Deck 15: The Formation of Sales and Lease Contracts

Question 1

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?

Answer 1

In the present scenario, the FF vs. VE, the trial court should probably find whether VE had completed the part of transaction as it is already paid as a result of partial performance. The Statute of Frauds requires that any contract for the sale of goods priced at $500 or more must be in written form of enforceability. The fact of the case is, VE has accepted an oral partial payment for the goods promised by the company. Hence, the part of the agreement was enforceable where VE should deliver 100 bushels of corn to FF at 1.25 per bushel.

Question 2

E-Design, Inc., orders 150 computer desks. Fav-O-Rite Supplies, Inc., ships 150 printer stands. Is this an acceptance of the offer or a counteroffer? If it is an acceptance, is it a breach of the contract? What if Fav-O-Rite told E-Design it was sending the printer stands as "an accommodation"?

Answer 2

When breaching takes place of a sale or lease contract then the transferring of the risk will function very differently which will depend completely as to which party has breached. Normally the party that was involved in the breaching will have to bear the complete risk of the loss. In the case when the breaching is done by the seller or the lessor and if the goods are not confirmed then the buyers will have the right to decline the possession of the goods. In case of acceptance of a consignment of the goods and afterwards realises that there is some sought of fault in the goods then at that time the acceptance of the goods can be cancelled. Cancellation of the goods will permit the risk of loss to be transferred to the seller by the buyer and to the degree where the insurance of the buyer will not cover the entire loss. Therefore in this case also if the E-Design, Inc accepts the 150 printer stands and afterwards if any fault is detected then the order can actually be cancelled. But in the case if Fav-O-Rite had informed the E-Design that it was going to send the printer stand then the acceptance would not be based on nonconforming as the E- Design could cancel the order before it was shipped.

Question 3

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
How do Article 2 and Article 2A of the UCC differ? What types of transactions does each article cover?

Answer 3

The Article of the UCC manages the contracts based on the sales or it manages those contracts that are concerned with the transaction of various goods. For the facilitation of the transactions, which are for profit making purposes, Article 2 makes amendments in some of the contract requirements based on common laws. The main point of focus over here is that the Article 2 is concerned directly with the sale of the goods and it is not concerned with the real property, it doesn't deal with services or even the stocks or the bonds that are known as the intangible property. The Article 2A of the UCC manages the leases. Nowadays the leases that are concerned with the goods have become very widespread. Lease can actually be explained as the transferring of the right for the utilisation of a good that a person possesses for payment for a particular period of time. The particular transactions that are concerned with the Article 2 are the ones that will create a lease for a particular good and along with that a sublease for the good will also be created. Article 2 is usually applied to the lease rather than to the sale of the particular good. Article 2 A is a replication of the article 2 and it is different only when it has to reveal the difference that exists between the lease and the sales transactions.

Question 4

Guy Holcomb owns and operates Oasis Goodtime Emporium, an adult entertainment establishment. Holcomb wanted to create an adult Internet system for Oasis that would offer customers adult theme videos and "live" chat room programs using performers at the club. On May 10, Holcomb signed a work order authorizing Crossroads Consulting Group (CCG) "to deliver a working prototype of a customer chat system, demonstrating the integration of live video and chatting in a Web browser." In exchange for creating the prototype, Holcomb agreed to pay CCG $64,697. On May 20, Holcomb signed an additional work order in the amount of $12,943 for CCG to install a customized firewall system. The work orders stated that Holcomb would make monthly installment payments to CCG, and both parties expected the work would be finished by September. Due to unforeseen problems largely attributable to system configuration and software incompatibility, the project required more time than anticipated. By the end of the summer, the Web site was still not ready, and Holcomb had fallen behind in the payments to CCG. CCG was threatening to cease work and file suit for breach of contract unless the bill was paid. Rather than make further payments, Holcomb wanted to abandon the Web site project. Using the information presented in the chapter, answer the following questions.
1. Would a court be likely to decide that the transaction between Holcomb and CCG was covered by the Uniform Commercial Code (UCC)? Why or why not?
2. Would a court be likely to consider Holcomb a merchant under the UCC? Why or why not?
3. Did the parties have a valid contract under the UCC? Explain.
4. Suppose that Holcomb and CCG meet in October in an attempt to resolve their problems. At that time, the parties reach an oral agreement that CCG will continue to work without demanding full payment of the past-due amounts and Holcomb will pay CCG $5,000 per week. Assuming that the contract falls under the UCC, is the oral agreement enforceable? Why or why not?

Question 5

Question with Sample Answer-Merchant's Firm Offer.
On September 1, Jennings, a used-car dealer, wrote a letter to Wheeler, stating, "I have a 1955 Thunderbird convertible in mint condition that I will sell you for $13,500 at any time before October 9. [signed] Peter Jennings." By September 15, having heard nothing from Wheeler, Jennings sold the Thunderbird to another party. On September 29, Wheeler accepted Jennings's offer and tendered the $13,500. When Jennings told Wheeler he had sold the car to another party, Wheeler claimed Jennings had breached their contract. Is Jennings in breach? Explain.

Question 6

Truck Parts, Inc. (TPI), often sells supplies to United Fix-It Company (UFC), which services trucks. Over the phone, they negotiate for the sale of eighty-four sets of tires. TPI sends a letter to UFC detailing the terms and two weeks later ships the tires. Is there an enforceable contract between them? Why or why not?

Question 7

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
In a sales contract, if an offeree includes additional or different terms in an acceptance, will a contract result? If so, what happens to these terms?

Question 8

Spotlight on Goods and Services-The Statute of Frauds.
Fallsview Glatt Kosher Caterers ran a business that provided travel packages, including food, entertainment, and lectures on religious subjects, to customers during the Passover holiday at a New York resort. Willie Rosenfeld verbally agreed to pay Fallsview $24,050 for the Passover package for himself and his family. Rosenfeld did not appear at the resort and never paid the money owed. Fallsview sued Rosenfeld for breach of contract. Rosenfeld claimed that the contract was unenforceable because it was not in writing and violated the UCC's Statute of Frauds. Is the contract valid? Explain. [Fallsview Glatt Kosher Caterers, Inc. v. Rosenfeld, 794 N.Y.S.2d 790 (N.Y. Super. 2005)]

Question 9

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What exceptions to the writing requirements of the Statute of Frauds are provided in Article 2 and Article 2A of the UCC?

Question 10

Case Problem with Sample Answer-Passage of Title.
Kenzie Godfrey was a passenger in a taxi when it collided with a car driven by Dawn Altieri. Altieri had originally leased the car from G.E. Capital Auto Lease, Inc. By the time of the accident, she had bought it, but she had not fully paid for it or completed the transfer-of-title paperwork. Godfrey suffered a brain injury and sought to recover damages from the owner of the car that Altieri was driving. Who had title to the car at the time of the accident? Explain. [Godfrey v. G.E. Capital Auto Lease, Inc., 89 A.D.3d 471, 933 N.Y.S.2d 208 (1 Dept. 2011)]

Question 11

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
Risk of loss does not necessarily pass with title. If the parties to a contract do not expressly agree when risk passes and the goods are to be delivered without movement by the seller, when does risk pass?

Question 12

Additional Terms.
B.S. International, Ltd. (BSI), makes costume jewelry. JMAM, LLC, is a wholesaler of costume jewelry. JMAM sent BSI a letter with the terms for orders, including the necessary procedure for obtaining credit for items that customers rejected. The letter stated, "By signing below, you agree to the terms." Steven Baracsi, BSI's owner, signed the letter and returned it. For six years, BSI made jewelry for JMAM, which resold it. Items rejected by customers were sent back to JMAM, but were never returned to BSI. BSI filed a suit against JMAM, claiming $41,294.21 for the unreturned items. BSI showed the court a copy of JMAM's terms. Across the bottom had been typed a "PS" requiring the return of rejected merchandise. Was this "PS" part of the contract? Discuss. [B.S. International, Ltd. v. JMAM, LLC, 13 A.3d 1057 (R.I. 2011)]

Question 13

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What law governs contracts for the international sale of goods?

Question 14

Delivery without Movement of the Goods.
Aleris International, Inc., signed a contract to buy a John Deere loader from Holt Equipment Co. The agreement provided that "despite physical delivery of the equipment, title shall remain in the seller until" Aleris paid the full price. The next month, Aleris filed for bankruptcy. Holt asserted that it was the owner of the loader and filed a claim with the court to repossess it. Who is entitled to the loader, and why? [In re Aleris International, Ltd., __ Bankr. __ (D.Del. 2011)]

Question 15

Goods Held by the Seller or Lessor.
Douglas Singletary bought a manufactured home from Andy's Mobile Home and Land Sales. The contract stated that the buyer accepted the home "as is where is." Singletary paid the full price, and his crew began to ready the home to relocate it to his property. The night before the home was to be moved, however, it was destroyed by fire. Who suffered the loss? Explain. [Singletary, III v. P A Investments, Inc., 712 S.E.2d 681 (N.C.App. 2011

Question 16

Partial Performance and the Statute of Frauds.
After a series of e-mails, Jorge Bonilla, the sole proprietor of a printing company in Uruguay, agreed to buy a used printer from Crystal Graphics Equipment, Inc., in New York. Crystal Graphics, through its agent, told Bonilla that the printing press was fully operational, contained all of its parts, and was in excellent condition except for some damage to one of the printing towers. Bonilla paid $95,000. Crystal Graphics sent him a signed, stamped invoice reflecting this payment. The invoice was dated six days after Bonilla's conversation with the agent. When the printing press arrived, Bonilla discovered that it was missing parts and was damaged. Crystal Graphics sent replacement parts, but they did not work. Ultimately, Crystal Graphics was never able to make the printer operational. Bonilla sued, alleging breach of contract, breach of the implied covenant of good faith and fair dealing, breach of express warranty, and breach of implied warranty. Crystal Graphics claimed that the contract was not enforceable because it did not satisfy the Statute of Frauds. Can Crystal Graphics prevail on this basis? Why or why not? [Bonilla v. Crystal Graphics Equipment, Inc., 2012 WL 360145 (S.D.Fla. 2012)]

Question 17

A Question of Ethics-Statute of Frauds.
Daniel Fox owned Fox Lamberth Enterprises, Inc., a kitchen remodeling business. Fox leased a building from Carl Hussong. When Fox planned to close his business, Craftsmen Home Improvement, Inc., expressed an interest in buying his 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. Craftsmen expected to negotiate a new lease with Hussong and modified the premises, including removal of some of the displays. When Hussong and Craftsmen could not agree on new terms, Craftsmen told Fox that the deal was off. [Fox Lamberth Enterprises, Inc. v. Craftsmen Home Improvement, Inc., __ N.E.2d __ (2 Dist. 2006)]
1. In Fox's suit 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.
2. Craftsmen also claimed that the "predominant factor" of its agreement with Fox was a lease for Hussong's 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 is unable to negotiate a favorable lease of the premises on which the assets are located? Discuss.

Question 18

Case Analysis Question.
Go to Appendix I at the end of this text and examine the excerpt of Case No. 3, Spray-Tek, Inc. v. Robbins Motor Transportation, Inc. Review and then brief the case, making sure that your brief answers the following questions.
1. Issue: What contract provision was at the heart of the dispute between the parties to this case, and why?
2. Rule of Law: What rule of law did the court apply to interpret this provision?
3. Applying the Rule of Law: How did the court apply this rule to interpret the provision at the center of this case?
4. Conclusion: Did the court resolve the dispute between the parties with respect to determining who suffered the loss and how much that loss was? Explain.

Question 19

Business Law Critical Thinking Group Assignment.
Mountain Stream Trout Co. agreed to buy "market size" trout from trout grower Lake Farms, LLC. Their five year contract did not define market size. At the time, in the trade, market size referred to fish of one-pound live weight. After three years, Mountain Stream began taking fewer, smaller deliveries of larger fish, claiming that market size varied according to whatever its customers demanded and that its customers now demanded larger fish. Lake Farms filed a suit for breach of contract.
1. The first group will decide whether parol (outside) evidence is admissible to explain the terms of this contract. Are there any exceptions that could apply?
2. A second group will determine the impact of course of dealing and usage of trade on the interpretation of contract terms.
3. A third group will discuss how parties to a commercial contract can avoid the possibility that a court will interpret the contract terms in accordance with trade usage.