FINAL EXAMINATION
CONTRACTS
SPRING, 2002
PROFESSOR KLEINBERGER
MODEL ANSWERS AND
NOTEWORTHY MISTAKES
Part One
A. On January 8, 2002, National Public
Radio reported that the army of South Africa has been carrying out peacekeeping
missions in several neighboring African nations. The leader of one of these nations was interviewed for the report
and stated, in effect, ASouth Africa owes a duty to help its neighboring states achieve peace
and stability, because during the era of apartheid we supplied essential help
in the struggle to end apartheid.@ Assume that the prime minister
of South Africa has made a similar statement and has promised to provide
peacekeeping forces to that leader=s nation. Assume also that contract
law principles studied in this course apply to promises made by sovereign
nations to each other and that the prime minister of South Africa had the right
and power to commit South Africa.
According to principles studied in this course, would South Africa be
bound to fulfill the prime minister=s promise?
Model Answer: The relevant principle is Apromissory restitution.@ No
enforceable contract exists, because the Prime Minister=s promise is not part of a bargained-for
exchange. There is no consideration
running to South Africa. The previously
provided anti-apartheid efforts occurred before the promise. In general, Apast consideration@ is not effective as consideration.
However, benefits conveyed in the past, coupled with a promise made in
reference to those benefits, can trigger the Amaterial benefits@ rule and the notion of promissory restitution. Under the cases read in this course, the
benefit must have been vital B e.g., saving a life or a person=s livelihood. Under the R.2d.=s more modern approach, the value of the
promise must be in rough proportion to the value of the benefits conveyed. R.2d 86(2)(b).
Helping end apartheid is certainly sufficiently important to trigger
the rule, and the Prime Minister=s statement indicates that the neighboring country providing Aessential@ help in that direction. As for
proportionality, the facts are too vague to allow any detailed analysis.
Noteworthy Mistakes:
missing entirely the promissory restitution analysis; considering at length promissory
estoppel, even though no facts exist to fuel that analysis;
failing to mention past consideration; noting that past consideration is not
good consideration, but failing to identify promissory restitution as a
possible theory; identifying promissory restitution as a possible theory, but
failing to apply the rule in as much detail as the facts allowed; focusing on
the absence of offer and acceptance, while missing completely the promissory
restitution analysis
B. An individual who owns a new theater (AOwner@) arranges for its first ever play to star a really big, but
emotionally difficult, star (AStar@).
The contract between Owner and Star calls for a four week engagement,
with Star to perform six evenings a week, for a weekly fee of $10,000 plus an
upfront Aengagement and rehearsal fee@ of $100,000. Owner pays the engagement fee, Star attends rehearsals but just
before opening night decides, AThis is Hicksburg. I=m out of here.@ It is too late to get a
replacement. The show closes without
opening, and Owner goes out of business.
Assume that Star has
breached the contract. On which, if
any, of the following damages claims could Owner prevail? Are any of those potentially successful
claims inconsistent with each other?
1.
$100,000
already paid Star
Model Answer:
Owner can recover the $100,000 either by claiming restitution or by
suing for reliance damages. The
reliance analysis is provided below, in answer to part 2 of this question. As for restitution, Owner=s theory is straightforward. Star=s breach is total (nonperformance plus repudiation), giving Owner the
right to deem the contract canceled and to sue for return of value conveyed
under the abrogated contract. Coastal
Steel Erectors
In response, Star
might assert that the $100,000 engagement fee has been earned, or at least
partially earned, by her participation in rehearsals. See R.2d.=s ' 240 (agreed equivalents). That argument is specious, however. Participation in rehearsals provides no
value whatsoever to Owner in the absence of participation in the actual
presentation of the play.
Noteworthy Mistakes:
failing to identify the restitution interest (although I gave full credit to
any answer which properly asserted the reliance interest); stating that Owner
could recover the $100,000 but failing to explain why; identifying this claim
as expectation damages
2.
the $250,000
paid to other cast members, and for publicity and other expenses to advertise
and prepare for the production
Model Answer: Owner can recover these amounts by suing Aon the contract@ for reliance damages. A
non-breaching party=s
reliance interest covers expenses incurred and opportunities foregone in
reliance on the other party=s promised performance.
The $250,000 paid to other cast members, and for publicity and other
expenses to advertise and prepare for the production, are Aincidental@ reliance damages B i.e., expenses incurred by a non-breaching party in anticipation of
and preparation to enjoy and benefit from the other party=s performance. Incidental reliance damages are recoverable
if foreseeable at the time of contracting.
Certainly both Owner and Star had reason to know that the producer of a
play would hire other cast members and advertise the forthcoming performances.
A reliance analysis could also apply to the $100,000 fee paid to
Star. That fee constitutes Aessential@ reliance B i.e.,
expense incurred by a party as the party performs its obligations.
Noteworthy Mistakes: characterizing these damages as expectation
damages; failing to distinguish between essential and incidental reliance
3.
$100,000 in
pre-sold tickets, which had to be refunded
Model Answer: The refunds constitute consequential damages
and are therefore a type of expectation damages. Ticket revenues were one of Owner=s primary expectations. Those expectations began to materialize when
customers purchased tickets. When Star=s abrupt departure forced Owner to refund the
ticket revenues, that refund measured one aspect of consequential damages.
Ordinarily, courts will not award lost profit damages to a new
business. However, that rule reflects a
new business=s inability to prove with any specificity
what its profits would have been. In
this instance, that problem does not exist.
The lost revenues are actual, not speculative.
Noteworthy Mistakes:
failing to characterize these damages as expectation damages; characterizing
the damages as expectation damages but asserting the Anew business@ rule as a barrier to recovery
4.
$25,000 in
psychotherapist bills incurred by Owner over the next two years in trying to
cope with rejection and failure
Model Answer: The $25,000 in therapist bills is not
recoverable. Those bills reflect the
non-breaching party=s
emotional distress. Damages for
emotional distress are recoverable only in very limited circumstances B e.g., breach of a contract to handle a
corpse. No such circumstances are
applicable here.
Noteworthy Mistakes:
none B almost every student (perhaps every student)
provided a correct answer to this question
5. $500,000,
which Owner=s business plan plausibly predicted would be
the theater=s profit over its first three years, assuming
a successful first play to Amake a splash with a star
Model Answer: Owner=s claim for lost profits will fail, because Owner cannot surmount the Anew business@ barrier. Most jurisdictions
categorically refuse to award lost profit damages to a new business, on the
belief that the absence of a Atrack record@ makes
it impossible for the non-breaching party to prove with reasonable specificity
what profits would have been made. Even
in a jurisdiction that takes a less categorical approach, the plausible
predictions of Owner=s
business plan provide nowhere near the necessary specificity of proof.
Noteworthy Mistakes:
asserting a foreseeability issue, when it certainly should have been within the
contemplation of the parties that breach by Star would or could cripple the new
venture
Are any of those potentially successful claims inconsistent with each
other?
Model Answer: The
claim under question B-1 for restitution is inconsistent with any claim for
reliance and any claim for expectation damages. A claim for restitution in this context is Aoff the contract@ and assumes that the contract is no longer
applicable. Both reliance and
expectation damages, in contrast, are Aon the contract.@ The reliance claims (B-1 and
B-2) are inconsistent with any claim for expectation damages (B-3 and
B-5). The reliance interest is what a
party Ainvests@ into a contract in order to realize the party=s expectation interest. To award expectation damages and reliance
damages is therefore to produce a double recovery.
Noteworthy Mistakes:
omitting the inconsistent claims issue entirely (a mistake made by most of the
exam takers); identifying the inconsistency between reliance and expectation
damages but not the inconsistency between those damages and restitution.
C. The City of Ely (ACity@) entered into a contract with Steele Company (ASteele@) under which Steele agreed to build part of the City's
waterworks. The contracted-for work
involved the laying of an "intake pipe" and the contract included
plans detailing how and where the intake pipe was to be located. Steele had inspected the worksite and had
developed the plans and specifications which became part of the contract.
As the work
progressed it was found that beds of soft mud existed beneath the line where
the intake pipe was to be laid, and that a covering of some thickness, composed
of vegetable growth, clay, and fine sand, overlaid the beds of mud, so as to
render it impracticable, if not impossible, to have laid the pipe without first
laying Aa rock foundation.@ The
plans prepared by Steele did not contemplate a rock foundation; neither Steele
nor the City had previously had any idea of the Asoft mud@ and Acovering@ problems, although both problems had existed
when Steele prepared the plans and specifications.
Although Steele
definitely had the capability to lay a rock foundation, the added work would
have tripled the cost of performance and turned a profitable job into an
economic disaster. Steele refused to
perform the contract, and the City sued for breach. Was Steele in breach? Do
not concern yourself with remedies.
Model Answer: Steele=s best hope is to claim mutual mistake and on that basis avoid the
contract. However, that hope is likely forlorn.
To succeed with a
claim of mutual mistake, a party must establish that: (1) at the time of contract formation, both parties were mistaken
as to some then existing fact; (2) the mistake has a material effect on the
exchange of values in the contract; and (3) the party did not the bear the risk
of mistake. Steele can succeed on the
first two elements but not on the third.
As for the mistake
in existing fact, at the time of contract formation both Steele and the City
believed the site suitable essentially Aas is@ for the laying of pipe. The specifications reflect this belief. Both parties were mistaken. The actual site condition requires the
laying of a rock foundation.
As for the necessary
impact on the exchange in values, laying a rock foundation would result in Aan economic disaster@ for Steele.
Whatever a Amaterial
effect@ might be, an economic disaster surely
satisfies the standard.
Nonetheless, Steele
will be unable to avoid the contract.
Steele drew the specifications after having examined the location and
must have known that the examination did not extend to the subsurface. Nonetheless, Steele developed the
specifications and entered into a contract based on those specifications. In essence, Steele treated its lack of
knowledge as sufficient and thereby assumed the risk of its own ignorance.
Noteworthy Mistakes:
doing a Afrustration@ or Aimpracticability@ analysis, even though the discordant fact
existed at the time of contract formation and was not the post-formation
occurrence of an event; doing a Afrustration@ or Aimpracticability@ analysis and merely assuming that a significant increase in price by
itself would satisfy the Afrustration@ or Aimpracticability@ standard; doing a Afrustration@ or Aimpracticability@ analysis and ignoring the Afault@ element (i.e., Steele=s at least arguable fault in failing to inspect the location before
agreeing to the contract)
D. Hirshfield's, Inc. (AHirshfield=s@) and Cafe Di Napoli, Inc. (ACafe Di Napoli@) had neighboring properties and a shared parking area on Hennepin
Avenue in downtown Minneapolis. On
September 8, 1960, the two businesses signed an agreement (AHirshfield's-Cafe Di Napoli Shared Parking
Lot Agreement@), leasing to each other an undivided one‑half
interest in their respective parking lot [Athe parking lot rights@] B but not their respective buildings. The Hirshfield's-Cafe Di Napoli Shared
Parking Lot Agreement further provided that neither party could convey its
parking lots rights without the other party's written consent. By its terms, the Hirshfield's-Cafe Di
Napoli Shared Parking Lot Agreement continues for successive one‑year
periods until written notice is given by one of the parties at least 90 days
before the expiration of the annual period.
In June of 1992, Hirshfield's and Larry
Holmberg (AHolmberg@) negotiated a lease agreement (Athe Hirshfield=s-Holmberg
Building Lease Agreement@) under which Hirshfield=s agreed to lease Hirshfield's building on Hennepin Avenue to
Holmberg. The Hirshfield=s-Holmberg Building Lease Agreement included
an assignment to Holmberg of Hirshfield=s parking lot rights under the Hirshfield's-Cafe Di Napoli Shared
Parking Lot Agreement and stated: AThis lease is conditioned on, and Hirshfield=s covenants to use its best efforts to
obtain, the consent of Cafe Di Napoli, Inc. to the assignment to Holmberg of
Hirshfield=s rights in the parking lot.@
When Café Di Napoli
learned that Holmberg intended to use the property to be leased from Hirshfield
to open an adult entertainment center, Café Di Napoli refused to consent to the
assignment of the parking lot rights based on its belief that its customers,
consisting primarily of the downtown lunchtime crowd and a family‑oriented
dinner crowd, would be deterred from coming to its restaurant with an adult
center next door. Despite Hirshfield's
best efforts at persuasion, Café Di Napoli persisted in its refusal to
consent. Holmberg then stated to
Hirshfield's that he (i.e. Holmberg) would waive the provision on the parking
lot rights. Also, Holmberg offered to
indemnify Hirshfield's for any damages incurred if Café Di Napoli filed a
nuisance lawsuit against Hirshfield's. Nevertheless, Hirshfield's refused to close
the transaction on the day provided in the Hirshfield=s-Holmberg Building Lease Agreement, although
Holmberg was ready and willing to do so.
Holmberg sued
Hirshfield=s for breach. Was Hirshfield=s in breach? Do not concern
yourself with remedies.
Model Answer: Hirshfield=s is not in breach of contract.
Although Holmberg waived the express condition concerning the parking
lot, that condition existed to protect both parties. Hirshfield=s did not waive the condition, and therefore neither Hirshfield=s nor Holmberg had any obligations under the
contract.
An express condition is an event, not certain to occur, whose
occurrence is necessary either to trigger or discharge an obligation of one or
both parties. In this situation, the
Hirshfield=s-Holmberg Building Lease Agreement contained
an express condition: AThis lease is conditioned on . . . the
consent of Cafe Di Napoli, Inc. to the assignment to Holmberg of Hirshfield=s rights in the parking lot.@ Although courts tend towards strict
construction when determining if an express condition exists, this language
meets that standard. The phrase Ais conditioned on@ is unmistakable. (The Lease Agreement also contains a promise pertaining to that
condition B namely that Hirshfield=s use its best efforts to obtain the neighbor=s consent.
As the facts indicated, Hirshfield=s fulfilled that promise, even though the permission was not obtained.)
Holmberg
unequivocally and effectively waived the condition. In different circumstances, in order to protect Holmberg a court
might inquire into the materiality of the condition or whether Holmberg had
received consideration for the waiver.
In these circumstances, however, Holmberg intended the waiver for his
own benefit. It would therefore be
nonsensical to refuse to recognize the waiver on the grounds that it was too
important (i.e., material) or that Holmberg had received had no fresh
consideration for it.
This analysis does
not, however, ultimately help Holmberg, because Hirshfield=s did not waive the condition.
The facts are scant, but they nonetheless indicate that the condition
was intended benefit Hirshfield=s as well as Holmberg. Holmberg=s offer to indemnify Hirshfield=s against a nuisance suit demonstrates that
Hirshfield=s had something to gain from obtaining the
neighbor=s acquiescence to the transaction. Therefore, since only one of the parties
waived the condition, the condition still applies. Since the condition was never satisfied, Hirshfield=s is not in breach.
Noteworthy Mistakes:
treating the question as raising issues of assignability (the assignment of the
lease was relevant only through the happenstance that approval of the assignment
was the condition); characterizing the condition as a promissory condition,
when Hirshfield=s did not promise to bring the
condition about;
recognizing the existence of the condition but failing even to consider whether
the condition might benefit Hirshfield=s; discussing Holmberg=s waiver in terms of materiality and consideration
E. On the evening of December 4, 1998, UMI sponsored a social gathering
for its employees at the Silver Spring Country Club (Athe Country Club@) in Menomonee Falls. The gathering included
dinner, an awards presentation, and cocktails. Michael Devine and John Kreuser
were both employees of UMI, and both attended the party. Devine and Kreuser
drove separately to the event. The
Country Club provided a bartender who served the beverages.
At about 8:30 that
evening, Kreuser and his wife were talking with another couple at the bar when
Kreuser overheard the bartender ask Devine if he had a ride home. When Kreuser
turned to look, he saw Devine make a motion with his head, suggesting that
Kreuser would be responsible for driving Devine home. Kreuser indicated to the
bartender that he would, in fact, give Devine a ride home. Once Kreuser agreed that he would drive
Devine home, the bartender served Devine several more drinks.
Kreuser and his wife
left the party at about 10:00 that evening. As they were leaving, Kreuser
decided not to give Devine a ride home. Kreuser did not attempt to locate
Devine, and he failed to tell Devine or anyone else that he did not intend to
give Devine a ride home.
At approximately
10:40 p.m., Devine was driving his own vehicle when he crossed the centerline
of the highway and struck another vehicle, which was driven by Kathy
Stephenson. Both Devine and Kathy Stephenson died as a result of injuries they
suffered in the collision. The State Crime Laboratory measured Devine's blood
alcohol concentration at 0.338 g/dl‑‑a level considerably over
Wisconsin's legal limit.
Ricky Stephenson, on
his own behalf and as the representative for Kathy's estate, brought suit [inter
alia] against Kreuser.
6.
Is there any
theory from within this course that might possibly support Stephenson=s suit against Kreuser? If so, what would be that theory=s major weakness(es)?
Model Answer:
Stephenson=s best chance is to claim that he and his
wife were intended third party beneficiaries of a contract made between the
Country Club and Kreuser. The Country
Club, through its bartender, agreed to provide further drinks to Devine in
return for Kreuser=s
promise to drive Devine home.
The major weakness is the issue of Aintended@ versus Aincidental@
beneficiary. Indubitably, a Adesignated driver@ benefits all who drive (and their loved ones
as well), but, at the time of contract formation, did the Country Club and
Kreuser specifically intend to benefit the Stephensons? To say yes is to obliterate any line between
intended and incidental beneficiaries.
Noteworthy Mistakes:
failing to find any plausible theory
7.
Assume that
Stephenson has a right under some law outside the scope of this course to
recover against the Country Club for having served alcohol to an intoxicated
person who later drove and caused injury and death. Does the Country Club have a claim from within this course
against Kreuser for the amount of damages that the Country Club owes
Stephenson?
Model Answer:
Yes. As explained in the answer to part
1 of this question, the Country Club and Kreuser entered into a contract, with
Devine the intended third party beneficiary.
Nothing in the law of third party beneficiaries denies a promisee
standing to sue for damages it suffers from the promisor=s breach.
When Kreuser breached the contract, damages resulted to the Country
Club in the form of Adram
shop@ liability.
Kreuser should have known that such consequences might result. Kreuser knew that the bartender had Acut off@ Devine, knew that the bartender would continue to serve Devine in
reliance on Kreuser=s
promise, should have known of Adram shop@
liability, and should have known that a breach of the Adesignated driver@ promise might result in a roadway tragedy
and Adram shop@ liability for the Country Club.
The Country Club=s claim therefore meets the test of Hadley v. Baxendale
Noteworthy Mistakes:
failing to see that the Country Club and Kreuser had entered into a contract;
seeing that contract but asserting (or implying) that only the third party
beneficiary (Devine) had standing to sue for breach
End of Part One
Part Two
Elroy Stock (AStock@) graduated from Augsburg College (AAugsburg@) in 1949. After graduation, Stock began
contributing to Augsburg and consistently donated time and money. In the
1980's, Augsburg started the A21st Century Fund@ to raise $25 million, planning to construct a new building. The
brochure outlining the 21st Century Fund stated that A[n]amed gift opportunities are numerous.@ After sufficient funds were raised,
construction began in 1987, and the Foss‑Lobeck‑Miles Center opened
in September 1989.
In 1986, Augsburg
College's Director of Alumni Relations, Jeroy Carlson,
approached Stock for a donation to the 21st Century Fund. Carlson suggested
that Stock donate money to construct the communications wing of the new area
and suggested that the wing could be named after Stock. Stock's initial
contribution was to be $100,000. Stock believed the donation was too small for
the honor of having the wing named after him and he increased his donation to
$500,000. Augsburg College took the additional money.
A September 1986
letter from Carlson to Stock recognized Stock's Aright to designate th[e] pledge to name the AElroy Stock Communications Wing@ and asked Stock to choose a payment plan.
The letter further stated that the APLEDGE IS GUARANTEED.@ Jeanne Narum, Vice President for Development and College Relations,
confirmed Stock's donation and the Aunderstanding that the major portion of [Stock's] gift is to be
designated for the Elroy Stock Communication Wing@ in the new building. Augsburg=s board of regents voted to name the wing after Stock.
At the time of the
board of regent=s vote, unknown to them, Stock had for years
been secretly mailing anonymous letters to families and individuals of mixed
race and religion. These letters denounced mixed marriages, professed a
viewpoint based on racial purity, and, according to some recipients, produced
fear in them.
Following a February
1988 news report that exposed Stock=s letter‑writing campaign, there was a great deal of unfavorable
publicity about Stock. The publicity included articles about Stock and his ties
to Augsburg, his large contribution, and Augsburg=s intent to name a wing of the building after Stock.
8.
Could Augsburg
properly have declined to name the wing of the building after Stock?
Model Answer:
Although the arrangement between Stock and Augsburg constituted a
contract, Augsburg could decline to name the wing of the building after
Stock. Augsburg could avoid the
contract either on a theory of unilateral mistake or misrepresentation (or
both). In addition, Augsburg might
succeed with a claim that its obligations have been discharged through
frustration of purpose.
Although Augsburg
might be tempted to assert that Stock=s $500,000 was merely a completed gift, the facts reveal an exchange of
promises: Stock=s promise to contribute in return for
Augsburg=s undertaking to name the wing in his honor.
Stock fulfilled his
obligation. For Augsburg to escape
fulfilling its reciprocal obligation, Augsburg must somehow escape the
strictures of the contract. Several
theories are available. First, Augsburg
could argue unilateral mistake, asserting that:
(i) at the time of contract
formation, Augsburg was mistaken as to a highly significant fact;
Augsburg believed that Stock had the sort of character that warranted
naming a wing after him, while in fact his character was flawed in way that, if
revealed, would make Augsburg the subject of ridicule and opprobrium.
(ii) Augsburg=s
belief in Stock=s probity was Aa basic assumption,@ R.2d ' 153
This fact is almost self-evident.
A college=s reputation is crucial in attracting both
students and donors.
(iii) the mistake had Aa material effect on the agreed exchange of performances that is
adverse to@ Augsburg, R.2d ' 153
The uproar following the revelation of Stock=s letters demonstrates this point.
(iv) Athe other party had reason to know of the
mistake,@ R.2d ' 153(b)
Stock knew that Augsburg knew nothing about the letters.
(v) Augsburg did not bear the risk of the mistake, R.2d ' 153
The agreement of the parties did not allocate the risk of mistake, and
Augsburg had no idea that it had incomplete knowledge about Stock=s character.
To the contrary, Stock had a lengthy public Atrack record@ of good conduct. Especially
because Stock concealed his scurrilous campaign of letter writing, there is no
reason for a court to allocate the risk of mistake to Augsburg. See R.2d ' 154 (party bears risk of mistake if any of these three grounds exist).
Stock=s failure to divulge his scurrilous campaign
also supports Augsburg=s
claim of misrepresentation. Ordinarily
a non-disclosure cannot give rise to a misrepresentation claim. However, Awhere a party knows that disclosure of the fact would correct a mistake
of the other party as to a basic assumption on which that party is making the
contract and if non‑disclosure of the fact amounts to a failure to act in
good faith and in accordance with reasonable standards of fair dealing,@ R.2d 161(b), contract law will treat the
failure to disclose as if it were a statement flatly contradicting the
undisclosed fact.
Such is clearly the
situation here. As for the Amistake@ and Abasic assumption@ elements, see above (elements of unilateral
mistake). As for Agood faith and . . . fair dealing,@ Stock breached even the subjective standard
of Ahonesty in fact.@
Moreover, in a world where all institutions of higher education
publicize their commitment to tolerance and equal opportunity, it was hardly Afair dealing@ for Stock to seek honor for his name while concealing
information that was bound to tarnish Augsburg=s.
The rest of the
elements of misrepresentation are all clearly present. Stock=s nondisclosure was material B i.e., Alikely to induce a reasonable person to
manifest his assent.@ R.2d
162(2). Indeed, the nondisclosure was
crucial to causing Augsburg to agree to name the wing after Stock. Augsburg=s reliance was justified, as there was nothing in Stock=s public life to warn Augsburg of Stock=s secret problem. AIf a party's manifestation of assent is
induced by . . . a material
misrepresentation by the other party upon which the recipient is justified in
relying, the contract is voidable by the recipient.@ R.2d
' 164(1).
Augsburg may thus avoid the contract on the grounds of
misrepresentation.
Augsburg might also
argue frustration of purpose, although this argument is less likely to
prevail. To establish frustration of
purpose Augsburg must prove that, (i) through no fault of its own, (ii) after
formation of the contract an event occurred that frustrated Augsburg=s essential purpose in forming the contract,
and (iii) the non-occurrence of this event was fundamental supposition of both
parties. Augsburg can prove its lack of
fault, see above (discussion of risk of mistake), but will have trouble on the
other two elements.
Augsburg can
identify a post-formation event B namely, the public revelation of Stock=s secret and the attendant adverse publicity. For the reasons described above, Augsburg can also show that the
non-occurrence of such revelations was a fundamental presupposition for
Augsburg. It is not clear, however,
that Stock entered the contract presupposing that there could never be a
revelation.
In addition,
Augsburg will have difficulty with the purpose element. Augsburg=s primary purpose was to raise money. It would have to convince a court that an
ancillary but nonetheless fundamental purpose was safeguarding its own
reputation.
Noteworthy Mistakes:
merely assuming that the arrangement between Stock and Augsburg constituted a
contract;
identifying only one theory on which Augsburg might escape the contract;
treating the matter as a question merely of frustration, without discussing the
fact that Stock=s miscreant behavior existed at the time of
contract formation; raising the issue of frustration and failing to consider
whether good reputation is correctly seen as a primary purpose for Augsburg;
invoking impracticability rather than frustration; discussing theories only
superficially (e.g., omitting key elements or merely stating the elements of
rules and not adducing the relevant facts)
9.
Assuming the
answer to question A is yes
and Augsburg did decline to name the wing after Stock, would Augsburg have been
obliged to return the $500,000 contributed by Stock?
Model Answer: Augsburg is obliged to return the
money. If Augsburg invokes either
misrepresentation or unilateral mistake to avoid naming the wing after Stock,
Augsburg=s remedy is rescission. That remedy obliges the rescinding party to
return any consideration received from the other party so as to return both
parties to the status quo ante.
If instead Augsburg succeeds with a claim of frustration of purpose,
the concept of unjust enrichment will require Augsburg to return the
funds. (Although sometimes the doctrine
of frustration leaves the Alosses where they lie,@ that result is neither necessary nor fair in these circumstances. Compare, for example, a situation in which a
construction contract is subject to the doctrine of frustration and part of the
construction work has already been performed.
There is no way to return both parties to the status quo ante. At least one of the parties has to be worse
off than before the contract was formed.
Such is not the case here, so principles of unjust enrichment will
apply.)
Noteworthy Mistakes:
failing to link the claims of unilateral mistake and misrepresentation to the
concepts of rescission and status quo ante
10.
Assuming the
answer to question A is no,
what remed(ies) might have been appropriate for Stock?
Model Answer: Stock has a claim for the return of his
money and, perhaps, in the alternative, for specific performance. The money claim could be made either on or off
the contract. On the contract, Stock
would claim (essential) reliance damages B i.e., the $500,000 he contributed in the performance of his
obligation. Or, following Coastal
Steel Erectors, Stock could cancel the contract on the grounds of Augsburg=s total breach B Augsburg=s only
express obligation under the contract was to name the wing after Stock B and sue in restitution for benefits
conferred, i.e., the $500,000 he contributed.
In the alternative, Stock might be able to obtain an order for specific
performance.