February 2016 Second Example Ten-point Answers to Virginia Essay Questions
February 2016 - QUESTION 5 – VIRGINIA BAR EXAMINATION
Joe Spork owned and operated "Joe Bread," a commercial bakery, which is famous for its artisan breads, located in Henrico County, Virginia. Early in 2014, Joe decided to change the packaging for his bread. He directed the plant manager to discuss possible alternatives with Ace Packaging, Inc., ("Ace"), his long-standing packaging supplier. Following these discussions and preliminary decisions about the materials and dimensions, the plant manager, on April 1, 2014, gave the Ace representative a verbal order, followed by a confirming email, for the new packaging with the condition that before proceeding to book the order and manufacture the materials, Ace was to submit packaging samples and the new "artwork" to the plant manager for approval.
During the same period, Joe was negotiating the sale of Joe Bread's assets to Owens Bakery, Inc. ("Owens"). The asset purchase contract provided that Owens was not to assume or be responsible for any of Joe Bread's contracts involving more than $5,000 that might be in effect at closing. Joe Bread thereafter ceased to be an operating entity. On April 3, 2014, without notice to Ace, the asset sale of Joe Bread to Owens was closed. Joe Bread's plant manager was hired by Owens for the same position with the same responsibilities that he had held at Joe Bread's company.
On April 5, 2014, Ace sent the plant manager a written "Acknowledgement of Order" form with Ace's logo at the top and setting out specifications, delivery instructions, the order date, and the quantity for the new packaging materials. The space for "Price" on the form was left blank, and the following was typed in the "Comments" section: "Obtain customer approval of artwork before proceeding." The form also included the following provision: "Buyer waives all claims relating to goods unless received in writing by seller within thirty (30) days of receipt of goods."
On May 1, 2014, the Ace representative met with the plant manager to review samples of the new packaging and artwork. The manager told the representative to change the name on the wrapping to "Owens Bakery" and with that change to "proceed with the order." On May 14, Ace sent the plant manager samples of the trays and of the changed wrapping for testing on Owens' packaging machinery.
In June 2014, Ace shipped the full order of new packaging materials with an invoice for $18,000 to Owens. In September 2014, Owens, without prior notice, returned the packaging materials to Ace with a letter stating that they did not meet the size or quality specifications set forth in the Acknowledgement of Order form. Ace responded in writing that it would not accept the returned goods because the natural aging process of the materials had caused discoloration which substantially impaired the goods' value and because the wrapping bore Owens' unique artwork.
Ace filed a contract action against both Joe Bread and Owens for the $18,000 purchase price of the packaging materials. Owens defends on the grounds that (i) no enforceable contract was created between Owens and Ace, and, alternatively, (ii) that return of the goods relieved Owens of any obligation to Ace.
|(a)||Does Joe Bread have a valid defense against Ace on the contract claim? Explain fully.|
|(b)||Is it likely that Owens can prevail on each of the defenses it has asserted against Ace? Explain fully.|
|NOTE: Do not discuss any possible cross-claims between defendants.|
February 2016 - QUESTION 5 – EXAMPLE ANSWER #1
(a) Yes, Joe Bread has a valid defense against Ace on the contract claim.
In order for a contract to be enforceable there must be an offer, acceptance and consideration.
Here, Joe Bread never entered into a fully enforceable contract with Ace before it was purchased by Owens Bakery, Inc. Here, there was never an offer of any packaging samples or an acceptance by Joe Bread's plant manager of the packaging samples before the company was purchased. Ace and Joe Bread were merely in negotiations. Joe Bread did not give Ace notice of its acquisition, however, before it performed Ace was notified to change the wrapping to Owens Bakery. A contract did not exist until April 5 when Ace sent the plant manager the acknowledgement form and Joe Bread's asset sale was closed two days prior.
Therefore, Joe Bread has a valid defense against Ace on the contract claim in that there was never any enforceable contract between the parties.
(b) It is unlikely that Owen will prevail on either defense it has asserted against Ace.
(i) Owens is unlikely to prevail on the grounds that there was no enforceable contract between Owens and Ace.
In order for a contract to be enforceable there must be an offer, acceptance and consideration. In addition, under the UCC Article 2, any contract for the sale of goods worth $500 or more, the contract must be in writing to be enforceable under the Statute of Frauds. Under the UCC, there is a merchant confirmation rule which states that when a merchant sends a written confirmation order conirming the existence of a contract to another merchant, the other merchant must expressly state that they are not aware of such a contract within 10 days of receipt of the confirmation order or a contract will be valid. Under the UCC, price is not considered a material term and a reasonable price will be included in an eforceable contract if the term is missing.
Here, on April 5, 2014 Ace sent the plant manager for Owens a written acknowledgement of order form that included all of the material terms necessary for this type of contract. The order form did not include the price but that was because the company needed to obtain customer approval of the artwork and any changes could affect the price. Under the UCC, the missing price term has no effect on the validity of the contract. Owens never expressed to Ace that the contract did not exist. Then on May 1, Ace and Owens met to approve samples. The manager said to proceed with the order and at this point Owens has accepted Ace's offer and a valid, enforceable contract exists.
In addition, if Owens argued that the Acknowledgment order form did not satisfy the requirements for a written contract under the Statute of Frauds because it was not signed by the party to be charged, in this case Owens, he is also unlikely to prevail.
An exception to the Statute of Frauds requirement under the UCC, is when the goods are specially manufactureed and cannot be sold to another buyer. When the goods are specially manufactured, part performance of the production of the goods satisfies the writing requirement.
Here, the goods are specially manufactured and cannot be sold to another buyer because the packaging materials were created to Owens specific requirements and the wrapping bears the Owens Bakery name on it. Ace began production and even finished because he delivered the goods to Owens.
Therefore, Owens is unlikely to prevail under the Statute of Frauds defense because the goods are specially manufactured and Ace began production thereby satisfying the part performance requirement.
(ii) Owens is unlikely to prevail on the second defense that the return of goods relieved Owens of any obligation.
Seller's must deliver a perfect tender and a buyer has the right to reject non-conforming goods but must notify the seller within a reasonable time that the goods are non-conforming. The buyer does not have state specific reasons for the rejection but should do so in order to retain those arguments for later suit. However, this obligation can be limited by the seller in the contract with a time frame for what would be a reasonable time.
Here, under the valid contract, Owens was required to notify Ace of any issues with the goods if Ace did not receive notice in writing within 30 days of Owens receiving the goods. Owens received the goods in June and waited until September, way past the 30 day time frame, to notify Ace that there was issue with the goods.
Therefore, Owens is unlikely to prevail on the second defense that the return of goods relieved any obligation because Owens did not timely reject the non-conforming goods.
February 2016 - QUESTION 5 – EXAMPLE ANSWER #2
(a) Joe Bread would argue that it never entered into an enforceable, valid contract with Ace. In support of this defense, Joe Bread would state that, at no point before April 3, 2014, did Ace accept Joe Bread's offer, thus forming a contract. Moreover, at no point before April 3, did Ace meet the condition precedent to the contract's formation. Moreover, prior to that time, no written contract existed between Joe Bread and Ace to satisfy the Statute of Frauds. Therefore, Joe Bread would argue no valid contractual relationship existed between Joe Bread and Ace.
First, Joe Bread could likely successfully argue that its April 1, 2014 email and verbal order was an offer for a contract, which was not accepted before April 3, 2014. For a valid contract to form, there must be an offer and an acceptance, evincing mutual assent to form a contractual relationship by the parties. Moreover, consideration must be exchanged, which requires the exchange of legal detriment or benefit by both parties. A promise to perform can constitute consideration.
Joe Bread would argue that it merely submitted an offer to Ace on April 1st through its email and verbal order. Prior to that time, Ace and Joe Bread had merely undergone "inquiries" as to the possibility of a contractual relationship. An offer differs from an inquiry, as an offer shows in definite terms a clear intent to enter into a contractual agreement, which then can be accepted by the receiving party.
Joe Bread's offer of April 1st was not responded to at all by Ace until April 5, 2014, after the asset purchase sale. Moreover, the facts do not suggest that Ace shipped any goods (thus accepting by performing). Therefore, Joe Bread would argue, that no acceptance could occur until at least that time. Joe Bread would likely be successful in establishing this defense.
Second, Joe Bread would argue, that even if a contract had formed prior to April 1st, the contract contained a condition precedent that Ace provide samples and proposed artwork, and the plant manager approve those submissions, prior to the formation of any contract. A condition precedent to a contract is a condition that must occur in order for the contract to be enforceable. If the condition fails, the contract cannot be enforceable.
While Joe Bread need not rely on this defense, it could plead it in the alternative. The facts state that the April 1st offer included an express condition that Ace provide samples and artwork which Joe Bread would need to approve. This condition precedent was not fulfilled, if at all, until after the asset purchase sale. Therefore, Joe Bread could likely also establish this defense.
Third, with regard to the Statute of Frauds defense, in Virginia the Statute of Frauds requires that certain types of contracts be put into writing, signed by the party to be charged, in order to be enforceable. The Statute may be met by numerous writings, or even emails, that show the definite terms of a contractual agreement. For the sale of goods, Article 2 of the Uniform Commercial Code, as adopted by Virginia statute, provides that any contract for the sale of goods over $500 must be placed in writing.
In this case, Joe Bread and Ace were discussing the sale of goods, namely, a certain type of packaging for his bread. Therefore, the contract needs to either be in writing or meet an exception to the Statute of Frauds to be enforceable. Several exceptions exist, including: (1) specialty goods for which the seller has made substantial beginnings and are unique to the buyer and (2) full performance of the contract.
As stated above, no contract was formed on that date so the email cannot suffice as a written contract. However, to the extent a contract was formed at a later time, the email might establish some of the terms of the contract.
(b) (i) Owens likely cannot prevail on its defense that no contract existed between itself and Ace. As stated above, a contract forms when the parties mutually assent to the contract, and consideration is exchanged.
Owens would argue first that the provision in the asset purchase contract between Owens and Joe Bread confirmed that Owens would not assume any contract in existence between Joe Bread and any party at the time of the asset purchase. Owens would argue that Joe Bread formed that contract on April 1, 2014, two days prior to the asset purchase agreement. Therefore, on the date of closing on April 3, 2014, Owens expressly did not assume that contract with Ace.
This argument would likely fail. As stated above, Joe Bread had only submitted an offer to Ace as of April 3, and no contract had formed. Therefore, the provision in the asset purchase agreement cannot apply to the Ace contract.
Moreover, Owens's plant manager told Ace after the asset purchase agreement to "continue with the order." Therefore, even if Owens expressly rejected Joe Bread's prior contracts, Owens, as discussed further below, formed a new contractual relationship with Ace after the asset purchase, or is otherwise estopped from arguing the provision.
Second, Owens would argue that it did not form a new contract after the asset purchase. Again, this argument would likely faily. On April 5, Ace sent a written "Acknowledgment of Order" form to Owens's plant manager setting out the details of the arrangement. Even if Owens could successfully argue that the offer by Joe Bread no longer was in operation, and was revoked by the sale of the company, this April 5th correspondence could constitute a new offer by Ace for the sale of the packaging.
On May 1, the Owens plant manager stated to Ace that it could "proceed with the order." Moreover, at that time the Owens plant manager reviewed the samples of the packaging and artwork, and gave his approval. Therefore, with this statements, the Owens plant manager accepted the offer of Ace, and also Ace met the condition precedent for the agreement that Owens would approve the samples.
Owens likely cannot argue here either that its plant manager did not have authority to enter into the agreement. An agent of a principal may have authority to bind the principal by either actual authority, apparent authority, or ratification. Even if Owens's plant manager did not have actual authority to enter into the Ace contract, he likely had apparent authority. Owens held the plant manager out as its agent, and by prior dealings with the same plant manager, Ace reasonably relied on the fact that the plant manager could enter into contractual agreements on behalf of that plant. Therefore, based upon a theory of apparent authority, the plant manager had the authority to enter into the contract on behalf of Owens.
Finally. to the extent that Owens would argue that the contract did not meet the Statute of Frauds, and is thus unenforceable, Owens would also fail in that defense. The offer contains several key portions of the contract, as set forth by Ace. Owens, however, did not sign any written contract. As the party to be charged, Owens would argue that the written offer could not satisfy the Statute of Frauds because it did not sign it.
Owens would fail at this defense because the type of goods, specialty manufactured goods, meet an exception to the Statute of Frauds. Where a party contracts for another to make specialty goods which cannot be readily resold, and the seller makes substantial beginnings on those goods, the contract is taken out of the Statute of Frauds.
In this case, the goods sought have "Owens" printed on the packaging. Ace could not easily resell these goods to any other buyer, thus covering its damages. Moreover, Owens expressly requested Ace to change the name on the packaging to Owens (also supporting the formation of the contract). Finally, the facts state that Ace actually completed making the goods. Therefore, this exception to the Statute of Frauds would be meet.
Moreover, even if this exception would not apply, Ace has fully performed the contract. Full performance, by either payment or delivery, of goods also takes the contract out of the Statute of Frauds.
Therefore, based upon the foregoing, Owens has no defense that no contract has been formed between itself and Ace.
(ii) Owens also has no defense that its return of the goods relieved Owens of any obligation to Ace, because Owens wrongfully rejected the goods.
In the April 5th offer by Ace to Owens, the offer contained a provision that "Buyer waives all claims relating to goods unless received in writing by seller withint thirty (30) days of receipt of goods."
Owens would argue that this term is not part of its agreement. Owens would argue that it never accepted this term, and therefore is not bound to it. Absent this provision, Owens would argue that it did not accept the goods due to Ace's failure to provide perfect tender, and thus seasonably rejected the goods. Pursuant to Article 2, a rejection of goods based upon the goods's failure to meet perfect tender relieves the rejecting party of their contractual obligations.
Ace would argue that Owens received the April 5th offer and failed to object to the additional term of the 30 day provision. On the contrary, Owens's agent appears based on the facts to accept in total the terms of the offer.
For the sale of goods, the U.C.C. alters the mirror image rule of common law. Where additional terms exist between the offer and acceptance between merchants, the U.C.C. asks whether the other party either objected to the term, or if the additional term materially alters the contract. If the term was not objected to, or it does not materially alter the contract, the term becomes part of the contract.
Ace would argue that the additional 30 day term was not objected to by Owens. Further, it would argue that it does not materially alter the contract, since it does not weigh upon the risks or duties of either party under the contract. Therefore, it would argue, as Ace and Owens are both merchants, Owens had a duty under the contract to reject the goods within 30 days.
Ace could argue wrongful rejection regardless of the presence of the provision in the contract, because a party is deemed to have accepted goods if: (1) they express to the other party acceptance; (2) they act in a way consistent with ownership of the goods; or (3) they fail to reject within a reasonable time. Owens did not reject the goods for four months after delivery. This lag in time is likely not reasonable, based upon the fact that the goods were naturally going to age and cause substantial impairment to the goods. Therefore, because Owens did not reject the goods within a reasonable time, it has accepted the goods and must pay the agreed upon price for the goods.
Owens also cannot argue a breach of warranty claim against Ace because it has not given proper notice under Article 2 of such a claim. The facts state that Owens "without prior notice" shipped back the goods. Therefore, Owens cannot seek these type of damages.
Finally, Owens cannot argue that it properly revoked its acceptance of the goods. As a general rule, once goods are accepted that acceptance cannot be revoked. One may revoke acceptance of goods only if: (1) the seller promised to cure defective goods after acceptance and has not; (2) the defects in the goods were unable to be detected upon acceptance (and the buyer did not examine them and could see the defect); or (3) the buyer relied upon the seller to fix the defect. Even if those conditions are met, the acceptance of the goods cannot be revoked if the condition of the goods is substantially impaired.
In this case, the facts state that the goods' value has been substantially impaired by Owens's delay in rejecting the goods. Moreover, there is no evidence that any defects existed which could not be determined upon receipt. Owens has argued the defects are size and quality specifications, which would be readily determined.
As such, because Owens has accepted the goods from Ace, and cannot now revoke its acceptance, Owens cannot defend against the breach of contract claim by asserting that return of the goods relieves it of its obligations.