ANSWERS TO PROBLEMS
1. Adams orders one thousand widgets at $5 per widget from International Widget to be
delivered within sixty days. After the contract is consummated and signed, Adams
requests that International deliver the widgets within thirty days rather than sixty days.
International agrees. Is the contractual modification binding?
Answer: Contractual Modifications/Statute of Frauds. No. This problem brings out two
significant problems: (1) can the contract be modified without consideration and (2)
2. In Question 1, what effect, if any, would the following letter have?
International Widget:
In accordance with our agreement of this date you will deliver the 1,000
previously ordered widgets within thirty days. Thank you for your cooperation
in this matter.
(signed) Adams
Answer: Sales By and Between Merchants. Ten days after receiving the telegram
International Widget would be bound by the written memorandum as if they signed it.
3. Browne & Assoc., a San Francisco company, orders from U.S. Electronics, a New York
company, ten thousand electronic units. Browne & Assoc.’s order form provides that any
dispute would be resolved by an arbitration panel located in San Francisco. U.S.
Electronics executes and delivers to Browne & Assoc. its acknowledgment form, which
accepts the order and contains the following provision: “All disputes will be resolved by
the State courts of New York.” A dispute arises concerning the workmanship of the parts,
and Browne & Assoc. wishes the case to be arbitrated in San Francisco. What result?
Answer: Variant Acceptances. The matter should be arbitrated in San Francisco. The
common law “mirror image” rule, by which the acceptance can not vary or deviate from
the terms of the offer, is modified by the code. Section 2-207 provides:
4. Explain how the result in Question 3 might change if the U.S. Electronics form
contained the following provisions:
(a) “The seller’s acceptance of the purchase order to which this acknowledgment
responds is expressly made conditional on the buyer’s assent to any or different terms
contained in this acknowledgment.”
(b) “The seller’s acceptance of the purchase order is subject to the terms and conditions
on the face and reverse side hereof, which the buyer accepts by accepting the goods
described herein.”
(c) “The seller’s terms govern this agreement—this acknowledgment merely constitutes a
counteroffer.”
Answer: Manifestation of Mutual Assent.
(a) The clause provides that the seller’s acceptance is expressly conditional on its terms
and hence no contract is formed. Section 2-207(1).
5. Reinfort executed a written contract with Bylinski to purchase an assorted collection of
shoes for $3,000. A week before the agreed shipment date, Bylinski called Reinfort and
said, “We cannot deliver at $3,000; unless you agree to pay $4,000, we will cancel the
order.” After considerable discussion, Reinfort agreed to pay $4,000 if Bylinski would
ship as agreed in the contract. After the shoes had been delivered and accepted by
Reinfort, Reinfort refused to pay $4,000 and insisted on paying only $3,000. Is the
contractual modification binding? Explain.
Answer: Contractual Modifications/Statute of Frauds. This problem raises three separate
but interrelated issues:
(1) Modification of a prior contract. As indicated in the answer to problem 1 the Code,
6. On November 23, Acorn, a dress manufacturer, mailed to Bowman a written and signed
offer to sell one thousand sundresses at $50 per dress. The offer stated that it would
“remain open for ten days” and that it could “not be withdrawn prior to that date.”
Two days later, Acorn, noting a sudden increase in the price of sundresses, changed his
mind. Acorn therefore sent Bowman a letter revoking the offer. The letter was sent on
November 25 and received by Bowman on November 28.
Bowman chose to disregard the letter of November 25; instead, she happily continued to
watch the price of sundresses rise. On December 1, Bowman sent a letter accepting the
original offer. The letter, however, was not received by Acorn until December 9, due to a
delay in the mails.
Bowman has demanded delivery of the goods according to the terms of the offer of
November 23, but Acorn has refused. Does a contract exist between Acorn and Bowman?
Explain.
Answer: Irrevocable Offers. Yes. Acorn’s offer of November 23 constituted a firm offer
and could not be revoked for the specified period of time (10 days). Hence Acorn’s
7. Henry and Wilma, an elderly immigrant couple, agreed to purchase from Brown a
refrigerator with a fair market value of $450 for twenty-five monthly installments of $60
per month. Henry and Wilma now wish to void the contract, asserting that they did not
realize the exorbitant price they were paying. Result?
Answer: Unconscionability. The contract price of $1500 for a $450 refrigerator should be
8. Courts Distributors needed two hundred compact refrigerators on a rush basis. It
contacted Eastinghouse Corporation, a manufacturer of refrigerators. Eastinghouse said
it would take some time to quote a price on an order of that size. Courts replied, “Send
the refrigerators immediately and bill us later.” The refrigerators were delivered three
days later, and the invoice arrived ten days after that. The invoice price was $140,000.
Courts believe that the wholesale market price of the refrigerators is only $120,000. Do
the parties have a contract? If so, what is the price? Explain.
Answer: Open Price. Parties to a contract for the sale of goods do not necessarily have to
reach an agreement on price. The Code provides that the price will be a reasonable one
9. While adjusting a television antenna beside his mobile home and underneath a
high-voltage electric transmission wire, Prince received an electric shock resulting in
personal injury. He claims the high-voltage electric current jumped from the
transmission wire to the antenna. The wire, which carried some 7,200 volts of electricity,
did not serve his mobile home but ran directly above it. Prince sued the Navarro County
Electric Co-Op, the owner and operator of the wire, for breach of implied warranty of
merchantability under the Uniform Commercial Code. He contends that the Code’s
implied warranty of merchantability extends to the container of a product—in this
instance, the wiring—and that the escape of the current shows that the wiring was unfit
for its purpose of transporting electricity. The electric company argues that the electricity
passing through the transmission wire was not being sold to Prince and that, therefore,
there was no sale of goods to Prince. Is the contract covered by the Code?
Answer: Scope of Article 2/Definition of “Goods.” Yes, it is covered by the Code. UCC
2-105. Judgment for Navarro County Electric Co-Op. To be within the U.C.C.’s
definition of a good, electricity must be (1) a thing, (2) existing, and (3) movable, with #2
10. HMT, already in the business of marketing agricultural products, decided to try its hand
at marketing potatoes for processing. Nine months before the potato harvest, HMT
contracted to supply Bell Brand with one hundred thousand sacks of potatoes. At harvest
time, Bell Brand would accept only sixty thousand sacks. HMT sues for breach of
contract. Bell Brand argues that custom and usage in marketing processing potatoes
allows buyers to give estimates in contracts, not fixed quantities, as the contracts are
established so far in advance. HMT responds that the quantity term in the contract was
definite and unambiguous. Can custom and trade usage be used to interpret an
unambiguous contract? Discuss.
Answer: Expansion of Commercial Practices. Custom and trade usage are used to interpret
this contract. Unless carefully negated, trade usage and custom become an element of the
11. Schreiner, a cotton farmer, agreed over the telephone to sell 150 bales of cotton to Loeb
& Co. Schreiner had sold cotton to Loeb & Co. for the past five years. Written
confirmation of the date, parties, price, and conditions was mailed to Schreiner, who did
not respond to the confirmation in any way. Four months later, when the price of cotton
had doubled, Loeb & Co. sought to enforce the contract. Shreiner argues that he is not a
merchant. Is the contract enforceable?
Answer: Sales By and Between Merchants, Form of the Contract. Judgment for Schreiner.
The critical determination is whether a farmer is a “merchant” within the meaning of the
12. American Sand & Gravel, Inc., agreed to sell sand to Clark at a special discount if
20,000–25,000 tons were ordered. The discount price was $0.45 per ton, compared with
the normal price of $0.55 per ton. Two years later, Clark orders, and receives, 1,600 tons
of sand from American Sand & Gravel. Clark refuses to pay more than $0.45 per ton.
American Sand & Gravel sues for the remaining $0.10 per ton. Decision?
Answer: Manner of Acceptance. American Sand & Gravel win. The special discount price
on sand was conditioned on the purchase of 20,000 to 25,000 tons. Performance of this
13. In September, Auburn Plastics submitted price quotations to CBS for the manufacture of
eight cavity molds to be used in making parts for CBS’s toys. Each quotation specified
that the offer would not be binding unless accepted within fifteen days. Furthermore,
CBS would be subject to an additional 30 percent charge for engineering services upon
delivery of the molds. In December and January of the following year, CBS sent detailed
purchase orders to Auburn Plastics for cavity molds. The purchase order forms stated
that CBS reserved the right to remove the molds from Auburn Plastics without an
additional or “withdrawal” charge. Auburn Plastics acknowledged the purchase order
and stated that the sale would be subject to all conditions contained in the price
quotation. CBS paid Auburn for the molds, and Auburn began to fabricate toy parts from
the molds for CBS. Later, Auburn announced a price increase, and CBS demanded
delivery of the molds. Auburn refused to deliver the molds unless CBS paid the additional
charge for engineering services. CBS claimed that the contract did not provide for a
withdrawal charge. Who will prevail? Why?
Answer: Variant acceptances. CBS will prevail. “The earliest communications between the
parties shown in this record are defendant’s price quotations. While it appears that the
14. Frank’s Maintenance and Engineering, Inc., orally ordered steel tubing from C.A.
Roberts Co. for use in the manufacture of motorcycle front fork tubes. Since these front
fork tubes bear the bulk of the weight of a motorcycle, the steel used must be of high
quality. Roberts Co. sent an acknowledgment with conditions of sale including one that
limited consequential damages and restricted remedies available upon breach by
requiring claims for defective equipment to be promptly made upon receipt. The
conditions were located on the back of the acknowledgment. The legend “conditions of
sale on reverse side” was stamped over so that on first appearance it read “No
conditions of sale on reverse side.” Roberts delivered the order in January. The steel
had no visible defects; however, when Frank’s Maintenance began using the steel in its
manufacture in the summer, it discovered that the steel was pitted and cracked beyond
repair. Frank’s Maintenance informed Roberts Co. of the defects, revoked its acceptance
of the steel, and sued for breach of warranty of merchantability. Is the limitation of
rights enforceable?
Answer: Unconscionability. Judgment for Frank’s Maintenance. The U.C.C. provides that
consequential damages may be limited or excluded unless it is unconscionable.
15. Dorton, as a representative for The Carpet Mart, purchased carpets from Collins &
Aikman that were supposedly manufactured of 100 percent Kodel polyester fiber but
were, in fact, made of cheaper and inferior fibers. Dorton then brought suit for
compensatory and punitive damages against Collins & Aikman for its fraud, deceit, and
misrepresentation in the sale of the carpets. Collins & Aikman moved for a stay pending
arbitration, claiming that Dorton was bound to an arbitration agreement printed on the
reverse side of Collins & Aikman’s printed sales acknowledgment form. A provision
printed on the face of the acknowledgment form stated that its acceptance was “subject
to all of the terms and conditions on the face and reverse side thereof, including
arbitration, all of which are accepted by buyer.” Is the arbitration clause enforceable?
Answer: Deviant Acceptances. Judgment for Collins & Aikman; case remanded to district
court for further findings of fact. The Uniform Commercial Code recognizes some
16. The defendant, Gray Communications, desired to have a television tower built. After a
number of negotiation sessions conducted by telephone between the defendant and the
plaintiff, Kline Iron, the parties allegedly reached an oral agreement under which the
plaintiff would build a tower for the defendant for a total price of $1,485,368. A few days
later, the plaintiff sent a written document, referred to as a proposal, for execution by the
defendant. The proposal indicated that it had been prepared for immediate acceptance by
the defendant and that prior to formal acceptance by the defendant it could be modified
or withdrawn without notice. A few days later, without having executed the proposal, the
defendant advised the plaintiff that a competitor had provided a lower bid for
construction of the tower. The defendant requested that the plaintiff explain its higher bid
price, which the plaintiff failed to do. The defendant then advised the plaintiff by letter
that it would not be retained to construct the tower. The plaintiff then commenced suit,
alleging breach of an oral contract, and asserting that the oral agreement was
enforceable because the common law of contracts, not the UCC, governed the
transaction and that under the common law a writing is not necessary to cover this type
of transaction. Even if the transaction was subject to the UCC, the plaintiff alternatively
argued, the contract was within the UCC “merchant’s exception.” Is the contract
enforceable?
Answer: Statute of Frauds. No, it is not enforceable, but for different reasons than asserted
by the plaintiff. The contract for construction of the tower was one for the sale of goods,
17. Due to high gasoline prices, American Bakeries Company (ABC) considered converting
its fleet of over 3,000 vehicles to a much less expensive propane fuel system. After
negotiations with Empire Gas Corporation (Empire), ABC signed a contract for
approximately three thousand converter units, “more or less depending upon
requirements of Buyer,” as well as agreeing to buy all propane to be used for four years
from Empire. Without giving any reasons, however, ABC never ordered any converter
units or propane from Empire, having apparently decided not to convert its vehicles.
Empire brought suit against ABC for $3,254,963, representing lost profits on 2,242
converter units and the propane that would have been consumed during the contract
period. Is ABC liable? Explain.
Answer: Good Faith/Requirements Contract. Judgment for Empire affirmed. The U.C.C.,
which governs requirements contracts, provides that “a term which measures the quantity
18. Emery Industries (Emery) contracted with Mechanicals, Inc. (Mechanicals), to install a
pipe system to carry chemicals and fatty acids under high pressure and temperature. The
system required stainless steel “stub ends” (used to connect pipe segments), which
Mechanicals ordered from McJunkin Corporation (McJunkin). McJunkin in turn ordered
the stub ends from the Alaskan Copper Companies, Inc. (Alaskan). McJunkin’s purchase
order required the seller to certify the goods and to relieve the buyer of liabilities that
might arise from defective goods. After shipment of the goods to McJunkin, Alaskan sent
written acknowledgment of the order, containing terms and conditions of sale different
from those in McJunkin’s purchase order. The acknowledgment provided a disclaimer of
warranty and a requirement for inspection of the goods within ten days of receipt. The
acknowledgment also contained a requirement that the buyer accept all of the seller’s
terms.
The stub ends were delivered to Mechanicals in several shipments over a five-month
period. Each shipment included a document reciting terms the same as those on
Alaskan’s initial acknowledgment. Apparently, McJunkin never objected to any of the
terms contained in any of Alaskan’s documents.
After the stub ends were installed, they were found to be defective. Mechanicals had to
remove and replace them, causing Emery to close its plant for several days. McJunkin
filed a complaint alleging that Mechanicals had failed to pay $26,141.88 owed on
account for the stub ends McJunkin supplied. Mechanicals filed an answer and
counterclaim against McJunkin, alleging $93,586.13 in damages resulting from the
replacement and repair of the defective stub ends. McJunkin filed a third-party complaint
against Alaskan, alleging that Alaskan was liable for any damages Mechanicals incurred
as a result of the defective stub ends. What result? Explain.
Answer: Battle of the Forms. Judgment for McJunkin Corp. McJunkin’s form will control
and Alaskan’s attempt to disclaim its warranty liability will be of no avail. The problem
ANSWERS TO “TAKING SIDES” PROBLEMS
Terminal Grain Corporation brought an action against Glen Freeman, a
farmer, to recover damages for breach of an oral contract to deliver
grain. According to Terminal Grain, Freeman orally agreed to two sales of
wheat to Terminal Grain of four thousand bushels each at $6.21 a bushel
and $6.41 a bushel, respectively. Dwayne Maher, merchandising
manager of Terminal Grain, sent two written con%rmations of the
agreements to Freeman. Freeman never made any written objections to
the con%rmations. After the first transaction had occurred, the price of
wheat rose to between $6.75 and $6.80 per bushel, and Freeman refused
to deliver the remaining four thousand bushels at the agreed-upon price.
Freeman denies entering into any agreement to sell the second four
thousand bushels of wheat to Terminal Grain but admits that he received
the two written con%rmations sent by Maher.
(a)What arguments support considering Freeman be a merchant who
is bound by the written con%rmations?
(b)What arguments support considering Freeman not to be a
merchant seller and thus not bound by the written con%rmations?
(c) What is the appropriate decision?
ANSWER:
(a) Sellers don’t have to be on equal levels of expertise to be considered merchants. A
merchant may 1) be a dealer in the goods, or 2) by his occupation hold himself out as