Performance and Discharge (ch. 18)

Frustration of Purpose

+ A contract ill be discharged if supervening circumstances make it impossible to attain the purpose both parties had in mind when they made the contract . +In addition the added burden of performing must not have been foreseeable by the parties when the contract was made. + Frustration of Purpose typically involves an event that decreases the value of what a party receives under the contract. (ex cotton field and John Deer)

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. + The doctrine of impossibility of performance applies only when the parties could not have reasonably foreseen, at the time the contract was formed, the event the rendered performance impossible. a) Subjective Impossibility b) Objective Impossibility

b) Objective Impossibility (It can't be done)

+ Death, serious illness, or incapacitation of a party who has to render personal services. +Destruction of specific subject matter of contract +Change in law making performance illegal

Commercial Impracticability

+ For someone to invoke the doctrine of Commercial Impracticability successfully, however, the anticipated performance must become significantly more difficult or costly. + In addition the added burden of performing must not have been foreseeable by the parties when the contract was made +Involves an event that increases the cost or difficulty or performance.

Statutes of Limitations

+ Statutes of limitations restrict the period during which a party can sue on particular cause of action +Statutes of limitations provide that a person who has a cause of action must bring his action or lawsuit within a specified period of time +Failure to commence an action or suit within the period of limitation bars access to judicial remedies but does not extinguish a debt or underlying obligation.

Material Breach of Contract

+ The breach is material when performance is not at least substantial. +When there is a material breach, the non breaching party is excused from the performance of contractual duties. That party can also sue the breaching party for damages resulting from the breach

Discharge by Operation of Law

+ These circumstances include material alteration of the contract, the running of the statute of limitations, bankruptcy, and the impossibility or impracticability of performance. 1) Material Alteration of the Contract 2) Statutes of Limitations 3)Bankruptcy 4)Impossibility of Performance

Material Alteration of the Contract

+ To discoure 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. +If there is a material alteration of a written contract without consent, the contract is voidable by the party who was unaware of the change +The party unaware of the change has the option of treating the contract either as discharged or as enforceable in accordance with the original terms or with the terms as altered.

Temporarily Impossibility

+An occurrence or event that makes performance temporarily impossible operates to suspend performance until the impossibility ceases. +When the impossibility ceases, the parties must ordinarily perform the contract + If the lapse of time and change of circumstances make the contract substantially burdensome to perform, the parties will be discharged (ex actor who got drafted and the dollar declined so much that the performance of the contract would have been substantially burdensome to him)

Time and Performance

+If no time for performance is stated in a contract, a reasonable time is implied. + If a specific time is stated, the parties must usually perform by that time. +Unless time is expressly stated to be vital, though, a delay in performance will not destroy the performing partys rights to payment. +When time is expressly stated to be "of the essence or vital, the parties normally must perform within the stated time period because the time element becomes a condition."

Underlying Policy

+Note that any breach entitles the non breaching party to sue for damages, +but only a material breach discharges the non breaching party from the contract. The policy underlying these rules allows a contract to go forward when only minor problems occur but allows it to be terminated if major difficulties arise.

Discharge by Mutual Rescission

+Recession is the process by which a contract is canceled or terminated and the parties are returned to the position they occupied prior to forming it. +For mutual recession to take place, the parties must make another agreement that also satisfies the legal requirements for a contract. + There must be an offer, an acceptance, and consideration.

Discharge by Accord and Satisfaction

+The parties agree to accept performance that is different from the performance originally promised. + 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 discharges the original contractual obligation +Once the accord has been made, the original obligation is merely suspended until the accord agreement is fully performed.

Reputation is a material breach

+When an anticipatory reputation occurs, it is treated as a material breach of the contract + And the nonbreaching can file a suit even though the scheduled time for performance under the contract may still be in the future + However, the repudiating party can retract the anticipatory repudiation by proper notice and restore the parties to their original obligations.

Executory on one side ( Mutual Rescission )

+When one party has fully performed an agreement to cancel the original contract normally will not be enforceable unless there is additional consideration. + Because the performing party has received no consideration for the promise to call off the original bargain, additional consideration is necessary to support a recession contract.

Anticipatory Repudiation

+before either party to a contract has duty to perform, one of the parties may refuse to carry out his or her contractual obligation. + An anticipatory repudiation is treated as a present, material breach for two reasons. a) First, the non breaching party should not be required to remain readying willing to perform when the other party has already repudiated the contract b) Second, Nonbreaching should have the opportunity to seek a similar contract elsewhere and may have duty to do so to minimize his or her loss

Degree of Performance

1) Complete (strict) performance 2)Substantial Performance 3)Performance to the Satisfaction of Another

Three types of conditions can be present in contracts:

1) Condition Precedent 2)Condition Subsequent 3)Concurrent conditions

Discharge Agreements

1) Discharge by Mutual Rescission 2)Discharge by Novation 3)Discharge by Settlement Agreement 4)Discharge by Accord and Satisfaction

Dicharge by Impossibility or Impracticability of Performance

1) Impossibility of Performance 2)Temporary Impossibility

The basic requirements for performance to qualify as substantial performance are as follow:

1) The party must have performed in good faith. Intentional failure to comply with the contract term 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 of it can easily be remedied by compensation (monetary damages) 3)The Performance must create substantially the same benefits as those promised in the contract.

Discharge by agreement

1)Discharge by Mutual Rescission 2)Discharge by Novation

Condition Subsequent

A condition that, if it occurs, operates to terminate a party absolute promise to perform. The occurrence of the conditioning event, extinguishes an existing contractual duty, so that parties are discharged.

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 for the novation are as follow: 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.

Objective Impossibility (Destruction of specific subject matter of contract)

A-1 Farm equipment agrees to sell Gunther the green tractor on its lot and promises to have the tractor ready for Gunther to pick up on saturday. On friday night, however, a truck veers off the nearby highway and smashes into the tractor , destroying it beyond repair. Because the contract was for this specific tractor, A-1 performances renders impossible owing to the accident.

In most contracts, promises of performance are not expressly conditioned or qualified. Instead, they are (absolute promises)

Absolute promises mean they must be performed, or the parties promising the acts will be in breach of contract.

Express Condition

An express condition is a condition that is clearly stated and provided for in the contract by the parties.

Objective Impossibility (Change in law making performance illegal)

Hopper contracts with Playlist Inc. to create a website through which users can post and share movies, music, and other forms of digital entertainment . Hopper goes to work. Before the site is operational, however, Congress passes the No online Piracy in entertainment (NOPE) Act, the Nope Act makes it illegal to operate website on which copyrighted works are posted without copyright owners consent. In this situation the contract is discharged by operation of law. The purpose of the contract has been rendered illegal, and the contract performance is objectively impossible.

Concurrent Condition (ex)

If Janet Feibush promises to pay for goods when Hewit-Packard delivers them, the parties promises to perform are mutually dependent. Feibush's duty to pay for the goods does not become absolute until Hewit-Packard either delivers or tenders the goods. Likewise, Hewit duty to deliver the goods does not become absolute until Feibush tenders or actually makes payment. Therefore, neither can recover from the other fro breach without first tendering performance.

Effect on Duty to perform

If one party performance is substantial, the other partys duty to perform remain absolute. For instance, the party who substantially performed is entitled to payment. If performance is not substantial, there is a material breach, and the non breaching party is excused from further performance.

Minor Breach

If the breach is minor (not material), the non-breaching party's duty to perform is not entirely excused, but it can sometimes be suspended until the breach has been remedied. Once the minor breach has been cured, the non breaching party must resume performance of the contractual obligations.

Condition Precedent (ex)

James Maciel leased an apartment in a university-owned housing facility for Regent University students in Virginia. The lease ran until the end of the fall semester. Maciel had an option to renew the lease semester by semester as long as he maintained his status as an RU student. When Maciel told RU that he intended to withdraw, the university told him that he had to move out of the apartment by May 31, the final day of the semester. Mariel asked for two additional weeks, but the university denied the request. On June q, RU changed the locks on the apartment. Maciel entered through a window and emailed the university that he planned to stay "for another one or two weeks." He was convicted of trespassing. He appealed, arguing that he had "legal authority" to occupy the apartment. The reviewing court affirmed his conviction. "Regents deadline was consistent with he lease agreement, and Maciels eligibility tor side in student housing was conditioned upon his status as a Regent student. In other words being enrolled as a student in RU was a condition precedent to living in its student housing.

Performance to the Satisfaction of Another (ex)

Mason signs a contract with Jen to mount a new heat pump on a concrete platform to her satisfaction. such a contract normally only be performed to the satisfaction of a reasonable person.

Many contracts are conditioned on an independent appraisal of value (ex)

Motors offers to buy Gabes 1959 Thunderbird only of an appraiser estimates that it can can be restored for less than a certain price. Therefore the parties obligations are conditional. If the condition is not satisfied-- that is, if the appraiser deems the cost to be above the price-- their obligations are discharged.

Unconditional (ex)

Paloma Enterprises contracts to sella truckload of organic produce to Tran for $10,000. The parties promises are unconditional: Paloma will deliver to produce to tran, and tran will pay $10,000 to Paloma. The payment does not have to be made if the produce is not delivered

Anticipatory Reputation and Market Price

Quite often, anticipatory repudiation occurs when performance of the contracts would be extremely unfavorable to one of the parties because of a sharp fluctuation in market price. EX) Mobile X enters into an e-contract to manufacture and sell 100,000 smartphones to Best Com, a global telecommunications company. Delivery is to be made two months from the date of the contract. One month later, three inventory suppliers raise their prices to Mobile . Because of these higher prices, Mobile X stands to lose $500,000 if ti sells that smartphones to Best Com at the contract price. Mobile X immediately sends an e-mail to Best Com, stating that it cannot deliver the 100,000 smartphones at the contract price. Even though you may sympathize with Mobile X, its e-mail is an anticipatory repudiation of the contract. Best Com can treat the reputation as a material breach and immediately pursue remedies, even though the contract delivery sate is still a month away.

Discharge by Settlement Agreement

The agreement will be substituted as a new contract and will either expressly or impliedly revoke and discharge the obligation under the prior contract. ( does not involve a third party)

Discharge by Performance

The contract comes to an end when both parties fulfill their respective duties by performing that acts they have promised.

Concurrent Condition

The performance of each party is conditioned or dependent upon the simultaneous performance of the other party

Temporarily Impossibility (ex)

Valeria contracted to sell her home in Louisiana to Ana Trevino for $241,500. Four days later, hurricane Katrina made landfall and caused extensive dang to the house. The cost of repairs was estimated at $60,000. Valeria refused to pay for the repairs only to sell the property to the Trevinos for the previously agreed-on price. The Trevinos filed a lawsuit to enforce the contract. Valeria argued that Hurricane Katrina had made it impossible for him to perform and had discharged his duties under the contract. The court, however ruled that Hurricane Katrina had caused only a temporary impossibility. Valeria was required to pay for the necessary repairs and to perform the contract as written. He could not obtain a higher purchase price to offset the cost of the repairs.

Substantial Performance (ex)

Valeria had been an electrician in North Dakota for thirty years and had bought a large customer, Sungold, with him through several employees. When an acquaintance Kelly, started Khon Electrics, LLC, Valeria approached him to become partners. Kelly and Valeria orally agreed that Valeria could become a partner in Kohn Electors if he contributed $10,000 in capital and the Sungold account. In return, valeria was to receive 10% of the gross revenue generated by Sungold account, among other things. Valeria paid $9,152.49 for a pickup truck titled in Kohn elections named and paid for the tools and equipment for the business. Later, Kelly denied that they were partners, but he paid Pegg for $9152.49 for the truck. The state court found that there was an oral agreement and that Pegg has substantially performed by contributing the pickup and brining in the Sungold account. Therefore, he was entitled to damages in an equal amount to 10% of the gross revenue generated from Sungold account.

Discharge by Accord and Satisfaction (ex)

Valeria has a judgment against Juan for $8000. Later, both parties agree that the judgment can be satisfied by Juan transfer of his automobile to valeria. This agreement to accept the auto in lieu of $8000 in cash its the accord. If Juan transfers the car to Valeria, the accord is fully performed, and the debt is discharged. If Juan refuse to transfer the car, the accord is breached. Because the original obligation was merely suspended , Valeria can sue Juan to enforce the original judgment fro $8000 in cash or bring an action for breach of the accord.

Material Breach of Contract (ex)

When country singer Garth Brooks mother dies, he donated $500,000 to a hospital in his hometown in Oklahoma to build a new womens health center named after her mother. After several years passed and the health center was not built, Brooke demanded a refund. The hospital refused, claiming while it had promised to honor his mother in some way, it had not promised to build a womens health center. Brooks sued for breach of contract. A jury determined that the hospitals failure to build a women's health center and name it after Brooks mother was a material breach of the contract.

Condition Precedent

a condition that must be fulfilled before a party performance can be required.

2)Substantial Performance

a) Performance which does not greatly vary from the performance that is promised in the contract but is slightly less than that which reasonably could be expected b) If performance is substantial, the other partys duty to perform remains absolute, less damages fro the deviation

Tender

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

Bankruptcy

1) A discharge in bankruptcy operates as a release of a debtor from most debts and contractual obligations 2) After a decree of discharge in bankruptcy is issued by a Bankruptcy Court, a partial payment by a debtor will not revive the obligation

Condition Subsequent (ex)

A Law firm hires Julie, a recent law school graduate. Their contract provides that the firms 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.

Tender (ex)

A seller who places goods at the disposal of a buyer has tendered delivery and can demand payment. A buyer who offer to pay for the goods has tendered payment and can demand delivery of goods.

a) Subjective Impossibility ( Im sorry, I simply can't do it)

An example of subjective impossibility occurs when a party cannot deliver goods on time because of freight car shortages or cannot make payment on time because bank is closed. In effect, in each situation the party is saying, "It is impossible for me to perform," not "It is impossible for anymore to perform" + Accordingly such excuses do not discharge a contract, and the nonperforming party is normally held in breach of contract.

Performance tendered

Complete performance --> No breach, contract can be discharge Substantial Performance--> Duty to perform continues. Party can recover damages Material Breach--> Contract is discharged. No further duty to perform. Party can sue immediately for breach.

Objective Impossibility (Death, serious illness, or incapacitation of a party who has to render personal services.)

Fredric, a famous dancer, contracts with Dancing Guild to play a leading role in its new ballet. Before the ballet can be performed, Fredric becomes ill and dies. His personal performance was essential to the completion of the contract . Thus, his death discharges the contract and his estate liability for his nonperformance.

1) Complete (strict) performance

a) Complete performance includes strict compliance with any express conditions b)Failure to comply with an express condition and render the exact performance may discharge the party receiving the defective performance

3) Performance to the Satisfaction of Another

a) If personal taste, preferences, aesthetics, fancy, or comfort is involved, it is a "personal" contract. b)When the subject matter of the contract is personal, the obligation is conditional and performance must actually satisfy the party specified in the contract.

Executory on both sides ( Mutual Rescission )

agreements to rescind most executory contracts (in which neither party has performed) are enforceable, even if the agreement is made orally and even if the agreement is in writing.

A condition

is a qualification in a contract based on a possible future event. The occurrence or nonoccurence of the event will trigger the performance of a legal obligation or terminate an existing obligation under the contract.

Implied-in Fact contract condition

is one that is not expressed by the parties but is understood or inferred from the contract.

A breach of contract

is the nonperformance of a contractual duty.

If the condition is not satisfied

the obligation of the parties are discharged

Obligee

the one whom performance is owed