BSN 107

1. ESSENTIALS OF THE LEGAL
ENVIRONMENT TODAY, 5E
ROGER LEROY MILLER
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2. CHAPTER 13
CONTRACT PERFORMANCE,
BREACH, AND REMEDIES
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3. LEARNING OBJECTIVES
1. What are the elements of fraudulent
misrepresentation?
2. What is substantial performance?
3. When is a breach considered
material, and what effect does that
have on the other party’s duty to
perform a contract?
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4. LEARNING OBJECTIVES (CONT’D)
4. What is the standard measure of
compensatory damages when a
contract is breached?
5. What equitable remedies can a
court grant, and in what
circumstances will a court consider
granting them?
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5. VOLUNTARY CONSENT
• Mistakes
• Unilateral mistakes of fact
• Made by only one party
• Two exceptions
• Bilateral (mutual) mistakes of fact
• Mutual misunderstanding
• Mistakes of value
• Concerns the future market value or quality of the object
of the contract
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6. EXHIBIT 13.1
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7. VOLUNTARY CONSENT
• Fraudulent Misrepresentation
• Consists of the following elements:
1. Misrepresentation of a material fact must
occur
2. There must be an intent to deceive
3. Innocent party must justifiably rely on the
misrepresentation
4. To collect damages, a party must have been
harmed as a result of the misrepresentation.
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8. VOLUNTARY CONSENT
• Undue Influence
• A stronger party overcomes a weaker
party’s free will by exerting psychological
influence.
• Duress
• Agreement is not voluntary if one party was
forced into it.
• Can serve as basis for rescission of contract
• Economic need, by itself, is not duress
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9. THIRD PARTY RIGHTS
• Assignments
• Used in many types of business financing
• All rights can be assigned, except:
• The assignment is prohibited by statute
• The contract is personal
• The assignment significantly changes the risk or duties of
the obligor
• The contract prohibits assignment
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10. THIRD PARTY RIGHTS
• Delegations
• Transfer duties by delegation
• Delegation is prohibited when:
• Special trust has been placed in the obligor
• Performance depends on the personal skill or talents of
the obligor
• Performance by a third party will vary materially from that
expected by the obligee
• The contract expressly prohibits delegation by including
an antidelegation clause
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11. THIRD PARTY RIGHTS
• Third Party Beneficiaries
• Exception to the doctrine of privity of
contract arises when the contract is
intended to benefit a third party
• Third party beneficiary: one for whose
benefit a promise is made in a contract but
who is not a party to the contract
• Intended beneficiary: a third party for
whose benefit a contract is formed
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12. PERFORMANCE AND DISCHARGE
• Discharge is the termination of the
obligation.
• Performance is the fulfillment of one’s
duties arising in a contract.
• Conditions of Performance
• Qualification in a contract based on a
possible future event
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13. PERFORMANCE AND DISCHARGE
• Discharge by Performance
• Both parties fulfill their duties by performing
the acts they promised
• Complete performance
• Party performs exactly as agreed
• Substantial performance
• Party performs substantially all of the terms of a contract
• Requirements
• Performed in good faith
• Performance must not vary greatly
• Performance must create
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14. PERFORMANCE AND DISCHARGE
• Performance to the satisfaction of another
• Performance is conditioned on reasonable satisfaction.
• Material breach of contract
• Failure, without legal excuse, of a promisor to perform
the obligations of a contract
• Innocent party is excused from performance and has
the right to sue for damages.
• Material versus minor breach
• A minor breach may be cured.
• Discharges nonbreaching party from further
performance
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15. PERFORMANCE AND DISCHARGE
• Anticipatory repudiation
• Before either party has a duty to perform, one of the
parties may refuse to carry out his or her contractual
obligations
• Time for performance
• If no time for performance is stated in the contract, a
reasonable time is implied
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16. PERFORMANCE AND DISCHARGE
• Discharge by Agreement
• Discharge by mutual rescission
• Parties must make another agreement.
• Discharge by novation
• New contract with substitution of a third party for one of
the original parties.
• Discharge by settlement agreement
• Compromise that results from dispute
• Discharge by accord and satisfaction
• Settlement to discharge original contract.
• Covenant not to sue
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17. PERFORMANCE AND DISCHARGE
• Discharge by Operation of Law
• Material alteration of the contract
• Statutes of limitations
• Bankruptcy
• Impossibility of performance
1. When one of the parties dies or becomes
incapacitated prior to performance
2. When the specific subject matter is destroyed
3. When a change in law renders performance illegal
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18. PERFORMANCE AND DISCHARGE
• Commercial impracticability
• When it becomes much more difficult or expensive then
originally contemplated at time contract was formed
• Frustration of purpose
• If supervening circumstances make it impossible to attain
the purpose both parties had in mind when they made
the contract
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19. EXHIBIT 13.2
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20. DAMAGES
• Types of Damages
1. Compensatory
2. Consequential
3. Punitive
4. Nominal
• Compensatory damages
• Standard measure – difference between value of
breaching party’s promised and actual performance
• Sale of goods
• Sale of land
• Construction contracts
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21. DAMAGES
• Consequential damages
• Special damages to compensate for a loss that does not
directly or immediately result from breach
• Punitive damages
• Punish and deter wrongdoing
• Nominal damages
• Recognize wrongdoing with no monetary loss
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22. DAMAGES
• Mitigation of Damages
• Injured party has a legal duty to mitigate
(reduce) her damages.
• Terminated employee has duty to take a
similar job, if one is available.
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23. DAMAGES
• Liquidated Damages versus Penalties
• Liquidated damages
• Fixed, certain dollar amount agreed to by parties, paid in
the event of breach.
• Clauses for liquidated damages are enforceable.
• Penalty
• Designed to penalize a party.
• Generally not enforceable.
• Waiver of Breach
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24. EQUITABLE REMEDIES
• Equitable remedies include rescission
and restitution, specific performance,
and reformation.
• Rescission and Restitution
• Rescission – undo or terminate a contract
• Restitution – return of goods, property, or
funds
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25. EQUITABLE REMEDIES
• Specific Performance
• Performance of the act promised in the
contract
• Sale of land
• Contracts for personal services
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26. EQUITABLE REMEDIES
• Reformation
• Used when parties have imperfectly
expressed their agreement in writing.
• Court can rewrite the contract to reflect
the parties’ true intentions.
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27. EXHIBIT 13.3
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28. CONTRACT PROVISIONS
LIMITING REMEDIES
• Contract may contain a clause stating.
• (1) No damages
• (2) Limited damages
• (3) product replacement, or:
• Exculpatory clauses
• Limitation-of-liability clauses
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