Quiz 3.1 (18-19)

A non breaching party may waive a breach of the contract in order to require the breaching party to continue to perform under the contract.

True

If Party A substantially completes their contractual duties, Party B can recover the cost necessary to remedy the defect, if the cost is reasonable. If not reasonable, Party B can recover the loss in value of the performance received.

True

Duties created by contracts may be discharged by

operation of law agreement of the Parties. performance. ALL OF THE ABOVE

Measure of Damages

the cost to bring the object of the contract into compliance with its terms, if that cost is reasonable under the circumstances.

The sale of land

the equitable remedy known as "specific performance" if the seller is in breach and lost profit if the butyer is in breach.

As a general rule any non-breaching party must make an effort to minimize their loss. If not, upon trial any damages recovered by that party will be reduced by the amount the non-breaching party could have saved if they had minimized their losses.

True For example if the contract is for the rental of property and the tenant breaches, the landlord must attempt to minimize their loss by attempting to find a new tenant for the remainder of the rental period, If an employment contract, the employee must seek other employment and the employer must seek another employee.

The standard method of determining compensatory damages is the difference between the value of the breaching party's promised performance and the value of their actual performance.

True This is the standard statement of compensatory damages which is the standard measure of damages at law. There are other types of damages that are for special cases and others that are equitable remedies. Question 8

The parties to a contract can rescind a contract, but if either party has begun to perform, new consideration is required.

True If neither party has begun performance, then the parties can simply agree to rescind the contract.

Discharge by Operation of Law

Under specified circumstances, contractual duties may be discharged by operation of law. These circumstances include material alteration of the contract, the running of the statute of limitations, bankruptcy, and the impossibility or impracticability of performance.

complete preformance

When a party performs exactly as agreed, there is no question as to whether the contract has been performed. When a party's performance is perfect, it is said to be complete.

In contract law the non-breaching party is entitled to sue for monetary damages so as to recover their loss of bargain.

True

If Party A commits a minor breach, Party B must continue to perform, although under some circumstances Party B's duty may be suspended.

True

Nominal damages is a term indicating the damages are described by their name or function.

False

Material Breach

Contract is discharged. No further duty to perform. Party can sue immediately for breach

Substantial Performance

Duty to perform continues. Party can recover damages.

objective impossibility

("It can't be done") must be dis- tinguished from subjective impossibility ("I'm sorry, I simply can't do it"). An example of subjective impossibility occurs when a party cannot deliver goods on time because of freight car shortages or cannot make payment on time because the bank is closed. In effect, in each of these situations the party is saying, "It is impossible for me to perform," not "It is impossible for anyone to perform." Accordingly, such excuses do not discharge a contract, and the nonperform- ing party is normally held in breach of contract

Nominal

(to recognize wrongdoing when no mon- etary loss is shown

Discharge by Settlement Agreement

A compromise, or settlement agreement, that arises out 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. In contrast to a novation, a substituted agreement does not involve a third party. Rather, the two original parties to the contract form a different agreement to substitute for the original one.

Condition Precedent

A condition that must be fulfilled before a party ́s promise becomes absolute.

Condition Subsequent

A condition that, if it occurs, operates to terminate a party ́s absolute promise to perform

Substantial Performance

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.

Bankruptcy

A proceeding in bankruptcy attempts to allocate the debtor's assets to the creditors in a fair and equitable fashion. Once the assets have been allocated, the debtor receives a discharge in bankruptcy. A discharge in bankruptcy ordinarily prevents the creditors from enforcing most of the debtor's contracts. Partial payment of a debt after discharge in bankruptcy will not revive the debt.

Impossibility of Performance

After a contract has been made, supervening events (such as a fire) may make performance impossible in an objective sense. The doctrine of impossibility of performance applies only when the parties could not have reasonably foreseen, at the time the contract was formed, the event that rendered performance impossible. Performance may also become so difficult or costly due to some unforeseen event that a court will consider it commercially unfeasible, or impracticable, as will be discussed later in the chapter.

An example of a simultaneous condition is

Albert walks into a grocery store and picks up a loaf of bread and a carton of cokes and puts them on the counter.

Temporary Impossibility

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

Statutes of Limitations

As mentioned earlier in this text, statutes of limitations restrict the period during which a party can sue on a par- ticular cause of action. After the applicable limitations period has passed, a suit can no longer be brought. 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.

Concurrent Conditions

Conditions that must be performed simultaneously. Each party ́s absolute duty to perform is conditioned on the other party ́s absolute duty to perform.

Frustration of Purpose

Closely allied with the doctrine of commercial impracticability is the doctrine of frustration of purpose.

Commercial Impracticability

Courts may also excuse parties from their performance when it becomes much more difficult or expensive than the parties originally contemplated at the time the con- tract was formed. In one classic case, for example, a court held that a contract could be discharged because a party would otherwise have had to pay ten times more than the original estimate to excavate a certain amount of gravel.17 For someone to invoke the doctrine of commercial impracticability successfully, however, the anticipated performance must become significantly more difficult or costly.18 In addition, the added burden of perform- ing must not have been foreseeable by the parties when the contract was made.

How many different levels of performance are there?

Four - complete performance, substantial performance, minor breach and material breach. I think it clear one level is complete performance and another level is material breach. I think the characteristics are fairly easy to understand. But what about substantial performance and minor breaches. Are these the same thing. In a previous edition of the text it was unclear. I think it is still unclear but in this edition of the text there is an exhibit indicating there are three levels. I have prepared a lengthy Study Aid discussing the relationship of four levels, complete performance, substantial performance, minor breach and material breach. When you have completed this test if you will email me I will give you access to that Study Aid.

Effect on Duty to Perform

If one party's performance is substantial, the other party's duty to perform remains absolute. In other words, the parties must continue performing under the contract. For instance, the party who substantially performed is entitled to payment. If performance is not substantial, there is a material breach (to be discussed shortly), and the non-breaching party is excused from further performance.

Complete Performance

No breach—contract is discharged

Equitable Remedies

Sometimes, damages are an inadequate remedy for a breach of contract. In these situations, the nonbreaching party may ask the court for an equitable remedy. Equitable remedies include rescission and restitution, specific performance, and reformation.

Accord and Satisfaction and Settlements are two types of settlement discussed in Chapter 18. Each of these requires a genuine dispute over the obligations in the contract.

True

What if the cost is unreasonable?

Then 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.

If Party A substantially performs their contractual duties, Party B is obligated to continue to perform, even though Party A has breached the contract. Which of the following is also correct?

This statement also applies to a material breach by Party A This statement also applies to a minor breach by Party A Both are correct statements

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. For instance, suppose that a party alters a material term of a contract, such as the stated quantity or price, without the knowledge or consent of the other party. In this situation, the party who was unaware of the alteration can treat the contract as discharged.

The sale of goods.

Under the UCC the non-breaching party is entitled to the difference in contract price and market price, plus any appropriate incidental damages, or if appropriate, to recover their lost profits.

Courts decide

Whether performance is substantial on a case-by-case basis examining all the facts

In most contracts, promises of performance are not expressly conditioned or qualified. Instead, they are

absolute promises

The remedy of recovering the value of the work done, often referred to quantum meruit, is

an equitable remedy when there is no contract between the parties ,but unless these damages are awarded the other party will be unjustly enriched. Response Feedback: This is the proper measurement to prevent unjust enrichment. Since there is no contract the ordinary remedies for breach of contract cannot apply.

A party prior to the time for performance of either party notifies the other party that they no longer intend to be bound by their contract. This is an example of

an offer to rescind the contract. an anticipatory repudiation of the contract. a material breach of contract ALL OF THE ABOVE

Implied conditions

are understood to be part of the agreement, but they are not found in the express lan- guage of the agreement. Courts may imply conditions from the purpose of the contract or from the intent of the parties. Conditions are often implied when they are inherent in the actual performance of the contract.

Rescission

is essentially an action to undo, or terminate, a contract to return the contracting parties to the positions they occupied prior to the transaction.

When the the nature of the contract makes it difficult to calculate a dollar amount to the damages a party would incur if the contract is not performed, the parties may agree to a certain amount of money as

liquidated damages

Restitution

returning goods, property, or funds previously conveyed.11 If the property or goods can be returned, they must be. If the goods or property have been consumed, restitution must be made in an equivalent dollar amount.

Construction contracts

the measure of damages depends upon which party is in breach and the time of breach during the time the parties are performing their respective duties.

When attempting to obtain discharge by performance, the only way to avoid being liable for breach of contract is to substantially perform the contract.

False

Quite often a court will impose punitive damages in suits for breach of contract.

False It is very seldom that a court will imposed punitive damages in a suit for breach of contract.

The requirements of a novation are as follows:

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 basic requirements for performance to qualify as substantial performance are as follows:

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.

Discharge by Novation

A contractual obligation may also be discharged through novation. A novation occurs when both of the parties to a contract agree to substitute a third party for one of the original parties

When Performance Is Impossible Three basic types of situations may qualify as grounds for the dis- charge of contractual obligations based on impossibility of performance:1

1. When one of the parties to a personal contract dies or becomes incapacitated prior to performance. Frederic, a famous dancer, contracts with Ethe- real Dancing Guild to play a leading role in its new ballet. Before the ballet can be performed, Frederic becomes ill and dies. His personal performance was essential to the completion of the contract. Thus, his death discharges the contract and his estate's liability for his nonperformance. ■ 2. When the specific subject matter of the contract is destroyed. A-1 Farm Equipment agrees to sell Gunther the green tractor on its lot and promises to have the tractor ready for Gunther to pick up on Saturday. On Friday night, however, a truck veers off the nearby highway and smashes into the tractor, destroying it beyond repair. Because the con- tract was for this specific tractor, A-1's performance is rendered impossible owing to the accident. ■ 3. When a change in law renders performance illegal. Hopper contracts with Playlist, Inc., to create a Web site through which users can post and share movies, music, and other forms of digital entertainment. Hopper goes to work. Before the site is operational, however, Congress passes the No Online Piracy in Entertainment (NOPE) Act.

Express Conditions

are provided for by the parties' agreement. Although no particular words are necessary, express conditions are normally prefaced by the words if, provided, after, or when. For instance, most automobile insurance policies include what is known as a coopera- tion clause. This clause states that if the insured person is involved in an accident, he or she must cooperate with the insurance company in the defense of any claim or lawsuit.

When there are special expenses that will occur if the contract is not performed as promised, which were known or should have been known to the breaching party when the contract was formed, the breaching party may be required to pay these additional damages. This type of damages is called

consequential damages

A contract governed by the common law.

the loss of bargain

performance

the most common way to dis charge, or terminate, contractual duties

Compensatory Damages

to cover direct losses and costs

Consequential Damages

to cover indirect and foreseeable losses

Punitive Damages

to punish and deter wrongdoing.