© 2004 West Legal Studies in Business A Division of Thomson Learning 1 Chapter 10 Contract Performance, Breach, and Remedies

© 2004 West Legal Studies in Business A Division of Thomson Learning 2 IntroductionIntroduction How does a party know when his or her obligations under the contract are at an end? How does a party know when his or her obligations under the contract are at an end? A party may be discharged from a valid contract by: 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. How does a party know when his or her obligations under the contract are at an end? How does a party know when his or her obligations under the contract are at an end? A party may be discharged from a valid contract by: 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 3 §1: Performance and Discharge Conditions: 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. Conditions: 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 4 ConditionsConditions Types of Conditions: Types of Conditions:  Conditions Precedent.  Conditions Subsequent.  Conditions Concurrent. »Express. »Implied in Fact. »Implied in Law. Types of Conditions: 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 5 Discharge by Performance The contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised. The contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised. Types of Performance: Types of Performance:  Complete Performance.  Substantial Performance (minor breach).  Performance to the Satisfaction of One of the Parties or a Third Party. Case 10.1: Jacobs & Young v. Kent (1921). Case 10.1: Jacobs & Young v. Kent (1921). The contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised. The contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised. Types of Performance: Types of Performance:  Complete Performance.  Substantial Performance (minor breach).  Performance to the Satisfaction of One of the Parties or a Third Party. Case 10.1: Jacobs & Young v. Kent (1921). Case 10.1: Jacobs & Young v. Kent (1921).

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

© 2004 West Legal Studies in Business A Division of Thomson Learning 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. 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. Time for Performance. Time for Performance.  If none specified, reasonable time is implied.  Case 10.2: Mangaro Corp. v. HITT Contracting, Inc. (2002). 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. 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. Time for Performance. Time for Performance.  If none specified, reasonable time is implied.  Case 10.2: Mangaro Corp. v. HITT Contracting, Inc. (2002). Breach of Contract

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

© 2004 West Legal Studies in Business A Division of Thomson Learning 9 Discharge by Operation of Law Alteration of The Contract. Alteration of The Contract. Statutes of Limitations. Statutes of Limitations. Bankruptcy. Bankruptcy. Impossibility or Impracticability.  Impossibility or Impracticability.  Alteration of The Contract. Alteration of The Contract. Statutes of Limitations. Statutes of Limitations. Bankruptcy. Bankruptcy. Impossibility or Impracticability.  Impossibility or Impracticability. 

© 2004 West Legal Studies in Business A Division of Thomson Learning 10 Impossibility or Impracticability of Performance Objective Impossibility of Performance. Objective Impossibility of Performance.  Death or incapacitation prior to performance;  Destruction of the Subject Matter; or  Illegality in performance. Commercial Impracticability. Commercial Impracticability.  Key: Circumstances not foreseeable.  Case 10.3: Cape-France v. Estate of Peed (2001). Frustration of Purpose. Frustration of Purpose. Temporary Impossibility. Temporary Impossibility. Objective Impossibility of Performance. Objective Impossibility of Performance.  Death or incapacitation prior to performance;  Destruction of the Subject Matter; or  Illegality in performance. Commercial Impracticability. Commercial Impracticability.  Key: Circumstances not foreseeable.  Case 10.3: Cape-France v. Estate of Peed (2001). Frustration of Purpose. Frustration of Purpose. Temporary Impossibility. Temporary Impossibility.

© 2004 West Legal Studies in Business A Division of Thomson Learning 11 § 2: Breach of Contract and Remedies Most Common Remedies: Most Common Remedies:  Damages.  Rescission and Restitution.  Specific Performance.  Reformation.  Recovery Based on Quasi Contract. Most Common Remedies: 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 12 DamagesDamages Compensatory Damages—direct losses. Compensatory Damages—direct losses.  Sale of Goods: difference between contract and market price.  Sale of Land: specific performance.  Construction Contracts: varies. Consequential (Special) Damages—foreseeable losses. 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). Compensatory Damages—direct losses. Compensatory Damages—direct losses.  Sale of Goods: difference between contract and market price.  Sale of Land: specific performance.  Construction Contracts: varies. Consequential (Special) Damages—foreseeable losses. 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 13 DamagesDamages Punitive Damages—punish or deter future conduct. 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. Nominal Damages—no financial loss.  Defendant is liable but only a technical injury. Punitive Damages—punish or deter future conduct. 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. Nominal Damages—no financial loss.  Defendant is liable but only a technical injury.

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

© 2004 West Legal Studies in Business A Division of Thomson Learning 15 Liquidated Damages Liquidated Damages. Liquidated Damages.  A contract provides a specific amount to be paid as damages in the event of future default or breach of contract. Penalties. 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. Case 10.5: Green Park Inn v. Moore (2002). Case 10.5: Green Park Inn v. Moore (2002). Liquidated Damages. Liquidated Damages.  A contract provides a specific amount to be paid as damages in the event of future default or breach of contract. Penalties. 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. Case 10.5: Green Park Inn v. Moore (2002). Case 10.5: Green Park Inn v. Moore (2002).

© 2004 West Legal Studies in Business A Division of Thomson Learning 16 Rescission and Restitution Rescission. Rescission.  A remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions. Restitution. 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. Note: Rescission does not always call for restitution. Restitution is called for in some cases not involving rescission. Rescission. Rescission.  A remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions. Restitution. 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. 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 17 Specific Performance Equitable remedy calling for the performance of the act promised in the contract. Equitable remedy calling for the performance of the act promised in the contract. Remedy in cases where the consideration is: Remedy in cases where the consideration is:  Unique (land);  Scarce; or  Not available remedy in contracts for personal services. Equitable remedy calling for the performance of the act promised in the contract. Equitable remedy calling for the performance of the act promised in the contract. Remedy in cases where the consideration is: 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 18 ReformationReformation Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties true intentions. 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. Available when an agreement is imperfectly expressed in writing. Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties true intentions. 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. Available when an agreement is imperfectly expressed in writing.

© 2004 West Legal Studies in Business A Division of Thomson Learning 19 Recovery Based on Quasi Contract Equitable theory imposed by courts to obtain justice and prevent unjust enrichment. Equitable theory imposed by courts to obtain justice and prevent unjust enrichment. Party seeking quantum meruit must show the following: 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. Equitable theory imposed by courts to obtain justice and prevent unjust enrichment. Equitable theory imposed by courts to obtain justice and prevent unjust enrichment. Party seeking quantum meruit must show the following: 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 20 Election of Remedies Doctrine created to prevent double recovery. Doctrine created to prevent double recovery. Nonbreaching party must choose which remedy to pursue. Nonbreaching party must choose which remedy to pursue. UCC rejects election of remedies. UCC rejects election of remedies.  Cumulative in nature and include all the available remedies for breach of contract. Doctrine created to prevent double recovery. Doctrine created to prevent double recovery. Nonbreaching party must choose which remedy to pursue. Nonbreaching party must choose which remedy to pursue. UCC rejects election of remedies. 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 21 Waiver of Breach A pattern of conduct that waives a number of successive breaches will operate as a continued waiver. A pattern of conduct that waives a number of successive breaches will operate as a continued waiver. Nonbreaching party can still recover damages, but contract is not terminated. Nonbreaching party can still recover damages, but contract is not terminated. Nonbreaching party should give notice to the breaching party that full performance will be required in the future. Nonbreaching party should give notice to the breaching party that full performance will be required in the future. A pattern of conduct that waives a number of successive breaches will operate as a continued waiver. A pattern of conduct that waives a number of successive breaches will operate as a continued waiver. Nonbreaching party can still recover damages, but contract is not terminated. Nonbreaching party can still recover damages, but contract is not terminated. Nonbreaching party should give notice to the breaching party that full performance will be required in the future. 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 22 Contract Provisions Limiting Remedies Exculpatory clauses. Exculpatory clauses.  Provisions stating that no damages can be recovered. Limitation of liability clauses. Limitation of liability clauses.  Provisions that affect the availability of certain remedies. Exculpatory clauses. Exculpatory clauses.  Provisions stating that no damages can be recovered. Limitation of liability clauses. Limitation of liability clauses.  Provisions that affect the availability of certain remedies.

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