Scenario: Grocery, Inc. is a retail grocery store chain based in Any State; U.S.A. Grocery has stores throughout the United States. Grocery has written contracts with many different vendors to purchase the products they sell in their stores. Vendors range from individuals to international corporations. Tom Green works as the produce manager for the store in My Town, U.S.A. Jeff Fresh, 17 years old, is spending his summer vacation working for Tom in the produce department.
Assignment: Using the scenario above, give detailed answers to the following questions:
1. Does Article 2 of the Uniform Commercial Code (UCC) apply to the contracts between Grocery and its vendors? Do common law contracts apply? Explain, in detail, why or why not. Your answer should compare and contrast common law contracts and UCC Article 2 contracts.
Article 2 of the Code applies only to transactions in goods. The sale of goods is the transfer of ownership to tangible personal property in exchange for money, other goods or the performance of services. The law of sales of goods is codified in Article 2 of the Uniform Commercial Code While the law of sales is based on the fundamental principles of contract and personal property it has been modified to accommodate current practices of merchants. Therefore, the situation depends on whether or not a contract is for the sale of goods. If it is not, then the principles of common law that were discussed in Part 3, Contracts, apply. If the contract is one for the sale of goods, then the Code applies.
2. Grocery contracted with Masterpiece Construction to renovate the store on Main Street in My Town. Masterpiece, unable to complete the renovation within the six-month time limit due to a sudden increase in jobs, sub-contracted the entire job to Build Them To Fall. Grocery was unaware of the sub-contract. When Grocery realized (due to the poor quality of work) that Build, not Masterpiece, was handling the renovation, Grocery petitioned the court for an injunction and then sued Masterpiece for breach of contract and specific performance. Masterpiece argued that it had a right to delegate the duties of the contract, or in the alternative, to discharge the contract due to commercial impracticability. Who wins? Explain your answer.
In such a case as this one, Grocery would win a suit for specific performance but not necessarily for breach of contract. The only situation that would restrict Masterpiece from delegating the duties to another company is if the actual contract specified that Masterpiece had to perform the work. If the contract did specify that Masterpiece had to perform the work, they would be responsible for breach of contract; otherwise, they would have the right to delegate the work to a third party without penalty. Though Masterpiece might have had the right to sub-contract the renovation to another company, it does not release Masterpiece from liability. When a delegatee (Build) accepts an assignment from a delegator (Masterpiece), the delegatee assumes responsibility for performance.
This assumption does not release the delegator from liability but instead, creates a situation where both the delegator and delegatee owe duties to the obligee. If a situation arise, such as this one, and the delegatee refuses to pay, the delegator can still be held responsible. The only way Masterpiece can lose the title of obligor and not be considered liable for specific performance is to be discharged from performance by novation. A novation is “a particular type of substituted contract in which the obligee agrees to discharge the original obligor and to substitute a new obligor in his place” (Mallor, Barnes, Bowers, & Langvardt, 2003). If Build and Grocery both agree to the novation, Masterpiece would have no further obligation under the contract and Grocery would have to hold Build responsible for performance.
3. At the end of the summer, Jeff Fresh had earned enough money to put a down payment on a car. He decided to continue working part time during school to earn money for the car payments. Jeff purchased a car from Smooth Sales Used Cars. Smooth did not ask Jeff how old he was; the salesman assumed he had reached the age of majority. Jeff paid the down payment and signed the contract stating that he would make payments of $200 each month. Six months later Jeff lost his job and could no longer make the payments. Jeff took the car back to Smooth and said he wanted to cancel the contract and that he wanted his money back. What are the possible outcomes? Explain your answers.
As a minor, Jeff is entitled cancel the contract by disaffirming it and receiving the amount he paid for the car in exchange for returning the car back to Smooth Sales Used Cars. As per the textbook, “Upon disaffirmance, each party has the duty to return to the other any consideration that the other has given. This means that the minor must return any consideration given to him by the adult that remains in his possession.” Jeff should receive his down payment and $1200 back from Smooth Sales Used Cars. Since the car is not considered a necessary, the following law for minor does not apply. “The minor’s recovery of the full purchase price is subject to a deduction for the minor’s use of the consideration he or she received under the contract, or the depreciation or deterioration of the consideration in his or her possession.” Necessaries are basics things needed for survival and not supplied by the minor’s parents. Examples of necessaries are food, clothing, shelter, medical care, tools of the minor’s trade, and basic education or vocational training.
4. Grocery has a written contract with Cereal, Inc. to purchase 20 cases of cereal per month at $22 per case. The contract does not state the types of cereal or how the 20 cases will be divided up between Grocery’s 20 stores in Any State. After a flood, Cereal suffers severe water damage in its warehouse. With the exception of Soggy Flakes, Cereal does not have enough undamaged cereal to comply with its Grocery contract. On the day delivery was due; Grocery receives 10 cases of Soggy Flakes at the three stores located in My Town and two stores in Your Town. Twelve days before delivery was due, Grocery had requested, by facsimile, that 15 cases containing a variety of cereals be delivered to the five stores listed above with the remaining five cases going to Grocery’s warehouse in Corp Town. Grocery wants to reject the shipments of Soggy Flakes and cancel its contract with Cereal. Discuss Grocery’s rights under contract law. Cereal argues that based on the gap-filling rule, it had the right to modify the terms of the contract. Analyze the gap filling provisions of UCC Article 2 as they pertain to the terms of this contract. What rights and/or defenses, if any, does Cereal have under contract law? Analyze the remedies available to Grocery and/or Cereal. Explain all answers in detail.
There are two sides to this scenario in which both parties have a valid reason to alter as well as even terminate the contract. From the Cereal, Inc perspective, if unforeseen conditions cause a delay or the inability to make delivery of the goods and thus make performance impracticable, the seller is excused from making delivery. However, if a seller’s capacity to deliver is only partially affected the seller must allocate production in any fair and reasonable manner among his customers. Cereal did abide by it and delivered the 10 cases of Soggy Flakes due to the fact that those cases were not destroyed, leaving them deliverable.
However, the seller (Cereal, Inc) has the option of including any regular customer not then under contract in his allocation scheme. When the seller allocates production, he must notify the buyers [2-615]. When a buyer receives this notice, the buyer may either terminate the contract or agree to accept the allocation [2-616]. The Code recognizes the fact that parties to sales contracts frequently omit terms from their agreements or state terms in an indefinite or unclear manner. The Code deals with these situations by filling in the blanks with common trade practices. In this case, no length of time was addressed in the contract for Grocery to continue purchase products from Cereal. With this, Grocery did have a right to terminate at any given point of time.
5. Tom Green spent his time away from work on his hobby, model trains. His train set was very large and consisted of rare and one-of-a-kind trains. One day, while visiting with a fellow train hobbyist Harry, Tom said, “When I retire in two years from Grocery, I’m going to sell my trains and spend the rest of my years traveling on real trains.” Tom then told Harry that he was the only person he planned to offer his trains to because he knew Harry would take good care of them. Harry said he looked forward to the day when he could buy the trains. Harry then spent the next two years and most of his savings building a new 2,000 sq. ft. room onto his house to make room for the trains. When Harry told Tom that he was building the new room, Tom just smiled. Tom also heard that Harry had borrowed money from his aunt to buy the trains. When Tom retired, he sold his trains to David. Harry sued Tom claiming breach of contract, or in the alternative, for promissory estoppel. Who wins? Explain your answer.
Promissory estoppel is when a person relies on a promise made by another even though the promise may not be sufficient to be considered a contract. The elements of promissory estoppel are a promise, reliance on that promise, and injustice that comes from that promise. These elements are apparent in this situation. Tom told Harry that he was the only person that he wanted to leave his trains to, that was the promise. Harry saying that he looked forward to buying the trains and then building a room for them was the reliance on the promise. Finally, Tom selling the trains to someone else is the injustice and the breaking of the promise. Harry should not be suing for breach of contract, but rather for promissory estoppel. There is no official breach of contract in this situation, but it is a clear example of promissory estoppel. If the lawsuit were for promissory estoppel, then Harry would win. The lawsuit being for breach of contract might cause Harry to lose because it is not complete breach of contract.
6. Organic Farms shipped a truckload of peaches to Grocery using an independent trucker. In route, the truck broke down and the shipment was delayed three days. The peaches were spoiled when they arrived. The terms of the contract were F.O.B. Who bears the risk? Explain your answer.
Under F.O.B. terms, the seller is responsible for the costs and the risks associated with transporting the goods to the designated area assigned by the buyer. Once the shipment arrives at the designated area, the buyer assumes responsibility for the goods and any shipping of the goods that might occur afterwards. Since the goods were still in route to the destination (Grocery), Organic Farms is responsible for the loss and Grocery is not obligated to pay anything. Organic Farms might be able to recover the loss from the independent tucking company but this does not affect the destination contract that places the risk of loss on Organic Farms. Organic Farms would still be required to compensate Grocery for the loss, while they potentially seek reimbursement from the independent trucking company.
7. Discuss the different warranties that apply to Grocery’s business. Explain your answer in detail.
There are several different warranties present in Grocery’s business. The first is express warranties. Express warranties are present because the goods conform to the description and because oftentimes, samples are available of the goods. Implied warranty is also present in this situation because the goods in Grocery’s business are merchantable. Finally, implied warranty of fitness is present here. This is apparent because the seller, Grocery’s store, knows that there is a purpose for the buyer to buy the goods. Grocery’s store also knows that the buyer is relying on the goods that are being sold and that the buyer is relying on Grocery’s for the goods.
8. Supplier, Inc., a large wholesaler, had a contract with Grocery. Supplier sued Grocery for breach of contract when Grocery failed to place an order for goods by a specific date as specified in the contract. Each order was to be worth at least $550. Grocery contended that the contract Bill Green signed was a standard preprinted supply contract without specifics regarding time of order and quantity. Green had authority to sign a standard supply contract, but could not authorize specific terms. This was unknown to Supplier. Supplier argued that the terms were “boilerplate” and could therefore be modified by acceptance. Supplier offered oral testimony at trial to prove that Green agreed to the modifications. Is there a contract? If so, what are the terms? Explain your answers. Also, discuss the use of Supplier’s oral testimony at trial.
In this case, there is no contract since the quantity is not specified. When there is indefinite quantity, the buyer does not have to buy from the seller even if there if a minimum purchase amount required and therefore, the quantity required is illusory and unenforceable. As per the textbook, “it is fundamental that a contract is unenforceable if it fails to obligate the parties to do anything.” The oral testimony from Supplier Inc. cannot be used. Any modifications to a sales contract needs to be in writing. Verbal modifications will not be enforceable.
Business Law: The Ethical, Global, and E-commerce Environment (12th ed.).
Jane P. Mallor, A. James Barnes, L. Thomas Bowers, & Arlen W. Langvardt
McGraw Hill, 2004 Burr Ridge, IL
University of Phoenix Material: Case Scenario: Grocery, Inc, Susan Brown Parker. Retrieved from http://www.phoenix.edu