Chapter 16 Contracts — Performance and Discharge

2 Introduction How does a party know when his or her obligations under the contract are at an end? A party may be discharged from a valid contract by: A condition occurring or not occurring. Full performance or material breach by the other party. Agreement of the parties. Operation of law.

3 §1: Conditions Possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation or terminate an existing obligation under a contract. Types of Conditions: Conditions Precedent. Conditions Subsequent. Conditions Concurrent. Express. Implied in Fact. Implied in Law.

4 §2: Discharge by Performance The contract comes to an end when both parties fulfill their respective duties by performing the acts they have promised. Types of Performance: Complete Performance. Substantial Performance (minor breach). Performance to the Satisfaction of One of the Parties or a Third Party. Case 17.1: Jacobs & Young v. Kent (1921).

5 Material Breach of Contract Breach of Contract - the nonperformance of a contractual duty. Material breach occurs when there has been a failure of consideration. Discharges the non breaching party from the contract. In a Minor breach, the duty to performed is not excused and the non-breaching party must resume performance of the contractual obligations undertaken.

6 Anticipatory Repudiation If before performance is due, one party refuses to perform his or her contractual obligation. Results in material breach. The nonbreaching party should not be required to remain ready and willing to perform when the other party has repudiated the contract. The nonbreaching party should have the opportunity to seek a similar contract elsewhere.

7 §3: Discharge by Agreement Rescission. Novation. Substituted Agreement. Accord and Satisfaction.

8 §4: Discharge by Operation of Law Alteration of a contract. Statutes of Limitations. Bankruptcy. Impossibility or Impracticability of Performance.

9 Impossibility or Impracticability of Performance Objective Impossibility of Performance: Death or incapacitation prior to performance; Destruction of the Subject Matter; or Illegality in performance. Commercial Impracticability. Frustration of Purpose. Temporary Impossibility.

10 Case 16.1: Jacobs & Young v. Kent (Substantial Performance) FACTS: Jacobs & Young built a house for Kent. A subcontractor’s oversight led to a failure to install pipe of “Reading manufacture,” as the contract required. Kent ordered Jacobs to replace it. Jacobs refused on grounds that it would mean demolishing the house. Kent did not make the final payment, and Jacobs sued. The court refused to accept evidence that the installed pipe was of the same quality, appearance, market value, and cost as Reading pipe, and entered a verdict for Kent. Jacobs appealed.

11 HELD: REVERSED. FOR JACOBS. “The courts never say that one who makes a contract fills the measure of his duty by less than full performance.” Court said that the amount of damages is the difference in value between the completed house and a house with the correct pipe—not the cost of replacing the pipe (demolishing the house). Case 16.1: Jacobs & Young v. Kent (Substantial Performance)

12 Case 16.2: Van Steenhouse v. Jacor Broadcasting (Material Breach of Contract) FACTS: In 1991, Van Steenhouse signed a three-year agreement as a radio talk show host for Jacor, including salary and bonuses. Less than 3 years later, Jacor replaced her show with Rush Limbaugh’s program. Jacor paid Van Steenhouse her base salary, but did not employ her as a talk show host and did not pay a bonus. Van Steenhouse sued Jacor for breach of contract. The court ruled that Jacor materially breached the contract. Jacor appealed.

13 HELD: AFFIRMED. FOR VAN STEENHOUSE. Jacor’s performance fell far short of substantial performance. “An obligation to furnish work arises if the employee materially benefits from performing the duties described in the agreement.” In this case, “Van Steenhouse lost the opportunity to build and maintain her professional marketability. In addition, Van Steenhouse lost the opportunity to earn a * * * performance bonus.” Case 16.2: Van Steenhouse v. Jacor Broadcasting (Material Breach of Contract)

14 Case 16.3: Syrovy v. Alpine Resources (Commercial Impracticability) FACTS: Syrovy agreed to sell Alpine Resources all of the timber on Syrovy’s property that Alpine could harvest over a two-year period for $140,000. Alpine harvested some timber and paid Syrovy $50,000. Syrovy sued for the balance. Alpine defended on the ground of commercial impracticability, claiming bad weather conditions and the hunting season. The court granted Syrovy’s motion for summary judgment. Alpine appealed.

15 HELD: AFFIRMED. FOR SYROVY. Nonperformance may be excused if an unforeseen contingency occurs, the nonoccurrence of which was a basic assumption made by the parties to the contract. Alpine’s contract negotiator was “a logger with considerable experience in purchasing timber” who should have foreseen that weather conditions and hunting season problems would have made performance difficult. Case 16.3: Syrovy v. Alpine Resources (Commercial Impracticability)