2. Transferring and Ending Contracts

3.  A contract is discharged when it comes to an end  Contracts can be discharged voluntarily in two ways:  By performance  By agreement

4.  Performance  A series of activities that fulfills the purpose of the contract  Complete performance represents a stage in which all the terms have been carried out properly

5.  Time for Performance  Satisfactory Performance  Substantial Performance  Tender of Performance

6.  Time to complete performance may be important to one or both parties  If time is not stated in contract and there is a question, court will say all duties under contract must be completed in a reasonable time.  Reasonable--> determined by what is suitable, fair, and proper to the goal of the contract.

7.  Example:  A reasonable time for selling tomatoes, for instance, is not the same as a reasonable time for selling a house.  If there is a time limit stated, the court may still give more time if asked to do so by one of the parties.  Time limit should be included in the contract to avoid misunderstanding among the parties--> using the words time is of the essence in the contract

8.  Sometimes the contract will say nothing about satisfaction, sometimes a contract may say the work must be done in a satisfactory manner.  Satisfactory: to meet demand of requirement

9.  In a lawsuit, the court will use the reasonable person test to measure whether the contract was performed in a satisfactory manner.  The jury will decide what is satisfactory  If there is no jury, the judge will decide  Sometimes, one party will agree to perform services to the other party's satisfaction

10.  Marc Marcel, an artist, agreed to paint Julie's portrait "to her satisfaction" for $500. When the painting was completed, all of Julie's family and friends thought it was beautiful, however, Julie thought it was hideous!  She felt the nose was too long and the mouth was too big. In most states Julie would not have to pay for it since it was not to her satisfaction.

11.  Both parties in a contract must fully perform their parts of the bargain.  Someone who has not fulfilled their part in most cases will not win a lawsuit against the other for money owed/damaged  Exception: Substantial Performance  Definition: A situation in which a party has, in good faith, completed the major requirements of a contract, leaving only a few minor details unfinished.

12.  The court will allow that person to recover the amount agreed upon under the contract, minus the cost of completing the job.  Often applied to construction contracts

13.  Jake reports that Zoning Enterprises will have to tear down the new Ramirez Hotel on Michigan Ave because they installed the wrong type of tile in the bathrooms.  The doctrine of substantial performance would prevent such a drastic and unfair result.  Ramirez would have to pay Zoning Enterprises for the construction of the building. The hotel may deduct any damages.

14.  A party can fulfill the terms of a contract by performing an act or by paying money.  Tender: an offer to do what you agreed to do under a contract  It is important to make tender even if you know the other party will not perform his or her part of the contract  If neither party has made tender, neither can bring a lawsuit forward

15.  An offer to pay a certain amount to fulfill a contract  If a person makes a tender of payment that is rejected, that person is NOT excused from the debt.  He or she is only excused from paying additional interest on the debt.

16.  Keith Hanson owed Carla Miller $500, which was due on the 1st of August.  Hanson did not tender payment until after the first of August.  Miller refused to take the money at that time and said, "you didn't pay the money when it was due, now I'm going to sue you and make it cost you plenty."  Miller can collect $500 plus interest at the legal rate for one month.

17.  Means that people can end a contract by mutual agreement  This can be done by mutual release or by accord and satisfaction

18.  Agreement between two parties to end a contract  Whatever the parties agreed to do in the first place, they can later agree NOT to do.

19.  A contract can also be discharged when one party agrees to accept a different performance from the other party  One contract is substituted for another  It is often used to settle an honest disagreement on an amount owed

20.  Some contracts are discharged involuntarily despite what the parties intend to do.  Example: death, illness, illegality, etc  There are 2 ways contracts are discharged  1. Impossibility of Performance  2. By Operation of Law

21.  A contract becomes legally impossible to perform  Definition: May be allowed in case of death or illness that prevents the performance of a personal service contract; the destruction of the exact subject matter, or the means for performance; and illegality, or situation in which the performance of a contract becomes illegal

22.  Death or illness of a party of a contract may be an excuse for non- performance  This is true ONLY if the contract requires the personal service of the person who has died or become ill.

23.  If the means or subject matter that is needed to perform the contract is destroyed through no fault of either party, the contract is discharged.  Destruction must occur after the contract is entered, but before it is carried out.

24.  Brian has been negotiating a contract for the purchase of a unique printing press from Mr. Smith. The price had been set and the printing press was delivered the next day.  That night however, the press was destroyed when the delivery truck went off a cliff. The contract would be discharged because of the destruction of the particular subject matter identified in the contract.

25.  At times, the best interest of society demand that a contract be terminated.  The law declares contracts discharge by operation of law.  4 ways:  Wrongful Alteration  Statute of Limitations  Debt and Statue of Limitation  Bankruptcy

26.  Wrongful Alteration  One party’s wrongful acts will discharge a contract  Example: altering or changing a contract

27.  Statute of Limitation  Establishes a time limit for suing in a civil case. Based on the date when the breach occurred or was discovered.  Each state has their own laws

28.  The debt may be renewed  If a debtor make a partial payment or admits that the debt exists after the time period has passed, the debt is renewed for another time period set by the state statute  In some states, this new agreement must be in writing

29.  Congress has set procedures for discharging a debtor’s obligations.  Obligation still exists, but a debtor can not be imprisoned for failure to pay  Certain debts CANNOT be discharged:  Student loans  Debt for taxes  Alimony  Child support  Maintenance

30.  When a person fails to perform the duties spelled out by a contract.  When a breach of contract occurs, one party is injured  Injuries may not be physical, but it does not mean that they are not real.  The injured party may demand justice

31.  When people establish contracts, they receive:  Rights  Benefits  Acquire Duties  Detriments (something you give up)  Sometimes these rights and duties are moved to someone else  Taking on more work that you can handle may required you to shift some of those duties to other qualified parties

32.  An assignment is the transfer of a right under a contract.  This can be done as long as the contract doesn’t specifically say it cannot be done.  Party who transfer right  Assignor  Party who get the right  Assignee  Assignee is a third party person who is not a party to the original contract

33.  Anthony entered into a contract with Kathy to rebuild the front steps of her house for $1800.  The carpenter was pleased to get the work because he owed his landlord $1800.  Before beginning the work, Anthony assigned the right to receive payment for the work to his landlord.  When payment was due, Kathy paid the $1800 to the landlord directly.

34.  No consideration is necessary for an assignment to be valid.  The Law does NOT say how one party may assign a right to somebody else.  It is best to put it in writing because oral assignments (transferring rights) can be difficult to prove

35.  Suppose you owe money to a bank under a contract (loan).  Now suppose your bank assigns the right to receive your money to another bank.  Would you want to know about the change?  YES! And you would want it in writing so when you send the money, you know you’re doing the right thing

36.  Most rights may be assigned (transferred) unless the assignment changes the obligation of the other party to the contract in an important way.  Example:  Suppose Anthony assigned the right to received the $1800 to his landlord for the work he did on Kathy’s house, but Anthony did a poor job.  Kathy can raise the defense of a “poor job” if she was sued by the landlord for the money owed.

37.  Delegation  Transferring of a duty under a contract  This SHOULD NOT be confused with an assignment  Assignment is a transfer of RIGHTS  Delegation is a transfer of DUTIES  In a transfer of duties, a party to a contract trust another person to do the job in his or her place

38.  Ivan cannot meet all of his printing contracts. When it came time to print a newsletter for a high school, he transferred his contract obligation to another printer who was not a party to the original contract.  This is a legal form of subcontracting  This could not be done ONLY if Ivan told the school he would personally do the printing

39.  Handing over the duty of doing the work to someone else  You may not delegate duties, however if any of the following has occurred:  A party agrees to perform personally  The contract calls for the exercise of personal skill and judgment  The contract itself prohibits delegation

40.  If you have the right to delegate a contractual obligation and decide to do so, choose your third party carefully!  You retain responsibility for any job duties that you subcontract or assign to a third party.

41.  You do not need permission of the other party to assign contract rights or delegate duties to a third person.  If you do receive permission, and the other party agrees to deal with the assignee (person taking on the work), the resulting contract is called a NOVATION.  Novation- original party replaced by new party  Terms of contract remain the same  Change required consent of all parties involved

42.  Contract is a binding agreement between parties  The relationship is termed privity of contract  Usually parties to a contract have standing to sue if needed  A third person may enforce a contract when it is made specifically to their benefit.  Third Party Beneficiary  a person who is not a party to a contract but can still benefit from the contract

44.  If a contract appears to meet all elements of a contract, what could still prevent the contract?  Sometimes what seems to be valid, turns out to be nothing of the kind!  In these situations, the agreement is defective.  Several circumstances may lead to this situation such as: Fraud, Misrepresentation, Duress, and Undue Influence

45. Breach of Contract Duress Undue Influence DamagesFraud Equitable Remedies

46.  Deliberate deception intended to serve an unfair and unlawful gain.  If the seller lied, you may be able to get your money back.  You may have to sue for damages.  The law allows the injured party to get punitive damages

47.  To win a lawsuit based on fraud, five elements must be shown.  1. False representation of fact (a lie)  2. Person who lied must know it was a lie  3. Lie must be made with intent  4. Innocent party must rely on the lie  5. Innocent party must experience loss

48.  Law says the lie must be about a material fact that is really important.  It CANNOT be a promise of something or just an opinion.  Example: If your friend tells you he is going to turn back the odometer on his car to get a better price, he is committing fraud.

49.  Person telling the lie has to know it’s a lie.  Innocent party has to show in court that they had actual knowledge that he or she was lying.

50.  To prove fraud, the innocent party must show that the liar told the lie knowing the other party would hear it, believe it, and act on it.  The lie was told to tempt the other party into the false contract.

51.  To prove fraud, the innocent party has to show that he or she depended on the lie.  Sometimes the defrauding party lies, but the other party pays no attention to the lie.  If that happens, there are no grounds for a lawsuit

52.  If the innocent party does not lose anything in the deal, there is no loss, there is no fraud.

53.  Casey is selling her car. Lisa shows an interest in buying the car. Lisa asks Casey about the condition and she tells Lisa the car is in PERFECT condition (knowing the brakes need to be repaired).  Lisa buys the car, leaves and gets into a car accident due to a problem with the brakes.  Can Lisa sue Casey for fraud?

54.  Casey is selling her car. Lisa shows an interest in buying the car from Casey. Lisa asks Casey if she can take it for a test drive. Casey says sure. So Lisa drives the car around to the back of the building and brings it to A-Rod who checks it out.  A-Rod tells Lisa car looks great, the brakes just need to be repaired. So, as soon as you buy it bring it around back and Ill repair the brakes.  Lisa buys the car from Casey, as she is driving around to the back of the building, she gets in a car accident due to a problem with the brakes.  Can Lisa sue Casey?

55.  Occurs when a person involved in negotiating a contract says something that they believe to be true, that turns out to be false.  The innocent party has the right to get out of the contract in this scenario.

56.  Sometimes a person enters into a contract with a mistaken idea of what is at stake.  Later when they realize the error, they try to get out of the agreement.  Sometimes they are able to get out, sometimes not.

57.  An error on the part of one of the parties to the contract.  Usually a person cannot get out of the contract just because of the mistake… The law wants people to pay attention to their business deals.

58.  Error made on both parties to the contract.  Also called mutual mistake  Often when the mistake is bilateral, either one of the parties can get out of the contract.  Example: Suppose you order the 2005 VHS version of the Fantastic Four film. When the tape arrives, it is the 1993 version. This is a bilateral subject matter mistake. You were buying 2005 version, the seller was selling the 1993 version.

59.  Act of destroying someone’s free will by force, threat, or bodily harm.  These types of agreements are void or voidable  Two types of duress  Physical duress  Economic duress

60.  When actual physical force is used to cause a person to enter into a contract…Contract is void  When the threat of force is used… contract is voidable

61.  An act that threatens a person’s income or business that makes that person enter into a contract without real consent.  3 things need to be proven for a contract to be void  1. Other party placed them in poor economic position  2. Victim had no other choice  3. Victim’s submission was reasonable under circumstances

62.  An action or series of overly persuasive actions that make inappropriate use of one person’s position of power over another person to create an agreement that is very favorable to the person with all the power.  3 things need to be true for the contract to be void  1. existence of care-giver type relationship  2. use of excessive pressure by the caregiver  3. contract heavily favors caregiver

63.  Remedy  Legal means of enforcing a right or correcting a wrong  Injured party has 3 options  1. Accept the breach  2. Sue for money damages  3. Ask the court for an equitable remedy

64.  If one party breaches a contract, the other party has an excuse not to perform.  Contract can be considered discharged  This is the best choice if no damages have been suffered

65.  Payment recovered in court by a person who has suffered an injury.  If you sue for damages, but you have not suffered any loss, the amount you would will would be about $1. Court costs would be much higher!  2 typed of damages  Money Damages  Punitive Damages

66.  If the injured party suffers a loss, you may sue for money damages resulting from the breach of contract.  The money damages should place you in the position you would have been in if the contract would have been carried out.  To recover damages, the innocent party must still made tender- do what they agreed to do

67.  Punitive damages  Money payments for damages that go beyond what the innocent party actually lost and are designed to punish the wrongdoer.  You cannot receive punitive damages due to misrepresentation  You would seek rescission (cancelling contract)

68.  Sometimes the remedy of money damages isn’t enough to repay the injured party for the breach of contract.  In this case the injured party may seek equitable remedy.  2 types:  Specific Performance  Injunction

69.  Asks the court to order the other party in a contract to do what he or she agreed to do.  Can only be used when money damages are not sufficient to give relief.

70.  Court order that prevents a party from performing a specific act.  Only available in special circumstances when money damages will be inadequate to compensate the injured party.  Can be temporary or permanent.  One who disobeys an injunction can be held in contempt of court.