Klint Microsystems, a microprocessor manufacturer, was contracted by Zeitar Stud

Question

Klint Microsystems, a microprocessor manufacturer, was contracted by Zeitar Studios to manufacture specially designed microchips to be used in an audio engineering process. Zeitar was to pay Klint $300,000 as per the contract. Klint decided to redesign their existing microchips and make them suitable for Zeitar. While the finished microchips were being shipped via a carrier, Klint was informed of Zeitar’s insolvency. Klint cancelled the shipment before it was delivered. Klint then resold the chips to another Studio where they had to settle for $150,000, as the chips were now only suitable for specific audio engineering processes. What legal action can Klint take against Zeitar?

       Sue and recover lost profits
       Sue to recover purchase price
       Get a court order asking for specific performance
       Exercise the buyer’s right to cover

Explanation / Answer

The option that Klint can take is "sue and recover lost profits"

Klint had made a special batch of microchips for Zeitar which had use and application only in the audio engineering process. As per Uniform Commercial Code (UCC), when the buyer becomes insolvent (Zeitar in this case) the seller (Klint, in this case) has the right to cancel the shipment. Moreover, Klint suffered a loss as it had to sell the chips at a lower price. Since the chips had limited applicability and could have been used only in the audio engineering process, Klint could not have sold the chips to any other industry for a higher price. The lost profits ($300,000 - $150,000) can be recovered by Klint from Zeitar through the process of litigation.

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