Performance and Excuse of Nonperformance Flashcards
Performance at Common Law
A party’s basic duty at common law is to substantially perform all that is called for in the contract.
Performance under UCC
Article 2 generally requires perfect tender - the delivery and condition of the goods must be exactly as promised in the contract
UCC Buyer’s Obligation to Pay
Non-Carrier Cases (true no movement) - Unless the contract provides otherwise, a sale is for cash and the price is due concurrently with tender of delivery
Shipment - Payment is due when the goods are put in the hands of the carrier
Destination - Payment is due when the goods reach the named destination
Installment - The seller may demand payment for each installment in the price can be so apportioned, unless a contrary intent appears
Payment By Check
Tender of check is sufficient unless the seller demands cash which she must then give the buyer a reasonable time to get cash
If a check is accepted, the buyer’s duty to pay is suspended until the check is either paid or dishonored. If dishonored, the seller can sue for price or recover the goods.
Excuses to Nonperformance
1) Failure Condition Precedent
2) Occurrence of Condition Subsequent
3) Illegality
4) Rescission
5) Modification
6) Cancellation
7) Release
8) Substituted Contract
9) Accord and Satisfaction
10) Novation
11) Impossibility, Impracticability, Frustration of Purpose
Conditions Generally
A condition is either
1) an event or state of the world that must occur before a party has a duty to perform (condition precedent); or
2) an event or state of the world, the occurrence or nonoccurrence of which releases a party from their duty to perform (condition subsequent)
Failure of Condition - the failure of a condition is not a breach of contract, but it discharges the liability of the promisor whose obligations on the conditional promise never mature.
Promisor’s Satisfaction as a Condition Precedent
A satisfaction condition relating to mechanical fitness, utility, or marketability is fulfilled by performance that would satisfy a reasonable person (promisor’s personal satisfaction is immaterial)
A satisfactions condition relating to personal taste or judgment is fulfilled only if the promisor is personally satisfied. However, a lack of satisfaction must be honest and in good faith. (paintings, dental work)
Satisfaction of a Third Person as Condition Precedent
Construction contracts often include a condition requiring the satisfaction of the owner’s architect or engineer.
Most courts require actual personal satisfaction of that person. However, this condition is excused ifs the dissatisfaction is not honest and in good faith.
Constructive (implied) Conditions
Constructive Condition of Performance - The duty of each party to render performance is conditioned upon the other party either rendering or making a tender of their performance
Constructive Condition of Cooperation - The obligation of one party to render performance is impliedly conditioned upon the other party’s cooperation in that performance
Constructive Condition of Notice - An implied condition to one party’s performance is the other party giving notice that the performance is due
When is performance due when there is a condition precedent
A duty of immediate performance with respect to a conditional promise doesn’t become absolute until the condition
1) has been performed; or
2) has been legally excused
How can a condition be excused?
1) Hinderance or Failure to Cooperate
2) Waiver or Estoppel
3) Actual Breach
4) Anticipatory Repudiation
5) Inability or unwillingness to perform
6) Substantial Performance
7) Divisibility Contract
8) Impossibility, Impracticability, Frustration of Purpose
Hinderance or Failure to Cooperate (Excuse of Condition)
If a party having a duty of performance that is subject to a condition precedent prevents the condition from occurring, the condition will be excused if the prevention is wrongful
Waiver or Estoppel of Condition (Excuse of Condition)
One having the benefit of a condition may indicate by words or conduct that they will not insist on that condition being satisfied.
Consideration is not required for a valid waiver of a condition.
Estoppel Waiver (conditions)
If a party indicates that they are waiving a condition before it is to happen and the person addressed detrimentally relies on the waiver, the court will hold it a binding estoppel waiver.
Election Waiver (conditions)
If a condition doesn’t occur and the beneficiary of the condition continues under the contract, they will have been deemed to waive the condition.
This waiver cannot be withdrawn even if the other party has not relied on it.
Waiver without Consideration (conditions)
If no consideration is given for the waiver, the condition must be ancillary or collateral
Waiver in Installment Contracts (conditions)
If the waiver isn’t supported by consideration, the beneficiary of the waived condition can insist on strict compliance with the terms of the contract for future installments by giving notice he is revoking waiver.
Excuse of Condition by Actual Breach
An actual breach of the contract when performance is due will excuse the duty of counter performance (at common law the breach must be material)
Excuse of Condition by Anticipatory Repudiation
An anticipatory repudiation occurs if the promisor, prior to the time set for performance, unambiguously indicates that they won’t perform when the time comes.
it is an unequivocal and unambiguous manifestation of intent not to perform when performance comes due.
Effect of an Anticipatory Repudiation
If there is an anticipatory repudiation, the non-repudiating party can:
1) treat the anticipatory repudiation as a total repudiation and sue immediately
2) suspend their own performance and wait to sue until the performance date
3) treat the repudiation as an offer to rescind the contract and treat the contract as discharged
4) ignore the repudiation and urge the promisor to perform
UCC Anticipatory Repudiation
It must be true that the repudiation substantially impairs the value of the contract. If a party repudiates and it substantially impairs the value of the contract, the non-repudiating party is entitled to:
1) for a commercially reasonable time await performance;
2) resort to any remedy for breach; and
3) In either case, suspend his own performance.
Retraction of Repudiation
A repudiating party may, at any time before their performance is due, retract their repudiation unless the other party has:
– Cancelled;
– Materially changed their position in reliance on the repudiation; or
– indicated that they consider the repudiation final
Retraction may be made in any manner that clearly indicates an intent to perform, but must include any assurances justifiably demanded
Excuse of Condition by Prospective Inability or Unwillingness to Perform
Prospective failure of condition occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due
Demand for Adequate Assurances
If a party has reasonable grounds for insecurity, that party may in writing demand an adequate assurance, and until that assurance comes, suspend his own performance.
If a party receives a demand for adequate assurances and does not comply within a reasonable time (30 days for UCC), the failure to comply is a repudiation.
Excuse of Condition by Substantial Performance
Generally, the condition of complete performance may be excused if the party has rendered substantial performance - the duty of counterperformance becomes absolute
HOWEVER, this does not apply under the UCC due to the perfect tender rule
Excuse of Condition by Divisibility Contract
If a contract is divisible and a party performs one of the units of the contract, they are entitled to the agreed on equivalent for that unit, even if they fail to perform other units.
Divisible Contract
Three things must be true for the contract to be divisible:
1) the performance of each party is divided into 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 equivalent of the corresponding part from the other party (quid pro quo)
NOTE – The UCC presumes that contracts are not divisible unless they are installment contracts. In an installment contract, the price, if it can be apportioned, may be demanded for each lot unless a contrary intent appears.
Excuse of Condition by Impossibility, Impracticability, or FOP
Conditions may be excused due to impossibility, impracticability, or frustration of purpose.
Occurrence of Condition Subsequent (nonperformance excuse)
The occurrence of a condition subsequent will serve to discharge the contractual duties
Illegality (nonperformance excuse)
If the subject matter of the contract becomes illegal, the performance will be discharged
Rescission (nonperformance excuse)
Rescission will discharge duties. A rescission can either by mutual or unilateral.
Mutual Rescission
A mutual rescission occurs when a contract is discharged by the express agreement between the parties to rescind. The agreement is itself a binding contract supported by consideration (giving up each party’s right to counterperformance)
To be rescinded, the duties on both sides must be executory
Mutual rescission may be made orally unless the subject matter falls within the statute of frauds
Rescission of Unilateral Contract
For an effective rescission of a unilateral contract where the offeree has already performed, the rescission promise must be supported by one of the following:
1) an offer of new consideration by the nonperforming party
2) elements of promissory estoppel (detrimental reliance)
3) manifestation of intent by the offeree to make a gift of the obligation owed
Unilateral Rescission
For a unilateral rescission to be granted, the party seeking rescission must have adequate legal grounds (mistake, misrepresentation, duress, failure of consideration)
If the non-assenting party refuses to voluntarily grant rescission, the other party may file an action in equity to obtain it.
Modification (excuse of performance)
If a contract is subsequently modified by the parties, this will discharge the terms of the original contract that are subject to the modification.
Cancellation (excuse of performance)
The destruction or surrender of a written contract will usually not discharge the contract. However, if the parties’ manifest their intent to have these acts serve as a discharge, it will usually have this effect if consideration is present.
Release (excuse of performance)
A release or contract not to sue will discharge contractual duties. The release or contract not to sue must be in a writing and supported by new consideration or promissory estoppel elements.
Substituted Contract (excuse of performance)
A contract may be discharged by a substituted contract - when parties enter into a second contract that immediately revokes the first contract expressly or impliedly
Accord and Satisfaction (excuse of performance)
A contract may be discharged through an accord and satisfaction.
Accord - an agreement in which one party to an existing contract agrees to accept, in lieu of performance that they are supposed to receive, some other, different future performance.
Satisfaction - The performance of the accord agreement. Satisfaction of the accord will discharge not only the original contract but also the accord contract as well.
Requirement of Consideration (accord and satisfaction)
An accord must be supported by consideration. Even if the consideration is of a lesser value than originally bargained for, it will be sufficient if the new consideration is of a different type or if the claim is paid to a third party.
A debtor’s offer to make a partial payment on an existing debt will suffice for accord and satisfaction if there is some bona fide dispute as to the underlying claim or there is some alteration (even if slight) in the debtor’s consideration.
Breach of Accord before Satisfaction
If the debtor breaches an accord agreement, the creditor may sue either on the original undischarged contract or breach of the accord agreement
Novation (excuse of performance)
A novation occurs when a new contract substitutes a new party to receive the benefits and assume the duties that had originally belonged to one of the original parties under the terms of the old contract. It serves to discharge the old contract.
Requirements for Novation
1) a previous valid contract
2) an agreement among the parties, including the new party to the new contract
3) the immediate extinguishment of the contractual duties between the original contracting parties
4) a valid and enforceable new agreement
Impossibility (excuse of performance)
Impossibility will discharge a contract when
1) the occurrence of an event, the nonoccurrence of which was a basic assumption toe the contract;
2) makes continued performance under the contract impossible; and
3) the party claiming the defense has not expressly or impliedly assumed the risk of the event occurring
NOTE – the impossibility must be objective (no one could perform the contract) and arise after the contract has been entered into.
Partial & Temporary Impossibility & Part Performance
Partial Impossibility - if the performance becomes only partially impossible the duty may be discharged only to that extent
Temporary Impossibility - Temporary impossibility suspends duties, it does not discharge them
Part Performance - If a party partially performed before the impossibility arose, that party will have a right to recover in quasi-contract
Specific Impossibility Situations
1) Death or physical incapacity of a person necessary to effectuate the contract will discharge
2) supervening illegality
3) subsequent destruction of the contract’s subject matter of means of performance (unless the risk of loss has already passed to the buyer)
Construction Contracts and Impossibility
A contract’s duty to construct a building is not discharged by destruction of the work in progress. However, if the destruction was not caused by the contract, he will normally be given an extended deadline.
NOTE – the contractor is not entitled to anything but the contract price.
Impracticability (excuse of performance)
If after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event, the nonoccurrence of which was a basic assumption on which the contract was made, his duty to perform is discharged unless language or circumstances indicate contrary.
Impracticable generally means extremely or unreasonable difficult or expensive to render performance
This is followed by the UCC
Event Sufficient to Discharge under Impracticability
Shortage of raw materials or the inability to convert them into the seller’s product because of things like war, strike, embargo, unforeseen shutdown of a major supplier
A mere increase in cost is rarely sufficient - court has held that an increase in 50% was insufficient
UCC Impracticability
1) A seller’s performance is excused if the performance has become impracticable due to a contingency the nonoccurrence of which was a basic assumption to the contract.
– Impracticable means that performance has become too costly, too risky, pointless, or illegal
2) If the seller can still partially perform, the seller is required to offer an allocation to existing customers and may include regular customers not currently under contract. The seller must allocate in a manner which is fair and reasonable.
3) If the seller want to exercise this defense, the seller must provide notice to the affected buyers, and if there is an allocation the seller must state the allocation
Frustration of Purpose
Frustration of purpose will exist if the purpose of the contract has become valueless by virtue of some supervening event not the fault of the party seeking discharge.
Elements:
– There is some supervening act or event leading to frustration;
– At the time of entering into the contract, the parties did not reasonably foresee the act or event occurring
– The purpose of the contract has been completely or almost completely destroyed by the act or event
– The purpose of the contract was realized by both parties at the time of making the contract
Differences between impossibility, impracticability, and frustration of purpose
A seller of land, goods, or services will raise impossibility or impracticability to discharge their performance
A buyer will raise frustration of purpose to discharge performance (paying money is never impracticable)
