Performing and Enforcing a
Contract
OBE 118, Section 10
Fall 2004
Professor McKinsey
A Valid Enforceable Contract
1)
2)
3)
4)
5)
6)
Mutual Agreement
Consideration
Capacity
Legality
Genuineness of Assent
Writing
Rights and Duties
Good
Party
A
$$$
Party
B
For every promise there is a corresponding consideration/
obligation.
This makes up an exchange that is a duty by the promisor and
a right by the promisee (We also say “obligor” and “obligee”)
Party A and Party B are in “privity of contract”
Third Parties
A party other than the promisor and the
promisee can become involved as a “party” to a
contract
- By assignment or delegation
- As a third party beneficiary
Assignments of Rights
A contract right can be assigned
- Assignee can enforce contract
- The assignor loses the right
- Some rights cannot be assigned
1) Statutory forbiddance
2) Contract specifies no assignment
3) Personal contracts
4) If assignment would materially increase duty
- Notice of the assignment
1) Ensures priority if multiple assignees
2) Ensures performance to assignee
Delegations of Duties
A contract duty can be delegated
- Usually original promisor (obligor) is still liable
- New “obligee” can “assume the duty” and thus
become liable to original promisee
- Some duties cannot be delegated
1) Personal skill of obligor
2) Special trust in obligor
3) Will cause material change in performance
4) Contract expressly prohibits
An Example
Good
Party
A
$1000
Party
B
Third Party Beneficiaries
Intended Beneficiaries
-A party for whose benefit the contract was made
-Party has right and can sue to enforce
-Make sure right has vested (notice or reliance)
When is a beneficiary intended?
-Was performance to be to the 3rd party directly?
-Does 3rd party have right to control performance?
-Was the designation as intended beneficiary expressly
made?
Absolute Promise
A simple promise in exchange for another
promise, with no conditions or qualifications.
Party
A
Good
$$$
Party
B
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 Precedent
A condition that must be met before performance is
due
Condition Subsequent
A condition that ends the obligation to perform
Concurrent Conditions
When performance must occur simultaneously
A Valid Enforceable Contract
1)
2)
3)
4)
5)
6)
Mutual Agreement
Consideration
Capacity
Legality
Genuineness of Assent
Writing
Performance
Each enforceable promise in a valid enforceable
contract creates a duty that must be discharged
by performance, breach, agreement, or law.
Duty
Performance
Each enforceable promise in a valid enforceable
contract creates a duty that must be discharged
by performance, breach, agreement, or law.
Duty
Two types of promises:
Absolute Promises
Conditioned Promises
Discharge by Performance
is usually enough.
Sometimes contract requires
Checklist for Substantial Performance
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
duty.
discharges the other party’s
Material breach occurs when performance is not
substantial or when strict performance was called for
and performance is not exact.
discharges the other
party’s duty
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.
Mutual Rescission – Parties agree to void contract
Novation - new party in a new contract, old party
relieved of duty
Compromise - settlement agreement over bona fide
dispute
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)