Deck 13: Termination of Contracts

Question 1

Cornerstone Jeffrey Wilson, L.L.C. (Wilson) contracted with B R Construction Management Inc. (B R) for B R to demolish a Portsmouth Redevelopment and Housing Authority (PRHA) facility. The contract required B R to provide performance and payment bonds. The contract also provided: "All rights under this Contract Agreement shall be for the benefit of [WILSON] and its successors and assigns, including PRHA" and that nothing in the contract shall be construed "to give any third party any claim or right of action against PRHA or HUD." B R subcontracted some work to Beamon Enterprises Inc. (Beamon) who subcontracted to Environmental Staffing Acquisition Corp. (En Staff). Beamon did not pay En-Staff, who discovered B R's bonding company was not licensed in the state and was out of business. En-Staff sued B R for breach of contract, claiming it was a third-party beneficiary of the contract between Wilson and B R. Should En-Staff succeed? [ Environmental Staffing Acquisition Corp. v. B R Const. Management Inc. , 725 S.E.2d 550 (Va.)]

Answer 1

A third party may sue to enforce the terms of a contract, even though he/she is not a party to the contract. The third part can also sue either of the parties, if one of the contract parties fails to perform or breaches the contract and the contract parties intend the contract to directly benefit the third party.
As per the case, W contracted with a construction company, BR, to demolish a town authority facility. BR also promised to obtain performance and payment bonds. The contract terms expressly stated that the contract was for the benefit of W, the town authority, and future assigns.
BR breached the contract by failing to obtain the proper bonds. ES, a subcontractor who had not been properly paid for its work, brought a breach of contract claim as an intended third-party beneficiary of the contract between BR and W.
Although ES would have been properly paid and benefited from BR's perfromance and W's contract, the contract was not arranged to directly benefit any third party subcontractor. The contracting parties, BR and W, did not intend the contract to directly benefit ES. The contract terms were plain and expressly stated that the contract was for the benefit of W, for the town authority, and for future assigns. ES was merely an incidental beneficiary.
Based on the above details, ES cannot claim it as successful breach of contract as an intended third-party beneficiary.

Question 2

Yakima Compost Company, Inc. entered into a twenty-five year agreement with La Paz County, Arizona to receive and process sewage sludge from treatment facilities inside and outside of Arizona through a solar drying process on county land. After executing agreement, the county decided it no longer wanted to do business with Yakima and terminated the contract. The termination caused Yakima to lose millions of dollars in business from other governmental entities that had committed to sending Yakima their sewage for treatment. A jury awarded Yakima $9.2 million in compensatory damages for lost profits as a result of the terminated contract. Yakima appealed, arguing that in addition to compensatory damages, the court should have awarded specific performance that would require La Paz County to complete its twenty-five year agreement with Yakima. Was specific performance an appropriate remedy in this case?

Answer 2

Compensatory damages:
The theory of law of damages states that the compensation of any loss should be provided to the injured party and the amount should be equal to loss sustained.
Facts:
In this case, YC Inc. signed a 25 year agreement with LP. But LP terminated the contact with YC Inc. and decided that it does not want to do business with YC Inc. The court awarded compensation of $9.2 million for compensation of the loss incurred. But YC Inc. appealed in the court for specific performance along with compensatory damages.
Specific performance as a remedy for breach of contract is awarded when money damages alone fail to fully compensate the non-breaching party. Also, specific performance is suitable in the cases where the exact value of loss cannot be determined.
However, in the case of YC Inc., the court awarded $9.2 million to compensate against future loss due to termination of contract by the county. The said amount is determined on the basis of the profits that YC Inc. would have earned if contract was not terminated.
Therefore, the compensation can be determined in this case. Since, YC Inc. has already compensated for the damages. Hence, it would be inappropriate to award specific performance for carrying out the contract for twenty-five years along with damages.

Question 3

William and Karen McCoy contracted to buy James and Nancy Brown's house and made a deposit of $127,000. The contract stated the sale was conditioned upon the McCoys getting a commitment for a mortgage "with interest at the prevailing rate." The McCoys agreed to "pursue [a mortgage commitment] diligently." If the McCoys could not obtain the mortgage and "demonstrated due diligence," they could terminate the contract, and their deposit would be returned to them. The McCoys submitted a mortgage application to one bank, which issued a commitment letter conditioned on William, who was unemployed, obtaining full-time, salaried employment. McCoy sought such a position from one employer and did not obtain it. The McCoys then notified the Browns they were unable to obtain a mortgage commitment and requested return of their deposit. The Browns refused, and the McCoys sued them. Did the McCoys breach the contract, and if so, what should the damages be?

Answer 3

Breach of Contract:
When the obligations are not performed one party assumed under the agreement, breach of contract occurred.W and KM breached the contract as they failed to demonstrate due diligence in their efforts to obtain the mortgage which was one of the agreed terms of the contract. Also, it can be noted that bank never rejected KM's mortgage application but it was KM who did not pursue it further.
At the same time, KM also failed to prove that he was unable to secure mortgage at prevailing interest rate. All such incidences suggest that KM breached the contract and B's refusal to return deposit was valid.
The damages caused to B due to the breach of contract by KM are governed by the 'liquidated damage' clause. Both B and KM entered into a provisional contract fixing the amount of damages which was mentioned in the form of a deposit of $127,000.
Since, KM has breached the contract, the provisional contract entitled B to retain the deposit money as liquidated damages.

Question 4

If a singer contracts to sing at a party, is the contract released if the singer develops laryngitis just before the party starts?

Question 5

If a contract states "time is of the essence," when must it be performed?

Question 6

Michael Hall was incarcerated eight months after he married Susan Hall. Susan told Michael she planned to dissolve the marriage due to his untruthfulness about his criminal history and hired counsel to accomplish a dissolution. Michael did not want a dissolution, said he would do anything to "make her more comfortable with him," and proposed that they enter into an agreement that would protect Susan financially in the event of a future divorce. Susan consented to not seek a dissolution in exchange for such an agreement. Both parties signed the postnuptial agreement and complied with its terms for eight years. At that point, Susan filed to dissolve the marriage and moved to enforce the postnuptial agreement. Michael argued that the agreement lacked adequate consideration. Was he correct? [ Hall v. Hall, 27 N.E.3d 281 (Ind. Ct. App.)]

Question 7

Robert and Deborah Philabaun owned Philabaun's Hidden Cove Resort. When about to undergo surgery for lung cancer, Robert handwrote a document titled "Agreement," which only he signed. The document stated that in case he did not survive his surgery, Robert wanted it to be known that he wished to sell the resort to Danny Gajovski for $900,000. Robert survived the surgery but died ten months later. Deborah would not sell the resort, so Gajovski sued for breach of contract. Did he have an enforceable contract to buy the resort? [ Gajovski v. Estate of Philabaun , 950 N.E.2d 595 (Ohio Ct.App.)]

Question 8

Mills Construction Inc. contracted with Double Diamond Construction to erect a steel arena. Mills was to provide the parts for the building, and Double Diamond was to provide the labor and equipment. Double Diamond began construction, the materials were delivered late, and many of the steel components did not fit together properly. Some of the mainframes were twisted, and other parts were missing or the wrong length. Double Diamond reported the problems to Mills and its supplier, but nothing was done. Double Diamond stopped work on the project, and three days later the structure collapsed. Double Diamond billed Mills for the work it had completed up to the collapse and said it would not continue work until the bill was paid. When it was not paid, Double Diamond sued Mills. Had Mills made it impossible for Double Diamond to complete the contract?

Question 9

MH Metropolitan (MH) hired Weitz Co. LLC (Weitz) to construct a multibuilding apartment complex. The construction became delayed. MH withheld two payments to Weitz, which then stopped construction. MH terminated Weitz for cause and completed the project without it. Weitz sued for the unpaid amount of the contract. The evidence at trial was that Weitz failed to provide proper lien waivers, allowed liens to be filed against the job, falsified a pay application, caused substantial delays, and did poor quality construction. It could not properly prepare, update, or follow its schedules, which contributed to delay. To recover, Weitz had to have substantially performed the contract. Had it?

Question 10

What is the effect of a force majeure clause?

Question 11

What rule do courts generally apply when determining whether satisfactory performance has occurred to discharge the terms of a contract?

Question 12

Jerry Worley worked for Wyoming Bottling. He wanted to get a loan to buy a new car and appliances for his home. He asked Joe DeCora, the company president, about job security. DeCora told him his job was secure and to take out the loan. Worley checked with his supervisor, Butch Gibson, to make sure his job performance was satisfactory. Gibson told him everything was fine and "to go on about [his] affairs." Worley took out the loan, and the next month Wyoming demoted Worley, so he lost the use of a company car and $11,000 in annual pay. Worley sued, alleging promissory estoppel. Did these facts state a case for it? [ Worley v. Wyoming Bottling Co. Inc. , 1 P.3d 615 (Wyo.)]

Question 13

FCI Group Inc. was a building contractor hired by the City of New York. FCI's work was substantially completed when two Department of Citywide Administrative Services (DCAS) employees who oversaw FCI's work reported that envelopes containing $3,000 had been left on their desks. One envelope contained a change order request amounting to $101,708, which awaited the employee's approval. FCI's president and secretary, Choon Won Lee, admitted to leaving the envelopes, and he pled guilty to attempted giving of unlawful gratuities. DCAS cancelled the contract after Lee's misconduct and told FCI it would make no more payments on the construction work. FCI sued the city for the unpaid balance on the contract, $260,928. Should it recover? [ FCI Group Inc. v. City of New York , 862 N.Y.S.2d 352 (N.Y.App. Div.)]

Question 14

Jack Shewmake and Jim Kelly contracted to add a playroom, hobby room, and concrete deck to Al and Lisa DelGreco's home. After the new concrete deck was poured, rain leaked into the new playroom and hobby room. Shewmake and Kelly tried to correct this, but after three months the leak had still not been corrected. Al told Shewmake and Kelly he would not make any more payments until the leak was corrected. They did not perform any more work on the house, so the DelGrecos paid an architect $1,500 to determine what needed to be done to correct the defects in the work. They paid another contractor $18,500 to correct the job. To eliminate the leak, the second contractor demolished the concrete deck Shewmake and Kelly had installed. The DelGrecos sued Shewmake and Kelly for breach of contract. They claimed they had spent $19,100 in labor and materials to work on the house, for which they had not been paid. What, if anything, should the DelGrecos recover?

Question 15

A B Industries of Morgan City, Inc., a shipbuilder, contracted to build two tug boats for Odyssea Vessels, Inc. in consideration of $3,752,000 per boat. Under the contract, A B was responsible for securing materials, fabrication, and general outfitting of the vessels. Odyssea agreed to provide design drawings through an engineering firm. The agreement also provided that A B would not be liable for liquidated damages or penalties for failure to complete their work within the specified time. After signing the contract, Odyssea delayed in sending necessary design drawings to A B. Over several months, the shipbuilder repeatedly requested the design package and warned Odyssea that it would be impossible to continue the project without the drawings. The delay caused A B extensive loss, due to the rise in building materials and labor costs. Odyssea filed suit against A B for breach of contract, because A B failed to finish the vessels on time. A jury found that Odyssea breached the contract and awarded A B $393,527 in damages. Odyssea argued that the court erred in awarding damages and the remedy for the breach should have been an extension of time for A B to complete the work. Would simply granting an extension of time to finish the project fully compensate A B for its loss?

Question 16

Does a breach of a contract terminate the contract? Explain.

Question 17

What circumstances surrounding a deviation from a contract will a court weigh in determining whether there has been substantial performance of a contract?

Question 18

General Tire decided to terminate Horst Mehlfeldt's employment and through its vice president of human relations, Ross Bailey, made several proposals to Mehlfeldt in lieu of the benefits provided in his employment contract. Bailey thought Mehlfeldt had accepted a proposal, while Mehlfeldt expected a larger final figure. In drafting a separation agreement, Bailey made a mistake so that General Tire had to pay $494,000-the total Bailey had offered-plus what the employment contract specified. Mehlfeldt thought the larger amount was a result of his request for more money and signed the agreement. General Tire paid him $494,000. When Mehlfeldt asked when he would get the rest, General Tire realized the mistake. It sued, alleging mutual mistake. Was it? [ Gen. Tire Inc. v. Mehlfeldt , 691 N.E.2d 1132 (Ohio Ct. App.)]

Question 19

Tim Beverick, an attorney for Koch Power Inc. was negotiating a contract for the purchase of electricity over a ten-year period. He alleged that Koch orally had promised that he and another attorney would split a bonus of 10 to 15 percent of the expected savings when the contract was executed. It took Beverick two years to get the contract signed. Koch did not pay the bonus, and Beverick sued for breach of contract and promissory estoppel. He testified there would have had to be a lot of things fall in place to get the contract signed within one year. Did the Statute of Frauds ban the suit based on an oral promise that could not be completed within one year? [ Beverick v. Koch Power Inc. , 186 SW3d 145 (Tex. Ct. App.)]

Question 20

What is the purpose of punitive damages in a breach-of-contract suit?

Question 21

Brothers Edward, Robert, and William Radkiewicz were the beneficiaries of a trust that owned a twenty-seven-acre tract. Edward and Robert contracted with Olympia Investments to convey clear title to the land to Olympia and it put up $55,000 in earnest money. The contract contemplated that the balance of the purchase price and the deed of sale would be exchanged at closing. The closing was to be within fifteen days of March 1. Alleging he needed to approve a sale, William sued his brothers and Olympia. He filed a notice of the suit to secure his claim on the property, called a lis pendens. The brothers and Olympia exchanged many notices regarding the cloud on title to the property the lis pendens created and whether it could be removed. The brothers did not possess all of the required closing documents by March 1, and the lis pendens was not lifted. No date was set for closing, but on March 11 the brothers told Olympia it was in default, and the contract was terminated. When Olympia did not release the earnest money, the brothers sued. Olympia alleged that the brothers had never tendered their required performance and thus it did not have to comply with the contract. Had the brothers tendered performance?

Question 22

Two Russian boxing promoters doing business under the name World of Boxing ("WOB") signed a contract with Don King, an American boxing promoter, in which King promised to produce Guillermo Jones for a match against Denis Lebedev. Jones and Lebedev had been scheduled to fight the previous year, but the match was canceled due to Jones' positive drug tests. In his contract with WOB, King promised to produce Jones for a fight, but the contract required Jones to take drug tests before and after the match. On the day of the fight, Jones tested positive once again for performance enhancing drugs and was disqualified from the match. WOB sued King, claiming that King breached their contract by failing to produce Jones for the fight. King argued that his breach was excused, because Jones' performance was impossible due to his disqualification. Was King right? [ World of Boxing, LLC v. King , 56 F.Supp.3d 507 (S.D. N.Y.)]

Question 23

How free are the parties to a contract to change their minds, and what is the result?

Question 24

Under what circumstances is a court likely to compel specific performance of a contract?

Question 25

Martin Marietta Materials wanted to mine minerals from some land. Martin sent the landowner's attorney, Michael Antrim, a proposed lease that provided a 4 percent royalty on materials mined. Antrim contacted William Karns, an expert, for help in determining the proper royalty. Antrim and Karns had not agreed on a fee for Karns's services. With Karns's advice, Antrim negotiated and signed a contract paying a 6 to 6.5 percent royalty. Karns then sent a letter stating that his fee was one cent ($0.01) for every ton of materials extracted as long as extraction continued, with a minimum annual fee of $7,500. Over twenty years, this would amount to about $771,000. Antrim testified he had told Karns by phone the fee proposal had been rejected. Six months later, Antrim sent Karns a check for $25,000 that Karns did not cash. Four years later, in legal proceedings, Karns alleged his letter had constituted a binding contract because Antrim had not rejected it. Was Karns correct that his offer had been accepted? [ Mueller v. Kerns , 873 N.E.2d 652 (Ind. Ct. App.)]

Question 26

LexisNexis provided e-filing services to litigators in certain county courts in Texas. In exchange for its filing services, LexisNexis charged a fee for filing documents with the court. Karen McPeters sued LexisNexis, alleging among other things that the fees were illegal, because they obstructed the administration of justice and violated the Texas constitution's open-courts provision. McPeters argued that the filing fee restricted litigants' access to the courts, but she failed to show the filing fees prevented or even delayed her and other litigants in filing claims. Should LexisNexis' e-filing fees be prohibited? [ McPeters v. LexisNexis , 11 F.Supp.3d 789 (S.D. Tex.)]

Question 27

Brothers Tom and John Silbernagel sued their brother Steven and his wife, Jane, over a parcel of real estate. They reached a settlement agreement by which Steven and Jane agreed to pay Tom and John $150,000 for their interests in the real estate. Steven and Jane would have a reasonable time to secure financing to raise the money. It was later determined that Betty Jo Elliot, a cousin of the brothers, owned a 1/12 interest in the real estate. As a result, Steven and Jane were unable to borrow $150,000 on their interest in the real estate. When Tom and John sued them for the $150,000, Steven and Jane claimed the agreement was discharged because the purpose could not be achieved. They could not borrow the $150,000, and they did not get title to 100 percent of the real estate. Was the contract discharged by impossibility of performance?

Question 28

Turbines, Ltd. provided helicopter support services to customers. Monarch Aviation, an Asian company, contacted Turbines and sought to buy a turbine nozzle for shipment to Malaysia. Turbines did not have the part in stock and contacted Transupport, Inc. to purchase the part. Turbines purchased the nozzle from Transupport and tendered payment of $30,000. Transupport shipped the nozzle to Turbines, but when Turbines attempted to forward the piece to Malaysia, the shipment was intercepted by U.S. Customs. While the part was in the custody of U.S. Customs, Turbines learned that a person associated with Monarch Aviation was subject to a federal indictment and that Monarch was redirecting goods to Iran. Federal law thus prohibited Turbines from shipping the nozzle to Monarch Aviation. Turbines attempted to return the nozzle to Transupport, which refused to accept the part and refund Turbines's payment. Turbines sued Transupport to rescind the sales contract, arguing that federal law made it illegal for Turbines to ship the part to Malaysia. Should the contract between Turbines and Transupport be rescinded?

Question 29

Explain who might breach a contract because of malpractice

Question 30

You have learned what a contract is and the consequences for failing to live up to the provisions of a contract. The usual remedy for breach of contract is money damages. But can money truly compensate the nonbreaching party for all the loss suffered? How accurately can loss of potential profit be estimated? What about the stress and inconvenience caused the nonbreaching party by the breach? Would this be difficult to measure in monetary terms? What example does failing to live up to a promise set? If an employee finds out that the company is manufacturing appliances with substandard parts so that the appliances will fail much sooner, does the employee have an ethical obligation to do anything?

Question 31

May a debt that has been outlawed by the statute of limitations ever be revived?

Question 32

Siblings Cynthia Easterling and Rhett Russell were the sole members of a limited liability company formed to purchase real estate. After several years in business, the two began discussing the idea of dissolving the company and distributing its properties. Easterling proposed a division of property in a letter to Russell, the text of which consistently referred to its contents as a settlement "offer." In her letter, she divided the property into two parts, labeled Exhibit A and Exhibit B, and gave Russell the choice of either property. Russell responded in writing that he accepted Easterling's offer and chose Exhibit A as his property distribution. He then proceeded to have deeds to the property recorded in the chancery clerk's office. Easterling sued to set aside the deeds, claiming there was no binding contract, because Russell had not specifically addressed all of the terms of her offer. Was their contract valid? [ Easterling v. Russell , 2015 WL 1198651 (Miss. Ct. App.)

Question 33

When are parties to a contract discharged by performance? Are all parties discharged simultaneously?

Question 34

Velma Lee Robinson executed a will by which she left most of her property to the Velma Lee and John Harvey Robinson Charitable Foundation. Twelve years later, she executed new estate planning documents that left her estate to her nieces and nephews. Nine months after executing the later will, she suffered the first of a series of strokes. After she died, there was a contest between the two wills. Friends and caregivers testified that Robinson would have been unable to read the later documents and would not have understood them at the time she signed them. She was unable to handle her business and became confused. A physician testified from her medical records that there was a progression of pathological disease processes that was causing her to lose brain cells. Did Robinson have the necessary capacity to execute the later will? [ In re Estate of Robinson , 140 S.W.3d 782 (Tex. Ct. App.)]