Discharge and Remedies

Chapter 20Discharge and RemediesCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.20-2Circumstances Resulting in Discharge of ContractOccurrence or non-occurrence of a conditionComplete or substantial performanceMaterial breach: Occurs when party unjustifiably fails to substantially perform his obligations under contractMutual AgreementOperation of law20-3Types of ConditionsCondition Precedent: Particular event that must occur for a party’s duty to ariseCondition Subsequent: Future event that terminates obligations of parties when it occursConcurrent Conditions: Each party’s performance conditioned on simultaneous performance of the other 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 contract20-4Types of PerformanceComplete Performance: Occurs when all aspects of parties’ duties under contract are carried out perfectlySubstantial Performance: Occurs when:Completion of “nearly all” terms of agreement;Honest effort to complete all terms; andNo “willful departure” from terms of agreement20-5Anticipatory RepudiationDefinition: Party decides, before the actual time of performance, not to complete contract obligationsOften occurs when market conditions change and one party realizes it will not be profitable to fulfill terms of contractCan occur either through express indication of intent, or action inconsistent with intent to fulfill contract when performance dueOnce contract anticipatorily repudiated, non-breaching party discharged from obligations under contract, and can sue immediately for breach20-6Discharge By Mutual AgreementMutual Rescission: Both parties agree to discharge each other from their mutual obligationsSubstituted Contract: Parties agree to substitute new contract in place of original contractAccord and Satisfaction: Used when one party wishes to substitute a different performance for his original contractual duty“Accord”: Promise to perform new duty“Satisfaction”: Actual performance of new dutyParty’s duty under contract not discharged until new duty performedNovation: Parties to contract wish to replace one of the parties with a third party“Novation” is the substitution of a partyOriginal duties remain same under contract, but one party discharged, and third party takes original party’s placeAll three parties must agree to the novation for it to be valid20-7Discharge By Operation of LawAlteration of ContractBankruptcyTolling of Statute of LimitationsImpossibility of PerformanceCommercial ImpracticabilityFrustration of Purpose20-8Exhibit 20-4: Things To Consider Before Filing Suit:Likelihood of successDesire/need to maintain ongoing relationship with potential defendantPossibility of getting better/faster resolution through alternative dispute resolution (ADR)Cost of litigation/ADR compared to value of likely remedy20-9Legal Remedies (Monetary Damages) For Breach of ContractCompensatory Damages: Damages designed to put plaintiff in position he would have been in had contract been fully performedConsequential (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 occursPunitive Damages: Damages designed to punish defendant and deter him and others from engaging in similar behavior in the futurePrimary factor in determining amount of punitive damages is amount necessary to “punish” defendantAmount of punitive damages depends on factors such as wealth and income of defendant 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 defendantLiquidated 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 contract20-1020-11Equitable Remedies (Court-Ordered Action) For Breach of ContractRescission: Termination of contractRestitution: Return of any property transferred under contractSpecific 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) 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 agreementQuasi-Contract: “Contract-like” obligation imposed on party to prevent “unjust enrichment”20-12Elements Necessary to Recognize Quasi-Contractual RecoveryPlaintiff conferred benefit on defendantPlaintiff reasonably expected to be compensated for benefit conferred on defendantDefendant would be “unjustly enriched” from receiving benefit without compensating plaintiff