CAPITAL UNIVERSITY LAW SCHOOL - FALL 1998 CONTRACTS FINAL
PROF. JEFF FERRIELL

© Jeffrey T. Ferriell, 1998

Question III - 33% - 1 Hour

Limit Your Answer to 5 Pages in a Bluebook

Plastic Laminates, Inc. (PLI) needed a new "embosser for it's business manufacturing plastic "film" which it embosses and laminates onto fabric for use by PLI's customers as wall covering. It ordered a new "embosser" from Industrial Manufacturing Inc. (Industrial) who was in the business of manufacturing and selling equipment, like embossers, for use in the plastic film business. The price of the new embosser was 2,000,000, with 10% of the price paid $200,000) in advance, 45% ($900,000) due upon delivery, and 45% ($900,000) payable when the embosser was installed by PLI. As required by the terms of their agreement PLI supplied all of the necessary specifications to the Industrial for the new machine, including those necessary for placement of the anchors which would be installed by PLI to secure the embosser in place in PLI's factory. The study necessary to provide these specifications cost PLI $5,000.

In anticipation of receiving delivery of the new machine, PLI spent $20,000 removing it's old embosser and another $10,000 installing a new concrete platform on which the new embosser would be installed.

PLI also entered into a contract with Wallcovers R US (WallRUS) for the production of 1,000,000 yards of metal laminated embossed plastic for 50 cents per yard, for a total price of $500,000. The process for embossing metal laminated plastic was one of the new features of the embosser to be purchased from Industrial. With delivery of the new embosser scheduled for November 1, PLI was confident it could start production with the new machine and have the metal laminated embossed plastic delivered, as required by its contract with WallRUS, by December 1. While delay in delivery would undoubtedly harm WallRUS, the parties knew that it would be difficult to ascertain the precise extent of WallRUS' lost sales due to any such delay. Accordingly the parties agreed that PLI would pay $50,000 for any delay by PLI in delivering the plastic beyond December 10.

When the embosser was delivered on November 1, PLI quickly discovered that it would not properly fit on the anchors that PLI had embedded in the concrete platform prepared for the embosser. Examination of the specifications for the embosser showed that this was due to a mistaken calculation by Industrial. There is no question that Industrial is in breach due to this error.

As a result, PLI's installation of the embosser was delayed for the month it would take to remove the concrete platform originally installed, pour a new concrete platform with new anchors, and wait for the new platform to cure. This effort will cost an additional $15,000. Worse yet, PLI will be unable to deliver the metal laminated embossed plastic to WallRUS until January 1. In addition, of course, PLI would be unable to use the new embosser during the delay, resulting in lost total revenues of another $1,000,000 during the delay. While temporary layoffs could diminish the effects of this shutdown, saving over $400,000 during the delay, PLI was reluctant to furlough its workers during the Christmas season and was fearful that many of these workers would find other employment and not return once the new embosser was installed. This would not only cost PLI additional amounts in finding and training new employees, but would undoubtedly result in more losses due to poor quality products made by inexperienced employees. PLI estimates these additional losses at between $200,000 and $600,000.

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