Performance and Excuse

Question 1

Peformance at Common Law

Answer 1

Rule: A party’s basic duty at common law is to substantially perform all that is called for in the contract.

Question 2

Definition of Promise and Condition

Answer 2

Promise: A promise is a commitment to do or refrain from doing something. If a promise is unconditional, the failure to perform according to its terms is a breach of contract.

Condition: Normally means either:

• An event or state of the world that must occur or fail before a party has a duty to perform; or
• an event or state of the world the occurence or nonoccurence of which releases a party from his duty to perform.

Note: Failure of Condition is not a breach but a discharges liability.

Question 3

Types of Conditions and Effects

Answer 3

Condition Precedent:

• Defined: Condition must occur before performance is due.
• Effect: Peformance is due.
• Example: Agreement to pay $10k “if my house is sold by April 1.” No payment unless house is sold by April 1.

Conditions Concurrent:

• Defined: Conditions to occur at the same time.
• Effect: If one condition has occured, perfomrance of the other is due.
• Example: Agreement to pay 100k for Blackacre. Money and deed in same transaction.

Condition Subsequent:

• Defined: Condition cuts off already existing duty.
• Effect: Duty to perform is excused.
• Example: Agreement to buy Blackacre for $100k unless zoning is changed. If zoning is changed, no duty to pay $100k or transfer deed.

Question 4

Express Conditions of Promisor’s Satisfaction

Answer 4

Rule: Promisor is under no duty to pay unless she is satisfied.

• Mechanical fitness, utility, or marketability: In contracts involving construction or manufacturing, a condition of satisfaction is fulfilled by the performance that would satisfy a reasonable person.
• **Personal Taste or Judgment: **If a contract involves personal taste or judgment (protraits, dental work), a condition of satisfaction is fulfilled only if the promisor is personally satisfied.
  
  • But, the promisor’s lack of satisfaction still must be in good faith (You can’t refuse without even looking at the work).
• Satisfaction of Third Person as Condition: Usually in construction contracts, where a condition requiring the satisfaction of the owner’s architect or engineer. Most courts require the actual personal satisfaction of that person BUT most be honest and in good faith.

Question 5

Constructive (Implied) Conditions (Cooperation and notice)

Answer 5

Constructive condition of cooperation:

• The obligation of one party to render performance is impliedly conditioned on the other party’s cooperation in that performance.

Constructive Condition of Notice:

• Commonly applied where a party could not reasonably be expected to know a fact that triggered the duty to perform unless such notice was given.

Question 6

Remedies with Regards to Conditions

Answer 6

Rule: If a contract is not enforceable due to a condition occuring or not occuring and one of the parties has partially or fully performed then the party can usually recover based on unjust enrichment theories (but the damages may be less advantegeous).

Question 7

When is a condition excused?

Answer 7

Rule: A duty of immediate performance with respect to a conditional promise is not excused until the conditions:

• Have been performed; or
• have been legally excused.

Question 8

Excuse of Condition by Hindrance or Failure to Cooperate

Answer 8

Rule: If a party having a duty of performance that is subject to a condition prevent the condition from occuring, the condition will be excused if the prevention is wrongful (i.e. the other party would not have reasonably contemplated or assumed the risk of this type of conduct).

Question 9

Excuse by Breach

Answer 9

Rule: An actual breach of the contract when performance is due will excuse the duty of counterperformance.

• Common law will only excuse the breach if it is material. Minor breaches will only suspend performance.

Question 10

Anticipatory Repudiation

Answer 10

Rule: Occurs when a promisor, prior to the time set for performance of his promise, indicates that he will notperform when the time comes. If the following requirements are met:

1. Executory (i.e. underperformed) bilateral contract requirement* (both parties have duties left to perform*);
2. Anticipatory repudiation must be unequivocal;
3. Effect of anticipatory repudiation:

• (i) treat as total repudiation and sue immediatly;
• (ii) suspend performance and wait to sue until performance date;
• (iii) treat as offer to rescind and treat the contract as discharged; or
• (iv) ignore repudiation and urge promisor to perform.

1. Retraction of Repudiation: The repudiating party may withdraw his repudiation at any time before his next performance is due unless the other party has canceled, materially changed her position in reliance, or otherwise has indicated that she considers the repudiation final.

Question 11

Excuse by Prospective Inability or Unwillingness to Perform

Answer 11

Defined: When one party belives that the other party will be unable or unwilling to perform when performance is due (NOTE - this is not an anticipatory repudiation b/c it is not unequivocal).

Rule: The effect is that the innocent party is allowed to suspend performance on her side until she recieves adequate assurances that performance is forthcoming. If not given, innocent party can treat the failure to provide adequate assurances as a repudiation.

• Retraction of the repudiation is possible, but must be communicated to the innocent party in order to be effective.

Question 12

Excuse of Condition by Substantial Performance

Answer 12

Rule: When a party has substantially performed the condition of complete performance can be excused and the other party’s duty of counterperformance becomes absolute.

• Usually only applied when constructive condition is involved. Not to express condition because it would defeat the inetnt of the parties.
• Does not apply if breach is willful.
• Incomplete performance is offset by damages.
• Not applicable to sale of goods (b/c of perfect tender rule).

Question 13

Excuse by Divisibilty of Contract

and

What is a divisible Contract?

Answer 13

Rule: When the contract is divisible, a party is entitled to agreed-on equivilent of any unit where performance is complete, even if the party does not complete performance on the other units.

Test for divisible contract:

1. The performance of each party is divided in two or more parts under the contract;
2. The number of parts due from each party is the same; and
3. The performance of each party by one party is agreed on as the equivelent of the corresponding part from the other party, i.e., each performance is the quid pro quo of the other.

Question 14

Excuse of Condition by Divisibility for Article 2 Contracts

Answer 14

Rule: Installment contracts authorize delievery of goods in several lots and if the price can be apportioned then price can be demanded for each lot unless otherwise stated in the contract.

Question 15

Excuse of Condition by Waiver or Estoppel

Answer 15

Rule: One having a benefit of a condition under a contract may indicate by words or conduct that she will not insist on that condition being met, and no additional consideration is required.

• Retraction of Waiver: Any time before the other party has chnaged his position to his detriment is effective.
• No Conisderation: The condition must be ancillary or collateral to the main subject and purpose.
• Installement Contracts: If no consideration then beneficiary of the waived condition can insist on strict compliance with the terms of teh contract for future installments.

Question 16

Discharge by Illegality

Answer 16

Rule: If the subject matter of the contract has become illegal due to subsequently enacted laws or other governmental act, performance will be discharged.

Question 17

Discharge by Impossibility

Answer 17

Rule: Duties will be discharged if it has become impossible to perform them.

• Impossibillity must be objective, meaning no person could perform the duties.
• Impssobillity must arise after the contract has been entered into.
• Partial Impossibility: Duty discharged only to that extent.
• Temporary: Duty is suspended and not discharged.

Effect: Duties are discharged, and either party may sue for rescission and recover restitution damages.

Question 18

Discharge by Impractibility

Answer 18

Test: Party to perform has ecnountered:

• Extreme and unreasonably difficulty and/or expense;
• It’s nonoccurence was a basic assumption of the contract.

Question 19

Discharge by Frustration

Answer 19

Test:

1. Supervening act or event leading to frustration;
2. Parties did not foresee the event at the time they entered the contract;
3. The purpose of the contract has been completely or almost completely destroyed by this act or event; and
4. The purpose of the contract was realized by both parties at the time of making the contract.

Note: Look for situation where person has rented a venue for a specific purpose known to the owner, and a supervening, unforeseeable event renders the the purpose for renting the venue moot.

Question 20

Discharge by Recission

Answer 20

Mutual: Contract can be discharged by an express agreement between the parties to rescind. This is a new agreement and consideration provided by each party giving up the right to counterperformance of the other.

• Contract must be executory (i.e. parties have unperformed duties).

Unilateral Contracts: If offeree has performed then rescission must be supported by: (i) Offer of new consideration by the nonperforming party; (ii) Elements of promissory estoppel; or (iii) Inent by original offeree to make a gift of the obligation owed.

Note: Rescission can be made orally unless subject matter of contract needs to be in a writing. This is true even if the contract says otherwise.

Question 21

Partial Discharge by Modification

Answer 21

Rule: A partial discharge does not discharge the entire contract. Partial discharge requires:

• Mutual assent;
• Consideration unless it is merely to correct an error.
• No consideration required to modify an Article 2 agreement if modification is made in good faith.

Question 22

Discharge by Novation

Answer 22

Elements:

• Previous valid contract;
• An agreement among all parties, including the new party;
• The immediate extinguishment of contractual duties as between the original contracting parties; and
• A valid and enforceable new contract.

Question 23

Discharge by Release

Answer 23

Rule: A release or contract not to sue will discharge contractual duties if it is:

• in writing and supported by new consideration; or
• promissory estoppel elements.

Question 24

Discharge by Substituted Contract

Answer 24

Rule: Duties are discharged when parties enter into a second contract that immediatly revokes the first contract.

• If the parties intend only to discharge the first contract after completion of the second contract then it is an executory accord, not a substitute.

Question 25

Discharge by Accord and Satisfaction

Answer 25

Accord: An accord suspends buyer’s obligations under the original agreement until the party performs or fails to perform under the accord.

Satisfaction: There is no discharge of the original agreement unless the accord is peformed in which case there is a satisfaction.

Breach of Accord Agreement:

• Debtor may: (i) raise the accord agreement as an equitable defense and ask that the contract action be dismissed; or (ii) wait until she is damaged.

Question 26

Discharge by Account Stated

Answer 26

Defined: A ccontract between parties whereby they agree to an amount as a final balance due from one to the other.

• This final balance ecncompasses a number of transactions betwen the parties and serves to merge all of these transactions by discharging all claims owed.

Question 27

Discharge by Lapse

Answer 27

Rule: If the duty of each party is a condition concurrent to the other’s duty, it is possible that on the day set for performance, neither party is in breach and their contractual obligations lapse.

If the contract states “time is of the essence,” the lapse occurs immediatly; otherwise it occurs after a reasonable amount of time.

Question 28

Discharge by Lapse vs. Statute of Limitations

Answer 28

Rule: Lapse discharges contract, while running of the statute of limitations makes it unenforceable in court.

Question 29

Death or Physical Incapacity: Impossibility

Answer 29

Rule: Death of a person necessary to the contract discharges it.

• If the services can be delegated, then the person is not neccessary.

Question 30

Article 2: Impractibility

Answer 30

Allocation of Risk: Generally, seller assumes the risk of the occurrence of such unforeseen events and must continue to perform.

Events Suffecient: Embargo, war, stike, or unforeseen shutdown of major supplier. Mere increases in costs are rarely, if ever, suffecient.

Question 31

Checks: “Payment in full”

Answer 31

Rule: If a monetary claim is uncertain or is subject to a bona fide dispute, an accord and satisfaction may be accomplished by a good faith tender and acceptance of a check when that check conspicuously states that the check is tendered in full satisfaction of the debt.