Final Examination
Contracts, Fall 2006
Prof. Warner
December 18, 2006
The exam is 32 hours long.
The exam is open book.
WORD PROCESSORS: (1) DOUBLE SPACE. (2) NUMBER YOUR PAGES.
WRITERS: (1) SKIP EVERY OTHER LINE; (2) WRITE ON ONLY ONE SIDE OF THE PAGE. (3) USE A PEN, NO PENCILS. (4) PLEASE WRITE LEGIBLY.
Steve Sowle owns and operates Sole Saver, Your Sowle Stop for Shoe Repair. Paul McCartney owns and operates Rubber Sole, a supplier of rubber soles to shoe repair shops. Sowle sends the following letter to McCartney:
Please quote me your lowest price on 500 natural rubber soles for delivery on the November 1.
When McCartney receives the note, he calls Sowle to discuss the price and quality. During the conversation, Sowle asks if McCartney can also supply him with one thousand red, white, blue shoe strings. “An unusual request,” says McCartney, “but, yes, I know where I can get a lot of those things; out on Highway 61 from Abraham and Son. So sure, I will deliver the shoe strings along with the rubber soles; $499 for the shoe strings.” Sowle replies, “Great. It’s a deal on the shoe strings. Send along your purchase agreement for the rubber soles.” McCartney sends purchase agreement with the following note:
As specified in the attached purchase agreement, which I have signed, I offer you 500 natural rubber soles for $5 a sole; please note that delivery, as specified in the purchase agreement, will be on November 10. Your acceptance of this offer may not change the delivery date.
There is well-established trade usage with regard the term “sole.” “500 soles” means 250 left/right pairs of soles. The contract contains this clause:
Entire agreement: This contract represents the entire agreement of the parties. Neither party is relying on any written or oral representations which are not contained in this contract.
During their phone conversation, Sowle and McCartney agreed that their written contract should contain everything that they had agreed on regarding the rubber sole sale. Sowle said, “Can we make sure the written contract says everything we agree to?” McCartney replied, “My lawyer tells me that is what the “entire agreement” clause does,” and Sowle said, “That is what it does then.” On October 2, Sowle signs and returns the purchase agreement and includes the following note:
I accept your offer of 500 rubber soles at $5 a sole. Delivery to be on November 1. Nice to reach an agreement. Great that we have a deal!
When McCartney receives the agreement and note he calls Sowle to say, “Got your signed agreement and note. Everything is a go! Great!”
On October 1, a virus attacked all of the world’s rubber trees and the price of natural rubber (rubber obtained from rubber trees) skyrocketed that day to 4 times its previous price. The virus attack was entirely unexpected, and neither Sowle nor McCartney was aware of the price increase on October 2 as it had not yet been reported in the press. Both assumed, based on their respective past experience with the rubber market, that the price of natural rubber would remain relatively stable, that no big bounce up in price would occur. Only those monitoring the rubber markets were aware of the price increase. McCartney does, however, subscribe to “Rubber Supplier Alert,” a service which sends suppliers of natural rubber e-mail alerts about changes in the rubber market. An alert was sent on October 1 about the sudden price increase, but McCartney was away from his office; his e-mail is forwarded to his Blackberry, and he saw the e-mail but did not open it because he misread the subject line and did not realize it was from Rubber Supplier Alert.
When Sowle learns of the virus attack, he sends the following letter to McCartney:
The virus attack has made me concerned about your ability to deliver the 500 rubber soles. I saw a report from the Association for Natural Rubber Suppliers which predicted that 90% of suppliers would not be able to fulfill their current contracts without sustaining unacceptable business loses. They predicted that the majority of suppliers would fail to deliver. Please confirm in writing that you will be able to perform.
McCartney replied:
Fortunately, I have been assured by Ant Can Rubber, Inc. that they have sufficient supplies to deliver the necessary rubber at the pre-virus market price in time for me to deliver the 500 soles to you.
Ant Can Rubber is a very well-known and reputable company. As Sowle knew, its promises of delivery could be relied on with complete confidence; however, despite McCartney’s reply, Sowle remained concerned that McCartney would be unable to perform and, consequently, failed to pay McCartney a partial payment due under the contract on October 20. Sowle assured McCartney that if he did deliver the soles, Sowle would pay in full on the day of delivery. McCartney replied, “You should make the partial payment, but, rest assured, I am delivering on November 1 even though by doing so I am waiving no right to damages under the contract.”
McCartney does not deliver the rubber soles on November 1. Ant Can Rubber, Inc. was mistaken about its ability to deliver the rubber at the pre-virus market price. McCartney received no delivery from them, and he is unwilling to buy the rubber at its current very high price. Sowle is able to buy 250 left/right pairs of natural rubber soles from Ain’t That the Rub, a non-for-profit organization promoting the use of natural rubber. Ain’t That the Rub responds to the price increase by making its stockpiles of natural rubber available at below the current market price; Sowle is able to buy the soles Ain’t That the Rub at the same price he would have paid McCartney. Sowle’s contract with McCartney required Sowle to pay a delivery charge of $200; delivery is free under Sowle’s contract with Ain’t That the Rub. Communication with Ain’t That the Rub in order to set up the contract with them cost Sowle $10.
McCartney also does not deliver the red, white, and blue shoe strings on November 1. When he contacted Abraham and Sons, they informed him that they did not carry such shoe strings. They said, “Only Bob has those in his shop on Deso Row; we just carry telephones that don’t ring.” McCartney contacted Bob, but Bob was out of stock and did not know when he could get the shoes strings in. McCartney delivers 1000 shoes strings with American flags on them instead; his knowledge of Sowle’s past shoe string purchases gives him reasonable grounds to believe that the American Flag shoe strings would be acceptable to Sowle. Sowle rejects the shoe strings, at which time McCartney seasonably informs him that he will get the red, white, and blue shoe strings to him by November 8, which is a reasonable time in which to make the delivery. McCartney does get the red, white, and blue shoe strings to Sowle on November 8, and Sowle accepts delivery. Between November 1 and November 8, there was a sudden demand for red, white, and blue shoe strings when Brittney Spears and Paris Hilton wore them as bracelets. The market price of red, white, and blue shoe strings tripled during in that period, but by November 8 the fad was over, and the price had dropped back to its normal level. Sowle has conclusive evidence that he would have sold 30 pairs of red, white, and blue shoe strings between November 1 and November 8.
Questions
(1) Assume McCartney’s signed purchase agreement is an offer. Did Sowle accept it?
(2) (a) Is the oral agreement concerning the red, white, and blue shoe strings unenforceable unenforceable under the statute of frauds? (There is no need to state the Statute of Frauds in full; just the relevant part).
(b) Assume the exchange of documents between McCartney and Sowle creates an enforceable contract for the delivery of 500 soles. Make the strongest argument you can that the Parol Evidence Rule does not render their oral agreement concerning the red, white, and blue shoe strings unenforceable.
Formulate the Parol Evidence rule as formulated in class, not as in the UCC.
(3) McCartney claims that he is excused from delivering the 500 rubber soles to Sowle. What is the best argument that McCartney is wrong?
Formulate relevant excuse doctrines as formulated in class, not as in the UCC.
(4) Did Sowle breach when he failed to make the partial payment due on October 20? Note: there is no need to address damages if you conclude that Sowle did breach.
(5) What are Sowle’s damages for McCartney’s failure to deliver the 500 rubber soles? Assume Sowle sustained no consequential damages as a result of McCartney’s breach.
(6) Did McCartney have a right to cure by delivering the red, white, and blue shoes strings on November 8?
(7) What damages does McCartney owe Sowle for his failure to delivery the red, white, and blue shoes strings on November 1? Treat the McCartney’s delivery of the red, white, and blue shoes strings on November 8 as the equivalent of a reasonable cover purchase by Sowle.
List of UCC sections
2-207
2-201
2-202
2-609
2-712
2-713
2-508
2-601