CONTRACTS -- Section 3 -- Page 1 of 4

CONTRACTS
L6105x -- Section 3
Final Examination -- December 1997
Professor Chirelstein
Time Allowed -- Three Hours
This examination consists of four pages. Check now to see that
your exam has all the pages.

ANSWERS MUST BE LEGIBLY WRITTEN IN INK OR TYPEWRITTEN.

IF YOU ARE A CANDIDATE FOR GRADUATION IN FEBRUARY, 1998, WRITE ON THE COVER
OF YOUR ANSWER BOOK (OR, IF TYPEWRITTEN, AT THE TOP OF YOUR FIRST PAGE),
"CANDIDATE FOR GRADUATION IN FEBRUARY, 1998."

INSTRUCTIONS:
This is a limited open-book examination. You may bring to the examination the Farnsworth &
Young paperback supplement (Selections for Contracts) but no other matrerials.
The examination consists of three essay questions of equal weight. Answer all of them and convey
your reasoning, but do not use more than four or five booklet pages (fewer if possible) for each
question. And please, please write legibly.
Assume that the UCC is in force for any relevant purpose.
*******************
QUESTION I
BuilderCorp (B) in 1995 entered into a contract with OwnerCo (O), a manufacturing
concern, to construct a factory building for O at a price of $3 million. The contract provides that
the factory is to be substantially completed by January 1, 1997. O is required to make progress
payments to B equal to the percentage of the work done at the end of each quarterly period. The
contract also contains a liquidated damage provision: for every week of delay in completion beyond
January 1, 1997, B is to pay to O $10,000, that sum being a rough estimate of the weekly cost to
O of postponing the commencement of its manufacturing operations.
The winter of 1995-6 was exceptionally severe (the building site is near Buffalo, New York),
indeed the coldest on record. Under local union rules, construction workers are not required to

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work on an outdoor job if the temperature on any day falls below 20 degrees, though they continue
to receive full pay for such days. As a result of the cold weather, work on the factory was
postponed for a total of nearly four weeks during December of 1995 and January of 1996. It was
then resumed, but as of October 1, 1996 only two-thirds of the building project had been
completed. B had received $2 million dollars in progress payments by that date but had actually
expended $2.4 million on the project, largely because of the winter weather delay mentioned
above. Bs technical people estimated that it would cost another $1.2 million dollars to complete
the work, and they further estimated that substantial completion could not be anticipated before
April 1, 1997, which would be 3 months after the January 1 completion date called for by the
contract.
On October 2, 1996, Henchard, Bs president, called Farfrae, Os president, and informed
him of the outlook for completion. That terrible cold snap really slowed us down, Henchard
explained.
Farfrae was far from sympathetic. Aware that B was engaged on another larger
construction project elsewhere in the State, Farfrae believed, and still believes, that B neglected
his project in favor of the larger one. Farfrae does not regard the winter weather problem as any
sort of justification for Bs delay.
On October 3, Farfrae wrote to Henchard as follows:
There is no excuse for your delay in pushing our project to completion. I dont believe you
have given our factory your full attention. If you wish to continue your work for us, you must (a)
give me your written assurance that the factory will be substantially completed by the contract date,
that is, by January 1, 1997. Equally important, you must (b) post a surety bond in the face amount
of $250,000, which amount shall be payable to us if, in the judgment of an independent engineer,
the work has not been substantially completed by that date. If you refuse these reasonable
demands, then I direct you to stop work and vacate the premises. I will hire another builder to take
your place, one I can trust to proceed in an expeditious manner.
Henchard at once withdrew his workers and equipment and left the jobsite. Farfrae
promptly hired another builder, which took the project over and completed the factory on March 1,
1997 at a cost to O of $1.2 million.
B sues O and O counterclaims. Who gets what?

QUESTION II
Lino General Inc. manufactures linoleum products of various kinds, including floor-covering,
counter tops and related items. Lino uses a chemical compound called XO-152 in its
manufacturing processes and for the last five years has purchased that compound from DuPont
Chemical Corporation at a price of $6.00 per 20-gallon container. Recently, however, DuPont
advised Lino and other customers that it was raising its price for XO-152 to $8.00 per 20-gallon
container and that the price was likely to go higher in the near future.

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Eustacia, Linos president, thereupon contacted ChemCorp, also a producer of industrial

chemicals, and learned that ChemCorp was prepared to supply XO-152 at $6.50 a container and,
further, that ChemCorp was willing to enter into a firm 6-month supply contract with Lino at the
$6.50 unit price. Eustacia then held a brief meeting with ChemCorps sales manager, Clym, in
order to assure herself that ChemCorps XO-152 was the functional equivalent of the DuPont
product. In the course of that meeting, which was also attended by other Lino personnel, Clym
stated proudly that ChemCorps XO-152 was actually an improvement over DuPonts version,
because the ChemCorp product contained a newly developed chemical element that resulted in
quicker adhesion of the linoleum fibers and hence reduced the time required for drying, storage and
other processes. In addition, said Clym, the newly developed element enabled ChemCorp to
produce XO-152 at a cost that was substantially lower than the cost of the older, standard version
made by DuPont.
Having consulted with her technical people, Eustacia called Clym the following morning and
entered an order for 1,000 20-gallon containers of XO-152 to be delivered every month for the next
6 months. Clym was glad. A few days later Lino received an acknowledgment form from
ChemCorp which contained the following statement in bold letters on the front page of the form:
Owing to the variable conditions under which the above-named product may be used by
the Buyer, ChemCorp hereby disclaims all warranties whatever with respect to such product,
whether express or implied. If these terms are not acceptable, Buyer must so notify ChemCorp
at once.
Having subsequently received and paid for the first delivery, Lino attempted to utilize the
ChemCorp XO-152 as part of its customary manufacturing routine, but found, after several such
attempts, that the ChemCorp product, far from speeding up the process of fibre adhesion, failed
to cause adhesion to occur in any appreciable degree -- or to put it bluntly, simply didnt work. On
investigation, it turned out that the particular manufacturing process followed by Lino was one that
would not assimilate ChemCorps improved version of XO-152 and actually required the standard
DuPont version to function properly.
Lino at once entered into a 6-month purchase contract with DuPont for 1,000 20-gallon
containers a month of XO-152 at $8.00 a container. At the same time Lino advised ChemCorp that
it was returning the unused portion of ChemCorps first delivery and would not accept or pay for
any further deliveries. Your so-called improved product is a total flop, Eustacia told Clym in an
angry phone call. If theres any flop around here, retorted Clym, its you and your old-fashioned
manufacturing process.
Lino sues ChemCorp for $15,500, representing the $6,500 payment already made plus the
difference between $8.00 and $6.50 per container times 1,000 containers times 6 months.
ChemCorp counterclaims for its lost profit on the Lino order, which it estimates to be $3.50 per
container times 1,000 containers times the 5 months remaining on the contract, or $17,500.
How should the lawsuit be decided?

CONTRACTS -- Section 3 -- Page 4 of 4

Question III
Arabella, a well-known portrait painter whose client list includes important corporate
executives and political figures, has entered into a contract with Columbia Law School to paint a
portrait of Professor X, a distinguished member of the faculty who is about to retire. The portrait
is to be hung in a prominent place in the Case Lounge on the 7th Floor of the Law School where
the portraits of other far-famed faculty of earlier times can be seen and admired.
The contract between Arabella and the Law School calls for a fee of $50,000 to be paid to
Arabella on completion of the portrait, and provides also that the work is not to be considered
completed until finally approved by Professor X himself, which approval shall not unreasonably
be withheld. Professor X agrees to ten 45-minute sittings beginning November 1, 1997. The
portrait is to be finished and submitted to the Professor for final approval by June 30, 1998.
Arabella normally does the initial draft of a portrait herself, which usually occupies the first
six or seven of the ten scheduled sittings. She then turns the portrait over to her assistants
(sometimes called the elves) for final touch-up, framing, etc., while she herself moves on to the
next commission.
Arabella and Professor X go through four sittings in November and December. Glancing
at Arabellas easel as he leaves the room after the last of the four, the Professor discovers to his
dismay that instead of painting him in the respectable business suit that he has been wearing at
each sitting, Arabella has him dressed in the costume of a Roman senator. He is clad in a toga (in
the portrait), one arm is bare, and there is a laurel wreath on his brow. Professor X immediately
and strenuously objects to this fanciful get-up, saying that the toga and laurel wreath make him look
ridiculous. Arabella, however, being accustomed to what she regards as the petty vanity of her
sitters, coolly replies that she will entertain no objections while the work is in progress. She
assures the Professor that he will be well satisfied with the final product and reminds him that he
can reject it if he is not.
Professor X thereupon declares that he will not participate in any further sittings and angrily
informs Dean Leebron of that decision. The Dean so advises Arabella. Arabella responds by
stating that she is simply too busy for this kind of bickering and, having packed up her paints and
brushes, departs in a huff.
Arabella now sues the Law School for her $50,000 fee. What result?

END OF EXAMINATION