QUESTION II
The Allegro Hotel, in downtown Franklin decided that, in order to attract the upscale clientele it hoped to accommodate, that it needed to redecorate. It engaged Arthur Deco to design a new theme for the hotel and to select materials to install in the rooms, lobby, restaurant, and hallways to reflect his new design theme.
Among the items Deco recommended was new carpet throughout the hotel. He proposed that the Hotel install Floorco Midnight Blue 3400 in the hallways and guest rooms and that it install Floorco Golden Yellow 1000 in the lobby areas. Both carpets had an intricate design. Accordingly, the Allegro entered into an agreement with Franklin Carpet and Flooring (FCF) for the purchase and installation of 50,000 yards of Floorco 3400 for the guestrooms, and 20,000 yards of Floorco 1000 for the hallways and lobby areas. The contract specified a price of $10.00 per yard, installed. It further required that the Allegro would be required to pay $50% of the price upon delivery of the carpet, with the remainder due upon completion of its installation, with the installation to be completed to the complete satisfaction of Deco Rater.
Unknown to either the Allegro or Deco, there were two separate designs designated as Floorco 1000. The first of these designs, which Deco had seen in another hotel, was a good complement to Floorco 3400 selected for the guestrooms. The other newer design also designated as Floorco 1000 clashed badly with Floorco 3400. Most people found the combination hideously unappealing.
When the carpet arrived, the Hotel paid 50% of the total price, ($350,000) as required by the contract and FCF had its crew immediately begin work installing the Floorco 3400 in the guestrooms. Upon completing installation in the the guestrooms, FCF began work on the hallways. After finishing 5 of 15 floors, representing about 40% of the hallway and lobby work, (8000 of 20,000 yards) and nearly 83% of the entire job, (58000 of a total of 70,000 yards) Art Deco had the occasion to examine the work.
He immediately told Hotel officials about the problem. He told them that the carpet installed in the hallways thus far was not the design they had selected, and demanded that FCF remove it immediately. FCF refused, claiming that it had delivered and installed the carpet the Hotel had ordered. When representatives from the Hotel indicated that they had no intention of paying for the carpet that had already been installed, FCF quit working and refused to replace the Floorco 1000 work it had already installed Further investigation revealed that the Floorco 1000, selected by the hotel, which did complement that already installed in the guest rooms, was no longer available from the manufacturer, Floorco. It would cost an additional $500,000 to have a the carpet specially manufactured and installed in the hallways and lobbies. Other, more neutral carpet, which did not clash with the Floorco 3400, but which did not match the complicated design elements of the Floorco 3400, would cost only $100,000, plus an additioinal $10,000 to remove the Floorco 1000 that had already been installed.
In the meantime, of course, the hotel is unappealing. Re-opening of the hotel will be delayed until the carpet situation is resolved, resulting in an out-of-pocket loss of $5,000 per month, and lost profits of $10,000 per month. Opening the hotel without the new carpet might avoid some of these losses, but also might result in additional undetermined future losses as a consequence of the reluctance of guests to stay in a hotel undergoing continued renovation.
ASSUME THAT YOU REPRESENT FCF. DRAFT A DETAILED ANALYSIS OF YOUR CLIENT’S POTENTIAL RIGHTS AND LIABILITIES IN CONNECTION WITH THIS TRANSACTION.