Question

Your company agrees to sell Wendy's 100 tons of beef at $2 a pound which you can buy for $1 a pound. Due to a mad cow outbreak, the price of beef skyrockets to $1,000 a pound. There is nothing you can do and you must sell the beef at a loss of $998 a pound or be in breach of contract. true or false?

Answer 1

If the sale agreement is tight bound saying that 100 tons of beef will be sold at $2 a pound then it needs to be honoured. However, these contracts usually have a clause regarding unforeseen events or price rise beyond normal.

Since Mad Cow Outbreak is a unforeseen event and prices have risen beyond contol, we can refuse to sell meat at all. In this way we will not be breaching the contract since, as there is no meat sold, there is no price involved.

In this case Wendy's will have to buy from the market.

Simultaneously there are risk mitigation strategies as well to minimize losses.

So depending on the contract and the clauses, it can be understood if there is a breach.

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