Contracts - WAS PERFORMANCE EXCUSED?

Question 1

Was Performance Excused?

Answer 1

This section deals with whether the various reasons for which PERFORMANCE under the contract might be EXCUSED

Question 2

Other Party’s Breach

EXCUSES TO PERFORMANCE

Answer 2

The other party’s breach MAY provide an excuse for non-performance. Whether it does depends on the nature of the contract

Question 3

Sale of Goods (article 2) - If Seller’s performance is not perfect in every respect [“Perfect Tender Rule’], buyer basically has free reign - 3 options

(EXCUSES TO PERFORMANCE)

Answer 3

(1) Buyer can REJECT ALL of the goods
(2) Buyer may ACCEPT ALL of the goods
(3) Buyer may ACCEPT SOME of the goods and reject the rest

Note: whichever option Buyer chooses, Buyer can still get damages

Question 4

Common Law Contracts - What are injured party’s options if there is a breach?

(EXCUSES TO PERFORMANCE)

Answer 4

Injured party can recover damages for ANY breach of contract, whether the breach is material or not

But ONLY A MATERIAL BREACH provides an excuse for performance

e.g. I hire Martha Stewart to decorate my house. She finishes all but one bathroom. She breached so I can get damages, but I must still pay her the contract price (ie I am not excused from performance)

BUT -eg.2 if she only decorates the foyer, that is a MATERIAL BREACH, and I can not only get damages, but I am EXCUSED from paying Martha the contract price
(note: Martha may still recover in RESTITUTION for reasonable value of her work)

Question 5

Divisible Contracts

EXCUSES TO PERFORMANCE

Answer 5

Contracts where payment is to be made on a PER UNIT BASIS, the breaching party can recover the contract price for ANY UNIT on which he has substantially performed

e.g. contract provides Martha decorate ten cabanas for $90,000 total but only decorates 3 - she is in MATERIAL BREACH and performance is excused

BUT e.g.2 - contract provides $9,000 per each cabana, this is a DIVISIBLE CONTRACT bc payment explicitly stated it is on a per unit basis so Martha gets contract price for each cabana for which she substantially performed

Question 6

Anticipatory Repudiation

EXCUSES TO PERFORMANCE

Answer 6

occurs if a promisor, PRIOR TO THE TIME SET FOR PERFORMANCE of his promise, indicates that he will not perform when the time comes (as opposed to breach when performance is not done when due)

NOTE: anticipatory repudiation must be unequivocal/definitive. Mere expression of doubt or fear about being able to perform are not enough (though such expressions may establish prospective inability to perform)

You can retract your anticipatory repudiation as long as the other party has not relied on it

Question 7

Failure to Give Adequate Assurance (Article 2)

EXCUSES TO PERFORMANCE

Answer 7

A party with REASONABLE GROUNDS for being insecure about the other party’s performance may request IN WRITING, ADEQUATE ASSURANCE that the other party will perform in accordance with the contract

e.g. buyer of computer chips hears Seller’s recent shipments have contained an uncommon number of defective chips. If the Seller does not provide adequate assurance, Buyer can treat this as an ANTICIPATORY REPUDIATION of the contract and has an EXCUSE for nonperformance

what constitutes “adequate assurance” depends on facts and circumstances, B doesn’t have the right to demand a particular type of assurance (that would basically be rewriting the contract)
e.g. if contract is to buy from you on credit, you cant demand cash payment as adequate assurance

Question 8

A Later Agreement - RESCISSION

EXCUSES TO PERFORMANCE

Answer 8

RESCISSION is an agreement to cancel the contract. for a RESCISSION to be effective, each party must have SOME performance remaining (to provide consideration)

e.g.Opie contracts to mow Helen’s lawn. if Opie had already mowed Helen’s lawn, and then they agree to rescind, not effective bc opie had already completed performance and therefore no consideration was present for the rescission

Question 9

Modification

EXCUSES TO PERFORMANCE

Answer 9

An agreement to replace an existing contract with a new one. A MODIFICATION takes effect immediately (and therefore can only sue on breach of the new contract, not the old one)

e. g. Opie borrows $500 from Helen and promises to repay her with interest. Later, Helen agrees to discharge the debt NOW if Opie promises to mow her lawn for a year. Opie makes the promise.
- -Helen can not sue Opie ONLY on the lawn deal bc his duty to pay the $500 was excused by modification, which took effect immediately

COMPARE TO “Accord and Satisfaction”

MBE book: happens when the parties to a contract enter into a second contract that IMMEDIATELY REVOKES the first contract.
-intent governs: whether it is a modification (ie substituted contract) or an accord depends on whether it was intended to be discharged immediately, or only after performance of the second contract (in which case it would be an accord)

Question 10

Accord and Satisfaction

EXCUSES TO PERFORMANCE

Answer 10

An ACCORD is an agreement to accept performance in FUTURE satisfaction of an existing duty; SATISFACTION is performance of the accord. The existing duty is extinguished only WHEN THE ACCORD IS SATISFIED
— if accord not satisfied can sue on either OLD contract or NEW one

e. g. Opie and Helen agree that if Opie mows her lawn for a year, THEN Helen will discharge the debt
- -now Helen can sue on EITHER the lawn deal, OR the $500 debt bc the earlier obligation is not excused until the accord is satisfied

*distinguish between accord and modification - modification takes place now - accord is an agreement to cancel an obligation in the future if a condition is fulfilled (namely, satisfaction)

MBE book: accord is an agreement in which one party to an existing contract agrees to accept, in lieu of the performance that she is supposed to receive from the other party to an existing contract, some other, different performance.

e.g. Mel owes Alice $1,000 under a contract. Mel promises to give his car to Alice in settlement of the debt. This agreement is an ACCORD

Question 11

NOVATION

EXCUSES TO PERFORMANCE

Answer 11

NOVATION is an agreement to SUBSTITUTE a new party for an existing one
-Requires that ALL PARTIES AGREE to the new contract

e. g. Opie contracts to mow Helen’s lawn. Later, Opie, Goober and Helen all agree that Goober will mow instead. If Goober does not do it, Helen can only sue Goober. Opie has been EXCUSED BY NOVATION bc Helen agreed to it
e. g. 2 - if instead Opie and Goober agreed but Helen never consented, that is NOT a novation, but rather a delegation of duties and Opie is still on the hook for contract with Helen

Question 12

IMPOSSIBILITY

EXCUSES TO PERFORMANCE

Answer 12

IMPOSSIBILITY - The occurrence of an unanticipated or extraordinary event may make contractual duties impossible or impracticable to perform or may frustrate the purpose of the contract. Where the nonoccurrence of the event was a BASIC ASSUMPTION of the parties in making the contract and neither party has expressly or impliedly assumed the risk of the event occurring contractual duties may be discharged

-ie a later unforeseen event that makes performance impossible may provide seller with an excuse. Under article 2, the doctrine is called IMPRACTICABILITY

Issues that arise:

(1) Destruction of something necessary for performance
(2) Death/Incapacity of an Essential Person
(3) Supervening Governmental Regulation
(4) Increase in the cost of Seller’s Performance

Question 13

rule for DESTRUCTION OF SOMETHING NECESSARY FOR PERFORMANCE

(IMPOSSIBILITY)

(EXCUSES TO PERFORMANCE)

Answer 13

Common Law: Destruction provides an excuse for nonperformance
-e.g. Cam leases his hall to Taylor for a concert on June 1, and hall burns down on may 26. Cam is excused from performing so Taylor will not win on breach claim bc performance impossible

Sale of Goods (art 2) - Same general rule with 2 wrinkles

(i) ROL - a Seller who bore ROL when goods were damaged or destroyed is EXCUSED by IMPRACTICABILITY (i.e. seller just lost all his goods, we are not going to also make him pay for breach to the other party as well)

BUT

(ii) UNIDENTIFIED GOODS - Seller is excused only if the goods that were damaged or destroyed had been “identified to the contract” (so if goods destroyed were not “identified” to the contract, he is still responsible for performing and no excuse if he breaches)

Question 14

Death or Incapacity of an Essential Person

(IMPOSSIBILITY)

(EXCUSES TO PERFORMANCE)

Answer 14

Death or the physical incapacity of a person NECESSARY to effectuate the contract serves to discharge it

e. g. Ida hires Van Gogh to paint her portrait. Can gets hurt and cannot paint – he I not liable, he is EXCUSED FROM PERFORMING
e. g. 2 Ida hires Van to paint exterior of her barn - here, he is not excused bc anybody can paint a barn - if injured he should delegate his duty to someone else
e. g.3 Van paints the portrait, but Ida dies. Her ESTATE IS LIABLE for contract price bc in theory, anyone can pay money so NO EXCUSE

Question 15

Supervening Governmental Regulation

(IMPOSSIBILITY)

(EXCUSES TO PERFORMANCE)

Answer 15

supervening government regulation that makes performance of the contract illegal provides an EXCUSE FROM PERFORMANCE

e.g. manufacturer contracts to sell desks made of NY maple to buyer. NY passes a law forbidding anyone to cut down NY maple trees - manufacturer EXCUSED

Question 16

rule for “Increased Costs of Seller Performance”

(IMPOSSIBILITY)

(EXCUSES TO PERFORMANCE)

Answer 16

on MBE, increase in Seller’s cost almost never excuses the Seller from performing (theory being that seller assumed this risk by entering into a fixed cost contract)

NY** DISTINCTION - more flexibility - look at (1) absolute amount of the increase and (2) the % increase in cost (no right answer as long as analysis contains these)

Question 17

FRUSTRATION OF BUYER’s PRIMARY PURPOSE

EXCUSES TO PERFORMANCE

Answer 17

courts will discharge contractual duties even though performance is still possible if the Primary Purpose of the contract has been frustrated.

Basically, courts will discharge the duty to perform under the contract if the primary purpose has been frustrated by an unforeseeable event and the other party new that was the primary purpose

–e.g. Cam rents Seinfeld’s loft for Thanksgiving bc of its great view of Macy’s day parade. Parade is cancelled. If Seinfeld knew what Cam’s purpose was when they entered into contract, Cam will be excused by frustration of purpose

MBE book gives 4 elements (but not really necessary to memorize these)
SRDB - “SUN REALLY DOES BURN”

(I) there is a SUPERVENING ACT or event leading to the frustration

(ii) when entering contract, the parties DID NOT REASONABLY FORESEE the act or event occurring
(iii) the PURPOSE of the contract has been completely or almost completely DESTROYED
(iv) purpose of contract was realized by BOTH PARTIES at the time of making the contract

Question 18

FAILURE OF AN EXPRESS CONDITION

EXCUSES TO PERFORMANCE

Answer 18

Condition is an event of state of the world that must occur or fail to occur BEFORE a party has a duty to perform under a contract. There can be no breach of the PROMISE until the promisor is under a duty to perform - FAILURE OF A CONDITION is NOT breach of contract, but discharges the liability of promisor whose obligations never arose under the condition.

-Limits obligations created by OTHER contract language; does not create an independent obligation. Look for words like “if” “as long as” “when” “provided that” “on condition that” “unless”

STRICT COMPLIANCE with conditions is REQUIRED

e.g. Liz contracts to buy a house PROVIDED it is appraised for at least $1,000,000. The house appraises for $999,500. Liz is EXCUSED from buying the house because the express condition was not COMPLETELY satisfied.

Question 19

SATISFACTION CLAUSES

(FAILURE OF AN EXPRESS CONDITION)

(EXCUSES TO PERFORMANCE)

Answer 19

many contracts include an express condition that a party will pay only if “satisfied” by other party’s performance

RULE: Satisfaction is measured by a REASONABLE PERSON (objective) standard unless the contract deals with art or matters of PERSONAL TASTE

e. g. Pam contracts to have house painted for $25k “if she is satisfied with the work” - she must pay, objective standard
e. g.2 Pam contracts with artist to paint her portrait -art is personal/subjective so only care if Pam is satisfied

Question 20

Types of Express Conditions

(FAILURE OF AN EXPRESS CONDITION)

(EXCUSES TO PERFORMANCE)

Answer 20

There can be conditions PRECEDENT and SUBSEQUENT

e. g. Phil Mickelson agrees to let Jeter use his golf clubs for $100/wk IF it rains on July 4 – this is a CONDITION PRECEDENT, if it happens he is obligated to perform
e. g.2 Phil agrees to let Jeter use his clubs UNTIL the mets win the world series – this is a CONDITION SUBSEQUENT, bc it cuts off a party’s obligation - Phil obligated until satisfied, then obligation cut off

Question 21

Excusing a Condition

(FAILURE OF AN EXPRESS CONDITION)

(EXCUSES TO PERFORMANCE)

Answer 21

Occurrence of a condition may be EXCUSED by the later action or inaction of the PERSON WHO IS PROTECTED by the condition

BAR TIP** identify the person protected and see if he did anything to forfeit that protection

Ways to waive a condition:

(1) FAILURE TO COOPERATE
- —– e.g. Liz agrees to buy the house provided she gets a $700k mortgage at 5% or less and she MAKES NO EFFORT

(2) WAIVER - voluntarily giving up protection
e. g. Lis has monthly payments to builder conditioned on him providing architect’s certificate for that month’s work. Liz TELLS builder not to worry, she will pay without certificate (however, she can retract this for the next month to extent builder has not RELIED on the waiver)