Business Law

1. Business Law Chapter 16 Contract Discharge and Remedies

2. Objectives Explain the difference between complete and substantial contractual performance Describe how parties can discharge their contract by agreement Identify different types of damages

3. Objectives Define the remedy of rescission and restitution Explain the remedy of specific performance

4. Contract Discharge Discharge � termination of one�s obligation Performance � the fulfillment of one�s duties arising under a contract The most common way to discharge contractual duties is by performance

5. Contract Discharge Discharge by performance Discharge by agreement Discharge based on impossibility of performance

6. Discharge by Performance Both parties fulfill their respective duties by performance Performance can be accomplished by tender Tender � an unconditional offer to perform by a person who is ready, willing, and able to do so

7. Complete vs. Substantial Complete � conditions expressly stated must fully occur in all aspects Substantial � to qualify, the performance must not vary greatly from the performance promised in the contract Less damages, for minor deviations Not substantial � there is a material breach

8. Performance to the Satisfaction When the subject matter of the contract is personal Portraits, works of art, medical or dental work, tailoring Mechanical fitness, utility, or marketability performed to the satisfaction of a reasonable person

9. Discharge by Agreement Discharge by Rescission Discharge by Novation Discharge by Substituted Agreement Discharge by Accord and Satisfaction

10. Discharge by Rescission The parties are returned to the original positions Executory on both sides Executed on one side, the performing party must receive consideration

11. Discharge by Novation Substitutes a third party for one of the original parties Existence of a previous, valid obligation Agreement by all parties to a new contract Extinguishing of the old obligation (discharge of prior party) A new, valid contract

12. Discharge by Substituted Agreement A new contract between the same parties that expressly or impliedly revokes and discharges a prior contract.

13. Discharge by Accord and Satisfaction The parties agree to accept performance different from the performance originally promised Accord � an executory contract to perform some act in order to satisfy an existing contractual duty

14. Discharge by Accord and Satisfaction Satisfaction � the performance of the accord The accord and satisfaction discharge the original contractual obligation If accord is not satisfied, original obligation is still in force

15. Impossibility of Performance Doctrine under which a party is relieved of his duty to perform when performance becomes impossible or totally impracticable Objective vs. subjective

16. Impossibility of Performance When one party dies or becomes incapacitated before performance When the specific subject matter of the contract is destroyed When a change in law renders performance illegal

17. Commercial Impracticability When performance turns out to be more difficult or expensive than anticipated Must be extreme and must not be foreseeable at the time the contract is made

18. Temporary Impossibility An occurrence or event that makes it temporarily impossible to perform the act Performance is suspended until the impossibility ceases

19. Contract Remedies A remedy is the relief provided for an innocent party when the other party has breached the contract Damages (money) Rescission and restitution Specific performance

20. Damages Designed to compensate the nonbreaching party for the loss of the bargain Compensatory damages Consequential damages Mitigation of damages Punitive damages Liquidated damages

21. Compensatory Damages Compensate the injured party only for injuries actually sustained and proved to have arisen directly from the loss of the bargain Difference between the value of the promised performance and the value of the actual performance, reduced by any loss that was avoided

22. Compensatory Damages Incidental damages � expenses or costs that are caused directly by the breach of contract Sale of goods � difference between contract price and market price

23. Consequential Damages �Special damages� Foreseeable damages that result from a party�s breach of contract Compensate for a loss that is not direct or immediate

24. Mitigation of Damages The injured party has a duty to mitigate, or reduce, the damages suffered.

25. Punitive Damages �Exemplary damages� Generally not recoverable in an action of breach of contract Designed to punish and make an example of a wrongdoer for the purpose of deterring similar conduct in the future

26. Liquidated Damages Provision in a contract specifying a certain amount of money to be paid in the event of a future default or breach of contract �Determined�, �fixed�, �settled� Liquidated damages provisions � enforceable Penalty provisions � not enforceable

27. Liquidated Damages Liquidated vs. Penalty Were the potential damages difficult to estimate? Was the amount set as damages a reasonable estimate of those potential damages? Yes � liquidated, No � penalty

28. Rescission and Restitution Rescission � an action to undo, or cancel, a contract Rescinding party must give prompt notice to the breaching party Restitution � a remedy under which a person is restored to his original position prior to a contract

29. Specific Performance An equitable remedy that calls for the performance of the act promised in the contract Granted when money damages would be an inadequate remedy and the subject matter of the contract is unique

30. Specific Performance Avoids problems with money damages Collection No need to look for another contract Actual performance may be more valuable than money damages Each parcel of land is unique Normally, no specific performance for personal service contracts