What is The Preexisting Duty Rule?
A promise to increase compensation for duties already owed under an existing contract is unenforceable because there is no consideration
Common law contracts
Exceptions to the Preexisting Duty Rule
1. Mutual Modification
2. Unforseen Circumstances
Mutual Modification Requirements?
1) Both parties agree to a performance that is different from the original contract; and,
2) Difference is not a mere pretense
then, A promise to increase compensation under an existing contract is enforceable as a mutual modification
Common Law only
Unforseen Circumstances Requirements?
The preexisting duty rule will not apply if:
A promise of increase compensation because performance has been rendered substantially more burdensome than reasonably anticipated
Common Law only
Modification requirements under the UCC
an agreement modifying an existing contract for the sale of goods needs no consideration as long as it is made in good faith
Seller's Obligation under the UCC
transfer and deliver the goods
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 common carrier
What are Non-carrier cases
Apply when the parties do not agree to use a common carrier
In non-carrier cases, when does the risk of loss pass?
(1) If seller is not a merchant:
Risk of loss passes to buyer upon tender of delivery
(2) If seller is a merchant:
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) Critical distinction:
(a) Shipment contract: seller promises to turn goods over to the carrier
Risk of loss passes to buyer once the goods are delivered to the carrier.
(b) Destination contract: the seller promises to tender delivery at a particular destination point
Risk of loss passes to the buyer when the goods are tendered to the destination point.
When will Unilateral Mistake excuse performance?
(a) Defined: a single party operating under a faulty assumption about a material fact at formation
(b) The rule: A single party mistaken is not excused
1) Exception #1: Mistake excused if 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; and,
3) The disadvantaged party did not bear the risk of mistake
When will impossibility excuse both parties from a contract?
Requirement #1: The impossibility must be objective
Requirement #2: The impossibility was not known at formation
In what circumstances are we likely to find objective impossibility?
Circumstance #1: Where the subject matter of the contract is destroyed
Circumstance #2: where there is a personal service contract and the performing party has died or become incapacitated
Circumstance #3: When supervening law renders performance legally impermissible
Objective impossibility occurs: where
the performance is literally impossible for anyone because of circumstances beyond the control of the parties
When will the doctrine of impracticability excuse perofrmance?
(a) The contingency causing the impracticability was unforeseen; and,
(b) The increase in the cost of performance is far beyond what either party anticipated
UCC cases where impracticability has been found typically involve (3)
Shortages cause by war or embargo
Unforeseen shutdown of major sources of supply
When will doctrine of frustration of prupose excuse performance?
Requirement #1: It must be parties principal purpose of entering the contract is frustrated
Requirement #2: The frustration was substantial in nature. Big frustration, total frustration
Requirement #3: The non-occurrence of the frustrating event, must have been a basic assumption
When will Rescission exclude performance
both parties to a contract are mid-performance. Consideration is provided by the discharge of the other’s duties
When will Accord & Satisfaction excuse performance
The parties may make an accord, which is: a contract under which the obligee promises to accept substituted performance in satisfaction of the obligor’s existing duty
When obligor performs accord, then there is satisfaction.
When is an Accord Valid?
(a) where the accord involves an agreement for partial or substituted performance: the substituted performance differs significantly from the original performance or it’s obligation is doubtful à cannot be a pre-existing duty.
(b) where the accord involves an agreement for partial payment: there is a good faith or bonafide dispute about the amount owed.
When may a contract be anticipatoryly repudiated?
a. a party’s definitive statement indicating it will commit a breach of contract;
b. a party’s 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, 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.
(2) The failure to respond with reasonable assurances constitutes a repudiation by the non-responding party. This can occur where the other party:
(a) Does not respond to the demand within a reasonable time (30 days under the UCC)
(b) Does not respond in a way that provides reasonable assurances
Rights of the Aggrieved Party upon Repudiation
(1) The aggrieved party can cancel the contract and terminate all obligations under the contact;
(2) The party can bring an action for damages or specific performance; and,
(3) The party can ignore the repudiation and continue under the contract
When can a repudiation no longer 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; or
(3) commences a suit for damages or specific performance
Express versus Implied Conditions?
Failure can excuse performance in...
(1) Express conditions: Those conditions that are expressly included in the contract as conditions
(2) Implied conditions are: A fiction employed by the courts to deal with the potential effects of breaches of contract
Common Law contracts
Failure of an express condition 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 excuse a performance obligations so as to avoid a grossly disproportionate loss for a relatively minor infraction.
Implied conditions fall into two categories
When is an implied condition a material breach?
What is the effect?
If the breach is serious enough, performance is so bad, the court will treat the breach in the same way it would treat a failure of an express condition. This is called: material breach
- Particular application in construction contracts
- The aggrieved party is discharged from his own performance obligations
When has the implied condition been substantially performed?
If the breach is less serious, the court will treat the party’s performance as “close enough,” meaning that the party has rendered: substantial performance
The aggrieved party will not be discharged from his own performance obligations
Five factors used to distinguish between material breach and substantial performance.
i) the extent to which the aggrieved party will be deprived of the benefit that she reasonably expected to receive under the contract;
ii) the extent to which the aggrieved party can adequately be compensated via damages for the defective performance;
iii) the extent to which the breaching party will suffer forfeiture if a material breach is found;
iv) the likelihood that the breaching party will cure his failure; and
v) 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 available to mitigate the consequences for the breaching party.
1. Divisibility of the Contract
2. Quantum Meruit
Performance obligations when there is a failed condition in a divisible contract.
The legal test for “divisibility” of the contract: The contract is easily apportioned into agreed equivalents
Excused for the divisible part that is breached but not for the other portions.
Divisibility of the Contract and Quantum Meruit allow for which party to recover?
The breaching party
Where a party failed to fulfill an express condition or is in material breach, he may still be able to recover in quantum meruit:
i) The breaching party may recover the reasonable value of the benefits conferred.
ii) However, such recovery will be reduced by the damages caused by his breach of contract.
Failure of a 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.
UCC: Seller is in breach of the contract if
the goods fail in any respect to conform to the contract
What is the perfect tender rule?
Under the perfect tender rule, in the UCC, 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.
Buyer's options if UCC seller fails to make a perfect tender
1. Reject Goods
2. Accept Goods
3. Accept Part and Reject Part
For a buyer to reject goods, the buyer must
...the buyer may then
If non compliant?
a) For a buyer to reject the goods, the buyer must: Exercise the right of rejection within a reasonable time + notify seller
b) Once a buyer rejects the goods, the buyer may: Sue for damages; unless, cure applies
c) If the buyer does not effectuate rejection in the manner specified above, then he has made a failed rejection, which:
Is a deemed acceptance of the goods by the buyer
How does a buyer's acceptance of seller's goods occur?
buyer has had a reasonable opportunity to inspect the goods + signifies acceptance through:
i) Stating to the seller that the goods conform to the contract;
ii) Taking the goods despite their nonconformance; iii) Failing to make an effective rejection; or,
iv) Taking any action inconsistent with seller’s ownership.
What are the legal consequences of the buyer’s acceptance of the seller's goods?
i) the buyer must:
Pay the contract price of those goods
ii) the buyer may also:
Seek damages for any non-conformity if seller is notified
If the buyer accepts part of the seller's goods and rejects part, the buyer can only do so in terms of
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 non-conforming tender, but time for performance remains under the contract, then the seller may cure
What are the requirements of Seller's right to cure?
i) Seller must give buyer reasonable notice; and,
ii) Seller must cure by the contract deadline
How can a seller of goods overcome breach of perfect tender?
1. Right to cure
2. Show reasonable grounds to believe delivery was acceptable
3. Proof of Reasonable grounds by seller
When can a seller of goods assert reasonable grounds to believe delivery was acceptable?
After the deadline for performance under the contract
i) Seller must give buyer seasonable notice of intention to cure;
ii) 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
i) express assurances to that effect from the buyer; or,
ii) trade usage, course of dealing, performance
If an installment contracts and a non-conforming tender, there are three possibilities that the UCC deals with:
a) If the non-conforming tender substantially impairs the value of the whole contract: there is a breach of the whole contract and it can be canceled
b) If the non-conforming tender substantially impairs the value only of this particular installment: the buyer can reject the installment but cannot cancel the entire contract
a) If the non-conforming tender does not even substantially impair the value of this particular installment: The buyer must allow the seller the opportunity to cure