Bài giảng Business Law - Chapter 18: Performance and Remedies

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin3Introduction to ContractsThe Agreement: OfferThe Agreement: AcceptanceConsiderationReality of ConsentContractsPART3Capacity to ContractIllegalityWritingRights of Third PartiesPerformance and RemediesContractsPARTPerformance and RemediesPAETRHC18It is an immutable law in business that words are words, explanations are explanations, promises are promises – but only performance is reality.Harold S. Geneen, CEO of ITT Managing (co-written with Alvin Moscow, 1984)Learning ObjectivesExplain the effect of conditions on the duty to perform a contractDistinguish strict from substantial performance Discuss the various remedies for breach of contractList circumstances that can excuse performanceEntering into a contract evidences an intention to perform (complete) obligations under the contractGenerally, each party performs the promise and is discharged (released) from further obligationIf a party fails to perform as expected, courts may be asked to determine the respective rights and duties of the partiesOverviewSometimes a promisor’s duty to perform depends on the occurrence of some event or condition, an uncertain, future eventA condition may be classified as a:Condition precedentCondition subsesequentCondition concurrentConditions in a ContractCondition PrecedentA future, uncertain event creating a duty to performExample: Tisha contracts to buy a house on the condition she is able to obtain financing. Contract arises and she is obligated to purchase the house once she obtains financingCondition ConcurrentWhen the contract calls for parties to perform at the same timeExample: Bryan promises to buy Stevie’s guitar for $1000. Stevie must give Bryan the guitar when Bryan gives Stevie $1000.Condition SubsequentA future, uncertain event that discharges the duty to performExample: Lee agrees to work for WoolCo until he returns to college. Lee returns to college in August and discharges his obligation under the contract.Classification of Conditions Based Method of CreationExpress condition: condition specified in the language of the parties’ contractImplied-in-fact condition: condition not specifically stated by the parties but implied by the nature of the parties’ promiseConstructive condition: Also known as implied-in-law conditions; conditions imposed by law rather than by agreement of parties to do justice between the partiesExcuse of ConditionsOccurrence of a condition may be excusedEstoppel: when a person whose duty is conditional leads other party to rely on his noninsistence on the conditionWaiver: when a person whose duty is conditional voluntarily gives up his right to the occurrence of the conditionOccurrence of condition excusedWhen occurrence of condition was prevented or hindered by party benefiting from the conditionWhen performance of the act that constitutes the condition becomes impossibleExcuse of ConditionsTo determine whether a promisor is discharged by performance, courts consider the standard of performance expectedA strict performance standard requires full or perfect compliance with the contract termsExample: Buyer agrees to finalize a home purchase (close) by 5:00 pm on Nov. 21. If Buyer does not close by that time, the contract ends. Buyer is discharged from buying and Seller is discharged from turning over the house, but there may be legal remedies to Seller for Buyer’s breachPerformance of ContractsA substantial performance standard is slightly lower standard applied to duties that are difficult to perform without some deviation from perfection in minor respectsExample: Bob Builder built a home for Jason. Bob met the contract terms except he didn’t paint the baseboards the right shade of white. Bob is discharged and Jason has the duty to pay the contract price less any damages (repainting) resulting from the defects in performancePerformance of ContractsSubstantial Performance Breach of ContractUnder the implied covenant of good faith and fair dealing, every contract includes an obligation to perform in good faithIf a promisor fails to perform, breach occursAt minimum, breach of contract gives the non-breaching party the right to sue and recover for damages caused by the breachFor a material (serious) breach, further legal remedies are availableDetermining MaterialityStandard for determining materiality is flexible, but generally based on the amount of the breach and timing for performanceExample: if contract contains a “time is of the essence” provision, any delay by either party may constitute a material breachExample: if time for performance immaterial, promisee must accept late performance if within reasonable time after performance due, but may deduct costs of delayWhen promisor indicates before time for performance that promisor is unwilling or unable to carry out the contract, anticipatory repudiation or anticipatory breach occursPromisee has choices:Withhold his/her own performance and sue for damages for total breach of contract immediatelyWait to sue until time for performance in case other party changes mind and decides to performWaive his/her rights to performanceAnticipatory RepudiationNonperformance of a duty generally is a breach of contract, but nonperformance may be excused in certain circumstances:Impossibility: “it cannot be done by anyone”See East Capitol View Community Development Corporation v. RobinsonImpracticability: when unforeseen developments make performance highly impracticable, unreasonably expensive, or of little value to promisee (UCC 2–615)Excuses for Non-PerformanceDischarge by mutual agreementAccord and satisfactionAccord is an agreement in which a promisee who has existing claim agrees with promisor that s/he will accept some performance different from that originally agreed on. When promisor performs the accord, that is called a satisfaction.Discharge by waiver of promiseeOther Reasons for DischargeDischarge by alteration One party alters and other does not consentDischarge by statute of limitationsOne party takes too long to bring lawsuitUCC 2–725: four-year statute of limitations for contracts involving the sale of goodsDischarge by decree of bankruptcyOther Reasons for DischargeLegal remedies (money damages)Compensatory damages, nominal damages, liquidated (contractual) damages, and in certain circumstances, punitive damagesEquitable remediesSpecific performanceInjunctionRestitutionRemedies for Breach of ContractThought QuestionsShould a non-breaching party always file suit against a breaching party?What are the ethical issues involved in a breach of contract?