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Breach of Contract

DEFINITION

The failure to perform or not perform a specific act according to the terms of the contract. May refer to payments, schedules acts, or refraining from performing a specific act.

EXPLANATION

There are certain requirements that must be met in order for a contract to be valid.

For the contract to be binding, the essential elements below must be present in the agreement.

A party that does not meet its promises and obligations are in default and will be liable to the other party. This is a breach of contract.

A contract can be discharged because of a breach of contract. A breach can occur when one or both involved parties fail to perform the terms of the deal. The party whose rights are breached has the right to legal lawsuit.

An injury that is sustained by a damaged party can result in monetary damages against the defendant due to a loss of time, prevention of sale or other circumstance.

Certain contracts have clauses which allow one party to require the other party to meet an obligation.

Specific performance of an obligation can be requested. Specific performance is a court order that requires a party to perform an obligation found in a contract that the defendant has failed to fulfill.

Because no two pieces or parcels of land are exactly alike, each scenario is unique and individualistic in nature. Certain scenarios require special attention and not every two cases have the same legal outcome.

Specific performance occurs only in instances wherein a lawsuit is initiated by the damaged party.

This process is complex and does not have a definitive resolution as, once again, each case is different.

Because of the time-consuming and expensive process of a specific performance, most homeowners do not pursue this route.

Most buyers and sellers involved in residential real estate typically do not have the time nor the resources or reason to be involved in such an arduous process, particularly one where said party is required to wait to obtain a court date, court approval, etc.

An alternative to specific performance would be a standard lawsuit where the damaged takes the defendant to court to recover for monetary damages.

Breach of Contract as it Relates to Termination of Agency

An injury that is sustained by a damaged party can result in monetary damages against the defendant due to a loss of time, prevention of sale or other circumstance. Certain contracts have clauses which allow one party to require the other party to meet an obligation.

An agency can be terminated under the following circumstances:

Expiration of the agreement

Satisfaction of the agreement

Death of the agent

Death of the principal

Agent’s termination of agency

Agreement of agent and principal

Cancellation of sale due to bankruptcy, forfeiture, etc.

While either the agent or principal can terminate the agreement at any time, the cancelling party can be held liable for damages if the cancellation resulted in a breach of contract. (Blank v. Borden (1974) 11 Cal.3d 963-967).

If the property is withdrawn from the market prior to the expiration of the listing, the broker may have a valid cause of action claim against the principal.

Breach of Contract as it Relates to Agency Agreements

The burden of recognizing an agreement between parties is placed on the broker. When a broker and principal enter an employment contract, the agency relationship is established. Agreements can be in writing or be implied through the conduct of parties. The working relationship between agents is typically created through a written agreement; however, it can be implied through actions.

Agreements between real estate brokers and agents must be in writing. Listing agreements for agents to find a buyer of more than one year are required to be in writing.

Legal Outcomes Relating to Breach of Contract

Case Review: Arya Group, Inc. v. Cher (2000)

The case, Arya Group, Inc. v. Cher (2000) 77 Cal.4th 610., involved a dispute between a contractor and the famous musician, Cher.

A contractor (Arya Group) was hired for the construction and design of Cher’s Malibu complex. Arya Group initially had an oral agreement with Cher. It later memorialized the terms in a written contract, but Cher never signed it. However, based on Cher’s words, Arya Group assumed an implied contract and began work.

Cher initially paid installments to Arya Group. She also had Arya Group meet with Janet Bussel, an associate with whom Cher had previously completed residential projects. However, Cher ultimately terminated the contract. She claimed that because she had not signed a written contract, she was therefore not responsible for paying the remainder of Arya Group’s fees.

The Superior Court contended that, on the basis of the statute of frauds, a oral contract was not enforceable. Therefore, it ruled in favor of Cher. Arya Group appealed.

Arya Group alleged that the purpose of the arranged meetings with Bussel was for her to get as much information about the project as possible so that Cher would reap all of the efforts of Arya Group and then terminate the contract. It claimed that Cher was unjustly enriched (whereby a person unfairly benefits from another’s misfortune for which the one enriched has not paid).

The Court of Appeals agreed with Arya Group. It reasoned that although the written contract was not signed, Arya Group did not foreclose his right to enforce the oral agreement. Cher was a sophisticated businesswoman who had the help of professional legal counsel. Therefore, she was held liable.

Case Review: Tenzer v. Superscope, Inc. (1985)

The case, Tenzer v. Superscope, Inc. (1985) 39 Cal.App.3d 18., involved an affluent businessman who sued a corporation for its failure to pay a finder’s fee.

The businessman, Tenzer, was hired on as a director at the corporation, Superscope, Inc. Shortly after, Tenzer was informed of the company’s tenuous financial situation. In order for the company to avoid bankruptcy, it needed to sell off one its most expensive assets, a building valued at $16 million. However, the property had been on the market for nearly a year with no prospective buyers.

Tenzer agreed to deliver a prospective buyer that he had found in return for a 10 percent finder’s fee. Superscope agreed. However, after the sale of the property, Superscope refused to pay the finder’s fee. Consequently, Tenzer sued Superscope.

The official charges included breach of contract, unjust enrichment, and fraud. The Superior Court granted summary judgment in favor of Superscope. Tenzer appealed until the case reached the Supreme Court.The Supreme Court argued that the case centered on whether Tenzer merely introduced the buyer to Superscope, or whether he actively participated in contract negotiations. It ruled in favor of Tenzer, indicating that Superscope had intentionally defrauded Tenzer without ever intending to pay the finder’s fee.

Case Review: Realmuto v. Gagnard (2003)

In the case, Realmuto v. Gagnard (2003) 110 Cal.4th 193., a seller sued real estate investors for specific performance and breach of contract.

Real estate investors (represented by Gagnard) entered into a purchase contract with the seller of a residential property in Alpine, California (Realmuto). The investors’ wanted to assign the deal to the Indian tribe to build a casino. However, the Mission Indians ultimately chose not to purchase the property. When Gagnard told Realmuto that they would not be buying his property, Realmuto sued.

In Superior Court, Realmuto contended that Gagnard violated the purchase contract and thus, owed specific performance. In this case, he was arguing that Gagnard had to purchase the property. However, Gagnard contended that Realmuto had also violated the contract, as he had never provided Gagnard with the required TDS inspection. He also pointed out that paragraph 6 of the purchase agreement had not been signed or initialed by Realmuto. Realmuto responded by saying that Gagnard never requested the disclosure statement in question. The Superior Court ruled a summary judgment in favor of Gagnard and the investors.

Realmuto appealed. The Court of Appeals affirmed the lower court’s ruling, maintaining that Realmuto was not entitled to specific performance.

Case Review: BD Inns v. Pooley (1990)

The case, BD Inns v. Pooley (1990) 218 Cal.3d 289., involved a buyer who cancelled a purchase agreement after the terms had been accepted.

A seller of a motel (BD Inns) entered into an agreement to sell the motel to a buyer (Pooley). BD Inns sued Pooley for specific performance and breach of contract on the grounds that Pooley cancelled the sale after a contract had been agreed upon.

The Superior Court sides with BD Inns and ordered Pooley to perform the contract as previously agreed. However, as Pooley was no longer willing to purchase the property, he was ordered to pay the difference between the the purchase price that had been agreed to in the contract and the property’s future sales price.

Case Review: R.J. Kuhl Corp. v. Sullivan (1993)

In the case, R.J. Kuhl Corp. v. Sullivan (1993) 13 Cal.4th 1589., a broker sued a buyer over a breach of contract dispute.

A broker (R.J. Kuhl Corp.) found a property for a buyer (Sullivan). He set up a deal, but ultimately, the property was sold to a third party. That third party later approached Sullivan and gave him the option to purchase half of the property’s interest. Sullivan agreed and entered into an agreement with the third party. When R.J. Kuhl Corp. was made aware of this, he sued Sullivan and the third party for breach of contract, interference with a contract, and conspiracy to alter an existing contract.

R.J. Kuhl Corp. claimed that he was entitled to his broker’s commissions for the sale of the property. Sullivan opposed this, saying that his original agreement with R.J. Kuhl Corp. did not lead to the direct purchase of the property. The Superior Court ruled in favor of the broker. It held that as a result of going around R.J. Kuhl Corp. and not paying the commission, Sullivan had gained an unfair profit from the broker’s services. Sullivan appealed, but the appellate court affirmed the lower court’s ruling. Sullivan was held liable for R.J. Kuhl Corp.’s fees.

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