Performance Modification and Excuse Flashcards
1) Obligations under the UCC – Risk of Loss Rules
• Seller’s obligations = transfer and deliver goods
• Buyer’s obligation = accept and pay for goods
• When something happens to the goods before the buyer receives them:
o If seller bears ROL (risk of loss) , he must?
o If buyer bears ROL he must?
If seller bears the ROL he must provide replacement goods
If buyer bears the ROL he must , he must pay the K price regardless
o Non-carrier cases: parties to a sale of goods K do not agree to use a common carrier. In a non-carrier case When does ROL transfer to buyer?
If seller is NOT a merchant
• As soon as goods are made available to him (tendered)
If seller IS a merchant
• Once goods are physically in buyer’s possession
o Carrier cases: parties to a sale of goods K agree to use common carrier (trucking firm, train, etc.) In a carrier case, when does the ROL transfer to buyer?
o Carrier Cases – When does ROL transfer?
Shipment contract: ROL passes to buyer when goods are delivered to the carrier
• Identified as “FOB Seller,” or K is silent (default rule)
• Buyer bears ROL if goods are damaged in transit
Destination contract: ROL passes to buyer when goods are tendered at the destination point specified in the K
• Identified as “FOB Buyer”
• Seller bears ROL if goods are damaged in transit
Explain the pre-existing duty rule
Give an example
o Preexisting Duty Rule: a promise to increase compensation for duties already owed is unenforceable because there is no consideration for the modification
EXAMPLE: The captain of a fishing vessel promised to pay $100 to each of the sailors for their work on a fishing voyage. Midway through the voyage, the sailors threatened to cease work unless they were promised an additional $50 each, and the captain reluctantly agreed. At the end of the voyage, the captain paid each of them the originally promised $100 but refused to pay the $50 increase, so the sailors sued to recover the additional amount. Because the sailors were already obliged to perform the work in question under the terms of their original contract with the captain, his promise of an additional $50 is unenforceable under the pre-existing duty rule.
What are the exceptions to the existing duty rule?
mutual modification= of an existing K is enforceable if both parties agree to different performance from what was originally required by the original K
EXAMPLE: During the course of the fishing voyage, the ship’s cook takes ill, and the captain instructs the youngest of the sailors to perform the cook’s duties in addition to his fishing duties. The sailor refuses to perform the work unless the captain promises him an additional $50 in compensation, and the captain reluctantly agrees. The promise of additional compensation is enforceable as a “mutual modification” of the original contract.
unforeseen circumstances =Preexisting duty rule not applicable if increased compensation is given in exchange for a promised performance that has been rendered substantially more burdensome than reasonably anticipated when K formed
EXAMPLE: The fishing nets provided by the captain turn out to be defective and thus increase the workload of the sailors in a manner substantially in excess of what was reasonably contemplated under the original contract. The sailors threaten to cease the fishing unless they are promised an additional $50 each, and the captain reluctantly agrees. The promise is enforceable despite the pre-existing duty rule in view of circumstances not reasonably anticipated by the parties at the time of contracting.
Under the UCC modification of a K does not need additional consideration to be enforceable when:
as long as made in good faith
EXAMPLE: A manufactures upsidaisium bearings and has a three-year contract to supply B with the bearings the latter uses to make turbo-jet engines for commercial aircraft. Because of an unexpected world shortage of upsidaisium, the price of the metal A uses to manufacture the bearings triples over a short period, and A advises B that it can’t continue supplying the bearings unless B agrees to increase the price to the point that A will break even on the supply contract. B reluctantly agrees. Is the modification enforceable?
• A party entering a contract makes many assumptions about the present and future. When such assumptions turn out to be faulty, the parties may be excused under the doctrines of?
Hint MIF
doctrines of mistake, impossibility, impracticability, and frustration of purpose.
o Unilateral Mistake – 1 party’s mistake about present material fact(s) is NOT excused unless:
unless other party knew/had reason to know of the party’s mistake.
EXAMPLE: A agrees to sell B a cow, which A knows to be barren, and, as the parties are writing up and signing the agreement, B asks A a series of questions about the care and feeding of pregnant cows. Because A has reason to know that B is mistaken with respect to the cow’s capacity to bear calves, B’s obligation to purchase the cow is excused on account of unilateral mistake.
o Mutual Mistake – Voidable by disadvantaged party when all 3 elements are met. What are the elements
Mistaken assumption relates to material facts (not just value);
Mistake made by both parties; and
Disadvantaged party did not bear risk of mistake under the K
EXAMPLE: A agrees to sell B a cow at beef cow prices because at the time of contracting, both parties were under the assumption that the cow was barren. A short time later, the cow was discovered to be with calf, which greatly increased her resale value. The contract is voidable at the option of A.
EXAMPLE: A agrees to sell B a cow at beef cow prices. At the time of contracting, both parties share the mistaken impression that the cow is barren. B tells A that he is still going to try to breed the cow in any case. In this case, A bears the risk of B’s efforts succeeding, because if B succeeds, it will prove the parties’ assumption that the cow was barren wrong. So A is accordingly bound by the contract even if the cow turns out to be fertile.
Faulty Assumptions Regarding Future Facts: Impossibility: explain and give examples
• Impossibility: Both parties excused if performance has been rendered impossible by events occurring after K formed. impossibility must be objective, subjective impossibility does not excuse performance. The contingency that creates the impossibility was not known to the parties at the time of making the K; it arose after the K and was unanticipated.
EXAMPLE: X promises to sell Y his horse, but the horse dies before X can deliver the horse.
Subjective impossibility occurs when performance becomes impossible because of some failure or fault on the part of the performing party
EXAMPLE: A party fails to have enough money to either make a promised payment or to obtain the components required for the production of a promised product.
:
when does objective impossibility occur? give some examples
Objective impossibility occurs when performance literally impossible for anyone due to circumstances beyond control of the parties. subjective impossibility not sufficient to excuse performance.
EXAMPLE: X promises to sell Y his horse, but the horse dies before X can deliver the horse.
Subjective impossibility occurs when performance becomes impossible because of some failure or fault on the part of the performing party
EXAMPLE: A party fails to have enough money to either make a promised payment or to obtain the components required for the production of a promised product.
In what circumstances are we likely to find objective impossibility?
• Circumstance #1: when the subject matter of the K is destroyed
EXAMPLE: Buyer promises to buy Farmer’s 2009 wheat crop, the entirety of which is destroyed just before harvest by wheat blight. The Farmer’s performance is excused on the basis of impossibility.
- Circumstance #2: when there is a personal services K and the performing party has died or become incapacitated
- Circumstance #3: when supervening law or legal developments have rendered performance legally impermissible
• Impracticability: Courts are reluctant to excuse performance for any reason other than impossibility. However, under the doctrine of impracticability, a promisor may be excused from performance where the following two elements are proven:
o Contingency causing impracticability was unforeseen; and
o Increased cost / burden of performance would be far beyond what either party anticipated
• Impracticability under UCC :
where has it been found?
what is not likely to trigger impracticability?
o UCC cases where impracticability has been found typically involve shortages caused by war or embargo, local crop failure, or unforeseen shutdown of major sources of supply (e.g. natural disaster).
o Increased costs, and the rise or collapse of a market are viewed as business risks, the sorts of contingencies that fixed-price contracts are expected to account for. probably not sufficient for impracticability.
Explain the Frustration of purpose doctrine and see example
• Frustration of Purpose: Where a contingency occurs that dramatically reduces the value of performance to the receiving party.
EXAMPLE: The doctrine of frustration of contractual purpose has as its source the famous case of Krell v. Henry, which involved the owner of a London flat with a “ringside” view of the forthcoming coronation parade who agreed to lease the flat at premium prices to a lessee eager to witness the festivities. The parade was canceled when the King became ill, and the lessee’s contractual obligations to the owner were excused on the ground that going through with the rental agreement in the absence of its raison d’être “cannot reasonably be said to have been in the contemplation of the parties at the date of the contract.”
