• Discharge : The termination of a party’s obligations arising under a contract.
• Discharge occurs either when:
(1) Both parties have fully performed their contractual obligations; or
(2) Events, conduct of the parties, and/or operation of law release the parties from their obligations to perform.
• Performance: Fulfilling one’s contractual duties.
• A party’s obligations to perform under a contract may be either absolute or conditioned on the occurrence or nonoccurrence of one or more event(s).
• Tender: An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so.
CONDITIONAL PERFORMANCE [4326.02]
• Condition: A contractual qualification, provision, or clause which creates, suspends, or terminates the obligations of one or both parties to the contract, depending on the occurrence or nonoccurrence of some event(s).
• Condition Precedent: A condition that must be satisfied before a party’s contractual obligation to perform becomes absolute (e.g., Bob promises to Hire Terry as a driver as soon as Terry gets his license).
• Condition Subsequent: A condition the occurrence or nonoccurrence of which will terminate a party’s absolute obligation to perform (e.g., Mary agrees to let Sue stay in Mary’s spare room for as long as Sue remains unmarried).
• Concurrent Conditions: Mutually dependent conditions that must occur or be performed at the same time in order to give rise to any absolute obligation to perform (e.g., Nikki offers to pay Tma $100 in exchange for Tina’s class ring).
• Courts recognize and enforce both express and implied conditions.
• Discharge by Performance: A contract terminates when both parties perform the acts they have promised.
• Complete vs. Substantial Performance: When a party fails to completely perform his or her contractual duties, the question arises whether the performance was nonetheless sufficiently substantial to discharge the contractual obligation. If so, then the party is said to have substantially performed.
• Substantial performance must not vary greatly from that promised in the contract, and must create substantially the same benefits as those promised.
• If one party substantially performs, the other party’s duty to perform remains absolute --although the other party may be entitled to recover damages, if any, for the substantially performing party’s failure to fully perform.
• If a party fails to either substantially or fully perform, the other party’s remaining obligations, if any, under the contract are discharged.
• Time for Performance: If no time is stated in the contract, performance is due within a reasonable time.
Material Breach of Contract: A party’s failure, without legal excuse, to substantially perform the obligations he or she has promised to perform.
• If a party’s breach is non-material, the non-breaching party’s duty to perform may be suspended until the breach is remedied, or “cured.” However, a non-material breach will not excuse performance by the non-breaching party. Only a material breach will excuse the non-breaching party from its contractual obligations.
• If time is not “of the essence,” failure to perform by the time specified in the contract is not a material breach.
• Anticipatory Repudiation: An action by a party to a contract that indicates that he or she will not perform a contractual obligation due to be performed in the future.
• Such a repudiation will excuse the non-repudiating party from performing under the contract.
• However, until the non-repudiating party treats the repudiation as a material breach, the repudiating party can retract his or her repudiation and restore the parties’ contractual rights and obligations.
DISCHARGE BY AGREEMENT 4326.05/.06/.07
· Recission: the process by which the parties cancel a contract and return one another to their pre-contract status.
• Novation 4326.05: Substituting, by agreement, a new contract for an old one, and thereby terminating the parties’ rights and duties under the old contract.
> Novation differs from assignment or delegation because novation requires a new agreement.
• Novation requires
(1) a valid, prior agreement, for which
(2) all parties agree to substitute a new contract;
(3) discharge of the prior obligation; and
(4) a valid, new agreement.
• Accord and Satisfaction: An agreement between the parties to accept different performance than that promised in the contract.
• Material Alteration: If the material terms of a contract are altered, an innocent party (i.e., one who neither altered nor consented to the alteration of the contract) may be discharged from their contractual obligations.
• Statutes Of Limitations: The running of limitations -- in the case of U.C.C. contract claims, four years from the date of the breach, regardless of the injured party’s knowledge of the breach -- does not technically discharge the parties, but it prevents the wronged party from seeking judicial remedies.
• Bankruptcy: A discharge in bankruptcy, afforded to a debtor after its liquidation or reorganization plan is approved, bars subsequent enforcement against the debtor of any contracts that pre-date the discharge.
> Unlike promises to pay or partial payment of a debt barred by limitations, promises to pay or partial payment of a debt following discharge does not revive the debt.
IMPOSSIBILITY OF PERFORMANCE 4326.07
• A party may be relieved of his contractual duties when performance becomes either impossible or impracticable through no fault of either party. The following will generally excuse performance as objectively impossible or impracticable:
(1) Death or incapacitation prior to performance of a personal services contract;
(2) Destruction of the subject matter of the contract prior to performance;
(3) A change in the applicable law which renders performance illegal;
(4) Changing market conditions make performance commercially impracticable; and
(5) Frustration of Purpose -- supervening circumstances making it impossible for both parties to achieve the purpose of the contract.
• Temporary Impossibility: A change in circumstances that makes performance temporarily impossible will act to suspend, but not excuse performance.