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Spice Girls (a group of 5 girls) were interested to go on a tour to England but they don’t have
money for that. For this purpose they decided to enter into a contract with a car manufacturer
Mr. Ahmad under which he agreed to sponsor the Spice Girls' tour in return for his
promotional work. The contract was duly signed on 6th May 2011. Suddenly Sahar Naseem
left the group on the 27th May of that year. Further Ahmad discovered that Sahar already
informed the other members of the group of her decision to leave them prior to the signing of
contract. Mr. Ahmad claimed in the court that they had been induced to enter the contract by
Finally it was apprehended by the Court on the appeal of Mr. Ahmad that the Spice Girls had
made a falsification by conduct in that all of the members participated in a commercial photo
shoot at considerable cost of Ahmad, even so at a time when they knew that one of their
members was to leave.
1. You are required to discuss the status of contract between both the parties and also its legal
implications. Marks 10
2. As a student of business and labour law, discuss the point of alterations between fraud and
misrepresentation. Give at least five points. Marks 10
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When one party breaches a contract, the other party the nonbreaching party can choose one or more severalremedies. A remedy is the relief provided for an innocent party when the other party has breached the contract. It is the means employed to enforce a right or to redress an injury.
Section 1: Damages: A breach of contract entitles the nonbreaching party to sue for money (damages). Damages are designed to compensate a party for harm suffered as a result of anothers wrongful act. In contract law, damages compensate the nonbreaching party for the loss of the bargain.
Types of Damages: There are basically four broad categories of damages:
1. Compensatory (to cover direct losses and costs).
2. Consequential (to cover indirect and foreseeable losses).
3. Punitive (to punish and deter wrongdoing).
4. Nominal (to recognize wrongdoing when no monetary loss is shown).
Compensatory Damages. Damages compensating the nonbreaching party for the loss of the bargain are known as compensatory damages. These damages compensate the injured party only for damages actually sustained and proved to have arisen directly from the loss of the bargain caused by the breach of contract. They simply replace what was lost because of the wrong or damage. The standard measure of compensatory damages is the difference between the value of the breaching partys promised performance under the contract and the value of her or his actual performance. The amount is reduced by any loss that the injured party has avoided. Expenses that are caused directly by a breach of contract such as those incurred to obtain performance from another source are known as incidental damages.
o Sale of Goods. In a contract for the sale of goods, the usual measure of compensatory damages is an amount equal to the difference between contract price and contract price. In situation in which the buyer breaches and the seller has not yet produced the goods, compensatory damages normally equal lost profits on the sale, not the difference between the contract price and market price.
o Sale of Land. Ordinarily, because each parcel of land is unique, the remedy for a sellers breach of a contract for sale of real estate is specific performance that is, the buyer is awarded the parcel of property for which she or he bargained. When this remedy is unavailable (for example, when th seller has sold the property to someone else), or when the breach is on the part of the buyer, the measure of damges is ordinarily the same as in contract for the sale of goods, that is, the difference between the contract price and market price of the land.
o Construction Contracts. The measure of damages in a building or construction contract depending on which party breaches and when the breach occurs.
1. Before the performance has begun. The contractor can recover only the profits that would have been made on the contract (that is, the total contract price less the cost of materials and labor.)
2. During the performance. The contractor can recover the profits plus the costs incurred in partially constructing the building.
3. After the performance has been completed. Contractor can recover the entire contract price, plus interest.
o Construction Contracts and Economic Waste. If the contractor substantially performs, the courts may use the cost-of-completion formula, but only if there is no unreasonable economic waste in requiring completion. Economic waste occurs when the cost of repairing or completing the performance as required by the contract greatly outweighs the benefit to the owner.
Consequential Damages. Foreseeable damages that result from a partys breach of contract are called consequential damages, or special damages. They differ fro compensatory damages I that they are caused by special circumstances beyond the contract itself. They flow from the consequences, or results of a breach. The buyer will also recover compensatory damages for the difference between the contract price and the market price of the goods. To recover consequential damages, the breaching party must know (or have reason to know) that special circumstances will cause the non breaching party to suffer an additional loss.
Punitive Damages. Punitive or exemplary, damages are generally not awarded in an action for breach of contract. Punitive damages are designed to punish a guilty party and to make an example of the party to deter similar conduct in the future. Such damages have no legitimate place in contract law because they are, in essence, penalties, and a breach of contract is not unlawful in a criminal sense. A contract is simply a civil relationship between the parties. The law may compensate one party for the loss of the bargain, no more and no less.
Nominal Damages. When no actual damage or financial loss results from a breach of contract and only a technical injury is involved, the court may award nominal damages to the innocent party. Awards of nominal damages are often trifling, such as a dollar, but they do establish that the defendant acted wrongfully. Most lawsuits for nominal damages are brought as a matter of principle under the theory that a breach has occurred and some damages must be imposed regardless of actual loss.
Mitigation of Damages: In most situations, when a breach of contract occurs, the innocent injured party is held to a duty to mitigate, or reduce, the damages that he or she suffers. Under this doctrine of mitigation of damages, the duty owed depends on the nature of the contract.
Liquidated Damages Provisions: A liquidated damages provision in a contract specifies that a certain dollar amount is to be paid in the event of a future default or breach of contact. A provision requiring a construction contractor to pay $300 for every day he or she is late in completing the construction is a liquidated damages provision.
Liquidated Damages Versus Penalties. When a contract specifies a sum to be paid for non performance, the issue becomes whether the amount should be treated as liquidated damages or as a penalty. Liquidated damages provisions are enforceable; penalty provisions are not. Generally, if the amount stated is excessive and the clause is designed to penalize the breaching party, a court will consider it a penalty.
Factors Courts Consider. To determine if a particular provision is for liquidated damages or for a penalty, two questions must be answered:
1. When the contract was entered into, was it apparent that damages would be difficult to estimate in the event of a breach and the amount set as damages a reasonable estimate and not excessive.
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