Lecture Dynamic business law, the essentials (2/e) - Chapter 13: Discharge and remedies

Chapter 13: Discharge and remedies. After reading this chapter, you should be able to answer the following questions: What are the primary methods of discharging a contract? What are the primary legal remedies available for a breach of contract? What are the primary equitable remedies available for a breach of contract?

Chapter 13

Discharge and Remedies

Circumstances Resulting in

Discharge of Contract

• Performance

• Happening of condition or its failure to occur

• Material breach by one/both parties

• Mutual Agreement

• Operation of law

Types of Conditions

• Condition Precedent: Particular event that must

occur for a party’s duty to arise

• Condition Subsequent: Future event that

terminates obligations of parties when it occurs

• Concurrent Conditions: Each party’s performance conditioned on simultaneous performance of the

Types of Conditions (Continued)

• Express Condition: Condition explicitly state in

contract (usually preceded by words such as

“conditioned on”, “if”, “provided that”, or “when”)

• Implied Condition: Condition not explicitly stated,

but inferred from nature and language of contract

Definition: An offer of performance; making

an offer to perform and being ready, willing

and able to perform

Types of Performance

• Complete Performance: Occurs when all aspects of

parties’ duties under contract are carried out perfectly

• Substantial Performance: Occurs when:

-Completion of “nearly all” terms of agreement;

-Honest effort to complete all terms; and

-No “willful departure” from terms of agreement

Discharge By Material Breach

• Occurs when party unjustifiably fails to

substantially perform his/her contractual

obligations

• Discharges non-breaching party from his/her

contractual obligations

Anticipatory Repudiation

• Definition: Party decides, before the actual

time of performance, not to complete contract

obligations

• Often occurs when market conditions change

and one party realizes it will not be profitable

to fulfill terms of contract

Anticipatory Repudiation

(Continued)

• Can occur either through express indication of intent

not to perform, or action inconsistent with ability to

carry out contract obligations when performance due

• Once contract anticipatorily repudiated,

non-breaching party discharged from obligations under

contract, and can sue immediately for breach

Discharge By Mutual Agreement

• Mutual Rescission: Both parties agree to discharge each

other from their mutual obligations

• Substituted Contract: Parties agree to substitute new

contract in place of original contract

• Accord and Satisfaction: Used when one party wishes to

substitute a different performance for his/her original

contractual duty

-“Accord”: Promise to perform new duty

-“Satisfaction”: Actual performance of new duty

-Party’s duty under contract not discharged until new duty

performed

Discharge By Mutual Agreement

(Continued)

• Novation: Parties to contract wish to replace one of

the parties with a third party

• “Novation” is the substitution of a party

• Original duties remain same under contract, but

one party discharged, and third party takes original party’s place

Discharge By Operation of Law

• Alteration of Contract

• Bankruptcy

• Tolling of statute of limitations

• Impossibility of performance

• Commercial Impracticability

• Frustration of Purpose

Legal Remedies (Monetary Damages) For Breach

of Contract

• Compensatory Damages: Damages designed to put plaintiff in

position he would have been in had contract been fully performed

• Consequential (Special) Damages: Foreseeable damages that

result from special facts and circumstances arising outside contract

itself These damages must be within contemplation of parties at

time breach occurs

• Punitive Damages: Damages designed to punish defendant and

deter him and others from engaging in similar behavior in the future

Legal Remedies (Monetary Damages) For

Breach of Contract

• Nominal Damages: Award (typically for only $1 or $5) intended to signify that although no actual damages

resulted from defendant’s breach of contract, plaintiff wronged by defendant

• Liquidated Damages: Damages for breach of contract specified in the contract itself (either as fixed amount,

or as formula for determining money due)

Duty to Mitigate Damages

Definition: Obligation on non-breaching party

(plaintiff) to use reasonable efforts to minimize

damage resulting from defendant’s breach of

contract

Equitable Remedies For Breach of

Contract

• Rescission: Termination of contract

• Restitution: Return of any property transferred under

contract

• Specific Performance (Specific Enforcement): Order

requiring breaching party to fulfill obligations under

contract Usually awarded only when monetary

damages inadequate, and subject matter of contract

unique (Example: Contract for sale of real estate)

Equitable Remedies For Breach of

Contract (Continued)

• Injunction: Order forcing person to do something, or

prohibiting person from doing something (usually a

prohibition against certain actions)

• Reformation: Contract rewritten to reflect parties’

actual agreement

Elements Necessary to Recognize

Quasi-Contractual Recovery

• Plaintiff conferred benefit on defendant

• Plaintiff reasonably expected to be compensated

for benefit conferred on defendant

• Defendant would be “unjustly enriched” from

receiving benefit without compensating plaintiff