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Discharge by Operation of Law

Material alteration of the contract
Statutes of Limitations
Impossibility or impracticability

Alteration of the Contract

To discourage parties from altering written contracts, the law operates to allow an innocent party to be discharged when the other party has materially altered a written contract without consent

Statues of Limitations

Restricts the period during which a party can sue on a particular cause of action


Attempts to allocate the debtors assets to the creditors in a fair and equitable fashion

Discharge in Bankruptcy

Will bar enforcement of most of the debtor's contracts by the creditors

Impossibility or Impracticability of Performance

Impossibility of performance

Impossibility of Performance

After a contract has been made, supervening events may make performance impossible in an objective sense and can discharge a contract

Objective Impossibility of Performance

Objective impossibility
Subjective impossibility

Objective Impossibility

("It can't be done")

Subjective Impossibility

("I'm sorry, I simply can't do it")

Discharge of Contractual Obligations based on Impossibility of Performance

When one of the parties to a personal contract dies or becomes incapacitated prior to performance
When the specific subject matter of the contract is destroyed
When a change in law renders performance illegal

Temporary Impossibility

An occurrence or event that makes performance temporarily impossible operates to suspend performance until the impossibility ceases

Commercial Impracticability

When a supervening event does not render performance objectively impossible but does make it much more difficult or expensive to perform than the parties originally contemplated
The anticipated performance must become extremely difficult or costly
The added burden of performance not only must be extreme but also must not have been known by the parties when the contract was made

Frustration of Purpose

A contract will be discharged if supervening circumstances make it impossible to attain the purpose both parties had in mind when they made the contract
Involves an event that decreases the value of what a party receives under the contract


Is the relief provided for an innocent party when the other party has breached the contract

Remedies for Breach of Contract

Specific performance

Remedy at Law

Normally is monetary damages

Equitable Remedies

Include rescission and restitution, specific performance, and reformation


Compensate the nonbreaching party for the loss of the bargain

Categories of Damages

Compensatory (to cover direct losses and costs)
Consequential (to cover indirect and foreseeable losses)
Punitive (to punish and deter wrongdoing)
Nominal (to recognize wrongdoing when no monetary loss is shown)

Compensatory Damages

Damages that compensate the nonbreaching party for the loss of the bargin
Measure is the difference between the value of the breaching party's promised performance under the contract and the value of his or her actual performance

Incidental Damages

Expenses that are caused directly by a breach of contract

Sale of Goods

In a contract for the sale of goods, the usual measure of compensatory damages is an amount equal to the difference between the contract price and the market price

Sale of Land

Remedy for a seller's breach of a contract for a sale of real estate is specific performance

Construction Contracts: Owner Breaches

If the owner breaches before performance has begun, the contractor can recover only the profits that would have been made on the contract
If the owner breaches during performance, the contractor can recover the profits plus the costs incurred in partially constructing the building
If the owner breaches after the construction has been completed the contractor can recover the entire contract price, plus interest

Construction Contracts: Contractor Breaches

Breaches the contract either by failing to undertake construction or by stopping work partway through the project - the measure of damages is the cost of completion
If the contractor finishes late, the measure of damages is the loss of use

Consequential Damages

Foreseeable damages that result from a party's breach of contract

Punitive Damages

Are not recoverable and are designed to punish a wrongdoer and set an example to deter similar conduct in the future

Nominal Damages

When no actual damage or financial loss results from a breach of contract and only a technical injury is involved
Rewards are often small

Mitigation of Damages

When a breach of contract occurs, the innocent injured party is held to a duty to mitigate, or reduce, the damages that he or she suffers
The duty owed depends on the nature of the contract
A wrongfully terminated employee has a duty to take a similar job if one is available

Liquidated Damages Provision

Specifies that a certain dollar amount is to be paid in the event of a future default or breach of contract


Means determined, settled, or fixed
Are enforceable


Specifies a certain amount to be paid in the event of a default or breach of contract and is designed to penalize the breaching party
Are not enforceable

Determine Enforceability

When the contract was entered into, was it apparent that damages would be difficult to estimate in the event of a breach?
Was the amount set as damages a reasonable estimate and not excessive?
If yes - liquidated
If no - penalty

Equitable Remedies

Specific performance


Is essentially an action to undo, or terminate, a contract - to return the contracting parties to the positions they occupied prior to the transaction


Involves the plaintiff's recapture of a benefit conferred on the defendant that has unjustly enriched him or her

Specific Performance

Calls for the performance of the act promised in the contract


Is used when the parties have imperfectly expressed their agreement in writing

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