CHAPTER 6: HOW CONTRACTS
COME TO AN END
CHAPTER 6.1
Transferring and Ending Contracts
ENDING A CONTRACT
A
contract is discharged when it
comes to an end
 Contracts can be discharged
voluntarily in two ways:
By
performance
By agreement
DISCHARGE BY PERFORMANCE
 Performance
A
series of activities that fulfills the purpose
of the contract
 Complete
performance represents a stage
in which all the terms have been carried
out properly
4 CHARACTERISTICS OF PERFORMANCE
Time
for Performance
Satisfactory Performance
Substantial Performance
Tender of Performance
TIME FOR PERFORMANCE
Time to complete performance may be
important to one or both parties
 If time is not stated in contract and there is a
question, court will say all duties under
contract must be completed in a reasonable
time.
 Reasonable--> determined by what is suitable,
fair, and proper to the goal of the contract.

TIME FOR PERFORMANCE

Example:

A reasonable time for selling tomatoes, for instance, is
not the same as a reasonable time for selling a house.
If there is a time limit stated, the court may still
give more time if asked to do so by one of the
parties.
 Time limit should be included in the contract to
avoid misunderstanding among the parties-->
using the words time is of the essence in the
contract

SATISFACTORY PERFORMANCE
 Sometimes
the contract will say
nothing about satisfaction,
sometimes a contract may say the
work must be done in a satisfactory
manner.
 Satisfactory: to meet demand of
requirement
SATISFACTORY PERFORMANCE
In a lawsuit, the court will use the reasonable
person test to measure whether the contract
was performed in a satisfactory manner.
 The jury will decide what is satisfactory
 If there is no jury, the judge will decide
 Sometimes, one party will agree to perform
services to the other party's satisfaction

SATISFACTORY PERFORMANCE EXAMPLE
Marc Marcel, an artist, agreed to paint Julie's
portrait "to her satisfaction" for $500. When
the painting was completed, all of Julie's family
and friends thought it was beautiful, however,
Julie thought it was hideous!
 She felt the nose was too long and the mouth
was too big. In most states Julie would not have
to pay for it since it was not to her satisfaction.

SUBSTANTIAL PERFORMANCE
Both parties in a contract must fully perform their
parts of the bargain.
 Someone who has not fulfilled their part in most
cases will not win a lawsuit against the other for
money owed/damaged
 Exception: Substantial Performance


Definition: A situation in which a party has, in good
faith, completed the major requirements of a contract,
leaving only a few minor details unfinished.
SUBSTANTIAL PERFORMANCE
 The
court will allow that person to
recover the amount agreed upon
under the contract, minus the cost of
completing the job.
 Often
applied to construction
contracts
SUBSTANTIAL PERFORMANCE EXAMPLE
Jake reports that Zoning Enterprises will
have to tear down the new Ramirez Hotel on
Michigan Ave because they installed the
wrong type of tile in the bathrooms.
 The doctrine of substantial performance
would prevent such a drastic and unfair
result.
 Ramirez would have to pay Zoning
Enterprises for the construction of the
building. The hotel may deduct any
damages.

TENDER OF PERFORMANCE
A party can fulfill the terms of a contract by
performing an act or by paying money.
 Tender: an offer to do what you agreed to do
under a contract
 It is important to make tender even if you know
the other party will not perform his or her part
of the contract
 If neither party has made tender, neither can
bring a lawsuit forward

TENDER OF PAYMENT
 An
offer to pay a certain amount to fulfill a
contract
 If a person makes a tender of payment
that is rejected, that person is NOT
excused from the debt.
 He or she is only excused from paying
additional interest on the debt.
TENDER OF PAYMENT EXAMPLE
Keith Hanson owed Carla Miller $500, which was
due on the 1st of August.
 Hanson did not tender payment until after the first
of August.
 Miller refused to take the money at that time and
said, "you didn't pay the money when it was due,
now I'm going to sue you and make it cost you
plenty."
 Miller can collect $500 plus interest at the legal
rate for one month.

DISCHARGE BY AGREEMENT
Means
that people can end a
contract by mutual agreement
This can be done by mutual
release or by accord and
satisfaction
MUTUAL RELEASE
Agreement
between two parties to
end a contract
Whatever the parties agreed to do
in the first place, they can later
agree NOT to do.
ACCORD AND SATISFACTION
A
contract can also be discharged when
one party agrees to accept a different
performance from the other party
 One contract is substituted for another
 It is often used to settle an honest
disagreement on an amount owed
INVOLUNTARY DISCHARGE
 Some
contracts are discharged
involuntarily despite what the parties
intend to do.
 Example: death, illness, illegality, etc
 There are 2 ways contracts are
discharged
 1.
Impossibility of Performance
 2. By Operation of Law
DISCHARGE BY IMPOSSIBILTY OF
PERFORMANCE
A contract becomes legally impossible to
perform
 Definition: May be allowed in case of death or
illness that prevents the performance of a
personal service contract; the destruction of
the exact subject matter, or the means for
performance; and illegality, or situation in
which the performance of a contract becomes
illegal

DEATH OR ILLNESS IN A PERSONAL SERVICE
CONTRACT
 Death
or illness of a party of a
contract may be an excuse for nonperformance
 This is true ONLY if the contract
requires the personal service of the
person who has died or become ill.
DESTRUCTION OF THE EXACT SUBJECT MATTER
 If
the means or subject matter that is
needed to perform the contract is
destroyed through no fault of either
party, the contract is discharged.
 Destruction must occur after the
contract is entered, but before it is
carried out.
DESTRUCTION OF SUBJECT MATTER EXAMPLE
Brian has been negotiating a contract for the
purchase of a unique printing press from Mr.
Smith. The price had been set and the printing
press was delivered the next day.
 That night however, the press was destroyed
when the delivery truck went off a cliff. The
contract would be discharged because of the
destruction of the particular subject matter
identified in the contract.

DISCHARGE BY OPERATION OF LAW
At times, the best interest of society demand
that a contract be terminated.
 The law declares contracts discharge by
operation of law.
 4 ways:

 Wrongful
Alteration
 Statute of Limitations
 Debt and Statue of Limitation
 Bankruptcy
WRONGFUL ALTERATION
Wrongful
Alteration
One
party’s wrongful acts will
discharge a contract
Example:
contract
altering or changing a
STATUTE OF LIMITATION
 Statute
of Limitation
Establishes
a time limit for suing in a
civil case. Based on the date when the
breach occurred or was discovered.
Each state has their own laws
DEBT AND STATUTE OF LIMITATION
The debt may be renewed
 If a debtor make a partial payment or admits
that the debt exists after the time period has
passed, the debt is renewed for another time
period set by the state statute


In some states, this new agreement must be in
writing
BANKRUPTCY
Congress has set procedures for discharging a
debtor’s obligations.
 Obligation still exists, but a debtor can not be
imprisoned for failure to pay
 Certain debts CANNOT be discharged:

Student loans
 Debt for taxes
 Alimony
 Child support
 Maintenance

BREACH OF CONTRACT

When a person fails to perform the duties spelled
out by a contract.

When a breach of contract occurs, one party is
injured

Injuries may not be physical, but it does not mean
that they are not real.

The injured party may demand justice
TRANSFER OF CONTRACTUAL RIGHTS & DUTIES

When people establish contracts, they receive:
 Rights
Benefits
 Acquire Duties Detriments (something you give
up)

Sometimes these rights and duties are moved
to someone else
 Taking
on more work that you can handle may
required you to shift some of those duties to other
qualified parties
ASSIGNMENT AND TRANSFER OF RIGHTS

An assignment is the transfer of a right under a
contract.

This can be done as long as the contract doesn’t
specifically say it cannot be done.
Party who transfer right  Assignor
 Party who get the right  Assignee
 Assignee is a third party person who is not a party
to the original contract

ASSIGNMENT AND TRANSFER RIGHT EXAMPLE
Anthony entered into a contract with Kathy to
rebuild the front steps of her house for $1800.
 The carpenter was pleased to get the work
because he owed his landlord $1800.
 Before beginning the work, Anthony assigned
the right to receive payment for the work to his
landlord.
 When payment was due, Kathy paid the $1800
to the landlord directly.

HOW RIGHT MAY BE ASSIGNED
No consideration is necessary for an
assignment to be valid.
 The Law does NOT say how one party may
assign a right to somebody else.
 It is best to put it in writing because oral
assignments (transferring rights) can be
difficult to prove

ASSIGNING RIGHTS EXAMPLE
Suppose you owe money to a bank under a
contract (loan).
 Now suppose your bank assigns the right to
receive your money to another bank.
 Would you want to know about the change?
 YES! And you would want it in writing so when
you send the money, you know you’re doing the
right thing

WHAT RIGHTS MAY BE ASSIGNED?
Most rights may be assigned (transferred)
unless the assignment changes the obligation
of the other party to the contract in an
important way.
 Example:

 Suppose
Anthony assigned the right to received the
$1800 to his landlord for the work he did on
Kathy’s house, but Anthony did a poor job.
 Kathy can raise the defense of a “poor job” if she
was sued by the landlord for the money owed.
DELEGATION AND TRANSFER OF DUTIES

Delegation
 Transferring
of a duty under a contract
This SHOULD NOT be confused with an
assignment
 Assignment is a transfer of RIGHTS
 Delegation is a transfer of DUTIES
 In a transfer of duties, a party to a contract
trust another person to do the job in his or her
place

EXAMPLE
Ivan cannot meet all of his printing contracts.
When it came time to print a newsletter for a
high school, he transferred his contract
obligation to another printer who was not a
party to the original contract.
 This is a legal form of subcontracting
 This could not be done ONLY if Ivan told the
school he would personally do the printing

SUBCONTRACTING
Handing over the duty of doing the work to
someone else
 You may not delegate duties, however if any of
the following has occurred:

A
party agrees to perform personally
 The contract calls for the exercise of personal skill
and judgment
 The contract itself prohibits delegation
DELEGATING
If you have the right to delegate a contractual
obligation and decide to do so, choose your
third party carefully!
 You retain responsibility for any job duties that
you subcontract or assign to a third party.

NOVATION
You do not need permission of the other party to
assign contract rights or delegate duties to a third
person.
 If you do receive permission, and the other party
agrees to deal with the assignee (person taking on
the work), the resulting contract is called a
NOVATION.
 Novation- original party replaced by new party
 Terms of contract remain the same
 Change required consent of all parties involved

THIRD PARTIES
Contract is a binding agreement between parties
 The relationship is termed privity of contract
 Usually parties to a contract have standing to sue
if needed
 A third person may enforce a contract when it is
made specifically to their benefit.
 Third Party Beneficiary a person who is not a
party to a contract but can still benefit from the
contract

CHAPTER 6.2: VOIDABLE
CONTRACTS AND
REMEDIES
INTRO

If a contract appears to meet all elements of a
contract, what could still prevent the contract?

Sometimes what seems to be valid, turns out to be
nothing of the kind!

In these situations, the agreement is defective.

Several circumstances may lead to this situation
such as: Fraud, Misrepresentation, Duress, and
Undue Influence
Duress
Equitable
Remedies
Breach
of
Contract
Fraud
Undue
Influence
Damages
FRAUD

Deliberate deception intended to serve an
unfair and unlawful gain.

If the seller lied, you may be able to get your
money back.
 You

may have to sue for damages.
The law allows the injured party to get punitive
damages
FRAUD

To win a lawsuit based on fraud, five elements
must be shown.
 1.
False representation of fact (a lie)
 2. Person who lied must know it was a lie
 3. Lie must be made with intent
 4. Innocent party must rely on the lie
 5. Innocent party must experience loss
FALSE REPRESENTATION
Law says the lie must be about a material fact
that is really important.
 It CANNOT be a promise of something or just an
opinion.


Example: If your friend tells you he is going to
turn back the odometer on his car to get a
better price, he is committing fraud.
KNOWLEDGE OF LIE

Person telling the lie has to know it’s a lie.

Innocent party has to show in court that they
had actual knowledge that he or she was lying.
LIE INTENDED TO BE RELIED UPON

To prove fraud, the innocent party must show
that the liar told the lie knowing the other party
would hear it, believe it, and act on it.

The lie was told to tempt the other party into
the false contract.
LIE ACTUALLY RELIED UPON
 To
prove fraud, the innocent party has to
show that he or she depended on the lie.
 Sometimes
the defrauding party lies, but
the other party pays no attention to the
lie.
 If
that happens, there are no grounds for a
lawsuit
RESULTING LOSS
If
the innocent party does not lose
anything in the deal, there is no
loss, there is no fraud.
FRAUD SCENARIO #1
Casey is selling her car. Lisa shows an interest
in buying the car. Lisa asks Casey about the
condition and she tells Lisa the car is in
PERFECT condition (knowing the brakes need
to be repaired).
 Lisa buys the car, leaves and gets into a car
accident due to a problem with the brakes.
 Can Lisa sue Casey for fraud?

SCENARIO #2
Casey is selling her car. Lisa shows an interest in
buying the car from Casey. Lisa asks Casey if she
can take it for a test drive. Casey says sure. So
Lisa drives the car around to the back of the
building and brings it to A-Rod who checks it out.
 A-Rod tells Lisa car looks great, the brakes just
need to be repaired. So, as soon as you buy it
bring it around back and Ill repair the brakes.
 Lisa buys the car from Casey, as she is driving
around to the back of the building, she gets in a
car accident due to a problem with the brakes.
 Can Lisa sue Casey?

INNOCENT MISREPRESENTATION

Occurs when a person involved in negotiating a
contract says something that they believe to be
true, that turns out to be false.

The innocent party has the right to get out of
the contract in this scenario.
MISTAKE, DURESS AND UNDUE INFLUENCE

Sometimes a person enters into a contract with
a mistaken idea of what is at stake.

Later when they realize the error, they try to get
out of the agreement.

Sometimes they are able to get out, sometimes
not.
UNILATERAL MISTAKE

An error on the part of one of the parties to the
contract.

Usually a person cannot get out of the contract
just because of the mistake… The law wants
people to pay attention to their business deals.
BILATERAL MISTAKE

Error made on both parties to the contract.

Also called mutual mistake

Often when the mistake is bilateral, either one of
the parties can get out of the contract.

Example: Suppose you order the 2005 VHS
version of the Fantastic Four film. When the tape
arrives, it is the 1993 version. This is a bilateral
subject matter mistake. You were buying 2005
version, the seller was selling the 1993 version.
DURESS

Act of destroying someone’s free will by force,
threat, or bodily harm.
 These

types of agreements are void or voidable
Two types of duress
 Physical
duress
 Economic duress
PHYSICAL DURESS
When
actual physical force is used
to cause a person to enter into a
contract…Contract is void
When the threat of force is used…
contract is voidable
ECONOMIC DURESS

An act that threatens a person’s income or
business that makes that person enter into a
contract without real consent.

3 things need to be proven for a contract to be
void
1. Other party placed them in poor economic position
 2. Victim had no other choice
 3. Victim’s submission was reasonable under
circumstances

UNDUE INFLUENCE
An action or series of overly persuasive actions
that make inappropriate use of one person’s
position of power over another person to create an
agreement that is very favorable to the person
with all the power.
 3 things need to be true for the contract to be void

1. existence of care-giver type relationship
 2. use of excessive pressure by the caregiver
 3. contract heavily favors caregiver

REMEDIES AND DAMAGES
 Remedy
Legal
means of enforcing a right or
correcting a wrong
Injured party has 3 options
1.
Accept the breach
2. Sue for money damages
3. Ask the court for an equitable remedy
ACCEPT THE BREACH
 If
one party breaches a contract, the
other party has an excuse not to
perform.
Contract
 This
can be considered discharged
is the best choice if no damages
have been suffered
DAMAGES
Payment recovered in court by a person who
has suffered an injury.
 If you sue for damages, but you have not
suffered any loss, the amount you would will
would be about $1. Court costs would be much
higher!
 2 typed of damages

 Money
Damages
 Punitive Damages
MONEY DAMAGES
If the injured party suffers a loss, you may sue
for money damages resulting from the breach
of contract.
 The money damages should place you in the
position you would have been in if the contract
would have been carried out.
 To recover damages, the innocent party must
still made tender- do what they agreed to do

PUNITIVE DAMAGES OR RESCISSION
 Punitive
damages
 Money
payments for damages that go
beyond what the innocent party actually lost
and are designed to punish the wrongdoer.
 You
cannot receive punitive damages due
to misrepresentation
 You
would seek rescission (cancelling
contract)
EQUITABLE REMEDIES

Sometimes the remedy of money damages isn’t
enough to repay the injured party for the
breach of contract.
In this case the injured party may seek
equitable remedy.
 2 types:

 Specific
Performance
 Injunction
SPECIFIC PERFORMANCE
 Asks
the court to order the other party
in a contract to do what he or she
agreed to do.
 Can
only be used when money
damages are not sufficient to give
relief.
INJUNCTION

Court order that prevents a party from performing
a specific act.

Only available in special circumstances when
money damages will be inadequate to compensate
the injured party.

Can be temporary or permanent.

One who disobeys an injunction can be held in
contempt of court.