David P. Twomey - Boston College © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. David P. Twomey - Boston College Marianne M. Jennings - Arizona State University David P. Twomey - Boston College Marianne M. Jennings - Arizona State University © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Discharge of Contracts Chapter 19 Discharge of Contracts Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Conditions Relating to Performance Classifications of Conditions Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A. Conditions Relating to Performance [LO.1] Classification of Conditions: An event that affects the duty of a party to perform is called a condition. (A) Condition Precedent. Condition must occur before the party is obligated to perform.  Blitz v. Subklew: The written approval was a condition precedent. Since it was not obtained, leasing agreement cannot be enforced. (B) Condition Subsequent. An event that whose occurrence or lack thereof can cancel a contract. (C) Concurrent Condition. Mutual duties take place simultaneously. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Discharge By Performance 2. Normal Discharge of Contracts 3. Nature of Performance 4. Time of Performance 5. Adequacy of Performance Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Discharge by Performance [LO. 2 – L.O. 3] Normal Discharge of Contracts: Contracts are discharged by performance and by the expiration of time specified in the contract. Nature of Performance: (A) Tender. An offer to perform is a tender. (B) Payment. Performance is the payment of money. (1) Application of Payment. If more than one debt is owed the creditor is bound to apply the money as specified by the debtor. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Discharge by Performance [LO.2 – L.O.3] Nature of Performance: (B) Payment (continued) (2) Payment by Check. Conditional payment that is generally considered made on time if mailed on or before the final due date. .  Briznieks v. Cooper: Payment was made when the check was mailed, not received and thus on time. Time of Performance: (A) No Time Specified. A reasonable time is implied. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Discharge by Performance Time of Performance: (B) When Time is Essential. When “time is of the essence” failure to perform within the specified time is a breach of contract. (C) When Time is Not Essential. Performance within a reasonable time is sufficient. (D) Waiver of Essence of Time Limitation. Occurs when the specified time has expired but the party who could complain requests performance from the delaying party. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

B. Discharge by Performance Adequacy of Performance: (A) Substantial Performance. A party who in good faith has provided substantial performance on a contract is entitled to payment, offset by any “cost of completion” damages. (B) Fault of Complaining Party. A party cannot complain when contract performance followed the terms of the complaining party. (C) Performance to the Satisfaction of the Contracting Party or a Third Party. Valid subject to requirement that dissatisfaction be made in good faith. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

C. Discharge by Action of Parties 6. Discharge by Unilateral Action 7. Discharge by Agreement Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

C. Discharge by Action of Parties [LO.4] Discharge by Unilateral Action: Ordinarily actions of either party alone does not discharge a contract. (A) Consumer Protection Rescission. Debtors have three business days to cancel credit transactions that would impose a lien on the debtor’s home. Discharge By Agreement: A contract may be discharged by: terms of the original contract, mutual cancellation, mutual rescission, contract substitution, novation, accord and satisfaction, release, or waiver. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

C. Discharge by Action of Parties Discharge by Agreement: (A) Substitution. When parties agree to replace one contract with another. (B) Accord and Satisfaction. When parties have differing views of performance, they may agree to a different one. Requires a bona fide dispute, a proposal to settle the dispute and performance of the agreement.  MKL Pre-Press Electronics v. La Crosse Litho Supply, LLC: MKL’s acceptance of the check marked ‘final payment’ constitutes an accord and satisfaction. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

D. Discharge by External Causes 8. Discharge by Impossibility 9. Developing Doctrines 10. Temporary Impossibility 11. Discharge by Operation of Law Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

D. Discharge by External Causes [LO.5 – L.O.6] Discharge by Impossibility: Must show: Unexpected occurrence of an act whose risk was not allocated by agreement or custom and whose occurrence made performance impossible. (A) Destruction of Particular Subject Matter. (B) Change of Law. If performance becomes illegal. (C) Death or Disability. Does not apply if contract may be completed by others or terms contemplate continuance after death. (D) Act of Other Party. Promisor discharged if promisee makes performance impossible. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

D. Discharge by External Causes Developing Doctrines: (A) Commercial Impracticability. Contract may be discharged if performance is made impractical by the subsequent occurrence of an event whose non-occurrence was an assumption of the contract. (B) Frustration of Purpose Doctrine. A change in circumstance may cause the purpose of a contract to have no valid. Performance may be excused if both parties knew the purpose & the event that frustrated it was unforeseen.  Chase Precast Corp. v. John J. Paonessa Co, Inc.: Construction changes made barriers worthless and voided the contract to purchase them. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

D. Discharge by External Causes Developing Doctrines: (C) Comparison to Common Law Rule. Traditional common law rule does not recognize commercial impracticability or frustration of purpose. The UCC provides for the discharge of a contract for the sale of goods when a condition parties assumed existed or would continue ceases to exist. (D) Force Majeure. Many contracts now include force majeure (uncontrollable event) clauses.  WEPCO v. Union Pacific Railroad: Closing of the steel mill triggered force majeure and the contract clause is enforced as written. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

D. Discharge by External Causes Temporary Impossibility: Ordinarily suspends the obligation to perform a contract until performance becomes possible. (A) Weather. Acts of God usually do not terminate a contract even though performance is difficult. Modern contracts often contain a “weather clause.” Discharge by Operation of Law: (A) Bankruptcy. Eliminates ordinary contract claims. (B) Statute of Limitations. Bars contract claims. (C) Contractual Limitations. Private statute of limitations created by agreement of the parties. Twomey – Jennings, Anderson’s Business Law and the Legal Environment, 22nd Ed. © 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.