General Contract Analysis

General Contract Analysis

                        1.

No        Yes                Otherwise Valid Contract?[pic 1][pic 2][pic 3][pic 4]

                                Offer        Acceptance        Consideration

                        2.

        Yes        No        Grounds to Kill the Contract?[pic 5][pic 6][pic 7]

                                Incapacity        Illegality        Statute of Frauds        Mistake

                                Undue Influence        Fraud        Duress        Parol Evidence        Term.

                        3.

No        No        Yes        Enforceable?[pic 8][pic 9][pic 10]

[pic 11]

                        4.

No        Yes                Proper Discharge?[pic 12][pic 13]

[pic 14][pic 15]

                                Performance        Operation of Law        Voluntary Agreement

                                Impossibility

Breach        Termination[pic 16][pic 17]

[pic 18]

                        5.[pic 19]

                        Remedies?[pic 20]

Legal        Equitable                Damages        Specific Performance                Rescission

CHAPTER 13: Termination, Breach, and Remedies

Overview

Assuming the existence of an otherwise valid contract, and that there are no grounds to kill it, we then ask ourselves whether or not the contract was discharged properly, or breached.  If it was breached, remedies become available, if it was discharged properly, the parties are no longer contractually bound.

Lecture Points

Proper Methods of Discharge

Discharge by Performance

1. Performance Generally

1. Most common type of discharge –the parties perform their duties, and amicably part ways
2. Requires

1. Proper Tender (of performance or payment)

1. Offer and Ability to pay or perform per the contract
2. Checks, Promissory notes, etc. are still promises to pay, and an offer to submit a promise to satisfy another promise is not proper tender until the check clears the bank.

1. In Proper Time

1. Generally a “reasonable time”
2. Unless a time is specified, and

1. The contract states that time is of the essence

1. Performance: Special Cases

1. Performance “To Satisfaction”

1. If the contract states only “To Satisfaction” = to the satisfaction of a reasonable person
2. If the contract states instead “To the Satisfaction of Abram Fisher” = Then Abram Fisher must be satisfied
3. This rule will override the doctrine of “substantial performance”

1. Conditional Performance, either:

1. When a party’s performance is only required when:

1. An event or state of the world must either

1. Occur, or
2. Fail to occur

1. When a party’s obligation to perform is discharged when:

1. An event or state of the world either

1. Occurs, or
2. Fails to occur

1. Condition Not Met = No need to perform, or performance excused

1. Substantial Performance

1. Performance incomplete –BUT the “breach” is IMmaterial

1. Materiality = enough that it would cause a reasonable person to change their minds about the deal

1. The substantially (but not completely) performing party may demand the other party also perform –but only up to the degree the substantially (but not completely) performing party has actually performed.

Hypo: Performance – A: Painter Packket and Homeowner Helga enter a contract wherein Packett will paint Helga’s home within one month for $3,000.

Performance; A-1. If Packett paints, and Helga delivers to Packett a personal check for $3,000, is Helga’s duty discharged? No, the promise to pay has simply been replaced with . . . a promise to pay.  It is not until Helga’s check clears the bank that she will be deemed to have performed her obligation.

Performance; A-2. If Packett paints Helga’s home, but it takes 5 weeks, has Packett properly tendered in proper time? Probably, if not stated otherwise, Packett has a reasonable time within which to paint.

Performance; A-3. If the contract stated “painting to be done to owner’s satisfaction”, and Packett painted the home in a completely reasonable manner, but Helga didn’t like the texture, citing that it “felt like sand grain #0001, as opposed to sand grain #0002” did Packett properly tender? No, although Packett has likely substantially performed, the satisfaction clause overrides, and requires the painting to be done to Helga’s actual satisfaction. (Some states would require that Helga’s satisfaction be “reasonable”, but that’s not the rule we’ll use here).

Performance; A-4. If the contract stated “painting done to owner’s satisfaction will be paid $3,000, and painting done to substantial performance not meeting owner’s satisfaction will be paid $2,500” and the painting was indeed not satisfactory to Helga, and Helga paid Packett $2,500 cash, has Helga properly tendered? Yes, her obligation to pay the greater amount ($3,000) had a condition that was not met.

Discharge by Operation of Law

1. Instances in which Law discharges contractual obligations

1. Bankruptcy

1. Can be completely discharged under a liquidation
2. Can be partially or completely discharged under a debt restructure

1. Statute of Limitations

1. Specified period of time after which you can no longer sue to have an obligation fulfilled
2. Often seen in loan/debt areas –a debtor fails to pay for years on end (Hello PUC) and eventually the right to force them to pay dies by statute

1. Can be revived by the debtor voluntarily

1. Expressly, or
2. Impliedly by making payment (this is why debt collection agencies will often try to get someone to pay even just a very small amount of the debt outstanding)

1. California: 4 years for written debts, 2 years for oral debts

1. Unilateral Alteration

1. One party materially alters the contract without the consent of the other

1. Innocent party = discharged
2. Offending party = held to EITHER original or modified contract

1. Supervening Illegality (review)

1. Contract valid when executed, then later made illegal
2. Void as if never having been offered

Hypo: Oplaw – A: In California, Scoundrel Scooby and Debtor Daphne sign a contract wherein Scooby will lend Daphne $1,000, and Daphne will pay it back on a monthly amortized basis over 10 months (with significant, but not usurious interest).