Performance, Modification, and Excuse Flashcards
Obligations Under the UCC
The seller’s obligation is to transfer and deliver (for non-carrier cases), and the buyer’s obligation is to accept and pay in accordance with the K.
Non-Carrier Cases
Ks in which it appears that the parties do not intend for the goods to be moved by common carrier. In non-carrier cases, the seller has an obligation to tender delivery.
Carrier Cases
Ks in which, due to express terms or due to the circumstances, it appears that the parties intend for the goods to be moved by common carrier.
Seller’s Obligations: Shipment v. Destination K
- Shipment K- seller needs only put the goods in possession of a carrier and make appropriate arrangements for them to be sent to the buyer
- Destination K- the seller has agreed to tender the goods at a particular destination
Free on Board (F.O.B.)
The delivery point.
“F.O.B. [location of seller]” is a shipment K
“F.O.B. [any other location]” is a destination K
Free Alongside (F.A.S)
When the seller must deliver the goods alongside the vessel (in the manner usual at the port of delivery) or on a dock designated by the buyer and obtain and tender a receipt for the goods
Buyers Right to Inspect Goods
Unless the parties agree otherwise, the buyer has a right to inspect goods upon tender or delivery before making payment or acceptance.
Risk of Loss (Shipment & Destination Ks)
If the seller is required or authorized to ship the goods by carrier, the risk of loss passes to the buyer when:
- under a shipment K- the goods are delivered to the carrier
- under a destination K- when the goods are tendered at a particular destination
Risk of Loss (For other Ks)
- If seller is a merchant –> the risk of loss passes to the buyer when the buyer takes physical possession of the goods; and
- If the seller is not a merchant, the risk of loss passes to the buyer upon tender of delivery
Effect of Breach on Risk of Loss
- If the seller breaches the K by making a nonconforming tender or delivery, the risk of loss remains on the seller until cure or acceptance
- If the buyer rightfully revokes acceptance, the buyer may treat the risk of loss as having been on the seller from the beginning
- If the buyer breaches before the risk of loss passes to the buyer, the seller may treat the risk of loss as resting on the buyer for a commercially reasonable time
Modification: Preexisting Duty Rule
- at CL, a promise to increase compensation under an existing contract is an unenforceable modification to an existing K because there is no consideration offered for the modification.
- does not apply to sale of goods under the UCC
Exceptions for the Preexisting Duty Rule
Include:
- Mutual Modification
- Unforeseen Circumstances
Mutual Modification
A promise to increase compensation under an existing K is enforceable as a mutual modification to the contract if:
- both parties agree to a performance that is different from the one required by the original K; and
- the difference in performance is not a mere pretense of a newly formed bargain
Unforeseen Circumstances
When performance is rendered substantially more burdensome than reasonably anticipated by the parties when they entered the K.
Modifications Under UCC: Good Faith Test
A bargained-for modification is unenforceable under the UCC if the appearance of the mutual bargain is merely a pretext to hide a bad faith change of terms. Applies whether or not the modifications are supported by consideration.
Duress Modifications
Duress is a defense to both CL and UCC Ks.
Can Modifications be Oral or Writing?
Yes. However, for the former watch out for a no oral modification clause
Enforceability of No Oral Modifications Clauses
Such clauses require no specific language.
- CL- some courts will enforce them, others won’t
- UCC- such clauses are presumptively valid.
Excuses to Performance (Based on One Party’s Assumption)
Include:
- Mistake
- Impossibility
- Impracticability
- Frustration of Purpose
Mistake
A mistake regarding the facts that exist at the time of contracting will excuse performance only where the mistaken facts are material to that K (significantly impact the value).
What is a Mistake?
When a party or parties make a faulty assumption about the present circumstances, and thus enter a K on that basis, this is known as a mistake.
Unilateral Mistake
Will not excuse performance unless:
- the other party knew or had reason to know of the mistake; or
- the mistake was based on clerical error
Mutual Mistake
Render the K voidable for the disadvantaged party if:
- the fact about which the parties were mistake was essential to the K; and
- both parties were mistaken; and
- the disadvantaged party did not bear the risk of mistake under the parties’ agreement
Doctrine of Impossibility
Excuses both parties from their obligations under a K if the performance has been rendered impossible by events occurring after the K was formed.
Req. for Doctrine of Impossibility
- objective impossible performance; and
- the occurrence of the contingency was not known to the parties at the time of contracting.
Obj. v. Subj. Impossibility
- Obj. impossibility- occurs when the performance under the K becomes literally impossible because of circumstances beyond the control of the parties –> excuses performance
- Subj. impossibility- performance is impossible because of failure or fault of performing party –> does not excuse performance
When the Doctrine of Impossibility Does not Apply
- (Allocation)- the parties have allocated the risk of the contingency and provided remedial measures in the event of its occurrence; or
- (Temporary)- events render performance only temporarily impossible (obligation will be suspended rather than excused)
Categories of Impossibility
Include:
- destruction of the SM of the K
- death or incapacity; and
- illegality
Doctrine of Impracticability
When a promisor may be excused from performance where unforeseen difficulties have made performance prohibitively expensive or otherwise extremely burdensome
Req. for Doctrine of Impracticability
- the impracticability of the performance was caused by some unforeseen contingency
- the risk was neither assumed nor allocated by the parties; and
- the increase in the cost of performance would be far beyond what either party anticipated
Doctrine of Frustration of Purpose
Where a contingency occurs that dramatically reduces the value of performance to the receiving party, the receiving party may be excused from its K obligations
Frustration of Purpose: Modern Test (3 Conditions)
Include:
- the party’s principal purpose in entering the K is frustrated
- there is substantial frustration; and
- non-occurrence of the event precipitating frustration was a basic assumption of the K
Frustration of Purpose: K Allocation of the Risk
Where the parties K allocate the risk of the non-occurrence of the event, the doctrine of frustration of purpose will not be available
Excuses to Performance (By Agreement of the Parties)
- Include:
- Rescission
- Accord & Satisfaction
Rescission
The parties may agree to discharge each other’s remaining duties of performance under an existing K that is at least partly executory on each side.
Can a Rescission Be Oral?
The SOF will not prevent an oral agreement of rescission that discharges unperformed duties from being enforced unless rescission of a transfer of property is involved.
Accord & Satisfaction
- Accord- a K under which a party promises to accept substituted performance
- Satisfaction- performance of the accord (discharges original duty)
Validity of Accord (Consideration)
General K law applies to accords, such that consideration is req. There may be consideration when:
- the substituted performance differs significantly from that required by the original duty,
- when the original duty was doubtful or obligor believed it to be doubtful
Anticipatory Repudiation
When a party announces his intention not to perform, or circumstances make such an intention reasonably clear to the aggrieved party.
Req. for Anticipatory Repudiation
May be:
- A party’s definitive statement indicating that he will commit a breach of K; or
- A party’s voluntary or affirmative act that renders the party unable to perform or apparently unable to perform
Rights of Aggrieved Party Upon Repudiation
Include:
- treating it as a breach of K; or
- ignore the repudiation
If an Aggrieved Party Chooses to Treat Anticipatory Breach as a Breach of K
He may:
- cancel the K and terminate all rights and obligations under it; or
- bring an action for damages or SP
If an Aggrieved Party Chooses to Ignore a Repudiation
He is prevented from continuing to perform on the K if performance would increase his damages from the K.
Retraction of Repudiation
A party who has made an anticipatory repudiation to the other party may retract the repudiation unless the other party:
- acts in reliance on the repudiation
- positively accepts the repudiation by signifying this to the breaching party; or
- commences a suit for damages or specific performance.
Conditions: Express v. Implied
- Express Conditions- those which the parties expressly include in K provisions
- Implied Conditions- those created under CL or the UCC to address order of performance and rights upon breach when the parties have not done so expressly
Examples of Express Language in K
Include:
- “expressly conditioned”
- “unless and until”
- “on the condition that”
- “only if”
- “upon”
- “as long as”
- “when”
- “provided that”
Conditions: Promissory v. Pure
- Promissory condition- K performance is conditioned on the occurrence of the promised performance by the other party
- Pure condition- K performance is conditioned on the occurrence of events beyond the control of either party.
CL Rules Governing Failure of a Condition
- Express conditions –> the failure will discharge the party’s obligation to perform except for –> waiver, bad-faith conduct, or avoidance of forfeiture.
- Implied conditions –> can be treated as a material breach or substantial performance.
Bad Faith Conduct in Regards to a Condition
A condition will be excused on the basis of bad faith by the beneficiary of the condition (when the benefitting party interferes with the fulfillment of the K or where the benefitting party fails to take steps necessary for the condition’s fulfillment).
Excusal Based on Avoidance of Forfeiture: Important Factors
Include:
- whether the party favoring excuse will suffer a loss greatly disproportionate to the actual prejudice of the other party
- whether the failure of the condition is due to willfulness or serious neglect
- whether the other party played a role in bringing that failure about
- whether the condition relates to a minor term in the contract as opposed to a material one
- whether the fulfillment of the condition has not failed completely but has merely been delayed
CL: Material Breach of Implied Conditions
- If the court believes the breach of a condition is serious, it will treat the breach as a material breach.
- aggrieved party is free to walkaway and sue the breaching party for damages
CL: Substantial Performance of Implied Conditions
- If the breach is less serious –> the court will treat the breach in the same way it would treat a breach of an express condition
- aggrieved party cannot walk away but they can still sue for damages
Distinguishing Between Material Breach & Substantial Performance (Important Factors)
Include:
- the extent to which the aggrieved party will be deprived of the benefit, which he reasonably expected under the terms of the K
- the extent to which the aggrieved party can adequately be compensated via damages for the defective performance
- the extent to which the breaching party will suffer forfeiture if a material breach is found
- the extent to which the breach was willful or in bad faith, rather than merely negligent or innocent; and
- the likelihood that the breaching party will cure his failure within a reasonable time and in a manner consistent with the reasonable purposes of the K
UCC Rules Governing Failure of a Condition: Perfect Tender Rule
The terms of a K for the sale of goods are enforced exactly. Therefore, every K term is treated as an express condition and a breach of the performance obligation by the seller will relieve the payment obligation of the buyer.
Buyer’s Options When a Seller Fails to Make Perfect Tender
Buyer may:
- reject goods
- accept goods
- reject part and accept part of the goods
Rejecting Goods for Imperfect Tender
- For a buyer to reject the goods, the buyer must exercise the right of rejection within a reasonable time after delivery and notify the seller of the rejection within a reasonable period of time.
- Failure results in a failed rejection
Imperfect Tender: What Must a Rejecting Buyer Do with the Goods?
- The buyer must use reasonable care with respect to holding goods for a time sufficient for the seller to remove them
- If the seller does not respond to rejection –> buyer may store goods for seller’s account, reship them to seller, or resell them for seller’s account.
Damages for Violation of Perfect Tender Rule
Buyer may bring an action for damages if they reject the goods.
Imperfect Tender: Acceptance of Goods
Acceptance occurs through:
- stating to the seller that the goods conform to the K
- taking the goods despite their non-conformance
- failing to make an effective rejection of the goods; or
- taking any action that would be inconsistent with the seller’s ownership of the goods
Imperfect Tender: What Rights and Obligations Does the Buyer Have If He Accepts the Goods?
- he must pay K price for the goods
- he may seek damages against the seller for the nonconformity if he notified the seller of the nonconformity with a reasonable time after discovering it, the seller is not prejudiced by the lack of notice or his rights would not be affected
- he may revoke acceptance if nonconformity substantially impairs the value of the goods, and he was initially unaware of the nonconformity
Imperfect Tender: Rejecting Part and Accepting Part
Is permissible. The buyer will then have the rights and duties of acceptance for the goods he accepted, and the rights and duties of rejection for the goods he rejected
Imperfect Tender: Seller’s Ability to Cure Before Expiration
If the time of performance has not yet expired –> then the seller may substitute conforming goods so long as:
- the seller gives buyer reasonable notice of his intention to substitute; and
- the seller makes conforming delivery within the time specified in the K
Installment Ks
-Ks that contemplate delivery of goods in separate lots to be separately accepted by the buyer
Imperfect Tender for Installment Ks
- If the nonconforming installment substantially impairs the value of the whole contract –> there is a breach of the whole contract
- If the nonconforming installment substantially impairs the value of that installment + the seller cannot cure –> the buyer may reject the installment
- If the nonconforming installment does not substantially impair the value of the K as a whole + seller gives adequate assurance to cure –> buyer must accept installment
UCC: Demand for Adequate Assurances of Performance
When a party has reasonable doubt in another party’s ability to perform they can demand adequate assurances of the other party’s ability. A demand for adequate assurance of performance on a sale of goods K must be made in writing.
Req. Response to a Demand for Adequate Assurance
A response can be made in writing or oral. The failure to respond with reasonable assurances (in either a reasonable amount of time (30 days) or in an inadequate manner) constitutes a repudiation of the K by the non-responding party.
-Furthermore, the insecure part may suspend performance when the performing party does not respond within a reasonable time.
