Performing and Enforcing a Contract

1
Performing and Enforcing a Contract

• OBE 118, Section 10
• Fall 2004
• Professor McKinsey

2
A Valid Enforceable Contract

1. Mutual Agreement
2. Consideration
3. Capacity
4. Legality
5. Genuineness of Assent
6. Writing

3
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

• A party other than the promisor and the promisee
  can become involved as a party to a contract

- By assignment or delegation
- As a third party beneficiary
5
Assignments of Rights

• A contract right can be assigned

- Assignee can enforce contract
- The assignor loses the right
- Some rights cannot be assigned
1) Statutory forbiddance
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

• A contract duty can be delegated

- 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
1) Personal skill of obligor
2) Special trust in obligor
3) Will cause material change in performance
4) Contract expressly prohibits
7
An Example
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Third Party Beneficiaries

• Intended 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)

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
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

• Performance can be conditioned on some possible
  future event.

Condition Precedent
A condition that must be met before performance
is due
Condition Subsequent
A condition that ends the obligation to perform
Concurrent Conditions
When performance must occur simultaneously
11
A Valid Enforceable Contract

1. Mutual Agreement
2. Consideration
3. Capacity
4. Legality
5. Genuineness of Assent
6. 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

• is usually
  enough.

Sometimes contract requires
.
Checklist for Substantial Performance
1. Exact performance called for not a material
term.
2. Performance close to complete.
3. Substantially the same benefits created.
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Whose Satisfaction?

• Performance of personal contracts can be
  specified to be to the satisfaction of a party

Performance of contracts dealing with mechanical
fitness or utility must only be satisfactory to a
reasonable person.
16
Discharge by Breach

• A discharges the other
  partys duty.

Material breach occurs when performance is not
substantial or when strict performance was called
for and performance is not exact.
discharges the
other partys duty
Party rejects, refuses, or denies performance and
other party treats it as a breach.
17
Discharge by Agreement

• Parties can agree to discharge one or more
  duties.

Mutual Rescission Parties agree to void contract
Novation - new party in a new contract, old party
relieved of duty
Compromise - settlement agreement over bona fide
dispute
Accord and Satisfaction Duty to be satisfied
once new agreement performed
18
Discharge by Operation of Law

• The law can also discharge a duty by

Statute of Limitations Bankruptcy Impossibility
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Impossibility

• Objective impossibility may discharge a duty

Death or disablement
Destruction of Subject Matter
Intervening Illegality
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Breach of Contract

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

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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)