Ch 18: Contract Termination

discharge / discharged

a party is discharged when she has no more duties under the contract

By what factor are most contracts discharged by?

Most contracts are discharged by full performance: the parties generally do what they promise

Sometimes the parties discharge a contract by what?

Sometimes the parties discharge a contract by agreement

rescind

to terminate a contract by mutual agreement

condition

an event that must occur before a party becomes obligated under a contract

How are conditions created?

with express conditions and implied conditions

express conditions

no special language is necessary to create the condition

implied conditions

at times, though the parties did not state a condition, it is clear that they have implied one

Courts divide conditional clauses into which three categories?

1. condition precedent: an event must occur before a duty arises

2. condition subsequent: this type of condition must occur after a particular duty arises

3. concurrent conditions: both parties have a duty to perform simultaneously

What is the key to all conditional clauses?

If the condition does not occur, one party will probably be discharged without having to perform his obligations under a contract

If a contract contains a condition precedent, the _________ has the burden of proving that the condition actually happened. If a condition subsequent exists, the _________ has the burden of showing that the condition occurred.

plaintiff; defendant

What is the effect on completion of a complex contract?

The more complex a contract, the more certain that at least one party will perform imperfectly

strict performance

required one party to perform its obligations precisely, with no deviation from the contract terms

substantial performance

occurs when one party fulfills enough of its contract obligations to warrant payment

What happens if a party fails to perform their contractual obligations substantially?

They receive nothing on the contract itself and will recover only the value of the work, if any

Which issues do courts look at to determine when performance is substantial?

• how much benefit has the promisee received?

• if it is a construction contract, can the owner use the thing for its intended purpose?

• can the promisee be compensated with money damages for any defects?

• did the promisor act in good faith?

personal satisfaction contract

permits the promisee to make subjective evaluations of the promisor’s performance

When does the court apply a subjective standard for personal satisfaction contracts?

Only if assessing the work involves personal feelings, taste, or judgment and the contract explicitly demanded personal satisfaction

In all other cases, the court applies what to the promisee’s decision?

a court applies an objective standard to the promisee’s decision

(objective standard means that the promisee’s judgment of the work must be reasonable)

good faith

the parties to a contract must carry out their obligations in good faith

time is of the essence clause

generally make contract dates strictly enforceable

What happens when a contract has named a closing date, but includes no time of the essence clause?

merely including a date for performance does not make time of the essence

What happens when one party breaches a contract?

the other party is discharged

• the discharged party has no obligation to perform and may sue for damages

What is material breach?

is one that substantially harms the innocent party for which it would be hard to compensate without discharging the contract

How do the courts respond to material breach?

courts will discharge a contract only if a party committed a material breach

How do the courts respond to anticipatory breach?

if a party makes it unmistakably clear that it will not honor the contract, it is guilty of anticipatory breach

statute of limitations

a statutory time limit within which an injured party must file suit

What happens if performing a contract is truly impossible?

a court will discharge the agreement

true impossibility

means that something has happened making it literally impossible to do what the promisor said he would do (these cases are easy and rare)

True impossibility is generally limited to which three cases?

• Destruction of the Subject Matter

• Death of the Promisor in a Personal Services Contract

• Illegality

Commercial impracticality

means some event has occurred that neither party anticipated and fulfilling the contract would now be extraordinarily difficult and unfair to one party

Frustration of purpose

means some event has occurred that neither party anticipated and the contract now has no value for one party

Which of the following factors do courts consider in deciding impracticability and frustration claims?

• mere financial difficulties will never suffice to discharge a contract

• the event must have been truly unexpected

• if the promisor must use a different means to accomplish her task, at a greatly increased cost, she probably does have a valid claim of impracticability

• a force majeure clause is significant but not necessarily dispositive

What is a force majeure clause?

it allows cancellation of the agreement in case of certain listed extraordinary and unexpected events