Computer support service, Inc., doing business as Cyzap, appellant and cross-appellee, v. Vaccination services of America, Inc., doing business as Total Wellness, appellant, and cross-appellee,
Introduction
The case ruling on the appeal was decided at the Nebraska court of appeals. The parties to the legal problem were the vaccination services of America, Inc with business name Cyzap and the computer support services, Inc. providing services with a business name of Total Wellness. The petition was addressing the issue of enforceability of a given contract for liquidated damage whereby the former filed a complaint alleging that the latter owed them payment due to early termination of the agreement. This case is essential as it clarifies the importance of honoring the contract agreements made and the consequences for failure to abide them. It provides an opportunity for a party stuck in the contract with a seller that has auto-renewed and has a liquidated damages provision to argue that it has to only pay for actual damage amount involving early termination rather than liquid damages if the amount is not close to the cost of actual damage value.
Facts of the case
The case was the first file in the district court by the Cyzap on November 21, 21013. The business had an allegation that the TotalWellness owed them a sum of 45,500 dollars’ liquid damages resulting from the monthly payment of 3,500 dollars for the remaining 13 months. This was as a result of the early termination of the contract. The argument was that both parties had failed to give the notice in time for the proposed completion of the deal; thus there was an automatic renewal thus 13 months was remaining before the contract expiry date. However, Total Wellness refuse to pay up the demanded payment when Cyzap demanded this payment.
A month later total wellness responded to the accusation by filing a counterclaim to answer to the claim. It denied the allegation of owing Cyzap any form of payment by claiming that the contract between them was void since it signed the agreement under pressure that is the concept of constraint from the computer service providers. It also argued that the monthly fee which they were charged was considered to be unacceptable and in return demanded that it be awarded the 3500 dollars it had paid Total Wellness center by finding the difference between fair market value of the services they got from Cyzap
Approximately one month later after the counterclaim, both Cyzap and Total Wellness filed a motion seeking summary judgment with the Cyzap being the first initiator. This led to a hearing where both parties were given an opportunity to explain the legal issue and the damages accrued to Cyzap due to the early termination of the contract. The evidence which was presented by Total Wellness was based on the belief that the agreement which was signed in 2012 was invalid since they were forced to sign a new deal. This was demonstrated by the evidence that Cyzap discontinued their services of information technology. These aroused their fear of losing their clients and in the long run incur losses in their business. More evidence showed that Cyzap saved money by not working for Total Wellness under the contract was presented since their cost of providing services exceeds the fees Total Wellness was paying. The district court found that the liquidated damages provision found in the agreement of the contract was an enforceable penalty thus it granted in favor of Cyzap on Total Wellness for the counterclaim and in the summary judgment in favor of Total Wellness on Cyzap claim.
The next step was an appeal made by Cyzap at the Nebraska court of appeal where it claimed that the liquidated damage provision was enforceable since it required Total Wellness to pay up calculable payment resulting from any event where there is an early contract termination. The argument is that the court did not need to analyze the clause as a breach of contract since Total Wellness had the right to the agreement to terminate anytime as long as it pays liquidated damages. This argument was considered unpersuasive by the high court. It affirmed the decision made by the district court holding that the liquidated damage provision in the agreement made by the parties constituted an unenforceable penalty provision.
The last phase was Cyzap's petition at the Supreme court where it argued that the court of appeals holding contradicts its previous case decision that debated withdrawal of any record early that the stated time did not constitute a breach under which a liquidated damage or unenforceable penalty analysis could be conducted.
Theory-conceptual Framework
For the case to be understood certain legal term and concept has to be considered. First, knowing the background of the matter is essential. It is necessary to research the laws mentioned and to identify the elements of each charge. Establishing the facts used in the previous court decision are also crucial as it gives more information on what the case entailed. When judges need to make a particular decision on the matter involving law, they usually have to follow the decision made by their predecessors and superiors. This is a principle known as stare decisis. In this case, the court of appeal took into consideration the statement judgment made in the district court before making its own final decision.
The doctrine caveat emptor is a contract rule which holds that a seller is under the responsibility to inform the buyer the existence of defects even the hidden ones in what he is selling (Malek, Begum, Hoque " 2016). In this case, both Cyzap and Total Wellness were aware that the contract could be terminated at any time provided they honor the terms of payment that were written in the agreement. Another legal term referred related to this term in the given case is the breach of contract. This is the failure by one party who is bound by the agreement to upload their part of the deal. It can lead to damages being awarded against the party which cause the breach. Repudiation is also a legal term that covers this case. It means that an individual has failed to comply with a contract thus amounting to the violation. The repudiation by a party will lead to a breach of contract thus making that agreement to be void. This will, in turn, lead to a legal issue where the wrongdoer will be forced to pay for any damage incurred.
How to deal will with the breach of contract before during and after the case is one way is one concept that must be put into consideration. The first step that both parties need to do is to consult with each other through negotiation. This is a bargain with the other side to bring about agreement on the given legal issue. It helps in determining if there can be a way the contract can be modified to suit both parties. Negotiation of the termination agreement will enable both sides to wrap up any obligation economically. This would address items such as scheduling the actual outstanding payments, arrangement a timeline for performing the remaining performance task and making sure the transfer of intellectual properties (Andrews, 2015).
An appeal is also a term that has been used in this case. It refers to a request made after a trial by a grieved party which has lost at least one or more issues for the higher court to review the decision and determine if it was correct. The person or business that is appealing is called the appellant, and the other party is the appellee. To this reference case, Cyzap is the appellant who filed an appeal to the higher court when it lost the case against the Total Wellness the appellee in the summary judgment.
Also, Counterclaim has been used in this case; it is the demand made by a defendant in civil lawsuits against the plaintiff. It begins when the injured party (Cyzap) sues another person or business by demanding payment for the damages resulting from the defendant behavior, the defendant in this case Total Wellness. The counterclaim thus is a way of the defendant saying it is also owned for damages (Tushnet, 2017).
The term affirms also been used in the court of appeals. It means that the court has concluded that the lower court decision is correct and will stand as rendered by the lower court. In the case, the Nebraska court of appeal affirmed that the decision which was made in the district court was correct and thus made a similar judgment based on the evidence presented. Affirming the ruling which was created by the lower court can lead to an appeal if the party is dissatisfied.
Applicable law
Some cases have been referred to in this case. An example is a case done in 2017 of Oldfield v. Nebraska machinery co. is mentioned to in this case is stipulates that a court's grant summary judgment will affirm if the evidence and pleadings are shown not to have a guanine issue as to any material fact drawn from the facts. Another case reference is that of Beren and Tate P.C verses iron Mountain Information management was also used whereby the issue on whether a sum mentioned in a contract has to be considered as liquidated damages or penalty is a matter of law which is dependent on the agreement. A ruling that the reasonableness of the stated damage can be judged during the time that the contract was made is also mentioned in the case. In Kozlik verse, Emelco Inc case also indicates that the parties have to bargain for the amount incurred due to the damage and be paid in the event of a breach as long as the sum is in line with the circumstances. The final case is the one of Kosmiski v. State. It states that for a contract to be voidable as a result of the duress, the agreement made must be unjust, unconscionable or illegal in addition to the stated reason of pressure to sign up the contract. Thus since there was no such evidence to support that the agreement was signed under duress as Cyzap had legal right to discontinue the provision of the services.
In this case scenario, the applicable law is the civil law. It is the body of regulations and rules that seek to protect the private right of the citizens and offer the solution of disputes that arise from breach of contracts. It deals with the conflicts between parties or any deeds neglect that has the potential to cause harm to others. In this law, it is the injured person, in this case, Cyzap who initiates the lawsuit. The proceeding is instituted in the courts by the plaintiff himself and the burden of proving the claim also rest on him. The origin of these laws is from the Roman law. Civil law is found mainly in cases that include the law of contracts, law of succession, law of torts and law of property. Its ideologies are codified into a superior system that serves as the primary source of law which determines how legal issues should be decided. The primary purpose of the civil law has been used to resolve disputes and solve problems ensuing from at least two individuals or groups of people. It also provides compensation for the party injured by someone else's behavior. The main use is also to prevent undesirable behavior and to punish the wrongdoers.
The legal issue
The problem the court needs to address is based on different concept and questions that arose from the case preceding. The first one question that needs to be answered is, does the agreement that requires Total Wellness to pay for the liquidated damages to Cyzap enforceable by the contractual provision? This was the main reason why Cyzap went to court in the first place. The $45,500 that Cyzap was suing for was neither reasonable estimate of its damage nor a reasonable proportionate to what its damage would have cost had the court of appeal agreed. It also stated that the amount of the actual loss totaling to 21,045.37 was less than half of the cost it would have been owed by Total Wellness under the liquated damages under the agreement.
Another legal issue is to be addressed the breach, does it result in contract breach penalty? Even Total Wellness had the right to terminate the agreement any time as stipulated in the contract, in order not to incur any form of payment they still have to notify Cyzap about the terminating at least 120 days before ending the contract thus this issue had to be analyzed (Farnsworth, 1970). However, the penalty was not incorporated since the amount that Cyzap was demanding was did not meet the law that stipulates the sum of liquidated damages.
The third legal problem that arose was, did Total Wellness sign the contract because it was under duress? Duress would mean the agreement was made unjustly, unconscionable or in an illegal way. The final legal issue arising here is on the question of profit. Did Cyzap save more money as a result of an earlier termination? What Cyzap did was accused of incurring more expenses to run the computer services that the earning they would have received.
Decision
The court of appeal decision affirmed the district court ruling that liquidated damage provision made in the agreement constituted of an unenforceable penalty provision. The amount which Cyzap was demanding as payment was neither a generous prize concerning estimate damage caused by the breach nor the proportionate to the damage that might have been caused due to the breach. The court did not find the argument that liquidated damages provision as being enforceable to be persuasive. It indicated that the deed of early termination by Total Wellness did not constitute as a breach under the agreement despite the fact that the agreement allowed Total Wellness to do that.
Further evidence that Cyzap did have a much more cost than the revenue while providing services to Total Wellness even with the increase fees outlined in the 2012 agreement hence Cyzap saved money due to the early termination. The Nebraska court of appeal further explained the law by Supreme Court which has described an enforceable liquidated damages provision must meet two conditions. One is the damages of the parties might be difficult to determine due to their indefiniteness or uncertainty. Two is that the amount that has to be paid has to be either an estimate of actual damage or for it to be a reasonable proportionate to the actual cost that might be made under the breach. The court established that the early termination of the contract was considered to be a breach due to the failure of both parties to give early notice
The court dismissed the evidence based on the case Beren and Tate P.C verses iron Mountain Information management and Kozlik v. Emelco with the reason that any stipulated loss can be judged based on the time in which the contract was made. The parties have to bargain for the amount incurred due to the damage and be paid in the event of a breach as long as the sum is in line with the circumstances. In this case, this was not applicable. The issues on the matter of the signing of the agreement under pressure do not account for duress (Knapp, Crystal, " Prince, 2016). This is because duress has to include other factors such as illegality and unjustness while signing the contract.
Conclusion
The court concluded that the decision which was made in the district court was to be upheld. That is the granted summary judgment that favored Total wellness claim of Cyzap owing it a sum of 45,500 dollars and the summary judgment which was found to be unreasonably proportionate to the amount of damage it would have incurred. It favored the Cyzap counterclaim of the Total Wellness payments where the issue on duress while signing the contract was found to be insufficient evidence. My opinion on the case is that both Cyzap and Total Wellness should have had talks and negotiations about the agreements before resolving to go to court. This is because they failed to notify each other of the termination of their services thus the both of them were on the wrong side of the law. The court decision was therefore fair by favoring the party that was affected by the termination of the services as this accrued to losses as a consequence of the actions made.
References
Andrews, N. (2015). Contract law. Cambridge University Press.
Farnsworth, E. A. (1970). Legal remedies for breach of contract. Columbia Law Review, 70(7), 1145-1216.
Knapp, C. L., Crystal, N. M., " Prince, H. G. (2016). Problems in Contract Law: cases and materials. Wolters Kluwer Law " Business.
Malek, A., Begum, A. M. A., " Hoque, K. A. (2016). The doctrine of Caveat Emptor (Buyer be aware) in Common Law and the Doctrine of Khiyar al AIB (Option of defect) in Islamic Law: A Comparative Study. IIUC Studies, 10, 201-216.
Tushnet, M. (2017). Comparative constitutional law. In The Oxford handbook of comparative law.
