Chp 14: Performance And Discharge

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Discharge

Back 1

The termination of an obligation, such as occurs when the parties to a contract have fully performed their contractual obligations.

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Performance

Back 2

The fulfillment of one's duties under a contract-- the normal way of discharging one's contractual obligation .

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Condition

Back 3

A qualification, provision, or clause in a contractual agreement, the occurrence or nonoccurrence of which creates, suspends, terminates the obligations of the contracting parties.

If not satisfied, obligations of parties are discharged.

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Condition Precedent

Back 4

A condition in a contract that must be met before a party's promise becomes absolute.

condition precedes the absolute duty to perform

Generally common.

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Condition subsequent

Back 5

A condition in a contract that, if it occurs, operates to terminate a party's absolute promise to perform.

condition that follows the absolute duty to perform.

If the condition occurs, the party need not perform any further.

Generally rare.

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Concurrent conditions

Back 6

Conditions that must occur or be performed at the same time--they are mutually dependent. No obligations arise until these conditions are simultaneously performed.

Only exist when parties expressly or impliedly are to perform their respective duties simultaneously.

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Tender

Back 7

An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so.

party that tenders does everything possible to carry out the term of the contract.

accomplishes performance.

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Breach of Contract

Back 8

The failure, without legal excuse, of the promisor to perform the obligations of a contract.

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

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Anticipatory repudiation

Back 9

An assertion or action by a party indicating that he or she will not perform a contractual obligation.

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Novation

Back 10

The substitution, by agreement, of a new contract for an old one, with the rights under the old one being terminated.

Requires:

1. existence of a previous, valid obligation

2. Agreement by all the parties to a new contract

3. Elimination of the old obligation(discharge of the prior party)

4. A new, valid contract.

Expressly or impliedly revokes and discharges a prior contract.

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Impossibility of performance

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A doctrine under which a party to a contract is relieved of his or her duty to perform when performance becomes objectively impossible.

Applied when parties could not have reasonably foreseen the event or events that rendered performance impossible.

Performance may become so difficult or costly that courts will consider it commercially unfeasible or impracticable.

Objective impossibility must be distinguished from subjective impossibility.

Subjective impossibility does not discharge a contract, and nonperforming party may be held in breach of contract.

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Commercial impracticability

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A doctrine that may excuse the duty to perform a contract when performance becomes much more difficult or costly due to forces that neither party could control or contemplate at the time the contract was formed.

anticipated performance must become extremely difficult or costly

Added burden of performance must not have been known by the parties when the contract was made.

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Frustration of purpose

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A court-created doctrine under which a party to a party will be relieved of his or her duty to perform when the objective purpose of performance no longer exists(due to reasons beyond the party's control).

Supervening event must not have been foreseeable at the time of the contracting.

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Conditions of Performance

Back 14

In most contracts promises of performance are not based on conditions or precedents, but rather they are absolute promises in which they must be performed or the party promising performance of the act will be in breach of the contract.

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Contract Discharge(By Operation of Law)

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1. Material alteration

2. Statute of limitations

3. bankruptcy

4. impossibility or impracticability of performance

5. frustration of purpose

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Contract Discharge(By breach)

Back 16

1. Material Breach

2. Anticipatory repudiation

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Contract Discharge(By Performance)

Back 17

1. Complete

2. Substantial

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Contract Discharge(By Agreement)

Back 18

1. Mutual rescission

2. Novation

3. Accord and satisfaction

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Contract Discharge

Back 19

1. By operation of law

2. By breach

3. by performance

4. by failure of a condition

5. by agreement

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Contract discharge(by failure of a condition)

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If performance is conditional, duty to perform does not become absolute until that condition occurs.

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Complete performance

Back 21

Normally, conditions expressly stated in the contract must fully occur for complete performance.

Any deviation breaches the contract and discharges the other party from obligation to perform.

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Substantial performance

Back 22

A party who in good faith, who performs substantially all of the terms of the contract can enforce the contract against the other party under the doctrine of substantial performance.

Must not vary greatly from the performance promised in the contract, and it must create substantially the same benefits as those promised in the contract.

If variance is insignificant, such that damages can be compensated, the court will deem the contract substantially performed.

Courts determine this on a case-by-case basis.

If performance is substantial, the other party's duty to perform is absolute, but the party can sue for damages due to the minor deviation.

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Performance to the Satisfaction of another

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condition precedent on personal satisfaction or satisfaction of a reasonable person.

If subject matter of contract is personal, performance to the satisfaction of one of parties is conditioned and performance must actually satisfy the party unless a court finds that a party is not acting in good faith when expressing dissatisfaction.

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

Courts are divided when contract require performance to the satisfaction of a third party.

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Material Breach

Back 24

Occurs when when performance is at least not substantial.

Nonbreaching party is excused from performance of contractual duties

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Minor Breach

Back 25

Nonbreaching party's duty to perform is suspended until the breach is remedied, but the duty is not entirely excused; nonbreaching party must resume duty of contract

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Anticipatory repudiation is a material breach

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Material Breach of contract for two reasons:

1. nonbreaching party should not be required to remain ready and willing to perform when the other party has already repudiated the contract

2. nonbreaching party should have the opportunity to seek a similar contract elsewhere and may have the duty to do so to minimize losses.

nonbreaching party can bring action for damages, but until its treated as a breach, breaching party can retract the anticipatory repudiation by proper notice, restoring the parties to their prior positions.

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Repudiation may occur when market prices fluctuate

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Sharp price in market prices may make performance unfavorable for one of the parties, which could lead to a anticipatory repudiation from that party.

The risk that prices will fluctuate is party of ordinary business risks, and the law does not provide relief.

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Discharge by agreement

Back 28

Agreement in contract or new contract for discharging old contract.

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Mutual Rescission

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parties must make another agreement that also satisfies the legal requirements for a contract: there must be an offer, an acceptance, and consideration.

Promises not to perform acts promised in original contract will be legal consideration for the second contract.

Oral agreements to rescind executory contracts are enforceable even if the original contract was in writing.

Under UCC, a contract rescinding a contract for a sale of goods must be in writing when the contract requires a written rescission; also contracts to rescind contracts for realty

When party has fully performed, an agreement to rescind the original contract is usually not enforceable unless additional consideration or restitution is made.

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Accord and Satisfaction

Back 30

Accord is a contract to perform some act to satisfy an existing contractual duty that is not yet discharged.

Satisfaction is the performance of the accord agreement.

discharges original contractual obligation.

Once accord is made, original obligation is merely suspended until the accord agreement is fully performed.

If not , the party to whom the performance is owed can bring an action on the original obligation or for breach of the accord.

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Material Alteration

Back 31

Innocent party is discharged when one party has materially altered a written contract(such as changing price or quantity term) without the knowledge or consent of the party.

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Statutes of limitations

Back 32

Limit the period during which a party can sue on a particular cause of action.

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Bankruptcy

Back 33

Once debtors assets have been allocated to creditor, debtor receives a discharge in bankruptcy, which bars creditors from enforcing most of the debtor's contracts.

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When performance is impossible

Back 34

1. Party dies or becomes incapacitated

2. Subject matter is destroyed

3. Change in law renders performance illegal

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Temporary Impossibility

Back 35

Temporarily suspends performance until the impossibility ceases. Afterwards, the parties usually must perform the contract as originally planned.

Contract can be discharged if lapse of time or change in circumstances surrounding the contract make it substantially more burdensome for performance.