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You are the manager of a large data processing project. Your company, Systems Inc., worked very hard to obtain a contract with Big Bank to do their conversions from their recent acquisition, Small Bank.. The bank met with several companies to discuss who would do the best work on the contract. During your meeting with Big Bank, you told them that you had “never missed a conversion deadline.” At the time, your company had never missed a conversion deadline, but the company had only done three conversions. You also told them that your data processing systems were the fastest around.” After months of negotiation, Big Bank signed the contract. The President of Big Bank said, “We like fast, and you guys are fast. We choose you.” You started work on the data conversion immediately (ahead of contract). According to the contract, your team was responsible for ensuring that the new bank’s data was converted to Big Bank’s data processing system. The contract involved six large conversions. The first involved converting Big Bank’s savings accounts, the second its checking accounts, the third its investment portfolio, the forth its credit card, the fifth its mortgage portfolios and the six its large business loans. Your team completed four of the six conversions without a problem. The fifth task, the largest and most important, has encountered numerous problems. Some problems have been based on personnel issues on your part and other issues have been based on the bank’s failure to provide you with necessary information. One issue resulted when the conversion was delayed for over one week. The data to be converted was formatted differently than the bank’s previously specifications provided. For that reason, the data conversion fields needed to be changed. A provision in the contract required your company to receive four people’s approval before making any changes to the conversion data fields, and one of those four people, Glenda Givealot, was out of the country doing missionary work in an area of the world that did not have cell phone reception. Another issue resulted when the conversion was supposed to occur. Because of the change in the timeline, the conversion schedule had to change. The weekend the conversion was rescheduled to occur, an ice storm struck the state where your data processing computers were housed. Your facility lost electricity for three days and the conversion was delayed again until power could be restored.
1. Can Big Bank’s President rescind the contract? Under what circumstances can a contract be rescinded by either party? What facts have to be alleged and proven? What is the result of a contract that is rescinded?
2. Big Bank’s President also threatens legal action. What potential causes of action could you foresee him bringing in court? Would he be successful? Why or why not? What arguments could Systems Inc. raises in its defense? What are Big Bank’s potential damages?
3. Review the facts provided and the sample contract. What provisions of the contract could you cite to support an argument that it is not in Big Banks best interest to rescind the contract? What facts could you cite to support an argument that Big Bank be responsible for some of these issues and/or not in compliance with the contract?
4. In this situation amicable resolution of problems is greatly preferred by your company. Would this be true in all contract disputes? In what situations and why would you decide to move to litigation over amicable resolution?
5. There are 3 types of contract performance: complete, substantial and material breach. Describe the differences (and similarities) among the three, and explain some of the legal ramifications for one or more of these types of performances. (For example, what happens if one party performs completely but the other party performs only substantially?) Give examples from outside readings or experiences in your career or personal business life.
6. What are the two most important concepts from this exercise that will help you in future contract negotiations?