Worksheet for Contract Management
Name: Brandon J. Crichlow Course Code Grade ___/100
Date: January 21, 2018
This scenario covers a contract dispute situation. The contract in question is an agreement between Systems Inc. and Big Bank. Please review the contract located in Scenario Summary of the “You Decide” page to familiarize yourself with the specifics of the contract.
You are the manager of a large data processing project. Your company, Systems Inc., worked very hard to obtain a contract with Big Bank to do the data conversions from their recent acquisition, Small Bank. The bank met with several companies to discuss who would do the best work on the contract. During your meeting with Big Bank, you told them that you had “never missed a conversion deadline.” At the time, your company had never missed a conversion deadline, but the company had only done three conversions. You also told them that “your data processing systems were the fastest around.” After months of negotiation, Big Bank signed the contract. The President of Big Bank said, “We like fast, and you guys are fast. We choose you.”
You started work on the data conversion immediately (ahead of contract). According to the contract, your team was responsible for ensuring that the new bank’s data was converted to Big Bank’s data processing system. The contract involved six large conversions. The first involved converting Big Bank’s savings accounts; the second, its checking accounts; the third, its investment portfolio; the fourth, its credit card operations; the fifth, its mortgage portfolios; and the sixth, its large business loans. Your team completed four of the six conversions without a problem. The fifth task, the largest and most important, has encountered numerous problems. Some problems have been based on personnel issues on your part and other issues have been based on the bank’s failure to provide you with necessary information. One issue resulted when the conversion was delayed for over one week. The data to be converted was formatted differently than the bank’s previous specifications provided. For that reason, the data conversion fields needed to be changed. A provision in the contract required your company to receive the approval of four individuals before making any changes to the conversion data fields, and one of those four people, Glenda Givealot, was out of the country doing missionary work in an area of the world that did not have cell phone reception. Another issue arose when the conversion was supposed to occur. Because of the change in the timeline, the conversion schedule had to change. The weekend the conversion was rescheduled to occur, an ice storm struck the state where your data processing computers were housed. Your facility lost electricity for three days, causing the conversion to be delayed once again.
Question: (17 points)
Can Big Bank’s President rescind the contract? Under what circumstances can a contract be rescinded by either party? What facts have to be alleged and proven? What is the result of a contract that is rescinded?
It is very unlikely that the Big Bank President can rescind the contract on his own. The entire process requires that both parties agree to end the contract. Both parties made mistakes and if agreed recession could occur. One party has already completed four out of the six conversions without a problem. Therefore, rescission will not be permitted. A recession is allowed if there is evidence of illegality, fraud, coercion, mistake, or duress. The facts that would need to be alleged and proven will fall into any of the following categories are fraud, mistake, illegality, duress, adhesion, and unconscionableness. If the contract is rescinded, will lose all labor costs, expenses, and charges incurred and Big Bank will have to redo the data conversion project and so reduced productivity and performance. Basically returning to the original state before the contacts.
Question: (16 points)
Big Bank’s President also threatens legal action. What potential causes of action could you foresee him bringing in court? Would he be successful? Why or why not? What arguments could Systems Inc. raises in its defense? What are Big Bank’s potential damages?
System, Inc. is under Breach of Duty in the contract, which is negligence on their part. The claim would be upon not have sufficient workforce to control the terms and conditions of the contract. It is not Big Banks responsibility to control the level of the skill level of the workforce. To quote the contract Section 8, part B and C “Systems Inc.’s obligation to Big Bank hereunder in performing the Services is to exercise the same degree of care and diligence used in processing information and compiling reports for its own use. Systems Inc.’s sole responsibility to Big Bank or any third party for any claims, notwithstanding the form of such claims (e.g., contract, negligence or otherwise), arising out of errors or omissions in the Services or Reports provided or to be provided hereunder and caused by Systems Inc. (provided that Big Bank shall have promptly notified Systems Inc. of any such errors or omissions), shall be to furnish at Systems Inc.’s costs the correct Services or Report and/or to correct the applicable Big Bank files. ” System, Inc. clearly with a lack employees of trained and skilled to provide the services stated in the contract.System, Inc. could use the argument that they did not have access to the computer for 3 days because of the ice storm as stated in Section 8, part A. Loss of power, access to data and employees not being able to get to work to transfer the data.There is civil tort since there is a violation of the contract and would allow them punitive damages for the Big Bank. The courts may even decide on comparative damages since the delay was caused by the weather was under the control of System, Inc.
Question: (17 points)
Review the facts provided and the sample contract. What provisions of the contract could you cite to support an argument that it is not in Big Bank’s best interest to rescind the contract? What facts could you cite to support an argument that Big Bank be responsible for some of these issues and/or not in compliance with the contract?
The following areas could be used to support the agreement that it is not in Big Bank’s best interest to rescind the contract:
2. CONVERSION OF BIG BANK’S INFORMATION – Parts A, B, and C
3. INPUT AND OUTPUT DATA
8. LIMITATION OF LIABILITY – Parts A and D
2(a). Big Bank agrees to cooperate with Systems, Inc. in this endeavor and to provide all information and assistance required for Systems Inc. to successfully convert Big Bank’s information files to a form compatible with Systems Inc.’s systems and equipment so that Systems Inc. can provide the Services.
2(b). Systems Inc. reserves the right to postpone conversion of Big Bank’s information files if Big Bank is late in delivering its conversion input information or if any other circumstances arise that might jeopardize the successful completion of Big Bank’s following day’s transactions for any other customers of Systems Inc.
2(c). In the event the conversion process is stopped, canceled, or suspended by Big Bank, Big Bank agrees to pay Systems Inc. all labor costs, expenses, and charges incurred by Systems Inc. in preparing to perform under this Agreement.
3. Big Bank shall be responsible for providing to Systems Inc . all input data and other information necessary for Systems Inc. to perform the Services and to prepare those reports described on attached Exhibit “C” (the “Reports”).
8(a). Systems Inc. shall not be responsible for any failure in providing the Services, any delays in processing, or any failure or delay in the delivery of any Reports that may be caused, in whole or in part, by….acts of God.
8(d). Systems Inc. shall not be liable to Big Bank for errors resulting from defects in, or malfunctions of, the mechanical or electronic equipment used by Big Bank or Systems Inc. In performing the duties and obligations contemplated in and covered by this Agreement.
Systems Inc. had issues when the employee was out of the country so that was our error, but when the ice storm struck leaving us with no electricity that was an act of GOD. At this point we have one failure for the lateness of conversion #5 and so does Big Bank so we are even and need to move on from here. If not, Big Bank will be losing out with all of the capital that they will have to pay us for all of our work performed to date
The facts that I would cite to support an argument that Big Bank is responsible for some of these issues and/or not in compliance with the contract are as follows:
• Some problems with conversion #5 have been due to the Bank’s failure to provide our data processing company with necessary information needed to perform the duties.
The data needed to be converted, as the original format differed from the bank’s previous specifications provided. For this reason, the data conversion fields needed to be changed.
Question: (16 points)
In this situation amicable resolution of problems is greatly preferred by your company. Would this be true in all contract disputes? In what situations would you decide to litigate? Why would you decide to move to litigation rather than attempt to reach an amicable resolution?
Question: (17 points)
There are 3 types of contract performance: 1)complete performance; 2) substantial performance; and 3) material breach. Describe the differences (and similarities) among the three, and explain some of the legal ramifications for one or more of these types of performances. (For example, what happens if one party performs completely but the other party performs only substantially?) Give examples from outside readings or experiences in your career or personal business life.
Complete: Performance to the letter of the contract, results in the parties being satisfied and thus having no claims against the other.
Example: vendor sells washing machine for $800. Customer pays the money and takes the delivery fo the washing machine and satisfied with product performance.
Substantial performance: If performance is not complete, however, a question arises as to whether it satisfies the contract. Performance that is not complete but that provides the other party with the important and essential benefits of the contract is “substantial performance.
Example: A utility contractor installs brand Y instead of brand X iron pipe. Brand X was required in the contract specifications. Despite the fact that both brand X and Y iron pipe function equally well, the contractor has nevertheless breached its contract by failing to comply with the material specifications of the contract. In this example, the utility contractor’s breach is a “Substantial performance” of the contract, and the owner’s remedy would be to recover damages it suffered.
Breach: absolute failure to perform material contract term. Anything less than substantial performance is a material breach of contract.
The legal ramifications for one or more of these types of performances are:
Compensatory Damages—compensate an injured party for injuries or damages actually sustained by the party. The injured party must prove that the actual damages arose directly by the breach of contract.
Example: I can draw this example from my professional life. I worked for an Ad agency and as will produce Ads for materials and products that not yet released. We sign non disclosure contracts with our clients. If breached we are liable for monetary damages or possible loss of business.
Consequential Damages—are foreseeable damages that result from a party’s breach of contract. Consequential damages are caused by special circumstances beyond the contract itself.
Punitive Damages—are designed to punish the wrongdoer and set an example to deter similar conduct in the future and are not usually recoverable in an action for breach of contract.
Nominal Damages—are awarded to an innocent party when only a technical injury is involved and no actual damage has been suffered. Nominal damages are often small but are awarded to establish that the defendant acted wrongfully.
In most situations, when a breach of contract occurs, the injured party is held to a duty to mitigate or reduce the damages that he or she suffers. In case, one party performs completely but the other party performs only substantially, the first party’s remedy would be to recover damages it suffered because it did not receive the full “benefit of its bargain”.
Question: (16 points)
What are the two most important concepts from this exercise that will help you in future contract negotiations?
The two most important concepts from this exercise that will help me in future contract negotiations would be Rescission and Substantial Performance.
1. Rescission – Rescission and the ways that a party can rescind a contract is very important if an attorney is representing a party in a contract negotiation and how the party should engage in a rescission if it becomes necessary during the time that the contract is being performed by the parties. There are several ways that a contract can be rescinded and it will be necessary to provide a client with these ways if it becomes an issue.
2. Substantial Performance – Substantial performance is very important in contracts because if a party substantially performs its duties under the contract and there is a problem that will necessitate the parties to suspend the contract prior to completion parties will want to know what all they are entitled to receive after they have substantially performed.