Discharge

1. Discharge • What does it mean to say that a party to a contract “is discharged”? • Generally, a party is discharged when she has no more duties under a contract. • How does discharge occur? • Either by full performance, or by mutual agreement. • General rule: parties must perform as promised. A breach is a failure to perform as promised.

2. Performance & Breach • Strict Performance • Performance that is exactly what promised; is usually not expected and failure to do so does not cause for discharge. • Substantial Performance • A party that substantially performs its obligations will receive the full contract price, minus the value of any defects. • A party that fails to perform substantially receives nothing on the contract. • Performance that falls short of substantial performance constitutes a material breach of the contract.

3. Performance & Breach (cont’d) • Jacobs & Young v. Kent • In a contract for the construction of a home that specified the size of decorative exposed beams, beams in the finished house are smaller than specified, by 5%? • Material breach? • How much money does buyer owe builder, if any? • What if the beams are load supporting beams? • Material breach? • How much money does buyer owe builder, if any?

4. Performance & Breach (cont’d) • Whether a breach is material depends upon the circumstances: • I order keg of beer to be delivered “Thursday by 5pm”. Keg arrives at 7pm. • I order keg of beer to be delivered “Thursday in time for my party at 5pm”. • To determine if breach is material, look to: • Whether buyer can use imperfect performance for intended purpose • Whether adjustment to price/damages can remedy the problem • Whether breaching party acted in good faith

5. Performance & Breach (cont’d) • Parties can define terms as essential such that strict performance of those terms is required, and breach of those terms is a material breach. • What if contract for construction of house specifies hardwood floors made of oak, with clear stain. Buyer gets hickory, with oak-colored stain. • Contract specifies that oak floors are an essential element of the contract. • Filing cabinet delivery example. • Conditions vs. essential terms

6. Time of the Essence Clauses • A time of the essence clause will generally make contract dates strictly enforceable. • Merely including a date for performance does not make time of the essence.

7. Breach (cont’d) • Anticipatory Breach • Anticipatory breach is committed by one party making it unmistakably clear that he will not honor the contract. • A delivers widgets to B’s factory weekly; B is obligated to pay monthly for previous month’s deliveries. B’s bank accounts are seized by the court to pay creditors. • A need not make next delivery and may sue for payment for deliveries made, even though time for payment under the contract has not yet arrived.

8. Impossibility • When is performance excused due to change in circumstances? That is, must promisor make good on promise (through own or substitute performance), or is s/he excused? • True Impossibility • Something has happened making it utterly impossible to fulfill the promise. • Portrait painter becomes ill and cannot paint your portrait as required by the contract? • Must/can painter provide substitute performance? • House painter can’t paint your house because his employees go on strike? • Must/can painter provide substitute performance?

9. Force Majeure • Spells out the kinds of impossibility that will excuse performance. For example: • Performance under this agreement shall be excused if prevented by unforeseeable acts beyond the parties’ control, including acts of God, acts of a public enemy, labor disputes, fires, insurrections, floods, acts of government. • Parties can define force majeure narrowly or broadly, to include all sorts of disruptions.

10. Frustration of Purpose Commercial Impracticability Facto v. Pantagis Concert ticket example

11. Breaching the Contract • Someone breaches a contract when he fails to perform a duty without a valid excuse. • A remedy is the method a court uses to compensate an injured party. • An order forcing someone to do something, or refrain from doing something, is an injunction.

12. Compensatory Damages • Compensatory damages are the most common monetary awards. • They generally flow directly from the contract, such as an order to pay what was promised or to pay for expenses caused by the breach. • Serve expectation interest; give parties the direct “benefit of the bargain”. E.g., out of pocket losses; certain profits lost.

13. Consequential Damages • Hadley v. Baxendale • Consequential damages (a/k/a “special damages) are those resulting from the unique circumstances of this injured party. • Plaintiff can recover consequential damages only if the breaching party should have foreseen them.

14. Consequential Damages (cont’d) • Examples: • Damages paid on related contracts • Because damage calculation can be complex, there are companies that specialize in doing the work on behalf of litigants or other interested parties.

15. Law and Equity • Restitution in Cases of a Valid Contract • Restitution is a common remedy in contracts involving fraud, misrepresentation, mistake, and duress. It means giving back the benefits received. • Rescission = undoing the contract

16. Other Equitable Interests • Specific Performance • A court will order the parties to perform the contract only in cases involving the sale of land or some other asset that is unique. • Stainbrook v. Low • Injunction • An injunction is a court order that requires someone to do something or refrain from doing something.

17. Products Liability • Theories of liability in product liability cases: • Negligence – unreasonable conduct by the defendant. • Strict Liability – policy which holds the defendant liable regardless of his behavior. • Warranty -- a contractual assurance that goods will meet certain standards.

18. Express Warranties: A Contract Right • An express warranty is one that the seller creates with his words or actions. • Any affirmation of fact--or any promise--can create an express warranty. • This drill will cut through pvc pipe • This drill will cut through just about anything • Any description of the goods can create an express warranty. • Demonstration video in store • Any sample or model can create an express warranty.

19. Implied Warranties • Are created by the Code itself, not by any act or statement of the seller. • Implied Warranty of Merchantability • Webster v. Blue Ship Tea Room • Implied Warranty of Fitness for a Particular Purpose

20. Disclaimers and Defenses • Disclaimer: a statement that a particular warranty does not apply. • Oral Express Warranties – may be disclaimed, even if contrary to salesperson’s statements. • Written Express Warranties – may NOT be disclaimed. • Implied Warranties of Merchantability – may disclaim, but must use word “merchantability” and the disclaimer must be conspicuous

21. Disclaimers & Defenses(cont’d) • General rule – may disclaim all implied warranties by using the terms “as-is” or “with all faults.” • Creates caveat emptor • Some states prohibit disclaimer of implied warranties • Written Express Warranties – may NOT be disclaimed. • Implied Warranties of Merchantability – may disclaim, but must use word “merchantability” and the disclaimer must be conspicuous