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BY PERFORMANCE

Where the contract is already executed on one side, performance extinguishes all obligation; where wholly executory, performance by one party simply discharges him from further liability.

§ 120. Substantial Performance. At common law strict and literal performance in accordance with the terms of the contract was required, and this is still true of commercial contracts. For example, one who has agreed to sell a certain kind or quality of article, cannot insist upon the other party's accepting something equally good, for he is entitled to the exact thing he bargained for. But where one party had endeavored in good faith to perform and has substantially performed his contract so that the other party has obtained a substantial benefit, it is held that he may recover the contract price less the damages sustained by the other party because of the failure of exact performance.7 The doctrine of substantial performance is frequently applied in building contracts, where it is held that "To justify a recovery upon the contract as substantially performed, the omissions or deviations must be the result of mistake or inadvertence, and not intentional, much less fraudulent; and they must be slight or susceptible of remedy, so that an allowance out of the contract price will give the other party substantially what he contracted for.''

§ 121. Time of Performance. The common-law rule that time was always of the essence of the contract, where a time for performance was named, is now modified by the equitable doctrine that courts will look to the intention of the parties as shown by the terms of the contract, provided the parties have not expressly made time of the essence. If time is of the essence, then performance after that time will not discharge the contract unless the breach is waived.

6 Hesser v. C. & W. Coal Co., 151 Fed. 211, 213; Norrington v. Wright, 115 U. S. 188, 29 L. ed. 366.

7 Hayward v. Leonard, 7 Pick. (Mass.) 181, 19 Am. Dec. 268.

8 Elliott v. Caldwell, 43 Minn. 357, 45 N. W. 845.

Where no time for performance is specified, the law implies performance within a reasonable time."

§ 122. Performance Conditional upon Future Act or Event. Examples of this may be found in subscriptions conditional upon the raising of a certain amount, promises to pay upon demand, guaranties of collectibility, and the obligations of indorsers. In these and many other cases, a certain event or act must take place before performance can be required. Such cases must be distinguished, however, from those in which money is actually due and owing but the payment of which is conditioned upon the happening of a future event which does not take place. Thus, where a note given in payment of rigging for a ship provided for its payment "ninety days after its first return trip", it was held that the note was payable ninety days after the time when it should have returned had it not been lost.10 In another case the Supreme Court of the United States held that money owed by one party to another was due within a reasonable time where the promise of the debtor was to pay it "as soon as the crop can be sold or the money raised from any other source. ''11

In some cases performance is conditional upon the act or will of a third person. The best example of this is building contracts, where payment is conditional upon delivery of the architect's certificate.

§ 123. Performance to Satisfaction of Promisor. Where one party agrees to perform to the "satisfaction" of the other, it is a question of interpretation whether this means actual satisfaction or performance which would satisfy a reasonable person. If the subject-matter of the contract be a piece of statuary, a portrait, a suit of clothes, or anything else where satisfaction would naturally depend upon one's personal taste or judgment, the courts will generally allow the promisor to be the sole judge.12 If the › Pope v. Terre Haute Co., 107 N. Y. 61, 13 N. E. 592.

10 Randall v. Johnson, 59 Miss. 317, 42 Am. Rep. 365.

11 Nunez v. Dautel, 19 Wall. 560.

12 Brown v. Foster, 113 Mass. 136, 18 Am. Rep. 463; Zaleski v. Clark, 44 Conn. 218, 26 Am. Rep. 446.

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promisor is in fact satisfied but dishonestly feigns dissatisfaction, the condition is performed, for his dissatisfaction must not be dishonest. If a test is necessary to determine whether the performance is satisfactory or not, he must permit it. Thus, a man could not reject a coat as not being a satisfactory fit without trying it on.

If the subject matter of the contract is something involving only salability or operative fitness, or utility rather than personal taste, many courts hold that performance to the "satisfaction" of the promisor is accomplished when it is “done in a manner satisfactory to the mind of a reasonable man. 913

§ 124. Payment. A contract for the delivery of money is performed by payment or tender of money. A negotiable instrument accepted as absolute payment operates in fact as the substitution of a new agreement. If a negotiable instrument is accepted only as conditional payment, the original contract is not extinguished, but the right to sue thereon is merely suspended until the negotiable instrument matures. If not paid then, there is a right to sue either upon it or upon the original obligation. In the majority of the United States a note is presumed to have been taken only as conditional payment in the absence of something showing a contrary intention, though in Indiana, Maine, Massachusetts, and Vermont, the presumption is the other way.14 The presumption is usually of acceptance as absolute payment where the note is that of a third person without a guaranty or indorsement.15 Forged notes or counterfeit coin, whether knowingly or innocently given in payment, do not satisfy the obligation, though in the case of innocent payment there is a duty on the creditor to notify the debtor as soon as he ascertains the facts, or he will be estopped to deny payment.16 Whether the loss of money sent by mail falls upon the debtor or the creditor depends

13 Keeler v. Clifford, 165 Ill. 544, 46 N. E. 248.

14 Dodge v. Emerson, 131 Mass. 467.

15 Whitbeck v. Van Ness, 11 Johns. (N. Y.) 409, 6 Am. Dec. 383. 16 Raymond v. Baar, 13 Serg. & R. 318, 15 Am. Dec. 603,

upon whether the creditor authorized payment in that

manner.

A written receipt acknowledging payment is only prima facie evidence of payment and may be contradicted or explained unless it be in the form of a release under seal.

Application of Payments. Where a person owes several debts or one debt consisting of several items, and makes a part payment, it frequently becomes important as to which debt or item the payment is applied. The debtor has the right to specify at the time he makes the payment, which debt he will pay and the creditor is then bound to apply it as directed.17 If the debtor does not point out the application when he makes the payment, the creditor may apply it where he desires, even on a debt barred by the statute of limitations, or unenforcible under the statute of frauds,18 but not upon a debt not yet due or upon an illegal debt, and he cannot change an application once made. Where neither party had specified its application, the common law applied it to the payment of the oldest debt. There has been considerable deviation from the old rule, however, and it is now very generally said that the payment will be applied according to the justice of the particular case in view of all the circumstances. But as to whether justice requires an application more beneficial to the debtor or more beneficial to the creditor is a question on which courts do not agree. Many courts follow the rule as stated by the Supreme Court of the United States:

"When a debtor fails to avail himself of the power which he possesses, in consequence of which that power devolves on the creditor, it does not appear unreasonable to suppose that he is content with the manner in which the creditor will exercise it. If neither party avails himself of his power, it would seem reasonable that an equitable application should be made. It being equitable that the whole debt should be paid, it cannot be inequitable to extinguish

17 Washington Natural Gas Co. v. Johnson, 123 Pa. 576, 16 Atl. 799, 10 Am. St. Rep. 553.

18 Haynes v. Nice, 100 Mass. 327, 1 Am. Rep. 109.

first those debts for which the security is most precari

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On the other hand many States incline to the rule of the civil law under which the payment was applied in the way most beneficial to the debtor, and which would relieve him of the greatest burden.20

§ 125. Tender. "Tender" is an attempted performance of a promise either (1) to do something, or (2) to pay money. The effect of a tender differs in these two cases. In the former case, as where a vendor duly tenders delivery of goods which he has sold, the obligation is discharged by the tender and the goods are thereafter held by the vendor at the expense and risk of the vendee.21 But if the obligation is to pay money, a tender, though it may give the debtor a good defense to an action by the creditor, does not discharge the debt. The debtor must continue ready and willing to pay, and, if sued, pay the amount tendered into court. Then if he proves his defense of tender, he will get judgment for his costs of suit, and the creditor will lose interest from the time of tender. If the tender is of less than is found due, the creditor will still recover his costs.

To make a good tender several things are necessary. The amount tendered must be the exact amount due or a larger amount from which the creditor can take exactly what is due without the necessity of giving change.22 It must be of legal tender currency actually produced, or if the tender be of goods, there must be time and opportunity to examine. The tender must be made by a party to the contract or his agent and must be unconditional. Thus, a tender made upon condition of being given a receipt in full, is not good. It would seem, however, that a tender of payment of a promissory note would not be made invalid because conditioned upon a return of the instrument, or, in

10 Field v. Holland, 6 Cranch 8, 27, 3 L. ed. 136.

20 Pattison v. Hull, 9 Cow. (N. Y.) 747.

21 Lamb v. Lathrop, 13 Wend. (N. Y.) 95, 27 Am. Dec. 174.

22 Weld v. Bank, 158 Mass. 339, 33 N. E. 519.

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