Benjamin Franklin owns Ben’s Diagnostic Imaging Center, Inc. National Imaging Company wants to expand into new markets, and National Imaging makes an offer to acquire Ben’s Diagnostic Imaging Center for $1,000,000 through a proposed contract created and signed by National Imaging. The contract provides that National Imaging will pay $20,000 in earnest money, which will be applied to the purchase price at closing. The contract also provides that if the contract is not consummated by reason of National Imaging’s refusal or inability to perform, then the earnest money shall be paid to Ben’s Diagnostic Imaging Center as liquidated damages for National Imaging’s breach. Benjamin Franklin makes several material handwritten changes to the contract, signs it, and returns it to National Imaging. National Imaging puts the agreement in a file without agreeing in writing to Ben’s Diagnostic Imaging Center’s changes and sends a $20,000 check for the earnest money for deposit into an escrow account, but the check is returned for insufficient funds. Meanwhile, National Imaging discovers another eyeglass company in the market while it is conducting due diligence, and National Imaging decides not to consummate the transaction with Ben’s Diagnostic Imaging Center. Ben’s Diagnostic Imaging Center sues for breach of contract asking to recover $20,000.
i. Is there an enforceable contract? Explain why or why not using the essential elements of a contractual arrangement as the framework for your analysis.
ii. Assuming that the contract is enforceable, is $20,000 in liquidated damages an enforceable remedy? Why or why not?
iii. Are other remedies available if the liquidated damages clause is enforceable? Why or why not?
The question belongs to Law and it discusses about a scenario where a diagnostics company is approached by another company for take over and later on the company refuses for the takeover. The diagnostics company files for a breach of contract. The solutions discuss whether or not the contract or the agreement is legally valid or not.
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