An Effective Legal Defence - Case Study Example

When A Contract Is Breached And Warrants Remedies: 4 Case Studies Introduction A contract is legally defined as an oral, written or implied agreement between two or more persons. This contract is breached or violated when the agreed-upon exchange, such as the purchase of a product or service, is not honored by one of the contracting parties in terms of the contracted quantity, quality and time of delivery. In most cases, the judicial remedy for breach of contract is the awarding of monetary damages, but there are instances when failure to comply with the terms of a contract may be legally excused. This paper explores the conditions that make a contract binding, the circumstances that determine if the contract has been breached, and the ways by which a person accused of breach of contract can use an effective legal defense. The case studies revolve around the branch of the US supermarket chain Grocery Inc. in the MyTown county, involving the store management itself, its produce manager Tom Green, George and 17-year-old Jeff Fresh, who works for a summer job at the store. Case #1 The management of the MyTown branch of Grocery Inc. is bringing a case against Masterpiece Construction on the assumption that the latter unilaterally breached the terms of the contract on the store renovation job when it delegated the work to a subcontractor called Build. This is a mistaken assumption, as a reading of contractual law will show. In fact, subcontracting is now widely encouraged to promote the growth of small businesses among construction firms and to free up the time and resources of major contractors for them to concentrate on larger projects for their own business growth. Subcontracting has thus become most prevalent in the construction industry, where firms commonly subcontract such jobs as plumbing, electrical work, painting, etc. When Masterpiece subcontracted to Build the renovation work it accepted from Grocery Inc., it entered into another contractual agreement with an outside person or firm to perform a certain amount of work, which was legally acceptable even if Grocery Inc. was not informed about it. What seems irregular, however, was the poor quality of work performed by the subcontractor that did not satisfy Grocery Inc. In effect, Grocery Inc. may sue for material breach of contract seeking not damages but an action for specific performance as remedy. A material breach is defined as any failure to perform that permits the other contractual party to compel performance, which in this case refers to the need for the contractor Masterpiece to see to it that the subcontractor it hired for the renovation work at Grocery Inc. did a better job. Such performance is one of the four important elements that make a contract binding and enforceable, the other three being an offer, an acceptance and a consideration. Specific performance requires a party to perform a term of the contract, and the renovation work arranged between Grocery Inc. and Masterpiece apparently called for a high-quality job. If Masterpiece is cited for rectification, which is one of the principal remedies to breach of contract in common law, the additional cost will be at its expense. Case #2 When anybody purchases a car on an installment basis, no contract will set a preposterous condition such as allowing the buyer to cancel the sale and get his money back if he loses his job while paying for the article. This is what Jeff Fresh wants to happen when he lost his summer job at Grocery Inc. six months after he made the down payment for the car he purchased at Smooth Used Cars. Common sense dictates that it is against the business interest of the car dealer to accede to a cancellation and give a money-back guarantee whenever a customer suffers a job setback. Granting that such a term was written in the sales contract, it is still doubtful if Jeff can demand the full amount of his down payment considering the wear and tear that the car has went through after he has used it for six months. For this reason, Jeff could not be entitled to legal remedies, which are available to a claimant by right. He can seek equitable remedies but, according to contractual law, these are based only on the discretion of the court, and unless there is a money-back provision in the sales contract, there is no chance that the court will allow Jeff to have the contract cancelled and his full down payment back. Case #3 As we have noted at the outset, a contract is binding whether as a written, oral or implied agreement between two or more persons. When Tom Green, produce manager of Grocery Inc. who is a train hobbyist, told fellow hobbyist Harry one day that he wanted to sell his vast collection of miniature train models to the latter two years hence, it was for all intents and purposes an enforceable contract that was made orally. As a result, Harry spent the next two years saving money for the purchase. He even borrowed money from an aunt to augment his savings and then built a 2,000 sq. ft. room to house the model trains set. After two years, however, Tom sold his train set to another hobbyist named David, which gave the disappointed Harry a reason to sue Tom for breach of contract. In the suit, Harry asked for damages corresponding to all the troubles he underwent in the past two years in expecting to purchase Tom’s train models that never materialized. As an alternative to such a remedy, Harry sought an order of promissory estoppel that would penalize Tom for breaking a clear and definite promise (‘Lectric Law Library, online). Promissory estoppel prevents a contractual party from withdrawing a promise made to a second party if the former has reasonably relied on that promise and acted upon it to his detriment. Indeed, Harry relied on the promise of Tom made earlier that the train set would be sold to him after two years, and subsequently acted upon it by saving and borrowing money as well as building a special room for the purpose. In promissory estoppel, the intention of the law is to protect a party who would suffer if the other party has said or done something to induce an expectation, and the plaintiff who had reasonably relied on the expectation would suffer if the expectation turned out to be false. There is a strong possibility then that Harry could win his case against Tom. However, the law looks at estoppel as a shield instead of a sword, meaning it cannot be used as basis of an action on its own. In Walton Stores (Interstate) Ltd. v Malier (1988) CLR 387, a case for estoppel was proven and an equity was granted to the plaintiff but the court required only a minimum equity “that is just in the circumstances.” In the case brought by Harry against Tom, the possible “circumstances” that may reduce the amount of equity include the length of time that elapsed between the promise and the actual sale. After two long years, it is human nature for one to forget a promise that was made orally although it amounted to a contract. Case #4 Grocery Inc. has made it clear in its online ordering service, which provides home delivery to customers within a 10-mile radius of its stores, that the orders are limited to the stocks available at a customer’s nearest Grocery store and that the tag prices advertised at its offline stores do not apply to online purchases. George saw the newspaper ads offering a discount for such online purchases on a chocolate sauce together with the information that orders are limited to available stocks. This sauce is a key ingredient in a special cake that George bakes for his catering business. So he placed an order online for all the remaining chocolate sauce at the nearest Grocery Inc. store, which happened to be the one at MyTown. When told that the item was sold out at this store, George remonstrated, saying there were 10 cases in its inventory. The store refused to sell this stock, citing the contract provision on online ordering. Nonetheless, George sued the store, maintaining that he should be awarded damages equivalent to the money he could have made from selling cakes with the chocolate sauce that Grocery Inc. refused to sell to him. This problem is common in online purchasing, where the terms of the offer and acceptance of a contract are difficult to document and authenticate (Ramensky, 2001). Thus, while appropriate server logs and other electronic recording systems are being developed, the best advice that lawyers give for online buyers is to carefully consider the terms before accepting a sales contract. On the part of sellers, they are also asked to give buyers all the opportunity to understand the terms. In effect, George has no case against Grocery Inc. because he would violate the terms set by the store, which may look unreasonable to him but a contract is a contract. In breach of contract cases, the courts usually exhaust all means for the two parties to reach a private agreement or agree to an out-of-court settlement, especially when there is no public interest involved and none of the parties has engaged in willful and gross negligence. Another reason is that in countries like UK and the US, punitive damages are generally not awarded for breach of contract. What the courts often do is enter an equity decree or award an injunction or specific performance. References 1) ‘Lectric Law Library. “Breach.” Webpage design (online). Retrieved September 22, 2008 from: http://www.lectlaw.com/def/6113.htm 2) Ramensky, Gisela (2001). “Contractual Issues in e-Commerce.” Thomson Legal and Regulatory Ltd. Read More