QUESTION I - 1 Hour
Ranier Outdoor Adventures, Inc. (ROA) specialized in organizing outdoor adventure trips, including bicycling, caving, rock-climbing and, most importantly, skiing for its customers in Washington State. When, in 1996, it decided to expand its operations to include whitewater kayaking and rafting, it decided it needed to purchase a fleet of rafts and kayaks that could be used by its guides and customers. The kayaks and rafts that Ranier Outdoor Adventures needed are manufactured relatively small manufacturers with limited manufacturing capacity. Accordingly, Ranier Outdoor Adventures began to work on a source of supply soon after its decision last fall to expand this aspect of its business.
After talking with a handful of boat manufacturers on the telephone, Ranier Outdoor Adventures determined that only one had enough manufacturing capacity not already committed to pending orders to handle an order of Ranier Outdoor Adventures's size. That manufacturer was Boatworks, Inc., which was interested in doing business with Ranier Outdoor Adventures and indicated that a volume discount off its regular prices would be available for an order the size of Ranier Outdoor Adventures's.
Ranier Outdoor Adventures wrote to Boatworks on November 1, 1996, offering to purchase an assortment of 150 boats for a price of $500 per boat, which represented a substantial discount off the retail prices of the boats ordered which ranged from $600 to $900 per boat. Further, Ranier Outdoor Adventures set March 1, 1997, as the delivery date.
Boatworks responded by letter on November 5, 1996, stating that the only way it could have this quantity and assortment of boats ready for delivery on March 1, 1997, was to expand its manufacturing staff and that it would therefore need to receive $600 per boat. Ranier Outdoor Adventures responded by letter on November10, 1997 agreeing to the higher price, and specifying that "Ranier Outdoor Adventures reserves the right to terminate the contract by notice to Boatworks with respect to any undelivered boats for any reason whatsoever."
The 1996-97 winter ski season was dismal. There was little snow in the mountains. The lack of snow had a disastrous effect on Outdoor Adventures' winter income. Worse yet, the lack of snow to melt in the spring meant that there wouldn't be much of a whitewater kayaking or rafting season in the spring of 1997.
On February 28, 1997, Ranier Outdoor Adventures notified Boatworks that is was exercising the termination provision. Ranier Outdoor Adventures knew that it would not have the money required to purchase the boats ($90,000) on March 1 and knew that it would not need the boats until later in the season, after the last spring rains had produced enough water in the rivers to attract customers to Outdoor Adventures boating trips.
Throughout March, Boatworks attempted to find other buyers for some or all of the boats, but was unsuccessful since orders for spring delivery of boats had been placed by those in need of them last fall, and because other prospective customers were putting off additional purchases, given the likelihood of a weak whitewater boating season. Boatworks could not afford to keep the boats in inventory until the following season. Further, Boatworks was concerned that even then, the year-old boats might not be sold because the industry was increasingly relying on the annual introduction of new and improved boat designs to spur buyer interest.
In an effort to salvage something from the boats, Boatworks wrote to Ranier Outdoor Adventures and in a letter dated April 10, 1997, offered to sell the boats called for in the original contract to Ranier Outdoor Adventures at a price per boat of $400 each. Ranier Outdoor Adventures took quick advantage of this opportunity and immediately wrote back on April 12, 1997, to accept the offer "on the terms of our original contract except that delivery will occur on May 1, 1997." Boatworks received this letter on April 15, 1997. However, on April 13, Boatworks was contacted by REI, which was opening several new stores and wished to purchase a large number of boats. REI was willing to pay an average price of $525 per boat. On April 13, 1997, Boatworks sent a letter to REI accepting its proposal and immediately faxed to Ranier Outdoor Adventures a revocation of its willingness to sell Ranier Outdoor Adventures any boats.
ADVISE RANIER OUTDOOR ADVENTURES OF ITS RIGHTS AND LIABILITIES WITH RESPECT TO BOATWORKS.