CONTRACTS §§2B & 3
FINAL EXAMINATION
FALL, 1997
TWO HOURS
Special Instructions
This exam will count as forty percent of your final grade in Contracts. The other sixty percent of
the grade will be generated by your final exam at the end of the Spring Semester.
This is a closed-book examination. You may not use any material to assist you during the
exam.
Read the facts carefully. Answer the questions that are asked. Examine and resolve each issue
that is reasonably raised by the given facts even though you believe that the resolution of one
issue will answer the question, but do not make up issues that don't exist. If you believe that you
need additional facts, you may assume facts that are consistent with the given facts, but you must
state your assumptions as such and explain why they are important. Don't repeat facts
unnecessarily. If you believe that the same issue appears more than once in the exam, don't repeat
an explanation that you have already given; simply refer to your previous explanation as you deal
with the issue again.
This exam will be graded as a whole. The questions are not necessarily of equal weight. You
must determine how much time and effort to devote to each question.
There are no Uniform Commercial Code issues as such in this exam. Do not discuss damages.
You have two hours in which to write this exam.
Facts
Reed Acton had taken a Ph.D. in Comparative Literature at Phansie College of Eastern West
Virginia. After attempting unsuccessfully to practice Comparative Literature independently, in
May of 1996, he agreed with his former classmate, Mary Ann Evans, that he would edit her new
book, to be entitled, Shakespeare and Elbert Hubbard: Some Remarkable Parallels. They
agreed that Mary Ann would furnish to Reed her weekly output of work on each Monday
beginning on June 2, 1996. Reed would then check the references and citations for accuracy and
would make such suggested changes in grammar and style as might seem to him to be
appropriate, and deliver to Mary Ann the corrected and changed pages on the following Friday.
The total length of the book was estimated at approximately 400 pages, which the parties
estimated would be about 1600 manuscript pages. Mary Ann agreed to pay a total of $8,000 for
Reed's work, this amount to be paid in two equal installments: one-half on December 31, 1996
and the other half when the work was completed.
On July 15, 1996, Reed received a surprise in the mail. When Reed opened the heavy package
that had arrived with no prior warning, he found a thick stack of handwritten pages and a letter
from Amandine (Mandy) Dupin, another classmate. Her letter follows:
Dear Reed:
I have learned that you are in the editing business. As you may know, I am a successful author,
but I need the help of someone like you. Here is my draft of "Cromwell's Complaint," a historical
fantasy. Please go over it. I pay the going rate. If you complete the work by the end of the year,
there is an extra $1,000 in it for you.
Affectionately,
Mandy
Reed, in desperate financial straits, dashed off a note to Mandy saying simply, "I will edit
Cromwell's Complaint." Although he sent the note immediately, Mandy, who had moved leaving
no forwarding address, never received it. He feverishly began work on Mandy's manuscript, while
at the same time working on the 30 to 35 pages that Mary Ann provided each week.
On August first, however, Reed received disturbing news from Mary Ann, who said that she had
run into Mandy at a party, and that Mandy had told her that she had decided to go to law school
and to abandon her writing career. Reed, unsure of the accuracy of this information but unable to
contact Mandy, continued to work on Mandy's book until December when he finally received a
phone call from Mandy. "Reed," she said, "I hope that you haven't been spending any time on that
Cromwell thing. I am abandoning that piece of junk. I wasn't too worried, though, because when
I didn't hear from you I figured that you weren't interested. Anyway, I am going for the big bucks
now. I'm half way through my first year in law school." Reed, almost weeping, said, "Mandy, I
tried to get in touch with you, but I couldn't find you. I am nearly finished with the work."
Mandy laughed and said, "Well, Reed, I guess that you had nothing better to do anyway," and
hung up.
On December 31, Reed and Mary Ann met for a celebratory drink. Mary Ann handed Reed a
check for $4,000 and said that she was pleased with his work. "You know, Mary Ann," Reed
replied, "this is a lot tougher than I had expected. This reference checking is really time
consuming, and frankly, as you must know, your style needs a lot of work. I am spending a lot of
time correcting grammar and sentence structure--something that I didn't really expect from a
Phansie College grad. I wouldn't have agreed to do this for what amounts to about five bucks per
page had I known how much time I would have to spend." Mary Ann admitted that her writing
technique left much to be desired, but suggested that perhaps she could pay a bit more than
originally agreed. "Well," said Reed, "if you could make it ten grand total, I would be a lot
happier." "Done!" said Mary Ann. "Let's drink to it."
The editing of Shakespeare and Elbert Hubbard was completed in June, 1997. Mary Ann sent
Reed a check for $4,000 and a note saying, "I have been talking with Mandy, who tells me that I
shouldn't pay you any more than the amount that we originally agreed on. Here is the balance.
Thanks for everything." Reed cashed the check, but he thinks that he has been mistreated.
Questions
1. Explain fully why you believe that Reed has or does not have any reasonable basis for asserting
any legal claim against Mandy. Discuss all reasonable claims that you think that he might assert,
and all reasonable defenses that Mandy might raise.
2. Reed wants to know whether he can collect from Mary Ann the additional $2,000 to which he
believes he is entitled. Tell him whether he can recover, explaining why you think that he has or
does not have a valid claim for the money. Explain the theory of recovery that he might pursue
and the defenses that Mary Ann can reasonably be expected to raise.
cxf97
COMMENTS
General
Some of the exams were quite good; a few were quite bad. Most were O.K., but could have been
better. Although many people have learned to set out the rules and principles as they
discuss the problems, some have yet to master that technique. For example, too many people
said something like, "The preexisting duty rule prevents a person from asking for more money for
something that he has already agreed to do." This, besides being inaccurate as stated (One can
ask for anything that one wishes to ask for.), is of little value unless it is preceded by an
explanation of consideration, the theory of legal value, detriment to the promisee, etc. It then
must be coupled with an explanation of the fact that a promise to do something that the promisor
is already legally obligated to do is insufficient as consideration to support a return promise
because the (return) promisor, already being entitled to this performance, gets no legal benefit,
and the (return) promisee, already being legally bound, incurs no legal detriment.
Similarly, some writers discussed the rules governing the point at which the acceptance is
effective without explaining the importance of those rules. An offeror may revoke the offer,
whether indirectly through a third party or directly, only until the offeree has accepted or, in the
case of the unilateral contract, until there has been such partial performance as to bar the offeror
from revoking until the offeree has had a reasonable opportunity to complete performance. Once
the offeree has accepted, the attempt at revocation is too late.
A number of people failed to discuss all of the issues. Some students, for example, assumed
that the "offer" in the first problem was an offer either for a bilateral or for a unilateral contract
(not, as some continue to say, "a unilateral offer"), and analyzed the rest of the problem in that
light without considering the alternative. Some students did not consider the possibility in the
first problem that if the "offer" is insufficient because it is too vague, Reed might be able to use
promissory estoppel. Many students failed to raise the possibility that the cashing of the check in
the second problem might give rise to an accord and satisfaction.
Some of the writing was bad. At least a couple of students must get help with their grammar
and sentence structure if they are to succeed as law students. Many others could use a brush-up
on these principles. Some of the material was poorly organized. For example, some students,
though discussing the alternative interpretations of the "offer" in number one, mixed discussion of
the rules applying to bilateral contracts and those applying to unilateral contracts. This suggests,
whether it is true or not, that the student doesn't quite understand the differences between the two
sets of principles.
Specific Comments
1. Reed will seek to recover from Mandy for breach of contract. Mandy has breached the
contract, if there was one, by refusing to accept Reed's work and pay the contract price. Thus,
Reed must prove that a contract existed. He will face several problems in doing so. Mandy will
assert that there was no contract on which Reed could recover. Reed must defeat her arguments.
Most students set out in one way or another to define contract, though some simply jumped into a
discussion about what is an offer--or, in some cases, what is an acceptance. The initial
observation should have been that a contract is an agreement that arises from mutual assent,
which normally occurs as the result of an offer by one person and an acceptance of that offer by
the person to whom it was made.
Was there an offer? An offer must propose a bargain and invite acceptance, which the letter
seems to do, but the offer must be clear, specific and definite. In this case, the letter seems to be
somewhat vague. What is "the going rate"? What does Mandy mean when she says, "go over
it"? Although there is a bonus for completion by the end of the year, what is the time frame in
which Reed must complete the work? One might argue that, both parties being in the
writing/editing business, the answers to these questions may be found in custom or usage of trade.
A court will try to enforce the reasonable expectations of the parties, but will not make a contract
for them.
The court will only enforce a contract if the essential terms are sufficiently specific so that the
parties know what their rights and duties are, and so that the court can give an appropriate
remedy for breach. Thus, perhaps the proposal is too indefinite to be an offer; if so, there can be
no acceptance and no contract. If, on the other hand, the communication, as interpreted by the
court in light of custom and usage, is an offer, other problems arise. Some students ignored these
issues or brushed quickly over them with little or no explanation.
Did Reed accept? This raises the question whether this was an offer for a bilateral or a unilateral
contract. It looks like an offer for a unilateral contract--one in which the offeror seeks
performance of the contract as the means of acceptance of the offer. ("Please go over it. I pay
the going rate.") On the other hand, Mandy's later statement, "when I didn't hear from you, I
figured you weren't interested," suggests that she wanted a response rather than performance.
Furthermore, the offer may be considered ambiguous, in which case a court would be likely to
hold that it should be interpreted as an offer for a bilateral contract. The discussion then must
focus on each possibility. Some writers discussed only one possibility, or confused the two.
If this is an offer for a unilateral contract (again, not a "unilateral offer"), did Reed accept? He
sent a note that miscarried. This response could not be an acceptance if the offeror sought
performance rather than a response as the means of acceptance. Therefore, it would be of no
effect. The mail-box rule would not come into play here for that reason. Reed did, however,
begin performance. Although Mandy did not know for sure that he had begun, she could
reasonably expect that he would do so. In any case, her knowledge is irrelevant. Here, the
doctrine of part performance as a bar to the offeror's revoking an offer for a unilateral contract
would come into play.
The traditional rule was that the offeror was free to revoke the offer at any time before
acceptance, and acceptance did not occur until performance had been completed. Thus, the
offeror could change her mind at any time, even up to the last minute, until the offeree had done
everything required under the terms of the offer. Clearly, Reed had not completed performance
when he heard of Mandy's decision to abandon her writing, even if that information did not come
until December when Mandy called. A number of people failed to make this observation.
Modern courts, however, look at this problem in a different way. The Restatement First rule was
that the commencement of performance resulted in a contract having been created at that point,
subject to a condition of the offeree's completion of performance within a reasonable time. The
Restatement Second rule is that the commencement of performance creates an option running in
favor of the offeree, who then has the right to complete performance within a reasonable time and
thus create a contract. The effect of both of these rules is that the offeror may not withdraw the
offer once the offeree has commenced performance, but must allow a reasonable opportunity for
the offeree to complete performance.
If either the Restatement First or Second rule applies, Reed should have a good claim (assuming,
as discussed above, that the offer was clear and definite). Many people made only a cursory
reference to one of these rules, (E.g., "Once the offeree begins performance there is an option and
he can complete within a reasonable time.") and almost no one attempted to explain the traditional
rule and both Restatement approaches.
Mandy may argue, however, that she had decided not to publish the book, and that Reed knew of
her decision because of the information that Mary Ann passed on to Reed on August first, a mere
two weeks after the offer had been sent. She may point out that the rule allows an offeror to
withdraw at any time before acceptance (or the commencement of performance of a unilateral
contract) and that the information that the offeror is no longer willing to enter into a bargain need
not come directly from the offeror, but will result in termination of the offer if it comes to the
offeree in any reliable fashion. Although we don't know exactly when Reed started work, the
facts tell us that Reed began "feverishly" to work on Mandy's manuscript. This suggests that
Reed had begun performance before he learned, two weeks later, of Mandy's change of heart, and
thus that the knowledge of the revocation came too late to prevent the operation of the partial
performance principle, which prevents the withdrawal of the offer. The question of the reliability
of Mary Ann as an informant is really irrelevant, though some students correctly observed that it
would become important if Reed had not started when he received Mary Ann's information.
The offer may have been one for a bilateral contract. If that is the case, the response, "I will edit
Cromwell's Complaint," seems to be a manifestation of assent to the terms proposed by the offer,
and thus to be an acceptance. The acceptance, however, did not reach the offeror. The mail-box
rule says that the acceptance is effective upon dispatch if the communication is properly addressed
and carries the necessary postage irrespective of whether it actually reaches the offeror, or
whether the offeror comes to know of it. Therefore, the contract would have been formed upon
the mailing of the response, "immediately" upon Reed's receipt of the offer. There is no reason to
believe that Reed did not address the response to the address that Mandy had been using, or that
he was aware of her change in domicile. Here again, the knowledge of the revocation of the offer
would have come too late to terminate the power of acceptance, that power having already been
exercised by the mailing of the letter of acceptance.
In either case, whether a bilateral or a unilateral contract was contemplated, it looks as if Reed
should prevail if the initial communication from Mandy was sufficient to constitute an offer. If the
initial communication was not sufficiently definite, Reed would have to try to recover on the
theory of promissory estoppel. If the parties' communications and actions do not result in the
creation of a contract, a promise may still be enforceable if it meets the requirements of the
Restatement rule: The promisor must have reason to expect that the promise will induce action or
forbearance by the promisee; the promisee must in fact act or forebear; injustice can be avoided
only by enforcement of the promise. Reed's argument in this case will be that Mandy should
reasonably have expected that her letter would cause Reed to go to work on her manuscript; it did
have that result; it would be unjust were he not to be paid for his work. There was no need to
speculate on the extent of Reed's potential recovery because the instructions said, "Do not discuss
damages." Mandy would argue that she did not expect Reed to begin, but to confirm his interest.
Who knows how that argument would turn out?
2. Reed's claim against Mary Ann for the additional money will be difficult to sustain. The major
stumbling block will be lack of consideration. A gratuitous promise--that is, one not supported by
consideration--is unenforceable. Reed wants to enforce Mary Ann's promise to pay the extra
$2,000. Because consideration--the bargained-for exchange--must consist of something of legal
value--a legal benefit to the promisor or a legal detriment to the promisee--the promise to pay
more money here is not enforceable. The promisor, Mary Ann, received in exchange for her
promise to pay more money nothing to which she was not otherwise legally entitled. She merely
received the promise of completion of the editing work, to which she was already entitled because
of the earlier contract. Many students, unfortunately, talked about the pre-existing duty rule
without explaining the fundamental principles of consideration.
This agreement is, of course, a modification of the original contract. There is a special rule in the
Restatement that allows for the enforcement of an agreement modifying a contract when no
consideration is present, though it probably does not apply here. The exception says that (1)
when the modification is made because of circumstances that were not anticipated by the parties
when the contract was made; (2) neither party has fully performed; and (3) the change is fair and
equitable in light of the new circumstances, the modification is enforceable without consideration.
The modification must, of course, be voluntary, though the Restatement does not specifically say
so.
It is hard to argue here that the circumstances were unanticipated. The nature of the work
remained the same; Reed simply underestimated the amount of time that he would have to spend
because he was overly optimistic about Mary Ann's writing abilities. The fact that the job proves
to be harder than expected does not normally result in the upholding of the modification if there is
no consideration to support the promise. Furthermore, we don't have any information to enable
us to judge the fairness of the modification. It seems that an increase of 25% in the amount to be
paid is pretty dramatic, but we don't know what editors charge normally. Many students
discussed this exception to the rule without first stating the rule, or seemed unclear about the fact
that this rule is an exception to the requirement of consideration.
Some people raised the possibility that a new, substitute contract was formed here, thus
discharging the old contract and substituting another in its place. If this were the case, the new
contract would be enforceable, there being consideration present because the parties would have
had no legal obligations to each other at all following the discharge of the old contract. The
problem is that there doesn't seem to be anything in the facts to justify that conclusion. The
parties seem simply to have changed one term in their existing contract.
Some students speculated here about promissory estoppel. This is not the place for that
discussion, which should have been made in the first problem. At best, a quick explanation to the
effect that Mary Ann's promise was not expected to, nor did it, induce Reed to act or forebear in
any way different from his legal obligations would do.
The second problem is the cashing of the check, which seems to have been presented as full
payment for the work done. Although Reed might argue about the meaning of the content of the
cover letter with which the check was sent, the debtor, Mary Ann, would no doubt argue as a fall-back position that there has been an accord and satisfaction: she sent the check as an offer to
settle the obligation, and Reed accepted her offer of settlement by cashing the check. Thus, the
underlying claim has been fully discharged. Many people simply ignored this issue; some seemed
to think that accord and satisfaction could have been involved in the promise to pay more money,
but there seems to be no basis for this, as there was no argument or dispute at that point.
Grade Spread
§2B §3
A 2 1
A- 4 2
B+ 5 4
B 4 4
B- 3 7
C+ 5 3
C 12 10
C- 9 13
D+ 2 3
D 2 1
D-
F 2
n=50 n=48
Median in each section, High C.