Reviewing Chapter 21

REVIEWING

Performance and Breach of Sales and Lease Contracts

GFI, Inc., a Hong Kong company, makes audio decoder chips, an essential component in the

manufacture of MP3 players. Egan Electronics contracts with GFI to buy 10,000 chips on an installment

contract, with 2,500 chips to be shipped every three months, F.O.B. Hong Kong, via Air Express. At the

time for the first delivery, GFI delivers only 2,400 chips but explains to Egan that although the ship-

ment is less than 5 percent short, the chips are of a higher quality than those specified in the contract

and are worth 5 percent more than the contract price. Egan accepts the shipment and pays GFI the

contract price. At the time for the second shipment, GFI makes a shipment identical to the first. Egan

again accepts and pays for the chips. At the time for the third shipment, GFI ships 2,400 of the same

chips, but this time GFI sends them via Hong Kong Air instead of Air Express. While in transit, the

chips are destroyed. When it is time for the fourth shipment, GFI again sends 2,400 chips, but this time

Egan rejects the chips without explanation. Using the information presented in the chapter, answer the

following questions.

1. Did GFI have a legitimate reason to expect that Egan would accept the fourth shipment? Why or

why not?

2. Did the substitution of carriers in the third shipment constitute a breach of the contract by GFI?

Explain.

3. Suppose that the silicon used for the chips becomes unavailable for a period of time. Consequently,

GFI cannot manufacture enough chips to fulfill the contract, but does ship as many as it can to Egan.

Under what doctrine might a court release GFI from further performance of the contract?

4. Under the UCC, does Egan have a right to reject the fourth shipment? Why or why not?

DEBATE THIS: If a contract specifies a particular carrier, then the shipper must use that carrier or be in breach of

the contract-no exceptions should ever be allowed.