Case Facts: K. K. Legume, Incorporated is a reputable and popular sweater manufa

Question

Case Facts:

K. K. Legume, Incorporated is a reputable and popular sweater manufacturer. Based upon Legume’s reputation and popularity, Arrow Stores, L. L. C. enters into a contract with Legume. The contract is a “requirements” contract, stipulating that Arrow will purchase whatever number of “Arctic Ice” brand 100% wool sweaters it needs for a one-year period, at a “per-unit” price of $12.00. Two developments result in litigation between Legume and Arrow. First, due to an unanticipated sheep shortage, with substantially fewer sheep to shear, the price of wool skyrockets 1,000 percent. Second, due to an unexpected “cold snap,” consumer demand for wool sweaters increases dramatically, resulting in a 500% increase in Arrow’s wool sweater orders to Legume, compared to order averages over the previous ten years (the parties have a long-standing business relationship.) Legume implores Arrow to increase its per-unit purchase price to $36.00, but Arrow refuses to modify the price term stipulated in the contract. When Arrow refuses to pay a higher price for the sweaters, Legume ceases delivery, claiming that it would be bankrupted by continuing to fill Arrow orders; further, Legume claims that based upon the longstanding business relationship between the parties, Arrow has at least an ethical obligation to pay a higher price.

Who wins? Under what legal theory(ies)? Does Arrow have an ethical obligation to pay a higher price, based upon such an unanticipated change in circumstances? Write up a brief/case study to address how the court would decide such a case, along with answering the preceeding questions.

Explanation / Answer

Legume wins based on the doctrine of impracticability and frustration of purpose. The unanticipated events which could not be reasonably foreseen, frustrated the purpose of the contract and made it commercially impractical for Legume to complete its end of the contract. Not only does Arrow have an ethical obligation to pay a higher price, but it has a legal obligation as well.

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