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336 UNIT THREE Contracts and E-Contracts 18-2. Discharge by Agreement. Junior owes creditor Iba (a) Jimenez, a famous singer, contracts to perform in your $1,000, which is due and payable on June 1. Junior has been nightclub. He dies prior to performance. in a car accident, has missed a great deal of work, and con- sequently will not have the funds on June 1. Junior's father, (b) Raglione contracts to sell you her land. Just before title is to be transferred, she dies. Fred, offers to pay Iba $1,100 in four equal installments if Iba will discharge Junior from any further liability on the debt. (c) Oppenheim contracts to sell you one thousand bushels Iba accepts. Is this transaction a novation or an accord and of apples from her orchard in the state of Washington. satisfaction? Explain. (See Discharge by Agreement.) Because of a severe frost, she is unable to deliver the apples. 18-3. Impossibility of Performance. In the follow- (d) Maxwell contracts to lease a service station for ten years. ing situations, certain events take place after the contracts His principal income is from the sale of gasoline. Because are formed. Discuss which of these contracts are discharged of an oil embargo by foreign oil-producing nations, gaso- because the events render the contracts impossible to perform. line is rationed, cutting sharply into Maxwell's gasoline (See Discharge by Operation of Law.) sales. He cannot make his lease payments. Business Case Problems 18-4. Business Case Problem with Sample Answer- 18-6. Discharge by Operation of Law. Dr. Jake Lambert Material Breach. The Northeast Independent School District signed an employment agreement with Baptist Health Ser- in Bexar County, Texas, hired STR Constructors, vices, Inc., to provide cardiothoracic surgery services to Baptist Ltd., to renovate a middle school. STR subcon- Memorial Hospital-North Mississippi, Inc., in Oxford, Mis- tracted the tile work in the school's kitchen to New- sissippi. Complaints about Lambert's behavior arose almost man Tile, Inc. (NTI). The project had already fallen immediately. He was evaluated by a team of doctors and psy- behind schedule. As a result, STR allowed other workers to walk chologists, who diagnosed him as suffering from obsessive- over and damage the newly installed tile before it had cured, compulsive personality disorder and concluded that he was forcing NTI to constantly redo its work. Despite NTT's requests for payment, STR remitted only half the amount due under unfit to practice medicine. Based on this conclusion, the hospital suspended his staff privileges. Citing the suspension, their contract. When the school district refused to accept the Baptist Health Services claimed that Lambert had breached kitchen, including the tile work, STR told NTI to quickly make his employment contract. What is Lambert's best defense to repairs. A week later, STR terminated their contract. Did STR this claim? Explain. [Baptist Memorial Hospital-North Missis- breach the contract with NTI? Explain. [STR Constructors, Lid. sippi, Inc. v. Lambert, 157 So.3d 109 (Miss.App. 2015)] (See v. Newman Tile, Inc., 395 S.W.3d 383 (Tex.App.-El Paso Discharge by Operation of Law.) 2013)] (See Discharge by Performance.) . For a sample answer to Problem 18-4, go to Appendix E at 18-7. Conditions. H&J Ditching & Excavating, Inc., was the end of this text. hired by JRSF, LLC, to perform excavating and grading work 18-5. Conditions of Performance. Russ Wyant owned on Terra Firma, a residential construction project in West Knox County, Tennessee. Cornerstone Community Bank Humble Ranch in Perkins County, South Dakota. Edward financed the project with a loan to JRSF. As the work pro- Humble, whose parents had previously owned the ranch, was Wyant's uncle. Humble held a two-year option to buy gressed, H&J received payments totaling 90 percent of the the ranch. The option included specific conditions. Once price on its contract. JRSF then defaulted on the loan from Cornerstone, and Cornerstone foreclosed and took possession it was exercised, the parties had thirty days to enter into a of the property. H&J filed a suit in a Tennessee state court purchase agreement, and the seller could become the buyer's lender by matching the terms of the proposed financing. After the option was exercised, the parties engaged in lengthy against the bank to recover the final payment on its contract. negotiations. Humble did not respond to Wyant's proposed The bank responded that H&J had not received its payment because it had failed to obtain an engineer's certificate of final completion, a condition under its contract with J purchase agreement nor advise him of available finance responded that it had completed all the work it had contracted with JRSF. H& ing terms before the option expired, however. Six months to do. What type of contract condition does obtaining the later, Humble filed a suit against Wyant to enforce the engineer's certificate represent? Is H&J entitled to the final option. Is Humble entitled to specific performance? Explain. payment? Discuss. [H&J Ditching & [Humble v. Wyant, 843 N.W.2d 334 (S.Dak. 2014)] (See Conditions.) ing & Excavating, Inc. v. Cor nerstone Community Bank, _S.W.3d _, 2016 WL 675554 (Tenn.App. 2016)] (See Conditions.)Business Scenarios 18-1. Conditions of Performance. The Caplans con- installs Kohler brand fixtures, an equivalent in the industry. tract with Faithful Construction, Inc., to build a house for them for $360,000. The specifications state "all plumbing On completion of the building contract, the Caplans inspect the work, discover the substitution, and refuse to accept the bowls and fixtures . . . to be Crane brand." The Caplans leave house, claiming Faithful has breached the conditions set forth vacation, and during their absence, Faithful is unable to in the specifications. Discuss fully the Caplans' claim. (See buy and install Crane plumbing fixtures. Instead, Faithful Conditions.)CHAPTER 18 Performance and Discharge 33 18-8. A Question of Ethics-Conditions. King County, county secretly colluded with its property damage insur Washington, hired Frank Coluccio Construction Co. to deny payment. What do these facts indicate about th (FCCC) to act as general contractor for a public works county's ethics and legal liability in this situation? project involving the construction of a small utility (b) Could DBM, as a third party to the contract betwee tunnel under the Duwamish Waterway. FCCC hired Donald B. Murphy Contractors, Inc. (DBM), as a subcontractor. King County and FCCC, maintain an action on the con DBM was responsible for constructing an access shaft at the east- tract against King County? Discuss. ern end of the tunnel. Problems arose during construction, includ (c) All-risk insurance is a promise to pay on the "fortuitous ing a "blow-in" of the access shaft that caused it to fill with water, (accidental) happening of a loss or damage from any soil, and debris. FCCC and DBM incurred substantial expenses cause except those that are specifically excluded. Payment from the repairs and delays. Under the project contract, King usually is not made on a loss that, at the time the insur- County was supposed to buy an insurance policy to "insure against ance was obtained, the claimant subjectively knew would physical loss or damage by perils included under an 'All-Risk' occur. If a loss results from faulty workmanship on the Builder's Risk policy. " Any claim under this policy was to be filed part of a contractor, should the obligation to pay under an through the insured. King County, which had general property all-risk policy be discharged? Explain. damage insurance, did not obtain an all-risk builder's risk policy. 18-9. Special Case Analysis-Material Breach. Go to For the losses attributable to the blow-in, FCCC and DBM sub- Case Analysis 18.2, Kobel v. Bergen Auto Enterprises, L.L. C. mitted builder's risk claims, which the county denied. FCCC filed Read the excerpt, and answer the following questions. a suit in a Washington state court against King County, alleging, among other claims, breach of contract. [Frank Coluccio Con- (a) Issue: This case involved allegations of breach of contract involving which parties and for what actions? struction Co. v. King County, 136 Wash. App. 751, 150 P.3d (b) Rule of Law: What is the difference between a material 1147 (Div. 1 2007)] (See Conditions.) breach and a minor breach of contract? (a) King County's property damage policy specifically excluded, at the county's request, coverage of tunnels. The (c) Applying the Rule of Law: How did the court determine county drafted its contract with FCCC to require the all- case? which party was in material breach of the contract in this risk builder's risk policy and authorize itself to "sponsor" claims. When FCCC and DBM filed their claims, the (d) Conclusion: Was the defendant liable for breach? Why or why not