How Contracts Come to an End Chapter 11 Section 11.1 Performance and Agreement Section 11.2 Impossibility of Performance and Operation of Law
What You’ll Learn • How to identify when time is important in a contract (p. 224) • How to distinguish between satisfactory and substantial performance (p. 226)
What You’ll Learn • How to explain tender of performance (p. 228) • How to explain how contracts can be discharged by agreement (p. 229)
Why It’s Important Understanding when contracts come to an end will help you determine your legal rights and obligations in such situations.
Legal Terms • discharged (p. 224) • performance (p. 224) • complete performance (p. 224) • reasonable time (p. 224) • substantial performance (p. 226)
Legal Terms • tender (p. 228) • legal tender (p. 229) • mutual release (p. 230) • accord and satisfaction (p. 230)
Section Outline Ending a Contract Discharge by Performance Time for Performance Satisfactory Performance Substantial Performance Tender of Performance
Section Outline Discharge by Agreement Mutual Release Accord and Satisfaction
Pre-Learning Question How does a contract come to an end?
Ending a Contract When contracts eventually end, they are said to be discharged. Contracts can be discharged by performance and by agreement.
Pre-Learning Question What do you think “discharged by performance” means?
Discharge by Performance Most contracts are discharged by performance, meaning the parties fulfill the terms of the contract by doing what they promised earlier.
Discharge by Performance As long as all terms have been carried out properly and completely, the contract is discharged by complete performance.
Time for Performance The time for completing a contract may be important to one or both of the parties.
Time for Performance If the time is not stated in the contract and there is a question of performance, the courts will say the contract must be completed in a reasonable time.
Time for Performance Reasonable time • Will vary with the circumstances. • Is defined as the time that is suitable, fair, and proper to the objective in view.
Time for Performance A contract will specify that time is of the essence when it is a vital or essential element of the contract.
ANSWER By performance
Satisfactory Performance When people perform services for others, the law requires that those services be done in a satisfactory manner.
Satisfactory Performance Regardless of whether a contract specifically states the work be performed “in a satisfactory manner,” if one party believes the job is unsatisfactory, the court uses the reasonable person test.
11.1 Reasonable Person Test The court asks, “Would a reasonable person consider the job to be completed in a satisfactory manner?” I’m a reasonable person. Has this job been completed in a satisfactory manner?
Reasonable Person Test The dispute will then be settled based on the answer to this question as determined by a judge or jury.
Satisfactory Performance If one party agrees to perform services for another “to the other’s satisfaction,” then the other party must be satisfied to be bound to the contract.
Substantial Performance An exception to the rule of discharging a contract by complete performance is substantial performance.
Substantial Performance • Substantial performance is slightly less than full performance. • Someone who has fulfilled the major requirements of a contract in good faith, leaving only minor details incomplete, has substantially performed.
Substantial Performance • The courts will allow the person to recover the amount agreed upon under the contract, minus the cost of completing the job. • Substantial performance is often applied to construction contracts.
Tender of Performance A tender is an offer to do what you have agreed to do under a contract.
Tender of Performance For example: • If buying a car—offering to pay money to the seller at the agreed time • If selling a car—offering to give the car to the buyer at the agreed time
Tender of Performance If neither party has made tender, then neither party is in a position to bring suit against the other.
Tender of Performance • The person offering to pay the required amount of money must offer legal tender—U.S. coins or currency. • Offering a check, even if it is certified, is not a valid tender of payment.
Judy Anfinson agreed to create a garden landscape for Bill MacArthur “to his satisfaction” for $1,200.
When it was complete, Bill noticed Judy had planted some shrubs around the patio to which he was highly allergic. Is Judy required to replant the shrubs? Why or why not?
ANSWER Yes. The contract requires Judy to complete the project to Bill’s satisfaction.
Pre-Learning Question What do you think “discharged by agreement” means?
Discharge by Agreement Contracts are created by mutual agreement and may be terminated by mutual agreement.
Mutual Release A mutual release is an agreement between two parties to end an agreement. By mutual agreement, the contract no longer exists.
Accord and Satisfaction A contract can also be discharged when one party to an agreement agrees to accept performance from the other party that is different from what was agreed upon in the original contract.
Accord and Satisfaction In effect, one contract is substituted for another, which is known as accord and satisfaction. It is often used to settle an honest disagreement or unforeseen circumstances regarding an amount owed.
Section 11.1Assessment Reviewing What You Learned • What is a reasonable time for completing a contract?
Section 11.1Assessment Reviewing What You Learned Answer The time that is suitable, fair, and proper to the objective in view.
Section 11.1Assessment Reviewing What You Learned • What is the difference between satisfactory and substantial performance of a contract?
Section 11.1Assessment Reviewing What You Learned Answer The standard for satisfactory performance is reasonableness. Substantial performance is slightly less than full performance.
Section 11.1Assessment Reviewing What You Learned • What is tender of performance?
Section 11.1Assessment Reviewing What You Learned Answer An offer to do what a party has agreed to do under a contract.
Section 11.1Assessment Reviewing What You Learned • How can contracts be discharged by agreement?
Section 11.1Assessment Reviewing What You Learned Answer By mutual release and accord and satisfaction
Section 11.1Assessment Critical Thinking Activity Discharge by Agreement Why does the court permit certain contracts to be discharged by accord and satisfaction?
Section 11.1Assessment Critical Thinking Activity Answer Discharge by Agreement It is used to settle an honest disagreement or unforeseen circumstances regarding an amount owed.