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The termination of a party's obligations arising under a contract


A contractual qualification, provision, or clause which creates, suspends, or terminates the obligations of one or both parties to the contract, depending on the occurrence or nonoccurrence of some event.

Discharge by Performance

A contract terminates when both parties perform or tender performance of the acts they have promised.


An unconditional offer to perform an obligation by a person who is ready, willing, and able to do so.

Complete vs. Substantial Performance

When a party fails to completely perform her contractual duties, the question arises whether the performance affords the other party substantially the same benefits as those promised. If so, then the first party is said to have substantially performed.

substantially performed.

If a party substantially performs, the contract remains in force and the other party must still perform its duties - although it may be entitled to recover damages for the substantially performing party's failure to perform fully.

Time to Perform

If no time is stated in the contract, performance is due within a reasonable time.

Subjective Satisfaction

When the purpose of the performance is to satisfy personal taste, aesthetics, and the like (e.g., painting a portrait of a customer's beloved), the court will ask whether the party to be satisfied was, in good faith, satisfied or dissatisfied with the performance

Objective Satisfaction

When the purpose of the performance is to serve some function (e.g., roofing a warehouse to keep out the elements), the court will ask whether a reasonable person would be satisfied or dissatisfied with the performance.

Satisfaction of a Third Party

Some contracts require that the performance satisfy some non-party (e.g., an art critic, an architect, an independent lab). Courts tend toward the objective satisfaction standard in these cases, but some have applied the subjective satisfaction test when the third party's expertise goes to the same factors that would lead a court to apply the subjective test if a party's satisfaction was at stake.


A party's failure, without legal excuse, to perform any of her contractual obligations

Material Breach

A party's failure, without legal excuse, to substantially perform her contractual obligations

Anticipatory Repudiation

An action by a party to a contract that indicates that she will not perform a contractual obligation due to be performed in the future. Such a repudiation will excuse the non-repudiating party from performing under the contract.


The process by which the parties cancel a contract and return one another to their pre-contract status.


Substituting a new contract, replacing on or more of the original parties for the old contract, thereby terminating the original parties' rights and duties under the old contract.

Novation requires

(1) a valid, prior agreement, for which
(2) all parties agree to substitute a new contract;
(3) discharge of the prior obligation; and
(4) a valid, new agreement.

Settlement Agreement

Substituting, by agreement, a new contract for the old contract, thereby terminating the parties' rights and duties under the old contract.

Accord and Satisfaction

: An agreement between the parties to accept different performance than originally promised.

Material Alteration

If the material terms of a contract are altered, an innocent party (i.e., one who neither altered nor consented to the alteration of the contract) may be discharged from their contractual obligations.

Statute of Limitations

A plaintiff suing for breach of contract must file suit within the time permitted by applicable law. Failure to do so does not technically discharge the parties, but it prevents the wronged party from seeking judicial remedies.


A discharge in bankruptcy, afforded to a debtor after its liquidation or reorganization plan is approved, bars subsequent enforcement against the debtor of any contracts that pre-date the discha

Impossibility and Impracticability

party may be excused when performance becomes either impossible or impracticable through no fault of either party.

Temporary vs. Permanent

A change in circumstances that makes performance temporarily impossible or impracticable will act to suspend, but not excuse, performance

Frustration of Purpose

Supervening circumstances making it impossible for one or both parties to achieve the purpose of the contract.

Compensatory Damages

Damages that compensate the non-breaching party for the injuries or losses actually sustained as a result of the breach.

Incidental Damages

Expenses or costs that are caused by the breach of contract, such as the costs incurred in obtaining performance from another source.

Consequential Damages

Damages resulting indirectly from the breach, which were reasonably foreseeable to the breaching party at the time the breach occurred.

Punitive Damages:

Damages designed to punish a wrongdoer and to deter similar conduct in the future. Such damages are generally not recoverable in breach of contract actions, unless the breaching party's actions give rise to a separate tort claim.

Nominal Damages

Damages awarded to the non-breaching party when only a "technical" injury occurred resulting in no actual damages

Although there are special formulae for certain types of contracts, compensatory damages are generally calculated as follows:

The value of the performance as promised
- The value of the performance actually rendered
- The value of any loss avoided, or mitigated, by the non-breaching party
+ Incidental damages to the non-breaching party

= Compensatory damages.

"Market Value" Damages

In cases involving contracts for the sale of goods or, in most states, land, compensatory damages generally equal the difference between the contract price of the goods or land and the fair market price at the time the goods or title to the land was to be delivered.

Liquidated Damages

Contracts often contain provisions requiring the breaching party to pay a sum certain of money if he fails to perform as required. These provisions are enforceable as long as, when the parties formed the contract, damages from a party's breach were difficult to estimate at the time the parties formed the contract, and the amount of liquidated damages is a reasonable estimate of the value of the promised performance.


Courts generally will not enforce a liquidated damages clause that requires the breaching party to pay a sum that bears no reasonable relationship to the value of the promised performance.


Canceling a contract and returning the parties to their pre-contract position.


Returning goods, property, or money (or, in the case of goods or property, their value in money) previously transferred in order to restore the non-breaching party to his pre-contract position.

Specific Performance

Requiring the breaching party to perform exactly as called for in the contract.


A remedy allowing the contract to be re-written to reflect the true intent of the parties.

Pleading in the Alternative

Modern court procedures allow plaintiffs to seek seemingly mutually exclusive remedies and then choose the best relief to which the jury or judge finds them entitled.

waiver of breach

Where the nonbreaching party knowingly accepts incomplete or defective performance from the breaching party, the nonbreaching party has waived her right to complete and proper performance.

limitations on remedies

A contract may include provisions stating that
(1) no damages can be recovered for certain types of breaches, or
(2) damages will be limited to a maximum amount, or
(3) that any breach will result in damages in a pre-determined amount

Exculpatory Clause

A provision precluding damages for certain types of breaches.

Limitation-of-Liability Clause

A provision expressly limiting the damages recoverable for certain types of breaches to an agreed amount. If the non-breaching party's damages are less than the limit, then her actual damages, rather than the limit, will control.

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