Homer v. Bilda – Breach of Contract, Research Paper Example

Valid contract. In this contract dispute, the applicable law will be the common law of contracts because this contract involves services. In order to assert a successful breach of contract claim, Homer will first need to establish that Homer and Bilda entered into a valid enforceable contract. The facts state that Homer and Bilda entered into a written agreement to construct a cabin and there are no facts to create any contract formation problems (Warner, 2012). There is no need (or time) to state law or issues that would not be necessary to determine the rights of the parties or otherwise in dispute. However, it is helpful to have an opening paragraph that expressly acknowledges the interrogatory (“call of the question”) and addresses any foundation or prerequisite facts required to answer the specific request of the interrogatory. Here, that means that in order to have a “breach of contract” you must have a valid contract first.] Mutual assent. Mutual assent requires that the essential terms of the contract are sufficiently definite and certain and both parties have agreed to those terms. The problem here is that both the price term and time for performance may not be definite and certain.

Homer will have an enforceable contract if he can establish that all the essential elements of a contract are present. Here, if there is a valid agreement between Homer and Bilda it will not be one for sale of goods governed by Article 2 of the Uniform Commercial Code. Instead, the common law requirements for an enforceable contract will apply. The essential common law requirements to create an enforceable contract are offer, acceptance and consideration.

Breach of contract—was Bilda’s duty to perform absolute? When a party fails to perform a contractual obligation that has become absolute (no unsatisfied or unexcused conditions) and that party has no legally sufficient argument to discharge that obligation, the non-performing party will be in breach of contract. Here, Bilda had an absolute duty to perform and that failure to perform was not legally excused. The fact that the job had become unprofitable (absent facts not present here to show extreme hardship sufficient to establish “impracticability”) or that the fish were biting is not sufficient to discharge Bilda’s obligation to complete construction. The only question here is whether Bilda’s breach was material or minor. However, modern courts hold that an agreement to agree carries with it an implied promise to negotiate in good faith.

Material or minor breach? There are several factors a court may consider when deciding whether a breach is material or minor. Of those, the relevant factors here are the intentional nature of the breach and the extent of performance by the breaching party. Here, it is clear that Bilda has willfully breached and has no intention of returning to complete the job. This factor suggests the breach is material (Warner, 2012). On the other hand, Bilda has completed one-half of the work. This factor suggests that the breach is only minor. Given that Homer cannot use the cabin until it is completed and the inconvenience, delay and added expense of finding, hiring and supervising a new contractor to complete the work, a court should find that Bilda’s breach was material. When an offer is made to a number of persons, such as by a newspaper ad, that offer may be revoked by giving notice that the offer has terminated by some means of equal publicity. Here, however, the initial ad was not the offer. There was no right or wrong conclusion here. The only “wrong” answer is one that failed to address the “material or minor breach” issue and use the facts to support either conclusion.

Damages. If a breach is considered material, the breach recipient can cancel the contract and sue for damages. However, there must actually be damages before such relief can be granted. Damages in a contract case are generally determined by examining a party’s expectation interest. That is, the breach recipient is entitled to damages measured by how much in money damages would be required to put the party in the same position as if the contract had been properly performed. In a construction contract where the Bilda abanHomers construction prior to completion, this expectation should include the reasonable cost of completion plus any damages suffered as a result of the delay. However, Homer has not paid Bilda anything yet. Homer has no damages unless the costs and expenses to complete the cabin will exceed the original contract price ($200,000) Homer expected to pay. While the UCC Article 2 provides for merchant’s firm offers without consideration, this is not a contract for the sale of goods. At common law, the offeree has to give consideration to the offeror bind the offeror to any promise to keep an offer open for any stated period of time. However, an offer may also become irrevocable under the doctrine of promissory estoppel. If an offer is made which the offer knows (or reasonably should know) will induce the offeree to believe that the offer is irrevocable for a period of time, then that offer will be deemed irrevocable for a reasonable period of time if necessary to prevent detrimental reliance by the offeree (Warner, 2012).

Reasonable cost of completion. Homer’s cost to complete construction was $110,000. In addition, he will also have the added $20,000 cost to replace the fireplaces. A party is required to mitigate damages, but the law only requires reasonable efforts to mitigate. It is doubtful a court will deny Homer the extra cost to replace the fireplaces since only an expensive heating system would provide a reasonable substitute (Warner, 2012). Assuming the parol evidence rule (see more complete discussion below) does not bar admission of Homer’s testimony regarding an oral understanding that the floor and window coverings were part of the contract, Homer could also add an additional $15,000 for the extra cost he must now incur for these items. Homer could also recover some damages for the delay and inconvenience caused by Bilda’s breach, plus any consequential damages ($1,000) for having to rent another cabin, assuming Bilda was aware or had reason to foresee that Homer might have to rent another cabin if Bilda failed to complete on time. Even with all these items added together, the extra costs incurred as a result of the breach are not in excess of $200,000 (Baker, 2007) . Homer would not be entitled to any damages from Bilda. You could have chosen to fully discuss the parol evidence rule here or under Bilda’s recovery.] If for any reason the court determines that Bilda has only committed a minor breach (court finds Bilda’s one-half completion is substantial performance), than Homer can still sue for damages (same analysis as above).

Bilda’s recovery

Traditional (majority) rule–no relief for breaching party. Under the traditional and still majority view, the court will not grant any recovery to a party who has committed a willful breach of contract (Warner, 2012). Damages are not available, unless the other party has also breached. Quasi-contract recovery is also not available under the theory that the willful breachor should not benefit as a result a voluntary decision to breach.

Minority rule and modern trend. Under the minority view adopted by a growing number of states, the breaching party may be entitled to restitution recovery in quasi-contract. Under this rule, Bilda may recover in quasi-contract/restitution for value of benefit conferred on Homer less any damages caused by breach.

Benefit conferred. Here, the benefit conferred on Homer is the value (to Homer) of the part of the cabin Bilda completed. That value here would be equal to the $200,000 Homer expected to pay less $110,000 Homer will now have to pay to have the cabin completed. This leaves $90,000 of “benefit conferred.” However, before Bilda’s recovery can be determined, the damages caused by the breach must be subtracted from this $90,000. The amount Bilda expended ($100,000) is irrelevant. Restitution for a breaching party is limited to the value of the benefit conferred (less any damages caused) and does not directly consider how much it cost the breaching party to perform (Warner, 2012) .

Damages caused. The damages caused by Bilda’s breach include the $20,000 for the fireplace work plus some reasonable amount for the two months of delay. There would also be a $15,000 deduction from Bilda’s recovery for the cost of the floor and window covering, but only if the evidence or the oral agreement is admissible under the parol evidence rule.

1) Parol evidence rule. Under the parol evidence rule, evidence of any prior or contemporaneous agreements are not admissible to contradict a material term of a final completely integrated written agreement since it covered all stages of construction. However, it failed to mention the floor and window coverings. On this basis, it could be deemed an incomplete agreement and permit parol evidence to supplement the terms of the written contract. If so, the oral agreement is admissible as proof that the window and floor coverings were intended to be included as part of $200,000 agreement. The evidence would then be admissible and the extra $15,000 Homer must pay for these items will be added to the damages (subtracted from Bilda’s recovery under restitution).

Consideration. To be enforceable, a contract must be based on valid consideration. As a general rule, consideration exists if both parties have incurred legal detriment and a bargained for exchange exists (Baker, 2007). Here, Homer may assert that Bilda has no legal detriment under this agreement since she has no obligation to purchase the property unless she “comes up with the money.” This could be an illusory promise (no true legal detriment to promisor) since Bilda could control whether she “comes up with the money” or not by a decision to cancel the contract or assign the final installment prior to receipt. However, modern courts are reluctant to allow one party (Homer) to escape contract liability claiming the other party’s promise is illusory when it is clear that party (Bilda) truly intended to perform. Here, it is more likely that a court would find that Bilda’s promise to pay when she “comes up with the money” was not illusory but just another way of saying “when the installment payment is due.”

Promissory estoppel. Even if the court finds that Bilda’s promise is illusory and insufficient consideration to support Homer’s promise to sell Bilda the house, Bilda could obtain some relief under a theory of promissory estoppel. Under this substitute for consideration, apromise made that causes another party to reasonably, foreseeably and detrimentally rely on that promise will be enforceable to the extent necessary to avoid injustice (Warner, 2012). Here, Bilda has made $8,000 worth of improvements to the house and paid Homer $1,000 per month. This reliance was reasonable and foreseeable to Homer since Homer knew that Bilda was planning on purchasing the home from Homer as soon as Bilda’s funds arrived. At the very least, a court should allow Bilda to recover from Homer for the value of payments and improvements (less fair rental value of the house for length of time Bilda has lived in the home).

Defenses to contract formation—The Statute of Frauds. Under the statute of frauds, a contract for the sale of land should bememorialized in a signed written agreement. Here, the Bilda-Homer agreement for the purchase of the house was oral. However, there is an exception to the land-sale contract statute of frauds for oral land sale contracts that have been fully or partially performed (Baker, 2007).

Conclusion. In a minority jurisdiction that permits a willful breachor to recover in restitution, Bilda would be entitled to recover $90,000 minus the $20,000 cost to repair the fireplaces and any damages for delay (including the $1,000 consequential damages if foreseeable). Bilda’s recovery would also be reduced by an additional $15,000 if the parol evidence is admitted and it is determined at trial that Bilda did in fact promise to install floor and window coverings as part of the contract. Under this exception, if the buyer has taken possession of the property and paid for it or made valuable improvements, the court will likely find sufficient evidence to prove that a land-sale contract exists even without a sufficient writing. Through these duties the contract is in breach. Homer may assert that by paying $1,000 per month (assuming that was a fair market rent), Bilda’s conduct is better evidence of her status as a tenant rather than as an owner. However, Bilda did take possession and made $8,000 worth of improvements. Most tenants would not make such an investment in property they did not own. A court could find that Bilda’s conduct was sufficient proof of a land-sale contract even without a written agreement. Based on all of these considerations the case would be found certifiably in breach. This is completely beyond the shadow of the doubt.

Work Cited

Baker, K. (2007, June 13). Arkansas court of appeals. Retrieved from https://courts.arkansas.gov/unpublished/2007a/20070613/ca06-1281.pdf

Conway, C. and Steward, F. (2009), Managing and Shaping Innovation, Oxford University Press.

Hislop, D. (2009) Knowledge Management in Organisations: A Critical Introduction. Oxford: Oxford University Press

Warner, R. (2012). Breach of contract cases in small claims court. Retrieved from http://www.nolo.com/legal-encyclopedia/free-books/small-claims-book/chapter2-3.html