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Flashcards in Performance Modification and Excuse Deck (37)
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1

1) Obligations under the UCC – Risk of Loss Rules
• Seller’s obligations = transfer and deliver goods
• Buyer’s obligation = accept and pay for goods
• When something happens to the goods before the buyer receives them:
o If seller bears ROL (risk of loss) , he must?
o If buyer bears ROL he must?

If seller bears the ROL he must provide replacement goods

If buyer bears the ROL he must , he must pay the K price regardless

2

o Non-carrier cases: parties to a sale of goods K do not agree to use a common carrier. In a non-carrier case When does ROL transfer to buyer?

 If seller is NOT a merchant
• As soon as goods are made available to him (tendered)
 If seller IS a merchant
• Once goods are physically in buyer’s possession

3

o Carrier cases: parties to a sale of goods K agree to use common carrier (trucking firm, train, etc.) In a carrier case, when does the ROL transfer to buyer?

o Carrier Cases – When does ROL transfer?
 Shipment contract: ROL passes to buyer when goods are delivered to the carrier
• Identified as “FOB Seller,” or K is silent (default rule)
• Buyer bears ROL if goods are damaged in transit

 Destination contract: ROL passes to buyer when goods are tendered at the destination point specified in the K
• Identified as “FOB Buyer”
• Seller bears ROL if goods are damaged in transit

4

Explain the pre-existing duty rule

Give an example

o Preexisting Duty Rule: a promise to increase compensation for duties already owed is unenforceable because there is no consideration for the modification

EXAMPLE: The captain of a fishing vessel promised to pay $100 to each of the sailors for their work on a fishing voyage. Midway through the voyage, the sailors threatened to cease work unless they were promised an additional $50 each, and the captain reluctantly agreed. At the end of the voyage, the captain paid each of them the originally promised $100 but refused to pay the $50 increase, so the sailors sued to recover the additional amount. Because the sailors were already obliged to perform the work in question under the terms of their original contract with the captain, his promise of an additional $50 is unenforceable under the pre-existing duty rule.

5

What are the exceptions to the existing duty rule?

mutual modification= of an existing K is enforceable if both parties agree to different performance from what was originally required by the original K
EXAMPLE: During the course of the fishing voyage, the ship’s cook takes ill, and the captain instructs the youngest of the sailors to perform the cook’s duties in addition to his fishing duties. The sailor refuses to perform the work unless the captain promises him an additional $50 in compensation, and the captain reluctantly agrees. The promise of additional compensation is enforceable as a “mutual modification” of the original contract.

unforeseen circumstances =Preexisting duty rule not applicable if increased compensation is given in exchange for a promised performance that has been rendered substantially more burdensome than reasonably anticipated when K formed
EXAMPLE: The fishing nets provided by the captain turn out to be defective and thus increase the workload of the sailors in a manner substantially in excess of what was reasonably contemplated under the original contract. The sailors threaten to cease the fishing unless they are promised an additional $50 each, and the captain reluctantly agrees. The promise is enforceable despite the pre-existing duty rule in view of circumstances not reasonably anticipated by the parties at the time of contracting.

6

Under the UCC modification of a K does not need additional consideration to be enforceable when:

as long as made in good faith
EXAMPLE: A manufactures upsidaisium bearings and has a three-year contract to supply B with the bearings the latter uses to make turbo-jet engines for commercial aircraft. Because of an unexpected world shortage of upsidaisium, the price of the metal A uses to manufacture the bearings triples over a short period, and A advises B that it can’t continue supplying the bearings unless B agrees to increase the price to the point that A will break even on the supply contract. B reluctantly agrees. Is the modification enforceable?

7

• A party entering a contract makes many assumptions about the present and future. When such assumptions turn out to be faulty, the parties may be excused under the doctrines of?

Hint MIF

doctrines of mistake, impossibility, impracticability, and frustration of purpose.

8

o Unilateral Mistake – 1 party’s mistake about present material fact(s) is NOT excused unless:

unless other party knew/had reason to know of the party’s mistake.

EXAMPLE: A agrees to sell B a cow, which A knows to be barren, and, as the parties are writing up and signing the agreement, B asks A a series of questions about the care and feeding of pregnant cows. Because A has reason to know that B is mistaken with respect to the cow’s capacity to bear calves, B’s obligation to purchase the cow is excused on account of unilateral mistake.

9

o Mutual Mistake – Voidable by disadvantaged party when all 3 elements are met. What are the elements

 Mistaken assumption relates to material facts (not just value);
 Mistake made by both parties; and
 Disadvantaged party did not bear risk of mistake under the K

EXAMPLE: A agrees to sell B a cow at beef cow prices because at the time of contracting, both parties were under the assumption that the cow was barren. A short time later, the cow was discovered to be with calf, which greatly increased her resale value. The contract is voidable at the option of A.


EXAMPLE: A agrees to sell B a cow at beef cow prices. At the time of contracting, both parties share the mistaken impression that the cow is barren. B tells A that he is still going to try to breed the cow in any case. In this case, A bears the risk of B’s efforts succeeding, because if B succeeds, it will prove the parties’ assumption that the cow was barren wrong. So A is accordingly bound by the contract even if the cow turns out to be fertile.

10

Faulty Assumptions Regarding Future Facts: Impossibility: explain and give examples

• Impossibility: Both parties excused if performance has been rendered impossible by events occurring after K formed. impossibility must be objective, subjective impossibility does not excuse performance. The contingency that creates the impossibility was not known to the parties at the time of making the K; it arose after the K and was unanticipated.

EXAMPLE: X promises to sell Y his horse, but the horse dies before X can deliver the horse.
 Subjective impossibility occurs when performance becomes impossible because of some failure or fault on the part of the performing party
EXAMPLE: A party fails to have enough money to either make a promised payment or to obtain the components required for the production of a promised product.

:

11

when does objective impossibility occur? give some examples

 Objective impossibility occurs when performance literally impossible for anyone due to circumstances beyond control of the parties. subjective impossibility not sufficient to excuse performance.
EXAMPLE: X promises to sell Y his horse, but the horse dies before X can deliver the horse.
 Subjective impossibility occurs when performance becomes impossible because of some failure or fault on the part of the performing party
EXAMPLE: A party fails to have enough money to either make a promised payment or to obtain the components required for the production of a promised product.

12

In what circumstances are we likely to find objective impossibility?

• Circumstance #1: when the subject matter of the K is destroyed
EXAMPLE: Buyer promises to buy Farmer’s 2009 wheat crop, the entirety of which is destroyed just before harvest by wheat blight. The Farmer’s performance is excused on the basis of impossibility.

• Circumstance #2: when there is a personal services K and the performing party has died or become incapacitated

• Circumstance #3: when supervening law or legal developments have rendered performance legally impermissible

13

• Impracticability: Courts are reluctant to excuse performance for any reason other than impossibility. However, under the doctrine of impracticability, a promisor may be excused from performance where the following two elements are proven:

o Contingency causing impracticability was unforeseen; and
o Increased cost / burden of performance would be far beyond what either party anticipated

14

• Impracticability under UCC :

where has it been found?

what is not likely to trigger impracticability?

o UCC cases where impracticability has been found typically involve shortages caused by war or embargo, local crop failure, or unforeseen shutdown of major sources of supply (e.g. natural disaster).

o Increased costs, and the rise or collapse of a market are viewed as business risks, the sorts of contingencies that fixed-price contracts are expected to account for. probably not sufficient for impracticability.

15

Explain the Frustration of purpose doctrine and see example

• Frustration of Purpose: Where a contingency occurs that dramatically reduces the value of performance to the receiving party.
EXAMPLE: The doctrine of frustration of contractual purpose has as its source the famous case of Krell v. Henry, which involved the owner of a London flat with a “ringside” view of the forthcoming coronation parade who agreed to lease the flat at premium prices to a lessee eager to witness the festivities. The parade was canceled when the King became ill, and the lessee’s contractual obligations to the owner were excused on the ground that going through with the rental agreement in the absence of its raison d’être “cannot reasonably be said to have been in the contemplation of the parties at the date of the contract.”

16

Under the modern test, what elements are required under the frustration of purpose doctrine?

o Modern Test: (3 requirements)
 Principal purpose in entering K is substantially frustrated;
• This means that the frustration of incidental or non-material purposes would not trigger the excuse of frustration of purpose
 Frustration was substantial in nature; and
EXAMPLE: In a variation on Krell v. Henry, where the King did not become ill and the parade was not cancelled, the town erected bleachers that only partially obstruct the parade view from the apartment.
 Non-occurrence of the event that caused frustration was a basic assumption of the K

17

T or F, : Impossibility, impracticability, and frustration of purpose are available under common law and UCC.

True

18

Explain rescission as a method to excuse both parties

Excuses performance by agreement among the parties

Is permissible where both parties to a K have remaining performance due.

Consideration is provided by each party’s discharge of the other’s duties.

19

What is an accord? see example

o Accord = obligee promises to accept substituted performance in satisfaction of the obligor’s existing duty

Purchaser has paid builder in full for the construction of a house. Because of difficulties that neither party to the contract could foresee, the builder is only able to partially complete the construction project. Purchaser agrees to a lesser performance in return for a partial re-payment. This agreement is an accord. Builder then completes the agreed-to substituted performance. This performance amounts to satisfaction of the accord.

20

What are the legal effects of an accord?

 Accord and satisfaction satisfies the obligor’s original obligation
whereas The accord alone does not discharge the obligor’s duty; it only suspends the obligor’s duty.

21

The parties may make an accord, which is permissible when one party has already performed and is waiting on the

waiting on the other party to finish performing

22

What is required to ensure the accord is valid?

sufficient consideration required
 May be sufficient consideration for the accord if:
•. in a agreement for partial or substituted performance, the substituted performance differs significantly from the original performance, or its obligation is doubtful
• Where the accord involves an agreement for partial payment, there is a good-faith or bona fide doubt about the amount owed

23

Anticipatory Repudiation may be established when o Party’s definitive statement that it will breach or:

o Party’s voluntary act that renders party unable to perform its contractual obligations

24

o If AR cannot be established but there are reasonable grounds for insecurity, the insecure party may make a demand for adequate assurance of performance.

Example of insecurity grounds: After making a contract with a manufacturer. A wholesaler become aware that the manufacturer’s employees are out on strike. This gives reasonable grounds to confirm with the manufacturer that the contract will be performed.


What will happen if the party does not respond with adequate assurance of performance?

Anticipatory repudiation can occur where the other party:
 Does not respond to the demand for assurance in a reasonable time (30 days under the UCC), or
 Does not respond in a way that provides reasonable assurances

25

What are the rights of the aggrieved party upon repudiation of the contract?

o Cancel K and terminate all rights/obligations under it;
o Bring action for damages or specific performance; OR
o Ignore the repudiation and continue under the K

26

o A party who has made an AR to the other party may retract unless/until the other party:

 Acts in reliance on repudiation;
 Accepts repudiation by signaling this to breaching party; OR
 Commences suit for damages/specific performance

27

o Under Common Law: the rights of the parties in the event of a failed condition depend on whether the condition is _______ or _________.

any failure of an express condition (i.e., less than 100% strict compliance) will do what to the party's obligation to perform?

Some examples of express conditions are

EXAMPLE: “The party’s duty to perform is expressly conditioned on the promised performance.”
EXAMPLE: “There is no obligation to proceed unless and until the following steps are taken.”
EXAMPLE: “The party has a duty to perform on the condition that certain events occur” or, “only if certain event occur.”
EXAMPLE: “Payment is due upon completion”
OTHER CONDITIONAL PHRASES: “on condition that,” as long as,” “when,” “provided that”

express or implied

discharge the party’s obligation to perform

28

• Two situations in which failure of the condition may be excused such that the performance obligation of the party who stood to benefit from the condition is not discharged?

• Situation #1: Waiver
o The party who has been discharged from performing by the failed condition may waive the right to discharge and perform anyway
NOTE: Some courts treat this as a mid-term modification, which in a common law case requires consideration.
• Situation #2: Bad Faith Conduct
o When a party acts in bad-faith so as to prevent the condition, that party’s performance obligation will not be discharged
EXAMPLE: In a contract for the sale of real property, the contract is conditioned on the buyer securing financing. If the buyer fails to apply for financing, this would be considered conduct in bad faith, and the buyer would be obligated to pay.

29

• When the possibility of a breach is not addressed by an express condition, it is still a breach; however, under the law of implied conditions, courts can treat that breach in one of two ways: either as a material breach or as substantial performance.

explain how the court will generally treat a material breach

explain how the court will generally substantial performance

o Material Breach: If breach is serious enough, court will treat like failure of an express condition. The aggrieved party is generally discharged from his own performance obligations

o Substantial Performance: If the breach is less serious, court will treat performance as “close enough,” party has rendered substantial performance. The aggrieved party will not be discharged of his own performance obligations

30

HYPOTHETICAL: Contractor builds a house for Landowner, and—unbeknownst to Contractor—the plumbing subcontractor installs a brand of pipe that differs from the brand specified in the contract but is in every important respect the same quality. It would be an extremely expensive and burdensome task for Contractor to remove and replace the pipe. Is this a case of substantial performance or material breach?

substantial performance less serious than material breach