Kris Rickett Digital Inc. (KRD) produces wireless headphones for exercise and fitness enthusiasts. Their original market targets are Australia, Malaysia
... [Show More] and Singapore. However, they decided to introduce their products into the New Zealand market before summer 2017. The management of KRD have studied the New Zealand market well, andthey believe that they only way they can have a superior market position in the wireless headphone market is for their headphones to be adorned with colourful leather jackets (usually a blend of colours). This is because they know that the majority of fitness enthusiasts who buy wireless headphones are youths who like attractive accessories.
As part of the advertising campaign, KRD's management has also secured a yearly renewable publicity contract with Loud Press, an online magazine trendy among New Zealand youths. Loud Press has promised to provide weekly adverts for KRD's wireless headphones at half its usual advertising rate. Thus, KRD would be charged $2,000 monthly instead of $4,000 monthly.
KRD signed a $500,000 agreement with Tamaki Leather Place (TLP), a New Zealand company, for the production of colourful leather jackets needed for the adornment of headphones they plan to sell. When KRD and TLP signed the contract, KRD had explained the importance of prompt delivery by TLP, which was to enable KRD to meetthe summer market and facilitate enjoyment of the cost-effective publicity contract with Loud Press. KRD did not inform TLP that it intended to sell its headphones for $200 instead of $100, the prevailing market price of wireless headphones in New Zealand.
TLP failed to deliver the expected leather jackets until three weeks after the expected date of performance, even when the contract made it clear that timely delivery is anessential term. For this reason, KRD was not able to gain the summer market lead it had expected and consequently had to terminate the publicity contract with Loud Press.
KRD alleges that if TLP had not breached the contract, they would have sold at least 50,000 headphones, and therefore they would have made a net profit of 9,500,000 over the first two months. TLP, however, denies the possibility of such KRD making such profits within that period. TLP also argues that whatever real loss KRD might have suffered because of the breach, TLP should only be liable to the extent that KRD would have mitigated against the loss by selling the headphones without the colourful jacket (i.e. with alternative jackets).
Advise KRD on the following concerns:
(1) Whether they can claim for compensation for contractual breach based on their plan to sell each headphone for $200.
(2) Whether they are entitled to compensation for the cost of finding an alternative publicity contract.
(3) Whether they can receive compensation for the cost of settling out of the contract with Loud Press.
(4) Whether KRD must mitigate their loss.
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