Performing and Enforcing a Contract

OBE 118, Section 10

Fall 2004

Professor McKinsey

A Valid Enforceable Contract

1) Mutual Agreement

2) Consideration

3) Capacity

4) Legality

5) Genuineness of Assent

6) Writing

Rights and Duties

Party A

Party B

Good

$$$

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”

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

Assignments of Rights

A contract right can be assigned- Assignee can enforce contract- The assignor loses the right- Some rights cannot be assigned

- Notice of the assignment

1) Statutory forbiddance2) Contract specifies no assignment3) Personal contracts4) If assignment would materially increase duty

1) Ensures priority if multiple assignees2) Ensures performance to assignee

Delegations of DutiesA 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 obligor2) Special trust in obligor3) Will cause material change in performance4) Contract expressly prohibits

Party A

Party B

Good

$1000

An Example

Third Party BeneficiariesIntended 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?

-Does 3rd party have right to control performance?

-Was performance to be to the 3rd party directly?

-Was the designation as intended beneficiary expressly made?

Absolute Promise

A simple promise in exchange for another promise, with no conditions or qualifications.

Party A

Party B$$$

Good

Neither party is required to act first, but once a party tenders performance, the other party is then obligated to perform as well.

Conditioned Promises

Performance can be conditioned on some possible future event.

Condition PrecedentA condition that must be met before performance is due

Condition SubsequentA condition that ends the obligation to perform

Concurrent ConditionsWhen performance must occur simultaneously

A Valid Enforceable Contract

1) Mutual Agreement

2) Consideration

3) Capacity

4) Legality

5) Genuineness of Assent

6) Writing

PerformanceEach enforceable promise in a valid enforceable contract creates a duty that must be discharged by performance, breach, agreement, or law.

Duty

PerformanceEach enforceable promise in a valid enforceable contract creates a duty that must be discharged by performance, breach, agreement, or law.

Two types of promises:

Absolute Promises

Conditioned Promises

Duty

Discharge by Performance

is usually enough.

Checklist for Substantial Performance

Sometimes contract requires .

1. Exact performance called for not a material term.

2. Performance close to complete.

3. Substantially the same benefits created.

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.

Discharge by Breach

A discharges the other party’s duty.

discharges the other party’s duty

Material breach occurs when performance is not substantial or when strict performance was called for and performance is not exact.

Party rejects, refuses, or denies performance and other party treats it as a breach.

Discharge by Agreement

Parties can agree to discharge one or more duties.

Compromise - settlement agreement over bona fide dispute

Novation - new party in a new contract, old party relieved of duty

Mutual Rescission – Parties agree to void contract

Accord and Satisfaction –Duty to be satisfied once new agreement performed

Discharge by Operation of Law

The law can also discharge a duty by:

Statute of Limitations

Bankruptcy

Impossibility

Impossibility

Objective impossibility may discharge a duty

Death or disablement

Destruction of Subject Matter

Intervening Illegality

Breach of Contract

• Material Breach

• Anticipatory Repudiation

• Other party can stop performance and seek remedies (Damages)

• Minor Breach? (less than perfect performance?)

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

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)