HAMLINE UNIVERSITY SCHOOL OF LAW
Instructor: Gordon Gendler Spring Semester 2005
FINAL COMMERCIAL TRANSACTIONS
CODE OF CONDUCT
Violations of the Code of Conduct include: (1) unauthorized conversation among students concerning the examination; (2) giving, receiving, or soliciting unauthorized aid; (3) using materials which are not specifically permitted by the written examination instruction; (4) exceeding the examination time limit; or (5) any other dishonest conduct in connection with the examination.
INSTRUCTIONS
1. This examination consists of four (4) pages in addition to this cover page. Please ensure that you are not missing any pages.
2. The time allowed for this examination is three (3) hours.
3. Outside permitted material: Open Book.
4. SPECIAL INSTRUCTIONS: Please show analysis. Please use blue or black pen. GOOD LUCK.
QUESTION 1
(30 Points)
BCD, Inc. and Biyore, Inc., both dealers in cryptoblite (a granular fertilizer), have two separate contracts each providing that BCD agrees to sell 1,000 bags of cryptoblite per month for five months, delivery to be made by the end of the month. Biyore agreed to pay $5.00 per bag for the cryptoblite. Payment was to be made by paying $2,500 on the 15th of each month with the balance due upon delivery. Each contract specified that "all modifications to the contract must be in writing, signed by both parties" and that "this contract includes the complete agreement of the parties". After the first shipment was made, Biyore asked if it could pay the remaining $2,500 10 days after delivery and BCD agreed. The next two shipments were handled this way, so Biyore arranged its financing on this time schedule. When the fourth shipment under the first contract is delivered BCD refuses to deliver unless Biyore pays the $2,500 owing. Biyore protests. BCD refuses to deliver and emails Biyore that BCD will deliver no more
cryptoblite under either contract unless Biyore pays pursuant to the contract terms. Biyore responds that it is BCD who has breached the contract. BCD gives notice to Biyore of BCD's intent to sell the cryptoblite to another buyer which it does for $6.00 a sack. Its costs to procure each sack are $4.00 and its building rental and insurance costs are $1,000 per month, $.50 per sack sold. It paid a sales person a $500 commission for making the Biyoresale. BCD sued Biyore for damages and Biyore counterclaims.
Biyore wants to be reimbursed for a $2,500 advance payment it made for cryptoblite not delivered and for damages. Biyore had a contract to sell the cryptoblite to Endu, Inc. When it went out on to the market, three months after BCD refused to deliver, to buy the
cryptoblite for the Endu, Inc. contract, It could not find any for sale, due to an embargo.
This forced Biyore to default on its Endu, Inc. contract for which it paid damages of $20,000. Biyore says BCD breached the contract. BCD says Biyore breached the contract. If Biyore had tried to buy cryptoblite before the embargo, it could have procured it for $5.50 per sack.
Who has breached the contract and who is liable to whom and for how much.
QUESTION 2
(30 Points)
Mikassa, a manufacturer of dinnerware, enters into a contract with Bloomingdale, an upscale department store, under which Mikassa will manufacture for Bloomingdale a line of dinnerware for sale under Bloomingdale's name. The line will include "fine china" which consists of plates, bowls, cups, and saucers as well as "crystal" which consists of wine, champagne and water glasses. The glasses are to be of a matching design and made of a glass composition patented by Mikassa. The contract price for each table setting (which includes 1 each of the pieces of fine china is $80. The contract price for each set of crystal glasses (1 water glass, 1 champagne glass and 1 wine glass) is $30. Mikassa agrees to deliver 1000 table settings of fine china and 1000 sets of the crystal glasses on the first of each month to Bloomingdale for a period of 12 months.
Mikassa delivers the first three shipments. They are accepted and paid for by Bloomingdale. Bloomingdale starts getting returns of the crystal champagne glasses from its customers. It seems that the glasses crack when placed in the freezer to be chilled. Mikassa tells Bloomingdale that the champagne glasses cannot be made out of its patented material and be placed in a freezer. Bloomingdale tells Mikassa that it needs all of the glasses to be made out of the same material. The fourth shipment is delivered. Bloomingdale sends back the entire shipments (including both the fine china and the crystal glasses) as well as the 600 sets of each remaining from the third shipment. It also tells Mikassa that it is canceling the remainder of the contract for both the fine china and the crystal glasses. Bloomingdale had been selling the fine china for $300 per table setting, of which $70 represented overhead and $50 (in addition to the purchase price) in costs. Bloomingdale had been selling the crystal glasses for $150 per set, of which $35 represented overhead and $25 (in addition to the purchase price) in costs. Bloomingdale searches for a manufacturer of fine china and crystal who can start supplying the items immediately. Because of other commitments and the time required for design and manufacture, no supplier can start supplying Bloomingdale for at least 8 months. Bloomingdale enters into a contract with Baumberger Corp. to manufacture the Bloomingdale line of fine china and crystal. However, it is impossible for Baumberger to begin prior to the end of the 12-month period during which Mikassa was to deliver.
It costs Mikassa $20 in overhead and $20 in costs to manufacture a table setting of the fine china. It costs Mikassa $10 in overhead and $10 in costs to manufacture a set of crystal glasses. Mikassa calls up all the retail stores to whom it normally sells it products to see if they want to purchase the 1600 sets of crystal and table settings of fine china that were returned by Bloomingdale. No one is interested. It finally sells all 1600 sets and table settings to the Cost Plus discount chain which agrees to pay $40 per table setting for each of the 1600 table settings of fine china and $10 per set for each of the 1600 sets of crystal glasses.
Mikassa sues Bloomingdale for breach of contract. Bloomingdale counterclaims against Mikassa for breach of contract. Discuss the merits of each of the actions as well as the potential damages for each.
QUESTION 3
(20 Points)
When Barbara had difficulty making the monthly payment on her car, she and Steve the car dealer orally agreed to reduce the monthly payment from $600 to $300 a month and extend the remaining payment period from 10 to 20 months.
Barbara made three $300 payments. Then Steve changed his mind. He insisted that Barbara make up the $900 in arrearages immediately and resume payments in the amount of $600 a month.
Advise Barbara.
QUESTION 4
(20 Points)
Because Island was an isolated community, suppliers to contractors were in the habit of giving price protection - that is, keeping the price constant long enough to give the winning bidder enough time to purchase adequate materials for a particular construction contract even though the contract provided that the sale price would be the posted price at the time of delivery. Bill the and Stan’s Brickyard had operated on a price protection basis for years despite the terms of the contract.
Yesterday Bill called Stan to order bricks for construction. Stan announced that he would not honor the bid price - $6 per unit. A raw material shortage had so increased his costs that, in order to maintain the same profit margin, Stan had to increase his price to $8 per unit.
There is no statement in the written bid form relating to price protection.
Advise Bill.