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DISCHARGE, PERFORMANCE, AND TENDER

By Lauren Diaz,2014-06-18 08:56
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DISCHARGE, PERFORMANCE, AND TENDER

    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 contractual

    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

    nonoccurrence of some event.

Ch. 16: Contracts: Performance and Discharge - No. 1

    West’s Business Law (9th ed.)

    CONDITIONAL PERFORMANCE

    ? Condition: A contractual qualification, provision, or clause

    which creates, suspends, or terminates the obligations of

    one or both parties to the contract, depending on the

    occurrence or nonoccurrence of some event.

? Condition Precedent: A condition that must be

    satisfied before a party’s contractual obligation to

    perform becomes absolute (e.g., Bob promises to hire

    Terry as a driver as soon as Terry gets his license).

? Condition Subsequent: A condition the occurrence or

    nonoccurrence of which will terminate a party’s

    absolute obligation to perform (e.g., Mary agrees to let

    Sue stay in Mary’s spare room for as long as Sue

    remains unmarried).

? Concurrent Conditions: Mutually dependent

    conditions that must occur or be performed at the

    same time in order to give rise to any absolute

    obligation to perform (e.g., Nikki offers to pay Tina

    $100 in exchange for Tina’s class ring).

    ? Courts recognize and enforce both express and

    implied conditions.

    Ch. 16: Contracts: Performance and Discharge - No. 2

    West’s Business Law (9th ed.)

    CONTRACTUAL PERFORMANCE

    ? Discharge by Performance: A contract terminates when

    both parties perform or tender performance of the acts

    they have promised.

    ? Tender: An unconditional offer to perform an

    obligation by a person who is ready, willing, and able

    to do so.

    ? Complete vs. Substantial Performance: When a party

    fails to completely perform her contractual duties, the

    question arises whether the performance affords the other

    party substantially the same benefits as those promised. If

    so, then the first party is said to have substantially

    performed.

    ? If a party substantially performs, the contract

    remains in force and the other party must still

    perform its duties although it may be entitled to

    recover damages for the substantially performing

    party’s failure to perform fully.

    ? If a party fails to substantially perform, the other

    party’s remaining contractual obligations, if any, are

    discharged.

    Ch. 16: Contracts: Performance and Discharge - No. 3

    West’s Business Law (9th ed.)

? Time for Performance: If no time is stated in the contract,

    performance is due within a reasonable time.

Ch. 16: Contracts: Performance and Discharge - No. 4

    West’s Business Law (9th ed.)

    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.

? 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

    stake.

    Ch. 16: Contracts: Performance and Discharge - No. 5

    West’s Business Law (9th ed.)

    BREACH AND REPUDIATION

    ? Material Breach: A party’s failure, without legal excuse,

    to substantially perform her contractual obligations.

    ? If a party’s breach is non-material, the non-breaching

    party’s duty to perform may be suspended until the

    breach is remedied, or “cured.” However, a non-

    material breach will not excuse performance by the

    non-breaching party. Only a material breach will

    excuse the non-breaching party from its contractual

    obligations.

    ? If time is not “of the essence,” failure to perform by

    the time specified in the contract is not a material

    breach.

    ? Anticipatory Repudiation: An action by a party to a

    contract that indicates that she will not perform a

    contractual obligation due to be performed in the future.

    ? Such a repudiation will excuse the non-repudiating

    party from performing under the contract.

    ? However, until the non-repudiating party treats the

    repudiation as a material breach, the repudiating party

    can retract her repudiation and restore the parties’

    contractual rights and obligations.

    Ch. 16: Contracts: Performance and Discharge - No. 6

    West’s Business Law (9th ed.)

    DISCHARGE BY AGREEMENT

? Rescission: The process by which the parties cancel a

    contract and return one another to their pre-contract status.

? 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) a valid, prior agreement, for which

    (2) all parties agree to substitute a new contract;

    (3) discharge of the prior obligation; and

    (4) a valid, new agreement.

    ? Substituted Agreement: Substituting, by agreement, a

    new contract for the old contract, thereby terminating the

    parties’ rights and duties under the old contract.

    ? Notice that the parties to a substitute agreement are the

    same as the parties to the original contract.

    ? Accord and Satisfaction: An agreement between the

    parties to accept different performance than originally

    promised.

Ch. 16: Contracts: Performance and Discharge - No. 7

    West’s Business Law (9th ed.)

    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 limitations, promises to pay or partial

    payment of a debt following discharge does not revive

    the debt.

Ch. 16: Contracts: Performance and Discharge - No. 8

    West’s Business Law (9th ed.)

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;

    (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

Ch. 16: Contracts: Performance and Discharge - No. 9

    West’s Business Law (9th ed.)

    impracticable will act to suspend, but not excuse,

    performance.

Ch. 16: Contracts: Performance and Discharge - No. 10

    West’s Business Law (9th ed.)

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