Agreed Remedies Flashcards
On April 1, by signed written contract, Shuva and Bimra agree that Shuva (Seller) will convey his real property to Bimra (Buyer), Bimra to pay a purchase price of $800,000. As a down payment, Bimra is to pay 10 percent of that amount ($80,000) immediately on April 1, and the remaining, $720,000, at a closing to occur on June 1. The contract includes this provision:
Down Payment as Liquidated Damage. The parties agree that if Buyer should fail at closing to purchase the property, then Seller may keep, as liquidated damage, the 10 percent ($80,000) down payment Buyer is to make on the formation of this contract, in which case Seller will be entitled to nothing more.
On May 20, Bimra advises Shuva that she will not purchase the realty, thus committing an anticipatory repudiation and material breach. She has found another property offered by a seller named Shane, and she intends to buy it. Bimra asks Shuva to return her $80,000 deposit. Shuva refuses, claiming that under their contract he is entitled to keep it as liquidated damages. Bimra sues Shuva for unjust enrichment, claiming restitution in the amount of $80,000. The court should rule for Shuva only if it finds that
i. under these circumstances, an $80,000 award is not punitive.
ii. on forming this contract, under these circumstances, reasonable persons would find themselves unable to foresee the actual damage to be sustained by Shuva on Bimra’s breach.
iii. Bimra did not truly intend to purchase Shane’s property.
vi. Shane’s property is substantially similar to Shuva’s.
A. I only
B. I and II only
C. I, II, and III only
D. I, II, III, and IV
B. I and II only
On May 1, Xanzi and Yorta form a contract. On that same day, May 1, surrounding circumstances should cause them to foresee (a) that Xanzi’s material breach will cause Yorta damage in the amount of $100,000 to $150,000, and (b) that Yorta’s material breach will damage Xanzi in the amount of $400,000 to $500,000. Nonetheless, the contract carries this clause:
Liquidated Damage. If either party should commit a material breach, then she shall pay the other liquidated damages of $5 million.
Xanzi commits a material breach. Yorta can prove true damages of $6 million, very different from what reasonable parties would have predicted but, as it happens, not so different from the $5 million on which the parties agree. The court should award Yorta
A. $5 million, because on a standard of reasonableness, between the damage named in a liquidated damage clause and that which a plaintiff actually sustains, plaintiff recovers the smaller amount.
B. $5 million, because the contract tied Yorta’s agreement to accept that amount to Xanzi’s mirror-image agreement also to accept that amount as compensation for Yorta’s breach.
C. $6 million, because it is reasonably close to the $5 million figure to which the parties manifested their mutual asset via their liquidated damage clause.
D. $6 million, because when the parties formed their contract, they should have believed that Xanzi’s breach would cause Yorta a foreseeable degree of damage.
D. $6 million, because when the parties formed their contract, they should have believed that Xanzi’s breach would cause Yorta a foreseeable degree of damage.
Winston is a screenwriter and Antwon a screenplay agent. On February 1, they form a contract requiring that Winston, by or before December 31, write a screenplay for the largely forgotten novel Alone But Yet Alive. Antwon then, for three years, must make diligent commercial efforts to market the screenplay to motion picture producers. If Antwon should be successful in that effort, which he cannot and does not guarantee, Winston will pay Antwon 15 percent of whatever moneys a motion picture production company pays Winston for the screenplay.
The parties and their lawyers justifiably conclude that it is nearly impossible by foresight to quantify the damages Antwon might suffer if Winston should fail to write the manuscript. Similarly, they conclude that as for Antwon’s marketing efforts, they cannot know, now, what company, if any, will purchase the screenplay, what price, if any, it might pay, and how much money, if any, Antwon then might owe Winston. Consequently, the parties reasonably believe that they cannot foresee the damages Winston might suffer if Antwon should fail to make diligent marketing efforts. The parties mutually agree simply to assume that if both honor their obligations, the screenplay will be sold for about $20 million. In their contract, they include this:
Liquidated Damages. (a) If Winston should fail substantially in his obligation timely to create the aforementioned screenplay, he will pay Antwon (15% of $20 million) = $3 million and (b) if, after Winston does timely create the manuscript, Antwon fails substantially to exert diligent efforts attempting to market it, then Antwon will pay Winston (85% of $20) = $17 million.
Winston timely completes the screenplay, but Antwon lifts nary a finger attempting to market it. During the next year, another screenwriter named Sarahn writes a screenplay for Alone But Yet Alive, hoping to market it to production companies. Shortly after he finishes it, the original author of the novel Alone But Yet Alive is involved in a widely publicized scandal whose facts resemble those of her novel. She and her novel gain enormous notoriety, and Sarahn, through a good and diligent agent, sells his manuscript to a production company for $25 million — twice the highest price ever paid for a screenplay.
Thereafter, Winston seeks to recover from Antwon the liquidated damages to which, he says, the contract entitles him. He sues Antwon demanding $17 million, and moves for summary judgment. On evaluating Winston’s motion, the court finds as facts that:
at the time the parties formed their contract, no screenwriter had been paid more than $8 million for a screenplay; wherefore
the amount of $20 million as provided in the parties’ contract, viewed from their perspective when they formed it, was positively unreasonable, producing recoveries that would be punitive;
as matters evolved, Sarahn did sell his screenplay for $25 million, so that a $20 million sales price, examined today, turns out not to be unreasonably high.
The court then rules:
This liquidated damage clause is unenforceable. If plaintiff Winston wishes to recover from defendant Antwon, he must prove his damages. He must prove that Antwon, if properly discharging his contractual duties, would have sold Winston’s manuscript, and for how much he would have sold it. Let us remember that Mr. Sarahn’s manuscript was not the same as plaintiff Winston’s and, moreover that he sold it under circumstances no person could have foreseen when Messrs. Winston and Antwon formed their contract.
The court’s reason for ruling the liquidated damage clause unenforceable is most likely that
A. at the time they formed their contract, the parties had no reason to believe that either of them would breach.
B. the parties’ liquidated damage provision did not treat equally a breach by Winston on the one hand and a breach by Antwon on the other.
C. as to the amount of damage on which two parties agree, the law evaluates a liquidated damage clause in light of all circumstances that surround the breach.
D. as to the amount of damage on which two parties agree, the law evaluates a liquidated damage clause in light of the circumstances surrounding the parties when they form their contract.
D. as to the amount of damage on which two parties agree, the law evaluates a liquidated damage clause in light of the circumstances surrounding the parties when they form their contract.
Adams is a theatrical celebrity. Showstopper magazine wants to publish her photo on the cover of this year’s January issue. Adams and Showstopper contemplate a contract under which Adams will pose for a photograph and permit Showstopper to publish it on its January cover; Showstopper promises that it will in fact print the photograph on its January cover. Before making any agreement, the parties’ lawyers speak:
Adams’s Lawyer: There’s something I don’t love about this arrangement. If you folks breach, my client will be unable to show what damage she suffers beyond any money she spends in preparing for the photograph. We will never be able to show what gain, if any, she might have derived from the published picture.
Showstopper’s Lawyer: I agree, that will be hard to show. And now that you mention it, if Adams should breach, it will be hard for Showstopper to show what, if anything, it has lost.
Adams’s Lawyer: True. I suggest that we include in the contract a liquidated damage provision for each of our clients.
Showstopper’s Lawyer: Yes, I suppose we can do that. You know the drill, I’m sure: By law, we must choose an amount that is reasonable, not so high as to be punitive.
Adams’s Lawyer: Yes, I know. I too have read the Glannon Guide to Contracts.
Showstopper’s Lawyer: Exactly. So we’re talking about a big celebrity and a big magazine. I say that a $100,000 liquidated damage provision for each of us will be enforceable.
Adams’s Lawyer: Agreed.
The lawyers prepare and the parties sign a document that includes these provisions:
Adams (“Celebrity”) will pose for a photograph and permit Showstopper magazine to publish it on the cover of its forthcoming January New Year issue.
Showstopper magazine (“Showstopper”) will in fact take the photograph and print it on the cover of its forthcoming January New Year issue.
Liquidated Damages:
WHEREAS the parties hereto do agree that if either should commit a material breach, the damages to be suffered by the other, in the nature of this contract, will be difficult to quantify and prove, and do further agree that in light of that fact, a non-punitive, non-excessive amount of damage, reasonably calculated to compensate each party for a potential breach by the other, would be $100,000, wherefore the parties agree that (a) if Adams should materially dishonor its obligations hereunder by refusing to pose for the aforementioned photograph or by any other failure, then she will pay Showstopper damages in the amount of $100,000, and (b) if Showstopper should materially dishonor its obligations hereunder by failing to produce and publish the aforementioned photograph, or by any other failure, then Showstopper will pay Adams damages in the amount of $100,000.
As the contract requires, Adams poses and Showstopper snaps the photo. Showstopper then decides to publish the picture of some other celebrity on its January New Year cover, and thus commits total breach of its contract with Adams. Pursuant to their contract, Adams seeks to recover from Showstopper $100,000 in liquidated damages.
At trial, Adams introduces the contract and its liquidated damage clause. Adams also introduces expert witnesses who testify that at the time the parties formed the contract there was no plausible basis on which to predict what damages, if any, Showstopper’s breach would cause Adams. Showstopper does not dispute that evidence but seeks to introduce evidence showing that when Showstopper itself breached the contract, another magazine offered to publish Adams’s photo on its cover, and that Adams did not avail herself of that opportunity. Adams (through her lawyer) objects to the introduction of that evidence.
Adams’s Lawyer: Defendant Showstopper does not dispute that at the time these parties formed their contract, it was virtually impossible for reasonable people in their positions to predict what economic damage, if any, either would suffer from the other’s breach. Consequently, they settled on a liquidated damage provision not for $100 million, or $10 million, or $1 million, but $100,000. Even if defendant can show now that plaintiff might have turned down an opportunity to have her photograph published in another magazine, such a showing is irrelevant. We object to the introduction of the evidence and, if defendant has no other evidence to present, we move for a directed verdict in our favor.
The Court: I sustain the objection. Whatever the situation might truly be now, the validity of the liquidated damage clause depends on whether reasonable parties at the time they formed their contract would have believed that damages upon breach would be difficult to show, and that they agreed on liquidated damages that represented a reasonable attempt not to punish, but to compensate. Now, have you anything more to introduce?
Showstopper’s Lawyer: No, Your Honor, the defense rests.
The Court: There is, then, nothing for a jury to consider. Plaintiff’s motion for directed verdict is granted. Judgment for plaintiff in the amount of $100,000.
Which of the following changes to the foregoing story would most likely cause the court to deny Plaintiff’s motion for a directed verdict?
A. The amount of liquidated damage on which the parties agreed was $1 billion.
B. The amount of liquidated damage on which the parties agreed was $25,000.
C. The liquidated damage provision provided for damage of $100,000 in the case of Showstopper’s breach, but set no amount of damage for Adams’s breach.
D. The liquidated damage provision did not include the text in item 3 beginning with “whereas.”
A. The amount of liquidated damage on which the parties agreed was $1 billion.
