Roberts owned a well-known chain of 8 shoe stores

PACE UNIVERSITY SCHOOL OF LAW

COMMERCIAL LAW (SALES)

PROFESSOR HUMBACH April 5, 2005

FINAL EXAMINATION TIME LIMIT: 3 HOURS

IN TAKING THIS EXAMINATION, YOU ARE REQUIRED TO COMPLY WITH THE SCHOOL OF LAW RULES AND PROCEDURES FOR FINAL EXAMINATIONS. YOU ARE REMINDED TO PLACE YOUR EXAMINATION NUMBER ON EACH EXAMINATION BOOK AND SIGN OUT WITH THE PROCTOR, SUBMITTING TO HIM OR HER YOUR EXAMINATION BOOK(S) AND THE QUESTIONS AT THE CONCLUSION OF THE EXAMINATION.

DO NOT UNDER ANY CIRCUMSTANCES REVEAL YOUR IDENTITY ON YOUR EXAMINATION PAPERS OTHER THAN BY YOUR EXAMINATION NUMBER. ACTIONS BY A STUDENT TO DEFEAT THE ANONYMITY POLICY IS A MATTER OF ACADEMIC DISHONESTY.

LIMITED PERMITTED MATERIALS:

The only materials you may bring into the examination are a copy of:

• UCC (and any material in your assigned book Selected Commercial Statutes)

• the CISG

• Magnuson-Moss Act

These copies may be marked, highlighted, underlined, tabbed and annotated with brief notations, but ”no paragraphs,” no bits of outlines and no other writings exceeding a couple of words or so on the margins, backs, etc. of the printed material. All materials brought into the examination will, in fairness to all, be subject to inspection, and students who are deemed to have violated this rule will have the material in question taken away, and they will be unable to refer to it during the examination.

GENERAL INSTRUCTIONS:

This examination consists of five essay questions, each with several subparts. The essay questions are to be answered in the Examination Booklets that are provided. Please clearly number your answers, by subparts (for example I-1, I-2, II-1, etc.)

Each subpart will weigh roughly equally with the other 11.

You will be graded primarily on the quality of the explanations that you give for your suggested resolutions, not on how you think the issues would be resolved. If you think there is a strong argument or consideration weighing against the position you take, state it. Remember to keep your reasons on point. Do not circle around your point. Aim for the bull's eye. Otherwise, you will risk running out of time.

Leder owns a chain of 8 shoe stores that are located in malls and shopping areas around the community. When he saw that one of his competitors was doing very well selling certain leather goods in addition to shoes, Leder decided to investigate the possibility of adding a line of wallets, belts and small purses to his wares. After checking around, he found a supplier, Kemware Leathers, whose products he liked. He decided to give them a try.

In a telephone conversation with Lucas Kemp, president of Kemware, on February 16, Leder discussed prices and qualities. At the end of this discussion, Leder said: “This is great! I’d like to order 100 assorted wallets from your regular ‘A’ line, 150 assorted belts from your standard stock, and 80 of your ‘B’-line women’s purses.” Kemp replied: “You’ve made a good choice. We can have them delivered to your warehouse by April 5.” Leder also specified the assortment of belt colors, etc. that he intended to order.

Two days later, Leder received an “acknowledgement of order” on Kemware letterhead. The form correctly stated the overall quantities and prices but misstated the number of belts that were to be black and brown, respectively. In addition, it contained a clause, in bold type: ALL WARRANTIES OF MERCHANTABILITY AND FITNESS FOR PURPOSE ARE HEREBY EXCLUDED AND DISCLAIMED IN THIS SALE. A week or so later, reading a trade publication, Leder saw that several manufacturers, including Kemware, had been having trouble with bad stitching in their goods, which had prompted costly recalls, causing considerable expense and inconvenience to the retailers whom they had supplied.

Leder telephoned Kemp to discuss these things on February 25. Leder stated that he objected to the disclaimer of warranties. Kemp said he fully understood but, unfortunately, on the advice of counsel, Kemware wouldn’t be in a position to sell the goods without the disclaimer. At this point Leder was concerned, but not sure how to proceed. Finally, on March 2 he sent a letter to Kemp stating that he could not accept the terms in the “acknowledgement of order,” especially the disclaimer, and as far as he was concerned there was no contract.

Today, Kemp’s delivery truck has appeared at Leder’s warehouse to drop off 100 assorted wallets, 150 assorted belts, and 80 assorted women’s purses. Leder calls you and asks whether he has to accept the delivery. Specifically, Leder wants to know:

1. Is there a binding contract even though he never signed anything?

2. If he accepts delivery of the goods, would the disclaimer of warranties be part of the contract of sale? (Note: For purposes of this question, you should not discuss the issue of whether the disclaimer would be fully effective or enforceable).

3. Suppose that, in the original conversation on February 16, Leder had said: “I’d like the wallets to be divided 50-50 between men’s and women’s and for the belts to be 40% brown and the rest black.” Kemp said “fine” but, in the “acknowledgement of order” two days later Kemp did not specify the assortment between men’s and women’s wallets or black and brown belts. When the delivery truck arrived, all the wallets were of “men’s wallet” designs, and all the belts were brown. Can Leder reject the tender?

II.

After watching a TV home-improvement show, Bob decided to replace the tile floor in his bathroom. He figured he could do it himself. He went down to the local Waymart store and was examining some samples when a sales clerk approached. Bob said: “I’m looking for some tile to redo my bathroom floor, and I’ve heard on TV that Corkware might be a good choice.” The sales clerk replied: “We have a full line of Corkware tile right over here.” With the clerk’s help, Bob selected the style he liked and determined the number of boxes that would be necessary. Since Corkware came with the glue already on the back of the tile, the clerk told Bob: “The only other thing you’ll need to buy are some cutting tools and you’ll be ready to do the job.” As they walked to the cash register, the clerk confidently added: “When you get this down, your bathroom will look beautiful.”

After a tough afternoon’s work, Bob got the tile installed, and it looked great. Within a couple of weeks, however, it started coming up around the edges. A month after that a whole square of tile came up, and then another. At this point Bob went back to the store and complained. He was told that, if he’d read the outside of the boxes in which he’d received the product, he’d have seen that Corkware is not suitable for bathroom use unless a special (and expensive) “anti-moisture” treatment is applied to the bottoms of the tiles at the time they are put down. Also he was reminded that, on the back of the sales invoice he signed at the time of purchase, there was a large notice labeled “WARRANTIES” in bold type and stating: “This product is warranted to be made of the finest materials, and it will be replaced by the seller if defective at the time of sale. Otherwise the seller makes no warranties of any kind, express, implied or otherwise, and seller will not be responsible if the product fails to perform in its intended or actual uses. In particular, it is agreed that the seller will not be liable for consequential damages unless a claim is made before the product is installed.”

1. Has the seller made any warranties that have been violated by the actual performance of the tile in question?

2. It has cost Bob $1200 to have the tile removed, but the store says that, even if the tile was not as warranted, all it has to do is give Bob more boxes of the same tile, claiming that there was a “limitation of remedies” to replacement under the sale agreement. Is it permissible to limit the buyer’s remedy to replacement? How about the limitation on the back of the sales invoice in this particular case?

III.

Tim bought a digital camera from its manufacturer over the internet. He did so after seeing an advertisement in which the seller stated, among other things, “Will take sharp pictures every time.” When the camera arrived, he found inside the box a piece of paper which sets out a three-month replace-or-repair agreement but then broadly disclaims all other warranties or remedies, express or implied, including a conspicuous disclaimer of merchantability. The disclaimer paragraph ended with: “This disclaimer is proposed by the seller as an addition to the contract of sale. By retention of the goods tendered herewith buyer signifies his acceptance and agreement that this proposed addition shall become a part of the contract of sale. If buyer objects to this addition to the contract, the camera should be returned forthwith to seller, for a full refund minus a nominal restocking and handling fee.”

1. Tim likes the camera a lot and wants to keep it, but he wonders if he’s stuck with the disclaimer of warranties set out on the piece of paper in the box. Is he? Do you have any suggestions as to what might do if he considers the disclaimer unacceptable?

2. Suppose Tim grudgingly decides to keep and use the camera, and to “live with” any legal consequences that the piece of paper might entail. He began, however, to regret his decision when he discovered that, due to a small manufacturing defect in the lens, the camera produced slightly blurred pictures when used in low-light situations. Assuming that the disclaimer of warranties was presented and worded in such a way that it would satisfy the requirements of the UCC to be effective according to its terms, would it be effective to exclude any express warranties created by the advertisement, or the implied warranty of merchantability that might have otherwise applied in this particular case?

IV.

CutRite Garden Supply, in Indianapolis, ordered 75 potted “starter” hydrangeas from Evergrow Nurseries, in Pennsylvania. The plants were to be sent F.O.B. Pittsburgh by a common-carrier trucking company no later than the 17th of March. The shipment was to include both red and blue hydrangeas according to a specification to be made by CutRite before March 10. However, CutRite never supplied the specification despite several calls by Evergrow which, due to sloppy office management procedures at CutRite, never got returned. On March 17, Evergrow sent its local delivery truck with the hydrangeas to the Pittsburgh freight depot of Goodhaul Trucking Co. and made a standard contract of carriage to send the plants to Indianapolis. Five days later, CutRite had seen or heard nothing of the hydrangeas and telephoned Evergrow to find out when they would be sent. It was only then that CutRite learned that the plants had been shipped out several days before. Apparently, for the past four days, they had been sitting in Goodhaul’s unheated depot warehouse in Indianapolis where, the night before, a freakish cold snap had sent temperatures down into the single digits. CutRite immediately sent a truck over to the Goodhaul depot to pick up the plants. When, however, the truck arrived back at the CutRite store, it was discovered that many of the hydrangeas (which had previously started to leaf out) were seriously frost burned. Although not dead, the roughly 35 affected plants were in no condition to be sold during the current growing season.

1. Is CutRite liable for the price of the hydrangeas? Assuming it has already accepted them, is there anything it can do other than keep them and sue for damages? Would it make a difference if, due to a miscount, Evergrow had delivered only 74 potted hydrangeas to Goodhaul’s depot in Pittsburgh?

2. When Evergrow (which currently has a large excess supply of starter hydrangeas) learned of the calamity, it immediately telephoned CutRite and offered to ship another load to replace all of the plants that had been rendered unsalable by the frost. However, CutRite’s owner has concluded that he over-ordered in the first place, and the 40 or so hydrangeas that are salable would suit him just fine. Does he have to take the additional plants?

3. Suppose that Evergrow was located in Toronto, and the contract was governed by the CISG and (pursuant to an “F.O.B. Toronto” contract) Evergrow had delivered only 74 potted hydrangeas to Goodhaul’s depot in Toronto (putting risk of loss on the buyer under Article 67). If, after the plants arrive, CutRite wants to get out of the contract, may it reject the deficient delivery? Does the CISG offer a way for the buyer to (possibly) get out of the contract based on the non-delivery of just one plant?

Taylor Plastics, Inc. makes various kitchen utensils and, for this purpose, needs to purchase large quantities of plastic “blanks” every year. In late 2003 it contracted with PetroChem Incorporated, which agreed to make and provide 300 tons of colored plastic “standard blanks” at a price of $1200 per ton, deliveries to be made during January through March, with all to be delivered no later than March 31.

Due to a shortage of a key polymer, PetroChem’s production was cut by about 70% during the first six months of 2004. Meanwhile, the market price of essentially identical “standard blanks” from other manufacturers was steadily rising, reaching $2000 per ton on January 31, $3000 per ton by February 28 and $4000 per ton on March 31, where the price remained through June. By repeated telephone calls, emails and letters, Taylor demanded delivery during the period January-March, but PetroChem said it was able to provide only about 25 tons per month and, in fact, by March 31 it had supplied a total of only 60 tons of the blanks. In order to avoid shutting down its own lines, Taylor was forced to go out into the open market and buy the blanks elsewhere, and it paid $3800 per ton for 240 tons. The reason it got such a favorable price is that the seller happened to have stockpiles of the critical polymer and it hoped to snag Taylor as a “repeat” customer for the future. PetroChem could, of course, had gone into the market and acquired the 240 tons of blanks needed to perform its contract with Taylor, but doing so would have cost it as much as $960,000 (or a net loss of $672,000) to perform a contract that was only worth $360,000 in the first place and has already been a loser.

1. Does PetroChem have a legal excuse for delivering only 60 tons?

2. If PetroChem does not have an excuse, can Taylor recover $2800 per ton for the 240 tons that PetroChem never delivered? Or what?