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Unwritten Contracts in Purchasing and Supplies

Unwritten Contracts in Purchasing and Supplies

Please use the paragraphs below to answer the next 3 questions.

Saul owns Supplier Inc., a small seller of sensors. Peter, President of Purchaser Inc., says to Saul “My current supplier charges $10,000 for 300 sensors.” Saul replies, “I will charge 80% of what your supplier charges.” Saul and Peter shake hands and Peter says, “I will be in touch.” The next day, Supplier sends 300 sensors to Purchaser together with an $8,000 invoice on which Supplier’s bookkeeper hand writes, “First order earns a 10% discount; please deliver $7,200 within 15 days of receipt to receive this deal – Thanks, Saul.”

Purchaser receives and distributes the sensors to its operating units. Fifteen days after receipt, Purchaser’s accounting clerk mails a $7,200 check to Supplier. On the check subject line, he writes “Thank you for the sensors.” Three weeks later, Saul e-mails Peter: “I received your $7,200 check. We sent you 300 sensors at the agreed price of $8,000. I need the balance within five days.” Peter calls Saul and says, “We never had a deal. We will return the 100 unused sensors.” Saul demands $800.


Question 1

As Purchaser, what are the two most convincing legal point(s) and related fact(s) that support your view that a contract has not been formed?

Be sure to select the TWO most convincing answers to receive full credit.


1. Purchaser and Supplier have never worked together in the past and the contract is not in writing.
2. Supplier sent the products before Purchaser sent a written acceptance, so the sensors are considered a gift and Purchaser is not obligated to pay Saul.


3. No contract was formed because Purchaser did not accept Supplier’s offer; Peter’s response “I will be in touch” does not constitute an acceptance. And although Purchaser used the sensors, Purchaser offered to return the unused sensors.
4. There is an offer and acceptance, but there is no consideration; Purchaser did not receive a benefit of the sensors because the sensors were distributed to “its operating units.”


5. The price of the goods is ambiguous, so there is no clear offer for Purchaser to accept: Supplier’s bookkeeper sent Purchaser an offer of a reduced price that is different from the price Saul stated.
6. Peter did not state that he accepted the offer.


7. Peter tried to accept the offer of the supplier’s bookkeeper, but that offer was not authorized or it lapsed, therefore there was no offer accepted.
8. All of the responses above are equally convincing.


Question 2

As Supplier, what are the most convincing legal points and related facts that support your view that there is a binding contract? Rank these answers, where 1 is the best answer and 4 is the worst answer.


  1. Supplier’s offer to reduce the price is the best contract deal that Purchaser would receive in this market and therefore is the best choice for Purchaser. Evidence of this could be found in trade journals and advertisements or obtained through subpoenas issued to 3rd parties under Federal Rules of Civil Procedure 30 and 45.

[ Choose ]             3             1             4             2

  1. Supplier made an oral offer to sell the sensors at a price below what Purchaser usually paid and Purchaser accepted the offer when Purchaser sent the check.

[ Choose ]             3             1             4             2

  1. Supplier’s and Purchaser’s agreement is a binding and written contract because Saul’s email message — “I received your $7,200.00 check. We sent you 300 sensors at the agreed price of $8,000.00. I need the balance within five days” — is the contract.

[ Choose ]             3             1             4             2

  1. Saul offered to sell the sensors and Purchaser sent a check that states – “Thank you for the sensors.” Purchaser’s “thank you” constitutes an acceptance.

[ Choose ]             3             1             4             2


Question 3

If there is a contract, is the price $8,000? Why or why not? Pick the best answer.

1. Yes, the price is $8,000.00 because that was the price both parties originally agreed to. Supplier’s bookkeeper does not have authority to alter the contract and it is not business practice to offer discounts via a handwritten note.
2. Yes, the price is $8,000.00 because Purchaser sent the check after the 15-day period and is no longer eligible for the discount.


3. No, the price is $7,200.00 because that is the same amount as the check written and sent by Purchaser’s account clerk.
4. No, the price is $4800 (two-thirds of $7200) because Purchaser agreed to return 100 unused sensors.


Question 4

Logistics Inc. is the developer and licensor of “TruckIT” software. TruckIT enabled development of a national logistics industry segment. Eighty-five logistics companies, 89% of the industry segment, rely entirely on TruckIT for all essential functions of their businesses. Because of this, Logistics charges very high license and support fees and is very profitable. When introduced 10 years ago, TruckIT was unique and innovative. Now, Logistics has learned that two potential competitors’ web-based alternatives to TruckIT will be released within eight months. These alternatives could render TruckIT obsolete; Logistics’ own web-based application “TruckIT Online” is two years from release.

You are the new CEO of Logistics. Your management team plans to leverage your customers’ current reliance on TruckIT to protect Logistics’ market share until TruckIT Online is released. They intend to immediately (i) renegotiate TruckIT licenses to reduce license and support fees to well below the expected price of the competitors’ services and below Logistics’ cost for customers who agree to use Truck IT exclusively for two years and (ii) delay or withhold support services critical to the day-to-day operation of TruckIT for customers that do not agree to use TruckIT exclusively for two years. Before approving these steps, you consult with your lawyer.

What points of law and related explanations will your lawyer likely tell you? Briefly identify and explain these points, in sentence or bullet form. Your answer is limited to 350 words or less.

Question 5

You are the CIO of TechCo Inc., a small, U.S based inventor of proprietary, silicon chip designs that can be used in millions of products and facilitate the Internet of Things revolution. You are about to begin negotiations with a U.S based parent company of a multi-national chip manufacturer (“Vendor”) whose operations are ideal for your business plans. Your products will be made by Vendor’s foreign manufacturing subsidiaries. You will provide Vendor and its subsidiaries with your manufacturing know-how and customer information and your products will be shipped from the manufacturer directly to your customers. Prior to negotiations, the Vendor sends you its form confidentiality agreement, which you sign. The full confidentiality agreement reads:

“Vendor shall not knowingly disclose Confidential Information to anyone other than its affiliates or to its or their agents and representatives. Vendor shall use the same level of protection against unauthorized disclosure of Confidential Information as Vendor normally uses to protect its own information. Vendor shall inform its agents and representatives of the confidential nature of the Confidential Information. “Confidential Information” means proprietary and confidential information belonging to TechCo which is furnished or disclosed to Vendor by TechCo that is (i) marked or designated in writing in a manner to indicate it is confidential or (ii) identified as confidential in a writing provided to Vendor within (10) business days after disclosure. Upon TechCo’s request, Vendor will return to TechCo or destroy all copies of Confidential Information. This agreement will terminate three years following the date hereof.”

Please identify all correct statements:

1. Vendor informs its manufacturing subsidiaries of the confidential nature of TechCo’s Confidential Information. The subsidiaries are bound by the TechCo confidentiality agreement.
2. Vendor provides its chip design personnel with TechCo’s Confidential Information. Vendor has violated the agreement.


3. Vendor uses TechCo’s Confidential Information to manufacture products other than TechCo’s. Vendor has violated the agreement.
4. Vendor manufactures and sells chips to TechCo’s customers using TechCo’s Confidential Information. Vendor has not violated the agreement.


5. Intending to email its affiliate, Vendor instead mistakenly e-mails to a competitor Vendor information together with TechCo’s Confidential Information. Vendor has not violated the agreement.
6. Vendor’s lawyer is informed of the confidential nature of Confidential Information but discloses the information to his son who puts it on his website. Vendor has disclosed Confidential Information in violation of the agreement.


7. Vendor informs its manufacturing subsidiary of the confidential nature of TechCo’s Confidential Information. Vendor is responsible for TechCo’s damages resulting from disclosure of TechCo’s Confidential Information by the subsidiary.
8. Vendor’s IT systems are infiltrated and the intruder copies TechCo Confidential Information. Vendor has violated the agreement.


9. TechCo may require Vendor to destroy all copies of Confidential Information in Vendor’s electronic archives.
10. Before entering the agreement, Vendor developed and kept confidential a chip design identical to TechCo’s. Vendor discloses its design to its licensee after receipt of TechCo’s design marked “confidential.” Vendor has violated the agreement.


11. Unless marked as confidential, electronic copies of TechCo information provided to Vendor cannot be Confidential Information.
12. All information marked by TechCo as confidential is Confidential Information.


13. Confidential Information provided by TechCo to Vendor during the three-year term of the agreement can never be disclosed by Vendor.
14. Vendor’s obligations under the agreement are terminated if TechCo provides Confidential Information on a non-confidential basis to a company other than Vendor.


Question 6

Please use the paragraphs below to answer the following 8 questions. Choose the answer that best applies