THE ICE CREAM PROJECT Part I: Drafting the Buyer's Contract

Please read the (below) Background carefully. It will provide you with information aboutthe businessyou represent and for which you will draft acontract. Your job is to draft a Buyer's contract that meets the operational priorities of the business, while allowing enough flexibility to take account of changing business needs. Your contract must be clear enough to avoid misunderstandings between the parties.

Prior to drafting, you should make a list of the topics that are critical to this transaction. It may be helpful to think in sequential terms: follow the product from the beginning to the end of the transaction. Address the concerns that arise along the way. Try to think of conditions or situations that might cause you to want to terminate or change your obligations to the seller. Once you have developed your issues list, you should consider how you want to resolve each of the questions on your list and how the law can help you achieve your objectives. The Buyer's Contract does not need to conform to a particular format. You are free to review sample agreements. However, the objective is to meet the specific needs of your business and your contract will be evaluated against that objective. It is important that the Buyer's Contract be complete, clear, and protective of the interests of the business. The length of the Buyer's Contract depends on your writing style, the issues you identify, and the way you choose to resolve the issues. There is no required page length.

BACKGROUND

Forpurposesofthisexercise, pleaseassumeallofthefollowing facts are true. You are the new manager of Coffee & Cream, LLP, a small business thatoperatesicecreamcafesyear-roundunderthenameCoffee andCream.

CoffeeandCreamoperatesfromastorefrontinastrip mall.Harry Baer owns the business with his wife, Sally. Together, Harry and Sally make up Coffee & Cream, LLP (''C&C''). Harry is thinking about retiring, and you and Harry have informally discussed the possibility of your buying the business. For fifteen years, C&C purchased all its ice cream from Rago Products. It never had a written contract. The owner of Rago Products is retiring and will shut down the business at the end of the year. Harry has been searching for a replacement supplier and believes that he has found one in Wilson Treats, Inc. (''Wilson Treats''). However, since he has never done business with Wilson Treats before, Harry wants you to draft a written contract that protects C&C.

C&C's sales of ice cream average approximately 10 units/month of assorted flavors during the winter season (November through March, inclusive) and approximately 25 units/month during the summer season (AprilthroughOctober, inclusive).(A unit=5gallonsinasinglecontainer). However, volumes can vary radically, depending on weather and foot traffic, Harry's haphazard advertising, and whether the local university is hosting a sporting event. In its best year, summer volume topped 300 units. Both youandHarrybelievethatwithbetter,morecreativemanagement, C&C could significantly increase sales. C&C has limited storage space, so it cannot hold much inventory; its refrigeration unit has a maximum holding capacity of 10 units.

C&C's lease with the shopping center requires that all deliveries be made after 10:00 p.m. and before 6:00 a.m. C&C has one employee who can receive deliveries betweenthosehours; however,thisemployeerequiresatleast24hours' noticetocomeinfor adelivery. UnderitsarrangementwithRago,Ragoemployees delivered the ice cream, inspected the containers,offloadedall ordersand transported them from the loading dock into C&C's freezers in the back of the cafe . BecauseC&Chadcometo knowandtrustRago's qualityofice cream, there were no quality specifications in place for the product that Rago delivered. C&C prides itself on the freshness of its product. (It can get ''freezer burn'' if it melts and refreezes). Harry has sampled Wilson Treat's ice cream, but no one from C&C has visited Wilson Treat's manufacturing site.

Rago always gave C&C a 5 percent rebate at the end of the year if purchases exceeded those of the previous year by 10 percent or more. Wilson Treats delivers its product in its own refrigerated trucks.

OTHER ASSUMPTIONS

1. Base price is not an issue. Harry has agreed to $25.00/unit.

2. C&C is having some problems with its Landlord, Real Good Realty, Inc.(''RGRI''). RGRI would like to make room for a Starbucks and is looking for any excuse to claim that C&C has breached its lease.

Pleasedraft a contract for the purchase ice cream from the point of view of (and that protects the interests of) the buyer, C&C. You do not have to consider whether the contract would be acceptable to a seller.

Before drafting the contract:

1. Draft a list of issues that you identify as potential problems for C&C that could be addressed in a contract.

2. Identify the business priorities of C&C that could be addressed in a contract.

For the contract itself:

Make sure that you use clear language and not legalese. The average businessperson should be able to understand the terms without hiring a lawyer to translate them. This requirement is in place to make sure that you also understand all the terms in your contract and how they protect the interests of C&C, the buyer.

The contract should be comprehensive and address all of the issues that you identified.

The contract must protect the interests of C&C.

The contract should also provide flexibility and be workable and logical.

Ice Cream Project Part II: Memo to the Boss

Part II requires you to explain and analyze the seller's boilerplate ''Terms of Sale'', which the seller sends to the buyer and respond to certain specific questions from the owner, Harry Baer.

After you have submitted the Buyer's Contract, you will receive the below Memo from Harry Baer, which transmits the Seller's ''Terms of Sale''. The Memo from Harry Bear asks that you prepare a memo (''Memo to the Boss'') in which you review the Seller's Terms of Sale and explain their implications to Harry.

Harry would like you to make some recommendations about how to proceed. Your Memo to the Boss should respond to Harry's questions. You will need to justify your answers based on your reading of the Terms of Sale and the applicable law set forth below. There is no page limitation on the Memo to the Boss. Use your best judgment. However, depending on your writing style, a memo of two pages is typical.

MEMO FROM HARRY BAER MEMORANDUM

To: D. Newbie

From: Harry Baer Re: Wilson Treats, Inc.

Great job on your proposed contract! Unfortunately, it must have crossed in the mail since I just received the Wilson Treats Terms of Sale (Attachment I). I would like you to take a look at it and get back to me with a memo which answers the following questions:

1. What do the Terms of Sale mean? This stuff is all in ''legalese.'' What does it mean in plain English and what is really important here?
2. I heard that the UCC governs this type of transaction. Does the UCC inform your understanding of the provisions of the Terms of Sale? How, specifically, does it do that?
3. How do you recommend that we respond to Wilson Treats?

Attachment I:TERMS OF SALE OF WILSON TREATS, INC.

1. General

1.01 TERMS OF SALE: These terms and conditions (''Terms of Sale'') shall apply to all transactions entered into with Wilson Treats, Inc. (the ''Company'') for the purchase of product (or any services incidental to the delivery of such product) (''Product''). No terms or conditions other than the Terms of Sale shall be binding on the Company. Acceptance is limited to the terms stated herein; any other terms or conditions are hereby rejected and shall not be binding on the Company. Buyer shall be deemed to have accepted the Terms of Sale if (i) Buyer signs the Terms of Sale; (ii) Buyer orders Product; or (iii) the Company acknowledges Buyer's order.

2. Standards of Performance

2.01 STANDARDS: All Product shall conform to the specifications of the Company which may be in effect from time to time. The Company reserves the right to change the specifications at its sole discretion without notice to the Buyer.

2.02 WARRANTIES: Except as may be expressly identified herein, the Company disclaims all warranties and guarantees, whether express or implied, including but not limited to the warranties of merchantability and fitness for a particular purpose. Any samples, brochures, materials, or representations provided to Buyer by the Company are solely for illustration and shall not constitute a guarantee of Product or performance.

3. Delivery

3.01 DELIVERY: All shipments shall be FOB the Company's facility. The Company shall use all reasonable efforts to deliver all Products in a timely manner but does not guarantee delivery within a specified time. A minimum of 72 hours notice is required between ordering and delivery. Orders requiring delivery within less than 72 hours are subject to upcharge at the Company's sole discretion.

4. Terms of Payment

4.01 PAYMENT: The Company shall invoice the Buyer on a monthly basis for all deliveries made during the previous thirty (30) days. Invoices are due within fifteen (15) days after date of invoice. Under no circumstances shall Buyer adjust or withhold payments due to quality or delivery issues; any adjustments in price must be approved by the Company's Customer Service Manager. In the event that payment is late, the Buyer shall pay interest on any overdue amounts at the rate of 15% per year.

5. Acceptance and Remedy

5.01 ACCEPTANCE: Buyer shall have the right to inspect or test Product. Buyer shall have a period of twenty-four hours after delivery of Product to advise the Company of any defect in the Product, including any deficiencies in quantity. Any such notices shall be in writing and delivered by emailto the Customer Services Manager at an address to be provided. In the event that the Buyer fails to advise the Company of any deficiencies, the order shall be deemed to be accepted and Buyer shall have no further recourse against the Company.

5.02 LIMITATION OF REMEDY: In the event that a shipment does not include the full quantity ordered, or if there exists a defect in the Product which constitutes a breach of the Warranty provided in Section 2, the Company, at its sole discretion, may either replace the Product or refund the purchase price of the Product. Replacement or refund shall constitute the Buyer's sole and exclusive remedy. In no event shall the Company be subject to any other damages, including but not limited to, consequential damages, lost profits, attorneys' fees or costs of substitute product. Any claims by Buyer must be in writing and must be delivered to the Company as specified in Section 5.01. Failure to make a timely claim shall bar any recovery by Buyer.

6. Indemnification

6.01 INDEMNIFICATION: The Buyer agrees to indemnify and defend the Company, and its officers and employees to the fullest extent of the law, and hold them harmless from and against any claim, demand, cause of action, loss, expense, judgment, penalty, fine or liability (including rea-sonable attorney's fees and costs of suit), resulting from or arising by rea-son of: (a) any injury to or death of persons (including but not limited to, the death or injury to the employees of either the Company or the Buyer);or (b) damage to, or loss of, property (whether the property is owned by the Company, the Buyer or a third party). Anything contained herein to the contrary notwithstanding, Buyer's obligations hereunder shall not be reduced or limited because of the negligence of the Company.

7. Choice of Law

7.01 CHOICE OF LAW: The parties agree that this Agreement shall be construed under the law of the State of Louisiana.

Attachment II: Law to help you answer Harry's second question above.

The common law of contracts governs agreements between private parties, except to the extent that it has been modified by legislation (like the Uniform Commercial Code ("UCC")). The UCC is a comprehensive set of laws governing all commercial transactions in the United States. It is not a federal law but is uniformly adopted by state legislatures. There are nine articles in the UCC. Article 2 applies to transactions concerning the sale of goods. All U.S. states, with the exception of Louisiana, have adopted a form of UCC Article 2. Article 2 sets forth special rules for contracts concerning the sale of goods. To understand the implications of the terms of the seller's contract, you will first have to decide whether the contract you are drafting concerns the sale of goods. To make that determination, you should read the following case and statutes.

Caselaw:

Click on the following link for access to the case, which explains how people determine whether a transaction concerns a sale of goods, subject to the UCC:Pass v. Shelby Aviation.A copy is also attached below.

Relevant UCC Provisions

UCC 2-102.Scope:https://www.law.cornell.edu/ucc/2/2-102

2-105. Definitions:https://www.law.cornell.edu/ucc/2/2-105#Goods_2-105

UCC 2-314. Implied Warranties:https://www.law.cornell.edu/ucc/2/2-314#:~:text=(1)%20Unless%20excluded%20or%20modified,or%20elsewhere%20is%20a%20sale

UCC 2-313. Express Warranties:https://www.law.cornell.edu/ucc/2/2-313

Pass v. Shelby Aviation Inc.

Court of Appeals of Tennessee, Western Section, At Jackson

April 13, 2000, Decided

Opinion

This is an appeal in a breach of warranty case. The plaintiffs' decedents were killed in an airplane crash. The estates sued the aviation company that performed the annual inspection on the airplane, on a theory of breach of warranty. The trial court denied the defendant's motion to dismiss, holding that the transaction was subject to the warranty provisions of Article 2 of the Uniform Commercial Code. Permission for appeal was granted on this issue. We reverse, utilizing the predominant purpose test to determine if a mixed transaction of goods and services is subject to the Uniform CommercialCode, and holding that the transaction in this case was predominantly the provision of a service, not subject to the warranty provisions of the UCC.

This breach of warranty case arises out of the crash of a single engine Piper airplane owned and piloted by Max E. Pass, Jr. ("Mr. Pass"). On April 15, 1994, Mr. Pass and his wife, Martha N. Pass ("Mrs. Pass"), departed in the aircraft from Plant City, Florida, bound for Clarksville, Tennessee. Somewhere over Alabama the couple flew into turbulence. Mr. Pass lost control of the aircraft, and the plane crashed to the ground outside of Opelika, Alabama. Neither Mr. nor Mrs. Pass survived the crash.

The Defendant/Appellant in this case, Shelby Aviation, Inc. ("Shelby Aviation"), is a fixed base operator that services aircraft at Charles Baker Airport in Millington, Tennessee. On December 29, 1993, approximately four and a half months prior to the flight in which he was killed, Mr. Pass took his airplane to Shelby Aviation for inspection and service. In servicing the aircraft, Shelby Aviation replaced both rear wing attach point brackets (also called "attach point fittings") on the plane.

Three and one half years after the crash, MaxE. Pass, Sr., father of Max Pass, Jr. and administrator of his estate, and Shirley Williams, mother of Martha N. Pass and administratrix of her estate, filed suit against Shelby Aviation. The lawsuit alleged that the rear wing attach point brackets sold and installed by Shelby Aviation were defective because they lacked the bolts necessary to secure them to the airplane. The Plaintiffs asserted claims against the Defendant for breach of common law warranty, and for breach of express and implied warranties under Article 2 of the Uniform Commercial Code ("UCC"), which governs the sale of goods.¹ The Plaintiffs' complaint alleged that the Defendant's employees "failed to provide and install the bolts necessary to secure the rear wing attach point brackets to the fuselage of the aircraft," that the missing bolts "resulted in a failure of both wings to withstand the torque routinely applied to an aircraft during turbulence," and that as consequence the right wing separated from the aircraft in flight, causing Mr. Pass to lose control and the airplane to crash.

On January 28, 1998, Shelby Aviation filed a motion to dismiss, under Tennessee Rule of Civil Procedure 12.06, asserting that the Plaintiffs failed to state a claim upon which relief can be granted. Shelby Aviation contended that the transaction with Max Pass, Jr. had been primarily for the sale of services, rather than of goods, and that consequently the transaction was not covered by Article 2 of the Uniform Commercial Code. Shelby Aviation further contended that all common law warranties had been subsumed into the UCC upon its adoption in Tennessee.

After the Plaintiffs filed their response to its motion to dismiss, Shelby Aviation filed a reply to the Plaintiffs' response, which included the affidavit of Shelby Aviation president, Joe McElmurray ("McElmurray"). In this affidavit, McElmurray stated that Mr. Pass had brought his plane to Shelby Aviation for an annual inspection, which was required by regulations of the Federal Aviation Administration; that all parts replaced on the plane were installed pursuant to the requirements of the annual inspection; and that the parts sold had not come from stock maintained by Shelby Aviation but instead had been ordered specifically for Mr. Pass' airplane.

On September 28, 1998, the trial court denied Shelby Aviation's motion to dismiss. On October 21, 1998, Shelby Aviation filed a motion for permission to file an appeal of the trial court's denial of its motion to dismiss. On January 28, 1999, the trial court issued an order granting Shelby Aviation's motion for permission to file an appeal. The trial court's order states, in relevant part:

The transaction between Mr. Pass and Shelby Aviation involved both the rendering of services and the sale of goods. Plaintiffs' Complaint was filed December 12, 1997, alleging breach of Article 2 warranties. In response, Defendant filed a Motion to Dismiss. Defendant contends that the transaction at issue is not covered by Article 2.[The trial court]denied Defendant's Motion to Dismiss. The determinative issue and the issue to be appealed is whether the transaction between Mr. Pass and Shelby Aviation is governed by Article 2.

On appeal, Shelby Aviation raisesthe followingissue:whether the trial court erred in denying Shelby Aviation'smotion to dismiss the Plaintiffs' claims for breach of express and implied warranties under the UCC on the basis that the mixed transaction between it and Max Pass, Jr. was not governed by the UCC under the predominant factor test.

Shelby Aviation first argues that it is entitled to judgment as a matter of law on the Plaintiffs' claims for breach of the express and implied warranties of Article 2 of the UCC because the transaction between it and Max Pass, Jr. was not subject to Article 2. Shelby Aviation contends that the contract between it and Max Pass was one predominantly for service, rather than the sale of goods, and as such, falls outside of the UCC. The Plaintiffs assert that the contract was predominantly for the sale of goods, and therefore subject to the express and implied warranties on the sale of goods provided by Article 2 of the UCC.

Article 2 of the Uniform Commercial Code governs the sale of goods. Many contracts, however, like the one at bar, involve a mixture of both goods and services. The problem in such "mixed" transactions is to determine whether Article 2 governs the contract. Most jurisdictions followthe predominant purpose test toaddress the problem. The "predominant purpose test," looks at the transaction as a whole to determine whether its predominant purpose was the sale of goods or the provision of a service. The test for inclusion or exclusion [in the U.C.C.] is not whether they [contracts] are mixed, but granting that they are mixed, whether their predominant factor, their thrust, their purpose, reasonably stated, is the rendition of services with goods incidentally involved (e.g. contract with artist for painting) or is a transaction of sale, with labor incidentally involved (e.g., installation of a water heater in a bathroom).

Under the predominant factor test, the transaction between Shelby Aviation and Mr. Pass is examined to determine whether its predominant purpose was the sale of goods or the sale of services. If it was predominantly a contract for the sale of goods, it falls under the UCC, and the warranty provisions of Article 2 apply. If it was predominantly a contract for service, it falls outside the UCC, and the warranty provisions of Article 2 are inapplicable.

In order to determine whether the predominant purpose of a mixed transaction is the sale of goods or the provision of a service, we examine the language of the parties' contract, the nature of the business of the supplier of the goods and services, the reason the parties entered into the contract (i.e. what each bargained to receive), and the respective amounts charged under the contract for goods and for services. None of these factors alone is dispositive.The party seeking application of the UCC bears the burden of proof to show that the predominant purpose of the contract was the sale of goods.Beyond the contractual terms themselves, one looks to the circumstances of the parties, and the primary reason they entered into the contract. One also considers the final product the purchaser bargained to receive, and whether it may be described as a good or a service. Finally, one examines the costs involved for the goods and services, and whether the purchaser was charged only for a good, or a price based on both goods and services. If the cost of the goods is but a small portion of the overall contract price, such fact would increase the likelihood that the services portion predominates.

In this case, Shelby Aviation argues that the predominant factor, thrust and purpose of its transaction with Mr. Pass was the sale of services, with the sale of goods incidentally involved. Shelby Aviation notes the language in the invoice, which refers to the plane being brought in for "repair" and "100 hour inspection." Shelby Aviation also observes that the nature of its business is primarily service. The Plaintiffs argue that the predominant factor was the sale of goods. In analyzing the costs of the goods and services, the Plaintiffs argue that the cost to install the parts should be included within the cost of the parts. If it is, the Plaintiffs assert that 75% of the total amount charged by Shelby Aviation was for the sale of goods.

The written document evidencing the transaction is the invoice prepared by Shelby Aviation. The invoice is preprinted with a handwritten description of repairs performed and parts used. In the top left hand corner, blocked off from the rest of the writing, is a preprinted paragraph that states that the owner is authorizing "the following repair work to be done along with the necessary material." On the top right hand side, under a headingentitled "Description," the box stating "annual 100 hour periodic inspection" is checked. On the left side of the invoice, beneath the authorization for repair, is a section entitled "Part number and description" with a handwritten list of the parts used and the amount charged for each. The right hand lower side of the page, under the heading "Service Description" lists the service performed and the amount charged. Finally, the bottom left corner of the page contains a block for "owner's signature" acknowledging "acceptance of repaired plane." As a whole, the invoice clearly emphasizes the repair and inspection aspect of the transaction, indicating that the predominant purpose was the sale of service, with the sale of goods incidental to that service.

We must also consider the nature of Shelby Aviation's business. The Plaintiffs' complaint asserts that Shelby Aviation is "in the business of maintenance, service, storage, and upkeep of aircraft." Shelby Aviation's president stated in his affidavit that the parts sold to Mr. Pass in conjunction with the service performed on his airplane were ordered specifically for his airplane. In addition, the invoice indicates that one part installedby the defendant, the right engine mag, was supplied by Mr. Pass. Shelby Aviation argues that if it were primarily in the business of selling parts, rather than service, it would not have permitted a customer to supply his own part to be installed. Overall, the nature of Shelby Aviation's business appears to be service rather than the sale of parts.

It is also clear that Mr. Pass took the plane to Shelby Aviation primarily to have a service performed, i.e., the annual inspection. What the purchaser sought to procure when he entered into the contract is a strong indication of the predominant purpose of the contract.Theunderlying nature of a hybrid transaction is determined by reference to the purpose with which the customer contracted with the defendant

If the purchaser's ultimate goal is to acquire a product, the contract should be considered a transaction in goods, even though service is incidentally required. Conversely, if the purchaser's ultimate goal is to procure a service, the contract is not governed by the UCC, even though goods are incidentally required in the provision of this service.

Thus, the "final product" Mr. Pass "bargained to receive" appears to be the annual inspection of his airplane.

Regardless of how the percentage of the cost of goods is calculated, viewing the transaction as a whole, we must conclude that the predominant purpose of the transaction was the provision of a servicerather than the sale of goods. The language of the invoice, the nature of the defendant's business, and the purpose for which Max Pass took his airplane to Shelby Aviation all indicate that service was the predominant factor in the transaction. Even where the cost of goods exceed the cost of the services, the predominant purpose of the contract may still be deemed the provision of service where the other factors support such a finding. Therefore, we hold that the transaction between Shelby Aviation and Max Pass, Jr. was predominantly a contract for service, with the sale of goods incidentally involved. As such, it is not subject to the warranty provisions of Article 2 of the UCC. Shelby Aviation is entitled to judgment as a matter of law on the Plaintiffs' UCC breach of warranty claims.

The decision of the trial court denying Shelby Aviation's motion for summary judgment on the UCC breach of warranty claims is reversed, and the case is remanded to the trial court for further proceedingsconsistent with this Opinion.

End of Document

¹The statute of limitations for bringing an action for breach of a contract for sale under Article 2 of the UCC is four years from the date the cause of action accrues.Tenn. Code Ann. 47- 2-725 (1). A cause of action accrues when the breach occurs, and a breach of warranty occurs when tender of delivery is made.Tenn. Code Ann. 47-2-725 (2). [If you are wondering why the plaintiffs did not assert a personal injury claim, it is probably because personal injury actions in Tennessee must be commenced within one year after the cause of action accrued. Personal injury claims accrue on the date of the personal injury, not the date of the negligence or the sale of a product.] Shelby Aviation claims that there are no express or implied warranties under its contract.