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 promises? • Remember, most Ks are fulfilled by performance... – 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 Performance • 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 occur • Conditional terms are either: – expressly stated: provided by agreement... look to the language of the agreement • if • when • provided that • after or….. 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 performed? • 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 conditions? • A term in the K that is either express or implied – 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 products • 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 deviations... – 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” room? 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 damages Why? • 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 interests Important.... • 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... what? • 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 (discharged) • 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 performance • 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 agreement) 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 performance • 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 K?
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