Law and Ethics 7

an allocation or adjustment regarding a particular risk associated when performing a contract

must occur before a particular performance obligation is triggered

ex: provided that, unless, on the condition

• condition precedent
• - event occurs before performance under a contract is due
• EX: bonus conditional upon securing 10 clients in 30 days

• condition subsequent
• - event occurs after the performance under the contract and discharges the parties' obligations
• EX: insurance policy within 12 months, if 14 months not valid

• concurrent conditions
• - each party is required to render performances simultaneously
• EX: full price paid at the time of delivery, if no delivery, no payment is due

parties agree on the terms and the parties perform the contractual obligations in good faith in order to complete the contract.

the completion is called discharge because both parties now have "discharged" their obligation to the other by performing the agreed upon duties

tendering good- delivering products to an agreed upon location

occurs when one party cannot give perfect performance

*the party trying to enforce the contract must show good faith and that any deviation from the required performance was NOT MATERIAL (some deviation from the contract that resulted in a substantial change in the value of the contract or changes a fundamental basis of the agreement) 

*the innocent party is still entitled to collect damages to compensate for the imperfect performance.

good faith performance

• mutual consent
• operation of law

if neither party has fully performed, the parties may agree to cancel the contract. This cancellation is known as rescission and each party gives up the rights under the contract in exchange for the release by the other party from performing.

* a party may be discharged from the original terms of the contract by mutual consent to rescission, a substitute performance, or modification to the original agreement

one party agrees to render a substitute performance in the future (known as accord) and the party promisses to accept that substitute performance in discharge of the exisiting performance obligation

*once the substitution performance has been rendered, this acts as a satisfaction of the obilgation.

*the discharge of the obligation only occurs once the terms of the accord are actually performed. If the accord performance is NOT rendered, the other party has the option to recover damages either under the original contract or under the accord contract

the parties to a contract may discharge their obligations by replacing the original contract with a substitute agreement

*the substitute agreement immediately discharges any obligations under the original contract (unlike the accord agreement which is satisfied after)

when parties agree to substitute a third party for one of the original parties to the contract, the agreement may be discharged

*revokes and discharges ALL obligations under the old contract

in some cases, after the parties have formed a contract, unexpected events occur that affect the probability of one party's ability to perform. The law allows the parties to be excused from performance under the contract. Must fall into one of the three seperate doctrines:

• 1. impossibility
• 2. impracticability
• 3. frustration of purpose

• *parties may also be discharged through operations of law when
• 1. a contract is unilaterally altered
• 2. a contract is subject to relief of the bankruptcy code
• 3. expiration of the statute of limitations

the impossibility must be objective (a reasonable person would consider the obligation impossible to perform) rather than subjective (one party decides unillaterally that performance is impossible) in order for the obligation to be discharged

• must fall into one of four intervening events:
• 1. destruction of the subject matter
• 2. death or incapacitation of one of the parties to the contract
• 3. the means of performance contemplated in the contract cannot be performed
• 4. performance of the obligation has become illegal subsequent to the contract but prior to performance

*temporary impossibility for one or both of the parties - the doctrine operates to suspend (not discharge) the obligation until the impossibility ceases. (if once the time has ended it is more burdensome it can be discharged)

performance becomes extremely burdensome due to some unforeseen circumstance occuring in between the time of agreement and the time of performance.

*must be unforeseeable and extreme to be discharged

events may occur that destroy a party's purpose in entering into the contract even though performance of the contract is not objectively impossible.

• - where one parties purpose is completely or almost completely frustrated by such supervening events, courts will discharge an obligation if after the parties enter into agreement,
• 1. a party's principal purpose is substanstially frustrated without her fault
• 2. some event occurred, when the nonoccurrence of the event was a central assumption of both parties when entering into the contract
• and 3. the parties have not otherwise agreed to who bears the risk of such an occurrance

*must be unforeseeable and extreme

is a failure to perform that is not substial enough to discharge the nonbreaching party

nonbreaching party may not be relieved from performing, however may still recover damages related to the breach from the breaching party

it sometimes becomes apparent that one party does not intend to perform as agreed (through words or conduct)

the law provides an avenue of recovery of damages for the nonbreaching party even before the nonperformance party breaches the contract or even before the performance is due

occurrs when one party fails to perform its duties under the contract

money damage awards are one of the ways in which the law provides a method to compensate the nonbreaching party for losses suffered

• money damages are primarily limited to:
• 1. compensatory (direct damages)
• 2. consequential damages
• 3. restitution
• 4. liquidated damages

recovery of actual damages suffered by the nonbreaching party

attempt to put the nonbreacing party in the same position she would have been if the other party had performed as agreed

compensate the nonbreaching party for foreseeable (known) indirect losses not covered by compensatory damages

damage must flow from the breach

a remedy dsigned to prevent unjust enrichment of one party in an agreement

- in the event that one party commits a material breach, the nonbreaching party can rescind (cancel) the contract and receive fair market value for any services rendered

damages the parties agree to ahead of time

*parties agree that if a breach is to occur it would result in a fixed damage amount

*in order to be enforceable, must be directly related to the breach and be a reasonable estimate of the actual damages incurred (cannot penalize the breaching party)

instances where money damages are insufficient to compensate the nonbreaching party or when one party was unjustly enriched at the other party's expense. 

• 1. specific performance
• 2. injunctive relief
• 3. reformation

remedy whereby the court orders the breaching party to render the promised performance by ordering the party to take a specific action

- this is only available when the subject matter of the contract is sufficiently unique so that money damages are inadequate

• Ex: rare (coin collection), distinctive (sculpture) where the buyer CANNOT reasonable be expected to locate the goods anywhere else
• *most common is real estate, if the property is sold in good faith to another buy, money damages may be the only option

- can also apply to personal service contracts, unique quality

a court order to refrain from a particular act

EX: if someone promises to sell you a property and you find out they are going to breach the contract by selling it to someone else, you can ask the court to issue injuctive relief, preventing the sale of the property to the other person

contract modification

when the parties have imperfectly expressed their agreement and this imperfection results in a dispute, a court may change the contract by rewriting it to conform with the parties actual intentions

EX: clerical error decimal place on contract

nonbreaching obligation to avoid excessive or innecessary damages through reasonable efforts or else be barred from recovery for those avoidable costs of nonperformance

rule preventing recovery for reasonably avoidable damages

• 1. compensatory- direct losses from nonperformance
• 2. consequential- indirect but foreseeable losses from nonperformance
• 3. restitution- losses equal to the amount that the breaching party has been unjustly enriched by the nonbreaching party
• 4. liquidated- losses of a predetermined value according to the contract

a transfer of current rights (not future rights) under a contract by oneparty in a contract to a third party

the party making the assignment is the assignor and the third party receiving the rights is the assignee

*once a valid assignment occurs, the assignor's rights under the contract are extinguished and can only be exercised by the assignee

*all rights in a contract are assignable at the sole discretion of the assigning party. Mutual consent is NOT required. Some rights are NOT assignable

• assignment is not permitted (included an antiassignment clause)
• when the assignment materially alters the duty of the other party or by increasing a burden or risk
• general public policy matters (alimoney payments before they come due)

a transfer of current duties owed by one party under a contract to a third party

the party making the delegation is the delegator and the third party receiving the rights is the delegatee

*Delegator REMAINS liable for the obligation

• certain duties are nondelegable:
• - special personal skills (attorney, physician, artist, actor..)
• - antidelegation clause included
• - when the delegate is a competitor of the obligee (the nondelegating party)

• sometimes a party may form a contract to benefit not her, but a third person. In this case the party, called the third party beneficiary, becomes a party to the contract and certain rights arise to protect the third party
• - examine if the parties intended to confer a benefit on the third party= intended beneficiary, and has rights to enforce the contract as appropriate

- not contemplated as beneficiaries by the original contracting parties are incidential beneficiaries and they may NOT sue to enforce contractual rights