CHAPTER 17

Performance & Remedies

Conditions• Types of Conditions

– Precedent - Event that must occur before performance

– Subsequent - Event occurring that discharges a duty

– Concurrent - Duties to be performed at the same time

Conditions• Creation

– Express (by words)• Question 5 at end of chapter.

– Yes. No particular form is necessary to create a conditional promise. Catch phrases, such as “if,” “provided that,” “when,” and “subject to,” while helpful, are unnecessary to create a condition. Whether one was meant must be determined from the language and circumstances. In the contract virtually every substantive paragraph refers to the “John Joint Venture,” as does the agreement’s title. In fact, the agreement states that its purpose is to carry out the men’s obligations under the joint venture. This unambiguously established the formation of the John Joint Venture as a precondition to the enforcement of the contract. Since the joint venture was never organized, it could not be discontinued. Thus, Standefer cannot collect under the contract. Standefer v. Thompson, 939 F.2d 161 (4th Cir. 1991).

– Constructive/Implied

Standards of Performance• Express Requirement for Complete Performance

– Perfect Performance = Entitlement to Full Contract Price– Incomplete Performance = Entitlement to Compensation for Benefits Conferred

Under Quasi-Contract

• Johnson v. Schmitz, p. 284– A graduate student is allowed to sue the University for breaching its promise to safeguard students from academic

misconduct, to investigate and deal with charges of academic misconduct, and to address charges of academic misconduct in accordance with its own procedures. The court states, students are not normally allowed to sue for educational malpractice because courts feel unable to determine whether a failure to learn is the fault of the students or the institution. For the same reason, students are generally prohibited from suing for breach of contract challenging the overall quality of their education. The courts find they are ill-equipped to assess the soundness of a university’s educational services. Also, they do not want to have students suing schools. Here, however, Yale made a specific promise that did not require the court to evaluate subjective aspects of the quality of Yale's graduate academic program or otherwise make judgments on purely academic issues, but instead required the court to determine whether or not Yale had a contractual duty to safeguard its students from faculty misconduct, and, if so, whether that duty was breached in Johnson's case. In making this assessment, the court recognized that it may be required to evaluate the adequacy of policies designed to prevent misconduct; however, it held that this factor was capable of objective assessment and analogous to the inquiry employed in resolving workplace sexual harassment cases. In harassment cases, courts evaluate an employer's affirmative defense that it had effective procedures in place to prevent the harassment. It is important to note that this was a private university; the court would have held differently if it were public.

Standards of Performance• Express Requirement for Complete Performance

– Perfect Performance = Entitlement to Full Contract Price– Incomplete Performance = Entitlement to Compensation for

Benefits Conferred Under Quasi-Contract• Question 9 at end of chapter

– Ross v. Creighton University, p.220-221

– A former student is allowed to sue the University for breaching its promise to provide him with a “meaningful education.”

– `What does a “meaningful education” mean? Ross argued that he should have been given a variety of tutoring and other services.

– Situations such as Ross’s happen frequently enough that there has been much discussion regarding what should be done about bringing academically unprepared students who are top athletes to universities, using their talents, but failing to give them an adequate education.

– The court states, students are not normally allowed to sue for educational malpractice because the courts feel unable to determine whether a failure to learn is the fault of the students or the institution. Also, they do not want to have students suing schools. Here, however, the University made a specific promise. It was important to the court that this was a private university; they would have held differently if it were public. ).

Standards of Performance

• Substantial Performance– (in re: Contracts difficult to perform perfectly, e.g.

Construction, Agricultural, etc.)– Where Performance Falls short in minor/non-

material respects– Where an Honest, Good Faith Attempt to Perform– Depends on the Circumstances– Equals entitlement to compensation– M.J. Oldenstedt Plumbing Co., Inc. v. K-Mart Corp., p.286

• A subcontractor’s performance under the contract was so slow as to be a material breach.

• Time is not generally considered to be of the essence in such conditions. A contractor must fall significantly behind before it will be in breach.

Standards of Performance

• Substantial Performance– Question 4 at end of chapter.

• Yes. In order to decide if there was a breach, the parties’ pertinent obligations under the contract must be determined. Midwifery promised to perform childbirth delivery services as part of a package of services, including pre- and postnatal care. The Weisses received services on at least a dozen occasions. Although the failure to attend the birth was unfortunate, Midwifery did expend a significant amount of time, energy, and expertise. Therefore, it performed a substantial portion of its obligation. The failure to perform one part of the package is not a breach. Midwifery is not in breach for another reason. There was an implicit understanding that Midwifery would make its “best effort” to attend the birth after being notified that childbirth was imminent. Here the labor pains did not begin until just a few minutes before the birth, making proper notification impossible. Since the purported breach was caused by Weiss’s failure to notify, and notification was a condition to performance, Midwifery is not responsible. One who frustrates another’s performance, even unintentionally, cannot claim breach. Weiss v. Nurse Midwifery Associates, 476 N.Y.S. 2d 984 (Civ. Ct. N.Y. 1984).

Standards of Performance

• Material Breach = mere quasi-contract or no entitlement for compensation and liability for damages

• Anticipatory Breach/Repudiation - where indication of intent not to perform

Standards of Performance

• Special Problems– To Personal Satisfaction vs.

Reasonable Person– Architect’s/Engineer’s Certificate -

Normally no duty to pay contractor until certificate issued

Standards of Performance

• Time of the Essence vs. Reasonable Time (w/deduction/setoff)

– Question 6 at end of chapter.

• No. Parties to a contract may provide that time is of the essence. Such a clause ordinarily means the time fixed for performance is a vital element of the contract. If a contract specifies a certain time for performance, the contract must be performed at that time, even if time is specified by the hour. Here the contract specifically stated that time was of the essence, and required closing at 10:00. It was not ambiguous. Miceli’s failure to appear until 10:30, without notice, and failure to tender the money until 1:30, meant that Dieberg had to arrange alternative financing for her other contract purchase. Miceli materially breached the contract, and is not entitled to specific performance. TF. J. Miceli and Slonim Development Corp. v. Dieberg, 773 S.W. 2d 154 (Ct. App. Mo. 1989).

Excuses for Nonperformance• Prevention - Promisee fails to cooperate or

actively hinders = relief from liability to• Impossibility (Only where event arises after or

without knowledge)– Illness/Death Promisor

• for personal service contracts

– Intervening Illegality– Destruction of Subject Matter

• where no fault of promisor

Excuses for Nonperformance• Impossibility

– Commercial Impracticability/Frustration• only in some courts• where nonforeseeable• where performance makes unreasonable• and where no express assumption of risk• Question 7 at end of chapter.

– No. Commercial frustration is not a general excuse whenever performance becomes difficult or expensive. If the risk was foreseeable and allocated, it does not excuse performance. Thus, frustration does not apply here because Score’s death was foreseeable, as witnessed by Arabian’s purchase of insurance. The purchase also shows Arabian assumed that risk. Also, promotion of Score is possible, so the doctrine of impossibility does not apply. Promoting a dead horse is apparently not pointless. It is done regularly to enhance the reputation of the owner and the value of the stallion’s progeny. Although the thought of spending almost $200,000 to promote a dead horse borders on the bizarre, the parties to this agreement were sophisticated and, we assume, well –heeled businesspersons, and what we may find to be unusual may be commonplace to those who inhabit the wealthy world of the horsy set. Arabian Score v. Lasma Arabian Ltd., 3 U.C.C. Rep. Serv. 2d 590 (8 th Cir. 1987).

Contract Release/Discharge

•By Mutual Agreement•By Waiver•By Material Intentional

Alteration–where a written agreement

•Statute of Limitations

Damages in Contract Cases• Compensatory- to make whole from actual loss• Consequential - foreseeable consequence of

– Dupont v. Discovery Zone, p. 290• The court found that Discovery Zone could not recover for lost profits because it failed to prove its

loss with reasonable certainty. Note that Dupont actually sued Discovery Zone first for breach of contract for money it owed the company; Discovery counter-sued for lost profits. The court ruled that lost profits and destruction of Discovery Zone’s business was not within the reasonable contemplation of the parties. The court noted that it is a bedrock principle of contract law that a breaching party is only responsible for consequential damages flowing from a breach of contract to the extent those damages are within the contemplation of the parties at the time of contracting, or are reasonably foreseeable. In determining the reasonable contemplation of the parties, the nature, purpose and particular circumstances of the contract known by the parties should be considered as well as what liability the defendant fairly may be supposed to have assumed consciously, or to have warranted the plaintiff reasonably to suppose that it assumed, when the contract was made. The court found that while both parties understood that time was of essence, Discovery Zone did not present any evidence to indicate that it could make a showing at trial that the parties contemplated that a failure to perform would threaten the entire Discovery Zone business.

Damages in Contract Cases• Compensatory- to make whole from actual

loss• Consequential - foreseeable consequence of

– Question 8 at end of chapter• No. The once generally accepted rule precluding all new businesses

from recovering damages for lost profits has been replaced with a rule of evidence. Lost profits are now recoverable in contracts where there is enough evidence to establish them with reasonable certainty. While it is difficult for a new business to establish lost profits with the requisite degree of certainty, it can be done. Tristar has the expert testimony of a Wharton School marketing professor as to the profits that could be expected. While there is some skepticism about such projections, the jury should be allowed to decide its probity. The summary judgment is denied. Tristar Cosmetics, Ltd. v. Westinghouse Broadcasting, 1992 U.S. Dist. LEXIS 3248 (E.D. Pa. 1992).

Damages in Contract Cases• Emotional Distress?

• Deli v. University of Minnesota, p. 291– A gymnastics coach is not allowed to collect damages for

emotional distress when her employer broke a promise and showed a tape of her and her husband having sexual relations to others. This case nicely points up the difference between contract and tort damages. Tort damages are designed to compensate for the injuries resulting from the unreasonable interference with interests of others. Contract damages are based on voluntarily accepted duties, and are limited to those damages which the promisor should have anticipated when the contract was made. Obviously Deli would rather have sued in tort, but she could not sue for invasion of privacy in Minnesota. Deli had been awarded $675,000 for the emotional distress she suffered.

Damages in Contract Cases

• Liquidated - agreed to by prior provision– Void if courts view as a penalty (e.g. if

unreasonable)• Guilliano v. Cleo, Inc., p.292

– A liquidated damages clause is found not to be punitive, and is therefore enforceable.

– Why would the damages be difficult to determine?

– Does Guilliano get a windfall by the court’s decision?– Constructive firing (the employer changes the working

conditions so radically that the reasonable employee would be compelled to quit – something this employer was obviously trying to get Guilliano to do).

Damages in Contract Cases• Liquidated - agreed to by prior provision

– Void if courts view as a penalty (e.g. if unreasonable)– Example: Parties can set damages in advance as long as they are reasonable estimates of

the damages that may, or actually do, result from a breach. They cannot be a penalty. Consideration also is given to the difficulty of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy. Here the $1,500 per photograph figure may bear no relationship to the actual value of a photograph that (a) may never have generated past revenue; (b) is neither unique nor novel; and (c) may be able to be duplicated by the photographer who submitted the photograph. The amount required for loss of a photograph would, of necessity, vary depending on the nature and quality of the photograph. Therefore, the liquidated damage provision is invalid because it is not a reasonable estimate of the anticipated or actual harm. Stock Shop, Inc. v. Bozell & Jacobs, Inc., 39 U.C.C. Rep. Serv. 1295 (Sup. Ct. N.Y. 1984).

Damages in Contract Cases• Nominal - small, symbolic, where no actual loss• Punitive

– Ordinarily not recoverable in contract cases– Alternative, sue in tort for bad faith, etc.

Remedies• Duty to Mitigate (Avoid/Minimize)

– If can do so w/o undue risk, expense, etc.– Not able to recover for damages easily

avoided– Manuma v. Blue Hawaii Adventures, Inc., p. 293

» Dinner cruise entertainer did not fail to mitigate his damages by refusing employer’s offers of alternative employment because the alternative work of manual labor or light maintenance was not “substantially similar” to his lost position as an entertainer. Note generally, that the measure of recovery by a wrongfully discharged employee is the amount of compensation agreed upon for the remaining period of service, less the amount which the employer affirmatively proves the employee has earned or with reasonable effort might have earned from other employment.

Remedies• Duty to Mitigate (Avoid/Minimize)

– If can do so w/o undue risk, expense, etc.– Not able to recover for damages easily

avoided• Question 10 at end of chapter

– Curtis O. Griess & Sons, Inc. v. Farm Bureau Insurance» A pig farmer is allowed to collect his mitigation damages from

the insurance company that insured him against damages due to windstorms.

» In addition to the common law duty to mitigate damages, Griess had a contractual duty to do so. Since the court found that the contractual imposition of the duty implied that the insurance company would pay for such damages, it was held liable.

» Form contracts are generally construed against the maker, especially when it is an insurance company.

Equitable Remedies• Specific Performance

– Where unique subject matter (e.g. real estate)

• i.Lan Systems, Inc. v. NetScout Services Level Corp., p. 294

– The court finds that copyrighted software is not sufficiently unique to warrant specific performance.

• Injunction- Mandatory Act vs. Prohibitory Enjunction– Where threat of irreparable injury