Deck 10: Contract Performance, Breach, and Remedies

Question 1

ADAPTING THE LAW TO THE ONLINE ENVIRONMENT
When Do Changes in Social Media Terms of Service Constitute a Breach of Contract
Hundreds of millions of individuals use some form of social media. To do so, they must agree to certain terms of service.
The Terms of Service Are a Contract
Any time you use social media on the Internet or download an app for your mobile device, you must accept the associated terms of service. To be sure, users generally do not read these terms. They just click on "accept" and start using the social media platform or the app. Nonetheless, by clicking the "accept" button, each user is entering into a contract.
An Example: Instagram Changes Its Terms of Service
In 2012, to the consternation of many users, Instagram changed its terms of service to give it the right to transfer and otherwise use user content on the site, apparently without compensation to users. The new terms also limited users' ability to bring class-action lawsuits against Instagram, limited the damages they could recover to $100, and required arbitration of any disputes.
Lucy Funes, an Instagram user in California, filed a class-action lawsuit on behalf of herself and other users, claiming breach of contract and breach of the covenant of good faith and fair dealing that a contract implies. Although Instagram subsequently modified the language that appeared to give it the right to use users' photos without compensation, it retained other controversial terms. They included the mandatory arbitration clause and a provision allowing it to place ads in conjunction with user content.
Instagram Seeks Dismissal of the Lawsuit
While Funes contended that Instagram had breached its contract by changing its terms of service, Instagram argued that Funes could not claim breach of contract. For one thing, she-and other users-had thirty days' notice before the new terms of service took effect. Because Funes continued to use her account after that thirty-day period, Instagram maintained that, in effect, she had agreed to the new terms. The courts ultimately agreed with Instagram and dismissed the lawsuit.
Instagram Changes Its Policies
For several years, Instagram has been using its revised terms of service agreement. As mentioned, it abandoned some of its previous changes and denied any intention to sell user content. In the terms of service, Instagram continues to state that it does "not claim ownership of any content user's post on or through the service."
Nonetheless, the terms state clearly that each user "hereby grants to Instagram a non-exclusive, fully paid and royalty-free, transferable, sublicensable, worldwide license to use content that the user posts." That means that Instagram can reassign the rights or relicense the work to any other party for free or for a fee. The user-anyone who posts on Instagram-need not be compensated or even given notice.
Critical Thinking
Instagram's current terms of service state, "We may not always identify paid services, sponsored content, or commercial communications as such." Is it ethical for Instagram to post advertisements without identifying them as advertisements Discuss.

Answer 1

In this fast paced life, today's world is changing from physical reality to virtual reality quite dramatically. And one such reality is social sites that all of us are using on daily basis. When we use social sites, we abide by their terms of services while downloading these applications by clicking on accept button, without reading their terms most of the time.
The given situation is about the terms and conditions mentioned in such social sites. One of the current terms of service of a social media site states that they don't always identify paid services, commercial communications and sponsored content.
Nowadays, web based companies are finding subtle nuanced ways to make their product commercially viable or profitable, since the advertisement is their main source of income. Sometime they make a product "advertisement free" and charge a premium fees from users for using Ad free services.
In the given case, an application, IG is taken as an example. IG posts advertisement without actually identifying or admitting them as advertisement.
It's actually unethical for IG to post advertisement in discreet manner without acknowledging them as advertisement. IG could have opted for direct revenue modal by charging fees for offering non-advertisement services to users.

Question 2

Mitigation of Damages. Lauren Barton, a single mother with three children, lived in Portland, Oregon. Cynthia VanHorn also lived in Oregon until she moved to New York City to open and operate an art gallery. VanHorn asked Barton to manage the gallery under a one-year contract for an annual salary of $72,000. To begin work, Barton relocated to New York. As part of the move, Barton transferred custody of her children to her husband, who lived in London, England. In accepting the job, Barton also forfeited her husband's alimony and child-support payments, including unpaid amounts of nearly $30,000.
Before Barton started work, VanHorn repudiated the contract. Unable to find employment for more than an annual salary of $25,000, Barton moved to London to be near her children. Barton filed a suit in an Oregon state court against Van- Horn, seeking damages for breach of contract. Should the court hold, as VanHorn argued, that Barton did not take reasonable steps to mitigate her damages Why or why not (See Damages.)

Answer 2

When a breach of contract occurs, the injured party is liable to be compensated in order to reduce the amount of damage he/she would suffer as a consequence of the breach.
In most states, when employees are wrongfully terminated, they have a duty to look for similar jobs if it is available. If the employees do not make an effort in this direction, the damages they are entitled to receive will be at par with their salaries less the income they could have received if they had found a similar job using all reasonable means.
No , the court should take a lenient view in this case and not hold as C argued. Mrs. V was offered an annual salary of $72,000 but the contrate was later repudiated by Mrs. C.
V took reasonable steps to mitigate the damages but could not find a job that offered annual salary more than $25,000. V had made a lot of sacrifices to get the job:
• She relocated from her native place to manage the art gallery,
• She forfeited her alimony and child support, and
• Gave up custody of her children.
Keeping in mind all the above circumstances the court may adjudicate appropriately. The court should pass a judgement in favour of the plaintiff, Mrs. V. Penalty may be imposed on the defendant, Mrs. C.

Question 3

Bass-Fineberg Leasing, Inc. v. Modern Auto Sales, Inc.
Court of Appeals of Ohio, Ninth District, Medina County, __ Ohio App.3d __, __ N.E.3d __, 2015-Ohio-46 (2015).
FACTS Bass-Fineberg Leasing, Inc., leased a tour bus to Modern Auto Sales, Inc., and Michael Cipriani. The lease included an option to buy the bus. The lease prohibited Modern Auto and Cipriani from assigning their rights without Bass-Fineberg's written consent. Later, Cipriani left the bus with Anthony Allie at BVIP Limo Services, Ltd., for repairs. Modern Auto and Cipriani did not pay for the repairs. At the same time, they defaulted on the lease payments to Bass-Fineberg. While BVIP retained possession of the bus, Allie signed an agreement with Cipriani to buy it and to make an initial $5,000 payment to Bass-Fineberg. Bass-Fineberg filed an action in an Ohio state court against Modern Auto, Cipriani, BVIP, and Allie to regain possession of the bus. The court ordered the bus returned to Bass-Fineberg and the $5,000 payment refunded to Allie. All of the parties appealed.

ISSUE Was the lease's antiassignment clause enforceable
DECISION Yes. A state intermediate appellate court affirmed the lower court's order. The bus was to be returned to Bass-Fineberg and the $5,000 was to be refunded to Allie.
REASON An antiassignment clause can be enforceable when it clearly prohibits an assignment. Violation of an enforceable antiassignment provision renders the resulting agreement void. The antiassignment clause in the lease between Bass-Fineberg and Modern Auto and Cipriani was clear-"MODERN AUTO AND CIPRIANI MAY NOT ASSIGN... [THEIR] RIGHTS... UNDER THIS LEASE... WITHOUT BASS-FINEBERG'S PRIOR WRITTEN CONSENT." Bass-Fineberg argued that under this clause, the contract between Cipriani and Allie was void, because Bass-Fineberg had not provided written consent. BVIP contended that if the contract was void, then BVIP should receive a refund of its $5,000 payment. The court agreed with both of these parties. The contract between Cipriani and Allie was void because Cipriani could not assign his rights under the lease without Bass-Fineberg's written consent. Because the contract was void, the parties were to be returned to their precontract status, which included a refund of the $5,000 payment.
CRITICAL THINKING-Economic Consideration The repairs to the bus cost $1,341.50. Who should pay this amount Why

Answer 3

Mitigation of damages: When a party breaches a contract, then injured party will be held liable for mitigation of or reducing, and for the damages other party might suffer. This doctrine provides that a plaintiff to reasonably minimize the damages caused by the defendant's breach of contract.
Outcome: Sometimes an injured party from a breach of a contract takes an easy way out and sits idle to increase the damage by opting not to pursue available employment. Thus, the doctrine of mitigation of damages provides a remedy to defendants, in which non breaching party has a duty to reduce the damages by taking reasonable steps.
In the given case, B made no effort to obtain the available employment opportunity of annual salary of $25,000 and instead left to London to be with her children. These facts are sufficient for the court to hold V's argument and likely to reduce any damage by the amount of salary the plaintiff could have earned had he or she opted for alternative employment.

Question 4

The doctrine of commercial impracticability should be abolished.

Question 5

ISSUE SPOTTERS
Eagle Company contracts to build a house for Frank. The contract states that "any assignment of this contract renders the contract void." After Eagle builds the house, but before Frank pays, Eagle assigns its right to payment to Good Credit Company. Can Good Credit enforce the contract against Frank Why or why not (See pages 256-257.)

Question 6

What is an assignment What is the difference between an assignment and a delegation

Question 7

Val's Foods signs a contract to buy 1,500 pounds of basil from Sun Farms, a small organic herb grower, if an independent organization inspects the crop and certifies that it contains no pesticide or herbicide residue. Val's has a contract with several restaurant chains to supply pesto and intends to use Sun Farms' basil to fulfill these contracts. When Sun Farms is preparing to harvest the basil, an unexpected hailstorm destroys half the crop. Sun Farms attempts to purchase additional basil from other farms, but it is late in the season, and the price is twice the normal market price. Sun Farms is too small to absorb this cost and immediately notifies Val's that it will not fulfill the contract. Using the information presented in the chapter, answer the following questions.
1. Suppose that Sun Farms supplies the basil that survived the storm but the basil does not pass the chemical-residue inspection. Which concept discussed in the chapter might allow Val's to refuse to perform the contract in this situation
2. Under which legal theory or theories might Sun Farms claim that its obligation under the contract has been discharged by operation of law Discuss fully.
3. Suppose that Sun Farms contacts every basil grower in the country and buys the last remaining chemical-free basil anywhere. Nevertheless, Sun Farms is able to ship only 1,475 pounds to Val's. Would this fulfill Sun Farms' obligations to Val's Why or why not
4. Now suppose that Sun Farms sells its operations to Happy Valley Farms. As part of the sale, all three parties agree that Happy Valley will provide the basil as stated under the original contract. What is this type of agreement called

Question 8

Assignment. Aron, a college student, signs a one-year lease agreement that runs from September 1 to August 31. The lease agreement specifies that the lease cannot be assigned without the landlord's consent. In late May, Aron decides not to go to summer school and assigns the balance of the lease (three months) to a close friend, Erica. The landlord objects to the assignment and denies Erica access to the apartment. Aron claims that Erica is financially sound and should be allowed the full rights and privileges of an assignee. Discuss fully whether the landlord or Aron is correct. (See pages 256-257.)

Question 9

Kolodin v. Valenti
New York Supreme Court, Appellate Division, 115 A.D.3d 197, 979 N.Y.S.2d 587 (2014).
FACTS Hilary Kolodin, a jazz singer, was personally involved with John Valenti, the sole shareholder and president of Jayarvee, Inc. Jayarvee manages artists, produces recordings, and owns and operates a jazz club in New York City. Kolodin contracted professionally with Jayarvee for recording and management services. After Kolodin and Valenti's personal relationship deteriorated, Kolodin asked a New York state court to issue a temporary protection order against Valenti, alleging domestic abuse. The parties then agreed under a court-ordered stipulation to have no further contact with one another. The stipulation specified that "no contact shall include no third party contact, excepting counsel." Later, Kolodin filed a suit in a New York state court against Valenti, alleging breach of her Jayarvee contracts and seeking their rescission. The court declared the contracts between Kolodin and Jayarvee terminated. Valenti appealed.
ISSUE Did Kolodin and Valenti's stipulation render the performance of Kolodin's Jayarvee contracts objectively impossible
DECISION Yes. A state intermediate appellate court affirmed the lower court's ruling. The court concluded that, "In undertaking to perform recording and management contracts, the eventuality that the parties would subsequently stipulate to forbid contact with one another could not have been foreseen or guarded against."

REASON Impossibility excuses a party's performance when the destruction of the means of performance makes performance objectively impossible. But the impossibility must be created by an event that could not have been foreseen at the time of contract formation. In this case, the "no contact" stipulation between Kolodin and Valenti destroyed the means of performing Kolodin's contracts with Jayarvee. The contracts were for personal services and required "substantial and ongoing communication" between Kolodin and Jayarvee. Because Jayarvee is a small organization and Valenti oversees its daily operations, performance of the contracts would have required his input, thereby violating the stipulation. Even if the communication had been carried out only through the company's employees, the stipulation's ban on third party contact would have been violated. Furthermore, it was not foreseeable at the time the Jayarvee contracts were formed that Kolodin and Valenti would agree to have no contact with one another.
CRITICAL THINKING-Legal Environment Consideration Should Kolodin's role in bringing about the "no contact" stipulation through her request for a protection order have rendered the doctrine of impossibility inapplicable Explain.

Question 10

Greg contracts to build a storage shed for Haney. Haney pays Greg in advance, but Greg completes only half the work. Haney pays Ipswich $500 to finish the shed. If Haney sues Greg, what would be the measure of recovery (See Damages.)

Question 11

How are most contracts discharged

Question 12

Spotlight on Drug Testing-Third Party Beneficiaries. Bath Iron Works (BIW) offered a job to Thomas Devine, contingent on Devine's passing a drug test. The testing was conducted by NorDx, a subcontractor of Roche Biomedical Laboratories. When NorDx found that Devine's urinalysis showed the presence of opiates, a result confirmed by Roche, BIW refused to offer Devine permanent employment. Devine sued Roche, claiming that the ingestion of poppy seeds can lead to a positive result and that he had tested positive for opiates only because of his daily consumption of poppy seed muffins. Devine argued that he was a third party beneficiary of the contract between his employer (BIW) and NorDx (Roche). Was Devine an intended third party beneficiary of this contract Why or why not Do drug-testing labs have a duty to the employees they test to exercise reasonable care in conducting the tests Explain. [ Devine v. Roche Biomedical Laboratories, 659 A.2d 868 (Me. 1995)] (See Third Party Beneficiaries.)

Question 13

Spotlight on Liquidated Damages: Case 15.2
Kent State University v. Ford
Court of Appeals of Ohio, Eleventh District, Portage County, __ Ohio App.3d __, 26 N.E.3d 868, 2015 -Ohio- 41 (2015).
FACTS Gene Ford signed a five-year contract with Kent State University in Ohio to work as the head coach for the men's basketball team. The contract provided that if Ford quit before the end of the term, he would pay to the school liquidated damages in an amount equal to his salary ($300,000), multiplied by the number of years remaining on the contract. Laing Kennedy, Kent State's athletic director, told Ford that the contract would be renegotiated within a few years. Four years before the contract expired, however, Ford left Kent State and began to coach for Bradley University at an annual salary of $700,000. Kent State filed a suit in an Ohio state court against Ford, alleging breach of contract. The court enforced the liquidated damages clause and awarded the university $1.2 million. Ford appealed, arguing that the liquidated damages clause in his employment contract was an unenforceable penalty.
ISSUE Was the liquidated damages clause in Ford's contract enforceable
DECISION Yes. A state intermediate appellate court affirmed the lower court's award. The clause was not a penalty. "There was justification for seeking liquidated damages to compensate for Kent State's losses" on Ford's breach.
REASON At the time the contract was entered into, determining the damages that would result from a breach was "difficult, if not impossible." The resignation of a head coach from a university's basketball team may cause a loss in ticket sales and a drop in community and alumni support for the team. The university's ability to recruit players may also be affected. Of course, a search for a new coach and coaching staff will be required. These effects are not easy to measure before they happen, especially considering that such results may be different at different times in a coach's tenure. Kennedy's statement that the contract would be renegotiated indicated that Kent State was interested in the stability of these factors. And in this case, "based on the record,... the damages were reasonable." The salary that Bradley was willing to pay Ford showed the cost to Kent State of finding a new coach with his skill and experience. "There was also an asserted decrease in ticket sales, costs associated with the trip for the coaching search, and additional potential sums that may be expended."

CRITICAL THINKING-Cultural Consideration How does a college basketball team's record of wins and losses, and its ranking in its conference, support the court's decision in this case

Question 14

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
What is the standard measure of compensatory damages when a contract is breached How are damages computed differently in construction contracts

Question 15

Material Breach. The Northeast Independent School District in Bexar County, Texas, hired STR Constructors, Ltd., to renovate a middle school. STR subcontracted the tile work in the school's kitchen to Newman Tile, Inc. (NTI). The project had fallen behind schedule by the time NTI began to install the tile. As a result, STR allowed other workers to walk over and damage the newly installed tile before it had cured, forcing NTI to constantly redo its work. Despite NTI's requests for payment, STR remitted only half the amount due under their contract. When the school district refused to accept the kitchen, including the tile work, STR told NTI to quickly make repairs. A week later, STR terminated their contract. Did STR breach the contract with NTI Explain.

Question 16

Answers to the even-numbered questions in this For Review section can be found in Appendix F at the end of this text.
Under what circumstances is the remedy of rescission and restitution available

Question 17

Liquidated Damages. Cuesport Properties, LLC, sold a condominium in Anne Arundel County, Maryland, to Critical Developments, LLC. As part of the sale, Cuesport agreed to build a wall between Critical Developments' unit and an adjacent unit within thirty days of closing. If Cuesport failed to do so, it was to pay $126 per day until completion. This was an estimate of the amount of rent that Critical Developments would lose until the wall was finished and the unit could be rented. Actual damages were otherwise difficult to estimate at the time of the contract. The wall was built on time, but without a county permit, and it did not comply with the county building code. Critical Developments did not modify the wall to comply with the code until 260 days after the date of the contract deadline for completion of the wall. Does Cuesport have to pay Critical Developments $126 for each of the 260 days Explain. [ Cuesport Properties, LLC v. Critical Developments, LLC, 209 Md.App. 607, 61 A.3d 91 (2013)] (See Damages.)

Question 18

What is a limitation-of-liability clause, and when will courts enforce it

Question 19

Conditions of Performance. Russ Wyant owned Humble Ranch in Perkins County, South Dakota. Edward Humble, whose parents had previously owned the ranch, was Wyant's uncle. Humble held a two-year option to buy the ranch. The option included specific conditions. Once it was exercised, the parties had thirty days to enter into a purchase agreement, and the seller could become the buyer's lender by matching the terms of the proposed financing. After the option was exercised, the parties engaged in lengthy negotiations, but Humble did not respond to Wyant's proposed purchase agreement nor advise him of available financing terms before the option expired. Six months later, Humble filed a suit against Wyant to enforce the option. Is Humble entitled to specific performance Explain. [ Humble v. Wyant, 843 N.W.2d 334 (S.Dak. 2014)] (See Contract Discharge. )

Question 20

Discharge by Operation of Law. Dr. Jake Lambert signed an employment agreement with Baptist Health Services, Inc., to provide cardiothoracic-surgery services to Baptist Memorial Hospital-North Mississippi, Inc., in Oxford, Mississippi. Complaints about Lambert's behavior arose almost immediately. He was evaluated by a team of doctors and psychologists, who diagnosed him as suffering from obsessive-compulsive personality disorder and concluded that he was unfit to practice medicine. Based on this conclusion, the hospital suspended his staff privileges. Citing the suspension, Baptist Health Services claimed that Lambert had breached his employment contract. What is Lambert's best defense to this claim Explain. [ Baptist Memorial Hospital-North Mississippi, Inc. v. Lambert, 157 So.3d 109 (Miss.App. 2015)] (See Contract Discharge.)

Question 21

Limitation-of-Liability Clauses. Mia Eriksson was a seventeen- year-old competitor in horseback-riding events. Her riding coach was Kristi Nunnink. Eriksson signed an agreement that released Nunnink from all liability except for damages caused by Nunnink's "direct, willful and wanton negligence." During an event at Galway Downs in Temecula, California, Eriksson's horse struck a hurdle. She fell from the horse and the horse fell on her, causing her death. Her parents, Karan and Stan Eriksson, filed a suit in a California state court against Nunnink for wrongful death. Is the limitation-of-liability agreement that Eriksson signed likely to be enforced in her parents' case If so, how would it affect their claim Explain. [ Eriksson v. Nunnink, 233 Cal.App.4th 708, 183 Cal.Rptr.3d 234 (4 Dist. 2015)] (See Contract Provisions Limiting Remedies.)

Question 22

A Question of Ethics-Assignment and Delegation. Premier Building Development, Inc., entered a listing agreement giving Sunset Gold Realty, LLC, the exclusive right to find a tenant for some commercial property. The terms of the listing agreement stated that it was binding on both parties and "their * * * assigns." Premier Building did not own the property at the time, but had the option to purchase it. To secure financing for the project, Premier Building established a new company called Cobblestone Associates. Premier Building then bought the property and conveyed it to Cobblestone the same day. Meanwhile, Sunset Gold found a tenant for the property, and Cobblestone became the landlord. Cobblestone acknowledged its obligation to pay Sunset Gold for finding a tenant, but it later refused to pay Sunset Gold's commission. Sunset Gold then sued Premier Building and Cobblestone for breach of the listing agreement. [ Sunset Gold Realty, LLC v. Premier Building Development, Inc., 133 Conn.App. 445, 36 A.3d 243 (2012)] (See Assignments and Delegations. )
1. Is Premier Building relieved of its contractual duties if it assigned the contract to Cobblestone Why or why not
2. Given that Sunset Gold performed its obligations under the listing agreement, did Cobblestone behave unethically in refusing to pay Sunset Gold's commission Why or why not

Question 23

Critical Legal Thinking. The concept of substantial performance permits a party to be discharged from a contract even though the party has not fully performed her or his obligations according to the contract's terms. Is this fair Why or why not What policy interests are at issue here (See page 264.)

Question 24

Business Law Critical Thinking Group Assignment. Frances Morelli agreed to sell Judith Bucklin a house in Rhode Island for $177,000. The sale was supposed to be closed by September 1. The contract included a provision that "if Seller is unable to convey good, clear, insurable, and marketable title, Buyer shall have the option to: (a) accept such title as Seller is able to convey without reduction of the Purchase Price, or (b) cancel this Agreement and receive a return of all Deposits."
An examination of the public records revealed that the house did not have marketable title. Bucklin offered Morelli additional time to resolve the problem, and the closing did not occur as scheduled. Morelli decided that "the deal [was] over" and offered to return the deposit. Bucklin refused and, in mid-October, decided to exercise her option to accept the house without marketable title. She notified Morelli, who did not respond. She then filed a lawsuit against Morelli in a state court. (See Equitable Remedies.)
1. One group will discuss whether Morelli has breached the contract and will decide in whose favor the court should rule.
2. A second group will assume that Morelli did breach the contract and will determine what the appropriate remedy is in this situation.