Business Law Today Study Set 1

Business

Quiz 13 :

Breach and Remedies

Quiz 13 :

Breach and Remedies

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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?
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The circumstances under which the remedy of rescission is available are the following
• The situation where fraud is practiced.
• In the circumstances where a mistake has occurred
• The situation of duress
• The situation where undue influence is practices
• The circumstances where lack of capacity is a governing factor
• The situation where there is failure of consideration
• When its availability is prescribed by statute
The damage of restitution is available when a contract is violated. For restitution an individual is returned to the circumstances that he would have been in before the loss or in the absence of the breach. For restitution:
• The goods are given beck to the party
• In the situation where it is not plausible to return the goods adequate compensation must be given.
Restitution seeks to acquire the advantage for the defendant that has been unfairly taken from him by the violating party

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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.
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Ek is eligible to recover compensations in an amount which recompenses her for the damage of the bargain and reimburses her for any expenditure she agonized due to the breach of Peterson.
The court concluded that Peterson breached the agreement with Ek and awarded her compensations that comprised the loan to Peterson, the unapproved charges, the moorage costs to the date of the boat's reclamation, and the costs to reclaim it.
In this case, it is appropriate to award Ek for the costs that are associated with reposing the vessels because Peterson was failed to do so. He did material breach of the agreement.

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Mitigation of Damages. Lauren Vuylsteke, a single mother W7ith three children, lived in Portland, Oregon. Cynthia Broan also lived in Oregon until she moved to New York City to open and operate an art gallery. Broan asked Vuylsteke to manage the gallery under a one-year contract for an annual salary of $72,000. To begin work, Vuylsteke relo-cated to New York. As part of the move, Vuylsteke transferred custody of her children to her husband, who lived in London, England. In accepting the job, Vuylsteke also for-feited her husband's alimony and child-support payments, including unpaid amounts of nearly $30,000. Before Vuylsteke started work, Broan repudiated the contract. Unable to find employment for more than an annual salary of $25,000, Vuylsteke moved to London to be near her children. Vuylsteke filed a suit in an Oregon state court against Broan, seeking damages for breach of contract. Should the court hold, as Broan argued, that Vuylsteke did not take rea-sonable steps to mitigate her damages? Why or Why not? [Vuylsteke v. Broan, 172 Or.App. 74, 17 P.3d 1072 (2001)]
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When a breach of contract occurs, the injured party is liable to be compensated in order to reduce the amount of damage he/she would suffer as a consequence of the breach.
In most states, when employees are wrongfully terminated, they have a duty to look for similar jobs if it is available. If the employees do not make an effort in this direction, the damages they are entitled to receive will be at par with their salaries less the income they could have received if they had found a similar job using all reasonable means.
No , the court should take a lenient view in this case and not hold as C argued. Mrs. V was offered an annual salary of $72,000 but the contrate was later repudiated by Mrs. C.
V took reasonable steps to mitigate the damages but could not find a job that offered annual salary more than $25,000. V had made a lot of sacrifices to get the job:
• She relocated from her native place to manage the art gallery,
• She forfeited her alimony and child support, and
• Gave up custody of her children.
Keeping in mind all the above circumstances the court may adjudicate appropriately. The court should pass a judgement in favour of the plaintiff, Mrs. V. Penalty may be imposed on the defendant, Mrs. C.

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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.
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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?
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A Question of Ethics. Julio Gana was employed by the Texas Animal Health Commission (TM-IC) as a health inspector in 1981. His responsibilities included bleeding and tagging cattle, vaccinating and tattooing calves, and working livestock markets. Garza was injured on the job in 1988 and underwent surgery in January 1989. When his paid leave was exhausted, he asked TM-IC for light-duty work, specifically the job of tick inspector, but his supervisor refused the request. In September, TAHC notified Garza that he was fired. Garza sued TM-IC and others, alleging, in part, wrongful termination, and an important issue before the court was whether Garza had mitigated his damages. The court found that in the seven years between his termination and his trial date, Carza had held only one job-an unpaid job on his parents' ranch. When asked how often he looked for work during that time, Garza responded that he did not know, but he had looked in "several" places. The last time he looked for work was three or four months before the trial. That effort was merely an informal inquiry to his neighbors about working on their ranch. In view of these facts, consider the following questions. [Texas Animal Health Commission v. Garza, 27 S.W.3d 54 (Tex.App. -San Antonio 2000)J 1. The court in this case stated that the "general rule as to mitigation of damages in breach of employment suits is that the discharged employee must use reasonable diligence to mitigate damages by seeking other employment." In your opinion, did Garza fulfill this requirement? If you were the judge, how would you rule in this case? 2. Assume for the moment that Garza had indeed been wrongfully terminated. In this situation, would it be fait to Garza to require him to mitigate his damages? Why or why not? 3. Generally, what are the ethical underpinnings of the rule; that employees seeking damages for breach of employee contracts must mitigate their damages?
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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 Caddis failed to pay the dues on a Stardust Hills lot that she owned. Late fees began to accrue. Nearly two months later, the association filed a suit it an Indiana state court to collect the unpaid dues and the late fees. Caddis 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)]
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Video Question. Co to this text's Web site at www.thornsonedu.com/westbuslaw/bit and select "Chapter 13." 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.
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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?
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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 I. The agreement did not state that "time is of the essence," but it did pro-vide, in "Paragraph 10" that 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 tide. 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 filed 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)]
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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 high-speed 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.
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Hypothetical Question with Sample Answer. In which of the following situations might a court grant specific performance as a remedy for the breach of the contract? 1. Tarrington contracts to sell her house and lot to Rainier. Then, on finding 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.
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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.
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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?
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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?
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What is the rationale underlying the doctrine of election of remedies?
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The following multiple-choice question is representative of the types of questions available in one of the four sections of ThomsonNOW for Business Law Today. ThomsonNOW also provides feedback for each response option, whether correct or incorrect, and refers to the location within the chapter where the correct answer can be found. Consequential damages are A. very small (usually one dollar) and meant simply to show that the defendant acted wrongfully. B) foreseeable damages that are caused by circumstances beyond the contract itself but that arise as a consequence of the contract's breach. C) damages that compensate a party for actual losses directly resulting from the breach of contract. D) damages that punish a breaching party.
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