Chapter 10 Contract Performance Breach and Remedies 2004

Introduction ü How does a party know when his or her obligations under the contract are at an end? ü A party may be discharged from a valid contract by: § A condition occurring or not occurring. § Full performance or material breach by the other party. § Agreement of the parties. § Operation of law. © 2004 West Legal Studies in Business A Division of Thomson Learning 2

§ 1: Performance and Discharge üConditions: Possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation or terminate an existing obligation under a contract. © 2004 West Legal Studies in Business A Division of Thomson Learning 3

Conditions ü Types of Conditions: § Conditions Precedent. § Conditions Subsequent. § Conditions Concurrent. » Express. » Implied in Fact. » Implied in Law. © 2004 West Legal Studies in Business A Division of Thomson Learning 4

Discharge by Performance ü The contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised. ü Types of Performance: § Complete Performance. § Substantial Performance (minor breach). § Performance to the Satisfaction of One of the Parties or a Third Party. ü Case 10. 1: Jacobs & Young v. Kent (1921). © 2004 West Legal Studies in Business A Division of Thomson Learning 5

Material Breach of Contract üBreach of Contract - the nonperformance of a contractual duty. üMaterial breach occurs when there has been a failure of consideration. üDischarges the non breaching party from the contract. © 2004 West Legal Studies in Business A Division of Thomson Learning 6

Breach of Contract üIn a minor (non-material) breach, the duty to perform is not excused and the nonbreaching party must resume performance of the contractual obligations undertaken. üTime for Performance. § If none specified, reasonable time is implied. § Case 10. 2: Mangaro Corp. v. HITT Contracting, Inc. (2002). © 2004 West Legal Studies in Business A Division of Thomson Learning 7

Discharge by Agreement ü Discharge by Rescission. ü Discharge by Novation: § Previous obligation. § All parties agree to new contract. § Extinguishment of old obligations. § New Contract Formed. ü Discharge by Substituted Agreement. ü Accord and Satisfaction. © 2004 West Legal Studies in Business A Division of Thomson Learning 8

Discharge by Operation of Law üAlteration of The Contract. üStatutes of Limitations. üBankruptcy. üImpossibility or Impracticability. © 2004 West Legal Studies in Business A Division of Thomson Learning 9

Impossibility or Impracticability of Performance ü Objective Impossibility of Performance. § § § Death or incapacitation prior to performance; Destruction of the Subject Matter; or Illegality in performance. ü Commercial Impracticability. § Key: Circumstances not foreseeable. § Case 10. 3: Cape-France v. Estate of Peed (2001). ü Frustration of Purpose. ü Temporary Impossibility. © 2004 West Legal Studies in Business A Division of Thomson Learning 10

§ 2: Breach of Contract and Remedies ü Most Common Remedies: § Damages. § Rescission and Restitution. § Specific Performance. § Reformation. § Recovery Based on Quasi Contract. © 2004 West Legal Studies in Business A Division of Thomson Learning 11

Damages ü Compensatory Damages—direct losses. § Sale of Goods: difference between contract and market price. § Sale of Land: specific performance. § Construction Contracts: varies. ü Consequential (Special) Damages—foreseeable losses. § Breaching party is aware or should be aware, cause the injury party additional loss. § Case 10. 4: Hadley v. Baxendale (1854). © 2004 West Legal Studies in Business A Division of Thomson Learning 12

Damages ü Punitive Damages—punish or deter future conduct. § Generally not available for mere breach of contract. § Usually tort (e. g. , fraud) is also involved. ü Nominal Damages—no financial loss. § Defendant is liable but only a technical injury. © 2004 West Legal Studies in Business A Division of Thomson Learning 13

Mitigation of Damages ü When breach of contract occurs, the innocent injured party is held to a duty to reduce the damages that he or she suffered. ü Duty owed depends on the nature of the contract. © 2004 West Legal Studies in Business A Division of Thomson Learning 14

Liquidated Damages ü Liquidated Damages. § A contract provides a specific amount to be paid as damages in the event of future default or breach of contract. ü Penalties. § Specify a certain amount to be paid in the event of a default or breach of contract and are designed to penalize the breaching party. ü Case 10. 5: Green Park Inn v. Moore (2002). © 2004 West Legal Studies in Business A Division of Thomson Learning 15

Rescission and Restitution ü Rescission. § A remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions. ü Restitution. § Both parties must return goods, property, or money previously conveyed. ü Note: Rescission does not always call for restitution. Restitution is called for in some cases not involving rescission. © 2004 West Legal Studies in Business A Division of Thomson Learning 16

Specific Performance ü Equitable remedy calling for the performance of the act promised in the contract. ü Remedy in cases where the consideration is: § Unique (land); § Scarce; or § Not available remedy in contracts for personal services. © 2004 West Legal Studies in Business A Division of Thomson Learning 17

Reformation ü Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties true intentions. ü Available when an agreement is imperfectly expressed in writing. © 2004 West Legal Studies in Business A Division of Thomson Learning 18

Recovery Based on Quasi Contract ü Equitable theory imposed by courts to obtain justice and prevent unjust enrichment. ü Party seeking quantum meruit must show the following: § A benefit was conferred to the other party. § Party conferring did so with the reasonable expectation of being paid. § The benefit was not volunteered. § Retaining benefit without paying for it would result in unjust enrichment of the party receiving the benefit. © 2004 West Legal Studies in Business A Division of Thomson Learning 19

Election of Remedies ü Doctrine created to prevent double recovery. ü Nonbreaching party must choose which remedy to pursue. ü UCC rejects election of remedies. § Cumulative in nature and include all the available remedies for breach of contract. © 2004 West Legal Studies in Business A Division of Thomson Learning 20

Waiver of Breach ü A pattern of conduct that waives a number of successive breaches will operate as a continued waiver. ü Nonbreaching party can still recover damages, but contract is not terminated. ü Nonbreaching party should give notice to the breaching party that full performance will be required in the future. © 2004 West Legal Studies in Business A Division of Thomson Learning 21

Contract Provisions Limiting Remedies ü Exculpatory clauses. § Provisions stating that no damages can be recovered. ü Limitation of liability clauses. § Provisions that affect the availability of certain remedies. © 2004 West Legal Studies in Business A Division of Thomson Learning 22

Law on the Web ü Lawyers. com website describing how contracts can be breached. ü Cornell U on contracts. ü Nolo. com on Contracts. ü Legal Research Exercises on the Web. © 2004 West Legal Studies in Business A Division of Thomson Learning 23