Lode Mines Enters into a Contract with Ajax Photo Labs,whereby

question 29

Multiple Choice

Lode Mines enters into a contract with Ajax Photo Labs,whereby Ajax agrees to purchase all its requirements of silver needed for photo finishing during the next year,from Lode,at $4.00 per ounce.Over the last 4 years,Ajax has used an average of 10,000 ounces of silver per year.Lode only produces about 15,000 ounces of silver per year.About 2 months into the contract,the price of silver skyrockets to $50 per ounce.Ajax immediately orders an additional 50,000 ounces from Lode.Lode refuses to deliver,and Ajax sues.What is the most likely outcome?

• A)Lode wins;requirements contracts are not enforceable because they do not contain a quantity.
• B)Ajax wins;requirements contracts are enforceable.
• C)Lode wins;even if requirements contracts are enforceable,the parties must act in "good faith," and Ajax is acting in bad faith.
• D)Ajax wins;they are acting in "good faith," and this was a risk that Lode assumed.

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Definitions:

Paid-in Capital

Funds received from investors during equity issuances, contributing to a company's equity beyond the initial stock value.

Cash Price

The amount of money that a buyer pays to purchase a good or service when paying in cash instead of using credit or financing.

Book Value

The net value of a company's assets minus its liabilities, often used to assess the company's underlying value.

Common Share

Equity securities that represent ownership in a corporation, providing voting rights and a share in the company's profits via dividends.