Chapter 8 Contract Performance: Conditions, Breach, and Remedies Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

8-2 Nature and Effect of Conditions An event that triggers a particular risk associated with performing a contract is known as a condition.

8-3 Perfect Performance versus Substantial Performance Perfect performance is when the parties to a contract completely perform their obligations. In order to prevail in a substantial performance case, the party trying to enforce the contract must show that she acted in good faith and that any deviation from the required performance was not material.

8-4 Other Events of Discharge Mutual Consent –If neither party has fully performed, the parties may agree to cancel the contract. This cancellation is known as a rescission. –Under the doctrine of accord and satisfaction, one party agrees to render a substitute performance in the future (known as accord), and the other party promises to accept that substitute performance in discharge of the existing performance obligation.

8-5 Other Events of Discharge Impossibility –If the performance under the contract becomes impossible, because of (1) destruction of the subject matter, (2) death or incapacitation, (3) the means of performance contemplated cannot be performed, or (4) performance under the contract becomes illegal, the contract may be subject to discharge.

8-6 Other Events of Discharge Impracticability –If the performance under the contract becomes extremely burdensome due to some unforeseen circumstance occurring between the time of agreement and the time of performance, the contract may be subject to discharge.

8-7 Other Events of Discharge Frustration of Purpose –May be used to discharge an obligation if, after the parties enter into an agreement, (1) a party’s principal purpose is substantially frustrated without her fault, (2) some event occurred, when the nonoccurrence of the event was a central assumption of both parties when entering into the contract, and (3) the parties have not otherwise agreed on who bears the risk of such an occurrence.

8-8 Other Events of Discharge Operation of Law –The parties may also be discharged through operation of law when (1) a contract is unilaterally altered by a party, (2) a contract is subject to relief of the Bankruptcy Code, or (3) expiration of the statute of limitations.

8-9 Breach When a party to an agreement owes a duty to perform and fails to fulfill her obligation, she is said to have breached the contract. The party that suffered the breach is also entitled to sue the breaching party in an attempt to recover money damages (remedies).

8-10 Remedies at Law Compensatory Damages –These damages are an attempt to put the non-breaching party in the same position she would have been in if the other party had performed as agreed. Out-of-pocket damages Profits

8-11 Remedies at Law Consequential Damages –Consequential damages compensate the nonbreaching party for foreseeable indirect losses not covered by compensatory damages. Hadley v. Baxendale

8-12 Remedies at Law Liquidated Damages –Damages that the parties agree to ahead of time. Damages cannot be excessive so as to penalize the breaching party.

8-13 Equitable Remedies Specific Performance –Is a remedy whereby a court orders the breaching party to render the promised performance by ordering the party to take a specific action. This remedy is available only when the subject matter of the contract is sufficiently unique so that money damages are inadequate.

8-14 Equitable Remedies Injunctive Relief –A court order to refrain from performing a particular act is known as injunctive relief.

8-15 Equitable Remedies Reformation –When the parties have imperfectly expressed their agreement and this imperfection results in a dispute, a court may change the contract by rewriting it to conform to the parties’ actual intentions.

8-16 Third-Party Beneficiaries A third party who benefits from a contractual promise between two other parties may only seek damages if she is an intended beneficiary as opposed to an incidental beneficiary.