Bob and Jane are business people who both work in the textile industry. Bob’s business focuses on weaving and manufacturing fine linen fabric. Jane is a retailer of such fabric.
Bob buys raw materials and processes them in a factory where he has a dozen employees. The quality of his fabrics, especially his linen, is renown in the community. He consistently delivers a product that is above industry standards, which is part of the reason why he has done so well. The thread count in his linen is approximately 50% higher than that of his competitors, a characteristic of the fabric that those who purchase from Bob expect.
Recently, Jane expanded her business by purchasing a large, cotton-growing operation. She bought land from Alex who suggested that there might be some dry weather ahead, but that this farm was actually drought-and-flood proof. Jane and Alex had known each other socially for many years. Jane knew that Alex was getting ready to retire was looking toward the prospect of a mutually beneficial arrangement. Jane, knowing nothing about cotton growing asked Alex how he thought the land would do in the upcoming el niño pattern. “No matter the climate,” Alex said, “this land will produce top-of-the-line cotton. In fact, I expect that this land will produce cotton even in the hard times I expect there to be this season, which is good news for you. You’ll be able to cash in on the shortage.” Alex, though, was an expert cotton-grower and knew that this season he was unlikely to make much money. So, he wanted to sell the land before he suffered a loss. Jane bought the land after she calculated how much she thought she could make on it. The contract was for the sale of the cotton-growing land and not for the land where Alex’s longtime residence sat. Once the sale was finalized, Jane brought Elizabeth to see the land.
Jane is growing older and has left much of her business, including purchasing of fabrics to resale, in the hands of her granddaughter, Elizabeth, who is a very bright and capable seventeen-year-old. Elizabeth has lived with Jane ever since her parents died (sadly on Elizabeth’s twelfth birthday, July 31, 2006), leaving Jane as Elizabeth’s only guardian. It was important that Jane show Elizabeth the land and how everything worked. While the two were touring the land, Elizabeth’s arm got caught in a piece of farm equipment. She was very severly injured. They rushed her to Alex’s home. Alex and his family offered to take care of Elizabeth. Elizabeth thought that was a good idea; after all, she didn’t want to burden her grandmother while she was busy, and she felt very comfortable staying with Alex and his family in their home while she recovered. Alex happily paid for Elizabeth’s doctor’s visits and medicine, as well as her costs on the family’s outings.
Bob heard about Jane’s new business endeavor. Since Jane had been buying fabric from Bob for years, Bob decided to start purchasing cotton from Jane’s new cotton operation to use in his linen. However, because of a recent drought, there was a scarcity of cotton. In order for Bob to meet all his orders, he needed a lot of cotton by the end of the spring, which he very much doubted any producer could provided him. Jane was still new to the cotton business and was eager to build a client based; she was optimistic about growing and selling cotton, not fully aware of the implications that recent weather would have on her ability to produce cotton. He and Jane worked out an agreement whereby Jane would sell 500 bales to Bob at $100/bale. Payment would be due by ten days following delivery. Both Bob and Jane signed the agreement. They did not, however, work out a precise date for delivery because Jane didn’t know when her cotton could be harvested. Bob insisted, however, that he have delivery by the end of spring, which Jane thought was reasonable.
Bob, feeling confident about the prospect of his business, wanted to make sure that he would be able to sell all the fabric he produced from the cotton he purchased from Jane. He called Jane’s store to arrange a sale of linen. Jane wasn’t there, however, and Elizabeth answered the phone. Elizabeth agreed to purchase thirty bolts of mint-colored linen from Bob, remembering that Bob’s linen was first-rate. During their conversation she said, “I think any of our customers would love to have that sort of fabric if it lives up to the quality that you usually produce.” They set a date for the completion of the transaction: August 25, 2012. Bob later sent a letter including the agreement as they had agreed to it, but used very confusing language. Additionally, he added a clause that said, “any dispute arising from this agreement will be mediated by an arbitrator to be determined by the seller. Furthermore, any risk arising from the change in the cotton industry shall be borne by the purchaser.” The clause was in the same-size font as the rest of the agreement and in a paragraph titled: “Effect of contract.” Bob had a good working relationship with a mediator he knew and wanted to make sure that he could use the mediator in case of a problem. Elizabeth called Bob because she was confused about what the agreement meant. Bob assured her that the contract was a formality and just memorialized their agreement as they had talked about. He also mentioned that Elizabeth and Jane would have to endure the risk created by changes in the cotton market impacting his production, but Elizabeth thought that was reasonable given that they were also in the cotton-growing business. Elizabeth then happily signed and returned the original to Bob.
By the middle of the spring, the weather conditions were such that it was apparent that cotton growers would enjoy a bumper crop. As a result, many growers had lowered the price to $50/bale. When Jane’s cotton was harvested, she attempted to contact Bob who was strangely never accessible. Jane began to sell off the other bales she had, at the prevailing market price. However, by the middle of May, she still had 98 bales left, which she intended to sell to Bob at their agreed-on price. Finally, on June 15, she got in touch with Bob who reluctantly agreed to buy the bales as it was stated in the contract. She delivered to Bob the 98 bales on June 30, 2012. She thought since he was upset about having to pay more per bale, that he wouldn’t mind the two-bale shortfall.
A week later, Bob’s employees were looking at the shipment of cotton from Jane and discovered that Jane delivered only 98 bales instead of the 100 stated in the sales agreement. They told Bob who immediately called Jane and told her that she had failed to live up to her end of the contract and that he would not pay her for the cotton. Furthermore, because Bob knew that Jane had invested a lot of money into the cotton operation and that because of the abundance of cotton she likely didn’t make as much money as she otherwise would, he had serious doubts about her financial state. Jane received the following letter from Bob on June 25, 2012:
Dear Jane,
I’m very disappointed to discover that you did not deliver the full amount of cotton I ordered. As a result, I will neither accept nor pay for the cotton that you delivered. Also, given the financial straits this puts you in, I have doubts that you will be able to pay for the linen you ordered, especially considering that your cotton endeavor was not as lucrative as you may have thought.
For me to be sure that you will, indeed, be able to proceed with the transaction, please include a statement noting your gross receipts from the sale of cotton grown. Any positive amount will demonstrate that you are capable to make good on your agreement to purchase the linen in August.
Thank you,
Bob
The stress of the cotton business and breathing in the cotton fibers gave Jane a terrible illness. Elizabeth had to take care of Jane and fell behind in tending to some of the business matters. Eventually, Elizabeth responded to Bob’s letter. Elizabeth talked the matter over with Jane once she was feeling better. When Elizabeth felt she understood her grandmother’s position, she responded to Bob’s demand as follows on August 2, 2012:
Dear Bob:
First of all, I’d like to thank you for business and consistent quality of your products over the years. It’s nice to be able to count on a trustworthy vendor. I really appreciate it. Because we value your business so much, we are doing everything we can to make sure that we hold up our end of the agreement. We have been able to purchase two more bales of cotton that we can deliver to you at your earliest convenience. This includes the purchase of the mint-colored linen that we had agreed to earlier to be executed in just a few weeks.
Unfortunately, we will not be able to accede to your additional requests, namely sending you a copy of our financial statements. We feel that this condition is an invasion of our privacy and goes beyond the agreement you and my grandmother made earlier to sell the cotton.
--Elizabeth
Soon after sending the letter, two more bales arrived at Bob’s business with a note attached to them that said: “The order is complete. Payment is due ten days from now. –Jane & Elizabeth.” Bob, however, refused to send payment and never used Jane’s cotton. However, because cotton prices were so good and he had all of Jane’s cotton, he was making linen like crazy. So much, in fact, he was skipping some the steps in his production technique. The result was a linen that was below “Bob standard,” but right at about the average quality for linen. Bob had more than enough linen to meet all of his outstanding orders. On August 15, he took the mint-colored linen to Jane’s store and sought payment for the fabric. Jane refused to pay until Bob paid for the cotton he ordered. Bob said he didn’t have to because Jane breached their contract by delivering less than the contracted-for price and that she delivered on June 30, well after the end of the spring. Jane countered by saying that Bob had made an agreement with Elizabeth as a minor and that the contract between them was not enforceable. Jane also noted that the linen wasn’t as good as what he normally delivered. Furthermore, Bob had already accepted the cotton before he sent notice that he was not going to pay for them.
In the resulting suit, Bob sued Jane to enforce the sale of the linen. Jane counterclaimed for the amount of money due for the cotton. Jane also cross-claimed Alex for the sale of unprofitable land. Alex counter-claimed against Jane for the expenses he endured while taking care of Elizabeth.What doctrines and principles of contract resolve the dispute? How should the judge enter judgment as to these parties?
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