Introduction
*
• How does a party know when his or her
obligations under the contract are at an end?
• A party may be discharged from a valid
contract by:
– A condition occurring or not occurring.
– Full performance or material breach by the
other party.
– Agreement of the parties.
– Operation of law.
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Discharge and Performance
Discharge: The termination of a party’s obligations arising
under a contract. Discharge occurs either when:
1. Both parties have fully performed their obligations; or
2. Events, conduct of the parties, or operation of law
release the parties from their obligations to perform.
A party’s obligations to perform under a contract may be
either absolute or conditioned on the occurrence or
non-occurrence of some event.
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§1: Conditions
• 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.
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Conditions
*
• Types of Conditions:
– Conditions Precedent.
– Conditions Subsequent.
– Conditions Concurrent.
• Express.
• Implied in Fact.
• Implied in Law.
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Conditions

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§2: Discharge by Performance
• The contract comes to an end when both
parties fulfill their respective duties by
performing the acts they have promised.
• Types of Performance:
– Complete Performance.
– Substantial Performance (minor breach).
– Performance to the Satisfaction of One of the
Parties or a Third Party.
• Case : Jacobs & Young v. Kent (1921).
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SATISFACTION
CONTRACTS
 Some contracts require one party to perform to the
satisfaction of the other. When a contract so
provides, courts will apply one of two tests
depending on the circumstances:
 Subjective Satisfaction: When the purpose of the
performance is to satisfy personal taste, aesthetics,
and the like (e.g., painting a portrait of a
customer’s beloved), the court will ask whether
the party to be satisfied was, in good faith,
satisfied or dissatisfied with the performance.
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SATISFACTION CONTRACTS
(Cont.)
 Objective Satisfaction: When the purpose of the
performance is to serve some function (e.g., roofing a
warehouse to keep out the elements), the court will ask
whether a reasonable person would be satisfied or
dissatisfied with the performance.
 Satisfaction of a Third Party: Some contracts require that
the performance satisfy some non-party (e.g., an art critic,
or an independent lab). Courts tend toward the objective
satisfaction standard in these cases, but some have applied
the subjective satisfaction test when the third party’s
expertise goes to the same factors that would lead a court
to apply the subjective test if a party’s satisfaction was at 8
stake.
Material Breach of Contract
• Breach of Contract - the
nonperformance of a contractual duty.
• Material breach occurs when there has
been a failure of consideration.
Discharges the non breaching party
from the contract.
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Material Breach of Contract
• In a non-material breach, the duty to
perform is not excused and the nonbreaching party must resume performance
of the contractual obligations undertaken.
• Case : Van Steenhouse v. Jacor
Broadcasting of Colorado, Inc. (1998).
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Anticipatory Repudiation
• If before performance is due, one party
refuses to perform his or her contractual
obligation.
• Results in material breach.
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Anticipatory Repudiation
• The nonbreaching party should not be required to
remain ready and willing to perform when the
other party has repudiated the contract.
• The nonbreaching party should have the
opportunity to seek a similar contract elsewhere.
• Time For Performance.
– Case : Manganaro Corp v. Hitt Contracting Inc.
(2002).
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§3: Discharge by Agreement
• Discharge by Rescission.
• Discharge by Novation (four requirements)
–
–
–
–
Previous Obligation (with the original party).
All parties agree to new contract (with the new party).
Extinguishment of old obligations.
New Contract Formed.
• Discharge by Substituted Agreement.
• Accord and Satisfaction.
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Novation
• Novation: Substituting a new contract, replacing
on or more of the original parties for the old
contract, thereby terminating the original parties’
rights and duties under the old contract. Novation
requires
(1)
(2)
(3)
(4)
a valid, prior agreement, for which
all parties agree to substitute a new contract;
discharge of the prior obligation; and
a valid, new agreement.
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DISCHARGE BY OPERATION OF LAW
 Material Alteration: If the material terms of a contract are altered, an
innocent party (i.e., one who neither altered nor consented to the alteration of
the contract) may be discharged from their contractual obligations.
 Statutes of Limitations: The running of limitations (e.g., in the case of claims
under Article 2 of the Uniform Commercial Code, four years from the date of
the breach, regardless of the injured party’s knowledge of the breach) does not
technically discharge the parties, but it prevents the wronged party from
seeking judicial remedies.
 Bankruptcy: A discharge in bankruptcy, afforded to a debtor after its
liquidation or reorganization plan is approved, bars subsequent enforcement
against the debtor of any contracts that pre-date the discharge.

Unlike promises to pay or partial payment of a debt barred by Statutes of
Limitations, promises to pay or partial payment of a debt following
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discharge (in bankruptcy) does not revive the debt.
IMPOSSIBILITY, IMPRACTICABILITY,
AND FRUSTRATION OF PURPOSE
• A party may be excused when performance becomes either impossible
or impracticable through no fault of either party. The following will
generally excuse performance as objectively impossible or
impracticable:
• (1) death or incapacitation prior to performance of a personal
services contract;
• (2) destruction of the subject matter of the contract prior to
performance;
• (3) a change in the applicable law that makes performance illegal;
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IMPOSSIBILITY, IMPRACTICABILITY,
AND FRUSTRATION OF PURPOSE
(Cont.)
• (4) changing market conditions make performance commercially
impracticable; and
• (5) frustration of purpose – supervening circumstances making it
impossible for both parties to achieve the purpose of the contract.
Temporary vs. Permanent: A change in circumstances that makes
performance temporarily impossible or impracticable will act to
suspend, but not excuse, performance.
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