Performance and Breach of Contract

Question 1

How do you differentiate between a “material” and an “immaterial” breach of contract?

Answer 1

Consider:

1. The extent to which the injured party will be deprived of the benefit which he reasonably expected
2. The extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived
3. The extent to which the party failing to perform or to offer to perform will suffer forfeiture
4. The likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances
5. The extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing

Question 2

What is the takeaway from Jacobs and Young v. Kent

Answer 2

Differentiate between dependent and independent promises in a contract. If a promise is dependent, a breach may discharge the other party’s performance. If a promise is independent, you need to look at whether such a breach is material, and if so, the other party is discharged from performing.

In Kent, the builders failure to install a certain type of pipe was an immaterial breach. The buyer of the house was entitled to damages, but was not discharged from performing under the contract (paying the builder)

Question 3

What is the general idea of substantial performance under common law?

Answer 3

If one party substantially performs their duties under the contract and only “immaterially breaches” an independent condition of the contract, the non-breaching party is not discharged from performance but is entitled to damages

Question 4

What is the effect of an uncured “material” breach after the non-breaching party has asked for adequate assurances?

Answer 4

The non-breaching party is discharged from their duties

Question 5

What are the three categories of “independent promises”?

Answer 5

1. Promises to fix time for performance
   2 Promises where the performance of such is only a minor party of the overall consideration
2. Promises where performance is expressly made independent

Question 6

What is the general idea of perfect tender under UCC 2-601?

Answer 6

In certain circumstances, a buyer is allowed to reject goods from a seller if they do not perfectly conform to their description in the contract

Question 7

Under the rule of perfect tender, is a buyer allowed to reject non-conforming goods if the contract states that the goods are sold “with all defects”?

Answer 7

No, buyer cannot reject under perfect tender

Question 8

When is a buyer not allowed to reject goods under the perfect tender rule?

Answer 8

1. If the buyer has waited longer than a reasonable time after delivery and has had a chance to inspect the goods, they cannot reject them
2. If a seller this has time to cure the non-conformity under the terms of the contract, the buyer must give the seller a chance to do so 2-508
3. If a seller had no reason to believe that the goods would not perfectly conform to the terms of the contract, the buyer must give the seller a chance to cure 2-508
4. If the contract states that the goods are sold “as is” or the contract otherwise specifies that the goods may not conform

Question 9

If a buyer accepts a seller’s goods under perfect tender, under what circumstances may he revoke his acceptance?

Answer 9

1. If the seller assured the buyer a nonconformity would be cured, and the buyer decided to keep the goods based on such an assurance, the buyer can revoke his acceptance if the seller fails to cure
2. If a buyer later discovers a hidden nonconformity which substantially impairs the value of the goods, the buyer may revoke his acceptance

Question 10

According to Fairfield, how should you go about dealing with a party that breached your contract?

Answer 10

1. Treat the breach as partial and suspend your performance under RS 362
2. Ask for adequate assurances
3. If they don’t respond within a reasonable time, or if they say they’ll fix their performance but don’t, your duties are discharged

Question 11

Why was the general contractor allowed to suspend their performance in K&G Construction v. Harris

Question 12

Under common law, what is the first step in evaluating evidence extrinsic to the contract?

Answer 12

Determine whether an agreement is fully, partially, or unintegrated

Question 13

Under common law, how does extrinsic evidence apply to a fully integrated agreement - RS 215

Answer 13

Evidence is not admissible to contradict or add to a fully integrated agreement - Baker v. Bailey

Question 14

Under common law, how does extrinsic evidence to a partially integrated agreement - RS 216

Answer 14

Evidence is not admissible to contradict a partially integrated agreement, although evidence may be used to prove consistent additional terms - Masterson v. Sine

Question 15

Under the UCC Parol Evidence Rule 2-202, when is extrinsic not allowed?

Answer 15

When the parties have a writing intended to be a final expression of their agreement, extrinsic evidence may not be used to contradict such an agreement

Question 16

Under the UCC Parol Evidence Rule 2-202, under what circumstances can use extrinsic evidence with regards to a final written agreement

Answer 16

1. Evidence regarding course of performance, course of dealing, and or usage of trade may be brought in to explain or supplement the agreement
2. The final agreement by also be supplemented by consistent additional terms unless the court finds the writing to be a complete and exclusive statement

Question 17

What are five principles to consider when interpreting contract terms

Answer 17

1. The contract should be read as whole and every party interpreted with reference to the whole
2. Contract itself must be read in light of the circumstances under which it was made; it is necessary to consider the situation of the parties at the time, the advantages they each sought, and the relation of the rights of the parties.
3. Where a public interest if affected, an interpretation which favors the public is preferred
4. Specific provision will ordinarily be regarded as qualifying the meaning of broad general words I relation to a particular subject.
5. Unless contrary to the plain meaning of the contract, an interpretation given by the parties themselves will be favored.

Question 18

What are the two conflicting approaches to allowing extrinsic evidence with regards to the interpretation of contract terms?

Answer 18

1. The four corners rule: Evidence outside the four corners of the document as to what was really intended but unstated or misstated is generally inadmissible to add to or to vary the writing – W.W.W. Assoc’s v. Giancontieri
2. Reasonably Susceptible Approach: If contract terms are reasonably susceptible to different interpretations, then extrinsic evidence may be brought in to clarify – Pacific Gas & Electric Co.

Question 19

What was the takeaway from - ConFold Pacific v. Polaris

Answer 19

Between sophisticated parties, unambiguous contractual language should be enforced as it is written

Question 20

What is Contra Proferentem?

Answer 20

An idea that ambiguous contract terms should be interpreted against the interests of the party that drafted them because they had a full opportunity to clarify what they meant

Question 21

Under the UCC and as exemplified by Nanakuli Paving, what kind of evidence may be used to clarify the meaning of an ambiguous contract term?

Answer 21

1. Course of performance
2. Course of dealing
3. Usage of trade

In that order. Additionally, a party will be bound by a trade usage if they are a member of the trade of knows/should know of the trade usage. This may trump course of performance under the circumstances

Question 22

What will a court do when the parties leave out contract terms that are essential in determining their obligations and rights?

Answer 22

The court will supply a term reasonable under the circumstances

Question 23

How do courts deal with contracts of unknown duration?

Answer 23

Courts will supply a reasonable time to contracts without a definite duration

Courts will try to determine if the contract was intended to be one of “perpetual duration” or one that was “at will” given the circumstances

If neither of those constructions makes sense, the court will then choose a reasonable time in light of the purpose of the contract

Question 24

How does the idea of good faith interact with common law contracts?

Answer 24

Under common law, every contract imposes upon each party an implied duty of good faith and fair dealing in its performance and enforcement

“Good faith” varies with the circumstances - RS 205

Question 25

How is good faith defined under the UCC?

Answer 25

Honesty in fact and the observance of reasonable commercial standards of fair dealing - UCC 1-201(b)(20)

Question 26

How to you determine if a posted price is made in good faith under the UCC - Shell Oil v. HRN

Answer 26

The posted price is presumptively made in good faith if it is objectively reasonable for the industry and is nondiscriminatory

Question 27

What are the two views of good faith under common law?

Answer 27

1. Summers: good faith is a hodgepodge of stuff, different in different circumstances - RS 205
2. Burton: Good faith is all about discretion, that one party is exercising such discretion unilaterally to recapture economic value that it bargained away in the contract.

Question 28

What is the test for bad faith under Cetronics v. Genicom Corp

Answer 28

1. The agreement must confer discretion on one party
2. The parties have agreed to be bound by the agreement
3. The exercise of discretion must be beyond range
4. The abuse of discretion must cause damage

Question 29

What is an express warranty?

Answer 29

An affirmation of fact or promise made by the seller to the buyer which relates to the quality or condition of the goods and becomes part of the basis of the bargain

Any sample or model which is made party of the basis of the bargain that the whole of the goods shall conform to the sample or model

Question 30

Are a seller’s statements regarding the mere value of a good or his/her opinion of the good valid to create an express warranty?

Answer 30

No

Question 31

Does a seller need to use certain special words like “warrant” or “guarantee” to establish an express warranty?

Answer 31

No

Question 32

How does a buyer demonstrate that a seller breached an express warranty - Carpenter v. Chrysler

Answer 32

1. Defendant sold goods to the plaintiff
2. Defendant represented to the plaintiff that the goods were of a certain kind or quality
3. Defendant’s representation induced plaintiff’s purchase of, or was a material factor in plaintiff’s decision to purchase
4. Nonconformity of the goods to the representations made
5. Plaintiff notified the defendant within a reasonable time of discovery of goods nonconformity
6. Plaintiff must be damaged by the breach of warranty

Question 33

What is the implied warranty of merchantability - UCC 2-314

Answer 33

1. Goods that must pass without objection in the trade under the contract description
2. Goods that are fit for the ordinary purposes for which such goods are normally used
3. Goods that run of even kind, quality, and quantity within each unit among all units involved (within limits of the contract)
4. Goods must be adequately contained, packaged, and labeled as the agreement may require
5. Goods must conform to the promise or affirmations of fact made on the container or label if any

Question 34

What is the implied warranty of fitness for a particular purpose - UCC 2-315

Answer 34

1. Seller at the time of contracting has a reason to know of any particular purpose for which the goods are required and
2. The buyer is relying on the seller’s skill or judgement to select or furnish suitable goods
3. The seller then furnishes those goods for such a purpose, which creates the warranty

Question 35

How do you determine if a seller breached an implied warranty?

Answer 35

Look to the circumstances and do an analysis idk what else to tell you bro

Question 36

How do you disclaim an express warranty?

Answer 36

YOU CANT

Question 37

How do you disclaim the implied warranty of merchantability?

Answer 37

The language of the disclaimer has to expressly say “merchantability”, and IF in writing, it must be conspicuous

Question 38

How do you disclaim the implied warranty of fitness for a particular purpose?

Answer 38

The language of the disclaimer MUST be in writing and it MUST be conspicuous. You don’t need to use the words “fitness for a particular purpose” in the disclaimer

Question 39

What does conspicuous language mean - Massey-Ferguson, Inc. v. Utley

Answer 39

Language in the body of a form that is in larger or other contrasting type or color. It’s up to the courts to decide what is conspicuous

Question 40

What effect does an “as is” clause have on implied warranties?

Answer 40

All implied warranties are automatically disclaimed

Question 41

What effect does a buyer’s requested inspection of the goods have on implied warranties?

Answer 41

If a buyer gets the chance to thoroughly inspect the goods, all implied warranties are automatically disclaimed

Question 42

What happens to implied warranties if the seller didn’t know or had no reason to know of any defects?

Answer 42

Nothing, contract law is a matter of absolute liability - Vlases v. Montgomery Ward & Co.

Question 43

How does Magnuson-Moss affect implied warranties?

Answer 43

1. If a seller makes an express limited written warranty, they cannot disclaim any other implied warranties for the duration of the written warranty
2. If a seller makes a full written warranty, they cannot disclaim any other implied warranties?

Question 44

What is the definition of a condition - RS 224

Answer 44

An event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract become due

Question 45

What will a court do if it cant decide whether a contract term is a condition or a promise?

Answer 45

It will construe the term as a promise to avoid forfeiture - RS 227

Question 46

How do courts usually deal with conditions in insurance contracts - Howard v. Federal Crop Insurance

Answer 46

If the insurance company is attempting to use the condition to forfeit the contract, the court will construe such a condition as a promise

Question 47

What is the key distinction between a promise and a condition?

Answer 47

If it’s a condition, the nonoccurrence of that condition allows a party to not perform without “breaching” the contract, if it’s a promise, the party breaches by not performing

Question 48

Why didn’t the buyer breach their contract in Merritt Hill v. Windy Heights

Answer 48

Seller failed to meet a term listed as a “condition percent” to the sale. Because of this, the buyer was allowed to get their deposit money back and the contract was “off” instead of breached

Question 49

What is the reasonable satisfaction test and how to courts apply it to satisfaction clauses?

Answer 49

1. Did the parties intended to contract about the pure aesthetics of a good or service? If so, use a subjective test
2. Did the parties really care about the functionality and not about the aesthetics? If so, use a reasonable person test

Question 50

What is a satisfaction clause as a condition to a contract?

Answer 50

It’s just a clause that states that the buyer or procurer of the goods or services will not pay UNLESS they are satisfied with the good or service

Question 51

What is the excuse of impracticability with regards to not performing a contract?

Answer 51

Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary

Question 52

Is an economic downturn grounds for impracticability - Karl Wendt v. International Harvester

Answer 52

No unless it was caused by some crazy ass event that literally no one could have anticipated

Question 53

What is the excuse of impossibility with regards to the performance of a contract (3 different ways)?

Answer 53

1. If the performance of a duty is made impracticable by having to comply with a domestic or foreign governmental regulation or order, that regulation or order is an event the non-occurrence of which was a basic assumption on which the contract was made
2. If the existence of a specific thing is necessary for the performance of a duty, its failure to come into existence, destruction, or such deterioration as makes performance impracticable is an event the non-occurrence of which was a basic assumption on the contract was made
3. If the existence of a particular person is necessary for the performance of a duty, his death or such incapacity as makes performance impracticable is an event the non-occurrence of which was a basic assumption on which the contract was made

Question 54

What is the excuse of frustration with regards to the performance of a contract?

Answer 54

Where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary

Question 55

What are three factors to look for when deciding if the purpose of a contract was frustrated?

Answer 55

1. The object must be the principle purpose of the contract
2. The frustration must be substantial
3. The non-occurrence of the frustrating event must be a basic assumption of the contract

Question 56

If a contract is unprofitable for one of the parties, can they claim frustration of purpose?

Answer 56

No

Question 57

If a contract expressly allocates risk, can the adversely affected party use frustration of purpose as a defense to performance?

Answer 57

No, not if that party bears the risk

Question 58

How do the defenses of frustration, impracticability, and impossibility factor in when a party is either bankrupt or nearing bankruptcy - LEGG v. Unni

Answer 58

Bankruptcy is obviously a foreseeable condition which both parties anticipate at the outset of a contract. Thus, it cannot be used a defense under frustration or purpose or impracticability

Question 59

What is an express repudiation?

Answer 59

An unequivocal refusal to perform or a statement by one of the parties that they plan on committing a total breach

Question 60

What is an implied repudiation?

Answer 60

A situation where a defendant puts it out of their power to perform the contract

Question 61

How does suspension of performance and repudiation factor into an installment contract - Kunian v. Development Co.

Answer 61

If a contract is characterized as an installment contract, the seller will generally be privileged to suspend its deliveries until the previous installments have been paid for

However, if it’s not an installments contract, and each one of the deliveries is classified as a separate contract, then refusing to deliver the goods would likely constitute a material breach and if uncured, would allow the buyer out of the contract

Question 62

What may a contracting party do if the other party clearly is not ready, willing, or able to perform their duty - New Valley v. United States

Answer 62

They are entitled to repudiate the contract and are not responsible for any damages

Question 63

How do you figure out who repudiated the contract first?

Answer 63

You have to look at whether the terms each party failed to perform were dependent ones or independent ones. Also look chronologically and try to figure out who breached first. Were adequate assurances given?