Prepare answers to the following chapter-end Critical Legal Thinking Cases from this week’s reading.
- Case 16.1: Specific Performance on page 278
16.1 Specific Performance The California and Hawaiian Sugar Company (C&H), a California corporation, is an agricultural cooperative owned by 14 sugar plantations in Hawaii. It transports raw sugar to its refinery in Crockett, California. Sugar is a seasonal crop, with about 70 percent of the harvest occurring between April and October. C&H requires reliable seasonal shipping of the raw sugar from Hawaii to California. Sugar stored on the ground or left unharvested suffers a loss of sucrose and goes to waste.
After C&H was notified by its normal shipper that it would be withdrawing its services at a specified date in the future, C&H commissioned the design of a large hybrid vessel—a tug of a catamaran design consisting of a barge attached to the tug. After substantial negotiation, C&H contracted with Sun Ship, Inc. (Sun Ship), a Pennsylvania corporation, to build the vessel for $25,405,000. The contract gave Sun Ship one and three quarter years to build and deliver the ship to C&H. The contract also contained a liquidated damages clause calling for a payment of $17,000 per day for each day that the vessel was not delivered to C&H after the agreed-upon delivery date. Sun Ship did not complete the vessel until eight and one-half months after the agreed-upon delivery date. Upon delivery, the vessel was commissioned and christened the Moku Pahu.
During the season that the boat had not been delivered, C&H was able to find other means of shipping the crop from Hawaii to its California refinery. Evidence established that actual damages suffered by C&H because of the nonavailability of the vessel from Sun Ship were $368,000. When Sun Ship refused to pay the liquidated damages, C&H filed suit to require payment of $4,413,000 in liquidated damages under the contract. Can C&H recover the liquidated damages from Sun Ship?California and Hawaiian Sugar Company v. Sun Ship, Inc., 794 F.2d 1433, Web 1986 U.S. App. Lexis 27376 (United States Court of Appeals for the Ninth Circuit)
- Case 18.7: Goods or Service on page 313
18.7 Good or Service Frances Hector entered Cedars-Sinai Medical Center (Cedars-Sinai), Los Angeles, California, for a surgical operation on her heart. During the operation, a pacemaker was installed in Hector. The pacemaker, which was manufactured by American Technology, Inc., was installed at Cedars-Sinai Medical Center by Hector’s physician, Dr. Eugene Kompaniez. The pacemaker was defective, causing injury to Hector. Hector sued Cedars-Sinai Medical Center under Article 2 (Sales) of the UCC to recover damages for breach of warranty of the pacemaker. Hector alleged that the surgical operation was primarily a sale of a good and therefore covered by the UCC. Cedars-Sinai Medical Center argued that the surgical operation was primarily a service and therefore the UCC did not apply. Who wins? Hector v. Cedars-Sinai Medical Center, 180 Cal.App.3d 493, 225 Cal.Rptr. 595, Web 1986 Cal. App. Lexis 1523 (Court of Appeal of California) What is the public policy that supports the mixed sale doctrine?Your responses should be well-rounded and analytical, and should not just provide a conclusion or an opinion without explaining the reason for the choice.
For full credit, you need to use the material from the week’s lectures, text, and/or discussions when responding to the questions. It is important that you incorporate the question into your response (i.e., restate the question in your introduction) and explain the legal principle(s) or concept(s) from the text that underlies your judgment.
For each question, you should provide at least one reference in APA format (in-text citations and references as described in detail in the Syllabus). Each answer should be double spaced in 12-point font, and your response to each question should be between 300 and 1,000 words in length.
Submit this assignment as a single word document covering both cases.
Note: Please be sure you refer to the numbers that appear on the printed pages in your electronic readings, not the numbers that appear with the navigation icons.
Week 5 Lecture:
Forming the Sales Contact You Intended
This lament occurs when a business person discovers, to his or her dismay, that a sales contract negotiated with the other party’s representative has some different or additional terms from those actually negotiated. This can happen as a result of some default provisions that are part of the Uniform Commercial Code (UCC) Article 2, which regulates Sales of Goods.
Uniform Commercial Code Article 2, is in effect in every state except Louisiana, regulates the formation and performance of contracts by businesses that sell goods or combined goods and services. Even businesses that are pure service businesses (accounting firms, consulting firms) purchase goods by contract (furniture, office supplies, books, stationery, etc.) and need to know the law that governs these contracts. UCC Article 2 makes some important changes in the common law of contracts, which result in contracts for the sale of goods being formed in situations that would not form a contract under the common law.
One example of how Article 2 changes the common law of contracts relates to the common law rule that an offer must be definite and certain regarding its essential terms when it is accepted. The UCC allows a sales contract to be formed by a merchant even though some terms are left open, as long as the parties intended to make a contract. The UCC simply fills in the missing terms. Among the terms that the UCC will allow a court to fill in are price, payment terms, and delivery terms. These can be key terms that could change a deal entirely, so specificity in drafting will be essential.
Taylor, a chocolate maker, and Elle, the owner of a chocolate shop, enter into a contract for the sale of chocolates. The price term is left open due to fluctuations in the price of cocoa, a major ingredient, because the chocolates are being ordered for delivery later in the year. If the parties later fail to agree on price, the court will determine a reasonable price at the time for delivery based on the actual cost of cocoa at the time Taylor made the chocolates.
The UCC does not permit the courts to fill in a missing quantity term for the parties. For example, if Elle did not specify the number or pounds of chocolate being ordered, even if the parties agreed on a price per pound, no contract would be formed for the sale of chocolates. The only exceptions to this rule apply to sale contracts in which the buyer and seller agree to sell whatever quantity the buyer needs or requires, known as a requirements contract, or if they agree that the buyer will buy all of what the seller produces, known as an output requirement.
Best Builders makes a contract with Granite Supply to purchase all of the ubatuba granite that Granite Supply produces over the next six months. Best Builders agrees to do this because it needs a reliable source of lots of granite and it was able to negotiate a better price by promising to buy all of what Granite Supply can produce. This is an output contract, and is valid and enforceable despite the fact that no quantity term is stated.
The lecture presentation that follows is designed to help you deal with another contract formation issue under Article 2, known as battle of the forms, which we will be analyzing in one of the discussions this week. Businesses that buy or sell goods regularly have standardized contract forms drafted by their attorneys to favor their position in sales contracts. The parties’ representatives negotiate the basics of a sales contract and then exchange their standard contract documents. But the forms they exchange either contain some contradictory terms, or provisions in one form are not addressed at all in the other form. The issue arises after the contract has been formed: What is our agreement exactly? The UCC battle of the forms provisions determines which of the conflicting or additional terms become part of the contract.
Flower Farm Nurseries sells plants and flowers in bulk to florists. Best Florist places a phone order for 40 dozen long-stemmed red roses at $10 per dozen for delivery by February 10. No other terms are negotiated over the phone. Best Florist then sends its signed order form, which states it will have 24 hours to inspect the roses and return any that do not match the order or are defective. Flower Farm Nursery responds with its signed order confirmation, which states that the buyer must inspect the roses before accepting them at delivery. The roses are delivered, and Best Florist accepts them without inspecting them. A few hours later, Best Florist’s manager notices that several dozen of the roses have freeze damage and cannot be used. The manager attempts to return them, but Flower Farm Nurseries points to the language in its order confirmation. Which of the two conflicting inspection provisions applies to the contract? UCC 2-207 provides a default rule, which we’ll look at in this week’s tutorial, and analyze in one of this week’s discussions.
To understand how the UCC Article 2 changes the common law mirror image rule of contract formation, you can learn about the Battle of the Forms with this presentation.
Estimated Duration: 10 Minutes
Dealing with Government Agencies
Federal, state, and local government agencies make a tremendous amount of law that impacts businesses. Most federal agencies were created by Congress, which did so in order to avoid becoming overwhelmed in the details of rulemaking and enforcement on the theory that specialists in the field were better equipped to handle such details. Though created by Congress, federal agencies are part of the executive branch of government. The president is the head of the executive branch of government. The president’s authority and political agenda often influence many federal agencies (known as executive agencies), because the president has the power to appoint and remove the officers who serve in these agencies. Some federal agencies are independent agencies, where officers serve for fixed terms and are less subject to the President’s influence. Examples of executive agencies are the Food and Drug Administration (FDA), part of the Department of Health and Human Services, Occupational Safety and Health Administration (OSHA), part of the Department of Labor, and Immigration and Customs Enforcement (ICE), part of the Justice Department. Examples of independent agencies include the Federal Trade Commission (FTC) and the Equal Employment Opportunity Commission (EEOC).
All administrative agencies have three types of powers, collectively referred to as the administrative process.
- Rulemaking (enacting regulations)
- Enforcement (enforcing regulations)
- Adjudication (deciding disputes based on regulations)
The law governing how agencies exercise their powers is the Administrative Procedures Act (APA), a federal law.
Rulemaking is the process by which agencies make law (or regulations). Agencies propose new rules, giving notice to the public through the Federal Register (available online), giving time for public comment, reviewing the comments, drafting the final rule, and publishing it in the Federal Register. As part of enforcement powers, agencies conduct investigations of the industries or activities they regulate. Agency investigations often begin when a citizen (an individual or another business) reports a possible violation by a company. Most businesses cooperate with agency investigations most of the time. If a business refuses, the agency can obtain a subpoena or search warrant. The subpoena might seek testimony from a witness, such as a high level employee of a business, or it might seek documents. To be valid, the subpoena must be relevant to a legitimate investigation by the agency, and must be reasonably specific. Businesses are generally protected from revealing trade secrets or confidential customer information.
If an investigation uncovers an alleged rule violation, the agency may issue a formal complaint against the business involved. If the business and the agency cannot agree on a settlement, the dispute will be adjudicated, which means it will be decided by an administrative law judge following a hearing that resembles a trial without a jury. An administrative law judge issues an initial order in the dispute, which the losing party may appeal to the board or commission that governs that agency. The board or commission’s decision becomes the final order of that agency. Because administrative agencies concentrate authority for regulation of certain industries or activities, there is always a risk of arbitrary and capricious agency action. To combat this, the Administrative Procedures Act allows a losing party to challenge the final order of an agency in a federal appeals court.
To appeal to a U.S. Circuit Court of Appeal, however, there must be an actual controversy regarding the agency’s action. It is not possible to obtain an advisory opinion in court about whether a regulation would be valid if enacted or enforced. The regulation must be in effect and the agency must be enforcing it against the business that is trying to challenge it. In addition, the business appealing the agency action must have a stake in the outcome of the appeal (known as standing to sue). One company cannot challenge an agency order made against another company. The business appealing the agency action must also have exhausted administrative remedies within the agency, so that the order it’s appealing is a final order of that agency. It is, therefore, important to fully understand an agency’s procedures so that the administrative process can be fully exhausted prior to taking the next step, if necessary.
Juice Giant, an orange juice manufacturer, advertises its orange juice as fresh. However, the orange juice is made from concentrate. The Food and Drug Administration claims this violates a rule regarding the use of the term fresh, and orders Juice Giant to stop using the term fresh on its orange juice made from concentrate. The company disagrees and demands a hearing before an administrative law judge, who rules in the FDA’s favor. Upon appeal to the FDA commissioner, the agency’s order is affirmed. Juice Giant may now appeal the ruling to a federal appeals court. There is an actual controversy regarding the regulation, Juice Giant has a standing to sue, and it has exhausted its remedies within the FDA.
Federal courts are reluctant to review an agency’s findings of fact on appeal in much the same way that appeals courts in general do not retry the facts from the trial court. Instead, the federal appeals court looks at the law to determine whether the agency’s ruling was appropriate based on the facts it found. In making a decision, the appeals court considers the following: Whether the agency has exceeded the authority it was given by Congress; whether it has properly applied the law; whether it has violated any constitutional provisions; whether it has followed procedural requirements; whether its conclusions are supported by substantial evidence; and, whether its actions were arbitrary, capricious, or an abuse of discretion.