Define the preexisting duty rule?
At common law, a promise to increase compensation for duties already owed under an existing contract is unenforceable because there is no consideration for the increase.
What are the exceptions to the preexisting duty rule?
1) Mutual modification
2) Unforeseen circumstances
More Info: Pre-existing Duty Rule Exceptions
What are the requirements for mutual modification?
At common law, a promise to increase compensation under an existing contract is enforceable as a mutual modification if:
1) Both parties agree to a performance that is different from the original contract
2) Difference from the original contract is not a mere pretense
What are the requirements of the unforeseen circumstances exception to the preexisting duty rule?
The preexisting duty rule will not apply if a promise of increased compensation occurs because performance has been rendered substantially more burdensome than was reasonably anticipated.
(common law rule exception only)
What is required to modify a UCC contract?
An agreement modifying an existing contract for the sale of goods needs no consideration as long as it is made in good faith.
What is a seller's obligation under the UCC?
To transfer and deliver the goods sold
What is a buyer's obligation under the UCC?
Accept and pay for the goods
What are carrier cases?
When the parties to a contract agree to use a specified common carrier (transporter) to deliver goods
What are non-carrier cases?
When the parties to a contract do not agree to use a common carrier to deliver goods.
In non-carrier cases, when does the risk of loss pass?
1) If the seller is not a merchant, then the risk of loss passes to the buyer upon tender of delivery.
2) If the seller is a merchant, then the risk of loss passes when the goods are physically in the buyer's possession.
In carrier cases, when does the risk of loss transfer?
1) If the seller promises to turn goods over to the carrier, then the risk of loss passes to buyer once the goods are delivered to the carrier.
2) If the seller promises to tender delivery at a particular destination point, then the risk of loss passes to the buyer when the goods are tendered to the destination point.
When will a unilateral mistake excuse performance?
If one party enters into a contract under a faulty assumption about a material fact at formation, the mistaken terms are not excused unless the other party knew or had reason to know the other party's mistake.
When will a mutual mistake excuse a contract?
1) The mistaken assumption relates to material facts
2) The mistake is made by both parties
3) The disadvantaged party did not bear the risk of mistake
More Info: Mutual Mistake
When will impossibility excuse both parties from a contract?
1) The contract becomes objectively impossible to perform
2) The impossibility was not known at formation
More Info: Impossibility
What are common examples of objective impossibility?
1) The subject matter of the contract is destroyed
2) There is a personal service contract and the performing party has died or become incapacitated
3) Supervening law renders performance of the contract illegal
When is performance objectively impossible?
The performance is literally impossible for anyone to perform in any manner due to circumstances beyond the control of the parties.
When will the doctrine of impracticability excuse perofrmance?
1) The contingency causing the impracticability was unforeseen
2) The increase in the cost of performance is far beyond what either party anticipated
More Info: Impracticability
In what UCC cases is impracticability typically found?
1) Shortages caused by war or embargo
2) Crop failure
3) Unforeseen shutdown of major sources of supply
When will the doctrine of frustration of prupose excuse performance?
1) The parties' principal purpose of entering the contract is frustrated
2) The frustration is substantial
3) The non-occurrence of the frustrating event was a basic assumption in forming the contract
When will rescission excuse performance?
When both parties to a contract are mid-performance and consideration is provided by the discharge of the other's duties
When will accord and satisfaction excuse performance?
1) The obligee promises to accept substituted performance in satisfaction of the obligor's existing duty
2) The obligor performs the substituted performance
More Info: Accord and Satisfaction
When is an accord valid?
1) When the accord involves an agreement for partial or substituted performance, and the substituted performance differs significantly from the original performance or it's obligation is doubtful (≠ a pre-existing duty)
2) When the accord involves an agreement for partial payment, and there is a good faith or bonafide dispute about the amount owed
When may a contract be anticipatorily repudiated?
1) A party's makes a definitive statement indicating it will commit a breach of contract
2. A party's makes a voluntary act that renders the party unable to perform its contractual obligations
When can a party request an assurance of performance?
If anticipatory repudiation cannot be established but there are reasonable grounds for insecurity, then the insecure party can make a demand for adequate assurance of performance.
When can a party suspend performance due to insecurity?
1) Upon making a demand for assurances, a party with reasonable grounds for insecurity may suspend his own performance, so long as it is commercially reasonable to do so. The failure to respond with reasonable assurances constitutes a repudiation by the non-responding party. This can occur where the other party:
1) Does not respond to the demand within a reasonable time (30 days under the UCC)
2) Does not respond in a way that provides reasonable assurances
Rights of the aggrieved party upon the repudiation of a contract?
1) The aggrieved party can cancel the contract and terminate all obligations under the contact
2) The aggrieved party can bring an action for damages or specific performance
3) The aggrieved party can ignore the repudiation and continue under the contract
When can a repudiation not be retracted?
A party who has made an anticipatory repudiation to the other party may retract the repudiation unless and until the other party:
1) Acts in reliance upon the repudiation
2) Accepts the repudiation by signaling their acceptance to the breaching party
3) Commences a suit for damages or specific performance
Define express and implied conditions.
1) Express conditions: Those conditions that are expressly included in the contract as conditions.
2) Implied conditions: A fiction employed by the courts to deal with the potential effects of breaches of contract in common law contracts
What is the effect of the failure of an express condition?
It will discharge the party's obligation to perform
When do failed express conditions not discharge performance?
1) Waiver: The party who has been discharged by the failed condition may waive that right and perform anyway
2) Bad Faith Conduct: When a party acts in bad faith as to prevent the condition, his conduct will not be discharged
3) Gross Forfeiture: courts will enforce a performance obligation so as to avoid a grossly disproportionate loss for a relatively minor infraction
What are the two types of failed implied conditions?
1) Material breach
2) Substantial performance
When is the failure of an implied condition a material breach?
If the breach is serious enough or performance is so bad, then the court will treat the breach in the same way it would treat a failure of an express condition. The aggrieved party is discharged from his own performance obligations.
When does the failure of an implied condition result in substantial performance?
If the breach is not serious, then the court will treat the party's performance as substantial. The aggrieved party will not be discharged from his own performance obligations.
What five factors are used to distinguish between a material breach and a substantial performance?
1) The extent to which the aggrieved party will be deprived of the benefit that she reasonably expected to receive under the contract
2) The extent to which the aggrieved party can adequately be compensated via damages for the defective performance
3) The extent to which the breaching party will suffer forfeiture if a material breach is found
4) The likelihood that the breaching party will cure his failure
5) The extent to which the breach was willful or in bad faith rather than merely negligent or innocent
Where a condition has failed and performance cannot be excused, what other methods of enforcement are available to mitigate the consequences to the breaching party?
1) Divide the contract
2) Quantum meruit at common law.
What performance obligations remain when there is a failed condition in a divisible contract?
If the contract is easily apportioned into agreed equivalents, then the failure excuses the performance of the divisible portion that is breached, but not the performance of the other portions.
Divisibility of the contract and quantum meruit allow for which party to recover?
The breaching party (common law rule only)
When does quantum meruit apply?
When a party failed to fulfill an express condition of a contract or is in material breach of the contract, he may still be able to recover in quantum meruit in this way:
1) The breaching party may recover the reasonable value of the benefits conferred
2) Recovery will be reduced by the damages caused by his breach of contract
More Info: Quantum Meruit
What is the effect of failed condition in the UCC?
Under the perfect tender rule, the terms of a contract for the sale of goods are enforced exactly. Every contract term is thus treated as an express condition, and a breach by seller will relieve the payment obligation of the buyer.
Pursuant to the UCC, when is a seller in breach of a contract?
The goods tendered fail in any respect to conform to the contract
What is the perfect tender rule?
Under the perfect tender rule of the UCC, the terms of a contract for the sale of goods are enforced exactly. Every contract term is treated as an express condition, and a breach by the seller will relieve the payment obligation of the buyer.
What are a buyer's options if a UCC seller fails to make a perfect tender?
1) Reject the goods
2) Accept the goods
3) Accept part and reject part
What must a UCC buyer do to reject goods?
1) The buyer must exercise the right of rejection within a reasonable time and notify the seller of the rejection
2) Sue for damages unless the right to cure applies
If the buyer does not effectuate rejection, then he has made a failed rejection, which is deemed an acceptance of the goods by the buyer.
How does a buyer's acceptance of a seller's goods occur?
The buyer must have a reasonable opportunity to inspect the goods and signify his acceptance through:
1) Stating to the seller that the goods conform to the contract
2) Taking the goods despite their nonconformance
3) Failing to make an effective rejection
4) Taking any action inconsistent with seller's ownership
What are the legal consequences of the buyer's acceptance of the seller's goods?
1) The buyer must pay the contract price of those goods
2) The buyer may also seek damages for any non-conformity if the seller is notified
If the buyer accepts part of the seller's goods and rejects the other part, how may the buyer divide the goods?
Commercial units of the good (cannot accept 1/2 a unit).
When does a seller of goods have the right to cure?
If a seller makes a nonconforming tender, but time for performance remains under the contract, then the seller may cure under the UCC.
What are the requirements for a seller's right to cure?
1) The seller must give the buyer reasonable notice
2. The seller must cure by the contract deadline
How can a seller of goods overcome a breach of the perfect tender rule?
1) Cure the breach
2) Show reasonable grounds to believe delivery was acceptable
3) Show reasonable grounds that the buyer would accept the nonconformity
When can a seller of goods assert reasonable grounds to believe delivery was acceptable?
After the deadline for performance under the contract, the seller must give the buyer reasonable notice of the intention to cure, the buyer must accept the seller's offer to cure, and the seller must cure within a reasonable time.
How can a seller of goods prove that he had reasonable grounds to believe that the buyer would accept nonconformity?
Produce evidence of:
1) Express assurances to that effect from the buyer
2) The nonconformity being appropriate due to trade usage, course of dealing, or course of performance