Question

10-2. Chris contracts to sell his house and lot to Kahra for $250,000. The terms of the contract call for Hayaa to pay 20 percent of the purchase price as a deposit toward the purchase price, or as a down payment. The terms further stip¬ulate that should the buyer breach the contract, the deposit will be retained by Chris as liquidated damages. Kahra pays the deposit, but because her expected financing of the $190,000 balance falls through, she breaches the contract. After adjusting the listing price downward several times due to market volatility, 10 months later Chris sells the house and lot to Connor for $270,000. Kahra demands her $50,000 back, but Chris refuses, claiming that Kahra's breach and the contract terms entitle him to keep the deposit. Discuss who is correct using the IRAC method of case analysis.

Answer 1

Solution:

Issue:-

Whether Kahra is entitled to demand back the down payment of $50,000{(purchase price$250,000)*20%} which was made by her to Chris, for acquisition of house and lot from Chris.

Rule:-

A contract can be defined as an acceptance made by one party to the contract for the offer made by another party to the contract which is legally enforceable.

In other words, an agreement which is legally enforceable is considered as a Contract.

A contract to be valid should have following features:-

1. Consensus ad idem- This means that both parties(Contractor & Contractee) to the contract should understand the same thing in the same way.
2. Certainty- This means that a contract should be certain otherwise the contract will be considered as void.
3. Free Consent- That a contract which is entered and consented by parties to the contract without any physical or mental pressure will be considered as valid otherwise voidable.
4. Capacity of Parties- Parties to the Contract should have capacity to settle the consideration and to execute their part of performance.
5. Consideration- This may be in form of cash or kind, adequate or inadequate decided mutually
6. Legal Formalities- An agreement to be legally enforceable need to comply with all the legal formalities only in case where contract is entered in any form other than oral.
7. Legal obligation- A valid contract should create a legal obligation on both the parties to the contract.
8. Feasibility- The performance of the event stipulated in the contract should be possible

Types of Breach of Contract:-

1. Actual Breach- Under this, party(s) to the contract refuses to fulfil his part of performance or performs incompletely on the due date of execution.
2. Anticipatory Breach- Under this, party(s) to the contract announces before the due date for performance that he intends not to execute his part of performance.
3. Minor Breach/Partial Breach- Under this, party(s) failed to perform some part of the contract even though the specified item or service was ultimately delivered.
4. Major Breach- Under this, party(s) ends up by executing something which is significantly different from what was supposed to be executed

Remedies against Breach of Contract-

There are 2 types of remedies which can be claimed on the breach of a valid contract

1. Expectation Damages- The Damages which the other party(non-breaching) to the contract is entitled to get out of the contract based on the contract itself
2. Consequential Damages- The Damages which the other party(non-breaching) to the contract is entitled to out of the contract like- Compensation to be provided for the loss incurred by the buyer due to late delivery of machinery by the supplier of the machinery.

Analysis:-

In the given case, Chris had entered into a contract with Kahra for the sale of house and lot for a consideration of $250,000 for which Kahra made a down payment of $50,000. The Contract so entered states that the breach of contract will entitle the Seller(Chris) to forfeit the amount received as down payment.

Kahra breached the terms of contract due to non arrangement of funds required to settle the balance consideration and accordingly forfeited the amount $50,000

Chris later on entered into a contract with Connor and sold the house & lot to him for $270,000

Conclusion-

Based on the aforesaid rules and analysis, contract can be assumed to be a valid contract and breach is a actual breach and therefore, Chris is legally entitle to forfeit the amount(expectation damages) received as down payment $50,000.

Hence, contention of Kahra is invalid and accordingly she is not entitled to demand back the amount paid by her as down payment.