Answers to Winter 2010
California Bar Exam Questions

The Writing Edge

Winter 2010 Bar Question 1

Contracts

On April 1, Pat, a computer software consultant, entered into a written services contract with Danco, Inc. to write four computer programs for use by Danco in controlling its automated manufacturing machines. The contract provided that Danco would pay Pat $25,000 on completion of the work and that the programs were to be delivered to Danco no later than May 1. The contract stated, “This is the complete and entire contract between the parties, and no modification of this contract shall be valid unless it is in writing and signed by both parties.”

Pat entered into the contract in anticipation that it would lead to significant work from Danco in the future, and he consequently turned away opportunities to take on more lucrative work.

On April 15, Pat called Chelsea, the President of Danco, who had executed the contract on behalf of Danco, and told her, “I’m having some problems with program number 3, and I won’t have it ready to deliver to you until at least May 8 – maybe closer to May 15. Also, I have some doubt about whether I can even write program number 4 at all because your computer hardware is nearly obsolete. But I’ll get programs numbers 1 and 2 to you by May 1.”

Chelsea said in response, “I’m sorry to hear that. We really need all four programs. If you can’t deliver until May 15, I guess I’ll have to live with that.”

On April 28, Pat called Chelsea and said, “I’ve worked out the problems with programs numbers 3 and 4. I’ll deliver them to you on May 12.”

Chelsea responded, “I’ve been meaning to call you. I’m going to start looking around for another consultant to do the work because I consider what you said in our April 15 telephone discussion to be a repudiation of our contract. My lawyer tells me that, because of the language in the contract, nothing I said to you in that conversation matters. You repudiated the contract, so we don’t owe you anything.”

Can Pat prevail in a suit against Danco for breach of contract, and, if so, what is the measure of his damages? Discuss.

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Contracts
Question 1, Winter 2010

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Contracts
Question 1, Winter 2010

“No later than May 1” Condition or promise?
If a contract term is a condition then strict adherence to the condition is required. Anything less than full compliance of the condition means that the promisee does not have a duty to perform yet. Therefore, the promisor is entitled to no consideration. If, on the other hand, the contract term is a promise, then, the promisor is entitled to consideration, even if he did not perform perfectly.

Here, the contract states, the four programs are to be delivered “no later than May 1.” Arguably this is intended as a condition requiring string adherence.
Courts however are hesitant to interpret a contract term as a condition because of the harsh results on the promisor. The courts consider three things in making the determination: the actual language used, the intent of the parties, including surrounding circumstances and whether enforcement as a condition will result in a forfeiture.

Actual language. The more specific the requirement, the more likely it is interpreted as a condition. Here, “no later than” could be read as a condition. But it is not strongly indicative. Without more, a court will refuse to treat the term as a condition.            

Intent of the parties and surrounding circumstances. D might have preferred to receive the four programs by May 1, but we are not told of any compelling reason that D needed the programs by that date. In fact, if that date had been critical, D would have immediately sought a substitute contractor on April 15 when P informed D he would be delayed by up to two weeks. But it was not until April 28 that Chelsea said D would begin to look for another consultant to do the work. Therefore, nothing in the facts or in D’s conduct indicates that the term must be interpreted as a condition.

Forfeiture. Even if the intent of the parties supported treating the term as a condition, the courts would still refuse to treat it as such if that would result in a forfeiture to the promisor. Here, P produced two programs out of four and was nearly done with the other two programs. If late delivery were seen as a failure of a condition, P would receive nothing for his efforts.

Therefore, the term “no later than May 1” is not a condition. P did not fail to perform a condition. Therefore, both P and D still have duties to perform under the contract.

Waiver?
A waiver of a contract promise by the plaintiff excuses defendant’s performance. Here, P told Chelsea on April 15 that, while he could deliver programs 1 and 2 on time by May 1, he would not be able to deliver programs 3 and 4 until May 8 or May 15. Chelsea responded, “I guess I’ll have to live with that.”

It appears that Chelsea meant that as a waiver, because apparently programs 1 and 2 were no good to D without the other two programs. Chelsea did not try to get substitute performance by another contractor until April 28, indicating that D was still waiting for P to perform. Chelsea’s words did not indicate that D was treating P’s need for more time as a breach. P continued to work on the project, and D continued to await delivery of the programs from P.

If the May 1 deadline was a condition, Chelsea’s lawyer would be correct that her saying “I’ll have to live with that” would be legally ineffective. Anything less than complete adherence with a condition would not entitle P to any payment. However, because the May 1 deadline is a promise and not a condition, Chelsea’s acceptance of the extended deadline would be a waiver.

Complete agreement -- Integration. Where the written contract recites that it is a complete and entire contract between the parties, no parol evidence is permitted to change the contract terms. Parol evidence is evidence of a prior or contemporaneous agreement. Here, Pat contacted Chelsea after the contract was formed, so the April 15 conversation is not parol evidence and it not barred by the integration clause.

Modification. When a contract expressly states that modifications must be in writing, an attempt to orally change the contract will be ineffective as a modification. Here, the contract requires modifications to be in a writing signed by both parties. P called Chelsea on April 15 and said he needed an extension of the contract deadline for programs 3 and 4. Chelsea said, “I suppose I’ll have to live with that.” This may be seen as an oral modification, but that is ineffective in light of the contract’s express no-oral modification provision.

However, a no-oral modification clause does not prevent a waiver under the UCC, if the promisor relies materially on the waiver extending his deadline to perform. While the UCC does not control this services contract, a court maybe persuaded to apply the same logic. Chelsea did indicate that she was accepting P’s need for more time and P did rely on it by continuing to work on programs 3 and 4. If the court is persuaded by the UCC and reasons consistent with it, then the waiver is effective and D is estopped from claiming P is in breach on May 1.

Impossibility. Where an event outside the control of the defendant makes it impossible for anyone to perform, defendant’s duty is discharged. The duty must be objectively impossible, meaning that no one could perform it. Here, P said he doubted whether he could write program 4 at all because D’s computer hardware is nearly obsolete. It is unclear whether another contractor could have performed where P said he could not. Since the hardware was nearly obsolete, it is reasonable to assume that all contractors would have the same difficulty in performing. However, ultimately P was able to write the fourth program. Therefore, impossibility fails. However, conceivably P’s duty to perform by the May 1 deadline might be discharged due to temporary impossibility. Under that theory, the duty to perform is discharged until the event interfering with timely performance has resolved. Here, P was able to find a work-around even though D’s hardware was nearly obsolete. Thus, temporary impossibility might discharge late delivery of program 4.

Substantial performance. Where the promisor delivers almost complete performance such that the promisee received the benefit of the bargain, then the promisor has substantially performed. He is entitled to contract consideration, minus any offset for his less-than-perfect performance.

Here, P delivered two out of the four programs on time. Assuming that the four programs were of equal value to D, delivery of two out of four programs timely would not be substantial performance. As a matter of fact, Chelsea indicated that the four programs operated in tandem when she said “we really need all four programs.” Therefore, delivery of two programs on time is not by itself substantial performance.

As to the third program, P proffered delivery twelve days late. As to the fourth program, the delay may have been discharged due to the difficulty of the task due to D’s obsolete hardware. Again, he proffered delivery twelve days late.

On the one hand, the contract called for delivery of all four programs by May 1.
On the other hand, we are not told of any losses D suffered by the twelve day delay. In fact, when P informed Chelsea that he would be delayed on two programs, Chelsea did not indicate that D would be harmed by the delay. D had not yet even begun to look for substitute performance by April 28. It seems certain that a new contractor would need more than two weeks to produce the two remaining programs, particularly in light of D’s nearly obsolete hardware.
If the delay really were a financial loss to D, it would have begun looking for substitute performance on April 15, when P first notified it of the possible delay.

Therefore, it appears that D did get the benefit of the bargain on May 12 when P was able to deliver the remaining two program. P is not in breach and is entitled to contract remedies.

Therefore, P is not in breach.

April 28 Chelsea states D does not owe P anything—Anticipatory Repudiation.
When a party to a contract states that it does not intend to perform before the date for performance is due, it is a form of breach known as anticipatory repudiation. Here, Chelsea told P on April 28 that D does not owe P anything. Therefore, D has breached.

Legal remedies.
Expectation damages. A plaintiff may recover expectation damages when he can prove the damages are
Foreseeable
Unavoidable
Causal and
Certain

Foreseeable. The harm suffered must be expected by the defendant at the time the contract is entered. Here, Danco knew that if it failed to pay P he would suffer losses of $25,000. However, Danco probably did not know that P gave up other contracts in order to complete the work for Danco. Therefore, P may not recover from Danco the value of his lost opportunities for more lucrative work.

Unavoidable. The plaintiff must mitigate the harm he suffers from defendant’s breach. Here, P had completed programs 1 and 2 and had gone a long way toward completing programs 3 and 4 by April 28 when Danco informed P that it considered him in breach. P could do nothing at this point to lessen his damages. Therefore, P’s damages are unavoidable.

Causal. This is met when but for defendant’s conduct P would not have suffered the harm. Here, but for D’s refusal to pay P, P would not have suffered the loss of $25,000.

Certain. This is met when the losses P suffered are capable of being reduced to a precise dollar amount. Here, the contract calls for D to pay P $25,000. Therefore, the damages are certain.

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