1 copyright © 2007 west legal studies in business, a part of the thomson corporation. thomson, the...

1COPYRIGHT © 2007 West Legal Studies in Business, a part of The Thomson Corporation. Thomson, the Star logo, and West Legal Studies in Business are trademarks used herein under license.

Chapter 10Chapter 10

Contract Performance, Breach Contract Performance, Breach and Remediesand Remedies


IntroductionIntroduction

How does a party know when his or her How does a party know when his or her obligations under the contract are at an end?obligations under the contract are at an end?

A party may be discharged from a valid A party may be discharged from a valid contract by:contract by: A condition occurring or not occurring.A condition occurring or not occurring. Full performance or material breach by the Full performance or material breach by the

other party.other party. Agreement of the parties.Agreement of the parties. Operation of law.Operation of law.


§1: §1: Performance and DischargePerformance and Discharge

ConditionsConditions: Possible future event, the : Possible future event, the occurrence or nonoccurrence of which occurrence or nonoccurrence of which will trigger the performance of a legal will trigger the performance of a legal obligation or terminate an existing obligation or terminate an existing obligation under a contract.obligation under a contract.


ConditionsConditions

Types of Conditions:Types of Conditions: Conditions Precedent.Conditions Precedent. Conditions Subsequent.Conditions Subsequent. Conditions Concurrent.Conditions Concurrent.

» Express.Express.

» Implied in Fact. Implied in Fact.

» Implied in Law.Implied in Law.


Discharge by Performance Discharge by Performance

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

Types of Performance:Types of Performance: Complete Performance.Complete Performance. Substantial Performance (minor breach).Substantial Performance (minor breach). Performance to the Satisfaction of One of the Performance to the Satisfaction of One of the

Parties or a Third Party.Parties or a Third Party.Case 10.1:Case 10.1: Jacobs & Young v. KentJacobs & Young v. Kent (1921). (1921).


Material Breach of ContractMaterial Breach of Contract

Breach of Contract - the Breach of Contract - the nonperformance of a contractual duty.nonperformance of a contractual duty.

Material breach occurs when there has Material breach occurs when there has been a failure of consideration.been a failure of consideration.

Discharges the non breaching party Discharges the non breaching party from the contract.from the contract.


In a minor (non-material) breach, the duty In a minor (non-material) breach, the duty to perform is not excused and the non-to perform is not excused and the non-breaching party must resume performance breaching party must resume performance of the contractual obligations undertaken.of the contractual obligations undertaken. Case 10.2: Case 10.2: Shah v. Cover-It, Inc.Shah v. Cover-It, Inc. (2004). (2004).

Time for Performance.Time for Performance. If none specified, reasonable time is implied.If none specified, reasonable time is implied.

Breach of ContractBreach of Contract


Discharge by AgreementDischarge by Agreement

Discharge by Rescission.Discharge by Rescission.Discharge by Novation:Discharge by Novation:

Previous obligation.Previous obligation. All parties agree to new contract.All parties agree to new contract. Extinguishment of old obligations.Extinguishment of old obligations. New Contract Formed.New Contract Formed.

Discharge by Substituted Agreement.Discharge by Substituted Agreement.Accord and Satisfaction.Accord and Satisfaction.


Discharge by Operation of LawDischarge by Operation of Law

Alteration of The Contract. Alteration of The Contract. Statutes of Limitations.Statutes of Limitations.Bankruptcy.Bankruptcy.Impossibility or Impracticability. Impossibility or Impracticability.


Impossibility or Impracticability Impossibility or Impracticability of Performanceof Performance

Objective Impossibility of Performance.Objective Impossibility of Performance. Death or incapacitation prior to performance;Death or incapacitation prior to performance; Destruction of the Subject Matter; orDestruction of the Subject Matter; or Illegality in performance.Illegality in performance.

Commercial Impracticability.Commercial Impracticability. Key: Circumstances not foreseeable.Key: Circumstances not foreseeable.

Frustration of Purpose.Frustration of Purpose.Temporary Impossibility.Temporary Impossibility.


§ 2: Breach of Contract § 2: Breach of Contract and Remedies and Remedies

Most Common Remedies:Most Common Remedies: Damages.Damages. Rescission and Restitution.Rescission and Restitution. Specific Performance.Specific Performance. Reformation.Reformation. Recovery Based on Quasi Contract.Recovery Based on Quasi Contract.


DamagesDamages

Compensatory Damages—direct losses.Compensatory Damages—direct losses. Sale of Goods: difference between contract and Sale of Goods: difference between contract and

market price.market price. Sale of Land: specific performance.Sale of Land: specific performance. Construction Contracts: varies.Construction Contracts: varies.

Consequential (Special) Damages—foreseeable Consequential (Special) Damages—foreseeable losses.losses. Breaching party is aware or should be aware, cause Breaching party is aware or should be aware, cause

the injury party additional loss.the injury party additional loss. Case 10.3:Case 10.3: Hadley v. BaxendaleHadley v. Baxendale (1854). (1854).


DamagesDamages

Punitive Damages—punish or deter future Punitive Damages—punish or deter future conduct.conduct. Generally not available for mere breach of Generally not available for mere breach of

contract.contract. Usually tort (e.g., fraud) is also involved.Usually tort (e.g., fraud) is also involved.

Nominal Damages—no financial loss.Nominal Damages—no financial loss. Defendant is liable but only a technical injury.Defendant is liable but only a technical injury.


Mitigation of DamagesMitigation of Damages

When breach of contract occurs, the innocent When breach of contract occurs, the innocent injured party is held to a duty to reduce the injured party is held to a duty to reduce the damages that he or she suffered.damages that he or she suffered.

Duty owed depends on the nature of the Duty owed depends on the nature of the contract.contract.


Liquidated Damages Liquidated Damages

Liquidated Damages.Liquidated Damages. A contract provides a specific amount to be paid as A contract provides a specific amount to be paid as

damages in the event of future default or breach of damages in the event of future default or breach of contract.contract.

Penalties.Penalties. Specify a certain amount to be paid in the event of a Specify a certain amount to be paid in the event of a

default or breach of contract and are designed to default or breach of contract and are designed to penalize the breaching party.penalize the breaching party.

Case 10.4:Case 10.4: Green Park Inn v. MooreGreen Park Inn v. Moore (2002). (2002).


Rescission and RestitutionRescission and RestitutionRescission.Rescission.

A remedy whereby a contract is canceled and A remedy whereby a contract is canceled and the parties are restored to the original positions the parties are restored to the original positions that they occupied prior to the transactions.that they occupied prior to the transactions.

Restitution.Restitution. Both parties must return goods, property, or Both parties must return goods, property, or

money previously conveyed. money previously conveyed. NoteNote: Rescission does not always call for : Rescission does not always call for

restitution. Restitution is called for in some restitution. Restitution is called for in some cases not involving rescission.cases not involving rescission.


Specific PerformanceSpecific Performance

Equitable remedy calling for the performance Equitable remedy calling for the performance of the act promised in the contract.of the act promised in the contract.

Remedy in cases where the consideration is:Remedy in cases where the consideration is: Unique (land);Unique (land); Scarce; orScarce; or Not available remedy in contracts for personal Not available remedy in contracts for personal

services.services.


ReformationReformation

Equitable remedy allowing a contract to be Equitable remedy allowing a contract to be reformed, or rewritten to reflect the parties reformed, or rewritten to reflect the parties true intentions.true intentions.

Available when an agreement is imperfectly Available when an agreement is imperfectly expressed in writing.expressed in writing.


Election of RemediesElection of Remedies

Doctrine created to prevent double recovery.Doctrine created to prevent double recovery.Nonbreaching party must choose which Nonbreaching party must choose which

remedy to pursue.remedy to pursue.UCC rejects election of remedies.UCC rejects election of remedies.

Cumulative in nature and include all the available Cumulative in nature and include all the available remedies for breach of contract.remedies for breach of contract.


Waiver of BreachWaiver of Breach

A pattern of conduct that waives a number of A pattern of conduct that waives a number of successive breaches will operate as a successive breaches will operate as a continued waiver.continued waiver.

Nonbreaching party can still recover damages, Nonbreaching party can still recover damages, but contract is not terminated. but contract is not terminated.

Nonbreaching party should give notice to the Nonbreaching party should give notice to the breaching party that full performance will be breaching party that full performance will be required in the future.required in the future.


Contract Provisions Contract Provisions Limiting RemediesLimiting Remedies

Exculpatory clauses. Exculpatory clauses. Provisions stating that no damages can be Provisions stating that no damages can be

recovered.recovered.

Limitation of liability clauses.Limitation of liability clauses. Provisions that affect the availability of certain Provisions that affect the availability of certain

remedies.remedies.

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