Excuse of Performance based on Later Events

Question 1

When do we care about excuse of performance?

Answer 1

If a party didn’t perform as promised.

Question 2

What may provide an excuse of performance?

Answer 2

1. Other Party’s Breach
2. Anticipatory Repudiation
3. Failure to Give Adequate Assurance
4. A later agreement
5. Impossibility
6. Frustration of Buyer’s Primary Purpose
7. Failure of an express condition

Question 3

When does the party’s breach provide an excuse for performance?

Article 2? Common Law?

Answer 3

Article 2: If the goods tendered are not PERFECT (perfect tender rule), buyer pretty much has free reign. Buyer can:

a) Reject ALL of the shipment
b) Accept ALL of the shipment
c) Accept SOME of the shipment.

Whichever option buyer chooses, buyer will still get damages because there was a breach.

Common Law:

Only a material breach provides an excuse. [Although a party can get damages for any breach].

Question 4

Example:

1) Martha is hired to decorate the house and she does everything but one room. Result?
2) Martha is hired to decorate the whole house, and only decorates one room. Result?

Answer 4

1) This is substantial performance of the contract and thus not a material breach. She must be paid the full contract price [employer may sue for damages later].
2) This is a material breach and thus not substantial performance. Employer is excused from paying the contract price, but Martha may receive restitution [reasonable value of the services performed].

Question 5

Example:

Martha is hired to decorate 9 cabanas for a total contract price of $90,000. She only decorates 3. Result?

Answer 5

This is a material breach and the paying party is excused from paying her the contract price. [give her restitution].

Contrast this examples with one in which the contract is DIVISIBLE [payment is to be made on a per unit basis] - there, she is paid the K price for every unit on which she substantially performed.

Question 6

When does anticipatory repudiation provide an excuse for performance?

Answer 6

An anticipatory repudiation is a material breach [and thus excuses performance _as long as the other party was ready, willing and able to perform_].

A party may RETRACT their anticipatory repudiation if the other party has not relied on it.

Question 7

When may a party retract its anticipatory repudiation?

Answer 7

When the other party has not relied on it.

Question 8

When does failure to give adequate assurance provide an excuse for performance?

Answer 8

1) It must be under Article 2.
2) 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.

If the party does not provide adequate assurance, other party can treat it as a material breach.

Question 9

What later agreements may provide an excuse for non-performance?

Answer 9

1. Recission
2. Modification
3. Accord and Satisfaction
4. Novation

Question 10

What is recission? When does it provide an excuse for non-performance?

Answer 10

Recission is when both parties agree to rescind the contract.

For a recission to be valid, both parties must have at least some performance remaining. (consideration issues).

Question 11

When does a modification provide an excuse for non-performance?

Answer 11

A modification excuses performance of the old contract immediately.

(Contrast this with accord and satisfaction, where the accord happens in the future)

Question 12

What is accord and satisfaction?

When does it provide an excuse for non-performance?

How is it different than modification?

Answer 12

An accord is an agreement to accept performance in future satisfaction of an existing duty. A satisfaction is performance of the accord.

The existing duty is only extinguished when the accord is satisfied.

*Thus, an accord does not make the underlying obligation go away.*

Example: Jim agrees that if John mows his lawn for a year, then he will discharge John’s debt.

Result: Jim can sue either on the lawn deal or the underlying debt.

Contrast with Modification: The accord takes effect in the future instead of now like in a modification.

Question 13

What is the difference between accord and satisfaction and a modification?

Answer 13

Modification alters the obligations of the parties now, and accord and satisfaction alters the obligations of the parties in the future.

Question 14

What is a novation?

When does it provide an excuse for non-performance?

Answer 14

A novation is an agreement to substitute a new party for an old one.

It requires agreement between THREE parties: the original promisor and promisee, and a third party.

The parties all agree that the new party will substitute and perform for the old.

Contrast this with a delegation of duties, where the promisee is not part of the agreement.

Question 15

When does impossibility provide an excuse for non-performance?

What is impossibility called in Article 2?

Who benefits from impossibility?

What forms does impossibility come in?

Answer 15

Impossibility is a SELLER’S EXCUSE.

Impossibility is when a later unforeseen event makes performance impossible. It MAY provide an excuse.

It is called impracticability in Article 2.

Possible Forms:

1. Destruction of Something Necessary for Performance
2. Death/Incapacity of a an Essential Person
3. Supervening Governmental Regulation
4. Increase in the Cost of Seller’s Performance

Question 16

When does destruction excuse performance?

What doctrine is this in?

Common Law? Article 2?

Answer 16

In doctrine of impossibility/impracticability.

Common Law: Destruction provides an excuse for non-performance.

Example: Destruction of a music hall prior to scheduled performance relieves hall owner of performance.

Article 2: Same rule with two wrinkles:

1) Risk of Loss: A seller who bore ROL when the goods were damaged or destroyed is excused by impracticability!! [need to know other rules bc of MCs].
2) Unidentified Goods: Seller is excused only if the goods were identified to the contract.

Example: Goods have to be labeled with buyer’s name, set aside, roped off, etc.

Question 17

When does death/incapacity excuse performance?

Answer 17

This is in the doctrine of impossibility.

Death/incapacity excuses performance when the person was essential.

Example: Artist.

Death does NOT excuse performance when a replacement can be easily foun.

Example: House painter.

Question 18

What happens when an intervening government regulation forbids performance of a contract?

Answer 18

Performance is excused by the supervening regulation.

Question 19

When does an increase in the seller’s cost of performance provide an excuse for non-performance?

Answer 19

This is in the impossibility/impracticability doctrine.

MBE: Increase in the seller’s cost almost never excuses the seller.

NY: in NEW YORK, the court’s are more flexible regarding increase in cost. Look at both the absolute amount of increase and the percentage increase.

Question 20

When does frustration of the buyer’s purpose provide an excuse for non-performance?

What is required?

Answer 20

(Buyer’s analogy to impossibility)

Seller must know buyer’s purpose at the time of contracting.

Example: If Seinfeld rents an apartment to view the Macy’s day parade, and then the parade is canceled. He is then excused from performing [paying to rent the space].

Question 21

When does failure of an express condition provide an excuse for non-performance?

Answer 21

Express conditions must be strictly complied with.

Failure to comply with a condition is not a breach, it simply limits other obligations in the contract.

Question 22

How do satisfaction clauses work?

Standard?

I.e., “if she is satisfied with the work.”

Answer 22

Satisfaction is measured by a reasonable person standard [objective] unless the contract deals with art or matters of personal taste. [subjective]

Question 23

What is the difference between a condition precedent a condition subsequent?

Answer 23

A condition precedent occurs before an obligation to perform, and a condition subsequent cuts off a party’s obligation to perform.

Example: Phil agrees to let Derek use his clubs if it rains July 4 [CP], and until the Cubs win the world series [Condition subsequent].

Question 24

When are conditions excused?

(2 ways)

Who may forfeit a condition?

Answer 24

Only the person protected by a condition can forfeit it.*

Ways:

1) Failure to Cooperate: John agrees to buy a house provided he gets a 500k mortgage at 10%. He makes no effort to get a mortgage.

Analysis: Who is protected? John. Did he do anything to forfeit the protection? Yes, he failed to cooperate and loses the condition.

2) Waiver: Protected party may waive a condition.

Note: Party who waives a condition can retract the waiver if the other party has not relied on it.