Section 11.1
Performance and Agreement
Section 11.1 Performance and Agreement
Why It’s Important
Understanding when contracts come to an
end will help you determine your legal rights
and obligations in such situations.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Ending a Contract
When contracts eventually end, they
are said to be discharged.
Contracts can be discharged by
performance and by agreement.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Discharge by Performance
Most contracts are discharged by
performance, meaning the parties
fulfill the terms of the contract by
doing what they promised earlier.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Discharge by Performance
As long as all terms have been carried
out properly and completely, the
contract is discharged by complete
performance.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Time for Performance
The time for completing a contract
may be important to one or both of the
parties.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Time for Performance
If the time is not stated in the contract
and there is a question of
performance, the courts will say the
contract must be completed in a
reasonable time.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Time for Performance
Reasonable time
will vary with the circumstances
is defined as the time that is
suitable, fair, and proper to the
objective in view
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Time for Performance
A contract will specify that time is of
the essence when it is a vital or
essential element of the contract.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Satisfactory Performance
When people perform services for
others, the law requires that those
services be done in a satisfactory
manner.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Satisfactory Performance
Regardless of whether or not a
contract specifically states the work be
performed “in a satisfactory manner,”
if one party believes the job is
unsatisfactory, the court uses the
reasonable person test.
Understanding Business and Personal Law
How Contracts Come to an End
11.1 11.1 Performance and Agreement
Section
Reasonable Person Test
The court asks, “Would a reasonable person
consider the job to be completed in a
satisfactory manner?”
I’m a reasonable
person.
Has this job been
completed in a
satisfactory
manner?
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Reasonable Person Test
The dispute will then be settled based
on the answer to this question as
determined by a judge or jury.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Satisfactory Performance
If one party agrees to perform
services for another “to the other’s
satisfaction,” the other party must be
satisfied to be bound to the contract.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Substantial Performance
An exception to the rule of discharging
a contract by complete performance is
substantial performance.
Substantial performance is slightly
less than full performance.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Substantial Performance
Someone who has fulfilled the
major requirements of a contract in
good faith, leaving only minor
details incomplete, has substantially
performed.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Substantial Performance
The courts will allow the person to
recover the amount agreed upon
under the contract, minus the cost
of completing the job.
Substantial performance is often
applied to construction contracts.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Tender of Performance
A tender is an offer to do what you
have agreed to do under a contract.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Tender of Performance
For example:
if buying a car—offering to pay
money to the seller at the agreed
time
if selling a car—offering to give the
car to the buyer at the agreed time
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Tender of Performance
If neither party has made tender, then
neither party is in a position to bring
suit against the other.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Tender of Performance
The person offering to pay the
required amount of money must
offer legal tender—U.S. coins or
currency.
Offering a check, even if it is
certified, is not a valid tender of
payment.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Discharge by Agreement
Contracts are created by mutual
agreement and may be terminated by
mutual agreement.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Mutual Release
A mutual release is an agreement
between two parties to end an
agreement. By mutual agreement, the
contract no longer exists.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Accord and Satisfaction
A contract can also be discharged
when one party to an agreement
agrees to accept performance from
the other party that is different from
what was agreed upon in the original
contract.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Accord and Satisfaction
In effect, one contract is substituted
for another, which is known as accord
and satisfaction.
It is often used to settle an honest
disagreement or unforeseen
circumstances regarding an amount
owed.
End of Section 11.1
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.2
Impossibility of Performance
and Operation of Law
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Why It’s Important
Understanding when contracts are
discharged by impossibility and by operation
of law will help you know your legal rights
and obligations in such situations.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Involuntary Discharge
Some contracts come to an end
despite what the parties intend or
what they actually do. In these
situations, the obligations that exist
under the contract may also expire.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Involuntary Discharge
Two ways contracts are discharged:
1. by impossibility of performance
2. by operation of law
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Discharge by Impossibility
of Performance
A contract that becomes legally
impossible to perform generally may
be discharged and both parties
released from the obligation.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Discharge by Impossibility
of Performance
Three situations in which the courts
will allow a discharge for
impossibility of performance are:
1. death or illness that prevents the
performance of a personal service
contract
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Discharge by Impossibility
of Performance
2. destruction of the exact subject
matter or the means for
performance
3. illegality, or situations in which the
performance of a contract
becomes illegal
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Death or Illness in a Personal
Service Contract
The death or illness of a party to a
contract may be an excuse for
nonperformance only if the contract
requires the personal service of the
person who has died or become ill.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Destruction of the
Exact Subject Matter
If the subject matter that is essential to
the performance of the contract is
destroyed through no fault of either
party, the contract is discharged.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Destruction of the
Exact Subject Matter
The destruction must occur after the
contract is entered into, but before it is
carried out.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Illegality
A contract is considered void if its
performance would be illegal at the
time the agreement was initiated.
The same general rule applies when
performance becomes illegal after the
contract has been initiated.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Discharge by Operation of Law
At times, the best interests of society
demand that a contract be terminated.
Under these circumstances, the law
declares contract discharged by
operation of law.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Discharge by Operation of Law
These include
when a wrongful alteration has
occurred
when the statue of limitations has
run its course
in cases of bankruptcy
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Wrongful Alteration
Sometimes wrongful acts of one of the
parties, such as altering, or changing,
a contract, will discharge a contract by
operation of law.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Statute of Limitations
All states have a law that specifies in
what time a legal action may be
brought on a contract, which is called
the statute of limitations.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Bankruptcy
Congress has the authority to pass
bankruptcy laws, which are set
procedures for discharging a debtor’s
obligations.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Bankruptcy
Certain debts cannot be discharged
under bankruptcy laws.
education, during the first five years
of the repayment period
taxes
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Bankruptcy
alimony
child support
maintenance payments
End of Section 11.2
Understanding Business and Personal Law
How Contracts Come to an End