Teal Set
of Sales Problems
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by Professor Eric E. Johnson, University of North Dakota School of Law

Note to students: This problem set is finalized for 2017.
[Updated November 21, 2017 to add in answers for multiple-choice questions 3 and 1. Nothing else was changed on November 21, 2017.]

Topic 2. Fraud and Misrepresentation

Problem 201: You are an investor who has made a great deal of money buying undervalued consumer products companies. In evaluating the purchase of Krystal Kazoo Company, you hired attorney Carl Cantwell to review products liability lawsuits pending against the company and opine on the possible legal liability for the company represented by those lawsuits. After a week, Cantwell sent you an opinion letter concluding that there was no significant liability exposure posed by the pending suits.

It turns out that after you asked Cantwell to do this for you, Cantwell assigned a first-year associate to work up the analysis. That associate, who completely misunderstood the law of products liability, did a terrible job. And Cantwell never double-checked the first-year associate’s work. Competent analysis would have concluded that the lawsuits pointed to a substantial chance of large monetary judgments against the company that could erase all or nearly all of the company’s value.

In the end, you lost almost your entire investment in the purchase of Krystal Kazoo because of the crushing liability burden of the products-liability lawsuits.

Do you have a good fraud claim against Carl Cantwell’s firm? Is there some other cause of action that might work?

ANSWER: No, you don’t have a good fraud claim against Cantwell or his firm because he was not intending to gain a benefit from your relying on the wrong statement. But the cause of action of negligent misrepresentation should work, as a client suing an attorney for negligently prepared information that was relied upon to make an investment-gone-wrong is within the core of what is actionable under the banner of negligent misrepresentation.

Topic 3. History, Purposes, and Basic Structure of the UCC

Problem 301: You are a law clerk for the Supreme Court of Minnesconsin. Your judge has asked you to draft an opinion in Ramirez v. Lampey, which will need to interpret the word “conspicuous” as it is used in Article 2, section 2-909 of the Minnesconsin Commercial Code. (The Minnesconsin Commercial Code is that state’s adoption of the Uniform Commercial Code.)

There are cases from various states, including Arkassippi, Nevizona, Connectachusetts, Floribama, and Wyorado, that say that in various contexts of interpreting contracts, statutes, and administrative regulations, “conspicuous” should be interpreted to mean that something “stands out from its context.”

A provision of Article 1 of the Minnesconsin Commercial Code, however, says that “conspicuous” means “so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed it.”

Which definition should the court use to interpret “conspicuous” in §2-909? Why?

ANSWER: We should interpret “conspicuous” by its definition in the Minnesconsin Commercial Code, because that’s how codes work. We look at how the code defines its own words.

Topic 4. Hierarchy of Construction, Gap-Filling, and Supplementation by Other Law

NOTE THE FOLLOWING FACTS:
Cut’n’Run v. Abbingdale Acres

Retailer Cut ‘n’ Run Convenience Stores and Abbingdale Acres, a supplier of food and dairy products, are both Texlahoma-based businesses that have done many deals in the past. Now, Cut’n’Run is suing Abbingdale Acres over a multi-million-dollar contract that had Abbingdale supply milk to all of Cut’n’Run’s Texlahoma stores over a five-year term, which began two years ago. The parties dispute whether Abbingdale or Cut’n’Run is supposed to pay for increased shipping costs caused by rising fuel prices. There is a written agreement for the deal, but nothing is said in the document about the issue of increased shipping costs one way or the other.

^mc 3. Consider the following facts that might be established at trial:

I. In all other dealings between the two companies – from ice cream to packaged snacks – Abbingdale has always absorbed increased shipping costs as a matter of course.

II. Over the past two years of this milk deal, Cut’n’Run has twice paid for increased shipping costs out of its own budget.

III. In the retail-convenience industry, retailers virtually always absorb increased shipping costs.

Which of the following correctly orders the above facts from most important to least important in establishing the terms of the deal about which Abbingdale and Cut’n’Run are now litigating?

(A) I, II, III

(B) II, I, III

(D) III, I, II

(E) III, II, I

ANSWER: The answer is (B).

Problem 401: Today, A.A. Abernathy Construction LLC signed a contract with Lolo Lumber Company that says only the following:

AA Abernathy agrees to purchase from Lolo and Lolo agrees to supply 1,000 8-foot pine 2x4s for framing for a total of $2,000.

The agreement says nothing about when the lumber will be supplied, whether it will be delivered to a job site or held for pick up, or what the payment terms are. These parties have never contracted before. Assume there is no usage of trade applicable here. Is this deal enforceable, and if so how will the terms regarding delivery and payment be determined?

Hint: See Hull p. 22.

ANSWER: This deal is enforceable and UCC gap fillers will determine the obligations with respect to delivery and payment. (According to the gap fillers, delivery will be at the seller’s place of business within a reasonable time and payment will be due when the goods are tendered.)

Problem 402: Hexetron Scrapbooking Supplies Company has a provision in its regular sales agreement that states:

The allowable time period for bringing any legal actions to enforce any right or obligation in this agreement, including for breach, shall be five years from the date the cause of action has accrued.

What is the effect of this provision? Can a party to an agreement containing this provision successfully bring an action for breach four years and six months after a breach occurred?

See §§ 1-302, 2-725(1).

ANSWER: The provision does not succeed in extending the statute of limitations, and a party cannot bring an action 4 years and 6 months after breach, because UCC 2-275(1) says that the time cannot be extended beyond four years, even by agreement. That trumps the general provision of 1-302 that allows parties to vary UCC provisions by agreement.

Problem 403: Hexetron Dental Amalgams Corp has a provision in its regular purchasing agreement with suppliers that states:

§67.8. If Hexetron rightfully rejects any shipment of goods, Hexetron shall not be obligated to exercise any greater care over the goods than is specified in the 2007 Guidelines of the Joint Commission of Dental Industry Suppliers and Purchasers.

The 2007 Guidelines of the Joint Commission of Dental Industry Suppliers and Purchasers holds that goods need not be held in a temperature controlled environment, even though temperature fluctuations can sometimes lead to spoliation of goods covered by the guidelines.

What is the effect of §67.8? Can Hexetron fulfill its obligations with regard to rightfully rejected goods by holding them in a non-temperature-controlled environment?

See §§ 1-302, 2-602(2)(b).

ANSWER: The provision is effective, and Hexetron can fulfill its obligations by complying with the 2007 Guidelines. § 1-302 allow the parties to set the standard so long as it is not manifestly unreasonable, and this isn’t manifestly unreasonable.

Problem 404: The Hexetron Tool-of-the-Month Club sells five-year memberships whereby a customer agrees to buy 60 different tools, one delivered each month, for an aggregate price of $2,345. Hexetron does all its sales over the telephone, getting each customer to agree to the deal orally. The following is read over the phone and a customer must agree to it orally for the deal to be concluded:

Customer and Hexetron agree that this contract is binding and enforceable without being presented in writing and without being signed, and Customer and Hexetron specifically agree that the statute of frauds provision of section 2-201(1) of the Uniform Commercial Code shall not apply to this transaction.

Hexetron then follows up with a written confirmation that includes the above provision. What is the effect of this provision? Is the deal enforceable?

See §§ 1-302, 2-201(1), and Official Comment 1 to §1-302.

Topic 5. Choice of Law and CISG Applicability

Problem 501: A contract between Blastodyne Safety Wholesale and Hrenka-Hübner Robotic Systems concerns the sale of emergency stop switches. It specifies that Virginia law governs the contract and selects Kentucky as the forum. Blastodyne Safety Wholesale is a Delaware corporation with its headquarters in North Carolina. The contract was negotiated on Blastodyne Safety Wholesale’s behalf out of its Kentucky office. Hrenka-Hübner Robotic Systems is a Kentucky corporation with its headquarters in Kentucky, and this contract was negotiated and agreed to by employees in its headquarters office. The goods being purchased are to be shipped to and used by Hrenka-Hübner Robotic Systems’ operations in Kentucky, North Carolina, South Carolina, and Virginia.

In the event there is litigation about this contract, what substantive law will be applied to determine the parties rights and obligations under the contract?

See § 1-301.

ANSWER: Virginia law will govern, because that’s what the parties picked, and 1-301 allows them to make that choice, as long as the state bears a reasonable relation to the transaction, and Virginia does since some goods will be used there.

Problem 502: A contract between True North Industrial and Hrenka-Hübner Robotic Systems concerns the sale of plexiglass shielding. It specifies as follows:

The parties agree that that Kentucky law governs the contract and that in the event of any dispute, the forum shall be Kentucky.

True North Industrial has its headquarters in Winnipeg, Manitoba, Canada. It also has a research and development office in Kentucky. This contract was negotiated on True North Industrial’s behalf out of its Winnipeg office. Hrenka-Hübner Robotic Systems is a Kentucky corporation with its headquarters in Kentucky, and this contract was negotiated and agreed to by people in the Kentucky headquarters office. The goods being purchased are to be shipped to and used by Hrenka-Hübner Robotic Systems’ operations in Kentucky and Virginia.

In the event there is litigation about this contract, what substantive law will be applied to determine the parties’ rights and obligations under the contract?

See § 1-301 and CISG Articles 1, 2, and 10.

ANSWER: The CISG applies at the threshold, because [go through Arts 1, 2, & 10]. As for the parties’ choice, the CISG allows parties to choose, but the parties chose CISG to be applicable, because they chose Kentucky, and Kentucky is part of the USA, which is a CISG country.

If the parties didn't want CISG substantive rules, they should have said, “… Kentucky law as applicable to contracts wholly negotiated and performed entirely within Kentucky.” Even better they could specifically disclaim the CISG: “And the parties agree that the CISG does not apply.”

Problem 503: A contract between True North Industrial and Jennifer Jardelsmohr concerns the sale of safety goggles. It specifies as follows:

The parties agree that that Kentucky law governs the contract and that in the event of any dispute, the forum shall be Kentucky.

True North Industrial has its headquarters in Winnipeg, Manitoba, Canada. It also has a research and development office in Kentucky. Jennifer Jardelsmohr contacted True North Industrial through their toll-free number and said she was ordering the safety goggles for her and her family to use while operating a chain saw to cut down overgrown trees in their backyard. The call was received at True North Industrial’s Winnipeg office. True North Industrial shipped the goggles from its Winnipeg warehouse to Jennifer’s home in Kentucky.

In the event there is litigation about this contract, what substantive law will be applied to determine the parties’ rights and obligations under the contract?

See § 1-301 and CISG Articles 1, 2, and 10.

ANSWER: The CISG will not apply, because these goods are for personal/household use, and Article 2 of the CISG says it doesn’t apply to goods bought for personal/household use. The exception doesn’t apply, because the seller knew about this.

Topic 6. Scope and Applicability of Article 2

^mc 1. In the case of Swift v. MWC Water Supply Corp., a residential consumer, Swift, is suing a corporation, MWC, under a contract by which MWC agreed to sell water to be delivered by underground pipe to Swift. According to Swift’s complaint, MWC breached the contract by failing to supply water for a week, leaving Swift unable to cook, clean, or bathe at home.

Note that UCC § 2-105 provides, in part:

(1) “Goods” means all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities (Article 8) and things in action. “Goods” also includes the unborn young of animals and growing crops and other identified things attached to realty as described in the section on goods to be severed from realty (Section 2-107).

Note that the New Oxford American Dictionary states the definition of “goods” as follows:

merchandise or possessions: imports of luxury goods

Note also that uncontradicted expert testimony establishes that within the water industry, when the term “goods” is used in a contract, it is understood to not include water flowing through a pipe.

An initial issue facing the court is whether UCC Article 2 governs this transaction. Which of the following would represent the best analysis for the court to include in its opinion?

(A) “This court determines that flowing water is a ‘good’ under UCC Article 2. We must adhere to the definition in § 2-105, which defines ‘goods’ as things that are moveable at the time of identification. The water that is the subject of this contract for sale was moveable at the time of its identification to the contract, and therefore it must be included within the scope of ‘goods’ under the UCC; thus UCC Article 2 governs this transaction.”

(B) “This court determines that water is a ‘good’ under this contract because we must interpret the word ‘good’ according to the UCC’s policy of protecting consumers from abuse by merchant sellers. In this case, by construing the water to be a good, Swift benefits from various of the UCC’s provisions. Therefore, as to this contract, water is a ‘good,’ and UCC Article 2 governs this transaction.”

(C) “Water is embraced within ‘goods’ under the UCC because the court’s job in interpreting the UCC is to use the commonly understood sense of its language, for which resort to a dictionary definition is appropriate. The New Oxford American Dictionary defines goods as ‘merchandise or possessions.’ This court determines that water fits within this definition. Therefore, the subject of the contract is goods, and UCC Article 2 governs the transaction.”

(D) “This court determines that water is not ‘goods’ under the UCC. Upon the evidence submitted to it, this court finds that the common-sense definition of goods does not include water. And this court is bound to construe the provisions of the UCC first according to common-sense before resulting to the default definitions provided by the UCC. Therefore, the common law, and not the UCC, governs this transaction.”

(E) “Uncontradicted expert testimony has established that flowing water is understood not to be embraced within the term ‘goods’ as it is used by the relevant industry in written contracts. Based on this, the court finds that the relevant usage of trade is to exclude water from goods, and therefore, with regard to the transaction before the court, water is not goods and the common law and not the UCC governs this transaction.”

ANSWER: The answer is (A).

Problem 601:

My Bear Lair is a store where children can watch as a custom-made teddy bear is manufactured for them by the Bear-ma-tron. The Bear-ma-tron is made to look like one giant machine, but it actually is a series of robotic manufacturing modules bolted together with fancifully shaped fiberglass panels painted in bright colors.

My Bear Lair entered into a contract with Hexetron Automated Plush Systems LLC to purchase $487,000 worth of robotic manufacturing modules and to install them the new My Bear Lair store in The District, a new upscale shopping mall in a tourist-heavy part of San Frangeles. For My Bear Lair, the installation was highly important, since the modules must be set-up exactly the right way for the fiberfill, accessories, and various teddy-bear components to move from one machine to the other in a synchronized way. Calibrating the software to make the machines work together is very complicated and requires a highly competent process engineer. Testing is also key, so that manufacturing-process problems can be found and overcome through further calibration.

When the modules were delivered to the My Bear Lair store in The District, Hexetron workers merely arranged the machines according to the blueprints and plugged them in so that they would power up. Then the Hexetron people left. When the My Bear Lair employees stocked the system with parts and materials so the Bear-ma-tron could make bears, they could not get a single teddy bear to emerge. Fiberfill spewed from gaps between modules, materials jammed, and components got stuck as they travelled through the system. Children cried.

In a dispute between My Bear Lair and Hexetron Automated Plush Systems over this deal, does the UCC or the common-law govern? What arguments are plausible?

ANSWER: Predominant purpose test can be said to favor the application of the common law, because My Bear Lair thought service was key. The gravamen test only favors application of the common law, since that’s the whole basis of the dispute. On the other hand, if the Bear-ma-tron is one good, then maybe setting it up is really completing the manufacture of it, in which case it’s all about the good, and not about service. [Other arguments can be made as well, on both sides.]

Topic 7. Basic Formational Rules, Offer and Acceptance, Firm Offers

For Problems 701-703

· Look at: 2-104(a), 2‑205

· Background: Mitsutatchi Motors, U.S.A. of Toledo, Ohio is a major motorized equipment manufacturer and a leading seller of forklifts. Vayatom U.S.A. of Lexington, Kentucky uses forklifts constantly in its business and has a dedicated executive in charge of purchasing them and making sure they are properly operated and maintained.

Problem 701:

Mitsutatchi Motors, U.S.A. sent Vayatom a firm offer for between 10 and 100 forklifts (model no. FGFL-800XL) at $28,000 each. The offer was signed, and it said on its face it was irrevocable and would expire in 60 days. Mitsutatchi then said they revoked the offer. Can Vayatom accept the offer and enforce it as a contract?

ANSWER: This will be an enforceable firm offer under 2‑205, because they are both merchants (see next paragraph), the writing was signed according to the facts, and the offer says on its face that it will be held open. The time period of 60 days does not exceed 2‑205’s three-month cap, so there’s no problem with duration.

Mitsutatchi is a merchant under 2-104(a) because as a major manufacturer that makes forklifts, they deal in goods of the kind.

Problem 702:

Mitsutatchi Motors, U.S.A. sent Vayatom a firm offer for between 10 and 100 forklifts (model no. FGFL-800XL) at $28,000 each. The offer was signed, and it said on its face it was irrevocable and would not expire for three years. Mitsutatchi then said they revoked the offer. Can Vayatom accept the offer and enforce it as a contract?

ANSWER: Yes – as long as they do so within three months. This will be an enforceable firm offer under 2‑205 – the analysis is the same as above, with the only difference being that it will not be enforceable for the full term. Firm offers without consideration made enforceable via 2‑205 are limited to being enforceable for three months.

Problem 703:

Mitsutatchi Motors, U.S.A. and Vayatom did a deal, evidenced by a signed writing, where, for a $3,000 fee, Mitsutatchi would hold open an irrevocable offer for three years for between 10 and 100 forklifts (model no. FGFL-800XL) at $28,000 each. Can Vayatom accept the offer after one year and enforce it as a contract?

ANSWER: Yes. The offer is supported by consideration, so it is independently enforceable as a contract –what is commonly called an option contract.

^mc 6A. There was no writing evidencing Wendy's agreement to sell a $1,200 chair to Lilla. Which of the following would not be a good argument that the contract should be enforced despite the statute of frauds?

(A) The chair was specially manufactured for Lilla and no one else would want to buy it.

(B) Lilla relied to her detriment on Wendy's promise to sell the chair.

(D) Lilla already paid $1,200 to Wendy.

(E) Lilla already accepted delivery of the chair.

ANSWER: The answer is (C). There’s no exception for written admissions. (There is an exception for admission in court proceedings, but the admission in (C) is not in a court proceeding).

Topic 8. Battle of the Forms

For Problems 801-A thru 801-C

· Look at: 2-206, 2-207

· Background: Blastodyne is a major demolition firm. Octan Chemicals is a leading manufacturer of explosives and other industrial chemical compounds. Both companies are headquartered in and operate almost entirely within the United States.

Problem 801-A:

Blastodyne sent a purchase order for 200 kg of TNT to Octan Chemicals. The purchase order provided that any dispute under the contract was to be litigated in the courts of New Jersey under the provisions of New Jersey law, and the purchase order specified that the TNT be warranted as defect-free for two years. Octan sent an order acknowledgment to Blastodyne for 200 kg of TNT with language specifying that the material would be supplied with no warranties of any kind. The order acknowledgement said nothing about dispute resolution.

Is there a contract? If so, what are its terms with regard to warranties and dispute resolution?

ANSWER: Yes, there is a contract because under 2-207(1), the terms in the offer and acceptance don’t need to be exactly the same.

The warranty terms in the PO and OA are different terms, so according to the judicially-crafted majority-adopted knockout rule, neither controls the contract. Instead, gap-fillers come in. Since there are no facts suggesting gap-fillers on the basis of course of dealing or usage of trade, we apply the regular UCC provisions on warranties. Thus, the TNT has been sold with the implied warranty of merchantability.

The dispute resolution terms in the PO went without any rejection or differing term from Octan. So Octan ended up accepting that as part of the deal when they accepted the offer. (Note that beyond 2-207(1), 2-207 is not implicated here.)

Problem 801-B:

Blastodyne sent a purchase order for 200 kg of TNT to Octan Chemicals. The purchase order provided that any dispute under the contract was to be litigated in the courts of New Jersey under the provisions of New Jersey law and specifying that the TNT be warranted as defect-free for two years. Octan sent an order acknowledgment to Blastodyne for 400 kg of inert clay with language specifying that the material would be supplied with no warranties of any kind. The order acknowledgement said nothing about dispute resolution.

Is there a contract? If so, what are its terms with regard to warranties and dispute resolution?

ANSWER: No, there is no contract, because 400 kg of inert clay is so different from TNT that there’s no plausible acceptance of the deal offered by Blastodyne.

BONUS: Assuming that the parties perform – Octan sends the clay and Blastodyne accepts, is there a contract? If so, what are its terms with regard to warranties and dispute resolution?

ANSWER: Now there’s a contract by conduct, so we go to 2-207(3) for the terms, and the writings don’t seem to agree on anything, so we just use gap-fillers, and clay is sold with the implied warranty of merchantability, and there’s court access for disputes.

Problem 801-C:

Blastodyne sent a purchase order for 200 kg of TNT to Octan Chemicals. The purchase order provided that any dispute under the contract was to be litigated in the courts of New Jersey under the provisions of New Jersey law and specifying that the TNT be warranted as defect-free for two years. Octan shipped 200 kg of TNT without sending an order acknowledgment. After discovering they had neglected to send an order acknowledgment, Octan sent Blastodyne an order acknowledgment stating that the material was supplied with no warranties of any kind.

Is there a contract? If so, what are its terms with regard to warranties and dispute resolution?

ANSWER: Yes, there’s an offer in writing and an acceptance by conduct (2-206).

Are there warranties? Yes, because the contract was made (when Octan accepted by conduct) on the terms of Blastodyne’s offer, which included warranties.

For Problems 802-A and 802-B

· Look at: 2-206, 2-207

· Background: Hrenka-Hübner USA is small-arms manufacturer in the United States. It uses steel as a principal component in the products that it makes and sells. Monongahela Steel is a steel manufacturer in the United States.

Problem 802-A:

Hrenka-Hübner sent a purchase order for 1 metric ton of domestically sourced steel to Monongahela Steel. The purchase order included standard terms and conditions providing that consequential damages would be available for seller’s breach. Monongahela Steel sent back an order acknowledgement with standard terms and conditions providing that the steel would be domestically sourced, that consequential damages were excluded, that Hrenka-Hübner would pay by wire transfer within 30 days, and that all disputes would be settled by binding arbitration conducted by the World Federation of Arbitration. The steel is shipped and paid for.

Is there a contract? If so, what are its terms with regard to available damages, payment, and dispute resolution?

ANSWER: Yes, there is a contract because under 2-207(1), the terms in the offer and acceptance don’t need to be exactly the same.

The damages terms in the PO and OA are different terms, so the knockout rule says neither controls the contract. Instead, gap-fillers come in, so consequential damages will be available under 2-712, et seq.

The payment terms and dispute resolution terms are best described as additional. So we go to 2-207(2), which tells us additional terms become part of the contract unless certain circumstances apply.

The only colorable circumstance in this case for avoiding the additional terms is 2-207(2)(b), that the terms materially alter the deal. The payment doesn’t look like it materially alters the deal. But arbitration arguably does. (Courts often see arbitration terms as a material alteration.) So the payment terms probably stays in and the arbitration provision is likely not part of the contract.

Problem 802-B:

Is there a contract? If so, what are its terms with regard to available damages, payment, and dispute resolution?

ANSWER: This time there’s no contract on the basis of the writings, since both the PO and OA said they were expressly made conditional on the assent of the other party to all terms. Neither party assented to all the terms, so the writing cannot form the contract.

But the there is conduct evidencing a contract. So we go to 2-207(3) for the terms.

Applying 2-207(3), we see that wherever the writings agree, that’s part of the contract. That means the domestically-sourced requirement is part of the contract.

Everything else is irrelevant, and gap-fillers fill in the rest.

Topics 9-12. Statute of Frauds with Sales of Goods, Basic Contract Interpretation, Gap Filling, and Parol Evidence Rule

NOTE THE FOLLOWING FACTS:
Cut’n’Run v. Abbingdale Acres

^mc 4. Cassandra, an executive of Cut’n’Run, wants to testify that the CEO of Abbingdale Acres told her orally, right before the companies signed the five-year milk deal, “You know Cassandra, we will of course absorb any increased shipping costs caused by increased fuel prices – that’s what I understand this deal to mean.” Can Cassandra testify about this at trial?

(A) Yes, because it is relevant evidence that, on these facts, is admissible notwithstanding the UCC’s parol evidence rule.

(B) Yes, because there is no parol evidence rule under the UCC.

(C) No, because the UCC’s parol evidence rule bars the introduction of oral testimony in cases involving written contracts.

(D) No, because the UCC’s statute of frauds bars the introduction of oral testimony in cases involving written contracts.

(E) No, because the oral evidence purports to vary the terms of the written agreement.

ANSWER: The answer is (A).

Problem 1001-A:

Hrenka-Hübner in Texas, a small arms manufacturer, did a deal with Vayatom Industries, in Kentucky, for the purchase of several semi-automatic rifles for Vayatom’s security force. The deal was written up as a “term sheet,” which both parties signed, with a description of items, prices, and some other things. This is what the term sheet says – in handwriting – about delivery:

Delivery: at the loading dock, in cases

Hrenka-Hübner contends “the loading dock” means Hrenka-Hübner’s loading dock in Texas. Vayatom contends it means Vayatom’s loading dock in Kentucky. Both parties want to testify about what was said during negotiations because they say that this will explain what was meant by “loading dock.” How should a court resolve this? What evidence can be considered?

ANSWER: The court should hear the evidence because the term is ambiguous, and the aim in contract interpretation is to give effect to the intent of the parties. And there’s no rule against letting this relevant evidence in to illuminate the parties’ intent.

Problem 1001-B:

Delivery: at the loading dock, in cases

Additionally, the bottom of the term sheet has this, in printing:

Deliveries are at buyer’s place of business.

Hrenka-Hübner contends “the loading dock” means Hrenka-Hübner’s loading dock in Texas. Vayatom contends it means Vayatom’s loading dock in Kentucky. Both parties want to testify about what was said during negotiations because they say that explains what was meant by “loading dock.” How should a court resolve this? What evidence can be considered?

ANSWER: The term sheet says expressly that delivery is at buyer’s place of business. So that’s where it should be. Expressed written terms that are unambiguous control over what was said. We always start by looking in the four corners of the document.

Problem 1001-C:

Delivery: at the seller’s loading dock, in cases

The bottom of the term sheet has this:

Deliveries are at buyer’s place of business, at the loading dock.

Hrenka-Hübner contends “the loading dock” means Hrenka-Hübner’s loading dock in Texas. Vayatom contends it means Vayatom’s loading dock in Kentucky. How should a court resolve this? What evidence can be considered?

ANSWER: The term sheet is ambiguous. Delivery at seller’s and buyer’s are both reasonable interpretations. But, the handwritten terms control, so delivery is at seller’s place of business.

Problem 1001-D:

Delivery: at the loading dock, in cases

The bottom of the term sheet has this:

This contract document contains the full and complete expression of the parties with respect to this deal and is a fully integrated contract.

Hrenka-Hübner contends “the loading dock” means Hrenka-Hübner’s loading dock in Texas. Vayatom contends it means Vayatom’s loading dock in Kentucky. Both parties want to testify about what was said during negotiations because they say that explains what was meant by “loading dock.” How should a court resolve this? What evidence can be considered?

ANSWER: The court should hear the parol evidence. The parol evidence rule does not bar this evidence, because it’s not varying or adding to the terms of the contract. The contract is ambiguous on the delivery place, so we can always have parol evidence to eliminate ambiguities.

Problem 1002-A:

Bethany Banks is purchasing a 1961 Ferrari GT California from Stevie Stockwell. They do a deal for the sale of the car for $400,000. The two of them working together type up the following on an otherwise blank piece of paper:

September 10, 2017

‘61 Ferrari GT California

in Parksville, Texlahoma

$400,000

Is the contract for sale enforceable?

ANSWER: No. Enforcement of this contract is barred by the statute of frauds. The writing doesn’t evidence the contract, and it isn’t signed.

Problem 1002-B:

Bethany Banks is purchasing a 1961 Ferrari GT California from Stevie Stockwell. They do a deal for the sale of the car for $400,000. They sign the following typed-up paper, otherwise blank, to memorialize their deal:

September 10, 2017

Sale of:

‘65 Ferrari GT California

in Parksville, Texlahoma

at agreed-upon price

Bethany Banks

Stevie Stockwell

Is the contract for sale enforceable?

ANSWER: Yes, because the statute of frauds is satisfied by this writing, since it evidences the contract and it is signed. As to the difference between 1961 and 1965, 2-201 says that a writing is not insufficient because it misstates a term. So it’s still sufficient.

Topics 14-22. Warranties

Background: Hexetron Aerospace, a U.S. business, is a leading aerospace manufacturer. WZX FM is a radio station that plays hit music. UKEA is a large retailer of Norwegian-styled furniture.

Problem 1401-A:

Hexetron Aerospace’s Hot-Air Balloon Systems Division sells UKEA a Fresh Aire V hot-air balloon. UKEA tries to operate the balloon for promotional purposes at the city balloon festival, but the fabric is too heavy for the balloon to stay aloft in most ordinary weather conditions, and the stitching is too weak to keep the balloon safely structurally intact. Does UKEA have a good warranty claim?

ANSWER: Yes, there’s a good warranty claim here. There’s an implied warranty of merchantability because Hexetron is a merchant. The ordinary purpose of a balloon is to float, and this one doesn’t. It is also a breach of the implied warranty of merchantability for the balloon to be too weak to stay structurally intact. Staying intact is something that ordinary goods are expected to do.

Problem 1401-B:

Hexetron Aerospace’s Hot-Air Balloon Systems Division sells UKEA a Fresh Aire V hot-air balloon. UKEA never unpacks the balloon, deciding not to attend the city balloon festival. Instead, they sell it to radio station WZX for them to use for promotional purposes and to give rides to call-in contest winners. But the radio station discovers that the fabric is too heavy for the balloon to stay aloft in most ordinary weather conditions, and the stitching is too weak to keep the balloon safely structurally intact. Does WZX have a warranty claim?

ANSWER: For IWoM, yes, probably as to Hexetron, since they are a merchant. But no as to UKEA, since they are not merchants with respect to hot-air balloons. With regard to the IWoFfaPP, maybe yes as to UKEA, since they were aware of WZX’s purpose.

Problem 1401-C:

Hexetron Aerospace’s Hot-Air Balloon Systems Division sells WZX a Fresh Aire V hot-air balloon after WZX asks for a balloon that will work well for the city balloon festival. The fabric is too heavy for the balloon to stay aloft given the atmospheric conditions prevailing at the city balloon festival. Does WZX have a warranty claim?

ANSWER: Probably yes as to IWoFfaPP, since WZX expressly asked for a balloon that would work well at the festival, so Hexetron knew about that, and they gave them a balloon that doesn’t work for that. We are assuming that there is reliance here, which is necessary for the IWoFfPP.

Presumably yes as to the IWoM. The IWoM exists because Hexetron is a merchant. And the warranty is implied unless disclaimed, which this wasn’t. And it sounds like it was breached because a balloon that can’t take off from a place like the city balloon festival probably is not merchantable.

Problem 1401-D:

[Continued from previous]: Unable to use the balloon at the city balloon festival, WZX takes it to a place with a different elevation and colder air. Then they take the balloon aloft. The weak stitching causes the balloon to come apart in the air, causing personal injury to radio station employees. Does WZX have a warranty claim? Do the employees?

ANSWER: Hexetron is a merchant of balloons, so there is an implied warranty of merchantability, and it is breached by a balloon that falls out of the sky, because the ordinary purpose of balloons is to stay in the sky. WZX has a warranty claim as the buyer/owner of the balloon, and the employees do maybe, depending on whether this jurisdiction has UCC 2-318’s A, B, or C alternative. Yes under B or C, but no under A.

NOTE THE FOLLOWING FACTS FOR QUESTIONS 5 AND 6:

VovolTrac is a manufacturer of vehicle trailers based in Elkhart, Indiana, selling about 2000 trailers per year. They do many different kinds of sales. Just last month, VovolTrac sold a VVB‑60 boat trailer it manufactured to George Yinkan for $4000, with delivery taken at VovolTrac’s manufacturing facility in Elkhart. VovolTrac also sold 10 VVB‑60 boat trailers it manufactured to the Canada Border Services Agency (CBSA), a Canadian government agency responsible for border enforcement. Those trailers were transported by a third party to a CBSA facility in Ontario, Canada. And also last month, VovolTrac sold a metal-bending machine – which it had used for years to bend metal as part of its manufacturing operations – to Ridgefield College of Technology (Ridgefield Tech), a private university with a very strong mechanical engineering program. In making the sale to Ridgefield Tech, the VovolTrac’s chief operations officer Linda Rezerna explained that VovolTrac had a great amount of knowledge and expertise in metal bending and metal bending machines. Linda even suggested – without making an explicit promise – that if Ridgefield Tech bought the machine, VovolTrac employees would be able to come to Ridgefield Tech to explain how to use it.

^mc 5. Based on the facts given, and assuming no other facts, which sales would include a warranty of title?

(A) the sales to George Yinkan, CBSA, and Ridgefield Tech

(B) the sales to George Yinkan and CBSA, but not Ridgefield Tech

(D) the sales to Ridgefield Tech and CBSA, but not George Yinkan

(E) not any of the sales to George Yinkan, CBSA, or Ridgefield Tech

ANSWER: A.

^mc 6. Based on the facts given, and assuming no other facts, which sales would include an implied warranty of merchantability?

(A) the sales to George Yinkan, CBSA, and Ridgefield Tech

(B) the sales to George Yinkan and CBSA, but not Ridgefield Tech

(D) the sales to Ridgefield Tech and CBSA, but not George Yinkan

(E) not any of the sales to George Yinkan, CBSA, or Ridgefield Tech

ANSWER: A.

± ± ±

Topics 23-25. Unconscionability, Commercial Impracticability, Frustration of Purpose

^mc 7. In which situation will complete destruction of the good or goods before delivery (and before risk of loss has passed to the buyer) completely excuse performance?

(A) The contract is for “10 metric tons of industrial grade aluminum.”

(B) The contract is for “2,000 units of Team USA Luge t-shirts in sizes and design as specified on the attached list.”

(D) The contract is for “the Pontiac Trans Am used to portray KITT in the final scene of Season 1, Episode 5 of the original Knight Rider TV series.”

(E) The contract is for “luxury office furnishings suitable for three offices and one conference room, such rooms being as shown on the attached blueprint.”

ANSWER: D.

Problem 2301:

Hexetron Home Laundry Systems Corp contracted with leading social media companies and a big-data consulting firm to create a marketing strategy to drive at-home sales. First, Hexetron compiled a list of relatively uneducated parents who had adolescent children and who would were likely to be particularly vulnerable to overpaying for a washing machine following exposure to guilt-inducing social-media posts. Then, Hexetron paid to get targeted parents to see social-media posts about neglectful parents who don’t adequately wash their children’s clothes, thereby exposing their children to being socially ostracized for bad odors. Next, using sophisticated data algorithms, Hexetron used social media to spur social acquaintances of the adolescent children of targeted parents to tease those adolescent children about bad odors. Then, Hexetron used relationships with providers of in-home electronics such as “smart speakers” to analyze in-home spoken communications between family members. When this analysis confirmed that an adolescent child had communicated in an emotionally fraught way with a targeted parent, Hexetron had a sales associate knock on the door to offer to sell a Hexetron Ultra 5000 washing machine. In exactly this way, Hexetron was able to get a signed contract to sell an Ultra 5000 to Bill Borvensdorn for $10,000, despite the fact that the Ultra 5000’s actual retail value is about $350. The deal also obligates Bill to purchase a year’s worth of detergent for $200, the actual retail value of which is about $180. A few days later, once Bill got some emotional distance from his child’s social crisis, he realized what a terrible deal he had made. Can Bill avoid the contract on the basis of unconscionability? Why or why not? What potential remedies could a court consider ordering?

ANSWER: Yes, Bill can probably avoid this contract on the basis of unconscionability. The contract can be considered procedurally unconscionable since the circumstances surrounding contract formation were such that, through emotional coercion, they prevented Bill from accurately perceiving the bargain. And the fact that Hexetron targeted Bill for his lack of education also tends to show procedural unconscionability. The deal is substantively unconscionable because a $350 washing machine sold for $10,000 is so one-sided and unfavorable to Bill it shocks the conscience. With both procedural and substantive unconscionability established, Bill should be able to avoid the contract. A court could void the contract as a whole, or it could void only the unconscionable part. Here, since the detergent is not so overpriced it shocks the conscience, a court could hold that the detergent part of the deal is not unconscionable, and thus the court could order the detergent part of the deal enforced, while still excusing Bill from paying $10,000 for the Ultra 5000.

Problem 2401

Hurricane Roscoe, Part 1:

The weather says Hurricane Roscoe will make landfall in two days. Bob contracts to purchase 30 sheets of plywood from Sally to board up the windows on Bob’s building, delivery set for the next day.

When Sally goes to procure the plywood from the wholesaler, the price has gone up, because of the hurricane, by 2000%. Sally wants to avoid the contract. Can she?

ANSWER: No, assuming it’s the hurricane that caused the price increase. She can't under §2-613 because §2-613 is only for goods identified to the contract, and the plywood wasn't. Under §2-615 she can't because it was known the hurricane was coming, therefore the non-occurrence of a hurricane wasn't a basic assumption at the time of contracting.

Problem 2402

Hurricane Roscoe, Part 2:

Hurricane Roscoe causes massive damage to a custom-restored 1946 Studebaker automobile that car collector Brenda had contracted to purchase from classic-car broker Selena for $860,000. Brenda was willing to pay so much for the car because it had been prominently featured in the blockbuster movie Fatal Death (tagline: “Murder’s never been so deadly.”) The car was completely flooded and a collapsing roof caused by the winds smashed the back half of the car. Selena wants to avoid the contract. Can she?

ANSWER: No. Under §2-613, since the loss is not total, Brenda has the option of inspecting the car and taking it at a lower price to reflect the damage. But if Brenda wants to avoid the contract, she can. UCC §2-615 doesn't allow Selena to avoid the contract because it's practicable to give over the damaged car and absorb the discount.

Problem 2501-1

Hurricane Sharona, Version 1:

At 2:03 p.m., the National Hurricane Center issues a hurricane warning saying Hurricane Sharona will veer west and make landfall tomorrow afternoon. Claire contracts to purchase 100 sheets of plywood from Sally to board up the windows on Claire’s building, delivery set for the next morning at 10 a.m. Then, at 2:05 p.m. the National Hurricane Center retracts its warning. (An intern had made the wrong selection from a pulldown menu.) Sally procures the plywood from the wholesaler, puts it on a truck, and sends it out. At 9:30 a.m., Claire calls to cancel the order. Can she avoid the contract?

ANSWER: Probably not. The occurrence of the hurricane was a basic assumption of the contract, and without the hurricane, the buyer's purpose is frustrated. But sticking Sally with the plywood doesn't seem very equitable. It puts Sally in a worse position than pre-contract. This doesn't seem like the rare case for application of frustration of purpose.

Problem 2501-2

Hurricane Sharona, Version 2:

At 2:03 p.m., the National Hurricane Center issues a hurricane warning saying Hurricane Sharona will veer west and make landfall tomorrow afternoon. Claire contracts to purchase 100 sheets of plywood from Sally to board up the windows on Claire’s building, delivery set for the next morning at 10 a.m. Then, at 2:05 p.m. the National Hurricane Center retracts its warning. (An intern had made the wrong selection from a pulldown menu.) At 2:07 p.m., Claire calls to cancel the order. Sally hadn't yet done anything to procure the plywood. Can Claire avoid the contract?

ANSWER: Probably yes. The occurrence of the hurricane was a basic assumption of the contract, and without the hurricane, the buyer's purpose is frustrated. Moreover, in recognizing the excuse, Sally is not put in any worse position than pre-contract. Expectation damages for Sally would be a windfall, seemingly inequitable. This seems like the rare case for application of frustration of purpose.

Topics 26-34. Identification and Delivery, Risk of Loss, Title, Remedies

Sam, Ben, and the DeLorean Time Machine

Background: A “DeLorean Time Machine” is a DeLorean automobile customized to look like a time machine from a famous movie. DeLorean automobiles are quite rare, and the customization involved is elaborate.

Problem 2701-A:

Sam Sandsen of Miami made a contract to sell his DeLorean Time Machine to Ben Boyden of Seattle for $88,000. As part of the deal, Sam had to transport the vehicle to Seattle for Ben to take delivery. Sam decided to transport the DeLorean to Seattle by driving it himself by towing it behind his truck in a covered vehicle trailer. Unfortunately, because Sam was negligent in not correctly hitching the trailer to his truck, the trailer became unhitched in the Rockies in Colorado and the trailer plunged over a cliff, destroying the DeLorean. Who will bear the loss?

ANSWER: Sam will. It was his own negligence.

Problem 2701-B:

Sam Sandsen of Miami made a contract to sell his DeLorean Time Machine to Ben Boyden of Seattle for $88,000. As part of the deal, Sam had to transport the vehicle to Seattle for Ben to take delivery. The contract specifically provided that title transferred to Ben at the moment the DeLorean first left the state of Florida. Sam decided to transport the DeLorean to Seattle by driving it himself by towing it behind his truck in a covered vehicle trailer. Unfortunately, because Sam was negligent in not correctly hitching the trailer to his truck, the trailer became unhitched in the Rockies in Colorado and the trailer plunged over a cliff, destroying the DeLorean. Who bears the risk of loss?

ANSWER: Sam still does. It was his own negligence.

Problem 2801:

Orrin dropped off his Nikon D3 SLR camera at Camera City to get it cleaned and repaired. Allandra, the Camera City associate who took Orrin’s camera and filled out the repair slip told Orrin to come back for it next week, and she set it on the back counter, at which point Allandra’s attention was distracted by some children that were roughhousing and were about to topple a display. Bryce, another Camera City associate, saw Orrin’s camera on the back counter and figured, erroneously, that it was part of Camera City’s pre-owned inventory, and he put a price tag on it and put it in a display case. The next day, the camera was sold by Camera City to Nino. What is Orrin entitled to legally? Can he succeed in a legal action to have Nino return the camera to him? If not, can he prevail in a claim against Camera City?

ANSWER: Nino has good title to the camera, and Orrin cannot prevail in a legal action against him to get it returned. When Orrin dropped the camera off at Camera City, he was entrusting it to Camera City under UCC §2-403(3). Because Camera City ordinarily sells pre-owned cameras, Nino bought in the ordinary course of business under UCC §2-403(2), and thus Camera City passed good title on to Nino. So Nino prevails over Orrin. Orrin does have a remedy against, Camera City, however. He can prevail against Camera City in an action for money damages.

Topic 35. Key Differences Under the CISG

For Problems 3501:

· Background: Mitsutatchi Motores Industriales is a major motorized equipment manufacturer and a leading seller of forklifts. Vayatom Industries uses forklifts constantly in its business and has a dedicated executive in charge of purchasing them and making sure they are properly operated and maintained.

Problem 3501-A:

Mitsutatchi Motores Industriales in Zapopan, Mexico sent Vayatom Industries in Lexington, Kentucky a firm offer for between 10 and 100 forklifts (model no. FGFL-800XL) at ¥2,800,000 each. The offer was signed, said on its face it was irrevocable, and that it would not expire for 60 days. Mitsutatchi then said they were revoking the offer. Can Vayatom accept the offer and enforce it as a contract?

ANSWER: Yes. The firm offer is enforceable. The applicable law here is the CISG, because the CISG is applicable under Article 1(1)(a), since the parties are in two different CISG contracting states and it’s a contract for the sale of goods. The offer is enforceable even though there’s no consideration because it fits CISG Article 16(2)(a)’s requirement of saying it was “irrevocable.”

Problem 3501-B:

Mitsutatchi Motores Industriales in Zapopan, Mexico sent Vayatom Industries in Lexington, Kentucky a firm offer for between 10 and 100 forklifts (model no. FGFL-800XL) at ¥2,800,000 each. The offer was signed, said on its face it was irrevocable, and that it would not expire for three years. Can Vayatom accept the offer and enforce it as a contract?

ANSWER: Yes. The firm offer is enforceable. The analysis is the same as for 3501-A. While the length of the firm-offer period would be too much under UCC 2-205, there’s no duration limit under the CISG.

Problem 3501-C:

Mitsutatchi Motores Industriales in Zapopan, Mexico sent Vayatom Industries in Lexington, Kentucky a firm offer for between 10 and 100 forklifts (model no. FGFL-800XL) at ¥2,800,000 each. The offer was signed, said on its face it was irrevocable, and that it would not expire for three years. Can Vayatom accept the offer after two years and enforce it as a contract?

ANSWER: Yes. The firm offer is enforceable. The analysis is exactly the same as for 3501-B.

Background: Hexetron Aerospace, a U.S. business, is an aerospace manufacturer and a leading seller of jet engines. AeroAtlantique is a European airline based in Toulouse, France. France is a CISG signatory. Canada World Airways is a Canadian airline.

Problem 3502:

Representatives of Hexetron Aerospace attend the Paris Air Show at Le Bourget Airport in France. They do a deal in-person – with a handshake and no signed document – with representatives of AeroAtlantique for the sale of 40 new J-801 turbojet engines for $11 million each. Is this an enforceable contract for sale?

ANSWER: Yes, because oral contracts are enforceable, and the CISG has no statute of frauds.

Problem 3503-A:

Representatives of Hexetron Aerospace attend the Paris Air Show at Le Bourget Airport in France and do a deal with Canada World Airways. The deal is in the form of a 56-page written agreement signed by representatives of both companies. The agreement contains the following:

MERGER CLAUSE: This agreement constitutes the entire agreement between the parties. No waiver, consent, modification or change of terms of this agreement shall bind either party unless in writing and signed by both parties. Such waiver, consent, modification or change, if made, shall be effective only in the specific instance and for the specific purpose given.

The agreement says nothing about warranties. Later, in a dispute, Hexetron claims Canada World Airways agreed orally at the time the deal was made that the warranty on the engines would be limited to replacement of parts with no allowance for the labor cost in making repairs. Can Hexetron introduce evidence of this alleged oral agreement in the litigation?

ANSWER: Yes, because the CISG applies, since the parties are in different CISG countries. And the CISG has no parol evidence rule – so the testimony can come in. The merger clause doesn’t prevent this.

Problem 3503-B:

Representatives of Hexetron Aerospace attend the Paris Air Show at Le Bourget Airport in France do a deal with Canada World Airways. They do a deal in the form of a 56-page written agreement signed by representatives of both companies. The agreement contains the following:

CHOICE OF LAW: This agreement shall be governed exclusively by the law of Texas, USA.

ANSWER: Yes, because CISG applies, since this is a deal between parties in Canada and USA – both CISG countries. And the CISG has no parol evidence rule. All relevant evidence of the intent of the parties is admissible. Texas is part of the USA, and the USA is a signatory to CISG, so Texas law in this case requires application of the CISG.

Topics 36-37. Leases

Background: Hexetron Aerospace is a major aerospace manufacturer and a leading seller of jet engines. Oceanic Airlines is a major international airline. Both are U.S. companies doing business in the U.S.

Problem 3601-A:

Hexetron Aerospace does a deal over the phone with Oceanic Airlines for the lease of 10 new J-906 turbojet engines. The lease term is one year, renewable each year for a total of 10 years. The initial lease payment, due now, before delivery, is $10 million. For each renewal year, an additional $10,000 is due. At the end of the lease, Oceanic may exercise an option to purchase for $10,000. The day after making this deal, Oceanic receives an offer from a rival manufacturer for much less money. Is this an enforceable lease?

ANSWER: It’s not a lease at all – it’s a disguised sale. And in terms of whether it is enforceable, probably not because of the statute of frauds. Since very little time has passed, it doesn’t sound like there’s a reliance interest, and no other exception seems to apply.

Problem 3601-B:

Hexetron Aerospace does a deal over the phone with Oceanic Airlines for the lease of 10 new J-906 turbojet engines. The lease term is one year, renewable each year for a total of 10 years. The initial lease payment, due now, before delivery, is $2 million. For each renewal year, an additional $1.2 million is due. At the end of the lease, Oceanic may exercise an option to purchase for $1 million. At that time, the jet engines are expected to be worth between $1 million and $2 million. The day after making this deal, Oceanic receives an offer from a rival manufacturer for much less money. Is this an enforceable lease?

ANSWER: Yes, this one looks like a lease because at the end of the lease, there will be real economic value in the goods. And the option to purchase is not a token amount of money. No, this does not seem enforceable, because this deal needs a signed writing since $15 million is more than $1,000. §2A-201. Unless some exception applies, and that analysis is the same as above.