Spring 1994 Examination

Question I

(40 out of 120 total points; Suggested Time: One Hour)

On May 5, 1994, the Chairman of the Board of the AgraTech Corporation (ATC) telephoned our client Edward Est and offered him the job of Chief Executive Officer (CEO) of ATC for a period of five years for $250,000 per year beginning June 1, 1994, with a right on the part of either party to terminate after two years on sixty days notice. At that time, ATC was in the business of using genetic engineering to increase the quantity of milk which an untreated cow would otherwise produce. While this was its only present product, ATC believed that it assured the financial success of ATC. Edward Est was a specialist in genetic engineering of farm animals and had business experience prior to acquiring his doctoral degree in biotechnology. Up until the present time, he was serving as a tenured professor in the Department of Biotechnology at the State Agricultural College. The proposed $250,000 per year contract greatly exceeded his present professorial salary and he eagerly accepted the offer.

Just one week before Dr. Est was to take office, the Food and Drug Administration banned the use of ATC’s product, stating that there was insufficient evidence of its safety. The Chairman of the Board of ATC then called Dr. Est to say that with that ban, the anticipated income of ATC was insufficient to pay Dr. Est the agreed upon salary. Moreover, ATC, the Chairman said, had no other products which involved Dr. Est’s expertise – all their other products in development involved human beings, and not farm animals. Unfortunately, Dr. Est had already given notice to his University of his resignation of his tenure and would, therefore, be unemployed. When Dr. Est protested this termination of his employment contract to the Chairman of the ATC Board of Directors, the Chairman replied “I’ll see you in court.”

Our firm has been hired to represent Dr. Est in his breach of contract action against ATC. Please analyze Dr. Est’s rights against ATC and ATC’s likely response to the arguments you would make on Dr. Est’s behalf.

Question II

(40 out of 120 total points; Suggested Time: One Hour)

In March 1994, Mr. and Mrs. Parents attended a “Home Show” at the Erewhon State Civic Center. This show, sponsored by the local Erewhon Home Builders Association, contained exhibitions by manufacturers, retailers and contractors of goods and services for the construction and improvement of homes. The intended audience of this show were homeowners looking for ways to make their homes more attractive, more valuable, and more useful.

One of the objectives the Parents had in attending the show was to look at exhibits by companies who manufactured or sold or installed play equipment for children. While they had not yet decided upon their needs, or rather that of their two year old son, they were particularly interested in looking at slides and swing sets. During the course of their visit to the Home Show, they saw equipment distributed by Sunshine Play Equipment, Inc. Sunshine was exhibiting several pieces of equipment. One, called Phase II, particularly interested the Parents. They showed the sales representative a sketch with measurements they had made of their backyard and asked whether the Phase II would be suitable. They also inquired about cost, delivery and installation, and were told that for orders placed at the show the set would cost $1000, a discount of $250 off the regular retail price. This set would be made of pressure treated lumber, a chemical process designed to prevent rot. They were told also that they could have a Phase II made of redwood, a naturally rot resistant wood, rather than made of pressure treated lumber, for $1200, a price the sales representative said was $300 under list price.

Sunshine’s sales representative at the Home Show then took out an “Order Form” which was simply a preprinted list of all of the equipment sold by Sunshine. She wrote in the name and address of the Parents and then placed a check mark next to Phase II and wrote “rot resistant” next to it. In the space for a price she wrote “$1200”. They gave the sale representative, at her request, a $500 deposit. The Form was signed by the Parents and by the sales representative.

When Mr. and Mrs. Parents returned to their home, they reviewed a number of brochures they had received both from Sunshine and from other sellers of play equipment. They realized for the first time that all the sellers of play equipment (other than Sunshine) stated, for reasons of safety, that there should be six feet of open space on all sides of play equipment similar to Sunshine’s Phase II equipment. No matter how they imagined placing the equipment, they could not come up with as much as six feet of free space on all sides of the equipment. The Sunshine representative had not mentioned the issue of free space, and Sunshine’s literature did not mention this issue either. No differences among the equipment from Sunshine and from other sellers could explain this silence.

The Parents then notified Sunshine that they did not wish to have the play equipment delivered to their home. Sunshine has responded that they would deliver a Phase II made of pressure treated lumber in accordance with their order. The Parents responded that the set they had ordered was to be made of redwood, and not out of pressure treated lumber, but that, in any event, they did not have the space required to place a Phase II in their backyard and that the sales representative for Sunshine should have known that.

The Parents now seek our advice. They have asked two quite specific questions:

(1) would it be a breach of contract for them to refuse to accept delivery of the Phase II?

(2) if they have to accept a Phase II, can they insist that it be redwood?

In answering each of these two questions, please be certain to include the arguments that you would make on behalf of the Parents and the arguments you would expect Sunshine’s attorneys to make in response to those arguments.

Question III

(40 out of 120 total points; Suggested Time: One Hour )

Alan Adams, a client of our law firm, designed a computer software program, called Eden, to be used by retail stores to maintain a complete record of their operations. Eden keeps watch over a store’s inventory and financial accounts. It also maintains appropriate records for all local, state and federal taxes. Despite Eden’s sophistication combined with ease of training and use, and the fact that Alan Adams provided free technical support to all purchasers of Eden, Alan Adams was unable to market the program effectively.

Adams therefore decided in January 1990 to grant an exclusive license to Clarity Corporation to sell Eden. Clarity is a large software vendor which at that time marketed some software of its own creation and some software it acquired from others by purchase or license. The agreement with Clarity Corporation called for Clarity to pay to Adams an annual royalty equal to 10% of the gross revenue (that is, receipt from sales) arising from the sale of copies of Eden. The license agreement was of unlimited duration so long as Clarity made reasonable efforts to market Eden. It was agreed that Adams would continue to work on improvements to Eden and that new versions of Eden (“updates”) would be marketed in the same way as sales of the earlier version, including the royalty arrangements specified for new sales. It was also agreed that Adams would continue to provide free technical support.

In January, 1993, after three years of successful operation, Clarity Corporation decided to alter its strategy and to focus its distribution efforts entirely on software written by its own staff. It assigned to Software Adventures the licensing agreement it had made with Adams. Software Adventures has, as its business, the marketing of licensed software at steeply discounted prices. In many instances, Software Adventures is able to produce more revenue for licensers despite its lower prices because it sells more copies of the software it markets than do other marketing companies. But in the case of Eden, the software written by our client Alan Adams, the size of the market was limited not by the price of the software but by the limited number of potential users. Furthermore, Alan Adams believes Software Adventures is not making a serious effort to sell Eden. It has not advertised the