Essay On Valid Contract And Remedies For Breach: Essentials And More.

Competency and Capacity of the Parties

Part A

1.Is there a valid contract between Compact and International Tire Inc.? Explain fully with specific reference to the key elements. 

2.ASSUMING THAT THERE IS A VALID CONTRACT, was the contract breached? Which party (or parties) breached the contract? How specifically was the contract breached? At what point in time could legal action be started by each party that you have identified as breaching the contract? 

3.How would the court approach the question of damages relating to the Compact and International Tire Inc. contract? What factors would be considered? 

4.Is there a valid contract between Compact and American Tire Corporation? Will Compact be able to successfully bill American Tire Corporation for $100,000 per year? What arguments can Compact bring forward? Will it be successful?

5.Does Suzanna have any action that she can take against Compact? What steps can she take (assuming her parents let her out of the house)? Will she be successful? In a court action, who would be the plaintiff and who would be the defendant?

6.Can Shady successfully sue Compact in court for the return of his money based on the fact that the software did not work? Why, or why not? 

Part B

1.Define “Passing off" and describe how it is an issue in this case. Who is the defendant? Who is the Plaintiff? What remedies would be available? What specific losses would be addressed?

2.What is interference with contractual relations and how is it relevant in this case? Who is the plaintiff and who is the defendant? What are the facts that support a possible claim? What remedies would be available in this situation? 

3. Describe how defamation is an issue in this case. What specific form of defamation occurred? Who is the plaintiff and who is the defendant? Which defenses, if any, would be available to Stephanie and Nathan? What would be the most probable outcome (remedy) and why. 
4. Is the restrictive covenant (non-competition clause) that Stephanie and Nathan signed with National one that would be enforced by the courts? Explain your answer thoroughly.

5. Explain how trespass is an issue in this case from Compact’s perspective? Who is the trespasser? If an action for trespass is commenced, who would be the plaintiff and who would be the defendant? What would be the most probable outcome (remedy) and why. 

6. Do the trespasser(s) that you identified in question 5 above have any action against Compact? Who would be the plaintiff(s) and on what basis? Who would be the defendant(s)? Please explain your answer thoroughly. 

7. Describe the steps taken by Stephanie and Nathan immediately prior to the bankruptcy that may be offences under the Bankruptcy and Insolvency Act. What is the legal term used to describe each of these steps (events)?

8. Does Lucky Accounting have a potential cause of action against Compact? If so, what type of action (give its legal name) would Lucky pursue? Explain the cause of action and whether or not they might be successful. If Lucky was successful, what would be the most probable outcome (remedy) and why.

One of the essential elements of a valid contract is the competency and capacity of the parties to enter into a contract. Among the factors like maturity of age and soundness of mind, parties are required not to be barred by law and pre-existing contracts to be capable of contracting. When a party is involved in a contract with a company for a particular work, the party cannot engage with another company for the same work. The party would be barred by the pre-existing contract, unless it is expressly mentioned that the party is at liberty to enter into similar contracts with other parties. If no such express clause is added in the agreement, it is to be considered that there is a contractual bar to enter into a similar contract.

The contract between Compact Business System and International Tire Inc. is not valid. International Tire Inc. was already contract bound with National Business Systems. The contract required International Tire to be in a 5 years servicing contract with National Business. The companies were in their 3^rd year of the 5 years contract when International Tire signed the service contract with Compact. This marks a breach of contract between International Tire and National Business and simultaneously makes the contract between International Tire and Compact invalid, as a company cannot enter into a similar contract with another when it is already contract bound with a company.

When two parties are bound by a contract that specifies the time of performance of the contract; failure to meet such specified time would result in breach of contract. The party who does not deliver or perform within the required and specified time bracket would be held liable for the breach of contract. Such breach would capacitate the suffering party to discharge or terminate the contract (Sutliff v Thirkell). The party who has suffered loss due to the non-performance of the other party would have the remedy of rescission of contract.

Assuming that the contract between Compact Business system and International Tire Inc. was valid, it was eventually breached by Compact. The company breached its promise to repair the computers of International tire within 4 days and extended it to 7-8 business days, which led to the loss of business for International tire. Therefore, international Tire is at no fault in rescinding their contract.

The specific time of performance is an essential factor to keep in mind for performing a contract as a party depends on another for a work to be done within the required period. Thus, non-performance of a contract due to not meeting the required time is a severe lack.

Invalid Contract Between Compact Business System and International Tire Inc.

International tire Inc. can start a lawsuit against Compact for breaching the contract by not performing in the required time. It can claim damages from Compact for such breach that has made them lose business when the computers were not repaired within the stipulated time.

The kind of damages awarded in a suit depends on the claim of the aggrieved party. In a breach of contract, courts generally award ‘expectation damages’ which refers to the los sustained by the aggrieved party if such breach had not occurred. The damages amount is speculative in nature. Expectation damages has become a common and customary remedy in breach of contract suits whenever the court determines that the aggrieved party has suffered a loss due to non-performance of duty of the other party; the court determines the expected damages amount that is awarded to the party at loss (Hamilton v. Open Window Bakery). The court uses the ‘rule of expectancy’ to evaluate the amount of damages. This evaluation consists of three steps:

• The court finds out the amount that the aggrieved party would have earned if there was no breach of contract at all;
• The court will ascertain the loss of the aggrieved party and the loss it has not regained yet;
• Lastly, the court would determine how the aggrieved party could be restored of its position or condition had it not suffered a loss due to the breach.

In the given case, the court would look deep into the matter of Compact and International Tire Inc and would try to figure out the loss sustained by International tire because of the delay in repairing time taken by Compact. There is a clear non-performance of the agreement that required Compact to repair and service International tire’s computer within 4 business days, which they consistently delayed to 7-8 business days. International tire has sufficient ground and evidence to prove that it sustained heavy loss for a substantial amount of time due to the non-performance of duty by Compact. This makes International tire eligible to recover expectation damages from Compact. The court would evaluate the injury or losses sustained by International Tire and award the damages accordingly.

‘Completeness’ is one of the lesser known essentials of a contract which is equally significant as the importance of offer-acceptance or consideration to make a contract enforceable in a court of law. For example, price or consideration is one of the most essential elements of a valid contract and therefore, any confusion, ambiguity or mistake regarding the consideration on which the contract is based makes such contract invalid. However, if the parties agree on such ambiguous or incomplete terms of consideration or remain silent even after witnessing the ambiguity, in such case the contract would be considered to be accepted by both the parties knowing the irregularity and ambiguity.

Time of Performance

The contract between Compact and American Tire Co is not valid. The original contract between the parties comprised of an agreement where it was verbally decided that Compact Business System is to receive $100,000 per year for a period of 4 years. While, later on Nathan noticed that the agreement papers quote the payment of $10,000 to Compact per year, instead of $100,000. This incomplete and ambiguous contract involves mistake of fact on the part of American Tire Co for incorporating $10000 instead of $100,000 per year as discussed with Compact. This leads to the invalidity of the agreement between the parties.

However, Nathan maintained silence even after noticing the changed consideration amount in the agreement papers. This would constitute that Compact did not raise its voice against the ambiguous agreement when it should have, within a reasonable time. Therefore, Compact would not be successful to bill American tire Co. for $100,000 per year, unless it choose to file a lawsuit claiming its ground.

Compact may argue on the point that American tire Co has misrepresented and falsify the contract agreement document and fraudulently settled the deal with Compact. The company may claim that it would be a severe loss of the company to repair 1300 computers in $10,000 a year. It might pray before the court to evaluate its expectation damages, and award compensation as the court may think fit.

The ‘capacity’ of the parties to enter into a contract is important. Common law requires parties to be above 18 years of age, having a sound mind and not restricted by any law to be able to form a valid contract, which is enforceable in a court of law (Bawlf Grain Co. v. Ross). A contract entered into by a minor is voidable at the option of such minor. However, it has a few exceptions like contract entered for necessities and contract of benefit. The former would be binding on the parties as it is determined by referring to the minor’s lifestyle and the necessities for the contract for maintain such lifestyle. While, the latter is determined by the benefits derived by the minor from such contract.

Suzanna was 17 years old when she approached Compact for repairing computer. The company repaired it and charged exorbitantly which seems quite unjustified. $750 for a one-time repair of a computer is quite unfair and questionable. Suzanna’s parental involvement was necessary in this circumstance when the company demanded such hefty amount from a minor. Therefore, Suzanna has the right to sue Compact in the capacity of a minor.

Breach of Contract by Compact Business System

Suzanna can consult a lawyer and eventually sue Compact Business System for damages. She might be successful in doing so, given the fact that she is a minor who had entered into the contract out of sheer necessity to get her computer repaired. Therefore, the contract would be held as valid based on the exception and Suzanna would hold the option to declare the contract void or not as per her choice.

For the purpose of the lawsuit, Suzanna’s parents would be considered as the plaintiff for Suzanna being under 18 years of age to be a plaintiff. While, Compact Business System would be held as the defendant.

A valid contract not only involves a clear offer and an acceptance of such offer, but also comprises of the essential element of legality of the contract. Under common law, a contract cannot be based on something that is unlawful or illegal in the eye of law. Therefore, parties contracting to an agreement that has illegal clauses would be declared void ab initio (Haugesund Kommune & Anor v. Depfa ACS Bank).

Therefore, Shady would not be liable to sue Compact for the fact that installing such software in the company amounts to an illegal action. Thus, considering the fact that the software that Shady wanted Compact to install for him was unauthorized and a pirated one that helps to download things from ITunes free of cost. This is not an authorized application or software made by Apple, the owner of ITunes. Therefore, the agreement stands void. However, it was Compact’s duty to educate the customer about such policy details and that it is illegal to use applications that encourage piracy.

‘Passing off’ in Common Law refers to a tort, which is used to enforce trademark rights that are unregistered. It protects the goodwill of a business from being misrepresented. It refrains a trader from copying or calling the work of another trader as his own. In Canadian law, passing off is a statutory action under the Canadian Trademarks Act which refers to the deceptive or misleading representation of goods and services by traders in such a manner that it creates confusion in the minds of consumers. Section 7(b) and (c) of the Trademarks Act lays down the statutory provisions of passing off. It depends on the plaintiff to prove whether a trademark in question has already been registered or not. In the given case, Compact Business Systems clearly mimicked another computer-servicing firm operating in another city, named ‘Compaq Business Systems’. They even copied the color tones of the logo of Compaq and used it in their signage and advertisements. They used the same name as Compaq for naming their premium same day service. It is clear that Compact can be held liable for infringing trademark of Compaq, and therefore can be sued for damages. Here, Compaq would be the plaintiff while Compact the defendant.

Expectation Damages

The plaintiff would enjoy certain remedies against the defendant pertaining to the infringement of trademarks. Compaq can sue Compact for expectation damages for the losses that can be evaluated depending on the fact that Compaq has had a substantial loss due to such infringement and it would have made the amount of money had there been no such infringement. Compaq can opt for injunction to stop Compact from carrying out further business, along with a request to inquire into the loss it suffered.

The action of Passing off would be instituted against Compact Business Systems for establishing a business of similar nature with a name extremely close to that of Compaq Business Systems. Additionally it would also be charged for mimicking the logo and the name of the premium same day service package of the same company. Losses would be evaluated based on these similarities, where the court would inquire into the losses sustained by Compaq if such infringement of trademarks had not occurred.

Interference with contractual relations means refers to interference by a third party affecting the contractual relation of two parties. It is a situation where a third party induces a party to a contract, breach its contract with its contracting party. It may be done by misleading, influencing or creating obstacle in the way of the party to perform its contract with such contracting party. In the given case, Compact Business systems influenced International Tire Inc. who was in a contract with National Business systems. This made International tire breach its contract with National. Therefore, Compact Business Systems is the defendant as it would be held liable for interference with contractual relations between International tire and National, and can be sued by National Business Systems, the plaintiff as it has sustained loss due to such breach.

International Tire Inc. had a 5-year service contract with National, which it breached on the influence of Compact. Nathan, one of the founding member of Compact and an ex-employee of National convinced that National had been charging its clients exorbitantly along with providing inferior quality repair parts. This statement can be held as a substantial evidence that Compact interfered with the contractual relations between International tire and National.

National would be eligible to sue Compact for damages for the tortious interference with contractual relations, provided substantial loss needs to be proven by the plaintiff. Additionally the court may award punitive damages to the plaintiff if it finds out malicious intentions on the part of the defendant.

Completeness of the Contract

The tort of Defamation is impliedly present in the matter of interference of contractual relations discussed above. Compact Business Systems provided misleading and deceiving information about National Business Systems to International Tire Inc., one of National’s old clients. Compact said to International tire that National has been charging all its bigger clients exorbitantly and using computer parts that are inferior in quality. Compact made all such comments without having any authority or position over National to say such derogatory things about it. This amounts to the tort of defamation on the part of Compact. A tort of defamation in the form of Slander has occurred in the given case. The derogatory statements against National were conveyed to International Tire orally and not in writing. Therefore, it would amount to a slanderous defamation. The National Business Systems would be the plaintiff while Compact would be held as the defendant as defaming National.

Stephanie and Nathan would be eligible to cite defense against the allegation pertaining to defaming National. They can claim that the statement regarding the exorbitant charging and the inferior computer parts are true to the best of the knowledge as ex-employees of National Business Systems. In Alexander v North Eastern Railway Co it was held that the defendants need not prove that, every single aspect of the statement made by them is true.

The court on disallowing the defensive arguments of the defendants, would award appropriate remedy to the aggrieved party. National Business would be liable to sue Compact for damages pertaining to the loss of business it sustained due the derogatory comments of Compact.

Restrictive covenants are the non-competitive clauses that organizations add in their employment contract, which restricts employees from engaging or starting a similar occupation as the organization. The sole purpose of such restrictive covenant is to resrict potential competition in the market.

The non-competition clause signed by Stephanie and Nathan with National to refrain from working for a competitor or initiate a competitive business within three years after leaving the organization would be enforced. In Jones v Gerosa, the Alberta Court dealt with the case of restrictive covenant where it was held that non-competition clause did not amount to a direct prohibition on competition, rather it prohibits employees or associate member of the organization not to work against or in competition with the company.  In Ontario Inc. v Pitton, the court granted an injunction in favour of the employer who was the plaintiff but only in respect to the usage of confidential and sensitive data of the company and not otherwise.

Invalid Contract Between Compact and American Tire Co

Trespass refers to the entry of a person at a place where has does not have the authorization to enter. In the given issue, the leasing company sent his agent to recover the van of Compact Business systems that was leased under the company, fearing the complexities of the bankruptcy proceedings. This makes the leasing company a trespasser in this circumstance.

Here, Compact Business Systems would be the plaintiff to bring charges against the leasing company for breaking and entering their premise and eventually, starting a fire that caused a substantial damage to the property. The leasing company would be the defendant who needs to defend its position as a trespasser who broke and entered into Compact’s property and caused a substantial damage.

In this case, Compact will be liable to receive damages from the leasing company for the substantial loss it sustained from the breaking and entering of the agent of the leasing company and the destruction from the fire caused by such trespass. The court awards damages in all forms of trespass as trespass is actionable per se irrespective of the plaintiff to prove any substantial loss or damage from such trespass.  In Bank of Nova Scotia v Dunphy Leasing Enterprises Ltd., the court held that compensations for trespass could be more than just nominal in any given case. No rule can restrict an award of damages for the tort of trespass.

The leasing company who is the proven trespasser in the above-mentioned question can defend its actions to a certain limit. The leasing company can defend its case on the grounds that the van it tried to recover from Compact was still under its hold as the lease period and the lease amount was still pending. It can justify that the bankruptcy proceedings would have made it tough and complicated to procure its asset and thus it tried to recover its property in its own possible ways. The leasing company can even start a lawsuit against Compact for not meeting the lease period and for non-payment of the lease amount on time.

In such scenario, the leasing company would be the plaintiff while Compact would be held liable to defend itself being the defendant to the suit.

The leasing company may argue that it had to take the necessary step of breaking and entering Compact’s premise to recover the van, which was authenticated under it to avoid the complexities of bankruptcy proceedings. It can claim that it was only procuring its own property from Compact who no longer had the capacity to hold it due to insolvency. However, the court would not allow such a claim because trespass in any form is actionable per se. The court would disallow the claim of the leasing company, thereby penalizing it for trespass and the destruction its agent caused for starting the fire.

Capacity of the Parties

Prior to the bankruptcy proceeding, Stephanie and Nathan cleared the outstanding payments of three of the suppliers who had treated them well. Additionally, they prepared to sell some of their unused inventory to a warehouse at a price that is 35% lesser than what it should be. They kept the sum received from the sale, for them for they perceived that they deserved the money for the amount of effort they put in. This scenario is relevant to the provision of Section 198(1 )(a) of the Bankruptcy and Insolvency Act.

This situation calls for a breach of duty as a bankrupt by the party who has the probability of liquidating his company for any given reason. Section 158(a) of the Bankruptcy and Insolvency Act lays down the various duties of a bankrupt before as well as after the bankruptcy proceedings (Century Services Inc. v. Canada (Attorney General)).

It is a ‘standard duty of care of the party who has been assigned with a task to do something. Failure to do the task resulting in material injury amounts to Negligence under the law of tort in Common law. In this case, Lucky Accounting assigned Compact to service one of its desktops which got stolen from its office. The employee of Lucky Accounting was informed by Compact that the company had nothing to do with the stealing and made them aware that neither the company nor the goods had any insurance coverage.

As for arguments, Lucky Accounting may sue Compact on the grounds of Negligence because Compact was supposed to be not only servicing the system, but also liable to keep it safe from being stolen or injured. Lucky can sue Compact for damages or compensation, not only because it lost a computer, but also for the confidential information that might be tampered with which were present inside the computer when sent for servicing.

 The tort of negligence when proved facilitates the aggrieved party to remedy ’Damages’. The court awards monetary compensation to the victim of negligence who suffers due to such act or omission amounting to negligence.

References

Alexander v North Eastern Railway Co [1865] 6 B & S 340.

Bank of Nova Scotia v Dunphy Leasing Enterprises Ltd., 1991 ABCA 351

Bankruptcy and Insolvency Act

Bawlf Grain Co. v. Ross (1917) 55 S.C.R. 232

Canadian Trademarks Act

Century Services Inc. v. Canada (Attorney General) 2010 SCC 60

Hamilton v. Open Window Bakery, 2004 SCC 9

Haugesund Kommune & Anor v. Depfa ACS Bank, [2010] EWCA Civ 579

Jones v Gerosa 2016 ABQB 207

Justice Laws Website. (2018). Bankruptcy and Insolvency Act. [online] Available at: https://laws-lois.justice.gc.ca/eng/acts/B-3/ [Accessed 15 Oct. 2018].

Sutliff v Thirkell [2001] All ER (D) 65 (Jun)