SALES
 PROFESSOR JANICE KOSEL
FINAL EXAM
December 11, 2001

INSTRUCTIONS


This is an open book exam.

 You are permitted to have with you and to consult during the exam any material you wish including but not limited to:

You may not consult with anyone during the exam.

 There is one question on this exam.

 Remember to take your time. Read, think, analyze and organize your answer before you begin to write. If you believe you lack sufficient facts to answer the question, please specify what additional information you require and how it will affect your answer.

 The total time for this exam is 2 hours.

 Good Luck and have a great holiday!

 

 

 

 

Buyer is a nonprofit association of agricultural producers throughout the world. Seller is a manufacturer of pharmaceutical products. In October 1999 Buyer and Seller entered a three year contract for the sale of 250 units of anthrax vaccine per month at a unit price of $10. Normally there are approximately 500 deaths a year throughout the world from anthrax. Buyer keeps anthrax vaccine on hand to sell at cost as a service to its members.

Among other things, the contract contains the following provisions:

"No verbal understanding will be recognized by either patty hereto. This contract expresses all the terms and conditions of the agreement.

"This agreement may be modified by a writing specifically referring to this agreement and signed by both patties."

By the end of September 2001, the market price of anthrax vaccine had risen to $150 per unit because of terrorist activities in the United States. Seller asked but Buyer refused to modify the price term. Indeed, Buyer had already begun negotiations to sell its inventory of anthrax vaccine on hand to the highest bidder.

In October 2001 Seller unilaterally withdrew the 10% price discount (for a unit price of $9) it had granted Buyer. Such a discount is normally provided in the pharmaceutical industry for nonprofit purchasers. However, as Seller pointed out, the contract made no provision for such a discount. Moreover, Buyer was now attempting to profit on the transaction. When Buyer refused to pay the increased price ($10 per unit, as stated in the contract) on future deliveries together with two years of newly calculated arrearages, Seller refused to make further deliveries.

The federal government purchased all remaining vaccine on hand from Seller, Buyer and all other suppliers at an average price of $150 per unit. Additional supplies will not be available for a minimum of six months, the time required to produce the vaccine.

After consulting with medical experts, Buyer decided its only viable option was to purchase a course of cipro antibiotic to replace the anthrax vaccine due in the remaining year of the contract with a treatment option. The cost of a single course of treatment of cipro is $1,250.

 The mortality rate of anthrax without treatment is virtually 100%. Vaccine is 95°% effective. Treatment with cipro antibiotic is 50% effective.

The contract contains an arbitration clause. You are the arbitrator selected to resolve the dispute between Buyer and Seller. How will you rule? Why?

If either party had been better represented by counsel, either at the time of contract formation or in September or October of 2001, what changes in conduct or in the original contract would you have expected? Why?