BAR FLASHCARDS - C6 Performance
(114 cards)
1
Q
Performance of Common Law Contract
A
Performance does not have to be perfect
Substantial Performance is all that is required (ie party cannot commit a material breach): Meets contract’s essential performance. Material breach is if you do not have substantial performance.
Relatively easy –> just look to the terms of K to see what performance obligations re, and make sure there is SP = meets the essential purpose of the K vs. material breach not okay –> excuses the innocent party’s performance obligations
A party’s basic duty at common law is to substantially perform all that is called for in the contract.
2
Q
Performance of Ks for a sale of goods (UCC)
A
(1) perfect tender ruler: Article 2 generally requires a perfect tender—the delivery and condition of the goods must be exactly as promised in the contract. Seller’s delivery must be perfect - at the right place and right time.
(2) Option of Cure
(3) Installment Contracts
(4) Buyer’s Acceptance of the goods
(5) Buyer’s Revocation of Acceptance of the Goods
(6) Consequences of Rejection/Revocation of Acceptance
(7) Buyer’s Obligation to Pay
3
Q
Perfect Tender Rule
A
s must deliver perfect goods in the right place at the right time
- if tender is not 100% perfect, buyer has the right to reject the goods
4
Q
Performance of Ks for a sale of goods (UCC): Seller’s Obligation of Tender and Delivery in Noncarrier Cases:
A
a. Noncarrier Cases:
- Tender of Delivery: In a proper tender of delivery, the seller must put and hold conforming goods at the buyer’s disposition for a time suffi- cient for the buyer to take possession.
The seller must give the buyer notice reasonably necessary to enable the buyer to take possession of the goods.
The tender must be at a reasonable hour. - Place of Delivery: In the absence of an agreement otherwise, the place of delivery generally is the seller’s place of business, or if he has none, his residence.
5
Q
Performance of Ks for a sale of goods (UCC): Seller’s Obligation of Tender and Delivery in Carrier Cases
A
b. Carrier Cases
- Shipment Contracts: Where Seller Has Not Agreed to Tender at Particular Destination: In the absence of an agreement otherwise, the seller need not see that the goods reach the buyer, but need only:
— Put the goods into the hands of a reasonable carrier and make a reasonable contract for their transportation to the buyer
— Obtain and promptly tender any documents required by the contract or usage of trade or otherwise necessary to enable the buyer to take possession, and
— Promptly notify the buyer of the shipment
- Destination Contracts: Where Seller Has Agreed to Tender at Particular Destination: If the contract requires the seller to tender delivery of the goods at a particular destination (for example, FOB buyer’s warehouse), the seller must, at the destination, put and hold conforming goods at the buyer’s disposition.
6
Q
Performance of Ks for a sale of goods (UCC): Buyer’s OBligation to PAY
A
Cash is great, checks are generally okay but sellers can refuse check - but this gives buyer more time to come up with the cash.
a. Delivery and Payment Concurrent Conditions:
* In noncarrier cases, unless the contract provides otherwise, a sale is for cash and the price is due concurrently with tender of delivery.
* NONCARRIER: Proper tender of delivery entitles the seller to acceptance of the goods and to payment according to the contract.
* CARRIER: However, unless otherwise agreed, when goods are shipped by carrier, the price is due only at the time and place at which the buyer receives the goods.
* Therefore, in a shipment case the price is due when the goods are put in the hands of the carrier, and in a destination contract the price is due when the goods reach the named destination.
b. Installment Contracts: In an installment contract (that is, one that requires or authorizes delivery in separate installments), the seller may demand payment for each installment if the price can be so apportioned, unless a contrary intent appears.
7
Q
Payment by Check
A
Tender of payment by check is sufficient unless the seller demands cash and gives the buyer time to get it.
If a check is given, the buyer’s duty to pay is suspended until the check is either paid or dishonored.
If the check is paid, the buyer’s duty to pay is discharged.
If the check is dishonored, the seller may sue for the price or recover the goods.
8
Q
Performance of Ks for a sale of goods (UCC): Buyer’s Right to Inspect
A
Buyer’s Right of Inspection: The buyer has a right to inspect the goods before they pay unless the contract provides for payment C.O.D. or otherwise indicates that the buyer has promised to pay without inspecting the goods.
IMPLIED ACCEPTANCE: buyer keeping the goods after having reasonably opportunity to inspect.
9
Q
Note on Buyer’s inspection: Under UCC Article 2, unless the contract provides otherwise, any expenses for inspection of the goods sold will be borne by:
A
the buyer, but may be recovered from the seller if the goods do not conform and are rejected
10
Q
Buyer’s Acceptance of the Goods
A
Implied Acceptance: B keeps goods after having an opportunity to inspect them
- if there’s a long delay between receipt and complaint (more than one month), look for implied acceptance
- merely paying for goods upfront does not = acceptance
- even if haven’t opened the box or whatever, if long delay then think implied acceptance
- Once B accepts, it’s too late for buyer to reject, BUT buyer can still get damages for seller’s breach
11
Q
paying for goods upfront
A
paying for goods upfront does not = acceptance
12
Q
Obligation of Good Faith
A
Article 2 requires all parties to act in good faith, which is defined as “honesty in fact and the observance of reasonable commercial standards of fair dealing.” This obligation cannot be waived by the parties.
13
Q
Installment Sales Contract
A
Requires or authorizes seller to deliver goods in separate installments over specified period.
Rejection Under Installment K: Perfect tender rule DOES NOT apply, Buyer may reject ONLY for substantial impairment
14
Q
Option of Cure
A
A seller who fails to make perfect tender may have an option to cure
Whether S has that option usually depends on whether the time performance has expired
- Time has not Expired - seller has option to cure
- Time Has Expired - Seller DOES NOT have an option to cure, UNLESS there is “reasonable grounds” for thinking her improper tender would have been acceptable
- **Exam Tip: look for info in facts about past deals between S and B in which B didn’t insist on perfection
15
Q
Conditions
A
Limit obligations created by Contract language. A contract may provide that a party does not have a duty to perform unless some condition is fulfilled.
In that case, the party’s failure to perform is justified if the condition was not fulfilled.
“if”, as long as, provided, on the condition that.”
STRICT COMPLIANCE - express conditions MUST be perfeclty satisfied.
BUT, cannot sue for breach, just excuses a duty to perform.
16
Q
Distinction Between Promise and Condition
A
Difference between whether a party is bound under a contract and whether a party who is bound has come under a duty to perform. A person is bound if there has been an offer, an acceptance, and an exchange of consid- eration. However, the contract may provide (impliedly or explicitly) that a party who is bound does not have a duty to perform unless or until some specified condition occurs. In looking at the terms of a contract, a distinction has to be drawn between an absolute promise on the one hand and a condition on the other.
Promise: A promise is a commitment to do or refrain from doing something. If a promise is unconditional, the failure to perform according to its terms is a breach of contract.
Condition: “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 occurrence or nonoccurrence of which releases a party from their duty to perform. A condition is a “promise modifier.” There can be no breach of promise until the promisor is under an immediate duty to perform.
17
Q
Failure of Condition vs. Breach of Contract
A
The failure of a contractual provision that is only a condition is not a breach of contract, but it discharges the liability of the promisor whose obligations on the conditional promise never mature.
The failure of a promise is a breach and gives rise to liability, whereas the failure of a condition relieves a party of the obligation to perform.
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Q
The failure of a promise is a ____, whereas the failure of a condition ____.
A
The failure of a promise is a breach and gives rise to liability, whereas the failure of a condition relieves a party of the obligation to perform.
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Q
Interpretation of Provision as Promise or Condition
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What determines whether a contract provision is a promise or a condition is the “intent of the parties.”
Courts will look at the words and phrases used by the parties, their prior practices, the custom in the business community with respect to the provision, and whether performance is needed from a third party (if performance is to be rendered by a third party, it’s more likely to be a condition than an absolute promise). In doubtful situations, most courts will hold that the provision in question is a promise.
20
Q
Interpretation of Provision as Promise or Condition: WORDS
A
Words such as “provided,” “if,” and “when” usually indicate a condition, whereas “promise” and “agree” usually indicate a promise.
“When” can be tricky. If the event following “when” is not within the obligee’s control, courts prefer to interpret it as indicating a time for performance, not a condition of performance.
In a common situation the contract states that a subcontractor will get paid “when” the general contractor is paid by the landowner.
This is not considered a condition, and the general contractor must pay the subcontractor within a reasonable time.
21
Q
Express Conditions
A
“Express condition” normally refers to an explicit contractual provision.
It is an express statement in the contract providing that either
(1) a party does not have a duty to perform unless some event occurs or fails to occur; or
(2) if some event occurs or fails to occur, the obligation of a party to perform one or more of his duties under the contract is suspended or terminated. Conditions of satisfaction are common express conditions.
22
Q
Satisfaction Condition
A
Satisfaction measured by a reasonable person standard UNLESS:
- Contract deals with art or personal taste.
Promisor’s Satisfaction as Condition Precedent: Many contracts include an express condition that a party will pay only if “satisfied” with the other party’s performance. Because it is a condi- tion, the promisor is under no duty to pay unless they are satisfied.
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Q
Satisfaction Condition - Mechanical Fitness, Utility, or Marketability
A
- Mechanical Fitness, Utility, or Marketability
In contracts involving mechanical fitness, utility, or market- ability (for example, construction or manufacturing contracts), a condition of satisfaction is fulfilled by a performance that would satisfy a reasonable person. It is therefore immaterial that the promisor was not personally satisfied if a reasonable person would have accepted and approved the performance tendered.
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Q
Satisfaction Condition - Personal Taste or Judgment
A
Satisfaction measured by a reasonable person standard UNLESS:
- Contract deals with art or personal taste.
Personal Taste or Judgment: If the contract involves personal taste or personal judgment (for example, portraits, dental work), a condition of satisfaction is fulfilled only if the promisor is personally satisfied.
But note: Even if a condition requires personal satisfaction, a promisor’s lack of satisfaction must be honest and in good faith.
Thus, if the promisor refuses to examine the promisee’s performance, or otherwise rejects the performance in bad faith, the condition of satisfaction will be excused.
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Satisfaction of Third Person as Condition
Satisfaction of Third Person as Condition
Construction contracts often include a condition requiring the satis- faction of the owner’s architect or engineer. When the satisfaction of a third person is a condition, most courts require the actual personal satisfaction of that person. However, the condition will be excused if the third person’s dissatisfaction is not honest and in good faith.
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When Purpose of Condition Is to Benefit One Party
When Purpose of Condition Is to Benefit One Party
When it is clear that the purpose of a condition is to protect or benefit only one of the parties, the other party’s duty will not be subject to the condition.
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Classification of Conditions
a. Condition Precedent: A condition precedent is one that must occur before an absolute duty of immediate performance arises in the other party.
b. Conditions Concurrent: Conditions concurrent are those that are capable of occurring together, and that the parties are bound to perform at the same time (for example, tender of deed for cash). Thus, in effect, each is a condi- tion “precedent” to the other.
c. Condition Subsequent: A condition subsequent is one that, when it occurs, cuts off an already existing absolute duty of performance.
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Express codnition precedent
Must occer before payment is due.
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Condition Subsequent:
EVents AFTER performance that could terminate duty to pay.
A condition subsequent is one that, when it occurs, cuts off an already existing absolute duty of performance.
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Constructive Conditions of Performance
The most important and common implied condition is that the duty of each party to render performance is conditioned on the other party either rendering their performance or making a tender of their perfor- mance.
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Constructive Conditions of Cooperation and Notice
Constructive conditions of cooperation and notice are common. Under a constructive condition of cooperation, the obligation of one party to render performance is impliedly conditioned on the other party’s cooperation in that performance. Also, it’s often a condition to one party’s performance that the other party give notice that the performance is due. A condition of notice is most commonly applied where a party couldn’t reasonably be expected to know a fact (for example, need for repair) that triggered the duty to perform unless notice was given.
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Constructive Conditions: Order of Performance
The courts sometimes imply constructive conditions relating to the time for performing under the contract.
Simultaneous Performance Possible—Conditions Concurrent: If both performances can be rendered at the same time, they are constructively concurrent; thus, each is a condition “prece- dent” to the other. So, absent excuse, each party must first tender their own performance if they wish to put the other under a duty of immediate performance that would result in breach if they fail to perform.
One Performance Takes Time—Conditions Precedent: If one performance will take a period of time to complete while the other can be rendered in an instant, completion of the longer performance is a constructive condition precedent to execution of the shorter performance.
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Effect of Condition—Equitable Remedy
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 (see 8.3), although the measure of damages in that case may be less advanta- geous than the contract price.
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Have the Conditions Been Excused?
Conditions may be excused by action or inaction of person Protected by condition.
A duty of immediate performance with respect to a conditional promise doesn’t become absolute until the conditions
(1) have been performed or
(2) legally excused.
In analyzing a question, if the facts don’t reveal performance of the applicable condition precedent or concurrent, look to see whether the condition has been excused. Excuse of conditions can arise in a variety of ways.
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Excuse of Condition by Hindrance or Failure to Cooperate
If a party having a duty of performance that is subject to a condition (that is, the party protected by the condition) prevents the condi- tion from occurring, the condition will be excused if the prevention is wrongful (meaning, the other party would not have reasonably contemplated or assumed the risk of this type of conduct).
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Excuse of Condition by Waiver or Estoppel
Waiver of condition: Voluntary giving up of condition's protection.
One having the benefit of a condition under a contract may indicate by words or conduct that they will not insist on that condition’s being met. Consideration is not required for a valid waiver of condition.
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Excuse of Condition by Waiver or Estoppel - Estoppel Waiver:
- Estoppel Waiver: Whenever a party indicates they are waiving a condition before it is to happen, or they are waiving some performance before it is to be rendered, and the person addressed detrimentally relies on the waiver, the courts will hold this to be a binding (estoppel) waiver. Note, however, that the promise to waive a condition may be retracted at any time before the other party has changed their position to their detriment.
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Excuse of Condition by Waiver or Estoppel: - Election Waiver:
- Election Waiver: When a condition doesn’t occur or a duty of performance is broken, the beneficiary of the condition or duty must make an election; they may: (1) terminate their liability, or (2) continue under the contract. If they choose to continue, they will be deemed to have waived the condition or duty. An election waiver requires neither consideration nor estoppel (although estoppel elements are often present). Note that an election waiver cannot be withdrawn—even if the other party has not relied on it.
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Excuse of Condition by Waiver or Estoppel: - Conditions that May Be Waived:
- Conditions that May Be Waived: If no consideration is given for the waiver, the condition must be ancillary or collateral to the main subject and purpose of the contract for the waiver to be effective. In other words, you cannot “waive” entitlement to the entire or substantially entire return performance.
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Excuse of Condition by Waiver or Estoppel: - Waiver in Installment Contracts:
- Waiver in Installment Contracts: In an installment contract, if a waiver isn’t supported by consid- eration, the beneficiary of the waived condition can insist on strict compliance with the terms of the contract for future install- ments (so long as there has been no detrimental reliance on the waiver) by giving notice that he is revoking the waiver.
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Excuse of Condition by Waiver or Estoppel: - Right to Damages for Failure of Condition:
- Right to Damages for Failure of Condition: It’s important to note that a waiver severs only the right to treat the failure of the condition as a total breach excusing counter- performance. However, the waiving party does not thereby waive her right to damages.
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Excuse of Condition by Actual Breach
An actual breach of the contract when performance is due will excuse the duty of counterperformance.
Note, however, that counterperformance will be excused at common law only if the breach is material.
A minor breach may suspend this duty, but it won’t excuse it.
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Excuse of Condition by Anticipatory Repudiation
Early Statement of non-performance. Provides an excuse unless it is retracted if it has not been relied upon yet.
Excuses innocent party and gives rise for breach.
Anticipatory repudiation occurs if a promisor, prior to the time set for performance of their promise, indicates that they won’t perform when the time comes. If the requirements set forth below are met, this anticipatory repudiation will serve to excuse conditions.
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Anticipatory Repudiation - Executory Bilateral Contract Requirement:
Anticipatory repudiation applies only if there is a bilateral contract with executory (unperformed) duties on both sides.
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Anticipatory Repudiation- Anticipatory Repudiation Must Be Unequivocal:
An anticipatory repudiation stems from the words or conduct of the promisor unequivocally indicating that he cannot or will not perform when the time comes.
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Anticipatory Repudiation- Effect of Anticipatory Repudiation:
In the case of an anticipatory repudiation, the nonrepudiating party has 4 alternatives:
— Treat the anticipatory repudiation as a total repudiation and sue immediately
— Suspend their own performance and wait to sue until the performance date
— Treat the repudiation as an offer to rescind and treat the contract as discharged, or
— Ignore the repudiation and urge the promisor to perform (but note that by urging the promisor to perform, the nonrepudiating party is not waiving the repudiation—they can still sue for breach and are excused from performing unless the promisor retracts the repudiation)
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Anticipatory Repudiation - Retractions
Repudiations can be retracted if not relied on yet.
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Retraction of Repudiation
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. Withdrawal of the repudiation may be in any manner that clearly indicates the intention to perform, but must include any assurances justifiably demanded.
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Excuses for nonperformance
(1) Other party's breach
(2) Anticipatory Repudiation
(3) failure to give adequate assurance (article 2)
(4) Later Agreement Excusing OG Obligations
(5) Impossibility as an Excuse
(6) Death/Incapacity of Essential Person as an Excuse Due to Impossibility
(7) Supervening gov regulation
(8) Frustration of Buyer's Primary Purpose
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Anticipatory Repudiation
Provides an excuse UNLESS the repudiation is retracted
- IF AP then can also immediately sue for breach of K
- Retractions can be used to reimpose AP as long as the retraction was not relied upon
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Failure to give adequate assurance (Art. 2)
Party with reasonable grounds for being insecure about other party's performance may request in writing adequate assurance that other party will perform in accordance with contract.
if don't receive adequate assurance - can treat as an Anticipatory Repudiation of the K, meaning obligations of the innocent party will be excused.
*Cannot use AA provision to rewrite K or demand a particular kind of assurance. Only entitled to adequate assurance.
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Excuse of Condition by Prospective Inability or Unwillingness to Perform
Prospective failure of condition occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due..
Effect of Prospective Failure: The effect of prospective failure is to allow the innocent party to suspend further performance on their side until they receive adequate assurances that performance will be forthcoming. If the other party fails to provide adequate assurances, the innocent party may be excused from their own performance and may treat the failure to provide assurances as a repudiation.
Retraction of Repudiation: As with anticipatory repudiation, retraction is possible if the defaulting party regains their ability or willingness to perform. However, this fact must be communicated to the innocent party in order to be effective.
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Actual and Anticipatory Repudiation
Prospective inability or unwillingness to perform is not an anticipatory repudiation because such a repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that the party will perform.
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Excuse of Condition by Substantial Performance
Generally, the condition of complete performance may be excused if the party has rendered substantial performance.
In this case, the other party’s duty of counterperformance becomes absolute.
It should be noted, however, that courts generally apply this doctrine only if a constructive (implied in law) condition is involved.
They won’t apply it when there is an express condition for fear this would defeat the express intent of the parties.
- Substantial Performance Arises If Breach Is Minor
The rules for determining substantiality of performance are the same as those for determining materiality of breach. (See 7.2.)
- Inapplicable Where Breach “Willful”
Most courts won’t apply the substantial performance doctrine if the breach was “willful.”
- Damages Offset
Even though the 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 incom- plete performance.
- Generally Inapplicable to Contracts for the Sale of Goods The doctrine of substantial performancedoesn’t apply to contracts for the sale of goods because perfect tender is gener- ally required.
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Excuse of Condition by “Divisibility” of Contract
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. It isn’t a condition precedent to the other party’s liability that the whole contract be performed. However, the other party has a cause of action for failure to perform the other units and may withhold their counterperfor- mance for those units.
- What Is a “Divisible” Contract?: Three tests must be concurrently satisfied to make a contract divisible:
— The performance of each party is divided into two or more parts under the contract.
— The number of parts due from each party is the same.
— The performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party, meaning each performance is the quid pro quo of the other.
- Sales of Goods—Installment Contracts
Like the common law, Article 2 assumes that a contract is not divisible unless it authorizes deliveries in several lots, in which case, the contract is called an installment contract. In installment contracts, the price, if it can be apportioned, may be demanded for each lot unless a contrary intent appears.
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Excuse of Condition by Impossibility, Impracticability, or Frustration
Conditions may be excused by impossibility, impracticability, or frustration of purpose.
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HAS THE ABSOLUTE DUTY TO PERFORM BEEN DISCHARGED?
Once it is determined that a party is under an immediate duty to perform, the duty to perform must be discharged.
-Discharge by Performance or Tender of Performance
- Discharge by Occurrence of Condition Subsequent: The occurrence of a condition subsequent will serve to discharge contractual duties.
- Discharge by Illegality:
- Discharge by Rescission
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Discharge by Illegality
If the subject matter of the contract has become illegal due to a subsequently enacted law or other governmental act, performance will be discharged. This is often referred to as “supervening illegality.”
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Discharge by Rescission
Rescission will serve to discharge contractual duties. Rescission may be either mutual or unilateral.
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Mutual Rescission
Mutual Rescission: The contract may be discharged by an express agreement between the parties to rescind. The agreement to rescind is itself a binding contract supported by consideration, namely, the giving up by each party of their right to counterperformance from the other.
- Contract Must Be Executory: For a contract to be effectively discharged by rescission, the duties must be executory on both sides.
-- Unilateral Contracts: If the contract is unilateral (meaning only one party owes an absolute duty), a contract to mutually rescind where one party still has a duty to perform will be ineffective. For an effective rescission in a unilateral contract situation where the offeree has already performed, the rescission promise must be supported by one of the following:
--- An offer of new consideration by the nonperforming party
--- Elements of promissory estoppel, meaning detrimental reliance, or
--- Manifestation of an intent by the original offeree to make a gift of the obligation owed them.
— Partially Performed Bilateral Contracts
A mutual agreement to rescind will usually be enforced when
a bilateral contract has been partially performed. Whether the party who has partially performed will be entitled to compensa- tion depends on the terms of the rescission agreement.
- Formalities: Mutual rescission may be made orally. This is so even though the contract to be rescinded expressly states that it can be rescinded only by a written document, unless the subject matter of the contract to be rescinded falls within the Statute of Frauds (for example, transfer of land) or the contract is for the sale of goods (Article 2 requires a written rescission or modification if the original contract to be rescinded or modified expressly requires a written rescission).
- Contracts Involving Third-Party Beneficiary Rights: If the rights of third-party beneficiaries have already vested, the contract may not be discharged by mutual rescission.
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Unilateral Rescission
Unilateral rescission results when one of the parties to the contract desires to rescind it but the other party desires that the contract be performed according to its terms. For unilateral rescission to be granted, the party desiring rescission must have adequate legal grounds. Most common among these are mistake, misrepresentation, duress, and failure of consideration. If the nonassenting party refuses to voluntarily grant rescission, the other party may file an action in equity to obtain it.
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4 types of later agreements
1. Recission: Party's mutual agreement to rescind the contract.
2. Modification agrrement: Replaces existing contract with new one immediately.
3.
4.
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Partial Discharge by Modification of Contract
If a contract is subsequently modified by the parties, this will serve to discharge those terms of the original contract that are the subject of the modification. It will not serve to discharge the entire contract.
Like the original agreement, an agreement modifying a common law 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 is needed for the modification of a contract for the sale of goods under Article 2, as long as the modification is sought in good faith.
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Discharge by Cancellation
The destruction or surrender of a written contract will not usually, by itself, discharge the contract. If, however, the parties manifest their intent to have these acts serve as a discharge, it will usually have this effect if consideration or one of its alternatives is present.
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Discharge by Release
A release and/or contract not to sue will serve to discharge contrac- tual duties. The release or contract not to sue usually must be in writing and supported by new consideration or promissory estoppel elements.
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Discharge by Substituted Contract
A contract may be discharged by a substituted contract. This occurs when the parties to a contract enter into a second contract that immediately revokes the first contract expressly or impliedly.
a. Intent Governs: Whether a second contract will constitute a substituted contract depends on whether the parties intend an immediate discharge or a discharge only after performance of the second contract. If an immediate discharge is intended, there is a substituted contract. If the parties intend the first contract to be discharged only after perfor- mance of the second contract, there is an executory accord (see below) rather than a substituted contract.
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Accord and Satisfaction
Agreement to accept different performacne to satisfy existing duty.
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Discharge by Accord and Satisfaction
A contract may be discharged by an accord and satisfaction.
An accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that they are supposed to receive from the other party, some other, different future performance.
Effect of accord: The accord, taken alone, won’t discharge the prior contract; it 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 contract but also the accord contract as well.
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Accord - Requirement of Consideration
In general, an accord must be supported by consideration.
Even if the consideration is of a lesser value than the originally bargained-for consideration in the prior contract, it will be sufficient if the new consideration is of a different type or if the claim is to be paid to a third party.
In addition, the majority view is that a debtor’s offer to make a partial payment on an existing debt will suffice for an accord and satisfaction if there is some “bona fide dispute” as to the under- lying claim or there is otherwise some alteration, even if slight, in the debtor’s consideration.
Checks Tendered as “Payment in Full”: If a monetary claim is uncertain or is subject to a bona fide dispute, an accord and satisfaction may be accomplished by a good faith tender and acceptance of a check when that check (or an accompanying document) conspicuously states that the check is tendered in full satisfaction of the debt.
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Breach of Accord Agreement Before Satisfaction
- Breach by Debtor: If the debtor breaches an accord agreement, the creditor may sue either on the original undischarged contract or for breach of the accord agreement.
- Breach by Creditor: If a creditor breaches an accord agreement by suing on the original contract, the debtor has two courses of action available:
(1) raise the accord agreement as an equitable defense and ask that the contract action be dismissed; or
(2) wait until they are damaged (meaning, the 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.
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Accord vs Modification
Accord: In an accord, the parties to an existing obligation agree to accept a different future performance in satisfaction of the original obligation. It most often arises when payment or performance is overdue, or there is a dispute as to the performance due, and the parties are looking for a resolution to discharge the contract.
Remember, if the accord’s agreed-to performance is carried out as promised (satisfaction), the duty under the original contract is discharged; but if it is not carried out, the original contract remains enforceable.
- Accord and satisfaction is usually triggered by a dispute of an amount due
Modification: In contrast, in a modification, the parties to an existing obligation want to change their agreement so they agree to a different agreement. The duties of the parties change immediately, and the original terms are no longer in effect and can no longer be enforced. A modification typically occurs before performance is due and, in a modification situation, the parties are not seeking to resolve the matter and discharge the contract; they are looking to continue on with their contractual relationship but with changed terms.
- If there is no dispute, you should be considering modification rather than accord.
- If the parties intend the contract to continue (for example, change sought for terms of a multi-year contract or one installment of an installment contract), the parties are modifying the contract.
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Accord vs Modification: WHEN. is DEBT EXCUSED?
Modification: Debt excused immediately
Accord and Satisfaction: Debt excused later.
Only excused if that accord gets satisfied
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Magic words for accord and satisfaction
If... then"
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Novation
An Agreement to substittue a new party for an existing one
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Discharge by Novation
A novaction occurs when a new K 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.
A novation will serve to discharge the old contract. (old duties excused by Novation)
The elements for a valid novation are:
(1) a previous valid contract;
(2) an agreement among all parties, including the new party (or parties) to the new contract;
(3) the immediate extinguishment of contractual duties as between the original contracting parties; and
(4) a valid and enforceable new contract.
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The elements for a valid novation are:
The elements for a valid novation are:
(1) a previous valid contract;
(2) an agreement among ALL parties, including the new party (or parties) to the new contract;
(3) the immediate extinguishment of contractual duties as between the original contracting parties; and
(4) a valid and enforceable new contract.
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Novation vs DELEGATION
Delegation: One party finds replacement party to perform.
Original party's oblgiations are NOT excused!
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Rescission
Party's mutual agreement to cancel a contract. Excuses obligations from K.
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Later agreements that Excuse performance (5), define each:
-Rescission: party's mutual agreement to cancel contract. Each party must have some performance remaining on the contract.
-Modification Agreement: replaces existing contract with new one immediately.
-Accord and Satisfaction: agreement to accept different performance to satisfy existing duty- not excused until different performance is completed. Accords without satisfaction do not excuse the original debt.
-Novation: agreement to substitute new party for existing one- original party no longer liable.
-Delegation: one party finds replacement party to perform without the other party's consent- original party is still liable.
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Discharge by Impossibility, Impracticability, or Frustration
Where the nonoccurrence of the event was a basic assumption of the parties in making the contract and neither party has expressly or impliedly assumed the risk of the event occurring, contractual duties may be discharged.
Note that for MBE purposes, the term “impracticability” includes both impossibility and impracticability.
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Impossibility as an Excuse
A later unforeseen event that makes performance impossible.
May provide seller with an excuse.
Under article 2 the doctrine is called impracticability
TYPES:
(1) destruction for something necessary for performance
- common law: destruction of subject mater of K provides an excuse for nonperformance
- Sale of goods (art. 2): same rule but two trick questions (1) Risk of loss: a seller who bore risk of loss when goods were damaged or destroyed is excused by impracticability and (2) Unidentified Goods: Seller is excused ONLY if the goods that were damaged or destroyed had been "identified to the contract"
(2) Death/incapacity of essential person
(3) Supervening Gov Regulation
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Discharge by Impossibility
Contractual duties will be discharged if it has become impossible to perform them.
- Impossibility Must Be “Objective”: For this rule to operate, the impossibility must be “objec- tive”; that is, the duties could not be performed by anyone. “Subjective” impossibility will not suffice (that is, where the duties could be performed by someone but not the promisor).
- Timing of Impossibility: The impossibility must arise after the contract has been entered into. If the facts giving rise to impossibility already existed when the contract was formed, the question is not really one of “discharge of contractual duties.” Rather, it is a “contract formation” problem, namely, whether the contract is voidable because of mistake.
- Effect of Impossibility: If a contract is discharged because of impossibility, each party is excused from duties arising under the contract that are yet to be fulfilled. Either party may sue for rescission and receive restitu- tion of any goods delivered, payments made, etc.
- Partial Impossibility: If the performance to be rendered under the contract becomes only partially impossible, the duty may be discharged only to that extent. The remainder of the performance may be required according to the contractual terms. This is so even though this remaining performance might involve added expense or difficulty.
- Temporary Impossibility: Temporary impossibility suspends contractual duties; it does not discharge them. When performance once more becomes possible, the duty “springs back” into existence unless the burden on either party to the contract would be substantially increased or different from that originally contemplated.
- Part Performance Prior to Impossibility—Quasi- Contractual Recovery: If a party partially performed before the impossibility arose, that party will have a right to recover in quasi-contract at the contract rate or for the reasonable value of his performance if that is a more convenient mode of valuation.
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Death/incapacity as impossiblity
Death or incapacity of ESSENTIAL person to contract excuses performance.
Death or the physical incapacity of a person necessary to effectuate the contract serves to discharge it.
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Death as discharge?
A contract is not discharged by the death or incapacity of the person who was to perform the services if the services are of a kind that can be delegated (see 9.3.2). Thus, if the contract was for personal services of a unique kind (for example, the painting of a portrait by a famous artist), the death or incapacity of that person could make performance impossible, but if the services are not unique (such as the painting of a farmer’s barn), the death or incapacity of that person would not make performance impossible.
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Supervening Illegality
Supervening illegality may serve to discharge a contract. Many courts treat such supervening illegality as a form of impossibility.
If Performance made ILLEGAL by subsequent gov regulation, performance is EXCUSED>
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Subsequent Destruction of Contract’s Subject Matter or Means of Performance
Destruction of Contract's SUBJECT MATTER excused performance.
If the contract’s subject matter is destroyed or the designated means for performing the contract are destroyed, contractual duties will be discharged.
BUT, Contracts to Build: A contractor’s duty to construct a building is not discharged by destruction of the work in progress.
Rationale: Construction is not rendered impossible; the contractor can still rebuild. However, if the destruction was not caused by the contractor, most courts will excuse the contractor from meeting the original deadline.
Subject Matter: Destruction of the subject matter will render a contract impossible only if the very thing destroyed is necessary to fulfill the contract. If the thing destroyed is not actually necessary, impossibility is not a defense.
Specificity of Source: As with the destruction of the subject matter, 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.
If Risk of Loss Has Already Passed to Buyer: The rules relating to discharge because of destruction of the subject matter will not apply if the risk of loss has already passed to the buyer.
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when a building under construction is destroyed...
when a building under construction is destroyed, the contractor is still obligated to build and is not entitled to anything other than the contract price.
By contrast, a contract to repair or remodel a building that is destroyed after work has begun, is discharged (there is nothing left to repair), and to the extent the contractor has already performed, the contrac- tor is entitled to recover in restitution (see 8.3) for the value of the work done prior to the building’s destruction.
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UCC: Impossiblity
Seller, when the goods get damaged or destroyed, is excused by impracticability. EVEN tho they bore the risk of loss.
If Risk of Loss has NOT passed to the buyer: Excused.
If Risk of Loss Has Already Passed to Buyer: The rules relating to discharge because of destruction of the subject matter will not apply if the risk of loss has already passed to the buyer.
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Discharge by Impracticability
Modern courts will also discharge contractual duties where perfor- mance has become impracticable.
Test for Impracticability: The test for a finding of impracticability is that the party to perform has encountered:
— Extreme and unreasonable difficulty and/or expense, and
— Its nonoccurrence was a basic assumption of the parties.
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Discharge by Impracticability - Contracts for the Sale of Goods:
Contracts for the Sale of Goods: Article 2 generally follows the same rules for impossibility and impracticability. If performance has become impossible or commercially impracticable, the seller will be discharged to the extent of the impossibility or impracticability.
— Allocation of Risk: Generally, the seller assumes the risk of the occurrence of unforeseen events and must continue to perform. However,
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.
— Events Sufficient for Discharge: Events sufficient to excuse performance include a shortage of raw materials or the inability to convert them into the seller’s product because of contingencies such as war, strike, embargo, or unforeseen shutdown of a major supplier. Catastrophic local crop failure (as opposed to a mere shortage) also is sufficient for discharge.
However, mere increases in costs are rarely sufficient for discharge unless they change the nature of the contract.
Seller's Partial Inability to Perform: If the seller’s inability to perform as a result of the unforeseen circumstance is only partial, they must allocate deliveries among their customers and, at their option, may include in the allocation regular customers not then under contract.
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Increase in costs...
NOT an excuse! an increase in costs of more than 50% has been held to be insufficient.
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Discharge by Frustration
Frustration will exist if the purpose of the contract has become value-less by virtue of some supervening event not the fault of the party seeking discharge.
If the purpose has been frustrated, a number of courts will discharge contractual duties even though performance of these duties is still possible.
The elements necessary to establish frustration are as follows:
- There is some supervening act or event leading to the frustration.
- At the time of entering into the contract, the parties did not reasonably foresee the act or event occurring.
- The purpose of the contract has been completely or almost completely destroyed by this act or event.
- The purpose of the contract was realized by both parties at the time of making the contract.
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A person has rented a venue for a specific purpose known to the owner and a subsequent event (including a storm, a death) that was not reason- ably foreseeable renders the purpose for renting the place moot.
Discharged by frustration
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The elements necessary to establish frustration are as follows: (FOUR)
The elements necessary to establish frustration are as follows:
- There is some supervening act or event leading to the frustration.
- At the time of entering into the contract, the parties did not reasonably foresee the act or event occurring.
- The purpose of the contract has been completely or almost completely destroyed by this act or event.
- The purpose of the contract was realized by both parties at the time of making the contract. (BOTH PARTIES MUSTA KNOWN THAT THIS WAS THE PURPOSE OF THE K!)
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Paying money is never...
Paying money is never impracticable.
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Discharge by Account Stated
An account stated is a contract between parties whereby they agree to an amount as a final balance due from one to the other. This final balance encompasses a number of transactions between the parties and serves to merge all of these transactions by discharging all claims owed.
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Discharge by Lapse
If the duty of each party is a condition concurrent to the other’s duty, it is possible that on the day set for performance, neither party is in breach and their contractual obligations lapse. If the contract states that time is “of the essence,” the lapse will occur immediately; other- wise the contract will lapse after a reasonable time.
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Effect of Running of Statute of Limitations
If the statute of limitations on an action has run, it is generally held that an action for breach of contract may be barred. Note, however, that only judicial remedies are barred; the running of the statute does not discharge the duties. (Hence, if the party who has the advantage of the statute of limitations subsequently agrees to perform, new consideration will not be required.)
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difference between a discharge by lapse and the effect of a statute of limitations.
Although both have to do with time and the end result may be similar, technically,
lapse discharges a contract while the statute of limitations merely makes it unenforceable in court.
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Buyer's Revocation of Acceptance of the Goods
General Rule: B cannot revoke acceptance of goods
Exception: If the non-conformity SUBSTANTIALLY impairs the value of the goods and was difficult to discover (i.e. it was a latent defect) **have to show excusable ignorance for the delay (latent defect)
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Buyer's right of replevin
If a buyer has made at least part payment of the purchase price of goods that have been identified under a contract, and the seller has not delivered the goods, the buyer may replevy the goods from the seller in two circumstances.
First, the right to replevy arises if the seller becomes insolvent within 10 days after receiving the buyer's first payment.
Second, a buyer has a right to replevy if the goods were purchased for personal, family, or household purposes. In either case, the buyer must tender any unpaid portion of the purchase price to the seller.
In addition, the buyer may replevy undelivered, identified goods from the seller if the buyer is unable to secure adequate substitute goods after a reasonable effort.
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Consequences of Rejection/Revocation of Acceptance
(1) Return - can return goods
(2) Refund - can get refund for goods
(3) Damages - can get damages for breach of K
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Buyer's Obligation to Pay
(1) Cash unless otherwise agreed
(2) A check is okay but S can refuse it -- BUT that gives B an additional reasonable time to come in with the case
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Other party's breach Sale of goods vs. common law
For sale of goods: if S's performance is not perfect (i.e. perfect tender rule) in every respect, buyer has pretty much free reign
3 options: (1) reject all (2) accept all or (3) reject some and accept some
**whichever option buyer chooses, can still get damages!
For Common Law:
(1) Damages: injured party can recover damages for ANY breach of K, whether the breach is material or not
(2) Excuse: but ONLY a material breach provides an excuse to suspend innocent party's performance
* divisible K: material breach rule is applied on a unit by unit basis -- see hypo 5B page 48
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Later Agreement Excusing OG Obligations
(1) Rescission - mutual agreement to cancel the K; each party must have at least some performance remaining under the K in order for rescission to be effective
(2) Modification - an agreement to replace an existing K with a new one ; modification takes effect immediately (i.e. excuses original obligations immediately); still need consideration for the modification if a common law contract
(3) Accord/Satisfaction - an accord is an agreement to accept a DIFFERENT performance in FUTURE satisfaction of an existing duty; the duty is suspended by the accord, but is not excused until the accord is satisfied (performed)
- whether you have a modification or an accord and satisfaction depends on the timing - is the underlying obligation excused right now (modification) or only later on (accord/satisfaction)
**Accord = new agreement between parties who are already under K to each other.
Satisfaction is nothing more than the performance of that accord.
**accords suspend performance they DO NOT discharge performance
(4) Novation: an agreement to substitute a new party for an existing one ; if the new party fails to perform, one who was substituted is not at fault ; need the consent of all parties for novation to work
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Death/Incapacity of Essential Person =
an Excuse Due to Impossibility
Not just any person; must be someone special/essential for performance
- good hypos on page 53
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Supervening Gov Regulation =
Excuse due to impossibility
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Increase in the cost of Seller's Performance =
NO EXCUSE
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Frustration of Buyer's Primary Purpose
Krell rents a loft for Thanksgiving Day b/c its great view of the upcoming Thanksgiving Day parade. The parade is cancelled unexpectedly just before Thanksgiving. Does Krell have to go through with the deal to rent the loft? it depends on below
*if essential purpose of K is undermined, and both parties understood that was the essential purpose of the K, THEN can get frustration of purpose
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Failure of an express condition
= excuse
Definition: language in a K - limits obligations created by other contract language, but does NOT create an independent obligation
look for words like "if" "as long as" "when" "provided that" "on the condition that" and "unless"
Rule: Strict Compliance Required with Express conditions; if no strict compliance then excuse BUT CANNOT sue for breach! conditions do not create additional obligations
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Satisfaction Clauses
Satisfaction is measured by a reasonable person standard UNLESS the contract deal with art or matters of personal taste (if art or personal taste, subjective standard applies)
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Types of Express Conditions
(1) Condition Precedent - an event that must occur BEFORE performance is due (e.g. I will lease the gym space from you for $1k IF I first sell 2,000 memberships); usually tested
(2) Condition Subsequent: An event that cuts of an existing duty (e.g I will lease the gym space for $1k UNTIL the zoning changes from commercial to residential only)
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Condition Precedent Hypo
The owner of an apartment building contracted with a painter to paint the porches of the apartments for $5,000. The contract was specifically made subject to the owner's good faith approval of the work. The painter finished painting the porches. The owner inspected the porches and believed in good faith that the painter had done a bad job. The painter demanded payment, but the owner told him that the paint job was poor and refused to pay. The painter pleaded that he was desperately in need of money. The owner told the painter that she would pay him $4,500, provided he repainted the porches. The painter reluctantly agreed, and the owner gave the painter a check in the amount of $4,500. The painter went to his bank, indorsed the check "under protest" and signed his name, then deposited the check in his account. He never returned to repaint the porches.
The painter sues the owner for $500, which he believes is still owed to him on his contract to paint the porches. Will he prevail?
- NO, even if he repaints the porches
- The painter will be unable to recover the $500 because he did not satisfy the condition precedent to payment under the contract. A party does not have a duty to perform if a condition precedent to that performance has not been met. Here, the parties made the owner's satisfaction with the painter's paint job a condition precedent to the owner's duty to pay the $5,000. Because the owner was not satisfied with the paint job, her duty to pay the painter never arose. The fact that the owner offered to give the painter $4,500 if he repainted the porches has no effect on this analysis, because the offer constituted a new contract, the owner having been excused from the old one.
- The courts have held such conditions to be valid—not illusory promises—because of the promisor's duty to exercise good faith in assessing satisfaction. Here, the facts state that the owner believed in good faith that the painter had done a bad job; thus, the painter is not entitled to payment under the original contract. Note that since he has not performed under the new contract, he is in breach and not entitled to the $4,500 already paid.
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Excusing a Condition
Occurrence of a condition may be excused by the later action or inaction of the person protected by the condition
- ask (1) who is protected, then see if (2) she did anything to lose the protection
(1) failure to cooperate: failure to even try to see through your part of the condition
(2) waiver: where waive the condition obligations
