Performance and Remedies

Performance and Remedies

I.  Conditions

A.  Nature

1.  A condition is an uncertain, future event that affects a party’s duty to perform

2.  I.e., if the event (condition) does not occur, the party does not have to perform under the contract

3.  Duties that are absolute or unconditional do not depend on the performance of a condition

B.  Types

1.  Conditions based on their effect on the duty to perform

a.  Condition precedent: must occur before performance is due – plaintiff bears the burden of proving

b.  Concurrent condition: must occur at the same time as performance (I.e., contract calling for parties to perform at the same time

c.  Condition subsequent: occurs after the duty to perform but discharges the duty upon occurrence – defendant bears the burden of proving

2.  Conditions based on the way they were created

a.  Express condition:

i.  Specified in the language in the contract

ii.  Must be strictly complied with

b.  Implied-in-fact condition: not specifically stated, but implied by the nature of the promises

c.  Constructive condition:

i.  Imposed by law rather than the agreement of the parties

ii.  When one party is expected to perform before the other in a contract, the law normally infers that the performance of the first party is a constructive condition of the other party’s duty to perform

C.  Creation

1.  Often created by words such as provided that, subject to, on condition that, if, when, while, after, and as soon as

2.  Courts look to the parties’ intent to determine if a condition is created

3.  To determine the satisfaction of a condition requiring 3d party’s performance

a.  Courts use a good faith standard (3d party must have a good faith reason for failure to perform)

b.  Courts use 2 different standards for determining the occurrence of conditions based on the personal satisfaction of one of the parties; if condition involves

i.  Personal taste and comfort: actual, subjective satisfaction

ii.  Mechanical fitness or suitability: reasonable person test

D.  Excuse (grounds for not requiring occurrence of the condition)

1.  Condition has been prevented or hindered by the party who is benefited by the condition

2.  Waiver: party voluntarily gives up the right to the condition’s occurrence

3.  Estoppel: one party’s actions lead the other party to rely on the non-existence of the condition

4.  Performance of the condition becomes impossible

II.  Performance of Contracts

A.  Level of performance expected

1.  Express condition

a.  Requires strict compliance to satisfy condition

b.  Strict compliance: complete performance

2.  Implied/constructive condition

a.  Requires substantial performance

b.  Substantial performance

i.  Falls short of complete performance in minor respects

ii.  Triggers the other party’s duty to pay the contract price minus damages resulting from defects in performance

iii.  Not applicable when the breach is willful

B.  Good faith performance

1.  Implied covenant of good faith and fair dealing: obligation to carry out a contract in good faith

2.  Requires both parties to a contract to refrain from doing anything to prevent the other from obtaining the benefits of the contract

III.  Breach of Contract

A.  Effect of material breach

1.  Any failure to perform when due is a breach of contract

2.  Breach entitles the other party to sue and recover for any damages

3.  If a party materially breaches, the other party may withhold own performance

4.  Material breach = failure to give substantial performance

B.  Effect of nonmaterial breach

1.  Nonbreaching party may sue for only the damages caused by the breach

2.  May not cancel the contract, but the party may suspend performance until the breach is remedied

C.  Determining the materiality of the breach

1.  Look to whether the breach deprives the injured party of the benefits reasonably expected

2.  In determining materiality, courts look to

a.  Extent to which the breaching party will suffer forfeiture if breach is material

b.  Magnitude of the breach and willfulness or good faith of the breaching party

c.  Timing of the breach: earlier occurring breach is more likely to be material

d.  Extent to which injured party can be adequately compensated by damages

e.  Famiglietta v. Ivie-Miller Enterprises, Inc.: breach was material because Famiglietta’s actions were willful and he was unwilling to cure the breach

3.  Time for performance: when no time is stated or implied, performance must be completed within a reasonable time

4.  Consequences of late performance:

a.  If time is an express condition (I.e., contract states that “time is of the essence”), late performance is a material breach

b.  If no express condition, promisee must accept late performance rendered within a reasonable time after due

D.  Anticipatory repudiation

1.  Anticipatory repudiation = promisor indicates before the time of performance that he or she is unwilling or unable to carry out the contract

a.  Must be an unequivocal statement or voluntary act that clearly shows the party cannot or will not perform

b.  Generally constitutes a material breach

2.  Nonbreaching party can withhold own performance and sue for damages without waiting for time of performance to arrive (but may wait if wishes)

E.  Recovery by a party who has committed material breach: party does not have the right to recover the contract price, but can recover under

1.  Quasi-contract: reasonable value of any services rendered to the promisee

2.  Partial performance of a divisible contract: if each party’s performance can be divided into two or more parts and each part is supported by consideration, the breaching party can recover for part he or she did perform

IV.  Excuses for Nonperformance

A.  Impossibility

1.  Some unexpected even arises after the formation of the contract and renders performance objectively impossible

2.  3 most common examples

a.  Illness or death of the promisor

b.  Supervening illegality

c.  Destruction of the subject matter of the contract

3.  To apply, performance must be incapable of being completed by ANYONE, I.e., if possible, promisor must delegate duty

B.  Commercial impracticability

1.  Unforeseen developments make performance by the promisor highly impracticable, unreasonably expensive, or of little value to the promisee

a.  Rarely granted because the promisor must show that

b.  Event occurred without his or her fault; and

c.  Contract made with the assumption that the event would not occur

2.  Examples: unforeseen circumstances such as wars and crop failures (not increased cost or collapse of a market for goods) give rise to

a.  Drastic price increases

b.  Severe shortages of goods

V.  Other Grounds for Discharge

A.  Mutual agreement (supported by consideration)

B.  Accord and satisfaction

1.  Accord = promisee agrees to accept some performance different that originally agreed upon

2.  Satisfaction = promisor performs accord

C.  Waiver

1.  Voluntary relinquishment of rights under contract

2.  To avoid, person receiving defective performance should give prompt notice of expectance of complete performances or damages

D.  Alteration: one party makes a material alteration without the other’s consent

1.  Statute of limitations

2.  Delay in bringing suit

3.  UCC has a 4-year Statute of Limitations

E.  Decree of bankruptcy

VI.  Remedies for Breach

A.  Types

1.  Legal remedies (money damages)

a.  Limitations

i.  Must be provable with reasonable certainty

ii.  Losses must have been foreseeable at time of contracting

iii.  Must mitigate damages (minimize losses)

b.  Compensatory damages: damages for benefit of the bargain, including

i.  Loss in value

a)  Difference between contract price and the price of substitute goods; or

b)  Difference between the value of the goods if they had been in the condition warranted by the seller and the value of the defective goods

ii.  Consequential damages: losses incurred due to special or unexpected circumstances (must be foreseeable)

iii.  Incidental damages: reasonable costs incurred in an effort to avoid further losses

c.  Nominal damages: available for a technical breach causing no provable economic loss to the nonbreaching party (usually limited to 2 cents to a dollar)

d.  Liquidated damages: contract specifically provides for specific sum recoverable upon breach

i.  Must be reasonable (Wojtowicz v. Greeley Anesthesia Services, P.C.)

ii.  Actual damages must be difficult to determine

e.  Punitive damages: not usually available in contract law

2.  Equitable remedies

a.  Awarded when money damages are not adequate to compensate for losses

b.  Types

i.  Specific performance: court orders breaching party to perform contractual duties as promised

a)  Awarded for

1)  Land sale contracts

2)  Unique goods (good rarely considered unique)

3)  Not awarded for service contracts due to unwillingness to create involuntary servitude

b)  UNLESS

1)  Injured party acted in bad faith; or

2)  Unreasonably delayed; or

3)  Would result in excessive supervision by court

ii.  Injunction

a)  Court order requiring person to do (mandatory) or refrain from doing something (negative)

b)  Available only when threatened breach is likely to cause irreparable injury

3.  Restitution

a.  Specific restitution: party is required to return the exact property received from the other party

b.  Substitutionary restitution: court awards the amount of money that reflects the benefit received by the other party

c.  Breaching party may receive restitution for the value of the benefits conferred in excess of losses created if he or she has partially performed

d.  When a contract is rescinded, both parties must compensate one another for the value of the benefit conferred

B.  Interests protected

1.  Expectation

2.  Reliance

3.  Restitution