Question I
(30 of 130 points; Suggested Time: 45 minutes)
Our client, Harold Homeowner, was experiencing regular flooding of his basement each Spring. Acting on the belief that the water was coming through the walls of his basement, he began thinking about doing something to rid himself of this problem. And then on Sunday, April 14, 1996, he read an advertisement in the local Springfield newspaper which looked like this:
WET BASEMENT? We get our feet wet so your feet can stay dry. $125. Write PO 100.
The next day, April 15 1996, Harold wrote and
signed a letter addressed to PO 100 stating:
ÒMy basement floods every Spring. Please come and fix it.Ó
On April 29, 1996, Harold received in the mail a letter written on the letterhead of Dry Basement, Inc. The letter stated:
ÒWe will be at your house on May 1, 1996, to apply our waterproof paint to your basement walls. Our technicians will expect payment by cash or certified check.Ó
On April 30, the day after Harold received this letter, HaroldÕs friend Adam stopped over for a visit and took a look at HaroldÕs basement. Adam had considerable experience in construction before going to law school. Adam, after a careful inspection of the basement, told Harold that the water was not, in fact, coming through the walls but was coming through the floor. Adam told Harold that the paint would be quite useless against water rising through the floor.
At 8 a.m. on May 1, technicians from Dry Basement, Inc. arrived at HaroldÕs house. Harold responded to the door bell by shouting through the front door that he didnÕt want their services and they should leave at once.
Dry Basement, Inc. has now sent a letter to Harold stating that unless he promptly pays them the sum of $125, they will sue him for the $125 in a court of competent jurisdiction. Please analyze HaroldÕs legal situation. Your discussion should include the arguments we should make on HaroldÕs behalf and the arguments we should anticipate hearing from Dry Basement, Inc.Õs attorneys.
Question II
(50 of 130 points; Suggested Time: 75 minutes)
Our client Cables, Inc. entered into a written contract sixteen months ago (January 1994)with NYNEX, a company supplying telephone service in the New England area. Under the terms of that contract, NYNEX was to purchase its requirements of copper telephone cable from Cables, Inc. for a period of five years. The requirements contract included an estimate that NYNEX would be purchasing 25 spools per month. The contract recited that the price of the cable would be set by the parties each quarter (that is, at the beginning of January, April, July and October). Finally, the contract contained a clause which stated that the written contract represented the exclusive and final agreement of the parties with respect to the purchase and sale of telephone cable.
For the first year, the contract was performed by both companies without controversy. At the beginning of each quarter, Cables, Inc. suggested the price for that quarter. In each instance, NYNEX agreed with CablesÕ suggested price. Over the course of the year, the contract price for the telephone cable rose by 3%. NYNEX ordered between 20 and 30 spools each month during the year.
On April 1, 1996, Cables suggested an increase of 1% above the price set for the previous quarter. NYNEX rejected the price. Cables, Inc. responded that it would only ship if NYNEX agreed to this price increase, pointing out that the price of copper was increasing at twice the rate of inflation and that its proposed increase meant that Cables, Inc. would do little more than break even on a sale of cable at this price. NYNEX responded that it would not agree to pay the higher price and therefore would not order any telephone cable from Cables, Inc. for the quarter.
Attorneys for NYNEX have informed us that it is their contention that during the negotiation between NYNEX and Cables, Inc. it had been agreed that in the event that the parties did not agree on the price of the copper telephone cable for a particular quarter, that there was no obligation on the part of NYNEX to purchase any cable for that quarter. Therefore, they argue, they were neither required to buy nor was Cables, Inc. required to ship copper telephone cable under the contract for the three months beginning April 1. Cables, Inc. has denied that such an agreement was reached. It was Cables understanding during the negotiations that if the parties did not agree on a price for the quarter, the price was to be set in accordance with the quarterly increase or decrease in the government index that measures commodity prices. They point out that that index justified a 1% increase.
Our clientÕs problems with this NYNEX contract may be growing even more troublesome. At the end of March, rumors in the market place had made it clear that NYNEX was about to be merged with Bell Atlantic, a regional telephone company doing business in the mid-Atlantic states. While the merger will result in a new company, our client believes that in fact the entity which will control both businesses in the aftermath of the merger will be Bell Atlantic. As a company policy, Bell Atlantic is no longer purchasing or installing copper telephone cable. All cable being purchased and installed by Bell Atlantic is fiber optic, not copper. Our client understands that all rights and liabilities of each company will be assigned to the new company.
Cables, Inc. is concerned that NYNEXÕs position with respect to the April 1 price increase is, in fact, just the first effort to terminate NYNEXÕs contractual obligation to purchase copper cable from Cables, Inc. Cables believes that NYNEX is taking this position to rid itself of an obligation that would be regarded as a liability by Bell Atlantic since that company is now buying no copper cable.
Please analyze for Cables, Inc.:
(1) the April price increase and subsequent refusal of NYNEX to order cable and
(2) the merger which will create a new company that will not be willing to purchase copper telephone cable.
In considering Cables, Inc.Õs arguments, please anticipate the responses we will receive from attorneys for NYNEX and the company emerging after the NYNEX/Bell Atlantic merger.
Question
III
(50 of 130 points; Suggested Time: 75 minutes)
Our client, Olympic Pools, Inc., was invited by the City of Springfield to bid on the construction and maintenance for ten years of a new pool in Forest Park. Olympic was a contractor specializing in the construction of swimming pools. Generally, Olympic did not become involved with the maintenance of the pools after construction, but Olympic wanted this contract even though it included maintenance. Olympic was unaccustomed to subcontracting its work, but the maintenance aspect of this job was not within any expertise at Olympic Pools, Inc. Olympic therefore sent to a number of companies in the business of pool maintenance a request for bids on that aspect of the City of Springfield project requiring maintenance.
Within a few days after circulating that request for bids, Olympic Pools, Inc. received a telephone call from Clean Pools, Inc. The President of Clean Pools, Inc. stated that Clean Pools would undertake the maintenance of the pool as a subcontractor of Olympic Pools, Inc. for the required ten year period for $25,000 per year. Olympic received several other bids on the telephone or by fax or mail, but the nearest other bid was $37,500 per year, 50% higher than Clean PoolÕs bid. Olympic Pools, Inc., then submitted its bid to the City of Springfield. In accordance with the bid request, OlympicÕs bid contained one price. That price incorporated the price that Clean Pools had submitted to it as an addition to its own price for construction of the pool.
Two weeks later, Olympic Pools was notified by the City of Springfield that its bid had been accepted by the City and that a formal signing of a contract was to take place the next morning. Olympic then wrote a letter to Clean Pools informing Clean Pools that Olympic had been awarded the contract and stating that Olympic would like to arrange a formal contract signing with Clean Pools as soon as possible. Within hours of mailing that letter to
Clean Pools, Olympic received a telephone call from the President of Crystal Pools, another company in the business of swimming pool maintenance. Crystal Pools had not originally submitted to Olympic Pools a bid for the maintenance of the pool. The President of Crystal Pools stated in that telephone conversation that she had heard Olympic had won the bid for construction and maintenance of the swimming pool and stated that Crystal Pools was willing to do the maintenance for $20,000 per year.
Olympic Pools then called Clean Pools and left a message on its answering machine that Olympic Pools had decided not to contract with Clean Pools for maintenance of the City pool. Unfortunately, when Olympic Pools sought to arrange for a contract signing with Crystal Pools, Crystal Pools declined to sign a contract to maintain the pool for $20,000 per year, stating that Crystal Pools now realized that its bid had omitted the cost of chemicals required to meet the CityÕs maintenance specifications. Crystal Pools stated it remained willing to contract for maintenance, but for not less than $30,000 per year.
Neither Clean Pools nor Crystal Pools is now willing to sign a contract with Olympic for the maintenance of the new pool. Please advise our client Olympic Pools, Inc. about its legal relationship, if any, to Clean Pools and to Crystal Pools. Assuming that Olympic can prevail, how will damages be measured? It is important that you characterize the legal relationship among the parties at each stage of the transaction.