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Draw the Law: Contract Disputes, Breach

I am happy to announce that I will be working with Docracy and The Greenhouse Innovation Hub to bring you a special seminar on Contracts Law here in Honolulu, Hawaii to be hosted at The Greenhouse Innovation Hub.  The seminar is tentatively scheduled for July 11th at 6-7pm with a representative from Docracy streaming live from New York.  We will be talking about what Docracy can do for your agreements and I will be talking about basics of contract law.
Check back on my blog and The Greenhouse Innovation Hub’s calendar for details.

As today’s Draw the Law continues the theme of discussing contracts, I wanted to get to talk about what business people care when they engage a business attorney. Today’s post is about contract disputes, and what is a breach of contract. I will follow-up about suing on contract, sending nasty letters, and getting damages in the weeks forthcoming.

Let’s Get the Lingo Right: What are Ways to Breach a Contract

Generally, when you want to end a business deal it is because of a number reasons: (a) you don’t like the other side and want to end the relationship; (b) you are frustrated because what you bargained for is not happening; or (c) a better business deal has arisen and you only have so much time. If you do not live up to what was agreed upon in the contract you would be in breach of contract or default. Breaches come up in 3 ways: (1) failure to perform; (2) making performance impossible; and (3) repudiation.

Failure to Perform

Sometimes you simply cannot live up to what was bargained for. For example, let’s say you said you would deliver a box of slippers to a retailer early next week. It would be a material breach if you never supplied the slippers.  In addition, you would be in material breach if you kept promising to deliver the box soon, and a month went by.

“Time is of the Essence”

Many contracts put in a “time of the essence” clause.  The function of this clause is meant to make the timing of performance a central part of the agreement. Therefore, if performance is not done in a timely manner you would be in default. 

Partial Performance, Partial Breach

Sometimes, a written agreement is comprised of multiple contracts, with multiple parts. It is sometimes possible to perform on some of those contracts, and completely fail to do others. Using our example, let’s say you are to do multiple deliveries of boxes of slippers, and they are to be delivered the first of every month, but you make several deliveries after the first.  You would likely have to pay to the retailer the cost of the times you were delayed in delivering, and not for the times you performed. 

Making Things Impossible

Speaking of timing, sometimes you set a specific time for someone to perform.  Continuing with our example, let’s say the retailer told you to deliver the boxes on Sundays.  However, they forgot that they are closed on Sundays and forgot to send someone to open the store.  They would be in breach because they made it impossible for you to deliver.  The retailer would you the cost of sending the delivery truck down and possibly the lost of the sale if you could have sold the box to another retailer.

Repudiation

Finally, the last type of breach is a clear statement by one party that it will not be performing under the terms of the contract because it cannot or will not. Once again, let’s say you have to deliver your box of slippers to the retailer, but you get a call in the day before that a second retailer will pay you significantly more for the box of slippers.  You then send an email to the original retailer telling them that you decided to sell their shipment to someone else. This email is your repudiation.  Please note a repudiation is different than a disagreement as to the meaning of contract term’s.

Last Word

Breaching a contract does not mean you will go to jail. It is not illegal.  The government goes after you if you break safety laws.  Trespassing on someone’s property gives them a right to sue you, they don’t need a contract to go after you. However, remember last week, where I talked about the difference between property and contract law, understand that the nonbreaching party is only given rights to go after the other side based on what is in the contract.

In addition, breaking a contract can be costly based on the value of the deal, what the terms of the contract are, and how you handle the outcome. In coming weeks I will talk about seeking alternatives to dealing with a breach and the question you all like to ask your attorney, “what damages can I sue them for?”

See you next week!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.

Boilerplate Blurb: Act of God or Force Majeure Clauses

So last week I discussed the “Clickwrap” type of agreement, heavily favored by online retailers, app makers, and video game console giants. Remember, in general, I mentioned that these agreements are known as adhesion contracts or the take-it-or-leave-it contact. In these agreements the party that drafted the agreement has much more power and many times courts will peruse these contracts in consumer situations due to the imbalance of power.
However, today I will be turning to a higher power and given all the wind and rain here in the islands of the past week I though it would be appropriate to discuss act of God or force majeure (which means “greater force”) clauses.

Example Situation of When this Clause is Applicable

To give this clause a better context, consider you have opened shop and promised to deliver 1,000 menehune widgets to a mainland company in exactly 1 months time. However, it is hurricane season and two weeks from when the agreement was made your factory has rain and wind damage and you will be unable to fulfill the order. The mainland company was depending on that shipment to make their product for an event, the result is they lose out on sales.

Explanation

If there is a force of majeure clause it would excuse performance under the agreement under these circumstances. Basically, it is clear that performance is impractical under the situation due to the hurricane.  No amount of due diligence and/or care could have avoided the disaster and the party would have been able to accomplish the task nude the contract. It is clear that a hurricane is not under the control of person, thus it is an act of God or a force of nature. However, this clause is not only limited to purely natural disasters, but can include ones induced by human action, such as drilling and excavation that causes landslides or the changing of the land so there is a flood.

Further Discussion on Human-Controlled Situations

In general force majeure clauses cover three kinds of scenarios. One of them being the natural disasters, as just discussed. However, human events, such as riots, wars, or major societal upheavals are also covered. Consider, that a lot of things are produced overseas and the location of the factories. Here it is good to understand supply chain management on the business end, and then really think how an act of God clause is sometimes a necessity for a contracting party.

What’s the Third Situation?

The third situation are those man-made technical problems. No, I am not talking about the blue screen of death on your PC, but rather more severe performance failures where the contracting party has no control. Things like the telephone service going out due to the telephone company, labor strikes (not due to the contracting party),  and government restrictions and regulations. The main thing is that similar to the other situations, these technical and performance issues arise not out of the party’s control, but someone else’s. Thus, simple computer failures and software glitches are not covered, but may be a systematic power outage or server-wide failure might.

Main Point

The main thing to take away is that in these situations an act of God clause will excuse the party that fails to deliver or is delayed because of these kinds of scenarios, but the clause does not cover failures when it is due to the party’s financial condition or its own negligence.

Sample Language

Force Majeure Event ” means any cause(s) which render(s) a Party wholly or partly unable to perform its obligations under this Agreement (other than obligations to make payments when due), and which are neither reasonably within the control of such Party nor the result of the fault or negligence of such Party, and which occur despite all reasonable attempts to avoid, mitigate or remedy, and shall include acts of God, war, riots, civil insurrections, cyclones, hurricanes, floods, fires, explosions, earthquakes, lightning, storms, chemical contamination, epidemics or plagues, acts or campaigns of terrorism or sabotage, blockades, embargoes, accidents or interruptions to transportation, trade restrictions, acts of any Governmental Authority after the date of this Agreement, strikes and other labor difficulties, and other events or circumstances beyond the reasonable control of such Party.

While, I do not necessarily agree with this example (as it starts looking like a disaster movie as people who get carried away throw everything in) it does give you the flavor of what a force majeure clause is trying to accomplish within an agreement. Anyway, if you enjoyed this post or any of my others please “Subscribe” to this blawg!

*Disclaimer:  This post discusses general legal issues, but does not constitute legal advice in any respect.  No reader should act or refrain from acting based on information contained herein without seeking the advice of counsel in the relevant jurisdiction.  Ryan K. Hew, Attorney At Law, LLLC expressly disclaims all liability in respect to any actions taken or not taken based on the contents of this post.