2. What is a condition precedent, and how does it affect a party’s duty to perform a contract? What is a condition precedent, and how does it affect a party’s duty to perform a contract? How are most contracts discharged? How are most contracts discharged? What is substantial performance?  What is substantial performance?  © 2012 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. 2

3. When is a breach considered material, and what effect does that have on the other party’s obligation to perform? When is a breach considered material, and what effect does that have on the other party’s obligation to perform? Will the courts allow parties to avoid performing their contractual duties when performance becomes extremely difficult or expensive? Will the courts allow parties to avoid performing their contractual duties when performance becomes extremely difficult or expensive? © 2012 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. 3

4. A party may be discharged from a valid contract by: 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. © 2012 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. 4

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6. A 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. A 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. Three Types: precedent, subsequent, or concurrent.  Three Types: precedent, subsequent, or concurrent.  © 2012 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. 6

7. Conditions Precedent. Conditions Precedent. – Condition that must be fulfilled before a party’s performance can be required. – Requires absolute duty to perform. © 2012 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. 7

8. Conditions Subsequent. Conditions Subsequent. – When a condition operates to terminate a party’s absolute promise to perform, after the time of absolute performance was due. – The Restatement refers to both precedent and subsequent as ‘conditions.’ © 2012 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. 8

9. Concurrent Conditions. Concurrent Conditions. – When each party’s performance is conditioned on the other party’s performance or tender. – Both parties required to perform their duties simultaneously. © 2012 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. 9

10. Complete Performance. Complete Performance. – When a party performs exactly as agreed. – Tender: unconditional offer to perform. Substantial Performance: party in good faith performs substantially all of the terms, can enforce the contract.  Substantial Performance: party in good faith performs substantially all of the terms, can enforce the contract.  © 2012 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. 10

11. Substantial Performance (cont’d). Substantial Performance (cont’d). – Confers Most of the Benefits Promised: performance must not vary greatly from what was promised. – Omission or defect is unimportant, damages can be awarded.  © 2012 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. 11

12. Substantial Performance (cont’d). Substantial Performance (cont’d). – Entitles the Other Party to Damages. – Measure of damages is cost to bring object of contract into compliance. There is no exact formula. Wisconsin Electric Power Co. v. Union Pacific Railroad Co. – CASE 15.1 Wisconsin Electric Power Co. v. Union Pacific Railroad Co. (2009). Why did the court find that 84% was substantial performance? © 2012 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. 12

13. Performance to the Satisfaction of Another. Performance to the Satisfaction of Another. – Issue: Is the satisfaction a condition precedent requiring actual approval for discharge, or merely a reasonable person standard? – When the Contract is Personal: subject matter is personal, and actual personal satisfaction is required.  © 2012 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. 13

14. Performance to the Satisfaction of Another (cont’d). Performance to the Satisfaction of Another (cont’d). – Reasonable Person Standard: for most contracts, unless contract explicitly states third party approval. © 2012 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. 14

15. Material Breach of Contract. Material Breach of Contract. – A material breach occurs when performance is not substantial, and nonbreaching party is excused from performance and entitled to damages. – In a minor (non-material) breach, the duty to perform is not excused and the non- breaching party must resume performance of the contractual obligations undertaken. © 2012 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. 15

16. Anticipatory Repudiation of a Contract. Anticipatory Repudiation of a Contract. – Before performance is due, one party refuses to perform their contractual obligation. – Treated as a material breach, and the nonbreaching party may sue for damages immediately, even though performance is not due. © 2012 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. 16

17. Anticipatory Repudiation of a Contract (cont’d). Anticipatory Repudiation of a Contract (cont’d). – Notice by repudiating party may restore parties to original obligations. – Time for Performance. If no time is stated in contract, reasonable time is implied. If time is “of the essence” it becomes a condition precedent to performance. © 2012 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. 17

18. Discharge by Mutual Rescission. Discharge by Mutual Rescission. – For an executory contract, parties must make a new contract, oral or written. Under UCC, however, contracts must be in writing. – If one party has performed, agreement to rescind must have additional consideration. © 2012 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. 18

19. Discharge by Novation: both parties agree to substitute a new third party for one of the original parties. Discharge by Novation: both parties agree to substitute a new third party for one of the original parties. – Requirements: previous valid obligation, agreement by all parties, extinguishment of all old obligations, and new valid contract. © 2012 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. 19

20. Discharge by Accord and Satisfaction. Discharge by Accord and Satisfaction. – Accord: contract to perform existing contractual duty not yet discharged. – Satisfaction: performance of the accord. © 2012 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. 20

21. Material Alteration: innocent party is discharged after material alteration. Material Alteration: innocent party is discharged after material alteration. Statutes of Limitations. Statutes of Limitations. Bankruptcy: generally bars enforcement of non-exempt transactions. Bankruptcy: generally bars enforcement of non-exempt transactions. When Performance is Impossible.  When Performance is Impossible.  © 2012 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. 21

22. When Performance is Impossible. When Performance is Impossible. – Objective Impossibility: supervening event was not foreseeable. Death or Incapacitation in personal contract prior to performance, Destruction of the Subject Matter; or Change in Law makes Contract Illegal. © 2012 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. 22

23. Temporary Impossibility. Temporary Impossibility. Commercial Impracticability. Commercial Impracticability. – Performance becomes extremely difficult or costly, and not have been known by parties when contract made. Merry Homes, Inc. v. Chi Hung Luu – CASE 15.2 Merry Homes, Inc. v. Chi Hung Luu (2010). Why was the lease void and unenforceable? © 2012 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. 23

24. Frustration of Purpose. Frustration of Purpose. – Supervening event make it impossible to attain purpose both parties had in mind. – Event must not have been reasonably foreseeable, and decreases value of what a party receives under contract. © 2012 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. 24