Midterm Exam Case Problems

Accounting & Finance Department

ACFI 406, 506

Midterm Exam Case Problems

1. The Lonely Guy Computer Dating Company, anticipating continued growth, was seeking to upgrade its computer software. Lonely Guy entered into a verbal agreement with Shoestring Software to design, develop, and furnish new software for Lonely Guy’s specialized application. Upon receiving Lonely Guy’s oral order, Shoestring sent a letter to Lonely Guy confirming all the terms of the deal in detail. When the job was completed, Lonely Guy refuses to accept or pay for the software application.

The president of Shoestring telephones you and wants to know what rights

Shoestring has against Lonely Guy. What will you tell her?

2. Fat Foods, Inc. telephoned four orders to Lean Machine Company to

purchase Lean Machine’s low calorie sweetener. Lean Machine sent Fat Foods written confirmation of each oral order. Each written confirmation contained an arbitration clause requiring the parties to submit any disputes to arbitration rather than commence a lawsuit. Upon receipt of each written confirmation Fat Foods initialed the document as requested. Upon receipt of the confirmations Fat Foods objected to the inclusion of a clause by Lean Machine in the third and fourth confirmation that extended delivery to thirty days rather than fourteen days as contained in the first and second confirmations and, the delivery term was changed to suit Fat Foods. After receipt, Fat Foods discovered that the sweetener did not meet the contract specifications. Lean Machine disagreed and demanded that the dispute be submitted to arbitration for resolution. Fat Foods disagreed and brought this court action to stop the arbitration proceedings (seeking what is called an “injunction”). The trial court judge ruled that the arbitration clause was not part of the agreement between the parties, in effect ruling in favor of Fat Foods.

Lean Machine files an immediate appeal arguing that the trial judge was in error and the case lands on your desk as a Justice (judge) of the Appeals Court. Was the trial court correct? Issue your ruling, in detail, your Honor.

3. Bo Jackson has contracted to purchase five hundred pairs of running shoes

And cross-training shoes from the Carl Lewis Company. The Carl Lewis Company manufactures the shoes and tenders delivery to Bo Jackson. Jackson accepts the shipment of shoes from FEDEX and forwards payment pursuant to the terms of the agreement. Later, upon inspection, Jackson discovers that twenty pairs of shoes have cosmetic “blemishes” (such as missing or substandard logos, lace eyelet inconsistencies).

Because Bo don’t know “diddly” (translates to “anything”) about the UCC, he comes to your law office for advice. What are Bo’s rights? What are Bo’s remedies? Since Bo has already paid for the shoes, is it too late for Bo?

Has Bo’s receipt of the delivery precluded him from returning the shoes?

Can Bo still reject the goods or, alternatively, revoke his acceptance? Explain in detail, Counselor.

4. Kanye and Kim were to become engaged on Valentine’s Day. Kanye

did not have the $250,000. (huge rock!) needed to purchase the engagement ring. Therefore, Kanye agreed to purchase the ring from the Dewey Cheetum Jewelers by making five monthly payment of $50,000. to the DC jewelers who agreed to set aside the ring and deliver it to Kanye after final payment was made by Kanye. However, Cheetum experienced cash flow difficulties and sold the ring to another customer, Chris Brown, hoping to replace the ring before Kanye came to pick it up. After final payment, Kanye came to pick up the ring and discovered that Dewey Cheetum Jewelers was closed-permanently and Cheetum had skipped town.

As Kanye’s legal counsel your investigation discovers who purchased Kanye’s ring and that the purchaser, Chris Brown, was Cheetum’s brother-in-law and had paid $150,000. for the diamond ring. What are Kanye’s rights against all the parties. Explain in detail.

5. Pong Golf Ball Co. is one of the largest manufacturers of quality golf balls in

U.S. Recently, Pong introduced its new “Rocket” model golf ball. Pong has always been synonymous with excellence in golf balls. After learning about the new model and its limited first year production through Pong’s promotional literature, Fuzzy, the resident golf professional at Shady Acres Country Club contracted to purchase 200 dozen “Rocket” model golf balls from Pong. A contract for sale was executed which contained the following paragraph:

All warranties, expressed or implied, other than those

Hereinbefore contained are hereby disclaimed.

Fuzzy sent a check to Pong for $5,000. for the new golf balls. After sending payment Fuzzy learned that the U.S. District Court issued a ruling in favor of Balding Sports Company in which the Court ruled that the “Rocket” model ball violated the patent rights of balding Company and their model ball, “The Cannon”. The Court’s order required Pong to discontinue manufacturing the “Rocket” model (referred to as a “cease and desist” order). Upon learning of this Fuzzy demanded that Pong return his check and Fuzzy informed Pong of his intent to refuse acceptance of the delivery of the 200 dozen “Rocket” model golf balls. Pong has threatened to bring an action in court for breach of contract by Fuzzy.

If Pong’s warranty disclaimer effective to defeat Fuzzy’s revocation of the contract? What claim or claims, if any, might Fuzzy maintain against Pong? Explain in detail.