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BUSINESS LAW
CONTRACTS WEEK 10
1.
Who Failed To Communicate?
Buyer wished to upgrade its 5,000 lighting fixtures to meet new energy conservation standards,
but had been unable to find compatible lighting elements for its fixtures. It was trying to avoid
replacing the entire fixture. Buyer wrote to Seller, explaining its needs.
On July 1, Seller e-mailed Buyer:
“We believe we can manufacture the lighting elements that you require. We are prepared to
supply 5,000 at $100 each. We understand that this is much more than you anticipated paying,
but the redesign to meet your specifications will not be easy. We need to do this deal by
September 1, 2014. If not, we will have to turn our attention elsewhere. “
Buyer was relieved that it would not need to replace its existing lighting fixtures. Buyer felt
sufficiently confident that it would be able to secure funding for the purchase, so it terminated
ongoing negotiations with other manufacturers for replacement lighting fixtures.
On August 1, 2014 Buyer received notice that funds would be available. It immediately
attempted to e-mail Seller: “We got the money. We have a done deal.”
Seller did not, however, receive the message because Buyer sent it to the wrong e-mail address.
On August 10, 2014 Seller e-mailed Buyer:
“We have reconsidered. Because of new commitments, we will not be able to supply the lighting
elements as planned. Sorry.”
Because its computer was down on August 10 and 11, Buyer was unaware of Seller’s August
10th e-mail message.
On August 12, 2014 Buyer telephoned Seller and the following conversation occurred:
Buyer: “Our computers have been down for a couple of days, but we assume you got our
message. Our people are real excited about this.”
Seller: What message? “And we told you two days ago we could not do the lighting elements.”
Seller has refused to supply the lighting elements. It will be very difficult and expensive for
Buyer to acquire 5,000 replacement lighting fixtures.
Can Buyer prevail in a breach of contract action against Seller?
2.
How Not To Buy a Business
Sam decided to sell his interior design business in Town to Betty.
While reviewing a purchase agreement drafted by Sam, Betty insisted on a covenant by Sam not
to compete with her in the interior design business in Town for a period of ten years.
In response to Betty’s request, Sam drafted the following proposed language on the last page of
the purchase agreement:
“Sam hereby agrees that he will not perform interior design services in Town for a period of ten
years.”
Betty said: “That’s fine. I don’t want to have to compete with your ties to your former clients in
Town.” Sam told Betty that he would revise the purchase agreement to ad this covenant.
The following day, Sam sent Betty the original and one copy of the purchase agreement. Betty
signed the original without reading it and returned it to Sam along with payment of the purchase
price; she kept the copy. Sam never signed the purchase agreement.
Six months later, Betty learned that Sam had recently undertaken four large interior design jobs
for clients who lived in Town. When she complained, he explained that, although the clients
lived in Town, the jobs were on properties located outside Town. She reviewed her copy of the
purchase agreement and discovered that it did not contain the covenant not to compete.
Sam had mistakenly sent her an unrevised version of the purchase agreement.
1. Does the transaction include a covenant by Sam not to compete?
2. Is the purchase agreement otherwise enforceable? Is the covenant enforceable?
3. What remedies should Betty pursue? What should she do?
4. What defenses does Sam have to assert?
3.
You Don’t Bring Me Flowers Anymore
Olivia is a florist who specializes in roses.
She has a five-year written contract with Juan to sell him as many roses as he needs for his
wedding chapel. Over the past three years, Olivia sold Juan between 4,000 and 5,000 roses
annually. With three years remaining on the contract, Juan notified Olivia that he cannot continue
to buy roses from her because of serious budget concerns. Olivia was selling the roses to Juan
for $2.00 each, so her gross annual income on the contract was from $8,000 – $10,000.
Last month Ann (a new customer) emailed Olivia an order for “1,000 white stems” to decorate
an event hall. The order did not specifying a particular price or flower. Ann assumed that Olivia
would send roses, her specialty. Olivia instead sent orchids, the only “white stems” available at
the time.
When Ann received the white orchids, she was surprised. Since Ann had no time to inquire
about getting roses (as she expected), she used the orchids for the event.
Olivia subsequently billed Ann $5 each for the orchids, a price more than twice that of roses.
Ann refused to pay the higher amount.
1. What contract rights and remedies, if any, does Olivia have against Juan?
2. What contract rights and remedies, if any, does Olivia have against Ann?
3. What defenses, if any, do Juan and Ann have?
4. Employment Dispute – Bonus Payable?
Carol Mann and Gerald Harris worked for Helmsley-Spear, Inc. (HSI), as managers for various
HSI properties. In 2005 each received a bonus of $50,000 for their work in converting an HSI
apartment complex, known as Windsor Park, into a condominium complex. The conversion
started in 2002 and took three years. The bonus was paid pursuant to an oral contract made in
December of 2001 that promised a bonus (above their salary) when the project was completed.
HIS was very happy with their work and indicated that other projects are planned.
In 2006 Mann and Harris were asked by HIS to work on another conversion of an apartment
building known as Park West. For this project Mann and Harris were again orally promised a
bonus (above their salary) using the formula similar to the Windsor Park conversion. It was
understood that this project would also require two or three years to complete.
In 2009, after successfully converting Park West, Mann and Harris were fired. HSI refused to
pay them the bonus.
Mann and Harris sued. Among other things, HSI contended that their oral agreement concerning
the extra compensation was unenforceable under the Statute of Frauds.
How should the court rule on this issue?
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