Case Senario

Scenario: Grocery, Inc., is a retail grocery store chain based in Any State, U.S.A. Grocery has stores throughout the United States. Grocery has written contracts with many different vendors to purchase the products they sell in their stores. Vendors range from individuals to international corporations. Tom Green works as the produce manager for the store in My Town, U.S.A. Jeff Fresh, 17 years old, is spending his summer vacation working for Tom in the produce department.

Assignment: Using the scenario above, give detailed answers to the following questions:

1. Does Article 2 of the Uniform Commercial Code (UCC) apply to the contracts between Grocery and its vendors? Do common law contracts apply? Explain, in detail, why or why not. Your answer should compare and contrast common law contracts and UCC Article 2 contracts.

The Uniform Commercial Code (UCC) Article 2 "applies only to contracts for the sale of goods" (Mallor 228). The definition of goods is defined as goods that are "tangible, movable, or personal property." (Mallor 228) However, UCC Article 2 "does not apply to service contracts." (Mallor 229). Contracts established for the sale of services or intangible items are therefore governed by the common law of contracts while the sale of tangible goods is covered by the UCC. Therefore, which set of laws applies depends on the nature of the contract. In this case the UCC would apply to contracts that establish actual sales, or ones that establish standards for the way in which sales will be conducted. For instance, Grocery might have a contract with its produce vendor that covers all aspects of a normal contract like shipping and payment terms. This contract would then apply to all future orders from the produce vendor and would be covered under UCC on a per-order basis. However, a contract with a vendor that stocks the shelves themselves, such as a specialty chocolate company that stocks bulk bins that are owned by the vendor would be covered under common law. In such a situation the store acts as an agent for the sale of the product and then retains a portion of the sales income, resulting in a mutual service contract that is covered under common law.

2. Grocery contracted with Masterpiece Construction to renovate the store on Main Street in My Town. Masterpiece, unable to complete the renovation within the six-month time limit due to a sudden increase in jobs, sub-contracted the entire job to Build Them To Fall. Grocery was unaware of the sub-contract. When Grocery realized (due to the poor quality of work) that Build, not Masterpiece, was handling the renovation, Grocery petitioned the court for an injunction and then sued Masterpiece for breach of contract and specific performance. Masterpiece argued that it had a right to delegate the duties of the contract, or in the alternative, to discharge the contract due to commercial impracticability. Who wins? Explain your answer.

The question that needs to be asked here is whether or not the contract has clause which specifies whether or not Masterpiece Construction can sub-contract the renovation or if they must perform the work. The answer to that question determines whether Grocery has a valid case. In this circumstance Grocery has a good chance of winning the suit for specific performance but not necessarily for breach of contract. If the contract specifies that Masterpiece is to perform the work, then Masterpiece would be responsible for breach of contract. If that is not stated then Masterpiece had the right to delegate the work to a third party without penalty. However this does not excuse Masterpiece from being liable for the renovation. When Build Them To Fall accepted the job from Masterpiece, they also assumed the liability, which means both companies are equally liable for the quality of work. The only way Masterpiece can lose the title of obligor and not be considered liable for specific performance is to be discharged from performance by novation. Novation is "the substitution by mutual agreement of one obligation for another with or without a change of parties and with the intent to extinguish the old obligation" (Merriam-Webster's Dictionary, 2007). If Build and Grocery both agree to the novation, Masterpiece would have no further obligation under the contract and Grocery would have to hold Build responsible for performance.

3. At the end of the summer, Jeff Fresh had earned enough money to put a down payment on a car. He decided to continue working part time during school to earn money for the car payments. Jeff purchased a car from Smooth Sales Used Cars. Smooth did not ask Jeff how old he was; the salesman assumed he had reached the age of majority. Jeff paid the down payment and signed the contract stating that he would make payments of $200 each month. Six months later Jeff lost his job and could no longer make the payments. Jeff took the car back to Smooth and said he wanted to cancel the contract and that he wanted his money back. What are the possible outcomes? Explain your answers.

Because Jeff is a minor, he can disaffirm the contract. Once the contract is disaffirmed each party has the duty to return to the other any consideration that the other has given. According to the Traditional Rule if Jeff is unable to fully return the consideration that was given to him he is not obligated to pay Smooth Sales Used Cars for any depreciation of the vehicle. Therefore in exchange for returning the car back to Smooth Sales Used Cars Jeff should receive his down payment and $1200. However, in some states the traditional rule does not always apply. In such a state Jeff can still disaffirm the contract, but instead of getting everything he paid back he would receive only the difference between what he paid and the depreciation on the car since he purchased it. If the depreciation exceeds the amount he paid he would not owe any more money, but he would not have any money returned either. Another possible result depends on Jeff's current age. If he has turned 18 since he purchased the vehicle, and he has made at least one payment since turning 18, then he has affirmed the contract since reaching majority and therefore no longer had the right to disaffirm.

4. Grocery has a written contract with Cereal, Inc. to purchase 20 cases of cereal per month at $22 per case. The contract does not state the types of cereal or how the 20 cases will be divided up between Grocery's 20 stores in Any State. After a flood, Cereal suffers severe water damage in its warehouse. With the exception of Soggy Flakes, Cereal does not have enough undamaged cereal to comply with its Grocery contract. On the day delivery was due, Grocery receives 10 cases of Soggy Flakes at the three stores located in My Town and two