Question Presented
Tamika Burgess, a resident of New York, inherited 10 acres of land in Ohio. She decided to sell the property to McDonald Contractors, Inc. for the sum of $500,000. McDonald Contractors entered a contract with Tamika Burgess for the purchase of the above property on June 1, 2007. As part of the contract, Ms Burgess provided owner financing by accepting a $100,000 down payment from McDonald Contractors and agreeing to receive the remaining $400,000 in monthly instalments over 10 years. On December 2, 2007, the Ohio Board of Agriculture designated a large area of land as solely agricultural use (“Agricultural Preservation Area”), barring commercial development of any type for 5 years. The re-zoning would become effective April 1, 2008. The Agricultural Preservation Area included the property sold by Tamika Burgess to McDonald Contractors. On December 15, 2007, McDonald Contractors, upon learning of the board’s decision, sent a letter to Tamika Burgess stating that it intended to stop making its monthly payments for the land after April 1, 2008, due to the board’s decision to re-zone the land as agricultural use only.
The paper aims to answer the question, whether by discontinuing its monthly payments for the land sold to them by Tamika Burgess, this being as a result of the land being rezoned by the Ohio Board of Agriculture as Agricultural land only, is McDonald Contractors Inc, breaching its contract?
Brief Answer
Usually, a breach of contract is described as any kind of abstinence or non-performance from the completion of a legal obligation that was previously agreed upon. This can include non-fulfilment of the contract, partial fulfilment, or non-satisfactory performance. In this case, McDonald’s Corporation Inc, intend to partially fulfil the contract they made with Burgess based on grounds that were not implicated during the arrangement of the contract terms. If a contract is in written form and a party signs it, then that person is bound to the terms of the contract regardless of matters arising.
Facts
After Tamika Burgess, a New York resident inherited a 10-acre piece of land in Ohio; she decided to put the property on sale. At the same time, McDonald Contractors Inc was looking to buy land and they offered Ms Burgess $500,000 for the property, to which she agreed. Therefore, on June 1, 2007, McDonald Contractors entered into a contract with Tamika Burgess for the purchase of the said property. Following the contract, Ms Burgess provided owner financing by receiving a $100,000 down payment from McDonald Contractors and consented to receive the rest of the $400,000 in monthly instalments for 10 years.
However, on December 2, 2007, the Ohio Board of Agriculture allocated a large tract of land as an Agricultural Preservation Area, thus barring any type of commercial development for 5 years. This re-zoning, which unfortunately includes the property sold by our client Ms Burgess to McDonald’s Contractors, is to become effective from April 1, 2008. On learning about the board’s decision, McDonald Contractors sent a letter to Ms Burgess on December 15, 2007, stating that they intended to stop making the monthly payments for the land as of April 1, 2008. At this point, Ms Burgess came to seek help from our firm. In the process of presenting her case, she also stated that a farmer has approached her and would like to take over the mortgage payments for McDonald Contractors and in return to receive the title of the land.
Discussion
As unmistakably observed in this case, McDonald Contractors breached its contract with Tamika Burgess. This is because “all parties are legally bound to an obligation once they enter into a contract and the non-fulfilment of that obligation is considered a non-performance or a partial performance.” (Dixon 2002). Despite the company has committed in the contract to pay off the remaining balance to Ms Burgess in monthly instalments, it now intends to discontinue the payments from April 1, 2008. The company was supposed to pay off the balance within a 10-year period which translates up to June 1, 2017. Therefore, by ceasing to pay Ms Burgess, whatsoever the reasons, McDonald Contractors will have gone against the terms of the agreement as stipulated in the contract.
However, Ms Burgess cannot file to sue McDonald Contractors presently. Despite having evidence in form of a letter of the company’s intent to breach the contract, the fact that the contract has not been breached yet does not allow her to press charges. For her to do so Ms Burgess has no choice but to wait until the company is no longer making the necessary payments to her account. This way she will have viable evidence and thus a concrete case against the company.
Assuming that a breach of contract will occur on the asserted date, there are several remedies that Ms Burgess can use to rectify the breach of contract. She could file a suit against McDonald’s Contractors and seek equitable remedies. This refers to either specific performance whereby the court orders the defendant to fulfil their contractual obligations or a mandatory injunction, which is a court order that commands a defendant to do something. She can also file for unliquidated damages in terms of loss of bargain. This is whereby the damages caused to the defendant by the breach are assessed by the court and this article intends to put the claimant back to the position he/she would have been in had the contract been fulfilled.
On the other hand, if we file suit against McDonald Contractors, the company is expected to come up with defence claims to protect itself. The company could claim reliance loss which is wasted expenditure, and this arises when the claimant has incurred loss in the fulfilment of partial performance. This is because the company bought the land expecting to get their expenses back as well as profits from it. However, with the company being a commercial developer and the land having been re-zoned as an Agricultural Preservation Area, the company is projected to suffer immense loss.
While presenting her case to the firm, Ms Burgess stated that a farmer has approached her about taking over the mortgage payments from McDonald Contractors and in return receive title to the land. Basic contract principles state that to have a contract, there must be an offer first. The next step is either an acceptance or a rejection from the person being given the offer. The final aspect is a consideration that involves the exchange of something that is of value. The value should not be necessarily fair or equal, but the consideration should be mutual between both parties. In this case, therefore, if Ms Burgess feels she wants to accept the offer, she does not require any approval from McDonald Contractors. The fact that the company did not fulfil its contract means the title of the land is still permitted to Ms Burgess and she can transfer the contract to someone else to compensate for losses that might be incurred. However, the terms of the contract should be in writing and be signed by both parties.
Attached below is a recommendation of a contract clause to be included in the contract to protect Ms Burgess in the scenario that the land is re-zoned again.
“This Agreement and the exhibits attached hereto contain the entire agreement of the parties concerning the subject matter of this contract, and supersede all prior negotiations, agreements and understandings with respect hereto. This agreement may only be amended by a written document duly executed by all parties and any party cancelling their contract after its instigation shall pay liquidated damages of $1000 per month for the remainder of the unexpired portion of the term of the academic agreement, not to exceed $100,000.” (Larson 2003)
References
Larson, A. (2003). Common Contract Clauses. Law Offices of Aaron Larson, 10, 37-39.
Dixon, M. (2002). Principles of Land Law. Milton, UK: Routledge.