 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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 2

 A 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. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 3

 Complete Performance.  Parties perform exactly as agreed, or ‘perfect.’  All conditions satisfied. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 4

 Substantial Performance: party in good faith performs substantially all of the terms, can enforce the contract.  Confers Most of the Benefits Promised: performance must not vary greatly from what was promised.  But damages can be awarded.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 5

 Substantial Performance (cont’d):  Entitles the Other Party to Damages.  Measure of damages is cost to bring object of contract into compliance.  CASE 10.1 Jacob & Youngs v. Kent (1921). What remedy was Kent entitled to? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 6

 A breach of contract is the nonperformance of a contractual duty.  A material breach occurs when performance is not substantial, and nonbreaching party is excused from performance and entitled to damages.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 7

 In a minor (non-material) breach, the duty to perform is not excused and the non- breaching party must resume performance of the contractual obligations undertaken. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 8

 Occurs when one party refuses to perform his contractual obligation, before performance is due.  Treated as a material breach, and nonbreaching party may sue for damages immediately, even though performance is not due. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9

 Notice by repudiating party may restore parties to original obligations.  Rational for Treating Repudiation as Breach.  Anticipatory Repudiation and Market Prices. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 10

 If no time is stated in the contract, a reasonable amount of time is implied.  If time is “of the essence” it becomes a condition precedent to performance.  Failure to complain may be a waiver. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 11

 Discharge by Rescission.  Mutual Rescission: for executory contract, parties must make a new contract, oral or written. Under UCC, contracts must be in writing.  If one party has performed, agreement to rescind must have additional consideration. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 12

 Discharge by Novation: parties agree to substitute a third party for an original party.  Requirements: previous valid obligation, agreement by all parties, extinguishment of all old obligations, and new valid contract. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 13

 Discharge by Settlement Agreement.  Discharge by Accord and Satisfaction.  Accord: contract to perform existing contractual duty not yet discharged.  Satisfaction: performance of the accord. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 14

 Alteration of The Contract: innocent party is discharged after material alteration.  Statutes of Limitations.  Bankruptcy: generally bars enforcement of non-exempt transactions. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 15

 Objective Impossibility: the supervening event was not foreseeable:  Death or incapacitation in personal contract prior to performance,  Destruction of the subject matter; or  Change in law renders performance Illegal. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 16

 Temporary Impossibility.  Commercial Impracticability.  Performance becomes extremely difficult or costly, and must not have been known by parties when contract made.  CASE 10.2 Merry Homes, Inc. v. Chi Hung Luu (2010). Why was the lease void and unenforceable? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 17

 Frustration of Purpose.  Supervening event make it impossible to attain purpose both parties had in mind.  Event must not have been reasonably foreseeable, and decreases value of what a party receives under contract.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 18

© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 19

 Most common remedies for breach of contract:  Damages.   Rescission and Restitution.   Specific Performance.   Reformation.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 20

 Compensates nonbreaching party for loss of the bargain.  Out-of-pocket costs directly arising from breach.  Standard Measure: difference between value of promised performance and value of actual performance.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 21

 Incidental Damages: expenses cause directly by breach of contract.  Measurement of Damages: Sale of Goods: difference between contract and market price. Sale of Land: specific performance. Construction Contracts.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 22

 Measurement of Damages for Construction Contracts: varies (below). © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 23

 Consequential (Special) Damages—foreseeable losses.  Breaching party is aware or should be aware, cause the injury party additional loss. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 24

 Punitive Damages—punish or deter future conduct.  Generally not available for mere breach of contract. Usually tort (e.g., fraud) is also involved.  Nominal Damages—no financial loss. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 25

 When breach of contract occurs, the innocent injured party is held to a duty to reduce the damages that he or she suffered.  Duty owed depends on the nature of the contract. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 26

 Liquidated Damages: specific amount agreed to be paid as damages in the event of future breach.  Penalties: designed to penalize, generally unenforceable. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 27

 Enforceability. Court asks two questions:  When contract was entered into, was it apparent damages would be difficult to estimate in the event of a breach?  Was the amount set as damages a reasonable estimate and not excessive? © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 28

 Sometimes damages are inadequate remedy.  Court can create equitable remedies: Rescission and Restitution  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 29

 Rescission: remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 30

 Restitution: both parties must return goods, property, or money previously conveyed.  Note: Rescission does not always call for restitution. Restitution is called for in some cases not involving rescission. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 31

 Specific Performance:  Equitable remedy calling for the performance of the act promised in the contract.  Provides remedy in cases involving unique subject matter:  Sale of Land.  Contracts for Personal Services. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 32

 Reformation:  Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties true intentions.  Available when an agreement is imperfectly expressed in writing.  Used when fraud or mutual mistake occurs. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 33

 CASE 10.3 Drake v. Hance (2009). Was this really a mutual mistake?  Also used in Oral Contracts and Covenants Not to Compete. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 34

 Purpose of the Doctrine: to prevent double recovery. Nonbreaching party chooses which remedy to pursue.  UCC Rejects Election of Remedies.  Pleading in the Alternative. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 35

 Occurs when nonbreaching party accepts defective performance of contract.  Consequences:  Party waiving the breach cannot take later action on that particular issue; contract continues.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 36

 Reasons for Waiving A Breach.  Waiver of Breach and Subsequent Notices.  Generally, a single waiver will not waive subsequent, additional, or future breaches, especially when unrelated to the initial breach.  © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 37

 Waiver of Breach and Subsequent Notices (cont’d).  Waiver extended to subsequent breaches when similar defective performances would be acceptable.  Non-waiving party remains liable for damages, but contract continues. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 38

 Exculpatory and Limitation of Liability clauses.  UCC Allows Sales Contracts to Limit Remedies.  Enforceability of Limitation-of- Liability Clauses: depends on type of breach excused by provision. © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 39