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© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license.

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Presentation on theme: "© 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license."— Presentation transcript:

1 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Chapter 10: Contract Performance, Breach, and Remedies © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

2 Voluntary Consent  A contract may be unenforceable if the parties have not genuinely assented to its terms by: Mistake.  Misrepresentation.  Undue Influence.  Duress.  2

3 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Mistakes. Mistakes of Fact vs Mistakes of Value (or Quality). Only a mistake of fact allows a contract to be voided.  Voluntary Consent 3

4 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Mistakes. Bilateral (Mutual) Mistakes: concerns the same material fact, and can be rescinded by either party. CASE 10.1 L&H C ONSTRUCTION C O V. C IRCLE R EDMONT, I NC. (2011). CASE 10.1 L&H C ONSTRUCTION C O V. C IRCLE R EDMONT, I NC. (2011). Do you agree the parties made a mutual mistake? Voluntary Consent 4

5 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Mistakes. Unilateral Mistakes of fact cannot be canceled unless: Other party to the contract knows or should have known, OR Mistake was due to an inadvertent mathematical mistake and was not gross negligence. Voluntary Consent 5

6 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Ex. 10-1 Mistake of Fact 6

7 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Fraudulent Misrepresentation. Contract is Voidable by Innocent Party. Consists of the following Elements: Misrepresentation of Material Fact. Intent to Deceive. Reliance on Misrepresentation. Injury to the Innocent Party. Voluntary Consent 7

8 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Voluntary Consent  Undue Influence. Contract lacks voluntary consent and is voidable. Confidentiality, Fiduciary, or Relationship of Dependence. Undue Influence or Persuasion is presumed if a weaker party talked into doing something not beneficial to him or herself. 8

9 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Voluntary Consent  Duress. Forcing a party to enter into a contract under fear or threat makes the contract voidable. Threatened act must be wrongful or illegal and render person incapable of exercising free will. Threat of civil suit is not duress. 9

10 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Statute of Frauds: Writing Requirement  Some contracts must be in writing to be enforceable: Contracts with an Interest in Land. Contracts involving “One-Year Rule.” Collateral or Secondary Contracts. Promises made in consideration of marriage. Contracts For Sales of Goods over $500. 10

11 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Third Party Rights  Privity of Contract: only original parties to a contract have rights and liabilities under the contract. Exceptions: Assignments, Delegations, and Third party Beneficiary Contracts.  11

12 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Assignments: Terminology. Assignor: party assigning rights to third party. Assignee: party receiving rights. Obligee: person to whom a duty or obligation is owed. Obligor: person who is obligated to perform the duty. Third Party Rights 12

13 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Third Party Rights  Assignments. Effect of An Assignment: when rights of assignor are unconditionally assigned, her rights are extinguished. The third party (assignee) has right to demand performance from original party to contract. 13

14 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Assignment Relationships 14

15 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Third Party Rights  Assignments: Rights That Cannot be Assigned. (i) when a statute expressly prohibits assignment, (ii) when a contract is personal in nature, (iii) when the assignment materially changes rights or duties of obligor, or (iv) when an assignment will significantly change the risk or duties of the obligor. 15

16 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Third Party Rights  Assignments: Exceptions to Contractual Prohibition. Cannot prevent right to receive money. Cannot prevent rights in land. Negotiable instruments. Damages in sales of goods. 16

17 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Third Party Rights  Delegations. Contractual duties in a bilateral contract that are delegated to a third party. Terminology: Delegator: party making the delegation of duty. Delegatee: party to whom the duty is owed. 17

18 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Delegation Relationships 18

19 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Delegations are Prohibited: When the Duties are Personal in Nature (special trust). When Performance by a Third Party Will Vary Materially From that Expected by the Obligee. When the Contract Prohibits Delegation. Third Party Rights 19

20 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Third Party Rights  Delegations. Delegator remains liable, even after delegation. Delegatee is liable if delegation contract creates a third party beneficiary relationship in the obligee. 20

21 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Third Party Rights  Third Party Beneficiaries. 2 nd Exception to Privity of Contract. Original parties to the contract intend at the time of contracting to directly benefit a third person. 21

22 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Third Party Rights  Third Party Beneficiaries. Intended Beneficiary: contract is made for the express purpose of promisor giving a gift to a third party (donee), the donee can sue the promisor directly if the promisor breaches the contract. 22

23 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Third Party Rights  Third Party Beneficiaries. Incidental : a third party beneficiary’s benefit from contract between two parties is unintentional. Incidental beneficiary cannot sue to enforce the contract. 23

24 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Third Party Beneficiaries 24

25 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  A party may be discharged from a valid contract by: A condition occurring -- or not occurring. Full performance or material breach by the other party. Agreement of the parties. Operation of law. 25

26 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Conditions of Performance. A possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation or terminate an existing obligation under a contract. CASE 10.2 P ACK 2000, I NC. V. C USHMAN (2011). CASE 10.2 P ACK 2000, I NC. V. C USHMAN (2011). What should Pack have done differently? 26

27 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Performance. Tender: ready, willing, and able. Complete Performance. Parties perform exactly as agreed, or ‘perfect.’ All conditions satisfied. Substantial Performance. party in good faith performs substantially all of the terms, can enforce the contract.  27

28 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Performance. Substantial Performance. Confers Most of the Benefits Promised: performance must not vary greatly from what was promised. But damages can be awarded. Entitles the Other Party to Damages. Measure of damages is cost to bring object of contract into compliance. 28

29 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Performance. Performance to Satisfaction of Another. Material Breach of Contract. A material breach occurs when performance is not substantial, and nonbreaching party is excused from performance and entitled to damages.  29

30 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Performance. Material Breach of Contract. In a minor (non-material) breach, the duty to perform is not excused and the non-breaching party must resume performance of the contractual obligations undertaken. 30

31 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Performance. Anticipatory Repudiation. Occurs when one party refuses to perform his contractual obligation, before performance is due. Treated as a material breach, and nonbreaching party may sue for damages immediately, even though performance is not due. 31

32 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Performance. Anticipatory Repudiation. Notice by repudiating party may restore parties to original obligations. Rational for Treating Repudiation as Breach. Anticipatory Repudiation and Market Prices. 32

33 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Agreement. Discharge by Rescission. Mutual Rescission: for executory contract, parties must make a new contract, oral or written. Under UCC, contracts must be in writing. If one party has performed, agreement to rescind must have additional consideration. 33

34 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Agreement. Discharge by Novation: parties agree to substitute a third party for an original party. Requirements: previous valid obligation, agreement by all parties, extinguishment of all old obligations, and new valid contract. 34

35 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Agreement. Discharge by Settlement Agreement. Discharge by Accord and Satisfaction. Accord: contract to perform existing contractual duty not yet discharged. Satisfaction: performance of the accord. 35

36 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Operation of Law. Alteration of The Contract: innocent party is discharged after material alteration. Statutes of Limitations. Bankruptcy: generally bars enforcement of non-exempt transactions. 36

37 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Operation of Law. Objective Impossibility: the supervening event was not foreseeable: Death or incapacitation in personal contract prior to performance, Destruction of the subject matter; or Change in law renders performance Illegal. 37

38 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Operation of Law. Temporary Impossibility. Commercial Impracticability. Performance becomes extremely difficult or costly, and must not have been known by parties when contract made.  38

39 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Performance and Discharge  Discharge by Operation of Law. Frustration of Purpose. Supervening event make it impossible to attain purpose both parties had in mind. Event must not have been reasonably foreseeable, and decreases value of what a party receives under contract. 39

40 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Exhibit 10-2 Contract Discharge 40

41 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Four broad categories of damages: Compensatory.  Consequential.  Punitive.  Nominal.  Damages for Breach of Contract 41

42 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Compensatory Damages. Compensates nonbreaching party for loss of the bargain. Out-of-pocket costs directly arising from breach. Standard Measure: difference between value of promised performance and value of actual performance.  Damages for Breach of Contract 42

43 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Compensatory Damages. Measurement of Damages: Sale of Goods: difference between contract and market price. Sale of Land: specific performance. Construction Contracts. – CASE 10.3 J AMISON W ELL D RILLING, I NC. V. P FEIFER (2011). – CASE 10.3 J AMISON W ELL D RILLING, I NC. V. P FEIFER (2011). Why did Pfeifer have to pay for the storage container? Damages for Breach of Contract 43

44 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Consequential Damages. Consequential (Special) Damages— foreseeable losses. Breaching party is aware or should be aware, cause the injury party additional loss. Damages for Breach of Contract 44

45 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Mitigation of Damages. When breach of contract occurs, the innocent injured party is held to a duty to reduce the damages that he or she suffered. Duty owed depends on the nature of the contract. Damages for Breach of Contract 45

46 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Liquidated Damages vs. Penalties. Liquidated Damages: specific amount agreed to be paid as damages in the event of future breach. Penalties: designed to penalize, generally unenforceable. Damages for Breach of Contract 46

47 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Liquidated Damages vs. Penalties. Enforceability. Court asks two questions: When contract was entered into, was it apparent damages would be difficult to estimate in the event of a breach? Was the amount set as damages a reasonable estimate and not excessive? Damages for Breach of Contract 47

48 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Sometimes damages are inadequate remedy.  Court can create equitable remedies: Rescission and Restitution  Equitable Remedies 48

49 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Rescission. Remedy whereby a contract is canceled and the parties are restored to the original positions that they occupied prior to the transactions.  Equitable Remedies 49

50 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Restitution: both parties must return goods, property, or money previously conveyed. Note: Rescission does not always call for restitution. Restitution is called for in some cases not involving rescission. Equitable Remedies 50

51 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Specific Performance. Equitable remedy calling for the performance of the act promised in the contract. Provides remedy in cases involving unique subject matter: Sale of Land. Contracts for Personal Services. Equitable Remedies 51

52 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Reformation.  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.  Used when fraud or mutual mistake occurs. Equitable Remedies 52

53 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Recovery Based on Quasi-Contract. No actual contract exists, court will create one in the interests of fairness and justice. Usually granted when one party has performed in good faith and the other has been unjustly enriched.  Equitable Remedies 53

54 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Recovery Based on Quasi-Contract. To recover, party seeking recovery must show: Party conferred benefit on other party. Party conferred the benefit with reasonable expectation of payment. Party did not volunteer in performing. Party receiving benefit would be unjustly enriched by retaining benefit without payment. Equitable Remedies 54

55 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Election of Remedies  Purpose of the Doctrine: to prevent double recovery. Nonbreaching party chooses which remedy to pursue.  UCC Rejects Election of Remedies.  Pleading in the Alternative. 55

56 © 2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  Exculpatory and Limitation of Liability clauses.  UCC Allows Sales Contracts to Limit Remedies.  Enforceability of Limitation-of- Liability Clauses: depends on type of breach excused by provision. Contract Provisions Limiting Remedies 56


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