BUS 225 Module 3 assignment: paper analyzing contract formation and breach in a sale of goods, a full sample

Forty Kayaks at $410: Formation, Breach and Damages in an Emailed Wholesale Order

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Business Administration Program, Aspen University

BUS 225: Legal Environment of Business

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Month Day, Year

Forty Kayaks at $410: Formation, Breach and Damages in an Emailed Wholesale Order

In January, Pinecrest's buyer emailed a Colorado kayak maker asking for a price on 40 touring kayaks for May delivery. The maker's sales manager replied with a quote of $410 per kayak, delivered, valid for fourteen days. Nine days later Pinecrest replied, "We'll take 40 at $410, delivery by May 1." The maker sent back an order acknowledgment confirming quantity, price and date, which added a clause requiring arbitration of disputes and a clause limiting the maker's liability to replacement of defective boats. In March, after a resin shortage raised its costs, the maker wrote that it could deliver only at $480 per kayak. Pinecrest refused, bought 40 comparable kayaks elsewhere at $468 and now wants to know whether it had a contract and what it can recover.

Which Law Applies

Contracts for the sale of goods, meaning movable things, are governed by Article 2 of the Uniform Commercial Code, which Colorado has adopted; contracts for services and real estate remain under the common law (Legal Information Institute, n.d.). Kayaks are goods, and both parties are merchants who deal in them, so Article 2 applies, including several rules written specifically for transactions between merchants. Where the code is silent, general contract principles fill the gaps.

Was There a Contract?

Contract formation is judged objectively, by what a reasonable person would understand from the parties' words and conduct, not by what either party privately intended. A Virginia court enforced a land sale written on a restaurant check even though the seller later said he had been joking, because his words and conduct reasonably appeared serious (Lucy v. Zehmer, 1954). Under that standard, the maker's email was an offer: it stated a quantity, price, delivery term and deadline, and invited acceptance. Pinecrest accepted within the fourteen days with language that matched the offer. Email is a valid means of offer and acceptance, and nothing in the exchange suggested either side intended to wait for a formal signed document. A contract for 40 kayaks at $410 was formed on the day Pinecrest replied.

The Writing Requirement

For sales of goods priced at $500 or more, Article 2 requires a writing signed by the party that is now resisting the contract, although the writing need only indicate that a contract was made and state a quantity (Legal Information Institute, n.d.). The order is worth $16,400. The maker's own email quote, sent from its sales manager's account with his name in the signature block, and its later order acknowledgment both indicate a contract and state the quantity. Federal and state electronic signature laws treat such electronic records and signatures as satisfying writing requirements, so the maker cannot escape the contract on this ground.

The Added Terms

The acknowledgment added arbitration and a limit on liability. Under the code's rule for conflicting forms, a clear expression of acceptance still counts as one even when it proposes extra terms, and between merchants the extra terms are treated as added to the deal except where the offer limited acceptance to its own terms, the new terms materially alter the bargain, or the other party objects in time (Legal Information Institute, n.d.). But here the acknowledgment came after the contract was already formed by Pinecrest's email, so it was a proposal to add terms to an existing deal rather than an acceptance. Pinecrest never agreed to those terms. A limit on the maker's liability would also likely be treated as a material alteration. Neither added clause controls the dispute over late delivery.

Breach and Pinecrest's Response

The maker's March email stating it would deliver only at a higher price was a clear refusal to perform the contract as agreed, a repudiation made before performance was due. Pinecrest was entitled to treat the contract as broken and seek another source rather than wait until May. A higher cost of materials does not usually excuse a seller; excuse under the code is limited to failures caused by contingencies whose non-occurrence was a basic assumption of the contract, and ordinary price increases are the kind of risk a fixed-price seller accepts. Pinecrest acted promptly and reasonably by buying substitute kayaks within two weeks from an established supplier.

Measuring the Damages

A buyer who reasonably covers can recover the difference between the cost of cover and the contract price, plus incidental and consequential damages, less expenses saved (Legal Information Institute, n.d.). Consequential damages are limited to losses the breaching party had reason to foresee when the contract was made, a principle the English Court of Exchequer set out long ago and American courts still follow (Hadley v. Baxendale, 1854). Pinecrest's figures are below.

Consequential Losses

Pinecrest also lost a planned early-May kayak clinic because the replacement boats arrived on May 9, and it estimates $1,100 in clinic fees and related sales. Whether that is recoverable depends on foreseeability. The maker knew the boats were for retail sale in May, but nothing shows it knew about the clinic. A court would likely allow the difference in cost and incidental freight but treat the clinic losses as too remote unless Pinecrest can show the maker was told. The lesson for future orders is to state important downstream uses in the purchase order.

Lessons for Future Orders

The dispute points to simple improvements. Pinecrest's purchase orders should state that acceptance is limited to their terms and that added terms in the seller's forms are rejected. Orders placed by email should attach Pinecrest's standard terms. Where a delivery date supports a planned event, the order should say so, which makes related losses foreseeable. And for goods with volatile input costs, Pinecrest may agree to a price adjustment clause in exchange for a firm delivery commitment.

Conclusion

The emailed exchange formed a contract for a sale of goods under Article 2, satisfied the writing requirement and was not changed by terms the maker added later. The maker's refusal to deliver at the agreed price was a repudiation not excused by higher costs. Pinecrest's prompt cover entitles it to about $2,580, and more only if it can show the maker foresaw the clinic losses. Pinecrest should send a written demand for that amount before considering further action.

References

Hadley v. Baxendale, 9 Ex. 341, 156 Eng. Rep. 145 (1854).

Legal Information Institute. (n.d.). U.C.C. Article 2: Sales. Cornell Law School. https://www.law.cornell.edu/ucc/2

Lucy v. Zehmer, 196 Va. 493, 84 S.E.2d 516 (1954).