Chapter 13 Ending a Contract

I. Contracts may be terminated by:

  1. Performance
    • Time:
      • if time is not mentioned in a contract, the court will consider completion in a reasonable time suitable
      • if time is essential to the contract, the courts would limit the amount of reasonable time (contract for food, etc.)
      • if a time limit is mentioned in a contract and time is not essential, the courts will still allow additional or reasonable time for completion
      • if a contract cleary states, “time is of the essence,” the time period stated will be enforced by the courts
    • Satisfaction:
      • the law requires that services are to be performed in a satisfactory manner
      • if a dispute arises based on a satisfaction of service, the court will use the reasonable person test
        1. “would the job be considered satisfactory by a reasonable person.”
        2. the judge and jury would decide this in court
      • Contracts which state, “to the other parties satisfaction” must perform to the satisfaction of the other party to be bound
    • Substantial:
      • General Rule: “In most instinces if a contract is not fully completed or not to complete performance, the party suing will win”
      • Exception to the General Rule:
        1. The Doctrine of Substantial Performance states that if a contract is slightly less than complete and the major requirements of the contract have been fulfilled the party performing can recover agreed upon amount of contract. The performing party is responsible for the amount of the work not completed (the courts would consider it unfair to deny payment due to minor incompletions) (i.e.:construction contracts)
    • Tender: an offer to do what has been agreed upon in a contract. this is called “making tender”
      • Tender of performance: fulfilling an act to a contract
        • If tender of performance is rejected- that party will be excused from fulfilling the contract
      • Tender of payment: fulfilling payment to a contract
        • If tender of payment is rejected- the party is not excused from paying the debt
  2. Agreement: contracts are created mutually and can be terminated mutually at any time of a contract through: mutual release, accord and satisfaction
    • Mutual Release- both parties to a contract mutually agreed to end the contract, thus each party agrees to give up their consideration
    • Accord and Satisfaction- one party ends a contract due to unforeseen circumstances (money problems). The one party offers new consideration. The second parties acceptance is the accord and the carrying out of the promise is the satisfaction.
  3. Impossibility of Performance: legally impossible to perform a contract
    • Courts allow contracts to be discharged to:
      • Death or Illness of one party (unless party assigns contract to another)
      • Destruction of Exact Subject Matter
      • Illegality– when performance of a contract becomes illegal (ex: tobacco laws, drug laws, product laws)
  4. Operation of Law– the law protects the interests of society through legislation that enables contracts to be discharged
    • Wrongful Alteration– any intentional, fraudulent alteration of a contract will terminate that contract under the law
    • Statute of Limitations– the legal time allow for an individual to bring a law suit on a contract. After the time has expired, the contract is considered discharged or terminated and legal action against the contract is not possible
      1. Individual state satutes specify the time limit to enforce a contract
      2. Generally an individual has 4 years to file a law suit for the failure to perform a contract for the sale of goods
      3. There will be a “time out” when a creditor is a minor or mentally ill
      4. When a debtor renews an expired contract, a new time period may be established
    • Bankruptcy– the law protects individuals who are unable to pay a debt for a period of time
      1. Under US Constitution, bankruptcy laws were passed to discharged contracts that could not be performed
      2. Filing for bankruptcy prevents any individual from being sued for failure to pay. English Common Law would sentence an individual to prison for this failure to pay
      3. Certain debts can not be discharged under bankruptcy laws such as:
        1. educational loans- for first 5 years
        2. taxes
        3. alimony
        4. child support












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