Excuse/discharge of non-performance

Question 1

Performance under CL K vs. UCC

Answer 1

A party performs under a CL K if she substantially performs obligations under the K

UCC: Performance requires perfect tender, i.e. S must deliver perfect goods in the right place at the right time. (if not perfect tender, B can reject goods)

Question 2

B’s obligation to pay / /payment with check/ installment Ks / B’s right to inspect

Answer 2

If non-carrier case: price is due concurrently with tender of delivery
Carrier case: If shipping K, price due when goods reach carrier; if destination K, price due when goods reach destination

Payment by check: sufficient unless S demands cash and gives B time to get it

Installment Ks: S can demand payment for each installment if the price can be apportioned (unless intent suggests otherwise)

B’s right to inspect: B has right to inspect goods before she pays unless L provides for payment “C.O.D.” or suggests otherwise

Question 3

Condition defined

Condition precedent vs. concurrent vs. subsequent

Answer 3

A condition is either (1) an event that must occur or fail to occur before a party has a duty to perform, or (2) an event, the occurrence or nonoccurrence of which releases a party from his duty to perform.

Precedent: condition must occur before a duty to perform arises
Concurrent: conditions occur together; parties must perform simultaneously
Subsequent: when it occurs, it cuts off an already existing duty to perform

Question 4

Express Condition

Answer 4

An explicit contractual provision that provides that either (1) party does not have a duty to perform until condition occurs or fails to occur, or (2) if some event occurs or fails to occur, performance is suspended or terminated.
Literally compliance is required.

Question 5

Satisfaction as condition precedent: Mechanical fitness, utility or marketability vs. personal taste/judgment and satisfaction of a 3P

Answer 5

Fitness: fulfilled by a performance that would satisfy a reasonable perform

Personal taste/judgment or satisfaction of 3P: condition fulfilled only if the promisor or 3P is personally satisfied (but condition is excused if lack of satisfaction is made in bad faith/dishonest)

Question 6

Constructive/implied conditions: general rule

Answer 6

Generally, the duty of each party to render performance is a condition on the other party either rendering performance or making a tender of performance. Constructive conditions are satisfied by substantial performance.

Question 7

Excuse of condition: Anticipatory repudiation (2 requirements, effects, and retraction)

Answer 7

Anticipatory repudiation requires: (1) Executory bilateral K (bilateral K with unperformed duties on both sides), and (2) unequivocal statement/conduct of repudiation. If met, non-repudiating party has 4 options: (1) sue immediately, (2) suspend own performance and wait to sue until performance is due, (3) treat repudiation as rescission, or (4) urge other party to perform.
A repudiating party can retract it anytime before performance is due UNLESS (1) the other party canceled the K or (2) materially changed her position in reliance on the repudiation.

Question 8

Excuse of condition: by hindrance or failure to cooperate

Answer 8

If a party protected by the condition wrongfully prevents the condition from occurring, it’s excused

Question 9

Excuse of condition: by actual breach

Answer 9

An actual breach of K when performance is due excuses the duty to counter perform

Question 10

Excuse of condition: by prospective inability or unwillingness to perform (requirements and effect)

Answer 10

Requires: reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due.

Effect: innocent party can suspend own performance until she receives adequate assurance that performance will be forthcoming; if party fails to give adequate assurance, innocent party is excused and may treat it as repudiation.

Retraction is available if communicated to innocent party

Question 11

Excuse of condition: by substantial performance

Answer 11

Generally only applies to constructive conditions: a condition of complete performance may be excused where a party has rendered substantial performance (the other party’s duty to perform then becomes absolute)

Question 12

Excuse of condition: by “divisibility” of K

Answer 12

In divisible Ks (i.e. Ks with multiple “units”), a party who has performed one unit is entitled to the agreed-on equivalent of that unit even if he fails to perform the other units. The other party has a COA for failure to perform the other units and may withhold counter-performance on those.

Question 13

Excuse of condition by waiver

Estoppel by Waiver

Answer 13

A party having the benefit of a condition may indicate by words/conduct that she won’t insist on the conditions being met. Consideration is not required for a valid waiver of condition.

Estoppel by waiver: If a party waives a condition or performance, and the other party detrimentally relies on the waiver, courts will hold the waiver to be binding

Question 14

Election of Waiver

Answer 14

When a condition does not occur and duty to perform is broken, the beneficiary of the condition must make an election: (1) Terminate her liability, or (2) continue under the K. If she continues, condition/duty has been WAIVED. Election cannot be withdrawn even if the other party hasn’t relied on it.

Question 15

Other rules for conditions that may be waived: consideration, installment Ks, & other reasons for excuse of conditions

Answer 15

(1) Consideration: required if the condition re. the main subject of the K; no consideration required if it’s collateral to the main purpose of the K
(2) Installments: If waiver is not supported by consideration, the beneficiary of the waived condition can later insist on complying with the terms of the K for future installment by giving notice that he’s revoking waiver.
(3) Impossibility, impracticability, frustration

Question 16

Excuse of Performance: by performance or tender of performance

Answer 16

Good faith tender of performance discharges contractual duties

Question 17

Discharge by occurrence of condition subsequent

Answer 17

Discharges contractual duties

Question 18

Discharge by illegality

Answer 18

If the SM of the K has become illegal due to a subsequently enacted law, performance is discharged

Question 19

Discharge by impossibility, impracticability, and frustration overview

Answer 19

Where the nonoccurrence of an even was a basic assumption of the parties in making a K and neither party has assumed the risk of the event, performance may be discharged (i.e. it must be unforeseeable)

Question 20

Impossibility
Effect
Partial 
Temporary 
Part performance prior

Answer 20

Objective test: If performance has become objectively impossible, performance is excused (i.e. subjective impossibility isn’t enough). The impossibility must arise after the K was entered into.

Effect: Each party is excused from duties that have yet to be fulfilled.

Partial: if performance is partially impossible, the duty is discharged only to that extent

Temporary impossibility: only suspects contractual duties; once impossibility ends, duty springs back unless the burden on either party has been substantially increased

Part performance prior: party can recover in quasi-K or for reasonable value of performance rendered

Question 21

Specific situations: Death/physical incapacity, supervening illegality, subsequent destruction of K’s SM and contractor’s duty to build vs. remodel/repair

Answer 21

Death/physical incapacity: excuses performance if the person was necessary to effectuate the K (i.e. if services are unique)
Supervening illegality: could be a form of impossibility
Destruction of SM: the thing destroyed must have been necessary to fulfill the K.
Contractor’s duty to construct/build: NOT discharged by destruction of work in progress (he can rebuild) (but if it wasn’t his fault, court will extend deadline of completion; he is still only entitled to K price)
Contractor’s duty to remodel/repair: YES discharged by destruction of work in progress, to the extent he had already performed; entitled to restitution for value of the work done

Question 22

Impracticability

Answer 22

Impracticability is found where the party to perform has encountered (1) an extreme and unreasonable difficulty or expense and (2) its nonoccurrence was a basic assumption of the parties.

Question 23

Impracticability (Ks for sale of goods)

Answer 23

If performance has become impossible or commercially impracticable, S may be discharged to the extent of the impossibility/impracticability, if the goods were identified in the K.

Events sufficient for discharge: shortage of raw materials due to war, strike, embargo, or an unforeseen shutdown of a major supplier; catastrophic local crop failure

Not sufficient: mere shortage, mere increases in cost (unless it changes the nature of the K)

Question 24

Frustration of purpose

Answer 24

Frustration of purpose exists where (1) there is a supervening event, (2) the parties did not reasonably foresee the event occurring at time of K formation, (3) the purpose of theK has been completely (or almost) destroyed by the event, and (4) the purpose of the K was realized by both parties at the time of K formation.

Question 25

Mutual rescission

Answer 25

K is discharged by an express agreement b/w the parties to rescind. The agreement is itself a binding K supported by consideration. The K must have been bilateral. If K has been partially performed, mutual rescission will usually still be enforced.

Question 26

Rescission of unilateral K

Answer 26

Mutual rescission is ineffective; if offeree already performed, rescission must be support by one of the following to be effective: (1) an offer of new consideration by the nonperforming party, (2) elements of promissory estoppel, or (3) manifestation of intent by the OG offered to make a gift

Question 27

Formalities of rescission (CL vs. UCC)

Answer 27

CL: mutual rescission can be oral, even if K says it must be in writing (unless SM rescinded falls under SOF)

UCC: if K says rescission must be in writing, it must be

Question 28

Unilateral rescission

Answer 28

The party declaring it must have adequate legal grounds (e.g. mistake, lack of consideration, etc.)

Question 29

Discharge by modification

Answer 29

If a K is modified, this serves to discharge those terms of the OG K that are subject to the modification; it does not serve to discharge the entire K.

Question 30

Discharge by Novation

Answer 30

A novation requires (1) a previous valid K, (2) an agreement among ALL parties (including the new party), and (3) the immediate extinguishment of contractual duties b/w the original contracting parties, and (4) a valid and enforceable new K. A novation discharges the old K.

Question 31

Discharge by cancellation

Answer 31

Destruction or surrender of a written K will not, usually, by itself discharge it; but if the parties manifest intent to have these acts serve as discharge, it will usually have this effect if consideration is present.

Question 32

Discharge by release

Answer 32

A release will serve to discharge duties; the release usually must be in writing and supported by new consideration or promissory estoppel elements.

Question 33

Discharge by substituted K

Answer 33

Occurs when the parties to a K enter a second K that immediately revokes the first K expressly or impliedly. Intent governs.

Question 34

Discharge by accord and satisfaction & partial payment of an existing debt

Answer 34

An accord: an agreement by a party to an existing K to accept different performance in lieu of the performance she was supposed to receive. An accord suspends the right to enforce the original K in accordance with the terms of the accord. Satisfaction is the performance of the accord agreement; its effect is to discharge both the original K and the accord.

An accord must be supported by consideration or involve a bona fide dispute; it’s OK if it’s of lesser value that originally contracted for, so long as it’s a different type or it’s to be paid to a 3P.

Partial payment of an existing debt: partial payment will suffice for an accord and satisfaction if there is a “bona fide dispute” as to the underlying claim OR there is some alteration, even slight, in the debtor’s consideration.

Question 35

Breach of an accord by debtor vs. creditor

Answer 35

Debtor breach: creditor can sue on either the original K or for breach of the accord.

Creditor breach (i.e. creditor sues on OG K before debtor has time to perform): (1) raise accord as an equitable defense and ask that the action be dismissed or (2) wait until she is damaged, i.e. creditor is successful in his action on the OG K and then bring an action at law for damages for breach fo the accord

Question 36

Discharge by lapse

Answer 36

If each party’s duty is a condition concurrent to the other’s, it is possible that on the day set for performance, neither party is in breach and their contractual obligations lapse (if it’s a time is of the essence K, lapse occurs immediately; otherwise lapse occurs after a reasonable time)

Question 37

CL Breach

Answer 37

Minor breach: if the obligee gains the substantial benefit of her bargain, the breach is minor; the non breaching party still must perform, but she can sue for damages (set off)

Material breach: results if obligee does not receive the substantial benefit of her bargain. If one occurs, the non-breaching party may (1) not counter-perform (treat K at end) and (2) sue immediately for all available remedies including damages. Determining whether a breach is material is a question of fact (courts look at a number of factors).

Minor breach + anticipatory repudiation = material breach

Question 38

Timing as a material breach

Answer 38

Generally failure to perform by the time stated in the K is not material if performed is rendered in reasonable time. But if the nature of the K makes timing essential, or the K says time is of the essence, breach is material

Question 39

UCC Perfect Tender Rule

Answer 39

If goods or deliver fail to conform to the K in any way, B can (1) reject all, (2) accept all, or (3) accept any commercial units and reject the rest.

Question 40

When does a B accept? (UCC)

Answer 40

If a B accepts, his right to reject is generally cut off. Acceptance occurs in 1/3 ways: (1) after a reasonable opp to inspect, B indicates to S that she’s accepted, (2) B fails to reject within a reasonable time, or (3) B does any act inconsistent with S’s ownership.

Question 41

B’s responsibility for goods after rejection (UCC)

Answer 41

B must (1) not treat goods as her own, and (2) hold the goods with reasonable care for time sufficient to allow S to remove them.

Question 42

B’s right to revoke acceptance (UCC)

Answer 42

Acceptance may be revoked if (1) the goods have a defect that substantially impairs their value and (2) B accepted them on the reasonable belief that the defect would be cured and it has not been or (2) B accepted them bc of the difficulty of discovering defects or bc of S’s assurances that the goods conformed to the K.

Revocation and acceptance must occur within a reasonable time after B discovers defects and before any substantial change in the goods occurs.

Question 43

Rejection of an installment K & breach of an installment K (UCC)

Answer 43

An installment can only be rejected if the nonconformity substantially impairs the value of that installment and cannot be cured. An installment K is breached only if the nonconformity substantially impairs the value of the ENITRE K.

Question 44

Option to Cure (UCC): Single delivery Ks vs. installment Ks

Answer 44

Single delivery Ks:
If time has not expired yet: IF B rejects goods bc of defect, S may within the time originally provided for performance “cure” by (1) giving reasonable notice of her intention to cure and (2) making a new tender of conforming goods that the B must then accept.

If time has expired: If S sent non-conforming goods as an accommodation and B rejects, and S reasonably believed they were acceptance, then S, upon notification to B, has additional time beyond the original K time to make a conforming tender. Reasonable belief if (1) trade practice or prior dealings with the B led S to believe that the goods would be acceptance, or (2) S could not have known of the defect despite proper business conduct

Installment Ks: a defective shipment cannot be rejected if the defect can be cured (S HAS to be given chance to cure)