You are permitted two (2) hours on this part of the examination. When allotting your time, note that the two questions will be given different weight in the computation of the final grade.

This is an open book examination. During the examination you may consult any written materials except materials checked out of the law library.

Assume that the 1989 official text of the Uniform Commercial Code is in force in all relevant jurisdictions unless otherwise indicated.

Read each question carefully. Organize your answer before you begin to write and emphasize those points you think are most significant. If you find an ambiguity or if you need more facts, make reasonable assumptions and state these clearly in your answer. Be concise. Be clear. Good luck!

John owns a business that prepares and sells fresh yogurt in bulk to local restaurants and supermarkets. Deciding to expand the business to include retail sales, John investigates the different ways to package the yogurt to keep it fresh. John discovers (1) that to maintain freshness it is imperative to have a tight seal to the packaging, and (2) that there are no standard machines for packaging yogurt in small containers. He draws up specifications and approaches several possible equipment manufacturers to whom he shows the specifications and explains the intended use of the machine.

Packing Machinery Incorporated (PMI) agrees to manufacture a machine to John's specifications. After further negotiations with respect to price and time of delivery, John and PMI sign a typewritten contract document that includes, inter alia, the following terms:

PMI warrants the yogurt packaging machine against defects in material or workmanship for a period of twelve (12) months from the date of tender. PMI makes no other warranties, express or implied, with respect to the machine. If there should be a defect in material or workmanship, Purchaser agrees to inform PMI no later than ten (10) days after discovering the defect. PMI, at its own expense, shall repair the defect or replace the machine. Purchaser agrees that the choice between repair or replacement is at PMI's sole option and that repair or replacement is Purchaser's exclusive remedy. PMI and Purchaser expressly agree that PMI is not responsible for consequential damages. Any legal action brought under this contract must be commenced no later than twelve (12) months after the machine is delivered to Purchaser.

On November 1, nine months after PMI delivered the machine to John several of John's retail customers complain that they have suffered severe food poisoning from eating yogurt from packages sold by John. After investigating the complaints, John concludes that the food poisoning probably resulted from faulty packaging. On November 15, John writes a letter to PMI informing the company of his conclusions about the complaints and "rejecting" the machine. On November 26, not having heard from PMI, John settles the customers' complaints for $10,000 and has his lawyer commence legal proceedings against PMI.

Evaluate John's claims and advise PMI on what legal steps it should take in response to these claims.