Grading Form

Our law firm represents Peter Paul. Peter is an engineer who has invented a wind turbine which he calls the PPT for the generation of electricity for individual homes even in areas of moderate wind. We assisted Peter in securing patents on his design. Peter believes that when manufactured and sold in large quantities, the cost of each turbine will be low enough to be afforded by many homeowners. In order to put in place a large number of the PPT turbines in the short term, however, Peter needed a partner. One year ago he entered into a contract with the Excel Electric Company, the electric power producer and distributor that delivers electricity to all of the residences and most of the commercial buildings in our city. Peter now wishes to terminate that contract because he believes that Excel has failed to comply with its contract obligations.

Under the contract, Peter licensed the manufacture and leasing of the PPT to Excel for 10 years. The license only permits the leasing of the PPT by Excel, not its sale. The right of Excel to lease is limited to our city. Peter received $100,000  for this license. In addition, Excel is to pay a royalty to Peter. The royalty is measured by the difference in cost to Excel between their average cost of generating or acquiring electricity and the amount of reduction in each leasing customer’s electric bill resulting from “rolling the meter backwards” which occurs whenever a leased turbine generates more electricity than the leasing customer uses. For example, if electricity generated by or purchased by Excel costs $0.30 per KW and they charge customers $0.45 per KW and the leasing customer’s meter reading is reduced by 10 KW as a result of the PPT generating more electricity than the customer needs, Peter’s royalty would be $1.50 (10 KW x $0.15). This calculation is only possible, however, if the customer is outfitted with a meter capable of rolling backward, a feature not standard on the meters currently in use.

Thus far, Peter has received few royalty payments even though the PPT has been installed in one-half of the city’s homes. Excel has only installed meters which can be rolled backwards in 10% of these homes. Excel has explained to Peter that it is waiting to purchase electric meters which can be rolled backwards until the number of units of the PPT installed justifies the purchase of a significant number of such meters. Otherwise, Excel argues, the cost of the meters has been and will continue to be too burdensome. They have assured Peter that within a year or so there will be a sufficient number of turbines installed so as to justify the cost of the new meters for all of the turbine installations.

You have reviewed the lengthy contract between Excel and Peter and have found the following provisions which may be relevant.

2. Excel will pay Peter Paul a royalty measured by the difference between its cost of electricity and its price to the customer of electricity times the units of electricity deducted from the electric customer’s bill each month as a result of the electricity contributed by the customer to the supply of electricity available to Excel for distribution.

30. The parties agree that this contract contains all of the agreements of the parties and that there are no other promises or conditions beyond those included in this contract.

Peter has told us that during the negotiations with Excel, in response to his request for assurances that the new meters would be installed simultaneously with the installation of the turbines, he received a letter from Excel that he gave us for our files. Here is the letter:

Peter,

You have asked us about our plans for the installation of meters. We understand your concern since the royalty arrangements we are discussing could be implemented only by having meters installed which could be rolled backwards by unused electricity generated by the turbine. If we fail to install those meters we would have breached an important aspect of the agreement. We will install them promptly either with or immediately after the installation of each of your turbines.

Edward Excel, CEO

Excel Electric Company

Please analyze and discuss the arguments we could make on Peter’s behalf if he decided to terminate the contract with Excel. We believe that Excel wishes to continue with this contract and will not be willing to engage in a mutually agreed-upon rescission. We must, therefore, identify the legal arguments that attorneys for Excel will make in response to our arguments for Peter.

Our client Carl Carol is in a dispute with an automobile repair shop to which he took his automobile for work on its brakes yesterday. He was motivated to do so by a flyer from Better Brakes which he had received in the mail. The flyer had a nice picture of a modern-looking automobile repair shop and said, in large bold type, 

BRAKES FOR $100!!!

Carl knew that his brakes needed replacement and he responded to the flyer by taking his car to Better Brakes, showing their agent the flyer he had received and asking   that they replace his brakes. He was told to come back in two hours. On his return, he was presented with a bill for $800. He protested, arguing that the flyer said $100, not $800. Their response was that although $100 was the price quoted, his car’s brakes were not ordinary brakes and that the price of each of the 4 brakes was $150 for the brake and $50 for installation. They pointed out to him that on the receipt he was given when he left his car for repair, the receipt said that brakes cost from $100 to $150. He acknowledges that he didn’t read the form which they had handed to him, thinking that it was simply what he needed to identify himself as the owner of the car when he returned to pick it up. Furthermore, they asserted, everyone knows that the cost of brakes is always quoted as the price for each brake since ordinarily they need to be repaired one, or at most two, at a time. This car is the first one that Carl has ever owned and he said that he didn’t realize that and he didn’t think that was what the flyer said. He also thought that the $100 was for the brake installed and not the price of the break without installation. During the intake interview with our firm, our legal assistant asked Carl whether he had signed the form he had been given by the repair shop. Carl says he doesn’t recall signing anything.

Carl didn’t have $800 and the car is still at Better Brakes. What legal arguments can we make on Carl’s behalf and what responses should we expect from Better Brakes?

Our client Diane Design was confronted with a difficult circumstance. She makes and sells hand-sewn silk garments. She has a contract with a major New York City apparel retail store, PJ’s, requiring her to deliver 1000 silk pajamas on or before June 1. On April 30, her Japanese silk supplier told her that as a result of a silk worm virus he will not be able to supply her with the silk she had ordered for this job. She and her 

supplier have been working together for many years and she has the greatest respect for his skill and for his integrity. He has never before failed to deliver silk that he had contracted to deliver. Her contract with the Japanese silk supplier makes applicable to it Article 79(1) of the CISG (the UN Convention on the International Sale of Goods): “A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.”

Diane has wanted to sell to PJ’s for a long time and this order, the first she has received from PJ’s, is therefore important to her both because of the potential for future sales but also because PJ’s is known for its aggressiveness in litigating against any supplier who fails to deliver. She has looked around for other sources of silk and has located enough to cover this order, but it is of a somewhat inferior quality and pajamas made from it may not be acceptable to PJ’s. Because she wanted the business, she had quoted a price on the pajamas that was not only under her normal price but was also well under the market price for silk pajamas of this quality. She estimates that if PJ’s were to purchase these pajamas today at the market rate, it would cost it at least $5000 more than the price of the contract she made with it. She is pretty sure she could prove that any other silk pajamas PJ’s could buy would be inferior to those she had promised in their contract. There is also a provision in her contract with PJ’s that states that if she fails to make timely delivery of the pajamas, she will owe PJ’s, in addition to any other damages to which PJ’s is entitled under the UCC, 10% of the contract price not as a penalty but as liquidated damages. The contract price of these pajamas was $100 each.

Diane has a good understanding of the business issues involved, but is uncertain about the law. She would like your guidance about her rights and liabilities in these circumstances, both with respect to her Japanese silk supplier and to PJ’s. It is now May 5, 4 weeks before the June 1 delivery date set in her contract with PJ’s. She needs your guidance today.

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