Top Student Exam Answers
Note: These were, in my judgment, the best answers received under examination conditions. They should not be taken as model answers, in that they all contain extraneous material as well as omitting useful information. Some even reach incorrect conclusions. However, they all take intelligent approaches to the questions, are well organized and reasoned, and make sensitive use of the facts.
Question 1, Answer 1
Dear Mr. Poff:
You have a strong case against Dominion for breach of your employment contract. Your claim rests primarily on the
grounds that your termination was without good cause. To be successful, you must show 1) there was an implied duty
of good faith, and 2) there was a breach of this duty.
The duty to perform in good faith may in this case be both implied in law and implied in fact. The contract stipulated
that it was terminable at will by either party on ten days written notice. While the literal interpretation of
the provision suggests that the termination may occur for any reason, this interpretation does not reflect the
reasonable expectation of employees that they will be discharged only where good cause. For this reason, courts
have been willing to impose a duty of good faith so that a termination in bad faith constitutes a breach. Fortune.
The implied term is not intended to interfere with the employer's interest in operating his business efficiently
but, rather, is intended to balance this interest with that of the employee in continued employment.
The duty may also be implied in fact. Albright orally assured you that this term was "just a formality"
and that he "would never terminate an agency without. . . good reason. " It was reasonable for you to
rely on this representation in assenting to the offer. If this statement is admissible, it will underscore the
existence of an implied term of good faith. Under the parol evidence rule, if there is a written contract understood
to be an integration of the agreement, then evidence of antecedent understandings will not be admissible to vary
the terms of the writing. You may circumvent the rule's exclusionary effect in two ways. First, you may argue that
the contract is not an integrated agreement despite the merger clause because the clause was inconspicuous, it
is boilerplate in a form contract and there was unequal bargaining power, other circumstances defeat the apparent
intention of integration, or the oral provision was part of a collateral agreement. If the agreement is not fully
integrated, evidence of a consistent additional term which in the circumstances might be naturally left out of
the agreement is admissible. The promise to terminate only where good cause may be such a term given the legal
background of an implied duty and commercial custom. Second, the modern trend is to admit parol evidence for purposes
of interpretation. Once considered, it is likely that the judge would have reason to believe that it is a reasonable
interpretation to read good faith into the termination provision, especially in light of the often implied duty
at law. Once the statement is admitted, Albright may be estopped from denying its existence if you can show that
you relied on it in opting not to renegotiate your contract as did other longtime agents with high sales.
If a duty to perform in good faith is shown to be a term in the contract, you must show that there was not good
cause for your discharge. Dominion may claim that there was cause because of 1) breach of your agreement to work
exclusively for the company, 2) your disagreement with the company's anti-smoking policy, and 3) other economically
justifiable reasons.
In rebutting their claim of a breach of the exclusive agency agreement, you may argue that a) the duty to perform
was waived, or alternatively, b) there was no breach. While there was no express waiver, one may be established
where the words or acts of the promisee reasonably justify the conclusion that, with complete knowledge of the
circumstances, he relinquished the defense of non-performance of a condition. Clark. Knowing of your agency for
other companies, Albright chose to not enforce the agreement because of your continued strong performance for Dominion.
You relied on his waiver by continuing to work for other companies, and equitable estoppel may prevent Albright
from denying the waiver. Moreover, no notice was given to reestablish the right to enforce the duty , and thus
the waiver was never revoked. Restatement sec. 84. The existence of other agents known to have dual licenses is
not dispositive because they might have had written approval and waiver with one party does not carry over to another,
but it is suggestive of the likelihood of a waiver in your case.
You may also argue that there was no breach of the agreement to exclusive agency since the offerings of the companies
and the customer bases were significantly different. This argument would be stronger were the agreement one that
explicitly prohibited competition with the company. However, there are other legitimate reasons why Dominion would
prefer exclusive agency, such as the time spent selling for the other companies might be used selling Dominion's
policies and in the absence of ready alternatives the clients might have bought a Dominion policy. In bringing
suit, you risk exposure to a counterclaim grounded in breach of this duty. To recover, Dominion would have to show
that there was no waiver and that its share of the market was adversely affected by your sale of different policies,
which would appear difficult given their differences.
Dominion may also cite your disagreement with its anti-smoking policy as good cause for your discharge. Its argument
is weak, however. You did target non-smokers as was suggested. The request that agents refrain from smoking and
encourage their clients to do the same was a suggestion, not a term of the contract. You received a sympathetic
letter from Albright on the subject that would be admissible under the parol evidence rule since there is no contractual
term in dispute. And, finally, a Virginia jury is unlikely to be sympathetic to anti-smoking rhetoric given the
region's dependence on the industry.
Third, Dominion may claim there are other commercially justifiable reasons for your discharge. This is a valid
defense since the duty of good faith is not intended to intrude on an employer's interest in turning a profit.
Dominion will seek to introduce evidence that sales were leveling off and there was a need for cut-backs. These
arguments can be weakened by introducing your history of strong performance (suggesting there were better candidates
for termination) and pointing out that Albright offered you no explanations for your sudden discharge, which is
ostensibly incompatible with a claim that there were legitimate reasons.
An alternate ground for breach may be violation of the notice requirement if the language was such that written
notice was a condition precedent to termination. However, the court is likely to award at most nominal damages
for this alone one as tt was not a material breach. It is relevant, though, to the claim for severance pay.
If liability for breach is established, there are various remedies. While you would prefer a reinstatement of your
employment, specific performance is unlikely. Albright has rejected such a solution, and courts are reluctant to
apply it where there is an adequate remedy at law and in service contracts where there is a problem in enforcement
and an encroachment on personal autonomy. Expectation damages are the likely remedy. You would probably recover
the quarterly payment of commissions and a share of any commissions from the recent applicants, since Dominion
would have been found to have denied you the opportunity to carry out your duties with regard to these clients.
It will be difficult to overcome the uncertainty in projecting a 1oss of future wages since the duration of the
contract was not fixed. Courts, however, are increasingly willing to estimate lost profits where it would cause
injustice to refuse for lack of certainty. Relevant evidence would be your age, your past performance record, the
insurance market, and the solvency of Dominion. The failure to comply with the notice requirement gives you a strong
claim to severance pay since you were not given an opportunity to arrange your affairs with the expectancy of impending
unemployment, and in taking the bakery job, you have discharged any duty to mitigate damages. If it can be shown
that the whole-life insurance policy combined with a low salary was designed as a deferred compensation plan to
give you incentive to stay with the firm and to not abscond with your clientele, then you would be entitled to
either a share of the insurance policy that would have made your salary competitive in the marketplace or to the
customer lists and possibly lost opportunity costs. To hold otherwise, would be to encourage opportunism.
If a breach of contract is not found, you would still be entitled to restitution damages which would include at
the least a share of the profits from the new applicants. If it can be shown that you assented to the contract
only upon Albright's assurances of good faith, reliance damages may be available. Loss of opportunity costs may
be speculative, and the expectation measure might be used to approximate the detriment suffered.
Question 1, Answer 2
Dear Mr. Poff:
You indicate that despite your contract dispute with Dominion you would like to continue working for them. Failing
that, you would like to know what rights you have to your insurance policy, severance, commissions, client book
and relocation costs. To determine these interests, the breaching party must be determined.
Although contracts terminable at will are permissible, you can argue that an employment contract with a terminable
at will clause has an implied covenant of good faith. The exclusive dealings and smoking disputes notwithstanding,
Dominion terminated you after 10½ years of service (with 1½ years remaining to vest in your $83,000
insurance policy) without stating a reason. Your years of service and Dominion's obvious incentive to save a substantial
sum of money indicates bad faith. Dominion has also refused to consider severance, and made payment on already
earned commissions dependant upon the non-contracted forwarding of your customer book. The court will likely consider
these actions and conclude that termination was a breach of the implied covenant of good faith.
Dominion will invoke the parol evidence rule and the contract's merger clause and argue that evidence of Albright's
oral assurances impermissibly contradict the terminable at will clause. They will also argue that you were an experienced
independent insurance agent at the time of signing and could have bargained for specific terms if you wanted to.
Because a Dominion form contract was used, the court will likely consider the oral statement made by Albright explaining
the terminable at will clause - the mutuality of the termination clause and the merger clause notwithstanding.
Albright's explanation and assurances can be taken as an acknowledgment that he knew the clause was problematic
and offered the assurance to avoid modification of the boilerplate. You can also argue that your move to Norfolk
was made in reliance on the job security promised by Albright. If the court excepts the oral and reliance evidence
it will likely interpret the clause as "at will. . . with reasonable cause. "
If this is the case, Dominion will argue that your violation of the exclusive services clause provided them with
a sufficient cause to terminate. You must argue that Dominion waived its right to enforce the clause. To do so,
you can argue that Dominion did not enforce the exclusive services clause with respect to you or other agents.
Furthermore, you relied on their waiver, expanding your business to sell products which Dominion does not offer.
Failing that, you must show that Dominion did not revoke their waiver and give you a reasonable time to make corrections.
Alternatively, Dominion will argue that Albright's periodic expressions of disapproval are dispositive toward waiver
and that the exclusive services clause was a material part of the contract. Dominion will probably fail on this
argument given their general lack of enforcement and your reliance.
You are also in non-compliance Dominion's smoking policy. It is doubtful that Dominion will argue this point because
the contract is silent on the issue, you are an independent agent, the company only suggested a non-smoking policy,
and this assertion would not sit well with a Virginia fact finder. Dominion may argue that the non-smoking issue
is a new concern for their business and good faith demands that you adapt to changing market concerns that confront
their business. Alternatively, you can argue that the issue is not in the four corners of the contract and that
you had a legitimate sales justification for non-compliance with their suggestion.
Although the court will likely find Dominion in breach, your winning an order for reinstatement is highly unlikely.
Courts use specific performance when the "thing" in controversy is unique. Courts are reluctant to impose
specific performance as a remedy demanding "personal relations from an unwilling party. " If you wish
to repair your relationship with Dominion you must do so without the leverage an order for specific performance
provides. Dominion will succeed in resisting your claim for specific performance. They will also succeed in resisting
your claim for severance by arguing that you were experienced in the insurance sales industry and should have bargained
for this particular benefit. Prior to signing with Dominion you had worked for several companies over the previous
10 years. Dominion will consistently argue that you were a knowledgeable and equal bargainer.
If Dominion is found to have acted in bad faith, you do have a strong claim for both the balance and accrued interest
in your insurance policy, and your unpaid commissions. The insurance policy reflects a benefit related to the commissions
you earned over the last 10 ½ years. The policy also has properties of a pension and assumedly was offered
in lieu of a pension. Because you and your wife were "counting on it" as your nest egg, the court will
likely award you the value of the policy in reliance damages. Dominion will argue that the contract specifies a
vesting of rights at 12 years and that the policy was not a pension, but rather a bonus for extended service. Assuming
that they are found to have acted in bad faith, the "four corners" argument will fail. Because the benefits
were tied to commissions earned during the time served rather than for time served only the bonus argument will
fail as well. If our reliance argument fails with regard to an immediate $83,000 payment we can argue that the
policy does not specify, a lapse at termination, but that the terms simply require you to wait for the 12 year
term before your rights to the balance vest. We might also argue that because you viewed the policy as a pension
you did not consider the 12 year term to implicate termination without cause. This is largely dependant on the
terms of the policy, but as you are aware, the court will construe a contract of adhesion against the writer. Your
familiarity with the insurance industry makes these last arguments somewhat difficult.
All your unpaid commissions will be awarded in expectation damages according to the payment scheme in your contract.
The contract itself created an expectancy that you would be paid for your services, and the amount is easily ascertained
(foreseeable) with regard to all finalized policies. Those policies that have not been finalized are somewhat more
problematic, but we can apply the Restatement, Second, Agency § 454, which states that when the principal
seeks to deprive the agent of all compensation by terminating the contractual relationship when the agent is on
the brink of successfully completing the sale, the principal has acted in bad faith and the ensuing transaction
between the principal and the buyer is to be regarded as having been accomplished by the agent. (Fortune v. NCR).
My recommendation is that you relinquish only the information in your client book relevant to the unfinished transactions
as a show of good faith and to insure that you receive the commissions for those transactions.
Do not relinquish any other information from you client book. As you are well aware the information is valuable
in its own right, but also valuable as a negotiating tool should you decide that your relationship with Dominion
is salvageable. Your rights to the insurance policy and unpaid commissions are not predicated on relinquishment
of the information. Additionally, as an independent agent, and without any apparent contractual obligation to the
contrary, I see no lega reason for you to relinquish yo. ur property. Given the likelihood that you will retain
right to your insurance policy and commissions, Dominion may wish to retain you to reap the benefit of your book.
Your chances for expectation damages regarding the draw and commissions you would have earned had Dominion not
fired you is difficult to determine. Some courts have held that an employer is obligated to pay lost wages from
the time of termination until settlement or trial. Others refuse to award expectation damages for work not performed.
Although collection is unlikely, it never hurts to ask. You limited chance of success aside, this, like your other
damage claims, is useful as a bargaining tool.
Your chances for recovering your relocation costs to and from Norfolk are likewise slim. While you can and should
argue for damages relating to you moving costs in detrimental reliance, I believe that this argument will ultimately
fail. Although you clearly acted on Dominion's inducement and can demonstrate a forbearance (moving costs, commision
slump) this may be offset by the benefit you received over the subsequent 8 years. Such damages are equitable in
nature and are generally limited when other damages are available.
While I am sorry to hear of the emotional difficulties this situation has caused your family, I must compound the
bad news by informing you that such damages are generally not recoverable in employment contracts. Typically courts
award damages in contracts to compensate the innocent party not to punish the breaching party. I find it highly
unlikely that a Virginia court will recognize a claim in tort.
Question 2, Answer 1
These recommendations cover contracts which clearly fall under the UCC (school supplies), contracts that clearly
do not (facility renovations), and contracts that are hybrids that arguably shade away from falling under the UCC
(food services, maintenance supplies and services ). I shall therefore try to frame my recommendation according
to both the UCC and its common law analog.
Problem #1
The district has the right to demand performance from a winning bidder according to the terms (including price
) of the contract. If he seeks a price increase and we grant it under protest, it appears that we may have a case
for voiding the modification as being agreed to under duress if the bidder acts opportunistically and not for a
legitimate commercial reason. UCC §§2-209. 2-103. If his reason for seeking the increase is to take advantage
of the impracticality of the district holding a new auction, then our case is strong. If his reason is that district
bureaucrats have made perfonnance impracticable (and his contract is covered by the UCC) then our case is weak
because he would then be acting in good faith; if his contract is governed by common law principles our case is
still fairly strong because we can claim that such bureaucratic meddling was easily foreseeable by anyone remotely
familiar with contracting in the district and that the risk of costs arising from such meddling should rest with
him, to be accounted for in his bid. Even inexperienced contractors can reasonably be presumed to know of the scanda1-ridden
history of the district.
Legal action, however, seems undesirable. Attempting to void the price increases after they have been granted will
deter not only those behaving opportunistically but those who incurred increased costs at the hands of school bureaucrats.
Many honest contractors will refuse to bid for fear that they will not be reimbursed by the district for their
overruns caused by bureaucrats. Or they will pad their bids to preemptively reimburse themselves. Rather than encourage
this the district might be better off granting price increases on a case-by-case basis, allowing increases where
the contractor can show overruns due to official machinations, refusing it where the motive was opportunistic.
There is a proof problem here, of course-how much more to require of the contractor beyond a bald assertion that
district officials made unreasonable demands of him? More fundamentally , we may run into the political difficulties
Mr. Sorvino ran into, risking accusations of micro-management.
Refusal to allow increases may result in the contractor walking off the job-here we should pursue our legal option
and sue for breach of contract. We should not seek specific performance, which would be difficult to obtain since
the goods/services are not unique, but damages equal to the difference between the contract price and the price
of hiring a replacement (presumably higher since they will likely be cronies of district officials, not the result
of competitive bidding). Such actions, one hopes, will deter contractors from both seeking bad-faith modifications
and walking off the job once they are rejected.
The district might also elect to flatly refuse to consider bids from inexperienced contractors - say , those who
had not successfully performed on a contract of comparable scale within the past 5 years.
Problem #2
Winning bidders who withdraw after the district has accepted their bids may be sued for breach, and the proper
remedy for us here will usually be as outlined above, a claim for contract-market damages. However, some of these
bidden may have withdrawn due to their inexperience in anticipating costs, or they simply found they were not up
to the job. A case can be made for refraining from seeking damages from such contractors, who were motivated not
by venality but a sudden, belated recognition of their shortcomings. But a better case can be made that such contractors
should not be given incentives to cut and trim. Instead they should be encouraged to first painstakingly price
their work and assess their capabilities, and then, should they prove wrong. to seek a modification. We can provide
such encouragement by suing them when they breach.
Encouragement to stay on the job can also be provided by requiring winning bidders to post a performance bond and
inserting a clause specifying damages escalating according to how late in the school year breach occurs. UCC §2-718
and common law principles allow liquidated damages so long as they are a reasonable estimate of the injury caused
by breach and not a penalty. In our case, such estimates should be readily calculable, given the lengthy history
of such breaches in the district. The biggest problem with a bond requirement is that it somewhat conflicts with
the previous administration's (and I assume this administration's) desire to open up the bidding process - newcomers
will find it difficult to find lenders willing to gamble on them, in light of the districts overrun-prone contracting
environment. A secondary concern is that those able to procure such loans will have to tack the loan transactions
costs onto their bid; but given the apparent frequency of breaching bidders and the seriousness of these breaches.
these added costs to the district seem justified.
T o alleviate the likelihood of becoming vulnerable to gougers, the district can enter into bilateral conditional
contracts with the runners-up in the bidding process. We agree to hire them & should the winner breach and
they agree to be hired. They would of course demand separate consideration above their bid - perhaps this can partly
be in the form of an assignment of our right to sue the winning bidder for breach. Such back-ups serve a dual purpose:
they provide the benefits of competitive bidding without having to incur the administrative costs of actually conducting
a new auction, and they decrease the leverage the winning contractor has on the district by minimizing the impact
of his default.
In many , if not most, of these suits the contractor will defend by pleading mistake or impracticability. The inexperienced
contractor will argue that it should be excused because it made a mistake about a basic assumption of the object
of the contract -namely, his projected expenses. This defense will not likely work, because courts win generally
excuse a party on the grounds of unilateral mistake only for clerical or mechanical errors, not for errors of judgment
where the mistaken party may be presumed to have assumed the risk of miscalculation and was in the best position
to guard against the error.
Other contractors will resort to the impossibility defense, and it seems that at least some of them will have sound
legal footing. UCC §2-615 and common law principles excuse a party from performance when there is substantial
change in circumstances (including a great increase in expenses ) that relates to a basic assumption on which the
contract was formed. They have a clear and convincing standard of proof to overcome, but it seems a good bet in
some cases that they will succeed, given the regularity with which contractors in the district fall prey to the
demands of bureaucrats pursuing their own agendas.
One possible way to protect ourselves from parties successfully asserting this as a defense to their breach is
to insert language into the contract to the effect that a portion of the bid is consideration ( or "hazard
pay") for the costs incurred by bureaucratic meddling. They would then no longer be able to claim that they
did not assume the risk of that meddling; the drawback here of course is higher bids.
Problem #3
Bid-shoppers can be dealt with by inserting a condition precedent into the contract requiring them to use the subcontractor
listed in their original bid unless granted a waiver, and that if a waiver is granted the district must approve
in writing of the substitute. This should minimize the threat to quality and safcty posed by subs hired on the
cheap. Care must be taken to assure that a court will interpret the term as a condition and not as a promise -
the latter may allow a sympathetic judge to find substantia1 performance despite extensive subcontractor switching.
Keeping in mind that judges disfavor conditions, we must not bury it in boilerplate. A drawback to this approach
is that bidders will increase their bids to reflcct their added duties. But as long as the bidding is sufficiently
competitive, this should not be too great a worry. We must also be flexible in granting waivers of this condition
- not every contractor wishing to change subs is a profiteer. Some may have legitimate reasons, including the need
to find a new sub because the original one withdrew after learning of the mine field it would face in the district
bureaucracy. Bid-chiselors can be handled in like manner: a condition precedent holding them at a minimum to the
subcontractor prices Iistcd in the bid. They of course will remain free to pay more to their subs to cover unforeseen
expenses, just as we will sometimes willingly increase fees to the bidders.
Question 2, Answer 2
In evaluating the district's bidding and contracting process, this memorandum will address recommendations to
each of the 3 major problems experienced by the district in its dealings. However, the inescapable conclusion of
this analysis is that, unless the district is willing to enforce its legal rights, even with the short term consequence
of losing time and supply of goods or services until an honest and fair replacement contractor can be found, the
problems experienced in the past will continue to pervade district dealings.
First, the district has suffered losses where winning bidders have been allowed to negotiate subsequent bid increases
in the contract price. The law will generally hold contractors to their original bids. If a party is under a legal
duty to perform a service or sell goods, and demands increased payment, the buyer may have little choice but to
agree as it might be impossible to find replacement goods or services quickly enough to avoid a loss. It is precisely
because of this fear of duress that the law will not enforce payment of this increased consideration. Thus, when
a contractor demands payment in addition to his bid, and the school district feels compelled to allow renegotiation
in order to avoid being left in the lurch, the school district is under no obligation to pay the additional consideration
promised.
Modifications to contracts are legally enforceable only when certain conditions are met. In contracts for the sale
of services (i. e. , maintenance, food services, construction), a modification must be fair and equitable in light
of unanticipated circumstances, and must be agreed upon by both parties. When dealing with the sale of goods, as
in a contract for school supplies, UCC §2-209 requires only that the modification be made in good faith and
by agreement of the parties. There is no requirement of unanticipated circumstances. Thus, even when corrupt board
members agree to price increases where unanticipated circumstance or good faith are lacking, contractors cannot
enforce these renegotiations.
To deal with these situations, there are 2 available courses of action. The first alternative is to centralize
authority in the superintendent, or in a district comptroller who is subordinate to the superintendent or other
appropriate officer to scrutinize payment arrangements and impound payment to contractors to the extent that it
is claimed under an invalid modification. However, this may cause some contractors to react by claiming breach
by the district and ceasing performance. While they will not prevail on such a claim, they will cost the district
valuable time. The second alternative is to actually pay the contractors the increased compensation requested.
The contractor will then have no reason to cease performance. Once performance is complete (statute of limitations
permitting), the district can sue the contractor for restitution damages in the amount of the extra expenditure.
This alternative might better serve the district's purposes, as no performance time is lost.
Furthermore, the district should consider including a provision for modification in the contract that limits the
contractor's ability to modify even beyond the limits placed by the law. Also helpful would be a provision that
allocates legal fees to the contractor in the event of a suit for restitution of extorted compensation. This way,
the contractor will be aware from the start that opportunism will not be tolerated.
Second, the district has experienced losses when winning bidders withdraw bids after they are accepted. The district
is thereby left to find substitutes, and these replacements often overcharge to satisfy the district's immediate
demand. One of the few instances in which contractors have been allowed to rescind is when a contractor makes a
mistake in computing his bid that should have been reasonably apparent to the party soliciting the bids. This is
known as a unilateral mistake. This doctrine is appropriate as it protects sellers from opportunistic buyers.
But where there is no mistake or other change of circumstances that makes performance impracticable for the contractor,
the district may recover damages for the seller's breach. Where a bidder withdraws a winning bid and the district
forced to obtain a new supplier, the district may seek to be placed in the position in which it would have been
had the bidder performed. The concept of cover is one way to do this. Where an immediate replacement is required
and can be obtained only at higher cost, the district may sue the breaching party to recover the difference between
that cost and the original bid. Thus, the district need only spend what it originally intended. This concept has
been codified with respect to goods contracts in UCC §2-712. It may be argued by analogy in contracts for
services.
Damages for the entire value of the contract may also be pursued where the buyer does not elect to engage a substitute
provider of goods or services. But where the need for performance is immediate, cover will provide the better alternative.
In contracts for services, not covered by the UCC, it would be wise to have the bidder agree to cover in the event
of withdrawal as a condition of entering a bid to begin with. Alternatively, the district could also place a liquidated
damages formula in the contract to ensure the contractor is on notice of his obligation to compensate the district
for withdrawal. But again, the cover option allows the district to resume the contract's performance quickly, and
is therefore superior for the district's purposes. Thus, while the district may be placed in a vulnerable position
when a contractor
withdraws, it need not suffer the burden in the end.
A situation like the school lunch scandal of 1994 is indicative of the problem. As the supplier withdrew half way
through the contract term, it could argue substantial performance in an effort to recover on the contract. In this
case, the school would only be allowed damages proportional to the work not completed by the supplier. This might
not cover the cost of obtaining a new supplier. Placing an express condition in the contract requiring full performance
is an inadequate remedy, as the contract would then become void, and the supplier could recover in quantum meruit
for the work actually performed. A liquidated damages or cover provision may be the only preemptive remedy available
in this case.
Third, the district has suffered where contractors "bid shop" and wind up with inexperienced or incompetent
subcontractors instead of the subcontractors named in the bid. While a subcontractor is bound to honor its bid
to a contractor under the doctrine of foreseeable reliance, a contractor does not have the same obligation under
the law. The law is therefore of little help to the school district in these cases. The remedy must be found in
the provision of the contract and in the administrative power of the district. A provision that requires any changes
in subcontractors to be approved by a representative of the district might solve this problem. Ideally, such approval
should be left to the school board or other official who is immediately affected by the change. However, due to
the history of corruption in the district, it seems wiser to centralize approval under the superintendent or her
subordinates.
As for the "bid-chiseling" problem, it is unfortunate for some subcontractors, but the cost is not born
by the school district provided the project specifications continue to be met. This is therefore a problem between
contractor and subcontractor, and is best left to them for resolution.
It is the remedy of specific performance that would best solve all of these problems without delay. Unfortunately,
courts will not enforce this remedy except where the object of sale is unique in character and damages would not
suffice. The sale of maintenance services, food services, school supplies, and construction services do not qualify.
Even if a specific performance remedy is provided for by the contract, courts will not be bound to grant it.
Thus, the New Hope school district is left with the damage remedies provided by law, and with other contractual
obligations intended to put to contractor on notice of the district's new outlook. The quandary is that the decision
to enforce these remedies must be made in a centralized authority, lest the opportunity for corruption returns;
but the centralization of authority under the superintendent will cause the local boards and school officials to
once again unify in opposition to the superintendent.
From a practical perspective, the superintendent must choose her battles wisely, and must make an effort to involve
the school board to some extent in decisions such as awarding bids and approving modifications and substituted
contractors. Most importantly, however, the superintendent must publicize these decisions. Corruption is a nocturnal
animal, and when exposed to the light of day it is more likely to remain in hibernation. Only through publicity
can elected officials who abuse their power for personal gain be held politically accountable.
Question 2, Answer 3
Dr. Gill:
The school district's contracting woes are best addressed by a program of reform, involving litigation, reforming
internal procedures, and techniques of persuasion.
A) Litigation
While litigation shouldn't be entered into lightly, a suit for breach of contract against the food supplier who
withdrew in 1994 would serve many purposes. This suit would seek to hold the supplier liable for the difference
between its bid and the price New Hope paid its replacement supplier, adding what we paid them and subtracting
the value of what they actually provided. The legal requirements for this suit would not be difficult to meet –
we would need to prove that the first supplier was in breach, and, that we contracted for food with the substitute
supplier in good faith and without unreasonable delay (a contract for goods, this contract is governed by the U.
C. C. -- specifically, sect. 2-712).
Pursuing this litigation would not only help to defray the losses that New Hope sustained during the school lunch
" scandal, it would also serve notice on other contractors that ' they are not free to withdraw from contracts
at will. Without panicking our contractors, we can send a message of seriousness-- both to those who would seek
to capriciously withdraw from our contracts and to the state legislators on hose good will we depend.
B) Reforming internal procedures
Complementing the litigation strategy should be reforms designed to stabilize the process of bidding on school
district contracts. Here is a preliminary list of reforms:
In order to diffuse the problem of mistaken bids from inexperienced general contractors ("GC'S"):
To remedy the problem of shoddy work by subcontractors ( due to GC ' s shopping subcontractor bids to poor quality
subcontractors; thus forcing either the bid-specified subcontractor or the poor quality subcontractor to do poor
quality subcontracting work):
To ameliorate the problem of price-increase negotiations by winning GC ' s :
The preceding recommendations will not solve all of our difficulties-- we will still face the predicament of rogue
school officials pursuing their own interests. While standardized procedures will help, there is only so much that
can be done. Still, the initiation of reforms in the contracting process may send a signal of good faith to the
state legislature, which may aid in the procurement of funds for the future renovation programs. Additionally,
the existence of centralized norms may influence some school officials-- whether the influence is born out of shame
or enlightenment. If attention is paid to the next three contracts, our chances of success in the major renovation
contracts are greatly enhanced.
C) Techniques of persuasion
The most effective technique of persuasion is likely to be the lawsuit against the food supplier. It will more
convincingly display our seriousness as to reforming the contracting process that any pronouncements we will make.
A memo should be drafted to be sent to all past GC ' s outlined the reforms of the bidding process and contracting
process that we intend to undertake. We should balance the harsh overtones of the possibility of suit with assurances
that well-done work will be rewarded with special consideration. Moreover, we should inform GC ' s of their ability
to sue subcontractors if low subcontracting bids are withdrawn under promissory estoppel. Drennan v. Star Paving.
We should close with encouragements to bid on future contracts.
We can seek to insulate ourselves from ouster by local school officials by using direct and indirect channels to
bring the problems of New Hope to light. Whether alerting public watchdog groups or the legislature, we can subtly
remind the local officials that there are far more intrusive forms of intervention than the Gill administration.
We can also engage in dialogues with local officials perhaps offering to turn a blind eye to certain levels of
nepotism and influence if the reforms are not hindered. In short, we must ease through reform with both carrots
and sticks.