Clarkson14e - PPT - ch18 Performance and Discharge

BUSINESS LAW
TEXT AND CASES

Fourteenth Edition
CLARKSON MILLER CROSS  
CHAPTER 18: PERFORMANCE

AND DISCHARGE
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
§1: CONDITIONS (1 OF 6)
 Condition: A qualification in a contract
based on a possible future event.
Occurrence (or nonoccurrence) of the
event will trigger the performance of a
legal obligation—or terminate an
existing obligation under a contract.
If the condition is not satisfied, the
obligations of the parties are discharged.
© 2018 Cengage. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22
CONDITIONS (2 OF 6)
 Three types of conditions can be present
in contracts: conditions precedent,
conditions subsequent, and concurrent
conditions.
 Conditions can also be classified as
express or implied.
CONDITIONS (3 OF 6)
 Conditions Precedent:
Condition that must be fulfilled before a
party’s performance can be required.
Requires absolute duty to perform.
• SEE CASE IN POINT 18.2 MACIEL V.
COMMONWEALTH (2011).
CONDITIONS (4 OF 6)
 Conditions Subsequent:
When a condition operates to
terminate a party’s absolute promise to
perform, after the time of absolute
performance was due.
Conditions subsequent are rare.
The Restatement refers to both
precedent and subsequent as
“conditions.”
CONDITIONS (5 OF 6)
 Conditions Concurrent:
When each party’s performance is
conditioned on the other party’s
performance or tender.
Both parties required to perform their
duties simultaneously.
CONDITIONS (6 OF 6)
 Express and Implied Conditions:
Express: Provided in the parties’
agreement, usually preceded by words
such as “If” or “Provided.”
Implied: Understood to be a part of the
contract, depending on the purpose.
Courts may imply conditions from the
purpose of the contract or from the intent
of the parties. 7
§2: DISCHARGE BY PERFORMANCE (1
OF 14)
 Both parties fulfill their respective duties by

performing the acts they have promised.
 Tender of performance: An unconditional
offer to perform.
 Two basic types of performance:
Complete performance.
Substantial performance.
DISCHARGE BY PERFORMANCE (2 OF 14)
 Complete Performance:
Parties perform exactly as agreed, or
“perfect.”
All conditions are satisfied.
Normally, conditions expressly stated in
a contract must fully occur in all respects
for complete performance of the
contract to take place.
 Substantial Performance:
A party in good faith that performs
substantially all of the terms can enforce
the contract.
Confers most of the benefits promised:
performance must not vary greatly from
what was promised. 
Party must have performed in good faith.
Performance must not vary greatly from
the performance promised in the contract.
Performance must create substantially the
same benefits as those promised in the
contract.
Courts Must Decide: Courts decide
whether the performance was
substantial on a case-by-case basis.
Effect on Duty to Perform: The parties
must continue performing under the
contract.
• SEE CLASSIC CASE 18.1 JACOB & YOUNGS V. KENT
(1921).
 Measure of Damages: The cost to bring
the object of the contract into compliance
with its terms—if that cost is reasonable
under the circumstances.
 If not reasonable, then the measure of
damages is the difference in value

between the performance rendered and
complete performance of the contract.
 Performance to the Satisfaction of
Another:
When the Contract Is Personal: The
performance must actually satisfy the
party specified in the contract, and
only the personal satisfaction of the
party fulfills the condition. 
 Performance to the Satisfaction of
Another:
Reasonable Person Standard: Most
other contracts need to be performed
only to the satisfaction of a reasonable
person unless they expressly state
otherwise.
 Material Breach of Contract: Occurs when
performance is not substantial.
Material versus Minor Breach: If the
breach is minor (not material), the
nonbreaching party’s duty to perform may
be suspended until the breach has been
remedied. 
• SEE CASE ANALYSIS 18.2 KOHEL V. BERGEN AUTO
ENTERPRISES, LLC (2013).
 Material Breach of Contract:
Material versus Minor Breach: Once the
minor breach is cured, nonbreaching party
must resume performance of contractual
obligations.
Underlying Policy: Any breach entitles the
nonbreaching party to sue for damages.
Only a material breach discharges the
nonbreaching party from the contract. 17
 Anticipatory Repudiation: Refusal of one
party to carry out his or her contractual
obligations before either party has a duty
to perform.
 It is treated as a material breach, and
nonbreaching party may sue for damages
immediately, even though performance is
not due.
 Anticipatory Repudiation:
Notice by repudiating party may restore
parties to original obligations.
Rationale for treating repudiation as
breach.
Anticipatory repudiation and market
prices. 
19
 Time for Performance: If no time is stated in
contract, reasonable time is implied.
If a specific time is stated, the parties must
usually perform by that time.
Unless time is expressly stated as vital, a
performance delay will not destroy the
performing party’s right to payment. 
 Time for Performance:
If time is “of the essence,” it becomes a
condition precedent to performance.
§3: DISCHARGE BY AGREEMENT (1 OF 5)
 Discharge by Mutual Rescission: Parties must
make another agreement that also satisfies
the legal requirements for a contract.
There must be an offer, an acceptance, and
consideration.
Rescission of most executory contracts is
enforceable even if agreement is made
orally. 
DISCHARGE BY AGREEMENT (2 OF 5)
 Discharge by Mutual Rescission:
Under UCC, contracts must be in writing.
Rescission of contracts involving
transfers of realty must also be in
writing.
If one party has performed, agreement
to rescind must have additional
consideration.
 Discharge by Novation: Substitution of a
new third party for one of the original
parties. Requirements:
Previous valid obligation.
Agreement by all parties.
Extinguishment of all old obligations.
New valid contract. 
 Discharge by Novation:
A novation expressly or impliedly
revokes and discharges a prior contract.
 Discharge by Settlement Agreement: A
compromise that arises out of a genuine

dispute over the obligations under an
existing contract will be recognized at law.
 Discharge by Accord and Satisfaction.
Accord: Contract to perform existing
contractual duty not yet discharged.
Satisfaction: Performance of accord.
Once the accord has been made, the
original obligation is only suspended
until the accord agreement is fully
performed.
§4: DISCHARGE BY OPERATION
OF LAW (1 OF 9)
 Material Alteration: Innocent party is
discharged after material alteration of
contract terms.
 Statutes of Limitations: A suit for breach of
contract must be filed within the time

permitted by applicable law.
 Bankruptcy: A discharge in bankruptcy usually
prevents creditors from enforcing most of the

debtor’s contracts. 27
DISCHARGE BY OPERATION OF LAW (2
OF 9)
 Impossibility of Performance: Supervening

events may make performance objectively
impossible.
It applies only if the event was not
foreseeable by any parties.
Objective impossibility (“It can’t be done.”)
must be distinguished from subjective
impossibility (“I simply cannot do it.”)
OF 9)
 When Performance Is Impossible: Types of

situations that may allow for discharge of
contractual obligations:
One party to a personal contract dies or
becomes incapacitated prior to
performance.
The specific subject matter of the contract
is destroyed. 
OF 9)
 When Performance Is Impossible: Types of

situations that may allow for discharge of
contractual obligations:
When a change in law renders
performance illegal.
OF 9)
 Temporary Impossibility:
Performance Normally Is Only Delayed:
Once the temporary event ends, parties
ordinarily must perform the contract as
originally planned. 
OF 9)
 Temporary Impossibility:
Performance Can Be Discharged: If the
lapse of time/the change in
circumstances surrounding the contract
makes it substantially more burdensome
for the parties to perform the promised
acts, the contract will be discharged in
that situation.
OF 9)
 Commercial Impracticability: Parties may

be excused from performance if it becomes
more difficult or expensive than the parties
originally expected at contract formation.
Anticipated performance must become
significantly difficult or costly.
Burden of performing must not have
been foreseeable by the parties.
OF 9)
 Frustration of Purpose: A contract will be

discharged if supervening circumstances
make it impossible to attain the purpose
both parties had in mind when they made
the contract.
Frustration of purpose typically involves
an event that decreases the value of what
a party receives under the contract.
OF 9)

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BUSINESS LAW

TEXT AND CASES

CLARKSON MILLER CROSS  

CHAPTER 18: PERFORMANCE

 Both parties fulfill their respective duties by

damages is the difference in value

compromise that arises out of a genuine

contract must be filed within the time

prevents creditors from enforcing most of the

 Impossibility of Performance: Supervening

 When Performance Is Impossible: Types of

 When Performance Is Impossible: Types of

 Commercial Impracticability: Parties may

 Frustration of Purpose: A contract will be

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