University:
Indiana University Bloomington
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

437

Pages:

2
Author:

bratrochanter

Analysis of Remedies for Breach in Kathy’s Bridal Gown Contract Scenario 1: Kathy Cancels the Order Before Completion   Bridal Shop’s Options: 1. Stop Production: The shop can cease work and sue for damages, which may include lost profits and costs incurred up to cancellation [UCC 2-704]. 2. Complete the Dress: If completing the dress allows for a better recovery (e.g., by reselling it), the shop may finish it and seek damages for the difference between the contract price and resale price. Damages: The shop may retain the $500 deposit as partial compensation and seek additional damages for any losses not covered by the deposit. Scenario 2: Kathy Refuses to Accept a Completed Dress  Bridal Shop’s Remedies: o The shop can attempt to resell the dress. If sold, the shop can recover:  The difference between the contract price ($2,500) and resale price.  Incidental damages such as storage or marketing costs [UCC 2706]. o If the dress cannot be resold for a reasonable price, the shop may sue for the full contract price [UCC 2-709]. Scenario 3: Bridal Shop Fails to Deliver on Time  Kathy’s Remedies: 1. Cover: Kathy may purchase a substitute dress and sue for the difference between the substitute price and the original contract price [UCC 2-712]. 2. Damages: Kathy can recover consequential damages (e.g., increased costs for a rush order or emotional distress if applicable) if foreseeable at the time of contract formation [UCC 2-715]. Scenario 4: Bridal Shop Sells Kathy’s Dress to Another Buyer for a Higher Price  Kathy’s Recourse: o Kathy can sue for breach of contract and recover: 1. The cost of covering a substitute gown. 2. Any additional damages, such as lost deposits on alterations specific to the original dress. Ethical Considerations  Selling the Dress to Another Buyer: o Unethical: Selling the dress to another buyer without Kathy’s consent violates the contractual commitment. The shop profits at Kathy's expense, undermining trust and fairness. o Ethical Obligation: The shop should honor its contractual promise unless both parties agree to modify or cancel the contract. Remedies for Breach of Sales Contracts Under the UCC Liquidated Damages   Definition: Pre-agreed compensation for breach if actual damages are difficult to determine. Enforceability: Valid if the amount is reasonable and not punitive [UCC 2718]. Seller’s Remedies for Buyer Breach: 1. Cancel the Contract [2-703(f)]. 2. Withhold Delivery of undelivered goods [2-703(a)]. 3. Resell the Goods and recover the difference between the contract and resale price [2-706]. 4. Recover Full Price if resale isn’t feasible [2-709]. 5. Recover Damages for costs incurred and lost profits [2-708]. Buyer’s Remedies for Seller Breach: 1. Cancel the Contract and seek a refund [2-711]. 2. Cover: Buy substitute goods and recover the price difference [2-712]. 3. Specific Performance: Demand delivery of unique goods (e.g., custom bridal gown) [2-716]. 4. Incidental and Consequential Damages [2-715]. Conclusion The UCC provides robust remedies for both buyers and sellers, aiming to compensate the injured party and ensure fair resolution of breaches. In Kathy’s case, both parties have specific remedies depending on the nature and timing of the breach.