Contracts Exam

How to Ace Your Law School Essay Exam

Contracts Exam I Essay Exam from Pepperdine 2003

Pam is a salesperson for Plastics Co., a company that operates a small plastics plant that converts recycled plastic waste to plastic pellets and sells them to manufacturers that use plastic components in their products. Cal is employed as the Vice President of Purchasing for Camera Co., a manufacturer of the popular Revel camera. Although Pam had sold plastic pellets to Camera Co. in the past couple of years at anywhere from $1.00-$1.50 a pound (the specific price tied to the going rate in the plastic pellets market), on Halloween (October 31st) she took Cal golfing in hopes of getting more of Camera Co.’s business. In fact, during their game Pam proposed that Plastic Co. devote its entire plant capacity to serving Camera Co.’s needs for the next 6 months.

After noting that Cal had enjoyed their round of golf, Pam showed him a Plastics Co. Customer Order Form with a smile and a wink. Near the top of the form, just under the banner “PLASTICS CO. CUSTOMER ORDER FORM,” the following statement was printed in red bold letters: “Notice: Orders placed hereon shall only become binding upon the agreement of the Plastics Co. plant manager, and shall be held open for one week from the time they are placed.” To her joy, Cal told Pam to write “Camera Co. accepts Plastic Co.’s offer to sell to it whatever plastic pellets Plastics Co. produces during the 6 months beginning November 1st” in the space provided in the middle of the form (because Cal had hurt his hand swinging his golf club too hard). After Pam did so, Cal managed to scrawl a mark that looked something like a wiggly “X” on the line at the bottom of the form underneath the words “Accepted by Customer.” There was no other printed matter or writing on the form.

The next morning when Pam showed Pete (Plastic Co.’s plant manager) the order from Cal he was elated since business had been a little slow the past couple of days (indeed, there were no current orders in production although the plant had steadily produced around 20,000 pounds of plastic pellets annually over the past 5 years operating at full capacity--a situation that Pete did not see changing for the foreseeable future given a strong demand for plastic pellets in the market). So Pete immediately placed some large orders for plastic waste with some recyclers, notified some regular customers it would not be able to take their normal weekly orders for at least 6 months, and told his plant personnel to start producing more pellets with the small amount of recycled waste that was on hand.

Later that morning, Cal called Pam and said “Sorry Pam. I’m going to have to rescind my order since my president told me this morning one of the new members of our Board of Directors owns a plastics company that’s going to be selling us all the pellets we need for a while.” Pam responded, “Too bad Cal, we have a deal. I was just filling out one of our sale acknowledgment forms and preparing to fax it to you.” Cal replied, “Oh come on Pam. We didn’t even agree on a price or quantity. You guys could decide to shut down and take a vacation to Jamaica for all that so-called order requires you to do. See you later.” Pam then signed and faxed to Cal one of Plastic Co.’s Sales Acknowledgment Form stating simply “This is to acknowledge and confirm Plastics Co.’s acceptance of Camera Co.’s order of yesterday.” Near the top of the form, under the banner “PLASTICS CO. SALES ACKNOWLEDGMENT FORM,” the following statement was printed in red bold letters: “Plastics Co.’s acceptance of Customer’s order is expressly conditional upon Customer’s agreement to Plastic Co.’s terms and conditions on the reverse side hereof.” On the reverse side of the form (also sent by fax) were printed terms stating that Plastic Co. was to be paid for each shipment no later than 30 days after delivery, and that Customers were responsible for arranging shipping from Plastic Co.’s plant to their destinations.

Meanwhile, back at Camera Co.’s corporate headquarters, in addition to manufacturing facilities it also operated a factory store that was open to the public. Among other items available for sale were new Revel cameras. One day Jill stopped in, took a Revel off a shelf, and inspected it. Liking the camera and the $200 price tag hanging from it, she took it to the cashier and paid for it. The cashier then went to the back room, grabbed the box that the camera had come in, put the camera in the box, and handed it to Jill. On the packaging of the box was simply a picture of the camera and the phrase “Revel in your Revel.” When Jill got home she pulled the camera out of the box, as well as a card with a bunch of fine print and the bolded caption: “REVEL’S TERMS OF USE.”

After reading the caption, Jill promptly tossed the card back in the box which she then stuck in a closet. Had she read the card, the first sentence stated “By owning your Revel for more than 10 days you are agreeing to the terms and conditions herein.” One of the terms read as follows: “Indemnity: Buyer agrees to be solely responsible for any and all damages or injuries whatsoever arising from the use of this product.” Jill then took her Revel out on a picture-taking spree. Encountering a Santa on a street corner that was collecting donations for the holidays, she asked him if she could take his picture. After he said “Sure,” Jill focused her Revel and snapped the picture. However, the camera bulb malfunctioned and caused a bright explosion which damaged Santa’s sight. Santa has sued Camera Co. for damages. Camera Co. has filed a cross-claim against Jill seeking reimbursement for any damages assessed against it on the basis of the Indemnity clause of the Revel Terms of Use.

Part A Contracts Exam (25 min.) Plastics Co. is suing Camera Co. for breach of contract. Discuss all relevant issues as to whether Plastics Co. and Camera Co. had mutual assent to a contract. You may assume that the parties had no significant contacts or interactions after Pam sent Cal her fax of November 1.

Part B Contracts Exam (15 min.) Discuss any other significant contract exam formation or enforcement defenses that Camera Co. may raise and argue in the suit.

Part C Contracts Exam (20 min.) Discuss whether the Indemnity provision in Revel’s “Terms of Use” would be enforceable against Jill, including all significant defenses she may raise.

Please identify your Contracts Exam answers by the Part you are answering in your contract exam.

Contracts Exam Essay II. (60 min.)

Edward is executor of the estate of Abigail V. Young. Abby (as she was known to those in the community) was a reclusive person who had lived in an enormous mansion on the edge of town. Her estate, known as Rostron Manor, encompassed acres of beautiful orange groves, fertile fields, a babbling brook, and a hundred-year-old house at its center. The property was worth tens of millions of dollars. The community had long wanted Abby to open the house and grounds to tourism, as people from all over the country would have gladly paid an entrance fee to see it, but Abby steadfastly refused.

Abby was the sole owner of Rostron Manor and had complete control of its disposition. She kept the house and grounds pristine, but locked the gates to all but those few people performing upkeep. The only exceptions were her long-time butler of the past 40 years, Bill, and a 17-year-old student in town whom she had befriended, Charlene. Abby had let Charlene live in the guest house on Rostron Manor for the past couple of years. Charlene had constructed an extra bedroom and bathroom on the small guest house. Abby knew of the changes and did not object. Abby and her now-deceased husband had never had children.

Charlene had started visiting Abby when Charlene was just a child, and they had become very good friends. Charlene continued to visit Abby every Saturday morning for a game of dominoes, a walk through the orange grove, and a cup of tea. Abby loved this time together, and Charlene never missed their Saturday dates. Knowing how much Charlene loved Rostron Manor, Abby promised her in September 2002 that she would leave Rostron Manor to Charlene upon Abby’s death because of Charlene’s faithful companionship for so many years. Charlene protested, for she had never been in it for the money (or mansion) even though she was very poor. So Abby said, “If it would make you feel better, I could just sell it to you.” Charlene replied, “You know I don’t have that kind of money.” Abby replied, “Don’t worry. I’ll sell it to you for $5000. And you don’t need to pay me now; just promise to give the money to the local Animal Shelter on my behalf after I die and Rostron Manor is yours.” Charlene said, “OK!” She and Abby were both thrilled. They told everyone they saw about their deal.

Immediately after their conversation, Charlene penned a thank-you note to Abby, saying, “Dearest Abby, Thank you SO much for agreeing to sell Rostron Manor to me. As we discussed, I will give $5000 to the local Animal Shelter after you die in exchange for Rostron Manor. Sincerely, /s/ Charlene.” Charlene had previously been unable to afford going to college, but she now applied to Pepperdine University and was thrilled when she was accepted in the entering class of 2003. The financial aid package was meager, but Charlene didn’t mind incurring substantial debt because she would shortly have so much wealth from Rostron Manor. Abby was happy about Charlene’s entrance into college. Charlene left for Pepperdine on August 1, 2003.

Bill the butler had been a faithful companion of Abby’s for many years, but had his sights set on receiving Rostron Manor after Abby’s death. He set out to make sure that it was transferred to him, but waited until after August 6, 2003, when Abby had suffered a stroke. As a result of the stroke, her memory faded and her ability to think and process information slowed considerably. While she formerly had been able to maintain her own finances and oversee the upkeep and care on the estate, she relied exclusively upon Bill for such matters after her stroke.

Determined to secure Rostron Manor for himself, Bill approached Abby on August 30, 2003, and told her that her finances were in dire straits. He (wrongfully) said that she would not have enough cash to make it to the next month, but that he was willing to help. Bill offered to buy Rostron Manor for $1,000,000 cash. (Abby had paid Bill well over his many years of service!) He would transfer the cash to her immediately and title to Rostron Manor would vest in Bill upon Abby’s death. Bill convinced her that she needed to sign the contract on the spot because she didn’t have time to consult with anyone. Abby and Bill both signed the contract for the sale of Rostron Manor. Bill then advanced $1,000,000 to Abby.

Unbeknownst to Bill, Doris had been corresponding with Abby by mail about the potential sale of Rostron Manor. Their communications follow:

(1) “Aug. 1, 2002. Abby, I love Rostron Manor and will pay you a handsome price when you are willing to sell. Please let me know your best price. Yours, Doris.”

(2) “Aug. 17, 2002. Doris, I’m still living on the property, but would be willing to depart with it after my death for nothing less than $31 million. Regards, Abby.”

(3) “Aug. 28, 2002. Abby, I think Rostron Manor is lovely, but that’s a high price. Best, Doris.”

(4) Abby never responded to the Aug. 28, 2002 letter.

(5) “August 1, 2003. Abby, you’ve got me cornered and apparently you know it. I accept your offer of $31 million for Rostron Manor. I’ll plan to take possession upon your death. I’ve enclosed $50,000 to show my sincerity. Sincerely, Doris.”

(6) “August 16, 2003 [ten days after Abby’s stroke]. Doris, I’ll sell you Rostron Manor for $35 million. This offer to remain open until October 1, per your $50,000 check of August 1. Yours, Abby.”

(7) Abby died on September 20, 2003.

(8) Doris was surprised to read Abby’s obituary in the paper, as she hadn’t known of her stroke or failing health. She immediately placed a letter in the mail on Sept. 22, 2003, stating, “Dear Abby, I accept your offer for $35 million.” This letter arrived at the estate on October 2.

Charlene, Bill, and Doris are all asserting ownership rights to Rostron Manor based on putative contracts. As executor, Edward is opposing all of the petitions.

Part A Contracts Exam (25 min.) Discuss the validity of Charlene’s claims to Rostron Manor; also discuss any defenses that Edward may raise.

Part B Contracts Exam (15 min.) Discuss the validity of Bill’s claims to Rostron Manor; also discuss any defenses that Edward may raise.

Part C Contracts Exam (20 min.) Discuss the validity of Doris’s claims to Rostron Manor; also discuss any defenses that Edward may raise.

Please identify your Contracts Exam answers by the Part you are answering.

Contracts Exam Essay #1 – Good Student Contracts Exam Answers

Contracts Exam Example #1

Part A -- Mutual Assent?

The UCC governs here, as we are dealing with the sale of goods.

Offer1? -- Was P's order form presented on the golf course an offer? It contained the term of the proposed deal (6 mos), as well as implying a quantity (output). Price can be constructed from the history of dealing and the "market rate" that the court could easily reference. Based upon this information, the court could probably find enough definiteness here to make an offer. The problem arises, however, because P reserves the final act of contract formation to itself (approval of the sale's manager). As in Conroe Gin, if a proposal reserves the final action, it is not an offer.

Offer2 -- C's signing of the form is probably an offer. It incorporates the price, quantity, and duration terms as above. Despite the wording on the form "accepted by customer," when C signs the form, he is giving final power of acceptance to P. This is an offer.

Acceptance -- The form stipulated that the P would accept by approval of the sale's manager. P also begins performance of the contract, taking steps to acquire materials, notifying other buyers that they would not be able to meet their needs, and beginning production (there was nothing currently in production when C's order came in). If this is a unilateral K, then acceptance by commencing performance would be sufficient. If this is a bilateral K, then notice would usually be required, unless the offeror had waived it. P would argue that C had waived notice by signing their form (see Conroe Gin), but C might counter that the verbiage was not specific enough to waive notice, (i.e., "and a contract shall be finalized upon approval). The question is moot, however, due to option issues, as below.

Recission? -- After P begins performance (and substantial preparation for future performance), C attempts to rescind her offer. C does this over the telephone, before P sends the order confirmation, and before P can say anything about confirming the offer on the phone. If P's performance did not already constitute acceptance, C would normally be able to rescind the offer at this point. The problem arises, however, because P's order form, which C signed, stated that any order placed on the form would be "held open for one week." This created a valid option under the UCC, which allows for a "firm offer" between merchants to consist of a signed writing. If this is a firm offer, then C cannot rescind until a week has passed.

At this point, assuming either that P's commencement of performance equaled acceptance, or that P had a valid one-week option, there appears to be mutual assent.

Contracts Exam Part B -- C's Defenses

Firm Offer -- C will argue that there was no firm offer, because the "signature" on the order form was only an X, and a poorly-made one at that. C will argue that for the purposes of a UCC "firm offer" this signature is insufficient. As such, C had the right to revoke on the telephone before P communicated acceptance.

Notice -- As above, C will argue that the wording on P's order form was not sufficiently specific to constitute a waiver of performance. P will counter that the form did say that the order would "become binding upon agreement of the manager." As such, P will argue that the notice requirement was waived when C signed P's form. P probably has the better argument here because of the word "binding."

Statute of Frauds -- Because this is likely to be a sale of goods over $500 (based upon history of dealing), the agreement is within the statute. There is sufficient detail in the writing (because the output requirement satisfies quantity), but C might try to argue that the "X" he made was not a sufficient signature. P will counter that this fits the definition of "any mark intended to authenticate a document," and that C did the best he could under the circumstances. Probably for C here.

Definiteness -- C might argue that the agreement lacks definiteness, because the output requirement is too vague. Under the UCC, however, output contracts are sufficiently definite, because the producer is bound to operate in "good faith" (See Eastern Airlines).

Mutuality of Obligation -- C will argue that P was not bound, as she said, because they could just knock off work and go to Jamaica under the terms of the contract. Again, as above, under the UCC, P is bound to operate under good faith. Shutting down production for a long vacation would not be good faith, and would be grounds for breach under the UCC. P is sufficiently bound here.

Adhesion K -- C will argue that as an adhesion K (P supplied or wrote all the terms), the K is unenforceable. The court will look to see if the terms are sufficiently clear in nature and obvious (the option clause was written at the top of the form and in red ink). They will also see if the terms are within the expectations of C, and if they are conscionable. Since C is a merchant here and a dealer in these goods, there is nothing that should be unexpected about these terms. Also, they seem to be conscionable, the form was short and clear, and the terms were understood. The adhesion K probably is enforceable here, as is usually the case.

Acceptance Expressly Conditional -- This is C's best argument. P stated that their acceptance is expressly conditional upon P's agreement to their additional terms. C used the "magic words" in their varying acceptance. Under UCC 2-207(3), if P's acceptance is expressly conditional, we can infer a K only from the parties' conduct and the terms they have agreed upon. If C refuses to accept P's shipment or otherwise to act like a K has been made, they have a good argument that P's acceptance is invalid (no agreement) and there is no K based upon the parties' conduct. This is C's best shot at avoiding liability.

Part C Contracts Exam -- C v. Jill

This is a "box-top license" sort of case, similar to Step-Saver v. Wyse. Here, however, we are dealing with a warranty, not a license, so parallels to Henningsen can also be drawn.

When J examined the camera, it was without packaging or warranty, or indication of warranty. She paid the $200 asked for the camera, and THEN the clerk placed the camera in the box and included the warranty disclaimer. Under a Step-Saver approach, the deal was already complete when J handed over the money for the camera. The Seller cannot add additional terms to the deal after the K is formed. (See also Lefkowitz). Once the buyer has paid for the goods and the seller has delivered them, any further terms are merely proposals. J did not agree to anything in the disclaimer (she barely read it, and retention of the product for 10 days, or silence, would not generally constitute agreement). The Step-Saver approach would hold that she is not bound by the indemnity clause. (Further, in Step-Saver, there was notice of additional terms when the purchase was made; here even notice is lacking, thus strengthening J's case).

Without the incorporation of C's terms, the UCC implied warranty of merchantability applies, which would state that what J is buying is a camera and is generally good for camera-type use. Producing blinding flashes of light does not fall within the normal use/expectations of a camera, so under the IWH, C is responsible here, not J.

Easterbrook (ProCD/Hill) would possibly argue that J as a consumer should have expected that something like a camera would be sold with more terms than simply a price. As in the Gateway v. Hill case, the buyer is expected to know that some products come with terms of use, and the buyer is responsible to read them and act accordingly. Even under this approach, however, the terms have to be reasonable. Even Easterbrook might find that a total disclaimer of all warranty is overly-broad and not the sort of thing a consumer should expect.

Hennigsen would also ask if the terms were sufficiently clear so as to be understandable, and even if they were, is this a right that a buyer can surrender even with consent? The answer is probably not. Notwithstanding that the additional terms came late, the indemnity clause was in fine print, surrounded by more fine print. The court might well find that for the buyer to accept responsibility for damages resulting from C's defective product is simply untenable, and would refuse to enforce the provision in any case.

J would also argue under general Adhesion K principles, that this very important term was not sufficiently clear, and the seller did not obtain her express assent to it (cf. the Parcel Room case, where despite being clearly printed, the indemnity clause was unenforceable without proof that seller had called buyer's attention to it and obtained his consent. J would argue that the term was not within her expectations (why should she be responsible if C produces exploding cameras?), and further that it was unconscionable. To be unconscionable, any agreement would have to be both procedurally and substantively unfair. Here, we have both, in that the terms were slipped into the box after J paid for the camera (procedural--unfair surprise), and that the right surrendered was too important to be given up lightly (substantive--unfair advantage to C).

In conclusion, under a Step-Saver approach, which seems most applicable, J never agreed to the proposed terms in C's disclaimer, and is not bound by them. The UCC IWH would step in, and C is responsible for their own exploding camera. In the event that J can be expected to have known such terms were coming, however, they were unconscionable in both procedure and substance, and not binding.

Contracts Exam Example #2

Contracts Exam Essay Part A

To see if they had a contract for the suit on breach of contract we must consider whether or not there was mutual assent, consideration, and definitiveness. For the parties to have mutual assent there needs to be an intent to enter into a contract. This can be shown through offer and acceptance.

Was Pam's proposal of the order form an offer?

According to restatement 24 an offer is when someone intends to enter a K and gives the other person the power to make a binding agreement by accepting an offer. Here she is not making an offer but rather a preliminary negotiation according to restatement 26. Preliminary negotiation is different from an offer in that it leaves things left to be done and it does not intend to conclude with a binding bargain. The customer order form which Pam presents to Cal is not an offer but a preliminary negotiation. We know this because of the term that the orders will become binding only upon agreement from the Plastic plant manager. This leaves something left to be done, therefore it cannot be an offer. She did not intend at this point to be bound without the approval of her manager.

Was what Cal told Pam to write down an offer?

Restatement 24 and 26 as defined above tell us what the difference between an offer and preliminary negotiations are. Here we have an offer. Although it says accepts the offer, we did not have an earlier offer so it cannot be an acceptance. There is nothing yet to accept. "C accepts P selling to it whatever plastic pellets they produce during the 6 months beginning Nov. 1 is an offer. There is an intent to be bound to the agreement. All it takes is P accepting the offer by getting the manager to approve to the offered proposal. At that point they will have a binding contract.

Was there acceptance of the offer?

Acceptance is approving the terms of the offer by accepting therefore binding the parties to a legally binding K. Here we have acceptance. They set forth a means of acceptance when they said it was subject to the managers approval. P does not need to notify C when the manager approves the offer, because that term is not set forth in the offer. Under the UCC, we invite any means of acceptance reasonable in the circumstance and managers approval is reasonable in this situation. Here we have an acceptance. The manager approved the offer. This can be shown by his rejection of some of his regular customers for the next 6 months. He approved to the agreement formed between P and C. He also told the plant to start the production. He did not need to notify C of the approval because they offer was accepted reasonably in the circumstances ans this is enough under the UCC. Therefore the offer had been accepted.

If this was not viewed as acceptance by the court, than acceptance came when they sent the acknowledgement form which was too late because they had already revoked the offer. C called up and said they revoked the offer and than P sent the acknowledgement form, which also contained additional and conditional terms. If the court does not view the acceptance as the manager's approval (which it probably will) than she cannot at this point accept the offer because it has already been revoked. And furthermore she would have mad a counter offer at this point because according to 2-207 if the additional terms are made expressly conditional on the offer than it becomes a counter offer.

Contracts Exam Was there definite terms/

Since we are dealing with merchants this is governed by the UCC. The UCC does not like to find K's not enforceable due to indefinite terms. Here we have an output requirement K. The parties are bound to act in good faith, to produce the reasonable amount and the other party is bound to purchase what the party produces. This is definite enough in terms of the UCC. We do not find this promise illusory or indefinite. Rather it is governed by the output requirement of the company. It does not matter, under the UCC that the parties did not express a price term. Rather, according to UCC 2-205 the parties will go with the reasonable market price at the time of delivery. Therefore the K will not fail because it lacks in price terms, with the sale of goods.

Contracts Exam Was there consideration?

Consideration is defined as a bargain for exchange. It is defined by restatement 71 as that the parties find that they are giving as the price for what they are getting in return. Here we have consideration because the P is giving whatever plastic pellets it produces in exchange for the price of the pellets that will be paid by C. The contract does not fail for lack of consideration.

At this point the party has offer, acceptance, and consideration and definite terms therefore they have mutual assent and a binding output requirement K between the two parties.

Contracts Exam Part b

Defenses--

Was there acceptance or was there a Counter offer?

C will raise the defense that there was not acceptance since they were never notified of the acceptance. This argument however will fail because of the facts stated above that under the UCC reasonable acceptance is ok under the circumstances and in this situation the reasonable acceptance was the managers approval.

C will also raise a Contracts Exam SOF defense--

under the UCC 2-201 sale of goods over 500 dollars needs to be in writing. At Cl the writing must consist of a signature of the party being charges, evidence of a K, and evidence of the promises that are being breached. Here however, his argument will fail. For SOF writings it can be satisfied by a number of different writings brought together. The writing that P wrote for C on the golf course states the terms of the contract and the promises that are being breached. In addition, C might try to argue that he did not sign anything. However, his scribble, since his arm was hurt, is enough in this situation to satisfy the signature requirement since it is a representation of him. Here however we are governed by the UCC since it is for the sale of goods. The UCC says that they only thing that needs to be in the writing to satisfy the statute is the quantity. Since we have a requirements K here, i think that the court will view the writing as sufficient evidence of a K, since it says as much as they can produce in the next 6 months. It is up to the parties to act in good faith here. But it will most likely satisfy the quantity requirement. IN addition since the sale is between merchants, when C did not object to the acknowledgement form within 10 days it also binds him to the K.

C will raise the defense that when P sent the acknowledgement form with expressly conditional terms this was not acceptance of the offer. This is analyzed under 2-207. When acceptance has expressly conditional terms in an acceptance it acts as a counter offer not acceptance. Here however, this argument will fail because the acceptance took place when P's manager approved of the transaction., not when they sent the acknowledgement form. Therefore this is just an additional term that will be knocked out and filled with the UCC gap filler.

Part c Contracts Exam

Where was the offer and acceptance in the contract to buy the camera?

Offer and acceptance are defined above in part a.

This situation can be analyzed in two different ways under 2-207. Most likely J is the offeror when she offers to pay 200 dollars to buy the camera from the store. The accept her offer by selling her the camera. However, there are additional terms inside. Most likely under a traditional 2-207 analysis we will look at this terms as additional terms in the acceptance of her offer. Then we will ask are these additional terms material or not. Since they seem to be material (why would someone buy a camera without a normal warranty) we will knock the terms out since she did not expressly agree to the terms and we would add the gap fillers.

The second way to analyze this case would be to look at as the PROCD case did. In this case we would make the camera store the offeror and when she buys the camera she knows there are additional terms to come. She has a rolling acceptance to this offer. When she reads the terms and sees that she has 10 days to return the camera otherwise she has fully accepted the terms and conditions enclosed. She can return it and not accept the offer.

Although courts are likely to look at cases like this more like the PROcd case because it is a good economic way of doing things. However, the camera store would have had a better change of prevailing if they said something on the outside of the box like additional terms inclosed, so we would know it is a rolling acceptance. However, here they did not. Therefore the court is more likely to treat it like the traditional analysis of 2-207. In this case Jill will most likely prevail. These terms are unconscionable.

Contracts Exam Are these conditional terms unconscionable?

For something to be unconscionable it needs to be procedural and substantively unconscionable. Here we have a larger substantive unconscionably problem than procedural, however it does have a little procedural unconscionably in that there was no notice of this term on the outside of the box at all. The term however is so outrageous that the court will deem it unconscionable. Under the UCC, which would govern this transaction because it is the sale of goods, we would look at 2-314 and find that products must have a warranty of merchantability. For example if you buy a car, it must be able to operate as a car. The steering well cannot fall off on the highway. The same is true in this situation, when someone buys a camera they should be able to use it as a camera, it should not explode on its first use. Since we are using the traditional 2-207 analysis above we would get ride of this unconscionable indemnity clause and ad the UCC gap filler which is the warranty of merchantability. We would probably also add that if this term was not as unconscionable as I believe it is that under UCC 316 if there is an express change like this it would have needed to be more obvious to the buyer.

Therefore, this Indemnity provision is no good, it is unconscionable and in addition it is a term that was offered after the acceptance of the offer when she purchased the good. Even if the court was to view her buying the camera as a rolling acceptance as in done in shrink wrap cases like this, the court would find this clause unconscionable because of the implied warranty of merchantability.

Contracts Exam Essay #2 – Good Student Answers

Example #1

2)

Contracts Exam Part A

Was there mutual assent, consideration, and definitiveness between A and C?

To have mutual assent you need an intent for the parties to be bound, this can be shown by past dealings and relationships or through offer and acceptance. Consideration is shown through a bargain for exchange, where one party views what they are giving is the price for what they are getting. And definitiveness just needs to be definite enough so that the court can figure out the terms of the contract and the appropriate remedy if there was a breach of the K.

Offer is when one party intends to be bound and leaves all that is left for the other party to do is to accept the offer to make a binding K between the parties. When A first brought the issue to the table she offered to leave it to her at her death this was an offer. However, with this initial offer there was no acceptance. But there was a bigger problem with the mutual assent of her original offer. It was with the consideration. She offered to leave her the mansion for a past and moral consideration, which is where a past benefit gives rise to a moral consideration. This IS NOT valid consideration for a K, unless it is to pay a preexisting debt or someone coming of age., which this was not., Therefore, even if C had accepted this offer for the farm, it would not have been a binding K because of the lack of consideration, which would have been past consideration.

The next offer she proposes is not based on past consideration. So that is no longer a problem. Rather she has offered to give her the farm if when A dies she donates 5,000 dollars to charity. This is a valid offer and would be based on valid consideration. The would view what they are giving for the value of what they are getting. C views giving the 5,000 dollars as what she gives to get the mansion and A views giving the mansion as what she is giving to have the 5000 dollars giving to charity in her name. However, this is a unilateral contract [Nichols: bilateral K] which cannot be accepted until A has died. Because that is the point when she would give the money to charity. Therefore once A dies the offer has expired and C cannot accept this offer by giving the money to charity. There would no longer be an offer and therefore no K would be formed.

If the court viewed this as a bilateral K in that her promise to give her the farm and death was in exchange for the promise to give the money to charity there would still be a couple of defenses that could be raised the the K:

1) C was a minor when she made the k with A. Minors are anyone under the age of 17 and these contracts are voidable. However, C can raise the defense that at the time of the death she is now not a minor and she did not chose to avoid this K. So it still would be a valid K.

2) The court might also look into the consideration. Although courts do not usually look into the consideration of K, this could be one of those special situations because of the relationship between the two parties. It is almost like a family relationship. The court might view 5,000 dollars for a 34 million dollar mansion as nominal consideration and it was rather meant to be a gift, so they would not make the K valid.

3) The executor could also raise the Statute of Frauds defense. Since this is for an interest or the sale of land this transaction falls within the statute and therefore would require a writing to be valid. The writing would need the signature of the person being charged, evidence of a K, and evidence of the unfulfilled promises. Here there is a type of writing the letter that C sent A thanking her for manor, but it is not signed by A. A would be the person being charges in this case. Therefore this writing would not satisfy the statute requirement. However, there may be an exception here. C relied on this K.

Since C did rely on the money that the manor would bring to her, by going to pepperdine which she could not otherwise afford, she has relied to her detriment to this promise. Depending on whether the reliance was of the unilateral K, where the offer died (we would use restatement 90) or if we view it as a valid K except for the SOF problem (here we would use restatement 139).

In either case we would need a promise, which we have the giving of the manor. Promisor would have needed to foresee reliance, which we would also have because A knew that C was poor and would probably use this money form the mansion to her benefit. We need actual reliance which we have, since she went to pepperdine, incurring debt, and we would need no other way to avoid injustice. Which was also have here. Therefore she would probably get reliance damages based on this transaction between the two of them. The court will most likely limit the remedy to the debt she incurred from pepperdine rather than the whole mansion itself.

Contracts Exam Part b

With Bill's claim A has many defenses. Although they have an offer and acceptance and consideration and definitiveness, there are capacity and misrepresentation arguments, which will void the K between the two of them.

Was A mentally competent to make this transaction?

There are 2 test to see if one is mentally capable of making a transaction. The cognitive test would be that they are so incompetent with every transaction and the other side would not need to know and the volitional test would be that they could not act reasonable with this transaction. Here A cannot act reasonable with this transaction, because before her stroke she could handle all her accounts and now after she has left Bill to do it all. Bill is, in addition., well aware of her incapacity and is taking advantage of the situation. This contract would be voidable because of this knowledge of her incapacity. There are some exceptions to this like if he did not know, which does not apply because he does. If the terms were fair we would also have an exception, but the terms are far from fair because the mansion is worth 34 million and he only pays one million., Therefore the court would avoid this transaction on these grounds. A contract for incapacity is voidable it is up to the mentally incapacitated person to prove their incapacity.

Contracts Exam Did B have undue influence over A?

Undue influence is a persuasion over a person either in dominance of the person or, as it is with this situation, they have a special relationship and one would think the person is looking out for her best interest. Since Bill and A had a special 40 year long relation ship he has exercised undue influence over her in this transaction., This can be shown by him making her sign the K on the spot and not letting her have the time to consult with anyone about the transaction. He exercised undue influence over her and there for this K would be avoided.

Contracts Exam Did B use Misrepresentation?

Misrepresentation is a misrep. of fact, knowing you are misrepresenting the fact, that induces the other party to enter into the K and it is to the other parties detriment. This is present in our case. B knew that A was not having financial problems, but told her that she was in order to trick her into selling him the mansion for hardly anything. He made a false assertion of facts which induced her to sell him the farm. And she relied on this to her detriment, in losing the farm for much much less than it was worth

If for some strange reason these defenses fail, B will try to say that they have a unilateral K and that he has started performance on the K by rendering her the money and therefore she needs to pass the property title to her upon her death. He would claim that the offer does not die at her death because he has created a option contract by starting performance of the unilateral k by giving her the money. Or he can also claim they had a bilateral K that she promised to give him the farm and he promised to pay her the million dollars and therefore it would not matter that she had died since it would already be a valid K.

Most likely this transaction will fail because of all the above formation defenses. The contract is easily avoidable for one or all of the formation defenses.

Contracts Exam Essay Part c

Offer--

the first offer for D's transaction took place on August 17th 2002 when A said she would be willing to sell the property for 34 million at her death. This is an offer because she has an intent to be bound upon acceptance.

However, this offer most likely lapsed when D called on August 28 and said that the price was too high. The court would most likely view this as a rejection of the offer which ends the power of acceptance of that offer. Even if this was not a rejection, but merely a comment on the price. By the time that D contacted A again it was a year later. If the offer does not specify it will lapse in a reasonable time. A year is probably over a reasonable time for the offer to lapse.

At this point we have no offer on the table--therefore there cannot yet be an acceptance.

The communication that took place a year later on August 1 2003 where D says she accepts the terms of the earlier offer is not an acceptance because we have no offer to accept at this point. Here she has presented an offer to buy the farm for 31 million and take possession at her death. Sending of the 50,000 dollars does not create an option K at this point.

On August 16th when A contacts D this is a counter offer for 35 million dollars. She has not accepted the terms of the earlier offer but has made a counter offer. The mirror image rule says that the acceptance needs to be the mirror image of the offer and this is not, therefore it is a counter offer. A is trying at this point to make it into an option K by saying that the 50,000 dollars is consideration for an option K. However, this is not true. This cannot create an option K because this consideration was not bargained for. The consideration in creating an option K would need to be bargained for by the offeror and the offeree and this was not. But if the court views that it is an option K than the offer would be held open until Oct. 1 as stated in her communication. Therefore, D would have until October 1 to accept. But the acceptance MUST be received by October 1, not sent by Oct first which would be the traditional mailbox rule.

Most likely the court will not view this as an option K because the consideration was not bargained for, therefore when A dies on Sept 20 the offer would die with her. However, if the court does view this as an option K she still would not have accepted the offer on time, because although she mailed the acceptance on Sept 22 the letter did not arrive until oct. 2. With an option K the acceptance needs to be received by the time the option K runs out. it does not follow the traditional mailbox rule that acceptance is valid when the acceptance is sent.

Furthermore, not only was there never mutual assent with this K, the executor can also raise an incapacity defense for the offer made on August 16 2003. At this point A had already had her stroke. If the executor could prove that A was cognitively unaware as to all decisions than it would not matter that D was unaware of A's condition. However, if the executor can only prove that A was unable to reason with this particular transaction than D must have been aware of the condition. This argument probably will not work because D was not aware of A's incapacity. And furthermore the terms of the contract appeared fair. The selling price was for what the mansion was worth.

However, it does not matter that the incapacity argument will fail because there was no K between D and A because there was no mutual assent of offer and acceptance. As shown above the communications between them never met up with an offer and an acceptance. Rather they met offer with counter offer and the counter offer never really had an option K because the consideration was not bargained for. And without an option K the offer died with the death of A.

D will be able to get back her deposit of 50,000 dollars but not be able to purchase the mansion.

Contracts Essay Exam Example #2

Contracts Exam Part A -- C's claim

GP -- We start here with a gratuitous promise. A promises to give C the house because of C's faithful companionship. As in Feinberg, past performance is not sufficient consideration to support a K, and continued performance, if not bargained for, is not sufficient consideration either. A never asked C to visit her in exchange for the house, so this starts out as a GP.

$5K -- Abby offers to sell C the house for $5K, given to the animal shelter. As explained in the restatement, if A asks C to pay consideration to a third party, this can be sufficient to support a K; A does not need to receive the consideration herself. A question arises, however as to sufficiency. Though courts do not usually examine whether one party "got enough" out of the deal, the court will not enforce a GP that is operating under sham consideration. C will argue that this $5K was legitimate consideration, and that the court should mind its own business. E will argue as below, that this is a peppercorn and insufficient consideration.

Bilateral K -- We have here a promise to pay $5K to the animal shelter in exchange for a promise to convey RM to C. A bilateral K is complete once promises are exchanged, and does survive the death of one of the parties. If this were a valid K, it would be enforceable after A dies

Reliance -- C will also make an argument for reliance. Reliance requires (1) a clear and definite promise, (2) foreseeable reliance, (3) detrimental reliance, and (4) unavoidable injustice. Remedy may be limited. Here, A makes a clear promise to give RM to C in exchange for her promise. A could foresee that C would rely upon this promise. A knew C was poor, and was glad when C enrolled in school, something C could not have done otherwise. C incurs debt as a result of her reliance, and arguably should not be stuck with it. If C can make a valid reliance argument, remedy would probably be limited to the amount of her school debt, not the entire manor.

Restitution -- C will possibly argue that A was unjustly enriched by her companionship, and A's estate should pay. C has two problems here. The first is that restitution does not apply when goods or services are provided as a gift. Here, C was not keeping A company to get the mansion or any money; she was just being a friend. Further, restitution does not apply if the benefits are immeasurable. The court would probably not want to mess around with trying to determine how much several years of long walks and domino games is worth in currency. C's restitution claim fails.

Contracts Exam Defenses

Peppercorn -- As mentioned above, E will argue that the $5K is peppercorn consideration, and only a ruse to hide a gift promise. Based upon the parties' conversations, A was willing to give C the house whether C wanted it or not. A didn't need the money. C will argue that she wanted to pay something for the house precisely so that it wouldn't be a gift (to ease her conscience). E has a pretty good case, though, that the gift was pre-existing, and the $5K was not bargained for, but was simply slapped onto an existing arrangement in an attempt to lend it legitimacy.

Statute of Frauds -- Is this agreement within the SoF? At the time of making, A could have died at any point, and C would have been able to make a gift to the Animal Shelter. Under the one-year provision, this is not within the SoF. Under the transfer of land, provision, however, it is. RM includes not only the house, but a lot of acreage.

Next, we have to determine if the statute is satisfied. Here, we have a writing (C's thank-you note) that includes the pertinent terms of the agreement. However, the writing is signed only by C. To satisfy the SoF, the writing would need to be signed by the party against whom enforcement is sought. Here, we have no such signature, and the SoF is not satisfied.

If the SoF is not satisfied, it may be excepted. In land transfers, partial performance may take a K out of the SoF. Here, C does two things that indicate partial performance; she has occupied the land and has made substantial improvements (the extra bedroom and bathroom). The problem here is that C was in occupation and had made these improvements prior to the point when she and A made her deal. As such, this partial performance was not really performance of the agreement, but a pre-existing condition. This probably won't serve to except the agreement from the SoF.

Voidable -- C was a minor at the time of the agreement, being only 17. As such, she enters only voidable K's. E will argue that he has the right to avoid the agreement, because C was an infant at the time of making.

Conclusion: E probably will prevail here. The consideration is most likely a sham, and that notwithstanding, the agreement is within the SoF and the SoF is not satisfied.

Contract Exam Part B -- B's Claim

B's claim doesn't look good. He hits all three categories of Unfair Bargaining.

Capacity -- A was mentally infirm at the time she made this agreement. After her stroke, she was unable to remember things clearly or make good decisions. She had turned all the managerial tasks over to B. Further, B was aware of this infirmity, and had even waited for the onset of the condition before trying to make the deal with her. Because A was unable to understand what was going on, and B knew of her condition, there is small chance the K will be enforced (see Ortelere). B's agreement with A is voidable, and E can avoid it accordingly.

Undue Influence (coercion) -- There is no improper threat here (sign or I'll break your legs), so this isn't duress. What we do have is undue influence in B's actions. Undue influence can be established by domination. Here B pressures A to sign now, states that she has no time to consult with anyone else, and takes advantage of her infirm condition. Undue influence can also be established by relationship, per the restatement. Here, B is in a position of trust (he is running A's affairs). A is justified in assuming that B is not going to act in a manner inconsistent with her best interests. Because of B's UI by domination and relationship, the K is not enforceable.

Misrepresentation -- Misrepresentation requires four elements (misrepresentation of material fact, scienter requirement, reliance, detriment). Here, B states falsely to A that she doesn't have enough money to make it through the month. B knows this isn't true, and the fact is material. A relies on this when she agrees to sell RM for a paltry $1m, and gets ripped off in the process. Misrepresentation makes this K unenforceable.

Reliance? -- B cannot make an argument for reliance because (1) he knew about A's condition, and (2) the terms of the agreement were not fair. Both would have to be otherwise for a reliance argument to provide B a remedy in a K with a mentally infirm person.

SoF -- The only argument in B's favor is that the SoF is satisfied. Being a transfer of land, SoF applies. The terms are spelled out in the contract, and A signs it. Given the facts as above, however, the whole deal is shot through with unfair bargaining, and doesn't stand a chance of being enforced by the courts.

Contract Exam Part C -- D's claim

8/1/02 -- This is an inquiry, a request for a quote.

8/17/02 -- This would not normally be an offer. Stating the lowest amount one would sell the property for is not usually an offer without a present intent to sell. A doesn't say "I'll sell the property to you for no less than...". A's remark may simply be informative, or an invitation for D to make an offer. D's one argument here is that given the course of dealing, A's letter is an offer. D specifically asked for the lowest price (see Crunden, the mason jar case). In response to a request for a "best price," A's quote may be construed as an offer.

8/28/02 -- Is this a rejection? Even if A's 8/17 letter was an offer, D's "that's a high price" comment may be a rejection, terminating power of acceptance. Or, it may just be an "I'm thinking about it..." sort of comment that would not terminate power of acceptance. A does not respond to this offer.

8/1/03 -- Even if we had an offer from A on 8/17, and even if D did not reject it on 8/28, almost a year has passed since the offer was made. The offer has most likely lapsed by now, since a "reasonable time" for a real estate offer to remain on the table is most definitely not a year. Prices change too much over that period of time. Given the Lapse, then, D cannot "accept" A's offer of $31m, even if A made such an offer. The $50K D sends is nice, but A didn't ask for it, so it doesn't appear to be bargained for in any sense.

8/16/03 -- A is mentally infirm at this time. She is arguably unable to make clear decisions, though E would have to prove that A was unable to make this particular decision, not that she was just overall addle minded. If E can prove A's cognitive inability to understand this agreement, D's unawareness of A's condition may or may not play a part. Per the restatement, the other party need know of the mental condition only if it is a volitional impairment. Here, A has a cognitive impairment, so D's knowledge may not be required to make a voidable K. However, as in Cundick, the buyer's ignorance of seller's condition may be grounds for enforcement if it seems to the court that the seller was making a coherent choice. Given that A is now "selling" the same property for the second time, the court will probably not find the decision coherent. On capacity grounds, the offer is probably no good.

The option: A extends an option to D here, good through 10/1. The purported $50K consideration for the option, however, probably doesn't fly because it wasn't bargained for. D sent the $50K to show how "serious" she was, not to bargain for an option. A keeps the check, and then offers D an option. Consideration must be bargained for, and without consideration, the option fails. A and D are not merchants, so a simple signed writing would not suffice for an option.

Acceptance -- D attempts to accept A's offer on 9/22. One of two things happens here. If D had a valid option, A's death does not terminate it. D's letter, however, by the mailbox rule must arrive at A before the option expires. Any option here was only good through 10/1, so D's letter arrives late. She cannot accept on 10/2. The second possibility is that D did not have a valid option from A. In that event, A's death terminates D's power of acceptance. She cannot accept by her 9/22 dispatch, because A died on 9/20.

SoF -- The SoF applies to this sale of land, and is satisfied by A's signed letters combined with D's letters. The point is moot, though, because any offer that was on the table was terminated before D communicated acceptance.

E doesn't have to sell the property to D.

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CONTRACTS EXAM MINNESOTA 2000

Swanson Printers (hereafter Seller) sells a variety of computer printers and other computer hardware.
Butler Networks (hereafter Buyer) regularly purchases and installs computer networks – both hardware and software -- for a variety of businesses. On January 20, Buyer mailed the following signed document to Seller:
Buyer offers to purchase six (6) Gold-Dot Computer Printers from Seller at the price of $500 each, for a total contract price of $3,000.
On January 27, Seller responded to the January 20 purchase order mailed by Buyer, by mailing a signed letter addressed to Buyer which stated:
Seller agrees to contract with Buyer for the sale of four (4) Silver-Dot Computer Printers at the market price for such printers, determined at the time of contract formation. If Buyer breaches this agreement in any respect, Buyer will forfeit $10,000 to Seller as damages.
On February 2, Buyer responded to the January 27 letter by mailing a signed letter to Seller which provides:
By this letter, Buyer agrees to the terms of the January 27 writing from Seller. Buyer agrees to purchase four (4) Silver-Dot Computer Printers from Seller at the market price for such printers, determined at the time of contract formation.
Under the terms of this contract, Buyer will have 20 days from the buyer's receipt of the printers to inspect the printers for defects. If a defect is discovered within the 20-day period, Buyer may return the printers to Seller for a full refund.
On February 2, the market price for a Silver-Dot Computer Printer was $700. By February 13, the market price for a Silver-Dot Computer Printer had fallen to $500. On February 13, Seller is ready to deliver the four (4) printers to Buyer but Buyer repudiates its contract with Seller.
Based on the January and February correspondence, analyze and discuss whether Seller and Buyer formed an enforceable contract. Include in your discussion whether Seller may collect $10,000 damages from Buyer pursuant to the contract provision.

CONTRACTS EXAM MODEL ANSWER

This question is governed by the UCC as it is for a sale of goods. Both Buyer ("B") and Seller ("S") are merchants, as they regularly deal in goods of the kind that are the subject of the contract ("K").

Contract Formation Contracts Exam

A K is an agreement supported by consideration between two or more parties. The issue here is whether a K existed between B & S. A K requires offer and acceptance. On 1/26, B mailed an offer to S, offering to buy 6 printers @ $500/each. This was an offer to enter into a bilateral K.
On 1/27, S mailed a counter offer to B. Under the UCC, if an offer is made, and the offeree accepts the offer, but adds provisions or changes terms, the changes do not constitute a counter offer but rather an acceptance. The new terms are part of the K if they do not materially change the agreement and the offeror does not object w/in a reasonable amount of time. If the terms do materially change the agreement, they become a counter offer. In this case, S sent back a letter that changed every term of the offer, type, quantity and price. Thus, S's letter is a counter offer, not an acceptance, and B's original offer is dead. S's offer is not void for failure to include a price term. Under the UCC, a K can fail for failure to include a price term, if there is no way to determine a price. Here, price is set at market value; thus the price term is sufficiently determinable. Thus, S's 1/27 letter is a counter offer.
B accepted S's counter offer in his subsequent letter, 2/2. A K exists for (4) silver printers, priced at K formation, which was 2/2, when B accepted. B preserved the right to inspect and reject w/in 20 days. This is a new term of the K and will become part of the K so long as it does not materially change the K and S does not object w/in a reasonable time period. Under the UCC, a buyer has a right to inspect goods and return non-conforming goods to the seller w/in a reasonable time for a full refund. As this right exists under the UCC, the provision is most likely valid, as 20 days to inspect is a reasonable time, and S did not object. Thus, a K exists that incorporates the terms of the 1/27 and 2/2 letters.

Statute of Frauds Contracts Exam

For a sale of goods over $500, the K must be in writing and signed by the party to be changed. The 1/27 and 2/2 signed letters satisfy this requirement.

Remedies

On 2/13, S is ready to deliver and B repudiates. Thus, S can sue for breach of the K and recover damages. The K included a liquidated damages provision that stated that if B breached, S could collect $10,000. Liquidated damage provisions are enforceable in limited circumstances; i.e., if a damage amount is unascertainable. Additionally, if a liquidated damage provision is extreme, a court, in equity, may declare it void.
Under the UCC, S has several remedies for breach of K. The seller may sell the printers and recover the difference between the K price and the market price. In this case, the K price was set on 2/2 at $700/printer or $2,800 total.
When B breached, the market price was $500/printer. Thus, B can sell the printers on 2/13 and recover the difference, $800. Also, if S has an unlimited supply of goods, then S may recover for the full K price, as finding a new buyer would not put him in as good of a position as if the K was not breached, b/c his unlimited supply enables him to sell to both B and the new buyer. Thus, B is entitled to recover $2,800, K price. B can also recover incidental/consequential damages associated with resale.
In light of the fact that B could recover, at most, $2,800 (plus incidental/ consequential damages) or, in the alternative $800 (plus consequential/incidental), the liquidated damages provision of $10,000 seems unconscionable. It is more of a penalty for K breach, rather than restoring S to his original position. Thus, it is most likely void and S may not collect $10,000K.

Editorial note: The first Contracts Exam sentence is a conclusion. You should start by defining goods. For a contracts exam always state the rule.

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