Excuses for Non-performance

Question 1

Anticipatory Repudiation

Answer 1

Standard: Party’s clear & unequivocal words or actions indicate unwillingness to perform

Retraction: Party may retract repudiation unless nonrepudiating party:

• cancels contract
• materially changes position in reliance thereon OR
• indicates repudiation is final

Effect: Upon repudiation, nonrepudiating party may:*

• treat repudiation as breach OR
• ignore repudiation & demand performance

*Nonrepudiating party may also suspend own performance

Question 2

Can a breach occur before the time for performance arises or elapses?

Answer 2

Yes, under the doctrine of Anticipatory Repudiation.

Question 3

When does Anticipatory Repudiation apply?

Answer 3

This doctrine applies when a party clearly and unequivocally, by words or acts, indicates an unwillingness to perform his/her contractual duties.

The nonrepudiating party may treat the repudiation as a breach or ignore it and demand performance pursuant to the contract.

BUT if the date of performance has not passed and the nonrepudiating party has fully performed, then the nonrepudiating party must wait until the repudiating party’s performance is due before filing suit.

Question 4

Impracticability Defense

Answer 4

1. Unanticipated or extraordinary event* made performance impracticable
2. Contract was formed under basic assumption event would not occur
3. Nonperforming party was not at fault in causing event to occur

*Nonperforming party must not have assumed risk that event would occur (eg, by contractual language).

Parties to a contract have an absolute duty to perform unless that duty is discharged. Performance can be discharged due to impracticability if:

1. an unforeseeable event has occurred
2. the contract was formed under the basic assumption that the event would not occur and
3. the party seeking discharge of performance is not at fault.

But if a party assumed the risk of an event happening that made performance impracticable, then the party’s performance will not be discharged by impracticability.

Question 5

When does the doctrine of anticipatory repudiation not apply?

Answer 5

This doctrine does not apply when the date of performance has not passed and the nonrepudiating party has fully performed.

Under those circumstances, the nonrepudiating party must wait until the repudiating party’s performance is due before filing suit.

Question 6

When nonoccurrence of condition is excused: (DEW FEW)

Answer 6

Waiver: Party waives condition by words or conduct

Wrongful interference: Party wrongfully prevents or interferes with condition’s occurrence

Estoppel: Party indicates condition will not be enforced AND Other party reasonably & detrimentally relies on belief that condition has been waived

Disproportionate forfeiture: Party substantially performed & will be significantly harmed if condition is enforced

Question 7

What is the difference b/w insecurity and anticipatory repudiation (AR)?

Answer 7

Insecurity involves uncertainty re the other party’s performance

Whereas, AR involves a clear indication the other party will not perform.

Question 8

Requirements for demand for adequate assurances:

Answer 8

1. must be made in writing based on reasonable and justifiable grounds for insecurity.

*No response required if demand is unjustified or unreasonable

*Suspension of performance - a justifiably insecure party may suspend performance until adequate assurances are provided.

Question 9

What are adequate assurances?

Answer 9

Commercially reasonable commitment form a party that it will peform under K

*if not provided, insecure party may treat K as repudiated
- However, failure to respond to unreasonable demand is not a repudiation

*If AA are provided, the formerly insecure party must perform; failure to do so will constitute a breach.

Question 10

Anticipatory Repudiation Requirements:

Answer 10

Arises if on party to a K:

1. Unambiguous Act - makes an unambiguous statement or conduct…
2. Prior to full performance…
3. which indicates he will not perform.

Question 11

When can repudiation be withdrawn?

Answer 11

Can be withdrawn unless other party has either:
1. materially changed position in reliance on the repudiation,

2. cancelled the K in response to the repudiation; OR
3. indicated they consider the repudiation to be final.

Question 12

What are the non-repudiating party’s options?

Answer 12

She may either:
1. treat the AR as a total repudiation and sue,

2. suspend performance until performance date is due and wait and to sue,
3. treat repudiation as an offer to rescind and treat K as discharged, OR
4. ignore repudiation and urge promisor to perform

Question 13

Frustration of Purpose

Answer 13

A party’s duty to perform under a K may be discharged if an unforeseen event occurs that undermines (I.e., frustrates) one or both party’s principal purpose for entering the K

K may be discharged if:

1. an unexpected destroys one or both party’s principal purpose for entering into the K;
2. the unforeseen event is not the fault of the frustrated party; AND
3. the non-occurence of the event is a basic assumption on which the contract is made.

*Whether performance is possible after the event is irrelevant
- issue is whether performance after the unforeseen event nullifies one or both party’s original purpose for the K

Question 14

Frustration of Purpose Example

Answer 14

A contracts with B to rent B’s apartment for one day to get a prime view of a marathon run that will occur on that day. A agrees to pay a price that is far more than the typical rental value of the apartment. The marathon run is canceled because of a terrorist threat. A may be excused from performance under the doctrine of frustration of purpose because her essential purpose in renting the apartment has been frustrated, and the event that arose was not her fault and was completely unexpected.

Question 15

Frustration of purpose v. Impossibility

Answer 15

Impossibility concerns duties specified in K

Frustration concerns the reasons a party entered into the K

Example: a LL rents space to B to open an ice cream parlor; if the property is destroyed by an earthquake, A & B are excused from performing due to impossibility

However, if the city passes an ordinance banning the sale of sweetened food, the K’s purpose is frustrated b/c LL knew B intended to open an ice cream parlor.

Question 16

Impossibility & Impracticability

(MBE often uses the term “impracticability” to encompass both impossibility and impracticability)

Answer 16

If an unforeseen event occurs after K formation but before performance is complete, performance may be excused as impossible or impracticable.

Question 17

Impossibility & Impracticability Requirements

Answer 17

An unforeseen event, which neither party assumed would occur, must make completing performance either:

• Impossible: performance is objectively impossible,
• Impracticable: performance is only possible with extreme and unreasonable difficulty or expense.

Question 18

Impossibility & Impracticability: Common unforeseen events

Answer 18

1. substantial damage or destruction of K’s subject matter (can’t be either party’s fault)
2. Death: K obligations generally survive death of party unless deceased party’s K obligations are non-delegable (usually only unique personal services)
3. subsequent law or regulation (e.g., supervening illegality) if performance becomes illegal, excuse by impossibility.

Question 19

When can a repudiation of contractual duties be retracted?

Answer 19

A repudiation of contractual duties may be retracted before the nonrepudiating party:

(1) cancels the contract,
(2) materially changes position in reliance on the repudiation, OR
(3) indicates that he/she considers the repudiation to be final.

Question 20

Can a nonrepudiating party recover damages if they are in material breach (I.e., cannot substantially perform his/her obligations)?

Answer 20

The nonrepudiating party cannot recover damages under the contract if that party is in material breach (i.e., cannot substantially perform his/her obligations).

That is because the material breach discharges the other party’s duty to perform.*

*However, the breaching party may be able to recover restitution for any benefit conferred on the nonrepudiating party.

Question 21

Prospective inability to perform v. Anticipatory Repudiation

Answer 21

Question 22

When does breach occur with anticipatory repudiation?

Answer 22

Anticipatory repudiation occurs when a party clearly and unequivocally communicates that it does not intend to perform. Mere insecurity about the party’s ability to perform is not a repudiation, but it allows the insecure party to demand assurance of performance. Failure to provide adequate assurances is a breach.

Question 23

A contracting party’s duty to perform can be discharged by impracticability. This defense is available when:

Answer 23

an unexpected or extraordinary event makes it impracticable for the party to perform

the contract was formed under a basic assumption that the event would not occur AND

the party seeking discharge was not at fault in causing the event to occur.

In a personal-services contract (e.g., contract to paint a portrait), impracticability can arise when the party who is to perform the contract—or a person whose existence is required for that performance—dies or becomes incapacitated.*

*Impracticability also arises when the specific subject matter of the contract is destroyed or when performance becomes illegal after the contract was made.