chapter 15 contractual discharge and remedies

CHAPTER 15CHAPTER 15CONTRACTUAL DISCHARGE CONTRACTUAL DISCHARGE

AND REMEDIESAND REMEDIES

DAVIDSON, KNOWLES & FORSYTHE DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles Business Law: Cases and Principles

in the Legal Environmentin the Legal Environment (8 (8thth Ed.) Ed.)

2© 2004 West Legal Studies in Business© 2004 West Legal Studies in BusinessA Division of Thomson LearningA Division of Thomson Learning

BUSINESS LAW: BUSINESS LAW: Cases & PrinciplesCases & PrinciplesDavidson Davidson • Knowles • Forsythe 8• Knowles • Forsythe 8 thth Ed. Ed.

TERMINATION OF THE TERMINATION OF THE CONTRACTCONTRACT

Contracts can be terminated (discharged) in Contracts can be terminated (discharged) in four ways:four ways:– By Performance.By Performance.– By Agreement of the Parties.By Agreement of the Parties.– By Operation of Law.By Operation of Law.– By Nonperformance.By Nonperformance.



DISCHARGE BY DISCHARGE BY PERFORMANCEPERFORMANCE

Complete Performance.Complete Performance.– Exact fulfillment of the terms of the contract. Exact fulfillment of the terms of the contract.

Substantial Performance.Substantial Performance.– Minor deviations from contract specifications.Minor deviations from contract specifications.– Two criteria must be met:Two criteria must be met:

1) Breach must not have been material.1) Breach must not have been material. 2) Breach must be non-willful and devoid of bad 2) Breach must be non-willful and devoid of bad

faith conduct. faith conduct.



DISCHARGE BY AGREEMENT DISCHARGE BY AGREEMENT

OF THE PARTIESOF THE PARTIESRelease.Release.Rescission.Rescission.Accord and Satisfaction.Accord and Satisfaction.Novation.Novation.


BUSINESS LAW: BUSINESS LAW: Cases & PrinciplesCases & PrinciplesDavidson Davidson • Knowles • Forsythe 8• Knowles • Forsythe 8 thth Ed. Ed. DISCHARGE BY DISCHARGE BY

AGREEMENT AGREEMENT OF THE PARTIESOF THE PARTIESRelease.Release.

– Discharging the legal rights one party has against another.Discharging the legal rights one party has against another.– To be valid, should be in writing, supported by To be valid, should be in writing, supported by

consideration, and should effect immediate consideration, and should effect immediate relinquishment of rights or claims.relinquishment of rights or claims.

Rescission.Rescission.– Voluntary, mutual surrender and discharge of contractual Voluntary, mutual surrender and discharge of contractual

rights and duties whereby parties are returned to the rights and duties whereby parties are returned to the original status quo.original status quo.



Accord and Satisfaction.Accord and Satisfaction.– Agreement to accept performance different from that Agreement to accept performance different from that

required in original bargain. required in original bargain. – When parties comply with the accord, satisfaction has When parties comply with the accord, satisfaction has

occurred.occurred. Novation.Novation.

– Creates a new contractual duty and involves substitution Creates a new contractual duty and involves substitution of a party who was neither owed a duty nor obligated to of a party who was neither owed a duty nor obligated to perform in the original bargain.perform in the original bargain.

DISCHARGE BY DISCHARGE BY AGREEMENT AGREEMENT

OF THE PARTIESOF THE PARTIES



DISCHARGE BY DISCHARGE BY OPERATION OF LAWOPERATION OF LAW

Bankruptcy automatically discharges the Bankruptcy automatically discharges the party’s contractual obligations.party’s contractual obligations.

Statutes of Limitations sets limits on the Statutes of Limitations sets limits on the length of time a contracting party may wait length of time a contracting party may wait to bring suit.to bring suit.

Any contract materially altered by one party Any contract materially altered by one party without the consent of the other will also be without the consent of the other will also be discharged.discharged.



DISCHARGE BY DISCHARGE BY NONPERFORMANCENONPERFORMANCE

Impossibility.Impossibility.Commercial Frustration.Commercial Frustration.Actual Breach.Actual Breach.Anticipatory Breach.Anticipatory Breach.Conditions.Conditions.




Impossibility.Impossibility.– An unforeseen event or condition which An unforeseen event or condition which

precludes performance.precludes performance.– Conduct by one party which makes Conduct by one party which makes

performance by the other party impossible is performance by the other party impossible is objective impossibility. objective impossibility.

– Subjective impossibility consists of Subjective impossibility consists of nonperformance owing to personal nonperformance owing to personal impossibility. impossibility.




Commercial Frustration.Commercial Frustration.– This doctrine excuses performance in cases This doctrine excuses performance in cases

where the essential purpose and value of the where the essential purpose and value of the contract have been frustrated.contract have been frustrated.

– If the event causing the frustration could have If the event causing the frustration could have been foreseen, no discharge allowed.been foreseen, no discharge allowed.

Actual Breach.Actual Breach.– Occurs when one or more of the contracting Occurs when one or more of the contracting

parties fails to perform the obligations set up by parties fails to perform the obligations set up by the contract. the contract.




Anticipatory Breach.Anticipatory Breach.– Involves giving advanced notice, through Involves giving advanced notice, through

words or conduct, that one does not intend to words or conduct, that one does not intend to fulfill a contract as written.fulfill a contract as written.

– Anticipatory repudiation, UCC sanctions a Anticipatory repudiation, UCC sanctions a demand that adequate assurances of due demand that adequate assurances of due performance. Allows one to suspend performance. Allows one to suspend performance for 30 days or until assurances are performance for 30 days or until assurances are put forth.put forth.




Conditions.Conditions.– Conditions may result in nonperformance Conditions may result in nonperformance

which justifies discharge. which justifies discharge. Condition is act/event that limits or qualifies a Condition is act/event that limits or qualifies a

promise.promise.Condition must occur before promissor has a Condition must occur before promissor has a

duty to perform or refrain from performing.duty to perform or refrain from performing.




Courts classify conditions in two ways:Courts classify conditions in two ways:– Timing.Timing.

Conditions Precedent.Conditions Precedent. Concurrent Conditions.Concurrent Conditions. Conditions Subsequent.Conditions Subsequent.

– Stems from the manner in which the conditions Stems from the manner in which the conditions arise.arise.

Constructive (or implied) Conditions.Constructive (or implied) Conditions. Expressed Conditions.Expressed Conditions.



TYPES OF REMEDIESTYPES OF REMEDIESLegal Remedies (money damages): Legal Remedies (money damages):

damages resulting from a court’s exercise damages resulting from a court’s exercise of its power “at law.”of its power “at law.”– Compensatory Damages.Compensatory Damages.– Consequential Damages.Consequential Damages.– Punitive Damages.Punitive Damages.– Nominal Damages.Nominal Damages.– Liquidated Damages.Liquidated Damages.– Mitigation of Damages.Mitigation of Damages.



TYPES OF REMEDIESTYPES OF REMEDIESEquitable Remedies: remedies arising from Equitable Remedies: remedies arising from

a court’s use of its powers of equity.a court’s use of its powers of equity.– Rescission and Restitution.Rescission and Restitution.– Specific Performance.Specific Performance.– Quasi Contract.Quasi Contract.– Reformation.Reformation.– Injunction. Injunction.



DAMAGESDAMAGESMost common legal remedy sought by Most common legal remedy sought by

injured party.injured party.Courts ask, when computing damages Courts ask, when computing damages

whether breaching party, as a reasonable whether breaching party, as a reasonable person, should have foreseen the injuries person, should have foreseen the injuries that would result from breach.that would result from breach.



DAMAGESDAMAGESCompensatory Damages.Compensatory Damages.

– Sums of money which will place the injured Sums of money which will place the injured party in the same economic position that would party in the same economic position that would have been attained had the contract been have been attained had the contract been performed.performed.

Consequential Damages.Consequential Damages.– Indirect or special damages arising from the Indirect or special damages arising from the

effects of the breach itself.effects of the breach itself.



DAMAGESDAMAGESDuty to Mitigate.Duty to Mitigate.

– To measure damages the courts place on the To measure damages the courts place on the injured party the duty to mitigate (or minimize) injured party the duty to mitigate (or minimize) these damages.these damages.

Punitive Damages.Punitive Damages.– Imposed not to compensate the injured party Imposed not to compensate the injured party

but to punish the wrongdoer so as to deter but to punish the wrongdoer so as to deter future conduct.future conduct.



DAMAGESDAMAGESLiquidated Damages.Liquidated Damages.

– When parties agree in advance to a certain sum When parties agree in advance to a certain sum of money that will be paid to the injured party of money that will be paid to the injured party should breach of contract occur.should breach of contract occur.

Nominal Damages.Nominal Damages.– Small amount of compensation for the breach.Small amount of compensation for the breach.



EQUITABLE REMEDIESEQUITABLE REMEDIESPlaintiff’s eligibility to receive fairness Plaintiff’s eligibility to receive fairness

depends on the absence of bad faith on the depends on the absence of bad faith on the plaintiff’s part and similar factors. plaintiff’s part and similar factors.

Court’s power to award equitable remedies Court’s power to award equitable remedies is discretionary.is discretionary.



EQUITABLE REMEDIESEQUITABLE REMEDIESRescission and Restitution.Rescission and Restitution.

– Voluntary agreement to rescind, or set aside the Voluntary agreement to rescind, or set aside the contract before rendering performance.contract before rendering performance.

– Can result from a material breach in which case Can result from a material breach in which case a restoration of parties to the status quo is a restoration of parties to the status quo is sought.sought.

– Restitution, or the return of goods, money, or Restitution, or the return of goods, money, or property involved in the contract or recovery of property involved in the contract or recovery of a reasonable value of the services rendered is a reasonable value of the services rendered is equitable.equitable.



EQUITABLE REMEDIESEQUITABLE REMEDIESSpecific Performance.Specific Performance.

– When restitution is inadequate or unjust. When restitution is inadequate or unjust. – Court compels the breaching party to perform Court compels the breaching party to perform

according to the exact terms of the contract.according to the exact terms of the contract.Quasi Contract.Quasi Contract.

– Creation of contract for the parties to prevent Creation of contract for the parties to prevent the unjust enrichment of one party.the unjust enrichment of one party.

– One party knowingly has received a benefit to One party knowingly has received a benefit to which party is not entitled.which party is not entitled.



EQUITABLE REMEDIESEQUITABLE REMEDIESReformation.Reformation.

– Rewriting a contract in order to remove a Rewriting a contract in order to remove a mistake and to make the agreement conform to mistake and to make the agreement conform to the terms to which the parties originally agreed. the terms to which the parties originally agreed.

Injunction.Injunction.– A court order directing a person to do or refrain A court order directing a person to do or refrain

from doing some specified act.from doing some specified act.



LIMITATIONS OF REMEDIESLIMITATIONS OF REMEDIESContract language may actually limit Contract language may actually limit

remedy options available.remedy options available.Uniform Commercial Code impact remedy Uniform Commercial Code impact remedy

options in sale of goods.options in sale of goods.



WAIVER OF BREACHWAIVER OF BREACHContracting party may agree to accept less Contracting party may agree to accept less

than complete performance by waiving a than complete performance by waiving a breach of contract that is committed by breach of contract that is committed by another party.another party.

Waiver eliminates the breach.Waiver eliminates the breach.

chapter 15 contractual discharge and remedies

Documents