Performance and Excuse of Nonperformance

Question 1

Basic duty of performance - common law

Answer 1

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

Meets contracts essential purpose

Question 2

Perfect tender

Answer 2

Article 2 generally requires a perfect tender - the delivery and condition of the goods must be exactly as promised in the contract

Question 3

Article 2 - good faith

Answer 3

Article 2 requires all parties to act in good faith - honesty in fact and the observance of reasonable commercial standards of fair dealing

Cannot be waived by parties

Question 4

Noncarrier case - tender of delivery obligation

Answer 4

In a proper tender of delivery, seller must put and hold conforming goods at buyer’s disposition for a time sufficient for the buyer to take possession

Seller must give the buyer notice reasonably necessary to enable the buyer to take possession of the goods

Tender must be at a reasonable hour

Question 5

Noncarrier case - place of delivery

Answer 5

In the absence of an agreement otherwise, the place of delivery generally is the seller’s place of business
- or his residence if has none

Question 6

Carrier cases - shipment contracts, sellers obligations

Answer 6

In the absence of an agreement otherwise, the seller need not see that the goods reach the buyer, but need only
- goods into the hands of reasonable carrier and make a reasonable contract for their transportation
- obtain and promptly tender any documents required by the contract or usage of trade or otherwise necessary to enable buyer to take possession, and
- promptly notify the buyer of the shipment

Question 7

Carrier cases - destination contracts, sellers obligations

Answer 7

If the contract requires the seller to tender delivery of the goods at a particular destination, the seller must, at the destination, put and hold conforming goods at the buyer’s disposition

Question 8

Buyer’s obligation to pay - non carrier cases

Answer 8

In non carrier cases, unless the contract provides otherwise, a sale is for cash and the price is due concurrently with the tender of delivery

Question 9

Buyer’s obligation to pay - carrier cases

Answer 9

Unless otherwise agreed, when goods are shipped by carrier, the price is due only at the time and place at which the buyer receives the goods

So in a shipment case, the price is due when the goods are put in the hands of the carrier and in a destination contract, price is due when the goods reach the named destination

Question 10

Buyer’s obligation to pay - installment contracts

Answer 10

In an installment contract, the seller may demand payment for each installment if the price can be so apportioned

Question 11

Buyer’s right of inspection

Answer 11

The buyer has a right to inspect the goods before they pay unless the contract provides for payment C.O.D. or otherwise indicates that the buyer has promised to pay without inspecting the goods

Keeping goods for reasonable time without inspecting will render them inspected

Question 12

Conditions and duty to perform

Answer 12

A contract may provide that a party does not have a duty to perform unless some condition is fulfilled

In that case, the party’s failure to perform is justified if the condition was not fulfilled

Question 13

Promise generally

Answer 13

Distinction needs to be drawn between an absolute promise and a condition on the other

Promise - commitment to do or refrain from doing something
- if promise is unconditional, the failure to perform is a breach

Question 14

Condition generally

Answer 14

Condition - normally means either
- an event or state of the world that must occur or fail to occur before a party has a duty to perform, or
- an event or state of the world, the occurrence or nonoccurrence of which releases a party from their duty to perform

Promise modifier

Can be no breach of promise until the promisor is under an immediate duty to perform

Question 15

Failure of a condition vs breach of contract

Answer 15

The failure of a contractual provision that is only a condition is not a breach of contract, but it discharges the liability of the promisor whose obligations on the conditional promise never mature

Question 16

Promise vs condition

Answer 16

What determines whether a contract provision is a promise or a condition is the intent of the parties

Courts will look at the words and phrases used, their prior practices, custom in business community with respect to the provision, and whether performance is needed from a third party

For condition, look for language like: if, as long as, until, unless, provided that, etc

“When” and event following it is not within the obligee’s control, courts prefer it was indicating a time of performance, not a condition

In doubtful situations, most courts will hold it is a promise

Question 17

Promisor’s satisfaction as condition precedent

Answer 17

Many contracts include an express condition that a party will pay only if satisfied with the other party’s performance

It is a condition so the promisor is under no duty to pay unless they are satisfied

Satisfaction is measured by a reasonable person standard unless the contract deals with art or personal taste, then personal satisfaction
- if personal satisfaction, the lack of satisfaction must be honest and in good faith

Question 18

Satisfaction of third person as condition

Answer 18

Construction contracts often include a condition requiring the satisfaction of the owner’s architect or engineer

When the satisfaction of a third person is a condition, most courts require the actual personal satisfaction of that person

But the condition will be excused if the third person’s dissatisfaction is not honest and in good faith

Question 19

Condition precedent

Answer 19

One that must occur before an absolute duty of immediate performance arises in the other party

Question 20

Conditions concurrent

Answer 20

Conditions concurrent are those that are capable of occurring together, and that the parties are bound to perform at the same time

Question 21

Condition subsequent

Answer 21

When it occurs, it cuts off an already existing absolute duty of performance

Question 22

Constructive conditions of performance

Answer 22

Most important and common implied condition

Duty of each party to render performance is conditioned on the other party either rendering their performance or making a tender of their performance

Question 23

Constructive conditions of cooperation and notice

Answer 23

Constructive conditions of cooperation - obligation of one party to render performance is impliedly conditions on the other party’s cooperation in that performance

Often a condition to one party’s performance that the other party give notice that the performance is due
- most commonly applied where a party couldn’t reasonably be expected to know a fact that triggered the duty to perform unless notice was given

Question 24

Failure/occurrence of a condition and one party has fully / partially performance

Answer 24

If a contract is not enforceable due to the failure or occurrence of a condition, and one of the parties has fully or partially performed, can usually recover under unjust enrichment theories

Question 25

Duty of immediate performance with a conditional promise

Answer 25

A duty of immediate performance with respect to a conditional promise does not become absolute until the conditions have been performed or legally excused

Excuses can arise in a variety of ways

Question 26

Excuse of condition - hinderance or failure to cooperate

Answer 26

If a party having a duty of performance that is subject to a condition (the party protected by the condition) prevents the condition from occurring, the condition will be excused if the prevention is wrongful

Question 27

Excuse of condition - waiver or estoppel

Answer 27

One having the benefit of a condition under a contract may indicate by words or conduct that they will not insist on that condition’s being met
- estoppel waiver
- election waiver
- conditions that may be waived
- waiver in installment contracts

Consideration is not required for a valid waiver of condition

Question 28

Excuse of condition - estoppel waiver

Answer 28

Whenever a party indicates they are waiving a condition before it is to happen, or they are waiving some performance before it is to be rendered, and the person addressed detrimentally relies on the waiver, the courts will hold this to be a binding waiver

But promise to waive a condition may be retracted at any time before the other party has changed their position to their detriment

Question 29

Excuse of condition - election waiver

Answer 29

When a condition does not occur or a duty of performance is broken, the beneficiary of the condition or duty must make an election

They can
- terminate their liability, or
- continue under the contract

If continue, deemed to have waived the condition or duty

Requires neither consideration nor estoppel

Election waiver cannot be withdrawn

Question 30

Conditions that may be waived

Answer 30

If no consideration is given for the waiver, the condition must be ancillary or collateral to the main subject and purpose of the contract for the waiver to be effective

Cannot waive entitlement to the entire or substantially entire return performance

Question 31

Excuse of condition - Waiver in installment contracts

Answer 31

In an installment contract, if a waiver isn’t supported by consideration, the beneficiary of the waived condition ca insist on strict compliance with the terms of the contract for future installments - so long as there has been no detrimental reliance on the waiver - by giving notice that he is revoking the waiver

Question 32

Excuse of condition and waiver - right to damages for failure of condition

Answer 32

A waiver severs only the right to treat the failure of the condition as a total breach excusing counter performance

The waiving party does not thereby waive right to damages

Question 33

Excuse of condition - anticipatory repudiation

Answer 33

Anticipatory reputation occurs if a promisor, prior to the time set for performance of their promise, indicates that they won’t perform when the time comes

If the reqs below are met, anticipatory reputation will serve to excuse conditions
- bilateral contract with executory (unperformed) duties on both sides
- repudiation is unequivocal - cannot or will not perform when time comes

Question 34

Nonrepudiating parties options

Answer 34

Nonrepudiating party has 4 alternatives
- treat the anticipatory repudiation as a total repudiation and sue immediately
- suspend their own performance and wait to sue until the performance date
- treat the repudiation as an offer to rescind and treat the contract as discharged, or
- ignore and urge the promisor to perform (not waiving right to sue and excused from performing unless repudiation is retracted)

Question 35

Retraction of repudiation

Answer 35

A repudiating party may at any time before their next performance is due
- withdraw their repudiation unless the other party has canceled,
- materially changed their position in reliance on the repudiation, or
- otherwise indicate that they consider the repudiation final

Withdraw of the repudiation may be in any manner that clearly indicates the intention to perform
- but must include any assurances justifiably demanded

Question 36

Prospective failure of condition and adequate assurances

Answer 36

Prospective failure occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due

Innocent party can suspend further performance until they receive adequate assurances that performance will be forthcoming
- if other party fails to provide, innocent party may be excused from their own performance and may treat the failure to provide assurances as a repudiation

Question 37

Excuse of condition by substantial performance

Answer 37

Generally, condition of complete performance may be excused if the party has rendered substantial performance
- other party’s duty of counter performance becomes absolute

Only apply this doctrine if a constructive (implied) condition is involved - won’t apply if express condition

Question 38

Excuse of condition by divisibility of contract

Answer 38

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 the other units

Isn’t a condition precedent to the other party’s liability that the whole contract be performed
- but other party has a cause of action for failure to perform the other units and may withhold their counter performance for those units

Question 39

What is a divisible contract

Answer 39

Three tests must be concurrently satisfied to make a contract divisible
- the performance of each party is divided into two or more parts under the contract
- the number of parts due from each party is the same
- the performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party, meaning each performance is the quid pro quo of the other

Whenever see a common law contract that contains a price per unit - immediately consider divisibility as an issue

Question 40

Divisible contract / installment contracts in sales of goods

Answer 40

Like the common law, Article 2 assumes that a contract is not divisible unless it authorizes delivered in several lots
- in which case, the contract is called an installment contract

In installment, the price, if it can be apportioned, may be demanded for each lot unless a contrary intent appears

Question 41

Discharge by illegality

Answer 41

If the subject matter of the contract has become illegal due to a subsequently enacted law or other governmental act, performance will be discharged

Supervening illegality

Question 42

Discharge by rescission

Answer 42

Rescission will serve to discharge contractual duties - will either be mutual or unilateral

For rescission to be effective, each party must have some performance remaining

Question 43

Mutual rescission

Answer 43

The contract may be discharged by an express agreement between the parties to rescind

Agreement to rescind is itself a binding contract supported by consideration - giving up by each party of their right to counter performance

Watch out for a third-party beneficiary case
- if rights have already vested, cannot be discharged by mutual rescission

Question 44

Mutual rescission - orally

Answer 44

Mutual recessions can be made orally

Even if the contract to be rescinded expressly states that it can be rescinded only by a written document, unless
- the subject matter is within the SOF or
- sale of goods

Question 45

Mutual rescission - unilateral contracts

Answer 45

If the contract is unilateral, a contract to manually rescind where one party still has a duty to perform will be ineffective

For an effective rescission in a unilateral contract situation where the offeree has already performed, the rescission promise must be supported by one of the following
- an offer of new consideration by nonperforming party
- elements of promissory estoppel, or
- manifestation of an intent by the original offeree to make a gift of the obligation owed them

Question 46

Unilateral rescission

Answer 46

Unilateral rescission results when one of the parties to the contract desires to rescind it but the other party desires that it be performed

For it to be granted, the party desiring rescission must have adequate legal grounds
- most common are mistake, misrepresentation, duress, and 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

Question 47

Partial discharge by modification of contract

Answer 47

If a contract is subsequently modified by the parties, will serve to discharge those terms of the original contract that are the subject of the modification

Will not serve to discharge the entire contract

Question 48

Discharge by cancellation

Answer 48

The destruction or surrender of a written contract will not usually, by itself, discharge the contract

If the parties manifest their intent to have these acts serve as a discharge, it will usually have this effect if consideration or one of its alternatives is present

Question 49

Discharge by release

Answer 49

A release and/or contract not to sue will serve to discharge contractual duties

Release or contract not to sue usually must be in writing and supported by new consideration or promissory estoppel elements

Question 50

Discharge by substituted contract

Answer 50

A contract may be discharged by a substituted contract

This occurs when the parties to a contract enter into a second contract that immediately revokes the first contract expressly or impliedly

Whether a second contract will constitute a substituted contract depends on whether the parties intend an immediate discharge or a discharge only after performance of the second

Question 51

Discharge by accord and satisfaction

Answer 51

Accord - agreement in which one party to an existing contract agrees to accept, in lieu of performance that they are supposed to receive from the other party, some other, different future performance
- taken alone won’t discharge the prior contract - merely suspends the right to enforce it in accordance with the terms of the accord contract

Satisfaction is the performance of the accord agreement
- its effect is to discharge not only the original contract, but also the accord contract as well

Question 52

Accord and satisfaction - consideration

Answer 52

In general, accord must be supported by consideration
- even if of a lesser value than original, will be sufficient if its of a different type or if the claim is to be paid to a third party

Question 53

Debtor - consideration for accord and satisfaction

Answer 53

The majority view is that a debtor’s offer to make a partial payment on an existing debt will suffice for an accord and satisfaction if there is some bona fide dispute as to the underlying claim or there is otherwise some alteration, even if slight, in the debtor’s consideration

Question 54

Breach of accord agreement before satisfaction - by debtor

Answer 54

If the debtor breaches an accord agreement, creditor may sue on either the original undischarged contract or for breach of the accord agreement

Question 55

Breach of accord agreement before satisfaction - by creditor

Answer 55

If a creditor breaches an accord agreement by suing on the original contract, debtor has two courses of action available
- raise the accord agreement as an equitable defense and ask that the contract action be dismissed, or
- wait until they are damaged and then bring an action at law for damages for breach of the accord contract

Question 56

Accord vs modification

Answer 56

Accord - parties to an existing obligation agree to accept a different future performance in satisfaction of the original obligation
- most often arises when payment or performance is overdue, or there is a dispute and looking for a resolution
- original contract remains enforceable

Modification - parties want to change their agreement so they agree to a different agreement
- duties of parties change immediately and original terms are no longer in effect

If no dispute to amount due, should consider modification
- look to see if party offering the accord is looking to discharge

Question 57

Discharge by novation generally

Answer 57

Novation occurs when a new contract substitutes a new party to receive benefits and assume duties that had originally belonged to one of the original parties under the terms of the old contract
- novation will serve to discharge the old contract

Question 58

Valid novation - elements

Answer 58

Previous valid contract

Agreement among all parties, including the new party to the contract

Immediate extinguishment of contractual duties between the original contracting parties, and

A valid and enforceable new contract

Question 59

Discharge by impossibility, impracticability, or frustration generally

Answer 59

Occurrence of an unanticipated or extraordinary event may make contractual duties impossible or impracticable to perform or may frustrate the purpose of the contract

Contractual duties may be discharged where
- nonoccurrence of the event was a basic assumption of the parties in making the contract, and
- neither party has expressly or impliedly assumed the risk of the event occurring

Question 60

Discharge by impossibility

Answer 60

Contractual duties will be discharged if it has become impossible to perform them

Impossibility must be objective - duties could not be performed by anyone
- subjective impossibility will not suffice

Impossibility must arise after the contract has been entered into
- if facts giving rise to it existed when contract was formed, contract formation issue and may look at mistake

Each party is excused from duties yet fulfilled and either party may sue for rescission and receive restitution

Question 61

Partial impossibility

Answer 61

If the performance to be rendered under the contract becomes only partially impossible, the duty may be discharged only to that extent

Remainder of the performance may be required
- even though the remaining performance might involve added expense or difficulty

Question 62

Temporary impossibility

Answer 62

Suspends contractual duties, does not discharge them

When performance becomes possible, duty springs back into existence unless the burden on either party to the contract would be substantially increased or different than originally contemplated

Question 63

Part performance prior to impossibility

Answer 63

Quasi-contractual recovery

If a party partially performed before the impossibility arose, that party will have a right to recover in quasi contract if the contract rate or for the reasonable value of his performance if that is a more convenient mode of valuation

Question 64

Death or physical incapacity

Answer 64

Death or physical incapacity of a person necessary to effectuate the contract serves to discharge it
- needs to be a special / essential person

If can be delegated, not discharged

Question 65

Subject matter or means of performance destroyed

Answer 65

If the contract’s subject matter is destroyed or the designated means of performing the contract are destroyed, contractual duties will be discharged

But only if the risk of loss has not passed to the buyer

Question 66

Construction duties and destruction of the work in progress

Answer 66

A contractor’s duty to construct a building is not discharged by the destruction of the work in progress
- construction is not rendered impossible

If the destruction was not caused by the contractor, most courts will excuse the contractor from meeting the original deadline

Not entitled to anything other than contract price

Question 67

Contract to repair or model building and destroyed after work begun

Answer 67

A contract to repair or remodel a building that is destroyed after the work has begun is discharged and to the extent the contractor has already performed, the contractor is entitled to recover in restitution for the value of the work done prior to the building’s destruction

Only if the very thing destroyed is necessary to fulfill the contract

Question 68

Discharge by impracticability

Answer 68

Modern courts will also discharge contractual duties where performance has become impracticable

Finding of impracticability, party to perform has encountered
- extreme and unreasonable difficulty and/or expense, and
- its nonoccurrence was a basic assumption of the parties

Question 69

Impossibility and impracticability - article 2

Answer 69

Article 2 generally follows rules for impossibility and impracticability

If performance has become impossible or commercially impracticable, the seller will be discharged to the extent of the impossibility or impracticability
- allocation of risk
- events sufficient for discharge
- seller’s partial inability to perform

Question 70

Impossibility and impracticability - article 2, allocation of risk

Answer 70

Generally, the seller assumes the risk of the occurrence of unforeseen events and must continue to perform

However, if it’s fair to say that the parties would not have placed on the seller the risk of the extraordinary occurrence, the seller will be discharged

Question 71

Impossibility and impracticability - article 2, events sufficient for discharge

Answer 71

Events sufficient to excuse performance include a shortage of raw materials or the inability to convert them into the seller’s product because of contingencies such as war, strike, embargo, or unforeseen shutdown of a major supplier

Catastrophic local crop failure is also sufficient

Mere increases in cost are rarely sufficient for discharge unless change the nature of the contract
- increase in costs of more than 50% has been held to be insufficient - need extreme and unreasonable

Question 72

Impossibility and impracticability - article 2, seller’s partial inability to perform

Answer 72

If the seller’s inability to perform as a result of the unforeseen circumstance is only partial, must allocate deliveries among their customers and, at their option, may include in the allocation regular customers not the under contract

Question 73

Discharge by frustration generally

Answer 73

Frustration 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

If purpose has been frustrated, number of courts will discharge contractual duties even though performance of these duties is still possible

Question 74

Elements for frustration

Answer 74

Necessary to establish frustration:
- some supervening act or event leading to the frustration
- at the time of entering into the contract, parties did not reasonably foresee the act or event occurring
- 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