Chapter 18 Performance

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Chapter 18Performance Remedies
It is an immutable law in business that words
are words, explanations are explanations,
promises are promises but only performance is
reality. Harold S. Geneen, CEO of ITT, Managing
(co-written with Alvin Moscow, 1984)
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Learning Objectives

• Nature and types of conditions in contracts
• Performance of contracts
• Breach of contract
• Excuses for non-performance
• Remedies for breach of contract

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Overview

• Entering into a contract evidences an intention
  to perform (complete) obligations under the
  contract
• Generally, each party performs the promise and is
  discharged (released) from further obligation
• If a party fails to perform as expected, courts
  may be asked to determine the respective rights
  and duties of the parties

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Conditions in a Contract

• Sometimes a promisors duty to perform depends on
  the occurrence of some event or condition, an
  uncertain, future event
• A condition may be classified as a
• Condition precedent
• Condition subsesequent
• Condition concurrent

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Condition Precedent

• A future, uncertain event creating a duty to
  perform
• Example Tisha contracts to buy a house on the
  condition she is able to obtain financing. The
  contract arises and she is obligated to purchase
  the house once she obtains financing

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Condition Concurrent

• When the contract calls for parties to perform
  at the same time
• Example Bryan promises to buy Stevies guitar
  for 1000. Stevie must give Bryan the guitar
  when Bryan gives Stevie 1000.

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Condition Subsequent

• A future, uncertain event that discharges the
  duty to perform
• Example Lee agrees to work for WoolCo until he
  returns to college. Lee returns to college in
  August and discharges his obligation under the
  contract.

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Excuse of Conditions

• Occurrence of a condition may be excused
• When occurrence of condition was prevented or
  hindered by party benefiting from the condition
• Waiver when a person whose duty is conditional
  voluntarily gives up his right to the occurrence
  of the condition
• Estoppel when a person whose duty is
  conditional leads other party to rely on his
  noninsistence on the condition
• When performance of the act that constitutes the
  condition becomes impossible

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Silvestri v. Optus Software

• Facts
• Silvestri was hired under two-year employment
  contract with satisfaction clause reserving
  right to terminate employment for failure to
  perform duties to the satisfaction of the
  company
• Silvestri pleased the CEO for six months, but
  complaints against Silvestri began to increase
• Three months later, the CEO fired Silvestri
• Silvestri filed suit claiming the dissatisfaction
  was objectively unreasonable and a breach of
  contract

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Silvestri v. Optus Software

• Procedural History and Legal Reasoning
• Trial court found for Optus
• Appellate court reversed in favor of Silvestri
• Issue whether the employers satisfaction is
  subject to an objective or subjective evaluation
• A subjective standard typically is applied to
  satisfaction clauses in employment contracts
• In a satisfaction clause employment setting,
  there must be honest and genuine dissatisfaction
  with the employees performance

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Silvestri v. Optus Software

• Holding
• Company supplied objective evidence of genuine
  dissatisfaction with Silvestris performance
• Thus, applying the test of genuineness, and not
  reasonableness, we conclude that Silvestri has
  not demonstrated that a dispute exists requiring
  submission of the matter to jury trial
• Reversed in favor of Optus

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Performance of Contracts

• To determine whether a promisor is discharged by
  performance, courts consider the standard of
  performance expected
• A strict performance standard requires full or
  perfect compliance with the contract terms
• Example Buyer agrees to finalize a home
  purchase (close) by 500 pm on Nov. 21. If Buyer
  does not close by that time, the contract ends.
  Buyer is discharged from buying and Seller is
  discharged from turning over the house, but there
  may be legal remedies to Seller for Buyers breach

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Performance of Contracts

• A substantial performance standard is slightly
  lower standard applied to duties that are
  difficult to perform without some deviation from
  perfection in minor respects
• Example Bob Builder built a home for Jason.
  Bob met the contract terms except he didnt paint
  the baseboards the right shade of white. Bob
  is discharged and Jason has the duty to pay the
  contract price less any damages (repainting)
  resulting from the defects in performance

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Substantial Performance
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Breach of Contract

• Under the implied covenant of good faith and fair
  dealing, every contract includes an obligation to
  perform in good faith
• If a promisor fails to perform, breach occurs
• At minimum, breach of contract gives the
  non-breaching party the right to sue and recover
  for damages caused by the breach
• For a material (serious) breach, further legal
  remedies are available

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Determining Materiality

• Standard for determining materiality is flexible,
  but generally based on the amount of the breach
  and timing for performance
• Example if contract contains a time is of the
  essence provision, any delay by either party may
  constitute a material breach
• Example if time for performance immaterial,
  promisee must accept late performance if within
  reasonable time after performance due, but may
  deduct costs of delay

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Arnhold v. Ocean Atlantic Woodland Corp.

• Facts
• Sellers agreed to sell farmland to developer
  Ocean Atlantic (Buyer), but delays and extensions
  ensued
• After more negotiation and litigation, Sellers
  and Buyer signed a settlement agreement
  containing a time is of the essence clause
  (basis of the lawsuit)
• Shortly before the closing date, Buyers again
  tried to extend the contract and Sellers refused,
  warning that time is of the essence
• Buyers assured Sellers they would close, but
  failed to do so Sellers notifed Buyers of
  contract termination

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Arnhold v. Ocean Atlantic Woodland Corp.

• Procedural History and Issue
• Buyers sued Sellers seeking specific performance
• Trial court found for Sellers and Buyers appealed
• Issue whether Buyers materially breached the
  agreement by failing to tender the purchase funds
  and close on the property on the specified date

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Arnhold v. Ocean Atlantic Woodland Corp.

• Legal Reasoning and Holding
• The materiality inquiry focuses on two
  interrelated issues (1) the intent of the
  parties with respect to the disputed provision
  and (2) the equitable factors and circumstances
  surrounding the breach of the provision
• Intent of the parties was clear time was of the
  essence and timing was material

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Arnhold v. Ocean Atlantic Woodland Corp.

• Legal Reasoning and Holding
• In examining the totality of the circumstances,
  the facts do not support Buyers argument
• Sellers displayed the patience of Job by waiting
  nearly 3 1/2 years
• Buyer treated material deadlines as trivial, thus
  Buyer has lost any right to purchase Sellers
  land
• Affirmed in favor of Sellers

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Anticipatory Breach

• When the promisor indicates before time for
  performance that promisor is unwilling or unable
  to carry out the contract, anticipatory
  repudiation or anticipatory breach occurs
• The promisee has choices
• Withhold his/her own performance and sue for
  damages for total breach of contract immediately
• Wait to sue until time for performance in case
  the other party changes his mind and decides to
  perform
• Waive his/her rights to performance

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Excuses for Non-Performance

• Nonperformance of a duty generally is a breach of
  contract, but nonperformance may be excused in
  certain circumstances
• Impossibility it cannot be done by anyone
• See Bush v. ProTravel International, Inc.
• Impracticability when unforeseen developments
  make performance highly impracticable,
  unreasonably expensive, or of little value to
  promisee (UCC 2615)

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Other Reasons for Discharge

• Discharge by mutual agreement
• Accord and satisfaction
• Accord is an agreement in which a promisee who
  has existing claim agrees with promisor that s/he
  will accept some performance different from that
  originally agreed on. When promisor performs the
  accord, that is called a satisfaction.
• Discharge by waiver of promisee

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Other Reasons for Discharge

• Discharge by alteration
• One party alters and other does not consent
• Discharge by statute of limitations
• One party takes too long to bring lawsuit
• UCC 2725 four-year statute of limitations for
  contracts involving the sale of goods
• Discharge by decree of bankruptcy

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Remedies for Breach of Contract

• Legal remedies (money damages)
• Compensatory damages, nominal damages, liquidated
  (contractual) damages, and in certain
  circumstances, punitive damages
• Equitable remedies
• Specific performance or injunction
• Restitution

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