MODULE 23 CONTRACTS
G. Discharge of Contracts
49. (a) Once one party materially breaches the contract,
the other party is discharged from performing his or her
obligations under the contract. Answer (b) is incorrect be-
cause a reasonable delay in the performance of the contract
is not a breach unless time was of the essence. Answer (c) is
incorrect because tender or offer to payor perform obligates
the other party to do what s/he promised. Answer (d) is
incorrect because assignment of rights typically is allowed
under contract law.
SO. (a) The discharge of a contract can come about in
several ways. The first is by agreement. Accord and satis-
faction involves an agreed substitute for performance under
the contract (accord) and the actual performance of that sub-
stitute (satisfaction). An agreement can also be entered into
by three parties whereby the previous agreement is dis-
charged by the creation of a new agreement (a novation).
The second method of discharge is by release of the contract
or parties from performance. Another method of discharg-
ing a contract is-by performance of the specified action be-
coming impossible, such as destruction of the subject matter,
or death of a party where personal service is necessary.
Lastly, breach of the contract discharges the injured party.
51. (c) Rescission entails canceling a contract and plac-
ing the parties in the position they were in before the con-
tract was formed. Answer (a) is incorrect as a novation is an
agreement between three parties whereby a previous agree-
ment is discharged by the creation of a new agreement.
Answer (b) is incorrect because release is a means of dis-
charging (abandoning) a contract but it does not place the
parties in the same position as before the contract. An-
swer (d) is incorrect because revocation is used by an offeror
to terminate an offer.
H. Remedies
52. (d) The remedy of specific performance is used
when money damages will not sufficiently compensate the
afflicted party due to the unique nature of the subject matter
of the contract. In a contract for the sale of land, the buyer
has the right to enforce the agreement by seeking the remedy
of specific performance because real property is considered
unique. Another remedy for this breach of contract wou'd
be for the buyer to seek compensatory damages. If the buyer
desires, s/he may seek this remedy instead of specific per-
formance. However, in this situation, Hodges could only
sue for either specific performance or compensatory dam-
ages but would not be entitled to both remedies. An injured
party is generally not allowed to seek punitive damages.
Punitive damages are awarded only when the court is seek-
ing to punish a party for their improper actions and are not
usually granted in breach of contract actions.
53. (a) Under the doctrine of substantial performance, a
contract obligation may be discharged even though the per-
formance tendered was not in complete conformity with the
terms of the agreement. If it can be shown that the defect in
performance was only minor in nature, that a good-faith
effort was made to conform completely with the terms of the
agreement, and if the performing party is willing to accept a
decrease in compensation equivalent to the amount of the
minor defect in performance, the contractual obligation will
. be discharged. Because Ames' breach ofcontract was both
inadvertent and not material, the doctrine of substantial per-
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formance applies and recovery will be limited to monetary
damages. The installation of fixtures other than those speci-
fied in the contract constitutes a breach, although the breach
is considered immaterial. The doctrine of substantial per-
formance applies in this situation and the contractual obliga-
tion will be discharged.
54. (a) . A liquidated damage clause is a contractual pro-
vision which states the amount of damages that will occur if
a party breaches the contract. The liquidated damage clause
is 'enforceable if the amount is reasonable in light of the an-
ticipated or actual harm caused by the breach. Excessive
liquidated damages will not be enforceable in court even if
both parties have agreed in writing. A clause providing for
excessive damages is a penalty and the courts will not en-
force a penalty. Materiality does not impact the enforce-
ability of liquidated damage provisions.
SS. (c) The doctrine of anticipatory repudiation allows a
party to either sue at once or wait until after performance is
due when the other party indicates s/he will not perform.
This doctrine is in effect because Nagel told Fields that Na-
gel had no intention of delivering the goods (i.e., repudiation
of the contract) prior to the date of performance. Answer (a)
is incorrect because promissory estoppel acts as a substitute
for consideration which is an element in the forming of a
contract but is not relevant in this fact situation. Answer (b)
is incorrect because accord and satisfaction is an agreement
wherein a party with an existing duty or performance under
a contract promises to do something other than perform the
duty originally promised in the contract. Answer (d) is in-
correct because the doctrine of substantial performance
would allow for a contract obligation to be discharged even
though the performance tendered was not in complete con-
formity with the terms of the agreement. In this case, Fields
is suing Nagel for breach of contract.
56. (a) Events occurring after a contract is entered into
usually do not affect performance. Some exceptions to this
rule include subsequent illegality of the performance, death
of a party, or destruction of the subject matter, all of which
constitute impossibility of performance. In this case, even
though Maco's own potatoes were destroyed, it wasn't
specified that Maco's own potato crop be used to fulfill the
contract. It was not impossible, therefore, for Maco to per-
form, because he could have purchased potatoes from an-
other grower to deliver to LBe. If there had been a' world-
wide infestation of the potato crop, Maco would have reason
to not perform on the basis of impossibility;
I. Statute of Limitations
57. (b) The statute of limitations bars suit if it is not
brought within the statutory period. The period varies for
different types of cases and from state to state. The statute
begins to run from the time the cause of action accrues (e.g.,
breach).