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Contracts > Performance, Modification, and Excuse > Flashcards

Performance, Modification, and Excuse Flashcards

1
Q

Obligations Under the UCC

A

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.

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2
Q

Non-Carrier Cases

A

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.

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3
Q

Carrier Cases

A

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.

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4
Q

Seller’s Obligations: Shipment v. Destination K

A
  • 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
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5
Q

Free on Board (F.O.B.)

A

The delivery point.

“F.O.B. [location of seller]” is a shipment K

“F.O.B. [any other location]” is a destination K

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6
Q

Free Alongside (F.A.S)

A

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

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7
Q

Buyers Right to Inspect Goods

A

Unless the parties agree otherwise, the buyer has a right to inspect goods upon tender or delivery before making payment or acceptance.

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8
Q

Risk of Loss (Shipment & Destination Ks)

A

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
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9
Q

Risk of Loss (For other Ks)

A
  • 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
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10
Q

Effect of Breach on Risk of Loss

A
  • 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
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11
Q

Modification: Preexisting Duty Rule

A
  • 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
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12
Q

Exceptions for the Preexisting Duty Rule

A

Include:

  • Mutual Modification
  • Unforeseen Circumstances
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13
Q

Mutual Modification

A

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
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14
Q

Unforeseen Circumstances

A

When performance is rendered substantially more burdensome than reasonably anticipated by the parties when they entered the K.

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15
Q

Modifications Under UCC: Good Faith Test

A

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.

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16
Q

Duress Modifications

A

Duress is a defense to both CL and UCC Ks.

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17
Q

Can Modifications be Oral or Writing?

A

Yes. However, for the former watch out for a no oral modification clause

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18
Q

Enforceability of No Oral Modifications Clauses

A

Such clauses require no specific language.

  • CL- some courts will enforce them, others won’t
  • UCC- such clauses are presumptively valid.
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19
Q

Excuses to Performance (Based on One Party’s Assumption)

A

Include:

  • Mistake
  • Impossibility
  • Impracticability
  • Frustration of Purpose
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20
Q

Mistake

A

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).

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21
Q

What is a Mistake?

A

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.

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22
Q

Unilateral Mistake

A

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
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23
Q

Mutual Mistake

A

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
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24
Q

Doctrine of Impossibility

A

Excuses both parties from their obligations under a K if the performance has been rendered impossible by events occurring after the K was formed.

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25
Q

Req. for Doctrine of Impossibility

A
  • objective impossible performance; and

- the occurrence of the contingency was not known to the parties at the time of contracting.

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26
Q

Obj. v. Subj. Impossibility

A
  • 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
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27
Q

When the Doctrine of Impossibility Does not Apply

A
  • (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)
28
Q

Categories of Impossibility

A

Include:

  • destruction of the SM of the K
  • death or incapacity; and
  • illegality
29
Q

Doctrine of Impracticability

A

When a promisor may be excused from performance where unforeseen difficulties have made performance prohibitively expensive or otherwise extremely burdensome

30
Q

Req. for Doctrine of Impracticability

A
  • 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
31
Q

Doctrine of Frustration of Purpose

A

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

32
Q

Frustration of Purpose: Modern Test (3 Conditions)

A

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
33
Q

Frustration of Purpose: K Allocation of the Risk

A

Where the parties K allocate the risk of the non-occurrence of the event, the doctrine of frustration of purpose will not be available

34
Q

Excuses to Performance (By Agreement of the Parties)

A
  • Include:
  • Rescission
  • Accord & Satisfaction
35
Q

Rescission

A

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.

36
Q

Can a Rescission Be Oral?

A

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.

37
Q

Accord & Satisfaction

A
  • Accord- a K under which a party promises to accept substituted performance
  • Satisfaction- performance of the accord (discharges original duty)
38
Q

Validity of Accord (Consideration)

A

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
39
Q

Anticipatory Repudiation

A

When a party announces his intention not to perform, or circumstances make such an intention reasonably clear to the aggrieved party.

40
Q

Req. for Anticipatory Repudiation

A

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
41
Q

Rights of Aggrieved Party Upon Repudiation

A

Include:

  • treating it as a breach of K; or
  • ignore the repudiation
42
Q

If an Aggrieved Party Chooses to Treat Anticipatory Breach as a Breach of K

A

He may:

  • cancel the K and terminate all rights and obligations under it; or
  • bring an action for damages or SP
43
Q

If an Aggrieved Party Chooses to Ignore a Repudiation

A

He is prevented from continuing to perform on the K if performance would increase his damages from the K.

44
Q

Retraction of Repudiation

A

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.
45
Q

Conditions: Express v. Implied

A
  • 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
46
Q

Examples of Express Language in K

A

Include:

  • “expressly conditioned”
  • “unless and until”
  • “on the condition that”
  • “only if”
  • “upon”
  • “as long as”
  • “when”
  • “provided that”
47
Q

Conditions: Promissory v. Pure

A
  • 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.
48
Q

CL Rules Governing Failure of a Condition

A
  • 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.
49
Q

Bad Faith Conduct in Regards to a Condition

A

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).

50
Q

Excusal Based on Avoidance of Forfeiture: Important Factors

A

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
51
Q

CL: Material Breach of Implied Conditions

A
  • 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
52
Q

CL: Substantial Performance of Implied Conditions

A
  • 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
53
Q

Distinguishing Between Material Breach & Substantial Performance (Important Factors)

A

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
54
Q

UCC Rules Governing Failure of a Condition: Perfect Tender Rule

A

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.

55
Q

Buyer’s Options When a Seller Fails to Make Perfect Tender

A

Buyer may:

  • reject goods
  • accept goods
  • reject part and accept part of the goods
56
Q

Rejecting Goods for Imperfect Tender

A
  • 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
57
Q

Imperfect Tender: What Must a Rejecting Buyer Do with the Goods?

A
  • 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.
58
Q

Damages for Violation of Perfect Tender Rule

A

Buyer may bring an action for damages if they reject the goods.

59
Q

Imperfect Tender: Acceptance of Goods

A

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
60
Q

Imperfect Tender: What Rights and Obligations Does the Buyer Have If He Accepts the Goods?

A
  • 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
61
Q

Imperfect Tender: Rejecting Part and Accepting Part

A

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

62
Q

Imperfect Tender: Seller’s Ability to Cure Before Expiration

A

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
63
Q

Installment Ks

A

-Ks that contemplate delivery of goods in separate lots to be separately accepted by the buyer

64
Q

Imperfect Tender for Installment Ks

A
  • 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
65
Q

UCC: Demand for Adequate Assurances of Performance

A

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.

66
Q

Req. Response to a Demand for Adequate Assurance

A

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.

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