read:
September 20, 1999
Dear
(name of homeowner):
S&M
Restorations specializes in the exterior painting of historic homes. We are especially interested in the 40 homes
on Osgood Avenue in Crocus Hill. Your
home is one of them. These houses are
all currently bearing paint of the original design color, but it has badly
deteriorated. We can restore the
exterior of these homes to exactly the color and condition of their original
design. We will match the original
color of all trim as well.
We
are offering this exceptional service to you Osgood Avenue homeowners for
$1,000, payable on completion of the work.
We can complete the work on a house in 5 consecutive days, and we will
be available during the months of October or November, at your
convenience. Write or fax us to
schedule your 5 days. You will be
delighted with the results, we are certain.
Feel free to visit our two most recently completed houses at 522 Lincoln
and 836 Fairmount, if you would like to see examples of our work. We look
forward to hearing from you.
Sincerely,
Steve Homer and Marty
Saunders,
S&M Restorations
One such letter was sent to Harry
Lindeke, at 627 Osgood. It arrived on
September 21, and Harry was thrilled.
He and his wife Mary loved their old Crocus Hill home, and they had been
considering trying to restore it fully to its former beauty. Harry wrote back the next day. His letter read:
September 22,
1999
Dear
Steve and Marty:
I received your letter and would like to
have you paint our home at 627 Osgood. My wife Mary and I will be in Europe the
second week in October and would be delighted if you would do the painting
then. If you could start on October 7th
and complete the work on the 11th, I will bring a check for $1,000
to you on October 12th, the very day we return from Paris. It will be a joy to return to a beautifully
painted house! I trust that this will
work out for you.
Yours,
Harry Lindeke
Harry’s letter was delayed in the mail and didn’t arrive at the S&M
office until September 29.
On September 27, meanwhile, Mary Lindeke managed to
convince her husband that they should “modernize” their house, rather than
restore it. She and Harry had driven by
the two homes the boys had restored, and, while they thought the work looked
fine, Mary commented that the houses looked awfully “old-fashioned.” She wanted a new solarium built in the front
of her house and a greenhouse in the back, where she could indulge her passion
for orchid growing. That very day,
September 27, Harry sent a fax to S&M.
It read:
September 27,
1999
Dear Steve
and Marty:
My wife and I
have decided not to restore our home, so we will not be needing your painting
services after all. Sorry for any
inconvenience. It does look as if you
boys do beautiful work.
Yours,
Harry Lindeke
The fax appeared to have gone through immediately,
but in fact, there was a problem with Steve and Marty’s machine, and they never
received it. On September 28, when they
finally received Harry’s letter, they quickly added him to the schedule for the
days he requested, but did not call him.
On October 7, Steve and Marty began the work and completed it to
perfection on October 11.
As the boys were working on the Lindekes’ home,
Sally Bulkley, who lived next door, watched their progress with great
interest. On October 9, she approached
Steve as he was taking a break. “I
received the letter that you sent out a while ago,” she said, “but I didn’t
know whether I wanted my house done or not.
Now that I see how lovely the Lindekes’ place looks, I think that I
would like you to paint mine. Is the
offer still open?”
“Well,” Steve responded, “we could squeeze you in as
soon as we finish here because we have a gap in our schedule. We can move right over to your place and
begin on the 12th.”
“Wonderful!” replied Sally, with a smile. “You have a deal.” Steve then said, “Great.
We’ll begin on the 12th.”
When Harry and Mary returned from Paris on the 12th,
they were most distressed. The house
was in fact gorgeous; the boys had done a superb job. Unfortunately, however, Harry refused to pay them, contending
they, the Lindekes, had not authorized the job.
On October 14, as the painters were taking a break
from their labors at Sally’s place, Sally came out of her house with two cold
bottles of beer, which she gave to the boys.
“You know,” she laughed,“I’ve been thinking. You had all of your equipment right next door, and you didn’t
have to haul the stuff here from another site.
I think that I deserve a discount.”
Taking a big swig from the bottle, Marty replied
with a smile, “Oh, sure, lady. We always give a twenty percent discount to
customers who bring us a beer while we work.”
Sally, feeling happy about the appearance of her home, sent her niece,
Caroline, a check for $200 and a note saying, “Enjoy this $200, which was a
sort of windfall for me.” When the boys
finished the work on the 16th, they went to the door and presented Sally with a
bill for one thousand dollars. “What
about my discount?” she asked. Steve
was shocked. “You surely didn’t take us seriously,” he gasped. “I certainly did,” said Sally. “But . . .” Steve was cut off in mid
sentence as Sally closed the door. Two
days later, S&M received in the mail a check from Sally in the amount of
$800. The accompanying letter said
only, “Here is your fee, less the discount that I was promised. Take it or leave it.”
Steve and Marty have brought Sally’s
check and letter to you, and they have told you the story of the Lindekes’
house. They want to know what they
should do about the Lindekes and Sally.
Advise them, discussing thoroughly all aspects of each case in light of
the materials we have covered. Be
sure to discuss all sides of all issues reasonably raised by these facts, and
resolve them as you think best.
COMMENTS To
Contracts Exam Fall, 1999
Professors
Haugen and Heidenreich
General Comments. The results of this exam
were pretty standard for a midyear contracts test. A few of the tests were quite worrisome, but there were also a
few that were excellent. Although the
exam was not unusually difficult, it did require you to analyze some problems a
couple of different ways, identify some
fairly specific concepts and discuss them clearly and completely. Many of you did not really do this. In some cases, students would reach a fairly
quick conclusion about a problem and fail to examine the alternatives. Unless it is obvious that there is really
only one solution (and therefore no real issue), you should always discuss all
the reasonable possibilities that a
problem might raise. Failure to do this
will result in your not discussing important parts of exam. This was particularly apparent in the first
question, dealing with the formation of the contract between Harry Lindeke and
S&M.
In some cases, students used some of
the correct terminology in stating a rule or principle, but used it in an
incorrect way, indicating they did not really understand what the terms meant,
or what the rules really were. Some
students need work on their written expression generally. As is often the case, a number of students
stated conclusions without “unpacking” them by defining all the important terms
and stating the applicable rules clearly and completely. Even the right conclusion is worthless
unless it is supported by good reasoning from well-stated rules.
The Lindeke Matter. You should have analyzed the Lindeke case in light
of the rules of offer and acceptance.
It was essentially a formation problem.
Nearly everyone began by trying to determine whether the S&M
September 20 letter to the 40 homeowners constituted an offer. Many of you believed that it did, even though
some recognized and discussed (as you all should have) that normally
advertisements, circulars, catalogues, price lists and the like are considered
solicitations or invitations to deal, rather than offers. In the problem case, it should have been
evident that the boys could not paint all 40 homes during the period in which
they would be active, and if even two
of the homeowners responded with the same designated 5 days for the boys to do
their houses, they boys would only be able to satisfy one of them. Therefore, if the September 20 letter were
to be considered an offer, the boys would be in breach of any contracts they
could not perform at the times the homeowners wanted. There are, however, as many of you identified, a number of
reasons to see this letter as an exception to the general rule regarding
circulars and other advertisements, and it would not have been a disaster for
you to conclude that the letter was an offer, so long as you went on then to consider
how formation might occur IF it were considered to be an invitation to deal,
instead. Clearly the facts are intended
to raise arguments for both views, and you should have considered both. You should have carefully traced the route
to formation that would follow from either determination. Unfortunately, many of you did not do this,
but simply decided that the first letter was an offer and ignored the (more
likely) possibility that it was instead a solicitation. This led many of you to ignore important
discussion that was generated by finding that the offer occurred when the Harry
sent his letter on September 22, rather than at the earlier point.
If the S&M letter were determined to be an
offer, the dispatched acceptance from Harry would, pursuant to the mailbox
rule, have been effective upon its posting – September 22. The fax sent on the 27th would
then have been at best an abortive attempt to reject the offer, or some sort of
attempt at overtaking the mailed acceptance, but even if the fax had been
received first, it had no legal effect whatsoever. The acceptance, mailed on the 22d, took effect and formed the
contract on that date. Harry had no power after that date to reject the
offer he has already accepted, now that the contract had been formed. It is true that if a rejection overtakes a
mailed acceptance, is received before the acceptance is received, and the
offeror relies on that received
rejection and changes his position
based on it, courts will not hold the offeror to the contract. That was not the case here, however, and the
general mailbox rule principle would apply.
Some of you seemed to think that Harry could get out of this contract
once it had been formed, so long as he notified the boys before they began
performance on his house. This seemed
to arise from confusion between the revocation of an offer in a unilateral
contract situation, and in a bilateral contract situation.
While it should have been pretty clear that the
S&M letter did not constitute an
offer, Harry’s letter likely did. It
seems to manifest a willingness to enter into a bargain and to justify the
recipient (S&M Restorations) in believing that their assent is invited and
would result in a bargain being
created. If this is what Harry’s letter
was, then when did it become effective, and did it remain effective in light of
the attempted withdrawal by the never-received fax? The offer would be effective upon receipt (September 29), and any
withdrawal of the offer would also be effective when received. The mailbox rule would not be helpful, as
the “dispatch” rule applies only to acceptances. Pointing this out indicated that you understood the mailbox rule
and its limited application to mailed acceptances only. (Some of you seemed to think that “distance”
meant some actual physical distance greater than across town. In fact, if mail is an appropriate method of
accepting an offer, any distance other than face to face will suffice.)
You should have asked whether this was this an offer
for a bilateral or a unilateral contract.
In one sense, Harry seemed to be saying, “If you do the job during the
days of the 7th to the 11th, I will pay you,” (unilateral). If the letter is an
offer for a unilateral contract, the performance would constitute an acceptance
of the offer and a performance of the resulting contract. This means that when the boys painted the
house, they would have created and performed their part of a contract. They would then be entitled to the amount
agreed upon - $1,000. Once they began
to perform, of course, an option would be created, preventing revocation by
Harry.
On the other hand, his letter has a somewhat
tentative tone, and his final sentence, “I trust that this will work out for
you,” at least suggests that he needs some response (bilateral). Courts usually interpret an ambiguous offer
as one that seeks a promise in return for the promise of the offer--that is, it
is treated as an offer for a bilateral contract, rather than for a unilateral
one. If that is the case here, the boys
never responded, and thus there would be no acceptance and no contract unless either silence or the
commencement of performance were a reasonable way of accepting. When the offeror does not specify a mode of
acceptance, any reasonable one is permissible.
Would beginning performance be a reasonable way for the boys to accept
here? What is the effect of the
pre-planned absence of the homeowner?
It would seem that this fact, and the language of the offer indicate
that Harry is asking for a response only if for some reason the dates won’t
work out for the boys. You could make a
good argument, I think, that beginning performance was an appropriate way for
the boys to indicate acceptance of the offer for a bilateral contract.
What about the boys’ silence as acceptance? Again, it seems pretty clear that Harry
wasn’t concerned to hear from them unless the dates wouldn’t work out. You should have stated the general rule,
that silence is not to be construed as acceptance except in the limited
situations of §69. One of them might
apply here, given the last sentence of Harry’s letter and a reasonable reading
of it, that what he is saying is “If I
don’t hear from you, we have a deal.”
If the boys’ silence is intended by them to be assent, which it appears
to be, then their silence would constitute acceptance. On the other hand, if what Harry is saying
is, “Let me know whether this will work out for you,” then the boys, having
failed to respond, would be out of luck.
Some of you confused the acceptance by silence or beginning performance
of an offer for bilateral contract
with the acceptance by performance of an offer for a unilateral contract. While
you might decide that either interpretation is the more persuasive here, you
should have recognized and discussed both possibilities and clearly
distinguished them.
Harry’s attempted revocation of his offer by fax was
of course still ineffective, as it was never received, nor was it brought to
the attention of the boys in some “reliable way” that Harry no longer wanted to
deal with them. The mailbox rule is
inapplicable to that situation, of course.
The Sally
matter. It is clear that the boys and Sally agreed
that they would do the job for her for $1,000.
She had read the solicitation letter, and she had asked whether “the
offer” which contained the details about price, etc., was still good. It seems clear that the parties reached
mutual assent through their words and conduct, though it is not easy to see
just who made the offer and who accepted.
Most likely, Sally’s inquiry led
the boys to revive their offer, which
may well have lapsed, and Sally then promptly accepted it. You should not have spent a great deal of
time on this, as it was not really in issue – neither party was suggesting they
didn’t have a contract for the painting.
The real
problem lies with the alleged promise to give a discount. Several of you erroneously suggested that
Sally had made a counteroffer, which
of course is not available to a party once a contract has been formed. Others suggested that the parties were
creating a completely new contract to replace the old one. There is nothing in the facts to justify
that argument. In the first place,
S&M may argue that this was all done in fun. The parties seemed to be smiling and laughing as the painters
rested and drank beer. You should have
discussed the objective theory of
contract and stated clearly that while mutual assent is necessary, parties
are generally held to have intended the reasonable meaning of what they
say. Courts look to the words used and
the circumstances surrounding the statement and decide whether a reasonable
person in the listener’s (Sally’s) position would have taken the statement
seriously, and whether she did in fact believe that it was a serious promise. Here the circumstances suggest that a
reasonable person would not have believed that the boys were seriously
promising to give Sally a 20% discount after she brought them each a beer,
despite the fact that Sally claims she did believe them.
Even if this were a serious promise, however, the
really critical problem here is that it is unsupported by consideration. You should have explained the doctrine of
consideration, and demonstrated that there was no bargained-for exchange of
anything of value here. Many of you
failed to do that. Although the beer
could have been sufficient (ie of
some recognized legal value) as consideration if the bargain had been, “Give us
a beer and we will give you a 20% discount,” (Cf. Jacob & Esau), there was
no such proposal here. Even if the
promise had been seriously made in gratitude for Sally’s having furnished the
beer, the giving of it would have been “past consideration” at best. The boys’ promise is simply to accept less
than they are entitled to under the contract.
There was no legal benefit to them (the promisors) and no legal
detriment to Sally (the promisee) sought by the boys. Thus, the promise is unenforceable for lack of
consideration. This is sort of a
pre-existing duty problem, in that Sally was already obligated to pay $1,000,
but it is not exactly like the normal pre-existing duty cases. Most likely, she is simply the beneficiary
of a gratuitous promise, for which she has not bargained, nor given anything in
return.
Sally did, however, change her position in reliance
on the promise--at least she might argue that she had done so by making to her
niece a gift of the amount of the discount.
Here you should have laid out the requirements of promissory estoppel and explained why they do or do not make this
promise enforceable even in the absence of consideration. It seems unlikely that the promisor
(S&M) should reasonably have expected the promise to induce action or
forbearance on the part of the promisee, Sally, or a third party.
Furthermore, although Sally did, if we believe her, act in reliance on
the promise, there doesn’t seem to be much in the nature of injustice that
would result here if the promise is not enforced. Some of you failed to discuss promissory estoppel here at all,
but talked about it in the Lindeke problem, where it was not raised by the
facts.
Finally, you needed to discuss the check. You should have advised the boys not to cash
the $800 check unless they were willing to forget their claim for the $200
balance. This tender of the $800 check to
the constitutes an offer of an accord. If they cash the check, this would
constitute an acceptance of that offer
(an accord) and a satisfaction of the accord, which would result in a
discharge of the original obligation.
This would be true even if Sally is wrong about her position in the
underlying dispute, as long as she is asserting her position in good
faith. You should have explained what
an accord and satisfaction is and how it works. Some of you ignored this aspect of the problem completely, while
others said little about it except to advise the boys not to cash the
check. A few of you told the boys to
write some language on the check, such as “under protest” and then cash it and
go after Sally for the other $200. This
is bad advice, as such language will not, under the common law, preserve the
boys’ right to seek the balance.
These exams were considerably better, in most cases,
than your practice tests, and you should not be too discouraged if you did not
do quite as well as you had hoped. Like
all the skills you are learning in law school, doing well on exams requires
practice, and if you continue to keep up with the reading, supplementing with
good treatises from time to time, diligently prepare briefs for all your cases
and listen to everything that goes on in class, you will improve.