American Contract Law for a Global Age, 2017a

Problems
Problem 27.1
Hank and Hilda have borrowed $250,000 from Bank for the purpose (stated in
the loan agreement) of building the couple’s dream home. Hank and Hilda, in turn,
contracted with Fly-by-Night Builders to build the house, authorizing the builders to
draw down $100,000 of the loan proceeds (which are on deposit at Bank) to get the
project started. Builders then purchased $30,000 worth of lumber on credit from
Lumber Sellers, Inc. for the express purpose—stated in the credit agreement—of
being used for construction of Hank and Hilda’s house. Three months later, after it
becomes apparent that Fly-by-Night Builders has mismanaged the project and
squandered the first $100,000 draw, it goes out of business, leaving no assets, but
many debts, including unpaid $30,000 debt owed to Lumber Sellers. Builders got the
materials from Lumber Sellers, but used it for other projects and did not use any on
Hank and Hilda’s job.
Lumber Sellers has now sued Hank, Hilda, and Bank. The theory of the lawsuit
is that Lumber Sellers is a third-party beneficiary of (1) the loan agreement between
Hank, Hilda, and the Bank; (2) the construction contract between Hank, Hilda, and
Builders, or (3) both. What result and why?
Problem 27.2
You have just passed the Bar Exam for the state of Catatonic and are in the
process of joining a small firm that has hired you to develop a practice in the area of
wills and estate planning. Unlike Oregon and Texas, Catatonic has never addressed
the precise issue of whether the beneficiary of an estate plan can bring a third-party
breach of contract claim against the attorney who drafted the will. The Catatonic
Supreme Court has, in another factual setting, however, adopted section 302 of the
Restatement (Second) of Contracts.
Draft a clause to include in your standard contract between “Lawyer” and
“Client” that (hopefully) will prevent beneficiaries from being able to sue your firm
for breach of contract. Remember that this clause is one that prospective clients will
read and you might have to defend in person on the witness stand when you are sued
by disappointed beneficiaries. In other words, seek to avoid potential liability but
don’t do so in a manner that would run off clients or offend a future jury. (If this seems
like a grim request, keep in mind that a key task of transactional lawyers is to
imagine worst case scenarios and come up with ways to prevent them from
happening.)
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586 CHAPTER IX: CONTRACT NONPARTIES