Wall Street Journal - Contracts

Wall Street Journal - Contracts Issue

Business LAW

Breach of Contract:

Civil contracts require performance by both parties. Usually, but not always, one party to a civil contract agrees to perform a service or provide certain goods for which the other party agrees to pay an amount specified in the contract. Where one party refuses to perform his obligations required under the terms of a valid contract, this violation breaches the contract (Miller, 1988).

Sometimes, a party performs the service or provides the goods specified by the contract, but a dispute arises between the parties concerning that performance. If the performance fails to meet certain elements of the contract, that is also considered a breach of contract, because the party paying for goods or services does not receive the goods or services actually specified under the contract. If the elements of the contracted goods or services not satisfied is considered a material term of the contract, that unsatisfactory performance is also a breach of contract (Miller, 1988).

Material terms to a contract are those that are important elements of the agreement; immaterial terms are those that are not essential to the agreement that do not significantly devalue the performance. For example, a contract for the purchase and delivery of a new refrigerator at 12:00 PM on a specified date is not breached by delivery of the new refrigerator at 12:30 PM instead. The contract would be breached by delivery of a used refrigerator, or a new stove instead of a refrigerator (Miller, 1988).

Generally, the remedy for breach of contract is a lawsuit for return of payment.

Under some circumstances, the party suing for breach of contract may also be entitled to damages caused by the breach. For example, if Party a agrees to sell a car worth $8,000 to Party B. For $6,500 and Party a then decides to sell the car to someone else, B may sue for the "benefit of the bargain" that the breach cost him, such as where B. purchases the same make, model, and year of vehicle from another seller for $7,500. In that situation, the measure of B's damages caused by a's breach is the difference between what he had agreed to pay a ($6,500) and what B. actually had to pay another seller ($7,500) for the same car. B would have a cause of action against a for that difference, or $1,000.

Application of Law:

In October 2007, New York lawyer Elana Elbogen filed a breach of contract lawsuit against the florist who provided the floral arrangement at her wedding to David

Glatt at Cipriani, a Manhattan restaurant. According to the plaintiff, the Posy Floral

Design Studio substituted the wrong flowers for the ones she had ordered, for which her family had paid more than $27,000, in advance (WSJ, 2007). The plaintiff alleges that she ordered dark rust-colored and green hydrangeas but that the florist supplied pink and green hydrangeas instead. The suit also claims that the florist breached the contract by using wilted and/or browned flowers, leaving the event without filling half the centerpiece vases with water, and using dusty and dirty vases." (WSJ, 2007).

Ordinarily, elements like the exact color of a flower or time of delivery are not material to the contract, but parties may include these elements as specific requirement in the contract. Where the contract specifies that delivery must be a specific shade of color and be delivered no later than 12:00 PM, that element becomes a material element. Even then, the measure of damages would have to reflect actual damages. Under ordinary contracts, damages for breach of contract do not include the indirect costs resulting to the non-breaching party. Therefore, a party who orders a new freezer may not sue for the cost of spoiled meat if the breach of agreement to provide the refrigerator on the specified date caused the buyer to lose perishable food that he ordered for delivery that same day, hoping to store it in the new refrigerator.

However, parties may also specify the nature of specific damages that will be caused by a breach, and where those terms are part of the contract, the breach will entitle the non-breaching party to those specific damages that were included as material terms of the contract. In order for breach of contract to give rise to consequential damages, they must be detailed in the contract and both parties must agree to those terms.

Opinion:

The plaintiff in this case actually sued for $400,000 in damages, accusing the florist of a "bait and switch scheme" in addition to "unjust enrichment" by charging for very expensive flowers but providing only cheap flowers of a much lesser quality, which had a "... significant impact on the look of the room and was entirely inconsistent with the vision the plaintiffs had bargained for" (NYT, 2007).

According to contract law, the plaintiff will probably not be entitled to any damages of the nature described. If the case goes to trial and the evidence shows that the florist did not fulfill the contract properly, the measure of damages will be only the difference between what the value of the flowers that were ordered and the value of the flowers that were received. Had the plaintiff discovered the problem before delivery, she could have paid another florist for the right flowers and then sued Posy for the difference in price for the rush delivery.