Excuse/discharge of non-performance Flashcards
Performance under CL K vs. UCC
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)
B’s obligation to pay / /payment with check/ installment Ks / B’s right to inspect
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
Condition defined
Condition precedent vs. concurrent vs. subsequent
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
Express Condition
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.
Satisfaction as condition precedent: Mechanical fitness, utility or marketability vs. personal taste/judgment and satisfaction of a 3P
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)
Constructive/implied conditions: general rule
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.
Excuse of condition: Anticipatory repudiation (2 requirements, effects, and retraction)
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.
Excuse of condition: by hindrance or failure to cooperate
If a party protected by the condition wrongfully prevents the condition from occurring, it’s excused
Excuse of condition: by actual breach
An actual breach of K when performance is due excuses the duty to counter perform
Excuse of condition: by prospective inability or unwillingness to perform (requirements and effect)
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
Excuse of condition: by substantial performance
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)
Excuse of condition: by “divisibility” of K
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.
Excuse of condition by waiver
Estoppel by Waiver
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
Election of Waiver
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.
Other rules for conditions that may be waived: consideration, installment Ks, & other reasons for excuse of conditions
(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
Excuse of Performance: by performance or tender of performance
Good faith tender of performance discharges contractual duties
Discharge by occurrence of condition subsequent
Discharges contractual duties
Discharge by illegality
If the SM of the K has become illegal due to a subsequently enacted law, performance is discharged
Discharge by impossibility, impracticability, and frustration overview
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)
Impossibility Effect Partial Temporary Part performance prior
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
Specific situations: Death/physical incapacity, supervening illegality, subsequent destruction of K’s SM and contractor’s duty to build vs. remodel/repair
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
Impracticability
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.
Impracticability (Ks for sale of goods)
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)
Frustration of purpose
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.
Mutual rescission
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.
Rescission of unilateral K
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
Formalities of rescission (CL vs. UCC)
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
Unilateral rescission
The party declaring it must have adequate legal grounds (e.g. mistake, lack of consideration, etc.)
Discharge by modification
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.
Discharge by Novation
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.
Discharge by cancellation
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.
Discharge by release
A release will serve to discharge duties; the release usually must be in writing and supported by new consideration or promissory estoppel elements.
Discharge by substituted K
Occurs when the parties to a K enter a second K that immediately revokes the first K expressly or impliedly. Intent governs.
Discharge by accord and satisfaction & partial payment of an existing debt
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.
Breach of an accord by debtor vs. creditor
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
Discharge by lapse
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)
CL Breach
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
Timing as a material breach
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
UCC Perfect Tender Rule
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.
When does a B accept? (UCC)
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.
B’s responsibility for goods after rejection (UCC)
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.
B’s right to revoke acceptance (UCC)
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.
Rejection of an installment K & breach of an installment K (UCC)
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.
Option to Cure (UCC): Single delivery Ks vs. installment Ks
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)
