Chapter 11 Presentation (Week 7)

Chapter Overview

• Topic: Performance in Contracts

• Chapter includes key concepts related to contract conditions, discharge of obligations, and legal doctrines affecting contracts.

Chapter Learning Objectives

• LO 11–1: Identify and categorize the three types of contract conditions.

• LO 11–2: Explain the doctrine of substantial performance and its effects on contracting parties.

• LO 11–3: Describe four ways contracting parties can mutually discharge a contract.

• LO 11–4: Describe three ways contracting parties can discharge a contract through operation of law.

The Nature and Effect of Contract Conditions

• Conditions: Specific circumstances under which a contract becomes enforceable.

  • Condition Precedent: Condition that must occur before performance is required.

  • Condition Subsequent: Condition that must occur after performance; failure to meet this condition discharges the duty to perform.

  • Condition Concurrent: Each party's performance is dependent on the other’s performance.

Discharging Obligations Through Good Faith Performance

• If promises to perform in a contract are unconditional, the duty to perform is absolute.

• Good faith is essential; parties must perform obligations fully to discharge one another's duties.

  • Assignment: Transfer of rights to another party, but original duties remain intact.

Substantial Performance

• A party's good faith effort to perform substantially can trigger the other party's obligation.

• Material Deviations: Significant changes in contract performance that affect value or fundamental agreement.

• Even with substantial performance, damages may be claimed for imperfect performance.

Discharge By Mutual Agreement

• Parties may consensually terminate their contract through various methods:

  • Rescission: Mutual cancellation of the contract; both parties waive rights.

  • Accord and Satisfaction: Agreement for different performance; successful accord discharges obligations.

  • Substitute Agreement: Replacement of the original contract with a new one.

  • Novation: Replacement of one party with a third party, discharging previous obligations.

Discharge By Operation of Law

• Contracts may be discharged due to unexpected events affecting performance:

  • Impossibility: Objective impossibility due to events like destruction of subject matter or death of parties.

  • Impracticability: Performance becomes excessively burdensome due to unforeseen circumstances.

  • Frustration of Purpose: Significant change in circumstances undermines the contract's intended purpose.

Discharge By Operation of Law: Impossibility

• Objective Impossibility: Focus on external events that prevent performance, not personal incapacity.

• Four key events that may invoke impossibility:

  • Destruction of the subject matter.

  • Death/ incapacitation of a party.

  • Impossibility of means of performance.

  • Performance becoming illegal post-contract.

• Temporary Impossibility: Performance is suspended, not discharged, until impossibility ceases; often governed by "force majeure" clauses.

Discharge By Operation of Law: Impracticability

• Performance not impossible but significantly burdensome is subject to discharge if:

  • Burden is unforeseeable and extreme.

Discharge By Operation of Law: Frustration of Purpose

• When unforeseen events frustrate the main purpose without impossibility of performance:

  • Must demonstrate substantial frustration was not the fault of the frustrated party.

  • Key conditions: Principal purpose frustration, event occurrence central to parties' assumptions, and lack of agreement on risk-sharing.

Conclusion

• Understanding these concepts significantly impacts the handling of contracts and obligations.

• Mid Term Exam scheduled for next week (Week 8).