Contractual Issues

Contracts are a big part of pharmacy, indeed, one of the mainstays of success.  Contracts for sale, purchases, equipment, maintenance and repair, and employment are just a few of the many examples pharmacists utilize the contract to aid them in providing services to the public.  Below are a few cases where contracts were the focal point of the legal dispute.

Case #1:

Sam Pharmacist signed a contract during his fourth year of pharmacy school to work for ZZZ Pharmacy Chain.  The contract stated that upon passing the licensure exam he was to report to the ZZZ pharmacy supervisor in his hometown of Elsewhere, KY.  Then he would be assigned a store.

Upon presenting himself to the PS, Sam was told that there were no current openings.  PS thanked him for his diligence in coming to see him (the PS) and then wished him well in his career.  Three months later, Sam found a job for $10,000 a year less than ZZZ had offered.  Sam sued ZZZ for breach of contract, lost wages, and specific performance.

A breach of contract is a failure to meet an important facet or provision of the contract.  This means that the breach must be material, so damaging to the intent of the contract that the document ( or part of it) is thus rendered void.  When this occurs, the party in breach must make things right and put the injured party in a place where he would have been if the breach had not occurred or where the injured party would have been if the contract had never been created.  Sam has suffered substantial economic loss relying on the agreement.  Thus, ZZZ must pay Sam for the three months lost pay.  The question of making up the annual loss gets a little more complicated.  There must be a calculation to see whether Sam’s new job will catch up and erase the deficit he now earns as compared to the expected ZZZ salary.  Once so calculated, Sam will get an additional sum.

Specific performance bestows upon the injured party what he originally bargained for.  In this case, that would be the ZZZ job.  Specific performance is usually not granted as it is too difficult to make parties upset and angry with each other now get along as if nothing has happened.  Imagine a contract between a famous painter and a family wanting a family portrait painted by that artist.  The artist breaches.  Specific performance?  Who would want a portrait painted not by a caring painter but by an angry sullen artist?  The result would more than likely not be what the family wished for from the painter.  Thus, in this case, with bad feelings between ZZZ and Sam, the court would not grant him his original job; bad feelings between employer and employee would make for a bad working relationship.

Case #2:

Nice Nursing Home has a contract with Indie Pharmacy to supply all its patients’ medicines for $50,000 a month.  This agreement works well for over two years.  Then, XYZ Pharmacy chain builds a store in town and offers Nice NH to handle their medicine needs for $44,000 a month.  Nice NH goes to Indie and tells Indie what XYZ has offered.  Indie offers to re-negotiate the contract to $48,800 a month, to which Nice NH says “thanks, but no.”  Then Indie reminds Nice NH that the parties still have 3 years on their contract.

Nice NH refuses the next order from Indie and signs a contract with XYZ.  Indie sues Nice NH for breach of contract.  Nice NH closes its doors, and then contests the lawsuit because there is a provision ending the contract if one or the other entities closes.  Then Nice NH puts all its patients in two wings of Extralarge Nursing Home and provides the staff to take care of them.  Indie looks into this and discovers that XYZ is supplying the meds for the agreed upon XYZ price of $44K a month.  Indie goes back to court.

And wins.  The court holds that Nice NH did not really close its doors if all it did was move the patients.  They still remain under the control of Nice NH, who is still providing both the staff and meds for just those patients.  Closing, the court states, is a cessation of business, not just the cessation of use of a facility.  Nice NH continued its business and there were “new” doors opened at Extralarge.

So does Indie get $50K a month for the remainder of the contract? Maybe, maybe not.  Since specific performance here is not that out of line, the original contract can be put back in place and yes, Indie would get the $50K a month.  Or Nice NH could stay with XYZ and just pay Indie that portion of the $50K that was profit, since the meds would no longer have to be purchased.  Not too likely, as Nice NH would probably be out more money paying two providers.

Case #3:

Potter’s Pharmacy supplies Hogwarts Nursing Home with meds every month.  In May, somewhere near the mid-part of the five year contract for services and drugs between these parties, Potter’s is destroyed by a tornado.  It will be six months before Potter’s can re-open.  Hogwarts is forced to find another source of drugs and the new pharmacy charges Potter’s $7,500 a month more.

When Potter’s re-opens, at the same time Hogwarts finds yet another source of medications that will charge Hogwarts $500 less a month than Potter’s.  Hogwarts ignores Potter’s announcement that services are about to resume and signs a contract with the new guys in town.  Potter’s sues for resumption of the contract or else asks the court to hold Hogwarts in breach.  Hogwarts in response countersues for its six month $45K loss in having to pay over its contracted amount while Potter’s was closed.

Let’s do the second part first.  Hogwarts does not get the $45K.  The court held that the tornado was an act of God or nature, an act that neither party in the contract could foresee or prevent.  With the store destroyed, Potter’s was released from the contract due to impossibility of performance.  Had the store’s destruction been due to negligence by Potter’s that would be another story, but here the store was leveled by an act that could not be controlled by Potter’s.  That Hogwarts suffered damages is sad but not Potter’s responsibility.  Or in less proper vernacular, s**t happens.

Now, what about Potter’s suing for resumption of the contract?  Not very likely.  However, unless the contract has a provision that Potter’s can be closed for up to six months without vitiating the contract, the court is going to hold that six months is an unreasonable amount of time for Hogwarts to have to temporarily replace Potter’s services and then be forced to go back to them.  Instead, it is far more likely that this amount of time is unreasonable and Hogwarts has the right to negotiate for new services elsewhere long before 180 days.  Potter loses this argument.

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