Commercial Law: Case of the World Trade Center
Instructions: identify 5 of the legal issues; therefore submitting 5 IRACs.
Solution.
Commercial Law: Case of the World Trade Center
The World Trade Center contracted the Port Authority of New York to and New Jersey to help in the construction of its structure. The superstructure consisted of 105 floors with special reinforced concrete that was supposed to protect the top portion of the building from street level blasts. A below-the-ground reinforcement was meant to keep the building stable even in the event of a large blast such as the one that went off below the World Trade parking in 1990. According to Callavino, one of the main contractors of the tower, the construction company had completed the work in 2013 after some delays which were beyond its control. However, it could not get its check from the Port Authority.
The inability to access the necessary funding has led Calvino to apply for bankruptcy despite its good standing and the presence of three other projects by the company in New York and New Jersey area. The company is facing some lawsuits from some its suppliers and subcontractors.
Issue
The main point was that subcontractors and contractors are suing Calvino Construction Company for breach of contract.
Rule
- Applicable breach or violation
This applies to the case of a violation or breach stipulated within a contract.
- Liquidated damages. – additional to damages for any other breach of contract, the party mentioned in the breach of contract is liable to the Federal Government for the following damages:
- An amount that is equal to $10 per day for each under the age of 16 years and any incarcerated person knowingly employed in the performance of the contract.
- An amount equivalent to each underpaid wages the employee engaged in the contract is due, including any arising from rebates, debts, and refunds.
c) Alternative completion and cancellation
Apart from being liable for the damages descried in section (b), the federal government through the agency that prepared the contract may cancel it and make other contracts or open market purchases to complete the original contract. It may charge any additional cost to the original contract.
(d) Recovery of amounts due
The amount due the Federal Government because of violation or breach described in the subsection (a) may be withheld from any amount owed the contractor or may be recovered via a suit filed by the Attorney General.
(e) Employee reimbursement for underpaid wages
The amount recovered or withheld under section (d) based on underpaid wages described in subsection (b) (2) shall be held in a special deposit account (“41 U.S. Code § 6503 – Breach or violation of required contract terms”, 2011). The amount shall be paid directly to the employee whose account was recovered or withheld on the order of the Secretary. However, the employee claiming pay under this subsection will only be entertained in the claim is made within one year after the notification is served to the contractor of the recovery or the holding.
(Traore & Xiao, 2013)
Application
Calvino Construction Company is in breach of contract. According to their initial agreement, they are supposed to pay their suppliers and subcontractors immediately after their services. However, they fail to do this and apply for bankruptcy instead. Therefore, with the breach of contract, suppliers and subcontractors try to get the contract to be enforced on its original terms. Nonetheless, Calvino Company is trying to recover from the financial harm caused by the breach through applying for bankruptcy. In the case of a dispute and an out-of-court settlement fails, then a lawsuit usually follows. If the amount in question is a small figure (about $3,000 to $7,000) then the issue is sorted within small, claims courts (“Breach of Contract and Lawsuits – FindLaw”, 2016).
However, in the case of formal law suits, courts are not the only option. The parties to the dispute may choose a mediator to review the dispute within the contract hence an alternative dispute resolution.
Conclusion
The main remedies towards the breach in contract are damages, specific performance or restitution and cancellation.
Damages
This is the most common type of settlement for a breach of contract. It involves
Compensatory damages which aims to put the non-breaching party in a position they should have been in case the breach did not occur.
Punitive damages are payments made above and beyond that which fully compensates the breached party. It is meant as a form of punishment for the breaching party and is rarely rewarded in a business contract setting.
Nominal damages are paid in instances where the breach occurred but no money loss to the breached party is proven.
Liquidated damages are considered when the damages in question are specifically identified and estimated reasonably for an adequate compensation mechanism to kick in.
Therefore, for this case, the parties are in a unique position since Calavino has applied for bankruptcy. The company it a stonewall when presenting its cheque to the World Trade Center and therefore cannot pay-off its employees until the cheque is approved. The two parties may therefore seek specific performance which is a court-ordered performance duty for the breaching party. Since fulfilling its end of the contract leaves the breaching party under a difficult situation, the court determines the extent of the damage that they are actually allowed to carry in a feasible and fair manner. An unlikely option for the two parties is cancellation and restitution. In this case, the non-breaching party gives the breaching party a benefit of doubt and cancels the entire contract hence meaning that the non-breaching part is back to the position it was before the breach happened. The approach relieves all parties of all aspects of the contract (Cuniberti, 2014).
Having looked at all the facts of the case and the uniqueness of the entire scenario, the court is likely to rule in a way that favors both parties. First, Calavino is in no position to pay up its contractual obligations and hence has applied for bankruptcy. The circumstances that have led to its inability to pay up its suppliers and sub-contractors are beyond the company’s control and only happened when it faced the trouble of unpaid cheques by the World Trade Center. Therefore, the likely remedy is a deferred system of payment where Calavino will make a pledge to pay its supplies the amount owed plus the accrued damages once it gets its cheque approved.
Facts
In assessing the liability for damages caused by a breach in contract, the Civil Code proposes a system based on culpability principle. Th liability that is based on this principle remains in force only to the extent that the damages occur outside the contracts. The liability is independent from the culpability with consideration to the appropriate rules of exemption. First, the reimbursement caused by the breach of contract does not depend on culpability. The person responsible for the damages is only exempted from liability if he can prove that the breach of contract was beyond his control and was because of unforeseen circumstances. Therefore, this regulation considers the burden of proof of the person responsible for the said damages (K., H., & J., 2010).
By introducing the element of foreseeability, the law determines to what extent the circumstances that caused the breach in contract were foreseeable. Were the circumstances foreseeable at the time of concluding the contract, at the time of breaching the contract or at the time the damage actually occurred? Therefore, the liable party shall be relived of all responsibility for the damages if the court determines that the circumstances were unforeseeable at the time of the breach. The Civil laws also lay down specific non-subjective procedure for determining if the person is responsible for the damages (Bar-Gill & Ben-Shahar, 2013).
In light of the above, Calavino is not liable to offer any
compensation over and above that which was
agreed on the contract. The situation with the contract is beyond their
control as the occurrences were unforeseeable at the time of concluding the
contract. If the World Trade Center had honored its obligation and paid the
cheque owed to the construction company, then there is enough evidence to
suggest that the suppliers and subcontractors would have been paid in time
hence honoring the contract. Therefore, the ruling is most likely to favor the
defendant.
References
41 U.S. Code § 6503 – Breach or violation of required contract terms. (2011). LII / Legal Information Institute. Retrieved 2 August 2016, from https://www.law.cornell.edu/uscode/text/41/6503
Bar-Gill, O., & Ben-Shahar, O. (2013). Regulatory Techniques in Consumer Protection: A Critique of European Consumer Contract Law. Common Market Law Review, 50, 108–126. doi:10.2139/ssrn.2061148
Breach of Contract and Lawsuits – FindLaw. (2016). Findlaw. Retrieved 2 August 2016, from http://smallbusiness.findlaw.com/business-contracts-forms/breach-of-contract-and-lawsuits.html
Cuniberti, G. (2014). The International Market for Contracts: The Most Attractive Contract Laws. Nw. J. Int’l L. & Bus., 34(3), 455–517.
K., K., H., C., & J., H. (2010). Management improvement of contract laws and regulations for public sector projects. Journal of Asian Architecture and Building Engineering, 9(1), 147–154. doi:10.3130/jaabe.9.147
Traore, M. S., & Xiao, Y. (2013). A Comparative Study of Contract Formation and Breach of Contract and Liability in China and Ohada (Note 1) Space Contract Laws. Journal of Politics and Law, 4(2), p153. doi:10.5539/jpl.v4n2p153
