Chapter 18 - Performance and Discharge

Discharge by settlement agreement

A compromise that arises out of a genuine dispute over the obligations under an existing contract will be recognized at law.

Frustration of Purpose

A contract will be discharged if the supervening circumstances make it impossible to attain the purpose both parties had in mind when they made the contract.

Bankruptcy

A discharge in bankruptcy usually prevents creditors from enforcing most of the debtor's contracts.

Substantial performance

A party in GOOD FAITH that performs substantially all of the terms can enforce the contract. Confers most of the benefits promised: performance must not vary greatly from what was promised. Performance must create substantially the same benefits as those promised in the contract.

Condition

A qualification in a contract based on a possible future even. Occurance (or nonoccurrence) of the event will trigger the performance of a legal obligation (or terminate an existing obligation under a contract.) *if the condition is not satisfied, the obligation of the parties are discharged. three types Conditions precedent, conditions subsequent, and concurrent conditions. Conditions can also be classified as express or implied

Statues of limitations

A suit for breach of contract must be filed within the time permitted by applicable law.

Tender of performance

An unconditional offer to perform. two types: complete performance. Substantial performance.

Underlying policy

Any breach entitles the nonbreaching party to sue for damages. Only a material breach discharges the nonbreaching party from the contract.

Conditions precedent

Condition that must be fulfilled before a party's performance can be required. Requires absolute duty to perform.

Discharge by accord

Contract to perform existing contractual duty not yet discharged.

Discharge by operation of law

Material alteration Statutes of limitations Bankruptcy

Reasonable person standard

Most other contracts need to be performed only to the satisfaction of a reasonable person unless they EXPRESSLY STATE OTHERWISE.

*NOTE* Anticipatory Repudiation

Notice by repudiating party may restore parties to original obligations. Rationale for treating repudiation as breach Anticipatory repudiation and market prices.

Commercial Impracticability

Parties may be excused from performance if it becomes more difficult or expensive that the parties originally expected at contract formation. Anticipated performance must become SIGNIFICANTLY difficult or costly. Burden of performing MUST NOT HAVE BEEN FORESEEABLE BY THE PARTIES.

Discharge by Mutual Rescission

Parties must make another agreement that also satisfies the legal requirements for a contract. There must be an OFFER, AN ACCEPTANCE, AND CONSIDERATION. *rescission of most executory contracts is enforceable even if agreement is made orally.

Complete Performance

Parties perform exactly as agreed, or "perfect." all conditions are satisfied. *normally, conditions expressly stated in a contract must fully occur in all respects for complete performance of the contract to take place.

Temporary Impossibility

Performance normally is only delayed: Once the temporary event ends, parties ordinarily must perform the contract as originally planned. i.e. performance can be discharged

Discharge by satisfaction

Performance of accord. *once the accord has been made, the original obligation is only SUSPENDED until the accord agreement is fully performed.

Express conditions

Provided in the parties' agreement, usually preceded by words such as "If" or "Provided."

Anticipatory Repudiation

Refusal of one party to carry out his or her contractual obligations before either party has a duty to perform. *it is treated as a material breach, and nonbreaching party may sue for damages immediately, even though performance is not due.

Courts must decide

Substantial performance: Courts decide whether the performance was substantial on a case-by-case basis.

Effect on duty to perform

Substantial performance: The parties must continue performing under the contract. (effect on duty to perform)

Discharge by novation

Substitution of a new third party for one of the original parties. Requirements: Previous valid obligation. Agreement by all parties. Extinguishment of all old obligations. New valid contract. *a novation expressly or impliedly revokes and discharges a prior contract.

Measure of Damages

The cost to bring the object of the contract into compliance with its terms (if that cost is reasonable under the circumstances. *if not reasonable, then the measure of damages is the difference in value between the performance rendered and COMPLETE performance of the contract.

When performance is impossible

Types of situations that may allow for discharge of contractual obligations: One party to a personal contract dies or becomes incapacitated prior to performance. The specific subject matter of the contract is destroyed.

*NOTE* when performance is impossible

Types of situations that may allow for discharge of contractual obligations: When a change in law renders performance illegal.

*NOTE* discharge by mutual rescission

Under UCC, contracts must be in writing. Rescission of contracts involving transfers of realty must also be in writing. If one party has performed, agrement to rescind must have addtional consideration.

Conditions subsequent

When a condition operates to terminate a party's absolute promise to perform, after the time of absolute performance was due. *conditions subsequent are rare.

Conditions Concurrent

When each party's performance is conditioned on the other party's performance or tender. *both parties required to perform their duties simultaneously.

Time for Performance

if no time is stated in contract, reasonable time is implied. If a specific time is stated, the parties must usually perform by that time. unless time is expressly stated as vital, a performance delay will not destroy the performing party's right to payment. *if time is "of the essence," it becomes a condition precedent to performance.

Material versus minor breach

if the breach is minor (not material), the nonbreaching party's duty to perform may be suspended until the breach as been remedied. *once the minor breach is cured, nonbreaching party must resume performance of contractual obligations.

Performance can be discharged

if the lapse of time/the change in circumstances surrounding the contract makes it substantially more burdensome for the parties to perform the promised acts, the contract will be discharged in that situation.

Material alteration

innocent party is discharged after material alteration of contract terms.

Material breach of contract

occurs when performance is not substantial.

Performance to the Satisfaction

performance to the satisfaction of another When the contract is personal Reasonable Person Standard

Impossibility of Performance

supervening events may make performance objectively impossible. It applies only if the event was NOT FORESEEABLE by any parties Objective impossibility ("it can't be done." must be distinguished from subjective impossiblity ("i simply cannot do it")

Contract is personal

the performance must actually satisfy the party specified in the contract, and only the personal satisfaction of the party fulfills the condition.

Implied conditions

understood to be a part of the contract, depending on the purpose. *courts may imply conditions from the purpose of the contract or from the intent of the parties.