1— What is a condition?
— A condition is a term in a contract specifying an uncertain event that must occur before one of the parties is required to perform.
— A party may avoid performance if a required condition in the contract’s terms has not occurred and the nonoccurrence is not excused.
— In order for an event to be a condition, it must qualify as a duty to perform under an existing contract.
— Events that are part of the process of contract formation are therefore not conditions.
— A condition always rests on the occurrence of an uncertain event. As a result, the mere passage of time is not a condition.
— A condition can also rest on the nonoccurrence of an uncertain event; in that case, one party becomes obligated to perform when the event does not happen.
2— How may a party avoid performance?
— If a required condition in the contract’s terms has not occurred and the nonoccurrence is not excused.
3— In order for an event to be a condition, it must it qualify as?
— As a duty to perform under an existing contract.
4— What are not considered conditions?
— Events that are part of the process of contract formation.
5— What must a condition rest on?
— It always rests on the occurrence of an uncertain event.
6— Why is the mere passage of time not a condition?
— It always rests on the occurrence of an uncertain event.
7— What can a condition also rest on other than the occurance of an uncertain event.
— It can also rest on the nonoccurrence of an uncertain event; in that case, one party becomes obligated to perform when the event does not happen.
8— What happens if a condition rests on the nonoccurence of an uncertain event?
— Then one party becomes obligated to perform when the event does not happen.
9— What is an express condition?
— A term that's agreed upon by the parties to a contract.
— Term expressly specifies an uncertain event that must occur before one of the parties is required to perform.
— The terms “provided that,” “on condition that,” and “if,” are commonly used to create an express condition.
— However, no particular language is required, and courts use general principles of contract interpretation to determine if contract language creates this.
10— What does a term expressly specify?
— It specifies an uncertain event that must occur before one of the parties is required to perform.
11— What are the terms “provided that,” “on condition that,” and “if,” commonly used to create?
— Commonly used to create an express condition.
12— What do courts use to determine if contract language creates an express condition?
— Courts use general principles of contract interpretation to determine if contract language creates an express condition, no particular language is required.
13— What is a constructive condition?
— A contract term that is supplied by the court, when the parties to a contract have omitted a term that is essential to a court’s determination of their rights and duties.
— A court will supply a constructive condition based on what is reasonable under the circumstances.
14When do courts supply a constructive condition?
— When the parties to a contract have omitted a term that is essential to a court’s determination of their rights and duties.
— A court will supply a constructive condition based on what is reasonable under the circumstances.
— When the parties to a contract have omitted a term that is essential to a court’s determination of their rights and duties.
— A court will supply a constructive condition based on what is reasonable under the circumstances.
15— When does a court supply a constructive condition?
— Based on what is reasonable under the circumstances.
16— What is a condition precedent in a contract?
— A term in an executed contract specifying an uncertain event that must occur before a party will be obligated to perform.
17— What may be express (i.e., explicitly agreed upon by the parties to the contract) or implied or constructive (i.e., based on what is reasonable under the circumstances of the agreement).
— A Condition Precedent.
18— What is an express condition precedent?
— Explicitly agreed upon by the parties to the contract?
19— What is a constructive condition precedent?
— Based on what is reasonable under the circumstances of the agreement.
20— Must a condition always occur before a party is obligated to perform?
— No.
— Contract conditions may be conditions precedent, which are conditions that must occur before performance is due, or conditions subsequent, which will cut off a party’s pre-existing duty to perform.
— A third category, conditions concurrent, describes conditions that must occur together before either party will be obligated to perform.
— Both express and constructive conditions can be conditions precedent, conditions subsequent, or conditions concurrent.
21— Can contract conditions be conditions precedent?
— Conditions that must occur before performance is due, or conditions subsequent, which will cut off a party’s pre-existing duty to perform.
22— Conditions concurrent, describes conditions that must occur together before either party will be obligated to perform.
— Both express and constructive conditions can be conditions precedent, conditions subsequent, or conditions concurrent.
— A third category of conditions, which describes conditions that must occur together before either party will be obligated to perform.
23What can be conditions precedent, conditions subsequent, or conditions concurrent?
Both express and constructive condition.
24
— A five-year lease of premises gave the lessee the option of renewing the lease for a further period of five years “on condition that the lessee delivers written, signed notice of its intent to exercise this option by not later than 6:00 p.m. on January 31 . . . .” The lessee intended to exercise the option and informed the lessor of this intent by telephone on January 29. The lessee then mailed a written, signed notice of intent to exercise the option on January 30. The lessor received the written notice on February 1. The lessor claimed that the lessee did not effectively exercise the renewal option because the notice was received too late.
— Did the lessee effectively exercise the renewal option?
— No.
— The lessee did not effectively exercise the option. If a contract contains an express condition precedent (i.e., an explicit term in an executed contract specifying an uncertain event that must occur before a party will be obligated to perform), a court will enforce the term exactly and strictly to give effect to the parties’ expressed intention.
— Any deviation from exact compliance is treated as nonfulfillment.
— Here, the contract contained an express condition precedent to the lease renewal—it explicitly stated that the parties’ duties of performance under the renewal period would arise on the condition that the tenant deliver written notice by the time specified. Construing this term exactly and strictly, the lessee’s oral notice before the lapse of the option was ineffective, and the written notice arrived too late.
— Thus, the lessee did not effectively exercise the renewal option.
25
— What is the difference between a pure condition and a promissory condition?
— A combination of a promise and a condition, but a pure condition is a condition without any promise attached.
— A condition is promissory if a party promises, expressly or impliedly, that the condition will be satisfied.
—— Nonfulfillment of a promissory condition constitutes a breach of contract.
— By contrast, a condition is pure if neither party has made an express or implied promise that it will be satisfied.
—— Nonfulfillment of a pure condition does not constitute breach of contract.
26In order for an event to be a condition:
— It must qualify as a duty to perform under an existing contract.
— Events that are part of the process of contract formation are therefore not conditions.
— A condition always rests on the occurrence of an uncertain event.
— As a result, the mere passage of time is not a condition.
27— What is an express condition?
— A term that is agreed upon by the parties to a contract.
— The term expressly specifies an uncertain event that must occur before one of the parties is required to perform.
28— What is a constructive condition?
Contract term that is supplied by the court, when the parties to a contract have omitted a term that is essential to a court's determination of their rights and duties
— Applied based on what is reasonable
29— What is a condition precedent in a contract?
— a term in an executed contract specifying an uncertain event that must occur before a party will be obligated to perform (may be expressed or implied or constructive)
30— Promissory Condition
— if a party promises, expressly or impliedly, that the condition will be satisfied.
— Nonfulfillment of a promissory condition constitutes a breach of contract.
31— Pure condition
— if neither party has made an express or implied promise that it will be satisfied.
— Nonfulfillment of a pure condition does not constitute breach of contract.
32court will construe a performance as a condition precedent whenwhen it
it is necessary to accomplish the parties' apparent purpose.
The order of performance expressed or implied in the contract is a strong indication of the intent that one party's performance is a condition precedent to the other's performance.
33Satisfaction Clause
requires one party to perform the contract to the satisfaction of the other party
If the contract does not set out the standard for satisfaction, courts prefer to imply an objective reasonableness standard wherever possible.
34good faith & fair dealing
requires the parties to follow standards of decency, fairness, and reasonableness in performing and enforcing the contract.
-A breach of this duty gives rise to an action for damages.
35What does it mean for a party to excuse the nonoccurence of a condition?
when the condition need no longer occur in order for a party's performance of the duty to come due.
A condition may be excused on a variety of grounds, including by the conduct of either party, or by occurrence of events outside the parties' control.
36Under what circumstances will waiver excuse the nonoccurrence of a condition?
-through an express statement or through conduct
-A nonbreaching party who elects to accept the other party's performance despite the nonoccurrence of the condition waives the condition.
-a breaching party may waive the nonoccurrence of the condition by communicating to the nonbreaching party that she will perform despite the nonoccurrence of the condition.
37Waiver
knowing, voluntary, unilateral abandonmentof a right, either expressly or by conduct manifesting the intention not to enforce the right
* must be supported by consideration from the other party unless the right being waived is not material
38Under what conditions will estoppel excuse the nonoccurence of a condition?
when one party to a contract materially changes his position in reasonable reliance upon a belief that the other party will not enforce a condition
39May a party who has waived the nonoccurrence of a condition change his mind, and make his performance of a contractual obligation conditional on the occurrence of the condition?
A party may reinstate a condition that he has previously waived the nonoccurrence of, and make his performance of a contractual duty conditional once again.
The occurrence of the condition must be in the control of the promisee or other beneficiary
To reinstate the condition, the promisor must, before the time for occurrence of the condition has passed, provide the promisee with notice of reinstatement
***NOT WHEN STOPPED BY ESTOPPEL
40disproportionate forfeiture doctrine
an equitable principle that applies to prevent the strict enforcement of contractual terms when doing so would cause a breaching party to give up all contractual rights in a manner that is disproportionately harsh to that party's interests, particularly when compared to the interests of the non-breaching party served by strict enforcement.
41May a court excuse the nonoccurrence of a condition, when requiring the contractual condition to occur would result in a disproportionate forfeiture?
A court may excuse the nonoccurrence of a condition, when requiring the condition to occur would disproportionately harm a party to the contract, because that party has substantially relied, through preparation or performance, on the exchange occurring.
**a court may only excuse nonoccurrence if the condition was not a material part of the exchange.
42What factors does a court consider in evaluating whether a relying party would be disproportionately harmed if a court required a condition to occur before a non-relying party must perform?
1. the extent to which a relying party is denied compensation
2. weigh the extent of forfeiture against the importance of the occurrence of the condition to the non relying party
43In evaluating the condition's importance to the nonrelying party, courts will
identify the risk the nonrelying party sought to insure himself against in requiring the condition, and the degree to which that protection is lost if the nonoccurrence of the condition is excused
44Does a court have equitable discretion to excuse an express condition in a contract?
However, courts recognize a narrow exception to this rule and may excuse an express condition if:
-noncompliance is not deliberate,
-failure to comply strictly with the condition does not cause significantharm -to the other party, and
-exact enforcement of the condition would result in a severe forfeiture to the party seeking to excuse the condition.
45If a party has promised, expressly or impliedly, to make reasonable, good faith efforts to cooperate or assist in fulfilling a condition, the party's complete lack of effort to honor that promise excuses the condition.
Once the condition is excused, the party's duty of performance becomes unconditional—in other words, the party must perform, or the party will be in breach.
46Full performance of contractual duties results in
Discharge
47May a party to a contract sue for a remedy when the other party has rendered part performance and not committed a total breach?
An injured party to a contract may sue for a remedy when the other party has rendered part performance, but only if the party's incomplete performance resulted in a material breach.
48What is a material breach
breach so significant that the nonbreaching party will not receive the central value of the contract.
If a material breach has occurred, then the nonbreaching party's performance is excused.
49What are the five main criteria for determining whether a breach of contract is material?
the extent to which the breach deprives the other party of reasonably expected benefits under the contract,
the degree to which that party can be compensated for the loss of those benefits,
the extent to which the breaching party will suffer forfeiture if the breach is held to be material,
the possibility and likelihood of the breaching party curing the breach, and
the good or bad faith of the breaching party
50Is substantial performance breach of contract?
Substantial performance is a breach of the contract. Substantial performance is a performance that falls short of the performance promisedin the contract.
51anticipatory repudiation
occurs when one party to a contract communicates to the other party that he will not be performing an obligation under the contract.
-Must notify through a statement that clearly indicates an intent to breach or a voluntary affirmative act that renders a party unable to perform
-must be unambiguous indication that the party will not perform
*** Can be retracted as long as the nonrepudating party didn't already materially change their position
52When must a party retract her anticipatory repudiation of a contract for her retraction to be effective?
the party must retract her anticipatory repudiation before the other party has:
materially changed his position in reliance on the repudiation, and
indicated that he considers the repudiation to be final.
If a party retracts her anticipatory repudiation, the contract then continues to be valid and enforceable.
53perfect tender rule
permits the buyer of goods to reject those goods if they, or the tender of their delivery, fail in any respect to conform to the contract—even if the nonconformity does not constitute a material breach of the contract.
54UCC Focus on Good faith & how Courts look to it
1. were motivated by improper reasons,
2. involved opportunistic advantage-taking,
3. involved an abuse of rights, or
4. violated either the spirit of the contract or the other party's reasonable expectations.
55Good faith
subjective element (i.e., an honest state of mind) and an objective element (following reasonable standards of fair dealing in the market).
The obligation of good faith also takes into account the other party's justified expectations.
56The UCC implies a warranty by the seller that:
the seller has good title to the goods and can rightfully transfer that title, and
the goods are not subject to any lien or encumbrance unknown to the buyer.
57— In a contract for the sale of goods, what is an express warranty?
— created when a seller promises or affirms that goods conform to a stated fact or condition, regardless of the seller's language or intent.
— the seller has good title to the goods and can rightfully transfer that title, and
— the goods are not subject to any lien or encumbrance unknown to the buyer.
— mere puffery in the form of the seller's opinion or commendation of the goods does not create an express warranty
58— The term "as in" (UCC)
— places all risk about goods quality and condition onto the buyer
59— implied warranty of merchantability
— guarantees that goods are fit for the ordinary purposes for which such goods are used.
60— The implied warranty of merchantability may be waived or disclaimed by a conspicuous writing that either:
— (1)specifically mentions merchantability or
— (2) uses a well-accepted, commonly understood expression, such as stating that the goods are sold "as is" or "with all faults."
61— implicitly disclaim the warranty of merchantability by:
— permitting the buyer to examine the goods
62— A buyer may accept goods by:
— indicating acceptance or failing to reject the goods after a reasonable opportunity for inspection. A buyer may also accept goods by acting inconsistently with the seller's ownership at any time.
63— When a seller delivers nonconforming goods, a seller may:
— (1) accept the whole delivery,
— (2) reject the whole delivery, or
— (3) accept some commercially usable portion of the delivery and reject the remainder.
64— To effectively reject a delivery of nonconforming goods under a contract for the sale of goods, the buyer must:
— reject the goods within a reasonable time of delivery
— and
— give the seller seasonable (timely) notice of the rejection specifying that nonconformity is the reason for the rejection.
65— Under the UCC, may a seller cure a delivery of nonconforming goods by delivering the correct goods to the buyer before the contract's delivery deadline?
— a seller has the absolute right to cure a nonconforming delivery by promptly notifying the buyer of the seller's intent to cure and delivering conforming goods to the buyer until the due date for delivery has passed.
66— Under the UCC, may a seller cure a delivery of nonconforming goods by delivering the correct goods to the buyer after the contract's delivery deadline?
— the seller may still be able to cure within a reasonable time, but only if the seller had reasonable grounds to believe that the goods were acceptable, and the seller gave the buyer timely notice of the seller's intent to cure by providing the correct goods.
67May a buyer of goods revoke his acceptance?
— Yes.
— A buyer may revoke acceptance of substantially impaired goods if the buyer reasonably assumed that the seller would cure the nonconformity, but the seller did not.
— A buyer may also revoke acceptance if he reasonably failed to discover the nonconformity before acceptance due to
—— (1) the seller's assurances that the goods conformed, or
—— (2) the difficulty of discovery of the nonconformity.
68— In a contract for the sale of goods, which party bears the risk of loss of goods in the event of any breach?
When a seller delivers nonconforming goods, the seller retains the risk of loss until the buyer accepts the goods despite their nonconformity, or until the seller cures the nonconformity.
— buyer assumes the risk of loss once he accepts the goods, whether they are conforming or not.
69— Under the UCC, when a seller delivers nonconforminggoods, the seller retains the risk of loss until
— (1) the buyer accepts the goods despite their nonconformity or
— (2) the seller cures the nonconformity.
70Under what circumstances is performance of a contract impossible?
— the death or incapacity of a person necessary for performance,
— the destruction of the subject matter (including significant deterioration or failure to come into existence), (will not work if risk was already bore onto a party)
— and
— the prevention of the performance by law (including regulations and court orders).
71— Under what circumstances is performance of a contract impracticable?
— if it will cause extreme and unreasonabledifficulty, expense, injury, or loss to one of the parties. Events rendering performance impracticable are usually acts of God or of third parties
72— To successfully establish the defense of impracticability, must a party show that its contractual duties have become objectively impossible to perform?
— No. To successfully establish the defense of impracticability, a party does not need to show that its contractual duties have become objectively impossible to perform. Rather, to successfully establish the defense of impracticability, a party needs to show:
—— (1) something happened after the parties entered the contract,
—— (2) one of the contract’s basic assumptions was that this event would not occur, and
—— (3) this change makes the party’s performance of its contractual duties unduly burdensome.
— Objective impossibility is an outdated standard for excusing a party’s contractual obligations. In the nineteenth century, if a party wanted to excuse its nonperformance under a contract, the party had to show that its performance had become objectively impossible. Over time, courts moved away from the objective-impossibility standard in favor of a standard of impracticability.
73— May a buyer of goods excuse its obligation to buy the goods on grounds of impracticability
— Yes. A buyer of goods may excuse its obligation to buy the goods on grounds of impracticability. The UCC excuses a party’s performance as impracticable if:
—— (1) an event occurs after the contract’s formation,
—— (2) the nonoccurrence of the event was a basic assumption of the contract,
—— (3) the event makes the party’s performance impracticable (i.e., impossible or unduly burdensome),
—— (4) the party was not at fault in the occurrence of the event, and
—— (5) the party did not bear the risk of the event’s occurring.
74— An actor contracted with a studio to make a movie. When the filming of the movie was nearly complete, the actor drove his car at excessive speed and smashed into a tree, killing himself. The studio had to abandon the footage that had been shot and remake the movie with another actor. The studio sued the actor’s estate for breach of contract because the actor failed to complete the movie. The estate raised the defense that the actor’s death rendered the actor’s performance impracticable.
— Does the studio have any arguments that might prevent application of the defense of impracticability here?
— Yes.
— The studio has arguments that might prevent application of the defense of impracticability.
— Generally, the defense of impracticability applies if an unexpected event occurs after a contract was formed, and the event makes one party’s performance impracticable (i.e., unduly burdensome).
— However, the defense does not apply if the party raising the defense (1) was at fault for causing the event or (2) had assumed the risk of the event occurring.
— Here, the actor’s death in the car crash was unexpected, and his death made his continued performance in the movie impracticable.
— However, in response to the estate raising the defense of impracticability, the studio could argue that the actor was at fault for causing the crash or that the actor had assumed the risk of death by driving at an excessively high speed.
— Thus, the studio has arguments that might prevent application of the defense.
75— In January, a farmer contracted to sell 5,000 bushels of corn to a buyer. Although the farmer had planted corn on her land, the contract did not specify that the corn had to come from the farmer’s land. The crop was new at the time of the contract and would not be harvested until summer. In February, a severe freeze in the area badly damaged all the cornfields. As a result, at harvest, the farmer’s land yielded only 3,000 bushels. The lack of corn in the area caused the price to rise so high that buying the other 2,000 bushels would wipe out all of the farmer’s profits on the sale. However, if the farmer did not supply the full 5,000 bushels, the buyer would buy the shortfall on the market and claim the cost as damages from the farmer.
— If the farmer argues that she should be excused from providing 5,000 bushels of corn because the freeze made this impracticable, will the defense succeed?
— No.
— The defense of /uimpracticability will not succeed. The UCC excuses a party’s performance as impracticable if:
—— an event occurs after the contract’s formation,
—— the nonoccurrence of the event was a basic assumption of the contract,
—— the event makes the party’s performance impracticable,
—— the party was not at fault in the occurrence of the event, and
—— the party did not bear the risk of the event’s occurring.
— Here, the parties contracted for the sale of 5,000 bushels of corn but did not specify that the corn had to come from the farmer’s land. In entering the contract early in the season, the farmer was betting that the market price would go down, but the buyer was betting that it would go up. The contract’s basic assumption was the parties’ gambles on different market-price movements, not the nonoccurrence of a crop-damaging freeze.
— Thus, the impracticability defense will not succeed here.
76— If a court finds that performance under a contract has become impracticable, is that performance excused?
— Yes.
— A finding of impracticability discharges or excuses the performance that has been found to be impracticable. This means that the party’s failure to perform is excused, and the party has not breached the contract by failing to perform. In addition, if the other party’s obligation to perform is dependent on the excused performance, then discharging the excused performance also discharges the contractual duties of the other party, bringing the contract to an end.
77— A buyer and a seller entered into a contract for the sale of goods. Under the contract, the seller was to deliver the goods to the buyer by truck no later than May 1. However, due to a freak storm, all the roads leading to the buyer’s town flooded and became temporarily impassable. This flooding delayed the delivery until May 5.
— Did the seller breach the contract?
— No.
— The seller did not breach the contract. Late delivery of goods ordinarily constitutes a breach of contract.
— However, the UCC excuses a seller’s delay in delivery if:
—— (1) something happened that made timely performance impracticable, and
—— (2) one of the contract’s basic assumptions was that this event would not happen. A party cannot claim impracticability if the party caused the problem or assumed the risk of the event occurring.
— Here, although a late delivery would normally be a breach of contract, the freak storm that triggered the flooding made the seller’s performance impracticable. When the parties formed the contract, a basic assumption was that highly unusual weather events would not happen. The seller neither caused the storm nor assumed the risk of an unusual weather event. Thus, the UCC excused the seller’s delivery delay here, and the seller did not breach the contract.
78— What is frustration of purpose?
— A party’s principal purpose is substantially frustrated if, through no fault of that party, the other party’s performance has become /uvirtually worthless, regardless of whether the performance is possible or practicable.
— The event that caused the frustration of purpose must not fall within the possible risks each party assumed by entering into the contract, and nonoccurrence of that event must be a basic assumption under which the contract was made.
— If successful, a frustration-of-purpose defense discharges a party’s contractual duties.
79— What is the difference between the contractual defenses of impracticability and frustration of purpose?
— The difference between the contractual defenses of impracticability and frustration of purpose is the effect of the post-contractual event that the parties assumed would not occur when they entered the contract. Both defenses require that:
——something must happen after the parties enter the contract, and
——a basic assumption of the contract was that this event would not occur.
— For the impracticability defense to excuse a party’s contractual performance, the post-contractual change must create a significant impediment to that party’s performance. For the frustration-of-purpose defense to excuse a party’s contractual performance, the post-contractual change must defeat the parties’ mutually understood purpose for having formed the contract.
80— A company booked a large number of meeting facilities at a resort for a conference. The resort knew that the booking was for a conference, but it did not know the nature of the conference. In fact, the company’s purpose in arranging the conference was to gather all of its international employees for an annual retreat. Just before the conference was to take place, there was an international airline strike that grounded all flights to the United States. As a result, none of the international employees could attend the retreat. The company sought to cancel its booking because its purpose in making the booking had been frustrated by the airline strike.
— Does the company have a legal right to cancel its booking on this basis?
— No.
— The company has no legal right to cancel its booking on this basis. The doctrine of frustration of purpose allows a party to cancel its contractual obligation if:
—— an event occurred after the contract was formed,
—— one of the contract’s basic assumptions was that this event would not occur,
—— the event frustrated the party’s central purpose in entering the contract,
—— the other party knew or had reason to know of that purpose,
—— the event was not the party’s fault, and
—— the party did not bear the risk of the event occurring.
— Here, the strike frustrated the company’s purpose of holding an international employee retreat at the resort. However, the resort knew only that the company had booked facilities for a conference—it did not know of the company’s narrower, frustrated purpose of the international retreat.
—— /uThus, the company’s performance is not excused under the frustration-of-purpose doctrine.
81— What is an accord and satisfaction?
— An accord and satisfaction is one way that parties to a contract can replace their contract with a new agreement.
— An /uaccord is created if the promisee agrees to accept a substitute performance in /usatisfaction of the promisor’s existing duties.
— However, the promisor’s original duties are not discharged until the accord has been performed. If there is a breach of the accord, the promisee may sue for enforcement of either the original duties or the new duties under the accord.
82— What is a substituted contract?
— A substituted contract is created if the promisee accepts a substitute agreement that /uimmediately discharges the promisor’s existing duties, regardless of whether the substituted contract has been performed. If there is a breach of the substituted contract, the promisee may sue for enforcement of /uonly the substitute agreement.
83— How does a substituted contract differ from an accord and satisfaction?
— A substituted contract differs from an accord and satisfaction in the effect of the new agreement on the original contractual obligation.
— In a substituted contract, the new contract immediately discharges the prior obligation and substitutes a new performance obligation.
— Once this occurs, only the substitute obligation may be enforced.
— By contrast, in an accord and satisfaction, the accord (i.e., the agreement to substitute the new obligation for the original obligation) does not discharge the original obligation until satisfaction has occurred (i.e., the substitute obligation is performed). If the obligated party does not perform the substituted obligation, the other party may sue for enforcement of either the original obligation or the new obligation.
84— A debtor owed \$15,000 to a creditor but was having trouble paying the money. The debtor talked to the creditor, and the creditor agreed to accept the debtor’s car in satisfaction of the \$15,000 debt. The parties executed a new contract setting out this arrangement. The parties’ new agreement stated that the original debt would be discharged once the debtor delivered the car to the creditor. Ultimately, the debtor failed to deliver the car to the creditor. The creditor would rather seek the original \$15,000 than seek the debtor’s car.
— Does the creditor still have a legal right to recover the original \$15,000 debt from the debtor?
— Yes.
— The creditor still has a legal right to recover the original \$15,000 debt from the debtor. In an accord and satisfaction, an accord is created if the promisee agrees to accept a substitute performance in satisfaction of the promisor’s existing duties. The promisor’s original duties are not discharged until the accord has been performed. If there is a breach of the accord, the promisee may sue for enforcement of either the original duties or the new duties under the accord.
— Here, the creditor and the debtor created an accord when the creditor agreed to accept the debtor’s car in satisfaction of the \$15,000 debt. The debtor’s original debt was not to be discharged until the debtor delivered the car. Thus, upon the debtor’s breach of the accord by failing to deliver the car, the creditor has the option to sue for enforcement of either the original \$15,000 debt or the promise of the car.
85— A debtor owed a creditor \$500, due on Friday. On Wednesday, the debtor went to the creditor’s office and put \$450 in cash on the creditor’s desk. The debtor told the creditor that he was offering to repay the debt two days early on the condition that the creditor give him a 10 percent discount. The debtor said that if the creditor accepted the money, it was in full settlement of the debt. The creditor accepted the \$450 payment. However, later, the creditor had second thoughts about giving the debtor the \$50 discount and wanted to seek the remaining \$50 from the debtor.
— Has the debtor’s duty to pay the \$50 balance of the original debt been discharged by accord and satisfaction?
— Yes.
— The debtor’s duty to pay the \$50 balance has been discharged by accord and satisfaction. An accord and satisfaction is one way that parties to a contract can replace their contract with a new agreement. An accord is created if the promisee agrees to accept a substitute performance in satisfaction of the promisor’s existing duties. The promisor’s original duties are discharged when the accord has been performed.
— Here, the debtor offered the creditor \$450 to satisfy the debtor’s original duty to pay the creditor \$500. Once the creditor agreed to the \$450 payment, this created an accord. The creditor then took the \$450 from the debtor, which constituted performance of the accord and discharged the debtor’s original duties under the contract. Thus, the accord and satisfaction discharged the debtor’s duty to pay the remaining \$50 balance of the original debt.
86— What is a novation?
— Created if the parties to a contract enter into a substituted contract that replaces the promisor or promisee with a substitute party who was not a party to the original contract. The original party is immediately discharged of any liability under the contract. Like all substituted contracts, a novation replaces and discharges the original contract.
87— A debtor owed \$5,000 to a creditor and was having trouble paying the debt. The debtor’s cousin told the creditor that if the creditor released the debtor from the \$5,000 debt, the cousin would pay the creditor \$4,500 by the end of the month. The creditor accepted the cousin’s offer, and the parties signed a new contract. In the new contract, the creditor released the debtor from the \$5,000 debt in exchange for the cousin’s promise to pay \$4,500 by the end of the month. However, the cousin did not pay the creditor and filed for bankruptcy. The bankruptcy filing made it more complicated for the creditor to go after the cousin for the \$4,500.
— Can the creditor seek to recover the original \$5,000 debt from the debtor?
— No.
— The creditor cannot seek the original \$5,000 debt from the debtor. A novation is created if the parties to a contract enter into a substituted contract that replaces the promisor or promisee with a substitute party who was not a party to the original contract. Under a novation, once the substitution occurs, the original party is completely relieved of its original contractual obligation.
— Here, the arrangement the creditor made with the cousin was a novation because it replaced the debtor (i.e., the original promisor) with the cousin, who was not a party to the original contract. Once the parties entered the substituted agreement replacing the debtor’s \$5,000 debt with the cousin’s \$4,500 offer, the debtor was completely released from the original obligation. Thus, following this novation, the creditor cannot seek to recover the original \$5,000 debt from the debtor.
88— What is a rescission?
— A rescission occurs where both parties agree to completely discharge all of the remaining duties owed by the other party. If the parties agree to discharge the remaining duties only partially, the contract is considered modified, rather than rescinded.
89— May parties to an unperformed contract validly agree to rescind the contract without either party giving anything new to the other?
— Yes.
— Parties to an unperformed (i.e., executory) contract may validly agree to rescind the contract without either party giving anything new to the other.
— An agreement to rescind a contract is itself a contract, and it must satisfy all the requirements for a valid contract, including the requirement of consideration. If the parties agree to rescind an unperformed contract, then both sides are giving up the legal right to enforce the other side’s original contractual duty. Because giving up a legal right is a legal detriment that satisfies the consideration requirement for the new rescission agreement, the parties do not have to provide anything new for the rescission agreement to be valid and enforceable.
90— What is a release?
— Occurs where one party agrees in writing to discharge a duty owed by the other party, either immediately or after the occurrence of a condition.
— Depending on the state, a release may need to be supported by consideration, a signed writing, or the other party’s reliance.
91— Is a creditor bound by an agreement to reduce a debtor’s undisputed debt?
— No.
— A creditor’s agreement to reduce a debtor’s undisputed debt is not binding on the creditor. If a creditor agrees to reduce an undisputed debt, the creditor suffers a legal detriment by giving up its existing right to full payment. To bind the creditor to this new, detrimental promise and enter into the new agreement, the debtor must provide new consideration. However, because the debtor already had a pre-existing duty to pay the undisputed debt to the creditor, the debtor suffers no detriment and thus provides no consideration for the new agreement.
92— Can a party who has been injured by a breach of contract effectively renounce a claim for damages without receiving consideration?
— Yes.
— A party who has been injured by a breach of contract can renounce a claim for damages, even without receiving consideration.
— The post-breach renunciation of the damages claim must be in writing.
— In other words, if one party to a contract breaches the contract, and the nonbreaching party then states in writing that it is giving up its right to sue for the breach, this written renunciation of the nonbreaching party’s right to sue is binding even if the nonbreaching party receives no new consideration.