Performance Breach and Discharge Flashcards
After a contrct has been entered into:
the parties must satisfacorily perform their obligations, or have a legal excuse for not doing so, in order to avoid a claim of breach
Contractual duties may be:
conditioned (made contingent) on the occurrence or non-occurrence of an event - a condition
Effect of a condition:
creates, extinguishes or limits a contractual duty
Express
Using words (most typical)
Implied-in-fact
A condition that can be implied from the circumstances or the parties’ conduct
Eg: a contractor is contractually obligated to construct a building but cannot legally commence construction until the owner secures a building permit
securing the building permit would be an implied-in-fact condition of the contractor’s obligation to construct the building
Implied-in-law (constructive conditions)
eg. a condition to your obligation to pay rent to your landlord is the availability for occupancy of the apartment you rented
What happens to a contractual duty (the party who is obligated to performa contractual duty is an “obligor”)?
- Is the duty conditional? If so, has the condition been satisfied?
- If the duty is not conditional, or it is conditional but the condition has been satisfied then the duty
a. must be discharged by performance, or
b. the obligor is excusd from performing the duty, or
c. the obligor is in breach of contract for failure to perform the duty
Importance of determining whether a breach (that is, the failure to perform) is material or nonmaterial -determines remedies available to aggrieved party
- If the breach is material, aggrieved party is excused from performing the contract
- If breach is nonmaterial, aggrieved party is not excused from performing the contract but is entitled to damages from the breaching party for breach of contract
One party’s material breach:
of a contract frees the other party from its contractual obligation. A breach is material if it destroys the essential object of the agreement.
A relatively minor breach, on the other hand, does not excuse the other party from its contractual performance
Whether a party’s breach is material is a question of fact
Contractual duties are discharged if:
they are performed
Total performance (perfection)
When is this the appropriate standard?
eg. the duty to pay rent vs. the duty to construct an office building in accordance with detailed plans and specifications
2-601 (perfect tender rule)
Perfection is the standard for seller’s performance under a sale of goods contract (but the seller has a right to cure)
Doctrine of substantial performance
Issue when does less than 100% performance not constitute a material breach which would discharge the non-defaulting party?
- this doctrine is applicable to only certain contracts
- if perfection is not the appropriate standard, performance must be substantial
- breach ust be unintentional and not in bad faith
Measure of recovery - what damages can the parties recover
- if the performance is substnatial but not perfect - the aggrieved party will receive the cost of replacement or repair, or in some jurisdictions, the amount of diminshed value
- if the performance is not substantial (thus the breach is material), the aggrieved party has the right to not perform the contract but the breaching party may be entitled to equitable recovery for value of work actually performed
Time for performance
Generally, performance by the stated time or within a reasonable time thereafter is acceptable
that is, a minor delay in performing is not a material breach
- However, you must determine if the parties had intended that time for performance is “of the essence”
(peformance by one party by s tated time a condition precedent to the other party performing
- is “time of the essence” expressly or impiedly?
If time is of the essence =>
failure to timely perform is a material breach
2-601 (perfect tender rule)
Time is of the essence as to sale of goods
Equitable (fairness) considerations
To prevent the application of the rule resulting in an unfair result
What makes a breach material? Factors
- Was performance substantial (does the substantial performance doctrine apply because it it does then the breach is nonmaterial if performance was substantial)?
- Was time of the essence
- Was breach serious?
- Was breach intentional?
- Does contract specify what breaches are material?
Legal impossibility causing inability to perform discharges a contractual duty
- the death or incapacity of the promissor to the performance of a personal service contract
- the destruction of the subject matter of a contract prior to performance
- supervening illegality which makes performance of the contract illegal
Frustration of purpose
Some unanticipated event has occurred and as a result the contract now has no value to one party
One party’s principal purpose in making the contract is frustrated without that party’s fault, by the occurrence of an event, the non-occurrence of which was a basic assumption on which the contract was made
Elements of Commercial Impracability
- did an unexpected event occur (should the occurrence of the event have been reasonably expected or taken into account)?
- did that event render performance impossible or impracticable?
- Did the nonperforming party assume the risk that the event would occur (by the terms of the contract or by implication)?
- was nonperforming party at fault in causing the unexpectd event
Commercial impracticability
Mechanism for shifting risk in accordance with the parties presumed intentions
some unanticipated event has occured and performing the contract would be extraordinarly difficult and unfair to one party
Examples to which doctrine may apply to excuse a party from performance
a. death or incapacity of a person necessary for performance
b. destruction of subject matter necessary for performance
c. failure of anticipated source of supply
d. supervening illegality, government regulation or order
e. extraordinary whether event or other act of God
Examples to which doctrine not likely to apply
Increased costs
Labor disputes
change of market conditions
