Sample Questions: Folks, I have collected the various sample problems sent out over the semester in this

document, (though I have changed some of them a bit, so please pay close attention). You will note that the total time is way over 4 hours, which means that an actual test would never include this many questions. More importantly, recall that that you have been getting questions from me all semester and by now have a pretty good feel of what I ask and what I am interested in. I promise you that you will not be surprised by the questions on the final.

Question # 1 (100 min) Daniel, who lives in Western, PA, is up late one night watching infomercials on TV and saw an ad for the CarpetWizard (CW), a machine for vacuuming and steaming carpets and rugs. CW was advertized for $399.00 for which sum the buyer would also receive absolutely free a lightweight carpet sweeper and a device for dusting blinds, shades and ceiling fans. In the course of the program the product was demonstrated by several enthusiastic actors, and the spokesperson stated several times that if the buyer was not entirely satisfied with the product after using it for two weeks, the entire purchase price would be cheerfully refunded and the buyer could keep the sweeper and duster. Daniel was persuaded that the CW and accompanying products would be useful to him. The infomercial listed a web address, and when Daniel accessed the site, he saw pictures of various vacuum cleaners and similar devices, with specifications for each of the products. Immediately below the pictures of all the products, and in fairly large type, was a button where Daniel could place an order. Several other buttons, in somewhat smaller type, were located at the bottom of the page. One of these buttons was labeled, contact terms and warranty. Daniel clicked on the button and found a long document with some provisions in all caps while others were in regular type. Daniel quickly scrolled through the document. At the end he found a button which stated, Return to product page. Daniel clicked on this button and was returned to the page with pictures of the products. He then clicked on the place an order button and moved to a page that asked for credit card and delivery information, which he entered. At the bottom of the page appeared another button which stated: Submit. Shortly thereafter, Daniel received an email, stating Thank you for submitting your order to CarpetWizard. Items noted as 'in stock' will arrive within 4-7 business days. Other items may be on our wait list. We will ship them to you as soon as it arrives in our service center. Your credit card will be charged once your package is shipped from our service center. You will not be charged for wait list items until they are shipped.

Two weeks later, the merchandise he had ordered was delivered to Daniel. In the packing box, in addition to the CarpetWizard itself plus the sweeper and duster, was a booklet entitled INSTRUCTION MANUAL, the contents of which consisted mostly of instructions for operating those products. However, the last two pages of that booklet (which Daniel did not read at the time) were entitled BUYERS WARRANTY. Included on those two pages were: (1) a disclaimer of any liability on CWs part for any consequential damage resulting from the use or misuse of any CW products; (2) a provision that any claim for refund must be made within 5 days of the buyers receipt of the merchandise, and must be accompanied by all of the merchandise in the original packaging case, sent postage prepaid and insured to the sellers factory in Florida; and (3) a statement that any and all disputes arising out of the buyers purchase of any CW product must be submitted to arbitration in Florida. The first two of these terms were identical to the language that appeared on the web site, the third term was new. Attached to the last page of the Instruction Manual was a tear-off card entitled WARRANTY REGISTRATION. The card stated, to ensure that you receive the fill protection of your Buyers Warranty, please fill out and return the attached card. The card provided a space for the buyer to fill in the place and date of the purchase and the serial number of the CarpetWizards purchased, and asked several questions about the buyers purchasing habits. Just above the space for the buyers signature, the card noted that by signing below you acknowledge that you have read and understood the terms included in the Buyers Warranty. Daniel filled out the card, signed it, and mailed it back to CWI. A week after receiving the CarpetWizard, Daniel got around to trying it out. After reading the instructions in the manual to be sure he was operating the machine correctly, Daniel used the CarpetWizard on the rugs in house, and suffered second degree burns in his hand from a spark that flew out of the machine. Further, within a few hours, several of the rugs appeared discolored and worn as a result of this operation. When Daniel attempted to go over the affected areas again, in an effort to improve the result, the CarpetWizard short-circuited and caught fire. Daniel has to spend a few days getting treatment for his hand. Further, the machine itself was damaged beyond repair, as was the rug that Daniel was cleaning at the time. For the purpose of this question, assume that the damage to the CarpertWizard itself is likely a direct damage, and that the Daniels injury and the damage to his rugs are characterized as consequential damages. Answer the following questions on the basis of general contract law and Article 2 of the UCC, but ignore any possible application of tort law or state and federal statutes or regulations that might provide various types of protection for Daniel in this case. 1. Is Daniel entitled to a full refund of the price he paid for the CW products? 2. Is he entitled to compensation for any injury to his hand that resulted from his use of the CarpetWizard?

3. Is Daniel entitled to compensation for the damage to his rugs? 4. If CW declines to make compensation as Daniel demands will Daniel have to initiate arbitration in Florida to recover any money from CWI?

Question #2 75 min practice question In 1987, Dave entered into a franchising agreement with Buster, his buddy from high school to run a Pizza Palace (PP) franchise in Nathansville, a small town in central Pennsylvania. Busters store was located on Nathansvilles Main Street and drew a small but loyal crowd of local shoppers and teenagers. Back in 1987, Dave was running his Pizza Palace business out of his parents garage. Thus, the contract between Dave and Buster was relatively informal containing just a few pages. Specifically the contract called for: Buster to employ good faith in developing and promoting the PP franchise. Buster could only use Pizza Palace Special Sauce in making his pizza. Buster was to purchase the Special Sauce from Dave for $100/case payable within 30 days of delivery. Buster was to pay 15% of the stores net income as licensing fees for the Pizza Palace name and logos. The payments were to be made monthly. The agreement contained no termination clause.

The store operated reasonably well for a number of years. By the mid 1990s Buster was paying $500,000/year for cases of Special Sauce and $20,000/year reflecting 15% of the stores net income. However in 2000, a developer built a large mall 10 miles out of town which served Nathansville and a number of nearby communities. The mall attracted most of the local shoppers and there were few people milling about Nathansvilles main street. Along with the rest of the downtown area, the PP store began to decline and Buster had trouble making the required payments. To save costs, Buster began cutting the PP stores hours, opening only at dinnertime. Further, he ceased his main advertising activity which was the sponsorship of the local high school football team. Since Buster was making less pizza, his orders of Special Sauce were down, as were the gross revenues from the store. For example, in 2004, uster bought only $30,000 of Special Sauce and 15% of net income down to $100. To pay the bills, Buster spend several hours a day scouring garage sales buying items that he would resell on eBay.

In the period between 2000 and mid-2006, Buster faced significant financial hardships and was chronically late in making his payments to Dave. The level of debt fluctuated over the years. At times, Buster was able to keep his balance with Dave down to zero, but on other occasions he racked up as much as $150,000 of debt to Dave. Yet every time Dave considered taking action, Buster paid off just enough of the debt to convince Dave that it was not worth the headache of pursuing legal action. During this period, Buster continued to submit his monthly orders of Special Sauce to make the pizzas. While Dave became increasingly wary of shipping more Special Sauce while Buster was in arrears, Dave nevertheless shipped the Special Sauce, figuring that Buster would never be able to pay him back without the raw materials for making pizza. In the summer of 2006, Nathansvilles most famous son, the internationally acclaimed rock star Jimmi Schmendriks suddenly died from a drug overdose. Overnight, downtown Nathansville became a shrine to the millions of fans mourning Schmendriks memory. Suddenly, the financial prospects of PP and all of downtown Nathansville looked substantially brighter. Realizing that the Nathansville PP franchise was poised to make a lot of money, Dave wanted to get rid of Buster and find a more capable franchisee to run this location. Thus in August 1, 2006, Dave sent Buster the following letter, which contained, in relevant part:
Please be advised that you are presently indebted to us in the amount of $150,000. Failure to remit payment to us in full within 7 days will result in the termination of our franchise agreement.

Buster also realized the potential value of the Nathansville PP franchise. Thus within a day of receiving Daves letter, Buster secured a loan of $150,000 and negotiated a $100,000 line of credit from a local bank for the day-to-day operating costs of the pizza store. To Daves utter surprise, on August 5, 2006, Dave received by courier from Buster: (i) a certified check for $150,000; (ii) a copy of his $100,000 line of credit agreement with the bank; (iii) documents showing the installation of a new brick fired oven, the stores expanded hours, and renewed promotional activities, and finally (iv) an order for 150 cases of Special Sauce for $150,000. (This was 7 times more sauce than Buster had ever ordered in a single month in the previous 20 years). Dave is now uncertain as to how to respond to Busters letter and seeks your advice. Draft Dave a legal memorandum considering the following: (i) (ii) After receipt of the checks and related documents on August 5, 2006, does Dave have any basis to terminate his franchise relationship with Buster? Can Dave continue his relationship with Buster, while opening another PP store in downtown Nathansville to capitalize on the Schmedricks fans?

(iii)

(iv)

Assuming that going forward Dave decides to maintain the relationship with Buster, what steps is Dave entitled to take to make sure that Buster does not fall behind on his payments again? Advise Dave as to how he should respond to Busters letter of August 5. (If you need to assume additional facts about the business, please state what they are and how they are relevant).

Question # 3 (60 min) Alan runs an advertising agency. Barbara runs a computer repair and servicing business. Alan uses his computer to design advertisements. One morning, Alan was working under a 5:00 p.m. deadline to deliver an advertisement for a new movie called The 4C-Ability to the newspaper for the Sunday edition. His computer crashed. He called Barbara and said, "my computer has crashed and I need to finish a project for the newspaper that has a 5:00 PM deadline. Can you fix it? Barbara said, "Sure. We charge $50 per hour; I can have someone there by 11:00 a.m." Alan said, "Deal." The repairperson did not arrive until 3:00 p.m. and did not finish work until 4:30 p.m. Alan was unable to deliver the advertisement to the newspaper. The movie made only $10,000 on opening weekend, $6,000 less than the average for movies in this town. Under the contract Alan was to be paid $700 for designing and producing the movie advertisement. Somewhat frightened, Alan comes to you seeking advice. After telling him that you have it all under control, draft a memo that clearly identifies and analyzes the various legal issues Alan will face, including all claims, counterclaims and defenses, and how they are likely to be resolved.