Chapter 20

Methods for Discharging a Contract

  1. Performance

    • Complete performance - party must completely perform as agreed and on time'

      • Being a little bit late can be a material breach

    • Substantial Performance - obligations can be discharged if a party makes a good faith effort to perform exactly as promised and provides the essential benefits of the promise

      • other party can compensate for reasonable costs to cure the defects

      • Being late can be a material breach

  2. Material Breach

    • when a party unjustifiably failed to substantially perform its terms

    • If it’s a minor breach, the non-breacher can sue for damages, and the obligated are not discharged

      • Anticipatory Repudiation - one part knoes that they will breach and lets the other party know.

        • Non-breacher can rescind and recover the value of consideration, sue, or wait for the time of performance and sue

  3. Agreements

    • Conditional contract - A contract that becomes enforceable only on the happening or termination of a specified condition.

      1. Condition precedent - In a contract, an event that must occur in order for a party’s duty to arise.

      2. Condition subsequent - In a contract, a future event that terminates the obligations of the parties when it occurs.

      3. Condition concurrent - In a contract, terms under which each party’s performance is conditioned on the performance of the other; occur only when the parties are required to perform for each other simultaneously.

Legal Principle: condition precedent exists when a condition must occur before a party’s duty to perform arises, whereas a condition subsequent exists when the occurrence of the condition extinguishes a party’s duty to perform

  • Mutual rescission - agreement to cancel the contract. Is it a separate contract, and must it have the element of a contract.

  • Novation - an agreement to substitute one party in a contract for another. The party, leaving the contractual agreement, is discharged

  • Accord and satisfaction - when parties agree to substitute a settlement contract for the original contract

  1. Operation of law

  • Bankruptcy - courts allocate the assets to creditors and issue the party a discharge in bankruptcy

  • Statute of limitations - court action must be issued within a certain time period, or else the right to bring action is waived

  • material alteration - party willfully changes a contract in a material way, then the other party can discharge.

  1. Changed circumstances

  • Impossibility - some events make the performance literally impossible, the promisor pays damages for failure to perform. ( death or incapacity, destruction of a unique object, and subsequent illegality)

Legal principle: a contract is objectively impossible, therefore parties are discharged from their obligations under it, if the subject matter os destroted, one of the parties whose personal service dies, or is incapacitated, or laws change, rendering performance of the contract illegal.


  • Frustration of purpose - when a performance is not impossible, but somehow the contract’s purpose has been destroyed

  • Commercial impracticability - when performance is more expensive than originally thought, and the financial hardships are extreme.


Remedies

Things to consider before filing suit

  1. Likelihood of success

  2. desire or need to maintain an ongoing relationship

  3. possibility of getting better or faster resolutions through some form of alternative dispute resolution (ADR)

  4. cost of litigation or some form of ADR as compared to the value of the likely remedy


Monetary/ money damages

  • Expectation remedy - innocent party gets the amount of money necessary to put them in a financial position they expected to be in if the contract had been performed

  • Compensatory damages - cover direct loss from the breach

  • Incidental damages - covers expenditures that were incidental to the contract

  • Consequential damages - cover more remote and unusual damages, and only those damages that could be reasonably foreseen

Legal principle: special damages will be awarded only when the special circumstances that give rise to the damages are known to both parties at the time the parties entered into the contract


Limitation on Monetary

  • duty to mitigate - non-breacher must try to lessen the other party’s damages

  • Nominal damages - awarded to a plaintiff in a very small amount, typically $1 to $5, to signify that the plaintiff has been wronged by the defendant even though the plaintiff suffered no compensable harm.

  • liquidates damaged - Damages specified as a term of the contract, before a breach of contract occurs.

  • Restitution - The return of any property given up under a contract.


Equitable Remedies

requires unique solutions specifically crafted to the demands of the situation

    5 requirements for equitable relief

  1. No adequate legal remedy available

  2. irreparable harm to the plantiff mt result of the equitable remedy is not granted

  3. The contract is legally valid

  4. The contract terms are clear an unamigoius

  5. The plaintiff has “clean hands”: has not been deceitful or done anything in breach of the contract


  • Specific performance - a court order to perform a specific act

    • ex) seller of land breaches contract and does not transfer the title

  • Injunction - a court order to tell someone to stop doing something

  • Reformation - the court will rewrite a contract and enforce the rewritten version,

    • This remedy is used when writing does not reflect the intent of the parties