DISCHARGE OF CONTRACTSDISCHARGE OF CONTRACTS

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Conditions Conditions Relating to Relating to

PerformancePerformance• Classification of Conditions: If the occurrence Classification of Conditions: If the occurrence or non-occurrence of an event affects the or non-occurrence of an event affects the duty of a party to perform, the event is duty of a party to perform, the event is called a condition.called a condition.

• Condition Condition PrecedentPrecedent is a condition that must occur is a condition that must occur before the party is obligated to perform.before the party is obligated to perform.

• Condition Condition SubsequentSubsequent is a condition that, if it is a condition that, if it occurs after an agreement is reached, may cancel occurs after an agreement is reached, may cancel the contract.the contract.

• ConcurrentConcurrent Conditions are conditions that must Conditions are conditions that must happen simultaneously in order for the contract to happen simultaneously in order for the contract to be completely executed.be completely executed.

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Discharge by Discharge by PerformancePerformance

• 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 refused, the If a tender of performance is wrongfully refused, the duty to perform is terminated, except when the duty duty to perform is terminated, except when the duty was the payment of money. was the payment of money.

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Time of Time of PerformancePerformance• Ordinarily, a contract must be Ordinarily, a contract must be

performed exactly in the manner performed exactly in the manner specified by the contract. specified by the contract.

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

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

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Adequacy of Adequacy of PerformancePerformance

• Substantial Performance: A party who substantially Substantial Performance: A party who substantially performs in good faith is entitled to payment, offset performs in good faith is entitled to payment, offset by any defect or damages. 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 Discharge by Action of PartiesAction of Parties

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

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

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

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Impossibility Impossibility

• A contract is discharged when it is A contract is discharged when it is objectively impossible to perform due objectively impossible to perform due to unforeseeable conditions events.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 the death or disability of a party whose personal action was required for performance of the contract, or 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.

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Commercial Commercial ImpracticabilityImpracticability

• A contract may be discharged when its performance A contract may be discharged when its performance is impractical by subsequent occurrence of event(s) is impractical by subsequent occurrence of event(s) which was a material aspect to the contract. which was a material 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 contract, but if the Increased cost ordinarily has no effect on a contract, but if the increase is grossly disproportionate to the original cost, some increase is grossly disproportionate to the original cost, some courts will classify the situation as one of commercial courts will classify the situation as one of commercial impracticability and discharge the contract. impracticability and discharge the contract.

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

Commercial Commercial ImpracticabilityImpracticability

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Frustration of Frustration of PurposePurpose

• In the case of frustration of purpose, the contract In the case of frustration of purpose, the contract can be performed, but the performance has ceased can be performed, but the performance has ceased to have any significant value to the party who to have any significant value to the party who originally contracted to obtain that performance. originally contracted to obtain that performance.

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

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Temporary Temporary ImpossibilityImpossibility

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

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

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Discharge by Discharge by Operation of LawOperation 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 (1) the liability arising from the contract is discharged by bankruptcy, bankruptcy,

• (2) suit on the contract is barred by the applicable statute (2) suit on the contract is barred by the applicable statute of limitations, or of limitations, or

• (3) a time limitation stated in the contract is exceeded.(3) a time limitation stated in the contract is 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