Ch 18 Contract Termination

Question 1

Discharge

Answer 1

If a party is discharged, she is “finished” and has no more duties under a contract.
-Most contracts are discharged by full performance.
-Sometimes the parties discharge a contract by agreement.
For example, the parties may agree to rescind their contract, meaning that they terminate it by mutual agreement

Question 2

Conditions
(How Conditions Are Created, Types of Conditions)

Answer 2

• condition: An event that must occur before a party becomes obligated under a contract

[How Conditions Are Created]
(Express Conditions)
-no special language is necessary to create the condition.
(Implied Conditions)

[Types of Conditions]
Courts divide conditional clauses into three categories:
1. condition precedent,
2. condition subsequent, and
3. concurrent conditions.

-If the condition does not occur, one party will probably be discharged without having to perform his obligations under a contract.
(Condition Precedent)
(Condition Subsequent)
(Concurrent Conditions)
(Public Policy)

Question 3

Completion
(Strict Performance and Substantial Performance, Personal Satisfaction Contracts, Good Faith, Time of the Essence Clauses

Answer 3

[Strict Performance and Substantial Performance]
(Strict Performance)
* strict performance: Requires one party to perform its obligations precisely, with no deviation from the contract terms
(Substantial Performance)
* substantially performs: Occurs when one party fulfills enough of its contract obligations to warrant payment
-party that fails to perform substantially receives nothing on the contract itself and will recover only the value of the work, if any.

When is performance substantial? There is no perfect test, but courts look at these issues:
-How much benefit has the promisee received?
-If it is a construction contract, can the owner use the thing for its intended purpose?
-Can the promisee be compensated with money damages for any defects?
-Did the promisor act in good faith?

[Personal Satisfaction Contracts]
* personal satisfaction contract: Permits the promisee to make subjective evaluations of the promisor’s performance
-A court applies a subjective standard only if assessing the work involves personal feelings, taste, or judgment and the contract explicitly demanded personal satisfaction.
-In all other cases, a court applies an objective standard to the promisee’s decision.

[Good Faith]

[Time of the Essence Clauses]
* time is of the essence clause: Generally makes contract dates strictly enforceable
- Merely including a date for performance does not make time of the essence.

Question 4

Breach
(Material Breach, Anticipatory Breach, Statute of Limitations)

Answer 4

-When one party breaches a contract, the other party is discharged.
[Material Breach]
-courts will discharge a contract only if a party committed a material breach.

[Anticipatory Breach]
-anticipatory breach by making it unmistakably clear that it will not honor the contract

[Statute of Limitations]
* statute of limitations: A statutory time limit within which an injured party must file suit

Question 5

Impossibility
(True Impossibility, Commercial Impracticability and Frustration of Purpose)

Answer 5

[True Impossibility]
-True impossibility means that something has happened making it literally impossible to do what the promisor said he would do.
+Destruction of the subject matter. This is what happened with Francoise’s vineyard.
+Death of the promisor in a personal services contract.
+Illegality

[Commercial Impracticability and Frustration of Purpose]
-Commercial impracticability means some event has occurred that neither party anticipated and fulfilling the contract would now be extraordinarily difficult and unfair to one party.
-Frustration of purpose means some event has occurred that neither party anticipated and the contract now has no value for one party.

+Mere financial difficulties will never suffice to discharge a contract.
+The event must have been truly unexpected.
+If the promisor must use a different means to accomplish her task, at a greatly increased cost, she probably does have a valid claim of impracticability
+A force majeure clause is significant but not necessarily dispositive.