Discharge and Remedies in Contract Law

BUSINESS LAW: Cases & Principles
Davidson Knowles Forsythe 8th Ed.
DISCHARGE OF CONTRACT AND

REMEDIES OF CONTRACT
BY
NISHANT
GUPTA
2004 West Legal Studies in Business
A Division of Thomson Learning

TERMINATION OF THE CONTRACT

Contracts can be terminated (discharged) in
four ways:
By Performance.
By Agreement of the Parties.
By Operation of Law.
By Nonperformance.


DISCHARGE BY PERFORMANCE
Complete Performance.
Exact fulfillment of the terms of the contract.
Substantial Performance.
Minor deviations from contract specifications.
Two criteria must be met:
1) Breach must not have been material.
2) Breach must be non-willful and devoid of bad
faith conduct.

DISCHARGE BY AGREEMENT
OF THE PARTIES
Release.
Rescission.
Accord and Satisfaction.
Novation.


OF THE PARTIES
Release.
Discharging the legal rights one party has against another.
To be valid, should be in writing, supported by
consideration, and should effect immediate

relinquishment of rights or claims.
Rescission.
Voluntary, mutual surrender and discharge of contractual
rights and duties whereby parties are returned to the

original status quo.


OF THE PARTIES
Accord and Satisfaction.
Agreement to accept performance different from that
required in original bargain.

When parties comply with the accord, satisfaction has
occurred.
Novation.
Creates a new contractual duty and involves substitution
of a party who was neither owed a duty nor obligated to

perform in the original bargain.

DISCHARGE BY OPERATION OF LAW

Bankruptcy automatically discharges the
partys contractual obligations.

Statutes of Limitations sets limits on the
length of time a contracting party may wait
to bring suit.
Any contract materially altered by one party
without the consent of the other will also be
discharged.

DISCHARGE BY NONPERFORMANCE
Impossibility.
Commercial Frustration.
Actual Breach.
Anticipatory Breach.
Conditions.


Impossibility.
An unforeseen event or condition which
precludes performance.
Conduct by one party which makes
performance by the other party impossible is
objective impossibility.
Subjective impossibility consists of
nonperformance owing to personal
impossibility.

Commercial Frustration.
This doctrine excuses performance in cases
where the essential purpose and value of the

contract have been frustrated.
If the event causing the frustration could have
been foreseen, no discharge allowed.
Actual Breach.
Occurs when one or more of the contracting
parties fails to perform the obligations set up by

the contract.

10

Anticipatory Breach.
Involves giving advanced notice, through
words or conduct, that one does not intend to

fulfill a contract as written.
Anticipatory repudiation, UCC sanctions a
demand that adequate assurances of due
performance. Allows one to suspend
performance for 30 days or until assurances are
put forth.
11

Conditions.
Conditions may result in nonperformance
which justifies discharge.

Condition is act/event that limits or qualifies a
promise.
Condition must occur before promissor has a
duty to perform or refrain from performing.

12

Courts classify conditions in two ways:
Timing.
Conditions Precedent.
Concurrent Conditions.
Conditions Subsequent.
Stems from the manner in which the conditions
arise.
Constructive (or implied) Conditions.

Expressed Conditions.

13

TYPES OF REMEDIES
Legal Remedies (money damages):
damages resulting from a courts exercise of

its power at law.
Compensatory Damages.
Consequential Damages.
Punitive Damages.
Nominal Damages.
Liquidated Damages.
Mitigation of Damages.

14

TYPES OF REMEDIES
Equitable Remedies:
remedies arising from

a courts use of its powers of equity.
Rescission and Restitution.
Specific Performance.
Quasi Contract.
Reformation.
Injunction.

15

DAMAGES
Most common legal remedy sought by
injured party.
Courts ask, when computing damages
whether breaching party, as a reasonable
person, should have foreseen the injuries
that would result from breach.

16

DAMAGES
Compensatory Damages.
Sums of money which will place the injured
party in the same economic position that would

have been attained had the contract been
performed.
Consequential Damages.
Indirect or special damages arising from the
effects of the breach itself.

17

DAMAGES
Duty to Mitigate.
To measure damages the courts place on the
injured party the duty to mitigate (or minimize)

these damages.
Punitive Damages.
Imposed not to compensate the injured party
but to punish the wrongdoer so as to deter

future conduct.
18

DAMAGES
Liquidated Damages.
When parties agree in advance to a certain sum
of money that will be paid to the injured party

should breach of contract occur.
Nominal Damages.
Small amount of compensation for the breach.

19

EQUITABLE REMEDIES
Plaintiffs eligibility to receive fairness
depends on the absence of bad faith on the

plaintiffs part and similar factors.
Courts power to award equitable remedies
is discretionary.

20

EQUITABLE REMEDIES
Rescission and Restitution.
Voluntary agreement to rescind, or set aside the
contract before rendering performance.

Can result from a material breach in which case
a restoration of parties to the status quo is
sought.
Restitution, or the return of goods, money, or
property involved in the contract or recovery of
a reasonable value of the services rendered is
equitable.
21

EQUITABLE REMEDIES
Specific Performance.
When restitution is inadequate or unjust.
Court compels the breaching party to perform
according to the exact terms of the contract.
Quasi Contract.
Creation of contract for the parties to prevent
the unjust enrichment of one party.

One party knowingly has received a benefit to
which party is not entitled.
22

EQUITABLE REMEDIES
Reformation.
Rewriting a contract in order to remove a
mistake and to make the agreement conform to

the terms to which the parties originally agreed.
Injunction.
A court order directing a person to do or refrain
from doing some specified act.

23

LIMITATIONS OF REMEDIES
Contract language may actually limit
remedy options available.

Uniform Commercial Code impact remedy
options in sale of goods.

24

WAIVER OF BREACH
Contracting party may agree to accept less
than complete performance by waiving a

breach of contract that is committed by
another party.
Waiver eliminates the breach.

25

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BUSINESS LAW: Cases & Principles

Davidson Knowles Forsythe 8th Ed.

DISCHARGE OF CONTRACT AND

BUSINESS LAW: Cases & Principles

TERMINATION OF THE CONTRACT

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

BUSINESS LAW: Cases & Principles

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

consideration, and should effect immediate

rights and duties whereby parties are returned to the

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

required in original bargain.

of a party who was neither owed a duty nor obligated to

BUSINESS LAW: Cases & Principles

DISCHARGE BY OPERATION OF LAW

partys contractual obligations.

BUSINESS LAW: Cases & Principles

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

BUSINESS LAW: Cases & Principles

where the essential purpose and value of the

parties fails to perform the obligations set up by

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

words or conduct, that one does not intend to

BUSINESS LAW: Cases & Principles

which justifies discharge.

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

Stems from the manner in which the conditions

Constructive (or implied) Conditions.

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

damages resulting from a courts exercise of

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

remedies arising from

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

party in the same economic position that would

effects of the breach itself.

BUSINESS LAW: Cases & Principles

injured party the duty to mitigate (or minimize)

but to punish the wrongdoer so as to deter

BUSINESS LAW: Cases & Principles

of money that will be paid to the injured party

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

depends on the absence of bad faith on the

2004 West Legal Studies in Business

BUSINESS LAW: Cases & Principles

contract before rendering performance.

BUSINESS LAW: Cases & Principles

according to the exact terms of the contract.

the unjust enrichment of one party.

BUSINESS LAW: Cases & Principles

mistake and to make the agreement conform to

from doing some specified act.