Contracts Final Exam Spring 2014 Prof. Virginia Goodrich & Prof. Bryan Clifton QUESTION #I

Dan is a car dealer specializing in the resale of vintage high performance muscle and sports cars. Dan locates cars on the open market or at auctions and contracts with others who would restore his cars for resale.

Bob owns an automotive body and restoration shop which specializes in racing and other high performance cars. Bob has such good reputation in the local automotive body and restoration industry that his business consistently scores 5 out of 5 stars on Yelp- an internet review forum of goods and services.

Bob and Dan entered into a three-year written agreement whereby Bob would restore all of Dan's cars at a lower rate given to most wholesalers and consumers. The written agreement included the following clause: "No assignment of the contract or delegation of any contractual duties shall be made by either party without the other party's written consent."

Unexpectedly, Bob began receiving poor reviews and ratings from his customers and Bob's Yelp rating changed from 5 to 3 starc. Bob, who became depressed, abused prescription drugs and subsequently sold his entire business, including the contract between Bob and Dan, to General. General, is a common automobile body shop which works on all types of cars. General does not have any experience with doing automobile body work on racing and high performance cars. Bob went into a drug rehabilitation facility overseas.

General notified Dan in writing that General will complete the body work on Dan's car that Bob had in his shop. General did not complete the car on time or in accordance with Dan's instructions. Because General refused to release the car to Dan unless he paid for their services, Dan paid General at the original contract rate and took the defective car to another body shop to repair General's shoddy work.

Dan delivers the car to his buyer under a resale contract two months after the contract delivery date. The cost for additional repairs to fix General's work is $10,000. In addition, because Dan breached his contract with his buyer which contains a liquidated damages clause for late delivery, Dan had to reduce his contract price by $3,000.

Discuss all rights, applicable defenses to be raised, and remedies for the following lawsuits:

l. Dan v. Bob (On a theory ofdelegation ofduties) 2. Dan v. General (On a theory ofassignment ofrights) [DO NOT DISCUSS CONTRACT FORMATION ISSUES] ISSUE SHEET

Dan v. Bob

Comrnon Law or UCC?

Dan and Bob entered into a written agreement for automotive body and restoration work. Automotive body and restoration are services. Therefore, common law governs this transaction.

Since the call of the question states not to discuss conhact formation issues, it is not necessary to discuss whether there is a valid contract.

In an action for breach of contract, Dan will sue Bob for damages in accordance with the following theories of recovery.

Deleeation

Dan Bob Delegator

Delegate General Delegation

A delegation is an authorization to another to render performance delegation of a leeal duty. The Delegator must manifest a present intention to make the delegation must be suffrciently identified. Here, Bob, as the Delegator, delegated his duty to perform auto body services and restore Dan's cars for a three-year period to General when he sold his business to General.

Is the Duty Deleeable?

As a general rule, all contractual duties may be delegated to a third person. Dan will make the following arguments in support of his claim that the duty to provide auto body and restoration services are not delegable: l) the duty involved personal skill; 2) the performance from General would materially change his expectancy under the contracu and 3) the contract had a restriction on delegation of contractual duties. Duties Involvinq Personal Judement and Skill - If the duties involve personal judgment and skill, they may not be delegated. The student is required to argue whether or not Bob's specialization in racing and high performance cars is relevant in Dan's argument that the duty to provide auto body and restoration work involves personal judgment and skill. The student should also argue General's position that it has the requisite skills to perform the delegated duties from the Bob and Dan contract

Chanee in Obligee's Exoectancv - If performance by the delegate will materiallv chanee the obligee's expectancy under the contract, the duty may not be delegated. For the same reasons provided above, Dan will argue that his expectancy under the original contract would be materially different from the original contract.

Contractual Restriction on Delegation- Where a contract restricts either party's right to delegate duties, such a provision will usually be given strict effect. Because the written agreement included the following clause: "No assignment of this agreement or delegation of any duties shall be made by either party without the parties' wdtten consent," the courts will not enforce the above delegation of duties and Dan is not required to accept performance from General.

Since the delegation analysis ends here, it is not necessary to discuss the assumption and the effect of the delegation.

Breach of Contract - Dan will argue that when Bob sold his business and transferred the contract between Dan and Bob to General, which was an attempt to delegate his contractual duties, Bob had materially breached their contract

Remedies

Compensatorv Damases - Dan will seek in the form of damages under his expectancy interest or the "benefit ofthe bargain" such as profit or in altemative, seek damages under a reliance interest which would include any expenditures he made in reliance on the contract.

Conseouential Damases - In addition to the standard measure ofdamages imposed on the breaching party, the courts will hold breaching party liable for further losses resulting from the breach that any reasonable person would have foreseen would occur from the time of entry into the contract. But for Bob's breach, General did not complete Dan's car in accordance with Dan's instructions and he was required to find another qualified auto body shop specializing in racing and high performance cars. Dan will seek to obtain from Bob the $10,000 Dan paid to fte substitute auto body shop. The $10,000 expenditure can be argued under either a compensatory or consequential theory. Dan v. General

Because Dan is overseas, Dan will seek to sue General for damages.

Assignment

Dan Bob gnor

Assignee General

Valid Present Assienrnent?

In order to assign contract rights, the assignor must sufficiently describe those rights and indicate a present intention to divesl himself completely the same and set them up exclusively in the assignee. Here, when Bob sold his business and transferred his contracts to General, Bob indicated a present intent to divest himself completely and set up the associated contractual rights with General.

Is the Rieht Assienable? - The general rule is that the law favors the free assignability of contractual rights. However, the assignment will be denied where it an exception applies such as the right to be assigned would 1) materiallv vary the risk or duty of the oblisor; or 2) there is an exDress contractual restriction against an assignment. Dan probably has a very strong argument that his risk was materially varied by the assignment but he is suing General and seeking damages from General, therefore, he has an interest in maintainins a position that the assignment is effective while General will argue that it was not effective in an effort to avoid liability.

Exoress contractual Provision Against Assisnment - A clause prohibiting the assignment of'lhe contract" will be construed as baning only the delegation of the assignor's duties. A clause prohibiting the assignment of contractual duties generally does not bar assignment, but merely gives the obligor the right to sue for breach if an assignment is made. In other words, the assiqnor has the power but not the right to assign. since the above anti-assignment clause does not include the words that "any attempt to assign will be VOID", the assignment will be deemed effective. However, Dan has the right to sue for breach. valid Present Assignment: courts require a present intent to transfer an existine contractual right. Present rights executory under existing contract.

Effect of Valid Assienment - Under an effective assignment General, the assignee, stands in the shoes of the assignor, and General must perform the auto body and restoration services on Dan's car in accordance with Dan's instructions (he right to performance) and General has the corresponding right to receive payment under the original contract between Dan and Bob. since all rights from an efrective assignment are derivative, Dan can sue General just as he could have sued Bob, subject to any defenses that existed prior to notification of the assignment.

Defenses

obliqor asainst Assisnee: obligor may assert against assignee all defenses which would have been available against the assignor, if there had been no assignment. provided, that such defenses are based on facts which arose prior to the time that the obligor acquired notice ofand vested his rights under the assignment.

Material Breach - If the obligor does not receive substantial benefit of his bargain as a result of failure to perform or defective performance, the breach is considered material. Here, Dan will argue that General did not complete the auto body in accordance with his instructions, moreover, because of General's shoddy work; he had to have the car repaired by another auto body shop.

"Assisnment" of the contract = assierunent of riehts and deleeation of duties. (Extra credit) The transaction is subject to the rules goveming both assignments and delegation. Where a contract is assigned as a whole, the assignment of rights may be unobjectionable, but the delegation of duties may reduce the value of the retum performance reasonably expected by the original pa(y. If so, the contract may not be assigned. As discussed above, the delegation of the duty to perform auto body and restoration work by an inexperienced body shop may significantly reduce the value of the retum perform expected by Dan. A student who can spot this issue and effectively discuss the issue will receive extra credit. Contracts II Final Spring 2014 Prof. Virginia Goodrich and Prof Bryan Clifton

QUESTTON #2

Sailor, looking to upgrade his boat, ran an ad in the News-press of Santa Barbara stating:

FOR SALE: 100 Ton, 'Golden Wheat.' Excellent for an enjoyable aftemoon. $32,000, Or Best Offer. Delivery at time of sale. All .sails' final. Open for 95 days only! Call Me.

Brewer, a local small batch beer brewer, saw the ad and called Sailor to say that he was interested, the golden wheat, and would pay $27,000 for all 100 tons. Thinking this response was odd since there was only I boat for sale, sailor said he would need to think about it.

The next day, Sailor mailed a letter to Brewer saying he accepted the offer of $27,000, but he was including an Arbitration clause and a requirement that all litigation takes place in Maine, in the agreement. Sailor also told Brewer..This may not be exactly what you want, but I hope you're satisfied with the accommodation. And I know I was requiring an arbitration clause, but let's forget about that requirement."

Brewer received the letter, didn't read the details, and went to Sailor's house with a check for $27,000. Sailor accepted the check and handed the keys and address to Brewer.

Brewer, upon going to the address provided was stunned to see a boat named "Golden Wheat," and not 100 tons of golden wheat for making beer. Not one to be easily dissuaded, he took the boat out but because the sails were damaged, ran the boat aground, causing about $30,000 worth of damage to the boat. Brewer, after simply leaving the scene, called Sailor to let him know that Brewer didn't want the boat, and that,s not what he contracted for.

Besides, the sails were so damaged, the boat was worthless. He wanted his money back. Sailor refused, but agreed to replace the sail.

Brewer closed his bank account before Sailor could deposit the check. and Brewer sued for Sailor for breach ofcontract and punitive damages.

In Brewer v. Sailor: Was there a valid contract, and what were the terms? Discuss all applicable defenses and damages. ISSUE SHEET Q#2 Prof. Bryan Clifton

UCC v. C.L. Very simply, this is a K for a good. Students need to include "Tangible and Moveable at time of sale." Students should also address whether or not these are merchants. Whether or not they specialize in these goods, or hold themselves out as experts.

Offer

The first issue is offer. Students need to analyze the applications of Ads as offers and whether or not this Ad constitutes an offer. Was the offer "Definite and Specific?" Next is the counter-offer of $27,000. Do these discussions constitute a "meeting of the minds?" Made sure to address that the two parties seem to be negotiating on different things.

Acceptance

There are several levels of Acceptance here. First, students need to analyze the several different offers in this problem. Then, assign an act which may or may not be an acceptance. Brewers first "I accept" is really a counter-offer. Sailor arguably accepts after that (see UCC 2-207 infra), when he makes two additional requirements. Even though there may have not been a meeting of the minds at the beginning of the conversations, Students should note that conduct of the parties may also indicate that there was a contract, despite a lack of a meeting of the minds. The keys were exchanged, and Brewer took the boat out. Either he was stealing the boat, or was accepting the offer of the boat. Lastly, some students might pick up on the fact that Sailor may have been trying to provide non-conforming goods as an accommodation.

Mistake Students will most likely address the 'Mistake' issue here. It is appropriate to address this, but there is not issue of mistake here. This is a situation where both parties have a belief as to what they are contracting for, and they are each correct in their belief, but they both have independent and different beliefs as to what they are contracting for. Neither is mistaken as to any fact during the formation of the contract. The final step would be to differentiate between lack of contract, and a contract which should be rescinded or which is voidable.

2-207 When Sailor sends his 'acceptance' to Brewer, it is important to note he adds two additional terms. The question becomes whether or not these terms are part of the agreement. Under a UCC K, the terms may be in based on a 2-207 analysis. First students need to assess whether or not we are dealing with Merchants. Next, Students should address whether or not these terms are just proposals, or ifthey fall into one ofthe three categories to keep them excluded. If the terms are proposals, were the terms accepted when Brewer took the boat?

Parol Evidence There is a subtle Parol Evidence issue here. Students need to do a full analysis of parol Evidence in regards to the Concurrent statement regarding the arbitration clause not being included. Since this statement directly contradicts the written language, it is unlikely that evidence of this 'agreement' would be allowed.

Warrantv There is an issue as to Warranty. Was this boat fit for sailing? Students should discuss Fitness ofpurpose and warranty of merchantability. Along these lines, students may also point out the play on words included in the Ad. "All 'sails' final." Sailor will argue that this was an "as is provision." Since the boat was sold 'as is,' there was no warranty in place. Students should discuss whether this was an express waiver of warranty sufficient to bypass the basic included warranties mentioned supra.

Breach cancelling the bank account would be a breach. Also, students should discuss whether or not the improper sails was a breach, or if Sailor tried to repair.

Damaqes Ifthere is an issue as to contract formation

Expectation Sailor is entitled to the benefit ofthe bargain. $27,000.

Reliance There is no reliance issue here

Restitution Restitution is an issue here ifthere is no Contract. Ifthere is a Contract, Brewer now has a damaged boat. Ifthere is no Contract, Sailor now has $30k damage to his boat. This is a Restitution issue.

Punitive Not in Contracts. Remedies

Comoensatory Damaqes - Money damages to be given as compensation for the breach, that is put the nonbreaching party where he would have been had the promise been performed. Here, Dan will seek the cost of additional repairs to fix General's shoddy work on his car in the amount of$10.000.

Conseouential Damaqes - In addition to the standard measure of damages imposed on the breaching party, the courts will hold breaching party liable for further losses resulting from the breach that any reasonable person would have foreseen would occur from the time of entry into the contract. Dan will seek the $3,000 he paid in liquidated damages to his customer under a resale contract. The student should make the arguments that both parties will make on the issue of foreseeabiliw of Dan's additional losses.