OHIO STATE UNIVERSITY LAW SCHOOL - FALL 1998 CONTRACTS FINAL

Question II -- 33%

Limit your answer to 5 Pages in a Bluebook

For the past 10 years Holly Hampton has run a mail-order catalog business selling Christmas decorations. This year, Holly decided to attempt to sell her Christmas decorations over the Internet. In January, 1998 Holly entered into a written agreement with Web Design Corporation (WDC) for the development of a complex web site which would display photos and of her Christmas decorations together with price and shipping information and make it possible for customers to place orders with Holly, directly over the Internet.

According to the terms of their agreement Holly would provide WDC with all of the necessary information and photographs for the web site, and WDC would convert this data into a form suitable for use on the web site. According to the written agreement WDC was also to take all steps necessary for customers to place orders over the Internet. The agreement required Holly to submit the necesarry materials to WDC no later than August 30 and WDC would have the web site ready by October 1, the time Holly told WDC that here 1998 Christmas Catalog would be mailed to her customers. The price for these services, to be paid at the time the web site went online, was $50,000.

Holly spent $10,000 redesigning her catalog so that it would have the same general appearance as the web site she and WDC had discussed. However, the text and photos she had spent $20,000 on the year before, for the 1997 catalog, was still suitable for use on the new web page and in the 1998 catalog. Holly spent an additional $5,000 preparing photos and text for new items not available in her '97 catalog.

In addition, Holly entered into an agreement with Christmas Cookies Galore (CCG), a firm selling mail-order Christmas cookies, to distribute CCG's cookies through Holly's new web site. Preparing these materials for inclusion cost Holly an additional $7,000. Before August 30, she submitted all of the necessary data to WDC, including all of the photographs and other information relating to CCG's cookies, for posting on the site. On October 1, 1998 WDC had completed its work and placed the site on its web server. Satisfied with the results, Holly paid WDC the agreed price of $50,000. Holly's 1998 catalogs, which cost $60,000 to print and mail, went out at the same time, advertising the opportunity to purchase items either via mail order or at www.Holly.com.

The site was a tremendous success, with thousands of orders from Holly's past customers submitted over the web site. Unfortunately, due to a bug in the WDC web site Holly did not learn of approximately 1/2 of these orders until mid-December when customers started calling Holly to inquire about their orders. This defect, of course, is a breach of WDC’s obligations under the contract.

By December 18 WDC learned from disgruntled customers of $500,000 worth of orders for holiday decorations that had been submitted to the web site, but never transmitted to Holly, because of the bug in WDC's program. There may well have been additional orders that Holly may never learn of. Holly has determined that her lost profits on these transactions alone amounts to at least $40,000. She is concerned, as well, that she has permanently lost future business from these customers whose orders will not be filled in time for Christmas because of WDC's snafu. She is worried, as well, about the $35,000 of orders for CCG cookies that were not received and her potential liability to CCG for it's lost revenue from these orders.