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McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7 Contract Performance: Conditions, Breach, and Remedies.

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Presentation on theme: "McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7 Contract Performance: Conditions, Breach, and Remedies."— Presentation transcript:

1 McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 7 Contract Performance: Conditions, Breach, and Remedies

2 7-2 GOOD FAITH PERFORMANCE Substantial Performance The law recognizes a partys good faith effort to perform by allowing substantial performance rather than perfect performance. This satisfies the requirements of the agreement and triggers the other partys obligation to perform.

3 7-3 Mutual Consent If neither party has fully performed, the parties may agree to cancel the contract - a rescission. Or the parties may agree to accept performance that is different from the original performance - an accord and satisfaction. Or the parties may agree to substitute a third party for one of the original parties to the contract - a novation.

4 7-4 Operation of Law Contract obligations may also be discharged through operation of law. Despite the fact that the parties have formed a valid contract, the law provides a discharge under certain circumstances where fairness demands it.

5 7-5 Other Examples of Discharge by Law (1) a contract is unilaterally altered by a party (2) a contract is subject to relief of the bankruptcy code (3) expiration of the statute of limitations where state law imposes a time limit on enforcement of contract obligations

6 7-6 REMEDIES For most contracts, the remedy at law will be money damages awarded by the court to the non-breaching party to compensate the innocent party for losses related to the breach.

7 7-7 Compensatory Damages Compensatory damages cover a broad spectrum of losses for recovery of actual damages. These damages put the non-breaching party in the same position she would have been in if the other party had performed.

8 7-8 Specific Performance Remedy whereby a court orders the breaching party to render the promised performance by ordering the party to take a specific action. Only available when the subject matter of the contract is sufficiently unique.

9 7-9 Consequential Damages Compensate the nonbreaching party for foreseeable indirect losses not covered by compensatory damages.

10 7-10 Restitution Designed to prevent unjust enrichment. If one party is in the process of performing the contract and the other party commits breach, the non-breaching party is entitled to rescind (cancel) the contract and receive fair market value for any services rendered.

11 7-11 Liquidated Damages It may be very difficult to determine actual damages, so parties may agree at the time of the contract that a breach would result in a fixed damage amount.

12 7-12 RIGHTS OF A THIRD PARTY In some cases, a party to an existing contract wishes to substitute another party in their place.

13 7-13 learning outcome checklist Define what a condition is used for in a contract and distinguish conditions precedent from conditions subsequent. 7-2 Apply the doctrines related to good faith performance, discharge of a contract, and substantial performance.

14 7-14 learning outcome checklist 7-3 Identify the ethical dilemmas that a manager faces in the context of good faith performance. 7-4 Articulate circumstances that give rise to events of discharge via mutual consent and operations of law. 7-5 Recognize events that result in breach of contract and explain anticipatory repudiation.

15 7-15 learning outcome checklist 7-6 Identify the appropriate remedy available to nonbreaching parties and understand the responsibilities of an injured party to avoid and mitigate damages Explain the rights of third parties who have rights in a contract through assignment or delegation and third-party beneficiaries.


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