COPYRIGHT © 2011 South-Western/Cengage Learning. 1 Click your mouse anywhere on the screen to advance the text in each slide. After the starburst appears, click a blue triangle to move to the next slide or previous slide.

COPYRIGHT © 2011 South-Western/Cengage Learning. 2 Quote of the Day “Go, sir, gallop, and don’t forget that the world was made in six days. You can ask me for anything you like, except time.” Napoleon, to an aide, 1803

COPYRIGHT © 2011 South-Western/Cengage Learning. 3 Performance  Strict Performance Performance that is exactly what promised; is usually not expected and failure to do so does not cause for discharge.  Substantial Performance A party that substantially performs its obligations will receive the full contract price, minus the value of any defects. A party that fails to perform substantially receives nothing on the contract and will only recover the value of the work, if any.

COPYRIGHT © 2011 South-Western/Cengage Learning. 4 Good Faith  The Restatement (Second) of Contracts §205 states: “Every contract imposes upon each party a duty of good faith and fair dealings in its performance and its enforcement.”

COPYRIGHT © 2011 South-Western/Cengage Learning. 5 Time of the Essence Clauses  A time of the essence clause will generally make contract dates strictly enforceable.  Merely including a date for performance does not make time of the essence.

COPYRIGHT © 2011 South-Western/Cengage Learning. 6 Breach  Material Breach Generally courts will discharge only if a party committed a material breach – one that causes substantial harm.  Anticipatory Breach Anticipatory breach is committed by one party making it unmistakably clear that he will not honor the contract.  Statute of Limitations Will limit the time within which the injured party may file suit.

COPYRIGHT © 2011 South-Western/Cengage Learning. 7 Impossibility  True Impossibility Something has happened making it utterly impossible to fulfill the promise. –Destruction of subject matter of contract –Death of promisor in a personal services contract –Illegality  Commercial Impracticability Some event has occurred that neither party anticipated, making the contract extraordinarily difficult and unfair to one party.  Frustration of Purpose Some event has occurred that neither party anticipated and the contract now has no value for one party.

COPYRIGHT © 2011 South-Western/Cengage Learning. 8 Remedies – Identifying the “Interest”  An interest is a legal right in something.  There are 4 main contract interests that a court may seek to protect: Expectation Interest Reliance Interest Restitution Interest Equitable Interest

COPYRIGHT © 2011 South-Western/Cengage Learning. 9 Expectation Interest  Designed to put the injured party in the position she would have been in had both sides fully performed their obligations. Compensatory damages Consequential damages Incidental damages

COPYRIGHT © 2011 South-Western/Cengage Learning. 10 Compensatory Damages  Compensatory damages are the most common monetary awards.  They generally flow directly from the contract, such as an order to pay what was promised or to pay for expenses caused by the breach.  The injured party must prove the breach caused damages that can be quantified with reasonable certainty.

COPYRIGHT © 2011 South-Western/Cengage Learning. 11 Consequential Damages  Consequential damages are those resulting from the unique circumstances of this injured party.  Because damage calculation can be complex, there are companies that specialize in doing the work on behalf of litigants or other interested parties.

COPYRIGHT © 2011 South-Western/Cengage Learning. 12 Incidental Damages  Incidental damages are the relatively minor costs incurred when the injured party responds to the breach (obtaining cover), such as the extra cost of buying replacement goods. Acme agrees to sell 1000 widgets to Big Bob’s for $1 each, but fails to deliver. Big Bob has to buy 1000 widgets from ConCo for $1.25 each. Big Bob can recover incidental damages of the extra $250 from Acme.

COPYRIGHT © 2011 South-Western/Cengage Learning. 13 Reliance Interest  Designed to put the injured party in the position he would have been in had the parties never entered into a contract.

COPYRIGHT © 2011 South-Western/Cengage Learning. 14 Restitution Interest  Designed to return to the injured party a benefit that he has conferred on the other party, which it would be unjust to leave with that person.

COPYRIGHT © 2011 South-Western/Cengage Learning. 15 Equitable Interest  When money is not sufficient to help the injured party, a court may order a transfer of property or may issue an injunction to prevent a particular action from continuing.

COPYRIGHT © 2011 South-Western/Cengage Learning. 16 Equitable Interests  Specific Performance A court will order the parties to perform the contract only in cases involving the sale of land or some other asset that is unique.  Injunction An injunction is a court order that requires someone to do something or refrain from doing something.  Reformation Reformation is a process in which a court will partially “re-write” a contract.

COPYRIGHT © 2011 South-Western/Cengage Learning. 17 Special Issues of Damages  Mitigation of Damages A party may not recover for damages that could be avoided with reasonable efforts.  A liquidated damages clause, is a provision stating in advance how much a party must pay it if it breaches.  A court will generally enforce a liquidated damages clause if : (1) at the time of creating the contract it was very difficult to estimate actual damages, and (2) the liquidated amount is reasonable.

COPYRIGHT © 2011 South-Western/Cengage Learning. 18 “A moment’s caution! Often that is all that is needed to avoid years of litigation.” “A moment’s caution! Often that is all that is needed to avoid years of litigation.”