The case study pertaining to Ken and Sweet is an example of a contract discharged by the breach. Breach of terms of contract means that one of the parties fails to perform the obligations assumed under the contract, which results in the aggrieved party taking action for damages.
Nature of Contract between Ken and Sweet?
The contract between Ken and Sweet may be best described as a valid arrangement containing an express condition of time of performance where the contract was discharged by breach. Specifically, two competent parties, Ken and Sweet came to a mutual agreement, under which Ken promised to purchase 10,000 pounds of sugar, a legally traded commodity, at a particular price from Sweet, to be supplied on or before November 15. Performance on or before this appointed date was vital or in other words “time was of the essence.” Sweet failed to perform under this contract and supply the sugar by the contracted date agreed upon and, therefore, the contract was discharged by breach.
Nature of Damages Ken is Trying to Claim?
Breach of contract by one party entitles the aggrieved party to file a lawsuit for damages or a sum of money to compensate for the harm that is suffered as a consequence of another party’s wrongful act. Four common groups of damages are admissible under contract law. These include compensatory damages (to compensate for direct costs and losses), consequential damages (to cover both indirect and predictable losses), punitive damages (to restrict and punish wrongdoing), and nominal damages (to detect wrongdoing where no fiscal loss can be shown). Compensatory damage may also sometimes include expenses, which are incurred for obtaining performance from a different source, and these are termed as incidental damages.
The damages that Ken is trying to claim include lost profits from this year’s lost Christmas sale and the higher price paid for sugar from the others and, which represent the direct losses and costs he suffered because of Sweet’s nonperformance, or compensatory damages and incidental damages. Ken is also trying to claim as damages future lost profits from customers who have indicated that they will discontinue doing business with him, which represent consequential damages. Lastly, Ken is trying to claim punitive damages for failure to meet the contracted delivery date so as to punish Sweet and deter wrongdoing in future.
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Sweet’s Claim that Ken be Limited to Compensatory Damages Only
Damages to compensate the aggrieved party for the incurred losses of the bargain are termed as compensatory damages. The injured party is compensated only for those damages that can be proven to have been actually incurred and to have resulted directly from losses of the bargain that result from the breach of terms of contract. They are designed to simply replace subject-matter of losses due to the nonperformance of the breaching party. Sweet is claiming that Ken’s claim should be limited to these compensatory damages only and that he is not entitled to any other types of damages.
In my opinion, Ken’s claim for punitive damages is not valid because punitive damages are damages paid to the plaintiff in order to punish the defendant, not to compensate the plaintiff and such damages are more common in tort than contract actions. Ken’s claim for compensatory damages is valid because nonperformance by Sweet directly resulted in Ken incurring the higher price paid for sugar from other suppliers, as well as lost profits from Christmas sale. He is entitled to these compensatory damages under contract law.
In my opinion, Ken may also be able to make a claim for consequential damages, that is the future lost profits from regular customers who have indicated that they will purchase candies elsewhere, if the foreseeability and certainty of these damages can be proven. The case study clearly indicates that Ken expressly informed Sweet that this particular order was to be used for the Christmas season business, which was a special circumstance, beyond the ordinary course of events. Therefore, now Ken faces the loss of future orders from regular customers who have indicated that they will discontinue doing business with him. Given that the breaching party was aware of this special circumstance and a case may be made for reasonable foreseeability and certainty of the loss incurred due to the breaching party’s nonperformance, I think that Ken may have a case for consequential damages as well. However, Sweet may counter this by claiming that Ken did not have to wait until December 10 and could have made reasonable efforts to procure the quantity of sugar needed once the contracted deadline of November 15 was past.
Other Types of Compensation that Ken can Claim
Ken is claiming compensatory, incidental, consequential and punitive damages from Sweet as described in one of the earlier sections above that discusses the nature of damages that Ken is claiming. Assuming that Ken fails in his bid to claim these damages, he may be able to claim other types of compensation.
One course of action that Ken may choose to pursue is to seek liquidated damages. Provisions in terms of liquidated damages within a contract specify that a prescrived monetary amount should be paid in case of a future default and /or breach under contract agreements. However, to claim such liquidated damages, Ken would have to prove that this provision was an integral part of the contract that he entered into with Sweet. When contract terms specify an amount to be paid due to nonperformance, this sum may be interpreted as liquidated damages and/or a penalty. It should be kept in mind that liquidated damages terms are enforceable whereas penalty terms and conditions are not. In general terms, if the stated amounts are excessive and the provisions are designed to punish the breaching side, they will be considered as a penalty.
The remedy of rescission and restitution is not an option for Ken because of the nature of the contract that he had with Sweets as it is not possible to revert, or terminate, the contract between Ken and Sweets to return both parties to those positions that they held prior to the actual transaction. Since Ken refused to accept the late delivery of sugar from Sweet, there is no physical good to be returned for restitution to take place.
Similarly, the remedy of the certain performance, which calls for the performance as promised under the terms of the contract, is not applicable to this particular case since specific performance is not granted unless monetary damages to the party injured are inadequate. This is why contracts for sales of goods do not usually qualify for the certain performance.
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Outline (on demand)
The case study is an example of contract law that demonstrates the situation of contract discharged by the breach and where the injured party then sues for the respective damages. In this particular case, Ken and Sweet had a valid contract with an expressed time for performance provision. The contract was discharged by breach when Sweet failed to deliver the goods by the contracted date. As a result, Ken has a valid claim to damages because of the loss he incurred.
Summary case 2: Thomas and Trans Vac
The case pertaining to Thomas who is a general contractor and Trans Vacs, which is a subcontractor, is an example of mistakes in contracts. This example demonstrates conduct that may invalidate assent. It is important to note that one pivotal element of any valid contract is mutual assent and in the event of a mistake, it may be argued that assent is invalidated and therefore the contract is not valid. A mistake is defined as a belief that is not consistent with facts.
Was Trans Vac’s Insistence on an Increase Permissible?
Before we discuss the permissibility of Trans Vac’s insistence on an increase, it is first important to understand the context surrounding mistakes in contract law and the remedies available for dealing with such situations. It is only with the help of this background narrative that we will be able to make a sound judgment call on the issue.
Even when an offer and an acceptance have been made, situations exist in which the resulting contract is defective. Mistakes are one such situation that make contracts defective and as a result, sometimes, voidable. Whether a mistake affects the validity of a contract normally depends on whether just one or both of the parties have made a mistake. The former is called a unilateral mistake whereas the latter is termed as a mutual mistake. In this case study, a unilateral mistake occurred. In other words, only one party made the mistake regarding the contract and that is Trans Vac, which informed Thomas, the general contractor, that its bid of $287,000 was off by $32,000.
When mutual mistakes concerning a material fact are made, the contract is generally deemed void because no genuine assent by the parties existed. However, a unilateral mistake made at the time of contracting has no effect on the validity of a contract. Such a mistake will not, for example, invalidate a contract if the mistake pertains to price or quantity. Even if the unilateral mistake as to price results from an error in typing, the contract is valid. Relief may be granted to the mistaken party if it can be proven that the non-mistaken party knew, or reasonably should have known, that such a mistake had been made. Another instance where relief may be forthcoming is where the mistake is caused by the fault of the non-mistaken party. Nevertheless, the basic philosophy of the unilateral mistake principle is that benefitting from one’s ignorance or carelessness should not be allowed. In other words, a unilateral mistake usually does not provide the mistaken party with grounds for rescinding the contract.
Therefore, in light of this discussion, my opinion is that given the circumstances described in the case study Trans Vac’s insistence on an increase was not permissible because the case represents an example of a unilateral mistake, which does not affect the enforceability of the contract and does not make it void or voidable. In fact, details of the case study only point out to the fact that Thomas, the general contractor, was neither aware of nor responsible for the mistake. Moreover, Thomas had justifiably relied on the information provided by Trans Vac to submit his proposal to the university. Therefore, Trans Vac’s action of refusing to perform its subcontract unless an increase in price was granted was tantamount to rescission and reformation of the contract, which Trans Vac is not entitled to.
Is Thomas’s Refusal to pay the Price Increase Legally Acceptable?
According to the case study, unable to find alternatives to the services that Trans Vac had contracted to provide as a subcontractor, Thomas had to agree to the increase demanded by Trans Vac. However, after Trans Vac completed the work, he refused to pay anything over the original bid amount that Trans Vac had originally quoted for their subcontract work.
First of all, we need to understand that Trans Vac was in no position to practically force the rescission and reformation of the contract by demanding a price increase or refusing to perform its subcontract. Contract law ensures that in no case the wrongdoer can set aside the contract and thus profit from the wrong. So Thomas should have resorted to a legal course of action at that juncture and sued Trans Vac. However, given that the bid had already been submitted and Trans Vac did not highlight the mistake until after the bid had been accepted and the contract officially awarded to Thomas, Trans Vac’s insistence on an increase of $32,000 put Thomas in a very difficult position and in my opinion he had to agree to this increase under duress.
The principle of duress states that no person shall be held to an agreement that he has not entered into voluntarily. Accordingly, contracts induced by duress (which is defined as any wrongful or unlawful act or threat that overcomes the free will of a party) are not enforceable. In this case study, Trans Vac used improper threats including economic coercion to compel Thomas to change the contract and accept the increase in price demanded by Trans Vac. This type of duress makes the contract voidable at the option of the coerced party. The question that determines this relief is “did the threat actually induce assent on part of the person claiming to be the victim of duress?”
One important point to bear in this regard is that while the foregoing narrative suggests that Thomas may have legal basis to refuse to pay the price increase, Trans Vac, on the other hand, may choose to pursue a legal course of action of its own by claiming that Thomas’s agreement to the price increase came with the intention to never pay it in the first place. That he only agreed to the price increase so that Trans Vac would undertake and complete the subcontract work and by so doing, Thomas himself was guilty of fraud. Fraud is an intentional misrepresentation of material fact by one party to the other, who consents to enter into a contract in justifiable reliance on the misrepresentation.
Overall, in my opinion, Thomas’s refusal to pay the price increase is legally acceptable because he may be able to prove that he only agreed to pay this increase under duress because Trans Vac made improper threats despite not being entitled to any relief due to their own unilateral mistake.
This case was an example that demonstrated how mistakes render contracts defective and how unilateral mistakes do not necessarily invalidate contracts. Mistakes are beliefs not consistent with facts and they sometimes invalidate assent. A unilateral mistake is a mistake made by one party to the contract and a unilateral mistake regarding a fact does not affect the contract.
In this particular case study, Trans Vac was responsible for a unilateral mistake that Thomas was neither aware nor responsible for. Unilateral mistakes do not invalidate the contract. Therefore, given the facts of the case, Trans Vac was not entitled to the increase in price that it demanded. However, Thomas had no other reasonable alternative but to give in to Trans Vac’s demands, though I argue that he did so under duress. Therefore, in my opinion, Thomas has a legal case for refusing to pay the price increase.
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