FINAL EXAMINATION

CONTRACTS

SPRING, 2001

PROFESSOR KLEINBERGER

General Instructions

This is an open book examination. You may use the casebook, the assigned supplement, any additional materials distributed by the professor during the semester and any notes you have made or developed in studying for the course or the exam. You may use outlines or other notes developed by a group of students enrolled in this course this semester if you played a substantial role in the development of the group outline or notes. Except as stated in the second and third sentences of this paragraph, you may not use treatises, hornbooks, commercial outlines, other commercial works or any other materials prepared by others.

This examination lasts three hours and has two parts. Part One consists of five separate questions. All questions in Part One have approximately the same weight, although the precise allocation of points among the Part One questions is within the professor's sole discretion.

Part Two consists of a single fact pattern, with several questions pertaining to that pattern. The allocation of points among the Part Two questions is within the professor's sole discretion.

Part One is worth 25 points. Part Two is worth 25 points.

Please keep in mind that "spotting issues" is only the first step in doing a legal analysis. You must also take the issues you identify and organize them into a coherent structure. Then, within that structure, you must examine those issues (by applying the law you see as relevant to the facts you see as relevant) and argue for some conclusion.

Please do not write about subjects that are not germane to your analysis. Writing a "treatise" on some area of law that the question does not put in issue wastes your time and conveys the unfortunate impression that you do not understand which issues are relevant.

To the extent that your analysis involves a particular statutory or Restatement provision, you MUST cite that provision. If your analysis involves the construction (as distinguished from mere application) of a particular word, phrase or provision, it may make sense to quote that word, phrase or provision. Otherwise, do not waste your time quoting the statute or Restatement at length. (On the other hand, if you can quote a piece of a statute or Restatement faster than you can paraphrase it, feel free to do so.)

There is no need to cite case names. If citing case names helps you, feel free to do so. Do not, however, use case names as a substitute for stating the law.

The grading rewards coherence. It will probably be worth your while to take some time to think about the organization of your answer before you begin writing. Ask yourself:

• whether you have identified all the necessary parts to your analysis;

• whether all the issues you have identified are actually necessary; and

• whether you have organized your issues in a way that is likely to make sense to your reader.

Please write legibly. Please write on only one side of each page. If legibility is not your strong point, please skip every other line as you write.

Budget your time.

BUDGET YOUR TIME.

BUDGET YOUR TIME.

BUDGET YOUR TIME.

Part One

The following two paragraphs apply to Questions A, B, C and D.

Janitorial Service Company ("Janitorial") and Buttoned-Down Corporation ("Buttoned-Down") enter into a written agreement under which Janitorial promises to provide janitorial services each weeknight for the approximately 50 bathrooms in Buttoned-Down's corporate headquarters and Buttoned-Down promises to pay Janitorial a fee of $5,000 per week. The term of the contract is 20 weeks, with payments due for each week by the Wednesday of the next week. Buttoned-Down is a very upscale and proper company. As far as bathroom cleaning services go, the work under contract is considered by Janitorial to be pretty light and palatable.

Two weeks into the contract, Buttoned-Down has made no payments and sends a letter to Janitorial which states: "From the outset your service has been far below the standard promised. We hereby cancel the contract. Do not send anyone to our headquarters. They will not be admitted. This decision is final, irrevocable and not subject to change." Assume that Buttoned-Down's assertion of poor performance is incorrect.

A. Can Janitorial properly sue immediately for breach of the entire contract, or must Janitorial wait until the contract term would have expired?

B. Assume that:

• Janitorial's weekly cost of performing the work was $500 in cleaning supplies and $2500 in labor costs;



• Buttoned-Down's cancellation of the contract frees up Janitorial to take on a contract with someone else calling for 18 weeks of work that will bring Janitorial a weekly profit of $300



• but for the cancellation, Janitorial's small staff could not have handled the new contract.

When Janitorial sues Buttoned-Down for breach of contract damages (for the entire contract), how much should Janitorial recover?

C. Suppose that:

• Janitorial's labor costs would have been significantly higher than stated in Question B;



• Janitorial recognizes that full performance of the contract with Buttoned-Down would have been a losing proposition; and



• Janitorial, therefore, decides to treat Buttoned-Down's cancellation as a total breach and to sue "off the contract."

1. Can Janitorial do this? If so, explain the theory Janitorial would use.

2. In Janitorial's "off the contract" claim, how should Janitorial's recovery be calculated?

D. The same facts as in Question B, except that:

• Janitorial does not find a substitute contract;



• Buttoned-Down brings to the attention of Janitorial what Buttoned-Down asserts is a "wonderful substitute opportunity" - namely, a contract to do night time janitorial service at a large, local college known in the community as "a party school";



• Janitorial declines to pursue the opportunity;



• the substitute contract would have included approximately the same number of bathrooms as involved in the contract with Buttoned-Down, although they would have been spread out over a dozen buildings on the college's campus;



• if Janitorial had pursued the opportunity, Janitorial would have obtained the contract and made a bigger weekly profit than it would have made under the contract with Buttoned-Down.

Buttoned-Down asserts that Janitorial has suffered no compensable contract damages because "Janitorial rejected an opportunity to mitigate its damages." Is Buttoned-Down's assertion correct?

E. First Year Student ("First") plans to enroll in a particular section of Business Organizations in the fall semester (i.e., in the next academic year). First mentions this plan to Upper Level Student ("Upper"). Upper says, "Hey, I just finished that course and breezed through it without even marking up any of my materials. They're as good as new, and I'll sell them to you right now for $10." That price is substantially lower than the bookstore price for new or even used materials, and First wishes to take advantage of the offer. However, just before agreeing, First realizes that the professor might substantially change the materials for the fall class and also that First might not even be able to get into the professor's section.

First, therefore, makes a counterproposal: "It's a deal, but only if the professor uses the same materials and I'm enrolled in that section next fall."

Upper responds, "Okay, but you have to pay me now." First agrees, and the money and materials immediately change hands. Next fall, the professor does indeed use exactly the same materials, and First is initially enrolled in the section.

However, after sitting through one excruciating class, First exclaims, "Not this again. Too much thinking. Too much thinking." First drops the class and enrolls in a different section of the same course. First then approaches Upper and seeks to return the materials (still unmarked and pristine) and get the $10 back.

Upper refuses, saying, "You've got to be kidding. I didn't get to be an upper level student without going through Contracts. You have no right to your money back. The deal sticks."

First responds, "Yes, I do get my money back. I've been through Contracts too. We agreed I had to be enrolled, and I've dropped that section. I'm not enrolled." Who is right?

Part Two

An individual ("Purchaser") and a construction company ("Company") entered into a written purchase agreement that called for Company to construct a house for Purchaser on a specified lot and to sell the house and lot to Purchaser. Typed specifications attached to the purchase agreement detailed how the house was to look and be constructed. A handwritten addendum to the purchase agreement required the house to have its own, separate driveway. In the discussion that preceded the writing and initialing of the addendum, Purchaser explained that a separate driveway would avoid the winter time hassles that might arise from sharing a driveway with a neighbor. The purchase agreement called for "an earnest money deposit in the amount of $5,000, receipt of which is hereby acknowledged, which shall not be refundable in any circumstances." Purchaser paid the earnest money deposit just before signing the purchase agreement.

Shortly after signing the purchase agreement, Company learned that zoning ordinances would not allow a completely separate driveway. Company owned and was building upon the adjacent lot, and zoning regulations allowed only a single "curb cut" for the two lots. As a result, Company constructed two driveways from a single curb cut. The two driveways shared approximately the first twelve feet in from the curb ("the shared-entry driveway"). Company sold the second lot to a third party, who planned to build a house on the property, utilizing the shared-entry driveway.

When Purchaser discovered the shared-entry driveway, the Company had finished building the house. The house itself complied completely with the purchase agreement specifications.

Consider each of the following questions independently of each other. (However, to the extent your analysis for one question overlaps with the analysis of another question, you may incorporate by reference a previously stated analysis.)

A. Suppose Purchaser wishes simply to "walk away from this bad dream of a bad deal." Can Purchaser:

• do so without being liable for damages?



• recover the $5,000 earnest money deposit?

B. Is Company liable in damages to Purchaser, assuming that Purchaser can prove foreseeable damages with reasonable specificity?

C. Suppose Company tenders to Purchaser the completed house, with lot and the shared entry driveway, and demands "the remainder of the purchase price, less the diminution in market value (if any) of the house and lot resulting from there being twelve feet of shared-entry driveway instead of the promised completely separate entry driveway." Is Purchaser obliged to pay any part of the remaining purchase price?

D. Suppose Purchaser seeks specific performance of the purchase agreement. What result?