Mikassa delivers the first three shipments.  They are accepted and paid for by Bloomingdale.  Bloomingdale starts getting returns of the crystal champagne glasses from its customers.  It seems that the glasses crack when placed in the freezer to be chilled.  Mikassa tells Bloomingdale that the champagne glasses cannot be made out of its patented material and be placed in a freezer.  Bloomingdale tells Mikassa that it needs all of the glasses to be made out of the same material.  The fourth shipment is delivered.  Bloomingdale sends back the entire shipments (including both the fine china and the crystal glasses) as well as the 600 sets of each remaining from the third shipment.  It also tells Mikassa that it is canceling the remainder of the contract for both the fine china and the crystal glasses.  Bloomingdale had been selling the fine china for $300 per table setting, of which $70 represented overhead and $50 (in addition to the purchase price) in costs.  Bloomingdale had been selling the crystal glasses for $150 per set, of which $35 represented overhead and $25 (in addition to the purchase price) in costs.  Bloomingdale searches for a manufacturer of fine china and crystal who can start supplying the items immediately.  Because of other commitments and the time required for design and manufacture, no supplier can start supplying Bloomingdale for at least 8 months.  Bloomingdale enters into a contract with Baumberger Corp. to manufacture the Bloomingdale line of fine china and crystal.  However, it is impossible for Baumberger to begin prior to the end of the 12-month period during which Mikassa was to deliver.

It costs Mikassa $20 in overhead and $20 in costs to manufacture a table setting of the fine china. It costs Mikassa $10 in overhead and $10 in costs to manufacture a set of crystal glasses. Mikassa calls up all the retail stores to whom it normally sells it products to see if they want to purchase the 1600 sets of crystal and table settings of fine china that were returned by Bloomingdale. No one is interested. It finally sells all 1600 sets and table settings to the Cost Plus discount chain which agrees to pay $40 per table setting for each of the 1600 table settings of fine china and $10 per set for each of the 1600 sets of crystal glasses.

Mikassa sues Bloomingdale for breach of contract.  Bloomingdale counterclaims against Mikassa for breach of contract.  Discuss the merits of each of the actions as well as the potential damages for each.

2. Big Dog, Inc. ("Big Dog") is in the business of designing and selling T-shirts and other items of clothing. Raffi Apparel, Inc. ("RAI") is in the business of manufacturing T-shirts. Fred, president of Big Dog, and Raffi, RAI's president, are playing tennis one day when Fred discovers that Raffi is in the T-shirt manufacturing business. Since Big Dog's contract with its manufacturer is expiring at the end of the year, he decides to inquire as to the type of deal that Raffi is willing to offer.

Fred says to Raffi:

"I have been very disappointed in the quality of the T-shirts that we are getting from our current supplier. A too large of number of their T-shirts fall apart in our dying and printing process. Although they take the T-shirts back, it costs us too much in time and materials. Can you guarantee us that your T-shirts will be better?"

Raffi replies:

"Our T-shirts are the strongest on the market. They will not fall apart in your dying or printing process. We are so confident of our T-shirts that we will reimburse you for any expenses that are incurred in the event that any of our T-shirts fall apart in your dying and printing process."

In response, Fred says:

"That sounds good to me. Let's make a deal."

The next week Raffi sends to Fred a signed letter that provides, in part:

"It was good talking with you the other day. RAI will manufacture and sell to Big Dog T-shirts upon the following terms:

1. RAI will manufacture and sell 10,000 T-shirts to Big Dog each month for a period of 12 months at a price of $3 per T-shirt, F.O.B. RAI's Plan.

9. In the event that any T-shirt delivered to Big Dog is unsatisfactory, Big Dog's sole and exclusive is replacement of the returned T-shirt."

Three days later, Fred writes back the following signed letter:

"Raffi, we have no problem with the quantity stated in your contract, your price or most of your other terms. However, you seem to have forgotten our talk the other day. Remember you said that your T-shirts would not fall apart in the dying and printing process and that, if they did, you would reimburse us for any expenses that we incurred? We expect you to live up to these promises."

RAI delivers the first shipment of 10,000 T-shirts. Big Dog starts processing them. Processing takes about a month. Before the processing is completed, RAI ships the second shipment of 10,000 T-shirts. The second shipment is loaded on the truck at RAI's plant. On its way to Big Dog's plant, lightning strikes the truck, destroying the entire shipment. About 20% of the first shipment fall apart during processing. Big Dog demands that RAI pay Big Dog for its expenses in processing the defective T-shirts as well as to reimburse it for the purchase price of the defective shirts. RAI refuses. Big Dog cancels the contract. It turns out that like the other T-shirt manufacturer, RAI cannot ensure that a substantial number of its T-shirts will not fall apart in processing. In every shipment, there would be between 15 to 25% of the T-shirts that would fall apart in processing.

(a) Is RAI liable for Big Dog's expenses in processing the defective shirts and for their purchase price?

(b) Must Big Dog pay for the second shipment?

(c) Can Big Dog use the Statute of Frauds to argue that the contract is not enforceable in whole or in part?

ANSWERS TO PROF. HARRIS'S SALES COURSE
SPRING 2000 FINAL EXAM

ESSAY #1
I. PRELIMINARY COMMENTS

The issue that was missed most often by students on this essay was revocation of acceptance. As explained below, because it already accepted the goods, Bloomingdale had to revoke its acceptance. The second issue most missed was the implied warranties. Lastly, many students failed to distinguish between the crystal and the china. The highest score on this part of the exam was 68.

The UCC governs here as it is a transaction in goods (movable at the time of identification to the contract). The fact that the champagne glasses crack when placed in a freezer to be chilled breaches possibly two warranties. Since the glasses are intended for use in serving champagne, the fact that the glasses cannot be chilled would be a breach of the implied warranty of merchantability in that serving champagne is the ordinary purpose of these glasses. The glass being able to be chilled is one of the attributes that any champagne glass should have. Even if the purpose of the glass would ordinarily be to hold liquid, Mikassa would have probably breached the warranty of fitness for a particular purpose. Mikassa certainly had reason to know the use of the glasses. Since Mikassa was the one to design the glasses, it had reason to know that Bloomingdale was relying upon it to design a glass fit for the purpose of chilling champagne. As a result, the fact that the champagne glass breaks when put into the freezer is almost certainly a breach of one of these warranties.

This is an installment contract. As a result, § 2 -612 applies. When the fourth shipment is delivered, a question arises as to whether Bloomingdale may reject the installment. Under § 2-612(2), Bloomingdale may reject any installment if the non-conformity substantially impairs the value of that installment and cannot be cured. Since this is a design defect, there is no way that Mikassa can cure it an since the glasses cannot be sold as champagne glasses, Bloomingdale could reject the glasses. Similarly, it could revoke its acceptance of the 600 glasses it retains from the earlier shipment since under § 2 -608, it accepted the glasses without discovery of the defect, the defect was difficult to discover and the value of the glasses is substantially impaired. Furthermore, since the non-conformity substantially impairs the value of the later shipments of the champagne glasses, it could cancel the remainder of the contract.

The next question, though, is whether Bloomingdale can reject and/or revoke acceptance as to entire set of crystal glasses where two of the glasses are not defective (wine and water). It would seem that all three glasses are part of a commercial unit because, under § 2 -105(6) "as by commercial usage is a single whole for purposes of sale and division of which materially impairs its character or use on the market or in use." The same crystal is generally used for each of the glasses on a table and therefore it is clear that the three glasses are a commercial unit.

Assuming that Bloomingdale was justified in canceling the entire contract, it can get damages for Mikassa's breach of the entire contract.  Since it was unable to cover and there is not evidence that the market price was any different than the contract price, it will be unable to get damages under either §2-712 or §2-713.  However, it did lose out on sales.  This would be recoverable under §2-715 as consequential damages.  Since it was unable to cover, and Mikassa knew that Bloomingdale would resell the items, Bloomingdale should be able to recover any profits that it lost as a result of the breach.  To do so, Bloomingdale would first have to prove how many sales it would have made.  Assuming that it can do so, it would be entitle to damages for the crystal of $150 (sales price) less $30 (price paid to Mikassa) and less $25 (variable costs relating solely to the sale of the crystal) which equals $95 per set.  By analogy to a lost volume seller under 2-708(2), its overhead would not have to be deducted.  If it is also allowed to reject, revoke and cancel the contract for the tableware, it would get $300 *sales prices) less %80 (price paid to Mikassa) less $50 (variable costs) which equals $170 per set.

Assuming that Bloomingdale was not justified in rejecting, revoking, and canceling as to the tableware, Mikassa would be entitled to damages as to future goods under §2-708(2) for a lost volume dealer assuming that it had the capacity to service Bloomingdale and its other accounts.  Mikassa would be entitled to $80 contract price minus the $20 in costs related solely to manufacture of table settings which equals $60 per set.  As to damages for the 1600 sets of tableware that were returned, it would be entitled to either the market price/contract price differential under §2-708(1) or the resale price/contract price differential.  Since it resold the goods, it may be entitled to $80 (contract price) minus the $40 (resale price) or $40 per set.  However, although it otherwise looks like it acted commercially reasonably in its manner of resale, it failed to give notice of the private sale under §2-706(3) and therefore may be denied the right to these damages.  Unless it can prove its market price, it will recover nothing.  However, its attempt at sales may be sufficient to prove market price.

On this essay, many, indeed the majority of students missed the parol evidence rule. Also, surprisingly, quite a few students failed to discuss the "Battle of the Forms," U.C.C. 2-207. The highest score on this essay was 79.

(a) In determining whether RAI is liable to Big Dog for its expenses in processing the t-shirts depends first upon whether the parol evidence rule bars admission into evidence of Raffi's oral promise to reimburse Big Dog for any expenses incurred in the event that the t-shirts fall apart during processing and that they would not fall apart in the process. Certainly, Raffi's letter to Fred was not intended as the final expression of the parties agreement and therefore the parol evidence would not be applicable. Furthermore, the two confirmations, namely Raffi's letter and Fred's reply do not contain the same limitation of remedies and the same disclaimer of warranties and therefore the parol evidence does not apply for this reason also. As a result, Fred can get into evidence Raffi's promises.

Whether Big Dog can obtain the purchase price of the defective shirts or the expenses in processing depends to a large extent on what the terms of the contract are. It seems like Raffi's letter would be an offer. Under § 2207 apply, Fred's letter can either be seen as a definite expression of acceptance with different terms or can be seen as a non-definite acceptance. Even though there was no language making acceptance conditional on RAI's acceptance of the different terms, it is fairly clear that Big Dog does not want to be bound without its terms. If this is regarded as a definite expression of acceptance, even though the disclaimer of warranties may be effective, it would not disclaim the warranty that the t-shirts would not fall apart in the dying and printing process. This is because it is an express warranty under § 2-313 which cannot be disclaimed. Of course, however, the remedy may be limited. The question would then come up as to whether the promise to reimburse Big Dog for the purchase price and expenses was a material altering term since the offer contained an exclusive remedy. It would certainly seem to do so.

For these reasons, it seems clear that this was not intended to be an acceptance. As a result, § 2-207(3) would apply. Big Dog seems to be accepting all terms expect these two. As a result, maybe a court would find that all of the terms except these two were found in each writing. If not, the terms would be simply gap fillers. If the court finds all of the terms other than these two terms were found in both writings, then the limitation of remedy would not be effective and Big Dog would have all remedies under the Article 2 which would include consequential damages and revocation which would give Big Dog its price back.

(b) Assuming that the F.O.B. teen was part of the contract, the risk of loss would be on Big Dog after the goods left RAI's plant. However, if its is found that the tender of the goods fails to conform to the contract so as to give Big Dog a right of rejection, then the risk of loss remains on RAI under cure or acceptance. Since between 15 to 25% of the t-shirts would be defective, the question arises as to whether, being an installment contract, substantially impairs the value of the installment. May be or may be not. If the F.O.B. term is not part of the contract then § 2-509(3) would apply and the risk of loss would pass to Big Dog on its receipt of the goods. As a result, the risk would fall on RAI.

(c) Under § 2-201(1), a contract is not enforceable beyond the quantity stated in the writing. Fred's letter does not state a quantity and therefore may not be enforceable. However, it does incorporate Raffi's terms and therefore either under (1) or under the merchant confirmation rule of § 2-201(2) may be enforceable against Big Dog.