Failure to Enforce Contract Terms Resulted in Modification

Many contracts which require payment in exchange for performance, require that the payment be made by a date certain. One would assume that the failure to pay by the agreed date would result in a breach of contract. But, this isn’t always true as the parties in the recent case of Bull Market, Inc. v. Elrafei discovered.

In Bull Market, Mr. Elrafei agreed to buy a gas station from Bull Market. Elrafei promised to make his monthly payment by the 15th day of each month. If Elrafei failed to pay as promised, then Bull Market could declare him in breach and foreclose on the gas station.

From 2009 through late 2015, Elrafei paid, albeit on irregular dates roughly within 5 days both before and after the 15th day of each month. Bull Market accepted the irregular payments without complaint until August 2015, when Bull Market suddenly returned Elrafei’s August 18th payment with a letter declaring Elrafei in breach and demanding that Elrafei abandon the gas station. Eventually Bull Market sued and obtained an eviction.

Elrafei appealed and the Court of Appeals reversed, finding that over the course of time, the irregular payments by Elrafei, and the continued acceptance of same by Bull Market, resulted in a modification of the contract’s terms. Bull Market and Elrafei created a new contract regarding the, “monthly amount, the maturity date, and the day of the month when the payments are due.” In other words, unintentionally or not, the parties had an entirely new deal.

The Court did not discuss whether or not the written contract contained a “no waiver or modification” provision, which generally provides that the failure to enforce strict compliance of an obligation doesn’t result in a waiver of strict compliance or modification going forward. It seems that had the contract at issue contained such a clause, the result may have been different. In any event, understanding all the terms of a contract is crucial and it is equally crucial to consider what omitted provisions should be included as well.

Statutory Immunity for AED Use

Tragedies happen too often. And, when tragedies do occur, it’s difficult not to place blame. Placing blame, however, does not always mean that someone is legally liable for the tragedy.

In the recent case of Sandra Wallis v. Brainerd Baptist Church, et al., a tragedy occurred. During a cycling class, the Plaintiff’s husband collapsed and ultimately died. The instructor and other responders immediately gave first aid. It appears that since a slight pulse was found, the responders chose not to use the onsite AED (defibrillator). The Plaintiff-Widow sued the church arguing that it was liable primarily because the AED was not used. The church denied liability and filed a claim against the company that sold it the AED, provided training, and agreed to maintain the church’s physician oversight program.

The very lengthy Tennessee Supreme Court decision addressed numerous legal and factual issues, which won’t all be discussed in this post. However, relevant to this post is the Court’s discussion about the legislature’s decision to adopt laws intend to increase the availability of AEDs. See Tenn. Code Ann. §§ 68-140-401. Although encouraging the use of AEDs, the laws, however, do not mandate their use if a business chooses to have one onsite. But, if a business chooses to have an AED, the business must satisfy Tenn. Code Ann. §§ 68-140-408 and the TN Dept. of Health requirements. These laws generally require certain training, maintenance, registration and program development before an AED may actually be used.

Of note to the Wallis case, is the law which generally statesthat if a business acquires an AED and complies with the law, the business “receives statutory immunity from civil liability for negligent acts or omissions arising from use of an AED, although this immunity does not extend to willful or wanton misconduct or gross negligence.” Wallis at p. 17.

In other words, the business having an onsite AED, which follows the training/registration laws, shouldn’t be liable for a tragic situation such as the one the Plaintiff went through.

Although, the Court didn’t dismiss the entire case due to the current way in which it was on appeal, it seems clear that businesses which choose to have, maintain, and properly use AEDs in emergency situations should not be liable under most tragic situations. As with any application of the law to a specific set of facts, businesses wishing to explore whether they are in compliance with the law should do so in conjunction with legal counsel.

Failing to Effectively Prove Lost Profits at Trial

We recently examined the case of Aqua-Chem, Inc. v. D&H Machine Service, Inc. regarding the importance of written terms and conditions in contracts. This same case also illustrates the need to properly prove lost profit damages at trial.

As a reminder, Aqua-Chem owned large coolers that were to be installed on U.S. Navy destroyers. Aqua-Chem hired D&H to modify the coolers to fit the ships. However, D&H damaged the coolers.  Aqua-Chem spent approximately $191,000 to replace the coolers, which the trial court awarded as damages. The court, however, refused to award Aqua-Chem lost profits.

Lost profits following a breach of contract can be extensive. In this case, Aqua-Chem consumed an additional 730 labor hours rebuilding the damaged coolers. Those labor hours could have gone to other projects and other customers, thus giving Aqua-Chem additional profit. At trial, an Aqua-Chem executive testified that its profit margin on each hour of labor was $25.96. Aqua-Chem argued that it was entitled to an additional lost profit award of $18,951.

The court, however, disagreed, finding that Aqua-Chem didn't prove its lost profit damages with "reasonable certainty". The court found that Aqua-Chem's testifying witness was unable to establish how its CFO came up with the calculation. As such, Aqua-Chem didn't meet its burden of presenting evidence that "provid[ed] a satisfactory basis for estimating what [its] probable earnings and expenses would have been had the wrongdoing not occurred."

 Presentation of evidence at trial is crucial. If Aqua-Chem had presented underlying testimony supporting the $25.96/labor hour profit margin, then the court may have awarded the additional $18,951 in damages. However, because the trial presentation lacked the supporting data, Aqua-Chem wasn't made whole.

Performance Following Purchase Orders can be Binding

The importance of understanding written terms and conditions and having written contracts cannot be stressed enough. The recent case of Aqua-Chem, Inc. v. D&H Machine Service, Inc., highlights these points.

Aqua-Chem owned large coolers that were to be installed on U.S. Navy destroyers. Aqua-Chem needed the coolers machined, and subsequently hired D&H to perform the machining. D&H incorrectly machined the coolers, damaging them. Aqua-Chem had to replace the coolers at an additional cost of approximately $191,000. Aqua-Chem sued D&H and prevailed following a bench trial.

Prior to D&H machining the coolers, Aqua-Chem sent purchase orders to D&H which specifically stated, among other conditions, that: 1) the written purchase orders controlled over all other documents and oral statements, and 2) performing the machining services constituted acceptance of the purchase orders in their entirety. D&H never signed the purchase orders, but did machine the coolers and returned them to Aqua-Chem.

D&H argued that it orally rejected the purchase orders and thus, did not perform the machining subject to the unilaterally imposed written terms and conditions. The Court rejected this argument finding that the purchase orders explicitly provided that performance of the job was acceptance of the terms and conditions as written. Any modification of those terms must have been in writing and before the job was performed.

D&H lost and the judgment awarding Aqua-Chem full replacement cooler costs was upheld on appeal. Additionally, D&H was ordered to pay Aqua-Chem's attorneys' fees.

This case highlights the importance of reading and understanding all the terms and conditions of a contract before performance. And, further, if certain terms are not desired, then those terms must be addressed in writing before performance is done.

Out of State Company's Failure to Obtain Tennessee Certificate of Authority Didn't Kill Lawsuit

In Tennessee, like many other states, a non-Tennessee company must obtain a Tennessee certificate of authority if it wishes to maintain lawsuits within the State of Tennessee. Curiously, the recent case of Sharper Impressions Painting, Co., et al. v. Dean Yoder interpreted this statute  as meaning that the non-authorized out of state company may file its lawsuit in Tennessee, however, once filed, it may not continue to prosecute the lawsuit. In other words, the Court didn't penalize the non-compliant company, which cured its omission mid-suit.

In Sharper Impressions Painting, Co., an Ohio company employed Dean Yoder who was fired for embezzlement. After termination, Mr. Yoder started his own competing painting business, which violated his Sharper Impressions non-compete agreement. Sharper Impressions sued Mr. Yoder in Tennessee where he was operating his business. Mr. Yoder filed a motion to dismiss arguing that the Ohio company could not sue him since it didn't have a Tennessee issued certificate of authority. The trial court agreed and dismissed the suit notwithstanding the fact that Sharper Impressions obtained the certificate during the pending litigation.

The Court of Appeals reversed, holding that T.C.A. §48-25-102's use of the word "maintain" merely meat that the non-authorized out of state company could not continue to prosecute the suit. It could however, commence the suit, and further, once the defect was cured, the Ohio company could then continue to litigate. Accordingly, the court reversed the dismissal.

Although this case essentially found "no harm, no foul", best practices for out of state companies doing business in Tennessee include obtaining the certificate of authority at the outset. Up front compliance is certainly a more prudent economic decision as it avoids not only the statutory imposed late filing penalties to obtain the certificate, but also obviates litigating ancillary issues.