Performance & Excuse of Non Performance Flashcards
1
Q
PERFORMANCE & EXCUSE OF NONPERFORMANCE
A
- Having established existence of K & having determined K terms, next issue is what performance is due & whether any nonperformance is excused.
2
Q
PERFORMANCE AT COMMON LAW
A
- A party’s basic duty CL is to substantially perform all that K calls for
3
Q
PERFORMANCE UNDER ARTICLE 2
A
- Art 2 requires a perfect tender (delivery & condition of goods must be exactly as promised in K)
4
Q
Obligation of Good Faith
.
A
- Art 2 requires all parties to act in good faith (“honesty in fact & observance of reasonable commercial standards of fair dealing.”)
- Obligation cannot be waived by parties
5
Q
Seller’s Obligation of Tender and Delivery: Noncarrier Cases
A
- Recall that a noncarrier case is a sale in which it appears that parties did not intend that goods be moved by carrier.
Tender of Delivery
- Seller must put & hold conforming goods for a time sufficient for buyer to take possession.
- Seller must give buyer notice reasonably necessary to enable buyer to take possession of goods.
- Tender must be at a reasonable hour.
Place of Delivery
- In the absence of an agreement otherwise, place of delivery is seller’s place of business, or if he has none, his residence.
6
Q
Seller’s Obligation of Tender and Delivery: Carrier Cases
A
- Recall that a carrier case is a sale in which, due either to circumstances or to express terms of the agreement, it appears that parties intended that a carrier be used to move goods.
Shipment Contracts—Where Seller Has Not Agreed to Tender at Particular Destination
- In the absence of an agreement otherwise, seller need not see that goods reach buyer, but need only:
(1) Put goods into hands of a reasonable carrier & make a reasonable K for their transportation to buyer
(2) Obtain & promptly tender any docs necessary to enable buyer to take possession, and
(3) Promptly notify buyer of shipment
Destination Contracts—Where Seller Has Agreed to Tender at Particular Destination
- If K requires seller to tender delivery of goods at a particular destination (ex. FOB buyer’s warehouse), seller must, at the destination, put & hold conforming goods at buyer’s disposition.
7
Q
Buyer’s Obligation to Pay—Right to Inspect
A
- In noncarrier cases, unless K provides otherwise, a sale is for cash & price is due concurrently w/ tender of delivery.
- In a shipment K, price is due when goods are put in carrier’s hands, & in a destination K, price is due when goods reach named destination.
8
Q
Installment Contracts
A
- In an installment K (requires/authorizes delivery in separate installments), seller may demand payment for each installment if price can be so apportioned, unless a contrary intent appears.
9
Q
Buyer’s Right of Inspection
A
- Buyer has right to inspect goods before they pay unless K provides for payment C.O.D./otherwise indicates that buyer has promised to pay w/o inspecting
10
Q
Payment by Check
A
- Tender of payment by check is sufficient unless seller demands cash & gives buyer time to get it.
- If a check is given, buyer’s duty to pay is suspended until check is either paid/dishonored.
- If check is paid, buyer’s duty to pay is discharged.
- If check is dishonored, seller may sue for price/recover goods.
11
Q
CONDITIONS—HAS THE DUTY TO PERFORM BECOME ABSOLUTE?
A
- K may provide that a party does not have a duty to
perform unless some condition is fulfilled. - Party’s failure to perform is justified if condition was not fulfilled.
12
Q
Distinction Between Promise and Condition
A
- A person is bound if there has been an offer, an
acceptance, and an exchange of consideration. - K may provide (impliedly/explicitly) that a party who is bound does not have a duty to perform unless/until some specified condition occurs.
13
Q
Definitions
A
Promise
- A commitment to do/refrain from doing
something.
- If a promise is unconditional, failure to perform according to its terms is a breach
Condition
- “Condition” normally means either:
(1) an event/state of the world that must occur/fail to occur before a party has a duty to perform; or
(2) an event/state of the world, the occurrence/ 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 promisor is under immediate duty to perform.
14
Q
Failure of Condition vs. Breach of Contract
A
- Failure of a contractual provision that is only a
condition is not a breach, but it discharges liability of promisor whose obligations on the conditional promise never mature.
15
Q
tip
A
- Failure of a promise is a breach & gives rise to liability,
- Failure of a condition relieves party of obligation to
perform.
16
Q
Interpretation of Provision as Promise or Condition
A
- What determines whether K provision is a promise/ condition is the “intent of parties.”
- Cts look at words & phrases used by parties, prior
practices, custom in the business community with respect to provision, & whether performance is needed from a 3rd party (if performance is to be rendered by 3rd party, it’s more likely to be a condition than an absolute promise). - In doubtful situations, most cts will hold that provision in question is a promise.
17
Q
tip:
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 w/in obligee’s
control, cts prefer to interpret it as indicating a time for
performance, not a condition of performance. - In a common situation K 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 subcontractor w/in a reasonable time.
18
Q
Express Conditions
A
- “Express condition” normally refers to an explicit contractual provision.
- It is an express statement in the K providing that either:
(1) a party does not have a duty to perform unless
some event occurs/fails to occur; or
(2) if some event occurs/fails to occur, obligation of a party to perform 1/more of his duties under the K is suspended/terminated. - Conditions of satisfaction are common express conditions.
19
Q
Promisor’s Satisfaction as Condition Precedent
A
- Many Ks include an express condition that a party will
pay only if “satisfied” w/ other party’s performance. - B/c it is a condition, promisor is under no duty to pay unless they are satisfied.
20
Q
Mechanical Fitness, Utility, or Marketability
A
- In Ks involving mechanical fitness, utility, or marketability (ex. construction/manufacturing Ks), a condition of satisfaction is fulfilled by a performance that would satisfy a RP.
- It is therefore immaterial that promisor was not
personally satisfied if a RP would have accepted & approved performance tendered.
21
Q
Personal Taste or Judgment
A
- If K involves personal taste/personal judgment (ex. portraits, dental work), a condition of satisfaction is fulfilled only if promisor is personally satisfied.
But note: Even if a condition requires personal satisfaction, a promisor’s lack of satisfaction must be honest & in good faith.
- Thus, if promisor refuses to examine promisee’s performance, or otherwise rejects performance in bad
faith, condition of satisfaction will be excused
22
Q
Satisfaction of Third Person as Condition
A
- When satisfaction of a 3rd person is a condition, most cts require the actual personal satisfaction of that person.
- Must be honest & in good faith
23
Q
When Purpose of Condition Is to Benefit One Party
A
- When the purpose of a condition is to protect/benefit only one of the parties, the other party’s duty will not be subject to the condition.
24
Q
Classification of Conditions : Condition Precedent
A
- One that must occur before an absolute duty of immediate performance arises in other party.
25
Conditions Concurrent
- Those that are capable of occurring together, and that parties are bound to perform at the same time (ex. tender of deed for cash).
- Each is a condition “precedent” to the other.
26
Condition Subsequent
- Condition subsequent cuts off an already existing duty to perform
27
Constructive Conditions of Performance
- Duty of each party to perform is conditioned on other party performing
28
Constructive Conditions of Cooperation and Notice
- Under a constructive condition of cooperation,
obligation of one party to render performance is impliedly conditioned on other party’s cooperation in that performance.
- It’s often a condition that other party give notice that performance is due.
- A condition of notice is most commonly applied where a party couldn’t reasonably be expected to know a fact (ex. need for repair) that triggered duty to perform unless notice was given.
29
Order of Performance
- Cts sometimes imply constructive conditions relating
to time for performing under the K.
30
Simultaneous Performance Possible—Conditions
Concurrent
- If both performances can be rendered at the same time, they are constructively concurrent; thus, each is a condition “precedent” to the other.
- Absent excuse, each party must first tender their own performance if they wish to put the other under a duty of immediate performance
31
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.
32
Effect of Condition—Equitable Remedy
- If K is not enforceable due to failure/occurrence
of a condition, & one of the parties has fully/partially performed, they can usually recover under unjust
enrichment theories
33
Have the Conditions Been Excused?
- 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.
34
Excuse of Condition by Hindrance or Failure to
Cooperate
- If a party having a duty to perform that is subject to a condition prevents the condition from occurring, the condition will be excused if the prevention is wrongful
35
Excuse of Condition by Waiver or Estoppel
- One having benefit of a condition under a K may
indicate by words/conduct that they will not insist on that condition’s being met.
- Consideration is not required for a valid waiver of condition
36
Estoppel Waiver
- Whenever a party indicates they are waiving a condition/performance, and the person addressed detrimentally relies on the waiver, cts
will hold this to be a binding (estoppel) waiver.
- The promise to waive a condition may be retracted at any time before other party has changed their position to their detriment.
37
Election Waiver
- When a condition doesn’t occur/a duty of performance is broken, beneficiary of the condition/duty must:
(1) terminate their liability, or
(2) continue under the K.
- If they choose to continue, they will be deemed to have waived the condition/duty.
- An election waiver requires neither consideration nor estoppel
- An election waiver cannot be withdrawn
38
Conditions that May Be Waived
- If no consideration is given for waiver, condition
must be additional/collateral to main subject & purpose of K for waiver to be effective.
- In other words, you cannot “waive” entitlement to the
entire/substantially entire return performance
39
Waiver in Installment Contracts
- In installment K, if waiver isn’t supported by consideration, beneficiary of waived condition can insist on strict compliance w/ K terms/future installments (so long as there has been no detrimental reliance on the waiver) by giving notice that he is revoking waiver.
40
Right to Damages for Failure of Condition
- Waiver severs only right to treat failure of condition as a total breach excusing counterperformance.
- Waiving party does not thereby waive right to damages.
41
Excuse of Condition by Actual Breach
- An actual breach when performance is due
will excuse duty of counterperformance.
- Counterperformance will be excused at CL only if breach is material.
- Minor breach may suspend duty, but won’t excuse it.
42
Excuse of Condition by Anticipatory Repudiation
- Anticipatory repudiation occurs if promisor, prior to time set for performance of their promise, indicates they won’t perform when time comes.
- If requirements are met, anticipatory repudiation will serve to excuse conditions.
43
Executory Bilateral Contract Requirement.
- Anticipatory repudiation applies only if there is a bi-K w/ unperformed duties on both sides
44
Anticipatory Repudiation Must Be Unequivocal
- Anticipatory repudiation stems from words/conduct of promisor unequivocally indicating that he cannot/will not perform when time comes.
45
Effect of Anticipatory Repudiation
- In the case of an anticipatory repudiation, nonrepudiating party has 4 alternatives:
(1) Treat anticipatory repudiation as total repudiation
& sue immediately
(2) Suspend their own performance & wait to sue until performance date
(3) Treat repudiation as offer to rescind & treat K as discharged, or
(4) Ignore repudiation & urge promisor to perform
(but by urging promisor to perform, nonrepudiating party is not waiving repudiation—they can still sue for breach & are excused from performing unless promisor retracts repudiation)
46
Retraction of Repudiation
- A repudiating party may at any time before their next
performance is due withdraw their repudiation unless other party has canceled, materially changed their
position in reliance on repudiation, or otherwise
indicated that they consider repudiation final.
- Withdrawal of repudiation may be in any manner that clearly indicates intention to perform, but must include any assurances justifiably demanded.
47
Excuse of Condition by Prospective Inability or Unwillingness to Perform
- Prospective failure of condition occurs when party has
reasonable grounds to believe the other party will be
unable/unwilling to perform when performance is due.
48
Distinguish Prospective Inability from Actual and Anticipatory Repudiation
- Prospective inability/unwillingness to perform is not
an anticipatory repudiation
- Repudiation must be unequivocal
- Prospective failure to perform involves conduct/words that merely raise doubts party will perform.
49
Effect of Prospective Failure
- The effect of prospective failure is to allow 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 adequate assurances, innocent party may be excused from their own performance & may treat failure to provide assurances as repudiation.
50
Retraction of Repudiation
- As with anticipatory repudiation, retraction is possible
if defaulting party regains ability/willingness to perform. - However, this fact must be communicated to innocent party to be effective.
51
Excuse of Condition by Substantial Performance
.
- Condition of complete performance may be excused if party has rendered substantial performance.
- In this case, other party’s duty of counterperformance
becomes absolute.
- However, cts generally apply this doctrine only if a constructive condition is involved.
- They won’t apply it when there is an express condition
52
Substantial Performance Arises If Breach Is Minor
- The rules for determining substantiality of performance are the same as those for determining materiality of breach
53
Inapplicable Where Breach “Willful”
- Most cts won’t apply substantial performance
doctrine if breach was “willful.”
54
Damages Offset
- Even though the party who has substantially performed is able to enforce K, other party will be
able to mitigate by deducting damages suffered due to first party’s incomplete performance
55
Generally Inapplicable to Contracts for the Sale of Goods
- The doctrine of substantial performance doesn’t apply to SOGKs
56
Excuse of Condition by “Divisibility” of Contract
- If K is divisible & a party performs one of the units, they are entitled to agreed-on equivalent for that unit even if they fail to perform other units.
- It isn’t a condition precedent to the other party’s liability that whole K be performed.
- Other party has a COA for failure to perform the other units & may w/hold their counterperformance for those units.
57
What Is a “Divisible” Contract?
- 3 tests must be concurrently satisfied to make a K divisible:
(1) Performance of each party is divided into 2/more parts under the K.
(2) # 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 other party (each performance is the quid pro
quo of the other)
58
tip:
Whenever you see a CLK that contains a price per unit, you should immediately consider divisibility as an issue. Usually, a statement in a K that payment is to be made only on completion of all of the units is construed as merely stating a time for payment, rather than as a condition making K indivisible. Divisibility is a question of K interpretation, & underlying consideration is fairness.
59
Sales of Goods—Installment Contracts
.
- Like CL, Art 2 assumes a K is not divisible unless it authorizes deliveries in several lots (installment K).
- In installment Ks, the price, if it can be apportioned, may be demanded for each lot unless a contrary intent appears
60
Excuse of Condition by Impossibility,Impracticability, or Frustration
- Conditions may be excused by impossibility, impracticability, or frustration of purpose.
61
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.
62
Discharge by Performance or Tender of Performance
- Full & complete performance.
- Good faith tender of performance made in accordance w/ contractual terms
63
Discharge by Occurrence of Condition Subsequent
- Occurrence of a condition subsequent will serve to discharge contractual duties.
64
Discharge by Illegality
- If K's SM has become illegal due to a subsequently enacted law/other governmental act, performance will be discharged. - “supervening illegality.”
- If the illegality existed at the time agreement was made, no K was formed
65
Discharge by Rescission
- Rescission will serve to discharge contractual duties.
- Rescission may be either mutual/unilateral.
Mutual Rescission
- K may be discharged by an express agreement between parties to rescind.
66
Tip:
Although mutual rescission generally discharges parties to a K, watch out for a 3rd party beneficiary case. If the rights of 3rd party beneficiary have already vested, K cannot be discharged by mutual rescission by promisor & promisee
67
Contract Must Be Executory
- For K to be effectively discharged by rescission, duties must be executory on both sides
68
Unilateral Contracts
- If K is unilateral (only one party owes an absolute duty), a K to mutually rescind where one party still has a duty to perform will be ineffective.
- For an effective rescission in a unilateral K where offeree has already performed, rescission promise must be supported by one of the following:
(1) An offer of new consideration by nonperforming party
(2) Promissory estoppel (detrimental reliance), or
(3) Intent by original offeree to make a gift of the obligation owed them
69
Partially Performed Bilateral Contracts
- A mutual agreement to rescind will usually be enforced
when a bi-K has been partially performed.
- Whether the party who has partially performed will be
entitled to compensation depends on terms of the
rescission agreement.
70
Formalities
Mutual rescission may be made orally.
- This is so even though K to be rescinded expressly states it can be rescinded only by a written doc, unless K's SM to be rescinded falls w/in SOF or K is for the SOG (Art 2 requires a written rescission/modification if original K to be rescinded/modified expressly requires written rescission).
71
Contracts Involving Third-Party Beneficiary Rights
- If rights of 3rd party beneficiaries have already
vested, K may not be discharged by mutual rescission.
72
Unilateral Rescission
- Uni rescission results when one of the parties to the K desires to rescind it but other party desires the K be performed according to its terms.
- Party desiring rescission must have adequate legal grounds (ex. mistake, misrep, duress, & failure of consideration).
- If nonassenting party refuses to voluntarily grant rescission, other party may file an action in equity to obtain it.
73
Partial Discharge by Modification of Contract
- If K is subsequently modified by parties, this will serve to discharge those terms of original K
- It will not serve to discharge the entire K.
- Like the original agreement, an agreement modifying a CLK requires mutual assent & consideration.
- Cts usually find consideration to be present b/c each party has limited their right to enforce the original K as is.
- No consideration is needed for modification of a SOGK as long as the mod is sought in good faith.
74
Discharge by Cancellation
- Destruction/surrender of a written K will not usually, by itself, discharge the K.
- Unless parties intended to have these acts serve as discharge, it will have this effect if there is consideration/sub
75
Discharge by Release
- A release and/or K not to sue will serve to discharge contractual duties.
- The release/contract not to sue usually must be in writing & supported by new consideration/promissory estoppel
76
Discharge by Substituted Contract
- K may be discharged by a substituted K.
- This occurs when parties to a K enter into a 2nd K that immediately revokes 1st K expressly/impliedly.
77
Intent Governs
- If an immediate discharge is intended, there is a sub-K.
- If parties intend 1st K to be discharged only after performance of 2nd K, there is an executory accord, not a sub-K
78
Discharge by Accord and Satisfaction
- K may be discharged by an accord & satisfaction.
- An accord is an agreement in which one party agrees to accept, in lieu of the performance, some other, different future performance.
- The accord, alone, won’t discharge
- Satisfaction is the performance of the accord agreement and discharges not only original K but also accord K
79
Requirement of Consideration
- An accord must be supported by consideration.
- Even if consideration is of a lesser value than the originally bargained-for consideration in prior K, it
will be sufficient if new consideration is of a different
type/ if the claim is to be paid to 3rd party.
- Debtor’s offer to make partial payment on existing debt will suffice for an accord & satisfaction if there is some “bona fide dispute” as to the underlying claim/ there is otherwise some alteration, even if slight, in debtor’s consideration
80
Checks Tendered as “Payment in Full”
- If monetary claim is uncertain/is subject to a bona
fide dispute, an accord & satisfaction may be accomplished by check when that check (or an accompanying doc) conspicuously states the check is tendered in full satisfaction of the debt.
81
Breach of Accord Agreement Before Satisfaction: Breach by Debtor
- If debtor breaches an accord agreement, creditor may sue either on original undischarged K/for breach of accord agreement.
82
Breach of Accord Agreement Before Satisfaction: Breach By Debtor
- If creditor breaches an accord agreement by suing
on original K, debtor has two courses of action available:
(1) raise accord agreement as equitable defense & ask that K action be dismissed; or
(2) wait until they are damaged (creditor is successful in their action on original K) and then bring an action for damages for breach of accord K
83
Distinguish Modification from Accord
- Sometimes an accord is difficult to distinguish from a mod.
- In an accord, parties to an existing obligation agree
to accept a different future performance in satisfaction of original obligation.
- It most often arises when payment/performance is overdue, or there is a dispute as to the performance
due, & parties are looking for a resolution to dischargeK.
Remember, if the accord’s agreed-to performance is carried out as promised (satisfaction), the duty
under original K is discharged; but if it is not carried out, original K remains enforceable.
- In contrast, in a mod, parties to an existing obligation want to change their agreement so they agree to a different agreement.
- The duties of parties change immediately, & original terms are no longer in effect & can no longer be enforced.
- A mod typically occurs before performance is due &, in a mod, parties are not seeking to resolve the matter & discharge the K; they are looking to continue on w/ their contractual relationship but w/ changed terms
.
84
Tip
- On MBE, it is unlikely that you will have to choose between an accord & mod answer choice. Identifying the issue in an essay is a bit trickier. Accord & satisfaction is usually triggered by a dispute of an amount due. If there is no dispute, you should be considering mod rather than accord. Also, look to see if the party offering the “accord” is looking to discharge the K. If, instead, parties intend K to continue (ex. change sought for terms of a multi-year K/one installment of an installment K), parties are modifying K.
B/C many elements are the same (offer, acceptance,
consideration) under both a mod and accord,
you will likely receive a # of points even if you mislabel the issue.
85
Discharge by Novation
- Novation occurs when new K substitutes a new
party to receive benefits & assume duties that had originally belonged to one of the original parties under the terms of old K
- Novation will serve to discharge old K
- Elements for a valid novation are:
(1) previous valid K;
(2) agreement among all parties, including new party (or parties) to new K;
(3) immediate extinguishment of contractual duties as between original contracting parties; and
(4) a valid & enforceable new K
86
Discharge by Impossibility, Impracticability, or
Frustration
- Occurrence of an unanticipated/extraordinary event can make contractual duties impossible/impracticable to perform/may frustrate the purpose of the K
- Where nonoccurrence of event was a basic assumption of the parties in making K and neither party has assumed the risk of event occurring, contractual duties may be discharged.
- MBE: the term “impracticability” includes both impossibility & impracticability.
87
Discharge by Impossibility
- Contractual duties will be discharged if it has become impossible to perform them.
88
Impossibility Must Be “Objective”
- For this rule to operate, impossibility must be “objective” (duties could not be performed by anyone)
- “Subjective” impossibility will not suffice (duties could be performed by someone but not promisor).
89
Timing of Impossibility
- Impossibility must arise after K has been entered into.
- If facts giving rise to impossibility already existed when K was formed, the question is not really one of “discharge of contractual duties.”
- Rather, it is a “K formation” problem, whether K is voidable b/c of mistake
90
Effect of Impossibility
- If K is discharged b/c of impossibility, each party is excused from duties arising under the K that are yet to be fulfilled.
- Either party may sue for rescission & receive restitution
91
Partial Impossibility
- If the performance to be rendered under K
becomes only partially impossible, duty may be
discharged only to that extent.
- Remainder of performance may be required according to K terms.
- This is so even though this remaining performance might involve added expense/difficulty
92
Temporary Impossibility
- Temporary impossibility suspends duties; not discharge them.
- When performance once more becomes possible, duty “springs back” into existence unless burden on either would substantially increase/different from that originally contemplated.
93
Part Performance Prior to Impossibility—Quasi-
Contractual Recovery
- If a party partially performed b/f impossibility, party has right to recover in quasi-K at K rate/for reasonable value of his performance if that is more convenient
94
Specific Situations
Death or Physical Incapacity
- Death/physical incapacity of a person necessary
to effectuate the K serves to discharge it.
Supervening Illegality
- Supervening illegality may serve to discharge a K.
- Many cts treat such supervening illegality as a form of impossibility.
Subsequent Destruction of Contract’s Subject
Matter or Means of Performance
- If K’s SM is destroyed/the designated means for performing the K are destroyed, contractual duties will be discharged.
95
Tip:
- K is not discharged by death/incapacity of person who was to perform the services if services are of a kind that can be delegated. Thus, if K was for personal services of a unique kind (ex painting of a portrait by famous artist), death/incapacity of that person could make performance impossible, but if the services are not unique (painting a farmer’s barn), death/ incapacity of that person would not make performance impossible.
96
Compare—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; contractor can still rebuild. However, if destruction was not caused by contractor, most cts will excuse contractor from meeting original deadline.
97
.Tip:
- When a building under construction is destroyed, contractor is still obligated to build & is not entitled to anything other than K price.
- By contrast, a K to repair/remodel a building that is destroyed after work has begun is discharged
(there is nothing left to repair), & to the extent the
contractor has already performed, contractor is entitled
to recover in restitution for value of work done prior to building’s destruction
98
Specificity Required
Subject Matter
- Destruction of SM will render K impossible only if thing destroyed is necessary to fulfill K.
- If thing destroyed is not necessary, impossibility is not a defense.
99
Specificity of Source
- As w/ destruction of SM, destruction of a source for fulfilling the K will render K impossible only if the source is the one source specified by parties.
100
If Risk of Loss Has Already Passed to Buyer
- The rules relating to discharge b/c of destruction of the SM will not apply if risk of loss has already passed to buyer
101
Discharge by Impracticability
- Modern cts will also discharge contractual duties where performance has become impracticable
102
Test for Impracticability
- Test for a finding of impracticability is that the party
to perform has encountered:
(1) Extreme & unreasonable difficulty and/or expense, and
(2) Its nonoccurrence was a basic assumption of the parties.
103
Contracts for the Sale of Goods: Impracticability/Impossibility
- Seller will be discharged to extent of impossibility/impracticability.
104
Allocation of Risk
- Seller assumes risk of the occurrence of unforeseen events & must continue to perform.
- However, if it’s fair to say that parties would not have placed on seller risk of the extraordinary occurrence, seller will be discharged.
105
Events Sufficient for Discharge
- Events sufficient to excuse performance include a
shortage of raw materials/inability to convert
them into seller’s product b/c of events such as war, strike, embargo, or unforeseen shutdown of major supplier.
- Catastrophic local crop failure (as opposed to a mere shortage) also is sufficient for discharge.
- Mere cost increases are rarely sufficient for discharge unless they change nature of K
- Note: No bright line test for determining when a rise in price changes nature of K, but an increase in costs > 50% has been held to be insufficient.
106
Seller’s Partial Inability to Perform
- If seller’s inability to perform as a result of the unforeseen circumstance is only partial, they must
allocate deliveries among their customers &, at their
option, may include in the allocation regular customers not then under K.
107
Discharge by Frustration
- Frustration will exist if purpose of K is valueless due to some supervening event not the fault of party seeking discharge.
- Cts will discharge K duties even though performance of duties is still possible.
The elements of frustration:
(1) Some supervening act/event leading to frustration.
(2) At time of entering into K, parties did not reasonably foresee act/event occurring.
(3) K's purpose has been completely/almost completely destroyed by act/event.
(4) K's purpose was realized by both parties at time of making K.
108
Tip:
You will likely encounter the doctrine of frustration
on your exam. Watch for facts showing that 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 reasonably foreseeable renders the purpose for renting the place moot.
109
Distinguish Uses of Defenses of Impossibility/
Impracticability and Frustration
- Seller of land, goods, or services will raise impossibility/ impracticability
- Party who is to pay (usually buyer) will raise frustration
- Paying money is never impracticable.
110
Discharge by Account Stated
- An account stated is K between parties where they agree to an amount as a final balance due from one to the other.
- This final balance serves to merge all transactions by discharging all claims owed.
111
Discharge by Lapse
- If 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 & their obligations lapse.
- If K states that time is “of the essence,” lapse will occur immediately; otherwise K will lapse after a reasonable time
112
Effect of Running of Statute of Limitations
- If SOL on an action has run, an action for BOK may be barred.
- However, that only judicial remedies are barred; running of the statute does not discharge the duties. (Hence, if party who has advantage of SOL subsequently agrees to perform, new consideration will not be required.)
113
Tip:
- Note the difference between a discharge by lapse & the effect of a SOL. Although both have to do w/ time & end result may be similar, technically, lapse discharges a K while SOL merely makes it unenforceable in ct.
