FINAL EXAMINATION
COMMERCIAL TRANSACTIONS
FALL, 1995
PROFESSOR KLEINBERGER
General Instructions
This is an open book examination. You may use the statute book, the assigned photocopied
materials, any additional photocopied 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, each based on a separate fact pattern and each requiring a relatively short answer. Part
Two consists of a single fact pattern, requiring a more intricate answer. Each Part of the
examination is equal in weight to the other Part. That is, the five questions in Part One, taken
together, have the same weight as the one question 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. For the questions in Part One, your analysis will
be less complicated than in your answer for Part Two. But for both Parts your answers must
reflect a coherent analysis.
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 statutory provisions, you MUST cite those provisions.
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 at length. (On the other hand, if you can quote a piece
of the statute 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.
Special Note as to Applicable Law
To the extent (if any) that UCC § 2-318 applies to a question, assume that the relevant version
states:
A seller's warranty whether express or implied extends to any person who may reasonably be
expected to use, consume or be affected by the goods and who is injured in person or in his, her
or its property by breach of the warranty. A seller may not exclude or limit the operation of this
section.
Assume also that each problem is to be resolved under the law of a jurisdiction that has adopted Minn.Stat. § 604.10. Whether § 604.10 is relevant to any problem is, of course, for you to determine.
Part One
A. Last August Helen, a corporate executive, went on a fishing trip in Northern Minnesota. She
hired Jay, a local fishing guide, for a week-long trip. Helen enjoyed the trip immensely and
particularly admired the hand-made fishing poles that Jay used. Helen offered to buy one, but Jay
declined. Helen persisted, raising her offering price each time. Finally Jay said, "Look. I won't
sell any of these. They're mine. And as a rule I only make poles for myself. It just isn't seemly
for a professional guide to act like a storekeeper. But if you really want one, I'll make one for you
specially, once winter sets in and I have time on my hands. It would be ready for you by the
middle of February."
Helen agreed, and the two spent several hours over the course of the next couple of days deciding
on details. Jay kept notes of their decisions, but neither he nor Helen signed the notes. They did
agree on all the details, including a price of $750.
The trip ended, and Helen returned to her executive job in Minneapolis. By December, having
heard nothing from Jay, she decided that he must have reconsidered making the pole. She
purchased through a catalogue, paying $900.
On January 10 Helen received a handwritten letter from Jay, which described the pole being made,
restated the price, explained that Jay was "3/4 finished already," promised delivery by the end of
the month and ended with Jay's signature.
Helen's first reaction was to think, "How am I going to tell him that I don't want that pole?" She
set the letter aside, planning to come back to it. Unfortunately, the letter fell off her desk into the
trash basket. Caught up in the press of work, Helen forgot the letter.
On January 31, Helen received a phone message from Jay: "Pole finished. Should I ship it to
you, or do you want to pick it up?" Assuming the pole conforms to the agreed-upon details, is
Helen legally obligated to accept and pay for the pole?
B. Felix, the owner of a coal mine, agrees to sell six carloads of coal to Oscar, a coal dealer.
Felix and Oscar make the agreement at a meeting in a hotel room, and at the end of the meeting
Felix jots down a note of the agreement. The note is on the hotel's letterhead and includes merely
the date of the agreement, the price and the phrase "six carloads of coal, FOB Railroad Terminal,
Oscarville. Sight draft against bill of lading. Coal to arrive no later than February 15, 1995."
Felix initials the note, and Oscar writes his name at the bottom. The parties had made a similar
agreement several months earlier, on essentially the same terms. Just before writing his name on
the note, Oscar comments, "This is the same deal we made last time." Felix responds by nodding.
Felix ships the coal in a timely manner and two days later has the First Bank of Oscarville present
a sight draft and negotiable bill of lading to Oscar. Oscar declines to pay immediately, stating
(accurately), "Last time we did this Felix let me have 48 hours to get the money together." The
First Bank contacts Felix, who insists that Oscar pay immediately. When Oscar again refuses,
Felix finds another buyer for the coal. Oscar is forced to purchase replacement coal at a higher
price.
Oscar subsequently sues Felix for damages. In response, Felix asserts that Oscar breached the
contract by refusing to make payment as agreed. Oscar attempts to prove that Felix breached the
contract by not allowing a 48-hour grace period. May Oscar introduce evidence of (1) the
arrangements in the previous coal deal? (2) Oscar's comment ("This is the same deal we made
last time.") and Felix's response to that comment?
C. HeartLung, Inc. ("HeartLung") sells respirators to be used for infants born prematurely.
HeartLung has a catalogue that describes these "infant respirators" and states an 800 number for
customers to call to place orders. Three weeks ago the purchasing agent of Unionville Hospital
("Hospital") telephoned HeartLung's order department and spoke to one of HeartLung's order
takers. In that conversation, the purchasing agent made reference to HeartLung's catalogue,
specified the particular model the Hospital wanted, confirmed the price, determined the delivery
date and shipping terms and stated, "OK. We want it on those terms. You can take this as a firm
order. We'll send you the paperwork by close of business tomorrow." HeartLung's order taker
responded, "OK. We've got your order. It's in our computer and we'll start processing it. We
send you a formal acknowledgement as soon as we get your P.O. [purchase order] in writing."
Two days later Hospital's purchase order arrived. On the front it restated precisely the details
agreed upon in the phone conversation. On the back the purchase order included 15 "Terms and
Conditions of this Order," including a paragraph that purported to require "Seller" to indemnify
"Buyer" against any and all claims "made against Buyer that in any way arise from or relate to
Buyer's use of the goods sold under this Purchase Order."
Within a day of receiving the written purchase order, HeartLung sent Hospital a form entitled
"Order Acknowledgement." The front of that form also restated precisely the details agreed upon
in the phone conversation and included the statement "We are processing your order." The back
of the Order Acknowledgement included 12 "Terms of Sale" and stated in large print "This sale is
subject to and governed by the following Terms." One of those terms purported to limit buyer's
remedies to "at Seller's option, repair or replacement of any defective equipment, or return of the
purchase price." Another term purported to exclude consequential damages.
In due course, HeartLung delivered the respirator and Hospital accepted and paid for it. Which, if
any, of the following are part of the contract between the parties:
1. the indemnification provision;
2. the remedy limitation;
3. the exclusion of consequential damages.
D. Minnesota's Home Solicitation Sales Act ("Act") allows certain parties a 3-day cancellation
period, during which the parties may cancel a contract without having to state or have any
particular cause, reason or justification. The Act establishes the scope of its protection by
defining relevant terms. Those definitions appear in Minn.Stat. § 325G.06 and are attached to
this examination as Appendix A. In essence, the Act applies to any "home solicitation sale."
Last summer Irv visited a booth at the State Fair at which Sno-Go, Inc. ("Sno-Go") displayed and
sold its line of expensive snow-blowers. Sno-Go has a regular store in Blaine, but each summer
operates a booth at the Fair.
Irv spent about an hour discussing matters with a Sno-Go representative and almost agreed to
purchase a snow-blower. Eventually, however, Irv said, "I gotta think this one over a bit. Why
don't you give me a call after the Fair is over, and we'll talk about it." The Sno-Go representative
agreed to do so, and Irv gave the representative both Irv's home and office phone numbers.
Three weeks later, Sno-Go's representative telephoned Irv at work and renewed the discussions.
Irv agreed to meet the representative for lunch at a restaurant the next day. At that luncheon
meeting, Irv agreed to rent a snow-blower for two years for use at Irv's home at a yearly rental of
$300 per year, with an option to purchase at the end of the second year.
Does the Home Solicitation Sales Act apply to this transaction?
E. The following statement of facts comes from a recent decision of the Minnesota Court of
Appeals.
Robert, David, and Hazel Schluter [later referred to as "the farmers"] are grain farmers in Starbuck, Minnesota. The elevator is a public grain elevator in Murdock, Minnesota. For several years prior to the events of this case, the independent trucker had engaged in the practice of buying grain from various farmers, hauling it to the elevator, and selling it. Both the farmers and the elevator had done business with the trucker in this manner prior to the transaction at issue.
In May, June and July of 1988, the trucker delivered 114,877 bushels of corn and 3,454 bushels of soybeans to the elevator. This included 29,056 bushels of the farmers' corn. On the scale tickets issued by the elevator, the trucker's name is listed as the owner of the grain . . . . At his deposition, the trucker admitted he represented to the elevator that he was the owner of the grain. The elevator checked for liens against the grain, and found none.
Between May 20 and July 13, the elevator issued checks to the trucker totalling $288,000. . . . No warehouse receipts were issued either to the trucker or to anyone else by the elevator. On June 5, 1989, the elevator sold the grain in question for $302,638.33 . . . .
The farmers never received payment for their grain from the trucker.
The farmers subsequently sued the elevator for conversion. The elevator argued that it owned the grain and therefore could not be liable for conversion. Who was right?
Part Two
Consider the following to be Findings of Fact made by a judge in a non-jury trial. Based on these
Facts and the law covered by this course, decide the case and write a memo explaining the
decision.
1. Plaintiff is in the business of selling and installing heating and air conditioning equipment in
residences and business facilities.
2. Defendants are married and reside at [address omitted] in St. Paul.
3. Approximately two years ago defendants contacted plaintiff and discussed the purchase of a
new furnace for defendants' home. Plaintiff recommended a particular brand and model of
furnace, stating that the furnace was "90%" efficient and would "run quiet." Plaintiff gave to
defendants brochures and other promotional materials from the manufacturer, which described the
furnace in greater detail.
4. Approximately two years ago plaintiff and defendants entered into a written agreement under
which plaintiff agreed to sell to defendants and install in their home a specified make and model of
furnace, 90% efficient. The agreement listed the price of the furnace as $1400 and the price of
installation as $350. The furnace manufacturer was not a party to the agreement and is not a
party in this case.
5. The St. Paul building code, like many other building codes, requires that 90% efficient
furnaces be vented through the side of the building in which the furnace is installed. Plaintiff
followed code in installing the specified furnace at defendants' home.
6. Plaintiff never mentioned the side-venting requirement when recommending the furnace to
defendants or when negotiating the agreement with defendants. The manufacturer's information
shown to the defendants also omits any mention of the requirements. Defendants' old furnace
vented exhaust through the home's fireplace chimney, so there was no visible exhaust tubing.
7. Defendants were, in their words, "shocked" when they returned home on the day of installation
and found a heavy metal exhaust tube, four inches in diameter, protruding from the side of their
home.
8. In response to defendants' consternation, plaintiff painted the venting tubing to match the trim
of the house. Defendants continue to maintain that the side-venting is unsightly, but they have
presented no evidence as to any diminution in value of the house resulting from what they term "a
eyesore."
9. The St. Paul building code allows 80% efficient furnaces to be vented vertically (e.g. through
an existing chimney). Had defendants known about the St. Paul building code venting
requirements, defendants would have chosen to purchase an 80% efficient furnace.
10. After plaintiff had completed the installation, defendants noticed several problems with the
installation. Rather than allowing plaintiff to repair the problems, defendants hired another party
who did the repair at a cost of $150. This cost was reasonable.
11. As part of the installation, plaintiff had to work near the defendants' chimney. After the
installation, the chimney cap dislodged and did $250 of damage to defendants' roof. It is
undisputed that the loose cap caused the damage. Defendants contend that plaintiff loosened the
cap through incompetent work. Plaintiff states that the cap was loose already, that plaintiff
noticed the loose cap and "did not think it any of my business to report this" to defendants.
12. Defendants contend that the new furnace does not "run quiet." They present no independent
evidence of this problem, beyond their own perceptions. Plaintiff acknowledges that more
efficient furnaces turn off and on more often then less efficient furnaces. Plaintiff never mentioned
this fact when recommending the furnace to defendants or when negotiating the agreement with
defendants. The manufacturer's information shown to the defendants also omitted this fact.
13. Defendants have paid plaintiff $1000 but have withheld any further payments. They assert
that they have set-offs at least equalling the remaining amount due on account of the side-venting,
the costs of remedying the installation defects, the failure of the furnace to run quietly and the
damage to the roof.
14. Plaintiff seeks the remainder of the contract price, denying all of defendants' assertions and in
particular arguing that defendants had no right to hire another party to remedy installation defects
without first giving plaintiff an opportunity to "make things right."
Appendix A -- Minn.Stat. § 325G.06
325G.06. Definitions
Subdivision 1. As used in sections 325G.06 to 325G.11, the terms defined in this section have the meanings given them.
Subd. 2. "Home solicitation sale" means a sale of goods or services, by a seller who regularly engages in transactions of the same kind, purchased primarily for personal, family or household purposes, and not for agricultural purposes, with a purchase price of more than $25, in which the seller or a person acting for him personally solicits the sale, and when the buyer's agreement or offer to purchase is made at a place other than the place of business of the seller, except as otherwise provided in this subdivision. It does not include:
(a) a sale made pursuant to prior negotiations in the course of a visit by the buyer to a retail business establishment having a fixed permanent location where the goods are exhibited or the services are offered for sale on a continuing basis; or
(b) a sale in which the buyer has initiated the contact and the goods or services are needed to meet a bona fide immediate personal emergency of the buyer and the buyer furnishes the seller with a separate dated and signed statement not furnished by the seller describing the situation requiring immediate remedy and expressly acknowledging and waiving the right to cancel the sale. This exclusion shall only apply where (i) the seller in good faith makes a substantial beginning of performance of the contract before the buyer gives notice of cancellation, and, (ii) in the case of goods, the goods cannot be returned to the seller in substantially as good condition as when received by the buyer; or
(c) a sale in which the buyer has initiated the contact and specifically requested the seller to visit the buyer's home for the purpose of repairing or performing maintenance upon the buyer's property. If in the course of such a visit, the seller sells the buyer the right to receive additional services or goods other than replacement parts necessarily used in performing the maintenance or in making the repairs, the sale of those additional goods or services would not fall within this exclusion; or
(d) a sale in which the buyer has initiated the contact either by oral, telephone, or written request (other than on a form provided by the seller), and requested the seller to visit the buyer's home for the purpose of negotiating the purchase of the specific good or service requested. This exclusion shall only apply where the buyer furnishes the seller with a separate dated and signed statement in the buyer's handwriting expressly acknowledging and waiving the right to cancel the sale; or
(e) a sale of insurance, securities, or real property; or a sale by public auction; or
(f) a sale of a motor vehicle, as defined in section 168.011, subdivision 4, when the buyer's agreement or offer to purchase is made at a place other than the buyer's place of residence.
Subd. 3. "Sale" includes a lease or rental.
Subd. 4. "Seller" includes a lessor or anyone offering goods for rent, or an assignee of the seller.
Subd. 5. "Buyer" includes a lessee or anyone who gives a consideration for the privilege of using goods or services.
Subd. 6. [omitted]