On May 1, 1996, Totally Toys, Inc., a manufacturing company that makes inexpensi

Question

On May 1, 1996, Totally Toys, Inc., a manufacturing company that makes inexpensive plastic toys, entered into a one year agreement with BigCo Plastics Company for the purchase of plastic scrap that Totally Toys recycled and used in their manufacturing process. The written agreement provided that Totally Toys would purchase all of the scrap produced in BigCo’s manufacturing process for $.10/lb. During the negotiations over the terms of the agreement, BigCo’s President stated that their manufacturing process produced about 5,000 pounds of scrap each month. The agreement contained the following provision:

This agreement sets forth the complete obligations of the parties hereto and superseded all prior written or oral agreements or representations made at any time by either party. The agreement did not contain any provision regarding the quantity of scrap, except to say that Totally Toys would buy “all of the plastic produced by BigCo’s current or future manufacturing processes.”

In each of the first 6 months of the contract, BigCo shipped and Totally Toys accepted and paid for 10,000 pounds of plastic. On November 1, 1996, BigCo began using a manufacturing process that was much cheaper than the prior process. This new process uses less energy but creates twice as much plastic scrap as the previous process. When BigCo attempted to send 20,000 pounds of scrap to Totally Toys, Totally Toys refused to accept any more than 10,000 pounds. BigCo estimates that it can probably sell the extra 10,000 pounds of scrap produced each month to a recycling company for $.05/pound. BigCo would like to know whether they have a claim against Totally Toys and, assuming that they have a claim, the amount of damages they will receive. Advise BigCo.

1) Advise BigCo's Plastics.

2) You have successfully negotiated a written agreement for BigCo's Plastics, under which Totally Toys agreed to take one half the extra plastic produced (5,000 pounds) at the contract price of $.10/1b. In exchange, BigCo's agreed to relinquish any claim it had against Totally Toys based on their promise to take the entire output. Both parties have signed the agreement. However, Totally Toys continues to refuse to take no more than 10,000 pounds of plastics. Is Totally Toys' agreement to take the extra plastic legally enforceable?

Explanation / Answer

1. In this case, the parole evidence rule will come into play. As per this rule, the parties to the contract - BigCo and Totally Toys - have intended that the written agreement will be the full and final expression of their bargain. The oral agreement which stated the output as 5,000 pounds will be inadmissible in such a case. The agreement clearly states that Totally Toys would buy all scrap from BigCo's current or future manufacturing processes. The new process has increased the production of scrap and Totally Toys will be liable to buy them as per the parole evidence rule. Totally Toys will have to buy the entire scrap at the agreed rate. The claim amount would be the money lost by selling the extra 10,000 pounds at $0.05 pound. Money lost = (agreed rate-0.05)*quantity = (0.10-0.05)*10,000 = $500

2. In this case, the contract has been modified in the eyes of law. Totally Toys have agreed half of the extra plastic produced at the contract price rate. Half of the extra plastic = 1/2*10,000 = 5,000 pounds. Now as per this agreement, Totally Toys will have to buy the original quantity that it was buying (10,000 pounds) plus the half of the extra plastic produced (5,000 pounds). Total quantity will be 10,000+5,000 = 15,000 and this will be as per the modified written contract. So, Totally Toys' agreement to take the extra plastic will be legally enforceable.

Another rule that will make Totally Toys' agreement to take the extra plastic legally enforceable is that the promise made by BigCo to drop the lawsuit and relinquish any claim will constitute a valid consideration as the lawsuit was brought in good faith.

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.