Lwc1 - Ch 17 Performance And Discharge

Front 1

Discharge

Back 1

A party is discharged when she has no more duties under a contract. Most contracts are discharged by full performance. Sometimes the parties discharge a contract by agreement.

Front 2

Commercial Impracticability

Back 2

After the creation of a contract, an entirely unforeseen event occurs which makes enforcement of the contract extraordinarily unfair.

Front 3

Conditional Precedent

Back 3

A condition that must occur before a particular contract duty arises.

Front 4

Conditions

Back 4

An event that must occur before a party becomes obligated under a contract.

Front 5

Express Conditions

Back 5

In an express condition no special language is necessary to create the condition. As long as the parties intended to create a condition, a court will enforce it.

Front 6

Implied Conditions

Back 6

Parties say nothing about a condition, but it is clear from their agreement that they have implied one.

Front 7

Three types of Conditions

Back 7

1. Condition Precedent
2. Condition Subsequent
3. Concurrent Conditions

Front 8

The key to all conditional clauses

Back 8

if the condition does not occur, one party will probably be discharged without performing.

Front 9

Conditional Precedent

Back 9

A condition that must occur before a particular contract duty arises.

Front 10

Conditional Subsequent

Back 10

A condition that must occur after a particular contract duty arises, or the duty will be discharged.

Front 11

Difference between condition precedent and condition subsequent is important for one reason

Back 11

it tells us who must prove whether the condition occurred.

Front 12

Concurrent Conditions

Back 12

Both parties have a duty to preform simultaneously.

Front 13

Strict performance

Back 13

Fulfilling a contract and all conditions perfectly. A party is generally not required to render strict performance unless the contract expressly demands it and such a demand is reasonable.

Front 14

Substantial performance

Back 14

The promisor performs contract duties well enough to be entitled to his full contract price, minus the value of any defects. A party the fails to perform substantially receives nothing on the contract itself and will only recover the value of the work, if any.

Front 15

4 Issues to look at for substantial performance

Back 15

1. How much benefit has the promisee received?
2. If it is a construction contract, can the owner use the thing for its intended purpose?
3. Can the promisee be compensated with money damages for any defects?
4. Did the promisor act in good faith?

Front 16

Personal Satisfaction Contract

Back 16

The promisee makes a personal, subjective evaluation of the promisor's performance.

Front 17

Subjective Standard

Back 17

The promisee's personal views will greatly influence her judgement, even if her decision is foolish and unfair. A court applies a subjective standard only if assessing the work involves personal feelings, taste, or judgment and the contract explicitly demanded personal satisfaction.

Front 18

Objective Standard

Back 18

The promisee's judgement of the work must be reasonable. Objective standard will be used if assessing the work does not involve personal judgement or if the contract failed to explicitly demand personal satisfaction.

Front 19

Good Faith

Back 19

Every contract imposes upon each party a duty of good faith and fair dealings in its performance and its enforcement. The parties must remain faithful to the "agreed common purpose and justified expectations of the other party."

Front 20

Time of the Essence Clause

Back 20

Generally makes contract dates strictly enforceable. Merely including a date for performance does not make time of the essence.

Front 21

Breach

Back 21

When one party breaches a contract, the other party is discharged.

Front 22

Material Breach

Back 22

A breach that substantially harms the innocent party and for which it would be hard to compensate without discharging the contract. Courts will only discharge a contract if a party committed a material breach.

Front 23

Anticipatory Breach

Back 23

A party makes it unmistakably clear that it will not honor the contract

Front 24

Statute of Limitations

Back 24

A statute that determines the period within which a particular kind of lawsuit must be filed. A statute of limitations begins to run at the time of injury and will limit the time within which the injured party may file suit.

Front 25

True Impossibility

Back 25

Something has happened making it utterly impossible to do what the promiser said he would do.

Front 26

True impossibility is generally limited to these three causes

Back 26

1. Destruction of the Subject Matter.
2. Death of the Promisor in a Personal Services Contract.
3. Illegality.

Front 27

Commercial Impracticability

Back 27

Some event has occurred that neither party anticipated and fulfilling the contract would now be extraordinarily difficult and unfair to one party.

Front 28

Frustration of Purpose

Back 28

Some event has occurred that neither party anticipated and the contract now has no value for one party.

Front 29

Five Factors court consider in deciding impracticability and frustration claims

Back 29

1. Mere financial difficulties will here suffice to discharge a contract.
2. The event must have been truly unexpected.
3. If the promisor must use a different means to accomplish her tasks, at a greatly increased cost, she probably does have a valid claim of impracticability.
4. A force majeure clause is significant but not necessarily dispositive.
5. The UCC permits discharge only for major, unforeseen disruptions.

Front 30

Chapter Review #1
A Condition

Back 30

A condition is an event that must occur before a party becomes obligated. It may be stated expressly or implied, and no formal language is necessary to create one.

Front 31

Chapter Review #2
Strict Performance

Back 31

Strict performance, which requires one party to fulfill its duties perfectly, is unusual. In construction and service contracts, substantial performance is generally sufficient to entitle the promisor to the contract price, minus the cost of defects in the work.

Front 32

Chapter Review #3
Personal Satisfaction Contracts

Back 32

Personal satisfaction contracts are interpreted under an objective standard, requiring reasonable ground for dissatisfaction, unless the work involves personal judgment and the parties intended a subjective standard.

Front 33

Chapter Review #4
Good Faith

Back 33

Good faith performance is required in all contracts.

Front 34

Chapter Review #5
Time of the essence clauses

Back 34

Time of the essence clauses result in strict enforcement of contract deadlines.

Front 35

Chapter Review #6
Material Breach

Back 35

A material breach is the only kind that will discharge a contract; a trivial breach will not.

Front 36

Chapter Review #7
True Impossibility

Back 36

True impossibility means that some event has made it impossible to perform an agreement. It is typically caused by destruction of the subject matter, the death of an essential promisor, or intervening illegality.

Front 37

Chapter Review #8
Commercial Impracticability

Back 37

Commercial impracticability means that some unexpected event has made it extraordinarily difficult and unfair for one party to perform its obligations.

Front 38

Chapter Review #9
Frustration of purpose

Back 38

Frustration of purpose may occur when an unexpected event renders a contract completely useless to one party.

Front 39

Practice Test
1. Stephen Krogness was a real estate broker. He signed an agreement to act as an agent for Best Buy Co., which was interested in selling several of its stores. The contract provided that Best Buy would pay Krogness a commission of 2 percent for a sale to “any prospect submitted directly to Best Buy by Krogness.” Krogness introduced Corporate Realty Capital (CRC) to Best Buy, and the parties negotiated a possible sale but could not reach agreement. CRC then introduced Best Buy to BB Properties (BB). Best Buy sold several properties to BB for a total of $46 million. CRC acted as the broker on the deal. After the sale, Krogness sought a commission of $528,000. Is he entitled to it?

Back 39

A: No. Krogness did not directly submit BB Properties.

Front 40

2. ETHICS Commercial Union Insurance Co. (CU) insured Redux, Ltd. The contract made CU liable for fire damage, but stated that the insurer would not pay for harm caused by criminal acts of any Redux employees. Fire destroyed Redux's property. CU claimed that the “criminal acts” clause was a condition precedent, but Redux asserted it was a condition subsequent. What difference does it make, and who is legally right? Does the insurance company's position raise any ethical issues? Who drafted the contract? How clear were its terms?

Back 40

A: 1.The difference is it tells us who move prove whether the condition occurred.
2. Redux is legally right. The condition occurred after the duty arose.
3. CU's position raises ethical issues. Should a insurance company try to make the insured customer prove that there was no criminal activity within the company? Or should it always be the insurance company who must prove the claim?
4. CU drafted the contract.
5. The terms of the contract were not clear. CU should have put into the terms that this was a condition precedent clause. That was there would be no question as to who must prove the claim.

Front 41

3. Evans built a house for Sandra Dyer, but the house had some problems. The garage ceiling was too low. Load-bearing beams in the “great room” cracked and appeared to be steadily weakening. The patio did not drain properly. Pipes froze. Evans wanted the money promised for the job, but Dyer refused to pay. Comment.

Back 41

A: Evans failed to give substantial performance for the work he did. He is only entitled to the value of the work completed. Here is why:
1. Dyer did receive some benefit for the work preformed by Evans, but not all. The garage ceiling may have not been a big deal, depending on the height. The load-bearing beams are a major issue on the structural stability of the house. The patio could be re-leveled. Non-insulated piping may not have been a major issue but might be depending on where they are in the house.
2. Dyers can use the home for its intended purpose only after the problems have been addressed. The vehicle may not fit in the garage which would have to be corrected if that was the case. The beams may break and the roof may cave in. This would have to be addressed quickly. A flooded patio may make water flow into the house or under to affect the foundation. Must be re-leveled. Frozen pipes may burst and flood the house. Must be insulated.
CONTINUED ON NEXT CARD

Front 42

See back side for continued answer to question #3

Back 42

3. Dyers should be compensated the repair cost for the defect issues.
4. Evans may have acted in good faith. It seems that besides these four issues, everything else was in good working order.

Front 43

4. Stephen Muka owned U.S. Robotics. He hired his brother Chris to work in the company. His letter promised Chris $1 million worth of Robotics stock at the end of one year, “provided you work reasonably hard & smart at things in the next year.” (We should all have such brothers.) Chris arrived at Robotics and worked the full year, but toward the end of the year Stephen died. His estate refused to give Chris the stock, claiming their agreement was a personal satisfaction contract and only Stephen could decide whether Chris had earned the reward. Comment.

Back 43

A: While this may in fact be a personal satisfaction contract, The court may apply an objective standard to this case.The fact that Chris was still employed by U.S. Robotics after a year of work shows that he did work "reasonably hard and smart."

Front 44

5. Ken Ward was an Illinois farmer who worked land owned by his father-in-law, Frank Ruda. To finance his operation, he frequently borrowed money from Watseka First National Bank, paying back the loans with farming profits. But Ward fell deeper and deeper into debt and Watseka became concerned. When Ward sought additional loans, Watseka insisted that Ruda become a guarantor on all of the outstanding debt, and the father-in-law agreed. The new loans had an acceleration clause, permitting the bank to demand payment of the entire debt if it believed itself “insecure,” that is, at risk of a default. Unfortunately, just as Ward's debts reached more than $120,000, Illinois suffered a severe drought, and Ward's crops failed. Watseka asked Ruda to sell some of the land he owned to pay back part of the indebtedness. Ruda reluctantly agreed but never did so. Meanwhile, Ward decreased his payments to the bank because of the terrible crop.

Back 44

See next card.

Front 45

Watseka then “accelerated” the loan, demanding that Ruda pay off the entire debt. Ruda defended by claiming that Watseka's acceleration at such a difficult time was bad faith. Who won?

Back 45

A: The bank won. The bank honestly believed the loan was at risk of a default. The drought and the fact that Ruda refused to sell a portion of his land provided a basis for their belief.

Front 46

6. In August 1985, Colony Park Associates signed a contract to buy 44 acres of residential land from John Gall. The contract stated that “closing will take place August 20, 1986.” The year's delay was to enable Colony Park to obtain building permits to develop condominiums. Colony Park worked diligently to obtain all permits and kept Gall abreast of its efforts. But delays in sewer permits forced Colony Park to notify Gall it could not close on the agreed date. Colony Park suggested a date exactly one month later. Gall refused the new date and declined to convey the property to Colony Park. Colony Park sued. Gall argued that since the parties specified a date, time was of the essence and Colony Park's failure to buy on time discharged Gall. Please rule.

Back 46

A: Colony Park is right in this matter. No time of the essence clause was ever put into the contract. Merely including a date for performance does not make time of the essence.

Front 47

7. Loehmann's clothing stores, a nationwide chain with headquarters in New York, was the anchor tenant in the Lincoln View Plaza Shopping Center in Phoenix, Arizona, with a 20-year lease from the landlord, Foundation Development, beginning in 1978. Loehmann's was obligated to pay rent the first of every month and to pay common area charges four times a year. The lease stated that if Loehmann's failed to pay on time, Foundation could send a notice of default, and that if the store failed to pay all money due within 10 days, Foundation could evict. On February 23, 1987, Foundation sent to Loehmann's the common area charges for the quarter ending January 31, 1987. The balance due was $3,500. Loehmann's believed the bill was in error and sent an inquiry on March 18, 1987. On April 10, 1987, Foundation insisted on payment of the full amount within 10 days. Foundation sent the letter to the Loehmann's store in Phoenix.

Back 47

See next card.

Front 48

On April 13, 1987, the Loehmann's store received the bill and, since it was not responsible for payments, forwarded it to the New York office. Because the company had moved offices in New York, a Loehmann's officer did not see the bill until April 20. Loehmann's issued a check for the full amount on April 24 and mailed it the following day. On April 28 Foundation sued to evict; on April 29 the company received Loehmann's check. Please rule.

Back 48

A: Loehmann's violated the lease by failing to pay within 10 days. The plaintiff is allowed to evict.

Front 49

8. Omega Concrete had a gravel pit and factory. Access was difficult, so Omega contracted with Union Pacific Railroad (UP) for the right to use a private road that crossed UP property and tracks. The contract stated that use of the road was solely for Omega employees and that Omega would be responsible for closing a gate that UP planned to build where the private road joined a public highway. In fact, UP never constructed the gate; Omega had no authority to construct the gate. Mathew Rogers, an Omega employee, was killed by a train while using the private road to reach Omega. Rogers's family sued Omega, claiming, among other things, that Omega failed to keep the gate closed as the contract required. Is Omega liable based on that failure?

Back 49

A: Without permission to build the gate, Omega is not liable on the failure. It was impossible for them to fulfill the terms of the contract because the gate never existed. Ruling in favor of the defendant.

Front 50

9. CPA QUESTION Nagel and Fields entered into a contract in which Nagel was obligated to deliver certain goods by September 10. On September 3, Nagel told Fields that he had no intention of delivering the goods. Prior to September 10, Fields may successfully sue Nagel under the doctrine of:

Back 50

A: Anticipatory Breach