Exam 6 (Chapters 18 & 19) Flashcards Preview

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Flashcards in Exam 6 (Chapters 18 & 19) Deck (51):


When the occurrence or nonoccurence of an event, as expressed in a contract, affects the duty of a party to the contract to perform, the event is called a ________

Stipulation or prerequisite in a contract, will or other instrument


Condition Precedent

Event that if unsatisfied would mean that no rights would arise under a contract



What is the ordinary method of discharging obligations under a contract?


Classifications of Conditions

Condition Precedent
Condition Subsequent
Current Condition


Terms Indicating the Creation of a Condition

Provided that
As soon as
Subject to
On the condition that


Condition Precedent

A condition that must occur before a party to a contract has an obligation to perform under the contract

Event that if unsatisfied would mean no rights would arise under a contract


Condition Subsequent

Event whose occurrence or lack of thereof terminates a contract

The parties to a contract may agree the a party is obligated to perform a certain act or pay a certain sum of money, but the contract contains a provision that relieves the obligation on the occurrence of a certain event. That is, on the happening of _____ _____, such an event extinguishes the duty to thereafter perform


Conditions Subsequent

Which conditions are strictly construed, and where ambiguous, are construed against forfeiture?

Forfeiture is a loss or giving up of something as a penalty for wrongdoing


Concurrent Condition

In most bilateral contracts, the performances of the parties are ____ ______. That is, their mutual duties of performance under the contract are to take place simultaneously


Discharge by Performance

When it is claimed that a contract is discharged by performance, questions arise as to the nature , time and sufficiency of the performance


Normal Discharge of Contracts

A contract is usually discharged by the performance of the terms of the agreement. A contract is also discharged by the expiration of the time period specified in the contract


Nature of Performance

Performance may be the doing of an act or making of payment



An offer to perform

Goods have arrived, are available for pickup, and the buyer is notified


Valid Tender of Payment

Consists of an unconditional offer of the exact amount due on the date when due.

This is not just an expression of willingness to pay; is must be an actual offer to perform by making payment of the amount owed


Refusal of a Tender

If the performance of the contract requires the doing of an act, the refusal of a tender discharges the party offering to perform and is a basis for that party to bring a lawsuit


Application of Payments

If a debtor owes more than one debt to the creditor and pays money, a question may arise as to which debt has been paid. If the debtor specifies the debt to which the payment is to be applied and the creditor accepts the money, the creditor is bound to apply the money as specified. Thus, if the debtor specifies that a payment is to be made for a current purchase, the creditor may not apply the payment to an older balance


Payment by Check

Payment by commercial paper, such as a check, is ordinarily a conditional payment. A check merely suspends the debt until the check is presented for payment. If the payment is then made, the debt is discharged; if not paid, the suspension terminates, and suit may be brought on either the debt or the check. Frequently, payment must be made by a specified date. It is generally held that the payment is made on time if it is mailed on or before the final date for payment



When the contract requires payment, performance consists of the payment of money


Time of Performance

When the date or period of time for performance is specified in the contract, performance should be made on that date or within that time period


Waiver of Essence of Time Limitation

A provision that time is of the essence may be waived. It is waived when the specified time has expired but the party who could complain requests the delaying party to take steps necessary to perform the contract


Substantial Performance

Equitable rule that if a good-faith attempt to perform does not precisely meet the terms of the agreement, the agreement will still be considered complete if the essential purpose of the contract is accomplished

Perfect performance of a contract is not always possible when dealing with construction projects. A party who in good faith has provided _____ _______ of the contract may sue to recover the payment specified in the contract


"Cost of Completion"

When a building contractor has substantially performed the contract to construct a building, the contractor is responsible for the cost of repairing or correcting the defects as an offset from the contract price.
The measure of damages under these circumstances is known as ____ __ ______

If, however, the ____ __ _____ would be unreasonably disproportionate to the importance of the defect, the measure of damages is the diminution in value of the building due to the defective performance


Discharge by Action of Parties

Contracts may be discharged by the joint action of both contracting parties or, in some cases, by the action of one party alone



Action of one party to a contract to set the contract aside when the other party is guilty of a breach of the contract


Discharge by Unilateral Action

Ordinarily, a contract cannot be discharged by the action of either party alone. In some cases, however, the contract gives one of either party the right to cancel the contract by unilateral action, such as by notice to the other party. Insurance policies covering loss commonly provide that the insurer may cancel the policy upon giving a specified number of days' notice


Consumer Protection Rescission

A basic principle of contract law is that once made, a contract between competent persons is a binding obligation. Consumer protection legislation introduces into the law a contrary concept--that of giving the consumer a chance to think things over and rescind the contract. Thus the federal Consumer Credit Protection Act (CCPA) gives the debtor the right to rescind a credit transactions with three business days when the transaction would impose a lien on the debtor's home.



Substitution of a new contract between the same parties

The parties may decide that their contract is not the one they want. They may then replace it with another contract. If they do, the original contract is discharged by substitution.1


Costing More Than $25

A Federal Trade Commission regulation gives the buyer three business days in which to cancel a home-solicited sale of goods or services costing more than $25


Accord and Satisfaction

Agreement to substitute for an existing debt some alternative form of discharging that debt, coupled with the actual discharge of the debt by the substituted performance

When the parties have differing views as to the performance required by the terms of a contract, they may agree to a different performance. Such an agreement is called an accord. When the accord is performed or executed, there is an accord and satisfaction, which discharges the original obligation. To constitute an accord and satisfaction, there must be a bona fide dispute, a proposal to settle the dispute, and performance of the agreement.



An instrument by which the signing party (releasor) relinquishes claims or potential claims against one or more persons (releasees) who might otherwise be subject to liability to the releasor

The existence of a valid release is a complete defense to a tort action against the releasee.



Release or relinquishment of a known right or objection


Discharge by Agreement

A contract may be discharged by the operation of one of its provisions or by a subsequent agreement


Eight Ways Acceptable for Discharge by Agreement

There may be a discharge by
(1) the terms of the original contract, such as a provision that the contract should end on a specified date
(2) a mutual cancellation, in which the parties agree to end their contract
(3) a mutual rescission, in which the parties agree to annul the contract and return both parties to their original positions before the contract had been made
(4) the substitution of a new contract between the same parties
(5) a novation or substitution of a new contract involving a new party
(6) an accord and satisfaction
(7) a release or
(8) a waiver.


Discharge by External Causes

Circumstances beyond the control of the contracting parties may discharge the contract


Discharge by Impossibility

To establish impossibility a party must show (1) the unexpected occurrence of an inter- vening act; (2) that the risk of the unexpected occurrence was not allocated by agreement or custom; and (3) that the occurrence made performance impossible. The doctrine of impossibility relieves nonperformance only in extreme circumstances.

The party assert- ing the defense of impossibility bears the burden of proving “a real impossibility and not a mere inconvenience or unexpected difficulty.”21 Moreover, courts will generally only excuse nonperformance where performance is objectively impossible—that is, incapable performance by anyone. Financial inability to perform a contract that a party voluntarily entered into will rarely, if ever, excuse nonperformance


Destruction of Particular Subject Matter

When parties contract expressly for, or with reference to, a particular subject matter, the contract is discharged if the subject matter is destroyed through no fault of either party. When a contract calls for the sale of a wheat crop growing on a specific parcel of land, the contract is discharged if that crop is destroyed by blight.

When parties contract expressly for, or with reference to, a particular subject matter, the contract is discharged if the subject matter is destroyed through no fault of either party. When a contract calls for the sale of a wheat crop growing on a specific parcel of land, the contract is discharged if that crop is destroyed by blight.


Change of Law

A contract is discharged when its performance is made impossible, impractical, or illegal by a subsequent change in the law

Mere inconvenience or temporary delay caused by the new law, however, does not excuse performance


Death or Disability

When the contract obligates a party to render or receive personal services requiring peculiar skill, the death, incapacity or illness of the party that was either to render or receive the personal services excuses both sides from a duty to perform. It is sometimes said that "the death of either party is the death of the contract"

The rule does not apply, however, when the acts called for by the contract are of such a character that (1) the acts may be as well performed by others, such as the promisor’s personal representatives, or (2) the contract’s terms contemplate continuance of the obli- gations after the death of one of the parties.


Act of Other Party

Every contract contains "an implied covenant of good faith and fair dealing."

As a result of this covenant, a promisee is under an obligation to do nothing that would interfere with the promisor’s performance. When the promisee prevents performance or otherwise makes performance impossible, the promisor is discharged from the contract.

When the default of the other party consists of failing to supply goods or services, the duty may rest on the party claiming a discharge of the contract to show that substitute goods or services could not be obtained elsewhere.


Developing Doctrines

Commercial impracticability and frustration of purpose may excuse performance


Commercial Impracticability

The doctrine of this was developed to deal with the harsh rule that a party must perform its contracts unless it is absolutely impossible. However, not every type of impracticability is an excuse for nonperformance

Is available only when the performance is made impractical by the subsequent occurrence of an event whose nonoccurence was a basic assumption on which the contract was made

The defense of this will not relieve sophisticated business entities from their contractual obligations due to an economic downturn, even one as drastic and severe as the example from the book BECAUSE economic downturns and other market shifts do not constitute unanticipated circumstances in a market economy


Frustration of Purpose Doctrine

Because of a change in circumstances, the purpose of the contract may have no value to the party entitled to receive performance. In such a case, performance may be excused if both parties were aware of the purpose and the event that frustrated the purpose was unforeseeable


Comparison to Common Law Rule

The traditional common law rule refuses to recognize commercial impracticability or frus- tration of purpose. By the common law rule, the losses and disappointments against which commercial impracticability and frustration of purpose give protection are merely the risks that one takes in entering into a contract. Moreover, the situations could have been guarded against by including an appropriate condition subsequent in the contract. A condition subsequent declares that the contract will be void if a specified event occurs. The contract also could have provided for a readjustment of compensation if there was a basic change of circumstances. The common law approach also rejects these developing concepts because they weaken the stability of a contract.

An indication of a wider recognition of the concept that “extreme” changes of circumstances can discharge a contract is found in the Uniform Commercial Code (UCC). The UCC provides for the discharge of a contract for the sale of goods when a condition that the parties assumed existed, or would continue, ceases to exist.


Force Majeure

To avoid litigation over impossibility and impracticability issues, modern contracting parties often contract around the doctrine of impossibility, specifying the failures that will excuse performance in their contracts. The clauses in which they do this are called ______ uncontrollable event____ Clauses. And they are enforced by courts as written


Temporary Impossibility

Ordinarily, a temporary impossibility suspends the duty to perform. If the obligation to perform is suspended, it is revived on the termination of the impossibility. If, however, performance at that later date would impose a substantially greater burden on the party obligated to perform, some courts discharge the obligor from the contract



Acts of God, such as tornadoes, lightning and floods, usually do not terminate a contract even though they make performance difficult. Thus, weather conditions constitute a risk that is assumed by a contracting party in the absence of a contrary agreement. Consequently, extra expense sustained by a contractor because of weather conditions is a risk that the contractor assumes in the absence of an express provision for additional compensation in such a case


Weather Clause

Modern contracts commonly contain this and reflect the parties' agreement on this matter. When the parties take the time to discuss weather issues, purchasing insurance coverage is a common resolution


Operation of Law

Attaching of certain consequences to certain facts because of legal principles that operate automatically as contrasted with consequences that arise because of the voluntary action of a party designed to create those consequences



Procedure by which one unable to pay debts may surrender all assets in excess of any exemption claims to the court for administration and distribution to creditors, and the debtor is given a discharge that releases him from the unpaid balance due on most debts

As set forth in the chapter on bankruptcy, even though all creditors have not been paid in full, a discharge in bankruptcy eliminates ordinary contract claims against the debtor


Statue of Limitations

Statue that restricts the period of time within which an action may be brought


Discharge by Operations of Law

A contract is discharged by operation of law by
(1) an alteration or a material change made by a party
(2) the destruction of the written contract with intent to discharge it
(3) bankruptcy
(4) the operation of a statute of limitations, or
(5) a contractual limitation