Section 11.1
Performance and Agreement
How
Contracts
Come
Section
11.1
Performance
and
Agreement
Chapter 11
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
What You’ll Learn
How to identify when time is important in
a contract (p. 224)
How to distinguish between satisfactory
and substantial performance (p. 226)
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
What You’ll Learn
How to explain tender of performance
(p. 228)
How to explain how contracts can be
discharged by agreement (p. 229)
Understanding Business and Personal Law
How Contracts Come to an End
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
Legal Terms
discharged (p. 224)
performance (p. 224)
complete performance (p. 224)
reasonable time (p. 224)
substantial performance (p. 226)
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Legal Terms
tender (p. 228)
legal tender (p. 229)
mutual release (p. 230)
accord and satisfaction (p. 230)
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section Outline
Ending a Contract
Discharge by Performance
Time for Performance
Satisfactory Performance
Substantial Performance
Tender of Performance
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section Outline
Discharge by Agreement
Mutual Release
Accord and Satisfaction
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Pre-Learning Question
How does a contract come to an end?
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
Pre-Learning Question
What do you think “discharged by
performance” means?
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
How are most contracts discharged?
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
ANSWER
By performance
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 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,” then 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.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Substantial Performance
Substantial performance is slightly
less than full 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
Judy Anfinson agreed to create a
garden landscape for Bill MacArthur
“to his satisfaction” for $1,200.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
When it was complete, Bill noticed
Judy had planted some shrubs around
the patio to which he was highly
allergic. Is Judy required to replant the
shrubs? Why or why not?
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
ANSWER
Yes. The contract requires Judy to
complete the project to Bill’s
satisfaction.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Pre-Learning Question
What do you think “discharged by
agreement” means?
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.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Reviewing What You Learned
1. What is a reasonable time for
completing a contract?
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Reviewing What You Learned
Answer
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
Section 11.1 Assessment
Reviewing What You Learned
2. What is the difference between
satisfactory and substantial
performance of a contract?
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Reviewing What You Learned
Answer
The standard for satisfactory performance
is reasonableness. 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
Section 11.1 Assessment
Reviewing What You Learned
3. What is tender of performance?
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Reviewing What You Learned
Answer
An offer to do what a party has agreed to
do under a contract.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Reviewing What You Learned
4. How can contracts be discharged
by agreement?
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Reviewing What You Learned
Answer
By mutual release and accord and
satisfaction
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Critical Thinking Activity
Discharge by Agreement
Why does the court permit certain
contracts to be discharged by accord and
satisfaction?
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Critical Thinking Activity Answer
Discharge by Agreement
It is used to settle an honest disagreement
or unforeseen circumstances regarding an
amount owed.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Legal Skills in Action
Accord and Satisfaction
Last week, your friend Cynthia used a
credit card to purchase a snowboard for
$277.89. This week she saw the same
snowboard on sale for $250.43 at another
store.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Legal Skills in Action
Accord and Satisfaction
Cynthia believes she can use accord and
satisfaction to pay the lesser amount when
her credit card comes in the mail.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Legal Skills in Action
Accord and Satisfaction
Send Cynthia an e-mail message
explaining why accord and satisfaction will
not work in this case.
Understanding Business and Personal Law
How Contracts Come to an End
Section 11.1 Performance and Agreement
Section 11.1 Assessment
Legal Skills in Action Answer
Accord and Satisfaction
Accord and satisfaction cannot be used
because the lower price does not meet the
criteria of unforeseen circumstances or
disagreement about the amount that she
originally bought the snowboard for.
Understanding Business and Personal Law
How Contracts Come to an End
End of Section 11.1
Performance and Agreement