Contract Law and Ethics Case Study

Purpose of Assignment

The purpose of this assignment is to discuss the legally required elements necessary to form a contract, the ethical considerations, and the remedies for breach.

Assignment Steps

Cite a minimum of two peer-reviewed references.

Format your PPT with appropriate speaker notes.


Discuss the Assigned Case Study from Chapter 9.

(Feel free to get additional details about the case from additional resources)

3. Discuss the key issues of the case, the court’s ruling and whether you agree with the ruling.

RHODES V. DAVIS

2012 U.S. Dist. LEXIS 144955 (S.D.N.Y. 2012)

GEORGE B. DANIELS, DISTRICT JUDGE.: Plaintiff Neil Rhodes and Defendant Gary Davis are co-owners of Alarm Specialists, Inc. (“ASI”). Each holds a fifty percent interest in ASI and fifty percent of the membership interests in OTR Realty, LLC (“OTR”), an affiliated real estate company. In an attempt to resolve a prior dispute before this Court . . . the parties entered into a Stipulation of Discontinuance (“Stipulation”), under which they agreed that Defendant would buy out Plaintiff’s ownership interest in ASI for $2,500,000 on or before October 1, 2009 with a down payment of $250,000 by September 5, 2008. Although the down payment was timely made, the closing date passed without any sale, and Plaintiff subsequently brought a second action for damages stemming from Defendant’s breach of contract. . . .

. . .

Ultimately, both parties agree that specific performance is the proper remedy in this case. . . .

Specific performance is an extraordinary remedy to be invoked only after remedies at law have been determined to be “incomplete and inadequate to accomplish substantial justice.” . . . New York courts have consistently held specific performance to be appropriate in cases involving stock transfer agreements in closely held corporations, finding that the market value of such stock is difficult to ascertain for the purposes of calculating damages. . . .

Page 273

Both parties ultimately agree in their briefs to this Court that specific performance is an appropriate remedy with respect to Defendant’s breach of contract. ASI is a closely held corporation, and Plaintiff and Defendant are ASI’s only shareholders. Due to the inherent difficulty in assessing the market value of ASI’s stock and the lack of a market that would allow Plaintiff to sell his shares at a price comparable to what Defendant agreed to pay, substantial justice is not achieved without specific performance. . . .

Under well-established principles of New York law, “when parties set down their agreement in a clear, complete, document, their writing should . . . be enforced according to its terms.” . . . Where the terms of the agreement contain no ambiguities, the Court limits its review to the four corners of the contract. . . . Here, the Stipulation was an unambiguous and enforceable contract containing the complete terms of their agreement. . . . Thus, specific performance limited to the explicit terms of the Stipulation itself is appropriate.

Judge Robinson previously determined that Defendant breached the Stipulation between the parties by insisting on terms not contained in the Stipulation. Judge Robinson granted partial summary judgment to Plaintiff on this issue. Under ¶ of the Stipulation, Defendant agreed to buy out Plaintiff’s shares in ASI for the purchase price of $2,500,000 by the closing date of October 1, 2008 with a down payment of $250,000 by September 5, 2008. Defendant did make a timely down payment but failed to make the rest of payment. Thus, with regard to specific performance in adherence to the original terms of the Stipulation, Plaintiff is entitled to the payment of the original purchase price less Defendant’s $250,000 down payment, for a total sum of $2,250,000.

Pursuant to UCC § 2-709, Plaintiff is also entitled to an award of prejudgment interest at the statutory rate of 9% per year from the date of Defendant’s breach on October 1, 2008, until the date of final judgment. . . .

Both parties respectively argue that they each should be awarded attorneys’ fees for legal expenses incurred throughout the course of their ongoing litigation. . . . The Stipulation addresses the issue of attorneys’ fees in the event of a breach. . . .

The plain language of the Stipulation awards attorneys’ fees to the non-breaching party. As Judge Robinson previously found that Defendant was liable for breaching the Stipulation, Plaintiff is entitled to reasonable attorneys’ fees arising out of this litigation in an amount to be determined at a Magistrate Judge’s Inquest.

KEY POINTS

•When a contract involves unique subject matter, courts may award specific performance because there is no market equivalent.

•Rhodes and Davis had a good understanding of their value for the transaction, and there was no reason for the court to substitute its own reasoning.

 
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