Contracts (Module 6 till end)

Question 1

What constitutes full performance under CL and the UCC?

Answer 1

CL: party’s basic duty is to substantially perform all that’s called for

UCC: requires a perfect tender - the delivery and condition of the goods must be exactly as promised in the contract

Question 2

What is the seller’s obligation of tender and delivery in noncarrier cases?

Answer 2

In proper tender of delivery, seller must put and hold conforming goods at the buyer’s disposition for a time sufficient for the buyer to take possession

Seller must give the buyer notice rsbly necessary to enable the buyer to take possession of the goods

Tender must be at a rsble hour

Place of delivery is usually seller’s place of business or home

Question 3

What is the seller’s obligation of tender and delivery in carrier cases?

Answer 3

Shipment contracts: need not see that the goods reach the buyer, but need only put the goods in the hands of a rsble carrier and make a rsble contract for their transportation to the buyer; obtain and promptly tender any docs required by the contract or usage of trade to enable the buyer to take possession; promptly notify buyer of shipment

Destination contracts: seller must, at the destination, put and hold conforming goods at the buyer’s disposition

Question 4

When is payment generally due?

Answer 4

Noncarrier cases: price is due concurrently w tender of delivery

Carrier: price is due only at the time and place at which the buyer receives the goods

Shipment: price is due when the goods are put in the hands of the carrier

Destination: price is due when the goods reach the named destination

Installment contracts: seller may demand payment for each installment if the price can be so apportioned

Question 5

Does a buyer have a right to inspect the goods before he pays?

Answer 5

Yes, has a right to inspect goods before paying

But if he gets the item and keeps it for a rsble period of time, then he has impliedly accepted them and can’t then turn around and say it’s wrong and send them back

Question 6

Do you have to pay with cash or can you use check?

Answer 6

First rule is cash unless otherwise agreed

Second rule is checks are generally ok

But a seller can refuse a check and that won’t mean the buyer is in breach - they just have to get cash and give it to them and then it’s ok, even if it’s a day after the end of the contract when the money was due

Question 7

Can a duty to perform be conditional on a condition?

Answer 7

Yes, a contract may provide that a party doesn’t have a duty to perform unless some condition is fulfilled

Party’s failure to perform is justified if the condition was not fulfilled

Question 8

What is the difference between a promise and a condition?

Answer 8

Promise is a commitment to do or refrain from doing something - if promise is unconditional, the failure to perform according to its terms is a breach of contract

Condition normally means either: (1) an event or state of the world that must occur or fail to occur before a party has a duty to perform; or (2) an event or state of the world, the non/occurrence of which releases a party from their duty to perform

Conditions don’t create obligations - failure of a contractual provision just discharges the liability of the promisor whose obligations on the conditional promise never mature

Question 9

What are express conditions?

Answer 9

An explicit contractual provision

Conditions of satisfaction are common = the promisor is under no duty to pay unless they are satisfied

In contracts involving mechanical fitness, utility, or marketability, a condition of satisfaction is fulfilled by a performance that would satisfy a rsble person - doesn’t matter if promisor was not personally satisfied as long as a rsble person would have accepted and approved the performance tendered

In contracts involving personal taste/judgment, a condition of satisfaction is fulfilled only if promisor is personally satisfied - but must be honest and in good faith - so if the person refuses to even see the finished product, that’s bad faith and the condition of satisfaction will be excused

Third person satisfaction (like your architect has to approve of the contractor’s work), then that uses the personal satisfaction standard but has to be honest and in good faith

Question 10

What is a condition precedent?

Answer 10

One that must occur before an absolute duty of immediate performance arises in the other party

Ex: I agree to lease some gym space from you for $1000 if I first sell 2000 memberships; the selling must occur first before I have any duty to pay you rent

Question 11

What is a condition concurrent?

Answer 11

Those that are capable of occurring together, and that the parties are bound to perform at the same time

Ex: handing cash for product

Question 12

What is a condition subsequent?

Answer 12

One that, when it occurs, cuts off an already existing absolute duty of performance

Ex: I agree to lease the gym space and pay you right now until zoning changes from commerical to residential; if that condition subsequently occurs and legis changes zoning to residential only, that will terminate or cut off my requirement to pay

Question 13

What is the remedy for an unenforceable condition contract where one party has already performed some amount?

Answer 13

If a contract is not enforceable due to the failure or occurrence of a condition, and one of the parties has fully or partially performed, they can usually recover under unjust enrichment theories, although the measure of damages in that case may be less advantageous than the contract price

Question 14

What does it mean for a condition to be excused?

Answer 14

means that the condition didn’t occur, but the other party is still obligated to perform a contractual duty

Question 15

When does a duty of immediate performance with respect to a conditional promise become absolute?

Answer 15

When the conditions (1) have been performed or (2) legally excused

Legally excused means condition didn’t occur but other party is still obligated to perform a contractual duty

Question 16

what is excuse of condition by hindrance or failure to cooperate?

Answer 16

If a party having a duty of performance subject to a condition prevents the condition from occurring, the condition will be excused (and they’ll have to perform) if the prevention is wrongful

Wrongful if the other party would not have rsbly contemplated or assumed the risk of this type of conduct

Ex: B agrees to buy my house, provided she obtains a 1K mortgage at 5% or less. She makes no effort to get a mortgage. Then she claims she’s excused from performing because the express condition wasn’t met. BAD. Her inaction forfeited her protection by that condition. Result is that B loses protection. Excuses the condition.

Question 17

What is excuse of condition by waiver?

Answer 17

Voluntarily giving up the protection by words or conduct

Won’t insist on condition being met

Consideration not required for valid waiver of condition

Ex: B decides to build a house. Duty to make monthly payments is conditioned on Builder’s providing a certificate for that month’s work. Builder fails to obtain certificate. Nevertheless, B tells Builder that she’ll pay even without a certificate. –> She has to pay now. She was protected by the condition but she waived it so B has to pay for that month’s work now.

But can retract waiver if other party hasn’t relied on it yet. But if they’ve detrimentally relied on your waiver, then you are bound by that (estoppel waiver).

Question 18

what is excuse of condition by actual breach?

Answer 18

An actual breach of the contract when performance is due will excuse the duty of counter performance

Note, however, that counter performance will be excused at CL only if the breach is materal - a minor breach may suspend this duty, but won’t excuse it

Question 19

What is excuse of condition by anticipatory repudiation?

Answer 19

Early statement of non-performance; provides excuse unless that repudiation is retracted and hasn’t been relied on yet

AR only applies in bilateral contracts

Repudiation must be unequivocal (can’t say, I think I won’t be able to start singing on May 20 per the contract - and then not hold up your end of the bargain - that’s not unequivocal)

Question 20

In the case of an anticipatory repudiation, the non-repudiating party has four options:

Answer 20

(1) treat the AR as a total repudiation and sue immediately

(2) suspend their own performance and wait to sue until the performance date

(3) treat repudiation as an offer to rescind and treat the contract as discharged, or

(4) ignore repudiation and urge the promisor to perform (but note that by urging the promisor to perform, the non-repudiating party is not waiving the repudiation - they can still sue for breach and are excused from performing unless the promisor retracts the repudiation)

Question 21

How can you retract a repudiation?

Answer 21

A repudiating party may at any time before their next performance is due, withdraw their repudiation unless the other party has canceled, materially changed their position in reliance on the repudiation, or otherwise indicated that they consider the repudiation final

Question 22

What is excuse of condition by prospective inability or unwillingness to perform?

Answer 22

prospective failure of a condition occurs when a party has rsble grounds to believe that the other party will be unable or unwilling to perform when performance is due

Prospective inability or unwillingness to perform is not an AR bc such a repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that the party will perform

Effect: allows the innocent party to suspend further performance on their side until they receive adequate assurances that performance will be forthcoming

If other party fails to provide AA, the innocent party may be excused from their own performance and may treat the failure to provide AA as a repudiation

Question 23

What is excuse of condition by substantial performance?

Answer 23

Condition of complete performance may be excused if the party has rendered substantial performance

then other party’s duty of counter performance becomes absolute

Won’t apply where breach was willful

But even though party who has substantially performed is able to enforce the contract, the other party will be able to mitigate by deducting damages suffered due to the first party’s incomplete performance

Inapplicable to sale of goods because they require perfect tender

Question 24

What is excuse of condition by divisibility of contract?

Answer 24

when I see a CL contract that contains a price per unit, I should consider divisibility. Usually, a statement in a contract that payment is to be made only on completion of all the units is construed as merely stating a time for payment, not a condition. Underlying consideration is fairness.

If a contract is divisible and a party performs one of the units of the contract, they are entitled to the agreed-on equivalent for that unit even if they fail to perform the other units.

However, other party has a COA for failure to perform the other units and may withhold their counter performance for those units.

three tests must be concurrently satisfied to make a contract divisible:

(1) performance of each party is divided into two or more parts under the contract

(2) number of parts due from each party is the same

(3) performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party

Question 25

What is the main way to discharge a contractual duty?

Answer 25

By full and complete performance

Good faith tender of performance made in accordance with contractual terms will also discharge contractual duties

Question 26

What is discharge by illegality?

Answer 26

If subject matter of contract has become illegal due to a subsequently enacted law, performance will be discharged

supervening illegality

Question 27

What are the two types of rescission?

Answer 27

Mutual and unilateral

Rescission = rescind

Question 28

What is discharge by mutual rescission?

Answer 28

A mutual agreement to cancel contract; agree to end the deal; valid rescission will excuse both of us under the contract

For a rescission to be effective, each party must have some performance left under the contract

Watch out for third party beneficiary cases - if their rights have vested, the contract can’t be discharged by mutual rescission by the promisor and promisee

For unilateral contracts, for an effective rescission where the offeree has already performed, the rescission promise must be supported by one of the following:
(1) an offer of new consideration by the nonperforming party; (2) elements of promissory estoppel, meaning detrimental reliance; or (3) manifestation of an intent by the original offeree to make a gift of the obligation owed them

May rescind orally even if contract to be rescinded says that it can be rescinded only in writing

Unless it’s within SOF or is a sale of goods (Art 2 requires a written rescission or modification if the original contract to be R or M expressly requires a written rescission)

Question 29

What is unilateral rescission?

Answer 29

Results when one of the parties to the contract desires to rescind but the other party desires that the contract be performed

For it to be granted, the party desiring rescission must have adequate legal grounds

Most common: mistake, misrepresentation, duress, and failure of consideration

Question 30

what is partial discharge by modification of the contract?

Answer 30

modification will discharge the terms of the original contract that were modified - not the entire contract

an agreement modifying a CL contract requires mutual assent and consideration - courts usually find consideration to be present because each party has limited their right to enforce the original contract as is

no consideration needed to UCC contracts as long as modification is sought in good faith

Question 31

what is discharge by release?

Answer 31

a release and/or contract not to sue will serve to discharge contractual duties

release or contract not to sue usually must be in writing and supported by new consideration or promissory estoppel elements

Question 32

what is discharge by substituted contract?

Answer 32

when parties to a contract enter into a second contract that immediately revokes the first contract expressly or impliedly

depends on parties’ intent - will be discharge if immediate discharge is intended

Question 33

what is discharge by accord and satisfaction?

Answer 33

an accord = an agreement in which one party to an existing contract agrees to accept, in lieu of the performance they are supposed to receive from the other party, some other, different future performance

accord, taken alone, won’t discharge prior contract

merely suspends the right to enforce it in accordance with the terms of the accord contract

satisfaction is the performance of the accord agreement

its effect is to discharge not only the original contaract but also the accord contract as well

needs consideration

breach by debtor: can sue on either the original undischarged contract or for the breach of the accord agreement

breach by creditor: if they breach by suing on the original contract, debtor can (1) raise the accord agreement as an equitable defense and ask that the contract action be dismissed; or (2) wait until they are damaged (wait until creditor is successful in their action on the original contract) and then bring an action at law for damages for breach of the accord contract

Question 34

John borrows $500 from Gabrielle and promises to repay her
with interest. Later, Gabrielle agrees to discharge the debt if John promises to do her yard work for a year. What are Gabrielle’s rights if John does not do the yard work as promised?

Answer 34

so they entered into this accord now to do the yard work, but he doesn’t do the yard work; she can now sue him on the accord to do the yard work or the original $500 debt; bc this was an accord without satisfaction; he never did the yard work; that does not suspend/excuse his original obligation to pay the $500 debt; or she can go after the accord to do the yard work

Question 35

What are the differences between accord and modification?

Answer 35

Accord: parties to an existing obligation agree to accept a different future performance

Accord and satisfaction is usually triggered by a dispute of an amount due

If no dispute, consider modification

Also look to see if party offering the accord is looking to discharge the contract

If instead they want the contract to continue, the parties are modifying

If party to accord doesn’t carry out new promise, the original contract remains enforceable

With modification, they want to change their agreement so they agree to a different agreement and those duties change immediately and the original contract is no longer in effect and can’t be enforced

Lots of elements are the same though (offer, acceptance, consideration)

Question 36

What is discharge by novation?

Answer 36

novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract

elements for valid novation: (1) a previous vaild contract; (2) an agreement among all parties, including the new party; (3) the immediate extinguishment of contractual duties as bt the original contracting parties; and (4) a valid and enforceable new contract

If you have valid novation, and the new party breaches, the old party won’t be held liable for their breach - they swapped people

If they didn’t get a party’s consent and just had someone else do your work and then that person breached, then you’d be on the hook because that was just delegation, not a formal novation

Question 37

what is discharge by impossibility?

Answer 37

note for MBE, impossibility falls under impracticability

contractual duties will be discharged if it has become impossible to do them - if unforeseen event makes them impossible

must be objective - duties couldn’t be performed by anyone

must arise after the contract has been intered into - if the facts giving rise to impossibility already existed when the contract was formed, then it’s not a discharge issue, it’s a contract formation problem bc then maybe it’s voidable due to mistake

if contract is discharged due to impossibility, each party is excused from their duties that are yet to be fulfilled - either party may sue for rescission and receive restitution of any goods delivered, payments made, etc.

if only partially impossible, duty may be discharged only to that extent - even if remainder of performance might involve added expense or difficulty, you have to do it or you’re in breach

if temporarily impossible, that suspends duties - doesn’t discharge them - when performance becomes possible again, duties spring back into existence unless the burden on either party would be substantially increased or different from that originally contemplated

part performance before impossibility - that party will have a right to recover in quasi-contract at the contract rate or for the rsble vaue of his performance if that’s more convenient

specific situations:

(1) death or physical incapacity of a person necessary to effectuate the contract serves to discharge it - (Van Gogh hired to paint a portrait and then gets hurt would be excused; but Van Gogh hired to paint a house and then gets hurt would not be excused, he’s not essential there even though he’s famous, he needs to be special or essential) - if the services are not unique, the death or incapacity of that person would not make performance impossible because you can delegate

(2) supervening illegality

(3) subsequent destruction of contract’s subject matter or means of performance

but note a contractor’s duty to construct a building is not discharged by destruction of the work in progress (but most courts will excuse contractor from meeting the original deadline - and he won’t get anything other than the contract price)

contrast w a contract to repair or remodel a building that’s destroyed - that would be discharged because you can’t remodel something that isn’t there anymore - entitled to restitution

destruction of a source for fulfilling the contract will render the contract impossible only if the source is the one source specified by the parties

all this won’t apply if risk of loss has already passed to the buyer

Question 38

When will courts discharge for impracticability?

Answer 38

the party to perform has encountered:

(1) extreme and unrsble difficulty and/or expense; and

(2) its nonoccurrence was a basic assumption of the parties

UCC follows above rules for imprac and imposs

Generally, seller assumes risk of the occurrence of unforeseen events and must continue to perform - but if it’s fair to say that the parties would not have placed on the seller the risk of the extraordinary occurrence, the seller will be discharged

Increase in cost generally doesn’t give you excuse

Sufficient events: shortage of raw materials or inability to convert them into seller’s product bc of things like war, strike, or unforeseen shutdown of a major supplier; catastrophic crop failure (as opposed ot a mere shortage)

Question 39

Sample partial answer for discharge by imposs or imprac

Answer 39

In contracts for the sale of goods under the UCC, a party’s duty to perform may be discharged where performance would be impracticable. Imprac exists where a party encounters extreme and unrsble difficulty and/or expense, and such difficulty was not anticipated. Duties will not be discharged where performance is merely more difficult or expensive than anticipated. The facts giving rise to imprac must be such that their nonoccurrence was a basic assumption on which the contract was made. Where, as here, parties enter into a contract for the sale of goods to be supplied to the public through a retail outlet, both parties must anticipate the possibility that there will be a change in market conditions, resulting in either an increased or decreased demand for the product.

Question 40

What is discharge by frustration?

Answer 40

Exists if the purpose of the contract has become valueless by virtue of some supervening event not the fault of the party seeking discharge

Courts will often discharge this even though performance is still technically possible

elements necessary to establish frustration are:

(1) some supervening act or event leading to the frustration;

(2) at the time of entering into the contract, the parties did not rsbly foresee the act or event occurring;

(3) purpose of the contract has been completely or almost completely destroyed by this event;

(4) purpose of the contract was realized by both parties at the time of making the contract

Ex: a person has rented a venue for a specific purpose known to the owner and a subsequent event (storm, death) that was not rsbly foreseeable renders the purpose for renting the place moot

Both parties understood the central purpose; performance excused if contract’s essential purpose is undermined

Question 41

What will the seller raise and what will the buyer raise?

Answer 41

Seller: impossibility or impracticability as a defense

Buyer: frustration of purpose as defense