Question

Excelsior Corporation (Excelsior) is in the business of making specialty steel. It commonly orders its raw materials from a number of suppliers who are familiar with the Excelsior process of making steel and what their raw materials are used for. On January 3, 2010, Excelsior sent a purchase order to Jones Minerals Inc (Jones) to purchase 50 tons of “amalgamated coke in small sized lots” at $1,000 per ton. Coke is a type of processed coal needed in the manufacture of steel. The purchase order included a number of preprinted terms and conditions in addition to the specified quantity and type of coke. The preprinted terms included a provision requiring delivery at Excelsior’s factory not later than February 15, 2010.

       When Jones received the purchase order, Wilson, its logistics manager responded with a preprinted acknowledgement form on January 7, 2010. In addition to identifying the quantity, size of the coke, and the delivery date (all of which matched the purchase order), the preprinted form indicated that the product was to be free on board seller’s (Jones) plant. There was also a preprinted clause that specified that all disputes would be settled by arbitration through a national bar association mediator, a matter that the purchase order did not address in its preprinted form.

       Ted is the Chief Financial Officer (CFO) at Excelsior. The Company has been going through some hard economic times, during which Ted’s predecessor had been terminated for poor performance. His last day was January 7, 2010. The acknowledgement form from Jones for the coke was never reviewed at Excelsior. Ted is dealing with many issues when he starts his new job on January 8, 2010, and does not review this arrangement with Jones, which has supplied Excelsior coke in the past to the best of his knowledge.

       Ted finds that Excelsior seems to be turning the corner and has numerous orders for steel to be delivered in late February and early March. Ted’s boss calls him in on February 1, 2010 and indicates that while he was “at the club” for lunch with a few of his friends, he heard that Jones was experiencing some financial difficulty which had resulted in some poor quality product being produced. Ted is concerned because the 50 ton coke contract with Jones is essential to Excelsior being able to meet its customers’ orders. Ted calls Jones on February 2, 2010, and speak with Wilson, who states that Jones is doing fine and Excelsior’s order is in process. Relieved, Ted moves on to other more pressing matters.

       On February 10, 2010, the coke is delivered by Albertson’s Trucking Company, the transportation company hired by Jones, but to Ted’s dismay, there are only 40 tons and it is “amalgamated coke in medium lots.” Ted is perplexed and contacts Wilson at Jones Mineral Inc, who is apologetic and says they were having difficulty producing and purchasing the exact type of amalgamated small lot coke for the contract. He promises to send the rest of the coke in small lots by the deadline of February 15. Ted is sweating bullets now, because it is a time consuming process to convert medium lot coke into small lot coke and Excelsior is running out of time to produce steel for its customers. Jones can’t replace the 40 tons with conforming coke for at least another month. On February 14, Ted gets word from Albertson’s Trucking Company that the 4 trucks carrying the remaining 10 tons of the contract coke to your plant to complete the order have been involved in a 45 car pileup on the interstate and there is coke all over the road. Ted is so incensed that he doesn’t even ask if it is small lot or medium lot coke.

       Excelsior’s customers are starting to call about their steel orders seeking confirmation of delivery of their orders. Ted’s boss has gotten wind of this and is jumping up and down and screaming a lot. He wants Ted to resolve this problem as soon as possible to put it mildly. Ted finds out that “amalgamated small lot coke” is now priced at $1,500 per ton and delivery cannot be expected sooner than February 25 from anyone. By then, Excelsior will have defaulted on two steel contracts with two brand new customers. Ted thinks what a happy Valentine’s Day this is!

       What is Ted going to do? In your essay, address what the legal situation is with regard to the contract for the 50 tons of “amalgamated coke in small lots” from Jones Mineral Inc. What is the contract and what rights does Excelsior have under it? What can Excelsior do about the performance of Jones on the contract thus far? What are Excelsior’s legal options under the Uniform Commercial Code? What are Excelsior’s potential liabilities on its steel supply contracts? Should Ted update his resume? Spot, address, and discuss as many issues as you can discover. Indicate what other facts you would need to assist in your analysis. In retrospect, should Ted have done anything differently and, if so, what and when?

Answer 1

What has happened:

A purchase order becomes a contract when accepted by Seller and when the PO is accepted it will get legal value. Until then it is just a piece of paper.

Excelsior had clearly mentioned their requirement in terms of Quantity, Quality (Amalgamated Coke in small quantities) and Jones had accepted it which is now has legal value. Jones also had mentioned about the dispute resolution method of using arbitration through a national bar association mediator.

Excelsior can accept all or reject all or accept some and reject rest under the "non confirming goods" act in the contract law. Had Jones sent it with a note of non confirming goods and Excelsior accepts that will become a new contract again under the Uniform Commercial Code.

What could have been done:

When Excelsior is terminating Ted's predecessor's job, the company should have collected all necessary information on the pending contracts and all relevant information from that person. Predecessor job was terminated and Ted joined on 8th. So it is Ted's management responsibility to make sure Ted has all the relevant information for his job. Had the acknowledgement been reviewed, there wouldn't have been much trouble. Looks like Ted is aware of the contract of 50 Tonnes. I think, instead of reactive, Ted should have been proactive to review the order status at regular intervals (say weekly) to make sure the order is getting ready as per the Excelsior requirement. Reacting upon his boss's suggestion makes him a reactive but not proactive.

Excelsior received only 40 tonnes that to medium size lots but not small size as required and there is not much time left for producing steel for its contracts. Also, there is no other coke producer readily available who can quickly get them coke. In this case, I would suggest to recruit contract employees to convert the medium size to small size. Also, it would fasten the process of making steel, so that Excelsior would be in a safe position as it has to deliver the steel to its vendors.

Leaving a job (Ted updating his resume) would not be a solution. Jones became defaulter. Need of the hour is to make sure the new vendors get their order delivered as per the contract between Excelsior and Vendor. Recruiting contract employees to speed up the production or doing some work parallely would save Excelsior from defaulting the contract.

What is Missing and Needed:

Not all states accepted UCC completely like Louisiana.while some states not accepted anything. So, to re asses the case and possible legal solutions, we need to know where these companies are located. Also, we need to know what kind of contract is executed between Excelsior and its vendors.