2. P A R T P A R T Contracts Introduction to Contracts The Agreement: Offer The Agreement: Acceptance Consideration Reality of Consent 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

3. P A R T P A R T Contracts Capacity to Contract Illegality Writing Rights of Third Parties Performance & Remedies 3 McGraw-Hill/Irwin Business Law, 13/e © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

4. Performance & Remedies PA E TR HC 18 “It is an immutable law in business that words are words, explanations are explanations, promises are promises – but only performance is reality.” Harold S. Geneen, CEO of ITT, Managing (co-written with Alvin Moscow, 1984)

5. Learning Objectives  Nature and types of conditions in contracts  Performance of contracts  Breach of contract  Excuses for non-performance  Remedies for breach of contract 18 - 5

6.  Entering into a contract shows intention to complete obligations under the contract  Generally, each party performs and is discharged (released) from further obligation  If a dispute arises over contract performance, remedies depend on contract terms and:  Conditions, standard of performance expected, and excuses for non-performance Overview 18 - 6

7.  Condition precedent is a future, uncertain event creating a duty to perform  Condition subsesequent is a future, uncertain event that discharges the duty to perform  Condition concurrent is when the contract calls for parties to perform at the same time  Condition excused by prevention, waiver, estoppel, and impossibility  See Silvestri v. Optus Software Conditions in a Contract 18 - 7

8.  To determine whether a party is discharged, courts review the standard of performance  A strict performance standard requires full or perfect compliance with the contract terms  A substantial performance standard is slightly lower standard applied to duties that are difficult to perform without some deviation from perfection in minor respects Performance of Contracts 18 - 8

9. Breach of Contract  Every contract includes an obligation to perform in good faith and failure to perform is a breach of contract  Non-breaching party may sue and recover for damages caused by the breach  Determining materiality (seriousness) is flexible and aids in determining remedies  See Arnhold v. Ocean Atlantic Woodland Corp. 18 - 9

10.  Anticipatory breach occurs if a party indicates the party is unwilling or unable to perform  Nonperformance of a duty may be excused in certain circumstances:  Impossibility : “it cannot be done by anyone”  Impracticability : when unforeseen developments make performance highly impracticable, unreasonably expensive, or of little value to promisee (UCC 2–615) Anticipatory Breach & Excuses 18 - 10

11.  Legal remedies (money damages)  Compensatory damages, nominal damages, liquidated (contractual) damages, and in certain circumstances, punitive damages  Equitable remedies  Specific performance or injunction  Restitution Remedies for Breach of Contract 18 - 11

12. Test Your Knowledge  True=A, False = B  When a condition precedent occurs, the contract arises, creating duties to perform  John agrees to work as Katy’s realtor until he sells her house. Katy closed on her house sale yesterday, so the contract has been discharged.  The standard for materiality of a breach is when 50% of a contract has been performed 18 - 12

13. Test Your Knowledge  True=A, False = B  Legal remedies for breach of contract include specific performance or injunction  Nonperformance of a duty is always a breach of contract  Performance that falls short of complete performance in some minor respect, but does not deprive the other party of a material part of the consideration for which s/he bargained is known as substantial performance. 18 - 13

14. Test Your Knowledge  Multiple Choice  Steve promised to work for his employer on Saturday morning. Steve didn’t show up for work on Saturday because he decided he didn’t need the overtime money. Steve:  (a) Is excused due to impracticality  (b) Breached his contract  (c) Breached the implied covenant of good faith  (d) Both B and C  (e) None of the above 18 - 14

15. Test Your Knowledge  Multiple Choice  Robert contracted to paint Stan’s house by the end of June, but realized after signing the contract that he had too many jobs to do and could not finish by the end of June. Robert called Stan and told him he could not fulfill the contract. Robert:  (a) Is excused due to impossibility  (b) Engaged in anticipatory breach  (c) Is excused because of condition precedent  (e) None of the above 18 - 15

16. Thought Questions  Should a non-breaching party always file suit against a breaching party?  What are the ethical issues involved in a breach of contract? 18 - 16