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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 works as the produce manager for the store in My Town, U.S.A. Jeff, 17 years old, is spending his summer vacation working for Tom in the produce department.
A.) 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.
Yes Article 2 of the UCC does apply to the contracts between Grocery and their vendors. Article 2 applies to all contracts for the sale of goods (2-102). The code contains a somewhat complicated definition of goods (2-105); the most important thing to understand is that the term goods means tangible personal property.
Article 2 does not apply to contracts for the sale of real estate or stocks and bonds and other intangibles. The drafters of the code also tried to promote fair dealing and higher standards of behavior in the marketplace. They attempted to do this in several ways in Article 2. The Code imposes a duty on everyone making agreements under the Code to act in good faith (1-203). The Code also imposes certain standards of quality on sellers of goods as a matter of law.
Common law contracts would also apply to the Grocery and their vendors, due to the mixture of goods and services. Common law would apply to the service element that is predominant in the contract with regards to the delivery of the goods. (Barnes, J). The difference between Article 2 and common law is that if the contract is for the sale of goods then Article 2 would apply, if it is not then the principles of common law under contracts would apply.
Article 2 reflects an attitude about contracts that is fundamentally different from that of the common law. The Code is more concerned with rewarding people’s legitimate expectations than with technical rules, so it is generally more flexible than traditional contract law. A court that applies the Code is more likely to find the parties had a contract than a court that applies contract law (2-204). In some cases, the Code gives less weight to technical requirements such as consideration than is the case in contract law. (Barnes, J).
B.) 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 poor quality of work) that Build, not Masterpiece, was handling the renovation, Grocery petitioned the court for an injunction and then sued Masterpiece for breech 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.
Based on the information provided by Grocery would win the case based on breech of contract and specific performance. Under breech of contract, promissory must perform their contractual duties in the manner they have promised to perform them. Since Masterpiece did not perform the duties in the manner in which they promised they are liable for breech of contract. The courts recognize that there are three basic degrees of performance: complete or satisfactory performance, substantial performance, and material breech of contract. (Barnes, J).
A contract consists of both rights and duties. A contracting party has the duty to perform his or her own promise and the right to receive the other party’s promised performance. These rights and duties can usually be transferred to third persons.
When rights under a contract are transferred, this is called assignment. The transfer of duties is called a delegation. Not all contracts are assignable over the objection of the promissory. The promissory who delegates duties is still liable to the promise if the party to whom the duties were delegated fails to satisfactorily perform them. This would make Masterpiece liable for the quality of work that Build them to fall produced for Grocery. The only exception to this rule would have been if the parties had entered into a novation which is a new, separate agreement by the promisee to release the original promissory from liability in exchange for a third party’s agreement to assume the promisor’s duties.
As for Masterpieces claim that they had a right to delegate the duties to Build them to Fall under commercial impracticability they would have to show that unforeseen conditions would have caused a delay or inability to make delivery of the goods (make performance impracticable), then they would have been able to claim commercial impracticability. In the absence of compelling circumstances, the courts do not readily excuse parties from their contractual obligations, particularly where it is clear that the parties anticipated a problem and sought to provide for it in the contract. Since Masterpiece had contracted to perform the work for Grocery and then had a sudden increase in jobs this would not be considered compelling circumstances for sub-contracting the job to a company that would perform a poor quality of work.
C.) At the end of the summer, Jeff 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 Steve at the local used car lot. Steve did not ask Jeff how old he was; but 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 Steve and said he wanted to cancel the contract and that he wanted his money back. What are the possible outcomes? Explain your answers.
Jeff was a minor at the time of the contract. Therefore, Jeff is considered not to have the capacity to enter into contracts. Steve made the deal in “good faith” that Jeff was old enough to enter into the contract. Unfortunately, the contract is voidable.
Jeff was correct that he could disaffirm the contract. And upon the disaffirmance, Jeff had to return the vehicle to Steve. Even though the right to disaffirm a contract was meant to protect minors, some states have rejected that idea because that view creates a hardship on the adult involved. Under the case of Dodson v. Shrader, 824 W.2d 545 Tenn. Sup. Ct. 1992), Steve would be allowed to recover the depreciation of the vehicle from the monies that Jeff has paid. Especially considering the fact that Jeff has had the vehicle for six months or more.
The states defer on the idea that the minor needs to be reimburse the “innocent adult” for dealing with the minor. However, many times minors can pass as adults at approximately 14 years of age and up. Minors also get fake IDs to get things like buying beer. Therefore, by allowing the minor to get away with not paying the debt he or she willing entered or lied to the adult to sign a contract, is not in the best interest of society to allow the minor not to suffer the consequences. Therefore, holding the minor responsible for his or her actions is one way for the minor to learn responsibility.
D.) 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.
Grocery has the right to reject the shipment. Grocery has to notify Cereal that the shipment was not adequate and is being rejected pursuant to Article 2-602. The notice must be accomplished “within a reasonable time” and preferably in writing [Article 2-602]. Grocery has the right to reject the shipment and cancel the contract.. However, Cereal must notify Grocery that due to unforeseeable circumstances, the shipment will consist of Soggy Flakes and only ten cases of cereal will be delivered.
Cereal must notify Grocery that Cereal intends to replace the shipment within a reasonable time (gap-filling rule). However, under the circumstances, Cereal may not know how long Cereal may be without the correct product. Furthermore, Cereal needs to decide what it wants Grocery to do with the product (whether to sell the product, destroy the product, or store the product for later pick-up). Grocery does not have to pay for return shipment.
If Grocery feels that Cereal cannot meet the obligations incurred, Grocery can demand an assurance that the contract will be performed. If the assurance is not forthcoming within 30 days, then Grocery can repudiate the contract [Section 2-609]. If Grocery later decides the Cereal can meet the terms of the contract, Grocery can decide to continue wit the contract if Cereal can show that Cereal intends to meet the obligations of the contract.
E.) Tom 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 estoppels. Who wins? Explain your answer.
Although Tom and Harry did not have a written contract about the purchase of the trains, they did have a verbal contract. Breach of contract is described as any failure to perform that is not excused (Mallor, Barnes, Bowers, Langvardt, 2004). When Tom told Harry that Tom would sell his trains to Harry, Harry had the reasonable expectation that Harry would receive the trains. Harry then spent a large amount of money building an addition to his house in order to have room for the trains. Harry also had borrowed the money to purchase the trains from his aunt.
“Promissory estoppel is an equitable doctrine that protects those who foreseeably and reasonably rely on the promises of others by enforcing such promises when enforcement is necessary to avoid injustice, even though one or more of the elements normally required for an enforceable agreement is absent” (Mallor, et al, 2004, glossary). In this case an injustice to Harry did exist because of the money he spent in building onto his house and expectation he had of receiving the trains.
Harry wins the case based on the recognition of promissory estoppels in section 90 in the first Restatement of Contracts in 1932 (Mallor, et al, 2004, 338). The court would see the injustice to Harry by Tom failing to fulfill his promise to sell his trains to Harry.
F.) Jason shipped a truckload of peaches from his orchard 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.
F.O.B. (Free on Board) means the seller is responsible to deliver the goods free of expense and at his own risk to the designated place of delivery. In this case Jacob was responsible for the shipment until it reached Grocery. Grocery would be able to file a suit against Jason for damages. Jason would, however, be able to file a suit against the independent trucker for the damages to the peaches.
This case is similar to the case in the textbook Windows, Inc. v. Jordan Panel Systems Corp. In this case, however, the term FOB is not used. The windows were to be properly packed and shipped, but were damaged due to load shift during transport. The buyer, Jordan, expected to receive the windows in good condition, ready to install. When the windows were delivered in bad condition, Jordon filed against the trucking company and did not pay Windows for the order. Jordan then ordered a duplicate order to be shipped that Jordan received with no problem. The error in this case was that Jordan did not pay Windows for either order and Windows had to file suit against Jordan in order to be paid for the shipments. Judgment was affirmed in favor of Windows.
G.) Discuss the different warranties that apply to Grocery’s business. Explain your answer in detail.
Grocery’s business operates under the implied warranty of merchantability. This warranty is one that the legal community has created, not one that is operating under a written or accepted contract. The warranty operates under UCC section 2-314(l) . Section UCC 20314(l) reads: “[A] warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind. (Mallor, Barnes, Bowers and Langvardt, 2007). Under this warranty, Grocery’s implied warranty is that the products sold will be useable for the purpose intended. Grocery would be held responsible for products like canned goods, meats, bakery items, and the like because Grocery is in the business of selling these goods.
Section 2-314 states the products must meet the following criteria.
(1)In the trade, the product must pass inspection without objection.
(2)The product must be fit for the purpose for which the product wasintended;(3)The product must be of even kind, quantity (same size unit), and kind (like boxed cereal).
(4)The product must be adequately packaged and labeled (must list things like the calories per serving).
(5)The product must conform to the packaging and labeling regarding any promises or statements that may be stated (the cereal must be Rice Krispies and not Cheerios if the box is marked Rice Krispies).
(6)If a product is perishable, the product must be of fair quality.
If goods do not conform to the above standards, a consumer may pursue legal remedies. Goods that do not function as intended are not merchandisable and would not meet the above standards. Furthermore, Grocery would be responsible for the goods sold at the store, not for computer products since the normal business of Grocery would be for canned goods, bakery items, meats, and the like.
H.) 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 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 terms were “boilerplate” and therefore could 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 answer.
1. Yes, there is a contract. The contract that Green claims to be a standard preprinted supply contract and Suppliers claim can be modified by acceptance.
2. The terms are that Grocery was supposed to purchase goods by a specific date.
3. Each order is worth at least $550.
a.) Also, discuss the use of Suppliers oral testimony at trial.
1. The use of Suppliers oral testimony can go either way. Oral testimony can be very effective if Supplier can prove that what Supplier is saying is true. Oral testimony can also be detrimental to Supplier’s case if it is proven that Supplier is lying.
2. Presenting to the courts and the jury that the copy of the actual contract is always a good idea. It will be up to the courts to decide if the original contract stands or if it is void.
Edition e-text] Prentice-Hall Publishing. Retrieved August 25, 2005, from University of Phoenix, Resource BUS/415-Business Law Web Site:http://ecampus.phoenix.edu/content/eBookLibrary/content/eReader.
Mallor, J.P., Barnes, A.J., Bowers, T., & Langvardt, A.W. (2007). Business law: The ethical, global and e-commerce environment, 13e. The McGraw-Hill CompaniesUniversity of Phoenix. (Ed) (2005). Business Law [University of Phoenix Custom]