Contracts Exam 5
Contracts Exam 5
Jerry is a real estate developer who wants to build a mini-mall on a street corner in Tustin. The market value for similar properties in the same area is valued at $1 million. Jerry asks three contractors to give him quotes: Louis quotes Jerry for $300,000, Tim quotes Jerry for $375,000, and Max quotes Jerry for $225,000. Just to be on the safe side, Jerry hires Louis, and they agree on a liquidated damages clause of $200,000 from the breaching party to the non-breaching party.
Two weeks later, just before Louis was scheduled to start construction, he informs Jerry that “something” had happened and he will no longer be performing. Jerry tells Louis to liquidate the damages on the contract, but Louis refuses.
After 10 days of calling around frantically to find another contractor, Tim finally gets back to Jerry, but will only do the work for $400,000. Jerry agrees, and they also agree on a liquidated damages clause of $200,000 from the breaching party to the non-breaching party. Jerry specifies that he wants Gr8Paint for the outside paint work and HoldWall for the stucco work. Over the conversation, Jerry tells Tim of his past developments, but is more excited about this one in particular because he is going to lease five units for $10,000 per month. “That’s why this project is so important,” Jerry tells Tim, just as they’re signing the contracts.
Tim is excited but also nervous about this construction job, primarily because this is his first construction job. Nevertheless, Tim goes downtown to the labor exchange and hires four men for $300 each per week. He also purchases 10 gallons of Gr8Paint for $200 and HoldWall for $100. He begins construction immediately.
After two weeks of construction, Tim is ready to start painting, however he realizes that Gr8Paint is not so great anymore because it has spoiled. Tim goes back to the general store where he tells Ricky that he needs Gr8Paint immediately. Ricky says, “We don’t have any in stock right now, but I can order some and it will arrive in two weeks.” This is too much time for Tim, so he buys 10 gallons of L8Paint for $150, which is a lesser quality but the quality difference is hardly noticeable.
Tim and his employees paint the outside of the mini-mall over the next week, and call Jerry once it is finished. Jerry arrives and is ecstatic to see that his new development looks great. Jerry sends Tim two checks for $200,000. Tim deposits one of the checks, however is unable to deposit the second because there is not enough funds in Jerry’s account. Tim tries to notify Jerry, but to no avail.
Several weeks later, as Jerry is about to show his new mini-mall to three tenants who have already agreed to lease three units, they all go to the mini-mall just for a “quick inspection,” only to be unpleasantly surprised that 75% of the paint has chipped away! Jerry’s property value, after getting it appraised, is only worth $850,000. Jerry calls Tim, and tells him, “You have breached! You owe me $200,000!” Tim replies, “No I don’t! You owe me $200,000!”
Discuss all remedies.