Final Examination (Model Answers) Contracts I-Section 5 Autumn Professor Radin

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1 Final Examination (Model Answers) Contracts I-Section 5 Autumn 2002 Professor Radin Please note that these are student answers written under exam conditions, so do not take everything they say as gospel. Two of them are first-rate answers which were at the top of the class, and one of them was below the middle, but definitely passing. Question 1: Part A: To determine whether or not Aldine (A) has a claim against Benson (B), one must first consider whether there was a contract between the two parties. A called B and requested that B put on its holiday party for the seventh year in a row, for the same price of $50,000. B responded, Sure, you can count on us. There was sufficient consideration to make this a contract: B agreed to provide a service for B, in putting on the party, and A agreed to pay B for its services. One may view A s phone call as an offer, and B s response as an acceptance. Although the terms of the contract were not clearly delineated at this point, one may argue that B knew what A expected (Russian caviar and a famous quartet) from having put on the party year after year. As this case deals with a provision of services, the UCC does not govern. Also, since the contract was to be completed within a year and involved services, not a sale of goods, one may argue that the statute of frauds did not govern. Also, even if one were to argue that the statute of frauds does apply because A and B exchanged more than $500 worth of goods, the parties admit that there was a contract, and thus are barred from using the statute of frauds to get out of it. Given that there was a contract, one must next determine whether B breached that contract when it (1) changed the price of the party from $50,000 to $77,000 and (2) provided paper plates, plastic glasses, salami, cheese, and a high school jazz band instead of china, crystal, caviar, and the famous string quartet. With regard to the first issue, B will likely claim that the contract was modified when B dealt with unforeseen circumstances and that A should be held to the new price, forcing A to pay B the $77,000 instead of the $50,000. B may argue that it could not have foreseen Carol (C), its operations manager, leaving and that dealing with such a circumstance is was not something covered by the contract. However, the doctrine of unforeseen circumstances requires that a party s performance of a contract become impractical through no fault of his own and that the circumstance that made the contract less valuable was not a risk the party assumed in making the contract. Loss of profit alone is not a sufficient justification for impraciticability (Karl Wendt).A would likely counter that B s financial position was its own fault and that it was a risk that B assumed under the contract. B might also claim that A assented to the new price when it went forward with the contract. However, like the Kelsey-Hayes case, A maintained that it paid under protest and thus is in a good position to object to the changed price. A s arguments will likely be more persuasive than A s, and thus A will likely only have to pay B $50,000, not the full $77,000. To determine whether or not B breached when it used a subcontractor and supplied sub par services, one must consider the terms of the contract between the parties. There was no explicit written contract; rather, the parties entered into an oral contract whereby B agreed to provide the same product it did the year before. B may argue that terms of the contract were not specified and thus that B cannot be held liable for not living up to A s expectations. However, in light of the fact that B has done the party for the last six years, A may successfully argued that 1

2 the terms were implied and that B should have known what was expected of it. As such, A may argue that providing paper plates, plastic glasses, salami, cheese, and a high school jazz band instead of china, crystal, caviar, and the famous string quartet was a material breach of the contract. If a court were to find the terms implied, then it would likely agree. One must next consider the damages that A may levy on B. First, A will argue that B owes it money for the difference in market value between the services that B was hired to provide and the services that it actually did provide. These damages were caused by B s breach of the contract and are foreseeable. As such, a court will likely hold A to them. A also wants to hold B responsible for the debacle that the party caused to its reputation and the loss of its clients, who brought in $1.7 million. B, in having worked with A for the past six years, knew that A s reputation was built on this party and that the party arguably kept A within the business elite. A may argue that B s terrible party caused serious damage to its reputation and caused it to lose its top clients. Although A does not know for sure that the client s left because of the party, A may reasonably infer it from the fact that they would not give a reason other than that it was time to move on. If a court finds that the party did cause the clients to leave, B may be held responsible for the resulting damages. However, one must also consider mitigation of damages. B may argue that A could have done something to mitigate the damages maybe sending the clients a nice fruit basket or having a dinner party; A may counter that the damages were not mitigable and that A did everything that it could. If B fails on both causation and mitigation, it could still argue that the damages were unforeseeable. A may argue that B should have known, from having done the parties for the last six years, that serious damage could result from throwing a bad party. B may counter by saying that it had no way of knowing that the clients would leave as a result of the party or that the clients were worth $1.7 million, since it did not have access to A s books. It may also claim that damage to A s reputation is speculative and hard to manage. In weighing all of these factors, a court may likely hold B responsible for a portion of the damages resulting from A s losing the clients and the damage to A s reputation, but not for all of it because of causation, mitigation, and foreseeability limits. A is refusing to pay B any money for the services it received and B wishes to recover. From the analysis above, it is clear that there was a contract between the parties. B may argue that A breached when it refused to pay A for damages. A must argue for expectation damages since restitution damages are not available the only thing left for A to do is pay B. Everything else has been taken care of. Given the analysis above, B likely does not have case to force A to pay the $77,000 for the party, but it may be able to require A to pay for the $50,000 of services it received. In all likelihood, a court would consider B s breach in providing an inferior product and only hold A responsible for paying B for the value of the products it actually received, not the value of the contract. Part B: One must first consider whether there is a contract between Expert (E) and Benson (B). The parties agreed that E would throw a high-end party for B for $65,000. The parties agreed to the contract orally and then supplemented it with a written confirmation, which B sent to E. The confirmation contained a warranty clause not in the original oral contract. E received the confirmation but did not read it. The contract did not contain any definite terms about the party. One may argue that there was a contract between the parties regardless of the specificity of the terms because there was consideration on both sides E would throw a party for B and B would pay E. 2

3 While there may be a contract on the basis of consideration, one may also argue that there was no contract because there was no meeting of the minds under Restatement 201. E may argue that the parties attached different meanings to the term high end. B did not explain what it meant by the term to E, and E did not clarify its understanding of the term to B. However, E should have known that E likely had a different understanding of the term than it did because it knew going in that E had had little experience working with high end parties and that E did not specialize in the advertising industry. As such, E may argue under Restatement 201 either that its understanding of the term high end governed because B should have known what it meant, or that there was no contract, period, because the parties attached different meanings to the term. B may counter by arguing that the warranty clause it inserted in the contract held E to its standards and that E should have been required to provide services as B wished. However, this argument will not likely be successful because the warranty did not serve to clear up any of the ambiguities in the initial contract. The fact that E did not read it is irrelevant had E read the warranty, it still would not have known what B wanted. E would not likely be liable for damages based on the warranty. If a court were to have found that the warranty provision governed, E would be responsible only for the difference in price in the services he provided and the services that the warranty provision demanded. He could not be held responsible for B s losses for losing the contract with A or any of A s losses for which B was held responsible. E, as a contractor, had no idea about the amount of money riding on the party of the importance of the party s reputation. As such, damages will likely be limited by foreseeability. If a court found that E s understanding of high end governed, it must consider whether or not E breached that contract when it provided paper plates and salami. B may argue that even with E s limited understanding of high end, it should have known that salami and paper plates do not satisfy such a definition; however, if that was in fact E s interpretation, B does not have much of a case because it knew that E would not have known. Under these circumstances, a court would not likely find material breach, meaning that B would not be entitled to damages. Under this circumstance, B would have to pay E expectation damages the value of its services. If the court found no contract to begin with because the parties had different meanings of the term high end, E would not be liable for contractual damages. Even if a court found no contract, E would be entitled to recover in quantum meruit for the services it provided for p to prevent unjust enrichment. Part C: Benson (B) wishes to collect damages from Carol (C) to recoup the losses that resulted from the Aldine (A) party. First, one must determine whether a contract existed between the two parties. In this case, it is rather clear cut B and C had an employment contract through December There was adequate consideration for the contract under either benefit/detriment theory or bargained for exchange theory; C performed her duties as C s operations direct and B paid her. There was also a clear-cut breach in this case as well. C walked out on B and refused to complete her contract with B in December of 2002, when her contract extended until December Damages in this case, however, are less clear. B wishes to hold C responsible for the damages that resulted from the A party. B wishes to recover for any profit it lost in having to contract out the work for the A party, the cost it may have to incur as a result of the increased price in champagne, and the loss of the A account. In considering the monetary damages, one must consider three limiting factors of damages: causation, mitigation, and foreseeability. The 3

4 breaching party cannot be held responsible for damages that the breach did not cause, damages that B could have mitigated, nor damages that were not foreseeable. The damages B incurred as a result of having to contract out for the party will survive the limitations mentioned above. C s leaving B forced B to contract out for the party. B did what it could to mitigate, asking two companies to bid and choosing the less expensive of the two. One may also argue that the damages here were foreseeable B agreed to do A s party on November 1, C, as B s operations manager and the person in charge of the party, should have known that the party was taking place December 20, C should have known that waking out on December 11, essentially a week before the party, would have left B in a bind and required it find another person or another way to get the party taken care of. C may argue that B did not have to outsource the party but rather that B could have handled the party from inside; however, B will likely counter by saying that everyone else in the company had jobs to do it needed to hire outside of the organization to get the party taken care of. As such, a court will likely hold C responsible for damages resulting from B having to outsource the project. B will likely not be able to make C pay for loss in profit due to George s (G) increased champagne price. Although C knew that B would likely have to go outside the company to put on the party, C could not have known that the company hired would take a bid from a champagne provider and that the provider would have made an error, requiring B to pay for champagne. There is a foreseeability limit on these damages. Lastly, B wants to hold C responsible for the losses that resulted from the party turning into a complete debacle, particularly for the loss of the A account. One must first consider causation. While it is true that C s resignation forced B to hire a contractor to complete the party, C s resignation did not necessary cause B to hire an incompetent contractor. B may argue that it had no choice on such short notice, and that the company it hired was all it could get. In this case, B may successfully argue that C s quitting forced it to hire the incompetent contract, which led to the horrible party. Also, C may argue that B had a duty to mitigate by hiring a competent caterer; however, the same argument with which B may counter C s causation argument applies B was under severe time pressure in having to put on a high end party in 9 days and could not mitigate. However, C may argue that while B did not have the opportunity to hire a better contractor, it could have mitigated the situation to some degree by telling the caterer what it wanted from the party rather than simply asking for a high end party, requiring the caterer to rely on trade magazines to determine what was appropriate for the party. Also, while C may have known that her quitting would have put B into a bind, she could not have known that the party would turn into the debacle that it did. B may respond that C put on these parties for the past six years and as such, knew how much work went into them, mainly that they could not be completed in 9 days time. C probably should have known that the party would not have been as stellar as it had been in the past, but there still was no indication that it would have turned into quite the mess that it did. A court may hold C responsible for the foreseeable portion of the damages, but not for all. Lastly, B is requesting specific performance that C be forced to return to work. Generally speaking, courts do not use specific performance in service type situations (Lumley v. Wagner) because there is no way to regulate the quality of the services. In this case, however, one may argue that such an argument does not apply because there is a clear bar that C must pass in order to complete her work. Also, unlike the situation in ABC v. Wolf, C s contract has not expired. So, B may have a good argument for specific performance. However, courts will not enforce specific performance or a negative injunction (prohibiting C from working for another company in the same capacity in which she worked for B) if doing so would either deprive C of 4

5 her livelihood or force her to continue a repugnant relationship. C has little argument that she would be deprived of her livelihood but does have a case based on repugnant relationship. C, when she walked out of her job with B, said, So sue me and walked out of the room. Her husband is recovering from brain surgery, and she may resent B s forcing her to work during that time. As such, she has a pretty strong argument that specific performance would force her to continue a repugnant relationship. As such, B will likely fail in its request for specific performance. Part D: Expert (E) has a strong case against George (G). E and G were in a subcontractor relationship. E elicited G s bid for the job with Benson (B), and then E relied on that bid. One must first consider if there was a contract between E and G when G wanted to change its bid for the champagne from $7,000 to $10,000. G submitted his bid to E and E submitted its entire bid to B on December 17, 2002, which was accepted on December 18, G found an error in his bid on December 18 and immediately notified E via fax, before dispatched acceptance of G s bid. G may argue that because E had not informed him of the bid at the time that he changed his offer, there was no contract between G and E. As G was the master of his offer under classical theory, he could change the offer at his leisure until it was formally accepted. While a court may believe that there was no contract between G and E at the time that G changed his bid, the lack of contract does not exempt G from paying damages to E. Although courts initially used the Baird v. Gimbel reasoning, whereby a general contractor could hold a subcontractor responsible for revoking or changing its offer only if the sub had promised to hold the contract open, most courts now use the approach of Drennan v. Star Paving and Restatement 87, which applies a promissory estoppel-like principal to the relationship between general and subcontractors. Under 87, subcontractors are bound to their bids before the general contractors are bound. When a subcontractor should reasonably expect a general contract to rely on an offer, and the general contractor does rely on the offer, and enforcement is necessary to prevent injustice, courts will hold subcontractors to their bids. In this case, G knew that E would rely on his bid; as the Drennan court pointed out, G wanted E to rely on his bid, so that G would ultimately get the contract with E. E relied on G s bid when it submitted it s bid to B. One must then determine whether or not this case satisfies the third prong: was enforcement necessary to prevent injustice? E would argue that it relied on G s bid to its detriment, and that it would lose money on the deal if G was allowed to change its bid, resulting in an injustice. G may argue, however, the knowing the general market price of the champagne that E requested, E should have known that G s bid was too low. However, E may counter that it is not required to redo all of the subcontractor s math to verify the validity of the offer that is the subcontractor s job. If the quoted price did not look grossly wrong, there is no way that E should have known that G was mistaken. There was no mistake or changed circumstances to justify G s rescinding his offer, either. As such, a court will likely hold G to his bid, and make him provide the champagne to E at the initial price of $7,000. One must next determine whether there was a contract between E and G and whether G breached that contract. When E accepted the bid from B, E became bound to G s bid. There was a contract between the parties with sufficient consideration G provided the specified champagne for the party and E paid him for it. G provided champagne, but he did not provide the requested Krug brut; rather, he provided a champagne that was worth 40% less than the specified brand. 40% is likely a material difference in the goods requested and the goods supplied. G s providing the wrong kind of champagne is likely a material breach of his contract with E, entitling E to damages. 5

6 G may claim that he disclaimed any responsibility for the product he provided on the back of his bid. G may argue that the boiler plate on the back of his form precluded any liability on his part. E may argue that it did not assent to the warranty disclaimer when it accepted G s bid under the common law mirror image rule, because it did not expressly accept the warranty. This argument will carry little weight, however, since this case involves a sale of goods, which means that it is governed by UCC 2-207, which abolished the common law mirror image rule and the last shot rule. E still has a viable argument under 2-207: when E accepted G s offer without assenting to the warranty provision, the warranty provision may have become a proposal for additional terms under E did not assent to the warranty terms because he did not read the warranty courts will typically not hold parties responsible for boiler plate language printed on the back of a form. G may argue that under the merchant s exception, the warranty became part of the contract when E did not object to it within ten days. However, E may respond that the warranty materially altered the terms of the contract and thus was not subject to the merchant s exception. E may further argue that when the parties performed the contract, the only terms that came into the contract were those that the parties had in common under 2-207(3). Even if a court were to find that the warranty provision governed the contract, E may claim that the warranty does not govern this particular issue. This is not a case where G provided the requested product and that product was not up to par; rather, G did not provide the requested product at all. The warranty barred G from responsibility for providing a defective version of the requested product, not from responsibility for providing the wrong product. E may claim expectation damages against G to recover the difference in the market price of the champagne that it paid G for and the champagne G delivered. G s behavior caused the damages, E could not have mitigated, and the damages were foreseeable. E also wants G to pay for the fact that the party as a whole was a disaster. First, it is unlikely that G s providing a lesser quality champagne caused the party to be the disaster that it was; maybe providing a lesser champagne contributed to the poor ambiance of the party and it s ultimate failure to a certain degree, but it is not the only cause of the party s failure. A court would not likely hold G responsible for the whole party s failure because he did not cause all of it. Also, even if a court were to find sufficient causation, G could not have foreseen that his supplying lesser quality champagne would have caused the extent of damages that it did. As such, E would not likely be able to hold G responsible for all of the damages incurred as a result of the party s failure, but E may be able to hold G responsible for a point o the damages. Part E: Hansford University wants to collect the $10,000 that Frank (F) pledged to them. To determine whether or not the University can collect this money, one must first consider whether or not there was a contract between the two parties. To have a contract, there must be consideration, which means either benefit/detriment to both parties or a bargained for exchange under Restatement 71. In this case, F pledged the money to Hansford without requesting that Hansford do anything to merit the money; Hansford did not have to undergo any detriment to earn the money and there is no bargained for exchange. As such, Hansford cannot contend to have entered into a contract with F, much like the situation in Dougherty v. Salt. Also the facts are similar, this case differs from Allegheny College because the university did not promise to make a scholarship in F s name it did not promise to do anything in return for the money. As there is no contract, one must next consider whether the University has a promissory estoppel claim against F. Under Restatement 90, promissory estoppel would require that F made a promise to the University, knowing that the University would rely on that promise, and that the University did rely on that promise to its detriment. While there is evidence that F made a promise to the University, this is alone is not enough to support a claim for promissory 6

7 estoppel. There is no evidence in this case that the University relied on F s promise to its detriment; actually, there is no evidence that the University relied on F s promise at all. The University may argue that its tough economic circumstances merit a claim of promissory estoppel; however, such an argument would likely fail because the University s financial troubles did not result from the University s reliance on F s promise and F s not giving them his pledged money. They arose out of circumstances independent of Frank. Without either a contract or a valid claim for promissory estoppel, like the plaintiffs in Dougherty and Plowman v. Refining Co, the University does not have a claim to force F to pay his pledge. Question 2: The meeting of the minds provision is still alive in the Restatement, but impaled in the UCC. However, the fact that the Restatement and UCC have different approached to the meeting of the minds does not suggest that either approach is to society s detriment. In fact, one may argue that both approaches further both individual autonomy, arguable the purpose of the meeting of the minds requirement, and economic efficiency. The Restatement, which covers contracts that do not involve the sale of goods, uses a modified objective approach to the meeting of the minds. Although it departs somewhat from the classical, objective, approach to meeting of the minds, the restatement approach may arguably be a better way to insure that parties minds have in fact met. Under 201, if parties attach the same strange meaning to a term (i.e. Mary had a little lamb= the exam will consist of 40 multiple choice questions), then their meaning governs. While this marks a departure from a classical, objective and may lessen a party s ability to claim no meeting of the minds, the limitation is just. Under this approach, parties may claim no meeting of the minds only when there was really no meeting of the minds; they can no longer get out of an otherwise valid contract because they terms with which they described the contract did not conform to societal norms. The restriction in fact helps the meeting of the minds meet its goal of only allowing real contracts. The modern approach under 201(1) is a better way to allow parties to freely assent to contract. The parties are free to assent to a contract of their choosing, regardless of society s interpretation of a given term. Parties do not have to conform but rather can exercise their own free will and judgment. Parties may benefit from their promises being enforced as Charles Fried argued, enforcing promises is a way to allow people to further their individual autonomy. Also, under Barnett s argument, the parties, by entering into an agreement, have manifested intent to be bound. Society should not deny them the benefits of enforcing their promises because the way in which they manifest their intent to be bound differs from what the majority would do. People should be allowed to exercise their autonomy even if their understanding of a given term does not conform to society s expectations. This change from the classical approach also makes sense from a utilitarian perspective. Arguably, parties enter into contracts to maximize their utility. Denying them enforcement of a particular promise because they did not attach the society s meaning to a given term would prevent parties from actualizing an agreement that they believe is in their best interest. The second part of 201, however, makes it more difficult for parties to claim not meeting of the minds to get out of a contract. When the parties have attached different meanings to a term in a given contract, one party may be bound to a contract when he should have known the meaning that the other party attached to a given term. This sets up a negligence standard for meeting of the minds; even if a party A did not know what meaning party B attached to a 7

8 particular term, A may still be held to a contract based on B s term if A should have known. This provision seems to detract from the purpose of the meeting of the minds requirement in only validating real contracts, in that it validates contracts where both parties may not have agreed to the terms. However, one may argue that this provision furthers the purpose of the meeting of the minds because it forces parties to discuss what the terms of a contract mean. One may think about this in terms of Fuller s channeling function of formalities, even though the meeting of the minds is not technically a formality. If parties know that they will be held to contracts if they should have known what the other party is thinking, they will fully discuss the terms in order to avoid being held to a contract to which they did not assent. As such, one may argue that this provision as well furthers a party s ability to claim no contract because of no meeting of the minds, even in a backhanded way. One may also argue that the second part of 201 seems to detract from a party s ability to maximize either his autonomy from a Kantian perspective, or his utility. If a party did not subjectively know what the other party was thinking and thus to what he was assenting, one may not argue that such a party exercised his freedom of the will. This is a distortion of the meeting of the minds. Meeting of the minds should occur when parties assent to the same terms, not when one party assented to a set of terms and the other party should have known what he was talking about. In this sense, the modern approach to meeting of the minds has lessened a person s ability to claim no meeting of the minds and get out of a contract in that way. However, one may apply Fuller s channeling function here as well; forcing parties discuss their options fully or risk assenting to a contract to which they do not fully agree may force parties to do a better job of exercising their autonomy, insuring that when they enter into a contract, they are really doing what they want to be doing. One may thus also look at this as a backhanded way of getting parties to actualize their autonomy. The UCC provisions, which deal specifically with sale of goods, differ drastically from the Restatement approach to meeting of the minds. UCC no longer requires meeting of the minds; parties do not have to assent to specific terms of a contract to make it binding. Rather, the parties can assent to a sale in any manner possible. Under the UCC, a party cannot claim no meeting of the minds to get out of a contract. Such a provision seems to go directly against the individual autonomy arguments that Friend and Barnett have made for enforcing promises. Promises should be enforced because individuals have autonomously chosen to enter into a particular deal. Allowing enforcement of contracts without any meeting of the minds essentially allows parties to be held to agreements to which they did not fully assent, detracting from the freedom of the will. However, one may argue that a channeling function exists here, much like in Restatement 201. If parties know that they will be held to an agreement regardless of meeting of the minds, there is an incentive to discuss every detail of a contract so that they do not get held to something with which they do not agree. One may thus argue that doing away with the meeting of the minds requirement entirely has actually served to further the purpose of the meeting of the minds: if parties cannot use the lack of meeting of the minds as a defense, they will do all they can to insure that there is in a fact a meeting of the minds in all of their dealings. As such, UCC may further individual autonomy. One may argue, however, that limiting the meeting of the minds defense under the UCC makes sense in terms of economic efficiency. If parties do not have to worry about meeting of the minds and working out every excruciating detail of a particular agreement, they may be able to enter into more agreements, better maximizing their utility. Even if a party does enter into a 8

9 mistaken agreement, one may argue from the economic perspective that the disutility in such a situation is made up for by the volume of other agreements that party can enter into. At the same time, one may make a utilitarian argument from a completely contrary perspective, stating the risk of disutility may outweigh the general efficiency gains, especially if one includes individual autonomy in the utility calculus. Still, though, looking the lack of a no meeting of the minds defense from a societal rather than an individual perspective may suggest that getting rid of the meeting of the minds defense is better. For the few times that individuals may lose on a given contract because they haphazardly entered into a contract, the utility gain to society due to the increase in the number of contracts will offset the harm to individuals. As such, even though the UCC removes the no meeting of the minds defense under 2-204, that may not be to society s detriment, at least not economically. Question 1 a) B v. A and A v. B A threshold issue is whether the UCC and statute of frauds would govern any agreement between A and B. The $50-$77k catering fee obviously includes provision of some services (wait staff, etc), it also includes the sale of goods such as food and champagne (UCC governs) that are almost certainly worth more than $500 on aggregate (frauds applies). Because the putative contract here consists of a series of telephone and fax exchanges, A may be able to argue that there is no single integrated contract representing their deal with B and therefore no enforceable binding commitment. However, because the UCC takes a fairly liberal approach to all these issues, it is likely that most courts will recognize some form of enforceable, binding commitment. A larger issue is which terms should be considered part of the final deal between A and B. B will likely argue that the first written communication with A, the fax changing the price to $77k, represents a writing in confirmation under UCC 2-201(2), binding because A failed to object in writing to its terms. Even if A argues that the merchant s exception does not apply to them (provider of services, not goods), B may be able to enforce this confirmation under UCC 2-201(3), which recognizes a valid contract where goods have been received and accepted. Although A may still argue that the fax is insufficient because it lacks a signature or defined quantity term, it is unclear that this argument will persuade the court given the context and the UCC approach to parol evidence. Under 2-202, written terms are typically allowed to be supplemented by course of performance, dealing, trade usage, and other evidence (including parol evidence) unless the writing (here, the fax) appears to be a complete integration. Because there is no evidence of a merger clause in B s fax, the court is likely to conclude that the agreement is only partially integrated and that extrinsic evidence can be used to provide supplemental terms (2-202). Although contradictory terms (such as the lower price A is bound to argue for) are not technically allowed, a realist court may treat these as interpretive and include them where there appears to be sufficient support in context. Given the above, A is likely to argue that even if the fax represents a contract between them and B the $77k price term should not be included. If the court is receptive to the argument that A is not a merchant, A may be able to argue that this term is simply a proposal for an addition to the contract, not binding until expressly accepted by A, and then provide parol evidence of A s subsequent refusal to pay $65. Even if this argument is unsuccessful, A may be able to argue that the price term materially alters the substance of the agreement and that the court (even if recognizing an agreement by conduct, in UCC 2-207(3)) should revert to the last 9

10 price term in common. This is problematic, given that UCC 2-207(3) technically focuses on those writings on which the party agrees. However, if the court decides it must look to extrinsic evidence to supply a price term, A may have a strong argument for $50k, in that this appears to have been the price at which B put on the part in past years (course of performance, etc). Finally, A may be able to argue that the $77k term in the fax represents a mere modification to an earlier oral contract, and that it should not be binding because A agreed only to $65k, and that only under protest. Again, the outcome is likely to depend on how liberal the court is overall (or, from a more realist perspective, how sympathetic it is to A and B s respective arguments). UCC takes a fairly liberal approach to modifications unless a prior written agreement specifically bars them (no evidence here); therefore, B may be able to make the change stick. However, A can still attempt to argue that the change was a violation of B s obligation to bargain in good faith with A, or that the modification was unconscionable because A was depending on B to put on the party (duress). There is some parol evidence to support this latter interpretation ( you have us over a barrel ), and a good general argument that A would not have been able to locate another vendor for such a large job three days before the party (stronger case than Kelsey-Hayes, which was able to get out of a modification even after six weeks to find alternate suppliers). However, the court may still conclude that it is not obligated to shield relatively large and sophisticated parties against modifications of this type. Assuming the court recognizes the existence of some form of binding agreement to put on the party, a question remains as to whether B really breached this agreement in failing to supply the caliber of goods and services that A had expected. Under UCC 2-608, a contract for sale of goods is revocable even post-acceptance where the deviation from specifications substantially impairs the value of goods to the buyer. While the cheap champagne, settings, and entertainment B supplied seem to clear this threshold, B may be able to argue that A was never explicit about its requirements (no specifications against which to measure breach). Even so, A may be able to counter that B (as a commercial service provider) is subject to and breached an implied warranty of fitness for a particular purpose (here, the party) under UCC Furthermore, A should be able to make a convincing argument that, given that the parties former dealings (history of collaborating on parties in past years), B knew or should have known what A would expect them to supply at the contract price even without detailed instructions. Even if B is found to have breached its obligation to A under UCC 2-608, B may be able to argue that it should not be liable for this breach due to changed circumstances at the company (C s departure, referenced in the fax) that made performance to A s specs either impossible or highly impractical for B. Although impossibility does not always justify breach (in terms of shielding B from damages), B may be able to argue that C provided very unique services and was irreplaceable in the time remaining before the party. Alternately, B may argue that C s departure made the contract very expensive or impractical for it to perform particularly at A s original $50k price, which would have represented a $15k loss even at E s initial bid price (also an economic duress argument). However, given that this is a commercial deal between large repeat transactors, the court is likely to conclude that this risk either was or should have been reflected in the contract price, and/or that B should have made other efforts to shield itself from such an outcome (for instance, by working modification provisions into the original deal). This is particularly true given that A does not appear to have been anyway responsible for the changed circumstances at B (relevant in a conservative approach to duress claims). A remaining issue is damages. Even if the court finds insufficient evidence of a binding contract between A and B, or insufficient agreement on a particular price term, A will probably 10

11 owe either restitution damages to B. If the court concludes that performance was essentially adequate and complete and that payment is the only obligation which remains, damages will consist of whatever contract price the court decides is fair to enforce, payable from A to B (effectively revert to expectation damages). Even if A can convince the court that performance was incomplete due to B s incomplete (inadequate) performance, A will probably still have to reimburse B for at least the value of goods and services actually rendered at the party. Because restitution damages can be measured in various ways, there is likely to be some debate over what exactly these should be worth. B will probably argue for a market value of at least $65k or $68k (incorporating the revised champagne price from G) possibly higher if it can argue it is entitled to some modest profit margin on top of what it spent to procure the goods and services from contractors. A will likely counter that it should pay B only the actual value of these goods to A a less clear, but probably lower number given that the services did not meet the expectations of A or its clients. Furthermore, A may be able to argue that because B was (or was also) in breach, A should not be liable for anything over the original K price ($50k, maybe $65k) even if this ended up representing a losing deal for B (compare Coastal, where sub received restitution damages in excess of K price on a losing deal only because the general contractor unilaterally breached). If the court recognizes some form of binding agreement, A and/or B may be able to get reliance or expectation damages. Assuming only B breached, A may be able to argue that its contract payment should be offset by any loss in business and/or reputation allegedly caused by the lousy party in which case B might end up owing A several million dollars (yearly billings carried forward) in reliance damages. However, B should have a convincing argument that the clients departures were not fully or even partially driven by the failure eof the party (causation), that it could not have anticipated losses on this scale (forseeability/justifiability), that the losses are overly speculative (what if the clients had left anyway?), or that A breached its own duty to mitigate the effects of the lousy party by compensating its clients in some other way. Assuming the court finds A is in breach for failing to pay B for at least services rendered, the court is likely to revert to the restitution/expectation arguments discussed above. B may be able to argue that it is entitled to reliance damages in excess of $77k (perhaps due to A s unjust cancellation of all future potential contracts, and/or reputational fallout with other clients); however, this will be a hard case to make given that it is a sophisticated business party and the court is less likely to want to insulate or insure it against greater business risks of this type. Furthermore, A should also be able to make a convincing counterargument against payment in excess of $77k, along the lines of B s in the paragraph above (forseeability, duty to mitigate reputational losses, etc). b) E v. B and B v. E To the extent that the agreement for goods and services described in A and B s party contract are covered by the UCC and statute of frauds, B and E s (essentially a large subsidiary component of same) is likely to be covered as well. Furthermore, although B and E are not in the construction industry, the court is likely to draw analogies to the general contractorsubcontractor course-of-dealing rules established in Drennan. Under the circumstances, E s $65k bid to B on 12/17 is likely to be deemed to some extent binding and enforceable against E regardless of subsequent developments. This will probably be true even if the bid was not in writing (potential frauds issue), given B s later written confirmation of same on 12/19 and E s receipt on 12/20 (UCC 2-201(2), writing in confirmation sufficient between merchants). 11

12 However, as in part a), there is bound to be debate over which terms apply. Under Drennan rules, E s bid price is probably binding against E as of when B incorporated this figure in its $77k offer to A, or (on the outside), when B telephoned E to accept it. However, it is unclear whether E should also be bound by the specific terms of B s written confirmation on 12/19, which include a general warranty and indemnification provision. Under UCC 2-207(2), any such terms are likely to be considered part of the contract. Because E s own offer did not appear to expressly limit acceptance to its terms, and because E failed to make a timely objection to the warranty and indemnification provisions (did not, in fact, even read them), he may be out of luck. However, he may have a case that the terms materially alter the agreement (one of the exceptions). Alternately, he may argue that because B s confirmation should not operate as an acceptance because it was made expressly conditional to his own assent to these provisions (never given). In either scenario, the terms would probably fall out and the agreement would revert to those terms (probably the bid) on which the parties agreed under UCC 2-207(3). Although there is no writing on which the parties agree, the court is likely to recognize at least the $65k bid price under Drennan rules and the subsequent conduct of B and E. Assuming that B and E have a contract, B is likely to argue that E breached it by providing low-quality goods, along the lines of A s arguments against B in part a). Similarly, E (like B in part A) is likely to argue that he was not sufficiently apprised of the quality standards and should not be liable for breach, or (alternately) that he did not realize that G would supply such cheap champagne. However, it is unlikely that these arguments will be convincing given that E, as a merchant, could be reasonably expected to vet the quality of his subcontractors and request clarification on specs as necessary or to otherwise shield himself against any business risks that might result from failure to take the necessary precautions (see B s arguments in part a)). Damage issues are largely similar to those discussed in part a) and d) below. Absent any finding of a binding contract, B will probably still have to pay E the value of actual goods and services received (although there is bound to be dispute over the actual restitution value of these services value to B vs. fair market value to E?). Assuming a contract but no breach, B will be liable to E for the full contract price of $65k (possibly $68k, but highly unlikely given that G s champagne bid error was never communicated to B). Assuming a breach on E s part, B may be able to reduce the contract price to the actual market value of the goods received (effectively similar to restitution above). However, it is highly unlikely that B will be able to claim any additional reliance or expectation damages for general loss of business, reputation, or liability to A. Even assuming B s indemnification provision is declared binding and enforceable against E, E may be able to argue that any actual damages due under this clause are too speculative given B s failure to supply specs and other general limiting factors such as causation, forseeability, and B s duty to mitigate any poor performance on E s part. c) B v. C In contrast to the other cases discussed, existence of a binding agreement and some level of breach of this agreement are not at issue here (C under contract to B through 12/31, walked out on 12/11). However, it is unclear whether C can fairly held liable for any of the resultant damages to B. Although C breached her actual employment commitment to B, it is unclear whether this commitment could be construed as extending to financial liability for any events C failed to plan for B as a result especially given that she tendered her resignation a week before the party in question and it is at least arguable that B could have reallocated planning responsibilities or hired a new operations director in the meantime. Even if C is potentially liable for the failure of B s planning efforts under her contract, she has a relatively strong argument 12

13 that she was forced to quit due to severe personal duress although this argument is weakened by the fact that the events in question do not seem sudden (husband s cancer, decision to spend more time with the family). Under the circumstances, it seems unlikely that B will be able to recover significant damages against C. Although B is likely to claim some monetary damages for the failure of the party, C should be able to argue that her personal liability should be capped at the fair market value of her services to B (perhaps her contract wages for the last few weeks of December) and that B should be responsible for insulating itself against any additional losses in excess of this amount (duty to mitigate, forseeability, etc) particularly since it is unclear that the failure was due exclusively to C s departure (causation). B is also unlikely to be able to compel specific performance. This is a disfavored remedy, typically available (Wagner) only where the personal services in question are highly unique (unclear here whether C could be replaced) and where the loss of those services would cause severe hardship to the other party (also unclear here). Furthermore, specific performance is almost never enforced retroactively; even assuming C could be bound to work for B through 12/31, her contract is now expired, effectively severing any future employment obligations to them (ABC v. Wolf). d) E v. G As above, a threshold issue is the existence of a binding agreement between the parties. Because the dispute involves a $7-10k contract for goods (champagne), this agreement is also likely to be covered by the UCC and the Statute of Frauds, as well as Drennan-type construction rules by analogy (see part b) above). Under this model, E s written bid for $7k is likely to represent a formal offer, and B s incorporation of (reliance on) this price in his larger bid to A on 12/17 a binding acceptance of same. However, as in part a), there is likely to be considerable dispute over which price term ($7k vs. $10k) should be recognized and enforced. G has several arguments for use of the $10k figure. First of all, he may contend (relying on Baird and earlier precedent) that his bid should not be considered formerly binding until E received phone acceptance from B on 12/18 or faxed confirmation on 12/19 by which time E should have received notice of the mistake. Alternately, G may argue that it was unreasonable for E to rely on the original quote without doing more research and/or providing more explicit specs, given E s familiarity with champagne purchasing, E s inexperience with parties of this type and the fact that the two parties did not appear to have a history of prior dealings. Finally, G may argue that his 12/18 fax represents a binding modification to/and or revocation of the original contract, and that he should only be bound to the deal at the $10k price particularly as the $7k price will represent a loss. However, these arguments are unlikely to be convincing if the court is sympathetic to the Drennan model, particularly as it appears that G could probably expect and had a (profit) incentive for B to rely on his original figure. G may have a case if he can supply any evidence to show that E was aware that $7k was simply too low to supply the required quantity of King brut or equivalent and deliberately took advantage of this mistake. Even so, the court may feel that G should be bound to its mistake as a sophisticated business party particularly since it received notice from E that it would be held to the original price and gave could at least be construed as vague assent to the deal ( we ll do the best that we can ). Assuming the court finds a binding agreement, it will have to determine whether or not this agreement was breached. E should be able to make a UCC argument analogous to A s in part a (cheap champagne choice substantial impairment of goods value, sufficient for 13