Here is a typical service contract essay and answer that covers some common contracts and remedies issues. I've cleaned up and fixed some of the errors from the model answer.
Ace Painting Co. V. Owner
California Bar Exam - Copyright - February 1996
On June 1, 1994, Owner signed a contract with Ace Painting to paint the exterior of Owner's house by September 1, 1994 for a contract price of $4,700. On July 1, Owner called Ace by telephone and told Ace that it was particularly important that the house be painted by September 1 because his employer had transferred him and he was putting the house up for sale.
The weather was unusually rainy, and Ace fell behind on all of its painting jobs. Ace could have hired additional painters or subcontracted some of its jobs to stay on schedule, but Ace would have lost money on several jobs. Ace did not finish painting Owner's house until September 20. As a consequence, Owner did not list the house for sale until September 21.
The house stood empty, and Owner made no effort to rent or otherwise make use of it, until it was finally sold in May 1995. Most realtors in the area agree, and would testify, that the "selling season" in the area runs from May 1 to October 1 and that Owner's house would have been more likely to be sold in 1994 if it had been painted and ready to show by September 1.
Owner has refused to pay Ace for the work. Ace has sued Owner for $4,700. Owner denies liability and counterclaims against Ace for $6,000, asserting that the delay in Ace's completion was the cause of his missing the "selling season." The interest payments on the mortgage on Owner's house from October 1994 to May 1995 totaled $6,000.
What claims and defenses may Owner and Ace reasonably assert against one another, and what is the likelihood of success of each? Discuss.
Applicable Law
The common law governs this contract because it is a service contract for the painting of a house.
Applicable Parties
The parties to this agreement are Owner (O) and Ace Painting (A).
Formation
In order to determine what claims and defenses apply, it is first necessary to determine whether a valid contract was initially formed. A contract is a promise or set of promises the breach of which has a remedy, and the performance of which the law recognizes as a duty. A valid contract requires mutual assent (offer and acceptance) for bargained for consideration (or an acceptable substitute) and no valid defenses. Here, the facts indicate that O and A signed a contract in which A agreed to paint O's home and O agreed to pay A $4,700.00. Both parties expressed a promise and undertaking to be bound to certain and definite terms which they communicated to each other. Thus, a valid contract was formed.
July 1, 1994 Phone Call
Parol Evidence Rule
O will claim that he is not required to pay the full amount because of A's failure to adhere to the condition subsequent that was raised in the July 1, 1994 Phone Call. A will claim that O is in breach of contract because he failed to pay for A's performance and that the phone call is barred by the Parol Evidence Rule. The Parol Evidence Rule prevents parties from introducing extrinsic agreements or communication that was made prior or contemporaneous to the formation of a valid contract in dispute. The July 1 phone call in which O told A that it was "particularly important that the house be painted by September 1 because his employer had transferred him and he was putting the house up for sale" was made after the contract was formed on June 1, thus it will not be barred by the Parol Evidence Rule.
Modification
At common law, a modification of a contract requires consideration. The July 1 phone call was essentially O attempting to add a "time is of the essence" clause into the contract. Because this is an attempted alteration of the terms, it would require consideration in order to be valid. Because there was no bargained for consideration, the modification is invalid. O may argue that he was merely reiterating the due date that was already stated in the original contract, however this argument would fail because the addition of a "time is of the essence" clause is in fact an alteration of the contract. Thus, the modification is invalid and O is in breach of contract unless other defenses apply.
September 1, 1994 Due Date
Express Condition
Under the contract, A was required to complete work on O's house by September 1, 1994. This is an express condition that called for complete performance by that date. Express conditions must be strictly complied with. Because A did not provide complete performance until September 20, 1994, A breached its agreement with O, unless A's performance is excused or discharged.
A's Defenses
Discharge by Impossibility
Contractual duties will be discharged where it has become impossible to perform. The impossibility must be objective. In other words, nobody would be able to perform these duties. A will argue that because the weather was unusually rainy, it was impossible for him to paint the house on time. This argument will fail, because the facts indicate that A could have subcontracted or hired additional help in order to get the job done on time. This is evidence that it was not in fact impossible to perform on time.
Discharge by Impracticability
Contractual duties will be discharged where it has become impracticable to perform. Performance is impracticable when there is (1) an occurrence of a condition, (2) the nonoccurrence of which was a basic assumption of the contract and (3) The occurrence must make performance extremely expensive or difficult. Here, although the rainstorm was "unusual", inclement weather should always be contemplated by a contractor. Furthermore, although A would lose money on several jobs, the facts do not indicate that hiring additional workers would be extremely expensive or difficult. Thus, A's duty to perform is not discharged by impracticability.
Discharge by Frustration of Purpose
Frustration of purpose occurs when an unforeseen event undermines a party's principal purpose for entering into a contract, and both parties knew of this principal purpose at the time the contract was made. As mentioned above, inclement weather is always foreseeable to an extent, thus A will likely not prevail on this defense. Furthermore, the principal purpose of this contract was to paint the house. The house remained intact and was painted, thus A's duty to perform is not discharged by frustration of purpose.
Minor (Partial) Breach
Because A's duty to perform was not discharged, he had an absolute duty to perform by September 1, 1994 and breached the contract when he did not perform by this date. However, A will argue that his breach was a minor breach since O received the substantial benefit of his bargain. A minor breach gives the harmed party the right to sue for damages but does not usually excuse him from further performance. Here, although he performed 19 days late, A did eventually successfully paint O's house, thus giving him the substantial benefit of his bargain. Furthermore, time was not of the essence, thus the delay was not a material breach. The court will also weigh in A's favor the fact that his late performance was negligent rather than willful. Thus, O will be required to pay A for his performance, but may be entitled to damages.
O's Remedies
Compensatory Damages
Compensatory damages are paid to compensate the claimant for loss, injury, or harm suffered as a direct result of another's breach of duty. Here, O's house was painted satisfactorily, thus he did not suffer any damages as a direct result of the breach and O will not prevail on his claim.
Consequential Damages
Consequential Damages are damages that are indirectly caused by the breach and may be recovered if it is determined such damages were reasonably foreseeable or "within the contemplation of the parties" at the time of contract formation. O will claim $6,000 worth of consequential damages, the amount that he spent on mortgage payments for the eight months that the house was on the market. A will argue that these were neither reasonably foreseeable nor within the contemplation of the parties at the time of contract formation. Because A had no reason to believe that O would incur such losses for his breach at the time that the contract was entered into, he will prevail and O will not prevail on his claim.
A's Defenses to Remedies
Certainty Rule
O must also prove that the losses suffered were certain in their nature and not speculative. O will introduce testimony by realtors in the area to establish that his home would have been "more likely to be sold" if it had not been placed on the market during the selling season. However, such testimony does not provide any certainty that O's home would have sold if it had been available for sale on the market for an additional three weeks. Thus O's claim should have also been denied on this ground as well.
Duty to Mitigate Damages
The non-breaching party is under a duty to mitigate damages. O made no attempt to mitigate damages and allowed the house to stay empty for eight months. O could have leased the home to another or taken some other action that would have resulted in income from the property. Thus, O's recovery for the $6,000, if any should be reduced by the amount he could have avoided.
Quasi-Contract
Where the contract fails, the breaching party may recover in quasi-contract to prevent unjust enrichment of one of the parties. Thus, if the contract is determined to be invalid for any reason, A may recover the value of the benefit conferred on O.
Conclusion
Because A performed its contractual obligation, A is entitled to receive the full contract price of $4,700, less any incidental damages suffered by O or damages resulting from the minor breach. O will not be allowed to recover any losses incurred from mortgage payments while his house was on the market and his countersuit should be denied.
Ace Painting Co. V. Owner
California Bar Exam - Copyright - February 1996
On June 1, 1994, Owner signed a contract with Ace Painting to paint the exterior of Owner's house by September 1, 1994 for a contract price of $4,700. On July 1, Owner called Ace by telephone and told Ace that it was particularly important that the house be painted by September 1 because his employer had transferred him and he was putting the house up for sale.
The weather was unusually rainy, and Ace fell behind on all of its painting jobs. Ace could have hired additional painters or subcontracted some of its jobs to stay on schedule, but Ace would have lost money on several jobs. Ace did not finish painting Owner's house until September 20. As a consequence, Owner did not list the house for sale until September 21.
The house stood empty, and Owner made no effort to rent or otherwise make use of it, until it was finally sold in May 1995. Most realtors in the area agree, and would testify, that the "selling season" in the area runs from May 1 to October 1 and that Owner's house would have been more likely to be sold in 1994 if it had been painted and ready to show by September 1.
Owner has refused to pay Ace for the work. Ace has sued Owner for $4,700. Owner denies liability and counterclaims against Ace for $6,000, asserting that the delay in Ace's completion was the cause of his missing the "selling season." The interest payments on the mortgage on Owner's house from October 1994 to May 1995 totaled $6,000.
What claims and defenses may Owner and Ace reasonably assert against one another, and what is the likelihood of success of each? Discuss.
Applicable Law
The common law governs this contract because it is a service contract for the painting of a house.
Applicable Parties
The parties to this agreement are Owner (O) and Ace Painting (A).
Formation
In order to determine what claims and defenses apply, it is first necessary to determine whether a valid contract was initially formed. A contract is a promise or set of promises the breach of which has a remedy, and the performance of which the law recognizes as a duty. A valid contract requires mutual assent (offer and acceptance) for bargained for consideration (or an acceptable substitute) and no valid defenses. Here, the facts indicate that O and A signed a contract in which A agreed to paint O's home and O agreed to pay A $4,700.00. Both parties expressed a promise and undertaking to be bound to certain and definite terms which they communicated to each other. Thus, a valid contract was formed.
July 1, 1994 Phone Call
Parol Evidence Rule
O will claim that he is not required to pay the full amount because of A's failure to adhere to the condition subsequent that was raised in the July 1, 1994 Phone Call. A will claim that O is in breach of contract because he failed to pay for A's performance and that the phone call is barred by the Parol Evidence Rule. The Parol Evidence Rule prevents parties from introducing extrinsic agreements or communication that was made prior or contemporaneous to the formation of a valid contract in dispute. The July 1 phone call in which O told A that it was "particularly important that the house be painted by September 1 because his employer had transferred him and he was putting the house up for sale" was made after the contract was formed on June 1, thus it will not be barred by the Parol Evidence Rule.
Modification
At common law, a modification of a contract requires consideration. The July 1 phone call was essentially O attempting to add a "time is of the essence" clause into the contract. Because this is an attempted alteration of the terms, it would require consideration in order to be valid. Because there was no bargained for consideration, the modification is invalid. O may argue that he was merely reiterating the due date that was already stated in the original contract, however this argument would fail because the addition of a "time is of the essence" clause is in fact an alteration of the contract. Thus, the modification is invalid and O is in breach of contract unless other defenses apply.
September 1, 1994 Due Date
Express Condition
Under the contract, A was required to complete work on O's house by September 1, 1994. This is an express condition that called for complete performance by that date. Express conditions must be strictly complied with. Because A did not provide complete performance until September 20, 1994, A breached its agreement with O, unless A's performance is excused or discharged.
A's Defenses
Discharge by Impossibility
Contractual duties will be discharged where it has become impossible to perform. The impossibility must be objective. In other words, nobody would be able to perform these duties. A will argue that because the weather was unusually rainy, it was impossible for him to paint the house on time. This argument will fail, because the facts indicate that A could have subcontracted or hired additional help in order to get the job done on time. This is evidence that it was not in fact impossible to perform on time.
Discharge by Impracticability
Contractual duties will be discharged where it has become impracticable to perform. Performance is impracticable when there is (1) an occurrence of a condition, (2) the nonoccurrence of which was a basic assumption of the contract and (3) The occurrence must make performance extremely expensive or difficult. Here, although the rainstorm was "unusual", inclement weather should always be contemplated by a contractor. Furthermore, although A would lose money on several jobs, the facts do not indicate that hiring additional workers would be extremely expensive or difficult. Thus, A's duty to perform is not discharged by impracticability.
Discharge by Frustration of Purpose
Frustration of purpose occurs when an unforeseen event undermines a party's principal purpose for entering into a contract, and both parties knew of this principal purpose at the time the contract was made. As mentioned above, inclement weather is always foreseeable to an extent, thus A will likely not prevail on this defense. Furthermore, the principal purpose of this contract was to paint the house. The house remained intact and was painted, thus A's duty to perform is not discharged by frustration of purpose.
Minor (Partial) Breach
Because A's duty to perform was not discharged, he had an absolute duty to perform by September 1, 1994 and breached the contract when he did not perform by this date. However, A will argue that his breach was a minor breach since O received the substantial benefit of his bargain. A minor breach gives the harmed party the right to sue for damages but does not usually excuse him from further performance. Here, although he performed 19 days late, A did eventually successfully paint O's house, thus giving him the substantial benefit of his bargain. Furthermore, time was not of the essence, thus the delay was not a material breach. The court will also weigh in A's favor the fact that his late performance was negligent rather than willful. Thus, O will be required to pay A for his performance, but may be entitled to damages.
O's Remedies
Compensatory Damages
Compensatory damages are paid to compensate the claimant for loss, injury, or harm suffered as a direct result of another's breach of duty. Here, O's house was painted satisfactorily, thus he did not suffer any damages as a direct result of the breach and O will not prevail on his claim.
Consequential Damages
Consequential Damages are damages that are indirectly caused by the breach and may be recovered if it is determined such damages were reasonably foreseeable or "within the contemplation of the parties" at the time of contract formation. O will claim $6,000 worth of consequential damages, the amount that he spent on mortgage payments for the eight months that the house was on the market. A will argue that these were neither reasonably foreseeable nor within the contemplation of the parties at the time of contract formation. Because A had no reason to believe that O would incur such losses for his breach at the time that the contract was entered into, he will prevail and O will not prevail on his claim.
A's Defenses to Remedies
Certainty Rule
O must also prove that the losses suffered were certain in their nature and not speculative. O will introduce testimony by realtors in the area to establish that his home would have been "more likely to be sold" if it had not been placed on the market during the selling season. However, such testimony does not provide any certainty that O's home would have sold if it had been available for sale on the market for an additional three weeks. Thus O's claim should have also been denied on this ground as well.
Duty to Mitigate Damages
The non-breaching party is under a duty to mitigate damages. O made no attempt to mitigate damages and allowed the house to stay empty for eight months. O could have leased the home to another or taken some other action that would have resulted in income from the property. Thus, O's recovery for the $6,000, if any should be reduced by the amount he could have avoided.
Quasi-Contract
Where the contract fails, the breaching party may recover in quasi-contract to prevent unjust enrichment of one of the parties. Thus, if the contract is determined to be invalid for any reason, A may recover the value of the benefit conferred on O.
Conclusion
Because A performed its contractual obligation, A is entitled to receive the full contract price of $4,700, less any incidental damages suffered by O or damages resulting from the minor breach. O will not be allowed to recover any losses incurred from mortgage payments while his house was on the market and his countersuit should be denied.