First, please read the facts carefully and identify all possible legal issues in the case. For
example, Party A did XXX which will lead to YYY, thus Party A may lose the case
because…// the case have a misrepresentation issue since Party A did Xx that lead Party B
think Yy, then it cause B to making decision on Zz.
Secondly, do the identification the legal issues for each of the party involve. (Note: You may
write answers in a list form, please do focus on issue spotting).
Lastly, argue further and give an example on if a factor change what the result would be for
example, “Who would win the lawsuit (and why) if A, instead of acting as she did in the
problem, [failed to send the notice] [wrote B urging her to perform] [never responded]
[whatever]?” (Note: you may change the factor in any way you want.
Some Hypo facts are vague which for the purpose for you to change it, for example you may
say “if the system instead on date X the warranty still works and Party A have legal stand to
ask for remedy – law says party may require remedy” Please type your answer in red color.
HYPO 1
Prime Locations, Inc. (PL) leased real property owned by Marshall. The lease required
Marshall to build out the space to suit PL’s needs in opening a restaurant in the space. To that
end, Marshall retained Aerial Architects, LLC to prepare architectural drawings, SpecBuilt
Construction to serve as the general contractor, and GXT New Orleans, LLC (“GXT”) to
provide mechanical, electrical, and plumbing design services. GXT also provided the
engineering design for the HVAC system, which was then sent out for bidding by HVAC
contractors. Steve’s Air Conditioning & Heating, LLC (“Steve’s A/C”) was the prevailing
bidder.
On October 24, 2016, pursuant to its winning bid, Steve’s A/C contracted with Trane to
supply the HVAC equipment for the project. The contract between Steve’s A/C and Trane
included Trane’s standard terms and conditions, which are expressly incorporated into the
sales agreement by the customer’s acceptance of the equipment. Importantly, the terms
and conditions included:
Trane U.S., Inc. (“Company’) extends a limited, five-year warranty against
manufacturing defects for the Product(s) that are installed in a commercial facility and
operated under normal use and maintenance in the United States and Canada.
REGISTRATION REQUIREMENTS: All Products must be properly registered online
by the Owner within sixty (60) days after the installation date to receive the limited
warranty term. To register online, go to:
http://www.trane.com/Residential/For-Owners/Warranties or
http://www.americanstandardair.com/servicesupport/pages/warranty.aspx
and click “Begin Online Registration.” If an Owner does not register within this
stated time period, the limited warranty shall not apply.
WHO IS COVERED: This limited warranty is provided only to the Owner of the
property where the Products are originally installed if the Products are properly
registered online with 60 days after the Products are installed.
WHAT COMPANY WILL DO: As Company’s only responsibility and Owner’s only
remedy under this limited warranty, Company will furnish a replacement part to a
licensed HVAC service provider, without charge for the part only, to replace any
Product part that fails due to a manufacturing defect under normal use and
maintenance. The Owner must pay for any and all shipping and handling charges and
other costs of warranty service for the replacement part.
ADDITIONAL TERMS: THIS LIMITED WARRANTY AND LIABILITY SET FORTH
HEREIN ARE IN LIEU OF ALL OTHER WARRANTIES AND LIABILITIES,
WHETHER IN CONTRACT OR IN NEGLIGENCE, EXPRESS OR IMPLIED, IN LAW
OR IN FACT. THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE ARE EXCLUDED. COMPANY SHALL NOT BE
LIABLE FOR ANY DIRECT, INCIDENTAL, CONSEQUENTIAL, INDIRECT,
SPECIAL AND/OR PUNITIVE DAMAGES, WHETHER BASED ON CONTRACT,
WARRANTY, TORT (INCLUDING, BUT NOT LIMITED TO,
STRICT LIABILITY OR NEGLIGENCE), PATENT INFRINGEMENT, OR
OTHERWISE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
No action arising out of any claimed breach of this limited warranty may be
brought by a Owner more than one (1) year after the cause of action has arisen.
In November 2017, when renovation of the space was completed, PL opened a restaurant there.
In the spring of 2018, restaurant employees and customers noticed that the HVAC system did
not operate properly, blowing cold air on cold days and hot air on hot days, instead of the
reverse as was intended. In April 2019, PL complained to Marshall who complained to GXT
who complained to Steve’s A/C who complained to Trane. Trane representatives visited the
property many times to correct the problem, but they were unsuccessful. PL finally hired
Central Heating & Air Conditioning, Inc. to repair the HVAC system. The repairs were
successful, and PL paid Central Heating’s bill.
Answer:
The contract stated that no action should be brought by the owner 1 year after the cause of
action has arisen. The owner reported the incident in April of 2019 which was within 1 year, so
he has a good cause of action.
The contract also stated that the company shall replace the product in case of failure, due to any
manufacturing defects. Since the procured entities that were tasked with providing mechanical,
electrical and plumbing design services had completed their work and sufficiently paid, the
owner can complain to aerial Architects’ regulator, since the initial contract was between the
two. The LLC would then have to do the repairing.
Since PL finally hired Central Heating, it would then have to sue the other contractors for costs
incured in having to hire another reparing company.
HYPO 2
In 2015, Plaintiffs, as individuals and as general partners, acquired property along a busy
highway for the purpose of constructing and operating a motel and restaurant. They asked
ABC Bank for a loan in the amount of $1,162,500 to finance construction of the motel-
restaurant project. As a condition for making the construction loan, ABC required that
plaintiffs obtain a permanent loan commitment in the same amount “to provide a payout of
the construction loan upon the completion of construction.”
Plaintiffs then applied for a long-term, permanent loan commitment from the defendant in the
amount of $1,162,500, repayable over 25 years at an interest rate of nine and one-half percent
(9 1/2%) per annum. Soon, defendant committed to make the long-term loan plaintiffs had
requested. Defendant was obligated to pay off the construction loan that Plaintiffs planned to
acquire from ABC Bank.
Relying upon defendant’s commitment to make the permanent loan, ABC and plaintiffs
executed a short-term construction loan agreement (secured by a real estate mortgage on the
property) in the amount of $1,162,500, at 9% Interest per annum. Payment of the full amount
plus interest to ABC was due at the closing of the permanent loan to be made by defendant
which was scheduled on 1 October 2017. At the closing, defendant would pay off the
construction loan and assume the long term, permanent financing.
When the construction project was completed in the first week of September 2017, plaintiffs
immediately opened for business and contacted defendant to coordinate closing on the
permanent, take out loan. Defendant, however, repudiated its commitment to make the
permanent loan, claiming financial inability to comply with its contract with plaintiffs.
Defendant pointed to a severe, unexpected change in the national economy which prompted
costly regulatory changes leading to defendant’s unprofitability.
Plaintiffs made repeated efforts to acquire permanent financing from other lenders, but they
were unsuccessful in finding another permanent financer – at any interest rate — before the
due date on the ABC construction loan, which was October 1, 2017. In order to forestall
ABC foreclosing on the construction loan, the plaintiffs agreed to refinance the construction
loan with ABC for 18 months at a fluctuating rate of interest no lower than 12% per annum.
By the end of this 18-month period, plaintiffs had finally found permanent financing at the
then market rate of 10 ½% per annum, which allowed plaintiffs to pay off the construction
loan owed ABC.
Plaintiffs sued defendant. The trial court found that defendant breached its contract with
plaintiffs and awarded these damages:
• $15,888.12 for the additional expenses incurred in searching for an alternative lender;
• $220,000, representing the present value of the reasonable additional cost to the plaintiffs
of long term loan, permanent financing [difference between the interest costs on the long-
term loan plaintiffs finally arranged (which was at 10 ½%) and the interest rate that the
defendant had promised (which was 9 ½%)]; and,
On appeal, the intermediate appellate court affirmed with respect to defendant’s liability but
modified the trial court’s award of damages.
Answer:
The plaintiff initially agreed with the defendant to loan $1,162,500 to finance their project at
an interest of 9 ½%. However, due to circumstances beyond the defendant’s control, the
defendant was unable to hold their end of the bargain, forcing the plaintiff to find another
financier with a higher interest of 10% plus.
Upon instituting a claim in court, the trial court found the defendant to be in breach of the
contract. The plaintiff was awarded damages of $15, 888 for the additional expenses incurred
in searching for an alternative lender and other expenses which amounted to $220,000.
On appeal, the intermediate appellate court affirmed with respect, to the liability of the
defendant and modified the damages awarded by the trial court. If the appellate court
modified by reducing it, it took into consideration the issue of forced majure as was in the
case of, Dwyer (UK Franchising) Ltd v Fredbar Ltd (2021) EWHC 1218, where it was held
that the defendant was in breach,but not because of their fault. The courtt additionally took
into consideration the expenses the plaintiff incurred in procuring another loan of higher
interest to pay a lower one.
If the court would have decreed a lower amount, then it would be because of the fact that the
court considered the prevailing market difficulties, which would be force majeure factors.
Force majeure incudes factors beyond the defendant’s control.
HYPO 3
R, a real estate developer, purchased a large tract of unimproved real property, subdivided the
property into lots, and then offered the parcels for sale to a corporate entity, Coastal
Communities LLC (CC), which had been organized and incorporated by a group of investors.
CC intended to develop and improve the lots and resell them to individuals intending to build
homes on the lots.
CC’s purchase of the property from R was financed by Bank. For internal purposes, Bank
engaged a local firm, JP Realty LLC (JP) to appraise the property. (R was a part owner of
JP.) Based on JP’s appraisal, Bank decided that the property was sufficiently valued to
justify Bank loaning the purchase money to CC.
Within months of the closing transaction (the sale and the financing), the local real estate
market collapsed. CC was unable to sell lots at prices sufficient to repay Bank.
Bank sued CC for breach of contract to repay the loan. CC defended against Bank’s action and
filed a third-party complaint against JP on the basis that JP’s appraisal misrepresented the
value of the property by hugely overvaluing it. In essence, CC argued that Bank would not
have made the loan – and CC would not have purchased the property — but for JP’s inaccurate
appraisal.
Answer:
Months after closing the transaction with the bank, Coastal Communities LLC (CC) failed to
sell the lots due to the local real estate market collapse.
CC can rely on the doctrine of frustration by claiming that they failed to perform part of the
contract, not because of a fault of their own but because the contract was rendered impossible
due to prevailing market events i.e. the coronavirus pandemic. This was enshrined in Bank of
New York Mellon (international) Ltd v Cine UK Ltd (2021) EWHC 1013 (QB)
Since they had already bought the property, the bank would have to possess the land, conduct a
forced sale and pay off the loan, upon which if any balance prevails, the same would be given
to CC.
CC’s claim against JP is unsubstantiated, since the contract was between CC and the bank. The
bank only engaged JP to conduct valuation. This is an issue of privity of contracts, where only
parties to a contract can sue each other, unless they are subject to exceptions.
HYPO 4
S signed a suretyship contract with Bank providing that her deposit accounts with Bank would
serve as collateral for future loans Bank would make to S’s brother, B. At the time of signing
the suretyship contract, S told Bank’s loan officer that she, S, did not want any loans to be
made to B unless she, S, approved them in advance. The loan officer replied, “That’s right,”
though the suretyship contract did not require that S preapprove loans to B. Subsequently,
Bank made several loans to B — secured by S’s deposit accounts — without S’s prior approval.
B did not repay the loans, and Bank debited (took the money out of) S’s deposit accounts to
satisfy the loans. S sued Bank. S argued that Bank wrongfully debited her accounts because S
had not preapproved the loans to B.
Answer:
B claims in her defense that S failed to give her important financial information regarding the
company. This, in turn affected the value of the shares, which is not true, since the contract
provided that both parties acknowledge that the seller (S) has provided to the buyer (B) certain
financial information with respect to the shares. Further that, the buyer had formed its own
opinion, having done their due diligence.
Having complied with the terms, they cant then claim that she didn’t get important financial
information. The contract also was clear that the seller makes no warranty of the income
producing ability of the shares or the profitability of the company. Therefore, the seller is
automatically discharged from any liability given the buyer signed the agreement.
HYPO 5
S owned shares of Ace, Inc. S and B executed a written contract for the sale of the shares by S
to B for $500,000. The contract included a provision that B was obligated buy and pay for the
shares if B was able to secure financing suitable to B. The contract also provided:
The parties acknowledge that Seller has provided to Buyer certain financial information
with respect to the Shares but that Buyer has formed his own opinion based his own
due diligence as to the value of the Shares being purchased hereunder. SELLER
MAKES NO WARRANTY OF THE INCOME PRODUCING ABILITY OF THE
SHARES OR THE PROFITABILITY OF THE COMPANY.
B failed to attend the closing of the transaction and did not pay S anything. B explained that
she was unable to secure a loan that offered an acceptable financial structure for purchasing
the stock. S sued B for breach of contract. In her answer, B raised the defense that S failed to
give her important financial information regarding the company that substantially affected the
value of the shares.
Answer:
The plaintiff in this case has no recourse against the defendant as she is clearly relying on the
doctrine of misrepresentation which in this case, cannot work as misrepresentation. It is a false
statement of a material fact, made by a party to another where the other party relies on the
misrepresentation to their detriment. This was enshrined in the case of Leaf v International
Galleries. Misrepresentation on its own renders a contract void and the aggrieved party can sue
for damages. The salesperson made an innocent misrepresentation as to the status of the car.
However, the plaintiff was aware at the time of the purchase that the right rear quarter panel of
the car had been repaired and painted. This excludes liability.
The defendant had been advised prior to selling, that the plaintiff could have had the car
inspected by a mechanic or automotive specialist of her choice which she failed to do. She
therefore cannot claim 2 months later, after having been earlier aware of the defects. The
defendant can only pay $5,500, but he is entitled to the remainder of the amount as
contractually agreed.
HYPO 6
Hospital, a nonprofit healthcare services corporation, contracted with AF, Inc., an architecture
firm, to design a new nursing facility. Their written contract included this provision:
The parties hereto mutually agree that neither party shall be liable to the other for lost
profits, lost opportunity, or consequential damages of any description, arising
directly or indirectly from any breach of duty created by this Agreement or
applicable law.
A year later, Hospital became aware of very serious defects in AF’s design drafts which were
based on fundamentally faulty engineering assumptions. Hospital terminated the parties’
contract and thereafter hired another architectural firm to complete the project. Hospital then
sued AF for a range of damages, including lost profit resulting from the delay in opening and
operating the new facility.
Answer:
The lost profit argument cannot be sustained by Hospital because it is a nonprofit corporation.
a. Hospital can claim misrepresentation and breach of contract because the engineering defects are
patent and go to the crux of the contract. AF Inc. reply would be the rule of caveat emptor
(buyer beware) see Priest v Last (1903) 2KB 148.
b. Contracts create rights and obligations to contracting parties and outline the consequences of
breach. The contract excludes parties from obligation in the event of breach and is therefore
void/ voidable.
c. AF Inc. can claim compensation for breach, which could have been cured through rectification.
That, instead of termination, the unilateral mistake could be rectified to save the contract by
construing the terms to effect the true intentions of the parties. This was pronounced in the case
of Fairstate Ltd v General Enterprise & Management Ltd & Anor (2010) EWHC 3072 (QB).
HYPO 7
Plaintiff purchased an automobile from defendant. Several days prior to purchasing it,
plaintiff made a visual inspection and drove the vehicle on a road test. Plaintiff testified that
she asked defendant’s salesperson whether the car had ever been involved in a car accident,
and the salesperson said no even though the salesperson honestly had no idea whether the car
had been wrecked. To reassure plaintiff, defendant advised plaintiff that she could have the
car inspected by any mechanic or automotive specialist of her choice. Plaintiff did not follow
the advice, but it was clear to plaintiff that the right rear quarter panel of the car had been
repaired and painted.
Plaintiff purchased the vehicle for the sum of $33,181.00. Plaintiff paid $5,000 down, and
Defendant agreed to finance the balance of the purchase price. The parties signed a
standard-form, thoroughly detailed installment sales contract that contained a merger clause
and a statement acknowledging that the vehicle was being sold “as is,” without a warranty.
Two months after purchasing the vehicle, Plaintiff took the car to an automobile body repair
person, who advised plaintiff that the vehicle had been substantially damaged on its right
side and that it would cost approximately $5,500 to satisfactorily repair the vehicle. Plaintiff
thereupon immediately returned the vehicle to defendant’s premises and demanded a refund
of her purchase price. When defendant refused, plaintiff took an Uber home and later filed
suit against defendant who denied liability and counterclaimed.
Answer:
S as the guarantor expressly desired that she pre-approves any loans before disbursement to B.
This should have been one of the primary terms of the suretyship contract prepared by the loan
officer. S should also have reviewed and signed the suretyship contract to ensure that her pre-
approval was expressly included in the contract. Failure to include the contractual term of S’
pre-approval of loan has the following impacts on B and the Bank:
a. All loans issued to B by the Bank were ultra-vires, without guarantor knowledge and
approval. S cannot be held responsible when B defaults because her consent was not sought
and obtained before disbursement as agreed.
b. The loans are unsecured loans, because they were issued without the guarantor’s
knowledge and approval.
c. S’ accounts were wrongfully debited because of the lack of her pre-approval. The bank will
most probably have to pursue repayment through insolvency.
HYPO 8
In December 2019, S and B entered a written contract. The contract provided, in part, that S
will deliver 10,000 “dressed” chickens to B on March 1, 2020, and B will pay S a total price
of $27,500 within 30 days following delivery of the chickens. S delivered the chickens, but B
refused to take them because the chickens were not wrapped for freezing. The written contract
does not specify, in some many words, how the chickens are to be wrapped. S sued for the
price of the goods.
Answer:
There is a breach of a condition in the sense of Hadley v Baxendale (1854) 9 Exch. 341. A
condition is a major term of the contract that if breached, entitles the innocent party to sue for
damages and repudiate the contract as the contract will remain unenforceable. In this case, the
contract entered into by S and B provided that S will deliver 10, 000 “dressed” chickens to B in
March and within 30 days following the delivery, B would pay $27, 500. The chicken were
delivered, but had not been wrapped so B refused to take them.
B has the option of repudiating the contract as the major condition of the agreement was that
the chicken had to be wrapped for freezing hence the contract had failed completely. The claim
by S for the price of the goods would not sustain since the contract is not enforceable.
HYPO 9
This case arises from the renovation of a multi-building apartment complex (the “Project”)
near the University of North Carolina at Charlotte (“UNC Charlotte”) and a dispute over
alleged floor truss defects that developed shortly after the Project’s completion. O was the
owner of the Project; C was the general contractor.
O and C entered into a contract (the “General Contract”) by which C agreed to renovate an
apartment complex on land owned by O near the UNC campus. Acting as the general
contractor, C entered into agreements with several subcontractors to facilitate the
construction of the Project. C enlisted T to provide and install wood framing, including floor
trusses, for the Project and to provide the labor necessary to complete such work.
As construction proceeded, it was discovered the ceiling of the Project was sagging and
cracking. After an inspection, a defect in the floor trusses found above the sagging ceiling.
O that it believed the already-discovered truss defects were a sample of a systemic, Project-
wide, truss defect problem. That same day, O reached out to S and asked if S would be able to
fix the truss work on the Project if C did not. O informed C that it believed “the extent of truss
failure [was] a material breach and default under” the General Contract but that O did not want
to terminate the contract if possible.
On Friday, May 29, 2015, O sent C a letter via e-mail informing C that O needed repair work
to begin no later than June 2, 2015 and that C would be required to provide a repair plan by
no later than the following Monday, June 1, 2015 and to complete the work by August 15,
the beginning of classes at UNCC. O also informed C that O was in the process of procuring
repair work from S, who had committed to meeting the August 15 deadline. O said it
intended to hold C fully responsible for the cost of any repairs.
The following Monday, June 1, 2015, C sent O a letter objecting to the repair plan deadline
O had imposed. C stated it remained open to serving as a “construction manager” in relation
to any remedial work but also affirmed that it could not “commit to complete the work in
[the timeframe] demanded.”
On June 3, 2015, O issued a notice to S that it should proceed with the Project-wide truss
work. O and S executed a written contract on June 17, 2015.
On at least one occasion, C sent representatives out to the Project to perform further
investigations while S was working. According to C, O informed C’s ‘s representatives that
S would be handling the repair work and that there was no need for C to be there.
S’s work was completed, and county inspector approval was obtained by August 19, 2015.
Students were returning to campus. To keep the students who already had leases at the Project
but who couldn’t yet occupy the Project, O spent $906,847.74 to house the students
temporarily in hotels and to give each of them a $500 prepaid gift card and a temporary
relocation stipend of $140 per week, totaling $500,446.46.
C sued O to recover allegedly outstanding payments due from O for its construction work on
the terms of the parties’ agreement. C focused on the language of the agreement providing
that in the event of substantial defect, O is to “give such notice promptly after discovery of
the condition,” and stated “[i]f the Contractor fails to correct nonconforming Work within a
reasonable time during that period after receipt of notice from the Owner …, the Owner may
correct it.”
O responded by arguing that C cannot shield itself with the General Contract because C, in fact,
was the first party to materially breach the agreement’s terms by anticipatory repudiation.
Because C repudiated the General Contract, O asserts C has no grounds on which to argue it
was wrongfully deprived of its rights under the contract.
Answer:
Attempts by C to recover the remaining amount may not be sustainable since he breached the
contract. The contract required that after being given prompt notice of a substantial defect, the
contractor ought to correct within a reasonable time, failure to which the owner shall correct it.
O has the right to sue for damages ($ 906,847 and $ 500,446), incurred in keeping the students.
They already had leases at the project but couldn’t occupy the project because of the damage.
O partially performed the contract and promptly gave notice of the defect. He gave C the
chance to perform by repairing the damage, which he failed to do. Therefore C cannot claim
any rights under the contract as his failure to repair led to anticipatory breach, which occurs
when a party repudiates the contract before the date agreed upon. See SK Shipping (S) Pte Ltd v
Petroexport Ltd (2009)EWHC 2974 where anticipatory breach was canvassed.
HYPO 10
In 2010, B planned to expand its line of food products to include frozen desserts.
Manufacturing the desserts required B’s production facilities to maintain a constant
temperature no higher than thirty-eight degrees—lower than B’s existing refrigeration system
could sustain. B therefore contracted with S to install a new system. B then began paying S
agreed-upon installments.
After S completed the installation, B started to operate the new system at a temperature setting
of thirty five degrees. However, the system failed, leading to higher temperatures that at times
climbed into the 50s and 60s. When B discovered the problem, it had already paid S $306,758
on the contract but still owed $113,400. B communicated with S about a repair. After several
weeks without receiving what it considered a workable plan, B withheld further payment from
S. B then hired an independent refrigeration engineer who modified the system to maintain the
target temperature of thirty-five degrees.
In response to B’s nonpayment, S sued B to recover the balance owed on the contract. B
counterclaimed for breach of contract, seeking damages for the costs associated with making
the system work.
Answer:
The contract between B and S was for installation of a new system which S did, only that it
failed – leading to higher temperatures than before. The issue is whether there was breach and
whether S is entitled to the full amount.
Substantial performance is where the contract is performed to a level that is sufficient to avoid
a claim for breach of contract, so the contract is performed, but not completely. The system was
installed as the contract stipulated, meaning S performed his part of the contract. The system
only requires repair.
S therefore having failed to repair is not entitled to the full amount since B incurred damage as
a result of the high temperatures. So, B is entitled to seek offset or recovery from S. this does
not give rise to breach but B can calculate the damage he incurred and offset the cost of the
damage while paying S.
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