CONTRACT PERFORMANCE & BREACH Flashcards
What allows “Discharging Contractual Obligations”
hint 6
Obligations may be “discharged” by:
1 Complete or Substantial Performance
2 Tender (unconditional offer to perform by someone ready, willing and able)
3 Operation of law (e.g., statute of limitations, bankruptcy, etc.)
4 Non-Occurrence of Conditions to performance
5 Conditions precedent: “I’ll mow your lawn, provided you first pick up your dog’s business.”
6 Conditions subsequent: “I’ll buy the house, provided it appraises out”
Types of Performance are what
Complete performance – performance exactly as agreed.
Substantial performance –a party in good faith performs most of the terms (Example: Reading Pipe Case)
•Most benefits conferred
•Performance done in good faith, without intentional failure to comply
•The differences between substantial performance and complete performance are not “material” (important)
Note: Since the performance is not perfect, the other party is entitled to “damages” – either: (1) cost to bring into compliance, or (2) difference in value between contractual expectations and actual performance.
Force Majeure Clauses = ?
What is needed for an effective FM clause?
Force Majeure Clauses:
FM Clauses functions as an express allocation of risk tool. Critical in Covid-19 era. Use to excuse delay or non-performance due to major events.
Make sure the clause:
(1) defines the type of breach that would be excused – one party or both? Default, delay, failure of condition? Sometimes people carve-out, as not subject to FM, one party’s failure to pay money due (rent).
(2) defines the FM event - Clauses strictly construed, so use specific language: “pandemic,” “natural disaster,” “government restrictions” or maybe “Act of God” or “other events outside of the parties’ control” but not just “casualty” (implying property damage)
(3) requires and defines causation between event and breach: “caused by,” ”due to” or ”as a result of” but be careful about using “solely caused by” because it will be hard to satisfy.
(4) explains what happens if performance is excused: must deposits be refunded?
Note: when big changes in the business occur due to covid, covenants in M&A or P&S agreements to operate a business in the “Ordinary Course” until to closing may be violated, and buyer may be excused from purchasing.
Common law defenses to performance (Impossibility, Frustration of Purpose) may be undermined by existence of FM clause since it shows that parties foresaw the possibilities and expressly allocated the risk of their occurrence.
Anticipatory Repudiation = ?
Party may repudiate by ?
How can Repudiation be retracted?
Slide Def: Refuses to carry out obligations before they are due.
Lecture Def: Some who knows they will not perform when due- the party is in material breach
A party may repudiate by:
* Stating that he will breach the contract * Engaging in a voluntary affirmative act that renders him unable to perform the duty * Not providing assurance of due performance upon request when there exists reasonable grounds to believe that the obligor will not perform. * Generally treated as material breach – allows the non-breacher to sue immediately, even if performance is not yet due. * Repudiation can be retracted until the nonbreacher treats it as a “material breach”
Time of Performance
What to look out for?
What is a key phrase here?
Look at the terms of the contract
If no time stated, then performance is due within a “reasonable item”
Usually, a delay will not constitute material breach
But if contract says “time is of the essence,” (KEY PHRASE) then timing is a condition, and the failure to timely perform excuses the other party’s performance.
Remedies for Breach are what?
Hint 6
Remedies can be legal or equitable & may include:
1 Damages
2 Compensatory, incidental, consequential, punitive, nominal
3 Rescission (un-do agreement)
4 Restitution (pay for benefits taken)
5 Specific Performance (get what you asked for)
6 Reformation (court changes names/terms)
Compensatory Damages = ? = aka = ?
What must be actually sustained and proven with certainty?
What else must be added??
Are Designed to compensate nonbreaching party for benefit of what he would have received if the K had not been breached, minus any amount he would have spent in performance of the contract.
In contract cases, compensatory damages are also known as “expectation damages” = Difference between value of what you bargained-for and value of what you received, minus the loss you avoided.
Must be actually sustained and proven with certainty:
Look at contract price
Calculate Loss in Value
Calculate Lost profits
Note: Must also add in incidental damages, such as the costs incurred looking for the replacement.
Consequential Damages = ?
Are damages flowing from a party’s breach arising from unique circumstances of non-breaching party.
Ex: A agrees to supply B with coal, so that B can sell power to C. Without the coal from A, B loses the ability to sell power to C for profit, and B may end up breaching his contract with C.
To recover, must be (1) foreseeable and (2) reasonably certain. A must know of B’s situation.
**These may be expressly limited in contract.
For instance, failure to pay may cause breach of subsequent contract…
Incidental Damages = ?
Costs associated with the breach (e.g., finding a replacement, transportation of rejected goods)
Reliance Damages = ?
Reliance damages compensate injured party for losses resulting from reasonable reliance on a promise, which is usually not enforceable.
Ex: Blackmon claimed that he moved to Philly to help Iverson market “The Answer.” Reliance damages would be the costs of moving to Philly.
Usually only awarded when expectation damages cannot be proven or aren’t available.
Can’t exceed expectation damages.
Punitive Damages = ?
Generally not recoverable in contract cases, even for an intentional breach.
Contract damages are all about compensation, not punishment.
Obligation to Mitigate Damages = ?
How is it calculated?
- In most cases, the common law imposes a duty to use reasonable means to try to mitigate your damages.
- E.g., landlord must try to find new tenant
- E.g., wrongly terminated employee must try to find new job, but only needs to take it if its similar
This reduces the amount of losses that the nonbreaching party sustains, and thus the amount that the breaching party owes in compensation.
• Remember: Calculated by
Difference between value of what you bargained-for and value of what you received, minus the loss you avoided
***Think about getting widgets at a different price from the original K and Defendant having to pay the difference if widget is more
Liquidated Damages (= ?) vs. Penalties
How is LD enforceable?
A liquidated damages provision in a K that specifies the amount that must be paid in the event a future breach occurs.
E.g., “if you don’t move out of the studio when we agreed, you must pay me $250 per day.”
LD provisions cannot be a “penalty” to punish a person in the event of a breach. (e.g., “if you don’t move out of the studio by 5pm, you owe me $100K”)
***Thus, for an LD clause to be enforceable:
Must have been difficult at the time of contract to estimate the losses that would occur in the event of breach.
Must be reasonable estimate of actual damages, not excessive.
Specific Performance = ?
Where is it out of scope?
- An equitable remedy that requires a party to perform the act they promised (instead of just paying damages).
- Usually only awarded in cases where monetary damages are insufficient or there is something particularly unique about the item contracted.
- Real Estate is the classic example:
- Specific performance is usually NOT granted in suits for breach of a personal services contract.
- Court doesn’t want to FORCE someone to perform services, because they may the do it poorly and it seems like involuntary servitude.
But, a court may sometimes order an “Injunction” to prevent a person who has agreed not to compete from taking another job with a competitor.
