Business Law

Every contract creates both rights and duties. A person who owes a duty is an obligor.

A person to whom a duty is owned is an obligee.

An assignment of rights is the voluntary transfer to a third party of the rights arising from the contract

The person who transfers their rights to a third party is the assignor.

The person who is assigned the rights is the assignee.

Assignment of Rights

When the rights under a contract are highly personal,the rights are not assignable to a third party.

An extreme example of such a contract is getting married: the groom can’t assign to a third party the

bride’s promise to marry him.

Assignment of Personal Rights

• Golf Membership at Dayton Country Club

• Limited Amount of Spaces for Golf Members Current Members can pay to get on a waitlist

• Magness and Redman, both filing for bankruptcy, wanted to sell their Golf Membership.

• However, this would be unfair to the members who paid to be considered in order of the waitlist.

• The Court judged that such personal rights as a Golf Membership were not assignable.

Case 16.1 Resier v. Dayton Country Club Company

• Contract terms prohibiting assignment of rights are strictly construed.

• The prohibition, if violated, gives the obligor a right to damages for breach of the terms forbidding assignment; but does not render the assignment ineffective.

Express Prohibition Against Assignment

• Landlord agreed to pay Tenant a construction allowance of up to $11,250 after Tenant completed certain improvements to the rented premises.

• Tenant assigned rights to $8,000 to Assignee. In return, Assignee loaned Tenant $8,000 to finance the construction.

• When construction was over, Landlord ignored assignment and paid Tenant the construction allowance. Anti-Assignment clausein the contract.

• Court ruled in favor of Landlord.

Case 16.2 Aldana v. Colonial Palms Plaza, Inc.

• Silvestri was director of support services supervisor of tech support

• Silvestri filed for breach of contract

• Silvestri had two year employment contract with Optus

• Terminated nine months into contract under their satisfactory clause

• Silvestri filed action against Optus stating company’s dissatisfaction was objectively unreasonable

• Judge looked at satisfaction clause of contract- objective or subjective

• Concluded subjective dissatisfactionDefendants won

Case 17.1 Silvestri v. Optus Software, Inc.

Terms

• Condition - an event whose happening or no happening affects a duty of performance under a contract.

- Satisfactory clause in the case

• Express condition- Explicitly set forth in language usually preceded by words like: If, while, after, upon, or soon as

• Subjective Satisfaction- Satisfaction relates to matter of personal taste, opinion, or judgment.- If promissor in good faith is dissatisfied the condition has not occurred

• Objective Satisfaction- If contract does not indicate subjective satisfaction or relates to

mechanical fitness, or utility.

Case 17.1 Silvestri v. Optus Software, Inc.

• Cogginses’ had late payment to Associated of $70,005.54 • Judgment, make two payments of $25,000 by June 1,1996

and June 1, 1997• Ten percent interest added if payment was not made• Cogginses’ made first payment• Second payment late by four days• Associated wanted $20,005.54 plus interest and cost• Court found Cogginses’ late payment was not a

material beach of accord.• Cogginses’ paid the $25,000 fee w/o interest

Case 17.2 Associated Builders Inc v. William M. Coggins et al.

Terms

• Breach of contract

- is the unexcused failure of a party to perform their promise

• Material Breach

- an unjustified failure to perform substantially the obligations promised in a contract

- i.e. The late payment

- five circumstances to determine whether a failure to render or to offer performance is material

(a) The extent to which the injured party will be deprived of the benefit, which he reasonably expected.

Case 17.2 Associated Builders Inc v. William M. Coggins et al.

Discharge by Breach: Anticipatory Repudiation

• Is an announcement made prior to the date performance is due that a party to a contract will not perform under a contract

• Notifies the other party that a breach is forthcoming

• The courts view it as a breach that discharges the non repudiating party’s duty to perform

• The non-repudiating party has two options: wait until the due date to see if the repudiator will perform his contractual duties; or immediately seek a judicial remedy available for breachof contract If the repudiating party does not perform on the due date: constitutes a material breach discharges then on-repudiating party from the contract permits recovery of money damages

Case 17.3 Hochster v. De La Tour

.• Rule of Law: Anticipatory Repudiation

• Facts of the case: April 12, 1852, Hochster contracted with De La Tour to act as a guide for De La Tour on his three-month trip to Europe beginning June 1 at an agreed-upon salary

• Anticipatory Repudiation: May 11, De La Tour notified Hochster that he would no longer need his services and refuses to pay Hochster compensation

• Option exercised: Hochster brings an action to recover damages for breach of contract

• Issue: Whether Hochster was permitted to sue immediately

• Court’s Decision: Judgment for Hochster

• Evidence supporting the Court’s decision: Hochster is permitted to sue immediately allowing him to seek employment elsewhere which mitigates the damages

• Governed by Restatement and the Code• Discharge of the contractual duties are brought about by the

operation of law• Discharges a party from performing their duty only when an

intervening event occurs not caused by his fault which makes the party’s performance impracticable

• Intervening events do not include mere hardship or an unexpected increase in costs

• Examples of intervening events:• severe shortage of raw materials or supplies• local crop failureetc.

• The nonoccurrence of the intervening event must have been a “basic assumption” both parties made when entering into the contract, neither party assumed the risk that the event would occur

• Commercial impracticability is “grounded upon the assumption that in legal contemplation something is impracticable when it can only be done at an excessive and unreasonable cost”

Impossibility: Commercial Impracticability

• Rule of Law: Impossibility

• Facts of Case: Northern Corp. and Chugach Electrical Association entered into a contract which required Northern to obtain rock from a quarry site on the other side of the lake and to transport the rock (during the winter) across the frozen lake to Cooper Lake Dam by April 1.

• Basic Assumption: transportation of the rock across the lake would occur when the lake froze to a “sufficient depth to permit heavy vehicle traffic thereon”

• Intervening event: the lake did not freeze to a sufficient depth resulting in three trucks breaking through the ice and sinking and the tragic deaths of two of the drivers

• Issue involved: whether the contract was impossible of performance

• Northern’s argument: termination of the contract and recovery of incurred costs was available for impossibility of performance

• Chugach’s argument: Northern was bound to the contract and that it could have used any method to transport the rock

• Court’s Decision: Northern was discharged by reason of impossibility

• Evidence supporting the Court’s decision:

• The hauling method was part of basis of the agreement

• The hauling method was not commercially feasible within the financial parameters of the contract

Case 17.4 Northern Corp. v. Chugach Electrical Association

.

• Interests Protected by Contract Remedies

1. Expectation Interest

2. Reliance Interest

3. Restitution Interest• Monetary Damages

– Compensatory Damages– Loss of Value– Incidental Damages– Consequential Damages– Cost Avoided

• Nominal Damages• Reliance Damages• Damaxges for

Misrepresentation– Fraud– Non-Fraudulent

Misrepresentation• Punitive Damages• Liquidated Damages

Contract Remedies

.

Election of Remedies/Punitive DamagesCourt of Special Appeals of Maryland, 2000

Merritt – Appellant/Plaintiff Craig – Defendant

• The Merritt’s bought property from the Craig’s, withstanding that a satisfactory inspection be done. Merritt’s were told that the well on the property was used to supply the water. On 11-02-05 they signed a Disclosure statement saying the water was fine and finally bought the house.

Case 18.1 Merritt v. Craig

.

• Nov 5 – June 96, the Craig’s cut the second water line that the Merritt’s knew about, but did not know it supplied water to them. The Craig’s also did work to stop the water after the house was sold.

• The Merritt’s noticed their waster was depleting and told the Craig’s about it. The agreed to build a new well and found themselves paying for two new wells that did not produce water.

• They called a plumber and found out what the Craig’s had done and finally on 2-11-97, they brought suit to the Craig’s for the punitative damages done.

Case 18.1 Merritt v. Craig

.

Cost Cutters was renting space from the Westhaven Shopping Mall. Partway through the leasing period Cost Cutters closed their business. Westhaven request liquidated Damages from Cost Cutters that are stated in the contract in case of breach. The Circuit court deemed the fees associated with the liquidated damages unreasonable, now Westhaven is requesting an appeal

Case 18.2 Westhaven Associates, Ltd. v. C.C. of Madison, Inc.

Cost Cutters Westhaven Mall

Argued that the occupancy rate increased after they vacated the mall from 53% to 72%.

The loss of Cost Cutters as a vendor ultimately decreases the occupancy of the mall.

Could not Prove that the “Failure to do Business” fees were unusually high compared to similar shopping malls in the area.

Cost Cutters violated the “Failure to do Business” clause in the contract.

$20 Day for not being open during specified “business hours”

$49.58 (rent value) for not keeping business open for “minimum” amount of hours.

LOST

- Could not prove that the “Failure to do Business” fees were a penalty and not liquidated damages

WON

- Provided reason to support the notion that the vendor’s vacancy decreases customer traffic and utilization of the mall.

Case 18.2 Westhaven Associates, Ltd. v. C.C. of Madison, Inc.

(Reasonable damages agreed to in advance by the parties to a contract)

• Agreed in advance of damages to be paid in case of breach of contract

• Only enforceable if court deems the liquidated amount to be reasonable forecast of the loss that may or does occur.

• Most common for small settlement amounts

• To compensate not punish

• Reduces expense of litigation

• Saves the time of the courts, juries, and both parties

Liquidating Damages

Review - Limitations on Damages

• Limitations on damages-limitations of foreseeability and certainty have been imposed upon monetary damages.• Foresee ability of damages-the breaching party is not

liable for loss that was not foreseeable at the time the contract was made.

• Certainty of damages-an injured party can recover for only reasonably certain damages.

•Case 18.3 Schonfeld v. Hilliard

• 1988, Brothers Russ and Les Hilliard Formed International News Network (INN).

• Brought in Reese Schonfeld, initially as an investor then later as a shareholder.

• 1994, executed a written shareholders agreement where each became a 1/3 shareholder in return for a $10,000 capital contribution.

• Schonfeld alleged that the Hilliards induced him and INN to abandon the March Supply Agreement and enter into the Interim and December Supply Agreements by falsely representing their intention to personally fund the Interim Agreement.

• The Hilliard Brothers, allegedly, agreed to fund the 20 million necessary for the Interim Agreement

• The district court held that Schonfeld could not prove with reasonable certainty, the existence of amount of damages for lost profits.

• The damages must be “capable of measurement based upon known reliable factors without undue speculation.

• Schonfeld appealed, and based his information on a hypothetical basis

• The court ruled that he “could establish neither the existence nor the amount of lost profits with reasonable certainty.

• Final Ruling: “The Hilliards cannot “be supposed to have assumed” liability for approximately $269 million in lost profits that might have been garnished in the future by a nonexistent operating entity”.

Remedies is Equity

• Reformation--a process whereby the court rewrites or corrects a written contract to make it conform to the true agreement of the parties

• Injunction--a formal court order commanding a person to refrain from doing a

• specific act or to cease engaging in a specific conduct

• Specific Performance--equitable remedy that compels the defaulting party to

• perform their contractual obligations.

Case 18.4 Tamarind Lithography Workshop v. Sanders

Remedy Not Granted:

1. there is an adequate remedy at law

2. it is impossible to enforce

3. the terms of the contract are unfair

4. the consideration is grossly inadequate

5. the contract is tainted with fraud, duress, undue influence, mistake or

6. unfair process

7. the terms of the contract are not sufficiently certain

8. the relief would cause unreasonable hardship

Types of Specific Performance

• Personal Property--rarely granted

• Real Property--always granted

• Personal Services--never granted

Carnera agreed to enter into contract with “Garden” with the following stipulations:

1. Carnera would render his services as a boxer for the “Garden” in a bout to determine the heavyweight championship title of the world

2. Carnera would not box any other heavyweight boxer during the contract period or enter into agreement to box in any major boxing contest without written permission from the “Garden”

3. The “Garden” would pay Carnera a percentageof the ticket sales

4. The “Garden” would award Carnera the title of heavyweight champion of the world if he wasthe winner of the bout.

Case 18.5 Madison Square Gardens Corp., ILL v. Carnera

PROBLEM: Carnera felt the contract was inequitable and decided to enter into an agreement to box Sharkey (a current heavyweight boxer).

SOLUTION: The District Court found in favor of the “Garden” and ordered an injunction preventing Carnera from fighting Sharkey.

NOTE: It was of interest to note that the court also ordered the Plaintiff to secure a bond of $35,000 on behalf of the Defendant for his loss caused by the injuction (in not allowing him (Carnera) to fight Sharkey).

Case 18.5 Madison Square Gardens Corp., ILL v. Carnera

Maëlle Dassonville - Cases 16.1 - 16.2

April Archuleta - Cases 16.3 - 16.4 (Plus PowerPoint Design for 16.3 and 16.4)

Katie Shreve - Cases 17.1 - 17.2

Diane Perkins - Cases 17.3 - 17.4

Kathleen Oertig - Case 18.1

Angela Rose - Case 18.2

Mark Akert - Case 18.3

Sara Faculak - Case 18.4

Adrian King - Case 18.5

Bryant Gregory - Designer, PowerPoint Presentation

Maëlle Dassonville - Cases 16.1 - 16.2

April Archuleta - Cases 16.3 - 16.4 (Plus PowerPoint Design for 16.3 and 16.4)

Katie Shreve - Cases 17.1 - 17.2

Diane Perkins - Cases 17.3 - 17.4

Kathleen Oertig - Case 18.1

Angela Rose - Case 18.2

Mark Akert - Case 18.3

Sara Faculak - Case 18.4

Adrian King - Case 18.5

Bryant Gregory - Designer, PowerPoint Presentation

If you would like to view these slides online to print out for notes please go to the website address below:

www.ggraphix.org/businesslaw/BizLaw.ppt.htm

If you would like to view these slides online to print out for notes please go to the website address below:

www.ggraphix.org/businesslaw/BizLaw.ppt.htm