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Contracts Midterm Examination Instructions 1. This examination is limited open book. You may bring to the examination and use, in both hard copy and electronic form, all assigned course materials and any notes, outlines, or other work product that you have produced alone or together with other persons in the class. You may not refer to any other materials. 2. You may use your own laptop computer, both to write the answers to the examination and to refer to the materials permitted under paragraph 1, above. 3. Provide analysis supporting your conclusions. References to case names or section numbers of statutes or section numbers of the Restatement 2d Contracts are not necessary. 4. If you believe that additional facts are needed before reaching a conclusion, describe the kind of facts or give examples of facts that you would seek. 5. In determining an appropriate grade for your examination, I look for ability to identify issues, demonstrated understanding of legal principles and relationships, skill in using the common law and statutory law we have studied, accuracy, clarity, and creativity of analysis, and organization and conciseness of response. 6. There are two questions on this examination. I will allocate approximately the same amount of points to each question. Allocate your time accordingly. Question 1 In January, 2000, Palm Beach County, Florida ("County") ordered 1500 punch card ballot voting machines ("voting machines") and 10 punch card ballot counting machines ("counting machines") from Accuvote, Inc. ("Accuvote"). The purchase price, due 90 days after delivery, was $500,000 ($400,000 attributable to the voting machines and $100,000 attributable to the counting machines). The contract called for delivery of all of the machines no later than August 15, 2000 and also called for Accuvote to provide a series of workshops in September, 2000 to teach precinct workers how to assemble the voting machines and to teach County employees how to use the counting machines. Nothing in the contract, promotional materials, or discussions between the parties prior to execution of the contract referred to the specifications or qualities of the voting machines, and nothing in the contract attempted to disclaim warranties. Accuvote timely delivered the counting machines and timely provided the workshops on use of the counting machines. County paid Accuvote $100,000 a month after delivery of the counting machines. Delivery of the voting machines was delayed until late October, 2000, because, after the contract was made, Accuvote had to redesign its voting machines to comply with a statute, enacted by the State of Florida after the contract was entered, requiring that voting machines be fully accessible to wheel- chair-bound voters. Because of this delay and because of the looming election of November 7, 2000, upon receipt of the voting machines the County immediately distributed the voting machines to local precincts still sealed in the cardboard boxes in which they were delivered. There was insufficient time to schedule training sessions for precinct workers on how to assemble the voting machines, but precinct workers were able to assemble the voting machines correctly with the benefit of written instructions for assembly supplied by Accuvote. The voting machines and the counting machines were used by the County in the election of November 7, 2000. County has not yet paid for them. In a judicial contest of the presidential election of November 7, 2000, evidence demonstrated a problem with some of the voting machines. Each voting machine was designed to have a rubber surface underneath the slot in which a punch card ballot is inserted for voting. The function of the rubber surface is to provide the ballot sufficient support so that the ballot will not bend when a voter pushes a stylus through a hole in the ballot, but also to provide support sufficiently flexible that the stylus will dislodge the piece of the ballot (the "chad") indicating for whom a voter has voted. In some of the voting machines, however, the surface underneath the slot in which the ballot is to be inserted consisted of a plastic tube containing liquid. With repeated use of these machines, the liquid drained or evaporated and the plastic tube hardened. As a result, the chads in some ballots were only partially dislodged ("hanging chads") and the chads in some ballots were simply "dimpled." The problem in the voting machines with the plastic tubes can easily be fixed by replacing the plastic tubes with the rubber surface. The counting machines properly counted every ballot except they did not record any vote for a candidate where the location on the ballot for that candidate contained either a hanging or dimpled chad. Partly in response to the political uproar over the presidential election and over the use of punch card ballot voting machines, the County contacted you on November 15, 2000 to ask your opinion about whether it could return all or some of the voting machines without liability for the purchase price and all or some of the counting machines with the right to a refund of $100,000. What is your opinion and why? Question 2 Reproduced below is a portion of a written agreement between Rachel Electronics, Inc. (hereafter "Rachel") and Robert Fullerman (hereafter "Fullerman"). The agreement, drafted by lawyers representing each of the parties, concerns endorsement of Rachel products by Fullerman and promotional tours by Fullerman on behalf of Rachel. The parties signed the agreement in August 2001. To celebrate the signing, Rachel gave Fullerman one of Rachel?s products as a gift for Fullerman?s 14-year-old son: a hand-held electronic device containing a game for the design of a city. Rachel gave Fullerman another one of its products as a gift for Fullerman?s 9-year-old daughter: a hand-held electronic device containing a game to locate a kidnapped scientist through clues about world geography. Fullerman suffers from bipolar disorder, a mental illness which, if untreated, results in dramatic mood and behavioral changes (from depression, on the one hand, to euphoric or hyperactive behavior, on the other hand). During negotiations for the contract, Fullerman disclosed this illness to Rachel and told Rachel that he was being treated for the illness through medication and once weekly talk therapy sessions. In response, during negotiations, Rachel told Fullerman that "we could continue you under contract so long as you continue the treatment." Fullerman agreed but, to preserve confidentiality, he also said that he didn?t want anything about this mentioned in the contract. After signing the agreement with Rachel, Fullerman reduced the number of times that he attends therapy sessions to twice each month. A week after signing the agreement with Rachel, Fullerman signed a contract with Glove, Inc., whose corporate motto is: "We make hand-held computers that fit your hand like a glove." In the agreement with Glove, Inc., Fullerman agreed to give written testimonials about the Glove, Inc. Model 3-XA hand-held computer. The testimonials were to appear in magazine advertisements of the Model 3-XA. The Model 3-XA has the following functions: a small touch screen to display and record data; a stylus to record data; a calendar; memory to store addresses, telephone numbers, appointments, and reminders; two card games, a game of checkers, and a game of chess; recording, storage and playback of music; wireless access to the internet for sending and receiving e-mail and accessing web sites on the World Wide Web; limited memory to store programs that can be downloaded from the World Wide Web. A month after signing the agreement, before Fullerman had undertaken any tours, Rachel decided that it needed to cut its expenses of doing business. Rachel has been considering a number of cost cutting measures, including canceling Fullerman?s tours and renegotiating the contract with him to reduce his compensation under its agreement with him from $200,000 to $125,000 (to pay him for endorsement but not for tours). Before entering negotiations with him to modify the contract, Rachel wants to know from you, its legal counsel, whether it has any basis for paying him less, paying him nothing at all, or getting damages from him under the existing contract, something that it could use as bargaining leverage in the negotiations if necessary. Following is a highly abridged version of the written agreement executed by Rachel and Fullerman. The clauses reproduced are not always identical to clauses in the agreement that I posted on ClaraNet or that I reproduced in the practice exam. Therefore, use only the clauses reproduced below. Do not rely on the wording of clauses that you have seen earlier. Note two additional points about this agreement: (1) the handwriting that you see in paragraph 2.2 is not an error in preparing the exam; rather, it is handwriting inserted by Rachel, with the knowledge of Fullerman, just prior to the execution of the agreement; (2) there is nothing in the agreement referring to Fullerman?s bipolar disorder or treatment for that disorder. Based on the facts stated in this question, including clauses of the agreement reproduced below, what is your reply to Rachel and what is the analysis upon which your reply is based? Product Endorsement and Promotional Tour Agreement The parties to this agreement are Rachel Electronics, Inc. (Company) and Robert Fullerman (Fullerman). 1.0 Recitals Company is in the business of manufacturing electronic educational products for children. Fullerman is a popular television personality, known on television as Mr. Wizard, who hosts a weekly educational science television program primarily directed at children of elementary school age. To capitalize on recognition of Fullerman by children, Company wishes Fullerman to endorse and promote Company's products by touring school districts throughout the country and by permitting the use of his name, image, likeness, and testimonials in advertising of Company's products. 2.0 Definitions 2.1 "Endorsement" or "endorse" means Fullerman's grant of authority to use Fullerman's name, image, likeness, and testimonials in any advertising of products. 2.2 "Promotional tours" or "promotes" means in-person meetings between Fullerman and representatives of school districts in the United States that include elementary, middle, and high schools, in which Fullerman describes the features and educational benefits of Company products, demonstrates the use of Company products, and encourages representatives of school districts to consider use of Company products in the school curriculum. 3.0 Endorsement Between October 1, 2001, and September 30, 20002, Fullerman endorses Company's electronic educational products for children. 4.0 Promotional tours 4.1 Fullerman shall undertake eight promotional tours between October 1, 2001 and September 30, 2002. 4.2 ? 4.5 [Not reproduced.] 5.0 Compensation and reimbursement As compensation for endorsement of Company products and for promotional tours, Company shall pay Fullerman $200,000. Such compensation shall be payable in
equal installments on October 30, 2001, January 31, 2002, April 30, 2002, and October 20, 2002. 7.0 Exclusive relationship From the date of signature of this agreement until September 30, 2002, Fullerman shall not agree to endorse or endorse an electronic educational product for children that is manufactured by any other person or entity. 8.0 ? 11.0 [Not reproduced.] 12.0 Merger This agreement constitutes the final and complete agreement of the parties with respect to Fullerman's endorsement of Company products and promotional tours for Company, exclusive of any other prior or contemporaneous promises or representations. 13.0 ? 25.0 [Not reproduced.]
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