Performance, Breach, and Discharge Flashcards
Condition Precedent
A condition precedent in a contract makes performance conditional upon the completion of the condition (the condition is an event that isn’t certain to occur). Usually, a condition precedent is expressly stated in a contract. If a condition fails, no obligation of performance arises, and thus no breach has occurred.
However, non-occurrence of a condition may be excused by the later action or inaction of the person who is protected by the condition. This occurs in 2 instances:
(1) A Protected Party’s Failure to Cooperate or Make a Good Faith Effort – the protected party can lose protection of the condition if he does not make a good faith effort to satisfy the condition (this implied duty of good faith will be satisfied when reasonable steps to satisfy the condition are taken); and
(2) Waiver – waiver occurs when a protected party voluntarily gives up the protection of the condition. The protected party can retract waiver for future conditions to the extent that the other party has not relied on the waiver.
Frustration of Purpose
The Frustration of Purpose Doctrine discharges performance under a contract if the purpose of the contract no longer exists. Performance is excused if: (1) a party’s principal purpose is substantially frustrated without his fault (the contract is virtually worthless to the party); (2) by an unforeseeable supervening event outside of the parties’ control (the event’s non-occurrence was a basic assumption of the contact); AND (3) both parties knew the purpose at the time of formation.
Impossibility
• Performance is discharged when it is objectively impossible to perform a contract because of:
(1) death or physical incapacity of the person necessary to effectuate the contract (if the person can easily be replaced, performance is NOT excused);
(2) unanticipated destruction of the subject matter necessary to fulfill the contract; OR (3) a new law or regulation that was unanticipated makes performance extremely and unreasonably difficult or expensive.
- Under Common Law, if the risk of loss is on the buyer, then destruction of the subject matter does NOT excuse performance.
- Under the UCC, performance is excused ONLY IF: the destroyed goods were special AND were destroyed before the risk of loss shifted to the buyer.
Impracticability
Performance is discharged as impractical when (1) an event occurs after contract formation, (2) that is unanticipated by both parties at contract formation (the event’s non- occurrence was a basic assumption of the contact), (3) making performance extremely and unreasonably difficult or expensive. This doctrine is interpreted narrowly by the courts. Generally, an increased cost to perform a contractual obligation is NOT sufficient to render the contract excused due to impracticability.
Waiver
A waiver is a voluntary and intentional relinquishment of a contract right by words or conduct. Performance is excused when it is waived. Conditions are waived when: (1) a party indicates through words or conduct that a condition does not need to be satisfied; AND (2) the other party detrimentally relies on that waiver.
Accord and Satisfaction
A party is excused from their obligations under a contract when there has been an accord and satisfaction. An accord is an executory contract between the parties promising to relieve a party of their contractual obligations in return for a specific act. Upon satisfaction of that act, that person is excused from further performance under the contract. If the party fails to satisfy the accord, the other party may sue either under: (a) the original contract; OR (b) the accord terms.
Time is of the Essence Clause
The failure to perform by a specified date is generally NOT deemed to be a material breach of the contract. If the time for performance passes, and no party seeks enforcement, the clause may be considered waived. However, if the contract contains an explicit “time of the essence” clause which requires performance by a specific date, then the failure to preform by said date is deemed a material breach.
UCC Perfect Tender Rule and Exceptions
• Under Article 2 of the UCC, a seller must deliver conforming goods. The smallest non-conformity is a breach and the buyer may reject all or a portion of the goods. However, two exceptions to this rule exist under the UCC:
(1) if the seller has the right to cure; and
(2) in the Installment contract context.
UCC Perfect Tender Rule and Exceptions–Situation where Seller has Right to Cure
A seller has a right to cure in 2 situations:
(a) If the time for performance has NOT yet expired, the seller can cure within the contract time period remaining; OR
(b) The seller is allowed additional reasonable time to substitute tender if it had reasonable grounds that the goods would be accepted (i.e. when the same type of non-conforming goods were accepted by the buyer in the past).
UCC Perfect Tender Rule and Exceptions–Situation where Seller has Right to Cure
A seller has a right to cure in 2 situations:
(a) If the time for performance has NOT yet expired, the seller can cure within the contract time period remaining; OR
(b) The seller is allowed additional reasonable time to substitute tender if it had reasonable grounds that the goods would be accepted (i.e. when the same type of non-conforming goods were accepted by the buyer in the past).
UCC Perfect Tender Rule and Exceptions–Installment Contracts
Special rules apply when a seller provides non-conforming goods under an installment contract. Installment contracts may only be cancelled where an installment is so defective that it substantially impairs the value of the entire contract. Similarly, a buyer may reject an installment only if the non-conformity substantially impairs that installment and the time
to cure has past.
Under Article 2 of the UCC, a rejection of non-conforming
goods must be made within a reasonable time after their delivery or tender.
Anticipatory Repudiation
An anticipatory repudiation takes place when one party to a contract communicates to the other party that he will not perform under the contract. This may take the form of (1) a statement that clearly indicates an intent to breach or (2) a voluntary, affirmative act that renders (or apparently renders) a party unable to perform. An anticipatory repudiation must be an unambiguous indication that the party will not perform. A mere expression of doubt or a statement that a party might not perform is not enough.
When an anticipatory repudiation occurs, the non-breaching party may do any of the following: (a) treat the contract as repudiated and sue for damages; (b) treat the contract as discharged; (c) wait until performance is due and sue when performance does not occur; OR (d) urge the party to perform.
Anticipatory Repudiation–Retraction
If the repudiating party retracts the anticipatory repudiation in time, then the nonrepudiating party may not terminate the contract or exercise other remedies for breach.
An anticipatory repudiation by statement is retracted if the repudiating party, by words or actions, puts the other party on notice that he intends to perform (e.g., by recanting the statement, offering to perform, or beginning performance).
An anticipatory repudiation by act is retracted if the nonrepudiating party knows that the events causing the repudiation have ceased to exist. However, an anticipatory repudiation is final and cannot be retracted if the injured party (1) has materially changed position in reliance on the repudiation or (2) has indicated that she considers the repudiation final.
Anticipatory Repudiation–Reasonable Grounds for Insecurity
In some circumstances, a party may have reasonable grounds to believe that the other party will commit a breach, but the other party has not communicated anticipatory repudiation with an unambiguous indication that it will not perform. In this case, the aggrieved party may suspend performance and demand adequate assurance that the other party will perform. If adequate assurance is not provided within a reasonable time, then the aggrieved party may proceed as if there has been an anticipatory repudiation. In general, assurance is adequate if a reasonable person in the aggrieved party’s position would expect performance to be forthcoming (e.g., by actual performance or beginning of performance, providing collateral to secure an obligation, advance payment, or an oral or written assurance that is plausible under the circumstances).
UCC Anticipatory Repudiation–General Rule
The UCC defines anticipatory repudiation in substantially the same way as the common law. Under the UCC, if an anticipatory repudiation occurs, and the lost performance would substantially impair the contract’s value to the nonrepudiating party, the nonrepudiating party may (1) immediately suspend performance and (2) either simply await the repudiating party’s performance for a commercially reasonable time or immediately avail herself of any remedy for breach under UCC Article 2.
