Basic Knowledge of Contract Law - Case Study Example

When Failure to Deliver Specified Goods Does not Amount to Breach of Contract Introduction A contract is commonly 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 a purchase order for consumer products, is not honored by one or more of the parties involved. 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. How this legal escape hatch can be utilized by a supplier who fails to hold up his end of a purchase contract will be explored in this paper vis--vis the operations of a company called Shiny Ltd., which supplies plastic buckets to retailers. Shiny Ltd. faces the prospects of grappling with breach of contract cases after three separate retailers found the orders delivered to them deficient. The purpose of this paper is to advise Shiny Ltd. of its legal position on these cases, which suggest breach of contract. Retailer 1 - Mohammed personally placed an order for 75 pieces of the orange plastic buckets that he saw at the display room of Shiny Ltd. He specified that he wanted the handles of the same buckets to be replaced with metal ones. The retailer learned that these buckets were the last items of that type and color that Shiny Ltd. had in stock. When Shiny Ltd. agreed to the additional specification, Mohammed paid for the order in cash with the understanding that delivery will be made the following week Retailer 2 - At about the same time, another retailer by the name of Navraj telephoned Shiny Ltd. to order 120 black buckets. The supplier had 180 of such black-colored buckets stored in its warehouse and informed Navraj that his order would be sourced from that stock. Delivery was arranged for the following week with payment to be made within 10 days of delivery. Immediately after the telephone call, the manager of Shiny Ltd. went to the warehouse and made a separate stack of 120 black buckets from the 180 in stock. The stack of 120 black buckets was then labeled: "Property of Mr. Navraj." Before any delivery was made to either Mohammed or Navraj, however, there was a fire at the supplier's warehouse that, before it was put out in time, completely burned the 120 black buckets destined for Navraj and partially destroyed the 25 orange buckets ordered by Mohammed. The stack of 60 black buckets that was separated from Navraj's order was rescued from the fire. When informed of the accidental fire, Navraj and Mohammed indicated that they wanted Shiny Ltd. to fulfill their orders. Retailer 3 - The third retailer, Oliver, ordered and paid for 100 lightweight plastic buckets without specifying any color, to be delivered the very next day. Shiny Ltd. duly loaded the buckets onto a lorry owned by an independent carrier for delivery to Oliver. When the buckets arrived at Oliver's premises he found that a number of the bucket handles had been damaged. The buckets apparently sustained the damage because they were not properly secured in transit. Oliver wanted to return his order to Shiny Ltd. and get his money back plus damages. Legal Principles The term breach of contract is defined in law as the "failure without legal reason or legal excuse to comply with the terms of a contract or to perform any promise which forms the whole or part of the contract." Shiny Ltd. definitely has the "legal excuse" for failing to meet the terms of the three aforementioned purchase orders, which represent the breached contracts. The firm may have fallen short of the retailers' expectations on three counts, failing to deliver the orders of Mohammed and Navraj on time and having partially damaged goods delivered to Oliver. However, no willful conduct and gross negligence were involved at all in these shortcomings of Shiny Ltd. In the US and many other countries, punitive damages are awarded on breach of contract only when public interest is involved and the party that violated the contract did so intentionally and spitefully. In the case of Mohammed and Navraj, the fire that occurred at the supplier's warehouse certainly qualifies as a legal excuse since it was an accident beyond the firm's control. Common sense dictates that if an unforeseeable accident prevents someone from complying with the terms of a contract, this is a valid and acceptable reason. The fact was the goods were in perfect condition and all set for delivery to Mohammed and Navraj when the accidental fire took place. The same general principle applies to the damaged order of Oliver, who received his buckets in that condition through the fault of an independent carrier that Shiny Ltd. apparently subcontracted for the purpose. For Oliver to be entitled to punitive damages for breach of contract, he must establish that there was willful conduct and gross negligence on the part of Shiny Ltd. and the carrier, which may prove difficult. The reason is that it would be relatively easy for Shiny Ltd. to establish in counterpoint that it always acted in good faith all the time, trying to be fair in all its dealings with retailers. As long as the firm observes the standards of good faith and fair dealing, it will be in a strong and viable position. Based on universal law, a breach of contact may be minor or material. A minor breach is also called partial or immaterial breach, which occurs when the non-breaching party is not entitled to an order for performance of its obligations, but only to collect the actual amount of their damages. The American Law Institute cites the example of a homeowner who hires a contractor to install new plumbing and insists that the pipes, which will ultimately be sealed behind the walls, be red. The contractor instead uses blue pipes that function just as well. Although the contractor breached the literal terms of the contract, the homeowner can only recover the amount of his damages. Since no damages were inflicted, the homeowner receives nothing. As for material breach, it is defined as any failure to perform that permits the other contractual party to either compel performance, or collect damages because of the breach. If the contractor in the above example had been instructed to use copper pipes, and instead used iron pipes which would not last as long as the copper pipes would have, the homeowner can recover the cost of actually correcting the breach by having the contractor take out the iron pipes and replacing them with copper pipes. Another term for material breach is fundamental breach, which is described as a breach so fundamental that it permits the aggrieved party to terminate performance of the contract, in addition to entitling that party to sue for damages. For a breach of contract to be classified as "material," the following circumstances must be present: (1) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (2) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived (3) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (4) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (5) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing. Consumer protection laws are also relevant in a discussion of breach of contract because these give greater attention to the interest of buyers. In an ordinary lawsuit for breach of contract, a plaintiff can recover only his or her actual losses. For example, without the benefit of a consumer protection law, the buyer who sues to get back his deposit payment because of defective goods would be entitled to no more than the amount he paid for. But under some consumer protection laws, this buyer could receive triple damages plus attorney' fees. Remedies Having established that Shiny Ltd. did not willfully and negligently cause the events that led to its failure to deliver the contracted products according to specifications, the firm is under no obligation to pay the other contractual parties in case they sue for damages for breach of contract. The most that the court can do is order the firm to produce the buckets required by the three retailer-buyers and prevail upon Mohammed, Navraj and Oliver to give Shiny Ltd. additional time to do that. If these buyers insist that they have no need for the buckets at any other time, then Shiny Ltd. may have to refund the initial payment made by Mohammed and Oliver. The firm's failure to deliver the goods on time and according to the specified quality and quantity amounts to minor breach since it happened by dint of accidents that the firm had no control. In other words, Shiny Ltd. has always acted in good faith and followed the standards of fair trading, which will put it in good stead even if there are strict consumer protection laws. Read More