Comprehensive Volume, 18th Edition
Chapter 20:
Discharge of Contracts
Conditions Relating to Performance
If the occurrence or non-occurrence of an
event affects the duty of a party to perform,
the event is called a condition.
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Condition Precedent is a condition that must occur
before the party is obligated to perform.
Condition Subsequent is a condition that, if it
occurs after an agreement is reached, may cancel
the contract.
Concurrent Conditions are conditions that must
happen simultaneously in order for the contract to
be completely executed.
Tender and Discharge
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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 to perform is
terminated, except when the duty was
the payment of money.
Causes of Contract Discharge
Unilateral Action
Consumer Protection Rescission
Substitution
Agreement
Accord and Satisfaction
Destruction of Subject Matter
Performance
OR
Impossibility
Change of Law
Death or Disability - Personal Service
Act of Other Party
Economic
Disappointment
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Commercial Impracticability
Economic Frustration
Bankruptcy
Operation of Law
Statute of Limitations
Contractual Limitations
Time of Performance
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Ordinarily, a contract must be performed
exactly in the manner specified by the
contract.
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, or
within a reasonable time if the specified time
is not essential.
Perfect Performance
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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.
Discharge by Agreement
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A contract may be terminated by an
agreement, either a provision in the
original contract or a subsequent
agreement.
A contract may also be discharged by
the substitution of a new contract for
the original contract; by a novation (a
new contract with a new party); by
accord and satisfaction; by release; or
by waiver.
Discharge by Impossibility
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A contract is discharged when it is impossible
to perform.
Impossibility may result from:
the destruction of the subject matter,
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.
Commercial Impracticability
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Some courts will also hold that a contract is
discharged when its performance is
commercially impracticable or there is
economic frustration.
Increased cost ordinarily has no effect on a
contract, but if the increase is grossly
disproportionate to the original cost, some
courts will classify the situation as one of
commercial impracticability and discharge
the contract.
Frustration of Purpose
In the case of frustration of purpose, 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.
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For example, renting a stadium to hold a
football game, then the team is killed in a plane
crash. The contract for the stadium may be
voided since neither party could foresee the
cancellation of the game.
Temporary Impossibility
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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Discharge by Operation of Law
A contract may be discharged by
operation of law.
This occurs when:
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(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.
Discharge of Obligations
Tender
Discharge
by
Performance
Payment
Timely
Adequate (substantial performance)
Discharge
by
Action
of Parties
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Consumer Rescission Rights
Agreement
Substitution of Parties
Accord & Satisfaction
Discharge of Obligations (cont.)
Destruction of Subject Matter
Change of Law
Impossibility
Discharge
by
External
Factors
Death or Disability
Commercial Impracticability
Frustration of Purpose
Temporary Impossibility, like Weather
Bankruptcy
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Discharge by
Operation
of Law
Statutes of Limitations
Contract Time Limitations