Mastering Contract Performance and Remedies

Voluntary Consent

An otherwise valid contract may still be unenforceable if the parties have not genuinely agreed to its terms.

Voluntary consent may be lacking because of a mistake, misrepresentation, undue influence, or duress—in other words, because there is no true “meeting of the minds.” A party who demonstrates that he or she did not agree to the terms of a contract can choose either to carry out the contract or to rescind (cancel) it and thus avoid the entire transaction.

Mistakes

Unilateral Mistakes of Fact

A unilateral mistake is made by only one of the parties. In general, a unilateral mistake does not give the mistaken party any right to relief from the contract. Normally, the contract is enforceable.

Mistakes

It is important to distinguish between mistakes of fact and mistakes of value or quality. Only a mistake of fact makes a contract voidable. Also, the mistake must involve some material fact—a fact that a reasonable person would consider important when determining his or her course of action.

​Was the mistake unilateral or Bilateral.

Bilateral Material Mistake of Fact (Both parties are mistaken) - The contract can be rescinded by either party.

Unilateral Mistake - the contract is enforceable unless the other party should have known about the mistake or if the mistake was made due to a substantial mathematical error, made inadvertently and without gross negligence.

A bilateral mistake is a “mutual misunderstanding concerning a basic (material fact) assumption on which the contract was made.”

When both parties are mistaken about the same material fact, either party can rescind the contract.

The contract may not be enforceable if:

1. The other party to the contract knows or should have known that a mistake of fact was made.

2. The error was due to a substantial mathematical mistake in addition, subtraction, division, or multiplication and was made inadvertently and without gross (extreme) negligence. If, for instance, a contractor’s bid was significantly low because he or she made a mistake in addition when totaling the estimated costs, any contract resulting from the bid normally may be rescinded.

​Mistakes in Value

If a mistake concerns the future market value or quality of the object of the contract, the mistake is one of value, and the contract normally is enforceable.

Contract Performance Trivia

Did you know? Common challenges in contract performance can include miscommunication, scope creep, and non-compliance. To ensure effective contract performance, it is important to establish clear expectations and regularly communicate with all parties involved.

• Challenge 1: Miscommunication
• Challenge 2: Scope creep
• Challenge 3: Non-compliance

Elements of Fraud
Fraudulent Misrepresentation

1. A misrepresentation of a material fact.

2. The Party who made the misrepresentation knew he was lying. We call this SCIENTER - guilty knowledge.

3. The other party justifiably relied on the misrepresentation.

Undue Influence

Undue influence arises from relationships in which one party can greatly influence another party, thus overcoming that party’s free will. A contract entered into under excessive or undue influence lacks voluntary consent and is therefore voidable.

The essential feature of undue influence is that the party being taken advantage of does not exercise free will in entering into a contract.

Duress

Agreement to the terms of a contract is not voluntary if one of the parties is forced into the agreement. The use of threats to force a party to enter into a contract constitutes duress. Similarly, the use of blackmail or extortion to induce consent to a contract is duress. Duress is both a defense to the enforcement of a contract and a ground for the rescission of a contract.

• Substantial Performance

A party who in good faith performs substantially all of the terms of a contract can enforce the contract against the other party under the doctrine of substantial performance. The basic requirements for performance to qualify as substantial are as follows:

1. The party must have performed in good faith. Intentional failure to comply with the contract terms is a breach of the contract.

2. The performance must not vary greatly from the performance promised in the contract. An omission, variance, or defect in performance is considered minor if it can easily be remedied by compensation (monetary damages).

3. The performance must create substantially the same benefits as those promised in the contract.

Types of Contract Breach

• Material breach: a significant violation that goes to the core of the contract.
• Minor breach: a partial or immaterial violation that does not affect the overall purpose of the contract.
• Anticipatory breach: when one party indicates they will not fulfill their obligations before the agreed-upon time.
• Fundamental breach: a breach that undermines the fundamental purpose of the contract.

Fundamental Breach

Fundamental breach is a type of breach that undermines the fundamental purpose of a contract. It is a serious violation that goes to the core of the agreement, making it impossible to fulfill. It can result in termination of the contract and legal consequences. It is crucial to understand the terms and conditions to avoid such breaches.

Contract Performance and Remedies

• Material Breach: A significant violation of contract terms that goes to the core of the agreement.
• Minor Breach: A less serious violation that does not go to the core of the agreement.
• Material breaches allow the non-breaching party to terminate the contract and seek remedies.
• Minor breaches typically require the non-breaching party to seek damages or specific performance.

Material Breach

A material breach is a significant violation of contract terms that goes to the core of the agreement. It is a breach that allows the non-breaching party to seek damages or specific performance. It is different from a less serious violation that does not go to the core of the agreement. A material breach may require the non-breaching party to terminate the contract.

Anticipatory Repudiation

• Definition: When one party to a contract indicates that they will not perform their obligations before the performance is due.
• Effects: The non-breaching party can treat the repudiation as a breach and seek remedies.
• Remedies: The non-breaching party can cancel the contract, sue for damages, or wait for performance and sue if it doesn't occur.

Effect of Repudiation

• The non-breaching party can treat the repudiation as a breach and seek remedies.
• The non-breaching party has the option to cancel the contract, sue for damages, or wait for performance and sue if it doesn't occur.
• The non-breaching party cannot ignore the repudiation and continue with the contract as planned.
• The non-breaching party cannot renegotiate the terms of the contract.

Legal Remedies for Breach

• Compensatory Damages: Monetary compensation for losses caused by the breach.
• Specific Performance: Court order to fulfill the terms of the contract.
• Rescission: Canceling the contract and returning parties to pre-contract state.
• Reformation: Modifying the contract to correct mistakes or ambiguities.
• Liquidated Damages: Pre-determined damages specified in the contract.

Compensatory Damages

Compensatory Damages involve monetary compensation for losses caused by a breach. This type of damages aims to put the injured party in the same financial position they would have been in if the breach had not occurred. It is a common remedy in contract law cases.