Contract Termination Flashcards
Condition Precedent
A condition in a contract that qualifies the contractual obligation before it comes into existence
When a condition precedent is part of a contract, the condition must be fulfilled before the contract can come into existence
Words such as when, if, before, after, on condition that, subject to, provided that, so long as
The contingency must be performed before the contract comes into existence
Most typical contract with conditions is a real estate contract
Concurrent Condition
Conditions that occur at the same time
Condition Subsequent
A condition in a contract that triggers the contractual obligation after the contract comes into existence
A specific condition that occurs after the contract has been made will terminate the contract
This type of condition also relates to performance of future contractual obligations: if it occurs, it will extinguish a party’s contractual obligations
Found commonly in insurance policies
Example: Tom agrees to buy certain property for commercial purposes, provided that Sheila, the seller, obtains proper zoning by an agreed-upon date. The zoning must be obtained before Tom becomes obligated
Express Condition
A condition that is stated
Normally stated on the face of the contract and is part of the obligations between the parties
Implied in Fact Condition
Also known as an implied condition
A condition that is inferred by the law from the act of the parties; inferred or presumed under the law
The parties of a contract understand that the implied condition exists, although it is not specifically stated in the contract
Implied in Law Condition
Also known as constructive condition
The court will imply a condition, even though neither parties expressly or impliedly agreed to it, because the existence of the condition is implied in the parties’ respective duties
The rule suggests that one party’s performance is a necessary (constructive) condition of another party’s responsive performance
Termination
A method of discharging or ending contractual obligations
Implies that the contractual obligations of the parties have ended; whether the termination has positive or negative results depends on how the performance was discharged
Discharge
Release from a contract either by agreement or carrying out the obligations
Discharge creates a valid termination of contractual duties
Discharge can occur in several forms: by performance, by agreement, by non-performance, and by operation of law
Discharge by Performance
Most common type of discharge
This means the parties to the contract have fully performed their duties and obligations to the contract without incident
Expectations have been fulfilled, and all the legal obligations have been fully completed
There are times when performance is “mostly” complete
Substantial Performance
Also known as substantial compliance
Less than full performance of a contract; performance with minor defects or deviations in performance
The court will determine whether the deviation was minor or material to the contract; that is, the court will ask whether the deviation in the performance is inconsequential or whether it goes to the heart of the contract
Court Considerations in Substantial Completion Exists
Expectation of the nonbreaching party: What was the principal reason for entering into the contract?
Compensation to the injured party: If the injured party’s loss is easily calculated and the deviation is not material, a court could find substantial performance; when the loss is speculative and virtually cannot be calculated, the likelihood diminishes that a court will find substantial performance
Willfulness of the act: When the party’s acts are willful, deliberate, and intentional, the excuse of substantial performance will not be afforded; the court looks closely at the actions of the nonperforming party to determine the nature of the acts
Timing of performance or delay: Unless time is crucial to the completion of the contract, a delay or time lag when full performance has otherwise been completed may result in a court finding substantial performance; the courts closely examine the performance and any damage resulting from a delay
Discharge by Agreement
By agreement of the parties; in this instance, the parties’ agreement to discharge the obligations absolves the parties from any future liability under the original contract
May occur through rescission, release, novation, accord and satisfaction, or operation of the terms of the contract
Mutual Rescission
The voluntary mutual agreement of the parties to discharge their contractual obligations and duties, and thus return to the same position they were in prior to entering into the contract
Mutual Rescission: when both parties agree to cancel the contract
Release
The act of giving up or discharging a claim or right to the person against whom the claim exists or against whom the right is enforceable
Must be in writing and supported by some form of consideration
When parties agree to a release, the law will not allow them to pursue any legal action against each other once the agreement has been signed
Novation
The extinguishment of one obligation by another
A substituted contract that dissolves a previous contractual duty and creates a new one
The original parties to the contract are discharged and new parties are substituted under the new contract for the prior obligations
Discharges any obligations of the prior parties to the contract
All parties in a novation are required to assent to the terms, and it must be supported by consideration
Accord and Satisfaction
An agreement between two persons, one of whom has a cause of action against the other, in which the claimant accepts a compromise in full satisfaction of a claim
The parties can agree to terminate the rights and obligations under the contract and settle any claims or disputes between them through use of this method
The new agreement created between the parties is known as the accord; when the obligations of that new agreement are complied with by the parties, satisfaction occurs
Example: Arthur owes Beth $1,000, which he cannot pay. Arthur agrees to repair the roof on Beth’s house in lieu of paying the $1,000. The agreement to accept the repair is the accord; performance of the repair is the satisfaction.
Discharge by Contract Terms
Parties to the contract may agree that certain events or happenings will discharge the parties’ duties and obligations under a contract
Parties agree that the occurrence of certain events will discharge the contractual obligations
Both parties must agree
Discharge by Nonperformance
Can occur through:
Impossibility of Performance
Frustration of Purpose
Failure of a Condition
Breach
Impossibility of Performance
Results when some act or event makes it impossible for the contract to be performed under the terms set forth in the contract
In analyzing an impossibility of performance case, you may see the term impracticability rather than impossibility
Common occurrences involving impossibility are: destruction of the subject matter, supervening illegality, death, or disability of the party
Force Majeure
A provision in a contract that excuses nonperformance because of the occurrence of an unforeseeable event, such as an act of God
Impracticability
Excuses a party from an obligation in a contract that has become unrealistic because of unforeseen circumstances
Usually applied in the commercial context
The party alleging this defense must show that the burden of performance would be extreme
Frustration of Purpose
An event that may excuse nonperformance of a contract because it defeats or nullifies the objective of the parties under which they entered into the contract
This doctrine discharges performance by excusing it because of an unanticipated event the parties could not have contemplated
Courts will not impose this method of discharge readily, especially when parties are simply trying to avoid a bad bargain
A party must show that the circumstance frustrating the purpose was unforeseeable, and that, because of that unforeseeability, the party will not derive the benefit anticipated by the contract
Failure of a Condition
Nonperformance is the failure of a condition to a contract
Common method of terminating a contract
Breach of Contract
This is the result of a party failing to perform its contractual obligations; a breach occurs when the acts of nonperformance are no material to the transaction that the nonbreaching party can treat the obligation as terminated
The key in a breach of contract case is often determining whether a breach was material
The party who has been injured by the breaching party can hold them to their contractual duties through enforcement of a court action
