FINAL EXAMINATION

COMMERCIAL TRANSACTIONS

SUMMER, 1993

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 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, requiring a more intricate answer. Each Part of the examination is equal in weight to the other Part. That is, the four 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 which are not germane to your analysis. Writing a "treatise" on some area of law which 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.

Part One

With Part One, you will need to consider the following statutes in addition to the statutes assigned this semester: UCC §§ 2-614 and 2-615.

A. A farmer purchases electricity from the local power company. The company delivers the electricity to the farmer through a high tension power line ("the delivery line") which runs across the farmer's property from the power company's main line (not on the farmer's property) to the farmer's barn. Assume that: (1) electricity is a "good" under Article 2; (2) stray voltage "leaks" from the delivery line; (3) the stray voltage has caused measurable damage to the farmer's cows. Does the farmer have a claim against the power company under Article 2? Explain.

B. Contract for the sale of grain, between Cargill, Inc. and Xport, Inc. The parties' written agreement stated in relevant part:

Quantity: 200 metric tons.

Price: $150,000 CIF Port of New Orleans

Delivery: Ship by river barge from Minneapolis, to arrive New Orleans NOT LATER THAN 7/9/93. TIME IS OF THE ESSENCE. BUYER COMMITTED TO RE-SHIP GOODS ON S.S. PEERLESS, LEAVING PORT OF NEW ORLEANS ON 7/10/93.

Due to the recent rain and consequent flooding, Cargill was not able to ship by barge. (The Army Corp of Engineers closed the locks on the Mississippi River.) Seeking contingency arrangements, Cargill discovered that it could meet the required arrival date by shipping the grain by truck. The truck shipment would, however, cost $8,000 more than the barge shipment. Cargill then sent the following telex to Xport:

Floods and consequent closing of Mississippi locks precludes shipping by barge. Can meet arrival date via truck at increased cost of $8,000. Propose doing so, with Cargill and Xport splitting additional cost. Do you concur?

Xport promptly telexed back:

We do not concur. We hold you to contract. Costs of freight are your responsibility. If you fail to make timely delivery you will be in breach.

Cargill responded:

Under the circumstances we are not responsible to make delivery under original terms. We renew our offer to ship by truck with each party paying half of the additional expense. If you do not accept this offer, we will not be bound by the contract.

Who is right? Explain.

C. Same facts as Problem B, except the price and delivery terms were as follows:

Price: $150,000 F.A.S. S.S. Peerless, Port of New Orleans

Delivery: To arrive New Orleans NOT LATER THAN 7/9/93. TIME IS OF THE ESSENCE. BUYER COMMITTED TO RE-SHIP GOODS ON S.S. PEERLESS, LEAVING PORT OF NEW ORLEANS ON 7/10/93.

Who is right, Cargill or Xport? Explain.

D. You agree to purchase a "delicate and ornate crystal vase" from the Acme Vase and Roadrunner Device Corporation ("Acme"). Price is $200 C.O.D., delivery to your home. The UPS delivery person comes to your door, and rings the doorbell. When you open the door, you see the delivery person and, on the ground next to her, a large cardboard box. The delivery person: (1) identifies herself, (2) confirms your identity, (3) informs you she has a delivery from Acme for you, (4) lifts the cardboard box, and (5) requests the $200 due. As she lifts the box you hear what sounds like broken glass. You express your concern and ask to open the box and look inside before paying. The delivery person says, "On a COD I don't let go of the box until I have the money." You refuse to pay, and the delivery person leaves with the box. Assume that the vase was in fact broken. Did you breach your contract with Acme when you refused to pay? Explain.

Part Two

In answering this Part Two, apply Minnesota law. Assume that the Minnesota version of UCC § 2-318 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 by breach of the warranty. A seller may not exclude or limit the operation of this section.

Assume that Minnesota has adopted the rest of the UCC without any changes. Assume also that Minn.Stat. § 604.10 [misnumbered in the photocopied materials as § 604.09] does NOT apply.

Student is a member of a health club ("Club") and works out regularly in the Club's weight room. The weight room contains various machines used for building and toning muscles. The Club has employees who train members in the use of the machines.

Last week Student was properly using the Adipose Reducing Nether Oblique Laterals Developing machine (the "ARNOLD") when a latent defect materialized, the machine malfunctioned and Student was seriously injured. Student incurred $25,000 in hospital and medical bills. Student was forced to withdraw from school in the middle of the term and forfeited $4500 in tuition. In addition, Student lost three months of wages at a part-time job, for a loss of $3000.

Club also had difficulties. Student's accident was quite dramatic, and news spread quickly throughout the Club's membership. Six members quit the Club, costing approximately $8000 in lost revenues. Moreover, most members made clear that they would never again use the ARNOLD.

Club had purchased the ARNOLD about ten months ago from Pumping Up, Inc., a manufacturer of conditioning equipment. The purchase was made under a written agreement, with a purchase price of $8500. Just prior to the signing of the purchase agreement, the sales representative for Pumping Up had stated, "Your members will love the ARNOLD. I guarantee it. And if for any reason you're not satisfied during your first twelve months, give us a call. We'll take it back and return your money in full."

The written purchase agreement stated in pertinent part:

12. WARRANTIES LIMITED: Pumping Up warrants that the ARNOLD will be free from defects in materials and workmanship for 24 months from the date of delivery to Club. PUMPING UP EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED. PUMPING UP EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY AND ANY WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE. CLUB ACKNOWLEDGES THAT IN DECIDING TO PURCHASE THE ARNOLD CLUB HAS NOT RELIED ON ANY WARRANTY OR REPRESENTATION OTHER THAN THE WARRANTY STATED IN THIS PARAGRAPH 12.

. . . .

15. REMEDIES LIMITED: If the ARNOLD is in breach of the Limited Warranty stated in Paragraph 12, Pumping Up will at its option either repair or replace the ARNOLD. THE REPAIR/REPLACE REMEDY STATED IN THIS PARAGRAPH WILL BE CLUB'S EXCLUSIVE AND SOLE REMEDY FOR ANY DEFECT IN OR PROBLEM WITH THE ARNOLD. PUMPING UP WILL NOT IN ANY CIRCUMSTANCES BE LIABLE FOR CONSEQUENTIAL DAMAGES.

. . . .

30. COMPLETE AGREEMENT: This Agreement constitutes the final and complete expression of the understanding between Club and Pumping Up and supersedes all prior written agreements and representations and all prior and contemporaneous oral agreements and representations.

A. Pumping Up has offered to fix or replace the defective ARNOLD. However, given the feelings of its customers (i.e. the members), Club does not wish to have the defective ARNOLD repaired or replaced. Club wishes instead to return the ARNOLD for a full refund. Does the Club have the right to do so? Explain.

B. Club wishes also to hold Pumping Up responsible for the $8000 in lost revenues. May Club do so under Article 2? Through a tort claim?⁽¹⁾ Explain.

C. May Student recover damages from Pumping Up under Article 2? Under a tort claim for a defective product?⁽²⁾

1. Assume that the ARNOLD was defective in the "products liability" sense and that neither Club nor Student was negligent.

2. Assume that the ARNOLD was defective in the "products liability" sense and that neither Club nor Student was negligent.