Ch. 13 - Contract Performance, Breach, and Remedies

Types of Damages

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

Discharge by Settlement Agreement

A compromise ("new contract") that arises out of a genuine dispute over the obligations under an existing contract will be recognized at law

Lack of Voluntary Consent

A defense to the enforcement of a contract

Commercial Impracticability

A doctrine that may excuse the duty to perform a contract when performance becomes much more difficult or costly due to forces that neither party could control or contemplate at the time the contract was formed.

Material Fact

A fact that a reasonable person would consider important when determining his or her course of action

Undue Influence Example:

A guardian induces their dependent into entering a contract that benefits the guardian

Nominal Damages

A small monetary award (often one dollar) granted to a plaintiff when no actual damage was suffered.

Doctrine of Impossibility

Applies when the parties could not have reasonably foreseen, at the time the contract was formed, the event that rendered performance impossible

Sale of Land

Because each parcel of land is unique, the remedy for a seller's breach of a contract for a sale of real estate is specific performance.

Breach by Owner: Before Performance (Construction Contracts)

Before Performance: contractor can recover only the profits that would have been made on the contract (Profits equal the total contract price less the cost of materials and labor)

Two forms of "Mistakes of Fact"

Bilateral and Unilateral

What are the two types of performance?

Complete performance Substantial performance

Condition Precedent

Condition that must be fulfilled before a party's performance can be required

Accord

Contract to perform some act to satisfy an existing contractual duty that is not yet discharged

Breach by Owner: After Construction (Construction Contracts)

Contractor can recover the entire contact price, plus interest

Breach By Both Owner and Contractor (Construction Contracts)

Courts attempt the strike a fair balance in awarding damages

What are the great majority of contracts discharged by?

Discharged by performance

Material Alteration of the Contract

Innocent party is discharged after material alteration of contract terms.

Scienter

Knowledge by the misrepresenting party that material facts have been falsely represented or omitted with an intent to deceive.

Sale of Goods: Example 13.18

Medik Laboratories contracts to buy ten model UTS network servers from Cal Industries for $4,000 each. Cal Industries, however, fails to deliver the ten servers to Medik. The market price of the servers at the time Medik learns of the breach is $4,500. Therefore, Medik's measure of damages is $5,000 (10 x $500), plus any incidental damages caused by the breach

What is universally required to recover damages caused by fraud?

Proof of Harm

Performance and Discharge

if a party fully accomplishes what the contract requires, his duties are discharged

Fraudulent Misrepresentation of a Contact Elements

1. A misrepresentation of a material fact must occur 2. There must be an intent to deceive 3. The innocent party must justifiably rely on the misrepresentation 4. To collect damages, the innocent party must have been harmed as a result of the misrepresentation.

Unliteral Mistake of Fact: Example 13.1

1. Elena intends to sell her jet ski for $2,500. 2. Sends email to Chin, mistakenly types $1,500 3. Chin accepts her offer 4. Elena is bound to sell her jet ski for $1,500

Unliteral Mistake of Fact

1. Made by only one of the parties 2. Does not give the mistaken party any right to relief from the contract

What are the three elements of fraud?

1. Misrepresentation of Material Fact 2. Scienter (Intent to Deceive) 3. Justifiable Reliance on the Misrepresentation of Fact

Mistake of Value: Example 13.3

1. Phil Sung buys a violin from Bev Lee for $250 2. Both parties believe that the old violin is not valuable 3. They later learn that an antique dealer informs the parties that the violin is rare and worth thousands of dollars 4. Bev Lee can not rescind (repeal) his sale because it is a mistake of value

What can an innocent party do when fraudulently in a contract?

1. Rescind the contract and be restored to their original position 2. Enforce the contract and seek damages for harms resulting from the fraud

Justifiable Reliance on the Misrepresentation of Fact

1. The deceived party must have a justifiable reason for relying on the misrepresentation 2. Misrepresentation must be an important factor but not the sole factor in inducing the deceived party to enter into the contract 3. Reliance is not justified if the innocent party knows the true facts or relies on extravagant statements (ex: this f150 gets 50 mpg)

Exceptions to Unilateral Mistakes of Fact

1. The other party to the contract knows or should have known that a mistake of fact was made 2. Error due to a substantial mathematical mistake and was made inadvertently and without gross (extreme) negligence.

Basic Requirements for Substantial Performance

1. The party must have performed in good faith. Intentional failure to comply with the contract terms is a breach of the contract 2. The performance must not vary greatly from the performance promised in the contract. An omission, variance, or defect in performance is considered minor if it can easily be remedied by compensation (monetary damages) 3. The performance must create substantially the same benefits as those promised in the contract.

Misrepresentation of Conduct: Case 13.4

1. Tom Selleck contracted to purchase a horse named Zorro for his daughter from Dolores Cuenca 2. Cuenca's hid the fact that the horse was unfit for competitions because of a medical condition 3. Selleck filed a lawsuit against Cuenca and won

Impossible Performance Situations (that qualify for grounds for a discharge )

1. When one of the parties to a personal contract dies or becomes incapacitated prior to performance 2. When the specific subject matter of the contract is destroyed 3. When a change in law renders performance illegal

Requirements of a Novation:

1. previous valid obligation 2. 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

Two Reasons Anticipatory Repudiation is Treated As a Material Breach:

1. the non-breaching party should not be required to remain ready and willing to perform when the other party has already repudiated the contract. 2. the non-breaching party should have the opportunity to seek a similar contract elsewhere and may have a duty to do so to minimize his or her loss.

Sale of Land Buyer Breach (minority of states)

A minority of states apply a different rule when the seller breaches the contract and the breach is not deliberate (intentional). These states limit the prospective buyer's damages to a refund of any down payment made plus any expenses incurred (such as fees for title searches, attorneys, and escrows). Thus, the minority rule effectively returns purchasers to the positions they occupied prior to the sale, rather than giving them the benefit of the

Tender 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.

Waiver

An intentional, knowing relinquishment of a legal right.

Temporary Impossibility

An occurrence or event that makes performance temporarily impossible operates to suspend performance until the impossibility ceases.

Anticipatory Repudiation

Before either party to a contract has a duty to perform, one of the parties may refuse to carry out his or her contractual obligations Nonbreaching party can file a suit even if the scheduled time for performance under the contract is still in the future

Breach by Owner: During Performance (Construction Contracts)

Contractor can recover the profits plus the costs incurred in partially constructing the building

Substantial Performance: Case 13.7

Contractors did not get their remaining $17,700 out of $177,000 to build a home. They fired a breach-of-contract action to recover the missing amount. A state appellate court said that the contractors were not entitled to that remaining amount since the home owner's house failed to pass inspections before they can move in and they had to ire other subcontractors to finish the work.

Material Breach of Contract: Example 13.9

Country singer Garth Brook's donated $500,0 when his mother died to build a new women's health center named after his mother. After several years passed, the health center was not built. Brooks sued for a breach of contract and determined the hospital's failure to build a new women's health center was a material breach of contract

The courts are _______ when contracts require performance to the satisfaction of a third party with superior knowledge or training in the subject matter (such as a supervising engineer); why?

Divided A majority of courts require the work to be satisfactory to a reasonable person, but some courts require the personal satisfaction of the third party designated in the contract.

Incidental Damages

Expenses that are caused directly by a breach of contract

Jacob & Youngs v. Kent

Facts: The house that was supposed to be made with a certain type of piping, Kent withheld the payment Issue: This is about a breach of a condition in a contract and whether it should be enforced Decision: Rule in favor of the home builder because the piping used is of equal value and quality.

Discharge by Accord and Satisfaction: Example 13.11

Fahreed has a judgment against Ling for $8,000. Later, both parties agree that the judgment can be satisfied by Ling's transfer of his auto-mobile to Fahreed. This agreement to accept the auto in lieu of $8,000 in cash is the accord. If Ling transfers the car to Fahreed, the accord is fully performed (satisfied), and the debt is discharged. If Ling refuses to transfer the car, the accord is breached. Because the original obligation was merely suspended, Fahreed can sue Ling to enforce the original judgment for $8,000 in cash or bring an action for breach of the accord.

In undue influence, what does the dominated party not exercise?

Free will

Statements of Opinion

Generally are not subject to claims of fraud "this land will be worth twice as much as next year"

Mistakes of Value

If a mistake concerns the future market value or quality of the object of the contract, the mistake is one of value, and the contract normally is enforceable.

Time for Performance

If no time is specified, a reasonable time is implied.

Sale of Goods

In a contract for the sale of goods, the usual measure of compensatory damages is an amount equal to the difference between the contract price and the market price

Condition: Case 13.6

James Maciel leased an apartment in a university-owned housing facility. Maciel told the university he intended to withdraw (drop out) and move out by May 31. Maciel then asked for two additional weeks, but the university denied. The university changed the locks then Maciel entered through a window and e-mailed the university that he planned to stay for "for another one or two weeks." Maciel was convicted of trespassing but Maciel appealed. The court affirmed his conviction since being enrolled as a student was a condition precedent to living in student housing.

Temporary Impossibility: Case 13.15

Keefe Hurwitz contracted to sell his home in Louisiana to the Paynes. Four days later, Hurricane Katrina caused damage to the house and the repairs was estimated at $60,000. Hurwitz refused to spend the $60,000 for the repairs and still sell his home to the Paynes for the agreed original price. The Paynes filed a lawsuit to enforce the contract and Hurwitz argued that Hurricane Katrina had made it impossible to perform. The court ruled the Hurricane Katriana had caused only a temporary impossibility and Hurwitz was required to pay for the repairs.

Consequential Damages: Example 13.20

Marty contracts to buy a certain quantity of Quench 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.)

Performance to the Satisfaction of Another: Example 13.8

Mason signs a contract with Jen to mount a new heat pump on a concrete platform to her satisfaction. Such a contract normally need only be per-formed to the satisfaction of a reasonable person.

Discharge by Operation of Law

Material alteration of the contract Statutes of limitations Bankruptcy Impossibility of performance Commercial impracticability Frustration of purpose

McCullough v. Allstate Property and Casualty Insurance Co.

Merger Clause on an allegation of Fraud Background and Facts: 1. Allstate issued an insurance policy to McCullough 2. McCullough loaned the truck to a friend who returned it damage 3. McCullough filed a claim on the policy 4. Allstate treated the claim as involving multiple different claims and reported these claims to Verisk Analytics Auto Property Loss Underwriting Service (A-PLUS) 4. McCullough filed a suit in a federal district court contending that the damage had resulted from only one claim 5. McCullough agreed to settle for $8,000 as proposed by Allstate, BUT ONLY if Allstate corrected to report to one claim instead of multiple 6. Allstate's lawyer sent McCullough an email agreeing to these terms but the promise was not included in the release and settlement agreement the parties signed 7. The release had a merger clause saying that there were no other agreements, verbal or otherwise, between the parties except as set forth in the contract. 8. McCullough later learned that Allstate reported to A-PLUS that it had paid $8,000 to him on a claim 9. McCullough filed a suit in an Alabama state court against Allstate seeking damages for fraud 10. Both parties field a motion for summary judgement and the court granted Allstate's motion 11. McCullough's motion got denied so he appealed Decision and Remedy: 1. State intermediate appellate court reversed the lower court's summary judgement in favor of Allstate 2. Affirmed the court's denial of McCullough's motion for summary judgement and remanded the case 3. Genuine issues of material fact precluded summary judgment on McCullough's claim for fraudulent misrepresentation.

Reasons for Lack of Voluntary Consent

Mistake, Misrepresentation, Undue Influence, Duress, "no true meeting of the minds"

Between ""Mistakes of Fact" and "Mistakes of Value or Quality," which one can make a contract voidable?

Mistakes of Fact, but must involve some material fact

Bilateral (Mutual) Mistake of Fact

Mutual misunderstanding concerning a basic assumption on which the contract was made (mistake must be about a material fact)

Difference between Objective Impossibility and Subjective Possibility

Objective: "It can't be done" Subjective: "I'm sorry, I simply can't do it"

Substantial Performance

Occurs when one party fulfills enough of its contract obligations to warrant payment

What are the three things needed for mutual recission?

Offer, acceptance, consideration

Tender

Performances can also be accomplished by tender; unconditional offer to perform by a person who is ready, willing, and able to do so

Discharge in Bankruptcy

Prevents the creditors from enforcing most of the debtor's contracts

Why do Punitive Damages have no legitimate place in contract law?

Punitive damages are designed to punish a wrongdoer and set an example to deter similar conduct in the future whereas a contract is simply a civil relationship between two parties

Compensatory Damages: Example 13.17

Randall contracts to perform certain services exclusively for Hernandez during the month of March for $4,000. Hernandez cancels the contract and is in breach. Randall is able to find another job during March but can earn only $3,000. He can sue Hernandez for breach and recover $1,000 as compensatory damages. Randall can also recover from Hernandez the amount that he spent to find the other job. Expenses that are caused directly by a breach of contract such as those incurred to obtain performance from another source—are known as incidental damages.

Why do most courts do not require a showing of injury in an action to rescind a contract?

Rescission returns the parties to the positions they held before the contract was made so the showing on injury to the innocent party is unnecessary

Scienter/Intent to Deceive: Example 13.5

Richard applies for a business law professor position two weeks after being released from prison. The college hires him and finds out after he had a criminal history and was lying. The school fires him and Richard can not sue since he had the intent to deceive. (scienter)

Consequential Damages

Special and foreseeable damages that result from a party's breach of contract Caused by special circumstances beyond the contract itself

How does a nonbreaching party recover consequential damages?

The breaching party must (or had reason to know) that special circumstances would cause the nonbreaching party to suffer an additional loss

Statues of Limitations

The limitations period for bringing suits for breach of oral contracts usually is two to three years, and for written contracts, four to five years. Parties generally have ten to twenty years to file for recovery of amounts awarded in judgments, depending on state law

Breach by Contractor (Construction Contracts)

The measure of damages is the cost of completion

Measure of Damages (Substantial Performance)

The measure of damages is the difference in value between the performance rendered and the performance that would have been rendered if the contract had been performed completely

Discharge by Mutual Rescission

The parties can form a new contract to rescind the old contract

Effect on Duty to Perform (Substantial Performance)

The party that substantially performed is entitled to payment

Breach by Contractor (Construction Contracts): Case 13.19

To remodel his home in Connecticut, Richard Viola hired J.S. Benson of J.S. Benson Woodworking & Design as his contractor. Over a period of five years, Viola paid Benson more than $500,000 to fabricate and install windows and doors, nearly $50,000 for the purchase of lumber, and $10,000 to ship and store the lumber, as well as $111,000 toward the contract price. Nevertheless, Benson failed to complete the project and would not give Viola the lumber that he had purchased despite repeated requests. Viola eventually sued Benson for breaching the contract. A state court held that Benson had breached the contract and ordered him to pay $848,000 in damages. The damages awarded included additional amounts to reimburse Viola for attorneys' fees, rental costs (because he was unable to live in the home), and property taxes

Why do mistakes of value do not affect the enforceability of a contract?

Value is variable. Depending on the time, place, and other circumstances, the same item may be worth considerably different amounts

Complete Performance

When a party performs exactly as agreed

Sale of Land Buyer Breach

When the buyer is the party in breach, the measure of damages is typically the difference between the contract price and the market price of the land. The same measure is used when specific performance is not available (because the seller has sold the property to someone else, for instance).

Impossibility of Performance

a defense to contractual nonperformance based on special circumstances that render the performance illegal, physically impossible, or so difficult as to violate every reasonable expectation the parties have regarding performance

Discharge by Novation

both parties agree to substitute a new third party for one of the original parties

Compensatory Damages

compensate the nonbreaching party for the loss of the bargain

Duress is both a __________ to the enforcement of a contract and a _________ for the rescission of a contract

defense; ground

Standard Measure of Compensatory Damages

difference between value of breaching party promised performance and value of actual performance

Any breach entitles the non-breaching party to sue for damages, but only a material breach ____________ the non-breaching party from the contract.

discharges

Material Breach of Contract

nonperformance of a contractual duty when the performance is not substantial

Misrepresentation of Conduct

occurs when a party takes specific action to conceal a fact that is material to the contract

Undue Influence

occurs when one party to a contract is in a position of trust and wrongfully dominates the other party

Discharge by Accord and Satisfaction

parties agree to accept performance that is different from the performance originally promised

Performance to the Satisfaction of Another (subject matter mechanical)

performing party has performed satisfactorily if a reasonable person would be satisfied with what was done.

Condition

qualification in a contract based on a possible future event; if conditions are not satisfied, the obligations of the parties are discharged

Frustration of Purpose

some event has occurred that neither party anticipated and the contract now has no value for one party

Once the accord has been made, the original obligation is suspended until?

the accord agreement is fully performed (a satisfaction

Performance to the Satisfaction of Another (subject matter personal)

the performance of a party must be to the satisfaction of the other party or one who represents the other party; personal Ex: portrait painting is personal so only the personal satisfaction of the party fulfills the condition

Duress

the use of threats to force a party to enter into a contract

Waiver of Breach

when a nonbreaching party is willing to accept defective performance of the contract. The contract will continue as the breach never happened and the party relinquishes all rights to future action.