Chapter 19Chapter 19DISCHARGE OF CONTRACTSDISCHARGE OF CONTRACTS

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Conditions Relating to PerformanceConditions Relating to Performance

Classification of Conditions: If the occurrence or Classification of Conditions: If the occurrence or non-occurrence of an event affects the duty of a party non-occurrence of an event affects the duty of a party to perform, the event is called a condition.to perform, the event is called a condition. Condition Condition PrecedentPrecedent is a condition that must occur before is a condition that must occur before

the party is obligated to perform.the party is obligated to perform. Condition Condition SubsequentSubsequent is a condition that, if it occurs after is a condition that, if it occurs after

an agreement is reached, may cancel the contract.an agreement is reached, may cancel the contract. ConcurrentConcurrent Conditions are conditions that must happen Conditions are conditions that must happen

simultaneously in order for the contract to be completely simultaneously in order for the contract to be completely executed.executed.

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Discharge by PerformanceDischarge by Performance

Most contracts are discharged by performance. Most contracts are discharged by performance. An offer to perform is called a tender of An offer to perform is called a tender of

performance. performance. If a tender of performance is wrongfully If a tender of performance is wrongfully

refused, the duty to perform is terminated, refused, the duty to perform is terminated, except when the duty was the payment of except when the duty was the payment of money. money.

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Time of PerformanceTime of Performance

Ordinarily, a contract must be performed exactly in the Ordinarily, a contract must be performed exactly in the manner specified by the contract. manner specified by the contract.

When a contract does not state when it is to be When a contract does not state when it is to be performed, it must be performed within a reasonable performed, it must be performed within a reasonable time. time.

If time for performance is stated in the contract, the If time for performance is stated in the contract, the contract must be performed at the time specified if contract must be performed at the time specified if such time is essential, or within a reasonable time if such time is essential, or within a reasonable time if the specified time is not essential. the specified time is not essential.

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Adequacy of PerformanceAdequacy of Performance

Substantial Performance: A party who Substantial Performance: A party who substantially performs in good faith is entitled substantially performs in good faith is entitled to payment, offset by any defect or damages. to payment, offset by any defect or damages.

Fault of Complaining Party.Fault of Complaining Party.Satisfaction Contracts.Satisfaction Contracts.

To original party.To original party. To third party. To third party.

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Discharge by Action of PartiesDischarge by Action of Parties

Unilateral: Consumer Credit Protection Act gives Unilateral: Consumer Credit Protection Act gives right to cancel the contract within three days.right to cancel the contract within three days.

A contract may be terminated by an agreement, A contract may be terminated by an agreement, either a provision in the original contract or a either a provision in the original contract or a subsequent agreement. subsequent agreement.

A contract may also be discharged by the A contract may also be discharged by the substitutionsubstitution of a new contract for the original of a new contract for the original contract; by a contract; by a novationnovation (a new contract with a new (a new contract with a new party); by party); by accord and satisfactionaccord and satisfaction; by ; by releaserelease; or by ; or by waiverwaiver..

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Impossibility Impossibility

A contract is discharged when it is objectively A contract is discharged when it is objectively impossible to perform due to unforeseeable impossible to perform due to unforeseeable conditions events.conditions events. the destruction of the subject matter, the destruction of the subject matter, the adoption of a new law that prohibits the adoption of a new law that prohibits

performance, performance, the death or disability of a party whose personal the death or disability of a party whose personal

action was required for performance of the action was required for performance of the contract, or contract, or

the act of the other party to the contract.the act of the other party to the contract.

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Commercial ImpracticabilityCommercial Impracticability

A contract may be discharged when its A contract may be discharged when its performance is impractical by subsequent performance is impractical by subsequent occurrence of event(s) which was a material occurrence of event(s) which was a material aspect to the contract. aspect to the contract.

Generally the event must not be foreseeable.Generally the event must not be foreseeable.

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Increased cost ordinarily has no effect on a Increased cost ordinarily has no effect on a contract, but if the increase is grossly contract, but if the increase is grossly disproportionate to the original cost, some disproportionate to the original cost, some courts will classify the situation as one of courts will classify the situation as one of commercial impracticability and discharge the commercial impracticability and discharge the contract. contract.

C.I. was not recognized at common law.C.I. was not recognized at common law.

Commercial ImpracticabilityCommercial Impracticability

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Frustration of PurposeFrustration of Purpose

In the case of frustration of purpose, the In the case of frustration of purpose, the contract can be performed, but the performance contract can be performed, but the performance has ceased to have any significant value to the has ceased to have any significant value to the party who originally contracted to obtain that party who originally contracted to obtain that performance. performance. For example, renting a stadium to hold a For example, renting a stadium to hold a

football game, then the team is killed in a plane football game, then the team is killed in a plane crash. The contract for the stadium may be crash. The contract for the stadium may be voided since neither party could foresee the voided since neither party could foresee the cancellation of the game.cancellation of the game.

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Temporary ImpossibilityTemporary Impossibility

Temporary impossibility, such as a labor strike Temporary impossibility, such as a labor strike or bad weather, has no effect on a contract. or bad weather, has no effect on a contract.

It is common, though, to include protective It is common, though, to include protective clauses that excuse delay caused by temporary clauses that excuse delay caused by temporary impossibility.impossibility.

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Discharge by Operation of LawDischarge by Operation of Law

A contract may be discharged by operation A contract may be discharged by operation of law. of law.

This occurs when: This occurs when: (1) the liability arising from the contract is (1) the liability arising from the contract is

discharged by bankruptcy, discharged by bankruptcy, (2) suit on the contract is barred by the (2) suit on the contract is barred by the

applicable statute of limitations, or applicable statute of limitations, or (3) a time limitation stated in the contract is (3) a time limitation stated in the contract is

exceeded.exceeded.

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Bankruptcy

Statute of Limitations

Contractual Limitations

Commercial Impracticability

Economic Frustration

Consumer Protection Rescission

Substitution

Accord and Satisfaction

Destruction of Subject Matter

Change of Law

Death or Disability - Personal Service

Act of Other Party

Unilateral Action

Agreement

Impossibility

EconomicDisappointment

Operation of Law

ORPerformance

Review: DischargeReview: Discharge

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Consumer Rescission Rights

Agreement

Substitution of Parties

Accord & Satisfaction

Tender

Payment

Timely

Adequate (substantial performance)

Discharge by

Actionof Parties

Dischargeby

Performance

Review: DischargeReview: Discharge

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Bankruptcy

Statutes of Limitations

Contract Time Limitations

Impossibility

Commercial Impracticability

Temporary Impossibility, like Weather

Frustration of Purpose

Destruction of Subject Matter

Death or Disability

Change of Law

Discharge by

External Factors

Discharge by Operation

of Law

Review: DischargeReview: Discharge