Performing and Enforcing a Contract

1. Performing and Enforcing a Contract OBE 118, Section 10 Fall 2004 Professor McKinsey

2. A Valid Enforceable Contract Mutual Agreement Consideration Capacity Legality Genuineness of Assent Writing

3. Good Party B Party A $$$ Rights and Duties For every promise there is a corresponding consideration/ obligation. This makes up an exchange that is a duty by the promisor and a right by the promisee (We also say “obligor” and “obligee”) Party A and Party B are in “privity of contract”

4. Third Parties - By assignment or delegation - As a third party beneficiary A party other than the promisor and the promisee can become involved as a “party” to a contract

5. Assignments of Rights - Assignee can enforce contract - The assignor loses the right - Some rights cannot be assigned 1) Statutory forbiddance A contract right can be assigned 2) Contract specifies no assignment 3) Personal contracts 4) If assignment would materially increase duty - Notice of the assignment 1) Ensures priority if multiple assignees 2) Ensures performance to assignee

6. Delegations of Duties - Usually original promisor (obligor) is still liable - New “obligee” can “assume the duty” and thus become liable to original promisee - Some duties cannot be delegated A contract duty can be delegated 1) Personal skill of obligor 2) Special trust in obligor 3) Will cause material change in performance 4) Contract expressly prohibits

7. Good Party B Party A $1000 An Example

8. Third Party Beneficiaries • A party for whose benefit the contract was made • Party has right and can sue to enforce • Make sure right has vested (notice or reliance) Intended Beneficiaries When is a beneficiary intended? • Was performance to be to the 3rd party directly? • Does 3rd party have right to control performance? • Was the designation as intended beneficiary expressly made?

9. Good Party B Party A $$$ Absolute Promise A simple promise in exchange for another promise, with no conditions or qualifications. Neither party is required to act first, but once a party tenders performance, the other party is then obligated to perform as well.

10. Conditioned Promises Condition Precedent A condition that must be met before performance is due Performance can be conditioned on some possible future event. Condition Subsequent A condition that ends the obligation to perform Concurrent Conditions When performance must occur simultaneously

11. A Valid Enforceable Contract Mutual Agreement Consideration Capacity Legality Genuineness of Assent Writing

12. Performance Each enforceable promise in a valid enforceable contract creates a duty that must be discharged by performance, breach, agreement, or law. Duty

13. Performance Each enforceable promise in a valid enforceable contract creates a duty that must be discharged by performance, breach, agreement, or law. Duty Two types of promises: Absolute Promises Conditioned Promises

14. Discharge by Performance • Sometimes contract requires . Checklist for Substantial Performance 1. Exact performance called for not a material term. is usually enough. 2. Performance close to complete. 3. Substantially the same benefits created.

15. Whose Satisfaction? • Performance of contracts dealing with mechanical fitness or utility must only be satisfactory to a reasonable person. Performance of personal contracts can be specified to be to the satisfaction of a party

16. Discharge by Breach Material breach occurs when performance is not substantial or when strict performance was called for and performance is not exact. A discharges the other party’s duty. • discharges the other party’s duty Party rejects, refuses, or denies performance and other party treats it as a breach.

17. Discharge by Agreement Mutual Rescission – Parties agree to void contract Novation - new party in a new contract, old party relieved of duty Parties can agree to discharge one or more duties. Compromise - settlement agreement over bona fide dispute Accord and Satisfaction –Duty to be satisfied once new agreement performed

18. Discharge by Operation of Law Statute of Limitations Bankruptcy Impossibility The law can also discharge a duty by:

19. Impossibility Death or disablement Objective impossibility may discharge a duty Destruction of Subject Matter Intervening Illegality

20. Breach of Contract • Material Breach • Anticipatory Repudiation • Other party can stop performance and seek remedies (Damages) • Minor Breach? (less than perfect performance?)

21. Contract Remedies • Damages for breach: • Compensatory – usually the expectation interest, the direct damages • Consequential – indirect damages that were foreseeable by breaching party • Incidental – small costs caused by the breach

22. Contract Remedies • Equitable Remedies • Reliance interest – through promissory estoppel, no contract required • Restitution- “make whole again”, where one party is would get a benefit they do not deserve. • Specific Performance – where $ will not do justice, real property or unique personal property • Injunction – Stop the party from doing something • Reformation – rewrite the contract • Rescission – undue or cancel the contract as if it never happened (usually includes restitution above)