Question 1

(One Hour - 50%)

David Daws has been our client for a number of years. He came in to talk with us this morning and told us about a matter about which he would like our legal analysis.

David and his neighbor Paul have lived next to each other for about 6 years. During this time, they have become very good friends, frequently having dinner at each other’s houses and going to movies and sports events together. Last year, Paul had a serious fall involving a broken pelvis, broken ribs and other injuries which caused him to be unable to work for 1 year and made it impossible for him to do ordinary household chores during that year. 

The accident occurred in the following way: David’s roof was leaking. He asked Paul to help with the repair and, of course, Paul immediately agreed to do so. Late in the day, and rushing to get the repair done before an expected big rain storm, Paul was working from the top of a ladder which David, standing on the ground, was holding steady. David’s cellphone rang and he let go of the ladder to answer it. The ladder slipped and Paul fell, unfortunately missing the bushes which might have cushioned his fall and landing on the driveway.

In one of his visits to Paul’s hospital room, David assured Paul that he would take care of P’s house - mowing the lawn in the summer, shoveling snow in the winter, and doing the ordinary house repairs that both of them had worked on together in both their houses for the preceding 5 years.

David was faithful to his word and for the year following the fall, David did exactly as he said he would. But after the year of recuperation, at a point that David felt that Paul was now fully capable of mowing the lawn, shoveling the snow and doing most other household chores, David told Paul that it was time for Paul to take care of these matters on his own, assuring Paul that if the chores involved the kind of heavy lifting that the doctors had told Paul not to do, that he (David) would take care of those chores for Paul if it was at all possible for him to find the time to do so. Paul expressed disappointment at hearing David say this. He said that had he known that David was not going to continue to help him by mowing his lawn and shoveling his snow, that he would have insisted that his insurance company cover the expenses for these services; too much time had now passed and he could no longer make that kind of claim. Furthermore, Paul argues that he could have made a long-term contract with a local handyman to do this work at far less than it will now cost him since the price of hiring the local handyman had risen dramatically in the last year.

David was quite shaken by the conversation. Although he doubts that Paul would ever sue him, he would like to know whether, as a matter of law, he owes Paul some obligation. He will also be talking with a friend of his who teaches ethics about whether he has an ethical obligation to David. We should not address that question. 

Our task is to analyze David’s legal liability. What would be the basis of Paul’s claims and what would be our defenses to those claims? 

Question 2

(One Hour - 50%)

Our client ABC Company has requested a legal analysis of a transaction which, as our client says, has caused more trouble for ABC than the transaction was worth. ABC manufactures computers, or rather assembles computers from parts it purchases from its suppliers. After assembling the computers, it sells them together with a contract for installation and maintenance of the computers for a period of three years. The business has proved to be quite profitable for ABC and, up till now, has created very few contractual problems.

That happy circumstance came to an end in November 2007. ABC was in the process of assembling 100 computers for XYZ. Delivery was to be made to XYZ on November 30. Unfortunately, Power Unlimited, the company from whom ABC ordered the power supplies for the 100 computers, did not deliver on November 30. The contract price for the 100 power supplies was $100 per unit. When they didn’t arrive that Friday afternoon, ABC called Power Unlimited and was told that they would not be performing their contract to deliver the power supplies. On Monday, December 3, ABC undertook a search for power supplies. The time was short because they were supposed to deliver and install the computers at XYZ’s offices on December 10. ABC could only locate one supplier who could make reasonably quick delivery of 100 power supplies, but this supplier said that they could not deliver the units until December 10. These units had higher electrical output than ABC needed for XYZ’s computers; that would not create any problem for completing the assembling of the computers, but these power supply units were twice the price - $200 per unit instead of $100 per unit.  While ABC viewed the price as too high for this job, and the delivery too late to permit them to avoid breaching, ABC felt it had no choice but to accept the offer of these more powerful and more expensive power supply units. 

The additional $10,000 cost (100 x $100) made a major difference in the profitability of the entire transaction as we can see from the “work sheet” provided to us by ABC which shows the costs, contract prices and anticipated profit in the transaction:

Costs:

Manufacture of 100 Computers $75,000.00

Three Year Maintenance Contract with CSI for 100 Computers $36,000.00

Installation of 100 Computers $5,000.00

Total Cost of Goods and Services $116,000.00

Contract Price:

Price for Computers and Installation Agreed to by XYZ $100,000.00

Price for 3 year Maintenance Agreed to by XYZ $40,000.00

Total Contract Price to be paid by XYZ $140,000.00

Anticipated Profit:

Anticipated Profit on Contract with XYZ $24,000.00

Since the new power supply contract would increase the cost of manufacture from $75,000 to $85,000, it would reduce their anticipated profit from $24,000 to $14,000.

When ABC informed XYZ of the late delivery (ABC estimated that it could make delivery of the 100 computers on December 17 ) XYZ said “OK, but this is going to cost us something in not delivering our computers until a week later than you promised. You have demonstrated to us that you are not reliable, so you can forget the part of our contract that involved maintaining the equipment for three years.” 

When we asked ABC what the consequences would of XYZ’s cancellation of the maintenance agreement, ABC told us that ABC had already paid the $36,000 to CSI on December 10 as required by the contract with CSI. ABC has not yet spoken to CSI, so ABC does not know whether CSI will be willing to return the $36,000 or some part of it to ABC or whether there is any basis upon which they could seek to compel CSI to return all or part of that payment.

Since the goods (the computers) represent the predominant aspect of the transaction, Article 2 of the UCC will probably apply to all aspects of the transaction. However the court might decide to apply the common law to the maintenance part of the contract on the theory that it is an independent contract. If it is so considered, ABC can argue that it has not breached that contract and that XYZ has breached it by terminating it. If it is regarded as a single contract, then ABC’s late delivery would have been a breach of the entire contract.

Please analyze for ABC its remedies claim against Power Unlimited and its potential liability to XYZ. Since it is clear that the contracts were fully enforceable and that Power Unlimited and ABC have both breached, restrict your answer to an analysis of the remedies available to ABC against Power Unlimited and the remedies available to XYZ against ABC. If the court concludes that the maintenance contract is an independent contract, is governed by common law remedies, and has not been breached by ABC, what remedies would be available to ABC in an action against XYZ? Finally, what can we tell ABC about its relationship to CSI to whom it paid $36,000 for maintenance that is no longer needed.

While we are representing ABC, it is important that we consider the legal arguments that will be made by lawyers representing each of the other parties, and , to the extent possible, respond to those arguments.