Question 1

When a party’s obligations under a contract are terminated,

Accepted Answer

they are said to be discharged

Question 2

There are a number of ways by which a party’s contractual obligations can be terminated, or discharged. The first

Accepted Answer

and the one most parties hope to secure from the other when they enter into an agreement, is performance. The others are the occurrence of a condition or its failure to occur, material breach by one or both parties, agreement of the parties, or operation

Question 3

a party’s duty to perform may be affected by whether a certain condition occurs. Contracts containing conditions affecting the performance obligations of the parties are called

Accepted Answer

conditional contracts

the conditions may be either implied by law or expressly inserted into the contract by the parties

Question 4

There are three types of conditions:

Accepted Answer

Conditions precedent.
Conditions concurrent.
Conditions subsequent.

Question 5

Contracts may be discharged in a number of ways, including:The occurrence of a condition subsequent or the nonhappening of a condition precedent.

Accepted Answer

Complete or substantial performance.

Material breach.
Mutual agreement.

Operation of law.

Question 6

Remedies

Accepted Answer

Courts may grant parties in a breach-of-contract action legal or equitable remedies.

Question 7

Legal remedies, or money damages, include

Accepted Answer

Compensatory damages

nominal Damages

punitive damages

liquidated damages

Question 8

Equitable remedies, which are granted only when legal remedies are inadequate, include:

Accepted Answer

restitution and rescission 
specific performance
injunction

Question 9

condition precedent

Accepted Answer

In a contract, an event that must occur for a party’s duty to arise.
If the event does not occur, the party’s duty to perform does not arise. Frequently, real estate contracts are conditioned on an event such as the buyer’s ability to sell his current ho

Question 10

Condition Precedent example

Accepted Answer

A life insurance company is only required to pay out the beneficiaries of a life insurance plan after the contract-holder has died

Question 11

Condition Subsequent example

Accepted Answer

Non-compete clauses (NCC) between employers and their current or former employees often have expiration dates

Question 12

Concurrent Conditions example

Accepted Answer

A buyer’s duty to pay for a good is conditioned upon a seller’s duty to deliver that good, and vice versa

Question 13

Another common example of a contract containing a condition precedent is an

Accepted Answer

insurance contract
If Bill purchases a life insurance contract, he is obligated to pay the monthly premiums specified in the contract, but the insurance company’s obligation to perform arises only when he dies. Bill’s death is the condition that triggers

Question 14

Condition subsequent

Accepted Answer

is a future event that terminates the obligations of the parties when it occurs. For example, John may enter into an agreement to lease an apartment for five years, conditioned on him not being called to active duty in the National Guard. If he is called

Question 15

Concurrent Conditions

Accepted Answer

occur when each party’s performance is conditioned on the performance of the other. They occur only when the parties are required to perform for each other simultaneously. For example, when a buyer is supposed to pay for goods on delivery, the buyer’s dut

Question 16

Express Conditions

Accepted Answer

are explicitly stated in the contract and are usually preceded by words such as conditioned on, if, provided that, or when. For example, in a situation involving a potential sale of a house, the offer expressly required the buyer to make a deposit of $1,0

Question 17

Implied Conditions

Accepted Answer

are those that are not explicitly stated but are inferred from the nature and language of the contract. For example, if a man enters into a contract with a builder to replace the windows in his house, there is an implied condition that the builder will be

Question 18

In most situations, parties discharge their obligations by doing what they respectively agreed to do under the terms of the contract; this is called

Accepted Answer

discharge by performance

Question 19

Parties also discharge their duty by making an offer to perform and being ready, willing, and able to perform. This offer of performance is known as a

Accepted Answer

tender

Question 20

There are two primary kinds of performance

Accepted Answer

Complete performance and substantial performance

Question 21

Complete performance

Accepted Answer

occurs when every aspect of the parties’s duties under the contract is carried out perfectly. In many instances, complete performance is difficult, if not impossible, to attain, and courts today generally require only substantial performance.

Question 22

Substantial performance
occurs when the following conditions have been met: (1) completion of nearly all the terms of the agreement,

Accepted Answer

(2) an honest effort to complete all the terms, and (3) no willful departure from the terms of the agreement. Substantial performance discharges the party’s responsibilities under the contract, although the court may require the party to compensate the ot

Question 23

example of substantial performance

Accepted Answer

if a contract called for all bedrooms of a house to be painted blue but one was inadvertently painted green, the court may require the contractor to compensate the buyer with the amount that it will cost the buyer to have that room repainted.

Question 24

Sometimes a contract is conditioned on the satisfaction of a third party

Accepted Answer

Usually, such provisions arise in construction contracts specifying that before a buyer accepts a building, an architect must provide a certificate stating that the building was constructed according to the plans and specifications.

Question 25

breach

Accepted Answer

occurs whenever a party fails to perform her obligations under the contract. If the breach is a minor one, it may entitle the nonbreaching party to damages, but it does not discharge the nonbreaching party from the contract

Question 26

material breach

Accepted Answer

however, discharges the nonbreaching party from his obligations under the contract. A material breach occurs when a party unjustifiably fails to perform his obligations substantially under the contract. It is often difficult to know when the court will de

Question 27

Anticipatory Repudiation

Accepted Answer

Sometimes, a contracting party may decide not to complete the contract before the actual time of performance. This situation often arises when market conditions change and one party realizes that it will not be profitable to carry out the terms of the con

Question 28

Discharge by Mutual Agreement

Accepted Answer

Sometimes the parties to a contract agree to discharge each other from their obligations. They may do so through four primary means: discharge by mutual rescission, discharge by a substituted contract, discharge by accord and satisfaction, or discharge by

Question 29

mutual recession

Accepted Answer

Parties may agree that they simply wish to discharge each other from their mutual obligations and therefore may rescind or cancel the contract. For example, if James agreed to cater a graduation reception for Bill’s son but it appears that the child is no

Question 30

substituted contract

Accepted Answer

Sometimes, instead of canceling the contract and terminating their relationship, the parties want to substitute a new agreement in place of the original. The substituted contract immediately discharges the parties from their obligations under the old cont

Question 31

Accord and satisfaction

Accepted Answer

An accord and satisfaction is used when one of the parties wants to substitute a different performance for his original duty under the contract. The promise to perform the new duty is called the accord, and the actual performance of that new duty is calle

Question 32

Novation

Accepted Answer

Sometimes the parties to the agreement want to replace one of the parties with a third party.

The original duties remain the same under the contract, but one party is discharged and the third party now takes that original party’s place. All three parti

Question 33

Discharge by Operation of Law

Accepted Answer

Sometimes a contract may be discharged not by anything the parties do but, rather, by operation of law. Alteration of the contract, bankruptcy, tolling of the statute of limitations, impossibility, commercial impracticability, and frustration of purpose a

Question 34

Alteration of the Contract

Accepted Answer

The courts want to uphold the sanctity of contracts. Therefore, if one of the parties materially alters a written contract without the knowledge of the other party, the courts have held that such alteration allows the innocent party to be discharged from

Question 35

Bankruptcy

Accepted Answer

When a party files bankruptcy, the court allocates the assets of the bankrupt among the bankrupt’s creditors and then issues the party a discharge in bankruptcy. Once the assets have been distributed, all the bankrupt’s debts are discharged.

Question 36

Tolling of the Statute of Limitations

Accepted Answer

The tolling of the statute of limitations, that is, the expiration of the time allowed by the statute, does not technically discharge a party’s obligations under the contract. However, once the statute of limitations has tolled, neither party can any long

Question 37

Impossibility of Performance

Accepted Answer

the parties will be discharged on grounds of impossibility of performance.

Question 38

Courts distinguish between

Accepted Answer

objective impossibility, meaning it is in fact not possible to lawfully carry out one’s contractual obligations, and subjective impossibility, meaning it would be very difficult to carry out the contract.

Question 39

There are three main situations in which the courts find objective impossibility. The first is

Accepted Answer

destruction of the subject matter

Question 40

destruction of the subject matter
as in the example of the historic farmhouse destroyed by fire. If we go back to the example of the tomatoes,

Accepted Answer

note that we said the farmer still had to perform because it was still possible for him to obtain tomatoes elsewhere.

Question 41

The second situation of objective impossibility is the death or incapacity of a party whose personal services are necessary to fulfill the terms of the contract.

Accepted Answer

For example, if a famous artist is commissioned to paint a portrait and the artist dies, the contract is discharged. The artist’s style is unique, and there is no way for anyone to take over the artist’s role.

Question 42

The third situation is subsequent illegality.

Accepted Answer

If the law changes after the contract was made, rendering the performance of the contract illegal, the contract is discharged. For example, Bill orders a case of a nutritional supplement from Osco Drugs and Supplements. Before his order can be filled, the

Question 43

Commercial impracticability is seen by some as

Accepted Answer

a response to a somewhat unfair harshness of the objective impossibility standard. Commercial impracticability is used when performance is still objectively possible but would be extraordinarily injurious or expensive to one party. Commercial impracticabi

Question 44

According to the Restatement (Second) of Contracts, Section 261 (1981), discharge by reason of impracticability requires the party claiming discharge to prove the following three elements:

Accepted Answer

That an event occurred whose nonoccurrence was a basic assumption of the contract.

That continued performance is not commercially practicable.

That the party claiming discharge did not expressly or impliedly agree to performance in spite of impracti

Question 45

Frustration of Purpose

Accepted Answer

Closely related to impracticability is frustration of purpose. Sometimes, when a contract is entered into, both parties recognize that the contract is intended to fulfill a particular purpose, and the occurrence of that purpose is said to be a basic assum

Question 46

Discharge by conditions

Accepted Answer

If precedent, concurrent, implied, and express conditions are not met or subsequent condition occurs.

Question 47

Discharge by performance

Accepted Answer

If a party performs the terms of the contract or makes a tender (an offer to perform), or if the party performs to the satisfaction of the contracting party.

Question 48

Discharge by material breach

Accepted Answer

If a party fails to substantially perform his obligations, thereby justifying that the nonbreaching party be discharged from the contract.

Question 49

Discharge by mutual agreement

Accepted Answer

If the parties mutually agree to discharge one another, substitute a new contract, substitute a party, or substitute a different performance.

Question 50

Discharge by operation of the law

Accepted Answer

If one of the following occurs: alteration of the contract, bankruptcy, tolling of the statute of limitations, impossibility, commercial impracticability, or frustration of purpose.

Question 51

The fact that one party has breached a contract does not necessarily mean that the nonbreaching party will sue. A number of factors go into the decision of whether it makes sense to file suit. Some of those considerations are

Accepted Answer

(1) the likelihood of success, (2) the desire or need to maintain an ongoing relationship with the potential defendant,

Question 52

The remedies the potential plaintiff will be thinking about can generally be classified as either

Accepted Answer

legal remedies (also known as money damages) or equitable remedies, some form of court-ordered action. The distinction between legal and equitable remedies can be traced back to a time in our legal system’s English roots when, instead of one unitary legal

Question 53

Monetary damages are also referred to as

Accepted Answer

legal damages and they include compensatory, punitive, nominal, and liquidated damages. Whenever possible, courts award monetary damages rather than some form of equitable relief.

Question 54

The most frequently awarded damages are compensatory damages,

Accepted Answer

damages designed to put the plaintiff in the position he would have been in had the contract been fully performed. These damages are said to compensate the plaintiff for his loss of the benefit of the bargain. He can recover, however, only for those prova

Question 55

expectation damages

Accepted Answer

because they compensate a person for the benefit she or he expected to gain as a result of entering into the contract.

Question 56

In addition to losing the benefit of the bargain, the plaintiff may suffer other losses caused directly by the breach. These losses may be compensated as

Accepted Answer

incidental damages

Question 57

Some kinds of contracts have special rules for determining their compensatory damages

Accepted Answer

namely, contracts for the sale of goods, contracts for the sale of land, and construction contracts.

Question 58

If the buyer breaches before accepting the goods,

Accepted Answer

the seller would be able to resell the goods and recover as compensatory damages the difference between the price he sold the goods for and the contract price, plus any incidental expenses associated with the sale.

Question 59

If the contract is breached by the owner before the construction is begun,

Accepted Answer

damages are simply lost profits, which are calculated by subtracting the projected costs of construction from the contract price.

Question 60

example of contract breached by owner

Accepted Answer

before the construction is begun, damages are simply lost profits, which are calculated by subtracting the projected costs of construction from the contract price. For example, if Cameron Construction Company anticipates building a warehouse for the Johns

Question 61

the amount of damages when construction is in progress is measured by the

Accepted Answer

lost profits plus any money already invested in the project. And if the breach by Johnson had occurred after construction was completed, then Cameron would be entitled to recover the entire contract price, plus interest from the time payment for the proje

Question 62

If the construction company, or contractor, breaches the contract before or during the construction,

Accepted Answer

the owner’s damages are generally measured by the cost of hiring another company to complete the project, plus any incidental costs associated with obtaining a new contractor and any costs arising from delays in the construction project. If the contractor

Question 63

One type of damages in contract cases that is often especially difficult to prove is what are called

Accepted Answer

consequential or special damages.

Question 64

consequential damages

Accepted Answer

In a contract, foreseeable damages that result from special facts and circumstances arising outside the contract itself. The damages must be within the contemplation of the parties at the time the breach occurs. Also called special damages.

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Chapter 14