StrattaSure, Inc. (SSInc) recently purchased the domestic inventory of, and all of the property rights to, Oracle Enterprises' hardware for its satellite-powered artificial intelligence line of products (Skynet). SSInc and OE sold its U.S.-based warehouse's inventory to SSInc at a cost of $350 million on January 14, 2008. At the same time, SSInc began leasing, at a cost of $35,000/month, OE's equipment needed to produce the highly specialized hardware; OE retained its property rights to the manufacturing equipment. Pursuant to the January 2008 asset purchase and lease agreement, OE was the only company permitted to perform repairs on its equipment.

In December 2007, while the asset and lease negotiations were ongoing, SSInc became aware that some parts of equipment needed critical repairs and that OE had purchased the necessary components for repair. OE had $500,000 of parts being shipped F.O.B. soon from its business affiliate in China that were needed to repair OE equipment purchased by SSInc and other companies. OE agreed to amend the purchase agreement to give SSInc and the others a reasonable time to examine the equipment 30 days after OE receives the parts and performs the repair services. In January 2008, the Chinese business associate delivered the parts to the container yard in the Port of Shanghai and there they sat for a few months. In pre-trial discovery, SSInc learns that due to an error on the part of the port, the parts were left on the cargo port for months before getting shipped to OE.

Later on, OE entered into another contract with SSInc in February 2008 for the future sale of more specialized machinery that OE imported from its business affiliate in Sweden. SSInc paid half of the contract cost up front ($150,000) and would pay the other half upon delivery of the machinery.

By May 2008, SSInc still had not received the repaired OE equipment it purchased either December 2007 or February 2008. When SSInc followed up with OE, OE responded by saying that it had other contract obligations to fill before it could get to SSInc's and that supply chain issues made securing necessary parts for all its orders difficult. SSInc decides to not pay the other half of its February 2008 contract. SSInc obtained cover for the Swedish equipment by accepting the first offer to come through, which cost $400,000. In the meantime, more OE production equipment began failing at the SSInc factory and causing serious delays in production. A few SSInc mechanics hypothesized the problem stemmed from OE's choice of insulation in its products, which burned at relatively low temperatures by industry standards resulting in computer malfunctions. OE was not responding to SSInc's several maintenance requests in a timely fashion and by July 2008, SSInc found another company to complete the repairs.

SSInc had hoped that the OE hardware will set their prototype (Trynet) apart in an upcoming competitive bid for a government defense contract. During a test launch in September 2008, Trynet exploded shortly after takeoff. Fortunately, no one was injured. Unfortunately, SSInc lost the bid to another satellite company located in the same industry park, YULA, and had to scrap the unsuccessful Trynet project altogether.

One day, an SSInc engineer noticed a stack of papers left behind on a copier in a shared office space in the tech park. In trying to figure out to whom it belonged, the engineer realized it was the design schematics for YULA's bid-winning satellite! The SSInc engineer was shocked to see OE's artificial intelligence satellite hardware integrated into YULA's design and brought this to SSInc management.

SSInc sued OE for breach of contract and negligence, seeking damages. SSInc also sued YULA for infringing upon its property rights and to prevent them from further use of the AI hardware. YULA counters with the defense of good faith.

OE countersued for breach of contract, further asserting the defenses of contributory negligence and statute of limitations. OE argues further that OE also sued to bring SSInc's insurance provider as the party responsible for economic loss and damaged products, as well as OE's Chinese business affiliate. OE and YULA both argued that the statute of limitations has expired, SSInc's injury is purely economic, and SSInc's suit should be dismissed. SSInc argues that the contract for the sale of the inventory items, leased equipment, and repair agreement is subject to Article 2 of the UCC.

Argue for SSInc

1. What theories of liability can your business use against the other?

2. What counterarguments should you be prepared to answer?

3. What defenses do you think are persuasive for your business?

4. Who had insurable interests in what and at what time (identify the points where title transferred)?

5. How much liability should YULA, the insurance company, and the business affiliates from China and Sweden face?

6. What damages would your client be entitled to if successful?

7. What remedies make sense for your client?

Answer the numbered questions only.