Columbia University School of Law
Sales Transactions (L6282)

Professor Avery Wiener Katz

Final Examination
May 1, 1998
2:15 pm — 5:15 pm (3 Hours)


Instructions:

1. This examination consists of 6 pages, including the instruction sheet. Please check now to ensure your copy is complete.

2. This is an open book examination; any written materials may be consulted. You are encouraged to use your casebook and class notes, and strongly encouraged to use your statute book.

3. The exam consists of three questions of equal weight. The first two questions should take longer to read; the third, which is more open–ended, should take longer to think about. Each carries grading weight in an amount proportional to the time allocated. I recommend that you spend a significant portion of the time allocated for each question planning and organizing your answer. If you feel that any of your answers depend on facts that are not supplied, you should state clearly any additional assumptions you are making.

4. If possible, please begin your answer to each of the questions in a new examination book, so that I can grade them independently.

5. Please take care to write legibly; this will ensure that you receive due credit for your entire answer. If possible, please also write on alternate lines of the examination book, as this tends to make your answer much easier to read, especially if you have large handwriting.

6. Unless you are told otherwise, you should assume that all hypothetical parties referred to in the questions below reside and do business in the United States.

7. Good luck on the exam; and for those of you graduating at the end of the term, best wishes.

Please do not turn the page until the exam proctor gives the signal.





Question 1 (60 minutes, 1/3 of exam)


Bart, a consumer, purchased a new VCR and television set from Solar, a discount appliance retailer, on Sunday, January 25. The total purchase price was $800 for both items, which was about 25% below S's ordinary "low, low prices." The discount reflected a 15% price break for purchasing during S's heavily advertised "Olympic Blowout" sale, and an individually negotiated 10% "package price" discount for buying the VCR and the TV at the same time. In addition, Solar agreed to deliver both items to Bart's house for an additional $35. The transaction was evidenced by a sales ticket showing the price paid and guaranteeing ninety days free service and replacement of any defective parts or equipment for a period of one year.

Three days after the purchase, on Wednesday, January 28, the equipment was delivered and uncrated. Bart's 19–year old daughter Daria, a college student living at home, signed for the delivery. She did not attempt to set up or to turn on the equipment at the time; and neither did Bart when he arrived home after a long day at work. Indeed, he did not get around to the job until the evening of Friday the 30th, at which point he found himself unable to get the VCR to record a program, despite following the instructions in the manual as best he could. Bart found this frustrating but not surprising, since he generally had a hard time figuring out how to use electronic appliances, and ordinarily delegated such tasks to Daria. When Daria attempted to set up the equipment the following afternoon, however, she soon discovered that the VCR was actually malfunctioning, though there was nothing wrong with the television. Bart immediately called Vinny, his salesperson at Solar, who advised him to bring the bad VCR back and Solar would give him another as soon as the next weekly shipment arrived in. The shipment was not due until Thursday or Friday, however, and it was possible that replacements for Bart's exact model would not arrive until the following week.

Bart was very upset to learn this, because he is an avid fan of amateur sports and had planned to use his new equipment to watch the upcoming Winter Olympics, scheduled to begin on the evening of Monday, February 2d. He was especially looking forward to the opening ceremonies and the figure skating competition, which he planned to record in full on videotape. As a result, he protested, telling Vinny that if the new VCR could not be provided by Monday, he wanted to cancel the deal. Vinny responded that it had been almost a week since the original purchase, that the newspaper ads for the "Olympic Blowout" promotion stated that quantities were limited, and that there would be plenty of figure skating to watch over the next two weeks. He also pointed out the language on the sales ticket dealing with service and defective parts, which was captioned "EXCLUSIVE LIMITED WARRANTY' and had been separately initialed by Bart, right above the credit card signature line. Moreover, a similar term on the invoice had been separately initialed by Daria when she took delivery. Bart was not satisfied by this response, and he was particularly put off by Vinny's reference to the limited warranty clause, to which neither Bart nor Daria had paid any attention.

As it happens, Bart is your long–time next–door neighbor and has asked for your opinion of the situation. He has called around to a few other appliance dealers and has discovered that, while none of them carry the exact models of TV and VCR that he purchased from Solar, a somewhat more expensive combination with a few additional features can be had from Solar's competitor Corona for about $1200 plus delivery charges. Corona's price for the VCR alone would be around $550 and its price for the TV alone would be around $650. Although Bart did not attempt to negotiate any sort of package price over the phone, he would rather buy both items from a single dealer. The different models have slightly different programming interfaces, which would make it more confusing to use the TV together with the VCR and which would require two separate remote control units rather than one.

Based on the foregoing information, Bart wants to return the equipment to Solar and instruct his credit card company to cancel the charges. He is willing to go to small claims court for the "principle of the thing," pursuing whatever remedies may be available to him, but he is checking with you first to make sure he is really in the right. In your answer, accordingly, you should focus on the legal side of the dispute, rather than on any practical aspects (such as whether it is worth litigating over such an amount). Additionally, you need not discuss federal or state consumer protection law; just address issues arising under the law of sales.



Question 2 (60 minutes, 1/3 of exam)

C-Thru Container Corporation entered into a contract with Midland Manufacturing in March 1995. In this contract, prepared by C-Thru's legal department, Midland agreed to purchase bottle-making equipment from C-Thru and to use that equipment to produce commercially acceptable bottles for C-Thru. Midland was to pay for the equipment by giving C-Thru a credit against C-Thru's bottle purchases; and the contract stated that C-Thru expected to order between 500,000 and 900,000 bottles in 1995. It also provided that if Midland failed to manufacture the bottles, C-Thru could require Midland to pay the entire purchase price for the equipment, plus interest, within thirty days. Finally, the contract contained a prominent merger clause as well as a no–oral–modification clause that provided that "rights and duties under this Agreement shall not be modified, rescinded, or waived except by a writing signed by authorized representatives of both Parties."

Midland picked up the equipment as agreed and later sent a notice to C-Thru that it was ready to begin production. C-Thru never ordered any bottles from Midland, however, instead purchasing its bottles from another supplier at a lower price than provided by the contract. Why this happened is in dispute. C-Thru claims that in numerous phone conversations between the parties Midland indicated that it was unable to produce commercially acceptable bottles. Midland claims that C-Thru insisted on Midland's providing a sample run bottles before placing any order, and that Midland refused this request as both unnecessary and too costly. According to Midland, it stood ready at all times to fill any order that C-Thru actually placed.

In January 1997, Midland gave C-Thru notice that it was rescinding the 1995 contract based on C-Thru's failure to order any bottles. C-Thru did not respond to this notice. Subsequently, on February 15, Midland sent C-Thru notice that it was filing a lien on the bottle-making equipment to cover its expenses of moving, rebuilding and repairing the equipment. About three weeks after this last communication, C-Thru officially notified Midland that Midland had failed to comply with the terms of the contract and that the full purchase price plus interest was due and payable. When Midland failed to pay, C-Thru filed suit, alleging that Midland had breached the contract by being incapable of producing bottles. Midland counterclaimed, alleging that C-Thru had repudiated by refusing to order bottles.

At trial, C-Thru presented deposition testimony from third parties that the practice in the bottle-making industry was for the manufacturer to provide sample bottles to verify that it could make commercially acceptable bottles before the purchaser placed any orders. Midland offered no contrary testimony on this issue, but its representatives testified that they were unaware of any such practice and that the topic never arose during negotiations with C-Thru. One of Midland's witnesses, an assistant sales manager, did admit during a deposition that in several conversations with his C-Thru counterpart during 1996 he had indicated a willingness to provide samples if it were necessary to preserve the deal. In response to further questioning from Midland's attorney, however, the witness testified that such statements were never put into writing and that in any event he lacked authority to make such a commitment.

Midland has now filed a motion for summary judgment, contending that the contract did not require it to demonstrate an ability to manufacture commercially acceptable bottles as a condition precedent to C-Thru's obligation to place an order, and that C-Thru breached the contract by failing to place orders.

You are the judge. Write an opinion ruling on the summary judgment motion.



Question 3 (60 minutes, 1/3 of exam)

You are in–house counsel for Easy-Med, a New Jersey manufacturer of medical test kits used to diagnose a variety of conditions and behaviors, including renal and gastrointestinal disease, autoimmune disorders, and tuberculosis. Your company sells to a wide variety of purchasers across the US and Canada, ranging from hospitals and clinics to pharmaceutical wholesalers to insurance companies interested in screening their applicants for pre–existing conditions.

Recently you were asked to evaluate a purchase order form prepared by one of the company's new customers, a Montreal firm that specializes in testing employees for drug abuse and related health problems. The form contained a clause stating that all legal issues arising from the use of the form, and from any sales made under it, were to be governed by the UN Convention on the International Sale of Goods. This was the first time you had seen such a clause; your own usual practice when drafting forms for Canadian sales is to include a clause providing that the UCC governs the relationship. You advised your sales manager that she should go back to the customer and negotiate for its removal from the contract.

The sales manager, however, has just called you back to report that the customer is reluctant to remove the clause. The customer is based in Quebec, a civil law jurisdiction, and while it sometimes does business with clients in Ontario and western Canada under the common law, it has relatively little experience with the UCC. Furthermore, this has the potential to be a very lucrative account in the future, and the sales department does not want to rock the boat. Unless you clearly advise otherwise, they would prefer just to give the customer what it wants. The sales manager asks you whether it is really so important to remove the clause. She would like you to look further into the matter, to explain what difference it makes, and also to consider whether there is some alternative to removing the clause, such as adding additional terms to your own forms that would avoid the effect of any specific CISG rules that you find especially troublesome. Could you write a brief memo to her, and to the executive vice president who is her (and your) immediate superior, addressing these concerns?




END OF EXAM
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