1. Essentials of the legal environment today, 5e
Roger leroy miller
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2. CONTRACT PERFORMANCE, BREACH, AND REMEDIES
Chapter 13
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3. Learning Objectives
What are the elements of fraudulent misrepresentation?
What is substantial performance?
When is a breach considered material, and what effect does that have on the other party’s duty to perform a contract?
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4. LEARNING OBJECTIVES (CONT’D)
What is the standard measure of compensatory damages when a contract is breached?
What equitable remedies can a court grant, and in what circumstances will a court consider granting them?
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5. Voluntary Consent Mistakes Unilateral mistakes of fact
Made by only one party
Two exceptions
Bilateral (mutual) mistakes of fact
Mutual misunderstanding
Mistakes of value
Concerns the future market value or quality of the object of the contract
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6. Exhibit 13.1
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7. Voluntary Consent Fraudulent Misrepresentation
Consists of the following elements:
Misrepresentation of a material fact must occur
There must be an intent to deceive
Innocent party must justifiably rely on the misrepresentation
To collect damages, a party must have been harmed as a result of the misrepresentation.
LO-1
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8. Voluntary Consent Undue Influence Duress
A stronger party overcomes a weaker party’s free will by exerting psychological influence.
Duress
Agreement is not voluntary if one party was forced into it.
Can serve as basis for rescission of contract
Economic need, by itself, is not duress
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9. Third Party Rights Assignments
Used in many types of business financing
All rights can be assigned, except:
The assignment is prohibited by statute
The contract is personal
The assignment significantly changes the risk or duties of the obligor
The contract prohibits assignment
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10. Third Party Rights Delegations Transfer duties by delegation
Delegation is prohibited when:
Special trust has been placed in the obligor
Performance depends on the personal skill or talents of the obligor
Performance by a third party will vary materially from that expected by the obligee
The contract expressly prohibits delegation by including an antidelegation clause
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11. Third Party Rights Third Party Beneficiaries
Exception to the doctrine of privity of contract arises when the contract is intended to benefit a third party
Third party beneficiary: one for whose benefit a promise is made in a contract but who is not a party to the contract
Intended beneficiary: a third party for whose benefit a contract is formed
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12. Performance and Discharge
Discharge is the termination of the obligation.
Performance is the fulfillment of one’s duties arising in a contract.
Conditions of Performance
Qualification in a contract based on a possible future event
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13. Performance and Discharge
Discharge by Performance
Both parties fulfill their duties by performing the acts they promised
Complete performance
Party performs exactly as agreed
Substantial performance
Party performs substantially all of the terms of a contract
Requirements
Performed in good faith
Performance must not vary greatly
Performance must create
LO-2
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14. Performance and Discharge
Performance to the satisfaction of another
Performance is conditioned on reasonable satisfaction.
Material breach of contract
Failure, without legal excuse, of a promisor to perform the obligations of a contract
Innocent party is excused from performance and has the right to sue for damages.
Material versus minor breach
A minor breach may be cured.
Discharges nonbreaching party from further performance
LO-3
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15. Performance and discharge
Anticipatory repudiation
Before either party has a duty to perform, one of the parties may refuse to carry out his or her contractual obligations
Time for performance
If no time for performance is stated in the contract, a reasonable time is implied
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16. Performance and Discharge
Discharge by Agreement
Discharge by mutual rescission
Parties must make another agreement.
Discharge by novation
New contract with substitution of a third party for one of the original parties.
Discharge by settlement agreement
Compromise that results from dispute
Discharge by accord and satisfaction
Settlement to discharge original contract.
Covenant not to sue
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17. Performance and Discharge
Discharge by Operation of Law
Material alteration of the contract
Statutes of limitations
Bankruptcy
Impossibility of performance
When one of the parties dies or becomes incapacitated prior to performance
When the specific subject matter is destroyed
When a change in law renders performance illegal
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18. Performance and discharge
Commercial impracticability
When it becomes much more difficult or expensive then originally contemplated at time contract was formed
Frustration of purpose
If supervening circumstances make it impossible to attain the purpose both parties had in mind when they made the contract
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19. Exhibit 13.2
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20. Damages Types of Damages Compensatory Consequential Punitive Nominal
Compensatory damages
Standard measure – difference between value of breaching party’s promised and actual performance
Sale of goods
Sale of land
Construction contracts
LO-4
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21. Damages Consequential damages Punitive damages Nominal damages
Special damages to compensate for a loss that does not directly or immediately result from breach
Punitive damages
Punish and deter wrongdoing
Nominal damages
Recognize wrongdoing with no monetary loss
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22. Damages Mitigation of Damages
Injured party has a legal duty to mitigate (reduce) her damages.
Terminated employee has duty to take a similar job, if one is available.
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23. Damages Liquidated Damages versus Penalties Waiver of Breach
Fixed, certain dollar amount agreed to by parties, paid in the event of breach.
Clauses for liquidated damages are enforceable.
Penalty
Designed to penalize a party.
Generally not enforceable.
Waiver of Breach
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24. Equitable Remedies
Equitable remedies include rescission and restitution, specific performance, and reformation.
Rescission and Restitution
Rescission – undo or terminate a contract
Restitution – return of goods, property, or funds
LO-5
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25. Equitable Remedies Specific Performance
Performance of the act promised in the contract
Sale of land
Contracts for personal services
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26. Equitable Remedies Reformation
Used when parties have imperfectly expressed their agreement in writing.
Court can rewrite the contract to reflect the parties’ true intentions.
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27. Exhibit 13.3
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28. Contract Provisions Limiting Remedies
Contract may contain a clause stating.
(1) No damages
(2) Limited damages
(3) product replacement, or:
Exculpatory clauses
Limitation-of-liability clauses
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