Chapter 17: Performance Breach & Discharge

 Discharge: circumstances in which there is termination of contractual duties

 Reasons for Discharge:
o Failure to perform a condition
o Full performance by the parties
o Material Breach: If one of the parties substantially fails to perform its
obligations, the other party is discharged
o Impossibility: Circumstances that make performance impossible or very, very
difficult
o Discharge in Bankruptcy: There is a termination if a bankruptcy court
discharges an obligation. By law, bankruptcy of one party discharges contracts.
Trustee is empowered to settle claims.
 Failure to Perform a Condition
o Condition: a prerequisite where one party must fully perform before the other
party is required/has the duty to perform
 Full Performance: When the parties fully perform their duties/obligations, their duties
are discharged by performance because they have completed what they already must do
(there is nothing more for them to do)
o Tender of Performance: An offer or attempt to do what is required under a
contract or under the law
 When one party offers to perform his duty according to the terms of
contract, but the other party refuses or rejects allowing them to perform it,
this will lead to discharging the tendering party from further duty of which
he can then sue for material breach.
o Partial Performance: May discharge duties if performance is not substantial
 Discharge by Subsequent Agreement: when both parties form a new contract to either
end the old one, make a new one, or change the duties, the old contract is discharged
 Discharge by Breach:
o Material Breach: nonperformance that significantly impairs the injured party’s
rights under the contract and discharges the injured party from any further duty
under the contract
 “Material” – e.g. where a salient requirement is not performed; or, less
than 70% performance; or, where breach (not matter how small) is
intentional.
 Time is of the Essence: failure to perform a promise promptly is a
material breach
o Minor Breach / Substantially Performs: performance that is incomplete but that
does not defeat the purpose of the contract; does not discharge the injured party
but entitles him to damages
o Intentional Breach: discharged no matter how small the breach is
 Impossibility of Performance: Performance is virtually impossible due to certain
conditions (e.g. death, destruction of subject matter (through no fault of either party),
subsequent illegality, disability, etc.), and as such, duties are discharged
 Commercial Impracticability: Where performance can be accomplished only under
unforeseen and unjust hardship, the contract is discharged
o Unforeseen events would impose a hardship on a party if the contract were
performed, but would not be literally impossible
o Unforeseen events may be fires, floods, boycotts, embargos, acts of war or
terrorism, or extraordinary natural disasters, but may not be ordinary fluctuations
in market conditions, even if extreme.
 Frustration of Purpose: Principal purpose of a contract cannot be fulfilled because of a
subsequent event
o If changed circumstances negate the benefit that one of the parties would have
derived from the contract, that party is entitled to a discharge.
o A contract is discharged if supervening circumstances make impossible the
fulfillment of the purpose that both parties had in mind, unless one of the parties
has contractually assumed that risk