contracts/sales: Did either party fail to preform its part of the deal and, if so was that non-preformace excused? Flashcards
excuses for non-performance
a. Failure of a Condition Precedent
b. Other Party’s Breach
c. Anticipatory Repudiation
d. Prevention (a/k/a Failure to Cooperate or Bad Faith)
e. Subsequent Agreement
f. Subsequent Event
Failure of a Condition Precedent
If a condition precedent to a party’s performance has not occurred, that party’s performance is excused.
Express conditions precedent may be satisfied only by strict compliance; that is, unless the condition occurs completely, the duties subject to the condition are not enforceable.
The party whose performance is subject to a condition precedent must make a good faith attempt to satisfy the condition.
However, compliance with an express condition precedent is excused if the party whose performance is subject to the condition voluntarily waives (by words or conduct) the condition.
Failure of a Condition Precedent: Express Condition—A Party’s Satisfaction
If a contracting party’s performance is expressly conditioned on his or her “satisfaction” with the other party’s performance, the following rules apply:
if the contract is for services that do not require personal taste or aesthetics (e.g., a contract to install a furnace), the party (whose performance is conditioned on his or her satisfaction) must act reasonably (objective test) in determining whether the other party’s performance is satisfactory; in close cases, courts will apply this objective test
if the contract is for services that require personal taste or aesthetics (e.g. a contract with an artist or a contract with an interior decorator), the party (whose performance is conditioned on his or her satisfaction) must act in good faith (subjective test) in determining whether the other party’s performance is satisfactory
if a third party (e.g., an architect) is to make the determination of “satisfactory” performance, the third party must act in good faith (subjective test)
Failure of a Condition Precedent: Constructive Conditions (not satisfied):
If the contract fails to provide for the order of performance, the following conditions are implied in law:
if performance by one party will take time (e.g., builder in a construction contract), that party’s performance must take place prior to the other party’s performance (e.g., owner’s duty to pay)
if performance by both parties may occur at the same time (e.g., sale of goods or real estate closing), the parties must tender simultaneously (i.e., each party’s tender is a condition precedent to the other party’s performance)
if the contract sets a date certain for one party to perform but does not set a date for the other party to perform, the party subject to the date certain must perform first
Unlike express conditions, constructive conditions may be satisfied by substantial compliance, unless the breach is willful (in which case strict compliance is required).
Other party’s breach: sale of goods
Sale of Goods. If the seller does not make a perfect tender, the buyer’s duty to perform (i.e., pay) is excused, unless:
Seller Cures- the seller has a right to cure (upon notice that it will cure) if the time for performance has not yet expired or
an option to cure if the seller is “surprised” that the buyer failed to accept the goods (e.g., because of prior course of dealing or the sale of pre-packaged goods from a reputable supplier) and the seller can remedy the nonconformity within a reasonable time after expiration of the time for performance
Other party’s breach: installment sales contract
if delivery will occur in two or more installments
an installment may be rejected only if the nonconformity substantially impairs the value of that installment and cannot be cured
the whole contract is breached only if the nonconformity of one or more installments substantially impairs the value of the entire contract
Note: unless the contract expressly calls for installments, the UCC presumes a single delivery
Other party’s breach: non-goods
If one party is in material breach (i.e., the party has not substantially performed), the other party’s duty to perform is excused.
If the breach is not material, the non-breaching party must perform (i.e., pay) and then seek damages (or offset the amount of damages from final payment).
Most courts require strict compliance if the breach is willful.
Other party’s breach: delay (common law)
A delay in performance will generally constitute a material breach only if it operates to significantly deprive the other party of the benefit of the contract.
If time is “of the essence” and a party fails to perform on time, that party is in material breach. Under modern law, there is a presumption that time is not “of the essence,” unless the contract so states or other circumstances make the need for promptness apparent.
If it is possible to apportion the parties’ performances into matching pairs that the parties treat as equivalents, a party who has performed one or more parts of the contract is entitled to collect the contract price for those parts, even if that party breaches the other parts of the contract.
If the contract by its own terms is expressly indivisible, the court may not construe it otherwise.
Anticipatory repudiation
If one party unambiguously declares (i.e., in a communication to the other party) that it will not perform prior to the date of performance, the other party’s performance is excused and that party has two choices:
(1) await performance by the repudiating party for a commercially reasonable time (while suspending its own performance); or
(2) treat the declaration as an immediate breach (e.g., bring suit, sell item to another buyer) even if it has notified the repudiating party that it would await performance and has urged a retraction.
If the repudiating party retracts the repudiation before the non-repudiating party party has materially changed position in reliance on the repudiation or has notified the repudiating party that the contract is terminated, the obligations of both parties are revived.
It is not necessary for repudiation that performance be made literally and utterly impossible. Repudiation can result from action which reasonably indicates a rejection of the continuing obligation, including:
(1) a statement of intention not to perform except on conditions that go beyond the terms of the contract or
(2) a sale of the goods to a third party that the seller was contractually obligated to deliver to the buyer.
UCC (and Restatement): A party may demand in writing adequate assurances of future performance if that party has reasonable grounds for insecurity (e.g., something short of an anticipatory repudiation, such as credit problems). The party demanding adequate assurances may suspend its future performance until such assurances are received (which must be within a reasonable time, not to exceed 30 days). Failure to provide such assurances in a timely fashion constitutes an anticipatory repudiation.
Prevention (a/k/a Failure to Cooperate or Bad Faith):
If one party acts in such a way that it makes the other party’s performance impossible, the other party’s performance is excused.
Subsequent agreement: Novation
All parties to the original contract (and the new third party) agree to substitute the new party for one of the original parties. In such case, the original party’s (the party who was replaced) performance is excused and the new party assumes that duty.
A novation is never presumed; it must be clearly established
Subsequent Event: Definition
After the deal is executed (but before it is performed), an unexpected event occurs that renders performance by the seller of goods or real property or the provider of services:
Objectively Impossible
commercially impracticable
frustration of purpose
Subsequent agreement: Mutual rescission
An agreement by both parties to cancel the contract. A mutual rescission excuses performance only if both parties’ performances are still executory (i.e., neither party has fully performed). Under modern law, an oral rescission is generally valid, even if the underlying contract was subject to the SOF.
Subsequent Event: Objectively Impossible
No one could perform under such circumstances (e.g., (1) destruction of the subject matter – a contract to buy a particular horse, but the horse dies;
(2) death or incapacity of a party in a personal services contract – a singer dies after signing a contract to star in an opera; or
(3) a supervening illegality).
If, at the time of contracting, the parties were aware that an event was not certain to occur, that event may not be used to support a claim of impossibility or impracticability.
If a contractor performs services (e.g., repair or renovation) on a building and the building is destroyed (due to no fault of the contractor) before the contractor completes performance, the contractor’s duty to perform is discharged and the contractor is entitled to quasi-contractual damages for the work performed before the destruction.
However, a contractor’s duty to construct a building is not discharged by destruction of the work in progress (but most courts will excuse the contractor from meeting the original deadline).
Subsequent Event: commercially impracticable
An unforeseen event that so drastically changes the duty of one party that it is no longer fair to make that party perform (e.g., an unexpected strike, war, outbreak of disease, shortage of raw materials, embargo)
An unforeseen event that simply makes a party’s performance more expensive is not sufficient to excuse performance, unless the increase in expenses is massive (e.g., a ten-fold increase) or the increase places the non-performing party on the brink of bankruptcy.
If the unforeseen event is temporary in nature, the seller may only suspend performance. If the seller’s inability to perform as a result of the unforeseen event is only partial, the seller must provide pro rata performance to her customers, including regular customers who do not have any outstanding orders.
