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Breach of Contract Essay

Business law deals with many issues and forming businesses, such as limited liability companies, joint ventures, corporations, and partnerships is part of this.  Business law also deals with litigation and rights in regard to contracts, mergers, leasing, shareholders rights and even consumer protection.  Ownership of a corporation is represented by stock.  The Board of Directors is the governing body of a corporation.  This could be one person or how ever many the By-Laws allow.

The director’s duties include selecting officers and the supervision or general control and operation of the corporation.  Usually officers that are selected by the Director are the ones that run the common day to day operation.  Officers include the President, one to several vice Presidents, secretary and treasurer.  There can be up to several hundred officers depending on how large the corporation is.

Directors have strict duties that are outlined in the corporation laws and common law.  Some of their duties are to avoid conflicts of interests, act in the best interest for the company, act in good faith, and to watch over how the corporation is managed.  Duties of care and skill mainly rely on the facts and circumstances that would surround a case of whether or

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not a director is negligent.  A director must use judgment that any reasonable man would show in the same circumstances.

In the past court cases required that just negligence alone was not enough to find a director liable and skill was imposed only upon one certain director, but in today’s courts a more objective view for standards of care and skill and the concept of reasonable expectations of the position of director was added. This action by the directors to consider what would be in its best interests and not what the courts would consider the companies best interest is the fiduciary duty.  Only a court can release a director from liability to a company.

Common law has placed a variety of duties for directors that include; 1. Duty to act in good faith and in the best interest of a company, 2. Duty to act within the powers conferred on him and to exercise such powers for proper purposes, 3. Duty not to fetter his own discretion, and 4.Duty to avoid conflicting interests and conflicting duties.  Insider trading and how it relates to the director’s office has two theories.

The first has a liability on insiders of the corporation that deals with confidential information the a director received because of their position within the corporation that breaches the confidence they would have to the corporations shareholders and the other deals with outsiders of the corporation that deals with information that is confidential and persons who have access to this information who are directly involved with the company.

The shareholders are the first in line in a corporation then it is followed by the directors, the officers and the employees.  Shareholders control over the corporation is indirect.  How many individuals involved with the corporation depends on the need and want of the corporation.  Someone can be the sole shareholder, director, officer and employee at the same time.  But it is the shareholders that own the company.  This could mean one person or even thousands.

Shareholders don’t necessarily participate in daily company management and don’t directly have say in making decisions, but major shareholders can have a great bearing on influencing corporate decision making because they have the ability and often vote on influencing factors such as removal and electing directors, amending by-laws, major corporate changes such as mergers, sales or even dissolution.  They also vote on disposing of corporate assets and amending the articles of incorporation.  Rights of shareholders depend on several factors such as the type of security, state laws where the company is in business and the charter and by laws of that company.

Shareholders could be issued different types of securities that include common stock, preferred stock and bonds.  Buying these securities gives each different security holder different rights.  Most states gives shareholders the right to vote, hold a certain ownership in assets of the company, transfer shares, get dividends, inspect the company books, sue the corporation, and receive funding for the liquidation of the corporation.  Protection of minority of shareholders is very important to keep because of the confidence of the public when dealing with corporations and with security in markets.  It is a set of standards that apply to shareholders to keep confidence in investors.

The limited liability of a shareholder is generally limited.  This means that the shareholder is not personally liable for the debts and liabilities of the corporation.  The capital contributed by shareholders may be exhausted by the claims of creditors, but there is no personal liability for any unpaid balance.  The exception to limited liability is that liability may be imposed on a shareholder as though there were no corporation when the court ignores the corporate entity either because of the particular circumstances of the case or because the corporation is so defectively organized that it is said to not exist.

The external responsibilities of a corporation include many issues and protection of creditors is one.  An implication of limited liability is a different approach to corporate structure that is similar to a partnership with the luxury of a corporation.  It is able to look like and have the benefits along with the disadvantages of corporations and partnerships.  Liability of corporations must follow its own formalities or face the possibilities of losing their liability protection.  If a corporation doesn’t follow it’s by laws than the creditors may take shareholders personal assets.

A few of the formalities are making sure there are annual shareholders meetings, Board of Directors meetings, maintaining separate financial records, maintaining separate legal records of the corporation, or having separate corporate bank accounts.  Corporations will give shareholders and investors a certain amount of protection from legal liability.  All members of a LLC are liable for debts to the extent of their capital contributions and equity in the firm.  There is no personal liability beyond that.  With a LLP the only exception is the unlimited personal liabilities for someone’s own wrongful acts and those of persons that they supervise.

A corporation is made up of people and money to get started.  The money or amount of dollars used to set up a corporation is the capital and how the funds are gained is called capitalizing of a corporation.  Most states don’t have a minimum capitalization requirement except for South Dakota and Texas.  In those states here is a minimum of $1000 in either cash or property is needed to be paid to the corporation by the initial shareholders before they can start doing business.

Solvency refers to the ability of a business to pay its liabilities when they are due.  Keeping solvent is very important to every business and investors and lenders are very interested in the general solvency and debt paying abilities of a business.  They use this test to decide if a loan is to be renewed to a business and they use solvency ratios to determine this.  The ratios provide a useful look at a business for its creditworthiness and the ability of the business to pay its loans on time.

The protection of the investors is governed by securities legislation.  These laws and requirements of financial reporting are made to ensure that all stockholders and lenders have equal access to the corporation financial information and financial statements.  Anti-trust laws usually deal with whether combination or agreements are fair to society or to a particular class like consumers.  Some legislation is aimed at protecting the various parties directly involved in the combining of different enterprises.  Takeover laws guard against unfairness in such situations and are adopted by congress and the states.  State laws are limited in effectiveness because they only apply to corporations charted in their states.

A protection of the public interest is very important to corporations and varies from state to state.  Businesses that respond to social forces and the cycle of society interaction gain a competitive advantage.  Businesses that are irresponsibly and disregard society’s views and desires for change will speed the transition from value choice to enforceable law.  Businesses should watch the cycle of social forces and follow the trends to understand the values attached to certain activities and responses.  These values that predict change have several basic goals.

Civil liability of a corporation is that the corporation is liable to third persons for the acts of its officers, employees and agents to the same extent that a natural person is liable for the acts of agents and employees.  This means that the ordinary rules of agency law determine the extent by which the corporation is liable to a third person for a contract made or a tort committed by management personnel, employees, and agents.  Under principles of corporation law, liability for torts occurring on the premises of the corporation would not be the liability of individual shareholders.  With tort liability a client or a third party can also recover from an accountant on the basis of negligence, gross negligence or fraud.

With criminal liability of corporations officers and directors, as well as the corporation, may be criminally accountable for business regulatory offenses.  Officers and directors are personally responsible for any crimes committed by them even when they act on behalf of the corporation.  On the local level, they may be criminally responsible for violation of ordinances relating to sanitation, safety, and hours of closing.  At a state level they may be criminally liable for conducting a business without obtaining necessary licenses or after the corporate certificate of incorporation has been forfeited.

On the federal level officers and directors may be criminally liable for tax and securities law violations as well as environmental protection laws and worker safety law violations.  Officers and directors may be criminally liable under a number of federal and state statutes for failure to prevent the commission of a crime if they are found to be responsible corporate officers.  A corporation itself may be convicted of a criminal offense if the offense was committed by its agent acting within the scope of the agent’s authority.

When the enactment of the Organizational Federal Sentencing Guidelines was created in 1991 it helped with the creation of punishment for corporations.  This included corporations, trusts, pension funds, unions, and nonprofit organizations and are subject to fines for criminal convictions. Corporations and other covered organizations that implement an effective compliance program designed to prevent and detect corporate crimes and voluntarily disclose such crimes to the government will be subject to much lower fines under the guidelines.

Officers, directors, employees and agents of corporations may commit acts for which they are later sued or criminally prosecuted.  The RMBCA authorizes the corporation to indemnify these persons if they acted in good faith and in a manner reasonably believed to be in , or not opposed to, the interests of the corporations and there is no reason to believe that their conduct was unlawful.

Because the corporation is a separate legal person, debts that it owes are ordinarily the obligations of the corporation only.  Consequently, either directors or officers are individually liable for corporate debts.  In some states liability for corporate debts is imposed on the corporation’s officers and directors when the corporation improperly engages in business.  Shareholders may obtain protection from misconduct by management and by the majority of the shareholders.

Shareholders may protect themselves by voting at the next annual election for the new directors and allow for new officers if the last are elected.  Shareholders may take action at a special meeting that is called for that purpose.  Objecting shareholders may bring a legal action when the management misconduct complained of is legally wrong.  Like I mentioned before the corporation is liable to third persons for acts of its officers, employees, and agents the same way a person is liable for the acts of agents and employees.

Federal environmental laws can be enforced through criminal sanctions, penalties, injunctions, and suits by private citizens.  Federal enforcement rights, certain common law remedies exist for the protection of property rights.  The EPA is the primary federal agency responsible for the enforcement of federal environment laws that include air and water pollution, solid waste disposal, toxic substance control and noise pollution.  The EPA established emissions standards through regulation and enforces them with a system of permits and sanctions for violations.

The council on Environmental Quality is part of the executive branch to make national policy on environmental quality and make recommendations for legislation for the implementation of that policy.  Other departments within the government that help to enforce environmental laws are the Department of commerce, the Department of the Interior, the U.S. Forest Service, the Bureau of Land Management and the Federal Power Commission.  Private Citizens also have the right to enforce federal environmental laws through private litigation.  Most federal environmental laws carry criminal penalties for violations.

Criminal remedies are costly to businesses and the EPA also has the authority to have the polluting activity stopped through the use of injunctions.  The EPA will bring suit against a business to halt the activity that is creating the violation such as unauthorized dumping, the release of emissions in excess of a permit or to discharge without a permit.

Courts can then order the business to stop the activity that is resulting in the violation and in some cases the effect of the injunction could shut down the business.  The business will then have to negotiate with the EPA to meet certain standards before the injunction can be lifted.  Private Citizens can also sue for injunctions against companies that are in violation of federal law or not in compliance with statutory procedures.



            ON THE CITY CODE. (2007, July). Cambridge Law Journal, Retrieved August

            13, 2007, from Academic Search Complete database.

Timiraos, N. (2007, June 30). Roberts court unites on business. Wall Street Journal –       Eastern Edition, 249(152), A5. Retrieved August 13, 2007, from Academic     Search Complete database.

Twomey, D.P., Jennings, M.M., & Fox, I. (2002). Anderson’s Business Law and the       Legal Environment.  Cincinnati, Ohio: West/Thomson Learning.


  • In February the Baldwin Company sold 500 pieces of blue serge to Martin Bros. for $40,000.00.
  • It was stated in a written memorandum that was signed by both parties.
  • 220 pieces of blue serge was delivered to Martin Brothers.
  • Martin Bros. complained of a delay in delivery.
  • Baldwin Co. Ltd sued Martin Bros. for the price of the delivered goods.
  • Martin Bros. counter sued for damages for non-delivery.
  • In August an oral agreement was reached before court to a settlement and to substitute the original contract for a new one.
  • The new contract gave Martin Bros. three more months to pay for the goods received and have an option to buy the 280 remaining pieces from the previous contract.
  • In November Martin Bros. paid the amount due on the original 220 pieces of cloth and placed an order for the remaining 280 pieces.
  • This was agreed upon under the option in the substituted contract.
  • Baldwin Co. Ltd refused to deliver the 280 pieces, citing the original price was no longer profitable.
  • Martin Bros. sued Baldwin for damages for Breach of Contract.


  1. Was the written memorandum, which was signed by both, a legal contract?
  2. Who was at fault?
  3. Was the oral settlement agreement a legal contract?
  4. Could this oral agreement substitute the original contract?
  5. Can Baldwin Co. refuse delivery, citing the original agreed price was no longer profitable?
  6. Can Martin Bros. sue for damages resulting from Breach of contract?

Legal Principles:

  1. Contract law
  2. Oral agreements
  3. Liability of Damages
  4. Contract obligations
  5. Breach of Contract
  6. Time limitations of Oral Agreements


In my opinion, Baldwin Co. failed to keep the original agreement in February to deliver 500 pieces of blue serge to Martin Brothers.  It only delivered 220 pieces of cloth before Martin Bros. complained of delayed delivery of the product.  Baldwin Co. then complained of non-payment of goods that had already been delivered and sued Martin Bros. for the price of the delivered goods.  Martin Bros. counter sued for damages for non-delivery.  In August when an oral agreement was made and both parties acknowledged that the oral agreement would substitute for the original contract.  Baldwin Co. still failed to uphold the oral agreement that both parties had agreed to and was in Breach of Contract.

A breach is the failure to act or perform in the manner called for by the contract.  When the contract calls for performance, such as delivering the cloth to Martin Bros., the failure to deliver is a breach of contract.  If the contract calls for a creditor’s forbearance, the action of the creditor in bringing a law suit is a breach of the contract.  When the contract calls for performance, a party may make it clear before the time for performance arrives that the contract will not be performed.  This is referred to as an anticipatory breach.

When a party expressly declares that performance will not be made when required, this declaration is called an anticipatory repudiation of the contract.  To constitute such repudiation, there must be a clear, absolute, and unequivocal refusal to perform the contract according to its terms, such as what Baldwin Co. did (Twomey, Jennings & Fox, 2002, p.359).  For example if a buyer makes another purchase when the seller declares that the seller will not perform the contract, the buyer has acted in reliance on the sellers repudiation.  The seller will therefore not be allowed to retract the repudiation.


Baldwin Co. was guilty of Breach of Contract to Martin Bros. and should have to complete the order regardless of financial loss because of previous commitment

Case Two:


  • Purcell is in failing health.
  • Because of this he is selling his retail computing equipment business.
  • Quentin offered to buy the business for $450,000, paying $75,000 as a cash down payment with the balance to be paid in installments over a two year period.
  • Quentin had sent a detailed offer to Purcell outlining this offer.
  • Purcell sent an e-mail to Quentin stating that the price and other terms were fair, but he needed $125,000 for the down payment.
  • Purcell also asked for Quentin to tell him how high he could go.
  • Quentin replied by e-mail that he could not increase the cash down payment.
  • Purcell answered the next day that he would go ahead and accept the original offer.
  • Quentin then refused to continue with the deal because of Purcell’s illness and the decline of the business because of this.


  1. Is the original offer binding for a sale of the company?
  2. Was the detailed offer from Quentin a contract?
  3. When Purcell asked for a larger down payment, did it void the previous offer?
  4. Is an e-mail a legal and binding document?
  5. What is a reasonable time limit for offers?
  6. Is Quentin right?
  7. Does Purcell have a basis for claiming that there is a binding contract with Quentin?

Legal Principles:

  1. Binding offers and contracts
  2. E-mail Documents and the law
  3. Offer Time Frame and the law
  4. Health Issues and Contracts
  5. Acceptance of Offer


In my opinion, the offer from Quentin was not binding.  It was only a negotiation between the two in attempts to come to an agreement.  When Purcell had counter offered Quentin’s first offer that would have voided the original offer making Quentin not obligated to purchase the business.  Purcell’s health was no factor as to whether Quentin was obligated to purchase or not.

In this case it would be the acceptance of the offer that was in question.  An acceptance is the assent of the offeree to the terms of the offer.  Whether there has been an agreement of the parties is determined by objective standards.  No particular form of words or mode of expression is required, but there must be a clear expression that the offeree agrees to be bound by the terms of the offer.  If the offeree reserves the right to reject the off, such action is not an acceptance.  That is what Purcell did when he returned with a counter offer, the first was not accepted.

The offeree may refuse to accept an offer.  If there is no acceptance, by definition there is no contract.  That fact that there had been a series of contracts between the parties and that one party’s offer had always been accepted before by the other does not create any legal obligation to continue to accept subsequent offers.  When an offer has been accepted, a binding agreement or contract is created, and assuming that all of the other elements of a contract are present.  Neither party can subsequently withdrawal from or cancel the contract without the consent of the other party.  In the above mentioned case no offer had been accepted (Twomey, Jennings & Fox, 2002, p.237-239).


Quentin was not in Breach of Contract since Purcell did not accept the original offer and sent Quentin a counter offer that he rejected.  Purcell’s illness had no bearing on how the case should be decided.

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