Performance, Breach, and Discharge Flashcards
What is a “contractual condition”?
An occurrence or circumstance that triggers or relives duties
*conditions may be express or implied
What is the difference between a “condition” and “promise”?
Promise: an undertaking to perform or refrain from performing some designated act
Condition: a contractual provision that creates or extinguishes a duty to perform under a K
*look to the intent of the parties to determine whether a contractual provision is a promise or a condition
What is a “condition precedent”?
requires something to occur before a party will have a duty to perform under a contract
What is the effect of concurrent conditions under a K?
-if the condition concurrent is fulfilled, the other party’s duty to perform arises
-if the condition concurrent is NOT fulfilled (ie, if tender is not made), the other party’s duty does NOT arise
What is a condition subsequent?
a condition under which occurrence or nonoccurence extinguishes or terminates a party’s already existing duty to perform
What is an express condition?
an explicit contractual provision requiring a described event or state of the world to occur or not occur before a party’s performance is due
What is an implied condition?
An inferred contractual condition that a duty to perform is conditional upon the occurrence of a specific event or state of the world, even though the contract does not explicitly state it
What is a “constructive condition”?
is an inferred contractual condition that a duty to perform is conditional upon the occurrence of a specific event or state of the world, even thought the contract does not explicitly state it
*constructive condition is another term for an implied condition
What are the 8 types of excuse from performance under a K?
A contract may be excused by:
- failure to cooperate
- actual breach
- anticipatory repudiation
- prospective inability to perform
- substantial performance
- divisibility of contract
- waiver or estoppel
- impossibility, impracticability, or frustration of purpose
What is a “divisible contract”?
A contract drafted in a way that it is possible to apportion each party’s performances into matching pairs of duties
*this is done so that a failure for the performance of one aspect of the contract will not necessarily result in a breach of the entire contract
What are the 3 ways a buyer may claim a breach of an installment contract under the UCC?
A buyer may claim a breach of an installment contract based on:
- nonconformity of the installment, substantially impairing the value of the whole contract
- nonconformity that cannot be cured
- seller fails to give adequate assurance of their intent to cure
May a π discharge a contract when here are no defenses to formation?
Yes
π may sue for breach of a contractual duty to perform
What is the effect of “impossibility” in the execution of a contract?
An impossibility defense excuses performance of a contractual duty that cannot be done because of an event whose nonoccurence was a basic assumption on which the contract was made (eg, one of the parties to the K dies, destruction of the contract’s subject matter)
**Impossibility and Impracticability are similar and often no distinction is made between the two defenses
What is the effect of “impracticability” in the execution of a contract?
An implacability defense excuses performance of a contractual duty that has become extremely and unreasonably difficult to perform because of an occurrence or event whose nonoccurrence was a basic assumption upon which the contract was made (eg, war unexpectedly begins and cuts off supply of product)
*almost no distinction between impossibility and impracticability
When will “frustration of purpose” discharge a contractual duty to perform?
Frustration of purpose excuses performance of a duty IF:
-the purpose or value of the contract
-which the parties KNEW when they entered into the contract,
-has been completely or almost completely destroyed
-by a supervening act or event NOT FORESEEN or caused by the parties
What is mutual rescission?
occurs when parties discharge a contract that is still executory on both sides by an express agreement between the parties to rescind (cancel) the K
May a contract be discharged by unilateral rescission?
NO
Unless there are legal grounds for rescission (eg, mistake or misrepresentation) unilateral rescission constitutes a BREACH
May a contract be discharged by a release?
YES
A contract may be discharged by the execution and delivery of a release supported by adequate consideration
What is a “contractual discharge by substitute contract”?
occurs when the parties enter into a 2nd contract that immediately revokes and replaces the OG K
What is an “accord”?1.
An agreement where one party promises to render substitute performance and the other party promises to accept the substitute in discharge of the existing agreement
*an accord suspends the original agreement until satisfaction occurs
What are the 4 types of relief for a breach of contract?
- damages
- specific performance
- rescission and restitution
- reformation
What factors do courts consider when evaluating whether a breach was material or minor?
In evaluating whether a breach was material or minor, courts generally consider 6 factors:
- the amount of benefit received
- adequacy of damages
- the amount of the k performed
- hardship to breaching party
- whether the breach was willful or negligent
- likelihood of full performance
*the factors for determining the materiality of a breach are also used to determine substantial performance
What is a “minor breach” under common law?
occurs when the non-beaching party still receives the substantial benefit of their bargain despite the breaching party’s defective performance
*a minor breach will NOT excuse the other party’s duty of performance AND the non-breaching party may sue for damages
When does a seller have the “risk of loss”?
Seller has the risk of loss from when they first acquire the goods until either the goods are shipped or delivered, depending on the nature of the contract (ie, “shipment” or “destination” k)
*if the goods are destroyed when the seller has the goods and neither party is at fault, the seller is responsible for replacing the goods
What is the effect of a failure of the required method of transportation under UCC?
If a K for the sale of goods specifies a method of transportation that later becomes impractical or unavailable, any commercially reasonable means must be accepted as an alternative
When does a seller’s obligation to hold goods end under a non-carrier contract?
If there is no carrier, then the seller holds the goods until the buyer picks them up, a which time the seller’s obligation is complete
When is a buyer required to pay for the sale of goods under a carrier contract?
Under a carrier K, the buyer must pay when they receive the goods
*a buyer has the right to inspect the goods B4 making a payment
When does a seller’s obligation to hold goods end under carrier (ie, shipment and destination) contracts?
SHIPMENT CONTRACT: the Seller’s obligation ends when they deliver the goods to the carrier, at which point the risk of loss passes to the buyer
DESTINATION CONTRACT: the seller’s obligation ends when they deliver the goods to the buyer and the risk of loss passes to the buyer
When does the risk of loss for defective goods pass to the buyer?
the risk of loss will not pass until the defective goods are cured by the seller
What constitutes a buyer’s acceptance of goods from a seller?
- after a reasonable opportunity to inspect the goods, the buyer accepts by indicating to the seller that the goods are conforming or that they will take them inspire of any non-conformity OR
- the buyer fails to reject w/in a reasonable time after receiving the goods or fails to seasonably notify the seller of their intent to reject
When may a buyer reject goods under the UCC?
if the goods tendered fail to conform to the K, the buyer may validly reject the goods BEFORE accepting them (ie, the buyer must inspect the goods before inspecting)
When may a seller cure imperfect tender?
Before the time for performance has expired, the seller has the right to notify the buyer of their intention to cure and make a conforming delivery w/in the contract time
What are the 2 requirements for a buyer to revoke their acceptance of non-conforming goods under UCC?
A buyer may revoke their acceptance of non-conforming goods if they were accepted:
- with a reasonable belief that the defect would be cured and it has not been cured; AND
- because of the difficulty of discovering defects or the seller’s assurance that the goods conformed to the contract
When does a party to the contract have the right to demand assurances under the UCC?
a party to the K may demand adequate assurance if they have reasonable grounds for believing that the other party will not be able to perform their obligations under the K
What is “anticipatory repudiation”?
occurs when either party to a K, in advance of the time set for performance, unequivocally communicates that they will not perform
This anticipatory cancellation (repudiation) excuses the other party from holding themself ready to perform and rendering or tendering performance
*vague doubts and grudgingly willingness to perform do NOT constitute anticipatory repudiation
May a party retract their anticipatory repudiation?
YES. A repudiating party may retract its repudiate before performance is due UNLESS:
- the non-repudiating party cancelled the K
- materially changed position in reliance on repudiation OR
- otherwise indicated that the repudiation was final
*the retraction may be made in any manner, oral or written, but it must provide adequate assurances of the intent to perform under the K
-such retraction reinstates the contract
How long is the statute of limitation to bring an action for a breach of K under UCC?
4 years
What does the “warranty of tile” guarantee under UCC?
Is the seller’s assurance that the title conveyed is good, its transfer is rightful, and the goods shall be free from a security interest or encumbrance, unless the buyer has knowledge of such interest
*warranty of title is implied in ALL sales of goods contracts
What does the “implied warranty of merchantability” guarantee under UCC?
guarantees basic conditions about the goods, including that they “are fit for the ordinary purposes for which such goods are used” and they meet certain basic standards (eg, adequately packaged, meet the contract description, conform to any label promises)
When does the “implied warranty of fitness for a particular purpose” apply and what does it guarantee under the UCC?
The “implied warranty of fitness for a particular purpose”:
-APPLIES: when a seller has a reason to know a buyer intends to use the goods for a particular purpose and is relying on the seller’s skill or judgment in the selection of suitable goods; AND
-GUARANTEES: that the goods are fit for the particular purpose
What are “express warranties” under the UCC?
are warranties explicitly stated in a contract
May an implied warranty be excluded from a UCC contract?
YES
All implied warranties may be excluded by expressions calling the buyer’s attention to the exclusion of warranties and making it clear that implied warranties are excluded (eg, “as is” or “with all faults”)
Does a seller’s warranties protect 3rd parties under the UCC?
YES.
A seller’s express and/or implied warranties extend to the buyer’s family/household, assuming it is “reasonable to expect that such person may use, consume or be affected by the goods”
Which party carries the burden to prove the existence of a condition precedent?
the PLAINTIFF has the burden to plead and prove the condition precedent because they are claiming that the defendant had a duty to perform it
What are the “implied conditions of performance”?
the duty of each party to a contract to render performance so that the other party may render its performance
*this is an implied condition establishing that one party’s performance hinges on the other party’s performance
What is the effect of “partial impossibility”?
Partial impossibility occurs when impossibility exists as to the part, but not all of the contract and may excuse performance to the extent of the impossibility
*performance on the remainder of the contract may still be required even if it will involve added difficulty or expense
What is temporary impossibility?
-occurs when part of the K is impossible for a limited period of time and merely suspends the contractual duty
-the contractual duty resumes when performance comes possible again unless either party to the K would be substantially more burdened
When will death or incapacity amount to impossibility?
impossibility will discharge contractual duties if the deceased or incapacitated party was necessary to perform the K
*most common scenario is a personal service contract for unique service (eg, commissioned painting)
When does destruction of the subject matter of the K amount to impossibility?
destruction of the subject matter will discharge contractual duties if the item destroyed was necessary for performance and the destruction was not caused by either party
Which 2 parties must consent to a novation for it to be effective?
- obligee
- obligor who is being discharged
When does cancellation discharge a contractual obligation?
Destruction or surrender of a written contract by itself will generally NOT discharge a contractual obligation
To discharge a contractual obligation by cancellation the parties must:
- surrender or destroy K AND
- manifest the intent to have the act serve as a discharge of duties
*intent to have the act serve as a discharge of duties can be implied by the presence of consideration
Is consideration necessary to discharge a contract by accord and satisfaction?
YES
An accord and satisfaction must be supported by consideration
*if the consideration is lesser in value than the OG consideration, it is still sufficient if it is a different type of consideration or to be paid by a 3rd party
When on party fails to perform an accord, which two remedies are available to the aggrieved party?
the other party may sue for:
- breach of OG agreement OR
- breach of the accord
What is a “discharge of contractual obligation by an account stated”?
is an agreement between parties where they “settle” for an amount that constitutes the final balance due from all prior transactions, merging all transactions, and discharging all claims owed
*the account stated does not need to be in writing UNLESS one or more of the oG transactions between parties was subject to stat of frauds
Where the duty of each party is a condition concurrent, when does lapse of time discharge a party’s contractual obligation?
A reasonable amount of time will amount to a lapse and discharge a party’s contractual obligation
*if the contract contains a “time is of the essence” provision, a lapse will occur immediately
When is a contractual obligation discharged by operation of law?
When a party obtains a judgment against the other for breach of contractual duties, that duty of performance merges w/ the judgment and is discharged
*HOWEVER, the judgment debtor still has the duty to comply w/ the terms of judgment, such as paying damages
When is a condition of satisfaction involving personal taste or judgment satisfied?
When the subject matter of a contract involves personal taste or judgment, the condition of satisfaction is satisfied only if the promisor is personally satisfied
*dissatisfaction must be honest and in good faith
When is a condition of satisfaction involving mechanical fitness, utility, or marketability satisfied?
When subject matter involves these, the condition of satisfaction is satisfied by a performance that would satisfy a reasonable person
*it is immaterial if the promisor is not personally satisfied as long as a reasonable person in same circumstances would be satisfied by the promisee’s performance
What is an “implied condition concurrent”?
Occurs when the K fixes the performance of both promises at the same time
*for example, an implied condition concurrent exists when payment is due upon purchasing an item at the store
When does a buyer have the risk of loss in carrier contracts?
The point when the risk of loss passes to the buyer depends on the type of carrier K:
-SHIPMENT contract: seller must ship the goods by carrier, and risk of loss transfers to the buyer when the goods are delivered to the carrier
DESTINATION contract: the seller must deliver conforming goods to a particular location, and risk of loss transfers to buyer once goods are delivered at the specified destination
What is the difference between “FOB origin” and “FOB Destination”?
FOB ORIGIN: means the purchaser pays the shipping cost from the factory or warehouse and gains ownership of the goods as soon as it leaves its point of origin
FOB Destination: means seller retains the risk of loss until the goods reach the buyer
What does “perfect tender” mean?
means that the seller’s performance must be perfect w/ respect to the goods delivered and the manner of delivery
Does the perfect tender rule apply to installment contracts?
NO.
Under installment contracts, the buyer’s ability to reject goods due to improper tender is limited
Where goods fail to conform to a single delivery contract, what are the buyer’s three options?
the buyer may:
- reject the whole in a reasonable time
- accept the whole
- accept part and reject the rest
*the buyer must pay for the goods they accept and may seek damages for the seller’s imperfect tender
What is the appropriate manner to raise a demand for assurances?
must be made in writing
What are the non-repudiating party’s potential remedies after an anticipatory repudiation occurs?
The non-repudiating party has several remedies including:
- treating the repudiation as a breach and suing immediately
- suspending performance and waiting to sue until the performance date
- treating the repudiation as an offer to rescind the K
- ignore repudiation and urge performance
May a party demanding assurances suspend performance?
YES.
the party demanding assurance may suspend performance under K until assurances are received
What is the appropriate length of time for a party to provide assurance after a valid demand was made?
the party who received a valid written demand for assurances must provide the requesting party adequate assurances of performance w/in a reasonable time, not to exceed 30 days
What happens if there is a failure to provide assurances?
may be treated as repudiation of the contract
How does substantial performance correlate tot he materiality of a breach?
the factors for determining the materiality of a breach are also used to determine substantial performance
if a breach is material, there has NOT been substantial performance
If a breach is minor, there has been substantial performance
Under what circumstances will failure of timely performance constitute a material breach?
Failure to provide timely performance constitutes a material breach when:
- the nature of the contract makes performance on an exact agreed upon day of vital importance; OR
- the contract contains a “time is of the essence” provision
*merely providing an agreed upon date for performance in the contract terms does not make time of the essence
What is a “material breach” under common law?
occurs when the non-breaching party does not receive the substantial benefit of their bargain due to the breaching party’s failure to perform or inadequate performance
What effect does a “novation” have on an original party’s duties?
A “novation” occurs when through the assent of all parties, a new party is substituted for the original party to the contract
The original party is excused from performance and no longer has any contractual obligations or liabilities
What is “satisfaction” (in the context of accord and satisfaction)?
Satisfaction is the performance of the accord which then discharges both the original agreement and the accord
What is a “release”?
Is a contractual agreement between parties which discharges their contractual duties and states they will not sue each other based on the previous contract
*a release must be in writing and supported by new consideration (or promissory estoppel elements)
Define the occurrence of accord and satisfaction
An accord and satisfaction occurs when both parties to an agreement agree to accept different performance in satisfaction of an existing obligation
How material must a condition be to be waivable?
to be an effective waiver without additional consideration, the condition must be ancillary and collateral to the main purpose of the contract
Can a condition to a contract be waived?
YES.
the party the condition is intended to benefit has the power to waive the condition by words or conduct
Does a failure to insist on compliance with a condition operate as a waiver?
YES.
Failure to insist on compliance with a condition operates as a waiver
What is “estoppel waiver” of a condition?
Occurs when a party indicates they are waiving a condition prior to its occurrence and the other party detrimentally relies on the waiver
May a seller limit a buyer’s remedies for breach of warranty?
Yes, as long as limitation is not unconscionable
Can a merchant disclaim the implied warranty of merchantability?
YES, but it must be done EXPRESSLY (mentioning merchantability) and through a conspicuous writing
Can the implied warranty of fitness for a particular purpose be disclaimed by the seller?
Yes, but it must be done through a conspicuous writing
*a buyer waives this warranty to defects that can be reasonably discovered through an inspection by the buyer, IF they are missed upon inspection or the buyer refuses to inspect
What is an “express warranty”?
Created when:
- a seller makes an affirmation of fact, promise, or description or proves a sample;
- which relates to the goods; AND
- it becomes part of the basis of the bargain
*for the seller’s conduct to be a part of the basis of the bargain, the conduct needs to have occurred at a time the buyer could have relied on it prior to entering into the contract
Can an express warranty be disclaimed by a seller?
NO
Under UCC, the basic obligation of providing a description of the goods cannot be disclaimed by the seller
What is the “contract to build exception” to the impossibility defense?
Generally, destruction of the subject matter will discharge contractual duties if the item destroyed was necessary for performance
HOWEVER, under the “contract to build exception,” destruction of a property build in progress will NOT discharge a contractor’s duty
In a shipment contract, when does the risk of loss transfer from the seller to the buyer?
In a shipment contract or a FOB as the seller’s place of business, the seller bears risk of loss until the goods arrive at the carrier
The buyer bears the risk of loss during shipment
IN a destination contract, when does the risk of loss transfer from seller to buyer?
In a destination contract or a FOB as the buyer’s address, the seller bears the risk of loss until the goods arrive at the specified destination
How do courts evaluate whether a K is divisible?
To be a divisible contract:
- the performance of each party must be divided into two or more parts under the contract;
- the number of parts due from each party must be the same; AND
- the performance of each part by one party must be agreed on as the equivalent of the corresponding part from the other party
