CONTRACTS FALL 2018
FINAL EXAM Professor Lucas
Instructions 1. At the beginning of your answer to each question, clearly identify the question being answered, i.e., Question 1. 2. There are five questions on the exam. All questions are of equal value. 3. Assume that the parties are in a jurisdiction in which everything that was assigned in class can be used to make arguments before the court. 4. When a case, the Restatement, or the UCC is relevant, please say so (including why it is relevant). 5. You are welcome to abbreviate party names in your answer, but please make sure the abbreviation is clear, e.g., “SCDG� for Sir Cosmo Duff-Gordon. Good luck!
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Question 1 Dodge City Country Day School is a private, non-profit Montessori school located in Dodge City, Kansas. Oliver and Ann Warbucks are parents who enrolled their daughter, Annie, in the Dodge City Country Day School (“Country Day”) for the 2017-2018 school year. The Warbucks entered into a re-enrollment agreement (the “Agreement”) with Country Day for the 2018-2019 school year that contained a specific deadline for cancelling the Agreement. The Agreement stated that if parents withdrew their child from Country Day after a specific date, parents would pay tuition for the entire academic year as liquidated damages. The Agreement provided for a $1,000.00 non-refundable deposit and payment of the remaining tuition balance of $20,000 in two installments. The Agreement contained an escape clause that allowed for unilateral cancellation, provided that the head of the school received written notice by certified letter before May 31, 2018. Under § 3 of the Agreement, parents were obligated to pay the full tuition if they failed to meet the May 31, 2018 deadline for withdrawal. Section 3 of the Agreement provided as follows: I understand that unless the Student is withdrawn by written notice given by certified letter, return receipt requested, and received by the Head of School prior to May 31, 2018, I am liable for and agree to pay the entire year’s charges for the academic year, including expenses, as later defined, incurred by the School for collection. Withdrawal, dismissal, absences or illness of Student during the year do not release me from any portion of this obligation. The Warbucks did not cancel the Agreement on or before May 31, 2018. At some point after May 31, the Warbucks learned their daughter had been a victim of bullying at the elite private school due to her prior and well-known status as an orphan. The parents attempted to call the Head of the School to discuss the issue, but were unable to reach him. On July 14, 2018, forty-four days after the withdrawal deadline noted in § 3 of the Agreement, the Warbucks sent a cancellation notice via email to the admissions office and demanded a refund of their initial deposit. The Warbucks refused to pay any of the remaining tuition balance to the school and enrolled Annie in another school. Country Day filed a breach of contract action against the Warbucks. Country Day sought the remaining tuition balance for the 2018-2019 academic year, plus interest, and attorney’s fees. In their notice of intent to defend, the Warbucks claimed that the Agreement had been procured by fraud, that it was a contract of adhesion, that the damages constituted a penalty, that Country Day had a duty to mitigate any damages, and that the Agreement was unenforceable because it violated public policy. What damages are appropriate? Which party should prevail?
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Question 2 Al Bundy began working for Nike in 1993 and became a key account manager in 1995. During the spring of 1997, Nike undertook a major, international reorganization. In April 1997, Bundy’s superior called and asked, “How would you like to be the regional manager for the Midwest region?” Bundy answered, “Absolutely, yes.” His superior mentioned an increase in pay but did not provide salary information. In the following weeks, Bundy continued to perform some of his old duties while assuming some of the duties of his new position, including leading meetings and preparing a report. In order to perform these duties, Bundy obtained confidential information he had not seen before that described the top-selling styles in the Midwestern region. During the week of May 10, Bundy’s superior announced to a group of employees that Bundy was the new regional footwear sales manager. During the remainder of May, Bundy took several business trips, which were expensed to the cost center for the regional footwear sales manager position. On May 27, Bundy received a letter from his superior confirming the offer for the regional footwear sales manager position (“Offer Letter”) and that his focus would be related to basketball shoes. The letter indicated that the “start date” for the new position was June 1, 1997. According to several Nike executives, it is not unusual for an employee to begin to perform the duties of a new position prior to the start date, in order to ensure a smooth transition once he or she “officially” starts in the new position. The Offer Letter also specified that Bundy's salary would be $250,000, which became effective June 1. In addition, the Offer Letter required Bundy to sign an attached covenant not to compete and nondisclosure agreement as a condition of acceptance of the offer. The covenant not to compete contained the “Competition Restriction” clause at issue here, stating in relevant part: During EMPLOYEE’S employment by NIKE and for four (4) years thereafter, (the “Restriction Period”), EMPLOYEE will not directly or indirectly be employed by, consult for, or be connected in any manner with, any business engaged anywhere in the world in the athletic footwear, athletic apparel or sports equipment and accessories business, or any other business which directly competes with NIKE or any of its subsidiaries or affiliated corporations. Bundy signed the agreement that day. Two years later, Bundy was again promoted, this time to the position of director of sales for the Brand Jordan division, the position he held until he resigned from Nike in June 2003. He was not asked to sign a new non-compete agreement. During the spring of 2003, Bundy accepted a position with Adidas as vice president of international soccer marketing and tendered his resignation in June. Bundy began working at Adidas on July 22, 2003 out of its world headquarters in Herzogenaurach, Germany. 2
On August 18, 2003, Nike filed suit in Oregon circuit court, claiming breach of contract and seeking a declaratory judgment that Bundy’s employment with Adidas violated the covenant not to compete. Which party should prevail and why? What remedy is appropriate?
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Question 3 Ben & Jerry’s Ice Cream sells numerous flavors of tasty hard ice cream. On January 1, 2016, Ben & Jerry’s Ice cream leased commercial property in the Town East Square, an upscale shopping mall, on Kellogg Drive in Wichita, Kansas “for the purpose of use as a store for the sale, at retail, of ice cream, ice milk, sherbet, soda fountain items, foods, soft drinks, candy, confectionary products and similar or related goods for consumption on and off the premises.” The Town East/Ben & Jerry’s lease contained an exclusive use provision: Lessor hereby agrees and covenants that no other premises of the building, or group of the buildings, owned or controlled by Lessor, of which the leased premises are a part, shall be leased or used for the business of selling “hand packed ice cream,” ice cream cones, or soda fountain items. It is the specific understanding of the parties hereto that Lessee shall have the exclusive right to sell “hand-packed ice cream,” ice cream cones, or soda fountain items in the building, or group of adjoining buildings, owned or otherwise controlled by Lessor, except that this restriction shall not apply to co-tenants who have executed leases prior to 2016. At the time the parties executed the lease, a Dairy Queen, Inc. (“Dairy Queen”) had been leasing a store at Town East since early 1975. Dairy Queen sells soft ice cream, ice cream cones and soda fountain items. Looking to increase its customer base, Town East Square entered into a lease agreement in early 2018 with former professional wrestler Stone Cold Steve Austin to open a retail yogurt store, Stone Cold Steve Austin’s Stone Cold Yogurt, “where you know your role and shut your mouth to mmm, mmm good yogurt!” The Stone Cold yogurt store customer base is nearly identical to the Ben & Jerry’s clientele and like Ben & Jerry’s, it offers self-serve options with numerous flavors and sweet offerings, including those mixed and produced with soda fountain items. To Ben & Jerry’s, sodas, sundaes and cones made with yogurt are just as much soda fountain items as are ice cream sodas, sundaes and cones, so when Stone Cold Steve Austin’s Stone Cold Yogurt sells yogurt sodas, sundaes and cones it falls within the exclusive use provision of the lease. Aghast, Ben & Jerry’s wrote Town East Square asserting the presence of Stone Cold Steve Austin’s Stone Cold Yogurt (“Stone Cold”) violated the exclusive use provision of the Town East/Ben & Jerry’s lease. Town East conceded that Stone Cold would offer soda fountain items, but opined that these soda fountain items would not violate the lease because Ben & Jerry’s lease “protection is limited to those [soda fountain items] made with ice cream.” Ben & Jerry’s continued to object to Stone Cold, and did not change its position when Town East sought and obtained from Stone Cold an amendment to its lease providing that Stone Cold “shall not sell soda fountain items or carbonated beverages made with ice cream.” Wichitans now love Stone Cold Steve Austin’s Stone Cold Yogurt and the mall has seen an uptick in traffic. Ben & Jerry’s has not, however, and sues for breach of the restrictive covenant. You’re assigned as a law clerk in the matter of Ben & Jerry’s Ice Cream v. Town East Square. 4
What result is appropriate? As Judge Friendly might ask, what are soda fountain items? Is parol evidence admissible to resolve the dispute?
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Question 4 In November 2000, Phillip and Elizabeth Jennings negotiated with a sales representative for Mobile Homes ‘R’ Us, a Kansas-based mobile and manufactured home provider, for the purchase of a Fleetwood-brand mobile home. The Jennings made a down payment of $5,000 on the home, gave Mobile Homes ‘R’ Us some household items, and traded in their old mobile home; in exchange, Mobile Homes ‘R’ Us delivered and installed the new Fleetwood home on the Jennings’ new property in Mission Hills, Kansas, a posh suburb of Kansas City. Because Mobile Homes ‘R’ Us typically would have to obtain permits to access underground utilities for the mobile home, the Jennings believed their home was in compliance with applicable zoning laws in Mission Hills. The Jennings moved in with their two minor children shortly thereafter. The following month, Mobile Homes ‘R’ Us informed the Jennings that it had arranged financing for their mobile home through Bank of America. To obtain the financing and keep the mobile home into which their family had moved, the Jennings signed additional paperwork during a tenminute meeting at Mobile Homes ‘R’ Us office in a nearby shopping mall and made an additional down payment of $10,000. The documents signed included an arbitration provision, waiving all right to trial by jury. After moving into the mobile home, the Jennings family began experience respiratory problems. Their minor daughter, Paige, received a diagnosis of reactive airway disease due to exposure to asbestos. Several months into living in the mobile home, local authorities tested the home for toxicity and found significant asbestos within the mobile home. Shortly thereafter, the Jennings moved out of the mobile home. Paige, however, died as a result of reactive airway disease. Shortly after Paige’s death, the City of Mission Hills, Kansas brought legal action against the Jennings parents in Municipal Court assessing $5,000 in fines for the non-conforming presence of the mobile home property under Mission Hills City Planning Code. The Estate of the late Paige Jennings files suit against Mobile Homes ‘R’ Us in state court. Mobile Homes ‘R’ Us moved to compel arbitration based upon the arbitration agreement. The Paige Jennings Estate contends that the arbitration agreement is inapplicable to her as she was neither a signatory to the agreement, nor was she a third-party beneficiary. Her estate also contends that the arbitration provision is unconscionable. Phillip and Elizabeth Jennings file a separate action against Mobile Homes ‘R’ Us contending it breached its obligations to the Jennings and seeking recovery that covers both the fines assessed to the Jennings and reimbursements of all funds the Jennings provided to Mobile Homes ‘R’ Us. You have been retained to represent the Estate of Paige Jennings and Paige’s parents, Phillip and Elizabeth. Evaluate the arbitration issue and whether the Jennings parents are entitled to recovery in their separate action against Mobile Homes ‘R’ Us. What contract-based monetary damages are appropriate, if any? Is a mobile home a good and might that be relevant to the analysis? 6
Question 5 Husband and Wife were married in 1980 and divorced in 2000. At all times relevant to this matter, the parties resided in Georgia. As part of the divorce proceedings, the parties executed a Property Settlement Agreement (“Agreement”) in April of 2000. Paragraph 4 of the Agreement states: “Wife shall pay such amounts as shall provide $1000 per month net for a period of 25 years commencing on the first day of the month following entry of Decree of Divorce.” A handwritten addition to Paragraph 4, which the parties added to the Agreement on the day it was executed, states: “Alimony payments to end should Husband enter into a martial relationship, except that a minimum alimony period of 12 months be paid.” Wife paid Husband alimony for roughly 18 years. In June 2018, Wife advised Husband she was going to stop the alimony payments because Husband began cohabitating with a man. In July 2018, having received no additional alimony payment, Husband filed a petition for contempt in state court, alleging that Wife breached the Agreement’s alimony provision and requesting an order that Wife pay all alimony payments due. At a hearing, the parties stipulated that Husband was cohabitating and in a long-term, committed romantic relationship with a male individual who is not a family member. Over Husband’s objection, the court heard testimony from Wife that the meaning of Paragraph 4 of the Agreement was to cease payment should a party remarry, enter into a new romantic relationship with a partner who could provide financial support, or begin living with another person. The court also admitted evidence into evidence a letter from Wife’s attorney confirming that alimony would end if a party “marries or cohabitates with another person, regardless of gender.” Wife explained the reason for the language in her attorney’s letter was Wife’s discovery that before the end of their marriage, Husband was involved in a relationship with a man. The trial court ultimately ruled in Wife’s favor and allowed Wife to cease alimony payments. Husband wishes to argue on appeal that because the phrase “marital relationship” is plain and has a fixed meaning; the trial court erred when it admitted parol evidence to determine what the alimony provision of the Agreement meant to the parties when entered into in 2000. Husband further argues that despite the nature of his current relationship, he is entitled to continued receipt of alimony payments under the Agreement because he is neither married nor could he have married his current partner in 2000, the time of the parties’ agreement. Will Husband succeed on appeal? Why?
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* * * END OF EXAM Enjoy your winter break.
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