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Breach of Contract Ch Breach of Contract Ch. 11 Chapter 11 – Contract Assignment & Breach There are different ways that a contract can be Discharged (completed) By Performance – what is contracted for is completed by the parties As defined By the Initial Terms of the contract – certain date or event occurs By Subsequent Agreement between the parties – parties say that discharge has occurred By Impossibility of Performance – the contracted acts are no longer possible By Operation of Law – the contracted acts are no longer legal By Tender of Performance – performance was attempted, but not accepted; can’t use this one if the performance is payment of $ Chapter 11 – Contract Assignment & Breach Discharge by Performance Usually a party performs their duty under the contract and it is discharged Sometimes they fail to do their duty through Performance and a Breach of Contract occurs; Breach comes in two levels: Major Breach – fail do something significant (in which case, the other side may consider their obligations to the contract cancelled) Minor Breach – non-breaching party can sue for “remedy”; ask the court to force them to perform Chapter 11 – Contract Assignment & Breach By Their Initial Terms Contracts can have in their Initial Terms a set criteria for when the contract obligations are considered terminated: 1) On a specific date 2) Upon the occurrence of specific event 3) Upon the failure of a certain even to happen (often homes are purchased on contingency – I will buy contingent on me selling my house first) 4) At will, either party can give notice to terminate Example: One party agrees to buy another’s collection of rare gold coins if the price of gold exceeds $1,500 on a date 30 days before the contract. If not, no purchase. Chapter 11 – Contract Assignment & Breach By Subsequent Agreement Often one or both sides wants to change or undo the contract through a Subsequent Agreement: This can be done in several ways: Rescission – Both sides come together and agree to simply go back to where they started and completely undo the contract Substitution – They essentially negotiate new terms which form a new contract Accord and Satisfaction – Agree to substitute new obligations for existing ones. If however, these new terms are not met the old contract stays in place Novation – A substitute party is accepted to discharge the contract Chapter 11 – Contract Assignment & Breach Impossibility of Performance Ever heard the expression “Force majeure”? (French for “superior force”) Sometimes contracts are impacted by some external force – Acts of nature or a catastrophic event Contracts can be rendered Impossible to Perform - Something quite unique or important to the contract is destroyed (my house is damaged by a tornado) - The performance of the contract becomes illegal - Death or disability renders performance of a personal service impossible Discharge by Subsequent Agreement Case On January 2, 2020, Big Fish agrees to the sale of its popular seafood restaurant business to a local restaurant group – Welikatoeat. The deal is to close on April 30, 2020 at a price of $3.5 Million. Welikatoeat pays Big Fish 10% of the purchase price as a non-refundable deposit on Februaly 1, 2020. Chapter 11 – Contract Assignment & Breach By Operation of Law - Bankruptcy - Statute of Limitations By Tender of Performance - Essentially the performance of one sides obligation is rejected by the other relieving them of their obligation to perform in the future Remedies for Breach – Ch. 11-2 A remedy is the legal “fixing” of one’s legal rights under a contract These are usually done in one of two ways: 1) Legally enforce a right under the contract 2) Prevent the violation of one’s right under the contract Remedies for Breach – Ch. 11-2 The remedy under the law varies depending the seriousness of the Breach Minor Vs. Major Remedies for Breach – Ch. 11-2 There is no definition of Major or Minor under the law In a court: - The facts of the case would determine the severity, and ; - that would be used to determine which remedies to apply Remedies for Breach – Ch. 11-2 Minor Breaches: If a breach is determined to be minor the only remedy is $ Damages Keep in mind the injured party must continue to perform! Remedies for Breach – Ch. 11-2 Let’s say we contract for you to deliver to me 10 custom T-shirts for $15 per shirt. You only deliver 9 and tell me that is all you can produce. If this were determined to be a minor breach, how might this be resolved, if: I had not yet paid you for the shirts? - I would only pay for 9 shirts - If I could only find a 10th comparable shirt for $20, the other party would have to make up the difference ($5) I had already paid you $150 for the shirts? - the court would require you to refund me $15 or the cost of the 10th shirt purchased from somewhere else Remedies for Breach – Ch. 11-2 Remedies for Major Breaches The difference between Minor and Major is the type of Remedy: - The injured party need not keep performing - There are three potential remedies Rescission and Restitution – cancel the contract and go back to the start Money Damages – There are few different ways this might be done Specific Performance – ask the court to command you to do as promised You can usually only pick one remedy to pursue Remedies for Breach – Ch. 11-2 Rescission and Restitution Puts the contracting parties back where they were at the beginning Rescission – contract and all contractual obligations cancelled Restitution – all monies returned Remedies for Breach – Ch. 11-2 Money Damages under a Major Breach Compensatory - $ to restore the parties to position prior to breach Consequential - $ to restore + other foreseeable damages Punitive – Other $ damages + punishment (fraud) Liquidated – Parties agree in the contract, what the damage claim will be Nominal - $1 (no real damage done, but court finds that breach occurred) Conch Oil Case Conch Oil Company, located at Marathon in the Florida Keys, contracted to sell and to deliver 500 barrels of fuel oil on the first of the month for one year to the Monsoon Mushroom Factory, an indoor mushroom farm. The agreed price of the oil is $100 per barrel or $50,000 per month. Conch successfully delivered all the oil in January and February, but only 250 barrels on March 1st. Conch said there was unprecedented oil demand due to hurricane Sandy heading their way and it was allocating available supplies to its customers - limiting each customer to half their normal order. There was nothing in the contract covering this. The hurricane passed doing no damage, but the mushroom crop died due to lack of fuel to heat the greenhouse, forcing Monsoon to close its business. Monsoon is deciding whether to sue Conch for breach of contract. Remedies for Breach – Ch. 11-2 Specific Performance In certain cases the only fair outcome is for the court to require the breaching contracting party to perform as they agreed in the contract. - Usually because there is something unique about what has been contracted Example of a Major Breach The rock band The Ides of March is contracted to play at St. Joe’s on May 1, 2020. St. Joe’s pays Ides of March their full fee of $5,000 in advance on January 15, 2020. On March 1, 2020, Ides of March contacts our principal, Mr. Hotek, advising him of their inability to play the concert, and they return the money to the school. A few weeks later, in late March, Mr. Hotek checks the Ides of March website and learns they are advertised to play a gig in a large venue in Chicago on the evening they were to play at St. Joe’s. Needless to say Mr. Hotek is hopping made and wants justice..
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