Question

What types of performance discharge a contractual obligation? Under the UCC, what is the difference between cancellation and termination of a contract?   What is an anticipatory breach, and under what circumstances can a party claim it?

Answer 1

Agreeing to a contract create a liability on the person involved in it to perform the duties until and unless contract is discharged. However if any of the person fail to accomplish their duties, it lead to create liability of damage on him. This discharge of contract can be done in 4 ways. They are:

1. Discharge by Performance
2. Discharge by Conditions
3. Discharge by agreement of the parties
4. Discharge when performance become impossible or very difficult

Among these when contract is discharged by completion of contract by performing all required activities or by material non-performance of contractual duties then this discharge of contact is said to be Discharge by Performance. According to UCC law each party involved in contract has good faith duty to perform for each other and it is expected that parties will work fairly, fulfil their promises and work as per the direction of contract so as to provide duties as per reasonable expectations of other parties. This discharge method can further be dissected into parts:

1. Full Performance: This method involves completion of full work by all parties involved in the contract. For example- contact is made of renovating the house. If this contract is discharged when renovation work is done as per the guidelines and after completion of work than this discharge is termed as full performance based discharge of contract.
2. Non Performance: this method involves the condition where work for which contract is made is not actually done and despite this contract is discharged. It can be done in 2 ways i.e. by termination or cancellation. Former one involves lawful termination of contract while cancellation is unlawful and thus cancelling party has to pay remedy among to other party for cancellation and all the loss it has to bear due to this cancellation. For example: As in earlier example if renovation work is not done and in fact contract is discharged before starting the work than this discharge is termed as non performance based discharge of performance.
3. Substantial Performance: This method involves discharge of contract before completion of full performance i.e. after having partial work done. Because in this performance work is not done as per expectation of party thus he is liable to get compensation for this. The party to which work was assigned is liable to pay remedy to other party. For example- Continuing above example, if renovation was done for whole house except for bathroom than this partial completion of work lead to have loss for the one who has assigned this work to be done and hence he is liable to get compensation for this improper work. This partial completion of performance is termed as substantial performance based discharge of performance.

Termination typically refers to ending of contract by mutual agreement or by exercise of one party due to default of other party in exercising the contact with fixing the remedy for it. These terminations take place before completion of contract. According to UCC, termination involves ending of contracting without contract being breached by either side i.e. either both parties or an individual party put an end to the contact but not because of breach of contract. However though Cancellation also involves ending the contact before performing the contract but the condition here different from termination is that of the reason of end of contract. Cancellation occurs due to failing in validity, effectiveness or performance of contract as per direction. The condition involved in cancellation is that of breaching or defaulting of contact. According to UCC cancellation is same as termination i.e. it also involves ending of contract but due to breaching and which in turn lead to payment of remedy for default activities.

Breach of contract refers to the condition when the contract is broken as performer refuse to perform the contract independent on the fact that when that contract is supposed to take place. This unconditional refusal is also called repudiation of contract. A breach of a contract can be classified into two type i.e. anticipatory breach of contract and present breach. Former type of breach (Anticipatory Breach of Contract) is declaration by one of the party involved in contact of having no intention of fulfilling the contract. However later type of breach (Present breach) is when indications are given of refusal to perform the contract at time of performance.

Anticipatory breach happens when a party communicates that it can’t fulfil the obligations of contract by deadline. Of course it can’t be said that at time of performance whether duty will be done or not but law allows material breach with rise of claim for damages. Anticipatory breach can be claimed under following conditions:

• Clear refusal on performing the contractual obligations i.e. When the party directly convey that he is not willing to perform the duties of contract.
• No condition should be levied on breaching of contract i.e. refusal need to be done straight away and not on conditional terms.
• Another condition required is clearance of this voluntary breaching to other party i.e. the reason of breaching should be clear and absolute so that other party involved in contract could understand it
• Lastly the thing required to have anticipatory breach is acceptance of the condition by breach party that this end of contract would have resulted in loss of other party. Thus he should be ready to compensate for losses and damages.