Chapter 18 Discharge Of Contracts

Question 1

Ordinary method of discharging obligations under a contract

Answer 1

Performance

Question 2

Condition

Answer 2

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

Question 3

Condition precedent

Answer 3

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

Question 4

Energy transfer partners(ETP) v. Enter. Prods. Partners

Answer 4

• 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

Question 5

Condition subsequent

Answer 5

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.”

Question 6

Concurrent conditions

Answer 6

The performances of the parties in most bilateral contracts are concurrent conditions that take place simultaneously

(Conditional on each other?)

Question 7

Normal discharge of contracts

Answer 7

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

Question 8

Performance

Answer 8

Doing an act or making of payment

Question 9

Tender

Answer 9

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

Question 10

Application of payments when multiple debts exist

Answer 10

If debtor specifies which debt is to be paid and the creditor accepts the money they are bound to apply the money as specified

Question 11

Payments by check

Answer 11

Actually a conditional payment until the money transfers. If transfer fails suit may be brought on either the debt or the check

Question 12

Mail and timing of payment

Answer 12

Generally held that payment is made on time if mailed on or before final date of payment

Question 13

Birznieks v. Cooper

Answer 13

• 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

Question 14

Time of performance

Answer 14

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)

Question 15

Contracts when time is essential

Answer 15

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

Question 16

Substantial perfomance

Answer 16

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

Question 17

Cost of completion damages

Answer 17

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

Question 18

Failure to substantially perform

Answer 18

Will not be able to sue to collect payment for additional work AND liable for reasonable cost of bringing work into conformance with contract

Question 19

Wilfulness of departure from specifications

Answer 19

Does not preclude some recovery but will be a consideration for whether there was substantial performance

Question 20

Fault of the complaining party

Answer 20

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

Question 21

When satisfaction is subjective

Answer 21

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

Question 22

Discharge of contract by unilateral action

Answer 22

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)

Question 23

Recission

Answer 23

Action of one party to a contract to set the contract aside when the other party is guilty of a breach of the contract

Question 24

Consumer protection recission

Answer 24

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

Question 25

Substitution

Answer 25

Substitution of a new contract between the same parties

Original contract discharged by substitution

Question 26

Accord and satisfaction

Answer 26

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

Question 27

Release

Answer 27

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

Question 28

Waiver

Answer 28

Release or relinquishment of a known right or objection

Question 29

Ways of discharging a contract by agreement

Answer 29

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

Question 30

MKL Pre-Press Electronics v La Crosse Litho supply

Answer 30

• 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

Question 31

Discharge by impossibility

Answer 31

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

Question 32

To establish impossibility

Answer 32

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

Question 33

Destruction of particular subject matter

Answer 33

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

Question 34

Change of law

Answer 34

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

Question 35

Death or disability

Answer 35

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 /

Question 36

Petrozzi v. City of ocean city

Answer 36

• 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

Question 37

Act of the other party

Answer 37

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

Question 38

Doctrine of commercial impracticability

Answer 38

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

Question 39

Frustration of purpose doctrine

Answer 39

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

Question 40

Condition subsequent

Answer 40

Declares a contract will be void if a specified event occurs

Question 41

Force majeure clauses

Answer 41

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

Question 42

TEC Olmos v. ConocoPhillips

Answer 42

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

Question 43

Effect of temporary impossibility

Answer 43

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

Question 44

Weather/acts of god

Answer 44

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)

Question 45

Operation of law

Answer 45

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

Question 46

Contract discharged by operation of law

Answer 46

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

Question 47

Bankruptcy

Answer 47

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

Question 48

Statute of limitations

Answer 48

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

Question 49

NBC universal media v. Superior court

Answer 49

• 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

Question 50

Contract limitations

Answer 50

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.)

Question 51

Elements to include in a force majeure clase

Answer 51

• 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

Question 52

Pandemic and force majeure/ impossibility doctrine

Answer 52

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