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Contract Performance, Breach and Remedies

STUDY
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Defenses to enforcement of a contract
lack of genuine assent/voluntary consent

-> need both "meeting of minds"
Voluntary Consent
knowledge of, and genuine assent to, the terms of a contract. If a contract is formed as a result of a mistake, misrepresentation, undue influence, or durress, voluntary consent is lacking and the contract will be voidable
Remedy
the relief provided for an innocent party when the other party has breached the contract

*parties to a contract need to know these are available if one cannot preform as promised
Mistake of fact (pg315)
only mistake that may allow a contract to be avoided/canceled
Mistake of value/quality
contract is always enforceable
Unilateral mistake -> Material fact
when one party is mistaken as to a material fact

material fact ( a fact that is important to the subject matter)

->contract is enforceable against mistaken party (pg315 example)
UNLESS: 1) Other party knew or should have known the mistake was made (mistakingly writing car can be sold for 15,000 but other party knew it was worth 17,000 contract may be unenforceable)

2) mistake was due to substantial math error/clerical error (person selling car MISTAKINGLY writes down car is 15,000 but intended to sell for 17,000..car must be still sold at 15,000)
Bilateral Mistakes
-mutual mistakes
-both parties are mistaken about same material fact
-contract can be rescinded by either party (normally by adversely affected party)
-parties had attached materially diff. meanings to an essential term of contract
Innocent party is fradulently induced to enter a contract ->
contract usually can be avoided because they have not VOLUNTARILY consented to terms
-innocent party can cancel contract -> seek damages
Fraudulent Misrepresentation
misrepresentation that is consciously false and is intended to mislead another

3 elements:
1) Misrepresentation of a material fact of (NOT opinion) by conduct of law, silence or words
2) Must be an intent to deceive "scienter"
3) Innocent party must justifiably rely on misrepresentation
->PLAINTIFF MUST HAVE SUFFERED LEGAL INJURY
Opinion is not fact ->
only unless it is an expert opinion
Misrepresentation by conduct/law
-party takes specific action to conceal a fact...material to the contract (pg 317)
-misrep. by law ordinarily does not entitle a party to be relieved except when the misrepresenting party is in a profession known to require greater knowledge of the law than average citizen possesses (lawyer/real restate brokers)
Misrepresentation by silence
-if seller knows of serious defect or potential problem that the buyer cannot reasonably expect to discover the seller may have a duty to speak
Parties in fiduciary relationship rosenzweig v. givens pg 319
-one of trust (partners, physician patient)
-have duty to disclose material facts
Scienter
"guilty knowledge"
-clearly exists if party knows that a fact is not stated or party makes a statement that he/she believes not to be true or makes statement recklessly without regard to whether it is true or false
-knowledge on the part of the misrepresenting party that material facts have been falsely represented or omitted with an intent to decieve
Justifiable reliance
-decieved party must have justifiable reason for relying on misrepresentation
-misrep. must be an important factor (doesnt have to be sole factor) in inducing party
-Reliance is not justified if innocent party knows the true facts or relies on extravagant statements
(pg. 320)

*If person SHOULD know facts -> not justifiable
*If person has no way of finding out facts -> may be justified
Undue influence
-one party greatly influences a party -> overcome that party's free will
-party being taken advantage of does not excerise free will in entering contract
-fiduciary relationships
-contract entered into under excessive/undue influence lacks voluntary consent -> voidable
Durress
-forcing party to do something including entering a contract through fear or threats->threatened act must be ILLEGAL
-consent is not voluntary when forced in agreement
-blackmail/extortion
-defense to enforcement of contract
-economic need is not durress!**
-recission of contract
Statue of Frauds-> Writing requirement-> business contracts that MUST be in writing to be enforceable
1) Contracts involving land (sales, fixtures, leases, mortgages and easements
-->Exceptions: partial performance, admission, promissionary estoppel

2) Contracts that cannot be preformed within year of date of formation
-->Exceptions: Admission, promissionary estoppel

3) Collateral contracts -> promises to answer for the debt or duty of another
-->Exceptions: Main purpose rule, Admission, promissionary estoppel

four) Promises made in consideration of marriage

5) UCC-> contracts for sale of goods 500 dollars+
-->Exceptions: oral contracts for sale of customized goods ma be enforced, admission (quantity), partial performance, contracts between merchants may be enforced, detrimental reliance (321)
Statue of fraud denies
enforceability to certain contracts -> must be in writing to be enforceable
Section 139 of Restatement (second) Contracts
-based on detrimental reliance
-oral promise can be enforceable if reliance was foreseeable to person making promise
-if injustice can be avoided only by enforcing the promise
-court may also enforce an oral contract if party against whom enforcement admits that a contract sale was made
One year Rule
-contract that by its terms cannot be preformed in 1 year of execution
Main Purpose Rule
guarantor seeks to secure personal benefit
*Exception in collateral promises
Contract
private agreement between parties who have entered it...rights and liabilities under contract
Privity of Contract principle
parties alone have rights and liabilities under a contract

Exceptions: party can transfer rights or duties from contract to another person through an assignment of rights or delegation or duties
or third party beneficiary contract
Third party
one who is not a direct party to a particular contract...normally doesn't have rights under contract
Third party beneficiary contract
contract which parties to the contract intend that the contract benefit the third party
Assignment
act of transferring contractual rights to a third party
-transfer all or parts of ones rights under contract
-assignee has right to demand performance from original (obligor) to contract
-rights of the assignor (making the assignment) are extinguished
Rights that cannot be assigned/transferred pg. 322
1) Statute/law expressly prohibits assignment of a particular right
2) Contract is for personal services (UNLESS all that remains is a money payment)
3) Assignment will materially change risks or duties of obligor
four) Contract itself prohibits assignment
Exceptions to rule that contract can prohibit any assignment of the contract:
1) Contract can't prevent an assignment of right to receive money
-> encourages the free flow of mney and credit in business

2) Assignment of rights in real estate cant be prohibited -> b/c it is contrary to public policy
-> restraints against alienation (voluntary transfer of land ownership)

3) The assignment of negotiable instruments (checks/promissiory notes) cannot be prohibited

four) In a contract for the sale of goods, right to receive damages for breach of contract or for payment of an account owed may be assigned even tho the sales contracts prohibits assignment
Delegation
transfer of duties to a 3rd party
-party delegating duty (delgator) to the 3rd party (delegatee) is still obliged to preform on the contract even if delegatee fails to preform
--> does not relieve the delegator of obligation to preform
-delegatee still owes duty to original party in contract
-no special form required
Any duty can be delegated except:
1) Special trust has been placed in the obligor (person contractually obligated to perform)

2) When performance depends on personal skill or talents of obligor

3) When performance by 3rd party will materially vary from that expected by obligee (one whom performance is owed)

four) When contract expressly prohibits delegation
If delegatee fails to preform
delegator is still liable to obligee
Third party beneficiary
one for whose benefit a promise is made in a contract but who is not a party to the contract

*DIRECTLY BENEFITS THIRD PERSON
Intended Beneficiary
a third party for whose benefit a contract is formed; can sue the promisor if contract is breached

-to whom performance is directed to
-right to control details of performance
-designated beneficiary in contract

-3rd party demonstrates express consent
-3P materially alters position
-Conditions are satisifed
Incidental Beneficiary
third party who benefits from a contract but whose benefit was not the reason the contract was formed

-has no rights
-cannot sue
Any beneficiary who is not deemed intended beneficiary is considered
incidental
Courts use Reasonable Person Test:
would reasonable person in position of beneficiary believe promisee intended to confer on the beneficiary the right to enforce contract?
Discharge
termination of an obligation

occurs when parties have fully performed their contractual obligations -> or when events, conduct of the parties or operation of law releases the parties from performance
Condition
qualification, provision or clause in a contractual agreement
-the occurance or nonoccurance of which creates, suspends or terminates obligations of contracting parties

-if conditions are not satisifed that obligations of the parties are discharged-> cannot be enforced
Performance
fulfillment of one's duties arising under a contract with another way

-normal way of discharging obligations
Absolute promises
promises of performance are not expressly conditioned or qualified -> must be performed or parties of promising acts will be in breach
Tender
unconditional offer to preform by a person who is ready, willing and able to do so

-party making tender can sue for breach of contract
Complete performance
-party preforms exactly as agreed
-no question
-if specifications are conditions-> performance is required to avoid material breach
-if specifications arent conditions-> performance is not complete
Substantial Performance pg 325
-party in good faith performs substantially all terms of contract can enforce contract against the other party
-good faith required
-minor breach -> must be in good faith
-intentionally failing to comply is breach
-courts use case-by-case basis
-if performance is substantial -> other party's duty to perform is absolute (except can sue for damages due to minor changes)

Qualifications:
-performance must not vary greatly from performance promised in contract
-performance must create same benefits as those promised
Condition precedent
condition that must be met before a party's promise becomes absolute
Subject matter of contract is personal->
contract to be performed to the satisfaction of one of the parties is conditioned, and performance must actually satisfy that party

-contracts for portraits, works of arts and tailoring
->only personal satisfaction of party fulfills condition unless not acting in good faith
Contracts need to be performed only to satisfaction of
reasonable person unless expressly state otherwise
Breach of contract
the failure, without legal excuse, of a promisor to preform the obligations of a contract
Material breach
performance is not substantial
-nonbreaching party is excused from performance of duties ->can sue for damages
-ONLY TYPE OF BREACH THAT DISCHARGES NONBREACHING PARTY FROM CONTRACT
Minor breach
-not material
-can be suspended until breach has been corrected/cured
-nonparty can sue for damages
Satisfaction Contract
performance is conditioned on reasonable satisfaction
Anticipatory Repudiation of Contract pg 327
assertion he or she will not preform an obligation that the party is contractually obligated to perform at a future time
-treated as material
-nonbreaching party-> seek damages
Rescission
process by which contract is canceled or terminated and parties return to prior positions
Mutual rescission
-agreement btwn parties to cancel contract
-releases party from obligations
-object of agreement: restore parties to positions occupied before contract formed
-parties must make another agreement

must be offer, acceptance and consideration
Anticipatory repudiation occures when
a sharp fluctuation in market prices create a situation in which performance of contract would be unfavorable to parties
Agreements to cancel executory contracts
-are enforceable
-even if agreement is made orally/in writing
-Exception: UCC: the sale of goods, regardless of price, when the contract requires a written rescission
Agreements to rescind contracts involving transfers of LAND:
must be evidenced by WRITING
Novation pg 328
-new contract for an old one-> substitution
-rights of old contract terminated
-occurs when both of parties to a contract agree to SUBSTITUTE a THIRD party for one of the original parties

Requirements:
1) Previous valid obligation
2) Agreement by all parties to new contract
3) Extinguishing old obligation(discharge of prior party)
four) A new contract that is valid
Accord and Satisfaction pg 328
-settlement to discharge original contract
-must agree to accept performance that is different from performance originally promised
Accord pg 328
is a contract to perform some act to satisfy an existing contractual duty
-duty has not yet been discharged

*once accord has been made the obligor can discharge obligation by performing either the obligation agreed to in the accord or original obligation

*If obligor refuses to perform the accord--> obligee can bring action on the original obligation or seek a decree
Satisfaction
performance of the accord agreement
Accord and Satisfaction discharge
original contract obligation
Obligor/Obligee
obligor(owing obligation)
obligee (one whom performance is owed)
Contractual duties may be discharged by law: pg 329
1) Alteration of contract
--> law allows innocent party to be discharged when other party has materially altered a written contract WITHOUT CONSENT
ex. price changing without knowledge or consent of all parties -> party not involved in alteration can treat contract as terminated

2) Statutes of Limitations(see definition)
-->restrict period during which party can sue on a particular cause of action..after period has passed a suit cannot be brought
**AUTOMATICALLY DISCHARGES

3) Bankruptcy
--> allocate assets a debtor owns creditor in fair and equitable fashion-->assets allocated-->debtor receives a discharge in bankruptcy(see def)

four) Impossibility or Impracticability of Performance:
-->after contract is made performance is impossible (see def.)
Oral/Written/Recovery..Statues of Limitations...Limitation Periods
Oral contracts-> 2-3 years
Written Contracts -> four to five years
Recovery amounts (awarded in judgements)-> 10 - 20 years
Suits for breach of a contract for sale of goods: four years after cause of action

*PARTIES CAN REDUCE FOUR YEAR PERIOD TO LESS THAN ONE YEAR BUT CAN ALSO AGREE TO EXTEND IT
Discharge in bankruptcy
bar creditors from enforcing most of their contracts with debtor-> partial payment of a debt after discharge in bankruptcy will not revive debt
Objective impossibility vs. subjective
objective = "It cant be done"

Subjective "I'm sorry i simply can't do it" -> ex. goods cannot be delivered on time because of freight car shortages and payment cannot be made on time because bank is closed
Subjective impossibility
see objective impossibility*

-excuses do not discharge contract
-nonperforming party is held in breach of contract
Objective Impossibility of Performance Doctrine
a party to a contract is relieved of his duty to perform when performance becomes objectively impossible or totally impracticable (through no fault of either party)

Qualifications for discharge of obligation:
1) One of parties dies or becomes incapacitated prior to performance
2) Specific subject matter of contract is destroyed
3) Law change -> renders performance illegal
Temporary Impossibility
-occurrence or event that makes performance temporarily impossible
-performance is suspended until impossibility ceases --> must preform as originally planned
**if LAPSE of time/ change in circumstances surrounding contract make it more burdensome to preform -> contract destroyed

ex. hurricane katrina -> causes temporarily impossibility -> still must pay for necessary repairs as written pg. 330
Commercial Impracticability Doctrine pg 330
-courts may excuse parties from obligations when performances becomes much more difficult or expensive than planned at time contract was formed
-not known or foreseeable

-to invoke this doctrine successfully: anticipated performance must become EXTREMELY difficult or costly
-burden of performing must be extreme and unforeseeable when contract was made
Frustration of Purpose
supervening circumstances make it impossible to attain the purpose both parties had in mind
Damages compensate
for the nonbreaching party for loss of bargain
-innocent parties must be placed in position they would have occupied had contract been fully performed
Compensatory Damages
-covers direct losses and costs
-nonbreaching party-> loss of bargain
-compensate injured party for damages proved directly from loss of bargain caused by breach
-replace what was lost
-standard measure: difference between value of the breaching party's promised performance and value of actual performance
-amount is reduced by any loss the injured party has avoided
US vs German law -> impossibility
US: remedy to rescind contract if it is impossible or impracticable to preform

German: court may adjust the terms of (reform) a contract in light of economic developments
->if unforeseen events affects foundation of agreement court can alter contract terms in view of disruption in expectations --> makes the contract fair to the parties
Compensatory Damages: Sale of goods
-amount of compensation is: equal to difference between contract price and market price at time and place which goods were to be delivered or tendered

**EXCEPT: When buyer breaches and seller has not yet produced goods, compensatory damages equal lost profits on sale (instead of contract and market price difference)
Compensatory Damages: Sale of land
-seller's breach of contract for a sale of real estate remedy is: SPECIFIC PERFORMANCE
-buyer is awarded the parcel of property for which they bargained for
-if remedy is unavailable-> measure of damages is:
difference between contract price and market price of land
Consequential Damages/special damages
-indirect and foreseeable losses
-compensate for a loss that does not directly or immediately result from a breach
-for plaintiff to collect: must have been reasonably foreseeable at time breach/injury occured
-flow from consequences or results of a breach
-breaching party must know ( or have reason to know) special circumstances will cause the nonbreaching party to suffer an additional loss
-a seller who does not wish to take on risk of consequential damages can limit buyer's remedies via contract

ex. seller fails to deliever goods, knowing buyer is planning to sell goods immediately-> consequential damages awarded for profits from planned resale
Punitive damages
-punish and deter wrong doing
-not awarded for breach of contract
-no legit. place in contract law -> penalities
-breach of contract is not unlawful in a CRIMINAL sense
-punitive damages CAN result when person's actions cause both a breach of contract and atort
Nominal Damages
-recognize wrongdoing with no monetary loss
-no actual damage/financial loss results from breach of contract only a technical injury is involved
-may award to innocent party
-awards are small
-defendant acted wrongfully
Mitigation of Damages
-when breach of contract occurs innocent injured party is held to a duty to reduce the damages they suffer
-duty owed depends on nature of contract
-a rule requiring a plaintiff to do whatever is reasonable to minimize damages caused by defendant

ex. Tenant fails to pay rent -> landlord finds new tenant -> former tenant is liable for difference between amount of rent in original lease and rent recieved from tenant (three thirty four)

ex. terminated employees have duty to take similar jobs if available -> failure to do so -> damages will be equivalent to their salaries less the incomes they would have received in similar jobs obtained by reasonable means
Liquidated Damages
-"fixed"/determined/settled, certain dollar amount...stipulated in contract
-agreed by both parties
-paid in event of breach
-must be reasonable estimate of damages that would result from a breach
-normally enforceable
-usually in construction contracts
Penalty
certain amount to be paid in event of default or breach
-penalize breaching party
-generally not enforceableEquitable remedies
-if amount is not reasonable the court will not enforce it but will limit recovery to ACTUAL damages
Restitution
-restored original position prior to loss or injury
-returning goods, property or funds
-if can be returned...then must be returned!
-if goods/property have been consumed then restitution is made in dollar amount
-recapture of a benefit conferred on the defendant that unjustly enriched them
Restitution Advantages:
1) Restitution is available in situations when damages cant be proved/difficult to prove
2) Restitution can be used to recover specific property
3) Results in greatest overall reward
Restitution is not limited to recession cases->
-restitution may be required when contract is rescinded but the right to restitution is not limited to rescission cases
-sought in actions for: breach of contract, tort actions, or at law or in equity
-can usually be obtained when funds or property have been transferred by mistake or fraud
Specific Performance
-equitable remedy
-requires performance that was specified in contract
-granted only when money damages would be an INADEQUATE remedy--> real property, sale of goods pg 336
Specific Performance + Non breaching parties:
attractive to nonbreaching parties:

1) NB party doesn't have to worry about collecting monetary damages awarded by court
2) NB Party doesnt spend time seeking alternative contract
3) Performance is more valuable than monetary damages
Unilateral rescission
one party wants to undo contract -> unilateral rescission is a remedy for breach of contract
mutual rescission
both parties agree to undo contract ->discharges contract
Specific Performance: Sale of Land
-SP is granted to a buyer in a contract for sale of land
-every parcel of land is unique ->monetary damages don't suffice!
-only when SP is unavailable money will be awarded instead
Special Performance: Contracts for Personal Services
-courts refuse SP because forcing someone to perform personal services against their will -> involuntary servitude
-courts don't want to monitor contracts
Reformation
-equitable remedy
-both parties have imperfectly expressed agreement in writing
-courts can rewrite to reflect party's true intentions
-evidence is strong that deed did not reflect agreement btwn parties due to mutual mistake -> deed reformed
-court ordered usually for fraud or mutual mistake
OR
1) When 2 parties have made binding oral contract in writing but make error in terms -->correct and reform the written contract
2) Parties have executed written covenant not to compete -> unreasonable time or area courts will make them reasonable
Quasi Contract
fictional contract imposed on parties by a court in fairness and justice
-imposed to avoid unjust enrichment of one party at expense of anohter
-courts act as if contract exists when there is no actual agreement
Quasi Contractual recovery is often granted
when one party has partially performed under a contract that is unenforceable
-alternative to suing for damages
-allows party to recover the reasonable value of partial performance
Quasi Contract Qualifications
Party seeking recovery must show:
1) Party conferred a benefit on the other party
2) Party conferred the benefit w/reasonable expectation of being paid
3) Party seeking recovery did not volunteer
four) Party receiving benefit would be unjustly enriched by retaining the benefit without paying it
Election of Remedies
-nonbreaching party has several remedies available
-common law requires party to chose which remedy to pursue
-purpose: To prevent double recovery
Remedies under UCC
-cumulative
-include all remedies for breach of sales or lease contract