section 11.1

Performance and AgreementPerformance and AgreementSection 11.1Section 11.1

Understanding Business and Personal Law

Performance and Agreement Section 11.1

How Contracts Come to an End

Why It’s Important

Understanding when contracts come to an end will help you determine your legal rights and obligations in such situations.




Ending a Contract

When contracts eventually end, they are said to be discharged.

Contracts can be discharged by performance and by agreement.




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.





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.





Reasonable time

will vary with the circumstancesis defined as the time that is suitable, fair, and proper to the objective in view





A contract will specify that time is of the essence when it is a vital or essential element of the contract.




Satisfactory Performance

When people perform services for others, the law requires that those services be done in a satisfactory manner.





Regardless of whether or not 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.





If one party agrees to perform services for another “to the other’s satisfaction,” 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 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.





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.





For example:

if buying a car—offering to pay money to the seller at the agreed timeif selling a car—offering to give the car to the buyer at the agreed time





If neither party has made tender, then neither party is in a position to bring suit against the other.





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.




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.

End of Section 11.1




Section 11.2Impossibility of Performance

and Operation of Law




Why It’s Important

Understanding when contracts are discharged by impossibility and by operation of law will help you know your legal rights and obligations in such situations.




Some contracts come to an end despite what the parties intend or what they actually do. In these situations, the obligations that exist under the contract may also expire.

Involuntary Discharge




Two ways contracts are discharged:

Involuntary Discharge

1. by impossibility of performance2. by operation of law




A contract that becomes legally impossible to perform generally may be discharged and both parties released from the obligation.

Discharge by Impossibility of Performance




Three situations in which the courts will allow a discharge for impossibility of performance are:


1. death or illness that prevents the performance of a personal service contract





2. destruction of the exact subject matter or the means for performance

3. illegality, or situations in which the performance of a contract becomes illegal




The death or illness of a party to a contract may be an excuse for nonperformance only if the contract requires the personal service of the person who has died or become ill.

Death or Illness in a PersonalService Contract




If the subject matter that is essential to the performance of the contract is destroyed through no fault of either party, the contract is discharged.

Destruction of the Exact Subject Matter




The destruction must occur after the contract is entered into, but before it is carried out.

Destruction of the Exact Subject Matter




Illegality

A contract is considered void if its performance would be illegal at the time the agreement was initiated.

The same general rule applies when performance becomes illegal after the contract has been initiated.




At times, the best interests of society demand that a contract be terminated. Under these circumstances, the law declares contract discharged by operation of law.

Discharge by Operation of Law




These include

Discharge by Operation of Law

when a wrongful alteration has occurredwhen the statue of limitations has run its coursein cases of bankruptcy




Sometimes wrongful acts of one of the parties, such as altering, or changing, a contract, will discharge a contract by operation of law.

Wrongful Alteration




All states have a law that specifies in what time a legal action may be brought on a contract, which is called the statute of limitations.

Statute of Limitations




Congress has the authority to pass bankruptcy laws, which are set procedures for discharging a debtor’s obligations.

Bankruptcy




Certain debts cannot be discharged under bankruptcy laws.

Bankruptcy

education, during the first five years of the repayment periodtaxes




Bankruptcy

alimonychild supportmaintenance payments

End of Section 11.2

section 11.1

Documents

personal law performance

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performance reasonable

question of performance

complete performance

agreement section

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end reasonable person