Contracts 2 AY13-14

Practice Questions.

1. A k B – A paying $$ B doing work. Total k for $5 million, payments in five installments with benchmarks on work done. A pays $2 million according to k, and then repudiates. B sues for damages. B has received $2 mil and has spent $2.5 mil on labour and materials (all reasonable and in good faith) at time of repudiation. In the normal course B would have earned a net profit of approximately 10% on the completed contract. As attorney for B, how would you frame the claim for damages on B’s behalf and how would you justify same?

2. Bender is a star football player who is with a team in a small market, “Oldcastle Disunited”. His contract with the team has three years to run with an annual salary of $500,000. Bender breaks his contract to accept an offer from a large market team, “Sloane Square Runners” for three years at a base salary of $1,000,000 per annum. Bender’s endorsement contracts with various companies paid him about $1,000,000 annually when he was with Oldcastle. The move to Sloane Square will increase his value in the endorsement market to about $2,000,000 annually because the Runners are a better team in a much larger market. Oldcastle estimates that it will have to pay at least $750,000-800,000 to recruit a player of roughly comparable ability to take Bender’s place and that doing so may not be possible for some time. The loss of Bender, who was popular with the fans, probably will result in reduced ticket sales and less success on the pitch. Meanwhile, Sloane Square anticipates a substantial uptick in its own ticket sales due to the presence of Bender and with Bender on the team they have become favorites to be league champions. You have been engaged by Oldcastle and asked to prepare a memorandum outlining their possible damage claims against Bender and the legal justification for such claims. Oldcastle has no interest in seeking to hold Bender to his contract by seeking to enjoin him from making the move to Sloane Square because the management fears that doing so would simply mean they have an unhappy, unenthusiastic player who might create substantial morale problems for the team.

3. Bernadette Toh is a local Singapore fashion designer who has achieved considerable success by marketing her designs through a boutique called “Bernie’s Fashions” which has a retail space in a shopping centre know as Aeron Orchard. In July 2012, Bernadette signed an agreement for a new space in Aeron twice the size of her current boutique. She told the landlord, “My business is booming and I need more space so I can handle more customers and sell more clothes. How

quickly can you make the larger space available?” The landlord replied, “A current tenant is leaving the space you have identified as the best one for your purposes, and we will need 2-3 weeks to repaint and get the space ready for you. You should be able to move into the new space no later than 1 November.” Bernadette replied, “Great. Then I will be set up in time for all the customers who make lots of purchases around Christmas, New Year’s and Chinese New Year’s.” The parties signed the agreement for the new space, and it had a start date of 1 November 2012. The landlord breached the agreement because the current tenant was allowed to hold over until 1 January 2013 and then the landlord could not get the clean-up and repair work done until mid-February 2013. Bernadette was not able to move into the larger space until 1 March 2013. She is furious and wants to sue. What is your advice to her? What are her possible claims for damages? Explain your answer.

4 Buyer and Seller have a valid contract made in Singapore and to be performed in Singapore for the purchase and sale of 10,000 widgets at a price of $10 per unit. The Singapore Sale of Goods Act applies to the transaction. Widgets are “goods” within the meaning of the SOGA. Consider the following situations:

a. The agreement states that the price is “fob Buyer’s premises”. When the widgets have been packed for delivery and are loaded on pallets at the Seller’s warehouse awaiting arrival of the truck to carry them to Buyer’s location, Seller receives a telephone call from Buyer in which Buyer says, “Do NOT send the widgets I ordered. Another company is having a distress sale on its stock of widgets and I can buy from that company at $6 per unit.” What are Seller’s options? Assume that there is a regular market in widgets.

b. Same as above except that the contract states the price to be “fob ready for loading at Seller’s dock”. Would that change the options available to Seller?

c. Buyer does not repudiate the contract, but when the widgets arrive, Buyer finds that there are 9,500 in the shipment and not the full 10,000. What are Buyer’s options?

d. The widgets arrive on time and in the number specified. Buyer tests a few samples for quality and finds them to be acceptable,

takes delivery and pays for the widgets. Later when the widgets are put into use, Buyer discovers that the failure rate is unacceptably high. Instead of a usual failure rate of 2-3%, the widgets delivered have a failure rate of 20%. Meanwhile, two things have happened: (1) the market price for widgets has risen sharply and the going rate is now $13 per unit, and (2) Buyer has used the widgets in products manufactured for its own customers and many of these products have failed which has resulted in substantial claims being made against Buyer by its own customers. What might Buyer seek to claim from Seller?

e. If Buyer were in China and Seller in Singapore and the parties did not choose to “opt out” of coverage under the CISG, would your responses to the previous questions be any different? Explain.

5 Many contracts include provisions that state what one party must pay to another in the event of a breach of the contract. How do courts distinguish those clauses that are enforceable liquidated damages clauses from cluses which are unenforceable penalties? Do you agree with the common law rule as it is currently applied? Explain your answer.

6 Two companies agree to merge and to create a new third company which will receive all the assets and undertake all the obligations of the two merging companies. Each of the merging entities has a number of employment contracts with key employees, such as the regional sales managers, the directors of research and development and various senior executives. All the employment contracts have been carefully drafted to comply with applicable employment law. Each has restrictive covenants to prevent key employees from going to work for direct compeitiors for a period of time after leaving their current positions. The merger agreement provides, inter alia, that:

ABC Pte Ltd and DEF Pte Ltd hereby assign all rights, title and interest in and to and all obligations under the contracts listed below to the successor entity GHI Pte

Ltd, without recourse: (a) all employment contracts with key personnel (then the paragraph references an appendix which lists all such employment contracts), (b) …..[listing other types of contracts]

The merger took place as planned. The required filings were made with appropriate government agencies and notice was published in various locations, including in the major daily newspapers where the companies, before and after the merger, have operations. Subsequently, the employee who was Director of Research and Development for ABC Pte Ltd at the time of the merger, and the Director of Sales for DEF Pte Ltd at the time of the merger, resigned their positions and announced that they were both joining MegaCorporate Pte Ltd, the major compeititor of both ABC and DEF and their successor by merger, GHI Pte Ltd. The CEO and the COO of GHI Pte Ltd have come to you for advice. The two employees were key members of the senior staff of the two companies that have now merged and they have, in their heads, a great deal of important information about the business, the customers, the products and the strategic plans of the two firms that merged. The leadership of GHI Pte Ltd wants to prevent Mega Corporate from getting access to what could be very important competitive information. Please advise the CEO and COO about what they might be able to do and what might be asserted by the departing employees.