Articles Posted in Breach of Contract

A contractor bid a price of one penny per cubic yard to excavate rock from a town site as part of a larger contract with the town of Avon. That price, however, was based on the town’s estimate of rock to be removed which turned out to be unreasonably low. The actual amount of rock to be removed was 250% higher than the town’s bid documents. The one-penny price was a loss leader based on a line item in the invitation for bid (IFB) and made the bidder’s overall price more attractive. The case is Celco Construction Corp. v. Town of Avon (Superior Court, appealed to Mass. Appeals Court, 2015).

When it became apparent that there was much more rock than represented, the contractor sought assurances, and received them from the town’s water superintendent, that the situation would be “dealt with” once the additional rock had been removed and the total extra quantity was known. Based on this assurance, the contractor continued to work and completed the contract. When the contractor later sought $190 per cubic yard for removing the additional rock, the town refused to pay and ultimately litigation ensued.

The contractor sought payment based on: (1) changed site conditions (the actual amount of work was two and one half times the amount in the town’s IFB); (2) the principle that the contractor should be paid the reasonable value of the extra work performed; and (3) the superintendent’s promises to fairly address the issue later. The Superior Court judge and the Appeals Court found in favor of the town:

Changed Conditions

  • Massachusetts G.L.c. 30, section 39N is designed to protect contractors from unknown and unforeseen conditions. The Appeals Court held that this does not protect contractors from an increased amount of a known condition which causes financial hardship because of a low unit price. Had the contractor been able to provide evidence that the additional rock was different in a significant way or that the cost to extract the additional rock was greater by reason of the increased amount or any other concealed condition, the contractor likely would have been entitled to additional compensation. However, in this case, the actual subsurface or latent physical conditions encountered at the site did not differ substantially or materially from those shown in the bid documents. The court stated that the purpose of the statutory protection is to remove unknown risks from the competitive bidding process. Based on the facts of this case, even dramatically increased volume, where pricing is based on unit pricing, is not considered an unknown risk covered by the statute according to the court’s ruling.

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When companies contract with one another for the sale and purchase of goods, those documents can later be used to prove liability if either party does not uphold its agreement. If the seller fails to deliver, the buyer can sue. If the buyer fails to purchase as promised, the seller can sue. grassseeds.jpg

That’s what happened in the case of Peace River Seed Co-Op v. Proseeds Marketing, where the Oregon Supreme Court determined that the aggrieved seller was entitled to recover the market price – and not just the resale price – of the goods that were not purchased as promised.

Maximizing your compensation in the event of a breach of contract is something in which our Boston small business lawyers are experienced.
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The Supreme Judicial Court of Massachusetts recently handed down a decision in the case of Selmark Assocs., Inc. v. Ehrlich, which has been ongoing since 2008. buildings.jpg

Our Boston business attorneys recognize the details of this case are extensive, but the core legal issues raised pertain to the duties that fellow shareholders and directors of corporations have to one another where contractual agreements define parts of their relationship. Also, the court wrestled with questions about the extent of damages to the aggrieved parties.

This complex business litigation reveals how important it is for corporations and shareholders to retain experienced attorneys for routine legal review of all dealings and contracts.
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In reviewing a breach of contract lawsuit filed by a cosmetics company against former “independent marketing executives,” a state supreme court ruled that language in the contract amounted to an illegal penalty and further, the company was required to prove its degree of economic damages before it could collect them.
The previous verdict in the case of Melaleuca, Inc v. Foeller was therefore vacated and remanded by the Idaho Supreme Court back to the district court for further proceedings.

The evidence here suggests a clear breach of contract that would obviously warrant financial remedy. However, every word of a business contract has the potential for meaning in the event of a civil lawsuit, which is why companies must take the utmost care during the drafting phase of the process.
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Late last year, Gov. Deval Patrick announced that he would back efforts to make Massachusetts non-compete agreements unenforceable in employment law.
This could be a major blow to businesses if such a measure is ultimately passed by the state legislature because non-compete agreements protect the enormous investments that companies make in personnel.Other states, like California, have already severely limited the enforceability of non-compete agreements.

Advocates for reform say that the agreements serve only to inhibit competition and stifle individual career growth.
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Anytime a firm seeks to extricate itself from a Boston business contract, company executives must take great care to ensure that termination of the contract isn’t due to the personal interests of any one person or group of people at the firm.
If this is not done, the executives might find themselves accused of tortious interference, also sometimes called wrongful or intentional interference with contracts.

Typically, this kind of claim involves a third party. For example, Company A and Company B have a business contract. Company C then convinces or encourages Company B to violate the terms of the agreement with Company A. In this case, Company C might be found liable for tortious interference.
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Corporate collaboration can be positive for all parties involved – so long as the extent and terms of the collaboration are spelled out completely and clearly in a well-executed Boston business contract. writinghand2.jpg

This is especially true for technology firms, where the substance of operations and the details of the working relationship may be highly complex. Any modifications to these contracts should be in written form and thoroughly reviewed by your attorney.

The recent case of Vojdani v. Pharmasan Labs, Inc., decided Dec. 20, 2013 by the U.S. Seventh Circuit Court of Appeals, is a good example of why this is important. The case involved two separate trials, an alleged oral modification to the written agreement and an alleged breach of the confidentiality agreement.
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Savvy business owners know that anytime you can reduce unnecessary costs, it’s beneficial to the company’s bottom line.
While personnel and payroll are by far typically the highest out-of-pocket expense, legal disagreements with workers and former workers can be an unplanned expense. Even companies that pride themselves on solid personal relationships with employees need to prepare for this possibility. One of the best ways to clarify the terms of both employment and departure is by having workers sign an arbitration agreement.

These Boston employment contracts ensure that whatever the dispute, it will be handled not before a judge, but rather a mediator, whose goal it will be to reach a mutual understanding, based on the terms of the contract. This often serves to significantly reduce the firm’s legal costs, and outcomes tend to favor the company.
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A medical device and drug manufacturer based in Illinois has filed a breach of contract claim against Boston Scientific, a company based in Natick, Mass. The allegation is that a former employee violated a contract by luring employees to Boston Scientific.
Our Boston employment contract lawyers understand that the case, filed in U.S. District Court in Georgia, involves a claim from Abbott Laboratories that a former employee, who had been vice president of sales in one of its primary divisions, approached a number of other Abbott employees after he was hired by Boston Scientfic. It started back in January, and the Illinois firm says it has lost three key employees as a result.

Abbott said such conduct is forbidden, per a contract agreement the firm had with its former VP, barring him from soliciting certain other employees – either directly or indirectly. A copy of that agreement was reportedly forwarded to Boston Scientific when this individual was hired.

It’s Abbott’s contention that even though Boston knew of the obligation contained in that contract, Boston and its new employee pressed forward in a quest to pilfer some of Abbott’s critical employees.

The exact allegation is tortious interference with a contract and breach of contract. The remedy being sought is a halt to such actions, as well as monetary damages for the employees already reportedly heisted.

An Abbott representative later told a reporter that the contract was always about protecting the investment it makes in its workers, as well as the confidential information that those workers possess.

Boston Scientific didn’t offer a comment, but it hasn’t been a good month for the firm. Another lawsuit was filed against the company a few weeks ago by a medical device company based in Florida, alleging patent infringement of heart devices.

Situations like this arise frequently in business. Regardless of what side of the aisle you are on, our experienced Boston business attorneys can help.

While you can’t anticipate every possible scenario, you can often prevent a breach of contract situation by working closely with an attorney to draft contracts that contain precise language and address potential issues. A solid contract is often the best way to minimize your litigation risk – or at least to ensure you will emerge victorious in the event that litigation becomes inevitable.

Defenses to breach of contract will depend on the individual circumstances. Potentially, those may include:

  • The contract was oral, yet should have been written;
  • The contract was indefinite;
  • There was a mutual mistake regarding an essential fact in the contract;
  • You lacked the capacity to sign that contract;
  • You were fraudulently induced to enter into the contract;
  • The contract was grossly unfair;
  • The contract was illegal.

Bear in mind, your breach of contract defense options are not limited to these, but this is where you might start. In fact, the law actually allows you to claim multiple defenses, even if they conflict with one another. That may not always be the best strategy, but it will depend largely on the situation.

In breach of contract cases, there numerous types of damages that can be collected by the wronged party. Those might include:

  • Compensatory damages, or money intended to compensate the non-breaching party for losses — including expectation damages, or those that cover what the injured party expected to receive from the contract, as well as consequential damages, which will reimburse the wronged party for indirect damages.
  • Liquidation damages, which are specifically provided in the contract, are determined at the time of the contract formation.
  • Punitive damages, or those intended to punish the breaching party and to serve as a deterrence from future acts.
  • Nominal damages, which are awarded when there is no actual monetary loss involved.
  • Restitutionary damages, which prevent the offending party from being unjustly enriched.

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A Massachusetts businessman is fighting to back out of one investment in favor of another. However, developers for both casino projects the investor is involved with are trying to lay claim, citing contracts he had with both firms. contract.jpg

Our Boston small business lawyers know this is one example of how important every last detail of a business contract can be. Some small business owners tend to rely upon boilerplate contracts, or Internet document mills. They may even use a standard contract form for each client or vendor or employee. This can be a mistake, as this case shows, because it is likely the fine print that is going to ultimately decide this case. Whoever loses stands to be stuck with hundreds of thousands more in expenses than initially anticipated. Having an experienced law firm draft your contract also helps ensure you will have competent legal representation in the event it becomes necessary to defend it.

There are numerous types of contracts for small business owners to consider. Among them:

  • Employee agreements;
  • Invention assignment agreements;
  • Services contracts;
  • Sales contracts;
  • Confidentiality agreements;

Employment agreements are some of the most important, as it will serve to insulate you from potential legal action down the road. These agreements will spell out everything, including the detail and scope of the job description or nature of the relationship, as well as each party’s responsibilities. Again, having your attorney assist you, can save you a world of trouble later on.

Invention assignment agreements give you control over products, ideas, inventions and strategies developed by the employee while they were working for you.

Services contracts are important if your business model is geared to providing a service, as opposed to a product. It will spell out all the terms and conditions, responsibilities, fees and liabilities.

Then there are sales contracts, which are primarily for companies that sell a certain product. These documents will offer details on the prices, goods, terms and conditions, warranties and timelines.

And finally, you may need to consider confidentiality agreements or non-compete contracts, which would bar current or former employees from sharing information that is either confidential or proprietary with another person or party.

These are just a few of the contracts you may need to consider having drawn up by your small business lawyer.

In the case involving the casino, the Boston Globe reports that the businessman had initially pledged an investment to the Palmer project back in 2008, should the commonwealth legalize casinos, which it later did in 2011. When that happened, the Palmer company was one of the first considered by the state for a casino license.

However, late last summer, the businessman announced he had “disassociated” himself with the Palmer project, and was instead going 50-50 with a new casino project in Springfield. But the Palmer developers say that losing him – and his money – to a competitor as a major blow to their success, and they intend to sue him and their rival if he doesn’t return. Meanwhile, the businessman and the Springfield developers say they will file their own suit if the Palmer company interferes with their plans to move forward.
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