Chapter 16: Performance & Breach


Just as rules are necessary to determine when a legally enforceable contract exists, so also are they necessary to determine when one of the parties can justifiably say, "I have fully performed, so I am now discharged from my obligations under this contract. There must be some point at which the parties can reasonably know that their duties are at an end.

The most common way to discharge one's contractual duties is by the performance of those duties. For example, a buyer and seller have a contract for the sale of a 1994 Buick for $8,000, as is. This contract will be discharged on the performance by the parties of their obligations under the contract--the buyer's payment of $8,000 to the seller and the seller's transfer of possession of the Buick to the buyer.

The duty to perform under a contract may be conditioned on the occurrence or nonoccurrence of a certain event, or the duty may be absolute.


Conditions

In most contracts, promises of performance are not expressly conditioned or qualified. Instead, they are absolute promises. They must be performed or the parties promising the acts will be in breach of contract.

In some situations, however, performance is contingent on the occurrence or nonoccurrence of a certain event. A condition is a possible future event, the occurrence or nonoccurrence of which will trigger the performance of a legal obligation o terminate an existing obligation under a contract. If this condition is not satisfied, the obligations of the parties are discharged.
Example: Jerome offers to sell Alfonso a painting for $1,000. Alfonso offers to buy Jerome's painting for $1,000 only if an independent appraisal indicates that it is worth at least $1,000. Jerome accepts. Their obligations are conditioned on the outcome of the appraisal. if the condition is not satisfied (i.e., the appraiser deems the value of the printing to be only $500), the parties's duties to each other are discharged. Alfonso's duty to pay Jerome $1,000 never arises (because of the nonoccurrence of the condition), so he can hardly be in breach of contract.

Three types of conditions can be present in contracts: conditions precedent, conditions subsequent, and concurrent conditions:

Conditions Precedent

A condition that must be fulfilled before a party's performance can be required is called a condition precedent. The condition precedes the absolute duty to perform. Real estate contracts are frequently conditioned on the buyer's ability to obtain financing or to sell a house he already owns. The example above involves a condition precedent.

Conditions Subsequent

When a condition operates to terminate a party's absolute promise to perform, it is called a condition subsequent. The condition follows, or is subsequent to, the arising of an absolute duty to perform. If the condition occurs, the party need not perform any further. For example, a law firm hires a recent law school graduate, Smith. The contract provides that the firm's obligation to continue employing Smith is discharged if he has not passed the bar exam after two tries. In other words, the law firm's obligation to employ is already in existence, but if the condition (passing the bar exam) fails to occur, the law firm's duty is terminated or discharged.

Concurrent Conditions

When each party's absolute duty to perform is conditioned on the other party's absolute duty to perform, there are concurrent conditions. Concurrent conditions occur only when the parties expressly or impliedly are to perform their respective duties simultaneously. For example, if a buyer promises to pay for goods when they are delivered by the seller, each party's absolute duty to perform is conditioned on the other party's absolute duty to perform. The buyer's duty to pay for the goods does not become absolute until the seller either delivers or tenders the goods. ("Tender" is the unconditional offer to perform by one who is ready, willing, and able to do so.) Likewise, the seller's duty to deliver the goods does not become absolute until the buyer tenders or actually makes payment. Therefore, neither can recover from the other for breach unless he first tenders his own performance.


Express v. Implied Conditions

Conditions can also be classified as express or implied-in-fact. Express conditions are provided for b the parties' agreement. An express condition is usually prefaced by the word if, provided after,or when.

Condtions implied in fact are similar to express conditions beause tey are understood to be part of the agreement, but they are not found in the express language of the agreement. The court infers them from the promises. For example, Wellbuilt Construction Company builds a house for Kirby including in the contract a one-year warranty against defects in materials and construction; i.e., Wellbuilt promises to fix or replace anything attributable to its work that goes wrong within a year That Kirby must notify Wellbuilt of any defects is an implied-in-fact condition of Wellbuilt's duty to correct the defect.

Discharge

Contracts can be discharged the following ways:


By performance
There are two basic types of performance: complete performance and substantial performance. When a party performs exactly as agreed, there is no question as to whether the contract has been performed. When a party's performance is perfect, it is said to be complete.

If performance is not complete, however, a question arises as to whether it satisfies the contract. Performance that is not complete but that provides the other party with the important and essential benefits of the contract is "substantial performance. Anything less than substantial performance is a material breach of contract.

Non-occurence of a condition precedent

Occurrence of a condition subsequent

By impossibility of performance
Two criteria for a contract to be discharged through impossibility of performance: (`) the circumstances that make performance impossible ust be beyond the control of the parties; and (2) the parties must be objectively unable to perform.

By commercial impracticability
In order for a contract to be discharged through commercial impracticability, the party seeking to have the contract discharged needs to show that (1) the condition that arose after the contract was entered into was unforeseeable by the parties at the time of entering into the contract, and (2) the expense or problems incident to performance are so great as to make performance unreasonable. Labor strikes and reasonable increases in the cost of goods or material needed to perform the contract are always deemed to be foreseeable.

By frustration of purpose
The party seeking to have the contract discharged needs to that (1) a basic assumption made by the parties to the contract has been affected through no fault of the parties, and (2) that there is no useful purpose to be served by allowing the contract to continue.

By release
A contract not to sue for breach that must be supported by consideration.

By novation