K. K. Legume, Incorporated is a reputable and popular sweater manufacturer. Base
ID: 444516 • Letter: K
Question
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? Does Arrow have an ethical obligation to pay a higher price, based upon such an unanticipated change in circumstances?
Explanation / Answer
As per rule
The discharge of a contract includes the occurrence or non-occurrence of a condition, complete or substantial performance, a material mutual agreement, and operation of law. Complete performance occurs when all aspects of the parties’ duties under the contract are carried out perfectly, there has been an honest effort to complete all contractual terms, and there has been no “willful departure” from the terms of the agreement. A contract may be discharged by mutual agreement. With mutual rescission, both parties agree to discharge each other from their mutual obligations.
Anticipatory repudiation occurs when a party decides, before the actual time of performance, not to complete contract obligations. Anticipatory repudiation often occurs when market conditions change and one party realizes it will not be profitable to fulfill the terms of the contract, once the contract is anticipatorily repudiated, the non-breaching party is discharged from his or her obligations under the contract, and can sue immediately for breach of contract.
Analysis: Arrow Stores, L. L. C. enters into a contract with K. K. 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, from K.K. Legume.
But due to an unanticipated sheep shortage and an unexpected “cold snap,” means demand for wool sweaters increases. It is Anticipatory repudiation. Anticipatory repudiation often occurs when market conditions change and one party realizes it will not be profitable to fulfill the terms of the contract, once the contract is anticipatorily repudiated, the non-breaching party is discharged from his or her obligations under the contract, and can sue immediately for breach of contract.
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.
Conclusion: Arrow does not have an ethical obligation to pay a higher price, based upon such an unanticipated change in circumstances. Because as per the contract rules Legume is complete the contract obligations which are not performed by him and were agreed in the contract, and Arrow is need to pay only $12.00, per unit only as per the contract with Legume. Arrow also have rights to get Compensatory damages are designed to put the plaintiff in the position he or she would have been in had the contract been fully performed.
Arrow has the duty to mitigate damages to use reasonable efforts to minimize damages resulting from the defendant’s breach of contract.
Case Study
Issue: Who wins? Does Arrow have an ethical obligation to pay a higher price, based upon such an unanticipated change in circumstances?
Rule: The discharge of a contract includes the occurrence or non-occurrence of a condition, complete or substantial performance, a material mutual agreement, and operation of law. Complete performance occurs when all aspects of the parties’ duties under the contract are carried out perfectly, there has been an honest effort to complete all contractual terms, and there has been no “willful departure” from the terms of the agreement. A contract may be discharged by mutual agreement. With mutual rescission, both parties agree to discharge each other from their mutual obligations.
Anticipatory repudiation occurs when a party decides, before the actual time of performance, not to complete contract obligations. Anticipatory repudiation often occurs when market conditions change and one party realizes it will not be profitable to fulfill the terms of the contract, once the contract is anticipatorily repudiated, the non-breaching party is discharged from his or her obligations under the contract, and can sue immediately for breach of contract.
Analysis: Arrow Stores, L. L. C. enters into a contract with K. K. 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, from K.K. Legume.
But due to an unanticipated sheep shortage and an unexpected “cold snap,” means demand for wool sweaters increases. It is Anticipatory repudiation. Anticipatory repudiation often occurs when market conditions change and one party realizes it will not be profitable to fulfill the terms of the contract, once the contract is anticipatorily repudiated, the non-breaching party is discharged from his or her obligations under the contract, and can sue immediately for breach of contract.
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.
Conclusion: Arrow does not have an ethical obligation to pay a higher price, based upon such an unanticipated change in circumstances. Because as per the contract rules Legume is complete the contract obligations which are not performed by him and were agreed in the contract, and Arrow is need to pay only $12.00, per unit only as per the contract with Legume. Arrow also have rights to get Compensatory damages are designed to put the plaintiff in the position he or she would have been in had the contract been fully performed.
Arrow has the duty to mitigate damages to use reasonable efforts to minimize damages resulting from the defendant’s breach of contract.
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