Alpha and Xenon Companies Are Both Major International Conglomerates

question 32

Multiple Choice

Alpha and Xenon companies are both major international conglomerates.They are negotiating a contract whereby Alpha will install a computer system for Xenon.One clause in the contract states that Alpha will not be liable for damages caused by the negligent installation of the computer system,except that Alpha warrants the system and will fix any problem for a period of two years following installation.Alpha completes the installation of the computer system.Xenon loads extensive amounts of information on the system,but all of it is destroyed because Alpha negligently installed the memory chips.Alpha fixes the memory,but Xenon incurred significant expenses in recreating the lost information.Xenon sues for these expenses.Alpha defends with the noted clause in the contract.

• A) Xenon wins; these types of clauses are never enforceable.
• B) Xenon wins; exculpatory clauses are sometimes valid, but this one would not be valid.
• C) Xenon wins; this exculpatory clause is not valid because it is unconscionable.
• D) Alpha wins; this exculpatory clause is enforceable.

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Definitions:

Preferred Stock

A class of stock that carries with it the right to receive payment of dividends and/or the distribution of assets on the dissolution of the corporation before other classes of stock receive their payments.

Dividends

Net profits, or surplus, set aside for shareholders.

Dissolution

A change in the relation of partners caused by any partner ceasing to be associated in the carrying on of the business.

Limited Liability Company

A business structure that combines the pass-through taxation of a partnership or sole proprietorship with the limited liability of a corporation.