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ESSENTIALS OF THE LEGAL ENVIRONMENT TODAY, 5E ROGER LEROY MILLER © 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Elet5e ch13

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Page 1: Elet5e ch13

ESSENTIALS OF THE LEGAL ENVIRONMENT TODAY, 5E

ROGER LEROY MILLER

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 2: Elet5e ch13

CHAPTER 13

CONTRACT PERFORMANCE, BREACH, AND REMEDIES

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 3: Elet5e ch13

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?

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 4: Elet5e ch13

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?

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 5: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 6: Elet5e ch13

EXHIBIT 13.1

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 7: Elet5e ch13

VOLUNTARY CONSENT

• Fraudulent Misrepresentation• Consists of the following elements:

1. Misrepresentation of a material fact must occur

2. There must be an intent to deceive3. Innocent party must justifiably rely on the

misrepresentation4. To collect damages, a party must have been

harmed as a result of the misrepresentation.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Page 8: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 9: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 10: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 11: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 12: Elet5e ch13

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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Page 13: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Page 14: Elet5e ch13

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© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Page 15: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 16: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 17: Elet5e ch13

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 destroyed3. When a change in law renders performance illegal

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 18: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 19: Elet5e ch13

EXHIBIT 13.2

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 20: Elet5e ch13

DAMAGES• Types of Damages

1. Compensatory2. Consequential3. Punitive4. Nominal• Compensatory damages• Standard measure – difference between value of

breaching party’s promised and actual performance• Sale of goods• Sale of land• Construction contracts

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Page 21: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 22: Elet5e ch13

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.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 23: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 24: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Page 25: Elet5e ch13

EQUITABLE REMEDIES

• Specific Performance• Performance of the act promised in the

contract• Sale of land• Contracts for personal services

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 26: Elet5e ch13

EQUITABLE REMEDIES

• Reformation• Used when parties have imperfectly

expressed their agreement in writing. • Court can rewrite the contract to reflect

the parties’ true intentions.

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 27: Elet5e ch13

EXHIBIT 13.3

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Page 28: Elet5e ch13

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

© 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.