978-1305575080 Chapter 18 Solution Manual

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Chapter 18

DISCHARGE OF CONTRACTS

RESTATEMENT

In this chapter the students learn when the duties and responsibilities under a contract are discharged.

Performance is often a complex issue for determining whether a party has fulfilled its performance. Important

issues relating to determining performance are whether the time for performance has arisen, whether

performance is adequate and whether payment was timely. Once full and adequate performance has been

made, the parties are discharged from their responsibilities under the contract.

There are other circumstances that serve to discharge the parties’ performance under the contract. The parties

can agree to a discharge or, under some consumer statutes, the parties are given the unilateral right of

rescission. External circumstances can also provide grounds for discharge of responsibilities under a contract.

If performance becomes objectively impossible, the duty to perform is discharged. Examples of objective

impossibility include destruction of the subject matter and death or disability of one of the parties. Commercial

impracticability, is an economic change in circumstances that can serve to discharge performance. Finally, some

obligations to perform are discharged by operation of law and include bankruptcy and the statute of limitations.

STUDENT LEARNING OUTCOMES

LO.1: List the three types of conditions that affect a party’s duty to perform.

LO.2: Explain the on-time performance rule.

LO.3: Explain the adequacy of performance rules.

LO.4: Explain four ways a contract can be discharged by agreement of the parties.

LO.5: State the effect on a contract of the death or disability of one of the contracting parties.

LO.6: Explain when impossibility or impracticability may discharge a contract.

INSTRUCTOR’S INSIGHTS

Break the chapter down into four components – related Learning Outcomes are indicated in ( ):

1. What are the conditions related to performance?

Discuss the classifications of conditions (LO.1)

2. How is performance under a contract determined to be sufficient to discharge the duty to perform? (LO.2)

Discuss when performance is required and the nature of conditions

3. How are duties discharged by a party under a contract?

Explain unilateral discharge (LO.4)

4. How are duties discharged on a contract by external causes?

Define impossibility and its impact on contract performance (LO.5)

CHAPTER OUTLINE

I. What are the Conditions Related to Performance?

A. A contract’s duties are discharged by performance of its terms

B. Conditions relating to performance

CASE BRIEF: Blitz v. Subklew

810 A. 2d 841 (Conn. App. 2002)

FACTS: Richard Blitz owns a piece of commercial property at 4 Old Middle Street. On February

2, 1998, Arthur Subklew entered into a lease with Blitz to rent the rear portion of the property.

Subklew intended to operate an auto sales and repair business. Paragraph C of the lease was

a zoning contingency clause that stated, “Landlord [plaintiff] will use Landlord’s best efforts to

obtain a written verification that Tenant can operate [an] Auto Sales and Repair Business at the

demised premises. If Landlord is unable to obtain such commitment from the municipality, then

this agreement shall be deemed null and void and Landlord shall immediately return deposit

monies to Tenant.”

The zoning board only approved the location as a general repair business. When Subklew

refused to occupy the premises, Blitz sued him for breach of contract.

ISSUE: Can the absence of the written verification void an otherwise valid lease agreement?

HOLDING: Yes. Attainment of the written verification was a condition precedent which is a fact or event

REASONING: Blitz’s obligation to obtain written approval of a used car business was a condition precedent to

the leasing agreement. Since it was not obtained, Blitz cannot enforce the leasing agreement.

2. Condition subsequent: an event that extinguishes the duty to perform – e.g., statute of limitations for

bringing suit on contract, if not done within time limits, the duty to perform is discharged

3. Condition concurrent: mutual performance conditions exist in all contracts

II. How is Performance Under a Contract Determined to be Sufficient to Discharge the Duty to Perform?

A. Normal discharge of contracts

DISCUSSION POINTS: Sports & Entertainment Law

Endorsement Contracts

The courts may be utilized to resolve controversies over whether a morals clause has been violated. The

“celebrity” would have to bring an action for breach of contract. See, for example, O’Brien v. The Ohio State

University, 2006 WL 571043, where a fired head basketball coach was successful in his breach of contract suit

against the university, where he was fired for loaning money to a basketball recruit’s family.

It is common for parties to agree to have contract disputes resolved through arbitration. The parties themselves

select the arbitrator and agree to be bound by the arbitrator’s decision. Where the employer has the leverage,

the employer will reserve to itself the right to make all decisions and exclude any recourse to arbitration or the

courts. The occurrence of a morals clause violation is a condition subsequent.

B. Nature of contract performance

1. Tender is an offer to perform

a. Application of payments

i. More than one debt owed; was debt specified?

c. Cyberspace payment

i. Credit card payments

ii. Businesses have secure socketslayer (SSL) for security of payments

CASE BRIEF: Birznieks v. Cooper

275 N.W. 2d 221 (Mich. 1979)

FACTS: Thomas Cooper was purchasing land from Peter and Ella Birznieks. Cooper was already in

possession of the land but was required to pay the amount owed by January 30; otherwise he

would have to vacate the property. The attorney handling the transaction for the Birznieks told

Cooper that he could mail the payment to him. On January 30th Cooper mailed to the attorney a

personal check drawn on an out-of-state bank for the amount due. The check arrived at the

Birznieks’ attorney’s office on February 1. The Birznieks refused to accept the check on the

grounds that it was not a timely payment and moved to evict Cooper from the property.

ISSUE: Was there timely performance?

REASONING: Because of the general custom to regard a check mailed to a creditor as paying the bill that is

owed, payment was made by Cooper on January 30 when he mailed the checks. Payment was

therefore made within the required time even though received after the expiration of the

required time.

C. Time of performance

1. If no time specified then performance must be done in a reasonable time

3. When time is not essential

a. Party waives it

D. Adequacy of performance

1. Substantial performance

a. Sufficient, yet subject to counterclaim/set off for damages

d. Limitations to the substantial performance doctrine

ii. Performance to satisfaction of contracting party or third party

aa. Personal: subjectively

iii. Do not apply if the contract requires exact compliance

III. How are Duties Discharged by a Party Under a Contract? (See Figure 18-1)

A. Discharge by unilateral action

2. Consumer protection rescission, however, do allow it

a. CCPA: Credit transaction, lien on home

B. Discharge by agreement

1. Parties can sign releases for mutual discharge

a. Rescission by agreement

c. Accord and satisfaction

i. In lieu of performance, the parties may agree to a different performance

CASE BRIEF: MKL Pre-Press Electronics v. La Crosse Litho Supply, LLC

840 N.E. 2d 687 (Ill. App. 2005)

FACTS: In September 2002, La Crosse Litho Supply, LLC (La Crosse) entered into a distribution

agreement with MKL Pre-Press Electronics (MKL) for the distribution of a printing system. La

Crosse purchased a 7000 System unit from MKL for its end user Printing Plus. The 7000 System

at Printing Plus failed on three occasions, and ultimately repairs were unsuccessful. On

September 30, 2003, La Crosse cancelled the distribution agreement. On October 2, 2003, La

Crosse sent a letter to MKL’s sales vice president Bill Landwer setting forth an itemized

accounting of what it owed MKL Pre-Press with deductions for the purchase price of the failed

7000 System and other offsets. MKL sent a subsequent bill for repairs and services, to which La

Crosse objected and stated it would not pay. MKL’s attorney sent a demand letter for

$26,453,31. La Crosse’s president, Randall Peters, responded by letter dated December 30,

2003, explaining that with an offset for training and warranty work it performed, “we are sending

you the final payment in the amount of $1,696.47.” He added, “[w]ith this correspondence, we

consider all open issues between La Crosse Litho Supply and MKL Pre Press closed.”

Enclosed with the letter was a check for $1,696.47 payable to MKL Pre-Press. In the remittance

portion of the check, under the heading “Ref,” was typed “FINAL PAYM.” The check was

endorsed and deposited on either January 26 or 27, 2004.

MKL sued La Crosse for $24,756.84. La Crosse defended that the tender and subsequent

deposit of the check for $1,696.47 constituted an accord and satisfaction. Jill Fleming, MKL’s

office manager, stated that it was her duty to process checks and that she did not read Peters’

letter. From a judgment for La Crosse, MKL appealed.

ISSUE: Did MKL’s deposit of the check constitute an accord and satisfaction?

REASONING: There was an honest dispute as to the amount owed, as evident from the exchange of letters.

La Crosse tendered an amount with the explicit understanding that it was the “final payment” of

all demands, and the creditor MKL’s acceptance and negotiation of the check for that amount

constitutes an accord and satisfaction. Ms. Fleming had the authority to endorse checks and

deposit them, and her doing so can and should be imputed to her employer, thereby constituting

an accord and satisfaction.

IV. How are Duties Discharged on a Contract by External Causes?

A. Discharge by impossibility

1. External or extrinsic conditions

5. Destruction of particular subject matter

a. Contract refers to a particular subject matter

6. Change of law, e.g., new zoning laws cause changes in permissible construction and materials

CASE BRIEF: Petrozzi v. City of Ocean City

433 N.J. Super. 290 (App. Div. 2013)

FACTS: To rectify seashore protection problems, the City of Ocean City in 1989 participated in a beach

replenishment and sand dunes restoration program. The Army Corps of Engineers required

Ocean City to have access rights where sand was to be placed. To ease property owners

concerns over their beach front views, Ocean City proposed easements under which it would

construct and maintain the dune system with height limitations of no greater than three feet

above the average elevation of block bulkheads. From May 1992 to December 1995 Ocean City

acquired the necessary easements. Between 1992 and 2000 natural accretion caused the

dunes to grow in height and width. After 1994 the Coastal Area Facilities Review Act (CAFRA)

required municipalities to receive written authorization from the Department of Environmental

Protection (DEP) for dunes maintenance. Ocean City’s permit applications to reduce the height

of existing sand dunes was denied by the DEP. Owners of the beach front properties sued for

breach of its easement agreements. From the dismissal of their claims by the trial court, certain

owners appealed.

ISSUE: Was the easement contract discharged by impossibility?

REASONING: The CAFRA amendments subsequent to the easement contracts between the city and the

property owners made Ocean City’s performance impossible. Since the city is no longer able to

maintain the height limitations agreed to in the easement contracts it is discharged from the

performance of such duties. However, the fact that the homeowners gave up their right to

compensation for the loss of their ocean views, entitles them to damages from the city for such

losses.

7. Death or disability

a. Personal skill

8. Act of other party

a. Implied covenant of good faith and fair dealing between the parties to the contract

B. Developing Doctrines

1. Commercial impracticability

a. Future developments different than assumed

2. Frustration of purpose doctrine

a. Performance no longer has value

C. Temporary impossibility

1. Usually no effect if performance is suspended

D. Discharge by operation of law

1. Bankruptcy – all obligations (with some exceptions) discharged

CASE BRIEF: NBCUniversal Media, LLC v. Superior Court

171 Cal. Rptr. 3d 1 (Cal. App. 2014)

FACTS: Larry Montz and Daena Smoller, the real parties in interest (RPIs) in this case, pitched a

concept for a television program entitled Ghost Expeditions Haunted (Concepts) to

NBCUniversal Media, LLC (NBC) from 1996 to 2001. The RPIs claim that, after NBC informed

them they were not interested in Concepts, NBC teamed up with another company to

misappropriate and exploit their concepts by producing the hit series, Ghost Hunters, without

permission or compensation. The Ghost Hunters show premiered on the Syfy cable channel on

October 6, 2004. The RPIs filed their first lawsuit on November 8, 2006. The Superior Court

denied NBC’s motion for summary judgment which asserted the claims were time-barred by the

applicable two year statute of limitations, and NBC appealed this decision.

ISSUE: Was the plaintiffs’ lawsuit time-barred under the state’s two year statute of limitations?

REASONING: RPIs’ causes of action are governed by the state’s two-year limitations period. “A suit for breach

of an implied contract not to exploit an idea without paying for it … arise[s] only with the sale or

exploitation of the idea.” … Due to the difficulty in ascertaining the parties’ intent in implied

contract cases, “California courts generally assume that the accrual date is the date on which

the work is released to the public, which happened on October 6, 2004 when the work was

shown on television. Since the Ghost Hunters show was first televised on October 6, 2004; and

the two year statute of limitation expired October 5, 2006. The November 8, 2006 filing of their

claims were time-barred.

REVIEW

Use the following hypothetical case as a guide in formulating a problem, and have your students solve the

problem. Keep in mind that this problem is used to generate student thinking and reasoning; there are no “hard

answers,” only different points of view on solutions.

A signs a contract for snow skiing lessons, and the contract reads that it is “noncancelable” and that “no

refunds will be made under the terms of the contract.” The ski lodge informs A that A has a “great

potential to become a world-class skier,” and consequently, A signs further contracts with the ski lodge

for ski lessons. As time progresses, A spends $7,500 on ski lessons and has signed contracts, containing

the language mentioned above, and paid $12,000 for future ski lessons. A is hit by a fast -moving

snowmobile and is injured to the extent that skiing is no longer possible. A seeks return on the $12,000

paid for ski lessons that A will not be able to take. The ski lodge says that this is a risk that A assumed in

signing the contracts and paying in advance and furthermore will not give a refund because of the terms

of the contract. A sues the ski lodge. Who wins? Does the doctrine of impossibility apply? Does the

doctrine of economic disappointment apply? Does it make a difference if the contract for ski lessons is

assignable? Should the court imply a condition of “good health” into the contract for the ski lessons?

What would happen if A became blind as a result of the snowmobile accident, but otherwise was in good

physical condition? Could the ski lodge get out of the contract on the grounds that it is extremely difficult

to give lessons to a blind person if A wants lessons?

ANSWERS TO QUESTIONS AND CASE PROBLEMS

1. Commercial impracticability. Judgment for CIT. The delivery of the presses to Specialty Tires Company was

made impracticable by the actions of Condere in refusing to give up the presses. It was “a bolt out of the

blue” for both CIT and Specialty. It was not a risk that CIT should have expected to either bear or contract

2. Accord and satisfaction. Badcock raised the defense of “accord and satisfaction.” Judgment for Badcock.

Mitchell’s claim asserting that Badcock’s offsets were improper was precluded by an accord and satisfaction;

3. Discharge by accord and satisfaction. No, this defense was not valid. Here, the February 1, 1979 agreement

was not “performed according to its terms” (General Obligations Law? 15-501[3]), inasmuch as only the initial

4. Discharge by death. No. Nothing in the contract made the performance of the contract dependent on the

continued existence of Samet. Therefore, her death did not discharge the contract. The circumstance – that

Authors’ Comment: This emphasized the importance of stating all essential conditions subsequent in a

contract. Metalcrafters should have appraised its capacity to perform the contract. Had it done this, it would

5. When time is of the essence. The contract specifically required that the transaction be completed within the

90-day period. This made such completion a condition to the existence of the contract, and in the absence of

6. Discharge by agreement: accord and satisfaction. Judgment for U.S. Bloom was wrong. There is no

discharge by accord and satisfaction unless the creditor agreed to accept the tendered sum in discharge of a

7. What constitutes substantial performance. No. There was no substantial performance because the

substantial performance of a building contract requires that the building be usable for the purpose for which it

8. Economic frustration. No. The tenant had entered into the transaction with knowledge of the sewage system

that existed then. The tenant knew or had reason to know that such a system would wear out and that under

the law, he might be required to connect with the public sewage system. Consequently, the event that

9. Discharge by disability. [Use chart of “Guidelines to Business Ethics,” preliminary pages of the text]. The

The ethical considerations that can be discussed in this case involve values of loyalty, fairness, doing no

harm, and efficiency and effectiveness. Did the school district have a duty of loyalty to Oneal? A duty of

loyalty to the taxpayers? Did the discharge violate the value of fairness? This can be discussed from the

10. Contractual limitations of time for suit. No. The parties to a contract may provide that suit must be brought

within a period that is shorter than the statute of limitations. The fact that the statute of limitations provides

11. Classifications of Conditions § 1(A) Condition precedents. The payment of irrigation charges by the start of the

irrigation season was a condition precedent to delivery of water. Because no such payment was made North

12. Condition precedent; time for performance. No. The contractor is not correct. A “pay-when-paid” provision in

a contract between general contractor and subcontractor did not set condition precedent to general

contractor’s duty to pay but rather was absolute promise to pay, fixing payment by owner as reasonable time

13. § 9(1) Force Majeure. Judgment for the UP railroad. The provision dealt with the foreseeable situation of the

steel mill shutdown and the possibility of hauling back to the mine empty coal cars thereby generating no

14. Substantial performance. The fact that the shopping center could be used for its intended purpose, that of

renting stores to others, showed that there had been substantial performance of the contract. The contractor

15. Developing Doctrine of Commercial Impracticability and Frustration of Purpose. The commercial

impracticability and frustration of purpose doctrines are rejected by states that apply the common law rule.

These states require the parties to anticipate risks and deal with the risks in their contract by adding

Under the above developing doctrines, if the occurrence of an event, not foreseen by the parties and not

caused by or under the control of either party, destroys or nearly destroys the value or purpose of the

The possibility that opposition from neighborhood groups would occur and New Beginnings’ funding may be

threatened was foreseeable by the organization. Yet, New Beginnings did not provide for that possibility in

LAWFLIX

Uncle Buck (1989) (PG-13)

John Candy plays ne’er-do-well Uncle Buck who promises to go to work at his girlfriend’s tire store and marry her.

When his brother calls in the middle of the night seeking help with their children, Buck tells his girlfriend (Chenise)

Have the students discuss Buck’s excuse. It is impossibility? Does the change in circumstances excuse Buck?

management system for classroom use.