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Lecture 8

ACTG 2P40 Lecture 8: Lecture 8
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Department
Accounting
Course Code
ACTG 2P40
Professor
Tommy Wall

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find more resources at oneclass.com November 1, 2016 Effect of Breach How Breach may occur 1) Repudiation and anticipatory breach  Repudiatio▯: ▯he▯ a pa▯t▯ does▯’t fulfill thei▯ e▯d of the ▯a▯gai▯  ▯so▯▯▯ ▯ut ▯e a▯e goi▯g to ▯e i▯ ▯▯ea▯h▯  right at the time for fulfillment (due date)  anticipatory: breaching party repudiates early  before the time for performance  E▯a▯ple: Ba▯▯ie supplie▯ ▯all ▯eek ▯efo▯e sa▯i▯g ▯▯e ▯a▯’t pe▯fo▯▯▯  Minimize damage  Breaching party possibly not sustaining any damages 2) One party renders  One party renders performance impossible  Self-induced frustration = breach 3) One party fails to perform  B▯ea▯hi▯g pa▯t▯ does▯’t do a▯▯thi▯g  Ti▯e fo▯ pe▯fo▯▯a▯▯e goes a▯d supplie▯ does▯’t fulfill ▯o▯t▯a▯t  Substantial performance: where the majority of the contractual elements have been performed, minor breach Exemption Clauses and their effect on breach: E▯a▯ples: A ▯lause o▯ p▯o▯isio▯ that atte▯pts to li▯it/e▯e▯pt a pa▯t▯’s lia▯ilit▯ i▯ the event of a breach Will only be effective: 1) Entered into voluntarily 2) Exemption or limitation from liability is reasonable Examples: Will never save a party from liability if they are in fundamental breach find more resources at oneclass.com find more resources at oneclass.com Examples: If we breach this contract our damages are going to be limited to 3$ per doll, contract breached, voluntary Used to li▯it a pa▯t▯’s lia▯ilit▯ Damages (common law remedy) a) Rules to relating to damages Damages are meant to put the innocent party in the spot that they would have been if the contract had been fulfilled. i) Duty to mitigate damages ii) Remoteness of loss Ex. ▯▯▯ u▯its, ▯$ pe▯ u▯it…▯▯▯ supplie▯s did▯’t gi▯e Mitigate Damages: duty- on non-innocent party In the face of a breach the innocent party has a duty to make reasonable efforts to mini their losses or cut their damages once they learn of the breach. Week befo▯e da▯ of pe▯fo▯▯a▯▯e, Wal▯a▯t ▯a▯’t sit ▯a▯k a▯d let the losses flo▯ (reasonable in the circumstances to mitigate) If the innocent party fails to mitigate, court will take that in account when calculating damages. Supplier sell for 10 Walmart sell for 15 5-dollar profit “upplie▯ ▯a▯’t pe▯fo▯▯ Walmart mitigates Other supplier- sells for $12 1) Walmart goes through with deal (12$) makes profit 3$ per doll 2) 10,000 X 3= # 3) 10,000 X2= # this is the number that can sue the original supplier for losses or damages Different dates: late delivery Sell 5000 of the 10,000 5000X5=25000 find more resources at oneclass.com find more resources at oneclass.com Buy for 17, sell for 15 – u▯▯easo▯a▯le ▯itigatio▯ ▯a▯’t sue, u▯less the▯ ▯ust ha▯e had item Buy for 8, sell for 15 – su▯▯essfull▯ ▯itigate, ▯a▯’t sue o▯igi▯al selle▯. Remoteness of Loss: Damages must flow naturally from the breach. In order to sue for damages, they must be reasonably foresee America getting units from a Chinese supplier  Chinese sells for 8, NA sells to Walmart for 10 Chinese supplier will be liable for those consequential damages if they knew, or if they had knowledge NA does▯’t ▯ake it ▯lea▯ to the Chi▯ese supplie▯, the▯ a▯e ▯ot lia▯le. Co▯t▯a▯ts that are One-step removed. Types of Damages 1. Nominal Damages No damages have been sustained, but the innocent party still needs to sue other party for insurance purposes-
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