Question 1
(75 of 120 points; Suggested Time – 1 hour 15 minutes)
Yesterday, Paula Peters came to your office to tell you about some recent events that trouble her. You took careful notes of your conversation with her. Here are your notes:
Paula contracted with David to build a large entertainment unit for her living room. The large size of the unit and the small doorway into the living room required David to build the unit in the living room rather than being able to build it in his shop. While the agreement was not written, Paula says that she and David agreed about the initial description of the unit he would build. What they disagree about is what happened during the construction of the unit.
The unit Paula and Donald agreed upon was to have one large open space sufficient to hold her existing 27 inch TV; the remainder of this wall-long unit would have bookshelves, four large drawers and three cabinets. She agreed to pay Donald $1500 for the unit when it was completed. About one week after Donald began construction of the unit in Paula’s home, she decided that she would need a larger opening in the unit to house a 50 inch TV that she had decided to purchase. When she told this to David, Paula believes that his response was a simple acceptance of this change, although he said it would mean that he would not only have to change his design but would have to redo some of the work that he had already done. Paula knows that David claims that at the time of this conversation he also said to her something like “O.K., but that will cost you a bit more.” She does not recall this statement.
After the job was completed, David handed her a bill for $2000. Paula responded that the agreement was for $1500, not $2000. She also stated that the construction job that he did in building the unit was not competent. She pointed out to him that he did not countersink the nails he had used to build the unit, so that the nail heads were visible above the surface of the wood. She argued that all of the examples of his work that he showed her before she contracted with him to build her entertainment unit had countersunk nails. He responded that the reason for the higher bill was the design change she had requested. That change had made unusable some of
the wood he had already cut for the project; he said that at the time of the change he had cautioned her that it would mean an increase in the price. As for the nails, he did not countersink the nails because he thought that he was supposed to make the unit consistent with the design of other furniture in the room and the other furniture had visible nail heads. She responded that she intended to change that furniture and that his work was not of the quality she expected. Paula says that they were both pretty angry when that conversation was over.
The next morning David called her and said, “just pay me $1700 today for the job. I’ll come over at noon.” Paula acknowledged to you at your interview with her that she had accepted that arrangement. She had then called a carpenter who, after hearing a description of the job, said that he would countersink the nails for $200. When David arrived at her house just before noon, she refused to give him a check for $1700 saying that, after all, it was going to cost her another $200 to make the unit look the way it should look. He was quite angry and said he would sue her for the $2000 he is entitled to for the work he did. She, in turn, told him she would sue him for what it will cost her to have someone come in and countersink the nails.
Please provide your analysis of the rights and liabilities Paula has as a result of the events which Paula has described to you. You should make the arguments that support Paula’s view that she should pay no more than $1500 less the $200 that she thinks it will cost to have someone do the necessary repair work on the entertainment unit. You should anticipate the arguments that David’s attorney will make on his behalf. Your initial research has made it clear to you that in this jurisdiction this transaction will not be regarded as a “transaction in goods” and that, therefore, Article 2 of the Uniform Commercial Code is not applicable.
Question 2
(45 of 120 points; Suggested Time – 45 minutes)
Blink Inc. makes digital cameras. Each February they take their new line of cameras to a trade show. In February 2005, they showed a camera they call the “Minidigi.” Blink offered the Minidigi to dealers at a wholesale price of $100.00. The camera was extremely well received. DigiCam, one of the largest distributors of digital cameras, approached the President of Blink with a proposal to purchase 100,000 of the Minidigi cameras for the wholesale price of $100.00 each. The cameras would have to be delivered to DigiCam not later than September 1, 2005. DigiCam’s president explained the timing by saying that they wished to market these cameras for the Christmas season. The president of Blink happily accepted the offer.
Blink has been making cameras for five years, but has never sold more than 25,000 cameras in any one year. Immediately after reaching the agreement with DigiCam, the president of Blink realized that his company was going to have to buy parts to make 100,000 Minidigi cameras between February and the end of August.
Blink immediately began making the purchases needed to manufacture the Minidigis. In March, Blink entered into a contract with SeeAll, a manufacturer of CCDs, a critical part needed for the camera. Without a CCD, a digital camera could not take pictures. Blink had purchased CCDs from SeeAll in prior years, but in quantities that were far below the 100,000 units that they had to order under their contract with DigiCam. SeeAll quoted a price of $25 per CCD and promised delivery of 100,000 CCDs by July 1.
SeeAll delivered 50,000 CCDs on June 30. SeeAll told Blink that it would deliver the balance of the order (the other 50,000 CCDs) by December 30. The president of Blink said that this was simply not acceptable because it would cause them to breach their contract with DigiCam with whom it had a contract to deliver 100,000 cameras by September 1. Blink then proceeded to try to purchase the CCDs they needed from other sellers. They found, however, that the price of CCDs had risen dramatically and that they would have to pay $50 per CCD to make an immediate purchase. At that price, Blink would lose money on every camera it delivered to DigiCam. They decided not to make the purchase. The president of Blink then called DigiCam and explained that they would only be able to deliver 50,000 of the 100,000 cameras. DigiCam responded that they understood the problem and that they would not pursue any legal action against Blink provided that Blink delivered 50,000 Minidigis by September 1. Blink agreed and delivered 50,000 Minidigis on August 15.
Despite this resolution, the president of Blink is considering suing SeeAll. Please provide an analysis to the president of Blink describing the rights and remedies available to Blink against SeeAll. In doing so, please consider the arguments that you would expect SeeAll’s lawyers to advance in support of their client.