Analysis of a Contract Dispute: ProRena vs. Bomilla, Exams of Consumer Law

Download Analysis of a Contract Dispute: ProRena vs. Bomilla and more Exams Consumer Law in PDF only on Docsity! Hartnell: Sales, Fall 2008 ^^ . 'fcj' EXAM #. Final Take-Home Examination Page 1 of 22 NOTE: Unless otherwise indicated, in all questions references to the Uniform Commercial Code are from the "old" (2000) version of Article 2 and the "new" (2008) version of Article 1. QUESTION 1 Dear Senior In-House Counsel: 1 have had some time to research the issues involved in ProRena's claim and submit the following analysis and advice. First we must determine what law controls this transaction. ProRena alleges that there is a contract for the sale of 10 new hemodialysis machines. Article 2 of the UCC governs "transactions in goods."1 Goods are "all things (including specially manufactured goods) which are movable at the time of identification for the contract for sale."". Movable goods are distinguished from immovable goods such as realty and fixtures.1" A "contract for sale" "includes both a present sale of goods and a contract to sell goods at a future time."'v A sale is "the passing of title from the seller to the buyer for a price."v Although we have not addressed the issue of whether a contract was properly formed, provided that it was this would be a sale of goods because the purpose of the transaction was for ProRena to transfer ownership of the machines to the hospital in exchange for $15,000 per machine. Whether this was to take place at a future time as the hospital intended, or to happen presently as actually occurred, this would constitute a contract for sale. The dialysis machines are "goods", because at the time when the contract for sale was allegedly made the machines were a tangible "thing", movable because they were to be shipped from seller to buyer, and identified for the contract for sale because they were existing at the time of contract formation/' Therefore, this transaction is governed by the UCC. K We further must look at what factors will go into the analysis of the agreement. The UCC defines an "agreement" as "the bargain of the parties, as found in their language or inferred from other circumstances."'" Other circumstances include the course of performance, "a Hartnell: Sales, Fall 2008 EXAM # Final Take-Home Examination Page 2 of 22 sequence of conduct between the parties to a particular transaction" if there were "repeated occasions for performance by a party" and the other party, knowing and being able to object to the performance "accepts the performance or acquiesces in it without objection."u" They also include course of dealing, "a sequence of conduct concerning previous transactions between the parties to a particular transaction . . . establishing a common basis of understanding for interpreting their expressions and other conduct.1"" Finally, usage of trade, "any practice or method of dealing having such regularity of observance in a place, vocation, or trade as to justify an expectation that it will be observed with respect to the transaction in question"" is taken into consideration in examining the parties' agreement. The agreement, plus the laws of the UCC and other applicable supplementary laws where the UCC does not control"' constitute the "contract" of the parties."'1 Therefore, the bargain between ProRena and the hospital, terms inferred from other circumstances, and applicable UCC statutes and other laws will all factor into the examination. We must determine whether a contract for the sale of goods was actually formed. Unlike the common law with its strict requirement of offer and acceptance"'", the UCC recognizes formation of a contract for the sale of goods by "any manner sufficient to show agreement, including conduct by both parties which recognizes the existence of such a contract,""" even when it is not possible to pinpoint the time the parties formed the contract""1 and even when "one or more terms are left open .. . if the parties have intended to make a contract and there is a reasonably certain basis for giving an appropriate remedy.""" In our case, we do have an offer because Mr. Florkowski offered to buy the machines / from ProRena. The purchase order Mr. Florkowski faxed to ProRena requested "prompt shipment." For an offer of this kind, ProRena had the power to accept "either by a prompt CrC- ^ Hartnell: Sales, Fall 2008 v^ \o*»'" EXAM U:' Final Take-Home Examination ^ui 'Vr^^"^ Page 5 of 22 as proposals for addition to the contract.'"0"'1" If the parties are merchants, then the additional terms will become part of the contract unless they materially alter it.xxix A merchant is a person who "deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction.'"""1 There is no doubt that ProRena would be a merchant under this definition but it is less clear if Bomilla would, because the hospital's main function is providing a service, not buying dialysis machines. Supposing it were, however, the merger clause would probably not become part of the contract anyway because it materially alters it. A material alteration is a clause that would "result in surprise or hardship if incorporated without express awareness by the other party." The merger clause here would extinguish the discount that ProRena assured Bomilla would be part of the bargain, and this would probably be a surprise or hardship on Bomilla. So we have established the ProRena probably did not have the power to accept, and the merger clause would not be effective for a variety of reasons. Assuming ProRena had accepted and the merger clause were valid, even if the spoken agreement of the discount were excluded as parol evidence, if ProRena had a practice of giving Bomilla price discounts for large orders, that. could constitute a course of dealing between the parties. Also, if industry practice was for ° medical suppliers to give these types of volume discounts to hospitals and both ProRena and Bomilla were aware of this practice, that could be a usage of trade. Even when additional terms outside the four corners of the document are excluded, course of dealing and usage of trade are always admissible to explain or supplement the written terms of the agreement.X!(X' The UCC requires course of dealing and usage of trade to be construed as consistent with the express terms whenever possible."*"" However, since a discount would so obviously contradict the price listed Hartnell: Sales, Fall 2008 EXAM #:• . j Final Take-Home Examination Page 6 of 22 |V, ^.A*^* « on both parties' writings, a court probably could not reasonably construe it as consistent.^Based fa h^1 j^u on the UCC's hierarchy of construction,""""' the express terms would still control. When Mr. Florkowski called Ms. Grunwald of the error, she apologized but considered this anticipatory repudiation. Under the UCC, anticipatory repudiation is present when a party "demonstrates a clear determination not to continue performance."*"™ If the contract is substantially impaired as to its value, it allows the aggrieved party to wait and try to negotiate or resort to a remedy for breach, but also in either case to suspend his own performance.*™' Apparently ProRena decided not to even try and negotiate with Bomilla, because once the dialysis machine had shipped it felt there was nothing else it could do, and therefore immediately sued for breach. However, there is a limit on an aggrieved party's right to resort to its remedies for breach: the duty of good faith the UCC imposes on all contracts."*"vi Good faith was defined as simply "honest in fact" under the old UCC and only applied to merchants, but under the new UCC ^ applies to all parties and is defined as "honest in fact and the observance of reasonable J commercial standards of fair dealing."***"" ProRena's simultaneous acknowledgement of an [ erroMind admission that the dialysis machines should not have been shipped, and saying that there is nothing to be done and demanding payment, seems the essence of bad faith. Where most vendors would do everything within reason to keep their customers happy, especially a large customer like a hospital purchasing very expensive medical equipment, ProRena essentially took advantage of a bad situation. Not only that, but the person who insisted that a contract had been formed was Ms. Grunwald, who both knew of the condition on the Bomilla's offer and stated she was familiar with the condition due to either the parties' past dealings or the usage of trade in the industry. At the very least, if Bomilla did in fact anticipatorily repudiate a proper contract, the Hartnell: Sales, Fall 2008 EXAM #: Final Take-Home Examination Page 7 of 22 duty of good faith required ProRena to attempt to negotiate with Bomilla to see how best to resolve the situation. UN£JGLfi b'^Vf I believe that the arguments here will help us establish that a contract was not properly formed, that even if formed the evidence of the discount survived, and that ProRena acted in bad faith when it acknowledged its error but demanded performance. Hartnell: Sales, Fall 2008 EXAM # Final Take-Home Examination Page 10 of 22 _ . “yt on bins ct the tne the 7 od fulfilled his tender obligation and the risk of loss would still be on him at the time the guitar was or SIO ah destroyed. We are allowed to look at evidence of prior agreements or contemporancous oral €., eek agreements, and also course of performance, course of dealing and usage of trade in explaining the written terms with which your confirmatory e-mails agree." [ believe this situation would / be your best chance of arguing that Sam failed his in his tender obligation. On the other hand, if the contract Sam made with the carrier was for it to deliver the guitar straight to your house, with f no additional documentation necessary for you lo take possession (except perhaps your own personal identification), then Sam would have fulfilled his tender obligation and you would bear ¥ the risk of loss. Since Sam sent you an e-mail confirming that he had entrusted the goods with a carrier 7 and arranged for their shipment, he fulfilled that part of his tender obligation. Allof this is presuming a court interprets your contract with Sam as a shipment contract. In the unlikely event a court interprets the ambiguous terms as describing a destination contract, then Sam would have borne the risk of loss at the time the goods were destroyed, and you would have a right to cancel the contract and recover from Sam what you paid both for the guitar and its shipment.“ 2-31 { Another thing to keep in mind is that the “new” version of the UCC omits official v definitions of shipping terms such as F.O.B. altogether, so where present they will be interpreted v in the light of course of dealing, course of performance and usage of trade. [hope my advice has been helpful in deciding how to further pursue this matter. Nay 404 by orGict wwe, Qe se? Hartnell: Sales, Fall 2008 EXAM # Final Take-Home Examination Page 11 of 22 QUESTION 3 Dear Barney: Thank you for taking the time ai Thanksgiving to describe the terrible events that befell Mildred. I have had some time to research the applicable law and am writing to present you with my findings and suggestions. What we have here is a question whether you are protected by warranty provisions under the UCC. There are various types of warranties, so I will start with express warranties. When Wally told you that the van would be safe, he may have created an express warranty. Two situations that could have created an express warranty are present here. First, an express warranty exists when a seller make an “affirmation of fact or promise” to the buyer that becomes ¥ the “basis of the bargain." Wally probably created an express warranty therefore when he assured you that the van and lift were safe. Second, any description of the goods that is part of the basis of the bargain creates an express warranty that the goods will conform with that v description. Even if Wally did not create an express warranty through affirmation or promise, when he described the van as safe it is likely that he created an express warranty that the van would meet that description. Courts are sensitive to distinguish between “puffing” by a salesperson and the creation of v an actual express warranty, When a seller merely describes the value of the goods or gives his personal opinion of them, he does not create an express warranty." Some of the factors that ° suggest a salesperson’s statement was mere puffing instead of an express warranty are whether it was a general instead of specific statement, in the form of an opinion instead of a fact, the 7 unreasonableness of buyer’s believing the statement and the sophistication between the parties." In your case, Wally specifically told you the van would be safe; he did not say, “It looks safe to v me.” Based on what you had told him about your needs for the van, it would be reasonable for Hartnell: Sales, Fall 2008 EXAM #. © Final Take-Home Examination Page 12 of 22 you to rely on the statement; no one with an injured 82 year-old wife would want a van witha, wheelchair lift that could possibly aggravate her injuries. Furthermore, I do not see any indication from what you told me that you have a great deal of experience with vans with wheelchair lifts, whereas Wally does, so the two of you do not stand on equal ground in terms of your sophistication. All in all, | do not think what Wally told you counts as mere “puffery.” For Wally’s affirmation of fact or promise, or description of the goods to have created an express warranty, however, will depend on the standard used for determining if you relied | on it, Different schools of thought exist on what the buyer must prove to show the affirmation was in fact the basis of the bargain." Some jurisdictions would require you to prove by a preponderance of the evidence (something more than 50%) that you actually telied on Wally’s statement in deciding whether to buy the van. These are known as reliance jurisdictions.” In other jurisdictions, if you can establish that Wally made the statements during the bargaining process over the van, a court will direct a jury to find that the representation was in fact the basis of the bargain and created an express warranty. Wally, however, would be able to overcome this presumption if he could prove with clear affirmative proof that you didn’t rely at all on his statements. These jurisdictions are known as “Comment 3” jurisdictions, based on the comment to the express warranty provision of the UCC that suggests this should be the standard. Finally, ina minority of jurisdictions you would not even have to show reliance at all as Jong as you could show that Wally made statements about the safety of the van, and he would not be able to challenge your reliance on them. These are known as “non-reliance™ jurisdictions and are the most favorable to people in your position.” Another likelihood is that the van came with an implied warranty of merchantability. < This type of warrant only applies to merchants, that is, “a person who deals in goods of the kind Hartnell: Sales, Fall 2008 EXAM #: Final Take-Home Examination Page 15 of 22 therefore drop out. The combination of Wally’s express warranty that the van was safe, together with the disclaimer that all warranties are disclaimed, is not consistent. I1 is likely that even if'no implied warranties remain, the express warranty (provided it exists) would remain. In order to disclaim the implied warranty of merchantability, the seller does not necessarily have to put the disclaimer in writing so long as he mentions “merchantability,” but if he does put it in writing then it must be conspicuous”, that is, “so written, displayed, or presented that a reasonable person against which it is to operate ought to have noticed ive Here, the disclaimer was in capital letters, so it would be conspicuous to a reasonable person, but possibly not to you because of your bad eyesight. We could argue that conspicuousness ought to be judged by whether it would be obvious to a reasonable elderly person with bad eyesight, but that would be a stretch. When a disclaimer says something like “as is,” all implied warranties are disclaimed." Because the disclaimer did use the phrase “as is,” that would meet the requirement for disclaiming all implied warranties. One other issue here is that the disclaimer only purported to disclaim warranties applicable to the van, not the lift. If we are able to separate these as the purchase of two separate products, rather than a single unit, we may be able to argue that all warranties express and implied as to the lift would survive the disclaimer. Finally, the contract attempted to limit all damages. This is possible under the ucc™", but not when the limitation is “unconscionable.” As the UCC says, “limitation of consequential damages for injury to the person in the case of consumer goods is prima facie unconscionable but limitation of damages where the loss is commercial is not." [f Mildred had been injured and you were trying to collect damages for her injuries and Wally refused, that would probably be unconscionable, but since you are only trying to collect consequential damages to her wheelchair, the limitation will operate to exclude them. | hope this advice is helpful to you. er Wy “alae | . Surektnd ON Ad ACA Lr f / / - ww “ v  Hartnell: Sales, Fall 2008 EXAM #. Final Take-Home Examination Page 16 of 22 QUESTION 4 Dear Sarah: Thank you for taking the time to tell me about your problematic situation with Bertrand Baloux. 1 present you with my findings and advice. The first issue we must deal with is deciding which law applies to this transaction. The United Nations Convention for Contracts for the International Sales of Goods has been ratified by both the United States and France. The Supremacy Clause of the United State Constitution dictates that the CISG trumps the provisions of the UCC because it is a treaty between nations. Article 1(1)(a) of the CISG says that it applies 10 “contracts of sale of goods between parties whose places of business are in different states when the States are Contracting States.""* This contract was for the sale of a hat, which is a good. In determining the places of business of buyer and seller, the CISG prohibits us from ¢ looking at just nationality.""" You have physical shops in both New York and Berlin. The CISG says that “if a party has more than one place of business, the place of business is that which has the closest relationship to the contract and its performance, having regard to the circumstances known to or contemplated by the parties at any time before or al the conclusion of the contract.""*" Bertrand knew at the time of the creation of the contract that your shop was based in New York, because he was physically in your shop. Therefore for purposes of this contract, your place of business is New York. Bertrand is an opera singer, so he cannot be said to have a particular place of business, as he probably goes wherever his services are needed. The CISG states that “if a party does not have a place of business, reference is to be made to his habitual residence.” Therefore, the CISG will assume that Bertrand’s place of business is France because that is his habitual residence. So since both parties to the contract are from contracting states, Hartnell: Sales, Fall 2008 EXAM # Final Take-Home Examination Page 17 of 22 and this is a contract for the sale of goods, the transaction would (preliminarily at least) seem to be governed by the CISG. However, the CISG specifically exempts “sales of goods bought for personal, family or -# household use, unless the seller, at any time before or at the conclusion of the contract, neither knew nor ought to have known that the goods were bought for any such use.”""" The facts only indicate that Bertrand bought this hat for himself. Even if he bought it for an opera company, he did not tell you this information, so you would not know or ought to have know that the hat was for anything but Bertrand’s personal use. Because the hat is for personal use, the CISG does not v7 apply to this transaction. If the CISG does not apply, if the transaction bears a “reasonable relation” to one state and another state or nation then the parties can decide that the transaction be governed by the law Ixxiv of either of those two states. However, where the parties have not decided which state’s laws will govern, the UCC will apply." Because there is no evidence that Bertrand and you discussed which state’s law would apply to the transaction, I will assume that the UCC applies. There is a question as to whether there is enough written evidence to be able to enforce ¢ the contact you had with Bertrand. Contrary to popular belief, ora! contracts are legally enforceable, but there are certain kinds of contracts that should be evidenced by a writing. The statute that creates a bar for the defendant to raise against enforcement of a contact is called the Statute of Frauds. Under the UCC, the Statute of Frauds requires that contracts for the sale of goods valued at more than $500 be evidenced by “some” writing that shows that a contract for sale has been made, and must be signed “by the party against whom enforcement is sought” (here, Bertrand).*"! Under the new UCC, the minimum dollar amount is raised to $5,000,"*"" eee? but you seem to have satisfied both the lower and higher thresholds. Now we must determine if —— Hartnell: Sales, Fall 2008 EXAM #. - Final Take-Home Examination Page 20 of 22 Even though Bertrand did not give you an opportunity to fix the supposed defect before he repudiated the contract, you still have options. You are not under any obligation to resell the goods, but if you do, your damages will be the difference between the market price at the time and place of tender (if'a shipment contract, New York; if a destination contract Bertrand’s “which can residence in France) plus the unpaid contract price ($12,700) and incidentals include “any commercially reasonable charges, expenses or commissions incurred...in the transportation, care and custody of the goods after the buyer's breach, in connection with return or resale of the goods or otherwise resulting from the breach." If that measure of damages is not enough to put you in as good a position as you would have been had the contract been fully performed, then you would be entitled to the profit you were expecting to make from the sale plus incidental damages, as defined above." 2-04, ution for err? 1 hope my advice is of assistance to you, please let me know if you decide to proceed in an action against Bertrand and want to retain me as counsel. 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