Bba 3210 Business Law- Case Assessment Answers
Final Contract Analysis
This is a two-part assignment that consists of two different contract analysis scenarios. Please answer both scenarios on one document, and upload it to Blackboard.
Contract analysis scenario one damages determination: Alfred and Barbara own adjoining farms in Dry County, an area where all agriculture requires irrigation. Alfred bought a well-drilling rig and drilled a 400-foot well from which he drew drinking water. Barbara needed no additional irrigation water, but in January 1985, she asked Alfred on what terms he would drill a well near her house to supply better-tasting drinking water than the county water she has been using for years. Alfred said that because he had never before drilled a well for hire, he would charge Barbara only $10 per foot, about one dollar more than his expected cost. Alfred said that he would drill to a maximum depth of 600 feet, which is the deepest his rig could reach. Barbara said, "OK—as long as you can guarantee completion by June 1, we have a deal." Alfred agreed, and he asked for $3,500 in advance, with any further payment or refund to be made on completion. Barbara said, "OK," and she paid Alfred $3,500.
Alfred started to drill on May 1. He had reached a depth of 200 feet on May 10 when his drill struck rock and broke, plugging the hole. The accident was unavoidable. It had cost Alfred $12 per foot to drill this 200 feet. Alfred said he would not charge Barbara for drilling the useless hole in the ground, but he would have to start a new well close by and could not promise its completion before July 1.
Barbara, annoyed by Alfred’s failure, refused to let him start another well. On June 1, she contracted with Carl to drill a well. Carl agreed to drill to a maximum depth of 350 feet for $4,500, which Barbara also paid in advance, but Carl could not start drilling until October 1. He completed drilling and struck water at 300 feet on October 30.
In July, Barbara sued Alfred, seeking to recover her $3,500 paid to Alfred, plus the $4,500 paid to Carl.
On August 1, Dry County's dam failed, thus reducing the amount of water available for irrigation. Barbara lost her apple crop worth $15,000. The loss could have been avoided by pumping from Barbara’s well if it had been operational by August 1. Barbara amended her complaint to add the $15,000 loss.
Answer
Final Contract Analysis
There are various ways through which a contract can get discharged. The most common way is through the performance by the parties of their contractual responsibilities. The general rule is that, for one to discharge a contract through performance, he must perform his contractual obligations fully and exactly (Mak, 2007). Any substantial performance is not allowed. However, the determination of the applicable level of performance will, therefore, depend on the proper contraction of the contract involved. Therefore this paper intends to examine two different scenarios of contract breach.
First Scenario
The case is between Barbara and Alfred. In this scenario, Alfred promised to dig a borehole for Barbra and also requested for the down payment that was paid by Barbra, but in the process of drilling, his drilling machine broke down after hitting a rock. Therefore, he was not able to perform his obligation as per the contract. Consequently, Barbra sued Alfred for all the damages she got due to the unperformed contract agreement. For parties to form a contract there must be an offer, acceptance, and consideration (Mak, 2007). In this case, Barbra and Alfred talked about the drilling of the borehole and both parties had a desire to enter into a deal. Both parties agreed to the offer and each promised to perform their obligations, which is an indication that there was a contract.
As a petitioner, Barbra has various rights as their contract was concerned. Rights may include right to sue the defendant, compensation right and contract termination right (Brewer, 2008). Barbra has a right to cover if the seller fails to perform. To avoid inconveniences, in good faith Barbra can immediately get into another contract and substitute Alfred services then recover the extra amount spent between the contract price and the price of the replaced service, plus any other consequential damages (Ribeiro, 2005). Therefore, it was Barbra’s right to immediately terminate Alfred’s services when she realized that he had failed to perform as he had promise.
Some of the damages that she might be entitled to include actions for damages for breach of warranty, failure to perform, liquidated damage, discharge for breach, and discharge by frustration (Brewer, 2008). Under failure to perform, the Barbra should get money that would be enough to recompense her for the amount she incurred through the breach. She should be placed in a position that she should have occupied if the contract could have succeeded, and she is also entitled to obtaining the net gain that would have accumulated to her under the agreement (Olazábal, Emerson, Turner, & Sacasas, 2012). However, she is not supposed to be put in a better position than the one she had occupied before the contract. On the other hand, when the accused failed to perform according to the contract conditions, the appellant may recover such damages. The compensation should be to an extent as though the agreement has completely been performed (Dewally & Ederington, 2006). Other than that, Barbra is not automatically entitled to getting back the difference between the price of the contract and the amount it would cost for the work to get completed if the violation happened after partial payment. She will be able to recover the amount only if completion is achieved at a higher price.
Consequently, Barbra may also be entitled to liquidated damages. Generally, contracts that involve the promise of performance have a liquidated damages condition. The reason for this condition is to find a prearranged sum that must get paid if a party fails to execute its obligations. Damages can get liquidated only if: (1) the injury is not easily quantified; (2) the damages are prearranged to work as damages, but not as penalty; and (3) the amount is logical and considers the anticipated or actual injury due to breach of the contract, the complexity of ascertaining the loss, and difficulty in getting another person to perform (Ribeiro, 2005). However, failure to prove these conditions may make liquidated damages clause to be annulled. Liquidated damages law states that damages for breach by any party may get liquidated in the contract on at a reasonable amount according to the exact injury caused by the breach (12 A.L.R. 4th 891, 899) (Fišer-Šobot, 2013). Paying the unreasonable amount of the damages is unenforceable based on the public policy as a penalty.
Moreover, Barbra can also be entitled to discharge for breach. The breach of contract can provide the injured party with a right to terminate the contract. The plaintiff may terminate a contract for breach under various situations: First, if the contract provision allows discharge for breach under such situations. For example, if the defendant failed to perform as he promised in the accord. Second, if one party repudiates the agreement. For example, if one party renounces their role under the contract by declaring that they will not carry out the contract. Third, if the breach is extra serious (Ribeiro, 2005).
Furthermore, she can also seek damages through the provision of Discharge by Frustration. In certain situations, a contract can get terminated as a result of the supervening event that cannot be controlled by either party. However, in this case, Alfred could have been ready for any eventually after he had promised to complete his obligation by 1st June. The rule of the frustration is based on a limited range of situations especially where the event gives the performance of contract something uniquely different from the one anticipated by either party (Mak, 2014). The judges might not be sympathetic if the occurrence could have been predictable and therefore taken care of by the parties in their deal. In any case, frustration is identified, the contract is automatically terminated. Common law does not provide an option for discharge or performance, and the damages from the termination also remain the same (Mak, 2014). The legislative amendment means that in most cases the harshness that might arise from that common law regulation is shunned. In this scenario, Barbra got frustrated due to failure of Alfred to perform as per the agreement, and that her problems resulted out of unperformed duty.
Lastly, Barbra can also be entitled to expectation damages and consequential damages (Markovits & Schwartz, 2012). These are compensations that are intended to cover what the affected party expected to gain from the agreement. Such estimate is always straightforward because they are based on the contract. Consequential or the special damages covers the loss incurred by the contract violation due to special conditions that are not ordinary predictable (Kull, 2006). For example, when the Dry County's dam failed resulting in the reduction of the irrigation water; thus, causing Barbra to lose her apple crop worth $15,000. Conversely, Barbra may use restitution remedy to restore the position that she had occupied before the formation of the contract (Mak, 2014). This remedy may help Barbra to recover all the damages she incurred due to lack of irrigation water.
Second Scenario
This case is between Mondo Manufacturer Printing Press and Extra Publishers. In this case, Mundo wanted to sell a printing press to Extra publishers. Mundo forwarded recommendations for the new press room that will accommodate the new press together with the price of the press at $2.4 million through its sales representative. Extra examined the offer and accepted. However, Mundo later changed the price to $2.9 million, which is not what Extra agreed to pay. From this scenario it evident that Mondo was obligated to sell the press to Extra at $2.4 million as it was originally indicated on the offer that Extra accepted.
Being that there was an offer, acceptance of the price, and also the consideration that led to press room being renovated, shows clearly that there was a contract. A breach of contract happens when one party fails to perform as per the contract agreement (Ribeiro, 2005). For example, it might happen when one agrees to sell a commodity but then refuses to go to settlement after realizing a better offer than the previous agreement. It is evident in the case between Mundo and Extra. Mundo pulling out then requesting a better pay after realizing that foreign importers got barred from importing computerized heavy equipment was a breach of the contract. Therefore, due to this breach, Extra is entitled to various rights and remedies as a buyer.
In a contract, every party is expected to fulfill his responsibilities as per the agreement. In this case, Extra has rights to cancel and sue, recover damages for breach of warranty, and cover. Extra publishers can decide to cancel the contract and sue Mondo press as long they notify them. Besides canceling and suing the defendant recovers the damages if the seller refused to supply the commodity. Moreover, Extra has a right to cover if the seller fails to deliver, in good faith the buyer can immediately purchase substitute goods from another seller and recover the extra amount spent between the contract price and the price of the replaced goods, plus any other consequential damages (West, 2015).
On the other hand, Extra is entitled to remedies such as damages for non-delivery, the remedy for breach of contract, and damages for repudiation of the contract before the due date. Damages for non-delivery happen when the seller refuses to deliver commodities to the buyer as provided under Section 53 of the Commercial law. Moreover, Extra can sue Mundo for breach of warranty under section 55 of the Commercial Law that provides Extra Publishers with two options. Extra can either set up a breach of warranty in extinction or diminution of price or sue Mundo for damages for breach of warranty (Markovits & Schwartz, 2012).
Consequently, the buyer is also entitled to damages if the seller repudiates the contract before the delivery date. The buyer is allowed to take any of these two courses of action. (1) Extra can treat the accord as rescinded and sue Mundo for damages (Kull, 2006). It means that the damages will get assessed depending on the price of the product on the date when the breach happened. (2) Extra might treat the contract as subsisting and wait until when the product will get delivered. At this time, the contract remains open for the benefit and at the risk of both the parties In this case, if Mondo Company decides to perform, then Extra publishers will not sue them for damages (West, 2015). However, if Mondo chose not to perform, then it will be liable for the damages evaluated as according to the prices on the day the delivery was to take place.
Conversely, Extra may sue the Mondo for failure to perform. If Extra knew that Mundo was not going to perform its obligation, the company could not have entered into another contract with another company to renovate the press room. Therefore, Extra can sue Mundo to pay the amount necessary to recompense it for the losses it incurred due to the contract. Extra is entitled to be placed in the position it could have occupied if the deal had gone through. It is also allowed to get the benefit of the bargain, which is the net gain that would have built up for Extra Company under the contract.
Further, Extra can recover special damages through a suit for interest as may be recoverable legally. Extra may recover the money he used in renovating the press room if Mundo fails to perform his obligation. Additionally, Extra publishers may use Restitution remedy to restore the company to the position that it had occupied before the formation of the contract (Campbell, 2015). In this provision, Extra may recover all the damages it incurred in the process of renovating the press room. If there was no agreement, Extra Publishers could not have got itself in preparing the room for the printing press installation. Therefore, it was because of the contract that made the company spend its funds in renovating the room.
To conclude with, it is vital for both the seller and the buyer to understand the consequences that result from a breach of contract. With this, they will be able to know how to handle contracts and to perform as per the accord. On the other hand, before one gets committed to a contract, it is vital to internalize all the details and the conditions of the agreement for self-protection. Finally, both the seller and the buyer should understand their rights, remedies, and how they can recover the damages in case of any breach.
References
Brewer, G. (2008). Rights and remedies. Contract Journal, 442(6661), 21.
Campbell, D. (2015). Better than Fuller: A Two Interests Model of Remedies for Breach of Contract. Modern Law Review, 78(2), 296-323.
Dewally, M., & Ederington, L. (2006). Reputation, Certification, Warranties, and Information as Remedies for Seller-Buyer Information Asymmetries: Lessons from the Online Comic Book Market. Journal Of Business, 79(2), 693-729.
Fišer-Šobot, S. (2013). Exemption of the Seller under Art. 80 of the UN Convention on Contracts for the International Sale of Goods. Proceedings Of Novi Sad Faculty Of Law / Zbornik Radova Pravnog Fakulteta, Novi Sad, 47(2), 449-460.
Kull, A. (2006). Rescission and Restitution. Business Lawyer, 61(2), 569-588.
Mak, V. (2014). Remedies for Breach of Contract. A Comparative Analysis of the Protection of Performance. Modern Law Review, 77(3), 513-516.
Mak, V. (2007). Missing Bearings – Information Duties of the Seller under Section 35 of the Sale of Goods Act 1979. Modern Law Review, 70(6), 1002-1007.
Markovits, D., & Schwartz, A. (2012). THE EXPECTATION REMEDY REVISITED. Virginia Law Review, 98(5), 1093-1107.
Olazábal, A. M., Emerson, R. W., Turner, K. D., & Sacasas, R. (2012). Global Sales Law: An Analysis of Recent CISG Precedents in U.S. Courts 2004-2012. Business Lawyer, 67(4), 1351-1382.
Ribeiro, R. (2005). Chapter 4: Other remedies for breach of contract. In, Commercial Litigation: Damages & Other Remedies for Breach of Contract (pp. 61-81). Thorogood Publishing Ltd.
West, G. D. (2015). Consequential Damages Redux: An Updated Study of the Ubiquitous and Problematic "Excluded Losses" Provision in Private Company Acquisition Agreements. Business Lawyer, 70(4), 971-1006.
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