14. Through information provided by S-2 Yachts, Inc., the plaintiff, Barr, located a yacht
to his liking at the Crow’s Nest marina and yacht sales company. When Barr asked the
price, he was told that, although the yacht normally sold for $102,000, Crow’s Nest was
willing to sell this particular one for only $80,000 in order to make room for a new
model from the manufacturer, S-2 Yachts, Inc. Barr was assured that the yacht in question
came with full manufacturer’s warranties. Barr asked if the yacht was new and if
anything was wrong with it. Crow’s Nest told him that nothing was wrong with the yacht
and that there were only twenty hours of use on the engines.
Once the yacht had been delivered and Barr had taken it for a test run, he noticed several
problems associated with saltwater damage, such as rusted screws, a rusted stove, and
faulty electrical wiring. Barr was assured that Crow’s Nest would pay for these repairs.
However, as was later discovered, the yacht was in such a damaged condition that Barr
experienced great personal hazard the two times that he used the boat. Examination by a
marine expert revealed clearly that the boat had been sunk in salt water prior to Barr’s
purchase. The engines were severely damaged, and there was significant structural and
equipment damage as well. According to the expert, not only was the yacht not new, it
was worth at most only a half of the new value of $102,000. What should Barr be able to
recover from S-2 Yachts and Crow’s Nest?
Answer: Buyer’s Damages for Breach in Regard to Accepted Goods. Judgment for Barr.
When a merchant sells goods sold in the ordinary course of the merchant’s business, the
goods carry an implied warranty of merchantability that they are fit for the ordinary
15. Lee Oldsmobile sells Rolls-Royce automobiles. Mrs. Kaiden sent Lee a $25,000
deposit on a 2004 Rolls-Royce with a purchase price of $155,500. Although Lee
informed Mrs. Kaiden that the car would be delivered in November, the order form did
not indicate the delivery date and contained a disclaimer for delay or failure to deliver
due to circumstances beyond the dealer’s control. On November 21, Mrs. Kaiden
purchased another car from another dealer and canceled her car from Lee. When Lee
attempted to deliver a Rolls-Royce to Mrs. Kaiden on November 29, Mrs. Kaiden refused
to accept delivery. Lee later sold the car for $150,495.00. Mrs. Kaiden sued Lee for her
$25,000 deposit plus interest. Lee counterclaims, based on the terms of the contract, for
liquidated damages of $25,000 (the amount of the deposit) as a result of Mrs. Kaiden’s
breach of contract. What are the rights of the parties?
Answer: Liquidated Damages. Judgment for Lee but only for actual damages. The U.C.C.
2-718(1) provides that in the event of a breach of contract, [damages] for breach by either
party may be liquidated in the agreement but only at an amount which is reasonable in
16. Servebest contracted to sell Emessee two hundred thousand pounds of 50 percent
lean beef trimmings for $105,000. Upon a substantial fall in the market price, Emessee
refused to pay the contract price and informed Servebest that the contract was canceled.
Servebest sues Emessee for breach of contract including (a) damages for the difference
between the contract price and the resale price of the trimmings and (b) incidental
damages. Discuss.
Answer: Measure of Damages. Judgment for Servebest for the difference between the
contract price and the resale price of the trimmings, incidental damages and the interest
17. Mrs. French was the highest bidder on eight antique guns at an auction held by
Sotheby & Company. Mrs. French made a down payment on the guns but subsequently
refused to accept the guns and refused to pay the remaining balance of $24,886.27 owed
on them. Is Sotheby’s entitled to collect the price of the guns from Mrs. French?
Answer: Availability of Price as a Remedy. Judgment for Mrs. French. When French
wrongfully rejected the guns, Sotheby & Co. had the option of recovering damages for
18. Teledyne Industries, Inc., entered into a contract with Teradyne, Inc., to purchase a
T-347A transistor test system for the list and fair market price of $98,400 less a discount
of $984. After the system was packed for shipment, Teledyne canceled the order, offering
to purchase a Field Effects Transistor System for $65,000. Teradyne refused the offer and
sold the T-347A to another purchaser pursuant to an order that was on hand prior to the
cancellation. Can Teradyne recover from Teledyne for lost profits resulting from the
breach of contract? Explain.
Answer: Seller’s Damages for Nonacceptance or Repudiation. Judgment for Teradyne
permitting recovery of lost profits. The Code permits an aggrieved seller to recover the
difference between the unpaid contract price and the market price. Under this rule,
Teradyne would recover nothing because the market price exceeded the contract price.
19. Wilson Trading Corp. agreed to sell David Ferguson a specified quantity of yarn for
use in making sweaters. The written contract provided that notice of defects, to be
effective, had to be received by Wilson before knitting or within ten days of receipt of the
yarn. When the knitted sweaters were washed, the color of the yarn “shaded” (i.e.,
variations in color from piece to piece appeared). David Ferguson immediately notified
Wilson of the problem and refused to pay for the yarn, claiming that the defect made the
sweaters unmarketable. Wilson brought suit against Ferguson for the contract price.
What result?
Answer: Limitations on Remedies. Judgment for Ferguson. Ordinarily, a buyer who
accepts goods has a reasonable time after he discovers or should have discovered a
20. Bishop Logging Company is a large, family-owned logging contractor formed in the
Low country of South Carolina. Bishop Logging has traditionally harvested pine timber.
However, Bishop Logging began investigating the feasibility of a fully mechanized
hardwood swamp logging operation when its main customer, Stone Container
Corporation, decided to expand hardwood production. In anticipating an increased
demand for hardwood in conjunction with the operation of a new paper machine, Stone
Container requested that Bishop Logging harvest and supply hardwood for processing at
its mill. In South Carolina, most suitable hardwood is located deep in the swamplands.
Because of the high accident risk in the swamp, Bishop Logging did not want to harvest
hardwood by the conventional method of manual felling of trees. Because Bishop
Logging had already been successful in its totally mechanized pine logging operation, it
began a search for improved methods of hardwood swamp logging centered on
mechanizing the process in order to reduce labor, minimize personal injury and
insurance costs, and improve efficiency and productivity.
Bishop Logging ultimately purchased several pieces of John Deere equipment to make up
the system. The gross sales price of the machinery was $608,899. All the equipment came
with a written John Deere “New Equipment Warranty,” whereby John Deere agreed only
to repair or replace the equipment during the warranty period and did not warrant the
suitability of the equipment. In the “New Equipment Warranty,” John Deere expressly
provided the following: (a) John Deere would repair or replace parts that were defective
in material or workmanship; (b) a disclaimer of any express warranties or implied
warranties of merchantability or fitness for a particular purpose; (c) an exclusion of all
incidental or consequential damages; and (d) no authority for the dealer to make any
representations, promises, modifications, or limitations of John Deere’s written warranty.
Hoping to sell more equipment if the Bishop Logging system was successful, however,
John Deere agreed to assume part of the risk of the new enterprise by extending its
standard equipment warranties notwithstanding the unusual use and modifications to the
equipment.
Soon after being placed in operation in the swamp, the machinery began to experience
numerous mechanical problems. John Deere made more than $110,000 in warranty
repairs on the equipment. However, Bishop Logging contended the swamp logging
system failed to operate as represented by John Deere and, as a result, it suffered a
substantial financial loss. What, if any, remedies is Bishop entitled to receive? Explain.
Answer: Limitation of Remedy by Agreement. The evidence was clearly sufficient for the
jury to determine that John Deere did not effectively perform its obligation to repair the
equipment since the attempted repairs never cured the defects in the equipment, and as a
21. The plaintiff contracted with the defendant to deliver liquid nitrogen to the defendant’s
oil refinery production facility located in Belle Chase, Louisiana. The defendant uses
liquid nitrogen to ensure the safe operation of its plant. The contract was a
“requirement” contract—deliveries were based on how much liquid nitrogen the
defendant had in its tanks. As a result, the plaintiff typically made deliveries seven days
a week, and sometimes several times a day.
The defendant claims that the plaintiff repeatedly failed to deliver the liquid nitrogen on
time, thereby dropping the liquid nitrogen to dangerously low levels and compromising
the safety of the plant and its personnel. The contract provided that if the plaintiff failed
to deliver the liquid nitrogen as required the defendant’s sole remedy would be to
purchase the product from another supplier and charge the plaintiff for the additional
expenses incurred. The defendant did not exercise this right because it claims it was
unable to purchase nitrogen from other suppliers. However, on the only occasion the
defendant actually tried to purchase nitrogen from another supplier, it was successful.
The plaintiff sued the defendant for breach of contract, and the defendant
counterclaimed. What are the rights and remedies of the parties? Explain.
Answer: Limitation of Remedy by Agreement. The defendant is entitled to recover damages
under the terms of the exclusive remedy specified in the contract. This problem is based
ANSWERS TO “TAKING SIDES” PROBLEMS
Daniel Martin and John Duke contracted with J & S Distributors, Inc., to
purchase a KIS Magnum Speed printer for $17,000. The parties agreed
that Martin and Duke would send one-half of the money as a deposit and
would pay the balance upon delivery. They also agreed to the following
provision:
In the event of non-payment of the balance of the purchase price reflected herein on
due date and in the manner recorded or on such extended date which may be caused by
late delivery on the part of [the seller], the Customer shall be liable for: (1) immediate
payment of the full balance recorded herein; and (2) payment of interest at the rate of
12 percent per annum calculated on the balance due, when due, together with any
attorney’s fees, collection charges and other necessary expenses incurred by [the
seller].
When the machine arrived five days late, Martin and Duke refused to accept it, stating that
the company had purchased a substitute machine elsewhere. Martin and Duke requested the
return of its deposit but J & S refused. Martin and Duke sued J & S for the return of its
deposit. J & S counterclaimed for full performance of the contract seeking an order that
Martin and Duke accept delivery of the KIS machine and pay the entire balance of the
contract.
(a) What arguments would support the claim by Martin and Duke for the return of the
deposit?
(b) What arguments would support the claim by J & S for full performance of the
contract?
(c) Who should prevail? Explain.
ANSWER:
(a) Martin and Duke could argue that even if their rejection of the machine was
wrongful they were only obligated to pay damages under Uniform Commercial Code
