Performance and Discharge
Chapter 8
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.
Discharge by Performance
• Types of Performance :
– Complete Performance.
– Substantial Performance.
– Performance to the Satisfaction of a Third
Party.
– Material Breach
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
Discharge by Agreement
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Discharge by Rescission
Discharge by Novation
Discharge by Substituted Agreement
Discharge by Accord and Satisfaction
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.
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.
Discharge by Substituted
Agreement
• A compromise, or settlement agreement,
that arises out of a genuine dispute over the
obligations under an existing contract.
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.
Discharge by Operation of Law
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Alteration of the Contract
Statutes of Limitations
Bankruptcy
Impossibility
Impracticability of Performance
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.
•
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.
Bankruptcy
• A discharge in bankruptcy will ordinarily
bar enforcement of most of a debtor's
contracts.
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.
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.