Case 12.4 Statute of Frauds
Fritz Hoffman and Fritz Frey contracted the sun Valley Company (company) about
purchasing a 1.64-acre piece of property known as the Ruud Mountain Property,
located in Sun Valley, Idaho, from Company. Mr. Conger, a representative of Company,
was authorized to sell the property, subject to the approval of the executive
committee of Company. Conger reached an agreement on the telephone with
Hoffman and Frey, whereby they would purchase the property for $90,000, payable
at 30 percent down, with the balance to be payable quarterly at an annual interest
rate of 9.25 percent. The next day, Hoffman sent Conger a letter confirming the
conversation.
The executive committee of Company approved the sale. Sun Valley Realty prepared
the deed of trust, note, seller’s closing statement, and other loan documents.
However, before the documents were executed by either side, Sun Valley Company
sold all its assets, including the Ruud Mountain property, to another purchaser.
When the new owner refused to sell the Ruud Mountain lot to Hoffman and Frey,
they brought this action for specific performance of the oral contract.
Question 1. Who wins? And Explain your rationale for your decision.
Case 13.6 Ethics Case
Indiana Tri-City Plaza Bowl (Tri-City) leased a building from Charles H. Glueck for
use as a bowling alley. The lease provided that Glueck was to provide adequate
paved parking for the building. The lease gave Tri-City the right to approve the plans
for the construction and paving of the parking lot. When Glueck submitted paving
plans to Tri-City, it rejected the plans and withheld its approval. Tri-City argued that
the plans were required to meet its personal satisfaction before it had to approve
them. Evidence showed that the plans were commercially reasonable in the
circumstances. A lawsuit was filed between Tri-City and Glueck.
Question 1. Was it ethical for Tri-city to reject the plans? Why? (Explain your
decision)
Case 14.3 Damages
Hawaiian Telephone Company entered into a contract with Microform Date Systems,
Inc. (Microform), for Microform to provide a computerized assistance system that
would handle 15,000 calls per hour with a one-second response time and with a
“nonstop” feature to allow automatic recovery from any component failure. The
contract called for installation of the host computer no later than mid-February of
the next year. Microform was not able to meet the initial installation date, and at that
time, it was determined that Microform was at least nine months away from
providing a system that met contract specifications. Hawaiian Telephone canceled
the contract and sued Microform for damages.
Question 1. Did Microform materially breach the contract? Explain your answer
Question 2. Can Hawaiian Telephone recover damages? State rational for your
answer.
Case 14.1 Specific Performance
The California and Hawaiian Sugar Company (C&H), a California corporation, is an
agricultural cooperative owned by 14 sugar plantations in Hawaii. It transports raw
sugar to its refinery in Crockett, California. Sugar is a seasonal crop, with about 70
percent of the harvest occurring between April and October. C&H requires reliable
seasonal shipping of the raw sugar from Hawaii to California. Sugar stored on the
ground or left unharvest suffers a loss of sucrose and goes to waste.
After C&H was notified by its normal shipper that it would be withdrawing its
services at a specified date in the future, C&H commissioned the design of a large
hybrid vessel – a tug of catamaran design consisting of a barge attached to the tug.
After substantial negotiation, C&H contracted with Sun Ship, Inc. (Sun Ship), a
Pennsylvania corporation, to build the vessel for $25,405,000. The contract gave Sun
Ship one and three-quarter years to build and deliver the ship to C&H. The contract
also contained a liquidated damages clause calling for a payment of $17,000 per day
for each day that the vessel was not delivered to C&H after the agreed-upon delivery
date. Sun Ship did not complete the vessel until eight and one-half months after the
agreed-upon delivery date. Upon delivery, the vessel was commissioned and
christened the Moku Pahu.
During the season that the boat had not been delivered, C&H was able to find other
means of shipping the crop from Hawaii to its California refinery. Evidence
established that actual damages suffered by C&H because of the nonavailability of
the vessel from Sun Ship were #368,000. When Sun Ship refused to pay the
liquidated damages, C&H filed suit to require payment of $4,413,000 in liquidated
damages under the contract.
Question 1. What is a liquidated damages clause?
Question 2. Can C&H recover the liquidated damages from Sun Ship? Provide your
rationale for your answer.
