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Chapter 20: Discharge of Contracts

Chapter 20: Discharge of Contracts

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Chapter 20: Discharge of Contracts

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  1. Chapter 20: Discharge of Contracts

  2. 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. • 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.

  3. Tender and Discharge • 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.

  4. Consumer Protection Rescission Unilateral Action Substitution Agreement Accord and Satisfaction Destruction of Subject Matter OR Change of Law Performance Impossibility Death or Disability - Personal Service Act of Other Party Commercial Impracticability Economic Disappointment Economic Frustration Bankruptcy Operation of Law Statute of Limitations Contractual Limitations Causes of Contract Discharge

  5. Time of Performance • 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.

  6. Perfect Performance • 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.

  7. Discharge by Agreement • 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.

  8. Discharge by Impossibility • 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.

  9. Commercial Impracticability • 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.

  10. 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. • 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.

  11. 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.

  12. Discharge by Operation of Law • A contract may be discharged by operation of law. • This occurs when: • (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.

  13. Tender Payment Timely Adequate (substantial performance) Consumer Rescission Rights Agreement Substitution of Parties Accord & Satisfaction Discharge of Obligations Discharge by Performance Discharge by Action of Parties

  14. Destruction of Subject Matter Change of Law Impossibility Death or Disability Commercial Impracticability Frustration of Purpose Temporary Impossibility, like Weather Bankruptcy Statutes of Limitations Contract Time Limitations Discharge of Obligations (cont.) Discharge by External Factors Discharge by Operation of Law