Discharge by agreement and employment breach

The Agreement After the Promise: Five Ways to End or Replace Duties

A later agreement changes the remedy only after you identify whether it conditions discharge on future performance, immediately replaces the old duty, changes a party, cancels the entire contract, or merely relinquishes a claim. Start with the existing obligation, then ask what the parties intended the new arrangement to do.

An accord and satisfaction has two separate stages:

1. An accord is an agreement that the obligee will accept different performance in settlement of an existing claim or duty.
2. Satisfaction is the actual performance of the accord.

A valid accord ordinarily requires an existing claim, agreement to accept different performance, and consideration. A genuine dispute or an unliquidated claim can supply consideration. A promise to accept less than an undisputed, liquidated debt generally cannot, by itself, because the creditor gives up nothing legally uncertain.

An executory accord does not ordinarily discharge the original claim immediately. It suspends enforcement while the debtor performs. If the debtor performs, satisfaction discharges the original claim. If the debtor breaches the accord, the claimant generally may pursue the original claim or the accord, but may not obtain double recovery.

A substituted contract is different. It is a new agreement intended to discharge the old duty immediately and replace it with a new duty. The new performance is not merely a condition to discharge; the new promise itself is the replacement contract. If the new contract is breached, the injured party sues on the substituted contract rather than reviving the old one.

A novation is a substituted contract that also substitutes a new party. It requires:

1. A valid existing obligation.
2. Agreement among the original obligor, the original obligee, and the incoming party.
3. Intent to substitute the new party and release the original party.
4. A valid new contract.

The critical fact is the release of the original party. If a third party merely assumes performance or receives a delegation, without an agreement to release the original obligor, there is no novation; the original obligor remains liable.

A rescission is mutual agreement to cancel the contract and discharge remaining duties. It addresses the contract as a whole, not merely one disputed claim. The parties ordinarily return what they received when restoration is possible. At common law, mutual rescission is generally effective without new consideration when both parties still have unperformed duties; if one party has completely performed, consideration is generally needed for the other party’s promise to undo the transaction. For a sale of goods, UCC § 2-209 governs contractual modification and related rescission issues, including its good-faith and writing rules.

A release is an agreement or legally effective surrender of a claim or right. It operates immediately rather than waiting for future performance, and it need not replace the entire contract. At common law, a release generally requires consideration unless a recognized formal substitute applies. A creditor who signs an unconditional release ordinarily loses the released claim even if no later performance was promised.

The near-miss questions are therefore precise: future performance or immediate replacement? That separates an accord from a substituted contract. A new party plus release of the old party? That makes a novation. Cancellation of the whole contract or surrender of one claim? That separates rescission from release.

For goods, do not import the common-law consideration requirement into every changed term. UCC § 2-209 generally permits a modification without consideration, but it must be made in good faith; a signed no-oral-modification clause and the Statute of Frauds may still matter. Because this is closed-book, memorize each arrangement’s trigger and consequence, including UCC § 2-209.

The Employment Duration Fork: At Will or Definite Term

An employment-termination fact pattern is first a duration question: does an enforceable contract promise employment for a definite period, or is the employment at will? The label the parties use matters less than the contract’s actual language and enforceability.

Employment is presumed at will when the agreement has no definite duration and does not restrict termination. Either party may ordinarily end the relationship at any time, for any reason or no reason, without breaching the employment contract. Thus, firing an employee after six months does not create a claim for the remaining six months when the agreement was indefinite. “Permanent employment” or “long-term employment,” without a definite period or enforceable restriction, ordinarily does not convert the relationship into a definite-term contract.

A definite-term employment contract promises employment for a specified period, such as one year or through a stated date. The employer’s early termination is a breach unless:

1. The contract contains an enforceable early-termination provision and the employer follows it.
2. The contract permits termination for cause and the required cause actually exists.
3. The employee’s own breach or another applicable discharge rule justifies termination.

An employer cannot make a definite-term contract at will merely by announcing that the employee is fired. If the contract requires cause, ask what the agreement defines as cause and whether the stated reason satisfies that definition. If the contract requires notice or a specified procedure, failure to follow it may itself be a breach.

The same analysis applies when the employee leaves early. An at-will employee ordinarily does not breach by resigning. A definite-term employee who quits before the end date ordinarily breaches unless the contract authorizes departure or the employer’s material breach gives the employee a legal basis to leave. The sibling chapter on material breach owns the general material-breach test; here, the employment application is to identify whether the employee had a contractual reason to stop performing.

A claimed term longer than one year also raises the Statute of Frauds: if the employment agreement cannot be fully performed within one year, the term generally must be evidenced by a writing to be enforceable. That issue can defeat enforcement of the alleged term even though the parties used definite-duration language.

If the employer breaches a definite-term contract by firing without contractual justification, the employee’s ordinary damages are the compensation and benefits promised for the unexpired term, reduced by amounts actually earned or reasonably obtainable through reasonable mitigation. The employee must make reasonable efforts to obtain comparable work; the employee cannot recover losses that reasonable replacement employment would avoid. The employee ordinarily receives damages rather than an order forcing the employer to continue a personal employment relationship.

Use this order:

1. Identify the promised duration.
2. Decide whether the term is definite and enforceable.
3. Read any early-termination clause.
4. If termination is permitted only for cause, determine whether the contractual cause was met.
5. Calculate damages for the remaining term and subtract reasonable mitigation.

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The Immediate-Discharge Clue: One Worked Item

A homeowner disputed $3,000 of a painter’s $8,000 invoice because of alleged defects. The parties then signed an agreement stating: “The existing $8,000 obligation is discharged today. The homeowner promises to pay $5,000 in three monthly installments.” The agreement did not add a new party. The homeowner paid nothing. What is the painter’s best characterization of the agreement?

Recurring errors include:

• Calling the arrangement an accord despite the clause stating that the old obligation is discharged immediately.
• Calling a third party’s assumption a novation when the original obligor was never released.
• Treating an unfair at-will firing as a contractual breach despite the absence of a definite term.
• Ignoring a cause or notice condition in a definite-term termination clause.
• Awarding all remaining contract wages without subtracting reasonable mitigation.

Three Cold Calls: The Distinctions That Decide

High-Yield Points - ⚡ Biggest Takeaways

Future performance means accord; immediate replacement means substituted contract. A novation requires a new party and release of the original party. At-will termination is not breach; unjustified early termination of a definite term is, subject to mitigation.