Chapter 4 - Constitutional Authority to Regulate Business s10

Clarkson-11e Appendix I: Sample Answers for End-of-Chapter Questions with Sample Answer

Chapter 18: Breach of Contract and Remedies

18–2. Question with Sample Answer

In which of the following situations would specific performance be an appropriate remedy? Discuss fully. (a) Thompson contracts to sell her house and lot to Cousteau.Then, on finding another buyer willing to pay a higher purchase price, she refuses to deed the property to Cousteau. (b) Amy contracts to sing and dance in Fred’s nightclub for one month,beginning May 1. She then refuses to perform. (c) Hoffman contracts to purchase a rare coin owned by Erikson,who is breaking up his coin collection. At the last minute,Erikson decides to keep his coin collection intact and refuses to deliver the coin to Hoffman. (d) ABC Corp. has three shareholders: Panozzo, who owns 48 percent of the stock; Chang, who owns another 48 percent; and Ryan,who owns 4 percent. Ryan contracts to sell her 4 percent to Chang. Later, Ryan refuses to transfer the shares to Chang.

Sample Answer:

Generally, the equitable remedy of specific performance will be granted only if two criteria are met: monetary damages (under the situation) must be inadequate as a remedy, and the subject matter of the contract must be unique. (a) In the sale of land, the buyer’s contract is for a specific piece of real property. The land under contract is unique, because no two pieces of real property have the same legal description. In addition, money damages would not compensate a buyer adequately, as the same land cannot be purchased elsewhere. Specific performance is an appropriate remedy. (b) The basic criteria for specific performance do not apply well to personal- service contracts. If the identical service contracted for is readily available from others, the service is not unique,and monetary damages for nonperformance are adequate. If, however, the services are so personal that only the contract party can perform them, the contract meets the test of uniqueness; but the courts will refuse to decree specific performance if (1) the enforcement of specific performance requires involuntary servitude (prohibited by the Thirteenth Amendment to the U.S. Constitution), or (2) it is impractical to attempt to force meaningful performance by someone against his or her will. In the case of Amy and Fred, specific performance is not an appropriate remedy. (c) A rare coin is unique, and monetary damages for breach are inadequate, as Hoffman cannot obtain a substantially identical substitute in the market. This is a typical case in which specific performance is an appropriate remedy. (d) The key issue here is that this is a closely held corporation. Therefore, the stock is not available in the market, and the shares become unique. The uniqueness of these shares is enhanced by the fact that if Ryan sells her 4 percent of the shares to Chang, Chang will control the corporation. Because of this, monetary damages for Chang are totally inadequate as a remedy. Specific performance is an appropriate remedy.