CONTRACTS FINAL EXAM - PROF. FERRIELL - FALL 1997
QUESTION 2
After several years of research, Fred Franklin developed a patented new process for
joining alloy metal tubing to make a stronger, stiffer, lighter bicycle racing frame than
had previously been possible. The process required use of a new type of metal alloy tubes,
also designed by Fred and designated by him as Type 33A. Although the tubing and process
was expensive, Fred believed that it would enable him to produce a bicycle frame that
would revolutionize the bicycle industry. He anticipated that over time as the process
became cheaper, his process would become the standard used for quality racing bikes
world-wide.
In order to take advantage of his discovery Fred entered into a contract with Custom
Steel Alloy Inc. for the manufacture and sale to Fred of the Type 33A metal alloy tubing
he needed for his frame building process. Custom Steel Alloy specialized in the production
of alloy tubing for use by producers of bicycle frames. It had worked with Fred in his
efforts to develop type 33A metal alloy tubing. Under the terms of a written contract,
signed by both Custom and Fred, Custom agreed to manufacture Type 33A tubing, according to
Fred's specifications, and to sell Fred all of the Type 33A tubing Fred required, for $100
per foot. Because of the costs associated with preparing to produce Type 33A tubing, Fred
agreed to purchase a minimum of 200 feet of tubing for a price of $20,000, regardless of
whether Fred actually took delivery of the tubing or not.
After entering into the contract with Custom Steel Alloy, Fred hired a crew of 5 professional welders with experience using alloy tubing like Type 33A and paid them $3000 wages each for a month while they learned to use the process Fred had developed. During this time, Fred used up all of his stockpile of Type 33A alloy, in the training process. In addition, Fred entered into a contract with former Irish bicycle racing champion Sean O'Riley, promising to pay Sean $10,000 for Sean's endorsement of Fred's Type 33A racing bicycles. Fred also contracted with "Team Allez", promising to supply all members of the team with his new Type 33A alloy frame bikes, in time for the 1998 racing season, for a price of $3000 per frame.
In the meantime, Custom Steel Alloy entered into another agreement with Megabike Inc. a
large manufacturer of standard steel bicycle frames. Under the terms of this agreement
Custom Steel agreed to sell Megabike all of Custom's output of steel bicycle tubing for
the next three years. Custom contacted Fred and advised him that it was diverting all of
its production capacity to producing steel tubing for Megabike and that it would not
perform its agreement to sell Fred the Type 33A alloy tubing.
Fred attempted to locate another manufacturer of alloy tubing, but could not find a
substitute who would be able to convert its production facilities in time for Fred to
obtain enough Type 33A tubing to manufacture bicycles for the 1998 bicycle racing season.
When Fred contacted Team Allez and told it that he would not be able to supply the members
of the team with racing bikes for the upcoming season, the Team Allez manager promptly
purchased substitute frames from one of Fred's competitors for $3500 each, the best price
he could get on such short notice and in time for the '98 season.
Draft a memo analyzing Fred's potential remedies against Custom Steel Alloy. Explain your reasoning fully. Limit your answer to 4 pages in a bluebook.