2003 Contracts Sample Answer
by Eric Goldman
The overall performance on this exam was excellent, which I think was a product of three things: good mastery of the rules, good issue-spotting, and good preparation for the exam style. I especially appreciated that so many of you got the message that cutting and pasting notes and lengthy quotations were not helpful to anyone. As a result, this stack of exams was, although large, actually enjoyable to read.
Some stats about the exam. 57 of you typed and 11 of you wrote bluebooks. 31 of you downloaded the exam electronically and 29 of you emailed the exam back. There were 16 As, 5 ABs, 41 Bs and 6 BCs.
Some stats about word counts:
Just a reminder to include your word counts!!! I get very cranky when they are missing, and that can affect your score.
As a newcomer to Wisconsin, this question has special personal meaning to me. Before we accepted Marquette’s offer, I vowed that I would never shovel snow. To me, shoveling snow is one of those truly undesirable life tasks. By definition, it needs to be done when the weather is foul and cold. So I look at the cost of a snowplowing service as just one of the many hidden costs of living in Wisconsin.
(I know the natives are thinking that I should get over it and just go shovel or blow the snow. Sorry, it’s not going to happen).
If you have never hired a snowplow service before, snowplowers are an odd bunch. They all seem to be completely unable to return phone calls, respond to emails or otherwise communicate in a professional manner. Instead, they emerge from the snowy mist at 5 am in the morning, do their thing for 5 minutes, drive off into the white haze, and then send a bill at the end of the year. I think it takes a certain personality type to be a professional snowplower.
After the 2002-03 season, I started to wonder what would happen next season. Our snowplower never contacted us about 2003-04, and I got nervous that their silence would mean that I would actually have to deal with the snow myself. Thus, the question was born.
To answer this question, it is helpful (as many of you did) to first characterize the 2003-04 relationship.
Interpretation #1 [bilateral contract]: Jill made a verbal offer on 9/1/03. Mike verbally accepted with a mirror image acceptance on 9/1/03. There is a mutual exchange of consideration (promise to plow and promise to pay).
Interpretation #2 [unilateral contract]: Jill made a price quote on 9/1/03 that did not manifest assent. Mike makes a unilateral offer to pay each time Jill plows. Jill accepts the unilateral offer every time she comes.
Personally, I favor Interpretation #1, as I think the most natural interpretation of Jill’s statement in context is that she intended to manifest assent. While the specific wording of Jill’s statement (“$20 every time I plow”) is not an express promise to plow, I think the promise can be inferred from the context.
However, we have incomplete terms, specifically the duration of the contract. Is the contract for one visit? One season? Perpetually? Until one party gives a termination notice? We have a few other missing terms, including the standards for how much snow is required to trigger a visit and the timing of payment obligations.
We might conclude that, under the Restatements, these omissions could be fatal to the contract. Restatements Sec. 33. As we discussed in class, the Restatements are less tolerant of missing terms than the UCC. However, we should conclude that some contract formed in light of the parties’ actions during the 2003-04 season (Jill plowed and Mike paid). Restatements Sec. 34.
Does Mike Owe for 2004-05?
At this point, we run squarely into the Statute of Frauds (SOF). Restatements Sec. 130 says that promises that cannot be fully performed within 1 year renders the promises unenforceable until they are fully performed. Here, under Interpretation #1, we are trying to stretch the promises into a second year, so the SOF could limit enforceability.
However, the SOF only applies when the promises can’t be fully performed in a year, so a court may supply a contract term that would have permitted performance in a year. For example, if the court says the contract continues until cancelled, the contract can be performed within a year (a party could cancel within the year). (Also, although I don’t think we discussed it in class, Restatements Sec. 130(2) could also apply to this situation).
Based on this discussion of the SOF, let’s consider the different ways to interpret the 2004-05 season:
Option #1. The court finds a bilateral contract from 9/1/03 and supplies a duration that makes the contract unenforceable under the SOF. Restatements Sec. 139 could still make the contract enforceable to avoid injustice, in which case Mike is obligated to pay the contract price. Otherwise, the SOF will excuse Mike’s performance to pay, and Jill is SOL.
Option #2. The court finds a bilateral contract from 9/1/03 and supplies a term that continues the contract into 2004-05 but doesn’t violate the SOF (such as a term that the contract continues until cancelled). Jill will recover under the contract.
Option #3. The court finds a bilateral contract from 9/1/03 and supplies a term that ends the contract prior to 2004-05 and the court does not find any new contracts for 2004-05. In this option, Jill can recover, if at all, under non-contract theories.
Option #3a: Jill recovers using restitution as a cause of action.
Option #3b: Jill recovers based on promissory estoppel.
Option #3c: Jill recovers nothing.
Option #4. The court finds a unilateral contract from 9/1/03. In this case, the offer continues until revoked or it lapses. In these cases, Jill forms new contracts each time she accepts (by visiting) and can collect under the contract.
Option #5. The court finds that any contract from 2003-04 does not extend to 2004-05 but a new contract was formed for 2004-05. The most natural way to form a new contract for 2004-05 would be under Restatements Sec. 69. Normally silence does not constitute acceptance, but it can provide a bail-out in “standing offer” type situations like this. This option seems especially attractive because Mike had all winter to object to her performance but never did so. If the court chooses this option, Jill can collect under the contract.
As we can see, the consequences depend on which of these options prevail. Personally, I think the court is likely to find a contract here (rather than striking down any contract remedy or relying on a non-contract remedy). I think that many courts would accept that, when a homeowner hires a personal service provider, both parties expect the relationship to be ongoing unless otherwise stated. If so, Option #2 seems especially attractive.
If Mike breached a contract, Jill can seek her expectation damages and get the benefits that would have accrued as if the contract had been fully performed (i.e., full contract payment), plus any appropriately-awarded consequential damages. Jill could forego the contract price and seek reliance damages, but I have a hard time thinking of situations where this would be superior to expectation damages.
If the court awards restitution (either because Jill seeks that damage calculation or based on quasi-contract), Jill should get the value of the benefit conferred on Mike. This will be measured by market value, not the contract price, so Jill may get more or less than the contract price.
What if Jill Doesn’t Show?
For Mike to have any remedies, we first need to find that the contract continues into 2004-05 without violating the SOF. Of the above options, only Option #2 does so. All other options leave Mike remediless. While I liked Option #2 for the first bullet point, Jill’s lack of performance in the second year makes Option #3 more compelling to me.
Even if the court finds Option #2, the court must further supply a term defining when Jill had the obligation to visit and breached that obligation. While it seems reasonable for the court to supply a term that requires performance for a “major” snowstorm, the lack of a specific term leaves this open to different judicial interpretations.
If the court finds that Jill breached a contract, Mike can sue for expectation damages, which should be the difference between what Mike would have paid Jill and what Mike actually pays someone else. Note that if Mike pays someone else less than $20, he should have no expectation damages. Mike can also get any consequential damages depending on the parties’ communications, which could be significant in this case: lost opportunities from being trapped in his house, lost vacation time, potentially personal injuries suffered by Mike trying to remove the snow himself or by someone who slips and falls on the snow. Presumably, Mike would have a duty to mitigate some or all of those damages (such as by calling an alternative plower promptly, by rescheduling appointments he was going to miss, or maybe by salting the sidewalks). Alternatively, Mike could try to get reliance damages, but I can’t think of any good reliance damages. I can’t think of any restitution damages here.
Mike could also want specific performance, but this should not be available for personal services contracts. Plus, Mike won’t get specific performance on a timely basis (he’s going to have a tough time making the court hearing if he’s snowed in!), so that option has no real value. I don’t think a negative injunction will be available prohibiting Jill from performing snowplowing for others unless the court finds an exclusive arrangement.
As a practical consequence, Mike may end up with no effective remedies for Jill’s breach.
Can Jill Increase Her Prices Unilaterally?
We now have had mutual performance for 2 consecutive years, so clearly some contract exists. At this point, I think Options #1 and 3 have effectively gone away. If the court finds Option #4, Jill is the offeree and any attempt to change the terms becomes a counteroffer that requires acceptance. The facts don’t give us any evidence that Mike accepted the counteroffer.
Under Option #2, consideration is not a problem because either party can cancel, and the ability to cancel should give consideration for the willingness to continue. Further, Restatements Sec. 89 (because under this option the contract is ongoing indefinitely, it can still be considered partially executory) moots the need for consideration in a couple of possible scenarios, including if circumstances have changed or if injustice requires. But like Option #4, we are missing any assent to the new term, and I think that’s fatal to the price increase.
Unlike Options #2 and 4, Option #5 provides more wiggle room for Jill to get the increase. Here, we are taking the position that a new contract is formed for 2005-06, in which case the court will supply the missing terms. Would the court be willing to supply the higher price term? This could go either way. The court is creating an implied-in-fact contract, so the court could choose the then-prevailing price Jill charges even if Mike never specifically agreed to that price.
Further, if Jill bails on the contract and tries to sue for restitution as a cause of action, she should get the market value, which could be $20, $24 or something else altogether.
Comments on Student Answers
I was looking for thoughtful analysis about the different approaches to structuring contracts and the overlay of the SOF on those approaches. A top answer had good coverage of the various options and a good organization of the material. If you only talked about one way to structure the contract but did so well, you invariably were destined for a B. If you omitted any discussion of the SOF (which about 1/3 of you did), that tended to cap your upside (i.e., made it hard to reach an honors grade).
A couple of points to reinforce. SOF renders unperformed promises unenforceable, not void. Also, a number of you referred to Mike’s need to reject services to avoid Restatements Sec. 69 or the quasi-contract theories as a “duty to mitigate,” but that’s an incorrect usage of the term. A number of you mentioned parol evidence, but parol evidence only applies to written agreements.
Finally, although this issue arose throughout the exam, I’ll mention it here. Be very careful about relying on materials not discussed in class. I only expect you to answer the questions using principles we covered in class, so bringing in concepts and principles from elsewhere can make me wonder what class you were in.
In 2001, I bought a new car and I was desperate to get rid of my 12 year old “college car.” I didn’t have a lot of time and the car wasn’t worth very much money, so I wanted to sell it with minimum hassle. California law required me to give the buyer a valid smog certificate but I didn’t want to spend the time dealing with that. I found a buyer, told him to take care of it and reduced the price accordingly. Being the anal law professor type, I drafted a brief but draconian bill of sale, which he signed without negotiation. He then discovered the muffler was busted and spent $150 to fix it. He was not happy. If you’re wondering how the story ended, I felt pretty bad for him so I rebated him the money despite my draconian contract. But what rights did the buyer have?
Let’s start with the perfect tender rule (2-601): “…[I[f the goods … fail in any respect to conform to the contract, the buyer may (a) reject the whole…” In order to analyze this clause, we’d need to see the entire contract to know if there’s any non-conformances. At minimum, I believe many courts would try to imply a term that the buyer can obtain title, but non-conformances may be easier to find based on express terms.
Based on the perfect tender rule, the buyer can reject the car unless he has already accepted (or properly waived the right to acceptance in the contract). While the facts imply that the buyer has taken possession of the car, which one might interpret as acceptance (see 2-606), I think the buyer could argue that the buyer has not accepted until the buyer has obtained the smog certificate. If the buyer has accepted, the buyer may be able to revoke acceptance under 2-608. However, under (1)(a), the seller never promised to cure, and under (1)(b), we would have to decide whether or not the muffler problem was easy to discover prior to acceptance. Personally, I think many courts would find that acceptance has not been given until the smog certificate has issued, so I think the buyer can reject.
Upon rejection, the contract should unwind, and the buyer should be able to return the car and get his money back.
In theory, the buyer should also be able to get remedies under any express and implied warranties. However, I think the “as is” disclaimer should wipe away all warranties. See the Schneider case. Note also that the merchantability warranty does not attach because the seller is not a merchant.
In addition to rejecting the car under the perfect tender rule, there are at least three bases under the Restatements (which we’ll use for these purposes even those the UCC generally applies to the sale of goods) on which a buyer could try to rescind the contract, give the car back and get his money back. Unfortunately, none of them look attractive.
- misrepresentation. The buyer could claim that the seller made a fraudulent or material misrepresentation. However, the facts do not provide any evidence of such statements, and the imposition of the duty on the buyer plus the “as is” clause seems pretty strongly to push the burden to the buyer.
- mutual mistake. We might find a mutual mistake about the condition of the muffler or the availability of the smog certificate, but I think the real basic assumption is that the car’s title is freely transferable. However, assuming a mutual mistake occurred, the buyer bears the risk due to the “as is” clause.
- unilateral mistake. Alternatively, we could argue that the buyer made a mistake about the muffler, the smog certificate or the ability to transfer title and the seller had some duty to disclose information to avoid that mistake. The facts don’t offer any support for this differential knowledge, and the buyer does bear the risk due to the “as is” clause.
Finally, the buyer might have some recourse due to public policy. Because we have a statute requiring a seller’s performance and the seller tried to sidestep this responsibility, we may find that the responsibility-shifting clause is unenforceable under Restatements Sec. 178. Certainly this argument seems attractive if we think of the statute as a consumer protection law. If the responsibility-shifting clause is unenforceable, then the seller has to comply with the statute, meaning the seller must procure the certificate. In practice, I think this would result in the seller having to pay the costs of repairing the car and getting the certificate but the agreement would otherwise remain in place, meaning the buyer ends up with the car.
Comments on Student Answers
Maybe 1/3 of you discussed the perfect tender rule, and usually this boosted your score on this question. Some of those answers then said the “as is” clause waived the perfect tender rule, which is incorrect.
Some of you waxed philosophic on the warranties issue, but there’s not much to say because of the “as is” clause. Those of you who believed that the “as is” clause didn’t trump the implied warranties usually were penalized. Some of you said the opportunity to inspect the car is a precondition to waiving the warranties, based on 2-316(3)(b), but I think 2-316(3)(a) trumps that statement.
A number of you tried to treat the obligation to deliver a smog certificate as a constructive condition. This thinking is OK but where does it get you? If the buyer hasn’t paid the money yet and the smog certificate is made a condition precedent of payment, then this moves the ball forward. The facts imply that the buyer has already paid but if you assumed otherwise, that was OK too.
Otherwise, a party cannot “breach” a condition. The occurrence of a condition is a precursor to a party’s obligation to perform; if the condition never occurs, the party is not obligated to perform the associated duty. Thus, the failure to satisfy a condition precedent is not a breach; it just excuses the other party’s performance.
Finally, some of you tried to find a breach of the duty to perform in good faith as a substitute for or supplement to the misrepresentation claim. These assertions were confusing to me. First, I think this is an overreading of 1-203, which applies to performance or enforcement. Second, I think the misrepresentation doctrine, by covering both innocent and fraudulent misrepresentations, already implicitly addresses good faith.
Congratulations! I believe this question marked a rite of passage for many of you on your journey to becoming a lawyer. If I had asked you on August 15, 2003 what grocery store you considered to be your “primary grocery store,” I bet most or all of you could have answered it unhesitatingly. Now, 4 months later, all of you found these words fatally ambiguous. Let me restate: I believe the ordinary lay person should have no problem answering this question, but you, as a junior lawyer-in-training, now can’t answer it. This is an important step in your journey, even if it’s one you ultimately are not proud of.
I couldn’t find the exact contract provision, but this language is a paraphrase of language from the Outpost’s member agreement that Lisa signed when we joined. (We joined when we first moved here but we have since let the membership lapse). I liked the language because it is aspirational in nature and so obviously remediless from a legal standpoint.
What Law Applies?
The UCC applies to the sale of groceries, so ordinarily an agreement regarding the purchase of groceries should be squarely within the UCC. However, a co-op membership may involves other benefits, such as a newsletter, discounts to classes, the right to vote for co-op leadership, etc. On a standalone basis, some or all of these other benefits would be covered by the Restatements instead of the UCC.
To determine what law applies to this contract, a court might sever the membership services from the groceries purchase and govern that contract by the Restatements. More likely, the court will do an analysis similar to that in the Hooker case, where the court looked at the nature of the contract and the subject of the dispute. In this situation, the provision we’re looking at directly relates to the purchase of goods, so I think the UCC applies. However, I think the Restatement’s approach to discerning intent is more helpful, so I’ll look to that as well.
What Do the Words Mean?
The problematic language is “primary grocery store.” Let’s start with Restatements Sec. 201. Subsection (1) says that if both parties have the same meaning for this phrase, then that meaning prevails. So our first question to Kelly is if she and the co-op have the same meaning, and if her answer is yes, that is dispositive.
Subsection (2) permits a party’s meaning to trump the other’s when a party doesn’t know of the conflicting definitions and the other party does or should. We don’t have any evidence to support this and it seems unlikely that such a discussion would take place.
So where do we go? A court will first look at the four corners of the document. If that’s not helpful enough, a court will consider parol evidence to try to provide some insight. Restatements Sec. 202(3)(a).
Let’s start by trying to discern the general meaning of the words. Dictionary.com defines “primary” as “first or highest in rank, quality, or importance; principal” and “grocery store” as “store where groceries are sold.” Unfortunately, neither of these definitions are all that helpful. How do we measure primary? By the dollar spent? Number of visits? Amount of time spent in the store? By the subjective intent of the shopper? (i.e., when asked, the shopper thinks of and says a store is the primary one). And how do we measure rank? By a majority? Supermajority? Plurality? Some of you argued that the language could mean that Kelly must shop at the co-op unless the co-op didn’t have a particular item.
The definition of grocery store is even less helpful. Are groceries just food? If so, virtually every business sells food. And most grocery stores sell other goods, including cleaning supplies, pharmacy items, housewares and media items. Looking at this expanded set of goods, virtually every retailer could qualify as a grocery.
Other parol evidence the court might consider includes trade usage (i.e., industry standards), course of performance and course of dealing.
In the end, like the Peerless case, it is possible that no acceptable definition can be supplied to the words and the words are fatally ambiguous. In that case, the words could be struck, or the entire agreement could be voided. However, a court might supply a narrowing construction (like the dress case) or just pick one definition from many (like the chicken case).
If the court discerns a meaning, then Kelly will be bound to that meaning, and shopping at the co-op less than that will be a breach. In addition, she will need to perform in good faith, which could put some limits on her ability to change her shopping patterns to avoid the language. For example, if the court says primary means plurality, good faith may preclude Kelly from manipulating her purchases so that the co-op is first but she has spread the wealth around so much that the co-op is getting trivial business. Or a court might find a good faith breach if Kelly suddenly starts eating out to avoid shopping at the co-op, or having her roommate do the shopping for Kelly.
If Kelly breaches the provision, the co-op could terminate the membership agreement if the breach is “material.” This breach may or may not be material depending on the overall scope of the contract. Note that termination should end the membership contract and any benefits Kelly got under it, but it should not preclude her from shopping there (unless membership is required to shop there at all).
The co-op could also seek damages. The co-op would likely seek its expectation damages, which is the profit it would have made if Kelly had shopped at the co-op in accordance with the meaning of the clause instead of whatever she did. While this number could be speculative, a court might be willing to compute it if Kelly’s shopping habits are relatively predictable. The co-op would not have any duties to mitigate damages based on the lost volume doctrine. The co-op might also be eligible for consequential damages, although I’m not sure what these might be. Maybe damages the co-op owes to third party suppliers if the co-op agreed to minimum purchases of items and didn’t reach the minimums because Kelly’s not shopping there enough? I would be surprised if these types of damages were foreseeable, communicated and not speculative.
Alternatively, the co-op could seek reliance damages, such as extra purchases it made predicated on Kelly’s shopping. Or the co-op could seek restitution if it conferred benefits on Kelly, such as some membership goodie or sign-up bonus. Some of you discussed liquidated damages, but there were no facts to support any discussion about those.
Equitable relief would be available only if money damages are inadequate. If the co-op can get its expectation interest, then I think money damages are adequate. If they can’t, the co-op could seek specific performance forcing Kelly to shop at the grocery store to the level determined by the court’s interpretation of primary. This is not as wacky as it sounds; specific performance could be available in requirements contracts where money damages aren’t adequate, so why not here? Some of you felt that this was a personal services contract, but I don’t think so. We’re dealing with UCC purchases of goods and forcing her to make the purchases at the co-op instead of somewhere else (or instead of skipping shopping at all).
In theory this clause might also support a negative injunction, but I’m not sure how to craft the injunction. Ultimately, Kelly needs to eat.
While the remedies sound tough, there are two practical limitations to their availability. First, the co-op will have little practical way to determine that Kelly has breached. Perhaps they can watch her shopping patterns and make inquiries if they go down over time, but if she never complies with the provision in the first place, this monitoring will be uninsightful. Otherwise, how will the co-op know where Kelly is shopping?
Second, the co-op’s enforcement of the agreement will require them to sue a customer. While this might work against Kelly in the short run, in the long run the co-op will likely lose Kelly as a long-term customer and will likely scare away other customers. On balance, the co-op is likely to find that enforcement is not worth it.
I think a clause like this illustrates why it’s all about the remedies. From a legal standpoint, I don’t think this clause has effective remedies. So why is it in the contract at all? Arguably the provision is merely aspirational, an expression of what the co-op hopes will happen. And maybe some members will reach for that aspiration, but probably not because of the contract provision (assuming the member even read it). Instead, this may be a great example of a situation where the co-op can better achieve this objective through carrots rather than sticks. If the membership program’s benefits, or the co-op’s overall products and pricing, motivates members to make the co-op their primary grocery store, the members will do so. If not, the contract won’t change that.