Chapter 6 Contracts October 6th 2014 6 2 Performance and Discharge Breach Defenses Equitable Remedies Learning Objectives Learn what constitutes performance Understand what it means to discharge obligations in a contract Explore different standards of performance Examine breach Explore defenses to breach Learn about equitable remedies Contract Terms When the promise is fulfilled then the contract terms have been satisfied o Refers to the parties who are discharged from the contract Discharged When parties to a contract have fulfilled their duties under the contract and they are released from further requirements to perform under the contract Performance Undertaking the legal duties imposed on us by the terms of the contract When parties enter into a contract they hope for o Successful execution of the terms of the contract o Subsequent discharge from it Complete Performance Full and perfect performance of the promises obligations and duties contained in a contract Easy to determine whether the contract terms have been performed o Form a contract o Fully performed the obligations under it known as complete performance o Get discharged from further duties arising under that contract Breach of Contract When a party fails to perform under the terms of the contract without a legally justifiable reason the party is said to be in breach of the contract o Breach Failure to perform duties and obligations required by contract In a service contract the standard of performance is substantial performance Substantial Performance and strict Performance Substantial performance Performing party acted in good faith and conveyed enough benefit of the contract to the other party o Other party can use it for its intended purpose and that the defects arising under the contract may be remedied by money damages Strict performance Standard of performance in a contract that requires perfect performance o Requires express terms in the contract to that effect and circumstances where such a high standard reasonable Personal Satisfaction Standard of performance in a contract that means that the performance in a contract that means that the performance is scrutinized subjectively either by a party to the contract or by a third party beneficiary specified in the contract Reasonable person standard Objective standard based on reasonableness against which actions are measured to determine sufficiency When the promises in a contract have been fulfilled based on the appropriate standard then the parties are discharged o When a material breach occurs the injured party may bring a claim for damages Breaching Party Defenses to contract valid reasons for breaching the contract Formation problems in common law contracts relate to whether the offer acceptance and consideration were valid Equitable Remedy When all elements of the contract are not present the court will enforce the promise through an equitable remedy to avoid a perceived injustice o Equitable Remedy Remedy imposed by the court to prevent injustice which allows the court to enforced the terms of a contract even though technically speaking there was no contract to begin with Types of Equitable Remedy Quasi contract Type of equitable remedy that may be imposed on parties to avoid unjust enrichment to one party at the expense of the other o Unjust enrichment Benefit that is conferred or expected to be conferred unjustly o Quantum Meruit Name for damages awarded in quasi contract cases which means as much as is deserved o Promissory Estoppel Type of equitable remedy that may be imposed on parties to avoid injustice when one party detrimentally relied on another party s promise Defenses to a Contract Following defenses are relevant if the contract is validly formed but voidable by a party o When people lack the mental ability to understand they lack capacity o If the subject matter of a contract or the terms of the contract are illegal then contract may be void o Impossibility is a defense that can be used when performing the contract has become truly impossible o Minor can understand the terms of a contract they lack the legal capacity to be bound to it They can disaffirm the contract if they wish Disaffirm Option that can be exercised by a minor who is a party to a contract to render the contract void Economic Duress Defense to contract that can be exercised when one party had no other reasonable alternative but to enter into a contract due to economic threat or pressure Force majeure Unforeseen act of God that prevents one or both parties from fulfilling their obligations under the contract Unconscionability Defense used when the contract contains markedly unfair terms against the party with less bargaining power or sophistication than the party who created the terms and induced the other party to sign it Undue influence can be used when one party ceases to be able to exercise his or her free will due to the superior power and influence exerted over that party by the other Statue of Frauds If the contracts required by statue of frauds are not in writing that can be used as a defense to performance If there is a dispute arising under the contract it will not be enforced because it violates the Statute of Frauds requirement for a writing Statute of limitations can be raised by a defendant to argue that the complaint is being brought too late by law to do anything about it Mistake is a successful defense Misrepresentation and fraud are defenses to contract Commercial impracticability is a defense that can be used when fulfilling a contract has become extraordinarily difficult or unfair for one party Bankruptcy In unforeseen circumstances a party to a contract files for bankruptcy o Automatic Stay Order by the court to stop all collection activities of prepetition debts owed by a debtor in bankruptcy o Bankruptcy is a defense to performance of contract for debtors who file for bankruptcy protection Remedies Monetary damages are remedies for breach of contract o Expectation damages including compensatory such as the finding substitute goods at a higher price and consequential damages such as lost wages or lost profit can be recovered o Specific performance will be required under certain types of contracts Specific performance Remedy that requires complete performance in a breach rather than or in addition to monetary damages o On breach the injured party has a duty to mitigate his damages Duty to mitigate Duty placed on a party injured by breach requiring that