Methods to Terminate a Contract

1
Methods to Terminate a Contract

• 4.02

2
Discharge by Performance

• Most contracts are discharged (or end) 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.

3

• Satisfactory
• Law requires that services be completed in a
  satisfactory manner.
• Reasonable person test
• Would a reasonable person consider the work to be
  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.

4

• Tender of Performance
• Offer to perform a certain act to fulfill a
  contract
• Must make tender even if you know the other party
  will not perform their part of the contact.
• If rejected, excused from fulfilling contract
• Tender of payment
• Offer to pay certain amount to fulfill contract
• If rejected, does not excuse from the debt

5
Discharge By Agreement

• Mutual Release
• Each side releases the other side from the
  contract.
• Accord and Satisfaction
• Agreement to accept performance that is different
  from original contract.
• Substitute one contract for another.

6
Discharge By Impossibility 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.

7

• Destruction of the Exact Subject Matter
• If the subject matter is essential to the
  contract then it will be discharged.
• Subject matter cannot be replaced
• One of a kind or unique items
• Illegality
• Any illegal contract is void.
• Activity or subject matter of contract becomes
  illegal

8
Discharge by Operation of Law

• Wrongful Alteration
• Any altering or changing of a contract will
  discharge parties to the agreement.
• Original contract still enforceable
• Statute of Limitations
• Individual states have a time limit on lawsuits
  to be filed.
• What is the only crime/tort that doesnt have a
  time limit?

Murder
9

• Bankruptcy
• Debtors can be discharged from contracts after
  filing for bankruptcy.
• Certain debts cannot be discharged by bankruptcy
• Education loans
• Tax debts
• Alimony
• Support

10
Transferring or Breaching Contracts and Remedies
11
Assignment

• 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 (benefit) not a DUTY (detriment).
• Assignor is responsible for contract fulfillment.
• Payment of money and delivery of goods are most
  common examples of assignment.

12
Delegation

• Transfer a DUTY (detriment).
• Delegating party is still responsible for the
  contract being fulfilled.
• Common in construction and business
• Subcontracting
• Contracts that CANNOT be delegated
• Promise to perform service personally.
• Exercise of personal skill or judgment.
• Contract prohibiting delegation.

13
Novation

• Replacing a party to a contract with a new one.
• The other terms to the contract remain the same.

14
Third Parties

• Privity of Contract
• Binding relationship between parties 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.
• Ex. Life insurance beneficiaries

15
Breach 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 Refusal to pay money owed at a future
  date.

16
Remedies/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 partys time to file lawsuit.

17
Monetary Damages

• Actual Damages DIRECTLY related to breach.
• Incidental Reasonable expenses that INDIRECTLY
  result from breach of contract.
• Compensatory Award only for injuries suffered
  nothing more.
• Consequential Damages that DO NOT flow directly
  from breach.

18
Monetary Damages

• 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.

19
Minimizing 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.
20
Equitable Remedies

• Specific Performance
• 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.
21
Injunction

• Court order that prevents a party from performing
  an act.
• Temporary or Permanent.
• Violators are in contempt of court.