Contracts LAW 503 ยง1
Final Examination Spring 2004
Professor Kalodner
Question 1
(40 points; Suggested Time: One Hour)
In February 2004, Mr. and Mrs. Rock decided to throw a big party for their twentieth wedding anniversary on April 10, 2004. Their plan was to have the party in a big tent in their backyard. Mr. Rock wanted a live band for the party. Mrs. Rock wanted a DJ (an abbreviation for Disc Jockey: "A person who plays recorded music for public performance"). Just as they were wondering where they could acquire information about bands and DJs, the local newspaper published a supplement on February 15 on planning parties which contained both stories and advertisements about sources of food and entertainment for parties.
They looked through the supplement looking both at party suggestions in general and for stories about and advertisements for bands and DJs. They found one advertisement that interested both of them. The advertisement had been placed by Sarah Saxe. In the advertisement, she called herself Sax Saxe and her advertisement said that she both played records and accompanied many of the records by playing on her saxophone. Her advertisement said "Better sound than just records; More music than just live." Her advertisement also said "Many dates available in May, $50 per hour." The advertisement also included an e-mail address.
The Rocks immediately e-mailed Sarah Saxe stating that they wanted her to perform for three hours at their party on April 10 from 8 to 11 p.m. They also said that they and their friends particularly loved 60s rock and modern jazz and that they believed her saxophone playing would work wonderfully with both. They provided their telephone number and suggested that they should "finalize their agreement" by telephone.
Sarah Saxe called the Rocks and said "I would be happy to perform at your party on that day and at those hours." She also stated that "I am willing to take my three fifteen minute breaks either at the end of each hour or at the end of the evening." The Rocks expressed surprise, saying they thought that three hours meant three hours of playing records. Sarah Saxe said "But I also play live music on my saxophone and therefore take the traditional fifteen minute break each hour that I play. But I am willing to take that break time at the end of the evening if you want uninterrupted music from 8 p.m. to 10:15 p.m." She added "Of course if you want to hire me for four hours, then I could perform from 8 p.m. to 11 p.m. and take my entire hour of rest periods at the end of my uninterrupted performance."
The Rocks said "O.K., four hours at $50 per hour but you play music for three uninterrupted hours." But after some reflection, the Rocks regretted their words. They have now found a band they both like and they don't want a deal with Sarah Saxe at all.
The Rocks have now come to you for your advice about whether they have a contract with Sarah Saxe and, if so, what are its terms?
Question 2
(40 points; Suggested Time: One Hour)
In June 2003, the Live Longer Life Club (LLLC) was in the final stages of a major upgrade of its facilities. Their President, Shirley Strong, decided to purchase from HiTrek, a major manufacturer of advanced technology treadmills (ATT), a model which incorporated a voice operated 17 inch flat screen high-definition TV. Each machine could then be linked by cable to a machine which could play 10 movies simultaneously from a central computer. By a voice command the person using the treadmill could request one of ten movies. The equipment could keep track of how much of the movie had been watched so that an individual could interrupt their watching when they left the treadmill, but resume the movie at that point on their next visit. Each movie would remain available for only one week. Since LLLC members paid by the visit in addition to their monthly membership, LLLC thought that this arrangement might increase the number of visits each of their members made and hence the club's revenue. HiTrek's publicity about this new machine stated that the work was under development and interested parties should contact HiTrek.
On June 2, 2003, Shirley called Nancy Nerd, the President of HiTrek, and discussed with her the purchase of 20 of these ATTs. Nancy said that she would build the 20 treadmills for LLLC for $5,000 per machine, delivery to be made by truck directly to the LLLC facility by September 5, 2003. The central computer installed with software which would deliver movies would cost $10,000. Shirley stated during that conversation that LLLC would purchase both 20 ATTs at $5,000 each and the central computer for $10,000. Shirley followed up this conversation with an e-mail to Nancy in which she said, "Looking forward to receiving the 20 treadmills." There were no other communications between Nancy and Shirley until August 4, 2003.
On August 4, 2003, Nancy called Shirley to tell her that it looked as though she would be unable to deliver the ATTs or the computer by September 5. She explained that their testing had shown that the flat screens were adversely affected by the constant vibration to which they were subject on the treadmill and that they were working on a different mounting system that they believed would prevent damage from vibration. Nancy explained that the work was unlikely to be completed before the end of the year. She also told them that the software for the central computer was being provided by a software authoring house that now said they would not be done their development of the software until November or December. Shirley responded that the advertisements for the opening of LLLC's new facility were already appearing in newspapers, magazines and television and that they had to open the facility on September 6, and they had to have treadmills which would have the functions they were advertising. The advertisements describing the new facility also described "treadmills with individual video." Nancy responded that they would continue to work on the project, but that delivery by September 5 was not possible.
On August 15, 2003, Shirley placed an order with ScreenTread for 10 treadmills which contained built-in conventional television sets. The sets used cathode ray tubes rather than flat screens, the screens were 12 inch screens and the televisions needed to be connected to cable to receive television broadcasts. The cost of each of the treadmills was $3,500. Shirley did not believe that these units would provide the competitive advantage for LLLC that would have been offered by the ATTs, but that this purchase was necessary to moderate the negative impact of opening the new facility without treadmills that had some sort of built-in viewing device since that is what their advertisements had promised.
The facility opened on September 6. Unfortunately, the negative impact on LLLC has been far worse than Shirley had anticipated. She attributes the poor performance of the new facility in large part to the absence of the HiTrek treadmills.
You have gathered some additional facts about the market for the kind of treadmills that were the subject of the contract with HiTrek. You have learned that on August 4, 2003, treadmills that featured flat screens could have been purchased by Shirley for $5,500 each. On August 15, the day she purchased the ScreenTread treadmills, she could have purchased flat screen treadmills for $6,000. By September 5, the market price of such treadmills had risen to $7,000. You have also learned that the central computer to provide services similar to that contracted for was not available on the market from any source other than HiTrek, whose price remains unchanged although they have yet to deliver the computer with software to any buyer.
Shirley would like us to explore what claim she might make against HiTrek. Please consider also what arguments attorneys for HiTrek would make on its behalf.
Question 3
(40 points; Suggested Time: One Hour)
Our client, Jim Builder, President of Master Builder, Inc., a general contractor who specializes in luxury home construction, came to see us yesterday about a problem that has just come up in a $1 million job that he is presently working on. This particular job involves ornamental plaster work and when he circulated a request for subcontractor bids on this part of the job, he was able to identify only two possible subcontractors with the necessary experience and skill to do this job.
Plastering subcontractor A submitted a bid that was $25,000 lower than the bid by plastering subcontractor B. Jim looked at some examples of the work done by each and, although they were both well done, he preferred the work of subcontractor B whose bid was $25,000 higher than that of subcontractor A.
At the point that he was seeking a plastering subcontractor, Jim had already signed a contract with the owner to build the house for $1 million. Since that contract only gave him $150,000 to cover his overhead and profit, spending $25,000 more for plastering represented quite a big percentage of Jim's margin. But he wanted this job to look as near perfect as possible because there were other landowners who would soon be planning construction in the neighborhood in which it was being constructed and he wanted a really attractive example of his work to show off to these potential clients. He therefore went ahead and contracted with subcontractor B to do the ornamental plasterwork in the house. The contract was prepared by subcontractor B and it says that "This contract may be assigned." Jim says that he understood that clause to mean that the rights to receive payment could be assigned and that such clauses are common in the construction industry because they facilitate financing by the subcontractor who can borrow money using an assignment of the contract as security.
Much to his surprise and dismay, he was just informed yesterday by subcontractor B that it was going out of business because the owner had decided to retire to Costa Rico and it has sold all its business to subcontractor A who would, said subcontractor B, do a "wonderful job." When Jim replied saying that he hoped that subcontractor B would do Jim's plastering job before he retired, subcontractor B said "No, this is a done deal. I have already sold my business to subcontractor A, but don't worry about it, he promised me that he would do just as good a job as I would have on the house you are building."
Jim is quite unhappy about the present situation. He has now identified another possible way to get high quality ornamental plastering done, but it involves bringing in subcontractor C from a city 200 miles away. Subcontractor C's price is the same as subcontractor B's price and its work is just as good, but Jim would have to pay for room and board in our city for four plasterers for one month, a cost which Jim estimates as $10,000. Another possibility he has thought about is accepting the notion that the job would be done by subcontractor A, but then he would want it done for the price which subcontractor A originally bid which was $25,000 less than the contract between Jim and subcontractor B. He also wonders whether, if subcontractor A did the job and he was unhappy about its quality, he could sue subcontractor A or, for that matter, subcontractor B?
Please advise Jim about his rights and liabilities to both subcontractor A and subcontractor B. You must explore what choices Jim may have in this situation. Please also provide what responses you would expect from the attorneys for subcontractor A and subcontractor B to the alternative strategies you are exploring on Jim's behalf.