Performance and Discharge

1
Performance and Discharge

• Chapter 8

2
Discharge

• Discharge usually results from performance but
  can occur in other ways
• (1) the occurrence or failure of a condition
  on which a contract is based,
• (2) breach of the contract,
• (3) agreement of the parties, and
• (4) operation of law.

3
Discharge by Performance

• Types of Performance
• Complete Performance.
• Substantial Performance.
• Performance to the Satisfaction of a Third Party.
  
• Material Breach

4
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.

5
Substantial Performance.

• Generally, performance that provides a party with
  the important and essential benefits of a
  contract, in spite of any omission or deviation
  from the terms, is substantial performance.
• Good faith is required
• Willfully failing to comply is a breach of
  the
• contract.

6
Substantial Performance

• Because substantial performance is not perfect,
  the other party is entitled to damages to
  compensate for the failure to comply with the
  contract.
• The measure of the damages is
• the cost to bring the object of the contract into
  compliance with its terms, if that cost is
  reasonable.
• If the cost is unreasonable, the measure of
  damages is the difference in value between the
  performance that was rendered and complete
  performance.

7
Material Breach of Contract

• A breach of contract is the nonperformance of a
  contractual duty. The breach is
• material when performance is not at least
  substantial

8
Performance to the Satisfaction of a Party

• When the subject matter of contract is personal,
  a
• contract to be performed to the satisfaction of
  one of
• the parties is conditioned, and performance must
• actually satisfy that party.
• Contracts that involve mechanical fitness,
  utility, or
• marketability need only be performed to the
• satisfaction of a reasonable person.

9
Performance to the Satisfaction of a Third Party

• Courts are divided.
• A few courts require the personal satisfaction
• of the third party.
• A majority of courts require the work to be
• satisfactory to a reasonable person.

10
Anticipatory Repudiation

• An anticipatory repudiation occurs when one of
  the parties refuses to carry out his or her
  contractual obligations before either party to
  the contract has a duty to perform
• The repudiation can discharge the nonbreaching
  party from performance.

11
Anticipatory Repudiation

• There are two reasons for allowing the
• nonbreaching party to treat an anticipatory
  repudiation as a present, material breach
• 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.

12
Time for Performance

• If no time for performance is stated in the
  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,
  however, a delay in performance will not destroy
  the performing party's right to payment.
• When it is construed to be "of the essence," the
  parties must perform within the stated time
  period. The time element becomes a condition.

13
Conditions

• In some situations, performance is contingent
• on the occurrence or nonoccurrence of a
• certain event.
• A condition is 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.

14
Conditions

• Three types of conditions can be present in
  contracts
• conditions precedent,
• conditions subsequent, and
• concurrent conditions.
• Conditions are also classified as express or
  implied.

15
CONDITION PRECEDENT

• A condition that must be fulfilled before a
  party's performance can be required is called a
  condition precedent.
• Example Real estate contracts frequently are
  conditioned on the buyer's ability to obtain
  financing.

16
CONDITION SUBSEQUENT

• A condition subsequent is a condition which
  operates to terminate a party's absolute promise
  to perform.
• Example A law firm hires a recent law school
  graduate and newly licensed attorney. Their
  contract provides that the firm's obligation to
• continue employment is discharged if the
  employee fails to maintain her license to
  practice law.

17
Concurrent Conditions

• Concurrent conditions occur when each party's
  absolute duty to perform is conditioned on the
  other party's absolute duty to perform.
  Concurrent conditions occur only when the parties
  expressly or impliedly are to perform their
  respective duties simultaneously.
• Example Buyer promises to pay for goods when
• they redelivered

18
Express and Implied Conditions

• Express conditions are provided for by the
  parties' agreement. An express condition is
  usually prefaced by the word if, provided, after,
  or when.
• Conditions implied in fact are understood to be
  part of the agreement, but they are not found in
  the express language of the agreement. The court
  infers them from the promises.

19
Discharge by Agreement

• Discharge by Rescission
• Discharge by Novation
• Discharge by Substituted Agreement
• Discharge by Accord and Satisfaction

20
Discharge by Rescission

• 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.
• For mutual rescission to take place, the parties
  must make another agreement, which satisfies the
  legal requirements for a contract.
• There must be an offer, an acceptance,and
  consideration.

21
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 of all the parties to a new
  contract.
• 3.The extinguishment of the old obligation
  (discharge of the prior party).
• 4.A new contract that is valid.

22
Discharge by Substituted Agreement

• A compromise, or settlement agreement, that
  arises out of a genuine dispute over the
• obligations under an existing contract.

23
Discharge by Accord and Satisfaction

• For a contract to be discharged by accord and
  satisfaction, the parties must agree to
• accept performance that is different from the
  performance originally promised.

24
Discharge by Operation of Law

• Alteration of the Contract
• Statutes of Limitations
• Bankruptcy
• Impossibility
• Impracticability of Performance

25
Alteration of the Contract

• An innocent party can treat a contract as
• discharged if the other party materially
  alters a term (such as quantity or price) without
  consent.

26
Statutes of Limitations

• Statutes of limitations limit the period during
  which a party can sue based on a breach of
  contract.
• After the applicable limitations period has
• passed, a suit can no longer be brought.

27
Bankruptcy

• A discharge in bankruptcy will ordinarily bar
  enforcement of most of a debtor's contracts.

28
Impossibility

• A contract may be discharged if, after it is
  made,
• performance becomes objectively impossible,
  as
• in the following
• (1) death or incapacity of one of the parties,
• (2) specific subject matter of the contract is
  destroyed, or
• (3) change in the law that renders performance
  illegal.

29
Commercial Impracticability

• For someone to invoke successfully the doctrine
  of commercial impracticability, however, the
  anticipated performance must become extremely
  difficult or costly due to the occurrence of an
  event the nonoccurrence of which was assumed when
  the contract was entered into.