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Breach of Contract Scenarios

You are the Chief Operating Officer of Littleco. Over lunch, the President of Bigco offers to sell Littleco a piece of fully depreciated manufacturing equipment you need for your production line for $1,000. You tell the President of Bigco that you will buy it, and you shake on it. The Bigco President later changes his mind and decides to keep the equipment. Littleco sues Bigco for breach of contract. Assume that the Uniform Commercial Code does not apply.

1. What remedies can Littleco seek against Bigco?
2. What defenses can Bigco assert?

Littleco sells widgets to Bigco that Bigco uses in its manufacturing process to make a final product, which Bigco sells to retail consumers. Bigco runs into financial difficulty, and Bigco stops making payments to Littleco. Because Bigco fails to make payments to Littleco, Littleco becomes insolvent and is forced to file a petition in bankruptcy. Littleco sues.

3. What remedies can Littleco seek against Bigco?
4. Littleco believes that Bigco should be punished for forcing Littleco into bankruptcy and demands punitive damages as well as payment of Littleco's costs and attorneys' fees related to both the lawsuit and the bankruptcy proceeding. Will Littleco be able to recover these damages? Why or why not?
5. Littleco wants to file for an injunction to prevent Bigco from selling products that include Littleco's widgets. Will the courts issue an injunction or restraining order? Why or why not?

Rural Hospital believes that it needs the services of a surgeon to serve its market. Rural Hospital invites the surgeon to come to its community for an interview. During the interview, the Hospital Administrator orally advises the surgeon that she believes that there are enough patients to create a successful surgery practice. Rural Hospital also offers to provide an eighteen-month income guarantee through which Rural Hospital will loan funds to the surgeon until the practice is successful, and the parties enter into a loan agreement and promissory note to memorialize the loan. The loan agreement provides that the loan will be forgiven if the surgeon remains in the community for four years. The surgeon and his family move 1,000 miles to relocate to the Rural Hospital community. However, the other physicians in the community decide that they do not like the surgeon, and the other physicians refer their patients to surgeons in urban medical centers. After six months, it is clear to the surgeon that he will be unable to develop a successful practice in the Rural Hospital community, and he is fortunate to be able to return to his old practice 1,000 miles away. Rural Hospital sues the surgeon for repayment of funds advanced under the loan agreement and promissory note.

6. What remedies will Rural Hospital seek from the surgeon?
7. What defenses could the surgeon raise?
8. What clause or clauses in the loan agreement should be reviewed by the parties to determine their respective rights and obligations?

Solution Preview

1, 2)
Littleco has the burden of proving that the contract was indeed a contract. Therefore, it is imperative that Littleco produce evidence of the transaction that has solidified the contract that it claiming a breach of contract occurred. If the company (Litteco) has people to attest to witnessing this transaction it will be more likely that the handshake deal will be binding if the company Bigco is alleging that there contract. The important facet that is lacking within your summary of the scenario is whether or not Bigco is contesting whether or not they ever entered into a contract with Litteco. Assuming that they are contesting the validity of the contract in its entirety, defenses that could be used against Littleco include the ability to ensure that the burden of proof is upon Littleco to prove that a contract existed.

The only remedy available to Littleco to prove that the contractual agreement exists is to present supporting materials to strengthen their claim of a contract between the two parties. Faxes, emails, letters, memos and receipts all represent supporting evidence that could bolster their claims of an oral (handshake) contract between the two parties. Absent these provisions or a simple thank you letter wherein the company Littleco was sent a letter in which it acknowledged the deal by responding to the letter that Bigco thanked it for selling the product to them, Bigco will have little legal recourse in their pursuit of a judgment.

A "thank you" letter immediately following a handshake is always a good way to establish the terms of your agreement. The recipient will not think of it as possible "evidence," but simply as a polite gesture.

Reference:

http://www.legalzoom.com/business-law/contract-law/oral-contracts-do-they-carry

3)
Because of the breach of contract that was committed by Bigco, Littleco can claim that it suffered damages that resulted in loss of business opportunities, operating expenses, and foreseeable lost future profits that amounted to the closing of their business. This will be a culmination of their claims for why they are suing Bigco for the amount of money that would have been made for the foreseeable future if not for the lack or payment from Bigco that resulted in their bankruptcy. The exact amount should be determined by YOU or the ...

Solution Summary

The following posting discusses breach of contract scenarios.

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