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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.
