Columbia University School of Law
Law of Sales (L6282)

Professor Avery Wiener Katz

Final Examination
May 2000 (self-scheduled)

Instructions

1. The exam consists of 6 pages, including this cover sheet. Please check now to ensure your copy is complete.

2. The exam is open book; you are free to consult any written materials, and you should have available to you all the assigned course materials.

3. Your exam is due 24 hours after you pick it up, or at the end of the exam period, whichever is earlier. The exam period ends at 4 pm on Tuesday, May 9 for graduating students, and at 4 pm on Friday, May 12 for non-graduating students. You must return your exam in person, and also must return your copy of the exam questions.

4. There are three questions on the exam, each with a separate word limit. You may not use any leftover space from one question in answering another; and any attempt to use shorthand or nonstandard abbreviations will be counted as if full words were used. Answers exceeding the word limit will be penalized by reducing their score in proportion to the excess.

To ensure compliance with the word limit, you must provide a word count for each question. You may have your word processor program perform the count, or alternatively you may make a good faith estimate by counting the words in a sample paragraph or page and extrapolating to the length of the entire exam.

5. To ensure that you receive full credit for your answer, please: (a) write or print your exam ticket number on all parts of your exam; (b) begin your answer to each question on a new sheet of paper, or if you are writing in a bluebook, in a separate bluebook; (c) use double spacing and 1-inch margins, so that I have enough room to make notations on your exam.

6. Good luck on the exam; and for those of you graduating at the end of the term, best wishes. I will post grades on the class website as soon as they are ready, and will post a feedback memo as soon as possible after that.

QUESTION 1 (40% of exam, 1200 word limit)

Singh Industries, a clothing manufacturer based in Madras, India, and Birla Imports, a distributor based in New York City, negotiated an agreement in March 1998 (the "framework agreement") whereby Birla acquired the exclusive right to distribute Singh's goods in the US. The framework agreement specified the terms on which the parties would do business, including methods of payment, warranty, and delivery, and anticipated that Birla would purchase a total of $5 million worth of clothing from April 1998 through January 2001. Under this agreement, all purchases were to be financed by letters of credit to be issued by Global Traders, a third-party trading company that often acts as a financial intermediary in international transactions. In addition, because India is not a signatory to the CISG, the parties agreed that the framework agreement as well as any sales taking place under it would be governed solely by the domestic law of New York, including the Uniform Commercial Code.

From July to December 1998, Birla placed ten separate purchase orders with plaintiffs. The orders covered two types of goods: (1) denim vests and (2) shirts manufactured for one of Birla's customers, Calico. The total cost of the goods covered by the purchase order was $850,000 — $130,000 for the vests and $720,000 for the Calico shirts. In early October 1998, however, before any shipments had been made, Singh discovered that the denim vests were subject to "floor prices" imposed by the Indian government. The floor prices — minimum prices under which these goods could not lawfully be exported out of India — were significantly higher than the contract prices stated in Birla's purchase orders. Accordingly, Singh notified Birla that the vests could not be exported at the contract price.

The parties disagree as to what, if any, agreement was ultimately reached to address this problem. Singh claims that Birla agreed to pay for the vests at floor prices and proposed an arrangement through which Singh would increase the contract price and then remit the excess payment to Global, who would then reimburse to Birla on later shipments not subject to the floor. Birla claims that Singh decided unilaterally to invoice the initial orders at the higher floor prices and then to discount the later orders by the same amounts. Birla also claims that it never agreed to pay more than the original contract price or to participate in the aforementioned scheme, which it argues is a violation of U.S. customs laws. In any event, it is undisputed that Birla's letter of credit with Global was amended in November 1998 to increase the available credit from $130,000 to $520,000 so that the vests could be exported out of India at floor prices. Singh did in fact submit invoices reflecting price reductions on other shipments; but because those other shipments were rejected or canceled, no reimbursement for the excess payments ever occurred.

Although the first orders that Birla placed with Singh generally met its customers' specifications, relations between the parties soon soured. Specifically, upon opening some shipments, Birla's customer Calico found that labels were not sewn on properly and the stitching was such that the goods probably would not have made it through a washing machine cycle. Calico then directed Birla to instruct Singh to cancel all pending orders. Accordingly, on February 24, 1999, Birla sent a fax to Singh stating: "Please be advised that the goods received by Calico in your recent shipment have to be rejected due to very poor quality. At this point, Calico will not accept any additional shipments from Singh and will not accept documents for goods already shipped."

Nonetheless, Singh continued shipping goods to Birla, including all the denim vests listed in Birla's purchase orders, and just under half ($350,000 worth to be precise) of the Calico shirts listed in the purchase orders. Birla ultimately accepted all the vests, but it refused to accept any further shipments of Calico shirts. It did take possession of certain shipping documents relating to the Calico shirts that had been forwarded to Birla under separate cover. For its part, Global paid some of Singh's invoices for the vests at floor prices, but was only reimbursed by Birla for the contract price. Some invoices for the vests remain entirely unpaid. With regard to the Calico shirts, neither Global nor Birla has paid anything. Singh claims that Birla refused to return the shipping documents, and that as a result, Singh was never able to reclaim the rejected shirts. Birla disputes this, claiming that it merely held onto the documents to facilitate resolution of any dispute.

Singh is now demanding payment in full for all the denim vests and Calico shirts it shipped, as well as compensation for its losses on the $370,000 worth of Calico shirts that were ordered but never shipped. According to Singh, it disposed of these shirts locally on the Indian market at 10% of the contract price. Singh has also asked to enter into settlement negotiations with regard to the original framework agreement, under which over $4 million of clothing remains to be ordered.
You are Birla's attorney and have been asked to advise it regarding an appropriate settlement offer. Write a brief memo laying out Birla's legal exposure and suggesting a negotiating strategy.

QUESTION 2 (40% of exam, 1200 word limit)

Bergen, an New Jersey corporation, is a broker in the market for surplus airplane parts. Skandis is a Swedish corporation with its principal place of business in Stockholm. Skandis buys parts from companies in Europe and North America and sells these parts to airlines, brokers, and companies like itself. The two companies are currently caught up in a dispute arising from Skandis' agreement to sell three drive integrated generators ("DIGs") to Bergen.

Skandis had advertised the DIGs on an international database that contains listings of surplus airplane parts. The parties do not agree how the the DIGs were listed on the database: Bergen claims that Skandis listed the parts as number 92647; Skandis claims that it listed the parts with two alternative part numbers, one of which was 92647 and the other was 85744.

On July 30, 1997, Bergen's purchasing agent, Fleisher, contacted Skandis's sales agent, Hilbert. Fleisher, who considers himself an expert with respect to airplane parts, told Hilbert that he had experience in dealing with DIGs. Fleisher asked Hilbert about the availability and condition of the DIGs and about how soon Skandis could ship. Hilbert told Fleisher that Skandis had three DIGs available to ship immediately.

Fleisher and Hilbert then entered further negotiations, the details of which are a matter of dispute. In an affidavit, Fleisher states that he asked Hilbert if the DIGs were part number 92647 and Hilbert responded "Yes." Hilbert states in her own affidavit that she told Fleisher that Skandis could not determine the exact part number of the DIGs available for sale; and that Fleisher then requested information about the DIGs to try to confirm the part number. In response, Hilbert sent Fleisher a fax dated August 3, 1997. In the fax, Hilbert listed information from data plates on the DIGs, and stated that the DIG's were either part numbers 92647 or 85744. Hilbert states that she sent Fleisher the fax so that Bergen might make a determination of the part number of the DIGs and that Fleisher told her that he was going to contact Lindgren Aerospace, the original manufacturer of the DIGs.

Fleisher states that he did not tell Hilbert that he would call Lindgren, and that Skandis knew from the beginning of negotiations that Bergen was only interested in purchasing DIGs with part number 92647. In any event, Fleisher did not contact Lindgren immediately, instead determining from the information contained in the August 3 fax that the parts available for sale were part number 92647. Fleisher then called Hilbert and said: "It appears that all three DIGs are what we want. Let's negotiate a price." Fleisher and Hilbert then agreed upon a price of $50,000 per DIG.

Bergen then issued a purchase order, which described the DIGs as part number 92647. Skandis then prepared an invoice which described the parts as "92647 or 85744 DIG," and also referenced Bergen's purchase order. Skandis also provided Bergen with a "Components Certification Form," which also described the parts as "92647 or 85744 DIG" and referenced the invoice.

Skandis shipped the DIGs to Bergen, which then forwarded the DIGs to Lindgren for overhaul. After receiving the DIGs, however, Lindgren informed Bergen that all three were part number 85744 and not part number 92647. Bergen claims that it has suffered damages as a result of having received the wrong type of DIGs.

You are a commercial arbitrator to whom the parties have submitted their dispute for resolution. The submission is solely on the issue of liability; the parties have told you that they wish to defer any issues of damages for later consideration. You realize that this is an unusual case, in that it is partly governed by the CISG and partly by the UCC. Specifically, while both Sweden and the U.S. are contracting states under the CISG, Article 92 of the CISG permits contracting states to declare at the time of ratification that they will not be bound by CISG Part II ("Formation of the Contract"); and Sweden has made such a declaration. Thus, formation issues are governed by private international law, which in this case, the parties stipulate, points to the U.S.

What is your decision?

QUESTION 3 (20% of exam, 600 word limit)

As we discussed in class and as your casebook indicates, courts and commentators have differed on whether full contract-market damages should be available under Article 2 to aggrieved parties whose actual damages, measured ex post, are less than the contract-market differential. For instance, in Allied Canneries & Packers v. Victor Packing Co. (p. 698 in Speidel, Summers and White), the California Court of Appeal held that a middleman buyer of raisins could not recover contract-market damages under §2-713, but was instead limited to the profit he would have made under his existing resale contract. The court, while recognizing judicial and scholarly authority for a contrary result, reasoned that because the buyer had managed to rescind his fixed-markup resale contract following heavy rains that severely damaged the local raisin crop, awarding his lost resale profit would be fully compensatory and would prevent him from obtaining a windfall under the contract-market measure. Similar results have been reached in a few cases awarding seller's damages under §2-708(2).

Earlier proposals for revising Article 2 would have codified the result in Allied Canneries and similar cases. For instance, section 2-803 of the 1997 Annual Meeting draft provided that "[a] court may deny or limit a remedy if, under the circumstances, it would put the aggrieved party in a substantially better position than if the breaching party had fully performed." Such language, however, does not appear in the current March 2000 discussion draft, though the Official Comments associated with this draft have not yet been promulgated.

A. Should revised Article 2 take a specific position on the issue raised by Allied Canneries and similar cases, and if so, what should that position be?

B. How would you advise contracting parties who wish to maximize the chance of receiving contract-market damages under current law, even when that measure turns out to overcompensate the aggrieved party ex post? Is it possible under current Article 2 to prevent courts from substituting their own more detailed inquiry into expectation damages for the statutory contract-market formula of 2-708(1) and 2-713?