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GFI, Inc., a Hong Kong company, makes audio decoder chips, an essential component in the manufacture of MP3 players. Egan Electronics contracts with GFI to buy 10,000 chips on an installment contract, with 2,500 chips to be shipped every three months, F.O.B. Hong Kong, via Air Express. At the time for the first delivery, GFI delivers only 2,400 chips but explains to Egan that although the shipment is less than 5 percent short, the chips are of a higher quality than those specified in the contract and are worth 5 percent more than the contract price. Egan accepts the shipment and pays GFI the contract price. At the time for the second shipment, GFI makes a shipment identical to the first. Egan again accepts and pays for the chips. At the time for the third shipment, GFI ships 2,400 of the same chips, but this time GFI sends them via Hong Kong Air instead of Air Express. While in transit, the chips are destroyed. When it is time for the fourth shipment, GFI again sends 2,400 chips, but this time Egan rejects the chips without explanation. Using the information presented in the chapter, answer the following questions.
Did GFI have a legitimate reason to expect that Egan would accept the fourth shipment? Why or why not?
DEBATE THIS : If a contract specifies a particular carrier, then the shipper must use that carrier or be in breach of the contract-no exceptions should ever be allowed.
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Acceptance of Shipment.
Yes, GFI does have any genuine reason to expect that E would receive the fourth consignment as the agreement between both the parties establishes the payment contract and E has accepted each and every payment sent by GFI whether it was achieved according to agreement or not. First consignment and second consignment were same and similarly third consignment and fourth consignment was also same. However, E did not convey about the obliteration of chips on third consignment. Therefore, when GFI made fourth consignment then also he presumes that E would accept the fourth consignment also.
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Remedies of the Buyer or Lessee Lehor collects antique cars. He contracts to purchase spare parts for a 1938 engine from Beem. These parts are not made anymore and are scarce. To obtain the contract with Beem, Lehor agrees to pay 50 percent of the purchase price in advance. Lehor sends the payment on May 1, and Beem receives it on May 2. On May 3, Beem, having found another buyer willing to pay substantially more for the parts, informs Lehor that he will not deliver as contracted. That same day, Lehor learns that Beem is insolvent. Discuss fully any possible remedies available to Lehor to enable him to take possession of these parts.
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Remedies of the Buyer or Lesser:
In the case of Lehor v. Beems , a trial court would probably find that Beems is in breach of contract and award Lehor with the goods or present an order to Beems to repay Lehor's deposit according to the terms of the contract plus pay costs that cover the difference between the quote for goods and the cost to secure the goods from another seller.
As soon as Lehor sent payment the contract was in place and therefore Beems was obligated to provide Lehor with the parts according to the agreement. Failing recovery of the contracted goods, Lehor is within his rights to pursue Beem for the difference in what it would cost for him to purchase the parts from another seller.
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GFI, Inc., a Hong Kong company, makes audio decoder chips, an essential component in the manufacture of MP3 players. Egan Electronics contracts with GFI to buy 10,000 chips on an installment contract, with 2,500 chips to be shipped every three months, F.O.B. Hong Kong, via Air Express. At the time for the first delivery, GFI delivers only 2,400 chips but explains to Egan that although the shipment is less than 5 percent short, the chips are of a higher quality than those specified in the contract and are worth 5 percent more than the contract price. Egan accepts the shipment and pays GFI the contract price. At the time for the second shipment, GFI makes a shipment identical to the first. Egan again accepts and pays for the chips. At the time for the third shipment, GFI ships 2,400 of the same chips, but this time GFI sends them via Hong Kong Air instead of Air Express. While in transit, the chips are destroyed. When it is time for the fourth shipment, GFI again sends 2,400 chips, but this time Egan rejects the chips without explanation. Using the information presented in the chapter, answer the following questions.
Did the substitution of carriers in the third shipment constitute a breach of the contract by GFI? Explain.
DEBATE THIS : If a contract specifies a particular carrier, then the shipper must use that carrier or be in breach of the contract-no exceptions should ever be allowed.
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Breach of Contracts by Sales or Lease.
Sometimes, an agreed on manner of delivery becomes unviable or unobtainable through no fault of either party. In that situation, if a commercially sensible substitute is available, this supernumerary presentation is adequate tender to the purchaser and must be used. In this case, if GFI supernumerary A Exp instead of HK Air because of some unworkability then that does not establish breach of agreement but if GFI auxiliary it without any sensible cause, then GFI will be accountable for break of contract.
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Breach and Damages Before Chad DeRosier could build a house on his undeveloped property, he needed to have some fill dirt deposited on the land. Utility Systems of America, Inc., was doing roadwork nearby, and DeRosier asked Utility if it would like to deposit extra fill dirt on his property. Utility said it would, and DeRosier obtained the necessary permit. The permit was for 1,500 cubic yards of fill dirt, the amount that DeRosier needed. DeRosier gave Utility a copy of the permit. Later, DeRosier found 6,500 cubic yards of fill dirt on his land and had to have 5,000 cubic yards of it removed. Utility denied responsibility but said that it would remove the fill dirt for $9,500. DeRosier filed a suit against Utility and hired another company to remove the fill dirt and to do certain foundation work. He paid $46,629 to that contractor. The district court held that Utility had breached its contract and ordered it to pay DeRosier $22,829 in general damages and $8,000 in consequential damages. Utility appealed, in view of the fact that Utility charged nothing for the fill dirt, did a breach of contract occur? If a breach occurred, should the damages be greater than $9,500? Can consequential damages be justified? Discuss. [ DeRosier v. Utility Systems of America, Inc., 780 N.W.2d 1 (Minn.App. 2010)]
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GFI, Inc., a Hong Kong company, makes audio decoder chips, an essential component in the manufacture of MP3 players. Egan Electronics contracts with GFI to buy 10,000 chips on an installment contract, with 2,500 chips to be shipped every three months, F.O.B. Hong Kong, via Air Express. At the time for the first delivery, GFI delivers only 2,400 chips but explains to Egan that although the shipment is less than 5 percent short, the chips are of a higher quality than those specified in the contract and are worth 5 percent more than the contract price. Egan accepts the shipment and pays GFI the contract price. At the time for the second shipment, GFI makes a shipment identical to the first. Egan again accepts and pays for the chips. At the time for the third shipment, GFI ships 2,400 of the same chips, but this time GFI sends them via Hong Kong Air instead of Air Express. While in transit, the chips are destroyed. When it is time for the fourth shipment, GFI again sends 2,400 chips, but this time Egan rejects the chips without explanation. Using the information presented in the chapter, answer the following questions.
Suppose that the silicon used for the chips becomes unavailable for a period of time. Consequently, GFI cannot manufacture enough chips to fulfill the contract, but does ship as many as it can to Egan. Under what doctrine might a court release GFI from further performance of the contract?
DEBATE THIS : If a contract specifies a particular carrier, then the shipper must use that carrier or be in breach of the contract-no exceptions should ever be allowed.
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GFI, Inc., a Hong Kong company, makes audio decoder chips, an essential component in the manufacture of MP3 players. Egan Electronics contracts with GFI to buy 10,000 chips on an installment contract, with 2,500 chips to be shipped every three months, F.O.B. Hong Kong, via Air Express. At the time for the first delivery, GFI delivers only 2,400 chips but explains to Egan that although the shipment is less than 5 percent short, the chips are of a higher quality than those specified in the contract and are worth 5 percent more than the contract price. Egan accepts the shipment and pays GFI the contract price. At the time for the second shipment, GFI makes a shipment identical to the first. Egan again accepts and pays for the chips. At the time for the third shipment, GFI ships 2,400 of the same chips, but this time GFI sends them via Hong Kong Air instead of Air Express. While in transit, the chips are destroyed. When it is time for the fourth shipment, GFI again sends 2,400 chips, but this time Egan rejects the chips without explanation. Using the information presented in the chapter, answer the following questions.
Under the UCC, does Egan have a right to reject the fourth shipment? Why or why not?
DEBATE THIS : If a contract specifies a particular carrier, then the shipper must use that carrier or be in breach of the contract-no exceptions should ever be allowed.
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Remedies of the Buyer Woodridge USA Properties, LP, bought eighty-seven commercial truck trailers under a contract with Southeast Trailer Mart (STM), Inc. Southeastern Freight Lines, Inc., owned the lot in Atlanta, Georgia, where the trailers were stored. Gerald McCarty, an independent sales agent who arranged the deal, showed Woodridge the documents of title. They did not indicate that Woodridge was the buyer. Woodridge asked McCarty to hold the documents and sell the trailers for Woodridge. Within three months, all of the trailers had been sold, but McCarty had not given the proceeds to Woodridge. Woodridge-without mentioning the title documents-asked STM to refund the contract price. STM refused. Later, Woodridge filed a suit in a federal district court against STM, claiming that the title documents had been defective and seeking damages. Does Woodridge have a right to recover damages for accepted goods? What would be the measure of the damages? Explain. [Woodridge USA Properties, L.P. v. Southeast Trailer Mart, Inc., __ F.3d __ (11th Cir. 2011)]
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Additional Provisions Affecting Remedies Nomo Agroindustrial Sa De CV is a farm company based in Mexico that grows tomatoes, cucumbers, and other vegetables to sell in the United States. In the early part of the first decade of the 2000s, Nomo's tomato plants contracted a disease: tomato spotted wilt virus (TSWV). To obtain a crop that was resistant to TSWV, Nomo contacted Enza Zaden North America, Inc., an international corporation that manufactures seeds. Enza's brochures advertised-and Enza told Nomo-that its Caiman variety was resistant to TSWV. Based on these assurances, Nomo bought Caiman seeds. The invoice, which Nomo's representative signed, limited any damages to the purchase price of the seeds. The plants germinated from the Caiman seeds contracted TSWV, which destroyed Nomo's entire tomato crop. Nomo fi led a suit in a federal district court against Enza, seeking to recover for the loss. Enza argued, in part, that any damages were limited to the price of the seeds. Can parties agree to limit their remedies under the Uniform Commercial Code? If so, what are Nomo's best arguments against the enforcement of the limitations clause in Enza's invoice? What should the court rule on this issue? Why? [Nomo Agroindustrial Sa De CV v. Enza Zaden North America, Inc., 492 F.Supp.2d 1175 (D.Ariz. 2007)]
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Obligations of the Seller Flint Hills Resources, LP, a refiner of crude oil, agreed to buy "approximately 1,000 barrels per day" of Mexican natural gas condensate from JAG Energy, Inc., an oil broker. Four months into the contract, Pemex, the only authorized seller of freshly extracted Mexican condensate, warned Flint Hills that some companies might be selling stolen Mexican condensate. Fearing potential criminal liability, Flint Hills refused to accept more deliveries from JAG without proof of the title to its product. JAG promised to forward documents showing its chain of title. After several weeks, when JAG did not produce the documents, Flint Hills canceled their agreement. JAG filed a suit in a federal district court against Flint Hills, alleging breach of contract. Did Flint Hills have a right to demand assurance of JAG's title to its product? If so, did Flint Hills act reasonably in exercising that right? Explain. [ Flint Hills Resources LP v. JAG Energy, Inc., 559 F.3d 373 (5th Cir. 2009)]
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Scotwood Industries, Inc., sells calcium chloride flake for use in ice melt products. Between July and September 2004, Scotwood delivered thirty seven shipments of flake to Frank Miller Sons, Inc. After each delivery, Scotwood billed Miller, which paid thirty-five of the invoices and processed 30 to 50 percent of the flake. In August, Miller began complaining about the product's quality. Scotwood assured Miller that it would remedy the situation. Finally, in October, Miller told Scotwood, "This is totally unacceptable. We are willing to discuss Scotwood picking up the material." Miller claimed that the flake was substantially defective because it was chunked. Calcium chloride maintains its purity for up to five years, but if it is exposed to and absorbs moisture, it chunks and becomes unusable. In response to Scotwood's suit to collect payment on the unpaid invoices, Miller fi led a counterclaim in a federal district court for breach of contract, seeking to recover based on revocation of acceptance, among other things. [ Scotwood Industries, Inc. v. Frank Miller Sons, Inc., 435 F.Supp.2d 1160 (D.Kan. 2006)]
(a) What is revocation of acceptance? How does a buyer effectively exercise this option? Do the facts in this case support this theory as a ground for Miller to recover damages? Why or why not?
(b) Is there an ethical basis for allowing a buyer to revoke acceptance of goods and recover damages? If so, is there an ethical limit to this right? Discuss.
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Remedies of the Seller or Lessor Ames contracts to ship to Curley one hundred Model Z television sets. The terms of delivery are F.O.B. Ames's city, by Green Truck Lines, with delivery on or before April 30. On April 15, Ames discovers that because of an error in inventory control, all Model Z sets have been sold, and the stock has not been replenished. Ames has Model X, a similar but slightly more expensive unit, in stock. On April 16, Ames ships one hundred Model X sets, with notice that Curley will be charged the Model Z price. Curley (in a proper manner) rejects the Model X sets when they are tendered on April 18. Ames docs not wish to be held in breach of contract, even though he has tendered nonconforming goods. Discuss Ames's options.
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QUESTION WITH SAMPLE ANSWER: Anticipatory Repudiation.
Topken has contracted to sell Lorwin five hundred washing machines of a certain model at list price. Topken is to ship the goods on or before December 1. Topken produces one thousand washing machines of this model but has not yet prepared Lorwin's shipment. On November 1, Lorwin repudiates the contract. Discuss the remedies available to Topken.
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To watch this chapter's video, International: Letter of Credit, go to www.cengagebrain.com and register your access code that came with your Copyright new book or log in to your existing account. Select the link for the "Business Law Digital Video Library Online Access" or "Business Law CourseMate." Click on "Complete Video List," view Video 55, and then answer the following questions
(a) Do banks always require the same documents to be presented in letter-of-credit transactions? If not, who dictates what documents will be required in the letter of credit?
(b) At what point does the seller receive payment in a letter-of-credit transaction?
(c) What assurances does a letter of credit provide to the buyer and the seller involved in the transaction?
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Remedies of the Buyer L.V.R.V., Inc., sells recreational vehicles (RVs) in Las Vegas, Nevada, as Wheeler's Las Vegas RV. In September 1997, Wheeler's sold a Santara RV made by Coachmen Recreational Vehicle Co. to Arthur and Roswitha Waddell. The Waddells hoped to spend two or three years driving around the country, but almost immediately-and repeatedly-they experienced Problems with the RV. Its entry door popped open. Its cooling and heating systems did not work properly. Its batteries did not maintain a charge. Most significantly, its engine overheated when ascending a moderate grade. The Waddells took the RV to Wheeler's service department for repairs. Over the next year and a half, the RV spent more than seven months at Wheeler's. In March 1999, the Waddells filed a complaint in a Nevada state court against the dealer to revoke their acceptance of the RV. What are the requirements for a buyer's revocation of acceptance? Were the requirements met in this case? In whose favor should the court rule? Why? [ Waddell v. L.V.R.V. , Inc., 122 Nev. 15, 125 P.3d 1160 (2006)]
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