Deck 13: The Termination of Contracts: Discharge

Question 1

L and E Facto rented a banquet hall owned by Pantagis Enterprises for a wedding reception at a cost of $10,578, paid in advance. A clause in the contract excused Pantagis from performing due to an act of God or other unforeseen events. A power failure occurred in the area around the banquet hall soon after the reception got under way. As a result, the lights and air conditioning went off, which caused problems for the band and the videographer taking pictures. Heat caused the guests to be unbearably warm and uncomfortable, and it led to a fight between an employee and a guest. The police were called and they evacuated the hall. The Factos sued for breach of contract to include a return of their prepayment and money to cover the money paid to the band and the videographer. Are they entitled to money damages for breach of contract as requested? (Facto v. Pantagis, 390 NJ Super. 227 915 A.2d 59)

Answer 1

Issue:
Can a party in a contract raise the common law rule of impossibility to excuse its performance and still keep the fee?
Objective Impossibility:
In order for an objective impossibility discharge of contractual obligations to occur one of the follow situations generally qualify:
1. Destruction of the subject matter of the contract.
2. Death, serious illness, or other incapacity in a personal services contract.
3. Change in the law that invalidates the contract in some way.
The purpose of a contractual discharge under the common law rule of objective impossibility is to provide parties to a contract with a legal remedy when nonperformance is unavoidable.
Opinion:
In the case, Facto v. Pantagis , 390 N.J.Super. 227, 915 A.2d 59 (2007), the trial court found in favor of Pantagis based on the impossibility common law rule. The appellate court reversed and remanded.
The court reasoned that although Pantagis was relieved of the responsibility, the Facto party was also relieved from paying Pantagis the contracted price less the value of the services they did receive. Additionally, where one party to a contract is excused from performance as a result of an unforeseen event that makes performance impracticable, the other party is also generally excused from performance.
Hence, Facto is not entitled to money damages for breach of contract as requested. Instead, they are entitled to a refund under the common law rule of impossibility for non-performance of prepaid services.

Question 2

Maybe borrowed $10,000 from Quimby and gave Quimby a promissory note for that amount. The due date of the note was September 30. On September 10, Maybe offered and Quimby accepted $8,000 in full satisfaction of the note. On October 7, Quimby demanded that Maybe pay the $2,000 balance on the note. Maybe refused claiming that the $8,000 payment satisfied his obligation to Quimby. Do you agree?

Answer 2

Accord:
An accord is reached when both parties to a contract agree to accept performance that is different from the original agreement after a breach of contract has occurred.
Satisfaction:
When a contract is satisfied, it means that performance of the terms of a new agreement under the accord have been performed to the extent that it discharges the original contract.
Substitute Contract:
A substitute contract is a new agreement made before the original contract is breached.
Preexisting Duty in a Contract:
When a party to a contract offers to pay more for a service already covered under a contract, that party is not legally obligated to pay since an agreement for payment of services is already in place. Unless additional consideration is offered, paying for an existing obligation is not binding.
Additionally, if the offeree agrees to do something not covered by the existing agreement, s/he is offering additional consideration in exchange for the promise of more on the offeror's part in the case of unforeseeable circumstances.
Opinion:
Mr. M and Mr. Q settled the original contract under a substitute contract where Mr. Q agreed to take a different amount under a new agreement. However, if Mr. M didn't get the promissory note marked as paid in full or returned to him as part of the substitute contract, he may still be liable for the remaining $2,000 of his unpaid debt.
When a contract is substituted or another agreement is made orally without additional consideration, the agreement to pay is still valid unless discharged in writing. Mr. M would still have the obligation under the promissory note to pay the balance due. A court would not consider extrinsic evidence that contradicts or adds to the written terms of the original established contract under the parol evidence rule.
Hence, if Mr. M received a written discharge for the promissory note from Mr. Q , then they have substituted the original contract and Mr. M has satisfied his obligation to Mr. Q.

Question 3

Grevas entered into a contract with the Surety Development Corporation to have a prefabricated house built for $16,385. A completion date was set, but according to Grevas, the house was not ready for occupancy on that date. As a result, Grevas refused to pay the balance due. Surety Development then sued for the money, claiming substantial performance. According to testimony at the trial, the house was actually far from finished on the morning of the date it was to be completed. Surety Development Corporation, however, initiated a crash program, with workers all over the place doing whatever was necessary to complete the house by the end of that day. In fact, by day's end, the house was finished and ready for occupancy, with only minor details to be completed. Grevas, who had taken a tour of the premises early in the morning of the completion date set in the contract, remarked that the house could not possibly be completely finished and ready for occupancy by the end of the day. Consequently, he never returned later that day to inspect the premises. Was the Surety Development Corporation entitled to the balance due on the house? (Surety Development Corp. v. Grevas, 192 N.E.2d 145)

Answer 3

Issue:
Is substantial performance all that is required to sue for the balance on a contract?
Substantial Performance:
Under the substantial performance doctrine, a party is permitted to withhold his own performance only when the defect materially impairs the subject matter of the agreement.
When a party to a contract acts in good faith and substantially performs the obligations owed by them under the agreement they can enforce the contract against the other party through substantial performance. The performance must be basically for the same benefit as those promised under the contract. Performance must be in good faith for all but the minor details of a contract.
Opinion:
In the case, Surety Development Corp. v. Grevas , 192 N.E.2d 145, 42 Ill.App.2d 268 (1963), the trial court determined that the house was substantially bot not completely completed and found in favor of Mr. G. The appellate court reversed and remanded for findings in favor of Company S on the basis of substantial performance.
The court reasoned that substantial and not complete performance was required in the construction contract. Further, it was noted that the house was complete less minor defects that did not materially affect the occupancy of the house.
Hence, Company S was entitled to the balance due on the house.

Question 4

Margaret had a large debt that became outlawed under the statute of limitations. Margaret, after inheriting several thousand dollars, e-mailed the creditor and promised to repay the debt. Two months later, the creditor, who had not yet received any payment, sued Margaret for collection. Is the creditor entitled to payment because of Margaret's promise?

Question 5

An employer generally dislikes firing an employee. Yet she does do it, sometimes not considering both the legal and ethical issues that surface. While it is always difficult to take steps to terminate an employee, if it is done fairly, and for a solid reason or reasons, it certainly helps the employer feel that the decision is ethical.
Questions
1. What is an obvious and immediate impact on an employee who is fired?
2. I s an employee ever fired for an unlawful reason?
3. Should a terminated employee be given a severance package?
4. What steps should an employer take before the actual termination takes place?

Question 6

In August, The Cooper Manufacturing Co. contracted with Millard Oil Company for the delivery of 75,000 gallons of heating oil at the price of $2.20 per gallon at regularly specified intervals during the upcoming winter season. Due to an unseasonably warm winter, Cooper took delivery on only 65,000 gallons. When Millard sued Cooper for breach of contract, Cooper claimed that it was impossible to complete the contract because of the unseasonably warm weather. Is Cooper liable for breach of contract?

Question 7

How does commercial impracticability change the way that contracts are discharged because they are too difficult to perform? Is commercial impracticability a common law or statutory doctrine?

Question 8

Josten, a contractor, agreed in writing to build a warehouse for Blanda according to specific plans. Josten deliberately and without Blanda's consent deviated substantially from the plans. As a result, Blanda refused to pay Josten any money due under the terms of the contract. Josten, claiming substantial performance, contended that he was entitled to the contract price less the amount needed to correct any defects in the performance. Was Josten correct?

Question 9

Montgomery hired Christa Construction Company to build her a summer residence in a popular summer resort area several hundred miles from her home but near a town where Christa Construction was located. After several meetings, Christa prepared a blueprint that contained all the specifications requested by Montgomery, right down to the high-quality brand of pipes that were to be installed throughout the residence. Montgomery then made a substantial down payment, consisting of more than half of the price for building the residence quoted to her by Christa. Upon completion of the summer residence, Montgomery discovered that Christa did not use the brand of pipes that Montgomery had requested because that particular brand was not available. However, Christa did purchase and use an equally good brand (same quality and strength, and the same cost). When Montgomery discovered the switch had been made, she refused to pay the balance due on the summer residence until Christa totally replaced the pipes throughout the summer residence. Christa said that the brand of pipes she requested still was not available and that he acted in good faith as an experienced builder when he purchased the pipes that he did. He sued for the remaining payment of $50,000 due, claiming that it would be a major project to replace all the pipes embedded in the walls and in other areas of the house where the pipes had been installed.
Questions
1. What is the legal effect of Christa not using the correct brand of pipes requested by Montgomery?
2. Does Montgomery have any cause for legal action against Christa? 3. Do you see any unfairness in Montgomery's refusal to pay the remaining balance due to Christa for the construction costs for the summer residence?

Question 10

Deive signed a contract for membership in a physical fitness program. The contract provided that he was obligated to make payments whether he participated in the program or not. Deive had a lung ailment when he signed the contract but never mentioned it to the operators of the program. After he had signed the contract, Deive's doctor told him that participation in the program would be dangerous to his health. Deive tried to cancel the contract and refused to pay his fees. The plaintiff sued for breach of contract. Can Deive cancel the contract based on impossibility of performance? (Trans-State Investments, Inc. v. Deive, 262 A.2d 119)

Question 11

Generally, in an action for beach of contract involving the payment of money, the statute of limitations time period would be computed from the date the
a. contract is signed.
b. contract is negotiated.
c. contract is breached.
d. parties agree on date.

Question 12

The LaCumbre Golf and Country Club contracted to extend membership privileges, including use of its golf course, to guests of the Santa Barbara Hotel for $300 per month. When the hotel was totally destroyed by fire and no longer able to take in guests, it stopped making monthly payments on a contract it had with the country club. LaCumbre then sued the hotel to recover the balance owed on the contract. During a court trial, the hotel contended that the destruction of its building excused further performance of its responsibilities under the contract. Is the hotel correct? (LaCumbre Golf and Country Club v. Santa Barbara Hotel Co., Cal. 271 P. 476)

Question 13

Len purchased a factory from Marine Realty Bank. Len paid 20 percent at the closing and gave a note for the balance secured by a twenty-year mortgage. Five years later, Len defaulted. Marine Realty threatened to accelerate the loan and foreclose. Marine Realty told Len to make payment or obtain an acceptable third party to assume the obligation. Len offered the land to Billings, Inc. for $10,000 less than Len's equity in the property. This was acceptable to Marine Realty. At closing, Billings paid the arrearage, assumed the mortgage and note, and had title transferred to its name. Marine Realty released Len. The transaction in question is a(n):
a. purchase of land subject to a mortgage
b. assignment
c. delegation
d. novation

Question 14

Sugarhouse sued Anderson for nonpayment of a promissory note and obtained a judgment against him for $2,423.86. For two years, Anderson had financial difficulties and couldn't pay the judgment. When he learned that he could get a loan to help him pay a portion of the judgment, he reached an agreement with Sugarhouse to pay $2,200 in full settlement of the judgment. Anderson then gave Sugarhouse a check for $2,200. Before the check was cashed, however, Sugarhouse found out that Anderson had some property that he was about to sell. Sugarhouse then refused to go through with the settlement. Anderson asked the court to enforce the settlement agreement he had made with Sugarhouse. Will Anderson succeed? (Sugarhouse Finance Co. v. Anderson, Utah 610 P.2d 1369)

Question 15

Vance, a peanut grower, entered into an agreement to provide 2,000 pounds of peanuts to Timmons, a peanut processor. Severe rains, however, caused flooding and destroyed the peanut crop to be supplied by Vance. Vance argued that his contract with Timmons was discharged. He claimed that because the subject matter of the contract (the peanuts) was destroyed, he could not deliver the product as initially promised. Do you agree that the contract was discharged?

Question 16

Bergman, a contractor, sued Parker, a builder, for breach of their contract to construct an apartment building. Parker contended that the contract was terminated by impossibility because he was unable to obtain a building permit. He refused to go ahead with the construction. At the trial, however, Bergman introduced evidence to show that Parker could have obtained a building permit by making modifications, which were acceptable to Bergman, to his building plans. Should Bergman's suit be successful? (Bergman v. Parker, D.C. 216 A.2d, 581)

Question 17

Brite hired Flannigan to re-create a lighthouse scene and its surroundings based on an actual lighthouse that existed in a small town close to a large body of water. The contract was conditioned on her (Brite's) personal satisfaction that the painting represented the actual scene. Upon completion of the painting, Brite admitted that the painting was perfect but rejected it because she was out of money. Can Flannigan sue for breach of contract?

Question 18

The Northern Corporation agreed to repair and upgrade the face of a dam in Alaska for Chugach Electrical Association. The work was to be done during the month of December. To repair the dam, Northern first had to secure rocks from a quarry at the opposite end of the lake from where the dam was located and then transport these rocks over a road on the ice to the dam's location. Water kept overflowing onto the road on the ice, making it difficult and dangerous to travel. Northern complained of the problem to Chugach Electrical, but nevertheless, Chugach demanded performance of the contract agreed upon. Two trucks traveling over this ice road broke through the ice causing the death of both drivers. After this incident, Northern notified Chugach that it had ceased operations and considered the contract terminated because of impossibility of performance and sued to recover expenses incurred up to the point of notification. During trial, Northern introduced evidence to show that the contract contained a clause stating that based on prior experiences, the ice would be sufficiently frozen to haul rock across the lake. That did not happen. Does Northern have a case for not performing on the contract? (Northern Corporation v. Chugach Electrical Association; SC of Alaska, 518 P 2d 76)

Question 19

LaChase Construction Company contracted to build a house for Archie. When 25 percent of the house was completed, Archie fired LaChase for not following the building plans and because there were several defects in the construction to date. Archie hired another contractor to complete the construction of the house and to correct the defects. LaChase sued Archie for breach of contract, claiming that it had substantially performed the contract at that point in time when it was discharged. Was LaChase correct?