Chapter 19
Discharge of Contracts
Twomey, Business Law and the
Regulatory Environment (14th Ed.)
Discharge of Performance
Obligations [19-1]
Tender
Discharge
by
Performance
Payment
Timely
Adequate (substantial
performance)
Discharge
by
Action
of Parties
Consumer Rescission Rights
Agreement
Substitution of Parties
Accord & Satisfaction
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Discharge of Performance
Obligations (cont’d)
Destruction of
Subject Matter
Discharge
by
External
Factors
Impossibility
Death or Disability
Commercial Impracticability
Economic Frustration
Economic Instability
Risk
Weather
Bankruptcy
Discharge by
Operation
of Law
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Statutes of Limitations
Contract Time Limitations
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Causes of Contract Discharge
Performance
Consumer Protection
Rescission
Substitution
Unilateral Action
Accord and Satisfaction
Agreement
Destruction of Particular
Subject Matter
Change of Law
Discharge
of Contract
Impossibility
Death or Disability in
Personal Service Contract
Act of Other Party
Economic
Disappointment
Commercial Impracticability
Economic Frustration
Bankruptcy
Operation of Law
Statute of Limitations
Contractual Limitations
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Chapter 19 Summary
Most contracts are discharged by performance.
An offer to perform is called a tender of
performance. If a tender of performance is
wrongfully refused, the duty of the tenderer to
perform is terminated. If the performance
required was the payment of money, the refusal
of a proper tender does not discharge the debt.
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Chapter 19 Summary [2]
It does, however, prevent the creditor from
recovering interest or costs if suit is thereafter
brought against the tenderer to recover the amount
owed. When the performance called for by the
contract is the payment of money, it must be legal
tender that is offered. In actual practice it is
common to pay and to accept payment by checks or
other commercial paper.
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Chapter 19 Summary [3]
When the debtor owes the creditor on
several accounts and makes a payment, the
debtor may specify which account is to be
credited with the payment. If the debtor fails to
specify, the creditor may choose which account
to credit.
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Chapter 19 Summary [4]
When a contract does not state when it is to be
performed, it must be performed within a reasonable
time. If time for performance is stated in the contract,
the contract must be performed at the time specified if
such time is essential (is of the essence). Performance
within a reasonable time is sufficient if the specified
time is not essential. Ordinarily, a contract must be
performed exactly in the manner specified by the
contract.
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Chapter 19 Summary [5]
A less-than-perfect performance is allowed if it
is a substantial performance and if damages are
allowed the other party. The other contracting
party or a third person may guarantee a perfect
performance. Such a guarantor is then liable if
the performance is less than perfect.
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Chapter 19 Summary [6]
A contract cannot be discharged by
unilateral action unless authorized by the
contract itself or by statute, as in the case of
consumer protection rescission.
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Chapter 19 Summary [7]
As a contract arises from an agreement, it
may also be terminated by an agreement. This may
be a provision in the original contract or a
subsequent agreement to rescind the contract. A
contract may also be discharged by the substitution
of a new contract for the original contract; by a
novation, or making a new contract with a new
party; by accord and satisfaction; by release; or by
waiver.
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Chapter 19 Summary [8]
A contract is discharged when it is impossible
to perform. Impossibility may result from the
destruction of the subject matter of the contract, the
adoption of a new law that prohibits performance,
the death or disability of a party whose personal
action was required for performance of the contract,
or the act of the other party to the contract.
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Chapter 19 Summary [9]
Some courts will also hold that a contract is
discharged when its performance is commercially
impracticable or there is economic frustration.
Although increased cost of performance ordinarily
has no effect on a contract, if that increase is grossly
disproportionate to the original performance cost,
some courts will classify the situation as one of
commercial impracticability and hold that the
contract is discharged.
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Chapter 19 Summary [10]
In the case of economic frustration, the contract can
be performed, but the performance has ceased to
have any significant value to the party who
originally contracted to obtain that performance.
Temporary impossibility, such as a labor strike or
bad weather, has no effect on a contract. It is
common, though, to include protective clauses that
excuse delay caused by temporary impossibility.
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Chapter 19 Summary [11]
A contract may be discharged by operation
of law. This occurs when (1) the liability arising
from the contract is discharged by bankruptcy,
(2) suit on the contract is barred by the
applicable statute of limitations, or (3) a time
limitation stated in the contract is exceeded.
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