IN-CLASS EXAMINATION
CONTRACTS
FALL, 1997
PROFESSOR KLEINBERGER
Model Answers and Noteworthy MistakesA. Student wants to go on vacation out of state during the holiday break and needs to ensure that her cat is adequately and consistently taken care of during that time. She asks her neighbor to take care of her cat, specifying in sufficient detail the tasks involved. The neighbor agrees to take care of Student's cat, as Student [h]as requested. As to each of the following scenarios, state whether the neighbor has entered into an enforceable contract to take care of the cat and explain why your statement is correct.
1. In response to Student's request, the neighbor says, "I'll be happy to do that for you."
2. In response to Student's request, the neighbor says, "I'll be happy to do that for you. You can rely on me."
3. In response to Student's request, the neighbor says, "I'll be happy to do that for you. It's the least I can do. After all, I owe you one. Last month you took care of my dog when I went away." [Assume that the neighbor's statement about the dog is accurate.]
4. In response to Student's request, the neighbor says, "I'll be happy to do that for you. It's the least I can do. After all, I owe you one. Last month you took care of my dog when I went away, and, you know, I love my dog as if he were my child." [Assume that the neighbor's statements about the dog are accurate.]
Model Answer: None of the scenarios involves an enforceable contract, because in each scenario the neighbor's promise lacks consideration. Consideration involves a bargained-for exchange in which the promisor seeks and receives performance or a return promise. Restatement (Second) § 71(1) and (2). Consideration can consist of a benefit to the promisor or a detriment to the promisee, but none of the scenarios involve either performance..
In scenario #1, the neighbor's promise is purely gratuitous; the neighbor seeks and receives nothing in return. The promise therefore lacks consideration and fails to establish an enforceable contract.
The additional statement in scenario #2 ("You can rely on me."), does nothing to change the analysis. Although the foreseeability and fact of reliance may be relevant in a promissory estoppel analysis, reliance is irrelevant to the consideration doctrine.
Scenario #3 likewise fails to change the outcome. To constitute consideration, an act or forbearance must follow, rather than precede, the promise. Except in unusual circumstances, past performance cannot serve as consideration.
Scenario #4 does not recount such extraordinary circumstances. Under the rubric of promissory restitution consideration, the law will enforce as a contract a promise made in recognition of past necessary services provided to the promisor's non-adult child. However, no authority exists for extending this doctrine to past services provided for a promisor's pet regardless of how emotionally significant that pet may be to the promisor.(1)
Noteworthy Mistakes: wasting time discussing offer and acceptance; wasting time analyzing whether the purported contract was unilateral or bilateral; characterizing the contract as unilateral because the cat owner sought an act;(2) asserting a lack of consideration without defining consideration; viewing the bargain aspect of consideration as requiring extensive negotiations and asserting a lack of consideration because the parties did not negotiate at length; asserting that a detriment to the neighbor suffices as consideration to the neighbor; asserting that scenario #2 triggers promissory estoppel, even though no reliance has yet occurred; omitting the promissory restitution analysis;(3) invoking Restatement (Second) § 86 to analyze scenario #4 but construing that section so broadly as to encompass virtually any promise made in respect of past performance; asserting that past performance, without more, can constitute consideration
B. Rogers is a morning DJ for a local radio station. Each Friday during college football season, Rogers holds a contest in which he offers a $200 prize to the first caller who accurately predicts the final score of the University of Minnesota's upcoming, Saturday football game. (The radio station takes 50 calls during each contest. Once one caller has predicted a particular score, no other caller is allowed to pick that score.)
Two weeks ago, on Friday morning, Rogers again held the same contest. He stated, "The first caller to call up and give us the final score of the Minnesota--Wisconsin game will win $200." Although the station accepted 50 different predictions, none were correct.
Early the following Sunday morning, a satellite feed failed and the station found itself facing the prospect of "dead air." The station decided to rebroadcast Rogers' Friday morning show. At approximately 3:10 AM Sunday morning the station rebroadcast Rogers' statement as quoted in the previous paragraph. Two minutes later, a slightly inebriated listener telephoned the station and correctly stated the final score of the previous day's Minnesota--Wisconsin game. The listener had never before listened to Rogers' show. Does the radio station owe the listener $200? Explain.
Model Answer: The radio station does not owe the listener $200. At first glance, the listener may appear to have properly accepted the station's offer to make a unilateral contract. That is, the station, through its DJ, made a promise ($200) in return for a requested action (being the first listener to accurately state the final score). However, the law interprets offers according to a reasonable person standard, and in this society a reasonable person has some familiarity with the nature of radio station give-aways and contests. Given such familiarity, a reasonable person would not expect a radio station to give away $200 to a caller for the mere action of phoning in the score of an already-completed game. Given the "reasonable person" standard, the rebroadcast did not constitute an offer. It is therefore irrelevant that the listener had never before heard this particular radio show.(4)
Noteworthy Mistakes: misreading the facts and asserting that the offer made through the rebroadcast sought a "prediction"; omitting the "objective theory" part of the analysis; using contract interpretation principles rather than contract formation principles to determine the meaning and effect of the putative offer; using the concept of mistake rather than the principles relevant to determining the effect of an offer; using principles relevant to revocability of offers for unilateral contracts; using course of dealing, when the listener and the radio station had no prior dealings; assuming that the listener was aware of the earlier broadcast; not recognizing that the rebroadcast was arguably a new offer and that the 50 calls received the day before did not relate to the new offer; using an incapacity analysis as a sword against the listener; asserting a lack of consideration
C. Oscar and Felix live approximately 200 miles from each other. Oscar writes a letter to Felix, offering to sell Felix a snowmobile for $450. The letter states, "I'll keep this offer open for you for 7 days from the date of this letter." The letter is dated November 3, and Felix receives the letter two days later. Felix immediately decides to accept the offer. He writes a letter to Oscar, dated November 5, stating (in its entirety), "Dear Oscar: Thanks for the offer. I accept!"
Just as Felix seals up the letter in an envelope, Felix has a visit from Bernie, a friend of both Felix and Oscar. Learning that Bernie is planning to visit Oscar the next day, Felix gives Bernie the letter to deliver to Oscar. Bernie promises to do so.
Unfortunately, Bernie -- ordinarily an extremely reliable fellow -- completely forgets the letter. On November 12, having heard nothing from Felix, Oscar sells the snowmobile to Cynthia. Cynthia pays for the snowmobile that day and drives the snowmobile away.
On November 13, Felix telephones Oscar to see about paying for and taking delivery of the snowmobile. Oscar explains that he has sold the snowmobile to someone else. Does Felix have a valid claim against Oscar? Explain. [Do not concern yourself with remedies.]
Model Answer: For Felix to have a claim, there must have been an enforceable contract. Since Oscar clearly made an offer to Felix and Felix clearly sought to accept, the contract formation analysis turns on whether Felix made an effective acceptance. Since the contemplated sale involved a "good," UCC § 2-105(1) (defining "goods" as "all things . . . movable"), UCC Art. 2 applies. UCC § 2-206 provides rules for the manner of acceptance, but none of those rules relate to whether an acceptance must be received in order to be effective. It is therefore necessary to apply the common law. UCC § 1-103 (stating that "principles of law and equity" apply under the UCC "[u]nless displaced by the particular provisions of this Act").
Under common law principles, acceptance never occurred, because Bernie never delivered Felix's letter of acceptance and because Felix's phone call occurred long after Oscar's offer had lapsed. The "mail box rule" does effect an acceptance even if acceptance is never actually received, but application of that rule presupposes that: (i) given all the circumstances the offer invites acceptance via mail, and (ii) the offeree actually mails the acceptance, properly addressed and postage paid. Felix's letter meets the first criterion, but not the second. Felix did not mail the letter.
Restatement (Second) § 63(a) will not help Felix. Under that provision, an acceptance can be effective "as soon as put out of the offeree's possession," but only if the "manner and . . . medium" of acceptance have been "invited by [the] offer." Nothing in Oscar's mailed offer invited acceptance by the irregular means that Felix chose to use.
Noteworthy Mistakes: classifying Oscar as a merchant; spending time discussing revocability, even though Oscar waited more than the seven days stated in the offer; viewing Oscar as having offered a unilateral contract and analyzing Felix's response as if that response was the sought-after act; forgetting that the "mailbox" rule applies to only to mailed acceptances; characterizing's Oscar's offer as an option contract; failing to apply the UCC; asserting that the UCC does not apply because the parties were not merchants
D. In August of 1997, Hanna and her longtime boyfriend reached an understanding with the following elements:
1. For the upcoming professional football season:
a. Hanna would stop objecting to the boyfriend participating in a fantasy football league that charged each participant an entrance fee and used the entrance fees to pay prizes to the participants whose fantasy teams performed the best.
b. Hanna would acquiesce in the boyfriend spending his Saturday evenings at "league meetings" (which happened to be convened at a local bar).
c. Hanna would acquiesce in the boyfriend missing church each Sunday so that the boyfriend could be free to watch as many Sunday football games as possible. (Up to this point, Hanna and the boyfriend had regularly attended church together on Sunday, and Hanna had derived considerable pleasure from that shared experience.)
2. The boyfriend would use any winnings to purchase a diamond ring to give to Hanna.
Until the last three weeks of the season, the boyfriend's team was doing superbly. The team was in first place, and it seemed likely that the boyfriend would win at least $1500 and perhaps as much as $3000. Then the boyfriend made a series of very questionable trades, his team lost all three remaining games by lopsided scores and the boyfriend won no prize money.
The boyfriend explained the sudden demise by saying, "It's a slump. Everybody slumps once in a while. Look at the Vikings, for goodness sakes." Hanna was initially inclined to credit her boyfriend's explanation, but then she overheard one of the other league participants saying that "[Hanna's boyfriend] was so afraid that a big, fancy ring would be seen as some kind of commitment that he traded away all his best players and went into the tank."(5)
According to the principles studied so far in this course, does Hanna have any valid claim against the boyfriend? Explain. [Do not concern yourself with remedies.]
Model Answer: Hanna has two separate claims, both of which rest on implied duties. One claim asserts a duty implied in fact. The other claim follows from a duty implied by law.
The implied-in-fact claim follows the Lady Duff-Gordon case. Hanna can assert that (i) her boyfriend had an implied obligation to use at least reasonable efforts to win as much prize money as possible, and (ii) the boyfriend breached that obligation when he "went into the tank." Although nothing in the facts suggest that the boyfriend expressly assumed a "reasonable efforts" obligation, courts will imply that obligation when the parties' deal makes sense only given such an obligation. For example, in Lady Duff-Gordon the court found that the royalty arrangement made sense only assuming the promoter had a duty actually to promote the items. Although in that case, the court implied a "reasonable efforts" obligation to rebut a claim of no consideration, nothing in that decision limits the doctrine of implied terms to those circumstances.(6)
Hanna's implied-in-law claim rests on the obligation of good faith and fair dealing. The contours of this implied duty are somewhat vague, and some courts look exclusively to the alleged miscreant's state of mind. Other courts make a more objective inquiry. They ask whether a person in the alleged miscreant's position could reasonably view the challenged behavior as having some legitimate purpose under the contract. Still other courts look more to the effect of the challenged behavior and inquire whether the conduct serves to vitiate the bargain made by the parties.
Under any of these standards, Hanna should prevail. "Going into the tank" is trickery, and her boyfriend could not have believed his own self-defeating actions to be legitimate. Certainly no reasonable third person would have thought so. Moreover, the conduct was calculated to, and did, deprive Hanna of the essence of her bargain.
Noteworthy Mistakes: omitting the reasonable efforts obligation; conflating the reasonable efforts obligation and the good faith obligation; merely asserting the good faith obligation without any attempt to define that obligation; discussing only one of the good faith tests; applying the parol evidence rule, even though nothing in the facts suggests a written agreement; ignoring the good faith and reasonable efforts claim and asserting a lack of consideration; applying promissory estoppel
E. Belle is strolling down the street, singing, "I need six eggs." A local merchant responds by quoting Belle a price. She rejoins, "That's too expensive." The merchant states a slightly lower price, and Belle agrees.
"Take them now?" the merchant asks.
"No," says Belle. "I'll pick them up tomorrow. But I'll pay for them now." She does so, and the merchant gives her a receipt. The receipt is a on a pre-printed form with the merchant's name on the top. Underneath the merchant's name appears the following:
ALL SALES FINAL. NO TERMS EXCEPT AS EXPRESSLY STATED HERE.
The merchant writes on the receipt. "Sold to Belle for pick-up tomorrow during regular business hours, six farm-fresh eggs. Price already paid."
The next day Belle shows up at 7 AM (well before regular business hours). The merchant's shop is closed. Irate, Bell returns at 9 AM, only to discover that the merchant is planning to provide her with six brown eggs. Belle insists on white eggs.
In the subsequent litigation:
1. Will Belle be allowed to testify to the effect that, as the merchant was making out the receipt, the merchant promised Belle that the eggs would be available beginning at 6 AM the next morning?
2. Will the merchant be allowed to provide evidence to the effect that "in this town shops normally open at 9 or 9:30 AM every weekday"?
3. Will Belle be allowed to testify that "I always buy my eggs from the vendor across town and their eggs are always white."?
4. Will the merchant be allowed to provide evidence that in that region of the country customers are generally indifferent as between white and brown eggs?
Model Answer: The admissibility of all the described information turns on the parol evidence rule. Because eggs are "goods," UCC § 2-202 is the relevant version of that rule. (See the analysis of "goods" in Part B, above.)
The receipt was the only writing involved between the parties. Therefore, for § 2-202 to be applicable at all the court must find that the parties intended the receipt to be at least the "final" expression of the stated terms. The question is a close one. The receipt itself indicates that the merchant intended the writing to be not only final but also "complete and exclusive." UCC § 2-202(b). The facts are unclear, however, as to whether Belle considered the receipt to be anything more than proof that she had already paid for the eggs. It seems unlikely that a court would see the receipt as a writing intended as "final" (much less "complete") by both parties without further facts suggesting that Belle assented to the receipt's terms.
For the sake of discussion, however, the rest of this answer will assume that the parties intended the receipt to be a final expression of the stated terms.(7)
Question #1 -- Belle will not be allowed to testify to the merchant's promise concerning 6 AM. Evidence of this contemporaneous oral agreement would directly contradict an express term stated in the receipt. UCC § 2-202 expressly forbids that contradiction.
Question #2 -- The merchant will be allowed to submit evidence concerning customary opening times. This evidence relates to a "usage of trade," UCC §1-205(2) (defining usage of trade), and the UCC's parol evidence rule allows evidence of usage of trade to "explain" the terms of a writing. UCC § 2-202(a). Showing ambiguity is not a precondition. UCC § 2-202, comment 1(c).
Question #3 -- It is unclear whether Belle will be able to introduce evidence of her experience with the other vendor. It is certain that Belle will be unable to qualify that testimony as an explanatory "course of dealing" under § 2-202(a), because a "course of dealing is a sequence of previous conduct between the parties to a particular transaction," UCC § 1-205(1) -- i.e., between Belle and the merchant who wrote the receipt. It is unlikely that Belle's evidence, by itself, constitutes evidence of a usage of trade. One vendor's practices do not constitute a usage of trade. See UCC § 1-205(2) (defining usage of trade and referring to "regularity of observance in a place, vocation or trade").
Belle's best chance is to argue that: (i) the evidence shows her subjective understanding of "eggs," (ii) under applicable rules of contract interpretation that "white eggs only" understanding constitutes a term of the agreement,(8) and (iii) that term is admissible under § 2-202(b) as a consistent additional term. The merchant would likely respond that, since the term "eggs" encompasses both brown and white eggs, a term restricting that general category to the subcategory of white eggs is a contradictory term. In light of the usage of trade evidence, the merchant will probably prevail in this point and Belle's evidence will be excluded.
Question #4--This evidence relates to a usage of trade. The analysis is identical to the analysis stated in regard to Question #2, above.
Noteworthy Mistakes: failing to recognize the transaction as a sale of goods and therefore failing to use the applicable UCC rules; asserting that the UCC applies only when both parties are merchants; asserting (correctly) that the UCC applies but then relying on the Restatement (Second) rather than on UCC sections; not discussing the status of the receipt under the parol evidence rule; not considering whether the receipt constituted a "complete" or merely "final" expression; referring to a contract as final/complete (as distinguished from a writing being intended as a final/complete expression); asserting that prior or contemporaneous representations can explain a complete agreement;(9) asserting that a complete agreement cannot be explained by usage of trade; asserting baldly that Belle's "other vendor" evidence showed a usage of trade; mislabeling usage of trade as course of dealing; failing to use the usage of trade label where appropriate; seeing customer expectations as irrelevant to the usage of trade; assuming that the dispute concerns only the color of the eggs and not also Belle's claim that the eggs were to be available beginning at 6 AM the next morning; ignoring the parol evidence rule and determining admissibility with regard to who has the burden of persuasion
[TAKE-HOME] QUESTION: On July 1, 1997, a basement wall of Plaintiff's house collapsed. Fortunately, the collapse caused no damage to any property within the house. Plaintiff did, however, incur costs of approximately $7500 in repairing the collapsed wall itself.
At the time of the collapse Plaintiff had in effect a homeowner's insurance policy, a portion of which is attached to this question as Attachment 2. Plaintiff filed a claim for $7500 under the policy, and the insurance company rejected the claim as not covered.
Plaintiff brought suit in conciliation court, and the conciliation court referee found as a matter of fact that the collapse had resulted from "decay, deterioration or just old age."
Interpreting the insurance policy in light of the principles studied in this course, determine whether the policy covers Plaintiff's loss. Explain your answer.
Model Answer:(10) The case thus depends on the interpretation of the insurance contract. This contract is difficult to interpret, because different provisions point in different directions.
At the outset, it is clear that the contract covers the dwelling. SECTION I -- COVERAGES; COVERAGE A-DWELLING; ¶ 1-a, p. 3. It is far more difficult to determine whether the contract covers the damage to the wall.
The main insuring language relating to the dwelling suggests that coverage does not exist. SECTION I -- LOSSES INSURED; COVERAGE A-DWELLING, p. 7. That language states : "We insure for accidental direct physical loss." (Emphasis added.) No accident caused the wall's collapse. The culprit was hidden decay, deterioration or simply old age.
Nonetheless, two other provisions of the contract suggest that the collapse and resulting damage are covered. In SECTION I -- LOSSES NOT INSURED, ¶ 1-a, p. 9 the contract excludes "collapse, except as specifically provided in SECTION I --ADDITIONAL COVERAGES, Collapse." The referred-to provision appears on page 6 of the contract and states in relevant part: "We insure for direct physical loss to covered property involving collapse of a building or any part of a building caused only by one or more of the following: . . . . (b)hidden decay."
The insurance contract thus is self-contradictory,(11) and the doctrine of contra proferentem requires that the inconsistency be construed against the insurance company.(12)
I find, therefore, that the loss is covered.
Noteworthy Mistakes: failing to grapple in sufficient detail and specificity with the actual language of the policy; omitting the reasonable expectations analysis; omitting the contra proferentem analysis; invoking the parol evidence rule, even though there were no facts suggesting that parol evidence was at issue
1. The model answer does not consider promissory estoppel, because the question relates only to "an enforceable contract." As we discussed during the semester (and especially in the review of the practice exam), promissory estoppel functions to enforce promises, not contracts. I did not, however, deduct points for answers that invoked promissory estoppel, so long as the answer noted that no reliance had yet occurred. There are cases which take a more expansive view of promissory estoppel -- i.e., holding either explicitly or implicitly that promissory estoppel entitles a party to full contract remedies. We may consider these cases when we study remedies.
2. In virtually every contract the promisee seeks an action, i.e. performance. The distinction between unilateral and bilateral contract is whether the offeror seeks an acceptance in the form of a reciprocal promise or only through a specified act.
3. As the model answer indicates, that exception does not apply to scenario #4. However, the facts in scenario #4 are sufficient to bring that exception into play.
4. 0 It is possible to argue that an ordinary radio listener, ignorant of the particular radio show involved, might reasonably believe the offer to refer to the mere reporting of the score of an already-completed game. Answers which made that argument effectively received equal credit with answers which made the contrary argument effectively..
5. The phrase "went into the tank" suggests purposefully losing.
6. 0It is possible to recast the argument made in this paragraph so that it more closely resembles the Lady Duff-Gordon analysis. Suppose that the boyfriend had the right "to go into the tank." In that case, the boyfriend had really promised only to fulfill his obligations if he felt like it. If so, the contract lacked mutuality of obligation because no consideration ran to Hanna. To avoid that consequence, a court might follow Justice Cardozo precisely and imply a "reasonable efforts" obligation in order to save the contract.
7. Note that this assumption occasions a more difficult analysis that would an assumption of "final and complete." There was simply was not enough time to follow both lines of analysis.
8. For example, if Belle could surmount the parol evidence rule and show that the merchant had reason to know of Belle's "white eggs only" interpretation, the merchant would be stuck with Belle's interpretation.
9. See U.C.C. § 2-202 (permitting a complete agreement to be explained or supplemented only by usage of trade, course of dealing, course of performance).
10. This model answer is taken verbatim from the memo explaining the referee's decision in the conciliation court case. The memo's first paragraph, making the factual findings, is omitted.
11. As for SECTION I -- LOSSES NOT INSURED; ¶ 3, p. 11, I cannot understand how that paragraph's first and last sentences fit together. [This footnote was in the referee's explanatory memo.]
12. But for the glaring inconsistencies in the insurance contract, I would have found for the Defendant. The doctrine of "reasonable expectations" does not support the Plaintiffs' claim. A policy holder cannot reasonably expect a homeowner's insurance policy to function as an extended warranty protecting the homeowner against deterioration on account of age or hidden defects. However, the insurance company itself drafted an agreement that expressly includes the dwelling as covered property and expressly includes "collapse of . . . any part of a building caused . . . by . . . hidden decay." [This part of the footnote was in the referee's explanatory memo.]
Most exam answers argued that the reasonable expectations doctrine compelled a ruling for the plaintiff. That doctrine was arguable and did require discussion. However, as the paragraph above indicates, I think that a reasonable expectations claim must fail. I nonetheless gave full credit to answers that accurately stated and then plausibly applied the reasonable expectations doctrine and believe that those answers reflected more a lack of experience with homeowner's insurance than any misunderstanding of the doctrine.
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