CONTRACTS FINAL EXAMINATION Santa Barbara/Ventura Colleges of Law Spring 2014 Instructor: Craig Smith QUESTION 1

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1 CONTRACTS FINAL EXAMINATION Santa Barbara/Ventura Colleges of Law Spring 2014 Instructor: Craig Smith QUESTION 1 Paul organized a country western concert in Bakersfield during the time that a major rodeo was in town. He made the following arrangements for the concert: Paul contracted with Alice, who owned Cowboy Auditorium, for the concert venue. Paul chose Cowboy Auditorium because it seats 20,000 people. The contract, which was signed by Paul and Alice, required any changes to be in writing and signed by both parties. The rental price was $400,000. Paul sold out Cowboy Auditorium for the concert. A month later, and three days before the concert, Alice informed Paul that the roof of Cowboy Auditorium had collapsed during a rainstorm and that it could not be repaired before Paul s concert date. Alice quickly offered to rent Paul another auditorium that she owned, Suburban Auditorium, which has 10,000 seats. Alice told Paul that she would rent Suburban Auditorium to him for one-half the original rental price. Paul demanded that Alice have Cowboy Auditorium repaired before the concert, but Alice said that it could not be repaired in time. To avoid having to cancel the concert, Paul orally agreed to use Suburban Auditorium and he refunded the ticket price to 10,000 seat holders. Paul had validly granted California Concert Souvenirs the right to sell souvenirs at Cowboy Auditorium during the concert. The signed written contract with California Concert Souvenirs provided that Paul would receive one-half of the revenue from the souvenir sales. The day before the concert, Paul sent California Concert Souvenirs an stating that the concert had been moved to the smaller Suburban Auditorium. Paul apologized for the use of the smaller auditorium but told California Concert Souvenirs that it was Alice s fault. California Concert Souvenirs conducted sales at the smaller concert venue. As a result of the move to the smaller arena, California Concert Souvenirs sales were much less than expected and only one-half of the souvenirs sold. 1. Discuss fully a. whether Paul has any claims against Alice for breach of contract, b. whether Paul has any way of avoiding the modified contract. 2. Discuss fully whether California Concert Souvenirs has any claims against Alice.

2 QUESTION 2 Bob is a retailer of widgets. On October 3, 2005, Bob called Sara, a manufacturer of widgets, and placed an order with Sara for 10,000 widgets at a price of $1 per widget, to be delivered on October 31, 2005, with payment due on delivery. On October 4, 2005, Sara sent the following "Order Confirmation" to Bob, signed by Sara: "Sara accepts Bob s order for 10,000 widgets, at $1 each, delivery on October 31, 2005, payment due on delivery. Interest: Bob shall pay interest of 1½ % per month on payments made more than 10 days after delivery. Waiver of Warranties: all warranties of merchantability are waived by Bob." There had been no discussion between the parties of any provision for interest or the waiver of warranties. On October 6, 2005, Bob received Sara s "Order Confirmation." Bob never notified Sara that he was agreeing to or rejecting the provisions for interest on late payment or waiver of warranties and never signed a copy of the "Order Confirmation." On October 31, 2005, Sara delivered the widgets to Bob. Six weeks later, Bob still had not paid for the widgets. Sara called Bob who told Sara that he would not pay for the widgets because the contract was not enforceable and in any event, the widgets were defective. Sara responded that, pursuant to the parties agreement which was enforceable, Bob was obligated to pay interest of 1½% per month for late payment, and under the contract, he had waived its rights to enforce the warranty of merchantability. In January 2006, Sara commenced an action against Bob to enforce the contract. (1) Was there an enforceable contract between Bob and Sara? (2) Assuming that there was an enforceable contract between the parties: (a) Is Sara permitted to recover interest on the late payment from Bob? (b) Has Bob waived his right to enforce the warranty of merchantability?

3 SAMPLE ANSWER TO QUESTION 1 Paul v. Alice IMPRACTICABILITY The issue is whether Alice's duty to make Cowboy Hall available to Paul was excused when the roof collapsed and could not be repaired in time for the concert. When performance depends upon the continued existence of a thing an implied condition is that the destruction of that thing will excuse the duty of performance. This means that some unexpected event must have occurred which has made performance impracticable and the nonoccurrence of the unexpected event was a basic assumption upon which the contract was made. Performance is impracticable when it can only be accomplished at excessive costs or risk. In this case, according to the express terms of the contract, performance contemplated the continuing existence of the Cowboy auditorium. The collapse of the roof was an unexpected contingency which has made performance impossible. Since the continuing existence of Cowboy Auditorium was a basic assumption of the contract the perishing of the auditorium, due to the collapse of the roof will excuse the duty to perform. Upon returning to Paul any consideration she has already received, such as a down payment or deposit, Alice could be excused from her duty to make the arena available to him. The return of consideration is necessary because when a contract is excused under the doctrine of impracticability, the parties must make restitution of any benefits they received. ORAL MODIFICATION The issue is whether the oral modification of the contract between Paul and Alice is enforceable when the written contract they signed had a no-oral-modification clause. The parties are free to modify their contract subject to the limitations of the pre-existing duty rule. The parties may validly agree that any modifications must be put in writing in order to be enforceable and in such case oral modifications will not be recognized. In this case the parties agreed to orally modify the contract. There was no additional consideration. However, the modification appears to be fair in light of circumstances not anticipated when the contract was entered into (the collapse of the roof) and Rest.2d 89 approves modifications made for this reason. Although, the modification was not in writing as required by the contract, Alice relied on the waiver by allowing the concert to take place. The modification should be enforceable. Concert Souvenirs vs. Alice THIRD PARTY BENEFICIARY The issue is whether Concert Souvenirs has a claim against Alice for their loss of profits, when they were not a party to the contract between her and Paul.

4 The presumption is that parties contract for their own benefit, not for the benefit of others. However, a person who is not a party to a contract (not in privity of contract) may have enforceable rights under a contract made by two others if they can show that recognition of a right to enforcement in the third party is appropriate to effectuate the intention of the parties and that performance by the promisor will satisfy a debt or obligation owed by the promisee to the third party or the circumstances show that the promisee intended to confer the promised performance on the third party in the form of a gift. Here, Concert Souvenirs only contracted with Paul, not with Alice. Hence, any right of recovery they would have against Alice would have to be as an intended third party beneficiary. Paul was entitled to one-half of any sales that Concert Souvenirs made, but he did not owe them anything in the event their sales were disappointing or fail to meet some minimum threshold. It cannot be said that in entering the contract with Alice he was trying to satisfy a debt or obligation owed to Concert Souvenirs. Nor, do the circumstances indicate that he wanted to make a gift of the proceeds of any sales to Concert Souvenirs. Because they failed the intent to benefit test they are at best incidental beneficiaries who do not have enforceable rights. (See, Rest.2d 302)

5 SAMPLE ANSWER TO QUESTION 2 (1) Was there an enforceable contract between Bob and Sara? STATUTE OF FRAUDS The issue is whether the writing requirement of the Statute of Frauds was satisfied when Bob made an oral order of 10,000 widgets at $1 each and Sara's responded with a written acceptance and confirmation. The Statute of Frauds requires that contracts for the sale of goods for a price of $500 or more be evidenced by a note or memorandum signed by the party to be charged. (UCC 2-201) Here, Bob's order of widgets was placed over the phone meaning it was oral. Sara's acceptance was in writing and signed by her. However, Bob is attempting to avoid the contract, hence, he is the party to be charged. There is no writing that is signed by him. However, since the facts state that Bob is a retailer of widgets and Sara is a manufacturer of same, we can assume that they are merchants [those who deal regularly in goods of the kind] for purposes of the UCC. And, since this is a contract for the sale of goods, (things which are tangible) this contract is governed by the UCC. UCC 2-201(2) contains the non-objecting merchant rule. It states that between merchants if within a reasonable time one sends a written memo in confirmation of an oral contract and the written memo would satisfy the writing requirement of the SOF against the sender, it satisfies the writing requirement against the recipient if the recipient receives it, has reason to know its contents and fails to object to it within 10 days. Here, Bob did receive such memo from Sara. It indicated they had agreed to a contract, it stated the subject matter of the contract, included a quantity term and was signed by Sara. The facts state that Bob received it and never objected to it within the 10 days of receipt. Hence, it satisfies the writing requirement as to Bob. Hence, there is a valid contract for sale of the widgets. Is Sara permitted to recover interest on the late payment from Bob? ACCEPTANCE VARYING OFFER The issue is whether Sara's acceptance operated as such when it contained additional terms. A definite and seasonable expression acceptance operates as such notwithstanding the fact that it contains additional or different terms. Between merchants, additional terms become part of the contract unless, the offer limited acceptance to the original terms, the additional terms materially alter the contract, or notice of objection to the additional terms is given within a reasonable time.

6 In this case, Sara's communication stated that Sara accepts' Bob's offer. So, there is a definite expression of acceptance. Since both parties are merchants (see above) the additional terms will become part of the contract unless they were a material alteration as the facts show that Bob neither objected within a reasonable time nor did his offer limit the terms of acceptance. An alteration is material if it would come as a surprise and work a hardship if it was incorporated without the other party's awareness. Assuming contracts for the sale of goods typically provide for interest if credit is extended, this should not be a surprise to a merchant such as Bob. The interest provision should remain in the contract. Has Bob waived his right to enforce the warranty of merchantability? DISCLAIMER OF WARRANTIES The issue is whether the implied warranty of merchantability was effectively disclaimed when the confirmation said, all warranties are waived by Bob. To effectively disclaim the warranty of merchantability the disclaimer must be conspicuous and include language indicating that the goods are being sold as is or with all faults. Although it seems Bob ought to have noticed the disclaimer there is no indication that the goods are being sold as is. It only says Bob, is waiving the warranty. That is not sufficient, therefore there is no effective waiver.

CONTRACTS FINAL EXAMINATION Santa Barbara/Ventura Colleges of Law Spring 2013 Instructor Craig Smith QUESTION 1

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