Performing and Enforcing a Contract OBE 118, Section 10 Fall 2004 Professor McKinsey

A Valid Enforceable Contract 1)Mutual Agreement 2)Consideration 3)Capacity 4)Legality 5)Genuineness of Assent 6)Writing

Rights and Duties Party A Party B Good$$$ For every promise there is a corresponding consideration/ obligation. This makes up an exchange that is a duty by the promisor and a right by the promisee (We also say obligor and obligee) Party A and Party B are in privity of contract

Third Parties A party other than the promisor and the promisee can become involved as a party to a contract - By assignment or delegation - As a third party beneficiary

Assignments of Rights A contract right can be assigned - Assignee can enforce contract - The assignor loses the right - Some rights cannot be assigned - Notice of the assignment 1) Statutory forbiddance 2) Contract specifies no assignment 3) Personal contracts 4) If assignment would materially increase duty 1) Ensures priority if multiple assignees 2) Ensures performance to assignee

Delegations of Duties A contract duty can be delegated - Usually original promisor (obligor) is still liable - New obligee can assume the duty and thus become liable to original promisee - Some duties cannot be delegated 1) Personal skill of obligor 2) Special trust in obligor 3) Will cause material change in performance 4) Contract expressly prohibits

Party A Party B Good$1000 An Example

Third Party Beneficiaries Intended Beneficiaries -A party for whose benefit the contract was made -Party has right and can sue to enforce -Make sure right has vested (notice or reliance) When is a beneficiary intended? -Does 3 rd party have right to control performance? -Was performance to be to the 3 rd party directly? -Was the designation as intended beneficiary expressly made?

Absolute Promise A simple promise in exchange for another promise, with no conditions or qualifications. Party A Party B $$$ Good Neither party is required to act first, but once a party tenders performance, the other party is then obligated to perform as well.

Conditioned Promises Performance can be conditioned on some possible future event. Condition Precedent A condition that must be met before performance is due Condition Subsequent A condition that ends the obligation to perform Concurrent Conditions When performance must occur simultaneously

A Valid Enforceable Contract 1)Mutual Agreement 2)Consideration 3)Capacity 4)Legality 5)Genuineness of Assent 6)Writing

Performance Each enforceable promise in a valid enforceable contract creates a duty that must be discharged by performance, breach, agreement, or law. Duty

Performance Each enforceable promise in a valid enforceable contract creates a duty that must be discharged by performance, breach, agreement, or law. Two types of promises: Absolute Promises Conditioned Promises Duty

Discharge by Performance is usually enough. Checklist for Substantial Performance Sometimes contract requires. 1. Exact performance called for not a material term. 2. Performance close to complete. 3. Substantially the same benefits created.

Whose Satisfaction? Performance of personal contracts can be specified to be to the satisfaction of a party Performance of contracts dealing with mechanical fitness or utility must only be satisfactory to a reasonable person.

Discharge by Breach A discharges the other partys duty. discharges the other partys duty Material breach occurs when performance is not substantial or when strict performance was called for and performance is not exact. Party rejects, refuses, or denies performance and other party treats it as a breach.

Discharge by Agreement Parties can agree to discharge one or more duties. Compromise - settlement agreement over bona fide dispute Novation - new party in a new contract, old party relieved of duty Mutual Rescission – Parties agree to void contract Accord and Satisfaction –Duty to be satisfied once new agreement performed

Discharge by Operation of Law The law can also discharge a duty by: Statute of Limitations Bankruptcy Impossibility

Objective impossibility may discharge a duty Death or disablement Destruction of Subject Matter Intervening Illegality

Breach of Contract Material Breach Anticipatory Repudiation Other party can stop performance and seek remedies (Damages) Minor Breach? (less than perfect performance?)

Contract Remedies Damages for breach: –Compensatory – usually the expectation interest, the direct damages –Consequential – indirect damages that were foreseeable by breaching party –Incidental – small costs caused by the breach

Contract Remedies Equitable Remedies –Reliance interest – through promissory estoppel, no contract required –Restitution- make whole again, where one party is would get a benefit they do not deserve. –Specific Performance – where $ will not do justice, real property or unique personal property –Injunction – Stop the party from doing something –Reformation – rewrite the contract –Rescission – undue or cancel the contract as if it never happened (usually includes restitution above)