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Performance and Discharge

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									Performance and Discharge

 Has each party’s performance
   resulted in the discharge of
   their obligations under the K
             The Big Picture
• When have parties to the K done all that
  is required?
• When is a party excused from K
• Remember, most Ks are fulfilled by
  – but there are other ways that Ks come to an end...
     Discharge of Contracts

• Performance
• Occurrence or failure of a condition
• Agreement of the parties… we’ve already
  talked about this, haven’t we?

• Operation of Law
• K comes to an end when the parties
  have fulfilled their obligations under it

• Vast majority of Ks are discharged in
  this manner

• What problems would we be facing if
  they weren’t?
          Concept of Tender
• ... in terms of performance...

• $$$ Legal tender for all debts, public
  and private

• You’ve done everything possible to fulfill
  your end of the deal
          Degree of Performance
• All
  – complete or strict performance: within the
    bounds of reasonable expectations
• Nothing
  – Breach!
• Somewhere in between
  – might be considered all
        • concept of substantial performance
  – might be considered nothing!
          Complete Performance
• All conditions expressly stated in the K must fully
• Conditional terms are either:
   – expressly stated: provided by agreement... look to
      the language of the agreement
      •   if
      •   when
      •   provided that
      •   after
        Conditional Terms

– implied in fact: understood to be part of the
  agreement... not expressly found, but
  understood in context... inferred from the
  promises made
   • Book example regarding notice required in
     order to effect repairs
      – if you don’t know about the need for the repair, how
        could you possibly be expected to make the repair?
       Complete Performance
• It is what it says...
  – Unilateral K
     • you’ve climbed to the top of the flagpole
  – Bilateral K
     • K is ___?____ with respect to the party in question

• No argument as to completion of the
  expressly stated or implied in fact terms
       Complete Performance
• But wait... text says “Within the bounds of
  reasonable expectations”...
  – can I do less than what the contract says and still
    have performed?
• Can I just perform...
   – as “reasonably expected” or
   – must I perform as I agreed to perform?
• What are “reasonable expectations”? Who
  gets to decide what’s reasonable? What
  standard do we use?
  Who says the K has been fully
• If not otherwise specified, it falls on the
  parties themselves
   – usually, one or the other, or both
   – honesty, good faith presumed
• Reasonable person standard used where
  satisfaction is a condition
   – for non-personal Ks
• If the parties didn’t decide, who would
  have to?
  But what about the sheetrock,
   the pipes, and my cabinets?
• Do you not have to pay for the house if it
  wasn’t constructed with the right kind of
  sheetrock, or pipes?
• Wrong pipes (Jacobs & Young v. Kent)... do
  we have to tear out the walls and replace with
  the right brand? Under what circumstances
  might result differ? More on this soon…
• The cabinets in my house? Or my windows?
• More on that in a moment….
 Contractor Work on my House
• Agreement: Replacing window with
  door… power to garage… constructing
  deck… warranty on work performed.
• What kind of terms/conditions (if any)
  are involved?
  – express?
  – implied in fact?
Sometimes discharge of obligations may
     be subject to a condition such as
“satisfaction” and we’re dealing with a...
• ...personal K
   – satisfaction conditioned, performance must
     actually satisfy that party
      • e.g., portrait to satisfaction of the person painted...
      • text suggests medical treatment.... is that realistic? What
        kind of practice might we find an MD willing to make a K
        like that?
• ...specified third party (not party to the K)
   – majority of courts make the 3P step into the shoes
     of a reasonable person
      • the third party can’t be whimsical or capricious
 And what are these things called
• A term in the K that is either express or
  – as described earlier...
     • express
     • implied in fact
• Relates to a possible future event, the
  occurrence or non-occurrence of which
  triggers either performance or termination of
  a legal obligation in a contract
    More on Conditions
• If event triggers performance
       condition precedent

• If event triggers termination
      condition subsequent
        Condition Precedent v.
        Condition Subsequent
• Condition precedent                   • Condition Subsequent
  – Life Insurance                        – Practicing as a Lawyer...
      • payable on death                    what if I fail to continue to
  – “Subject to Inspection”                 comply with continuing
      • McLanahan case
                                            education requirements?
        (inspection of car prior to
        payment on claim by insurance
                                          – Supplier agreement;
        company)                            agreement to supply
  – Employment based upon                   terminates if merchant
    satisfactory completion of              sells competitive
    certification exam
     • CPA, RN, MD, etc
 OK... so assume that one of the parties
        has not performed fully...
• so we are not talking about the existence of
  expressly stated or implied in fact conditions
   – why not?
      • unilateral K example... if express condition for payment is
        climbing to the top of the flagpole, how can you possibly
        only “substantially” perform?

      • remember, substantial performance is something less
        than complete performance
       Substantial Performance
• Justice and Fairness concepts... we’ll let less-
  than-complete performance suffice...but...
• ...performance must not vary “greatly” from
  that promised...
   – but if deemed to have substantially performed,
     other party’s duty is absolute (i.e., she must pay)
     and she can only deduct damages for the
   – Bottom Line?
   – substantial performance is still a breach of K duty
More on Substantial Performance
• Jacobs & Young, Inc. v. Kent
  – the courts never say that one who makes a
    k fills the measure of his duty by less than
    full performance…
  – weigh purpose to be served, desire to be
    gratified, excuse for deviation from the
    letter, cruelty of enforced performance
• Why does the law allow all this “wiggle”
     A handful of topics to talk
     about… before BREACH
• What happens when you get advance notice
  that someone is going to shaft you?
  – What’s fair in such circumstances?
• WHEN do we have to perform
  – what are parameters for timing of performance
     • especially if no time is stated
• Discharge of responsibility where there hasn’t
  been performance (or some substitute action
  or agreement by the parties to the K)
  – i.e., by operation of law
     Anticipatory Repudiation
• Classic Case: Hochster v. De La Tour

• Allows for immediate recovery
  – treat as a present, material breach and
    can either
    • consider herself discharged of responsibility
    • consider K in effect and sue other party for
• Under theory that:
  – non-breacher should not be forced to sit
    around and wait for future breach
     • Why?

  – non-breacher should have opportunity to
    seek other similar K... so as to protect her
• until non-breaching party treats early
  repudiation as a breach, the breaching party
  has the opportunity to retract anticipatory
  repudiation by giving proper notice
  – seems awfully generous, and allows a “back and
    forth”…. why would the law allow?
  – how does the non-breaching party “treat early
    repudiation as a breach”?
     • What does Hochster need to do to avoid DeLaTour from
       being able to go back and forth?
 When do you have to perform?

• If no time for performance is stated in
  the K, a reasonable time is implied

• If time for performance is stated, parties
  must usually perform by or at that time
  But what if a time is stated and
        there is a delay?
• “Time is of the            • “On or before April
  essence”                     1, 2001”
  – an express term
                               – April 2 might be OK
  – must be strictly
    complied with
                               – Look to the terms...
  – Fed Ex contracts...          and the nature of the
    by 10 a.m..... or            K...
     • limitations? terms?     – Context!
 K not performed... how else can
        it be discharged?
• By agreement
  – Mutual Rescission
    • another K that includes
       – offer
       – acceptance
       – consideration
    • must be executory on both sides... if not there
      must be some additional consideration given
  – Accord and Satisfaction
  – Substituted Agreement (i.e., a settlement)
 K not performed... how else can
 it be discharged by the Parties?
• Novation
  – we already know what this is
     • substitution of another party
         – all the parties enter into a K, old party is replaced
     • Requirements
         – previous, valid obligation
         – agreement of all parties to enter into a new K
         – extinguishment of old obligation/agreement, discharging
           old party
         – new, valid agreement

• Out with the old, in with the new
      Discharge by Agreement:
       Accord & Satisfaction
• Parties agree to accept performance
  different from the performance originally
  promised… we’ve already discussed.
• Accord = the agreed upon different
• Satisfaction = the performance of the
  accord agreement
  – failure to perform the accord revives original obligation
    If not by Agreement of the
   Parties, by Operation of Law
• If there has been a material alteration of K
  (looks fraudulent to me…)
• Running of statute of limitations
   – does not extinguish, just denies court access... it’s
     hands are tied... they have to follow the rules!
• Bankruptcy
   – debtor receives discharge of obligations
   – creditors get % on dollar (recall creditor composition
  Discharge by operation of law
• Impossibility or impracticality of performance
  – These had better be extreme.... not readily
    cognizable... e.g., mere increase in price is not enough
     • Death, incapacity
     • subject matter destroyed
     • change in law makes performance illegal
  – Where else did we see something like this?
     • (229?)
• Temporary impossibility
  – serves to suspend (not extinguish) obligation
            Chapter Overview
• Conditions
• Discharge
  – by performance
    •   substantial performance
    •   breach of contract (next chapter)
    •   anticipatory repudiation
    •   time for performance
  – by agreement
  – by operation of law
               Problem 1
• If express conditions, Faithful must
  perform fully to recover the K price
• If merely promises (implied conditions),
  justice & fairness require only
  substantial performance
• Not stated as express conditions… Still
  a breach...
              Problem 2
• Novation = new, valid k expressly or
  impliedly discharges a prior k by
  substitution of a party
• Accord and Satisfaction = parties agree
  that the original obligation can be
  discharged by a substituted
• SOF? Who is now primary obligor?
              Problem 3
• Repudiation of a K before the time for
  performance has arrived
• Anticipatory Breach
• Option belongs to the aggrieved party
• Retraction of repudiation?
              Problem 4
• a) What is effect of death?
• b) Again, what is the effect of death?
  Who else can perform?
• c) Does the subject matter still exist?
• d) Did rationing “frustrate the very
  purpose” of the K?… or did it render the
  anticipated performance extremely
  difficult or costly?
                Problem 5
• Express condition?
• Is time vital to performance (i.e., is time
  of the essence)?
• What information was provided in the

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