Commercial Law (Mgmt 348)

1. Commercial Law(Mgmt 348) Professor Charles H. Smith Performance and Discharge (Chapter 17); Breach of Contract and Remedies (Chapter 18) Spring 2009

2. Introduction to Contract Performance • Every contract calls upon all parties to perform. • Performance may be achieved by way of payment of money, performance of services, delivery of goods, transfer of real estate, or even refraining from action.

3. Contract Discharge • Discharge results in party’s having no further obligation to perform under the contract. • Discharge may be achieved by • Full or substantial performance – see subsequent slide about material breach. • Expiration of statute of limitations. • Accord and satisfaction – same parties, but new contract replaces original contract. • Novation – same contract, but new party replaces original party.

4. Introduction to Breach of Contract Breach of contract is the cause of action (legal theory) used when plaintiff is alleging defendant has somehow not performed or has otherwise violated one or more terms of the contract.

5. Elements of Breach of Contract Cause of Action • Valid contract between plaintiff and defendant. • Defendant’s material breach of the contract. • This breach causes plaintiff to suffer damage. • Plaintiff’s performance or excuse for nonperformance. • Plaintiff must prove all or defendant will win without having to present defense. • Common abbreviation – Br/K.

6. Br/K Element – Valid Contract • Actually two aspects • Contract that can be enforced in court – offer, acceptance and consideration (see ppt’s for Chapters 11 and 12), plus defenses (see ppt’s for Chapters 13-15 and subsequent slide). • Defendant must have obligation according to the contract; common mistake is Br/K lawsuit vs. person who is employee or other agent of contracting party.

7. Br/K Element – Material Breach • Breach must be material – defendant’s performance is not full or at least substantial. • Full performance – when defendant performs as agreed. • Substantial performance – no full performance but defendant performs in good faith and performance confers same benefits intended by the contract. • Case study – Jacob & Youngs v. Kent (pages 339-41); Shah v. Cover-It, Inc. (pages 341-43); Case Problems 17-7 and 17-9 (page 351).

8. Br/K Element – Breach Causes Damage • Defendant’s breach must cause plaintiff to suffer damage, which is any financial loss due to the breach. • Breach without damage = no Br/K. • See subsequent slides about Br/K remedies (if damage is shown).

9. Br/K Element – Plaintiff’s Performance or Excuse • Plaintiff must have either performed as agreed or have an excuse for not performing as agreed. • Typical excuse for plaintiff’s nonperformance is defendant was supposed to perform first but failed to do so; not fair to require plaintiff to perform under these circumstances.

10. Br/K – Defenses • First line of defense – one or more elements missing. • Assignment – transfer of contract rights to 3rd party (usually OK). • Delegation – transfer of contract duties to 3rd party (usually not OK). • Mitigation of damages – plaintiff’s obligation to take reasonable steps to reduce damages; any mitigation that reasonably could or actually did happen will be deducted from total amount of damages; case study – Hanson v. Boeder (pages 357-59). • See other ppt’s for mutual assent, capacity, legality, statute of frauds and parol evidence rule.

11. Introduction to Contract Remedies Plaintiffs in Br/K cases usually request money judgment – called damages or remedy at law. However, equitable (non-monetary) judgment available in Br/K cases. Election of remedies – if more than one remedy available for Br/K, plaintiff must elect one to avoid double recovery.

12. Remedies at Law – Damages • Compensatory damages – mathematical calculation of value of contract if fully/substantially performed less value of defendant’s performance (if any). • Consequential damages – loss caused by breach in addition to compensatory damages; case study – Hadley v. Baxendale (pages 355-56). • Liquidated damages – amount of damages specified in contract. • Punitive damages – not available in Br/K cases; for intentional torts only.

13. Equitable Remedies • Specific performance – plaintiff seeks performance of contract as agreed; must involve unique subject matter; case study – Stainbrook v. Low (pages 360-61). • Reformation – written contract contains error; plaintiff seeks judgment changing contract to reflect parties’ agreement. • Rescission and restitution – termination of contract obligations coupled with return of any benefit conferred due to contract.