Business Law Study Set 14

Business

Quiz 19 :

The Formation of Sales and Lease Contracts

Quiz 19 :

The Formation of Sales and Lease Contracts

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CASE PROBLEM WITH SAMPLE ANSWER: Parol Evidence. Clear Lakes Trout Co. operates a fish hatchery in Idaho. Rodney and Carla Griffith are trout growers. Clear Lakes agreed to sell "small trout" to the Griffiths, who agreed to sell the trout back when they had grown to "market size." At the time, in the trade "market size" referred to fish approximating one-pound live weight. The parties did business without a written agreement until September 1998, when they executed a contract with a six-year duration. The contract did not define "market size." All went well until September 11, 2001, after which there was a demand for larger fish. Clear Lakes began taking deliveries later and in smaller loads, leaving the Griffiths with overcrowded ponds and other problems. In 2003, the Griffith refused to accept more fish and filed a suit in an Idaho state court against Clear Lakes, alleging breach of contract. Clear Lakes argued that there was no contract because the parties had different interpretations of "market size." Clear Lakes claimed that "market size" varied according to whatever its customers demanded. The Griffiths asserted that the tern referred to fish of about one-pound live weight. Is outside evidence admissible to explain the terms of a contract Are there any exceptions that could apply in this case If so, what is the likely result Explain. [ Griffith v. Clear Lakes Trout Co., 143 Idaho 733, 152 P.3d 604 (Idaho 2007)]
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In the case of Griffith v. Clear Lakes Trout Co., 143 Idaho 733, 152 P.3d 604 (Idaho 2007) , the District Court found that the parties intended "market size" to refer to fish approximating one pound live weight, and that Clear Lakes had breached its duty to take timely deliveries under the contract. As a result, the Court awarded Griffith partial damages. The Idaho Supreme Court affirmed.
The Court stated that under the Uniform Commercial Code , in interpreting a commercial agreement a court will assume that the usage of trade and the course of prior dealing between the parties were considered when the contract was formed. In addition to this, the conduct that occurs under an agreement is the best indication of what the parties meant.
Normally, the terms of a written contract that the parties intend to be the final expression of their agreement cannot be contradicted by evidence of prior agreements or contemporaneous oral agreements. In this case, the course of performance between the parties over the first three years of the contract confirmed that the parties intended market size to indicate trout approximating one pound live weight.

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Why would the seller's knowledge of the buyers' limited resources support a finding of unconscionability
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Reason why would the seller's knowledge of buyers limited resources support a finding of unconscionability:
In the case of Jones v. Star Credit Corp., 59 Misc.2d 189, 298 N.Y.S.2d 264 (Sup.Ct. 1969) the Superior Court held that the finance terms of the contract were unenforceable due to unconscionability and limited the recovery of the Credit Corp. to the amount already collected.
The issue before the Court was whether the sale of a freezer unit having a retail value of $300 for $900 was unconscionable as a matter of law. The Court determined that a purchase price substantially higher than the value of an item can render the sale unconscionable as a matter of law.
The Court stated that because the seller was aware of the limited resources of the buyer, he took advantage and sold an item for more than three times its value and added credit fees that totaled more than the full retail value of the freezer. The Court went on to state that the item was necessary for a household and that without the resources and wherewithal, a consumer of any status would be in an unconscionable financial credit contract.
The Court held that the meaningfulness of choice essential to the making of a contract can be negated by a gross inequality of bargaining power. Hence, the buyers' limited resources supported a finding of unconscionability.

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VIDEO QUESTION: Sales and Lease Contracts. Go to this text's Web site at www.cengage.com/blaw/darkson and select "Chapter 19." Click on "Video Questions" and view the video titled Sales and Lease Contracts: Price as a Term. Then answer the following questions. (a) Is Anna correct in assuming that a contract can exist even though the sales price for the computer equipment was not specified Explain. (b) According to the Uniform Commercial Code, what conditions must be satisfied in order for a contract to be formed when certain terms are left open What terms (in addition to price) can be left open (c) Are the e-mail messages that Anna refers to sufficient proof of the contract (d) Would parol evidence be admissible
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a). Contract Terms:
A contract can exist even if the parties have not agreed on a price under UCC 2-305(1). If there is a price dispute between the parties, the court will determine a reasonable price at the time for delivery assuming that the item is not one of a kind.
In this case the item in question is a mass-produced and common item with a clear market price. The seller agreed to sell the computer and the buyer agreed to the purchase of the computer.
Hence, Anna is correct.
b). Open Contract Terms:
In order for a contract with open terms to exist between parties a definite offer must be met by an unqualified acceptance. The parties must have intended to form an agreement and there is a reasonable certainty that the court will grant an appropriate remedy.
The terms that may be open at the time of a contract include:
• Open price
• Open payment
• Open delivery
• Duration of an ongoing contract
• Options and cooperation with regard to performance
• Open quantity in a requirements or output contract
c). Proof of Contract:
The email messages, if they contain the offer and acceptance between the two parties showing a clear intent to form the agreement they will be enough to establish before a court that an agreement to purchase was made.
d). Parol Evidence:
Since the emails that created the agreement were not fully integrated, the parties may introduce evidence of their intent according to usage of trade as is typical in this type of transaction under UCC 1-303(c).

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Why didn't the court rule that the buyers, as adults, had made a decision of their own free will and therefore were bound by the terms of the contract, regardless of the difference between the freezer's contract price and its retail value
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QUESTION WITH SAMPLE ANSWER: Acceptance. Flint, a retail seller of television sets, orders one hundred Color-X sets from manufacturer Martin. The order specifies the price and that the television sets are to be shipped by Hummingbird Express on or before October 30. Martin receives the order on October 5. On October 8, Martin writes Flint a letter indicating that the order was received and that the sets will be shipped as directed, at the specified price. Flint receives this letter on October 10, On October 28, Martin, in preparing the shipment, discovers it has only ninety Color-X sets in stock. Martin ships the ninety Color-X sets and ten television sets of a different model, stating clearly on the invoice that the ten are being shipped only as an accommodation. Flint claims Martin is in breach of contract. Martin claims that the shipment was not an acceptance and therefore no contract was formed. Explain who is correct, and why.
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Goods and Services Combined Propulsion Technologies, Inc., a Louisiana firm doing business as PowerTech Marine Propellers, markets small steel boat propellers that are made by a unique tooling method. Attwood Corp., a Michigan firm, operated a foundry (a place where metal is cast) in Mexico. In 1996, Attwood offered to produce castings of the propellers. Attwood promised to maintain quality, warrant the castings against defects, and obtain insurance to cover liability. In January 1997, the parties signed a letter that expressed these and other terms-Attwood was to be paid per casting, and twelve months' notice was required to terminate the deal-but the letter did not state a quantity. PowerTech provided the tooling. Attwood produced rough castings, which PowerTech refined by checking each propeller's pitch; machining its interior; grinding, balancing, and polishing the propeller; and adding serial numbers and a rubber clutch. In October, Attwood told PowerTech that the foundry was closing. PowerTech filed a suit in a federal district court against Attwood, alleging, among other things, breach of contract. One of the issues was whether their deal was subject to Article 2 of the Uniform Commercial Code. What type of transactions does Article 2 cover Does the arrangement between PowerTech and Attwood qualify Explain. [ Propulsion Technologies, Inc. v. Attwood Corp., 369 F.3d 896 (5th Cir. 2004)]
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Offer In 1998, Johnson Controls, Inc. (JCI), began buying auto parts from Q.C. Onics Ventures, LP. For each part, JCI would inform Onics of its need and ask the price. Onics would analyze the specifications, contact its suppliers, and respond with a formal quotation. A quote listed a part's number and description, the price per unit, and an estimate of units available for a given year. A quote did not state payment terms, an acceptance date timing of performance, warranties, or quantities. JCI would select a supplier and issue a purchase order for a part. The purchase order required the seller to supply all of JCI's requirements for the part but gave the buyer the right to end the deal at any time. Using this procedure JCI issued hundreds of purchase orders. In July 2001, JCI terminated its relationship with Onics and began buying parts through another supplier. Onics filed a suit in a federal district court against JCI, alleging breach of contract. Which documents-the price quotations or the purchase orders-constituted offers Which were acceptances What effect would the answers to these questions have on the result in this case Explain. [ Q.C. Onics Ventures, LP v. Johnson Controls, Inc., __ F.Supp.2d __ (N.D.Ind. 2006)]
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A QUESTION OF ETHICS: Contract Terms. Daniel Fox owned Fox and Lamberth Enterprises, Inc., a kitchen and bath remodeling business, in Dayton, Ohio. Fox leased a building from Carl and Bellulah Hussong. Craftsmen Home Improvement, Inc., also remodeled baths and kitchens. When Fox planned to dose his business, Craftsmen expressed an interest in buying his showroom assets. Fox set a price of $50,000. Craftsmen's owners agreed and gave Fox a list of the desired items and "A Bill of Sale" that set the terms for payment. The parties did not discuss Fox's arrangement with the Hussongs, but Craftsmen expected to negotiate a new lease and extensively modified the premises, including removing some of the displays to its own showroom. When the Hussongs and Craftsmen could not agree on new terms, Craftsmen told Fox that the deal was off. [ ox Lamberth Enterprises, Inc. v. Craftsmen Home Improvement, Inc., __ Ohio App.3d __ , __ N.E.2d __ (2 Dist. 2006)] (a) In Fox's suit in an Ohio state court for breach of contract, Craftsmen raised the Statute of Frauds as a defense. What are the requirements of the Statute of Frauds Did the deal between Fox and Craftsmen meet these requirements Did it fall under one of the exceptions Explain. (b) Craftsmen also claimed that the predominant factor of its agreement with Fox was a lease for the Hussongs' building. What is the "predominant-factor" test Does it apply here In any event, is it fair to hold a party to a contract to buy a business's assets when the buyer cannot negotiate a favorable lease of the premises on which the assets are located Discuss.
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Additional Terms Continental Insurance Co. issued a policy to cover shipments by Oakley Fertilizer, Inc. Oakley agreed to ship three thousand tons of fertilizer by barge from New Orleans, Louisiana, to Ameropa North America in Caruthersville, Missouri. Oakley sent Ameropa a contract form that set out these terms and stated that title and risk (discussed in Chapter 20) would pass to the buyer after the seller was paid for the goods. Ameropa e-mailed a different form that set out the same essential terms but stated that title and risk of loss would pass to the buyer when the goods were loaded onto the barges in New Orleans. The cargo was loaded onto barges but had not yet been delivered when it was damaged in Hurricane Katrina. Oakley filed a claim for the loss with Continental but was denied coverage. Oakley filed a suit in a Missouri state court against the insurer. Continental argued that title and risk passed to Ameropa before the damage as specified in the buyer's form under Section 2-207(3) of the Uniform Commercial Code because the parties did not have a valid contract under UCC 2-207(1). Apply UCC 2-207 on additional terms in an acceptance to these facts. Is Continental correct Explain. [ Oakley Fertilizer, Inc. v. Continental Insurance Co., 276 S.W.3d 342 (Mo.App.E.D. 2009)]
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Additional Terms Strike offers to sell Bailey one thousand shirts for a stated price. The offer declares that shipment will be made by the Dependable Truck Line. Bailey replies, "I accept your offer for one thousand shirts at the price quoted. Delivery to be by Yellow Express Truck Line." Both Strike and Bailey are merchants. Three weeks later, Strike ships the shirts by the Dependable Truck Line, and Bailey refuses shipment. Strike sues for breach of contract. Bailey claims (a) that there never was a contract because the reply, which included a modification of carriers, did not constitute an acceptance and (b) that even if there had been a contract, Strike would have been in breach owing to having shipped the shirts by Dependable, contrary to the contract terms. Discuss fully Bailey's claims.
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Statute of Frauds Fresher Foods, Inc., orally agreed to purchase one thousand bushels of corn for $1.25 per bushel from Dale Vernon, a farmer. Fresher Foods paid $125 down and agreed to pay the remainder of the purchase price on delivery, which was scheduled for one week later. When Fresher Foods tendered the balance of $1,125 on the scheduled day of delivery and requested the corn, Vernon refused to deliver it. Fresher Foods sued Vernon for damages, claiming that Vernon had breached their oral contract. Can Fresher Foods recover If so, to what extent
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