Chapter 17
PERFORMANCE, BREACH AND DISCHARGE
A. Conditions
1. Express Conditions
a. Satisfaction of a Contracting
Party
b. Satisfaction of a Third Party
2. Implied-in-Fact Conditions
3. Implied-in-Law Conditions
4. Concurrent Conditions
5. Conditions Precedent
6. Conditions Subsequent
B. Discharge by Performance
C. Discharge by Breach
1. Material Breach
a. Prevention of Performance
b. Perfect Tender Rule
2. Substantial Performance
3. Anticipatory Repudiation
4. Material Alteration of Written Contract
D. Discharge by Agreement of the
Parties
1. Mutual Rescission
2. Substituted Contracts
3. Accord and Satisfaction
4. Novation
E. Discharge by Operation of Law
1. Impossibility
a. Destruction of Subject Matter
b. Subsequent Illegality
c. Frustration of Purpose
d. Commercial Impracticability
2. Bankruptcy
3. Statute of Limitations
Cases in This Chapter
Silvestri v. Optus Software, Inc.
Hochster v. De La Tour
McDowell Welding & Pipefitting, Inc
v. United States Gypsum Co.
Northern Corp v. Chugach Electrical
Assoc’n
Chapter Outcomes
After reading and studying this chapter, the student should be able to:
Identify and distinguish among the various types of conditions.
Distinguish between full performance and tender of performance.
Explain the difference between material breach and substantial performance.
Distinguish among a mutual rescission, substituted contract, accord and satisfaction, and
novation.
Identify and explain the ways discharge may be brought about by operation of law.
TEACHING NOTES
A. CONDITIONS
A contract condition will either delay or relieve a party’s obligation of
performance based upon whether an event happens or fails to occur.
Conditions may be either (1) express, (2) implied-in-fact, or (3)
implied-in-law. From a timing perspective, they may be further categorized
as concurrent conditions, condition precedent, or condition subsequent.
*** Chapter Outcome ***
Identify and distinguish among the various types of conditions.
Express Conditions
An express condition is explicitly provided for by the contract language using
words such as “provided that,” “on condition that,” “while,” “after,” “upon,”
or “as soon as.” An express condition must be fully and literally ful(lled.
Satisfaction of a Contracting Party — A condition can be one party’s
satisfaction with the performance of the other party. May be subjective, if
based on personal taste or opinion, or objective, if based on a recognized
standard.
Satisfaction of a Third Party — A contract may require a third party’s
satisfaction with the performance of one or both parties.
CASE 17-1
SILVESTRI v. OPTUS SOFTWARE, INC.
Supreme Court of New Jersey, 2003
175 N.J. 113, 814 A.2d 602
http://scholar.google.com/scholar_case?
q=814+A.2d+602&hl=en&as_sdt=2,34&case=3846111007491599697&scilh=0
LaVecchia, J.
This is a breach of contract action. Defendant Optus Software, Inc. (“Optus” or “the company”), a
small computer software company, hired plaintiff Michael Silvestri as its Director of Support
Services, responsible for supervising the provision of technical support services to the company’s
customers. Silvestri’s two-year employment contract [commencing on January 4, 1999 at an annual
salary of $70,000] contained a clause that reserved to the company the right to terminate his
The question presented then is whether the employer’s satisfaction is subject to an objective or
subjective evaluation. We conclude that, absent language to the contrary, a subjective assessment of
personal satisfaction applies and that the trial court’s grant of summary judgment to the company
was appropriate. * * *
* * * Silvestri was charged with supervision of the support services staff, responsibility for
communication with resellers of the Optus computer software to end-users, and coordination of
ongoing training for support staff and resellers of the company’s products in order to maintain their
proficiency in assisting end-users. * * *
* * *
Agreements containing a promise to perform in a manner satisfactory to another, or to be bound
to pay for satisfactory performance, are a common form of enforceable contract. [Citation.] Such
“satisfaction” contracts are generally divided into two categories for purposes of review: (1)
contracts that involve matters of personal taste, sensibility, judgment, or convenience; and (2)
contracts that contain a requirement of satisfaction as to mechanical fitness, utility, or marketability.
[Citation.] The standard for evaluating satisfaction depends on the type of contract. Satisfaction
contracts of the first type are interpreted on a subjective basis, with satisfaction dependent on the
personal, honest evaluation of the party to be satisfied. [Citation.] Absent language to the contrary,
however, contracts of the second type—involving operative fitness or mechanical utility—are subject
to an objective test of reasonableness, because in those cases the extent and quality of performance
can be measured by objective tests. [Citation]; Restatement (Second) of Contracts §228; [citation].
A subjective standard typically is applied to satisfaction clauses in employment contracts
relationship is not to be confused with an employment-at-will relationship in which an employer is
entitled to terminate an employee for any reason, or no reason, unless prohibited by law or public
policy. [Citation.] In a satisfaction clause employment setting, there must be honest dissatisfaction
with the employee’s performance. * * * If * * * the employer’s dissatisfaction is honest and genuine,
even if idiosyncratic, its reasonableness is not subject to second guessing under a reasonable-person
standard. In other words, standing alone, mere dissatisfaction is sufficient so long as it does not mask
any other reason for the adverse employment action.
* * *
Implied-in-Fact Conditions
This type is not expressly stated in the agreement but may be inferred from
the contract language, nature of the transaction, or conduct of the parties.
Implied-in-Law Conditions
This condition, also called a constructive condition, is not derived from the
language of the contract or intent of the parties. It is imposed by law in
order to accomplish a fair result.
Concurrent Conditions
Conditions that require a simultaneous performance by the parties.
Conditions Precedent
Requires the happening of an event before a party is obligated to perform.
Failure of the event to occur will mean that performance will not be required.
Conditions Subsequent
Performance obligations are terminated by the occurrence of a subsequent
event.
*** Chapter Outcome ***
Distinguish between full performance and tender of performance.
B. DISCHARGE BY PERFORMANCE
A complete performance will discharge a party to the contract. In bilateral
contract cases it is also possible for a party to be discharged if a tendered
or offered performance is not accepted.
*** Chapter Outcome ***
Explain the difference between material breach and substantial performance.
C. DISCHARGE BY BREACH
Material Breach
A material breach is nonperformance that signiticantly impairs the aggrieved
party’s rights under the contract. It discharges the non-breaching party,
while still allowing for damages. It is measured by a standard that considers
whether there has been a substantial performance of the contract
obligations. A material breach occurs 1) if a partial performance does not
include an important contract element, 2) if there are qualitative or
quantitative disparities, 3) if the breach is intentional, or 4) if a failure to
Substantial Performance
Substantial performance is performance that is incomplete but does not
defeat the purpose of the contract. Although a substantial performance
constitutes a breach of contract giving rise to a right of damages, it will not
cause a discharge of contract obligations for the other party.
Anticipatory Repudiation
Action by one party prior to the date of performance indicating that she will
not perform according to the contract. Non-breaching parties need not wait
until the date of performance to sue, but may bring a breach of contract
action upon notice of the anticipatory breach. The non-breaching party may
CASE 17-2
HOCHSTER v. DE LA TOUR
Queen’s Bench of England, 1853
2 Ellis and Blackburn Reports 678
Lord Campbell, C. J.
[On April 12, 1852, Hochster contracted with De La Tour to serve as a guide for De La Tour on his
three-month trip to Europe, beginning on June 1 at an agreed-upon salary. On May 11, De La Tour
notified Hochster that he would not need Hochster’s services. He also refused to pay Hochster any
compensation. Hochster brings this action to recover damages for breach of contract.]
On this motion * * * the question arises, Whether, if there be an agreement between A. and B.,
whereby B. engages to employ A. on and from a future day for a given period of time, to travel with
him into a foreign country as a [guide], and to start with him in that capacity on that day, A. being to
receive a monthly salary during the continuance of such service, B. may, before the day, refuse to
perform the agreement and break and renounce it, so as to entitle A. before the day to commence an
action against B. to recover damages for breach of the agreement; A. having been ready and willing
to perform it, till it was broken and renounced by B.
* * *
If the plaintiff has no remedy for breach of the contract unless he treats the contract as in force,
and acts upon it down to the 1st June, 1852, it follows that, till then, he must enter into no
employment which will interfere with his promise “to start with the defendant on such travels on the
day and year” and that he must then be properly equipped in all respects as a [guide] for a three
Material Alteration of Written Contract
If the material terms of a written contract are altered without authorization,
the entire contract is discharged.
*** Chapter Outcome ***
Distinguish among a mutual rescission, substituted contract, accord and
satisfaction; and novation.
D. DISCHARGE BY AGREEMENT OF THE PARTIES
Mutual Rescission
This is a separate contract in which the parties agree to terminate an
existing agreement thereby discharging performance obligations. In an
executory bilateral contract consideration is provided through each party
giving up his respective legal rights under the original contract.
Substituted Contracts
A new contract accepted by both parties in satisfaction of the parties’ duties
under the original contract. It immediately discharges the original contract
and imposes new obligations.
Accord and Satisfaction
An accord consists of a new contract in which promises are exchanged to
provide and accept a substituted performance different from that previously
agreed upon. A satisfaction is the discharge of the performance obligations
existing under the old contract.
CASE 17-3
MCDOWELL WELDING & PIPEFITTING, INC. v. UNITED STATES
GYPSUM CO.
Supreme Court of Oregon, 2008
345 OR. 272, 193 P.3D 9
http://scholar.google.com/scholar_case?
q=193+P.3d+9&hl=en&as_sdt=2,34&case=8212741394978818508&scilh=0
Kistler, J.
Defendant United States Gypsum (U.S. Gypsum) was constructing a new plant in Columbia County.
Defendant B E & K Construction Co. (B E & K) was the general contractor on that project. B E & K
subcontracted with plaintiff [McDowell Welding & Pipefitting, Inc.] to perform work on the project.
During construction, defendants asked plaintiff to perform additional tasks, over and above
Plaintiff filed this action against defendants, alleging breach of contract and related claims.
All of plaintiff’s claims arose out of the modification to the construction contract. B E & K’s answer
included an affirmative defense [and counterclaim] captioned “Compromise and Settlement,”
alleging that plaintiff had agreed to settle its claims against defendants [for a total payment of
$896,000.] * * *
B E & K filed a motion asking the trial court to bifurcate the proceedings and try its
counterclaim before trying plaintiff’s claims against it. * * * The trial court granted BE & K’s
motion.
After the trial court granted B E & K’s motion, plaintiff filed a demand for a jury trial, which
B E & K moved to strike. B E & K reasoned that, because its counterclaim was equitable, plaintiff
had no right to a jury trial on the counterclaim. The trial court granted B E & K’s motion to strike
plaintiff’s jury trial demand and, sitting as the trier of fact, found that plaintiff had accepted
Based on its resolution of defendants’ counterclaim, the trial court entered a limited judgment
directing defendants to tender $800,000 to the court clerk and directing plaintiff, after defendants
tendered that sum, to execute releases of its claims against defendants. After the trial court entered
the limited judgment, defendants tendered $800,000 to the court clerk and then moved for summary
judgment on plaintiff’s claims against them. The trial court granted defendants’ motion and entered a
general judgment that dismissed plaintiff’s claims with prejudice. The plaintiff appealed, claiming a
state constitutional right to a jury trial on the factual issues that the defendant’s counterclaim had
raised. A divided Court of Appeals affirmed the trial court’s judgment. The Oregon Supreme Court
allowed the plaintiff’s petition for review.
As we discuss more fully below, a settlement agreement may take one of three forms: an
executory accord, an accord and satisfaction, or a substituted contract. As we also discuss below,
when the Oregon Constitution was adopted, only a court of equity would enforce an executory
accord. The law courts would not enforce executory accords because they suspended the underlying
An executory accord is “an agreement for the future discharge of an existing claim by a
substituted performance.” [Citation.] Usually, an executory accord is a bilateral agreement; the
debtor promises to pay an amount in return for the creditor’s promise to release the underlying claim.
When the parties enter into an executory accord, the underlying claim “is not [discharged] until the
new agreement is performed. The right to enforce the original claim is merely suspended, and is
revived by the debtor’s breach of the new agreement.” [Citation.]
Because an executory accord does not discharge the underlying claim but merely suspends it, the
law courts refused to allow it to be pleaded as a bar to the underlying claim. [Citations.] Once the
promised performance occurs, the accord has been executed or satisfied and the underlying claim is
discharged, resulting in an accord and satisfaction. [Citation.] [Court’s footnote: An accord and
satisfaction may occur in one of two ways: “The two parties may first make an accord executory, that
is, a contract for the future discharge of the existing claim by a substituted performance still to be
Finally, the parties may enter into a substituted contract; that is, the parties may agree to
substitute the new agreement for the underlying obligation. [Citation.] A substituted contract differs
from an executory accord in that the parties intend that entering into the new agreement will
immediately discharge the underlying obligation. [Citations.] A substituted contract discharges the
underlying obligation and could be asserted as a bar to an action at law. [Citation.]
With that background in mind, we turn to the question whether defendants pleaded an executory
accord, an accord and satisfaction, or a substituted contract. Here, defendants alleged that they
agreed to pay plaintiff $896,000 in exchange for a release of plaintiff’s claims against them.
Novation
A substituted contract which relieves one party to a contract of performance
obligations while replacing this individual with another promisor or promisee.
*** Chapter Outcome ***
Identify and explain the ways discharge may be brought about by operation of
law.
E. DISCHARGE BY OPERATION OF LAW
Impossibility
Whether a contract is impossible to perform is judged by an objective test,
i.e., actual performance is physically impossible. Examples: death of a party
obligated to perform personal services or destruction of the contract subject
matter through no fault of either party.
Destruction of Subject Matter — duty is discharged if performance
becomes impossible due to destruction of the subject matter of the contract,
if it is through no fault of the promisor.
Subsequent Illegality — duty is discharged if performance becomes illegal
after contract is made.
Frustration of Purpose — If one of the basic assumptions on which the
contract is based changes through no fault of the contracting parties, duties
may be discharged.
Commercial Impracticality — Does not refer to mere hardship or increase
in costs, but to severe di5culties in completing performance, such as
unavailability of necessary materials.
CASE 17-4
NORTHERN CORP. v. CHUGACH ELECTRICAL ASSOCIATION
Supreme Court of Alaska, 1974
518 P.2d 76
http://scholar.google.com/scholar_case?
q=518+P.2d+76&hl=en&as_sdt=2,34&case=2017068664150967540&scilh=0
Boochever, J.
[Northern Corporation entered into a contract with Chugach in August 1966 to repair and upgrade
the upstream face of Cooper Lake Dam in Alaska. The contract required Northern to obtain rock
from a quarry site at the opposite end of the lake and to transport the rock to the dam during the
winter across the ice on the lake. In December 1966, Northern cleared the road on the ice to permit
deeper freezing, but thereafter water overflowed on the ice, preventing the use of the road. Northern
complained of the unsafe condition of the lake ice, but Chugach insisted on performance. In March
The focal question is whether the * * * contract was impossible of performance. The September
27, 1966 directive specified that the rock was to be transported “across Cooper Lake to the dam site
when such lake is frozen to a sufficient depth to permit heavy vehicle traffic thereon,” and * * *
specified that the hauling to the dam site would be done during the winter of 1966–67. It is therefore
Chugach contends, however, that Northern was nevertheless bound to perform, and that it could
have used means other than hauling by truck across the ice to transport the rock. The answer to
Chugach’s contention is that * * * the parties contemplated that the rock would be hauled by truck
There is an additional reason for our holding that Northern’s duty to perform was discharged
because of impossibility. It is true that in order for a defendant to prevail under the original common
law doctrine of impossibility, he had to show that no one else could have performed the contract.
However, this harsh rule has gradually been eroded, and the Restatement of Contracts has departed
from the early common law rule by recognizing the principle of “commercial impracticability.”
Under this doctrine, a party is discharged from his contract obligations, even if it is technically
possible to perform them, if the costs of performance would be so disproportionate to that reasonably
contemplated by the parties as to make the contract totally impractical in a commercial sense. * * *
Removed from the strictures of the common law, “impossibility” in its modern context has become a
* * *
In the case before us the detailed opinion of the trial court clearly indicates that the appropriate
standard was followed. There is ample evidence to support its findings that “[t]he ice haul method of
transporting riprap ultimately selected was within the contemplation of the parties and was part of
the basis of the agreement which ultimately resulted in amendment No. 1 in October 1966,” and that
that method was not commercially feasible within the financial parameters of the contract. We affirm
the court’s conclusion that the contract was impossible of performance.
Bankruptcy
Bankruptcy is a method of discharging a contractual obligation by operation
of law. It is available to a debtor who complies with the requirements of the
Bankruptcy Code and thereby obtains an order of discharge from the
bankruptcy court. Only debts dischargeable under the Bankruptcy Act will
be affected.
Statute of Limitations
At common law a plainti0 was not subject to a limitation on the time period