Business Law and the Legal Environment Study Set 1

Business

Quiz 27 :

Remedies for Breach of Sales Contracts

Quiz 27 :

Remedies for Breach of Sales Contracts

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Firwood Manufacturing Co. had a contract to sell General Tire 55 model 1225 postcure inflators (PCIs). PCIs are $30,000 machines used by General Tire in its manufacturing process. The contract was entered into in 1989, and by April 1990 General Tire had purchased 22 PCIs from Firwood. However, General Tire then closed its Barrie, Michigan, plant. Firwood reminded General Tire that it still had the obligation to purchase the 33 remaining PCIs. General Tire communicated to Firwood that it would not be purchasing the remaining ones. Firwood then was able, over a period of three years, to sell the remaining PCIs. Some of the PCIs were sold as units, and others were broken down and sold to buyers who needed parts. Firwood's sales of the remaining 33 units brought in $187,513 less than the General Tire contract provided, and Firwood filed suit to collect the resale price difference plus interest. Can Firwood recover? Why or why not? [Firwood Manufacturing Co., Inc. v General Tire, Inc., 96 F3d 163 (6th Cir)]
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Refer to the case Firwood Manufacturing v General Tire (96 F3d 163).
Case Issue
The issue is whether seller can recover for the difference in contract price and selling price to other buyers after the original buyer breach the contract, even though it took the seller three years to make resale.
Trial court granted the difference amount to seller. Buyer appealed the decision.
Relevant Terms, Laws, and Cases
UCC 2-706 - allows the seller to sell goods to other buyers when the original buyer breach contract. It requires that seller make sale in a commercially reasonable manner and inform buyer its intention to resale.
Opinion
Higher court affirmed the decision.
The court looked at whether the seller made their resale in a commercially reasonable manner as required by UCC 2-706. The court conceded three years is a long time, but the reasonable time is not determined by time itself but rather by the goods itself.
The court found that these goods were intended for a specific usage, and there were no market for the seller's good at during the three years; hence, they determined seller made a good faith effort to cover losses.

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Brown Machine Company, a division of Kvaerner U.S., Inc., entered into a contract to supply a machine and tools to Hakim Plast, a food container-producing company based in Cairo, Egypt, to enable Hakim to meet its growing demand for plastic containers. The plastic containers were for customers to use in the ice cream distribution industry. It was understood that the equipment would be ready for delivery before the busy summer ice cream season. Brown Machine was not able to meet the twice extended deadline. It attempted to obtain another extension, but Hakim Plast refused without additional consideration. Brown refused to provide the requested consideration. Hakim Plast declared the contract breached on September 25, 1994. Brown then sold the equipment and brought suit for breach of contract, requesting damages for the loss of the sale. Hakim Plast countersued for Brown's breach seeking out-of-pocket expenses and consequential damages for loss of business. Discuss who breached the contract and determine what possible damages might be recovered. [Kvaerner U.S., Inc. v Hakim Plast Co., 74 F Supp 2d 709 (ED Mich)]
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Refer to the case Kvaerner U.S. Inc. v Hakim Plast (74 F Supp 2d 709 ).
Case Issue
The issue here is whether the buyer or seller breached the contract.
Relevant Terms, Laws, and Cases
Typically under the UCC if a contract is breached then the non breaching party may sue for damages.
Opinion
The court held for buyer; seller breached the contract.
The court found that the seller breached the contract because they were not prepared to have a product that was ready as per buyer's demands.
Furthermore, the seller was aware that delays in production will cause buyer to incur losses for the summer season.
As per damages, the court granted out of pocket expenses, which were the cost to buyer for having to forfeit on down payments and also the cost of lodging when buyer had to come inspect the delays.
The court deemed that this was valid as these were foreseeable cost to the buyer when the seller failed to make the product. The buyer also argued for consequential damages to the amount of lost profit for the entire year, however, the court decided that this was too speculative, instead awarding them 5% interest on the out of expense payment.

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McInnis purchased a tractor and scraper as new equipment of the current model year from Western Tractor Equipment Co. The written contract stated that the seller disclaimed all warranties and that no warranties existed except those stated in the contract. Actually, the equipment was not the current model but that of the prior year. The equipment was not new but had been used for 68 hours as a demonstrator model, after which the hour meter had been reset to zero. The buyer sued the seller for damages. The seller's defense was based on the ground that all liability for warranties had been disclaimed. Was this defense valid? [McInnis v Western Tractor Equipment Co., 388 P2d 562 (Wash)]
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Refer to the case McInnis v Western Tractor Equipment (388 P2d 562).
Case Issue
The issue is whether seller had limited their liability by clause in contract, when they sold the wrong product to the buyer.
Relevant Terms, Laws, and Cases
UCC 2-719 - allows contract to modify or limit remedy of recovery.
Limitation of liability clause - is a provision in contract that limits liability of the seller.
Opinion
The court held for the buyer.
The disclaimer may not disclaim liability for fraud even though it may disclaim warranty.
In this case, the seller knowingly misrepresented the condition of the goods; hence, the buyer is recovering for fraud by seller.

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Stock Solution is a "stock photo agency" that leases photographic transparencies produced by professional photographers for use in media advertising. Between October 1, 1994, and May 31, 1995, Stock Solution delivered Axiom 107 color transparencies to be used in Axiom's advertising. The contracts provided that in the event the transparencies were not returned by the specified "return date," Axiom would pay the following fees: (1) an initial "service charge" of $30, (2) "holding fee[s]" in the amount of "$5.00 per week per transparency," (3) "service fees" at a rate of "one and one-half percent per month" on unpaid balances of invoices beginning 30 days after invoice date, and (4) reimbursement for loss or damage of each "original transparency" in the amount of $1,500. Axiom failed to return 37 of the 107 transparencies in breach of the contracts. Of the 37 missing transparencies, 36 were original color transparencies and 1 was a duplicate color transparency. Stock Solution filed suit seeking damages (1) for the 36 missing original color transparencies, the agreed liquidated value of $54,000 plus sales tax of $3,294; (2) for the 1 missing duplicate color transparency, $1 plus sales tax of $0.06; (3) holding fees on the 37 missing transparencies in the amount of $23,914.83; (4) service fees and charges as provided for in the contracts; and (5) attorney fees. Discuss whether the liquidated damage clause was enforceable under the law. [Bair v Axiom Design, LLC, 20 P3d 388 (Utah)]
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Stephan's Machine Tool, Inc., purchased a boring mill from D H Machinery Consultants. The mill was a specialized type of equipment and was essential to the operation of Stephan's plant. The purchase price was $96,000, and Stephan's had to borrow this amount from a bank to finance the sale. The loan exhausted Stephan's borrowing capacity. The mill was unfit, and D H agreed to replace it with another one. D H did not keep its promise, and Stephan's sued it for specific performance of the contract as modified by the replacement agreement. Is specific performance an appropriate remedy? Discuss. [Stephan's Machine Tool, Inc. v D H Machinery Consultants, Inc., 417 NE2d 579 (Ohio App)]
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Lam entered into contracts with Dallas Semiconductor to build six machines, referred to in its contracts as Tools A-F. The contracts were entered into in 2000 and in 2001, but Maxim Integrated acquired Dallas Semiconductor in 2001. The employees at Dallas who were in charge of the contracts continued to assure Lam that everything was on track. Lam representatives also had meetings with Maxim representatives. However, those discussions broke down and after Lam issued a demand letter for which there was no response, he filed suit for breach of contract. Lam was able to sell the machines to other customers for an equal or greater price. Lam asked for total damages in the amount of $13,860,847, representing lost profits on all six tools, plus lost profits on the extended warranties and training packages for the tools. Is Lam entitled to such recovery? [Lam Research Corp. v Dallas Semiconductor Corp. 2006 WL 1000573, 59 UCC Rep Serv 2d 716 (Cal App 2006) (Cal App)]
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Soon after Gast purchased a used auto from a Chevrolet dealer, he experienced a series of mechanical problems with the car. Gast refused to make further payments on the bank note that had financed the purchase. The bank took possession of the automobile and sold it. Gast then brought an action against the dealer, alleging that he had revoked his acceptance. Was Gast correct? Explain your answer. [Gast v Rodgers-Dingus Chevrolet, 585 So 2d 725 (Miss)]
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Wolosin purchased a vegetable and dairy refrigerator case from Evans Manufacturing Corp. When Evans sued Wolosin for the purchase price, Wolosin claimed damages for breach of warranty. The sales contract provided that Evans would replace defective parts free of charge for one year; it also stated, "This warranty is in lieu of any and all other warranties stated or inferred, and of all other obligations on the part of the manufacturer, which neither assumes nor authorizes anyone to assume for it any other obligations or liability in connection with the sale of its products." Evans claimed that it was liable only for replacement of parts. Wolosin claimed that the quoted clause was not sufficiently specific to satisfy the limitation-of-remedies requirement of UCC § 2-719. Provide some insight on this issue for the parties by discussing damage limitation clauses under the UCC. [Evans Mfg. Corp. v Wolosin, 47 Luzerne County Leg Reg 238 (Pa)]
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Lazur Corp. entered into a contract with Baker Suppliers, Inc., to purchase a used word processor from Baker. Lazur is engaged in the business of selling new and used word processors to the general public. The contract required Baker to ship the goods to Lazur by common carrier pursuant to the following provision in the contract: "FOB Baker Suppliers, Inc., loading dock." Baker also represented in the contract that the word processor had been used for only 10 hours by its previous owner. The contract included the provision that the word processor was being sold "as is," and this provision was in a larger and different type style than the remainder of the contract. Assume that Lazur refused to accept the word processor even though it was in all respects conforming to the contract and that the contract is otherwise silent. Under the UCC Sales Article: a. Baker can successfully sue for specific performance and make Lazur accept and pay for the word processor. b. Baker may resell the word processor to another buyer. c. Baker must sue for the difference between the market value of the word processor and the contract price plus its incidental damages. d. Baker cannot successfully sue for consequential damages unless it attempts to resell the word processor.
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Formetal Engineering submitted to Presto a sample and specifications for precut polyurethane pads to be used in making air-conditioning units. Formetal paid for the goods as soon as they were delivered but subsequently discovered that the pads did not conform to the sample and specifications in that there were incomplete cuts, color variances, and faulty adherence to the pad's paper backing. Formetal then informed Presto of the defects and notified Presto that it would reject the pads and return them to Presto, but they were not returned for 125 days. Presto argued that it was denied the right to cure because the goods were not returned until some 125 days after Formetal promised to do so. Was there a breach of the contract? Did the buyer (Formetal) do anything wrong in seeking its remedies? [Presto Mfg. Co. v Formetal Engineering Co., 360 NE2d 510 (Ill App)]
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Mrs. Kirby purchased a wheelchair from NMC/ Continue Care. The wheelchair was customized for her and her home. When the wheelchair arrived, it was too wide to fit through the doorways in her home. What options does Mrs. Kirby have? [Kirby v NMC Continue Care, 993 P2d 951 (Wyo)]
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On April 5, 1987, Anker, Inc., furnished Bold Corp. with Anker's financial statements dated March 31, 1987. The financial statements contained misrepresentations that indicated that Anker was solvent when in fact it was insolvent. Based on Anker's financial statements, Bold agreed to sell Anker 90 computers, "F.O.B.-Bold's loading dock." On April 14, Anker received 60 of the computers. The remaining 30 computers were in the possession of the common carrier and in transit to Anker. If, on April 28, Bold discovered that Anker was insolvent, then with respect to the computers delivered to Anker on April 14, Bold may: a. Reclaim the computers upon making a demand b. Reclaim the computers irrespective of the rights of any third party c. Not reclaim the computers since 10 days have elapsed from their delivery d. Not reclaim the computers since it is entitled to recover the price of the computers
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Elmore purchased a car from Doenges Brothers Ford. The car had been placed with the dealership by a dealership employee as part of a consignment arrangement. Elmore was unable to obtain title to the car because the Environmental Protection Agency had issues with the car's compliance with emissions equipment requirements. Elmore was unable to drive the car. He brought suit because he was forced to sell the car for $10,300 less than he paid because of the title defect, and the fact that only a salvage dealer would purchase it. Because he lost his transportation, he was out of work for eight months and experienced a $20,000 decline in income. What damages could Elmore recover under the UCC? [Elmore v Doenges Bros. Ford, Inc., 21 P3d 65 (Okla App)]
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Sonya Kaminski purchased from Billy Cain's Cornelia dealership a truck that was represented to her to be a 1989 Chevrolet Silverado pickup. However, subsequent incidents involving repair of the truck and its parts, as well as a title history, revealed that the truck was a GMC rather than a Chevrolet. Sales agents at the Cornelia dealership misrepresented the truck's character and sold the truck to Kaminski as a Chevrolet. Kaminski filed suit for intentional fraud and deceit under the Georgia Fair Business Practices Act (FBPA) and for breach of express warranty. The jury awarded Kaminski $2,823.70 for breach of express warranty and $50,000 punitive (exemplary) damages. The judge added damages under the FBPA of $10,913.29 in actual damages and $9,295 in attorney fees and court costs. The dealership appealed. Must the dealership pay the damages? Why or why not? [ Billy Cain Ford Lincoln Mercury, Inc. v. Kaminski , 496 SE2d 521 (Ga App)]
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Joseph Perna purchased a 1981 Oldsmobile at a traffic auction conducted by Locascio. The car had been seized pursuant to action taken by the New York City Parking Violation Bureau against Jose Cruz. Perna purchased the car for $1,800 plus tax and towing fees "subject to the terms and conditions of any and all chattel mortgages, rental agreements, liens, conditional bills of sale, and encumbrances that may be on the motor vehicle of the above judgment debtor." The Olds had 58,103 miles on it at the time of Perna's purchase. On May 7, 1993, Perna sold the car to Elio Marino, a coworker, for $1,200. The vehicle had about 65,000 miles on it at the time of this sale. During his period of ownership, Marino replaced the radiator ($270), repaired the power steering and valve cover gasket ($117), and replaced a door lock ($97.45). He registered and insured the vehicle. In February 1994, Marino's son was stopped by the police and arrested for driving a stolen vehicle. The son was kept in jail until his arraignment, but the charges were eventually dropped. The Oldsmobile was never returned to Marino, who filed suit for breach of contract because he had been given a car with a defective title. He asked for damages that included the costs of getting his son out of jail and having the theft charges dropped. Is he entitled to those damages? [Marino v Perna, 629 NYS2d 669 (NY Cir)]
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February 15, Mazur Corp. contracted to sell 1,000 bushels of wheat to Good Bread, Inc., at $6.00 per bushel with delivery to be made on June 23. On June 1, Good advised Mazur that it would not accept or pay for the wheat. On June 2, Mazur sold the wheat to another customer at the market price of $5.00 per bushel. Mazur had advised Good that it intended to resell the wheat. Which of the following statements is correct? a. Mazur can successfully sue Good for the difference between the resale price and the contract price. b. Mazur can resell the wheat only after June 23. c. Good can retract its anticipatory breach at any time before June 23. d. Good can successfully sue Mazur for specific performance.
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Ramtreat Metal Technology provided for a "double your money back" remedy in its contracts for the sale of its metal drilling assemblies. A buyer filed suit seeking consequential damages and cost of replacement. Ramtreat said that its clause was a limitation of remedies. Could Ramtreat limit its remedies to "double your money back"? [Adcock v Ramtreat Metal Technology, Inc., 44 UCC Rep Serv 2d 1026 (Wash App)]
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McNeely entered into a contract with Wagner to pay $250,000 as a lump sum for all timber present in a given area that Wagner would remove for McNeely. The contract estimated that the volume in the area would be 780,000 board feet. Wagner also had provisions in the contract that made no warranties as to the amount of lumber and that he would keep whatever timber was not harvested if McNeely ended the contract before the harvesting was complete. The $250,000 was to be paid in three advances. McNeely paid two of the three advances but withheld the third payment and ended the contract because he said there was not enough timber. Wagner filed suit for the remaining onethird of the payment. McNeely said Wagner could not have the remaining one-third of the payment as well as the transfer; he had to choose between the two remedies. Is he correct? [Wagner v McNeely, 38 UCC2d 1176 (Or)]
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