April 22nd Notes

Business Law
April 22, 2010

Conditions
-a condition is an event that must occur before a duty to perform arises or which discharge a duty that have already risen
-created by word, conduct, law
-no special language is necessary to create condition

Third Party Rights
-may have a legal interest in a contract and be able to enforce the contract, if there is:
    -beneficiary interest
    1. intended: can enforce the contract
    2. incidental: can not enforce
    -an assignments
    -delegation

DIA v. Rose Jr.

Meeting of the minds
Contract should benefit
3rd party beneficiary

-needs to be intended at the time the contract was made

Assignment & Delegation
-A contracting party may transfer his or her rights under a contract – this is an assignment.
-A contracting party may transfer his or her duties under a contract – this is a delegation.

Assignment
A contract must first exist.
There will be an obligor and an obligee.
One of the parties (the obligee) transfers his rights under a contract to a third person.
The person transferring – or assigning – his rights is the assignor.
The person receiving the assignment is the assignee.
The obligor now owes the money to the assignee.

Delegation
A contract must first exist.
There will be an obligor and an obligee.
One of the parties (the obligor) transfers his duties under the contract to a third person.
The person transferring – or delegating – his duties is the delegator.
The person receiving the delegation is the delegatee.
The delegatee now owes the duty to the obligee.
The delegator remains ultimately responsible for the performance under the contract.


Novation
A novation is a three-way agreement in which one party transfers all her rights and duties to a third party.
Both original parties agree to the novation.
Essentially the third party substitutes in for one of the original parties to the contract.
The obligee agrees to look only to the third party for performance.

When does a contract end?

Discharge of Duties
Contractual duties may be discharged by:
Performance of all contractual duties OR
A condition excusing the duty to perform
Agreement
Impossibility of performance
Commercial Impracticability

Performance
With performance, the contract ends when it is fully executed –  that is when both parties fully perform their obligations under the contract.
Strict  performance
Substantial performance

Personal Satisfaction
In some contracts the performance  must be done to the personal subjective satisfaction of the promisee.
Dissatisfaction results in termination of the contract.
In Washington the dissatisfaction must be based on reasonable grounds. Omni Group, Inc. v. Seattle-First Nat’l Bank, 32 Wn. App.22 (1982).

Good Faith
Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.
Restatement (Second) of Contracts § 205
-insurance contracts

Most contracts end when the performance is done.

Breach
Any failure or refusal to perform a contractual duty constitutes a breach.
When one party breaches a contract, the other party is discharged.
However, courts only discharge (or cancel) a contract if a party has committed a material breach of the contract. (material is a fact)

Anticipatory Repudiation
Occurs when one of the parties to a bilateral contract either expressly or impliedly repudiates the contract prior to the time of performance.
Must be a positive statement or action indicating distinctly and unequivocally that the repudiating party will not substantially perform.

Discharge by Agreement
Parties can end the contract by agreement through
Rescission
Novation
Accord and satisfaction

Impossibility of Performance
If a party is unable to perform a contract because performance becomes “impossible,” then the performance is excused.

Commercial Impracticality
If circumstances change (that neither party anticipated), leaving one party at a significant commercial disadvantage, that party may be excused from the contract under the theory of commercial impracticality.
If the change could have been foreseen, the court will generally not afford relief.

REMEDIES
Remedies
If one party fails to live up to the terms of the contract, the other party may sue. The remedy is how the court compensates the injured party.
Money damages based on
Expectation of contract performance
Actions taken in reliance on
Performance of the Contract
Rescission and Restitution
Reformation of the Contract

Compensatory Damages
These damages flow directly form the contract – damages that inevitably result from the breach.

Washington law
The general measure of damages:
The injured party is entitled to:
Recover of all damages that accrue naturally from the breach, and
Be put into as good a pecuniary position as he would have had if the contract had been performed.

Diedrick v. School Dist. No. 81, 87 Wn.2d 598 (1976)

Consequential Damages
These are damages that result from the unique circumstances of the injured party.
The injured party must prove that the breaching party had reasonable notice of the special circumstances and that  a breach would cause the damages suffered.

Incidental Damages
The minor costs associated with responding to a breach of performance.

Rescission & Restitution
Rescission results in a cancellation of the contract.  (Generally where there was fraud, mistake, duress or undue influence – something affecting the genuiness of assent).
If a contract is rescinded, both parties must make restitution to each other.
Both parties are returned to the position they were in prior to the contract.

Reliance Interest
Where the expectation interest of a contract cannot be fairly measured, a party injured by a breach may be entitled to damages that will restore the party to the position he would have been in if he had not entered into the contract.

Equitable Remedies
Specific performance
Injunction   
Reformation of the contract

Mitigation
The law does not permit a party to recover damages for breach of contract if the damages could have been avoided without undue risk, burden or humiliation.
A party must exercise reasonable efforts to mitigate damages.

Liquidated Damages
Damages specified within the contract itself – a liquidated damages clause states, in advance, how much a party must pay if he or she breaches the contract.
Washington upholds these clauses unless it is a “penalty” and so long as the agreement is fair.

Attorney Fees & Costs
A court will enforce a contract term requiring the losing party in an action on the contract to pay the other party’s attorney fees and litigation costs.