Deck 14: Breach and Remedies

Question 1

Corelli was a minor when he purchased the painting. Is the contract void? Is it voidable? What is the difference between these two concepts? A month after his eighteenth birthday, Corelli decides that he would rather have the $2,500 than the painting. He informs Shelley that he is disaffirming the contract and requests that Shelley return the $2,500 to him. When Shelley refuses to do so, Corelli brings a court action to recover the $2,500. What will the court likely decide in this situation? Why?

Answer 1

The contract is void as Corelli is a minor. Any contract undertaken by the minor is void. Void contracts are those that are not legal and cannot be enforced by law whereas Voidable contracts are the contracts that may be nullified.
In this case, the contract may be nullified on the ground that one of the parties is a minor to the contract. As per the law any agreement made by the incompetent parties will be void.
In this case, the court might decide to ask Shelley to refund Corelli $2500 as the contract is void. The contract was made at the time when Corelli was a minor. So this case represents a agreement made by the incompetent party.

Question 2

Greg contracts to build a storage shed for Haney, who pays Greg in advance, but Greg completes only half the work. Haney pays Ipswich $500 to finish the shed. If Haney sues Greg, what would be the measure of recovery?

Answer 2

The case shows a bargained for situation where the party not in breach can recover as damages the expected profit or expected benefit. The fact set indicates that the non-breaching party could or should be placed in the position they would have been in if the contract had been fully performed. A typical way to calculate, estimate or measure would be to determine the cost to complete the work. The facts indicate that the cost to complete is valued at $500. This amount is considered compensatory in nature. Compensatory damages compensate for the sustained loss of a bargain.

Question 3

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What is the difference between compensatory damages and consequential damages? What are nominal damages, and when do courts award nominal damages?

Answer 3

Compensatory Damages : With respect to compensatory damages, a defendant is accountable to an accuser for all consequences of the defendant's illegal act.
Consequential Damages: consequential damages are those types of compensatory damages that may be granted when the loss agonized by a plaintiff isn't produced immediately by the unlawful conduct of an offender.
Consequential damages are placed on the causing harm to the accuser's career. They aren't based on the damage itself that was the direct effect of the offender's conduct.
Nominal Damages : generally, such damages are recoverable by a accuser who effectively establishes that he/she has agonized a damage caused by the unlawful conduct of an offender, but can't offer proof of a loss which can be compensated.
Courts award Nominal Damages : the claims of such damages in contracts are very rare. Because, most breaches of an agreement usually results in any form of financial damage to the non-breaching party.

Question 4

Liquidated Damages.
Carnack contracts to sell his house and lot to Willard for $100,000. The terms of the contract call for Willard to make a deposit of 10 percent of the purchase price as a down payment. The terms further stipulate that if the buyer breaches the contract, Carnack will retain the deposit as liquidated damages. Willard makes the deposit, but because her expected financing of the $90,000 balance falls through, she breaches the contract. Two weeks later, Carnack sells the house and lot to Balkova for $105,000. Willard demands her $10,000 back, but Carnack refuses, claiming that Willard's breach and the contract terms entitle him to keep the deposit. Discuss who is correct.

Question 5

Law
What did the majority conclude on the issue before the court in this case? What reasoning supported this conclusion?

Question 6

Kyle Bruno enters into a contract with X Entertainment to be a stuntman in a movie being produced. Bruno is widely known as the best motorcycle stuntman in the business, and the movie to be produced, Xtreme Riders, has numerous scenes involving highspeed freestyle street-bike stunts. Filming is set to begin August 1 and end by December 1 so that the film can be released the following summer. Both parties to the contract have stipulated that the filming must end on time in order to capture the profits from the summer movie market. The contract states that Bruno will be paid 10 percent of the net proceeds from the movie for his stunts. The contract also includes a liquidated damages provision, which specifies that if Bruno breaches the contract, he will owe X Entertainment $1 million. In addition, the contract includes a limitation-of-liability clause stating that if Bruno is injured during filming, X Entertainment's liability is limited to nominal damages. Using the information presented in the chapter, answer the following questions.
1. One day, while Bruno is preparing for a difficult stunt, he gets into an argument with the director and refuses to perform any stunts. Can X Entertainment seek specific performance of the contract? Why or why not?
2. Suppose that while performing a high-speed wheelie on a motorcycle, Bruno is injured by an intentionally reckless act of an X Entertainment employee. Will a court be likely to enforce the limitation-of-liability clause? Why or why not?
3. What factors would a court consider to determine if the $1 million liquidated damages clause is valid or is a penalty?
4. Suppose that there was no liquidated damages clause (or the court refused to enforce it) and X Entertainment breached the contract. The breach caused the release of the film to be delayed until after summer. Could Bruno seek consequential (special) damages for lost profits from the summer movie market in that situation? Explain.

Question 7

Both parties are adults, the contract is oral, and the painting is still in progress. Corelli pays Shelley the $2,500 in return for her promise to deliver the painting to his home when it is finished. A week or so later, after Shelley finishes the painting, a visitor to her gallery offers her $3,500 for it. Shelley sells the painting to the visitor and sends Corelli a signed letter explaining that she is "canceling" their contract for the Moonrise painting. Corelli sues Shelley to enforce the contract. Is the contract enforceable? Explain.

Question 8

Lyle contracts to sell his ranch to Marley, who is to take possession on June 1. Lyle delays the transfer until August 1. Marley incurs expenses in providing for cattle that he bought for the ranch. When they made the contract, Lyle had no reason to know of the cattle. Is Lyle liable for Marley's expenses in providing for the cattle? Why or why not?

Question 9

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What is the standard measure of compensatory damages when a contract is breached? How are damages computed differently in construction contracts?

Question 10

Hypothetical Question with Sample Answer In which of the following situations might a court grant specifi c performance as a remedy for the breach of the contract?
1 Tarrington contracts to sell her house and lot to Rainier. Then, on fi nding another buyer willing to pay a higher purchase price, she refuses to deed the property to Rainier.
2 Marita contracts to sing and dance in Horace's nightclub for one month, beginning June 1. She then refuses to perform.
3 Juan contracts to purchase a rare coin from Edmund, who is breaking up his coin collection. At the last minute, Edmund decides to keep his coin collection intact and refuses to deliver the coin to Juan.
4 Astro Computer Corp. has three shareholders: Coase, who owns 48 percent of the stock; De Valle, who owns 48 percent; and Cary, who owns 4 percent. Cary contracts to sell his 4 percent to De Valle but later refuses to transfer the shares to him.
- For a sample answer to Question 14-2, go to Appendix E at the end of this text.

Question 11

Law
On what important point did the dissent disagree with the majority, and why?

Question 12

Both parties are adults, and the contract, which is in writing, states that Corelli will pay Shelley the $2,500 the following day. In the meantime, Shelley allows Corelli to take the painting home with him. The next day, Corelli's son returns the painting to Shelley, stating that he is canceling the contract. He explains that his father has been behaving strangely lately, that he seems to be mentally incompetent at times, and that he clearly was not acting rationally when he bought the painting, which he could not afford. Is the contract enforceable? Discuss fully.

Question 13

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
Under what circumstances is the remedy of rescission and restitution available?

Question 14

Measure of Damages. Johnson contracted to lease a house to Fox for $700 a month, beginning October 1. Fox stipulated in the contract that before he moved in, the interior of the house had to be completely repainted. On September 9, Johnson hired Keever to do the required painting for $1,000. He told Keever that the painting had to be finished by October 1 but did not explain why. On September 28, Keever quit for no reason, having completed approximately 80 percent of the work. Johnson then paid Sam $300 to finish the painting, but Sam did not finish until October 4. When Fox found that the painting had not been completed as stipulated in his contract with Johnson, he leased another home. Johnson found another tenant who would lease the property at $700 a month, beginning October 15. Johnson then sued Keever for breach of contract, claiming damages of $650. This amount included the $300 Johnson paid Sam to finish the painting and $350 for rent for the first half of October, which Johnson had lost as a result of Keever's breach. Johnson had not yet paid Keever anything for Keever's work. Can Johnson collect the $650 from Keever? Explain.

Question 15

Ethics
How do you view David's statements and John's actions? Did David take unethical advantage of his cousin, luring him in bad faith? Was John too willing to rely on assurances of events that he should have known from experience might not occur? Discuss.

Question 16

Both parties are adults, and the contract is in writing. The contract calls for Shelley to deliver the painting to Corelli's gallery in two weeks. Corelli has already arranged to sell the painting to a third party for $4,000, for a $1,500 profit, but it must be available for the third party in two weeks or the sale will not go through. Shelley knows this but does not deliver the painting at the time promised. Corelli sues Shelley for $1,500 in damages. Shelley claims that performance was impossible because her mother fell seriously ill and required Shelley's care. Who will win this lawsuit, and why?

Question 17

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
When do courts grant specific performance as a remedy?

Question 18

Question with Sample Answer-Mitigation of Damages.
Lauren Barton, a single mother with three children, lived in Portland, Oregon. Cynthia VanHorn also lived in Oregon until she moved to New York City to open and operate an art gallery. VanHorn asked Barton to manage the gallery under a one-year contract for an annual salary of $72,000. To begin work, Barton relocated to New York. As part of the move, Barton transferred custody of her children to her husband, who lived in London, England. In accepting the job, Barton also forfeited her husband's alimony and child-support payments, including unpaid amounts of nearly $30,000. Before Barton started work, VanHorn repudiated the contract. Unable to find employment for more than an annual salary of $25,000, Barton moved to London to be near her children. Barton filed a suit in an Oregon state court against VanHorn, seeking damages for breach of contract. Should the court hold, as VanHorn argued, that Barton did not take reasonable steps to mitigate her damages? Why or why not?

Question 19

Economic Dimensions
What does this case indicate about employment and employment contracts?

Question 20

Both parties are adults, and Shelley, on her Web site, offers to sell the painting for $2,500. Corelli accepts the offer by clicking on an "I accept" box on the computer screen displaying the offer. Among other terms, the online offer includes a forum-selection clause stating that any disputes under the contract are to be resolved by a court in California, the state in which Shelley lives. After Corelli receives the painting, he notices a smear of paint across the lower corner of the painting that was not visible in the digitized image that appeared on Shelley's Web site. Corelli calls Shelley, tells her about the smear, and says that he wants to cancel the contract and return the painting. When Shelley refuses to cooperate, Corelli sues her in a Texas state court, seeking to rescind the contract. Shelley claims that any suit against her must be fi led in a California court in accordance with the forum-selection clause. Corelli maintains that the forum-selection clause is unconscionable and should not be enforced. What factors will the court consider in deciding this case? What will the court likely decide? Would it matter whether Corelli read the terms of the online offer before clicking on "I accept"?

Question 21

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What is a limitation-of-liability clause and when will courts enforce it?

Question 22

Liquidated Damages versus Penalties. Every homeowner in the Putnam County, Indiana, subdivision of Stardust Hills must be a member of the Stardust Hills Owners Association, Inc., and must pay annual dues of $200 for the maintenance of common areas and other community services. Under the association's rules, dues paid more than ten days late "shall bear a delinquent fee at a rate of $2.00 per day." Phyllis Gaddis failed to pay the dues on a Stardust Hills lot that she owned. Late fees began to accrue. Nearly two months later, the association fi led a suit in an Indiana state court to collect the unpaid dues and the late fees. Gaddis argued in response that the delinquent fee was an unenforceable penalty. What questions should be considered in determining the status of this fee? Should the association's rule regarding assessment of the fee be enforced? Explain. [ Gaddis v. Stardust Hills Owners Association, Inc., 804 N.E.2d 231 (Ind.App. 2004)]

Question 23

Implications for the Investor
Why would an investor like Warburg Pincus not want someone like John in an executive role in an enterprise for which the investor was providing significant capital?

Question 24

Spotlight on Types of Damages-Compensatory Damages.
Tyna Ek met Russell Peterson in Seattle, Washington. Peterson persuaded Ek to buy a boat that he had once owned, the O'Hana Kai, which was in Juneau, Alaska, for $43,000. Ek and Peterson then entered into a contract under which Peterson was to make the boat seaworthy so that it could be transported to Seattle within a month, where he would pay its moorage costs and renovate the boat at his own expense. In return, Peterson would receive a portion of the profit on its resale the following year. On the sale, Ek would recover her costs, and then Peterson would be reimbursed for his. Ek loaned Peterson her cell phone so that they could communicate while he prepared the vessel for the trip to Seattle. In March, Peterson, who was still in Alaska, borrowed $4,000 from Ek. Two months later, Ek began to receive unanticipated, unauthorized bills for vessel parts and moorage, the use of her phone, and charges on her credit card. She went to Juneau to take possession of the boat. Peterson moved it to Petersburg, Alaska, where he registered it under a false name, and then to Taku Harbor, where the police seized it. Ek filed a suit in an Alaska state court against Peterson, alleging breach of contract and seeking damages. If the court finds in Ek's favor, what should her damages include? Discuss. [Peterson v. Ek, 93 P.3d 458 (Alaska 2004)]

Question 25

Remedies. On July 7, 2000, Frances Morelli agreed to sell to Judith Bucklin a house at 126 Lakedell Drive in Warwick, Rhode Island, for $77,000. Bucklin made a deposit on the house. The closing at which the parties would exchange the deed for the price was scheduled for September 1. The agreement did not state that "time is of the essence," but it did provide, in "Paragraph 10" that "[i]f Seller is unable to [convey good, clear, insurable, and marketable title], Buyer shall have the option to: (a) accept such title as Seller is able to convey without abatement or reduction of the Purchase Price, or (b) cancel this Agreement and receive a return of all Deposits." An examination of the public records revealed that the house did not have marketable title. Wishing to be flexible, Bucklin offered Morelli time to resolve the problem, and the closing did not occur as scheduled. Morelli decided "the deal is over" and offered to return the deposit. Bucklin refused and, in mid-October, decided to exercise her option under Paragraph 10(a). She notified Morelli, who did not respond. Bucklin fi led a suit in a Rhode Island state court against Morelli. In whose favor should the court rule? Should damages be awarded? If not, what is the appropriate remedy? Why? [ Bucklin v. Morelli, 912 A.2d 931 (R.I. 2007)]

Question 26

Quasi Contract.
Middleton Motors, Inc., a struggling Ford dealership in Wisconsin, sought managerial and financial assistance from Lindquist Ford, Inc., a successful Ford dealership in Iowa. While the two dealerships negotiated the terms for the services and a cash infusion, Lindquist sent Craig Miller, its general manager, to assume control of Middleton. After a year, the parties had not agreed on the terms, Lindquist had not invested any funds, Middleton had not made a profit, and Miller was fired without being paid. Can Miller recover pay for his time on a quasi-contract theory? Why or why not? Which of the quasi-contract requirements is most likely to be disputed in this case? Why? [Lindquist Ford, Inc. v. Middleton Motors, Inc., 557 F.3d 469 (7th Cir. 2009)]

Question 27

A Question of Ethics In 2004, Tamara Cohen, a real estate broker, began showing property in Manhattan to Steven Galistinos, who represented comedian Jerry Seinfeld and his wife, Jessica. According to Cohen, she told Galistinos that her commission would be 5 or 6 percent, and he agreed. According to Galistinos, there was no such agreement. Cohen spoke with Maximillan Sanchez, another broker, about a townhouse owned by Ray and Harriet Mayeri. According to Cohen, Sanchez said that the commission would be 6 percent, which they agreed to split equally. Sanchez later acknowledged that they agreed to split the fee, but claimed that they did not discuss a specifi c amount. On a Friday in February 2005, Cohen showed the townhouse to Jessica. According to Cohen, she told Jessica that the commission would be 6 percent, with the Seinfelds paying half, and Jessica agreed. According to Jessica, there was no such conversation. Later that day, Galistinos asked Cohen to arrange for the Seinfelds to see the premises again. Cohen told Galistinos that her religious beliefs prevented her from showing property on Friday evenings or Saturdays before sundown. She suggested the following Monday or Tuesday, but Galistinos said that Jerry would not be available and asked her to contact Carolyn Liebling, Jerry's business manager. Cohen left Liebling a message. Over the weekend, the Seinfelds toured the building on their own and agreed to buy the property for $3.95 million. Despite repeated attempts, they were unable to contact Cohen. [ Cohen v. Seinfeld, 15 Misc.3d 1118(A), 839 N.Y.S.2d 432 (Sup. 2007)
1 The contract between the Seinfelds and the Mayeris stated that the sellers would pay Sanchez's fee and the "buyers will pay buyer's real estate broker's fees." The Mayeris paid Sanchez $118,500, which is 3 percent of $3.95 million. The Seinfelds refused to pay Cohen. She fi led a suit in a New York state court against them, asserting, among other things, breach of contract. Should the court order the Seinfelds to pay Cohen? If so, is she entitled to a full commission even though she was not available to show the townhouse when the Seinfelds wanted to see it? Explain.
2 What obligation do parties involved in business deals owe to each other with respect to their religious beliefs? How might the situation in this case have been avoided

Question 28

Critical Legal Thinking.
Review the discussion of the doctrine of mitigation of damages in this chapter. What are some of the advantages and disadvantages of this doctrine?

Question 29

Video Question Go to this text's Web site at www.cengage.com/blaw/blt and select "Chapter 14." Click on "Video Questions" and view the video titled Midnight Run. Then answer the following questions.
1 In the video, Eddie (Joe Pantoliano) and Jack (Robert De Niro) negotiate a contract for Jack to find "the Duke," a mob accountant who embezzled funds, and bring him back for trial. Assume that the contract is valid. If Jack breaches the contract by failing to bring in the Duke, what kinds of remedies, if any, can Eddie seek? Explain your answer.
2 Would the equitable remedy of specific performance be available to either Jack or Eddie in the event of a breach? Why or why not?
3 Now assume that the contract between Eddie and Jack is unenforceable. Nevertheless, Jack performs his side of the bargain by bringing in the Duke. Does Jack have any legal recourse in this situation? Explain.