Start Here: 5 Things You MUST Know
Substantial performance = payment minus deductions for defects. PERFECT performance is NOT required
3 condition types: Precedent (triggers duty), Concurrent (same time), Subsequent (extinguishes duty)
Material breach = contract is over, full damages. Minor breach = offset to price, contract continues
Anticipatory breach lets you sue IMMEDIATELY — no need to wait until performance was due
Consequential damages require that the defendant KNEW about probable losses at time of contracting
1. Discharge of Contracts
Discharge
"Discharge" means the contract obligations are ended. There are several ways a contract can be discharged: performance, agreement, impossibility, or frustration of purpose.
A. Discharge by Performance
Payment
The most straightforward: pay what you owe under the contract.
Tender of Performance
An offer to perform. If one party properly tenders and the other refuses, the tendering party is discharged.
Personal Satisfaction
Courts interpret "satisfaction" objectively: would a reasonable person be satisfied?
Substantial Performance (Heavily Tested)
Rather than requiring perfect performance, courts ask: was the performance substantial and done in good faith? If yes, the performing party can recover the contract price minus deductions for defects.
Real-World Scenario: Wrong Brand of Plumbing
The Setup: A builder constructs a house but installs Brand X plumbing instead of the specified Brand Y (equivalent quality).
What Happens: The homeowner refuses to pay, claiming the contract was not fully performed.
The Result: The builder has substantially performed. The homeowner must pay the full contract price minus any cost difference between the two brands. The homeowner cannot refuse to pay entirely.
"Time Is of the Essence"
If a contract requires performance by a certain date AND states "time is of the essence," courts will strictly enforce that deadline. Missing it is a breach — no grace period.
B. Discharge by Agreement
Accord and Satisfaction
Parties agree to substitute a different performance for what was originally required, and then carry it out.
Example: You owe $10,000 for construction work. You and the contractor agree you will instead provide $7,000 in cash plus your used truck. When you deliver both, the original debt is discharged.
Novation
An agreement to replace an original party with a new party. The original party is completely released.
Example: You sell your business to a buyer. The buyer agrees to take over your contract with a supplier, and the supplier agrees to release you. You are discharged via novation.
C. Discharge by Impossibility
Four Causes of Impossibility
Change in Law
A new law makes performance illegal
Death or Incapacity
Of a party whose personal performance was required
Destruction of Subject Matter
The thing the contract is about is destroyed
Other Party's Act
The other party makes performance impossible
Real-World Scenario: Destruction of Subject Matter
The Setup: A venue contracts to host a wedding reception for $15,000.
What Happens: A hurricane destroys the venue two weeks before the event.
The Result: Performance is discharged by impossibility (destruction of subject matter). The deposit should be returned. Neither party is at fault.
Frustration of Purpose
An unexpected event destroys the principal PURPOSE of the contract, even though performance is still technically possible.
Example: You rent a balcony to watch a royal parade. The parade is cancelled. You CAN still use the balcony, but the entire purpose is gone. The contract may be discharged.
Commercial Impracticability
Increased cost CAN constitute impracticability if the increase is drastic and unforeseen. A mere increase in cost is NOT enough.
Example: A supplier contracts to sell steel at $500/ton. A war causes steel to jump to $5,000/ton. This drastic, unforeseen increase may qualify. A jump to $600/ton would NOT.
Temporary Impossibility
Only suspends the duty to perform; does NOT permanently discharge it.
Statutes of Limitations
If the time limit for a lawsuit expires, the obligation is effectively discharged.
Fraudulent Alteration
If a party fraudulently alters contract terms, the other party may be discharged.
2. Conditions in Contracts
Condition
An event that must occur (or not occur) before a duty to perform arises or is discharged. Conditions control WHEN obligations kick in or end.
Condition Precedent
An event that MUST OCCUR BEFORE a duty of performance arises.
TRIGGERS a duty
Example: "I'll buy your house IF I get mortgage approval." Getting the mortgage is a condition precedent — the purchase duty only kicks in if the loan is approved.
Condition Concurrent
An event that must occur AT THE SAME TIME as another condition.
SIMULTANEOUS duties
Example: At a home closing, the buyer pays the money and the seller delivers the deed simultaneously. Neither party has to go first.
Condition Subsequent
An event that, IF IT OCCURS, discharges (ends) a duty of performance.
EXTINGUISHES a duty
Example: An insurance policy says coverage ends if premiums are not paid within 30 days. Nonpayment is a condition subsequent that terminates coverage.
How to Remember the 3 Conditions
Precedent
"Before" = turns ON
Concurrent
"At same time" = swap
Subsequent
"After" = turns OFF
3. Types of Breach
Repudiation
A party's outright refusal to meet obligations. "I am not going to do what I promised." Flat-out refusal.
Anticipatory Breach
A party's unequivocal indication BEFORE performance is due that they will NOT perform. Avoids "enforced idleness" — you can sue immediately.
Real-World Scenario: Anticipatory Breach
The Setup: A caterer for a June wedding announces in March, "We will not be providing services for your event."
What Happens: The couple wants to sue and find a replacement.
The Result: The couple does NOT have to wait until June. The anticipatory breach allows them to immediately sue and find a replacement caterer. They also do NOT need to tender their own payment to prove the breach.
Material vs. Minor Breach
Material (Major) Breach
- Failure to perform a substantial part of the contract
- Non-breaching party can treat the entire contract as broken
- Can sue for full damages
- Non-breaching party is discharged from their own obligations
Example: A roofer is hired to install a new roof but only completes half the job and abandons the project. This is a material breach. The homeowner can hire someone else and sue for all damages.
Minor Breach
- Failure to perform a small part of the contract
- Temporarily suspends the non-breaching party's duty
- Can sue for damages as an offset to the agreed price
- Does NOT give the right to treat the entire contract as broken
Example: A painter completes the entire house but uses a slightly different shade of blue on one wall. The homeowner must still pay, minus a deduction for repainting that wall.
4. Remedies for Breach
A. Types of Damages
Compensatory Damages
Money to make you whole — to put you back where you would be if the contract had been performed. Reimburses actual harm.
Consequential Damages
Losses that result indirectly from a breach, such as lost profits. Only awarded when the defendant was aware of the probable occurrence at the time of contracting.
Punitive (Exemplary) Damages
Payment to punish reckless, malicious, or deceitful conduct. Need NOT relate to actual damages. Rare in pure contract disputes.
Extracontractual Damages
Exceeds usual contract damages. Against insurers for: (1) breach of good faith and fair dealing, or (2) intentional infliction of emotional distress.
Real-World Scenario: Consequential Damages
The Setup: A parts supplier contracts to deliver critical components to a factory by Monday.
What Happens: The supplier delivers a week late. The factory loses $50,000 in production because it cannot operate without the parts.
The Result: If the supplier KNEW at the time of contracting that late delivery would shut down production, consequential damages of $50,000 may be awarded. If the supplier had no idea about the factory's dependency, likely not.
Liquidated Damages
A reasonable estimation of actual damages, agreed to in advance and written into the contract. Must be reasonable — if it is too high, courts strike it as a penalty clause.
Example: A construction contract states "$500 per day for late completion." If this reasonably estimates the owner's daily losses, it is enforceable. If the owner's actual daily loss is $50, the clause is likely an unenforceable penalty.
Mitigation of Damages
The injured party has a duty to take reasonable steps to minimize losses after learning of a breach. You cannot sit back and let damages pile up.
Example: A tenant breaks their lease. The landlord must make reasonable efforts to find a new tenant rather than leaving the unit empty and suing for the full remaining rent.
B. Equitable Remedies (When Money Is Not Enough)
Specific Performance
Court orders the breaching party to actually DO what they promised. Most common in real estate (every property is unique). Rare for personal services.
Example: Seller backs out of selling a historic home. Court orders the sale to proceed because the property is unique.
Injunction
A court order requiring a party to act or refrain from acting.
Example: Court orders a former employee to stop violating a non-compete agreement.
Reformation
Court modifies a written contract to reflect the parties' actual intent.
Example: A contract mistakenly lists the wrong property address. Court corrects it to match what was actually agreed.
Cheat Sheet
Print this page for quick referenceDischarge Methods
- Performance (payment, tender, substantial)
- Agreement (accord/satisfaction, novation)
- Impossibility (law, death, destruction, other party)
- Frustration of purpose (principal purpose gone)
- Commercial impracticability (drastic cost)
3 Conditions
- Precedent = triggers duty
- Concurrent = simultaneous
- Subsequent = extinguishes duty
Breach Types
- Material = contract over, full damages
- Minor = offset, contract continues
- Anticipatory = sue immediately
Remedies
- Compensatory = make whole
- Consequential = indirect losses (knew at contracting)
- Punitive = punish bad conduct
- Liquidated = pre-agreed reasonable estimate
- Specific performance = do it (real estate)
- Injunction = act or stop acting
- Reformation = correct the contract
Exam Trap Alerts
1. Material Breach vs. Minor Breach
Material breach = entire contract is over, non-breaching party walks away with full damages. Minor breach = price offset only, the contract CONTINUES. The exam WILL test this distinction.
2. Substantial Performance Is NOT Perfect Performance
If someone substantially performs in good faith, they get paid the contract price MINUS deductions. The other side cannot refuse to pay entirely just because of minor defects.
3. Consequential Damages Require Knowledge
The defendant must have been aware of the probable losses at the time of contracting. If they did not know, consequential damages are NOT awarded. This is a critical detail.
4. Condition Precedent vs. Subsequent
Precedent = must happen BEFORE duty arises (turns ON). Subsequent = if it happens, duty is discharged (turns OFF). Insurance nonpayment clauses are typically conditions subsequent.
5. Liquidated Damages vs. Penalty
Liquidated damages must be a reasonable estimate of actual harm. If the amount is grossly disproportionate, courts will strike it as an unenforceable penalty clause.
6. Anticipatory Breach = No Waiting Required
If a party announces they will not perform, the aggrieved party can sue immediately. They do NOT have to wait until the performance date, and they do NOT need to tender their own performance first.
7. Frustration of Purpose vs. Impossibility
Impossibility = you literally CANNOT perform. Frustration = you CAN perform but the whole point is gone. Both can discharge, but they are different doctrines. The frustrated purpose must be the PRINCIPAL purpose of the contract.
Quick Reference Summary
Substantial Performance
Good faith effort = contract price minus deductions for defects.
Novation
Replace an original party with a new one. Original is released.
4 Causes of Impossibility
Law change, death, destruction, other party's act.
3 Conditions
Precedent (ON), Concurrent (SWAP), Subsequent (OFF).
Material vs. Minor Breach
Material = contract over. Minor = offset, contract continues.
Equitable Remedies
Specific performance, injunction, reformation — when money is not enough.