(2) Contracts: Discharge of Performance

Question 1

Condition (Definition, Standard used, Ambiguity, etc.)

Answer 1

A condition may be express or implied and makes performance contingent upon the occurrence or completition of the condition.

If there is ambiguity if it is a condition or a promise courts tend to resolve in favor of a promise.

The court will use a reasonable person standard to determine if the condition has been satisfied.

Party’s must make a good faith effort to satisfy the condition and cannot try to prevent satisfaction of the condition.

Question 2

Condition Precedent

Answer 2

A condition precedent in a contract makes performance conditional upon one party’s completion of the condition. If the condition fails there is no obligation to perform.
*A party must make a good faith effort to satisfy the condition;

Question 3

Can a Condition Precedent be waived?

Condition Precedent

Answer 3

A party may waive (voluntarily give up the protection of the condition) –Conditions are waived when (1) a party indicates through words or conduct that a condition does not need to be satisfied; AND (2) the other party detrimentally relies on that waiver

Question 4

Condition Subsequent

Answer 4

A condition excuses the duty to perform after a particular event occurs. Only exists in relation to a duty that is absolute.

Question 5

Frustration of Purpose

Answer 5

Performance is discharged if the purpose of the contract no longer exists. (1) a party’s principal purpose is substantially frustrated not by their fault; (2) by an unforeseeable supervening event outside of the parties control (non-occurrence was a basic assumption of the contract); AND (3) both parties knew the purpose at the time of formation.
*The event can be foreseeable but the frustration so severe that it is not within the assumed risks inherent under the contract.

Question 6

Rule/Common Law/UCC

Impossibility

Answer 6

Performance is discharged when it is objectively impossible to perform a contract because of (1) death or physical incapacity of the person necessary to effectuate the contract (if the person can easily be replaced then performance is not excused); (2) unanticipated destruction of the subject matter necessary to fulfill the contract; OR (3) a new law or regulation that was unanticipated makes performance extremely and unreasonably difficult or expensive.
* Common Law: if the risk of the loss is on the buyer, then destruction of subject matter does not excuse performance.
* UCC: Performance is excused only if the destroyed goods were special AND were destroyed before the risk of loss shifted to the buyer.

Question 7

Common Law vs UCC

Impracticability

Answer 7

Performance is discharged when (1) an unforeseeable event occurs after contract formation; (2) that is unanticipated by both parties; AND (3) makes performance extremely and unreasonable difficult or expensive
*Under UCC: Additional element – Nonoccurrence of the event was a basic assumption of the contract.

Question 8

Waiver

Answer 8

A waiver is a voluntary and intentional relinquishment of a contract right by words or conduct.

Performance of a condition is excused through waiver if: (1) a party voluntarily waives the condition through words or conduct; AND (2) the other party detrimentally relies on that waiver.

If a party doesnt detrimentally rely on the waiver the party may revoke the waiver.

Question 9

Rule/Definitions of Each/ Remedy if a breach occurs

Accord and Satisfaction

Answer 9

A party is excused from their contractual obligations when there is an accord and satisfaction.

• An accord is an agreement formed where a party to contract agrees to accept a performance from the other party that differs from the promised performance in the existing contract.
• A satisfaction is the performance of the accord agreement. The original contract and accord agreement aren’t satisfied until the performance is fully complete.
• If the accord is breached, then the party may sue on the original contract or the accord agreement.

Question 10

Minor Breach

Answer 10

A minor breach will not excuse performance, and the non-breaching party must still perform and then bring a separate action for damages resulting from the breach.

Question 11

Rule

Material Breach

Answer 11

A material breach will excuse the non-breaching party’s performance.

Question 12

How to determine if a breach is material?

Answer 12

To determine whether a breach is material courts will consider: (1) the extent of the benefit deprived to the injured party (what was the extent of performance); (2) the adequacy of compensation for loss to the non-breaching party; (3) the extent the breaching party will suffer forfeiture (hardship); (4) the likelihood that the breaching party will cure; AND (5) absence of good faith or fair dealing by the breaching party (was the breach intentional, negligent or innocent).

Question 13

Time is of the Essence Clause

Material Breach

Answer 13

If the contract contains an explicit “time of the essence” clause which requires performance by a specified date, then the failure to perform by said date is deemed a material breach.

Question 14

Performance by a Specified date

Material Breach

Answer 14

Failure to perform by a specified date is generally not a breach. If the time passes and no party seeks enforcement the clause is considered waived.

Question 15

Rule

UCC Perfect Tender Rule

Answer 15

Under Article 2 of the UCC a seller must delivery conforming goods and the buyer must accept and pay the price under the contract. If there is even the smallest non-conformity then this is a breach and the buyer may reject all or a portion of the goods. (Buyer has the right

Question 16

UCC Perfect Tender Rule Exceptions

Answer 16

(1) The Seller has a Right to Cure Rule: A seller has a right to cure when (a) the time for performance has not yet expired, the seller can cure within the contract time period remaining; OR (b) the seller is allowed additional reasonable time to substitute tender if it had reasonable grounds that the goods would be accepted (i.e., the same type of non-conforming goods were accepted by the buyer in the past).

(2) Installment Contracts Rule: Installment contracts may only be cancelled where an installment is so defective that is substantially impairs the value of the entire contract.

Rule: A buyer may reject a single installment if the non-conformity substantially impairs the value of the installment and cannot be cured.
*If seller makes reasonable assurances that they can cure the buyer must accept the shipment.
*A buyer must reject within a reasonable time after delivery of tender.

Question 17

UCC Acceptance of Goods

Answer 17

A buyer accepts goods (a) after a reasonable opportunity to inspect the goods and signifies to seller that the goods are conforming or that buyer will accept non-conforming goods; (b) fails to reject the goods after reasonably opportunity to inspect; (c) does any act inconsistent with the sellers ownership of the goods.
*Buyer is obligated to pay once acceptance occurs but may sue for breach if buyer notifies the seller of breach within a reasonable time.

Question 18

Revocation of Acceptance

Answer 18

After acceptance of goods a buyer may later revoke if (1) the nonconformity substantially impairs the value of the goods; AND (2) either (a) the defect was difficult to discover; (b) acceptance was reasonably induced by the sellers assurances; or (c) the buyer accepted the goods on the reasonable assumption the defect would be cured.
* Revocation must occur within a reasonable time after buyer discovers or should have discovered non-conformity.
* Revocation is not effective until buyer notifies the seller.
* If buyer successfully revokes they are entitled to the return of the purchase price.

Question 19

Sellers Obligations to Tender Goods

Answer 19

A seller must tender goods in accordance with the contract provisions and if they are silent in accordance with the UCC.
* Goods are to be delivered in one delivery unless otherwise specified.
* The place of tender is the sellers place of business unless otherwise specified.

Question 20

4 Methods of Tender

Sellers Obligation to Tender Goods

Answer 20

(1) Sellers Place of Business – Seller must provide buyer with notice;

(2) Shipment Contract – If no delivery type is specified it is a shipment contract which requires the seller to deliver the goods to a carrier and give buyer notice they have been shipped (aka F.O.B. Sellers Place of Business”);

(3) Destination Contract – seller must deliver to a specific place and give buyer notice (aka F.O.B. Buyers Place of Business);

(4) Goods in the Hands of a Bailee – seller must bargain for buyers rights in the goods with bailee.

Question 21

Anticipatory Repudiation

Answer 21

An anticipatory repudiation occurs when a party clearly and unequivocally repudiates a promise to perform before performance is due. A party that anticipatorily breaches a contract may retract its repudiation and restore the contract unless the aggrieved party has (a) cancelled; (b) materially changed their position; OR (c) indicated that they consider the repudiation final.

Question 22

Non-Breaching Party Options in an Anticipatory Repudiation

Answer 22

The non-breaching party may do any of the following when an anticipatory repudiation occurs: (a) treat the contract as repudiated and sue for damages; (b) treat the contract as discharged; (c) wait until performance is due and sue when performance does not occur; OR (d) urge the party to perform.

Question 23

Adequate Assurances

Answer 23

A party with reasonable grounds for being insecure about another party’s performance may demand in writing adequate assurances from the other party that it will perform in accordance with the contract. If a party doesn’t provide adequate assurances within a reasonable time after asked to do so the asking party may treat that as an anticipatory repudiation. (In sale of good contracts the time given to respond cannot exceed 30 days).

Question 24

Novation

Answer 24

A novation occurs when (1) all parties to a contract; (2) agree to discharge an original party to the contract; AND (3) substitute a third party in the original party’s place.

Question 25

Implied Obligation of Good Faith and Fair Dealing

Answer 25

Every contract contains an implied obligation of good faith and fair dealing which requires the parties to act honestly and fairly.
UCC Rule: Under the UCC an implied duty of good faith and fair dealing is imposed upon each party’s performance to a contract. Good faith is defined in the UCC as (a) honest in fact and (b) the observance of reasonable commercial standards of fair dealing. In the case of a merchant good faith extends even further to observance of reasonable commercial standards of fair dealing in the trade.