Contract Law AMP - Discharge Of Duties Flashcards
When a debtor breaches an accord agreement by failing to make an immediate satisfaction, the creditor:
A Can sue on both the original contract and the accord agreement and receive damages under both because they are separate contracts
B Must sue on the original contract because the accord agreement is invalid without a corresponding satisfaction
C May sue on either the original contract or the accord agreement
D Must sue on the accord agreement because the original contract has been discharged
C
When a debtor breaches an accord agreement by not following the agreement with an immediate satisfaction, the creditor may sue either on the original undischarged contract or for breach of the accord agreement. A contract may be discharged by an accord and satisfaction. The effect of the satisfaction is to discharge not only the original contract but also the accord contract. The accord, taken alone, will not discharge the original contract. It merely suspends the right to enforce it in accordance with the terms of the accord contract. The creditor is not required to sue on the original contract, but may choose to do so. The accord agreement is valid without the satisfaction; it just does not discharge the original agreement without the satisfaction. It is incorrect to state that the creditor can recover under both the original contract and the accord agreement; that would create an unfair windfall to the creditor. A valid accord suspends the right to enforce the original contract. QUESTION ID: K0098A Additional Learning
What is a “novation”?
A A new contract between two parties to a contract that immediately revokes their prior contract
B An agreement between two contracting parties not to sue each other on the contract
C A new contract that substitutes a new party to receive benefits and assume duties under the terms of an old contract
D An agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some other, different performance
C
A novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. A novation will serve to discharge the old contract. The elements for a valid novation are:(i) a previous valid contract;(ii) an agreement among all parties, including the new party (or parties) to the new contract; (iii) the immediate extinguishment of contractual duties as between the original contracting parties; and (iv) a valid and enforceable new contract.An accord is agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some other, different performance. An accord must be supported by consideration. Where the consideration is of a lesser value than the originally bargained-for consideration in the prior contract, it will be sufficient if the new consideration is of a different type or if the claim is to be paid to a third party.An agreement between two contracting parties not to sue on a contract is a discharge by release. The release or contract not to sue usually must be in writing and supported by new consideration or promissory estoppel elements. A discharge by substituted contract occurs when the same parties to a contract enter into a second contract that immediately revokes the prior contract. QUESTION ID: K0090A Additional Learning
Owner enters into a contract with Builder under which Builder agrees to build a home to Owner’s specifications for $500,000. When the home is 90% complete, it is destroyed by a fire caused by a lightning strike.
Builder’s duties under the contract will:
A be discharged by frustration of purpose
B not be discharged
C Be discharged only if it is impossible to rebuild the house by the delivery date specified in the contract
D be discharged by impossibili
B
Builder’s duties under the contract will not be discharged because it is still possible for him to perform the contract. Builder can rebuild the house. Builder’s duties under the contract will not be discharged by impossibility because construction is not rendered impossible by the destruction of the building. Builder can rebuild the house. Nor will Builder’s duties be discharged by frustration because frustration occurs when the purpose of the contract has become valueless by reason of an unforeseeable supervening event. Here, the purpose was not rendered valueless—presumably Owner still wants a home built on the property. Builder’s duties will not be discharged regardless of whether it is possible to rebuild the house by the delivery date specified. To mitigate this harsh result, if the destruction was not caused by the contractor, courts typically will excuse the contractor from meeting the original deadline. QUESTION ID: K0094 Additional Learning
Owner enters into a contract with Builder under which Builder agrees to renovate Owner’s 100-year-old mansion for $400,000. When the renovation is 80% complete, the mansion is washed away in a flood.
Builder’s duties under the contract will:
A not be discharged
B be discharged by impracticability
C be discharged by impossibility
D be discharged by frustration of purpose
C
Builder’s duties under the contract will be discharged by impossibility. If a contract’s subject matter is destroyed without the fault of either party, contractual duties are discharged. If the mansion no longer exists, it is impossible to renovate it. Discharge by impracticability occurs when performance is possible, but can be accomplished only with extreme and unreasonable difficulty or expense. Here, performance is not merely difficult or expensive, it is impossible. For duties to be discharged by frustration of purpose, the purpose of the contract must have become valueless by virtue of a supervening event. Frustration is generally raised by the party whose duty is to pay money. This would be the appropriate defense for Owner because a contract to renovate his mansion that no longer exists is valueless to him. It is not valueless to Builder. Builder’s appropriate avenue to discharge is impossibility, not frustration. QUESTION ID: K0095 Additional Learning
An executive hires a personal trainer for six months at $100 per week to ready the executive for an upcoming triathlon. One month into the contract, the executive suffers an accident that leaves her paralyzed and unable to compete in the triathlon. When the executive fails to pay the trainer, the trainer sues for breach of contract.
The trainer will ______________ because ___________.
A Prevail; there was no provision in the contract for discharge by occurrence of a condition subsequent
B Prevail; performance by the executive is not impossible
C Not prevail; performance by the executive is impracticable
D Not prevail; the purpose of the contract was frustrated
D
The trainer will not prevail because the purpose of the contract was frustrated, thereby discharging the executive’s duty to pay. If a subsequent physical incapacity of a person prevents that person from enjoying the benefits of the contract, the contractual duties may be discharged by frustration of purpose. Frustration exists if the purpose of the contract has become valueless by virtue of an unforeseeable supervening event. The person is still capable of performing under the contract but would not enjoy the benefit he anticipated when entering into the contract. Here, the executive can still perform (i.e., pay), but the contract for the trainer’s services has become valueless by virtue of the unforeseeable accident and paralysis. Performance by the executive is NOT impracticable. Impracticability occurs when an unanticipated or extraordinary event makes it impracticable to perform. Here, the executive’s contractual duty is to pay money. The incapacity only prevents the executive from enjoying the benefits, not from performing on the contract; thus, this not a case of impracticability. The trainer will not prevail even though performance by the executive is not impossible. Impossibility occurs when it has become impossible for anyone to perform the contractual duties. As noted above, the executive’s duty is to pay money. Thus, performance is not impossible. However, the trainer will not prevail because the executive’s duties are discharged because of frustration. It is not necessary for the contract to contain a provision for discharge by occurrence of a condition subsequent in order for the executive’s duties to be discharged. As noted above, the executive’s paralysis makes it impossible for her to compete in the triathlon; thus, the purpose of the contract with the trainer is frustrated. QUESTION ID: K0093A Additional Learning
Student enters into a contract with Violinist under which Violinist agrees to give Student violin lessons once a week for one year for $50 per week. Violinist subsequently has a stroke and is unable to teach.
Violinist’s duties under the contract will:
A be discharged by impossibility
B be discharged by the occurrence of a condition subsequent
C be discharged by frustration of purpose
D not be discharged
A
Violinist’s duties under the contract will be discharged by impossibility. Death or physical incapacity of a person necessary to effectuate the contract serves to discharge it. This is the type of personal services contract that cannot be delegated because Violinist’s services are considered unique. Frustration occurs when the purpose of the contract has become valueless by virtue of a supervening event. Here the purpose of the contract (violin lessons) is still valuable, but receiving them from Violinist is now impossible. Frustration of purpose is generally used as a defense by the party whose duty it is to pay money, rather than the party that is to perform services. Discharge by occurrence of a condition subsequent does not apply here because there was no condition subsequent in the contract. A condition subsequent is a condition in the contract the occurrence of which cuts off an already existing duty of performance. QUESTION ID: K0092 Additional Learning
Which of the following will not discharge the duty to perform?
A A good faith tender of performance
B A promise of performance
C A supervening illegality
D The occurrence of a condition subsequent
B
A mere promise of performance will not suffice to discharge the duty to perform; the tendering party must possess the present ability to perform. Good faith tender of performance made in accordance with contractual terms will discharge contractual duties. A supervening illegality, which occurs when the subject matter of the contract becomes illegal due to a subsequently enacted law or other governmental act, will discharge the duty to perform. The occurrence of a condition subsequent can also serve to discharge the duty to perform. A condition subsequent is one the occurrence of which cuts off an already exiting absolute duty of performance. QUESTION ID: K0087 Additional Learning
Which one of the following elements is needed for a discharge of a contract due to frustration?
A A subsequently enacted law or other governmental act has made the subject of matter of the contract illegal
B An unforeseen act or event has completely or almost completely destroyed the purpose of the contract
C An act of nature has destroyed the contract’s subject matter or the designated means for performing the contract
D An unanticipated or extraordinary act or event has made the contractual duties impossible or impracticable to perform
B
An element of frustration is that an unforeseen act or event has completely or almost completely destroyed the purpose of the contract. Frustration will exist if the purpose of the contract has become valueless by virtue of some supervening event not the fault of the party seeking discharge. If the purpose has been frustrated, a number of courts will discharge contractual duties even though performance of these duties is still possible. The elements necessary to establish frustration are: (i) some supervening act or event leading to the frustration; (ii) at the time of entering into the contract, the parties did not reasonably foresee the act or event occurring;(iii) the purpose of the contract has been completely or almost completely destroyed by this act or event; and (iv) the purpose of the contract was realized by both parties at the time of making the contract. A contract can be discharged by impossibility or impracticability when an unanticipated or extraordinary act or event has made the contractual duties impossible or impracticable to perform. Contractual duties can also be discharged by a subsequent act of nature that destroys the contract’s subject matter or the designated means for performing the contract. But neither of these is considered discharge by frustration. A discharge by illegality occurs when the subject matter of the contract has become illegal due to a subsequently enacted law or other governmental act. This is often referred to as “supervening illegality.” QUESTION ID: K0089B Additional Learning
The subsequent physical incapacity of a person necessary to effectuate a personal services contract serves to discharge the contract by:
A Condition Subsequent
B Impossibility
C Frustration
D Accord
B
The death or physical incapacity of a person necessary to effectuate the contract serves to discharge the contract by impossibility. Personal service contracts are discharged in this manner only if the services involved are unique. If a contract is discharged because of impossibility, each party is excused from duties arising under the contract that are yet to be fulfilled. Frustration occurs when the purpose of the contract has become valueless by virtue of a supervening event. Here the purpose of the contract is still valuable, but receiving the services from a physically incapable person is now impossible. Frustration of purpose is generally used as a defense by the party whose duty it is to pay money, rather than the party that is to perform services. Discharge by occurrence of a condition subsequent does not apply here because there was no condition subsequent in the contract. A condition subsequent is a condition in the contract the occurrence of which cuts off an already existing duty of performance. An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some other, different performance. There is no mention of an accord in this question. QUESTION ID: K0092B Additional Learning
When a contractor is under a contractual duty to construct a building and the building is destroyed by an act of nature while it is still a work in progress, the destruction __________.
A will discharge the contractor’s duty to perform
B will not discharge the contractor’s duty to perform, but will extend the date of performance
C will neither discharge the contractor’s duty to perform nor extend the date of performance
D will discharge the contractor’s duty to perform if rebuilding cannot be reasonably completed by the date of performance
B
A contractor’s duty to construct a building is not discharged by destruction of the work in progress. However, if the destruction was not caused by the contractor, such as by an act of nature, most courts will extend the date of performance beyond the original deadline. QUESTION ID: K0088 Additional Learning
__________ is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some other, different performance.
A A discharge
B A satisfaction
C A novation
D An accord
D
An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to the existing contract, some other, different performance. Satisfaction is the performance of the accord agreement. Its effect is to discharge not only the original contract but also the accord contract as well. A novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. The original contract will be discharged by the novation. Once it is determined that a party is under an immediate duty to perform, the duty to perform must be discharged. A discharge may occur in several ways other than by actual performance, including discharge by novation and discharge by accord and satisfaction. QUESTION ID: K0097A Additional Learning
The death of a party to a contract:
A Discharges the contract only if that party was necessary to effectuate the contract
B Always discharges the contract by reason of impossibility because the party is no longer able to perform
C Does not discharge the contract because death is not an extraordinary or unexpected event
D Does not discharge the contract because any contract is capable of performance by a substitute party
A
The occurrence of an unanticipated or extraordinary event may make contractual duties impossible or impracticable to perform or may frustrate the purpose of the contract. The death of a party necessary to effectuate the contract serves to discharge the contract for impossibility. However, personal service contracts are discharged in this manner only if the services involved are unique. If the services are the kind that can be delegated, it is not true the contract is always discharged by reason of impossibility by the death of the person who was to perform them. Even though that party is no longer able to perform, a substitute performance can sometimes be made. But it also is not true that any contract is capable of performance by a substitute party. As discussed above, when a service is unique, death of the person necessary to the service will serve to discharge the contract. Where the nonoccurrence of the event was a basic assumption of the parties in making the contract and neither party has expressly or impliedly assumed the risk of the event occurring, contractual duties may be discharged. Normally the parties to a contract are not anticipating the death of a party if the contract makes no provisions for the death of a party. Thus, if the deceased was necessary to effectuate the contract, his death would be considered an extraordinary or unexpected event sufficient to discharge the contract. QUESTION ID: K0091A Additional Learning
__________ exists if the purpose of the contract has become valueless by virtue of an unforeseeable supervening event.
A Rescission
B Supervening illegality
C Impracticability
D Frustration
D
Frustration exists if the purpose of the contract has become valueless by virtue of an unforeseeable supervening event. Supervening illegality occurs when the subject matter of the contract has become illegal due to a subsequently enacted law or other governmental act. Impracticability occurs when an unanticipated or extraordinary event makes it impracticable to perform. Rescission is an agreement between the parties to mutually give up their rights to performance under a contract, or a party can sue for rescission if there are adequate legal grounds to rescind the contract. QUESTION ID: K0093B Additional Learning
A contract may be discharged by a new contract that substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the original contract. This is known as a discharge by:
A substituted contract
B release
C cancellation
D novation
D
A discharge by novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract. A discharge by cancellation occurs when the parties manifest an intent to have an act of destruction or surrender of the written contract serve as a discharge, and consideration or one of its alternatives is present. A discharge by release is an agreement by the contracting parties not to sue on the contract. A discharge by substituted contract occurs when the same parties to a contract enter into a second contract that immediately revokes the first contract. QUESTION ID: K0090 Additional Learning
A building that is the subject of a contract between its owner and a contractor is completely destroyed by an act of nature.
If the contractor was working on a renovation, the destruction _____________; if the contractor was constructing the building, the destruction ________________.
A Does not discharge the contractor’s duties; discharges the contractor’s duties by impossibility
B Discharges the contractor’s duties by impracticability; discharges the contractor’s duties by frustration
C Discharges the contractor’s duties by frustration; discharges the contractor’s duties by impossibility
D Discharges the contractor’s duties by impossibility; does not discharge the contractor’s duties
D
The total destruction by an act of nature of a renovation in progress discharges the contractor’s duties by impossibility. If a contract’s subject matter is destroyed without the fault of either party, the contractual duties are discharged. If the original building no longer exists, it is impossible to renovate it. The construction of a new building, even if destroyed during progress, is not impossible and thus will not discharge the contractor’s duty to perform. However, if the destruction was not caused by the contractor, courts typically will extend the time for the contractor to perform. Discharge by impracticability occurs when performance is possible, but can be accomplished only with extreme and unreasonable difficulty or expense. It is impossible, not impracticable, to renovate a building that no longer exists. Moreover, discharge by frustration may not be raised by the contractor in either case. His purpose in entering into the contract was to make money. Frustration occurs when the purpose of the contract has become valueless by virtue of a supervening event. Frustration of purpose would be a valid defense of the owner in the contract for renovation. Without the building, there is no point in paying to renovate it. QUESTION ID: K0095B Additional Learning
