Knowledge Area Module (KAM) I

Running head: CASES 14.2 & 20.3 – BREACH OF CONTRACT 1

Analysis of Cases Involving a Breach of Contract

Whitney Milford

MACC511 – Legal Aspects of Financial and Commercial Transactions

March 31, 2013

Professor Steve Adams Southwestern College Professional Studies 2BREACH OF CONTRACT Abstract

The first case discussed in this paper includes a car dealership, Scoggin-Dickey, selling a pick-truck to Romero in exchange for two trade-in vehicles, factory rebates, and cash payment.

Once Romero had ownership of the new pick-up truck, he informed the dealership of the location of his two trade-in vehicles. After inspection of these vehicles, the dealership found that they were worth little to no value and they proceeded to repossess the truck they had sold to Romero.

They offered him a refund of his down payment but he refused and took them to court based on his argument that they were not allowed to inspect the vehicles once the contract was signed and accepted. He must have been unaware that in order for a contract to be completed, the buyer must accept the goods that are being sold to them as satisfactory before they remit a payment. In this case, the dealership did not accept the vehicles that were being traded in and therefore the contract could be voided.

The second case that discusses breach of contract is between a company looking to buy an industrial tank, Les Enterprises, and the company they purchased it from, Dinsick Equipment.

This breach of contract is different than the one from the prior case. In this case, Les Enterprises had submitted the payment in full to Dinsick Equipment for the tank they purchased. Dinsick

Equipment then notified Les Enterprises where they could pick the tank up from. Once Les

Enterprises hired and paid a delivery service to pick up the tank, they found that the tank was never at the specified location. Dinsick Equipment owned up to their breach and agreed to pay

Les Enterprises back the money they had spent. Dinsick Equipment ended up never paying them back, as promised. Because of this, they were ordered to pay back the amount owed and also to pay for the shipping charges that were paid by Les Enterprises because they were incurred due to the tank not being at the pickup location. If Dinsick Equipment would have made sure that their 3BREACH OF CONTRACT materials were in the correct locations they could have avoided this suit. It is important in a company to have accurate communication.

In each of these cases, it was the seller that breached the contract (although Romero was considered a buyer and a seller). The buyer and the seller both have obligations that they are required to uphold and when they fail to do so, they have breached the contract at hand. Even if the breach happened by mistake, there will be consequences and compensation will be required. 4BREACH OF CONTRACT Analysis of Cases Involving a Breach of Contract

In this final paper, I have decided to take the discussion of a case and expand on it. I want to look at two different cases and see how they relate and how the ruling in each one differs. The cases that I have chosen are from the chapter fourteen case sheets over performance and breach of sales and lease contracts. I have studied the cases and will provide a summary of each, I will discuss the literature that the cases cover, and I will supply a thought out and well argued point of view on the cases.

Summary of Case 14.2 – Romero vs. Scoggin-Dickey

Jessie Romero seems to be a very simplistic person who thinks he can get away with little white lies; this is said in regards to his purchase of a 2006 Silverado pickup from

Scoggin-Dickey Chevrolet-Buick in Lubbock, Texas. The 5BREACH OF CONTRACT initial meeting and negotiations for the purchase of the pickup were on December 23, 2006. Romero went to the dealership and “proposed to purchase the pickup by assigning the dealership the factory rebates, supplying two trade-in vehicles (a 2003 Mitsubishi Montero SP and a 2002

Chevrolet Silverado pickup), and paying the cash difference” (Case Sheets).

At the time of his appearance, he did not have the vehicles with him nor did he have any proof of their value.

In the negotiations for the contract, “Dickey agreed to sell

Romero the 2006 Silverado pickup for $21,888. In return,

Romero agreed to trade in two vehicles having a combined net value of $15,000, assign factory rebates totaling $3,000, and pay $4,333.52 in cash” (Case Sheets). After this was all said and done, Romero had possession of the pickup but the 6BREACH OF CONTRACT dealership had not transferred the title to him. The transfer of title would take place after the inspection of the trade-in vehicles.

Romero let the dealership know where they could find the Montero and eventually, after many weeks, he informed them that the 2002 Silverado was in repair at a shop. “The pickup was not in running condition and was eventually towed to Scoggin-Dickey” (Case Sheets). After the dealership was finally able to inspect the vehicles, they came to the conclusion that they were worth basically nothing. The dealership repossessed the 2006 Silverado and “made two settlement offers to Romero pertaining to a partial refund of his down payment”, which he denied (Case Sheets). His argument was that the dealership had no right to inspect the vehicles after the contract was already signed. 7BREACH OF CONTRACT The counter argument to this was that, according to the

Texas UCC, all motor vehicles are included in the term

“goods” and that the purchaser has the right to inspect their purchased goods before payment or acceptance of those goods takes place. This gave Scoggin-Dickey full rights to inspect and reject the trade-in vehicles. It was also found that the contract was never completed because the right of ownership, the title of the vehicle, was never transferred to

Romero.

The court concluded that Scoggin-Dickey had to repay

Romero for his initial down payment and court costs while

Romero had to remove the so called “trade-in vehicles” from the Scoggin-Dickey lot.

Summary of Case 20.3 – Les Enterprises vs. Dinsick

Equipment Corporation 8BREACH OF CONTRACT Sometimes in a business, everything doesn’t go as smoothly as planned. That doesn’t give the parties any excuse not to fix the problems or compensate for their mistakes. In this case, Les Enterprises was searching for the purchase of a “30,000-gallon industrial tank” (Case Sheets).

They found such tank at Dinsick Equipment and entered into an agreement (contract) for the sale of the tank for

$70,000. Les Enterprises made two payments for the tank in the totals of “$10,000 and $60,000, respectively” (Case

Sheets).

Not long after the payments were sent, Dinsick

Equipment notified Les Enterprises that the tank was ready to be picked up at their location in Joplin, Missouri (Case

Sheets). It was noted on their invoice that no freight was included, meaning that the purchaser would either have to 9BREACH OF CONTRACT pick up the tank or hire someone to do so. Due to this, Les

Enterprises hired a hauling company to deliver the tank from Joplin to their location in Quebec, Canada costing them $7,459.38 (Case Sheets). When the hauling company showed up to deliver the tank, it was not there so they were unable to deliver it with no refund to Les Enterprises.

Les Enterprises proceeded to inform Dinsick

Equipment of their mistake. They agreed to reimburse their

$70,000 and failed to act on their promise. The court ruled in favor of Les Enterprises and ordered Dinsick Equipment to pay, not only the cost of the tank but, the tank plus the added shipping charges under incidental damages. “Under the Illinois Uniform Commercial Code, ‘incidental damages resulting from a seller's breach include expenses reasonably incurred in the inspection, receipt, transportation, and care 10BREACH OF CONTRACT and custody of the goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expenses incident to the delay or other breach’ (Case

Sheets).

Legal Literature

In each of these cases, there are buyers and sellers. In the first case, both parties are considered to be buyers and sellers because Romero was selling his two trade-in vehicles to

Scoggin-Dickey and in return, Scoggin-Dickey was selling Romero the 2006 Silverado. In the second case, the buyer was Les Enterprises and the seller was Dinsick Equipment.

A seller has an obligation to uphold for its buyer. In order for a contract to be fulfilled, the seller must deliver or “tender delivery” of the purchased goods to the buyer. The “tender of delivery occurs when the seller makes conforming goods available to the buyer and gives the buyer whatever notification is reasonably necessary to enable the buyer to take delivery” (Miller,

253). Due to this definition, we can see how Dinsick Equipment breached their contract with Les

Enterprises. They notified their buyer that the delivery was ready but it turned out to be a false statement.

As stated earlier, the seller is obligated to deliver or tender goods and the buyer is then obligated to pay for them. According to Miller, “the UCC preserves the perfect tender doctrine by stating that if goods or tender of delivery fails in any respect to conform to the contract, the 11BREACH OF CONTRACT buyer has the right to accept the goods, reject the entire shipment, or accept part and reject part”

(pg. 253). Looking back at the first case regarding the trade-in vehicles, the vehicles were rejected by the dealership. They had the right to do so after receiving and inspecting their purchased goods and realizing that they were not in a satisfactory condition.

In the same way that a seller has obligation to their buyer, so does a buyer to their seller.

A buyer’s obligation to a seller is to accept the goods that they purchased and to send payment.

In the cases discussed, sending a payment was never an issue between buyers and sellers. What was discussed in the cases was the acceptance of the goods. In the first case discussed, the trade- in vehicles provided by Romero turned out not as promised. The buyer, Scoggin-Dickey, had the

“right to inspect the goods before making payment. This right allows the buyer to verify, before making payment, that the goods tendered or delivered are what were contracted for or ordered”

(Miller, 257). This proves Romero’s argument, that the dealership had no right to inspect the trade-in vehicles after the contract was formed, was false.

Along with this proof that Scoggin-Dickey did, in fact, have the right to refuse the vehicles, the vehicles are considered nonconforming goods. This term is used when the “goods by the seller fail to conform to the contract in any respect. If the buyer rejects the goods, she or he may then obtain cover, cancel the contract, or sue for damages for breach of contract” (Miller,

262). Romero had the dealership believe that the vehicles that he was trading were in working condition and had a specific value. When Scoggin-Dickey inspected the vehicles, it was proven that they were nonconforming to the contract.

In the second case discussed, the term “incidental damages” was covered. These damages are referred to as “the costs resulting from the breach” of a contract (Miller, 259). The shipping charges that Les Enterprises had to pay fall into this category. Since Dinsick Equipment failed to 12BREACH OF CONTRACT provide the 30,000-gallon tank that they said was available for pick-up, they were ordered to repay Les Enterprises for the shipping charges that they incurred.

Argument for the Ruling

Case #1

In the first case, Romero vs. Scoggin-Dickey, I agree to the ruling provided by the court.

In any agreement, whether it is in a business setting or between friends, it is common knowledge that what is agreed upon should be received. In this case, Romero and Scoggin-Dickey agreed that the sale of a 2006 Silverado would take place in exchange for two trade-in vehicles, rebates, and a down payment.

I stated above that I felt like Romero was acting very simplistically when he entered into this contract. A valid contract, as stated in our text, has four elements: “an agreement (offer and acceptance), supported by legally sufficient consideration, for a legal purpose, and made by parties who have the legal capacity to enter into the contract” (Miller, 136). This contract, based on these requirements, is valid. What this case lacks, is the execution.

As stated above, a buyer has the right to inspect their goods before paying for them. This covers if something is undelivered, damaged during delivery, or in this case, not in the promised condition upon delivery. I don’t see how Romero thought that he could get away with agreeing to trade in two vehicles that don’t even run for a new one. If this were the case and, like Romero claimed, the buyer was not allowed to inspect their goods before accepting them, there would be little to no trust in business transactions. People would try to scam each other into a contract and then once the buyer fulfills their end of the contract, the seller would deliver them something that is not even close to what they had agreed on. 13BREACH OF CONTRACT Especially in the automobile industry, there are ways of deciding on a products value. In this case, the value of the trade-in vehicles wasn’t nearly what the contract stated and the seller was right in repossessing the vehicle and filing a suit against Romero.

Case #2

In the second case discussed, Les Enterprises vs. Dinsick Equipment, I also agree with the ruling. Again, in any contract, it is common knowledge that what is agreed upon in the contract will be received. This case differs from the first in the fact that the goods agreed on were never delivered at all; opposed to being delivered in a nonconforming condition.

The goods being delivered in this contract consisted of a 30,000-gallon tank. Since the invoice stated that the delivery of the good was not included, the buyer had to provide their own means of delivery. Everything seemed to be going smoothly until the haul could not be found at the location that was stated. The seller, Dinsick Equipment, even agreed that they breached their contract and would repay Les Enterprises for their purchase.

In researching the terms in regards to this case, I also agree with the ruling that Dinsick

Equipment must repay Les Enterprises for their shipping fees. They were under the impression that Dinsick Equipment had delivered their tank to a specific location. Due to incidental damages covered under the UCC, the shipping charges incurred by Les Enterprises were a result of the seller’s breach of contract. The court ruled that this charge must be repaid along with the cost of the tank.

Conclusion

In concluding these two cases, it is easy to say that what is agreed upon in a contract must be delivered as stated. There are many obligations that a buyer and a seller owe to each other and if one side doesn’t hold up their end of the deal, they have breached the contract and 14BREACH OF CONTRACT the other party has the right to sue them and/or to get their goods back. A buyer and seller have many different rights that each should study before entering into a contract so that they are fully aware of what standards that they are being held to and what they should expect from the other.

If expectations aren’t met, a lawsuit can be the result.

In each of these cases, one party of the contract didn’t hold up their end of the deal. In the first, Romero overpriced his trade-in vehicles. It seems like, after the inspection results came back, that he knowingly overpriced them. The pick-up was not running and was in the shop and the results of the inspection showed that neither vehicle was worth any commercial value.

Entering into an agreement like this seems, for lack of words, silly. Offering a car dealership two piece of junk cars, that are worth nothing, in exchange for a brand new truck screams fraud to me. I almost feel that the court should have given Romero a punishment for his actions. The only reprimand that was made in the ruling was that the 2006 Silverado was to be returned to the dealership and Romero was given his down payment back. I think that the dealership should have been compensated for their time and resources that were wasted on Romero’s behalf.

In the second case, Dinsick Equipment failed to deliver the goods as promised. When

Dinsick Equipment notified Les Enterprises that their tank was ready to be picked up, Les

Enterprises took the next step in the process and hired a company to haul the tank to their location. Upon arrival, the tank was not found and Les Enterprises was out the money spent on the delivery. This case is somewhat confusing because Dinsick Equipment agreed to repay Lew

Enterprises. They had received payments for the tank and could have just returned the payment and avoided a trial. It makes me wonder if they might have already spent the money on something else and were trying to avoid making the payment until a later date. Since they failed 15BREACH OF CONTRACT to repay Les Enterprises in a timely manner, they were sued and, in the process, were ordered to compensate Les Enterprises for the amount of shipping that was paid due to breach of contract.

In a business transaction, parties enter into an agreement in confidence that they will uphold their end of the deal and that they will receive what is promised. It is smart for each party, the buyer and the seller, to state their exact desires in their contract so that there is no confusion on what is to be delivered. If something is left out or if generic terminology is used, the court can find that the breach doesn’t necessarily exist. It is important to be thorough and concise. 16BREACH OF CONTRACT References

Miller, R.L. (2013). Fundamentals of Business Law: Summarized Cases (9th Ed.). Mason, OH:

Wadsworth, Cengage Learning, Inc.

Miller, R.L. (2013). Fundamentals of Business Law: Summarized Cases (9th Ed.). Mason, OH:

Wadsworth, Cengage Learning, Inc. (Case Sheets).