Performance Breach and Discharge

Question 1

After a contrct has been entered into:

Answer 1

the parties must satisfacorily perform their obligations, or have a legal excuse for not doing so, in order to avoid a claim of breach

Question 2

Contractual duties may be:

Answer 2

conditioned (made contingent) on the occurrence or non-occurrence of an event - a condition

Question 3

Effect of a condition:

Answer 3

creates, extinguishes or limits a contractual duty

Question 4

Express

Answer 4

Using words (most typical)

Question 5

Implied-in-fact

Answer 5

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

Question 6

Implied-in-law (constructive conditions)

Answer 6

eg. a condition to your obligation to pay rent to your landlord is the availability for occupancy of the apartment you rented

Question 7

What happens to a contractual duty (the party who is obligated to performa contractual duty is an “obligor”)?

Answer 7

1. Is the duty conditional? If so, has the condition been satisfied?
2. 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

Question 8

Importance of determining whether a breach (that is, the failure to perform) is material or nonmaterial -determines remedies available to aggrieved party

Answer 8

1. If the breach is material, aggrieved party is excused from performing the contract
2. 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

Question 9

One party’s material breach:

Answer 9

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

Question 10

Contractual duties are discharged if:

Answer 10

they are performed

Question 11

Total performance (perfection)

Answer 11

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

Question 12

2-601 (perfect tender rule)

Answer 12

Perfection is the standard for seller’s performance under a sale of goods contract (but the seller has a right to cure)

Question 13

Doctrine of substantial performance

Answer 13

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

Question 14

Measure of recovery - what damages can the parties recover

Answer 14

• 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

Question 15

Time for performance

Answer 15

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

1. 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

2. is “time of the essence” expressly or impiedly?

Question 16

If time is of the essence =>

Answer 16

failure to timely perform is a material breach

Question 17

2-601 (perfect tender rule)

Answer 17

Time is of the essence as to sale of goods

Question 18

Equitable (fairness) considerations

Answer 18

To prevent the application of the rule resulting in an unfair result

Question 19

What makes a breach material? Factors

Answer 19

1. Was performance substantial (does the substantial performance doctrine apply because it it does then the breach is nonmaterial if performance was substantial)?
2. Was time of the essence
3. Was breach serious?
4. Was breach intentional?
5. Does contract specify what breaches are material?

Question 20

Legal impossibility causing inability to perform discharges a contractual duty

Answer 20

1. the death or incapacity of the promissor to the performance of a personal service contract
2. the destruction of the subject matter of a contract prior to performance
3. supervening illegality which makes performance of the contract illegal

Question 21

Frustration of purpose

Answer 21

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

Question 22

Elements of Commercial Impracability

Answer 22

1. did an unexpected event occur (should the occurrence of the event have been reasonably expected or taken into account)?
2. did that event render performance impossible or impracticable?
3. Did the nonperforming party assume the risk that the event would occur (by the terms of the contract or by implication)?
4. was nonperforming party at fault in causing the unexpectd event

Question 23

Commercial impracticability

Answer 23

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

Question 24

Examples to which doctrine may apply to excuse a party from performance

Answer 24

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

Question 25

Examples to which doctrine not likely to apply

Answer 25

Increased costs

Labor disputes

change of market conditions