Published on January 29, 2008
Slide1: Chapter 16 Performance and Discharge Discharge: Discharge A party is discharged when she has no more duties under a contract. Most contracts are discharged by full performance. If one party breaches a contract, the other party will be discharged. Sometimes a party can be discharged by raising a defense. Defenses That Discharge: Defenses That Discharge Failure of a condition in the contract Impossibility Commercial Impracticality Frustration of Purpose Conditions: Conditions A condition is an event that must occur if a party is to become obligated under a contract. If the condition does not occur, one party will probably be discharged without performing. No special language is necessary to create a condition. Types of Conditions: Types of Conditions 1. Condition precedent: A type of condition which must occur before a duty arises. 2. Condition subsequent: A type of condition which must occur after a duty arises. If the condition does not occur, the duty is discharged. 3. Concurrent conditions Types of Conditions: Types of Conditions If the parties agreed to a condition precedent, the plaintiff has the burden to prove that the condition occurred. If the parties agreed to a condition subsequent, the defendant has the burden to prove that the condition occurred. Arkansas Farm Bureau Ins. Federation v. Ryman: Arkansas Farm Bureau Ins. Federation v. Ryman Granville Ryman was killed in an auto accident. His insurance policy said “at the time of the accident, the person insured must be wearing a factory-installed seatbelt…verifiable by the investigating officer.” Limits on Express Conditions: Limits on Express Conditions Sometimes a court will refuse to enforce an express condition in a contract on the grounds that it is unfair and harmful to the general public. Is that what happened in Anderson v. Country Life Insurance Co.? YOU BE THE JUDGE! Anderson v. Country Life Insurance Co.: Anderson v. Country Life Insurance Co. Country Life Insurance sold Mr. and Mrs. Anderson a life insurance policy. Both the representative and the policy indicated that the policy was effective immediately, subject to the condition that the Country Life home office accepted the Andersons as medical risks. Anderson v. Country Life Insurance Co.: Anderson v. Country Life Insurance Co. How many think the appeals court overturned the trial court’s ruling and held the conditional clause void as against public policy? How many think the appeals court affirmed the trial court’s ruling? Strict Performance: Strict Performance A party is generally not required to render strict (perfect) performance unless: The contract expressly demands it, and Such a demand is reasonable. Substantial Performance: Substantial Performance The substantial performance doctrine: “In a contract for services, a party that substantially performs its obligations will receive the full contract price, minus the value of any defects. A party that fails to perform substantially will receive nothing on the contract and will recover only the value of the work, if any.” Substantial Performance: Substantial Performance There is no perfect test, but here are some guidelines: Can the owner use the thing constructed for its intended purpose? Can the promisee be compensated with money damages for any defects? Did the promisor act in good faith? Folk v. Central National Bank: Folk v. Central National Bank Byron Dragway contracted to have some concrete retaining walls built and its raceway resurfaced. When Folk finished, Leek refused to pay, claiming that the work was shabby and would need to be entirely redone. Folk sued. The Bad Faith Exception: The Bad Faith Exception Even a relatively minor defect in performance may prevent a contractor from recovering any money if he caused the defect in bad faith. Example: A contractor who agrees to put springs under a dance floor. Courts refuse to use the doctrine of substantial performance to benefit a fraudulent contractor. Personal Satisfaction Contracts: Personal Satisfaction Contracts Contracts in which the promisee’s duty is conditional upon a personal, subjective evaluation of the promisor’s performance, to be made by the promisee. Courts will enforce such contracts if: Explicitly demanded in the contract, and Reasonable given the nature of the work. Good Faith: Good Faith The Restatement says “every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement.” Elsewhere it says the parties must remain faithful to the “agreed common purpose and justified expectations of the other party.” “Time is of the Essence”: “Time is of the Essence” Merely including a date for performance does not permit strict enforcement. Courts require each party to accommodate reasonable delays. A time of the essence clause, however, will generally make contract dates strictly enforceable. The Effect of Breach: The Effect of Breach When on party breaches a contract, the other party: Is discharged of their obligation to perform, and May sue for damages If a party merely states that they don’t plan to show up, it is called an anticipatory breach. Material Breach: Material Breach Courts will only discharge a contract if a party committed a material breach. A material breach is one that: Substantially harms the innocent party, and For which it would be hard to compensate without discharging the contract. Anticipatory Breach and Statute of Limitations: Anticipatory Breach and Statute of Limitations If the other party says they’re not going to perform on the specified date, or does something that makes it impossible for them to perform, it’s called an anticipatory breach. If someone actually breaches, and you don’t file suit fast enough, they will be discharged from their duties. How Discharge is…Achieved: How Discharge is…Achieved Full performance Failure of a condition in the contract Breach by the other party Impossibility Commercial Impracticability Frustration of Purpose Impossibility: Impossibility If something happens that makes performing the contract utterly impossible, a court will discharge the agreement. Destruction of the subject matter Death of a promisor in a personal services contract Subsequent illegality Commercial Impracticability: Commercial Impracticability When something happens that: Neither party anticipated, and Creates a situation wherein fulfilling the contract would now be Extraordinarily difficult, and Unfair to one party, courts sometimes will discharge the contract. Frustration of Purpose: Frustration of Purpose When something happens that: Neither party anticipated, and The contract now has no value for one party, courts sometimes will discharge the contract. Cape Francis Enterprises v. Peed: Cape Francis Enterprises v. Peed Lola Peed offered to buy five acres of property in Montana from Cape Francis Ent. The Department of Environmental Quality (DEQ) would not permit the subdivision and sale unless the parties dug a well and tested the water for Perchlorethylene (PCE). Drilling the well could itself cause the PCE to spread to the local water supply. Force Majeure Clauses: Force Majeure Clauses “Buyer agrees that seller shall not be liable for delays caused by acts of God, fire, labor disputes, accidents, or transportation difficulties.” The presence of a force majeure clause in a contract may strengthen the defendant’s case of commercial impracticability, but only a little.