Performance Issues

Question 1

Risk of loss when no carrier is used

Answer 1

• If seller is merchant: Risk on loss is on the seller until the buyer takes physical possession of the goods
• If seller is non-merchant: Risk of loss passes to the buyer upon tender of delivery (e.g. you can pick up the goods here today at 2pm)

Question 2

Risk of loss when carrier is used

Answer 2

if goods are shipped by carrier (e.g., Fed Ex), risk of loss depends on type of K between buyer and seller

• Shipment Ks - seller only obligated to ship goods to buyer
  
  • Seller’s obligation satisfied when she delivers goods to carrier and notifies buyer; risk of loss then passes to buyer
• Destination Ks - seller obligated to ensure goods reach buyer
  
  • Risk of loss passes to buyer only when buyer takes delivery

Question 3

Risk of loss in non-common carrier cases

Answer 3

if goods are lost or destroyed by no fault of either party, below factors determine who assumes risk of loss:

1. Prior agreement of the parties
2. Breach - if one party is in breach, they are liable for any uninsured loss, even if unrelated to the breach

Question 4

Effects of FOB term

Answer 4

FOB (Free on Board) and the name of a location defines where the seller has to take the goods in order to transfer the risks.

Including FOB and an adress would make the seller responsible of the loss and expenses of taking the goods to the address (that is a Destination Contract)

If no FOB term is included, and just the address is included then the contract is a Shipment Contract

Question 5

What happens if the goods are defective (non-conforming) who bears the risk?

Answer 5

If a seller ships nonconforming goods, the risk of loss remains on the seller until the defects are cured or the buyer accepts.

Question 6

Warranties (General description)

Answer 6

Contracts for the sale of goods automatically include a warranty of title (in most cases). They may also include certain implied and express warranties

Question 7

What are the automatic warranties?

Answer 7

1. Warrant of Title: Any seller of goods warrants good and rightful title, no liens or encumbrances exist at the moment of contracting
2. Warranty against infringement: A merchant seller regularly dealing in goods of the kind sold also automatically warrants that the goods are delivered free of any patent, trademark, copyright or similar claims. (not applicable to a buyer furnishing specifications)

Question 8

Express and implied warranties

Answer 8

Express warranty – affirmative promise about the quality or feature of a product. Warranty will be breached if the product falls short of seller’s promise or description

Implied warranty of merchantability – seller automatically warrants goods are fit for their ordinary purpose

Implied warranty of fitness for a particular purpose - seller warrants that goods are fit for buyer’s purpose if:

1. Buyer has a particular purpose;
2. Buyer relies on seller to select suitable goods; and
3. Seller has reason to know of buyer’s purpose and reliance on seller

Question 9

Perfect tender rule

Answer 9

Under UCC Ks, seller’s performance must be perfect with respect to the goods delivered and the manner of delivery

• Imperfect tender= seller sends defective/ nonconforming goods

Compare: under CL the basic duty is to substantially perform

Question 10

Buyer options upon seller’s imperfect tender

Answer 10

1. Keep - retain goods delivered and sue for damages, or
2. Reject - reject some or all goods and sue for damages
   
   • He can also accept some commercial units and reject the rest

Question 11

Duty of buyer upon rejecting non-conforming goods

Answer 11

Requirements when rejecting:

1. Notify seller of rejection in a reasonable time;
2. Hold the rejected goods using reasonable care; and
3. Give seller reasonable time to arrange for removal of goods

If Seller gives no instruction within reasonable time, then the buyer can return goods to seller, store goods for seller, or resell goods on behalf of seller (i.e., for seller’s profit) taking expenses and a reasonable commission

Question 12

Perfect tender of good exception: Installment contracts

Answer 12

Where delivery of goods occurs in separate lots, the buyer can only reject a delivery/installment if:

1. Defect substantially impairs the installment; and
2. Defect cannot be cured

Rejection is limited to the defective installment, not the entire K Buyer can only cancel entire K due to a defective installment if the installment substantially impairs the entire K’s value

Question 13

Acceptance of goods requirement (UCC)

Answer 13

Under UCC Ks, buyer does not officially accept until goods are delivered and she has an opportunity to inspect and/or notify seller

Question 14

When acceptance of goods occur?

Answer 14

Acceptance of goods occurs if either:

1. Buyer confirms acceptance - buyer, after a reasonable opportunity to inspect the goods, indicates to seller that goods conform or that she will keep them despite non- conformance
   
   • Payment without an opportunity to inspect is not acceptance
   • If buyer accepts goods, she cannot later reject them
2. Buyer Silent - buyer fails to reject or notify seller of rejection within a reasonable time (no more than one month)

Question 15

What are the requirements for revoking acceptance

Answer 15

Buyer cannot reject after acceptance unless:

1. She discovers a defect
2. She does it within a reasonable time

Question 16

What requirements does the defect on a product requires to justify revoking acceptance?

Answer 16

1. Defect substantially impairs the goods’ value and either:
   
   1. Buyer accepted goods on the reasonable belief that defect would be cured and it has not been, or
   2. Buyer was excusably ignorant of defect or reasonably relied on seller’s assurance that goods conformed

Question 17

When a seller has the opportunity to cure an imperfect tender?

Answer 17

Seller can cure if:

1. Seller gives buyer notice of intent to cure and time for performance has not yet expired
   
   • Seller must give buyer reasonable notice and deliver conforming goods
2. Seller had reasonable grounds to believe nonconforming goods sent would be acceptable
   
   • Reasonableness is usually based on seller’s prior dealings with buyer
   • Seller will have additional reasonable time period to tender conforming goods

Question 18

Performance under CL rule, describe it (Essay)

Answer 18

Under a common law K, if one party has substantially performed, the other party is obligated to perform and complete performance.

'’Substantial’‘ - usually considered at least halfway complete

• Less than perfect performance by one party does not excuse the other party from his obligation
• Thus, substantial performance by A obligates B to perform; but B may seek money damages for the difference between the performance rendered and the performance expected

Question 19

Describe what is a material breach (essay)

Answer 19

Material breach occurs when one party’s failure to perform under the K substantially deprives the other party of the benefit they bargained for

Question 20

Effects of a material breach

Answer 20

• Material breach by one party excuses performance by the other
• Materiality of breach is a question of fact (and thus less likely to be tested on the MBE)
• Damages are recoverable for any breach

Question 21

Timing of performance and breach of contracts, scenarios

Answer 21

Failure to perform by the time stated in a K is not a material breach if performance is rendered within a reasonable time after the time stated.

Exception: Time of the essence clauses:

• If timely performance is essential as stated in the K, failure to perform by that time is a material breach
• Arises if one party indicates as a term of the K that performance by a given date is essential

THIS IS NOT APPLICABLE TO UCC CONTRACTS (Perfect Tender rule)

Question 22

Conditions on contracts, what are they? effects? (essay)

Answer 22

Conditions are agreed-upon limitations on performance in a K

• Conditions make an obligation to perform contingent on the occurrence of some specific event or condition
• Identifying conditions in Ks - often indicated by words such as ‘‘only if,” ‘‘provided that,” ‘‘until,” ‘‘so long as,” ‘‘subject to,” ‘‘if,” etc.
• E.g., A agrees to buy B’s car If B gets new tires; B getting new tires is a condition of A’s performance (buying the car)

Question 23

What is the difference between a condition and a promise?

Answer 23

failure of a promise leads to a breach, whereas failure of a condition relieves a party’s performance obligation

Question 24

Types of conditions

Answer 24

• Conditions can be implied or express
• Condition precedent - condition must occur before performance due; non-occurrence excuses performance
• Condition subsequent - condition that occurs after performance has begun and excuses further performance

Question 25

Can a condition be excused?

Answer 25

Parties must strictly comply with conditions, but substantial performance of the condition may suffice if it fulfills the condition’s purpose

• A person who is protected or benefitted by a condition may make statements that constitute a waiver of the condition or estop the condition from being enforced

Question 26

What is insecurity in Contracts?

Answer 26

An excuse for non performance

Insecurity is the prospective inability to perform as demonstrated by a party to a K

• Arises if A gives B reasonable grounds for insecurity or uncertainty (e.g., by words or conduct) as to whether A will perform under the K
• Grounds for insecurity or uncertainty must be reasonable

Question 27

What can a party do when insecurity occurs?

Answer 27

An insecure party may either:

1. Make demand- demand adequate assurances, or
2. Suspend performance -suspend performance until adequate assurances are provided (if commercially reasonable)
   
   • Party may treat K as repudiated if adequate assurances are not provided

E.g., Angie agrees to buy leather sofas from Ben; after K formation, but before delivery is due, Angie learns that Ben sold vinyl sofas to other buyers who ordered leather and that delivery was late. A has reasonable grounds for insecurity and thus may utilize the above options

Question 28

Difference between insecurity vs anticipatory repudiation

Answer 28

• Insecurity involves uncertainty regarding the other party’s performance,
• whereas anticipatory repudiation involves a clear indication the other party will not perform

Question 29

What is anticipatory repudiation? what effect has?

Answer 29

Anticipatory repudiation arises when one party to a K makes it clear that he will not perform under the K

Effect - excuses performance by the other party

Question 30

Requirements of anticipatory repudiation?

Answer 30

Anticipatory repudiation arises if one party to a K:

1. Unambiguous act - makes an unambiguous statement or conduct
2. Prior to full performance - prior to the time performance is due
3. Indicating non-performance - which indicates he (i.e., repudiating part y) will not perform

Question 31

What are the options of a non-repudiating party?

Answer 31

1. Sue: Treat the anticipatory repudiation as a total repudiation and sue,
2. Suspend & wait: Suspend performance until performance date is due and wait to sue,
3. Rescind: Treat repudiation as an offer to rescind and treat K as discharged, or
4. Urge performance: Ignore repudiation and urge promiser to perform

Question 32

Impracticability? what is it?

Answer 32

It is the common term for Impossibility and Impracticability. Those two events can excuse performance if an unforeseen event occurs after K formation but before performance ic complete

Question 33

Impracticability requirements

Answer 33

1. An unforeseen event (for both parties) occurs
2. After K formation and before performance
3. Makes performance:
   
   1. Impossible- performance is objectively impossible, or
   2. Impracticable- performance is only possible with extreme and unreasonable difficulty or expense

Question 34

Common impracticability events (examples)

Answer 34

• Substantial damage or destruction of K’s subject matter
  
  • >> Damage or destruction must not have been either party’s fault
• Death- K obligations generally survive the death of a party, unless deceased party’s K obligations are non-delegable
  
  • >> Usually only unique personal services are non-delegable
• Subsequent law or regulation (e.g., supervening illegality)
  
  • >> If performance becomes illegal, excuse by impossibility

Question 35

Frustration of purpose, what is? effect?

Answer 35

if an unforeseen event occurs that undermines (i.e., frustrates) one or both party’s principal purpose for entering into the K a party’s duty to perform under a K may be discharged

Question 36

Frustration of purpose requirements?

Answer 36

Requirements- a K may be discharged if:

1. An unexpected event destroys one or both party’s purpose for entering into the K;
   
   • (Whether performance is possible after the event is irrelevant) (Issue is whether performance after the unforeseen event nullifies one or both party’s original purpose for the K)
2. The unforeseen event is not the fault of the frustrated party; and
3. The non-occurrence of the event was a basic assumption of the K
   
   • ​Does not have to be a stated assumption in the K

Question 37

Frustration of purpose vs. impossibility

Answer 37

Distinction is that impossibility concerns duties specified in the K, whereas frustration of purpose concerns the reasons a party entered into the K

• E.g., A landlord rents space to B restaurateur to open ice cream parlor; if the property is destroyed by an earthquake, A & Bare excused from performing due to impossibility

>> However, if the city passes an ordinance banning the sale of sweetened food, the K’s purpose is frustrated b/c A knew B intended to open an ice cream parlor

Question 38

Rescission

Answer 38

Rescission of a K serves to discharge duties under the K

• Occurs when parties agree to rescind their K
• Agreement to rescind is itself a new, binding K supported by consideration

Question 39

Limitation on rescission

Answer 39

Limitations:

• Mutual rescission may be made orally
  
  • Exception- writing required if the K to be rescinded is subject to the SoF and/or UCC
• Parties cannot rescind a K if the rights of a third­ party beneficiary have vested

Question 40

Unilateral rescission

Answer 40

When only one party wants to rescind the K

• Usually only granted where there is a defense to K enforcement or formation (e.g., mistake, misrepresentation, duress, lack of consideration, etc.)
  
  • I.e., as distinguished from mutual rescission, whereby parties agree to rescind a K, unilateral rescission often occurs as a court-ordered remedy where there is a valid defense to K enforcement or formation

Question 41

Modification vs. Novation

Answer 41

Modification occurs when parties change terms of the original K; novation is a new K that substitutes a new party into the original K

Question 42

Modification

Answer 42

Modification- subsequent change to terms of a K

• Parties agree to discharge original K terms in favor of new terms
  
  • Does not discharge the entire original K
• Requirements:
  
  1. Mutual assent- mutual assent of the parties; and
  2. Consideration- generally found to be present b/c each party has limited her right to enforce the original K
• UCC – no consideration required for a good-faith modification
  
  • Modification must be in writing if it falls within the SoF

Question 43

Novation

Answer 43

Parties agree to substitute a new party to perform

• Parties create a new K substituting a new party, who gets benefits and assumes duties that belonged to an original party to the K
• Requirements:
  
  1. All parties, including new party, agree to a new K; and
  2. New K extinguishes K duties between original parties
• The original party is excused from performance and no longer has any K obligations or liabilities

Question 44

Accord & Satisfaction

Answer 44

Accord and satisfaction occurs when both parties to an existing K agree to accept different performance in satisfaction of the original, existing obligation

• Accord- agreement to accept alternative performance in satisfaction of the existing obligation
  
  • I.e., a new agreement to accept an alternative performance
• Satisfaction - completion of the alternative performance

Question 45

Effect of accord and satisfaction

Answer 45

Effect of accord and satisfaction- excuses the original obligation

• If the accord is not satisfied, a party may sue on either the original obligation or the accord
• An accord suspends the original agreement until satisfaction, i.e., parties cannot sue under the original agreement if there has been an accord