FINAL EXAMINATION

CONTRACTS

SPRING, 2000

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 four separate questions, each based on a separate fact pattern and each requiring a relatively short answer. Part Two consists of a single fact pattern, with several different questions. The Parts are weighted as follows:

Part One -- 40%, with each of the four individual questions worth the same as each other (i.e., 10%).

Part Two -- 60%. You must decide for yourself how much time and effort to allocate to each of the several questions in Part Two.

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.

A. A few weeks ago, a local bar posted a sign in its parking lot, advertising "All the Beer You Can Drink - $5. Proceeds to Benefit [name deleted] Softball Team." Anyone who inquired about the advertisement was told that the offer was limited to keg beer, which was being served only in the bar's parking lot.

One particularly thirsty customer paid the $5 and began drinking copious quantities of beer. The bartender served the customer repeatedly, without question, until the customer became obviously inebriated. At that point, the bartender refused any further beer to the customer, unless the customer agreed to relinquish his car keys and promise that, when he wished to leave, he would allow the bar to call a taxi.

The customer refused to relinquish his keys or make the promise, and the bartender refused to provide any more beer to the customer. The bartender explained, "Listen, bub. I don't want you to get hurt. I don't want you to hurt other people. And, what with the [expletive deleted] Dram Shop Act, ⁽¹⁾ I don't want this bar to be liable in case you wipe somebody out."

The customer became irate and exclaimed, "You have no right to do this. We made a deal. Now you're trying to change the deal on me. I'm not just your ordinary beer drinker. I've had a full year of Contracts. If you won't live up to your bargain, you owe me my money back."

Is the customer entitled to the return of some or all of his $5?

B. Seeking to encourage her adult nephew to read rather than surf, Hildegarde goes to a bookstore to buy a gift certificate for the nephew. She inquires of the bookstore cashier, who says, "Sure, we have gift certificates beginning at $10 and going up in multiples of $5."

Hildegarde responds, "I want this to be for my nephew, Roland."

The cashier says, "That's very nice, but it doesn't matter to us. You pay for the certificate, and we give it to you. You then write in the name of whoever is going to use it. You could even write in your own name."

Hildegarde pays $50 for a $50 gift certificate and receives a piece of cardboard that reads as follows:

[name of bookstore] Gift Certificate

$50

given to and redeemable (for books and other merchandise only) by

__________________________________________

(Not redeemable in cash. Change made in gift certificates, except that change will be made in cash if the amount is less than $5.)

C. Buyers purchased a home from Seller for a price of $130,000. Before making the agreement, Buyers explained to Seller that Buyers' granddaughter's health concerns precluded Buyers purchasing a home in which pets had lived. Seller falsely stated that no pet had ever lived in the house.

After closing on the purchase, Buyers made approximately $20,000 of improvements to the property. After the improvements were completed and before the Buyers ever moved in, Buyers learned that several pets had in fact lived in the house and that it would cost another $12,000 to make the house acceptable even for short visits from their granddaughter. The market price of the house is now $160,000. Of the $30,000 increase, $20,000 is attributable to the improvements and $10,000 is attributable to an improvement in the market.

1. May Buyers rescind their purchase and recover the $130,000 purchase price?

2. Assuming Buyers rescind their purchase, may they recover from Seller:

a. the $20,000 Buyer spent on improvements?

b. the $10,000 attributable to the change in market conditions?

c. the $12,000 it would have cost to make the house acceptable for Buyers' granddaughter?

D. Neighborhood Kid ("Kid") agrees to mow Homeowner's lawn each week during the spring and the summer (i.e., until Kid returns to school just after Labor Day), for $15 each time, payment due after each mowing. With 10 weeks left in the summer, Homeowner tells Kid, "Don't come around anymore. I need the exercise, and I'll be doing the lawn myself." Not doing Homeowner's lawn saves Kid $3 per week in gas costs. Wanting more cash, Kid finds another lawn to mow each week, for $10 per week (lawn owner supplies the gas).

1. How much in damages may Kid recover from Homeowner?

2. Must kid wait until the end of the summer to sue for damages?

Part Two

Seller and Buyer make and sign a written agreement under which Seller agrees to sell and Buyer agrees to buy Seller's house and the land on which the house sits for a total price of $200,000. The agreement is complete in every relevant respect, and Paragraph 24 reads as follows:

24. (Financing)--Seller represents to Buyer that Seller has many contacts with third party lenders and can arrange financing for Buyer, from a third party lender, of the entire purchase price, except the $20,000 down payment (i.e., $180,000 to be financed), at an interest rate not to exceed 10%, over a 30-year term for the mortgage. Seller understands that Buyer in making this agreement is relying on Seller's representation. ⁽²⁾

The agreement provided for closing to occur three months after the making of the agreement.

Consider each of the following situations as independent from each other; i.e., none of the facts from one item are relevant to any other item.

1. Seller fails to arrange for the financing, through no fault of Buyer. However, financing below the stated maximum would be easily available to Buyer. Is Buyer obliged to proceed with the sale?

2. The written agreement contains a requirement for a "non-refundable earnest money payment of $5,000, to be counted towards the down payment if the transaction is consummated but otherwise to be non-refundable." Seller makes no effort to arrange the financing, and financing at or below the stated maximum is not available to Buyer. Buyer does not proceed with the closing. May Buyer recover the supposedly "non-refundable" $5,000 payment? Would it make any difference to your analysis if Buyer could show that, when Seller entered into the agreement, Seller had no contacts with third party lenders and had no intention of arranging financing?

3. Assume that:

a. The contract requires Seller to provide Buyer financing from a third party.

b. Seller fails to obtain the required financing.

c. Third party financing is available, but only at a 12% interest rate.

d. Buyer cannot qualify for a mortgage at that interest rate.

e. Buyer seeks an injunction requiring Seller to proceed with the sale, with Seller financing the sale directly. ⁽³⁾

f. Seller planned to use the cash from the sale (whether to Buyer or some other purchaser) to fund the purchase of a new house. Without that cash, Seller can still purchase the new house but will have to pay 12% interest on the "missing" $180,000. (Unlike Buyer, Seller will still be able to qualify for financing.)

Will the court grant the injunction sought by Buyer?

1. According to Black's Law Dictionary (Westlaw, 4/24/00), "Many states have Dram Shop or Civil Liability Acts which impose liability on the seller of intoxicating liquors . . . , when a third party is injured as a result of the intoxication of the buyer where the sale has caused or contributed to such intoxication."

2. Under this arrangement, at closing the lender would provide funds to pay Seller the rest of the purchase price.

3. That is, Buyer wants a court order requiring Seller to accept periodic payments of principal and interest.