Business law CH. 18 (performance and discharge in contracts)

discharge by OPERATION OF LAW

Under specified circumstances, contractual duties may be discharged by operation of law. These circumstances include: -material alteration of the contract -the running of the statute of limitations -bankruptcy -impossibility or impracticability of performance.

Implied conditions

are understood to be part of the agreement, but they are not found in the express language of the agreement.

impossibility of performance

-After a contract has been made, supervening events (such as a fire) may make performance impossible in an objective sense. -This is known as impossibility of performance and can discharge a contract. 3 basic types of situations may qualify as grounds for the discharge of contractual obligations based on impossibility of performance: 1. When one of the parties to a personal contract dies or becomes incapacitated prior to performance. 2. When the specific subject matter of the contract is destroyed. 3. When a change in law renders performance illegal.

discharge by ACCORD & SATISFACTION

-An accord is a contract to perform some act to satisfy an existing contractual duty that is not yet discharged. -A satisfaction is the performance of the accord agreement. An accord and its satisfaction discharge the original contractual obligation.

Commercial Impracticability

-Courts may also excuse parties from their performance when it becomes much more difficult or expensive than the parties originally contemplated at the time the contract was formed. -For someone to invoke the doctrine of commercial impracticability successfully, however, the anticipated performance must become significantly difficult or costly. -not only must be extreme but also must not have been known by the parties when the contract was made. -Commercial impracticability usually involves an event that increases the cost or difficulty of performance.

bankrupcy

-Once the assets have been allocated, the debtor receives a discharge in bankruptcy -A discharge in bankruptcy ordinarily prevents the creditors from enforcing most of the debtor's contracts.Partial payment of a debt after discharge in bankruptcy will not revive the debt.

A party may be discharged from a valid contract by:

1.A condition occurring -- or not occurring. 2.Full performance or material breach by the other party. 3.Agreement of the parties. 4.Operation of law.

discharge by SETTLEMENT AGREEMENT

A compromise, or settlement agreement, that arises out of a genuine dispute over the obligations under an existing contract will be recognized at law. The agreement will be substituted as a new contract and will either expressly or impliedly revoke and discharge the obligations under the prior contract. -2 parties

condition precedent

A condition that must be fulfilled before a party's performance can be required ex. Life insurance contracts frequently specify that certain conditions, such as passing a physical examination, must be met before the insurance company will be obligated to perform under the contract.

frustration of purpose

A court-created doctrine under which a party to a contract will be relieved of his or her duty to perform when the objective purpose for performance no longer exists (due to reasons beyond that party's control). - the supervening event must not have been reasonably foreseeable at the time the contract was formed. -frustration of purpose typically involves an event that decreases the value of what a party receives under the contract.

discharge by NOVATION

A novation occurs when both of the parties to a contract agree to substitute a third party for one of the original parties. The requirements of a novation are as follows: 1. A previous valid obligation. 2. An agreement by all parties to a new contract. 3. The extinguishing of the old obligation (discharge of the prior party). 4. A new contract that is valid. -3 parties

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 performance 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.

condition

A possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation or terminate an existing obligation under a contract. 3 types of conditions can be present in contracts: 1. conditions precedent 2. conditions subsequent 3. concurrent conditions. Conditions are also classified as -express or -implied.

discharge by MUTUAL RESCISSION

An agreement between the parties to cancel their contract, releasing the parties from further obligations under the contract. The object of the agreement is to restore the parties to the positions they would have occupied had no contract ever been formed. See also Rescission - There must be an offer, an acceptance, and consideration. -Under the Uniform Commercial Code (UCC), however, agreements to rescind a sales contract must be in writing (or contained in an electronic record) when the contract requires a written rescission. Agreements to rescind contracts involving transfers of realty also must be evidenced by a writing or record. -When one party has fully performed, an agreement to cancel the original contract normally will not be enforceable unless there is additional consideration

anticipatory repudiation

An assertion or action by a party indicating that he or she will not perform an obligation that the party is contractually obligated to perform at a future time. -occurs when performance of the contract would be extremely unfavorable to one of the parties because of a sharp fluctuation in market prices. -a formal notice must be given

Temporary Impossibility

An occurrence or event that makes performance temporarily impossible operates to suspend performance until the impossibility ceases. -Performance Can Be Discharged. -Performance Normally Is Only Delayed.

Tender

An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so. Performance can also be accomplished by tender

concurrent conditions

Conditions in a contract that must occur or be performed at the same time; they are mutually dependent. No obligations arise until these conditions are simultaneously performed. ex. If Janet Feibush promises to pay for goods when Hewlett-Packard delivers them, the parties' promises to perform are mutually dependent

time for performance

If no time for performance is stated in the contract, a reasonable time is implied. -if stated in contract "time is of the essence" it is a condition precedent

minor breach of contract

If the breach is minor (not material), the nonbreaching party's duty to perform can sometimes be suspended until the breach has been remedied, but the duty to perform is not entirely excused.

performance

In contract law, the fulfillment of one's duties arising under a contract with another; the normal way of discharging one's contractual obligations.

reasonable person standard

Most other contracts need to be performed only to the satisfaction of a reasonable person unless they expressly state otherwise.

discharge

The termination of an obligation. (1) In contract law, discharge occurs when the parties have fully performed their contractual obligations or when events, conduct of the parties, or operation of the law releases the parties from performance. (2) In bankruptcy proceedings, the extinction of the debtor's dischargeable debts.

Material Alteration of the Contract

To discourage parties from altering written contracts, the law allows an innocent party to be discharged when the other party has materially altered a written contract without consent

complete performance

When a party performs exactly as agreed, there is no question as to whether the contract has been performed. When a party's performance is perfect, it is said to be complete.

condition subsequent

When a condition operates to terminate a party's absolute promise to perform ex. A law firm hires Julie Mendez, a recent law school graduate. Their contract provides that the firm's obligation to continue employing Mendez is discharged if Mendez fails to pass the bar exam by her second attempt. This is a condition subsequent because a failure to pass the exam—and thus to obtain a license to practice law—would discharge a duty (employment) that has already arisen.

Repudiation is a Material Breach

When an anticipatory repudiation occurs, it is treated as a material breach of the contract, and the nonbreaching party is permitted to bring an action for damages immediately. treated material breach for 2 reasons. 1. the nonbreaching party should not be required to remain ready and willing to perform when the other party has already repudiated the contract. 2. the nonbreaching party should have the opportunity to seek a similar contract elsewhere and may have a duty to do so to minimize his or her loss.

when a contract is personal

When the subject matter of the contract is personal, the obligation is conditional, and performance must actually satisfy the party specified in the contract. For instance, contracts for portraits, works of art, and tailoring are considered personal because they involve matters of personal taste.

Express conditions

are provided for by the parties' agreement. Although no particular words are necessary, express conditions are normally prefaced by the words "if", "provided", "after", or "when".

material breach of contract

breach of contract is the nonperformance of a contractual duty The breach is material when performance is not at least substantial only a material breach discharges the nonbreaching party from the contract

2 basic types of performance

complete performance and substantial performance.

rescission

is the process by which a contract is canceled or terminated and the parties are returned to the positions they occupied prior to forming it.

statutes of limitations

statutes of limitations restrict the period during which a party can sue on a particular cause of action. After the applicable limitations period has passed, a suit can no longer be brought. The limitations period for bringing suits: -for breach of oral contracts usually is 2 to 3years -for written or otherwise recorded contracts, 4 to 5 years - for the sale of goods generally must be brought within 4 years after the cause of action has accrued. -Parties generally have 10 to 20 years to file for recovery of amounts awarded in judgments, depending on state law.