Methods to Methods to Terminate a Terminate a

ContractContract

4.02 Differentiate 4.02 Differentiate methods of terminating methods of terminating

or transferring a or transferring a contract.contract.

Discharge by PerformanceDischarge by Performance• Complete

– All terms have been carried out properly and completely.

• Time– Court will honor time request, if it is

deemed “of the essence.” – If not mentioned in contract, then a

reasonable time will be assumed.

• Satisfactory– Law requires that services be

completed in a satisfactory manner.– Reasonable person test

• Would a reasonable consider the work to done in satisfactory manner?

• Substantial– Slightly less than full performance

• Must meet the following rules:– Acted in Good Faith– Completed Major Components of Contract– Only Minor Details Incomplete.

• Tender of Performance– Tender – Offer to Perform– Must make tender even if you know

the other party will not perform their part of the contact.

Discharge By AgreementDischarge By Agreement• Mutual Release

– Each side releases the other side from the contract.

• Accord and Satisfaction– Substitute one contract for another.

Discharge By Discharge By Impossibility of PerformanceImpossibility of Performance• Death or Illness in a Personal Service

Contract– Only allowed in Personal service

contracts.– What is personal service?

• Photographer• Artist

– Any other contract must be completed.

• Destruction of the Exact Subject Matter– If the subject matter is essential to

the contract then it will be discharged.

• Illegality– Any illegal contract is void.

Discharge by Operation of Discharge by Operation of LawLaw

• Wrongful Alteration– Any altering or changing of a contract

will discharge parties to the agreement.

• Statute of Limitations– Individual states have a time limit on

lawsuits to be filed.– What is the only crime/tort that doesn’t

have a time limit?

Murder

• Bankruptcy – Debtors can be discharged from

contracts after filing for bankruptcy.

Transferring or Transferring or Breaching Breaching

Contracts and Contracts and RemediesRemedies

AssignmentAssignment

• Legally transferring your RIGHTS in a contract.– Assignor – party who transfers the right.– Assignee – party to whom the right is transferred.

• No consideration needed.• Must not change the obligations in the

contract.• Must be a RIGHT not a DUTY.• Assignor is responsible for contract fulfillment.

DelegationDelegation

• Transfer a duty.• Delegating party is still responsible

for the contract being fulfilled.• Contracts that CANNOT be

delegated:– Promise to perform service

personally.– Exercise of personal skill or judgment.– Contract prohibiting delegation.

NovationNovation• Replacing a party to a contract with a

new one.• The other terms to the contract

remain the same.

Third PartiesThird Parties• Privity of Contract

– Determines who can sue who over a breach of contract.

• Third-Party Beneficiary– A person who is not a party to a contract

but benefits from it.– Has the right to sue over breach of

contract.

Breach of ContractBreach of Contract• Wrongful failure to perform one or

more promises in a contract.• Anticipatory Breach

– Notified that a party to the contract will not fulfill their part of the contract prior to the required time of fulfillment.

– Lawsuit may be filed early in this case. Exception to the rules: Refusal to pay money owed at a future date.

Remedies/DamagesRemedies/Damages• Acceptance of Breach

– Accept the breach of contract and discharge the other party without asking for damages.• Why?

– Must show damages in order to win monetary damages.

– Not worth the party’s time to file lawsuit.

• Money Damages– Actual – Damages DIRECTLY related to breach.– Compensatory – Award only for injuries suffered

nothing more.– Consequential – Damages that DO NOT flow

directly from breach.– Incidental – Reasonable expenses that

INDIRECTLY from breach of contract.– Liquidated – Anticipated damages agreed prior to

contract being signed.– Nominal – Award to proved legal injury but no

actual damages caused.– Punitive – Damages in excess of losses suffered

in order to punish party for breach.– Speculative – Damages awarded not on fact but

on expectations from contract fulfillment.

• Specific Damages– Ask court to order the other party to

do what they agreed to do.– Subject matter must be unique in

nature.– Which of the following is unique?

• Real Estate• Stocks of General Electric• ’65 Ford Mustang with 44,000 miles• A brand new Ford F-150• Dozen Eggs

Answers: Real Estate and Mustang are unique.

InjunctionInjunction• Court order that prevents a party

from performing an act.• Temporary or Permanent.• Violators are in contempt of court.

Minimizing DamagesMinimizing Damages• Injured party must try to reduce the

damages by all means possible (mitigation of damages).

• What could you do to mitigate damages if a tenant breaks the lease and moves out early?

Possible answers:Advertise for rent sign in yard, put sign up at local university,and place an advertisement in the local newspaper.