BBA 3210 Unit VI Assignment
Columbia Southern University
In order to determine the rights and damages, if any, afforded to Barbara in this scenario, one must review what makes a contract a contract, exploring the various types and elements of a contract to determine its validity and further exploring what remedies may be available and necessary to mitigate and resolve this dispute. The first step in analyzing this scenario is to determine whether or not Barbara and Alfred have entered into a legal, valid contract. According to Kubasek et al. (2016) at their simplest level, contracts are legally enforceable agreements or promises, made between parties, that should a breach occur is afforded a remedy under the law, or that for the performance of which, the law in some ways recognizes a duty. A typical valid contract consists of four separate elements: agreement, consideration, legal object, and legal capacity. “The agreement consists of an offer by one party, called the offeror, to enter into a contract, and an acceptance of the terms of the offer by the other party, called the offeree” (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016, p.174). The second element of a contract is consideration. Consideration is simply what each party is set to receive in exchange for fulfilling their individual promises within the contract. Contractual capacity considers the legal ability of each party to enter into an agreement, in general most adults, with the exception of those under the age of the majority, those who are intoxicated, or those suffering form mental illness are of legal capacity to enter into an agreement. Finally, the fourth element consists of legal object. This element explains that contracts cannot be either illegal or against public policy in order to be valid (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016).
In addition to knowing and understanding the various elements within a contract, one must know and understand the classifications of contracts. Kubasek et al. (2016) state that “all contracts can be classified as either bilateral or unilateral. Knowing whether a contract is bilateral or unilateral is important because the classification determines when the offeree is legally bound to perform” (p. 176). When the offeror wishes for a promise in return from the offeree within an agreement, the contract is considered to be bilateral. Bilateral contracts can be simplified as a promise in exchange for a promise, and as soon as the promises are exchanged, the bilateral contract is formed and the legal obligations of each party begin. In contrast, within a unilateral contract, the offeror wants the offeree to do something, not promise to do something. The offeror wants performance in return for the promise and the contract is formed once the action is complete (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016).
With this information in mind, it can be drawn that Barbara and Alfred did indeed enter into a legal, bilateral contract encompassing each of the four key elements of what make a contract a contract. This contract can be defined as bilateral due to the fact that each party has made a promise in exchange for a promise. Alfred has made a promise to drill a well for Barbara, up to 600 feet at a cost of $10 per foot, in exchange for a promised deposit of $3,500 from Barbara, with an additional promise of further payment or refund to be made upon completion of the project. The element of agreement was satisfied with an offer being made and accepted by the other party, in addition, the second element of consideration was satisfied with a bargained-for exchange where Alfred would receive consideration in the form of monetary compensation and with Barbara receiving a new well. Though it is not explicitly stated in the scenario, it can be drawn that Barbara and Alfred are of legal ability to enter into an agreement satisfying contractual capacity and as it is also not explicitly stated in the scenario, barring that there is no legal requirement or public policy stating that Alfred must be licensed with a state or local government to complete the drilling of the well, legal object would be satisfied as the well would not be illegal.
In drawing that the two individuals have in fact entered into a legal and valid agreement, as Alfred did not complete his agreed upon promise within the contract, Barbara would be afforded the right to sue Alfred for breach of contract in pursuit of monetary damages. The most commonly awarded damages are compensatory damages, which are “designed to put the plaintiff in the position he would have been in had the contract been fully performed” (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016, p. 280). Considering this, this would mean that theoretically had the contract been fulfilled, Barbara would not have paid the $4,500 to Carl to drill the new well after Alfred failed to do so, additionally, she would have had the water required to irrigate her apple crop preventing an additional $15,000 loss. However, Barbara would not be able to pursue her full $3,500 advance payment since it can be drawn that water would have been discovered at 300 feet, meaning that had the contract been fulfilled, she would have been in a position where Alfred owed her a refund of $500 (300 ft. x $10 per ft. = $3,000). Coupling this $500 refund with the $15,000 loss in apple crop and the $4,500 paid to Carl, it can be determined that Barbara could pursue up to $20,000 in compensatory damages.
In determining Barbara’s rights and possible damages to be recovered, the concept of mitigation of damages must be considered, as often times nonbreaching parties become angry with the breaching party and may possibly inflict further damage intentionally. Kubasek et al. (2016) detail how mitigation of damages states that in order for a nonbreaching party “to recover damages in a breach-of-contract case, the plaintiff must demonstrate the he used reasonable efforts to minimize the damage resulting from the breach. This obligation is referred to as the duty to mitigate one’s damages” (p. 284). In this situation, it may be drawn that since Barbara was upset with Alfred and voluntarily and immediately entered into a new contract with Carl, refusing to allow Alfred, who was ready, willing, and able to continue to perform the drilling of the well, the court may rule that Barbara did not demonstrate reasonable effort to minimize the damages and she is therefore responsible for the fee paid to Carl, not Alfred. Additionally, as Barbara entered into a contract with Carl, knowing that he would not be able to begin until October 1, it can be concluded that her actions, not Alfred’s, led to the destruction of her apple crop and loss of $15,000, as had she allowed Alfred to continue drilling the well, she may have had the water available to properly irrigate her crops. In addition to this, Kubasek et al. (2016) describe that in the pursuit of compensatory damages, entities may only recover and be compensated for “only those provable losses that were foreseeable at the time the contract was entered into” (p. 280). Two major factors come into play in considering what may have been unforeseen: 1) Alfred, as a non-professional driller which Barbara was very aware of, would have had no way of knowing that he would hit a rock 200 feet into drilling the well and 2) no one could have predicted the failure of the county’s dam, starving Barbara’s crops of water. With these facts in mind, a court may conclude a number of outcomes that do not award Barbara the full compensation that she seeks. Due to Barbara’s lack of effort in mitigating the damages, the court may rule that her costs to pay Carl were made under her own judgment and willingness, despite the fact the Alfred was willing to complete the work, therefore she would not be entitled to this compensation. Additionally, in this choice to enter into a contract with Carl, knowing that he would be unable to start the work until 1 October, and no one could have predicted the failure of the dam, a court may also rule that Alfred is not responsible for the $15,000 loss in her crop. It seems that since the work by Alfred was in fact not completed, a reasonable ruling would be that Barbara is entitled to compensation in the form of the $3,500 that she paid Alfred to complete the drilling of the well. However, Alfred may also claim that Barbara did agree to pay him an amount of $10 per foot drilled, and since he did in fact drill to a depth of 200 feet prior to the unforeseen circumstance of hitting the rock, she is responsible for a cost of $2,000, leaving Barbara with a total compensation of $1,500 within the lawsuit.
It can be drawn from scenario number two that the involved parties, Mundo, a printing press manufacturer, and Extra, a newspaper publisher did in fact enter into a bilateral contract whereas Extra agreed and promised to purchase new printing presses from Mundo in exchange for $2.4 million. It can be concluded that Mundo’s offer to Extra was in fact a valid offer as it includes all three elements under common law which are: intent, definite and certain terms, and communication to the offeree (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016). Kubasek et al. (2016) state that within intent, “the offeror must manifest an intent to be bound by the offeree’s acceptance” (p. 180). The scenario provides that Mundo did in fact satisfy the element of intent when a letter, signed by Seller, a member of Mundo’s sales staff, was received by Boss on December 1 offering to sell the required number of presses at a cost of $2.4 million. Common law states that the terms within an offer must be definite and certain, meaning that all material terms must be included. Material terms are those terms that would allow a court to stipulate what damages would be due in the event of a breach of contract (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016). This letter sent from Seller, included definite and certain terms detailing specific provisions related to the delivery schedule of the presses, details surrounding the warranties provided with the presses, as well as the payment terms that would be accepted within the agreement. The third element of communication, states that “the offer must be communicated to the offeree or to the offeree’s agent” and that “only the offeree to whom the offer was directed can accept the offer” (p. 184). Communication is clearly met in the letter being sent from Mundo to Extra expressing the details of the agreement.
An additional important element to consider in terms of an offer is the acceptance of the offer itself. After an offer has been made by an offeror, the offeree then has the power to accept the offer that has been made, thus forming a contract. Under common law, the basic elements of acceptance of an offer mirror those of a valid offer, in that there should be manifestation of intent to be bound by the acceptance of the contract, agreement to definite and certain terms within the offer, and communication back to the offeror (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016). Additionally, as described by Kubasek et al. (2016), “an offeror has the power to control the means by which the acceptance is communicated, and if the offeror specifies that only a certain means of communication will be accepted, then only that method of communication forms a valid offer” (p. 187). If no means of communicating the acceptance of an offer has been specified, then any reasonable means of communicating is acceptable. These means generally include telephone, telegraph, mail, fax, and e-mail to name a few (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016). As the scenario states that no particular mode of acceptance was specified, therefore the call made by Boss to Seller on December 1 after receiving the offer letter would stipulate acceptable means of communication back to the offeror. The message left by Boss stating the he is sold on the contract indicates the intent of Extra to be bound by acceptance of the contract, and agreement to definite and certain terms in satisfied with Boss communicating that the offer “looks good” and to have Seller call him when he returns so that the details could be discussed. Boss, as the individual to whom the offer was made, is the appropriate entity to accept the offer made by Mundo, and therefore as no means of acceptance was specified, Boss’s call to Seller prior to the revocation of the offer by Mundo on December 5, stipulates that a bilateral contract had in fact been formed which in turn makes Mundo legally obligated to sell the new printing presses to Extra for the agreed upon price of $2.4 million.
Due to the fact that Mundo attempted to change the terms of an offer in favor of an increased price and attempted to revoke said offer after it had been made and accepted, Extra under law, has rights to claim breach of contract and pursue remedies against Mundo. Specific performance, also called specific enforcement, may be Extra’s best chance of success. Specific performance “is an order requiring the breaching party to fulfill the terms of an agreement” (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016, p. 285). Often times courts are reluctant against granting specific performance and only do so when monetary damages would not be adequate due to the unique nature of the terms of the contract. Furthermore, under the UCC, commonly accepted circumstances for the granting of specific performance include situations in which the good or service at question is one that is scarce or is no longer produced and would be difficult to acquire on the open market (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016). This condition is clearly met within the scenario as Mundo, after a proclamation by the POTUS that all foreign imports of computerized heavy equipment are banned, became the only supplier of the equipment required by Extra after their only competitor was eliminated by the ban, making it extremely difficult for Extra to acquire the required items on the open market.
An additional option that may be considered by Extra would be to seek an injunction to prevent Mundo from revoking the offer or selling the equipment to another entity. An injunction is simply an order given by a court either forcing a specific person or entity to do something, or prohibiting them from doing something, however, injunctions are more commonly put into place to prevent an entity from doing something (Kubasek, Browne, Herron, Dhooge, & Barkacs, 2016). Seeking an injunction would essentially hold Mundo to their original agreement of selling the equipment to Extra for $2.4 million.
Kubasek, N., Browne, M. N., Herron, D. J., Dhooge, L. J., & Barkacs, L. (2016). Dynamic business law: The
essentials (3rd ed.). New York, NY: McGraw-Hill Education.