1. 1 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. Chapter 10 Contract Performance, Breach and Remedies

2. 2 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. Introduction 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. A condition occurring or not occurring. Full performance or material breach by the other party. Full performance or material breach by the other party. Agreement of the parties. Agreement of the parties. Operation of law. Operation of law.

3. 3 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. §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.

4. 4 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. Conditions Types of Conditions: Types of Conditions: Conditions Precedent. Conditions Precedent. Conditions Subsequent. Conditions Subsequent. Conditions Concurrent. Conditions Concurrent. »Express. »Implied in Fact. »Implied in Law.

5. 5 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 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. Complete Performance. Substantial Performance (minor breach). Substantial Performance (minor breach). Performance to the Satisfaction of One of the Parties or a Third Party. 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).

6. 6 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 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.

7. 7 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 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. Case 10.2: Shah v. Cover-It, Inc. (2004). Case 10.2: Shah v. Cover-It, Inc. (2004). Time for Performance. Time for Performance. If none specified, reasonable time is implied. If none specified, reasonable time is implied. Breach of Contract

8. 8 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. Discharge by Agreement Discharge by Rescission. Discharge by Rescission. Discharge by Novation: Discharge by Novation: Previous obligation. Previous obligation. All parties agree to new contract. All parties agree to new contract. Extinguishment of old obligations. Extinguishment of old obligations. New Contract Formed. New Contract Formed. Discharge by Substituted Agreement. Discharge by Substituted Agreement. Accord and Satisfaction. Accord and Satisfaction.

9. 9 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 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.

10. 10 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. Impossibility or Impracticability of Performance Objective Impossibility of Performance. Objective Impossibility of Performance. Death or incapacitation prior to performance; Death or incapacitation prior to performance; Destruction of the Subject Matter; or Destruction of the Subject Matter; or Illegality in performance. Illegality in performance. Commercial Impracticability. Commercial Impracticability. Key: Circumstances not foreseeable. Key: Circumstances not foreseeable. Frustration of Purpose. Frustration of Purpose. Temporary Impossibility. Temporary Impossibility.

11. 11 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. § 2: Breach of Contract and Remedies Most Common Remedies: Most Common Remedies: Damages. Damages. Rescission and Restitution. Rescission and Restitution. Specific Performance. Specific Performance. Reformation. Reformation. Recovery Based on Quasi Contract. Recovery Based on Quasi Contract.

12. 12 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. Damages Compensatory Damagesdirect losses. Compensatory Damagesdirect losses. Sale of Goods: difference between contract and market price. Sale of Goods: difference between contract and market price. Sale of Land: specific performance. Sale of Land: specific performance. Construction Contracts: varies. Construction Contracts: varies. Consequential (Special) Damagesforeseeable losses. Consequential (Special) Damagesforeseeable losses. Breaching party is aware or should be aware, cause the injury party additional loss. Breaching party is aware or should be aware, cause the injury party additional loss. Case 10.3: Hadley v. Baxendale (1854). Case 10.3: Hadley v. Baxendale (1854).

13. 13 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. Damages Punitive Damagespunish or deter future conduct. Punitive Damagespunish or deter future conduct. Generally not available for mere breach of contract. Generally not available for mere breach of contract. Usually tort (e.g., fraud) is also involved. Usually tort (e.g., fraud) is also involved. Nominal Damagesno financial loss. Nominal Damagesno financial loss. Defendant is liable but only a technical injury. Defendant is liable but only a technical injury.

14. 14 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 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.

15. 15 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 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. 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. 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 10.4: Green Park Inn v. Moore (2002). Case 10.4: Green Park Inn v. Moore (2002).

16. 16 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 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. 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. 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.

17. 17 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 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); Unique (land); Scarce; or Scarce; or Not available remedy in contracts for personal services. Not available remedy in contracts for personal services.

18. 18 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. Reformation 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.

19. 19 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 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. Cumulative in nature and include all the available remedies for breach of contract.

20. 20 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. 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.

21. 21 COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license. Contract Provisions Limiting Remedies Exculpatory clauses. Exculpatory clauses. Provisions stating that no damages can be recovered. Provisions stating that no damages can be recovered. Limitation of liability clauses. Limitation of liability clauses. Provisions that affect the availability of certain remedies. Provisions that affect the availability of certain remedies.