|Timmco, Inc. is a publicly traded corporation located in Denton, Texas that makes and sells high pressure industrial spraying equipment used in all sorts of commercial liquid spraying applications. It prides itself on top quality and promotes its products as “100% made in the USA”.Sales have been declining recently due to competition from lower priced competitors and Timmco is looking for ways to reduce costs. One option under consideration is to find a new source for the high-pressure valves used in its products. These valves are complicated mechanisms that operate under very high internal pressure. If the valve was to burst, it would spray pieces of metal in all directions and pose a significant hazard to anyone standing nearby including the operator of the equipment. Timmco currently has a contract to purchase 1,000 valves a year at $2,500 per valve from Blagg Industries, a small privately owned business located in Boone, North Carolina. The contract has been in place for three years and has two more years to run.Blagg Industries has a dozen employees. Timmco is its primary customer. If Blagg Industries loses Timmco’s business, it will have to lay off employees and might even go out of business.Timmco is considering outsourcing the valves from Sanco, an overseas supplier in the country of Slawrovia, instead of buying valves from Blagg Industries. The Sanco valves only cost $1,000 each, but are known to be of lower quality than the Blagg Industries valves and are more likely to burst. Sanco can supply these valves at such low cost because they pay their workers, including children, less than the equivalent of $5 per day and work them long hours in hot, dangerous conditions.Slawrovia is a poor country, but it has a large government bureaucracy and there is a lot of red tape involved in getting approval to export manufactured goods to other countries. In fact, it might take more than a year for Sanco and Timmco to obtain the necessary approvals for Sanco to export the valves to Timmco. Fortunately, the CEO of Sanco is related to the Slawrovia Minister of Commerce and has told Timmco that the necessary approvals can be obtained in less than a week if Timmco makes a $20,000 “gift” to the Slawrovia Minister of Commerce.In addition to finding a new, low cost valve supplier, Timmco plans to increase sales by running a new marketing campaign that focuses on their commitment to American made quality. The tagline will be “Made in the USA by Americans, for Americans.”You are a high-level executive at Timmco. Analyze the legal and ethical issues presented by the Timmco scenario as per below.
1.Analyzes breach of contract and remedies
2. Must utilize academic voice, IRAC method and 2 scholarly peer reviewed resources.
The issue is whether TIMMCO’s decision to consider Sanco Company for the outsourcing would be a contract breach of the existing agreement with Blagg industries.
A breach of contract requires the innocent party to prove that a valid contract existed. The plaintiff must prove that the defendant refused to perform their agreement obligations, causing financial damage (Nadler, 2021). There is an anticipatory breach, actual bleach, material breach, and minor breach. If the court establishes a breach of contract, the two categories of remedies available are common law remedies and equitable remedies. The common law remedy compensates the innocent party to return them to a position they would be if the other party performed their part of the agreement (Bant & Paterson, 2020). Damages under this remedy include liquidated damages, statutory damages, consequential damages, and reliance damages. On the other hand, equitable remedies include rescission, restitution, injunction, Mareva injunction, and specific performance. If the court establishes that monetary damages are insufficient for the innocent party, specific performance is considered the just remedy.
Timmco’s decision to abandon the contract with Blagg industries would be an actual breach. The agreement between the two parties is valid and runs for additional two years, so it would be a violation for Timmco to abandon its obligations. The breach could result in severe monetary consequences to Timmco if Blagg industries decide to take it to court.
The court would award Blagg industries compensatory damages amounting to the total loss experienced from the breach, for instance, the total revenue expected from the remaining two years. If Timmco purchases 1,000 valves annually at $2,500 each, the total compensatory damages could amount to $1,500,000 in the first year alone, which is $5 million for the remaining two years.
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Bant, E., & Paterson, J. (2020). Evolution and Revolution: The Remedial Smorgasbord for Misleading Conduct in Australia. FIU Law Review, 14(1). https://doi.org/10.25148/lawrev.14.1.6
Nadler, J. (2021). FREEDOM FROM THINGS: A DEFENSE OF THE DISJUNCTIVE OBLIGATION IN CONTRACT LAW. Legal Theory, 1–30. https://doi.org/10.1017/s1352325221000161
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