SANTA CLARA UNIVERSITY
SCHOOL OF LAW

Final examination

Contracts
Professor Neustadter
Spring 1996
3 questions; 3.25 hours

Question 1 (Parts A and B):

Robert Corolla ("Corolla"), a resident of Hawaii, visited San Jose, California in search of work. He met with Barry Bruin ("Barry"), a representative of Bruin Motors ("Bruin"), a new car dealership. Barry was authorized to act on behalf of Bruin. On Monday, April 9, 1996, Barry offered Corolla a nine month contract to work for Bruin as its general sales manager, at a salary of $l0, 000/month, beginning immediately. You may assume that Barry made an offer. After Barry made this offer, the following conversation ensued:

    Corolla: "I could take the job if you pay for my moving and travel expenses from Hawaii." 

    Barry: "We couldn't afford to do that."

    Corolla: "Well, then, can I have some time to think about it?"

    Barry: "Sure, but get back to us by the end of the week. We'll hold the job for you until then."

While flying back to Hawaii, Corolla decided to take the job. He packed his personal belongings, abandoned his furnished apartment (breaching a 6 month lease and leaving himself liable for $2,000 in rent), and, without having previously contacted Bruin, showed up at Bruin, ready for work, on Friday, April 13, 1996.

As Corolla walked into the dealership, he was greeted by Erica Wynalda ("Wynalda") who introduced herself by saying: "Hi. I'm Erica Wynalda, the new general sales manager. Can I help you with a car?"

Corolla asked to see Barry. When Barry greeted Corolla, Corolla said: "I thought you were going to hold the job for me. I want it." Barry replied: "I'm sorry, but Wynalda was just too good to pass up." Barry then offered Corolla temporary work as the assistant sales manager, at $8,000/mo., until the regular assistant sales manager, who had been injured in an automobile accident, returned to work. Corolla took the job because he needed the money, but told Barry that he was doing so under protest because he believed he was entitled to the job of general sales manager. The parties did not execute any written document reflecting this temporary employment, but you should assume that there is no issue concerning the Statute of Frauds.

Corolla began work for Bruin, but Bruin fired Corolla after two months, before return of the regular assistant sales manager, because Corolla had telephoned the regular assistant sales manager with the false information that Corolla had been hired as a permanent replacement.

One week after being fired by Bruin, Corolla took a job as general sales manager with a new car dealership in San Francisco, at a salary of $9,000/mo.

The San Francisco car dealership fired Corolla after three months because he repeatedly showed up for work drunk. Thereafter, Corolla was unable to secure comparable employment,
notwithstanding diligent effort.

Corolla sued Bruin for breach of contract. One cause of action alleged Bruin's breach of a nine-month employment contract. In support of this cause of action, Corolla is prepared to offer in evidence a written document reading as follows:

                                        [Signed by Barry]

In defense of this cause of action, Bruin is prepared to offer evidence that this written document is a forgery.

A second cause of action alleged Bruin's breach of an agreement to employ Corolla temporarily until return of the regular assistant sales manager.

Assume that a trier of fact might find either that the written document quoted above is a forgery or that it is not a forgery, and assume that the $100.00 referred to in the written document was never paid. Analyze and discuss whether Bruin breached a nine-month employment contract with Corolla when, on April 13, 1996, he refused to allow him to begin work as general sales manager.

Assume that a court would find that Bruin breached a nine-month employment contract with Corolla. Assume that the San Francisco car dealership did not breach its contract with Corolla by firing him for repeatedly showing up for work drunk. Analyze and discuss the computation of damages for a breach of the nine-month employment contract between Bruin and Corolla.

 
Question 2 (Parts A and B):

Bill Buyer ("buyer") and Sarah Seller ("seller") agree that buyer would purchase seller's real property for $675,000. The real property consisted of a lot together with a house and garage constructed on the lot.

To reflect and consummate this agreement, the parties filled in the blanks on, and signed, a standard one page pre-printed real estate purchase agreement which had been furnished to them by a real estate broker. They filled in the blanks with their names, the description and location of the real property, relevant dates, and the purchase price. The agreement contained a merger clause.

When they executed the agreement, buyer paid seller a $20,000 down payment required by the agreement.

Parts of paragraphs 6 and 10 of the written agreement are set forth here. Other parts of the agreement are not relevant to the dispute that ensued.

6.   Escrow shall close [i.e. money and deed will be exchanged] at the end of the 45th day following execution of this agreement, provided that Buyer, following inspection of the premises within two weeks of the execution of the agreement by a certified residential inspector to be chosen by mutual agreement of the parties and paid for by buyer is satisfied in his own mind that there are no major structural deficiencies in the residence and if not so satisfied notifies seller in writing prior to the end of escrow of the reasons therefore and of his intention not to proceed with the transaction and of his demand for a return of the down payment.

10. Buyer shall pay seller $20,000 at the time of execution of this agreement as a down payment. Buyer shall not be entitled to reclaim this down payment in the event buyer fails to perform its obligations hereunder.

The parties agreed on a residential inspector. The inspector timely conducted her inspection and found no problems in the house. However, the inspector did report to buyer that she had observed a notice recently posted on the garage by an official of the county toxic waste enforcement unit. The notice stated that excessive quantities of oil had seeped into the ground below the garage floor, that the resulting contamination violated county toxic waste regulations, and that the owner was required at his or her own expense to decontaminate the area within 6 months. The residential inspector told the buyer that she thought that such clean up might cost as much as $25,000.

Buyer sought your legal advice and told you about his conversation with seller a few days prior to execution of the agreement. He and seller were standing outside the garage and seller said that many years ago, prior to the seller's ownership of the house, the garage had a mechanic's pit, i.e. an excavated portion below the level of the garage floor where someone could stand and work on the bottom of a car. Seller said that the mechanic's pit had been filled in and a concrete floor had been laid on top. Buyer asked whether there were any problems associated with the pit and seller said: "Not that I know of." Buyer responded: "Good, but to make sure I'd like any problems with the garage covered by our agreement." Seller said: "Sure. No problem." Nothing in the written purchase agreement referred to the mechanic's pit or this conversation.

Suppose buyer timely sends the notice referred to in paragraph 6.a. of the agreement and that the notice states an intention not to proceed with the purchase because of the toxic waste problem. Seller responds with a letter saying that she will keep the $20,000 down payment
and look for another buyer.

Buyer sues seller for return of the $20,000 down payment and for damages in the amount of $50,000 based on buyer's subsequent purchase of a comparable house in the same neighborhood for $725,000 Seller answers, denying liability, and cross complains against buyer for $25,000 because she sold her house to another buyer for $650,000. Who is likely to succeed on buyer's complaint and on seller's cross complaint, and why? Do not discuss any possible theories based on mistake, concealment, or misrepresentation.

Assume that buyer had asked you to review the agreement prior to its execution and that you had foreseen the possibility of the facts and dispute described above. Redraft only paragraph 6.a., (not paragraph 10), such that you will have:

1. Improved the clarity, style and form of paragraph 6.a.;
2. Preserved the rights which paragraph 6.a., as presently drafted, gives the buyer;
   and,
3. Enhanced the rights of the buyer in a manner that would have clearly protected
   buyer in the situation that actually happened.

Question 3: 1 hour

A manufacturer of fertilizer ("M") agreed in writing to sell fertilizer to a buyer ("B") for $2,000,000. B made the agreement in order to fulfill its own contractual obligation to supply fertilizer to a farmer in California. In the agreement, M promised to deliver half of the fertilizer to B on
July 1, 1996 and the balance on August 1, 1996. B promised to pay $1,000,000 to M on
June 1, 1996 and the balance on August 30, 1996. B paid M $1,000,000 on June 1, 1996.

On June 25, 1996, M notified B that the first shipment, already in route, would not arrive until July 5, 1996 and that the second shipment, not yet in route, could not be shipped until August 10, 1996. Because B needed to supply the fertilizer to the California farmer by August 10, 1996, B immediately notified M not to send the second shipment because B was going to buy the needed fertilizer elsewhere. B timely acquired the entire quantity of fertilizer which it needed from an alternative source, for a price of $2,600,000.

B took possession of M’s first shipment of fertilizer when it arrived, held the fertilizer in its warehouse for two months, and thereafter resold that fertilizer to a Nebraska farmer for $1,400,000. M never shipped the second shipment and B never paid the balance of the contract price.

Assume for purposes of discussion that B is entitled to damages from M. Examine the following sets of sections of Article 2 of the U.C.C. and determine which set of sections comes closest to answering the following question: Is M entitled to offset $400,000 against the damages it owes B?

Bear in mind that only one set of sections comes closest to answering the question and that those sections which come closest may or may not answering the question perfectly or exactly. Explain why and how the one set of sections you choose answers or comes closest to answering the question. Do not comment on the two sets of sections that you eliminate.