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THESE EXAMINATION QUESTIONS MUST BE RETURNED AT THE END OF THE EXAMINATION. SANTA CLARA UNIVERSITY
CONTRACTS MAY 12, 1997
THE EXAMINATION RULES STATED IN THE CURRENT STUDENT HANDBOOK GOVERN THIS EXAMINATION, EXCEPT THIS IS A LIMITED OPEN BOOK EXAMINATION. Instructions: 1. Limited open book examination: During the examination you may consult books assigned for the course, handouts distributed in class, and any notes, outlines or other work product prepared by you either individually or in cooperation with other students registered in the class. You may not consult any other material during the examination. 2. Provide analysis supporting your conclusions. If you believe that additional facts are needed before reaching a conclusion, describe the kind of facts or give examples of facts which you would seek. If you believe that some part of a question is vague or ambiguous, identify the vagueness or ambiguity and identify the assumption you are making as to the intended meaning. 3.There are three questions on this examination. The point allocations and Time Point allocation Question 1: 1 hour and 25 minutes 40% Question 2: 20 minutes 10% Question 3: 1 hour and 45 minutes 50%
Question 1 (40%) (approximate time: 1 hour and 25 minutes) Anna Maria Athlete (hereafter "Athlete") is one of the world's premiere female soccer players. She recently signed a five year endorsement contract with Free Kick International (hereafter "Free Kick"), a manufacturer and world wide distributor of soccer shoes and apparel. Free Kick is obligated under the contract to pay Athlete $1,000,000 per year, payable in four equal quarterly installments at the end of each quarter of the year. Athlete is obligated under the contract to participate in a specified number of promotional events and television commercials each year and to wear Free Kick shoes and apparel at any time when Athlete is wearing soccer shoes and apparel in public. In addition to clauses imposing the foregoing obligations, the contract also includes the following clauses: 48. Athlete shall refrain from engaging in any conduct which might impair the value of Athlete's association with and endorsement of Free Kick products. 49. Free Kick may terminate this contract in the event that Athlete expresses any political views to the media which might impair the value of Athlete's association with and endorsement of Free Kick products." The signing of the contract took place in Free Kick's corporate headquarters, which were located one block from an abortion clinic. On the day of the signing ceremony, the abortion clinic was the site of a demonstration against abortion. At the time of signing, Athlete mentioned her sympathy with the demonstration. The president of Free Kick told Athlete that she disagreed with Athlete but acknowledged to Athlete that it was a difficult issue. During the first month of the contract, Athlete had mentioned her views on abortion to one magazine reporter. When her views were reported in a magazine article, Free Kick's president called Athlete to remind her not to discuss such views with the media. Athlete apologized and said that she would refrain in the future. Five months into the contract, Athlete had undertaken all public appearances scheduled for her by Free Kick and had filmed the one television commercial scheduled by Free Kick. Free Kick had paid Athlete $250,000 at the end of the first quarter of the year. During the sixth month, Athlete was having dinner with a close friend, Annette Work (hereafter "Annette"). Early in the evening, Annette told Athlete about how Annette was writing and posting stories about famous athletes on Annette's new home page on the World Wide Web: www.sportshero.com. Annette told Athlete that this home page, like other home pages on the World Wide Web, could be read by anyone in the world with access to the Internet who chose this web site to read. Much later the same evening, Annette pulled out a joint and offered to share with Athlete. Athlete declined, saying that she had smoked marijuana and even snorted some cocaine a few years
earlier, as a teenager, but quit because of its adverse effects on her athletic performance. Athlete also said that she wasn't so sure that marijuana was all that bad for people generally. Within a few weeks, Free Kick had received hundreds of complaints from people who had read or heard about the story posted on Annette's home page. Many of those complaining threatened to boycott Free Kick's products unless Free Kick terminated its relationship with Athlete. Free Kick is considering termination of its contract with Athlete. Before making a decision, it wants to know whether termination would make Free Kick liable to Athlete for breach of contract and, if so, what the extent of its liability would be. You are Free Kick's lawyer. What will you advise in answer to these questions?
Question 2 (10%) (approximate time: 20 minutes) Free Kick wants you to redraft the ideas contained in paragraphs 48 and 49 of its contract with Athlete (see question 1) such that it will be easier to terminate future contracts with other athletes, without liability, both in the more general circumstances already encompassed within paragraphs 48 and 49 as well as in circumstances identical or comparable to those involved in question 1. Draft a term responsive to Free Kick's request, and briefly explain how your draft accomplishes Free Kick's objectives.
Signco is a manufacturer of signs. Petco is the operator of a chain of pet stores located throughout Southern California. In anticipation of expanding to Northern California, Petco contracted in writing with Signco to pay Signco $100,000 for the manufacture of 10 identical neon signs, each in the shape of an exotic African bird, and for the delivery of signs to and the installation of signs at 10 sites for new Petco pet stores in Northern California. In preparing for contract negotiations with Petco, Signco had estimated its total costs for the 10 signs at: $40,000 for parts; $40,000 for labor; $2,000 for transportation to the 10 sites $8,000 for installation at the 10 sites. During the manufacturing process, Signco's vice president read an article in the Wall Street Journal reporting the beginning of an investigation by a California state agency of hundreds of
alleged violations by Petco of state regulations restricting the importation of certain categories of wild birds. The article stated that the state agency could fine a violator as much as $5,000 for every bird
imported in violation "Please comment on the Wall Street Journal article about investigation of your practices in importing birds. Will this interfere with your plans to expand into Northern California? Please e-mail your response within 3 days as our manufacture of your signs is underway and we need to know whether to continue." At the time it sent the e-mail message, Signco had spent $20,000 for parts and $20,000 for labor in connection with the Petco contract. Four days after sending the e-mail message, Signco's vice-president received in the mail a copy of a press release issued by Petco which stated: "Petco does not believe that it has committed any intentional violations of state regulations regarding importation of birds. Plans of Petco to expand into Northern California will probably not be delayed pending resolution of the matter with state authorities." Signco's vice-president immediately telephoned the vice-president of Petco and asked for clarification. In the telephone conversation, Petco's vice-president would say nothing more than: "Our attorneys have advised us to say nothing more than we have stated in our press release." As of the time of this telephone conversation, Signco had spent a total of $25,000 for parts and $25,000 for labor in connection with the Petco contract. Signco's vice-president immediately contacted PetMore, an existing chain of pet stores in Washington, to see if they might be interested in buying the signs, when finished, that Signco was manufacturing for Petco. Petmore told Signco that it was very interested in the signs but wanted to wait for its next quarterly earnings report, due in six weeks, before making a final decision. Signco seeks your legal advice. Signco tells you that before it read the Wall Street Journal article, it had planned to purchase all of the remaining component parts for the signs before the
end of the current month because the supplier of parts had announced a steep price increase effective the beginning of next month. One week remains in the current month. Signco also tells you that it could probably
get about $10,000 by selling for scrap the signs in their currently unfinished state.
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