February 2020 Question 3
Contracts
I. Applicable Law
Contracts for the sale of tangible goods are governed by Article II of the Uniform Commercial Code. All other contracts, such as those for services or real property, are governed by the common law.
Here, the contract between Barn and Sam (S) is to "paint a one-of-a-kind artistic design," Hence, this is a services contract. Accordingly, it will be governed by the common law.
II. Sam's Breach of Contract Claim
Valid Contract
In order to bring a successful breach of contract claim, there must first be a showing of a valid contract. To form a valid contract, there must be an offer, acceptance, and consideration. Additionally, there must be no grounds for a valid defense to formation.
(1) Mutual Assent
Parties to a contract must manifest mutual assent to be parties to the contract. This is typically shown through offer and acceptance. Here, there are no facts regarding a traditional offer and acceptance between Barn (through its president, Ed) and S. Instead, after discussing the terms, the parties entered into a "mutually drafted" handwritten contract that states "Sam shall paint a unique design along the entire ceiling border of all public areas of the first-floor lobby. Barn shall pay $75,000 upon completion of the work." This is likely enough to show mutual assent between the parties and, thus, this element is satisfied.
(2) Consideration
Consideration is necessary for there to be a valid contract. Typically, a showing of consideration is done by facts evidencing the parties have obtained a legal benefit or detriment through the contract. Some states, however, only look to legal detriment. In either regime, the consideration requirement is satisfied here: Barn's legal detriment is having to pay $75,000 when the work is completed; meanwhile, S's detriment is having to do the work.
(3) Mutual Mistake
A mutual mistake occurs when both parties have a belief not in accord with the facts as to a material fact underlying the contract which causes a material change in performance of the contract and for which neither party held the risk of mistake. Here, Barn may argue that S cannot recover because there was a mutual mistake as to what "all public areas" meant in their contract. Barn claims it includes the public restrooms, while S claims it does not. Because this outlines S's only obligations under the contract, this would have a material effect on performance. As such, under Barn's theory, no valid contract was formed.
This argument is likely to fail, however. There was no indication that parties had different understandings as to facts that exist out in the world. Instead, there is a dispute as to the obligations required under the contract. There is still a basis for a court to find the terms of the contract and can afford the parties the performance they anticipated under their original agreement.
Hence, because there is an agreement, consideration, and likely no valid defense to formation, S can show that a valid contract was formed.
Performance Due
Next, S will need to show establish the performance due under the contract so that a court may determine whether a breach has occurred. Barn's performance due under the contract is simple. It must pay S upon completion of the artwork. S's performance due, however, is less certain. There are two main disputes: whether S was obligated to perform surface preparation and whether S was obligated to paint the bathrooms.
(1) Surface Preparation
(A) Plain Meaning
Generally, when a court examines what is required under the contract, it looks to the plain meaning of the words therein. Traditionally, a court could not examine any extrinsic evidence to give meaning to those terms unless they were ambiguous. Here, the contract indicates simply that S "shall paint a unique design." On its’ face there is nothing ambiguous about this statement. Barn will argue that the ambiguity arises when you consider that "several artists who perform similar work" stated that "'surface preparation' was typically the responsibility of the artist." The court will need to decide whether it really believes that the words as found in the contract are uncertain enough to consider this extrinsic evidence of trade usage. On balance, a court could find that the word "paint" could contain multiple obligations and so extrinsic evidence is required. Thus, a court could consider this trade usage in determining the scope of S's obligations. Because there is no evidence of course of performance or course of dealings between S and Barn, this would be the most dispositive evidence as to S's obligations.
(B) Modification
Under the common law, a good faith modification requires consideration to be valid. Here, Barn may argue that even if "paint" is not deemed to include surface preparation, the parties modified the contract after it was formed. Here, the modification would have placed an additional burden on S's performance and, thus, to be valid requires an additional burden on Barn. However, there is no indication that Barn took on that additional performance. Although S did submit a bill which included $3,000.00, Barn is claiming that it need only pay the originally agreed $75,000. Hence, there was likely no consideration for this modification to be valid.
On balance, however, because "paint" is likely to be found sufficiently ambiguous, S's obligations included the surface preparation.
(2) The Bathrooms
(A) Parol Evidence
See above rule. Here, the parties argue that "all public areas of the first-floor lobby" include the two public restrooms. However, S states that "before the contract was signed, he told Ed that the restrooms could not be included because his paints were not suitable for the high humidity in those locations."
Under the parol evidence rule, when there is a written contract, the parties may generally not present evidence of prior or contemporaneous agreements made before the writing. If the writing is meant to be a the full and final expression of the parties' agreement, then no extrinsic evidence is permitted absent a finding that the term would have been "naturally omitted." The contract is said to be a complete integration. If, instead, the writing is simply part of the full agreement, then only extrinsic evidence that does not contradict the written terms may be admitted. Such a writing is said to be a partial integration.
Here, the parties’ agreement is likely to be a partial integration. Firstly, there is no merger clause, which indicates that the agreement is the final and complete expression of the parties' contract. Although the existence or lack of a merger clause is not the sole factor in this analysis, it is a substantial one. Additionally, the brevity and lack of formality of the agreement (being handwritten) also support that this is merely a partial integration.
If the court finds a partial integration, then it must ask whether S's conversation with Ed before the contract was signed contradicts the written terms of the contract and should be excluded.
Barn may argue that it does because the contract covers "all public areas" of the lobby, of which the bathrooms would be included. On the other hand, S will argue that the term does not contradict but merely delineates the meaning of "all public areas." S may also argue that "all public areas of the first-floor lobby" generally mean just the lobby area itself and not any rooms or hallways attached to it. Weighing the two, a court is likely to side with S and find that the term does not conflict with the contract.
Accordingly, S's performance likely did not include the bathrooms.
Breach
When a party fails to perform as contemplated by the contract there has been a breach. However, a breach does not necessarily excuse the other party's obligation to perform. When there has been substantial performance, i.e., the nonbreaching party has received the substantial benefit of its bargain, the nonbreaching party must still perform its obligations under the contract. Only when there has not been substantial performance, will the obligations of the nonbreaching party be suspended.
(1) S's Obligations
As noted above, S's obligations likely included the surface preparation but not the bathrooms. Because of this he has not breached his duties under the contract. However, even if he was required to paint the bathrooms, he has likely substantially performed. According to Barn's letter, S has painted everything in the lobby except "two public restrooms." This is likely to be a very small part of the overall size of the lobby and so Barn is likely to have received the substantial benefit of the bargain. Thus, under either interpretation, S has substantially performed.
(2) Barn's Obligations
Based on the constructive condition of exchange, once one party's obligations under a contract become due or are excused, the other party's obligations also become due (or must be excused). Here, because S likely completed his obligations under the contract, Barn's obligation to pay was incurred. Because he refused to do so, he breached the contract.
Damages
(1) Expectation Damages
Expectation damages are the default damages in contract. They are meant to place the nonbreaching party in the same position it would be in had the breaching party performed.
Here, if Barn had performed under the contract, it would have owed S $75,000.00. S's injury here.the lack of payment.is caused solely due to Barn's breach. Thus, S is entitled to $75,000 in expectation damages under the contract.
(2) Consequential Damages
Consequential damages are those that arise as a result of the breach that are foreseeable to the parties (either expressly or when the parties contemplated the contract), caused by the breach, and reasonably certain. Here, S is not claiming anything that could be considered consequential damages; so he will not recover for these.
(3) Incidental Damages
Incidental damages are those damages that flow from the breach. This includes damages for expenses incurred to inspect goods, ship back nonconforming goods, or to warehouse
nonconforming goods. Here, S is not claiming anything that could be considered incidental
damages, so he will not recover those.
(4) Restitution
If the court finds that the surface preparation was not originally part of the contract, then S may be able to recover damages related to that under a unjust enrichment theory. Restitution is available when a plaintiff confers a benefit to the defendant, without gratuitous intent, and it would be unjust to allow the defendant to keep that benefit without compensation. Here, if S did not have to prepare the surface of the lobby under the contract, then Barn benefited in not having to find another worker to do that for it. There is no indication that S intended to do this gratuitously, particularly because S charged Barn $3,000 for the labor and supplies used.
Restitution can be calculated either by the value of the benefit conferred on the defendant or the cost to the plaintiff in conferring that benefit. Here, there are no facts as to how much it would have cost Barn to hire someone else to do the surface preparation. Yet, we do know that Sam submitted a bill of $3,000 for labor and supply. Assuming this is a reasonable estimate of the labor involved with the surface preparation, S will likely be able to recover this amount.
(5) Duty to Mitigate
When a plaintiff suffers a breach, they have a duty to mitigate their damages. Here, there was no indication that S could mitigate his damages so this does not apply.
(6) Saved Costs
If the court does find that the bathrooms were part of the deal, then the court should offset S's damages award for any costs he saved by not painting the bathrooms as well.
(7) Conclusion
In total, S will likely be entitled to $75,000 in compensatory damages under the contract. If the court finds that he did not need to do the surface preparation, then he will also be entitled to $3,000 for restitution. Finally, S's compensatory damages should be reduced by any costs saved in not painting the bathrooms if the court finds that he was obligated to do so.
II. Barn's Claim for Specific Performance
To obtain specific performance, a claimant must show (1) a valid contract, (2) the contracts terms are certain, (3) there are no conditions precedent, (4) inadequacy of the legal remedy, (5) practicality of legal enforcement, and (6) the lack of equitable defenses.
Valid Contract
As analyzed above, there is likely a valid contract between S and Barn. Thus this element is satisfied.
Certainty of Terms
Although there is some ambiguity as to what "paint" and "all public areas" mean in the contract, the ambiguities are not so great as to make it impossible for the court to discover what performance was due under the contract, as analyzed above. Hence, this element is likely satisfied as well.
Condition Precedent
Here, Barn will need to show that it is willing and ready to pay the $75,000 required under the contract for S's performance. There is no indication in the facts that it is not able to do so; thus there are likely no outstanding conditions for performance.
Inadequacy of Legal Remedy
Specific performance is typically a rare remedy in contract. For most contracts, damages will be sufficient. S may argue that there is no inadequacy of legal remedy because Barn could simply obtain damages for the left over performance and hire another artists to do it. Barn will counter that it hired S because he is "an up-and coming artist" and he was hired to paint a "one-of-a-kind artistic design." These factors weigh in favor of Barn's argument.
That being said, Barn will still likely fail in its quest for specific performance because courts are loathe to award such relief in services contracts. Such a remedy would likely amount to indentured servitude in violation of the Thirteenth Amendment. Thus, even though S is an up and coming artist, Barn will likely be unable to require him to perform.
Practicality of Enforcement
Generally, practicality of enforcement in services contracts is another issue. The court does not want to be in charge of determining if performance is adequate. In this case, however, that is not likely to be an issue because the court can just match the work done on the lobby to that done in the bathrooms. Thus, this element will likely be met.
Defenses
(1) Laches
Laches occurs when the defendant unreasonably delays bringing suit and that delay prejudices the plaintiff. Here, there is no indication that Barn delayed in its request. It filed the countersuit as soon as S sued it for nonperformance, so this will not apply.
(2) Unclean Hands
Unclean hands occurs when the plaintiff has engaged in immoral or otherwise inappropriate behavior in relation to the contract. That again is not present here. S may argue that Barn's failure to perform constitutes "unclean hands" but generally more is required, such as intentionally making performance more difficult. Thus, that is not an element here.
Conclusion
Although most elements are found, because this is a service contract, Barn will not be successful in its countersuit.