Business Law Exam 4--> Chapter 18 & 19

Four Type of Agreements that can Discharge a Contract

- Mutual Rescission - Novation - Substitution Agreement - Accord and Satisfaction

Substitution Agreement

-A compromise, or settlement agreement, that arises our of a genuine dispute over the obligations under an existing contract will be recognized at law. -The agreement will be substituted as a new contract and will either expressly or impliedly revoke and discharge the obligations under the prior contract.

Condition Precedent in a Contract

-A condition that must be fulfilled before a party's performance can be required. -If the condition is not satisfied, the party's obligations to perform is discharged.

Example of when a contract has a condition subsequent

-A law firm hires someone, who is a recent law school graduate. Their contract provides that the firm's obligation to continue employing that person is discharge if that person fails to pass their bar exam by their second attempt. -Failure to pass the exam- thus to obtain a license to practice law- would discharge a duty of employment that has already arisen.

Discharge by Bankruptcy

-A proceeding in bankruptcy attempts to allocate the debtor's assets to the creditor in a fair and equitable fashion. -Once the assets have been allocated, the debtor receives a discharge in bankruptcy.

Example of Tender of Performance

-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. -Once performance has been tendered, the party making the tender has done everything possible to carry out the terms of the contract. -If the other party then refuses to perform, the party making the tender can sue for breach of contract.

Circumstances that Discharges Contracts by Operation of Law

-Alteration of the Contract -Statutes of Limitation -Bankruptcy -Impossibility

Discharge by Accord and Satisfaction

-An accord and its satisfaction discharge the original contractual obligation -Once the accord is made, the original obligation is suspended until the accord is fully performed

General Damages

-Compensatory Damages -Consequential Damages

Two types of Conditions that can be present in contracts

-Condition Precedent -Condition Subsequent

Types of Damages for Breach of Contract

-General damages -Punitive damages -Nominal damages -Liquidated damages -Mitigation of damages

Time for Performance in a Contract.

-If no time for performance is stated in the contract, a reasonable time is implied. -If a specific time is stated, the parties must usually perform by that time. Unless time is expressly stated to be vital, though, a delay in performance will not destroy the performaning party's right to payment. -When time is expressly stated to be "of the essence" or vital, the parties normally must perform within the stated time period because the time element becomes a condition.

A Discharge in Bankruptcy

-Prevents the creditors from enforcing most of the debtor's contracts. -Partial payments of a debt after discharge in bankruptcy will not revive the debt.

Equitable Remedies Include:

-Rescission and Restitution -Specific Performance -Reformation

Discharge by Statute of Limitations

-Restrict the period during which a party can sue on a particular cause of action. After the applicable limitations period has passed, a suit can no longer be brought.

Three Types of Performance

-Tender of Performance - Substantial Performance - Time for Performance

Condition Subsequent in a Contract

-When a condition operates to terminate a party's absolute promise to perform. - If the condition occurs, the party's duty to perform is discharged.

Repudiation is a Material Breach

-When an Anticipatory repudiation occurs, it is treated as a material breach of a contract, and the nonbreaching party is permitted to bring an action for damages immediately. -The nonbreaching party can sue even though the scheduled time for performance under the contract may still be in the future. -Until the nonbreaching party treats an early repudiation as a breach, the repudiating party can retract their anticipatory repudiation by proper notice and restore the parties to their original obligations.

The Limitations period for bringing suits for breach contracts for the sale of goods

-Within 4 years after the cause of action has occurred. -By their original agreement, the parties can reduce this 4 year period to no less than 1 year, but they can't agree to extend it.

The Requirements of a Novation

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

Rescission and Restitution

1. Rescission- A remedy whereby a contract is canceled and the parties are restored to the orginial positions that they occupied priot to the transaction. 2. Restitution- When a contract is recinded, both parties must make restitution to each other by returning the goods, property, or funds previously conveyed.

The Basic Requirements for Performance to Qualify as 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. A defect in performance is considered minor if it can be easily remedied by compensation. 3. The performance must create substantially the same benefits as those promised in the contract.

when performance is impossible

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 or dies 3. When a change in law renders performance illegal 4.When one of the parties materially altered a written contact without consent.

The Limitations period for bringing suits for breach of oral contract

2-3 years

The Limitations period for bringing suits for written contract

4-5 years

An Accord

A contract to perform some act to satisfy an existing contractual duty that is not yet discharged.

Compensatory Damages

A money award equivalent to the actual value of injuries or damages sustained by the aggrieved party.

Substantial Performance of a Contract

A party who in good faith performs substantially all of the terms of a contract can enforce the contract against the other party under the doctrine of substantial performance.

Definition of Conditions

A qualification in a contract based on a possible future event.

Equitable Remedies

A remedy that is available if there has been a breach of contract that cannot be adequately compensated through a legal remedy or to prevent unjust enrichment.

Mitigation of Damages

A rule requiring a plaintiff to have done whatever was reasonable to minimize the damages caused by the defendant.

Discharge by Impossibility of Performance

After a contract has been made, supervening event (such as a fire) may make the performance of a contract impossible in an objective sense and can discharge a contract.

Liquidated Damages

An amount, stipulated in the contract, that the parties to a contract believe to be a reasonable estimation of the damages that will occur in the event of a breach.

Reformation

An 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, such as when a mutual mistake has occured.

Specific Performance

An equitable remedy calling for performance of the act promised in the contract. Only available when monetary damages would be inadequate- such as in contracts for the sale of land or unique goods- and never available in personal-service contracts.

Tender of Peformance of a Contract

An unconditional offer to perform by a person who is willing, ready, and is able to do so.

Discharge by Agreement

Any contract can be discharged by agreement of the parties. The agreement can be contained in the original contract, or the parties can form a new contract for the express purpose of discharging the original contract.

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

Consequential Damages

Foreseeable damages that result from a party's breach of contract but are caused by special circumstances beyond the contract itself.

Subjective Impossibility of Performance

I'm sorry, I simply can't do it.

Discharge by Conditions

If the condition is not satisfied, the obligations of the parties are discharged.

The Rescission of a Contract

If the parties agree to rescind the original contract, their promises not to perform the acts stipulated in the original contract will be legal consideration for the second contract.

Contrasting Discharge by Substituted Agreement with Discharge by Novation

In contrast to discharge by novation, a discharge by substituted agreement does not involve a third party. Rather, the two orginial parties to the contract form a different agreement to substitue for the original one.

Objective Impossibility of Performance

It can't be done

Example of when a contract has a condition precedent

Life insurance contracts frequently specify that certain conditions, such as passing a physical exam, must be met before the insurance company will be obligated to perform under the contract.

Punitive Damages

Money damages that may be awarded to a plaintiff to punish the defendant and deter future similar conduct.

Damages

Money sought as a remedy for a breach of contract or for a tortious act.

Novation

Occurs when both of the parties to a contract agree to substitute a third party for one of the original parties

Who decides whether the performance was substantial and how?

The courts decides whether the performance was substantial on a case-by-case basis, examining all of the facts of the particular situation.

Breach of Contract

The failure, without legal excuse, of a promisor to perform the obligations of a contract.

An Accord and Satisfaction

The parties agree to accept performance that is different from the performance orginially promised

For Mutual Rescission to take place,

The parties must make another agreement that also satisfies the legal requirements for a contract.

A satisfaction

The performance of the accor agreement.

Rescission

The process by which a contract is canceled or terminated and the parties return to the positions they occupied prior to forming it.

A Remedy

The relief given to an innocent party when the other party has breached the contract.

Legal requirements for a Contract

There must be; -An Offer -An Acceptance -and Consideration

Discharge by Material Alteration of the Contract

To discourage parties from altering written contracts, the law allows an innocent party to be discharged when the other party has materially altered a written contract without consent.

Definition of Discharge of a Contract

To terminate one's contractual duties is by performacing of those duties

Discharge by Operation of Law

Under specified circumstances, contractual duties may be discharge by operation of law.

Example of Substantial Performance

WEPCO contracted with Union Pacific Railroad to transport coal to WEPCO from mines in Colorado. The contract required WEPCO to notify Union Pacific monthly of how many tons of coal it wanted to have shipped the next month. Union Pacific was to make good faith reasonable efforts to meet the schedule. The contract also required WEPCO to supply railcars. When WEPCO did not supply the railcars, Union Pacific used its own railcars and delivered 84% of the requested coal. In this situation, a federal court held that the delivery of 84% of the contracted amount constituted substantial performance.

Norminal Damages

When no actual damage or finacial loss results from a breach of contract and only a technical injury is involved.

Discharge by Performance

a contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised

In a Contract that states time is of essence, a court that finds a party who fails to complain about the other party's delay has waived may waive what?

a court may waived a breach of the time provision.

Limitation of Remedies

a provision specifying the remedies available to the buyer if the goods are found to be defective or if the contract is otherwise breached