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

D. Adequacy of performance

When the performance called for under the contract is tendered, there is no question as to whether the contract

has been performed.

1. Substantial performance

Perfect performance is not always possible in contracts, particularly those that have to do with

construction. In cases of imperfect performance, the courts must decide if there is Substantial

Performance of the contract.

a. Substantial Performance is sufficient, yet subject to counterclaim/set off for damages

b. What constitutes substantial performance? To determine if a contract has been substantially

performed, the court must decide if the performance has been sufficient enough so that the

contracting party may still use the subject matter for its intended purpose.

Example: Tina contracted to have a four-story home built with 12 foot ceilings and Bellawood flooring

for $600,000. Upon completion the inspection finds that the home has been built with 10 foot ceilings

and Bruce Hardwood Flooring. Tina refuses to pay and the contractor sues for substantial

performance. Has the contractor substantially performed under the contract?

Answer: Yes. Even though the contractor did not perfectly perform under the contract, Tina can still

move into and use the home for its intended purpose. However, the contractor must compensate

Tina for the imperfect performance. Therefore the courts will assign a dollar value for the imperfect

performance. The courts may decide that Tina is entitled to $25,000 for the ceiling height and $8,500

for the wrong floors.

c. Limitations to the substantial performance

i. In the example above, Tina will not be able to sue if she was the one responsible for providing

the Bellawood floors for the home and she failed to do so.

ii. If the party willfully departures from what has been agreed upon, their performance does not

qualify for substantial performance and discharge

Example: If a contractor does not follow the building plans then they lose the ability to

recover under the theory of substantial performance.

d. Performance to satisfaction of contracting party or third party

i. Personal Satisfaction of One of the Parties -- When the subject matter of the contract is personal,

performance must actually satisfy the party

Example: James contracted with Martha to paint a portrait of his father. The contract stated

that James must be satisfied with the likeness of his father. Can James refuse to pay Martha?

Answer: Yes, as long as James, in good faith, believes that the portrait does not resemble his

father.

ii. Satisfaction of a Reasonable Person -- Contracts involving mechanical fitness, utility, or

marketability need only be performed to the satisfaction of a reasonable person.

iii. Satisfaction of a Third Party -- When the satisfaction of a third party is required, most courts

require the work to be satisfactory to a reasonable pers

How are Duties Discharged by a Party Under a 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.

A. Discharge by unilateral action

1. Contracts may not ordinarily be discharged by one party alone

Exception: In the case of refinancing one's home where the home is being used as collateral, the law

gives the party three days to cancel the contract without approval of the other party.

B. Discharge by agreement

1. Parties can sign releases for mutual discharge

a. Rescission by agreement -- Rescission is the process by which a contract is canceled and the parties

are returned to the positions they occupied prior to forming it.

b. Substitution - The parties may replace/substitute the original contract with a new one between the

same parties.

c. Novation - As indicated in the Module on Third Persons and Contracts, a novation replaces the

original contract with a new one between different parties.

c. Accord and satisfaction - To discharge by accord and satisfaction, the parties must agree to accept

performance that is different from the performance originally promised.

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

Example: Sam owed $8,500 on his Sears Card and hasn't been making payments. Sears tells

Sam they will accept a payment of $5,000 to discharge his debt. Sam agrees. This is an Accord

which suspends but doesn't discharge the debt.

ii. Satisfaction: Satisfaction is the performance of the accord, which discharges the original

contractual obligation.

Example: Using the example above, the Satisfaction occurs when Sam pays the $5,000 is paid

in full. Once that occurs the debt is discharged.

d. Mutual Cancellation - Both parties agree to end their contract.

e. Waiver - relinquishment of right under the contract

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

A. Discharge by impossibility -- If performance becomes objectively impossible, the duty to perform is discharged

1. Destruction of particular subject matter

a. If the subject matter of the contract is destroyed through no fault of parties, this discharges the

contract.

Example: Chris contracts to buy Robert's 1969 Shelby Cobra car. Prior to performance, the car is

destroyed when the garage where it is parked catches fire and everything inside is destroyed.

2. Change of law

a. A contract is discharged if a change in law makes the performance illegal

Example: Kathy contracts with Gary to buy $3,000 in fireworks from a store in New Hampshire.

Prior to performing under the contract, the legislature in New Hampshire changes the law making

the sale of fireworks illegal. This discharges the contract between Kathy and Gary.

b. A contract is not discharged just because a change in law makes the contract more costly

Death or disability of the parties

a. When the contract requires the party to perform, or receive, personal services requiring a

personal skill the contract is discharged by the death or disability of either party

b. If the contract calls for standard performance that another party may render, the contract is not

discharged.

B. Temporary impossibility - A temporary impossibility suspends performance, it does not discharge it.

1. Weather can delay performance particularly in parts of the country where severe weather conditions exist.

2. Weather clauses - Because weather conditions may delay performance, it is not unusual to find weather

clauses in contracts, and for parties to purchase insurance to cover such conditions.

C. Discharge by operation of law

A contract may be discharged by operation of law in the following instances:

1. Bankruptcy - When the court approves an application for bankruptcy, all obligations (with some

exceptions) discharged even though the creditor is not paid in full.

2. Statutes of limitations - A statute of limitations clause provides that after a certain amount of time has

passed, a contract claim is barred.

Example: The statute of limitations to file a personal injury case is 3 years from the date of an automobile

accident. if a claim is not filed within three years, the party is barred from filing a claim.

3. Contractual limitations - some contracts contain a time limitation for when a suit may be filed or a

timeframe by which a claim may be entered. Once the time passes, a party is barred from bring suit.

Example: The life insurance policy that Michael purchases states that claims must be filed within six

months. If Michael's family attempts to file after six months they will have no recourse against the

company

Read and complete the following questions using the IRAC format:

1. Consigli Construction entered into a contract with the state of Massachusetts for repairs to the Middlesex Courthouse. The contract was covered by a 2-year statute of limitations clause.Consigli subcontracted some of the work to Darragh Electrical.The contract with Darragh required that any claim against Consigli must be made within 120 days.Darragh filed a claim for damages after the 120 days had passed claiming that the 2-year statute of limitations applied not the 120 days included in the contract.What is the outcome?
2. Ainsley Jones owes Joseph Hyde $75,000due on January 1^st.On December 5^th, Jones offers Hyde her condo in New Hampshire instead of the money owed.Hyde accepts as long as Jones transfers ownership of the condo to Hyde byDecember 31^st.Jones does not transfer the deed to the condoon December 31^st.Shortly thereafter Hyde sues for the $75,000 that Jones owed.Jones claims that the contract was discharged by accord and satisfaction.What is the outcome?