Business Law Study Set 13

Business

Quiz 26 :

Obligations and Performance

Quiz 26 :

Obligations and Performance

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1992, Donna Smith telephoned Clark, the manager of Penbridge Farms, in response to an advertisement Clark had placed in the July issue of the Emu Finder about the availability for sale of proven breeder pairs. Clark told Smith he had a breeder pair available. Clark sold the pair to Smith for $16,500. Some months later, after Smith had had a chance to inspect the pair, she discovered that Clark had sold her two males. Smith immediately notified Clark and revoked her acceptance of the animals. Clark said the revocation was too late. Was it? [Smith v Penbridge Associates, Inc., 655 A2d 1015 (Pa Super)]
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Answer:

Refer to the case Smith v Penbridge Associates (655 A2d 1015).
Case Issue
The issue is whether plaintiff (buyer ) had made a rejection in reasonable time of nonconforming goods provided by defendant (seller). The buyer was supposed to receive breeding pair (male and female) emus but received two male emus instead.
Trial court held for buyer. Seller appealed the decision.
Relevant Terms, Laws, and Cases
UCC 2-601 2-602 - 2-601 States that buyer has the right to reject nonconforming goods, however, they must do so within reasonable time after delivery of goods (2-602)
Opinion
State Superior court affirmed the decision. The buyers are owed damages from seller.
The seller argued that the buyers should have made an inspection earlier, but the court disagreed. Court argued that the emus' sex was not easily observable and requires a method known as "sex venting" which is dangerous to the buyers to do so. When the buyers had inspected the emus' sex they found it was nonconforming and informed the sellers immediately. Hence, the court believed the buyers inspected the product in a reasonable time.
Furthermore, the court noted that seller had an express warranty which states the emus were proven breeder pair. Hence, the seller can't blame buyer for not making inspections earlier.

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Steel Industries, Inc., ordered steel from Interlink Metals Chemicals. The steel was to be delivered from a Russian mill. There were political and other issues in Russia, and the mill was shut down. Interlink did not deliver the steel to Steel Industries, claiming that it was excused from performance because it could not get the steel from the Russian mill. What would Interlink have to establish to show that it was excused from performing under the doctrine of commercial impracticability? [Steel Industries, Inc. v Interlink Metals Chemicals, Inc., 969 F Supp 1046 (ED Mich)]
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Refer to the case Steel Industries Inc v Interlink Metals and Chemicals (969 F Supp 1046).
Case Issue
The issue is whether the seller has a valid commercial impracticability defense for failure to deliver goods to buyer.
Relevant Terms, Laws, and Cases
UCC 2-615 - gives seller a defense in case goods are not delivered if there is some unforeseeable event that prevents seller from delivering the goods.
Opinion
Court held for the buyer. The commercial impracticability event was invalid.
The steel to be delivered from seller was supposed to be procured from a foreign steel mill. To have a successful argument seller would need to have shown that the steel was to be procured from e.g. XYZ steel mill, and that unforeseen complications happen such that XYZ steel was hard to procure.
However, the court found that there was no evidence that the steel had to come from a particular steel mill. In fact, the court argued that the seller could have procured steel from any mill. Hence, the seller can't argue that they were incapable to deliver steel due to complications from one particular foreign mill.

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Cornelia and Ed Kornfeld contracted to sell a signed Picasso print to David Tunick, Inc. The print, entitled Le Minotauromachie, was signed "Pablo Picasso." The signature on the print was discovered to be a forgery, and the Kornfelds offered Tunick a substitute Picasso print. Tunick refused the Kornfelds' substituted performance and demanded a return of the contract price. The Kornfelds refused on the grounds that their cure had been refused. Was the substitute print an adequate cure? [David Tunick, Inc. v Kornfeld, 838 F Supp 848 (SDNY)]
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Answer:

Refer to the case David Tunick, Inc. v Kornfeld (838 F Supp 848).
Case Issue:
The issue is whether the seller had right to cure a defect (a painting found to be forged) with another painting by the same artist.
Relevant Terms, Laws, and Cases:
UCC 2-601 2-602 - 2-601 States that buyer has the right to reject nonconforming goods, however, they must do so within reasonable time after delivery of goods (2-602)
UCC 2-508 - allows the seller to cure defects of nonconforming products, as long as contract has not expired and seller notifies buyer within a reasonable time.
Opinion:
The court held that there is no cure for defect.
The court argued that each art is unique; hence, a substitute art by the same artist may not be used as a cure. Furthermore, the treatment of valuable artwork can diminish the value of the art, thus it is not equal value to be substitutable.

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Hornell Brewing Company is a supplier and marketer of alcoholic and nonalcoholic beverages, including the popular iced tea drink, Arizona. In 1992, Stephen A. Spry and Don Vultaggio, Hornell's chairman of the board, made an oral agreement for Spry to be the exclusive distributor of Arizona products in Canada. The initial arrangement was an oral agreement, and in response to Spry's request for a letter that he needed to secure financing, Hornell provided a letter that confirmed the distributorship. During 1993 and 1994, Hornell shipped beverages on 10-day credit terms, but between December 1993 and February 1994, Spry's credit balances grew from $20,000 to $100,000, and a $31,000 check from Spry was returned for insufficient funds. In March 1994, Hornell demanded that Spry obtain a line and/or letter of credit to pay for the beverages to place their relationship on a more secure footing. An actual line of credit never came about. Hornell did receive a partial payment by a wire transfer on May 9, 1994. Spry ordered 30 trailer loads of "product" from Hornell at a total purchase price of $390,000 to $450,000. Hornell learned from several sources, including its regional sales manager Baumkel, that Spry's warehouse was empty; that he had no managerial, sales, or office staff; that he had no trucks; and that his operation was a sham. On May 10, 1994, Hornell wrote to Spry, telling him that it would extend up to $300,000 of credit to him, net 14 days cash "based on your prior representation that you have secured a $1,500,000 U.S. line of credit." Spry did not respond to this letter. After some months of futile negotiations by counsel, Hornell filed suit. Has there been a breach? What are the parties' rights? [Hornell Brewing Co., Inc., v Spry, 664 NYS2d 698 (Sup Ct)]
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Murray and Ian Peck are art dealers who own separate art galleries located in New York. Robert and Jean Weil reside in Montgomery, Alabama, and are art collectors. Murray and Sam Lehr, a business acquaintance of his, traveled to Montgomery to see the various paintings in the Weils' collection, including a painting by Edgar Degas titled Aux Courses , which Murray examined under ultraviolet light. Murray later telephoned Weil and told him that he had spoken with someone who might be interested in purchasing the Degas. On November 3, 1997, the director of Murray's gallery, Stephanie Calman, traveled to the Weils' home in Alabama. Calman, on behalf of Murray, and Robert Weil executed an agreement that provided for consignment of the Degas to Murray's gallery "for a private inspection in New York for a period of a week" from November 3, "to be extended only with the express permission of the consignor." Calman returned to New York with the painting the same day. Murray then showed the Degas to Peck. Peck expressed an interest in purchasing the Degas after seeing it, and the price of $1,125,000 was discussed. On November 26, 1997, Murray signed an agreement drafted by Weil and retyped on Murray's letterhead. Weil signed the agreement on December 1, 1997. Neither Murray nor anyone else ever paid Weil the $1 million. Nonetheless, Murray maintained possession of the Degas from November 3, 1997, through March 25, 1998, when Weil requested its return. The Weils filed suit, seeking the price for the painting via summary judgment. Are the Weils entitled to recover? Explain why or why not. [ Weil v. Murray , 161 F. Supp. 2d 250 (S.D.N.Y.)]
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January 3, 1991, Central District Alarm (CDA) and Hal-Tuc entered into a written sales agreement providing that CDA would sell and install new security equipment described on an equipment list attached to the contract. This list included a Javelin VCR. When the system was installed, CDA installed a used JVC VCR instead of a new Javelin VCR. Hal-Tuc called CDA the day after the installation and complained that the equipment was not the Javelin brand, and that the VCR was a used JVC VCR. CDA told Hal-Tuc that the equipment was not used and that a JVC VCR was better than a Javelin. Hal-Tuc telephoned CDA personnel over a two-week period during which they denied that the equipment was used. After two weeks of calls, CDA's installation manager went to the store to see the equipment and admitted that it was used. No one from CDA advised Hal-Tuc in advance that it was installing used equipment temporarily until the right equipment arrived. CDA offered to replace it with a new Javelin VCR as soon as one arrived, which would take one or two months. Hal-Tuc asked CDA to return its deposit and take the equipment back, but CDA refused. Hal-Tuc put all the equipment in boxes and stored it. CDA filed a petition against Hal-Tuc for damages for breach of contract. Hal-Tuc filed a counterclaim, alleging fraud. CDA asserted it had the right to cure by tendering conforming goods after Hal-Tuc rejected the nonconforming goods. Was CDA correct? [Central District Alarm, Inc. v Hal-Tuc, Inc., 866 SW2d 210 (Mo App)]
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Economy Forms Corp. sold concrete-forming equipment to Kandy. After using the equipment for more than six months, Kandy notified Economy that the equipment was inadequate. Economy Forms alleged that Kandy had accepted the goods. Kandy denied liability. Was there an acceptance? Why or why not? [Economy Forms Corp. v Kandy, Inc., 391 F Supp 944 (ND Ga)]
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Spaulding Kimball Co. ordered from Aetna Chemical Co. 75 cartons of window washers. The buyer received them and sold about a third to its customers but later refused to pay for them, claiming that the quality was poor. The seller sued for the price. Would the seller be entitled to the contract price? Refer to the Weil v Murray case in this chapter regarding the Degas painting for some insight. [Aetna Chemical Co. v Spaulding Kimball Co., 126 A 582 (Vt)]
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Home Shopping Club ordered 12,000 Care Bear lamps from Ohio International, Ltd. When the lamps arrived, they had poor painting and staining, elements were improperly glued and could come loose (a danger to the children with the lamps in their rooms), and they overheated very easily (another danger for children and a fire hazard). Home Shopping Network notified International and gave it three months to remedy the problems and provide different lamps. After three months, Home Shopping Network returned all lamps and notified International that it was pulling out of the contract. Could they do so, or had too much time passed? [Home Shopping Club, Inc. v Ohio International, Ltd., 27 UCC Rep Serv 2d 433 (Fla Cir Ct)]
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Trefalcon (a commercial arm of the government of Ghana) entered into a contract with Supply Commission as a purchaser of residual fuel oil (RFO). Supply Commission agreed, among other things, to supply Trefalcon with RFO at competitive prices as reserves permitted. Approximately six weeks into the agreement, on May 3, 1974, Supply Commission wrote a letter to Trefalcon proposing a method for pricing the refined fuel it would sell to Trefalcon. A dispute arose six months later when Supply Commission first began to raise the price of RFO to account for escalations. In an effort to continue the contract, the parties orally agreed to a so-called Standstill Agreement, pursuant to which Ghana temporarily would forgo payment of escalations. By May 12, 1975, Trefalcon had paid only the base price for each of the 26 residual fuel cargoes it had received. On May 26, 1975, J.V.L. Mensah, a representative of Supply Commission, sent a letter to Trefalcon demanding payment of $7,885,523.12 for escalation charges and declaring that no further oil would be sold until payment in full was made. After receiving the Mensah letter, Trefalcon tendered two payments to Bank of Ghana-one in the amount of $1,617,682.29 (tendered June 10, 1975), the other in the amount of $1,185,000 (tendered June 27, 1975). With full payment still outstanding in July 1975, Supply Commission canceled the contract and sought damages for breach following the failure to provide assurances. Will Supply Commission recover? [Reich v Republic of Ghana, 2002 WL 142610 (SDNY)]
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Lafer Enterprises sold Christmas decorations to B. P. Development Management Corp., the owners and operators of the Osceola Square Mall. The package of decorations was delivered to Osceola Square Mall prior to Thanksgiving 1986 for a total cost of $48,775, which B. P. would pay in three installments. Cathy Trivigno, a manager at B. P. who supervised the installation of the decorations, indicated that she and the Osceola Square Mall merchants were not satisfied with the quality of the decorations, but they needed to be in place for the day after Thanksgiving (the start of the holiday shopping season). B. P. complained to Lafer about the quality of the decorations but had the decorations installed. B. P. paid the first installment to Lafer but then stopped payment on the last two checks. B. P. claimed it had rejected the decorations. Lafer claimed breach for nonpayment because B. P. had used the decorations. Did B. P. accept the decorations? [B. P. Dev. Management Corp. v Lafer Enterprises, Inc., 538 So2d 1379 (Fla App)]
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Bobby Murray Chevrolet, Inc., submitted a bid to the Alamance County Board of Education to supply 1,200 school bus chassis to the district. Bobby Murray was awarded the contract and contracted with General Motors (GM) to purchase the chassis for the school board. Between the time of Bobby Murray's contract with GM and the delivery date, the Environmental Protection Agency (EPA) enacted new emission standards for diesel vehicles, such as school buses. Under the new law, the buses Bobby Murray ordered from GM would be out of compliance, as would the buses Bobby Murray specified in its bid to the school board. GM asked for several extensions to manufacture the buses within the new EPA guidelines. The school board was patient and gave several extensions, but then, because of its need for buses, purchased them from another supplier after notifying Bobby Murray of its intent to do so. The school board had to pay an additional $150,152.94 for the buses from its alternative source and sued Bobby Murray for that amount. Bobby Murray claimed it was excused from performance on the grounds of commercial impracticability. Is Bobby Murray correct? Does the defense of commercial impracticability apply in this situation? Be sure to compare this case with other cases and examples in the chapter. [Alamance County Board of Education v Bobby Murray Chevrolet, Inc., 465 SE2d 306 (NC App); rev. denied, 467 SE2d 899 (NC)]
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Harry Ulmas made a contract to buy a new car from Acey Oldsmobile. He was allowed to keep his old car until the new car was delivered. The sales contract gave him a trade-in value of $650 on the old car but specified that the car would be reappraised when it was actually brought to the dealer. When Ulmas brought the trade-in to the dealer, an Acey employee took it for a test drive and said that the car was worth between $300 and $400. Acey offered Ulmas only $50 for his trade-in. Ulmas refused to buy from Acey and purchased from another dealer, who appraised the trade-in at $400. Ulmas sued for breach of contract on the grounds of violation of good faith. Was he right? [Ulmas v Acey Oldsmobile, Inc., 310 NYS2d 147 (NY Civ)]
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Westinghouse Electric Corporation entered into uranium supply contracts with 22 electric utilities during the late 1960s. The contract prices ranged from $7 to $10 per pound. The Arab oil embargo and other changes in energy resources caused the price of uranium to climb to between $45 and $75 per pound. Supply tightened because of increased demand. In 1973, Westinghouse wrote to the utilities and explained that it was unable to perform on its uranium sales contracts. The utilities needed uranium. Westinghouse did not have sufficient funds to buy the uranium it had agreed to supply, assuming that it could find a supply. One utility executive commented, after totaling up all 22 supply contracts, that Westinghouse could not have supplied the uranium even under the original contract terms. He said, "Westinghouse oversubscribed itself on these contracts. They hoped that not all the utilities would take the full contract amount." Westinghouse says it is impossible for it to perform. The utilities say they are owed damages because they must still find uranium somewhere. What damages would the law allow? What ethical issues do you see in the original contracts and in Westinghouse's refusal to deliver? Should we excuse parties from contracts because it is so expensive for them to perform? [In re Westinghouse Uranium Litigation, 436 F Supp 990 (ED Va)]
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Plastics, Inc., was developing production molds for Universal Plastics, Inc. During the course of the development of the molds, Universal changed specifications and required the use of different materials. Nuco raised the price from $235 per 1,000 parts to $400 per 1,000 parts. Universal refused to pay the additional amount and ended the contract. Nuco was not paid for the molds it had produced and sued for breach of contract and damages. Universal maintained that Nuco had repudiated the contract by raising the price. Is an attempt to raise the price on a contract a repudiation of the contract? [ Nuco Plastics, Inc. v. Universal Plastics, Inc. , 601 N.E.2d 152 (Ohio App.)]
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