DISCHARGE OF CONTRACTS Used by permission. For Educational purposes only.

2 Conditions Relating to Performance Classification of Conditions: If the occurrence or non-occurrence of an event affects the duty of a party to perform, the event is called a condition. Classification of Conditions: 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 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. 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. Concurrent Conditions are conditions that must happen simultaneously in order for the contract to be completely executed.

3 Discharge by Performance Most contracts are discharged by performance. Most contracts are discharged by performance. An offer to perform is called a tender of 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. If a tender of performance is wrongfully refused, the duty to perform is terminated, except when the duty was the payment of money.

4 Time of Performance Ordinarily, a contract must be performed exactly in the manner specified by the contract. 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. 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. 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.

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

6 Discharge by Action of Parties Unilateral: Consumer Credit Protection Act gives right to cancel the contract within three days. Unilateral: Consumer Credit Protection Act gives right to cancel the contract within three days. A contract may be terminated by an agreement, either a provision in the original contract or a subsequent 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. 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.

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

8 Commercial Impracticability A contract may be discharged when its performance is impractical by subsequent occurrence of event(s) which was a material aspect to the contract. A contract may be discharged when its performance is impractical by subsequent occurrence of event(s) which was a material aspect to the contract. Generally the event must not be foreseeable. Generally the event must not be foreseeable.

9 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. 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. C.I. was not recognized at common law. C.I. was not recognized at common law. Commercial Impracticability

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. 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. 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. 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. 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. A contract may be discharged by operation of law. This occurs when: This occurs when: (1) the liability arising from the contract is discharged by bankruptcy, (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 (2) suit on the contract is barred by the applicable statute of limitations, or (3) a time limitation stated in the contract is exceeded. (3) a time limitation stated in the contract is exceeded.

13 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 Economic Disappointment Operation of Law OR Performance Review: Discharge

14 Consumer Rescission Rights Agreement Substitution of Parties Accord & Satisfaction Tender Payment Timely Adequate (substantial performance) Discharge by Action of Parties Discharge by Performanc e Review: Discharge

15 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: Discharge