Contracts

Exam - Fall 2002

Model Answers and Noteworthy Mistakes

Professor Kleinberger

 

These model answers have been drafted by the professor, without time pressure and after reading and evaluating all the blue books.  The model answers reflect a level of sustained competence and succinctness which no student is expected to reach under the time pressure of an in-class exam.  Many students do reach this level of competence on one or more questions, but even the best exams typically miss at least one major issue and sometimes more.

 

A.  Consider the following excerpt from Boyd v. Brinckin, 55 Cal. 427 (Cal. 1880).

 

The complaint in this case is in the usual form of complaints in ejectment. The defendant answered, and by way of cross‑complaint alleged that he was induced to settle upon the land sued for, by a circular issued and distributed by the Central Pacific Railroad Company, which invited people to settle and make improvements upon its lands, promising those who should do so, that they should be preferred as purchasers when the lands should be offered for sale. After settling upon the land, and before the same was offered for sale, defendant filed an application to purchase said land, in the office of the company, as he was directed to do by said circular. He alleges that he has made improvements on said land of the value of $2,500. The company in 1875 fixed the price of said land, and soon afterward sold and conveyed it to the plaintiff, who [subsequently sued to have defendant ejected from the land.]

 

Counsel for plaintiff contended that: (1) Athe alleged circular was not a contract, but simply an offer@ which was effectively revoked when defendant learned that the railroad had sold the land to the plaintiff; and (2) the defendant, by settling on and making improvements to the land did not bind himself to buy the land upon the terms proposed by the company,@ and therefore A[t]he agreement as stated, lacks the requisite of mutuality.@  Evaluate these two contentions.

 

 

Model Answer:  The contentions of plaintiff=s counsel are specious.  The situation is a classic example of an offer to form a unilateral contract.  In its circular, the company offered a promise (priority in purchasing the land) in return for specified acts (settling on and making improvements to the land; filing an application to purchase).

 

The company=s use of a general advertisement does not negate offer status.  The company was not informing the world at large of the availability of a single parcel of land.  The company had much land available, and its circular was, in essence, an offer of Afirst come, first served.@  Moreover, the circular specified a process (settling, improving, applying) by which each potential offeree could identify a particular parcel of land and thereby exclude other potential offerees.

 

As for counsel=s particular contention that the company effectively revoked the offer, counsel is half right and half wrong.  However, the wrong part predominates.  Counsel is correct that an offer is revoked when the offeree learns the offeror has engaged in conduct that makes it impossible for the offeror to perform according to the offer.  Therefore, defendant=s learning that the company had sold the land to plaintiff would have revoked the offer if the company still retained the right to revoke the offer.  However, a person who offers to form a unilateral contract loses the right to revoke the contract willy-nilly once the offeree has entered into performance of the requested acts.  There are several versions of this protective rule, which vary with regard to the amount of performance necessary to trigger the protection B i.e., tender performance, begin performance, substantial performance.  Defendant=s conduct satisfies even the most demanding of these standards.  Defendant not only took possession of the land and made the required application but also made significant improvements to the land.

 

As to counsel=s objection that defendant was not bound, the answer in colloquial terms is ASo what?@  It is of the essence of an offer to form a unilateral contract that the offeror may become bound not to revoke even though the offeree is not bound to complete performance.  Recall the Brooklyn Bridge example and the concept of locus poenitentiae. Modern contract law accepts the one-sided nature of a offer for a unilateral contract and leaves it to offerors to protect themselves by including protections in their offers.  (Even the author of the Brooklyn Bridge example recanted later in his career.)

 

Noteworthy Mistakes:  not recognizing that the railroad=s offer was to form a unilateral contract; recognizing the offer to form a unilateral contract but assuming away the issue of part performance; recognizing the issue of part performance but not considering the variety of rules applicable to that issue; ignoring the issue of notice of revocation; ignoring the issue of revocation; invoking R.2d ' 87 (which pertains to offers to form bilateral contracts); arguing promissory estoppel in lieu of a unilateral/part performance analysis; ignoring the Aadvertisement@ issue raised by the circular;^[1] ignoring the Alack of mutuality@ issue entirely; missing entirely the point that a one-sided situation is of the essence of an offer to form a unilateral contract; asserting that the railroad was not bound to sell the land;^[2] demonstrating that in this offer to form a unilateral contract consideration ran in both directions but omitting to deal expressly with the Alack of mutuality@ argument

 

B. Lawsuit in which the plaintiff seeks to have the court set aside a release signed by plaintiff.  A[T]he record shows that the company=s physician told the plaintiff that his injured eye was all right and that he could go to work, and the claim agent told him he had talked with the physician, who said his eye would be as good as ever in two weeks.@  The plaintiff believed the company=s physician and the company=s claim agent and signed a contract of settlement and release, under which the company paid the plaintiff a small sum and the plaintiff released the company from any further claims relating to the injury.  AThe injury . . .  was in fact serious and permanent, [the statements made by the company=s physician and claim agent were inaccurate, but those] . . . statements were made in good faith.@  Given the very sparse statement of facts just presented,^[3] what theory studied in this course this semester would provide the plaintiff his best chance to avoid the contract of release?

 

Model Answer:  The plaintiffs best chance to avoid the contract of release is to assert misrepresentation.  The Agood faith@ of the doctor and claim agent negate fraud, so plaintiff=s best chance is a claim of material misrepresentation.  To succeed with that claim, plaintiff must show: (i) a misstatement of current or past fact; (ii) that the fact was material; and (iii) that plaintiff justifiably relied on that statement.

 

Plaintiff can meet each of these requirements.  As for the misstatement of current or past fact, the physicians=s statement Athat his injured eye was all right@ is both a statement of fact and incorrect.  The claim agent=s statement that Ahis eye would be good as ever in two weeks@ does not qualify, because it is a prediction of future events, rather than a statement of current fact.  A prediction of future events can be actionable as a misrepresentation only under very limited circumstances, and the claim agent=s good faith negates any of those circumstances.

 

As for materiality, that requirement asks, in essence, whether a reasonable person in the position of the recipient of the information would attach importance to the information.  It is difficult to imagine any information more important to a person who is deciding whether to release claims for an injury than information that the injury has completely and permanently healed.  As for justifiable reliance, reliance on a physician=s determination seems not only reasonable but almost axiomatic in our culture, absent some facts which would lead the injured person to suspect bad motives on the part of the physician.  There are no facts to suggest any grounds for such suspicion.

 

The company might contend that the physician=s statement was merely an opinion.  Although superficially appealing, this argument should fail for at least two reasons.  First, nothing in the facts indicates that the physician offered the statement as a mere opinion, valuation or judgment.  Rather, the physician appears to have been describing a then current state of reality.  Second, under R.2d ' 169(b) a person is entitled to rely on another=s opinion when the person Areasonably believes that, as compared with himself, the person whose opinion is asserted has special skill, judgment or objectivity with respect to the subject matter.@^[4]  That characterization certainly fits a lay person relying on the opinion of a doctor.

 

Noteworthy Mistakes: ignoring the claim agent=s statement; failing to discern that the claim agent=s statement and part of the doctor=s statement were predictions of future events rather than statements of current fact; missing the opinion issue; failing to define material misrepresentation; defining materiality but failing to apply the definition to the facts; failing to deal with the question of justifiable reliance; missing misrepresentation as the best theory; asserting Agood faith and fair dealing@ as a theory, when breach of that obligation does not allow a party to avoid a contract; asserting undue influence, when it was necessary to twist the given facts and assume others in order to make even the sketchiest undue influence argument; treating the employer/employee relationship as sufficient to satisfy Odorizzi=s notion of a dominant/servile relationship; offering more than one theory, when the question sought the single Atheory . . . [to] provide the plaintiff his best chance@ (emphasis added); asserting misrepresentation but neglecting to rule out fraudulent misrepresentation;^[5] asserting mistake, when that theory is not a Atheory studied in this course this semester@^[6]

 

 

C. The following questions pertain to the Take-Home Case, The Work Connection, Inc., v.

Universal Forest Products, Inc..^[7]

1.                  The Take-Home Case contains a brief, somewhat cryptic discussion of appellant=s Aargument that respondent attempted to modify the alleged indemnification contract by signing copies of the verification forms that lacked the indemnification clause.@  Given the appellate court=s holding about the content of the contract, respondent=s use of one-sided copies of the verification forms could not have been an attempt to modify the contract.  Why?

 

Model Answer:  Under the court=s view of contract formation, use of the one-sided form could not have constituted an attempt to modify the contract because the terms on the second side of that form were not part of the original contract.  Therefore, engaging in a course of performance that omitted those terms from a recurrently used form could not be seen as an attempt to vary or modify the contract.

 

Noteworthy Mistakes: failing to refer to the court=s holding; referring to the court=s holding but stopping short of the point that the contract did not contain the provisions on the reverse side of the form; wasting time and space detailing the court=s rationale for determining that the indemnification provision was not part of the contract

 

2.                  Suppose that Olson, the sales representative for appellant, had testified:

 

During the negotiations with [respondent], I told them generally the we have standard terms and conditions and gave them a copy of our standard verification form.  They took it, didn=t turn it over and said AWhatever.@  They didn=t look particularly at the front, so I didn=t tell push them to look at the back. 

 

Given that testimony:

 

a.         Would it still have been proper for the trial court to have Arefused to allow the jury to consider the issue of contract formation@?

 

Model Answer:  Olson=s testimony would have caused the trial judge to allow the jury to decide whether the terms on the back of the form were part of the agreement.  In the actual case, it was Aundisputed that respondent [Universal Forest Products] was unaware of the indemnification clause and that appellant did nothing to draw respondent's attention to it.@  In contrast, Olson=s hypothesized testimony would allow a reasonable fact finder to conclude that (i) appellant had made an offer that included the material contained in the form, and (ii) when respondent later manifested assent to the offer, that assent embraced the contents of the form.  The fact finder could certainly consider the fact that the key provision (i.e., indemnification) was stated on the back of the form, but that fact by itself should not keep the issue from the jury.  After all, respondent chose never even to look at the front of the form.^[8]

 

Noteworthy Mistakes: ignoring the question posed (i.e., whether the court should allow the question of contract formation to go to the jury); weighing the evidence rather than deciding whether a fact question would exist; stating baldly that a fact question would exist without explaining why; reiterating (extensively) the court=s misrepresentation/reformation analysis and not taking into account the hypothesized testimony

 

b.         Assume that the trial court judge decided to allow the jury to consider the issue of contract formation^[9] and that the jury believed Olson=s testimony, as stated above in Question C-2.  What would have been the legal significance of [respondent=s] not having turned over the card and not having read the terms and conditions?

 

Model Answer: Respondent would likely be bound by those terms and conditions, despite respondent=s failure to turn over the form and read the provisions on the reverse side.  A[I]n the absence of fraud or misrepresentation, a person who signs a contract may not avoid it because he did not read it or thought its terms to be different.@^[10]

 

Noteworthy Mistakes: asserting that respondent=s failure to turn over the card demonstrated a lack of Adue diligence@ but providing no legal rules to explain why Adue diligence@ matters; failing to recognize the significance of a party choosing to ignore stated terms

 

 

D.  Alf says to Ralph, AI=m really in a bind.  I=m under contract to clean three sets of bathrooms before midnight tonight.  Help me out here, and I=ll owe you one.@

 

Ralph responds, AOne what?@

 

Alf says, AOne whatever you want, whenever you want.@  Ralph agrees and successfully assists Alf with the task.  A week later, Ralph says to Alf, AAlf, I want to collect.  I need help cleaning up my apartment after the end-of-semester party I had last night.@

 

Ralph [sic - should be Alf] responds, AAlf [sic - should be Ralph], my lad, you should have studied more and partied less.  What you thought was an offer available for acceptance was not.  Restatement (Second) of Contracts, ' 33(1) and (2).@

 

Restatement (Second) of Contracts, ' 33 (1) and (2) state:

 

(1) Even though a manifestation of intention is intended to be understood as an offer, it cannot be accepted so as to form a contract unless the terms of the contract are reasonably certain.

(2) The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.

 

Alf is evidently a creep,^[11] but what about his legal analysis?

 

Model Answer: Alf is not only a creep; his understanding of contract law is superficial.  The contract by its terms specifies the performance which Alf is required to give B i.e., whatever Ralph chooses.  Ralph=s choice, therefore, will provide the details a court would need in order to form a remedy.

 

R.2d ' 33 neither states nor suggests that a party=s possession of wide discretion undercuts that section=s certainty requirement.  In any event, Ralph=s discretion is constrained by the obligation of good faith and fair dealing which is implied by law in every contract.  The subjective aspect of that obligation would require Ralph to set a task which Ralph honestly desired and believed appropriate and would prohibit him from using his discretion for malicious purposes.  If the relevant jurisdiction also applied the objective standard, that standard would require Ralph to conform to reasonable standards of fair dealing.  Those standards would probably limit Ralph to specifying a task that was at least roughly proportionate in terms of risk, discomfort, time commitment and other burdens, to the task that Alf had performed.

 

Noteworthy Mistakes:  simply ignoring the question posed (i.e., indefiniteness); doing a consideration analysis; merely touching upon the question posed and then sliding off into a promissory estoppel analysis; assuming that Alf always intended to renege and then ignoring the question posed while discussing fraud; addressing the general rule for determining the existence of an offer, as if that rule were somehow a way around (or a preliminary step to addressing) the indefiniteness issue; characterizing the contract as unilateral (ARalph agrees and . . .@); invoking promissory restitution (Alf=s promise preceded Alf=s receipt of a benefit); treating Ralph=s wide discretion as indefiniteness; failing to note that the obligation of good faith and fair dealing provides some content to and restrictions on Ralph=s discretion (and thereby further rebuts the claim of indefiniteness); deploying the obligation of good faith and fair dealing as if it existed outside the context of an enforceable contract; asserting that Alf is breaching the obligation of good faith and fair dealing by asserting a plausible legal argument (i.e., indefiniteness); invoking Alf=s obligation of good faith and fair dealing to circumvent the indefiniteness argument (if the contract fails for indefiniteness, there is no contractual obligation of good faith in the performance and enforcement of the contract)

 

 

Take-Home Question^[12]

 

Breach of contract case brought by Harry, a customer of Jake=s Tattoo Parlor (AJake=s Tattoo@), claiming breach of contract in that Jake=s Tattoo misspelled the word AELSE@ in a tattoo placed on Harry=s back.  In particular, Harry alleged that Jake=s Tattoo tattooed AE-L-E-S-E@ rather than AE-L-S-E.@

 

Jake=s Tattoo moved for summary judgment, submitting a document, which, prior to the actual tattooing, had been:

 

$                   filled out and dated by the tattoo artist (an employee of Jake=s Tattoo),^[13]

$                   handed by the employee to Harry,

$                   signed by Harry, and

$                   initialed by the employee, and

 

had the following content:

 

 

 

JAKE=S CUSTOMER CONFIRMATION B WORDING AND PLACEMENT

 

 

WORDS [USE EXACT WORDING]:                          GO AHEAD.  EVERYBODY ELESE DOES.                              

 

LOCATION:                    UPPER BACK, CENTER                  

 

TREAT ALL TATTOOS AS PERMANENT.  BE SURE THIS IS WHAT YOU WANT!!!!!

 

 

 

Harry sought to introduce as evidence:

 

1.         his testimony that:

 

a.         the spelling he desired was AAE-L-S-E@;

 

b.         before signing the document and before getting the tattoo he had talked with the employee of Jake=s Tattoo and nothing in the conversation had suggested, let alone authorized, an unusual spelling of Aelse@;

 

c.         the misspelling made no sense, given the overall design and purpose of the tattoo, which consisted of:

 

i.          a large red heart, tattooed on the upper center of his back,

 

ii.          with a large knife tattooed as if plunging into the heart,

 

iii.         with the words AGO AHEAD.  EVERYBODY ELESE [or: ELSE] DOES@ appearing below the heart and knife;

 

2.         the entire tattoo as it appears on his back.

 

 

Jake=s Tattoo objected to all of the proposed evidence on the grounds of the parol evidence rule.  How should the court rule on the parol evidence issue(s)?

 

Model Answer: The parties can hardly be disputing the nature of Jake=s performance, so Harry must be offering the evidence to raise a fact question about the content of the agreement.  A signed writing does exist, and all the proffered evidence tends to show Harry=s (and perhaps Jake=s) understanding of the agreement prior to the signing of the writing.  (Even the actual tattoo fulfills this function, as the tattoo demonstrates graphically how Athe misspelling made no sense.@)  The parol evidence rule is therefore at issue.

 

How the court should rule depends on several points: (1) whether a sufficient writing exists to trigger the parol evidence rule in general; (2) the purpose for which Harry seeks to introduce the extrinsic evidence and, in particular, whether the extrinsic evidence is offered to contradict or explain the writing;^[14] and (3) whether the writing is eligible for explanation (which in turn may depend on whether the court follows Williston or Corbin).  Because the contract predominantly involves the sale of a service, tattooing, the common law supplies the rules.

 

For the parol evidence rule to apply, the parties= agreement must be at least partially integrated into a writing.  That is, the parties must have manifested the intent to have the writing state their final understanding at least as to the matters addressed in the writing.  The document here certainly meets that description.  In bold letters its words bespeak its finality as to the matters addressed (ACONFIRMATION@ and ABE SURE THIS IS WHAT YOU WANT!!!!!@), and both parties signed or initialed the document.  (A Corbin court would be willing to consider extrinsic evidence on the issue of integration, while a Williston court would confine itself to the four corners of the document.  However, because there is no contradictory extrinsic evidence relevant to this point, there is no need to distinguish here between Corbin=s approach and Williston=s.)^[15]

 

It is unnecessary to determine further whether the document is complete integration, because that characterization is important only if a party seeks to add terms.  In this situation, Harry is seeking either to clarify (i.e., explain) or contradict the writing.  Addition is not an issue, and therefore neither is complete integration.^[16]

 

Whether Harry is offering the evidence to contradict or explain is a close question, which  turns on whether the court decides the relevant term (Aelese@) is ambiguous.  If the term is not ambiguous, then evidence indicating a different spelling is contradictory and inadmissible.  If the term is ambiguous, explanatory evidence is per se not contradictory and therefore admissible.

 

The key question, therefore, is whether the Confirmation form is ambiguous as to the desired spelling.  For a ACorbin@ court, the answer is easy. Such a court would consider Harry=s proffered evidence for the purpose of determining whether the document is eligible for explanation, and that evidence readily shows a plausible alternative to the spelling contained within the document=s four corners.  A ACorbin@ court would therefore find that the document may be explained, admit all the evidence for that purpose, and allow the finder of fact to determine (from an objective point of view) the intent of the parties.

 

For a Williston court, the question of ambiguity must be resolved within the document=s Afour corners@ (with a dictionary being the only permitted extrinsic aid).  Explanation is permitted only as to facially ambiguous provisions.  Can a group of letters have a plain meaning when they do not comprise a word to be found in the dictionary?  Is an apparent misspelling ambiguous?   Even though the document warned the customer to ATREAT ALL TATTOOS AS PERMANENT.  BE SURE THIS IS WHAT YOU WANT!!!!!@?

 

Reasonable AWilliston-ian@ judges might well disagree on this point.  A finding that Aelese@ might be a misspelling would result in a further finding of facial ambiguity, which  in turn would open the evidentiary door to all of Harry=s proffered evidence.  In contrast, a judge who sticks (and sticks Harry) to the clear language of the document=s warning would keep that door firmly closed.

 

Noteworthy Mistakes: wasting space (and the reader=s attention) with irrelevancies such as offer, acceptance, consideration; confusing questions of interpretation with issues of admissibility under the parol evidence rule; not explaining why the common law, rather than Article 2, applies; spending time considering whether the writing is a complete integration when none of the proffered evidence would add a term to the writing; conflating the Aextent of integration analysis@ with the Aonce integration is determined, what is admissible@ analysis; seeing the design evidence as adding a term, when the question indicates that Harry offers the design as relevant to the spelling issue; asserting that the writing (which lacks essential terms) was a complete integration; demonstrating that the writing was not a complete integration but merely assuming that the writing is a partial integration; asserting that the presence or absence of a merger clause is relevant to the question of partial integration; asserting that the Confirmation form contained a merger clause; omitting from the partial integration analysis the significance of the words Aconfirmation@ and Apermanent . . . be sure . . .@; asserting that the inaccurate spelling negates partial integration;^[17] asserting that the inaccurate spelling negates complete integration;^[18] concluding that Aelese@ was ambiguous but then asserting that evidence of Aelse@ was contradictory; asserting that, even given a finding of facial ambiguity, a Williston court applying the parol evidence rule would exclude evidence of a party=s subjective intent