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.
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.
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.
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
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 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.
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.
7-9 Consequential Damages Compensate the nonbreaching party for foreseeable indirect losses not covered by compensatory damages.
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.
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.
7-12 RIGHTS OF A THIRD PARTY In some cases, a party to an existing contract wishes to substitute another party in their place.
7-13 learning outcome checklist 7 - 1 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.
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.
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. 7- 7 Explain the rights of third parties who have rights in a contract through assignment or delegation and third-party beneficiaries.