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ANSWERS TO PROBLEMS
1. Edward, a candy manufacturer, contracted to buy 1,000 barrels of sugar from Marcia.
Marcia failed to deliver and Edward was unable to buy any sugar in the market. As a
direct consequence he was unable to make candies to fulfill unusually lucrative
contracts for the Christmas trade. (a) What damages is Edward entitled to recover? (b)
Would it make any difference if Marcia had been told by Edward that he wanted the
sugar to make candies for the Christmas trade and that he had accepted lucrative
contracts for delivery for the Christmas trade?
Answer: Foreseeability of Damages.
(a) Edward is entitled to recover monetary damages in compensation for such losses as are
the usual, probable, ordinarily-to-be expected consequences of the breach itself. Hadley
v. Baxendale, 9 Exchange 341 (1854). Damages are not recoverable for loss that the
party in breach did not have reason to foresee as a probable result of the breach when the
2. Daniel agreed to erect an apartment building for Steven for $12 million, and that Daniel
would suffer a deduction of $12,000 per day for every day of delay. Daniel was twenty
days late in finishing the job, losing ten days because of a strike and ten days because
the material suppliers were late in furnishing him with materials. Daniel claims that he
is entitled to payment in full (a) because the agreement as to $12,000 a day is a penalty
and (b) because Steven has not shown that he has sustained any damage. Discuss each
contention and decide.
Answer: Liquidated Damages.
(a) The contention that the agreement as to $12,000 a day is a penalty is not tenable. The
provision is a modest liquidated damages provision. The agreed amount of damages is
3. Sharon contracted with Jane, a shirtmaker, for one thousand shirts for men. Jane
manufactured and delivered five hundred shirts, which were paid for by Sharon. At the
same time, Sharon notified Jane that she could not use or dispose of the other five
hundred shirts and directed Jane not to manufacture any more under the contract.
Nevertheless, Jane proceeded to make up the other five hundred shirts and tendered
them to Sharon. Sharon refused to accept the shirts, and Jane then sued for the purchase
price. Is she entitled to the purchase price? If not, is she entitled to any damages?
Explain.
Answer: Mitigation of Damages. Jane may not recover the purchase price, but she is
entitled to recover such damages as she sustained not enhanced by her act in
manufacturing the second lot of 500 shirts. When Sharon notified Jane that she could not
4. Stuart contracts to act in a comedy for Charlotte and to comply with all theater
regulations for four seasons. Charlotte promises to pay Stuart $1,800 for each
performance and to allow Stuart one benefit performance each season. It is expressly
agreed “Stuart shall not be employed in any other production for the period of the
contract.” Stuart and Charlotte, during the first year of the contract, have a terrible
quarrel. Thereafter, Stuart signs a contract to perform in Elaine’s production and ceases
performing for Charlotte. Charlotte seeks (a) to prevent Stuart from performing for
Elaine and (b) to require Stuart to perform his contract with Charlotte. What result?
Answer: Injunctions. (a) Injunction against Stuart's performing for Elaine would probably
be granted if Elaine is a competitor of Charlotte and if Stuart's services are unique or
5. Louis leased a building to Pam for five years at a rental of $1,000 per month. Pam was
to deposit $10,000 as security for performance of all her promises in the lease, which
was to be retained by Louis in case of any breach on Pam’s part. Pam defaulted in the
payment of rent for the last two months of the lease. Louis refused to return any of the
deposit, claiming it as liquidated damages. Pam sued Louis to recover $8,000 (the
$10,000 deposit less the amount of rent due Louis for the last two months). What amount
of damages should Pam be allowed to collect from Louis? Explain.
Answer: Liquidated Damages. Decision for Pam. A liquidated provision will be enforced if
it amounts to a reasonable forecast of the loss that may or does result from the breach. If,
however, the sum agreed on as liquidated damages bears no reasonable relationship to the
6. In which of the following situations is specific performance available as a remedy?
(a) Mary and Anne enter into a written agreement under which Mary agrees to sell and
Anne agrees to buy for $100 per share 100 shares of the 300 shares outstanding of the
capital stock of the Infinitesimal Steel Corporation, whose shares are not listed on any
exchange and are closely held. Mary refuses to deliver when tendered the $10,000.
(b) Modifying (a) above, assume that the subject matter of the agreement is stock of the
United States Steel Corporation, which is traded on the New York Stock Exchange.
(c) Modifying (a) above, assume that the subject matter of the agreement is undeveloped
farmland of little commercial value.
Answer: Specific Performance.
(a) Anne may obtain specific performance on this contract. Where shares of stock in a
corporation have no market value and are not on the market for sale, money damages do
7. On March 1, Joseph sold to Sandra fifty acres of land in Oregon that Joseph at the time
represented to be fine black loam, high, dry, and free of stumps. Sandra paid Joseph the
agreed price of $140,000 and took from Joseph a deed to the land. Sandra subsequently
discovered that the land was low, swampy, and not entirely free of stumps. Sandra,
nevertheless, undertook to convert the greater part of the land into cranberry bogs. After
one year of cranberry culture, Sandra became entirely dissatisfied, tendered the land
back to Joseph, and demanded from Joseph the return of the $140,000. On Joseph’s
refusal to repay the money, Sandra brought an action at law against him to recover the
$140,000. What judgment?
Answer: Fraud. Judgment in favor of Joseph. Sandra was induced by fraudulent
misrepresentations of material fact to purchase the 50 acres of land. Upon discovery of
the fraud perpetrated upon her, Sandra had an election of remedies. She could have
8. James contracts to make repairs to Betty’s building in return for Betty’s promise to pay
$12,000 on completion of the repairs. After partially completing the repairs, James is
unable to continue. Betty refuses to pay James and hires another builder, who completes
the repairs for $5,000. The building’s value to Betty has increased by $10,000 as a result
of the repairs by James, but Betty has lost $500 in rents because of the delay caused by
James’s breach. James sues Betty. How much, if any, may James recover in restitution
from Betty?
Answer: Restitution. Restitution is the act of returning to a party the consideration, or its
value, that he gave to the other party. Restitution is available in several contractual
9. Linda induced Sally to enter into a purchase of a home theater receiver by intentionally
misrepresenting the power output to be seventy-five watts at rated distortion, when in
fact it delivered only forty watts. Sally paid $450 for the receiver. Receivers producing
forty watts generally sell for $200, whereas receivers producing seventy-five watts
generally sell for $550. Sally decides to keep the receiver and sue for damages. How
much may Sally recover in damages from Linda?
Answer: Damages for Misrepresentation. Linda committed fraudulent misrepresentation. A
minority of states allow the injured party to recover, under the “out-of-pocket” rule. The
10. Virginia induced Charles to sell Charles’s boat to Virginia by misrepresentation of
material fact on which Charles reasonably relied. Virginia promptly sold the boat to
Donald, who paid fair value for it and knew nothing concerning the transaction between
Virginia and Charles. Upon discovering the misrepresentation, Charles seeks to recover
the boat. What are Charles’s rights against Virginia and Donald?
Answer: Voidable Contracts. Charles may not recover the boat from Donald who is a bona
11. Felch was employed as a member of the faculty of Findlay College under a contract that
permitted dismissal only for cause. He was dismissed by action of the President and
Board of Trustees, which did not comply with a contractual provision for dismissal that
requires a hearing. Felch requested the court to grant specific performance of the
contract and require Findlay College to continue Felch as a member of the faculty and
to pay him the salary agreed upon. Is Felch entitled to specific performance? Explain.
Answer: Specific Performance/Personal Service Contract. Judgment for Findlay College.
In general, specific performance is not available to enforce a provision in a contract for
12. Copenhaver, the owner of a laundry business, contracted with Berryman, the owner of a
large apartment complex, to allow Copenhaver to own and operate the laundry facilities
within the apartment complex. Berryman terminated the five-year contract with
Copenhaver with forty-seven months remaining. Within six months, Copenhaver placed
the equipment into use in other locations and generated at least as much income as he
would have earned at Berryman’s apartment complex. He then filed suit, claiming that
he was entitled to conduct the laundry operations for an additional forty-seven months
and that, through such operations, he would have earned a profit of $13,886.58, after
deducting Berryman’s share of the gross receipts and other operating expenses.
Decision?
Answer: Mitigation of Damages. Judgment in part for Copenhaver. Although Berryman is
liable for the monetary loss sustained by Copenhaver, Copenhaver must exercise
13. Billy Williams Builders and Developers (Williams) entered into a contract with Hillerich
under which Williams agreed to sell to Hillerich a certain lot and to construct on it a
house according to submitted plans and specifications. The house built by Williams was
defectively constructed. Hillerich brought suit for specific performance of the contract
and for damages resulting from the defective construction and delay in performance.
Williams argued that Hillerich was not entitled to have both specific performance and
damages for breach of the contract because the remedies were inconsistent and Hillerich
had to elect one or the other. Explain whether Williams is correct in this assertion.
Answer: Election of Remedies. No, Williams is incorrect. Judgment for Hillerich. The
remedies of specific performance and damages are not inconsistent in this case.
14. Developers under a plan approved by the city of Rye had constructed six luxury
cooperative apartment buildings and were to construct six more. To obtain certificates of
occupancy for the six completed buildings, the developers were required to post a bond
with the city to insure completion of the remaining buildings. The developers posted a
$100,000 bond upon which Public Service Mutual Insurance Company, as guarantor or
surety, agreed to pay $200 for each day after the contractual deadline that the remaining
buildings were not completed. After the contractual deadline, more than 500 days
passed without completion of the buildings. The city claims that its inspectors and
employees will be required to devote more time to the project than anticipated because it
has taken extra years to complete. It also claims that it will lose tax revenues for the
years the buildings are not completed. Should the city prevail in its suit against the
developers and the insurance company to recover $100,000 on the bond? Explain.
Answer: Liquidated Damages/Penalty Clause. No, the city will not prevail. Judgment for
the insurance company. A contract may contain a liquidated damage provision, but the
sum agreed upon must be a reasonable measure of the anticipated harm. Where,
15. Kerr Steamship Company sent a telegram at a cost of $26.78 to the Philippines through
the Radio Corporation of America. The telegram, which contained instructions in
unintelligible code for loading cargo on one of Kerr’s ships, was mislaid and never
delivered. Consequently, the ship was improperly loaded and the cargo was lost. Kerr
sued the Radio Corporation for the $6,675.29 in profits the company lost on the cargo
because of the Radio Corporation’s failure to deliver the telegram. Should Kerr be
allowed to recover damages from Radio? Explain.
Answer: Foreseeability and Damages. Judgment for Kerr in the amount of $26.78, the cost
of transmitting the telegram. The settled doctrine of this court confines the liability of a
16. El Dorado Tire Company fired Bill Ballard, a sales executive. Ballard had a five-year
contract with El Dorado but was fired after only two years of employment. Ballard sued
El Dorado for breach of contract. El Dorado claimed that any damages due to breach of
the contract should be mitigated because of Ballard’s failure to seek other employment
after he was fired. El Dorado did not provide any proof showing the availability of
comparable employment. Explain whether El Dorado is correct in its contention.
Answer: Mitigation of Damages. Judgment for Ballard. The general rule is that an
employee's damages for employer's breach of contract will be mitigated by the amount
17. California and Hawaiian Sugar Company (C and H) is an agricultural cooperative in
the business of growing sugarcane in Hawaii and transporting the raw sugar to its
refinery in California for processing. Because of the seasonal nature of the sugarcane
crop, availability of ships to transport the raw sugar immediately after harvest is
imperative. After losing the services of the shipping company it had previously used, C
and H decided to build its own ship, a Macababoo, which had two components, a tug
and a barge. C and H contracted with Halter Marine to build the tug and with Sun Ship
to build the barge. In finalizing the contract for construction of the barge, both C and H
and Sun Ship were represented by senior management and by legal counsel. The
resulting contract called for a liquidated damages payment of $17,000 per day that
delivery of the completed barge was delayed. Delivery of both the barge and the tug was
significantly delayed. Sun Ship paid the $17,000 per day liquidated damages amount
and then sued to recover it, claiming that without the liquidated damages provision, C
and H’s legal remedy for money damages would have been significantly less than that
paid by Sun Ship pursuant to the liquidated damages provision. Decision?
Answer: Liquidated Damages. The liquidated damages provision was valid. Although the
actual damages sustained ($368,000) were less than the liquidated damages ($4,403,000),
18. Bettye Gregg offered to purchase a house from Head & Seeman, Inc. (seller). Though
she represented in writing that she had between $15,000 and $20,000 in equity in
another home that she would pay to the seller after she sold the other home, she knew
that she did not have such equity. In reliance upon these intentionally fraudulent
representations, the seller accepted Gregg’s offer and the parties entered into a land
contract. After taking occupancy, Gregg failed to make any of the contract payments.
The seller’s investigations then revealed the fraud. Head & Seeman then brought suit
seeking rescission of the contract, return of the real estate, and restitution. Restitution
was sought for the rental value for the five months of lost use of the property and the
seller’s out-of-pocket expenses made in reliance upon the bargain. Gregg contends that
under the election of remedies doctrine, the seller cannot both rescind the contract and
recover damages for its breach. Is Gregg correct? Explain.
Answer: Election of Remedies. No. Order reversed. The election of remedies doctrine bars
a plaintiff from maintaining inconsistent theories or forms of relief. Its purpose is to
19. Watson agreed to buy Ingram’s house for $355,000. The contract provided that Watson
deposit $15,000 as earnest money and that “in the event of default by the Buyer, earnest
money shall be forfeited to Seller as liquidated damages, unless Seller elects to seek
actual damages or specific performance.” Because Watson did not timely comply with
all of the terms of the contract, nine months after the Watson sale was to occur, Ingram
sold the house to a third party for $355,000. Is Ingram entitled to Watson’s $15,000
earnest money as liquidated damages? Explain?
Answer: Liquidated Damages. Yes. The trial court found that the earnest money “was
clearly intended by both parties to be non-refundable” if Watson defaulted and
ANSWERS TO “TAKING SIDES” PROBLEMS
Sanders agreed in writing to write, direct, and produce a motion picture on the subject of
lithography (a method for printing using stone or metal) for the Tamarind Lithography
Workshop. After the completion of this film, Four Stones for Kanemitsu, litigation arose
concerning the parties’ rights and obligations under their agreement. Tamarind and Sanders
resolved this dispute by a written settlement agreement that provided for Tamarind to give
Sanders a screen credit stating: “A Film by Terry Sanders.” Tamarind did not comply with
this agreement and failed to include the agreed-upon screen credit for Sanders. Sanders
sued Tamarind seeking damages for breach of the settlement agreement and specific
performance to compel Tamarind’s compliance with its obligation to provide the screen
credit.
(a) What arguments would support Sander’s claim for specific performance in addition
to damages?
(b) What arguments would support Tamarind’s claim that Sanders was not entitled to
specific performance in addition to damages?
(c) Which side’s arguments are most convincing? Explain.
ANSWER:
(a)Sanders could argue that (i) a jury’s damage award would not
adequately compensate Sanders for future exhibitions of the
