Contracts - Skills Assessment - Part II
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Dec 6, 2023
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SKILLS ASSIGNMENT PART II
In Part II of the Semester Skills Assignment, we find the project from Part I underway and, as is often the
case, some difficulty with performing the contract has arisen.
After a period of negotiation, Galactic and Solutions concluded a definitive agreement under which
Solutions would deliver their licensed software, the InteGREATER 2k™ and provide professional services
to develop and implement four Custom Integrations to connect some of Mini’s systems with Galactic’s.
Work began shortly thereafter with Solutions installing their Software and beginning the design phase of
the Custom Integration development. At this point, Solutions discovered that Mini Corp., now a division
of Galactic, had previously been notified by one of their vendors, NoGood Co., that a mandatory software
update would have to be implemented by the time the Solutions-Galactic contract was signed. The
advisory put Mini on notice that the New Version would be incompatible with many custom software
products due to major changes to its Application Programming Interface (API) and went on to say that all
existing integrations with the system would need to be reviewed and updated.
Mini had not provided this information to Galactic before the merger was completed and Galactic did
not know of the changes at the time they concluded the contract with Solutions, Inc.
Later, Solutions’ engineers working on the design of the Custom Integrations, determined that the New
Version was actually incompatible with InteGREATER 2k software (refer to the Summary of Solutions
Proposal from Part I). They further determined that changing the InteGREATER 2k software to make it
compatible with the New Version would be a difficult, protracted, and expensive project that could not be
done within the budget or schedule required by the Solutions-Galactic contract.
Solutions notified Galactic of this problem and advised that they would not be able to complete a Custom
Integration for the New Version system and asserted that it was Galactic’s fault because they had not
provided accurate information about Mini’s systems.
Galactic responded that they still required Solutions to provide the four Custom Integrations and that
Solutions was responsible for the problem because Solutions should have discovered information about
the New Version. In fact, Solutions stated in their proposal that they had made a “careful analysis of both
companies’ (Galactic and Mini) systems” but did not find out about this potential problem.
You are part of the team reviewing this matter for Galactic.
Questions about Pre-Formation Issues:
1.
What if, because the notice from NoGood was very late getting to Mini, neither Solutions or
Galactic actually knew, or should have known, about the New Version prior to contract
execution?
If neither Solutions nor Galactic knew about the New Version prior to contract execution as a
result of the late notice from NoGood, both parties may argue that they were not aware of the
potential compatibility issue. Solutions may argue that they could not have discovered the
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problem earlier. Galactic may argue that they were also unaware of the issue. Taking this into
consideration, the parties have made a mutual mistake wherein both parties involved made a
basic assumption on which the contract was made thus a court would excuse performance. A
mutual mistake occurs when both parties make an agreement based on an incorrect set of facts
that are not known to be incorrect at the time of execution (Practical Law Commercial
Transactions, 2023). A basic assumption constitutes an excuse of performance.
2.
Instead, what if Galactic actually had been notified by Mini of the New Version during the
contract negotiation, but neglected to give this information to Solutions?
If Galactic had been notified by Mini during the contract negotiation but neglected to inform
Solutions, Solutions may argue that Galactic was fraudulent and intentionally misrepresented
facts to unfairly gain an advantage in the agreement making process. Moreover, Solutions may
argue Galactic was negligent in not providing them with the necessary information. Solutions
may claim that they would have taken the compatibility issue into account during the
negotiation and adjusted their proposal accordingly. Solutions may be able to recover damages
by filing a contract or tort claim alleging Galactic failed to disclose material facts.
3.
What if, instead of neglecting to give Solutions the information they knew about the New
Version, Galactic intentionally decided not to tell them because they believed it might result in
a price increase from Solutions?
If Galactic intentionally decided not to inform Solutions about the New Version because they
believed it would result in a price increase, Solutions may argue that Galactic acted dishonestly
and withheld crucial information. Solutions may claim that they would have adjusted their
proposal or negotiated different terms if they had known about the compatibility issue.
Solutions may be able to recover damages by filing a contract or tort claim alleging Galactic
failed to disclose material facts.
Questions about Post-Formation Issues:
1.
Assume that instead of the New Version being released by NoGood before the Solutions-
Galactic contract was executed, it was released shortly after the contract was signed. The
effect of the New Version would remain the same and it would cause substantial additional
time and cost to complete the Custom Integration for the now obsolete system that the parties
had expected to integrate.
If the New Version was released shortly after the contract was signed, both Solutions and
Galactic may argue that the change in external circumstances was unforeseeable at the time of
contract execution. Solutions may argue that they cannot be held responsible for the additional
time and cost required to complete the Custom Integration for the now obsolete system.
Galactic may argue that they should not be held responsible for the delay and increased cost as
they could not have anticipated the release of the New Version. In this instance, there were
supervening events that caused impracticability. “Impracticability excuses performance or delays
in performance if a supervening event materially changes the inherent nature of a party’s
obligations to become substantially more difficult” and can “result in excessive and
unreasonable increase in performance costs” (Practical Law Commercial Transactions, 2023).
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2.
Instead assume that shortly after the Solutions-Galactic contract is signed, NoGood enters
bankruptcy and terminates all support for their existing products. Mini’s license to continue
use of the now unsupported products will expire at about the same time Solutions could
complete the Custom Integrations for any of Mini’s systems.
If NoGood enters bankruptcy and terminates all support both Solutions and Galactic may argue
that the change in external circumstances was unforeseeable. Solutions may argue that they
cannot complete the Custom Integrations if Mini's license expires. Solutions may claim that they
should not be held responsible for the termination of support by a third party. Galactic may
argue that they should not be held responsible for the termination of support and may claim
that Solutions should find an alternative solution to complete the Custom Integrations. A party
declaring bankruptcy does not “relieve a party from contractual obligations on the grounds of
impossibility, impracticability, or frustration of purpose. However, performance may be excused
by statutory directive or judicial determination” (Practical Law Commercial Transactions, 2023).
However, in this instance the party filing bankruptcy is a third party.
References:
Practical Law Commercial Transactions. (n.d.). Excuses for Non-Performance: Conditions Preceding
Contract Formation. Retrieved 2023
Practical Law Commercial Transactions. (n.d.). Excuses for Non-Performance: Conditions Following
Contract Formation. Retrieved 2023
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