BUSINESS LAW – Nellie Nimble, purchasing manager for Fast Color Paint Company

1. Nellie Nimble, purchasing manager for Fast Color Paint Company, mailed a purchase order to AB Can Corporation for 100,000 cans of high-gloss white paint at $15 per gallon wholesale. The order form mailed by Nellie contained 17 printed conditions on its reverse side. The third condition stated: “Buyer may reject any defective goods within 30 days of delivery.”The order form also stated that payment would be made as follows: 50% upon receipt of the goods, and 50% within 30 days of the receipt of goods. AB Can (the seller) sent a signed letter confirming the order, but the letter stated: “Any objection to goods shipped must be in writing within five (5) days of receipt of goods.” AB Can’s letter specified the same payment schedule as Fast Color’s purchase order, but stated, in addition, “Interest at the rate of 12% per year will be charged on late payments.” Fast Color’s purchase order said nothing about interest on late payments.AB Can delivered the cans (100,000) and Fast Color sought to object to 10,000 of the cans as defective on the seventh day after receipt of the cans. Fast Color paid 50% of the order’s purchase price upon delivery but paid the balance (minus the 10,000 cans it rejected) 40 days after delivery. Did Fast Color have the right to reject 10,000 cans, seven days after delivery? Does Fast Color owe interest on the portion of its payment that was not paid within 30 days of receipt of the paint order? Did the provision for interest on late payments materially alter the contract? What terms in AB Can’s purchase confirmation are additional terms, not mentioned at all in Fast Color’s order? (Explain your rationale, and also state whether you believe the outcome is fair.)2. You’ve been hired as the marketing manager for a company that sells weight loss products to the public. The Federal Trade Commission (FTC) recently brought an enforcement action against the company for violating the FTC Act’s prohibition of unfair and deceptive trade practices, based on some of the company’s advertising. The company wants to challenge the FTC’s ruling by appealing to the courts. The FTC’s ruling was based on the company’s ads for herbal teas (claiming they block absorption of fat and will lead to substantial weight loss) and the company’s ad for a popular supplement (claiming they will result in the loss of two pounds or more each week without dieting or exercising).What is the basis of the FTC’s power to regulate ads for diet products? What standards has the FTC established to determine if a diet product claim is unfair and deceptive? If the company tries to challenge the FTC’s ruling by appealing to a court, what test will the appellate court use to determine if the FTC’s ruling was justified? How do you think the court should decide this case? If the company wants to comply with the FTC’s regulations on diet product claims, what language would it need to change in the ads mentioned above?



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