Ch. 18: Performance & Discharge & Ch. 19: Breach of Contract & Remedies

Conditions Subsequent

a condition that occurs AFTER absolute duty of performance arises—condition terminates duty to perform if the condition OCCURS --> the party's duty to perform is discharged

when 1 party breaches a contract, the other party can choose 1+ several remedies.

remedy - relief provided for an innocent party when the other party has breached the contract

can contract be discharged by agreement of the parties?

yes agreement can be in orig. contract or parties can form a new contract for the express purpose of discharging the orig. contract

Mitigation of Damages

When a breach occurs, the innocent party has a duty to reduce damages suffered

Jacob & Youngs, inc. v. Kent (Substantial Performance)

(4th landmark case) Jacob is the builder & contracted w/ Kent to construct a country residence for him. There was a specification in the building contract required to install a pipe from a certain manufacturer, which Jacob did not do. When Kent became aware, he ordered the pipes to be replaced (difficult and expensive process now to remove finished walls). Jacob said that it was the same quality, appearance and value. Kent nevertheless refused to pay the $3,483.46 still owed for the work and Jacob & Youngs sued to compel payment. Court Ruling: appellate court held that Jacob had substantially performed the contract

objective vs. subjective impossibility

*objective impossibility:* absolutely can't be done - "it can't be done" - "it's impossible for ANYONE to perform" - death, serious illness, incapacitation of party who was to render personal service - destruction of specific subject matter of contract - change in law making performance illegal *subjective impossibility:* - "I'm sorry, I can't do it" - "it's impossible for ME to perform" - example: party cannot deliver goods on time bc of freight car shortages or cannot make pmt on time b/c bank is closed

Discharge by Agreement

- discharge by mutual rescission - discharge by novation - discharge by settlement agreement - discharge by accord & satisfaction

Time for Performance

- if not time for performance is stated in contract --> *reasonable time* is implied - if specific time stated --> perform by that time - unless time is stated to be vital (important), a delay in performance will not destroy the performing party's right to pmt - if specific time stated, but NOT vital, performance prior to or within few days of the stated time satisfies the contract

Discharge by Operation of Law

- material alteration - bankruptcy - statute of limitations - impossibility of performance

2 remedies courts distinguish

- remedies at law: normally monetary damages - remedies in equity

Equitable Remedies

- rescission & restitution - specific performance - reformation

What can Non-breaching party do in an anticipatory repudiation?

- sue immediately for damages

Construction Contracts compensatory damages

1. breach by owner - may breach before, during, after perf. - if before perf: contractor can recover only the profits that would have been made - if breach during: contractor recovers the profits + costs incurred in partially construction - if breach after completed: contractor recover entire contract + interest 2. breach by contractor - either by failing to begin or stopping work halfway - measure of damages is the cost of completion (includes reasonable compensation for any delay in performance ) 3. breach by both - courts attempt to strike a fair balance in awarding damages

4 types of Damages:

1. compensatory 2. consequential 3. punitive 4. nominal

most common remedies:

1. damages 2. rescission and restitution 3. specific performance 4. reformation

2-step process for determining whether there was a breach of contract that resulted in damages:

1. it must be established that there was a contract btwn the parties & a breach of that contract 2. it must be proved that the breach caused damages

liquidated damages are enforceable if:

1. when the contract was formed, it was clear damages would be difficult to estimate 2. the amount set as damages is reasonable

Frustration of Purpose

A court-created doctrine under which a party to a contract will be relieved of his/her duty to perform when the objective purpose for performance no longer exists (due to reasons beyond that party's control). involves an event that decreases the value of what a party receives under the contract

example of condition subsequent:

A law firm hires Julie Mendez, a recent law school graduate. Their contract provides that the firm's obligation to continue employing Mendez is discharged if Mendez fails to pass the bar exam by her second attempt. This is a condition subsequent bc a failure to pass the exam—and thus to obtain a license to practice law—would discharge a duty (employment) that has already arisen.

Discharge by Novation

A novation replaces 1 party w/ another in a contract while releasing the substituted party from liability (both of the parties to a contract *agree to substitute a 3rd party* for one of the original parties) Requirements 1)A previous valid obligation 2)An agreement by all parties to a new contract 3)The extinguishing of the old obligation (discharge of the prior party) 4)A new contract that is valid the original obligation of the prior party is extinguished & the prior party is discharged

Ready Foods contracts to buy two hundred carloads of frozen pizzas from Stealth Distributors. Before Ready or Stealth starts performing, can the parties call off the deal? What if Stealth has already shipped the pizzas? Explain your answers

Before both parties start performing - yes can call off the deal by mutual rescission (executory) If Stealth has already shipped the pizza (one party performed - executed) - can be rescinded ONLY if the party who has performed receives consideration for the promise to call off the deal

Example of quasi contract recovery

Ericson contracts to build two oil derricks for Petro Industries. The derricks are to be built over a period of three years, but the parties do not make a written contract. Thus, the writing requirement will bar enforcement of the contract. After Ericson completes one derrick, Petro Industries informs him that it will not pay for the derrick. Ericson can sue Petro Industries under the theory of quasi contract.

Consequential (special) Damages

Foreseeable damages that result from special circumstances beyond the contract itself (indirect damages) for non-breaching party to recover damages, the breaching party MUST HAVE known that special circumstances would cause the innocent party to suffer a loss

(Conditions) The Caplans contract with Faithful Construction, Inc., to build a house for them for $360,000. The specifications state "all plumbing bowls and fixtures ... to be Crane brand." The Caplans leave on vacation, and during their absence, Faithful is unable to buy and install Crane plumbing fixtures. Instead, Faithful installs Kohler brand fixtures, an equivalent in the industry. On completion of the building contract, the Caplans inspect the work, discover the substitution, and refuse to accept the house, claiming Faithful has breached the conditions set forth in the specifications. Discuss fully the Caplans' claim.

Kohler & Crane are equivalent brands - there's *substantial performance* Caplan's are obligated to accept & pay

Example of Consequential Damages

Marty contracts to buy a certain quantity of Quench, a specialty sports drink, from Nathan. Nathan knows that Marty has contracted with Ruthie to resell and ship the Quench within hours of its receipt. The beverage will then be sold to fans attending the Super Bowl. Nathan fails to deliver the Quench on time. Marty can recover the consequential damages—the loss of profits from the planned resale to Ruthie—caused by the nondelivery. (If Marty instead purchases Quench from another vendor and resells them to Ruthie, he can recover only compensatory damages for any difference between the contract price and the market price.)

Punitive Damages

Money damages that may be awarded to a plaintiff to punish the defendant and set an example to deter future similar conduct. the law may compensate 1 party for the loss of the bargain - no more or less

C&D Services contracts with Ace Concessions, Inc., to service Ace's vending machines. Later, C&D wants Dean Vending Services to assume the duties under a new contract. Ace consents. What type of agreement is this? Are Ace's obligations discharged? Why or why not?

Novation - they substitute a new party for an original party Ace's obligations are discharged

Rescission & Restitution (equitable remedy)

Rescission - an action to undo/cancel a contract - appropriate when the breach is found to be material & willful Restitution: consideration by returning goods, property, or funds previously conveyed

How can performance be also accomplished?

Tender

Discharge by Settlement Agreement

The parties can agree to a new contract with different terms than the first does NOT involve a 3rd party

Waiver of Breach

To accept defective performance without complaints the party waiving the breach cannot take any later action on it - the waiver erases the past breach, and the contract continues as if the breach had never occurred.

Anticipatory Repudiation

When one party asserts that they will not be fulfilling their contractual obligations/ *refuse to perform* (before performance is due) treated as a present, material breach bc 1. nonbreaching party should not be req. to remain ready & willing to perform when the other party repudiated 2. nonbreaching party should have the opportunity to seek similar contract elsewhere & may have the duty to do so to minimize his/her loss

Conditions Precendent

a condition that MUST be fulfilled BEFORE a party's performance - example: a contract to lease university housing, may be conditioned on the person's being a student of the uni if the condition precedent does NOT OCCUR --> the parties are discharged from their contractual obligations

Express Condition

a condition that is clearly stated & provided for in the contract by the parties "if, provided, or when"

Contract Provisions Limiting Remedies

a contract may include provisions stating that NO damages can be recovered for certain types of breaches or that damages will be LIMITED to a max amount a contract may also provide that the ONLY remedy for breach is replacement, repair or refund of the purchase price a contract may provide that 1 party can seek injunctive relief if the other party breaches the contract

Statute of Limitations

a law that restricts the period of time during which a party can sue on a particular cause (bring action to the court) after time has passed - a suit can't be brought failure to commence an action or suit within the period bars access to judicial remedies but does NOT extinguish a debt or underlying obligation

Eric and Chelsea sign a contract where Eric will sell his used car to Chelsea for $400. That night, Chelsea's parents surprise her with a new car. Chelsea's friend, Andrea, needs a new car. Andrea, Chelsea and Eric sit down the next day and cross off Chelsea's name on the contract and write in Andrea's name. All three of the parties initial the changes. This is:

a novation

Condition

a qualification in a contract based on a possible future event, which will trigger the performance of a legal obligation OR terminate it if condition NOT satisfied - the obligations of the parties are discharged

Vince owes Colton $140,000 under a previous contract. Vince does not have the money but does own property worth approximately $140,000. Colton agrees to accept the property instead of the money and Vince transfers the property to him. The transfer is called

a satisfaction (the performance)

if performance is NOT conditioned/qualified, then they are

absolute promises

Vince owes Colton $140,000 under a previous contract. Vince does not have the money but does own property worth approximately $140,000. Colton agrees to accept the property instead of the money. This is:

accord (agreement to substitute consideration)

Limitation of Liability Clause

affect the availability of certain remedies

Executed on 1 side (discharge by mutual rescission)

an agreement to cancel the original contract normally will *NOT be enforceable* unless there is additional consideration Because the performing party has received no consideration for the promise to call off the original bargain, additional consideration is necessary to support a rescission contract.

when damages are an inadequate remedy for a breach of contract, the nonbreaching party may ask for -

an equitable remedy

when is performance not complete?

if the contracting parties did NOT expressly make the specifications a condition & other party fails to meet specifications

Tender

an unconditional offer to perform by a person who is ready, willing, and able to do so example: - a seller who places goods at the disposal of a buyer has tendered delivery and can demand payment. - A buyer who offers to pay for goods has tendered payment and can demand delivery of the goods the tendering party is discharged if his tender is not accepted

most common way to discharge duties?

by the performance of those duties

2 types of tender performance

complete & substantial

Implied Conditions

condition that is NOT expressed by the parties but is understood or inferred from the contract

Concurrent Conditions

conditions in a contract that must occur OR be performed at the same time; they are mutually dependent. No obligations arise until these conditions are simultaneously performed

If satisfaction relates to operating fitness, marketeability, merchantability, or mechanical utility -

courts are more likely to find that the performing party has performed satisfactorily if a reasonable person would be satisfied with what was done

Kent State Uni v. Ford

courts had to decide whether a clause in a contract was an enforceable liquidated damages provision or an unenforceable penalty. ruled it was not a penalty

Compensatory Damages

damages that compensate the nonbreaching party for the *loss of the bargain* compensate ONLY for damages actually sustained & proved arisen directly from the loss of the bargain

Standard Measure of Compensatory Damages

difference between value of breaching party's promised performance & the value of actual performance *for Sale of Goods* - measure of damages is an amount equal to the difference btwn the contract price & the market price *for Sale of Land* - remedy for a seller's breach of contract --> buyer is awarded the parcel of property for which they bargained - measure of damages is the difference btwn the contract price and the market price of land *for Construction Contracts* - varies depending on which party breaches and when the breach occurs

when there's a material breach, the non-breaching party is -

discharged from the performance of contractual duties party can also sue the breaching party for damages bc of the breach

Commercial Impracticability

excuses performance if it *becomes more difficult or expensive* that the parties originally contemplated when forming the contract - anticipated performance must become significantly more diffuclt/costly - the added burden of performing must not have been foreseeable by the parties when the contract was made.

The formation of a contract, between the two original parties to a contract, the performance of which will discharge a previous contract is a novation. t/f?

false it's an accord

What discharges the performing party?

full, complete performance

Material Alteration of the Contract

if there is a material alteration of a written contract w/o consent, the contract is VOIDABLE by the innocent party the innocent party of the change has the option of treating the contract either as discharged or as enforceable in accordance w/ the original terms or with the terms as altered

A duty to perform under a contract is NOT always absolute -

instead, performance may be *conditioned on the occurrence/non-occurrence of a certain event*

Measure of damages (substantial performance)

it's the cost to bring the object of the contract into compliance, if the cost is REASONABLE under the circumstances if that cost is UNREASONABLE. then it's the difference between the value of performance rendered and the performance that should have been rendered

Liquidated Damages v. Penalties

liquidiated = determined, settled, fixed a contract provision that specifies that a certain dollar amount is to be paid in the event of a FUTURE default or breach of contract Penalties: specified a certain amount to be paid in the event of a breach of contract - designed to penalize the breaching part

Executory on both sides (discharge by mutual rescission)

neither party has performed *enforceable* - under UCC, agreements to rescind a sales contract & transfers of land MUST be in writing (or electronic record)

are penalties enforceable?

no

exculpatory clauses

no damages can be recovered

Temporarily Impossibility

occurrence/event that makes performance temporarily impossible operates to suspend performance until impossibility ceases when the impossibility ceases, the parties MUST ordinarily perform the contract if the lapse of time and change in circumstances make the contract substantially more burdensome to perform, the parties will be discharged

Quasi Contract Recovery

often granted when one party has partially performed under a contract that is unenforceable. It provides an alternative to suing for damages and allows the party to recover the reasonable value of the partial performance. the amount of the recovery may be measured either by the benefit received or by the detriment suffered.

Bankruptcy

operates as a release of a debtor from most debts & contractual obligations after a decree of discharge in bankrupcy is issued by a Court, a partial payment by a debt will NOT revive the obligation

Discharge by Accord and Satisfaction

parties agree to accept performance that is different from the performance originally promised accord - in executory contract to perform some act to satisfy an existing contractual duty that is NOT yet discharged satisfaction - the performance of the accord agreement discharges an original contractual obligation

Performance to satisfaction of Personal Contract:

performance must satisfy the party specified in the contract ex: personal taste, preferences, aesthetics, fancy or comfort involved

Daphne agrees to buy Eduardo's Chef's Table restaurant on the condition that Financial Credit Company approves the financing. This approval is:

precedent condition

3 types of conditions:

precedent, subsequent, concurrent

Specific Performance (equitable remedy)

requires the breaching party *to perform as promised under the contract* provides the exact bargain promised in the contract will NOT be granted UNLESS the party's legal remedy (monetary damages) is inadequate. - for this reason, contracts for sale of goods rarely qualify

Discharge by Mutual Rescission

rescission = cancelled/terminated Parties must make another agreement to cancel their contract, releasing the parties from further obligations under the contract. The object of the agreement is to restore the parties to the positions they would have occupied had no contract ever been formed. for it to take place there must be an offer, acceptance, and consideration

Impossibility of Performance

such as a fire - would make performance impossible applies only when the parties could NOT have reasonably foreseen, at the time the contract was formed, the even that rendered the performance impossible

if there's a minor in a nonmaterial breach of contract -

the breaching party is LIABLE for damages if the breach is NOT cured the nonbreaching party is NOT discharge and is required to perform

Breach of contract

the nonperformance of a contractual duty a breach is "material" when performance is not at least substantial

when a party to a contract substantially performs:

the other party's duty is absolute

Discharge?

to terminate/be finished/no longer required to perform contractual duties

An accord and satisfaction discharges the original contractual obligation

true

Reformation (equitable remedy)

used when the parties have imperfectly expressed their agreement in writing allows a court to rewrite the contract to reflect the parties' true intentions courts order reformation when fraud or mutual mistake is present

Tender of Complete Performance

when a party perform's exactly as agreed conditions expressly stated in a contract must fully occur for complete performance to take place (no breach - contract is discharged)

Substantial Performance

when a party performs substantially all of the terms of a contract (slightly less than full performance) the other party's duty to perform remains absolute (must continue performing under the contract) (duty to perform continues. Party can recover damages)

Recover Based on Quasi Contract

when no actual contract exists, a court may step in to prevent one party from being unjustly enriched at the expense of another party= quasi - the party receiving the benefit should pay the reasonable value for it - the party conferring the benefit can recover in *quantum meruit* ("as much as he/she deserves")

Nominal Damages

when no actual damage/financial loss results from a breach of contract, ONLY a technical injury is involved nominal damages are often small, but they establish that the defendant acted wrongfully