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StrictlyLiable

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Contracts practice exam answers
« on: May 03, 2005, 08:48:54 PM »
I have been doing practice tests for my contracts final tommorrow. I would like someone to look over my answers and provide criticism, praise, etc. The fact pattern is as follows:

Joan is a senator and new presidential candidate. She hires Rob to write a campaign biography. She agrees to pay him $40,000 for the book with $10,000 paid in advance. The book is to be delivered in a timely manner. During the course of the negotiations, the parties agree that the book should be out by the time of the New Hampshire primary. Assume for all questions that the contract is bilateral, was signed by both parties, and the parties were competent during bargaining.

Rob leaves his job as a columnist which pays him 200K per year to allow himself time to research, write, and promote the book (in a book tour) following its release. Rob travels around the country spending 30K gathering info for the book. 3 weeks before the primary, Rob is ready to deliver the manuscript to the publisher, with the publisher merely awaiting the go-ahead from Joan to publish and distribute the book. If the publisher scrambles, the book will be out a few days before the primary.

Upon hearing this, Joan contacts Rob and yells at him, "You've messed up the timing of this. I've got a big fundraiswer scheduled in three days around the release of the book. My campaign is already in trouble and you may have to wait for your money."

Question #1: If Rob now refuses to deliver the manuscript to the publsiher is he in breach?

Question #2: Regardless of your answer to #1, assume that Rob asks his attorney what damages he would be liable for if he is found to be in breach. What would the atty say?

Now assume that Joan and Rob resolve their dispute and the manuscript is delivered 3 weeks before the primary. A day later, as the publisher is ready to proceed with printing and distribution, Joan becomes involved in a scandal and subsquent blowup on national television. She withdraws from the campaign  and notifies the publisher to cancel the book.

Question #3: If Joan refuses to pay Rob, is she in breach?

Question #4: Regardless of your answer to 3, assume Joan is found to be in breach. What damages might Rob seek, and what are his prospects for success.


StrictlyLiable

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Re: Contracts practice exam answers
« Reply #1 on: May 03, 2005, 08:49:35 PM »
(1) No, if Rob refused to deliver the manuscript to the publisher he would be exercising his rights under the doctine of antcipatory repudiation to suspend his own performance.

When Joan told Rob that he may have to wait for his money, she was making a statement with respect to her performance not yet due, indicating an intention to committ a breach. Under the Restatement, when a party repudiates, the non-breaching party has several responsive choices. 1) He can continue with his performance and await counter-performance, 2) He can urge a retraction of the repudiation, 3) He can suspend his own performance. 4) He can request assurance that the other party will perform. Following any of the above stated actions, if the repudiating party fails to retract, fails to provide adequate assurance, or fails to perform, the non-breacher has the right to immediatley seek relief for total breach. In our case, if Rob refuses to deliver the manuscript, he his exercising the 3rd choice offered to him under this doctrine. Accordingly, Joan must either counter-perform or face litigation for breach of the contract.

(2) If Rob was found to be in breach of the contract, the court will most likely assess expectation damages. Meaning that they will try to place Joan in as good a position as she would have been in had the contract been fully performed. Here, that standard is accomplished by Joan having a servicable campaign biography and being $40,000 out of pocket.

To determine expectation interest, we first must look at direct damages. First and most obvious in Joanís losses is the $10,000 cash advance paid to Rob in lieu of writing the book. Secondly, if we assume that it were possible for Joan to find a substitute author to write the book, the court usually would award Joan the cost of such a hire. Third, Joan could recover for any profits lost as a result of Robís breach. Here, the value of the biography to Joan was the increased media attention and campaign donations. If Joan provided the court with a method for calculating such losses so to make the damages reasonably certain, she might recover for those losses. Lastly, Joan could seek any incidental damages or costs of coping with the Robís breach in the form of any expenditures relating to the recrutiment of a substitute author. However, any damages awarded would be less the costs avoided as a result of Robís breach, mainly the remaining $30,000 payment  left on the contract. In addition, Rob could argue that because he breached, Joan was able to cancel the release party and save the money she otherwise would have spent to pay for the site, food, service personnel, etc.

(3) If Joan refused to pay Rob for the service rendered, the court would most likely consider her to be in breach. Courts have consistently held that in the spirit of good faith and dealings, payment due as counter-performance is almost always a material term. Violating such a material term is the essense of total breach. Here, Joan contracted for a biography, which was to be delivered in a timely manner before the New Hampshire primary. In return, she promised a payment of $40,000, 10K of which was to be paid in advance. Rob delivered the biography on time as specified. Therefore, it is reasonable to assume that Joan should be compelled to adhere to her agreed upon counter-performance.

However, the facts of this case suggest that Joan could make an argument that would relieve her of the obligations under the contract. Under the doctrine of frustration of purpose, if the principle purpose of a transaction has been substantially frustrated, meaning that the service or product has no further extrinsic value than that for which is was contracted for, and the non-occurance of the event was a basic assumption under which the contract was made, then the frustrated party may be relieved of its duties and obligations under the contract. Here, Joan could argue that outside of a campaign biography, Robís book has no further extrinsic value. The release of the book was scheduled around the date of an important primary election and coincided with a meeting of campaign contributors. It is reasonable to infer that the principle purpose of the book was to bolster Joanís media exposure, increase the donations to her campaign in the days prior to the primary, and to provide her with an electoral lift in the election. Since she is no longer a candidate, the book cannot accomplish any of these tasks. Therefore, its purpose has been substantially frustrated. Accordingly, the court would probably release Joan from her final $30,000 payment to Rob.

(4) In a case where expecatation damages are not sufficient to quell the losses suffered by a non-breacher, the court may look to reliance damages as an acceptable remedy. Here, the only reasonably certain damages Rob could argue is the $30,000 remaining on the agreed to contract price. He could argue for consquential damages suffered as a result of not particpating in a book tour following its release. However, it would be nearly impossible for Rob to overcome the reasonably certain standard of calulating those profits lost. Accordingly, Rob would more than likely forgo is $30,000 expectation interest in order to seek recoupment of his reliance interests.

To determine reliance damages, Rob must show his out of pocket expenses incurred as a result of relying on Joanís performance. In this case, Rob spent $30,000 researching for the book. For these costs to be awarded, Rob must show that it was reasonable for him to expend in reliance of the contract. Since research is an essential aspect of writing a biography and traditionally sales royalties cover the costs of conducting the research, it is fairly clear that these costs were reasonable.

In addition, he also took a 3 month leave of absense at work to conduct the research, write the book, and participate in a subsquent book tour. Robís yearly salary at his job was $200,000, meaning that he lost $50,000 in salary for those 3 months away. For Rob to recoup these costs, he would have to show that revenues from a book tour were forseeable under the contract conditions. Here, Rob was contracted to write a biography for a then viable presidential candidate. Under normal circumstances, these types of books receive an abundance of media attention and hype which leads to frequent television and radio interviews, and increased book signing appearances, following its release. All of which take a large allotment of time and energy. Taking a leave of absense from ordinary employment  in order to fully delve into the task of writing a book and allowing oneself open for the subsquent responsibilites of promoting it, is a forseeable consquence of agreeing to write such a high profile biography. Therefore, Robís reliance on the usual fees accrued from those responsibilites is definitley forseeable. As such, the $50,000 in salary lost to perform his duties under the contract and ready himself for the book tour would be sufficient under the doctrine of reliance interest. 

Coregram

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Re: Contracts practice exam answers
« Reply #2 on: May 03, 2005, 09:29:29 PM »
I only have time to respond to (1).

The issue is whether Joan has actually repudiated the contract.  Restatement 2d, S. 250 defines repudiation as either 1) a statement that an oblgor will commit a breach that would give the obligee the right to damages for total breach, or 2) a voluntary affirmative act that shows the obligor unable or apparantly unable to perform.  Joan's statement that he may have to wait for his money isn't a clear statement that she won't pay him the money when the book is published, nor is it an action that shows she is unable to pay him the money.  She may mean that the book won't be out for a while now, and he will have to wait for his money until the book comes out, which is consistent with the original terms of the contract.  And the fact that she has already partly performed by paying the first $10K is evidence that she can perform.  Her statement is not a repudiation.  Rob would be justified in seeking assurance from Jan that she will perform though.

StrictlyLiable

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Re: Contracts practice exam answers
« Reply #3 on: May 03, 2005, 09:50:01 PM »
thanks. I never even thought about her ability to perform. I did weight the ambiguity of the alleged repudiation, though. Again, thanks for the input.

xrayspec

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Re: Contracts practice exam answers
« Reply #4 on: May 03, 2005, 09:58:55 PM »
1) you don't address how a court would interpret "in a timely manner", which is crucial to determining who breached.

2) You can't talk about expectation interest without first handling mitigation / foreseeability / certainty. Rob could argue that even if he was a little late, the book was done, and Joan didn't reasonably mitigate by simply accepting it.

3) Frustration of purpose is not an appropriate way to analyze this. That concerns conditions that were unforeseen by the parties. Eg, if Joan was assassinated during a speech, her estate could invoke frustration of purpose to void the K. Whereas the timing of the delivery was foreseen, and stipulated expressly in the K.

4) The better reason Rob should avoid expectation interest is he would've been in the hole. He had reliance expenditures of $80K and total revenue of $40K. A breach victim in a losing contract usually does better by going for reliance.