Chapter 18 Discharge Of Contracts Flashcards
Ordinary method of discharging obligations under a contract
Performance
Condition
Stipulation or prerequisite in a contract, will, or other instrument
When the occurances or non occurrence of an event affects the duty of a party to perform a contract
Classified as:
- conditions precedent
- conditions subsequent
- concurrent conditions
Condition precedent
Event that if unsatisfied would mean that no rights would arise under a contract
Condition must occur before a party to a contract has an obligation to perform under the contract
Energy transfer partners(ETP) v. Enter. Prods. Partners
- ETP and Enterprise had agreements exploring pipeline project
- agreements included a clause that nothing would be deemed to constitute a joint venture UNLESS otherwise authorized by a board of directors (condition precedent)
- Enterprise ended up working with a different company on a successful pipeline
- ETP sued on the basis that they had a common law partnership and this breached fiduciary loyalty
- original ruling for ETP was appealed
- appeal judgement for Enterprise as the condition precedent expressly negated the formation of a partnership
Condition subsequent
Event whose occurances or lack thereof terminates a contract
The happening of the condition subsequent extinguishes the duty thereafter to perform
“Where [conditions subsequent are] ambiguous, are construed against forfeiture.”
Concurrent conditions
The performances of the parties in most bilateral contracts are concurrent conditions that take place simultaneously
(Conditional on each other?)
Normal discharge of contracts
In most cases when the parties perform their promises the contract ceases to exist/ is discharged
May also be discharged by passage of time past specified expiration period
Performance
Doing an act or making of payment
Tender
An offer to perform
Goods have arrived, are available for pickup, and the buyer is notified
Refusal of a tender can be the basis of a lawsuit
Tender of payment= making a payment of the amount owed
Application of payments when multiple debts exist
If debtor specifies which debt is to be paid and the creditor accepts the money they are bound to apply the money as specified
Payments by check
Actually a conditional payment until the money transfers. If transfer fails suit may be brought on either the debt or the check
Mail and timing of payment
Generally held that payment is made on time if mailed on or before final date of payment
Birznieks v. Cooper
- cooper buying land from Birznieks, with payment due Jan 30th
- payment mailed on Jan 30th, received on Feb 1st. Birznieks tried to evict for late payment
- custom to regard mailing check as paying debt means that payment was made on time even though received late
Time of performance
When date or period of time for performance is specified in the contract, performance should be made on that date/ within that period
If no time specified the obligation to perform in a reasonable time is implied (lack of of specification does not impair the contract)
Contracts when time is essential
When “time is of the essence”
Failure to perform by specified time (unambiguously fixed in the contract) can entitle other party to damages
Provision that time is of the essence may be waived
Substantial perfomance
Equitable rule that I’d a good faith attempt to perform does not precisely meet the terms of the agreement, the agreement will still be considered complete if the essential purpose of the contract is accomplished
(Perfect performance not always possible)
Determined by particular circumstances of case
Cost of completion damages
When building contractor has substantially performed but construction is not perfect the contractor is responsible for the cost of repairing or correcting the defects
This offsets the contract price
If cost of completion would be unreasonably disproportionate to the importance of the defect then the measure of the damages is the diminution in the value of the building due to defective performance
Failure to substantially perform
Will not be able to sue to collect payment for additional work AND liable for reasonable cost of bringing work into conformance with contract
Wilfulness of departure from specifications
Does not preclude some recovery but will be a consideration for whether there was substantial performance
Fault of the complaining party
A party cannot complain that performance was defective if the performance followed all terms and specifications of the contract and perhaps those specifications were defective
When satisfaction is subjective
When a contract specifies that performance must satisfy the contracting party the courts will ordinarily enforce the plain meaning of the language of the parties and require satisfaction but the dissatisfaction must be in good faith
Discharge of contract by unilateral action
Generally a contract cannot be discharged by either party alone.
Sometimes contract gives one party the right to cancel contract via unilateral action (such as notice)
Recission
Action of one party to a contract to set the contract aside when the other party is guilty of a breach of the contract
Consumer protection recission
Established by the Consumer Credit Protection Act(CCPA)
Gives the debtor the right to rescind a credit transaction within three days when the transaction would impose a lien on the debtor’s home
Homeowner must be informed of this right. 3 days start when homeowner is informed
Substitution
Substitution of a new contract between the same parties
Original contract discharged by substitution
Accord and satisfaction
Agreement to substitute for an existing debt some alternative form of discharging the debt, coupled with the actual discharge of the debt by the substituted performance
Requires bona fide dispute over performance required by contract, a proposal to settle the dispute (agreement) and performance of the agreement
Release
An instrument by which the singing party (releasor) relinquishes claims or potential claims against one or more persons (releasees) who might otherwise be subject to liability to the releasor
Existence of a valid release is a complete defense to a tort action against the releaser
Waiver
Release or relinquishment of a known right or objection
Ways of discharging a contract by agreement
1) by the terms of the original contract (provision for discharge)
2) mutual cancellation (agreement to end contract)
3) mutual rescission (annual contract and return both parties to original position)
4) substitution of a new contract between the same parties
5) a novation, or substitution of a new contract involving a new party
6) accord and satisfaction
7) release
8) waiver
MKL Pre-Press Electronics v La Crosse Litho supply
- La Crosse purchased a printing system from MKL
- MKL provided service and training for the system but it failed and repairs were unsuccessful
- La Crosse cancelled the agreement but there was a dispute over the amount actually owed
- after some negotiation la crosse sent a check marked final payment that MKL deposited (accepted and negotiated)
- MKL sued for additional money. Original and appeal judgment both for LA Crosse
- La Crosse tendered an amount explicitly stated to be final payment. MKLs acceptance and negotiation (deposit) constitutes accord and satisfaction
Discharge by impossibility
Relieves nonperformance contract requirements only in extreme circumstances.
Party asserting impossibility must prove it is a real impossibility and not just a difficulty/inconvenience. Financial inability is not impossibility
To establish impossibility
Show:
- the unexpected occurances of an intervening act
- that the risk of the unexpected occurances was not allocated by agreement or custom
- that the occurrence made performance impossible
Destruction of particular subject matter
Potential discharge by impossibility when contract is expressly for subject matter that is then destroyed through no fault of either party
But it has to be specific in the contract
Change of law
Potential for discharge by impossibility if performance of a contract is made impossible, impractical, or illegal by a subsequent change or law
Inconvenience or delay does not count
Death or disability
For a contract requiring personal services requiring particular skills to be rendered death, incapacity or illness may discharge the duty to perform
Not the case if the contract provides for the death of a party or if the acts may be carried out by others /
Petrozzi v. City of ocean city
- beach replenishment and sand dunes restoration program included easements with hight limitations to protect homeowner views
- however dunes grew higher naturally and DEP refused permit to reduce height
- homeowners sued. Claims originally dismissed but appealed.
- appeal decision for homeowners, granted damages. Despite impossibility being a complete defense the plaintiffs gave up their right to compensation based on retention of ocean views.b
Act of the other party
If a promisee prevents or makes performance impossible the promisor is discharged from the contract
May have to show that there wasn’t a way around promisee’s act
Doctrine of commercial impracticability
A developing doctrine
Commercial impracticability occurs when changes not anticipated or caused by the parties will result in difficulties of performance and substantial loss
When performance is made impracticable by the subsequent occurrence of an event whose nonoccurrence was a basic assumption on which the contract is made
Does not relieve sophisticated business entitled of their contractual obligations due to an economic downturn
Not supported under common law rule
Frustration of purpose doctrine
A developing doctrine
If because of a change in circumstances the purpose of the contract has no value to the party entitled to receive performance. Performance may be excused if both parties were aware of purpose and event that frustrated purpose was unforeseeable
Not supported under common law rule
Condition subsequent
Declares a contract will be void if a specified event occurs
Force majeure clauses
Clauses specifying failures that will excuse performance of the contract
Excused when
1) an unforseen event
2) outside the parties’ control
3) renders performance impossible
Included to avoid litigation over impossibility
party invoking force majeure clause has burden of proving situation fits clause
TEC Olmos v. ConocoPhillips
TEC Olmos had an agreement to test-drill for oil on land leased by ConocoPhillips
Agreement included force majeure clause
Price of oil then dropped leaving TEC without funding sources
TEC attempted to invoke force majeure clause. ConocoPhillips disputed
Judgement for ConocoPhillips. A downturn in the market is not an unforseen force majeure event
Effect of temporary impossibility
Ordinarily only temporarily suspends duty to perform, suspension relieved on termination of impossibility.
IF performance at that later date would impose a substantially greater burden on the party obligated to perform some courts may discharge the contract
Weather/acts of god
Generally do not terminate a contract even if they make performance difficult. Are a risk assumed by the contracting party in absence of a contrary agreement
Modern contracts commonly contain a weather clause (often including insurance coverage)
Operation of law
Attaching of certain consequences to certain facts because of legal principles that operate automatically as contrasted with consequences that arise because of the voluntary action or a party designed to create those consequences
Contract discharged by operation of law
1) alteration or material change made by a party
2) the destruction of the written contract with intent to discharge it
3) bankruptcy
4) the operation of a statute of limitations
5) contractual limitation
Bankruptcy
Procedure by which one unable to pay debts may surrender all assets in excess of any exemption claim to the court for administration and distribution to creditors, and the debtor is given a discharge that releases them from unpaid balance due on most debts
Discharge of bankruptcy eliminates ordinary contract claims against debtor
Statute of limitations
Statute that restricts the period of time within which an action may be brought
After a certain number of years have passed certain contract claims are barred
Breach of oral contract: 2-3 years
Longer for written (usually 4 to 10 years)
Breach of contract claim against a builder begins to run when construction is substantially complete
NBC universal media v. Superior court
- Montz and Smoller (RPIs) pitched a ghost expedition show to NBC
- NBC said not interested
- in 2004 NBC premiered ghost hunters
- 2006 (November) RPI filed suit claiming that it was use of their concepts without permission
- superior court denied NBC motion for summary judgment. NBC appealed. Ruling for NBC
- RPIs we’re a little over a month outside the statute of limitations and “discovery rule” didn’t apply for a publicly televised work
Contract limitations
Some contracts contain internal time limitations within which a suit can be brought. Private statute of limitations not overruled by public policy.
May also require notice of a claim within a specified time (if doesn’t give notice within that time may be barred from suing on the contract.)
Elements to include in a force majeure clase
- Definition of force majeure events
- What happens when an event occurs
- Who can suspend performance; and
- What happens if the force majeure event continues for more than a specified period of time
Pandemic and force majeure/ impossibility doctrine
Generally the courts have held that financial hardship (due to COVID-19 shutdowns) does not excuse performance of contract obligations (especially in terms of making payments due)
has been held as force majeure / impossibility when shutdowns actually prevented specific actions/ events from happening
COVID-19 found to be “natural disaster” for purposes of exclusion from WARN act requirements
