Performance, Modification, and Excuse Flashcards
Obligations under the UCC - Buyer
Accept and Pay for the Goods
Obligations under the UCC - Seller
Transfer and Deliver the Goods
Carrier Cases Explained
Where parties to a sale of goods contract agree to use a common carrier.
Non-Carrier Cases Explained
Where parties to a sale of goods contract do not agree to use a common carrier
When does the risk of loss transfer in NON-Carrier Cases?
Seller is NOT a merchant - risk of loss passes to buyer upon tender of delivery.
Seller is a merchant - Risk of loss passes to buyer only when they take physical possession
When does risk of loss transfer in CARRIER cases?
Shipment Contract - Risk of loss passes to buyer when goods are delivered to the carrier.
Destination Contract - Risk of loss passes to buyer when goods are tendered to the destination point specified in the contract.
Shipment Contract
Seller promises to turn goods over to a carrier. Ends obligation of seller.
FOB Seller
Destination Contract
Seller promises to tender delivery to a particular destination point. Seller retains risk of loss to destination specified in the contract.
Identified as FOB Buyer
Default Rule where contract is silent as to FOB Seller or FOB buyer
The contract is a shipment contract, FOB Seller, where the contract is silent
Modification - Preexisting Duty Rule
A promise to increase compensation for duties already owed under an existing contract is an unenforceable modification because there is no consideration.
Exceptions to the Preexisting Duty Rule at Common Law - List
- Mutual Modification
2. Unforeseen Circumstances
Elements of Mutual Modification Exception to Preexisting Duty Rule
- Both parties agree to a performance that is DIFFERENT from the original contract
- The Difference in performance is not a mere pretext of a newly found bargain.
If elements are present a promise to increase compensation under an existing contract will be enforceable as a mutual modification.
Unforeseen Circumstances Elements
If a promise of increased compensation is given in exchange for a promised performance that has been rendered substantially more burdensome than reasonably anticipated at formation, the preexisting duty rule will not apply.
Modification under the UCC
An agreement modifying an existing contract for the sale of goods need not be supported by consideration to be enforceable so long as it is done in good faith. Even where the modification is supported by consideration the modification will be unenforceable if the appearance of the mutual bargain is merely a pretext to hide a bad faith change in terms.
Faulty assumptions regarding present facts is covered by what doctrine?
Mistake
Faulty Assumptions about Future Facts is Covered by what Doctrines?
Impossibility,
Impracticability
Frustration of purpose
Mistake Requirement
Mistake in fact must materially impact the transaction to one or both parties.
Unilateral Mistake Rule
If a party is operating under faulty assumptions about material facts as they exist at the time of contracting is NOT excused from his contractual performance unless one of 2 exceptions apply
Unilateral Mistake Exceptions
- The other party knew or had reason to know of the other parties mistake.
- There was a serious clerical error that is almost unconscionable.
* exception will not apply if the error was the result of extreme negligence of the party making the error OR the other party relied on the clerical error.
Mutual Mistake
Where both parties hold mistaken assumptions about present material facts.
Requirements for voiding a contract for mutual mistake
- Mistaken assumptions relate to material facts
- Mistake must be made by both parties
- Disadvantaged party did NOT bear the risk of mistake under the particular agreement - Breeder of barren cows
Doctrine of Impossibility - Defined
Excuses both parties from their obligations under a contract if the performance has been rendered impossible by events occurring after contract formation.
Doctrine of Impossibility Requirements
- Impossibility must be OBJECTIVE
2. The occurrence of the contingency must not have been know to the parties at the time of contracting.
Objective Impossibility
occurs where performance under a contract becomes literally impossible for anyone because of circumstances beyond the control of the parties
Subjective impossibility
Where performance of the contract becomes impossible because of the failure or fault of the performing party. NOT EXCUSED
List 3 Circumstances where Objective Impossibility is likely found.
- Subject matter of the contract is destroyed
- Where a party to a personal services contract has died or become incapacitated.
- Where supervening laws render performance legally impossible.
Availability of Impossibility as an excuse
Is available at common law and the UCC
Elements of the Doctrine of Impracticability
- Contingency causing the impracticability was unforeseen
2. Increased cost or burden of performance was far beyond what either party anticipated
Impracticability under the UCC
Increased costs and the rise and collapse of markets are business risks of the sort of contingencies that fixed price contracts are expected to account for.
Where UCC has found impracticability have been shortages caused by war, embargo, local crop failure, unforeseen shutdown of major sources of supply.
Frustration of Purpose - Defined
Where a contingency occurs dramatically reducing the value of performance to a receiving party, the doctrine of frustration of purpose will excuse the receiving party from its contractual obligation.
Test for Frustration of Purpose
- Parties principal purpose for entering the contract is frustrated.
- Frustration was substantial in nature
- Non-occurrence of the event precipitating frustration must not have been a basic assumption of the contract
Allocation of Risk and Frustration of Purpose
Where a contract allocates the risk of the non-occurrence of an event that would frustrate a party’s purpose, the excuse of frustration of purpose is NOT available.
Agreements excusing Performance - list
- Rescission
2. Accord and Satisfaction
Where Rescission is permissable
Where both parties to a contract are mid-performance
consideration is provided for each party
to discharge the other parties duties.
SoF and rescission
SoF will not prevent an oral agreement of rescission discharging unperformed duties from being enforced
UNLESS
the rescission involves the transfer of property.
Accord - Defined
A contract under which the obligee promises to accept substitute performance in satisfaction of the obligor’s existing duty.
Satisfaction - Defined
Performance of the Accord which will discharge the original duty.
Legal Effects of Accord and Satisfaction and an Accord alone
Accord and Satisfaction - will discharge the obligor’s original duty
Accord alone merely suspends the original duty until satisfied.
Validity of Accord
Requires Consideration
Sufficient consideration may be substituted performance if the substituted consideration differs significantly from the original duty because the original duty was doubtful, or the obligor believed it so.
Where the accord involves an agreement for partial payment, there must be a good faith or bona fide dispute about the amount owed
How to establish anticipatory repudiation
- The party makes a definitive statement that it will commit a breach.
- A voluntary act rendering a party unable to perform its contractual obligations
Adequate assurance of performance
Where anticipatory repudiation cannot be established but there are reasonable grounds for insecurity, the insecure party may make a demand for adequate assurances of performance
Suspension of Performance by an Insecure party
- Upon making a demand for assurances, the insecure party may suspend performance so long as it is commercially reasonable to do so.
- Failure to respond with reasonable assurances constitutes repudiation which can occur when the other party does not respond in a reasonable time (30 days under the UCC); or the other party does not respond in a way that provides reasonable assurances
Rights of an Aggrieved Party upon Repudiation
- Cancel the contract and terminate obligations under it.
- Action for damages or specific performance
- Ignore and continue under the contract.
Retraction of a Repudiation
Will be available unless and until the other party:
- Acts in reliance on the repudiation
- Accepts repudiation by signaling this to the repudiating party
- Commencing suit for damages or specific performance
Promissory Conditions
Where contract performance is conditioned on the occurrence of the promised performance by the other party.
Pure Conditions
Where the contract performance is conditioned on the occurrence of events beyond the control of either party
Express Conditions
Conditions expressly included in the original contract
Implied Conditions
A fiction employed by the courts to deal with the potential effect of a breach of contract
Failure of an Express Condition - Rule
The failure of an express condition will discharge a parties duty to perform
Situations where the failure of an express condition may be excused so that the performance obligation of the party who stood to benefit from the condition is NOT discharged - list
- Waiver
- Bad Faith Conduct
- Avoid Gross Forfeiture
Waiver of an Express Conditon
A party that has been discharged by a failed express condition may waive his right to discharge and perform anyway.
Some courts treat this as a mid-term modification and require consideration.
Bad Faith Conduct and the Failure of an Express Condition
Where a party acts to prevent a condition in bad faith, that parties performance obligation will not be discharged.
Avoidance of Gross Forfeiture in the event of a failure of an express conditon
Courts will excuse a performance obligation to avoid a grossly disproportionate loss to a party for a minor violation
Material Breach
A breach that is serious enough to treat it as a failure of an express condition and the aggrieved party is then discharged from his performance obligation.
Substantial Performance
Where a breach is less serious the court may treat the party’s performance as close enough, the party will be determined to have rendered substantial performance and will not be discharged from his performance obligation
Factors Determining Whether there has been a Material Breach or Substantial Performance (5)
- Extent to which aggrieved party will be deprived of the benefit she reasonably expected to receive under the contract.
- Extent to which the aggrieved party can be adequately compensated via damages for defective performance.
- The extent to which the breaching party will suffer forfeiture if a material breach is found.
- Likelihood the breaching party will cure his failure
- Extent to which the breach was willful, in bad faith or merely innocent or negligent.
Where a failure of a condition cannot be excused - other methods of enforcement available to mitigate the consequences for the breaching party.
LIST
- Divisibility of the Contract
2. Quantum Meruit
Divisibility of the contract
Where a contract is divisible and only a part of it has been materially breached.
Legal Test - contract is easily apportioned into agreed equivalents.
ie. one year cleaning contract paid in monthly exchanges
Quantum Meruit
Where a breaching party failed to fulfill an express condition or is in material breach he may be able to recover
- Reasonable value of services or benefits conferred
- Less damages caused by his breach of contract
UCC - Perfect Tender Rule
Terms of a contract for the sale of goods are enforced exactly. Seller is in breach if the goods fail in any respect to conform to the contract
Available course of action if seller fails to make perfect tender
- Reject the goods
- Accept the goods
- Accept part and reject part
Requirements for a buyer to reject tender of goods
Buyer must exercise the right of rejection within a reasonable period of time and notify the seller.
Actions available to buyer upon rejection of goods
Buyer can bring an action for damages against seller on account of imperfect tender unless cure applies
Where a buyer does not properly effectuate rejection of a imperfect tender of goods
Will be deemed an acceptance of the goods by the buyer
Acceptance of goods occurs upon the reasonable opportunity to inspect the goods and signifying acceptance through the following means:
- State to the seller the goods conform to the contract
- Take goods despite non-conformance
- Fail to make an effective rejection
- Take any action inconsistent with the sellers ownership of the goods
Legal Consequences of buyers acceptance
Buyer MUST pay the contracted price for the goods.
Buyer MAY seek damages for any non-conformity so long as seller has been seasonably notified.
Revocation of Acceptance
Buyer can revoke acceptance where there is non-conformity that SUBSTANTIALLY IMPAIRS the value of the goods AND
the buyer was unaware of the non-conformity OR seller assured the buyer that a known non-conformity would be cured but seller failed to do so.
Pre Contract Deadline for Breaching Sellers of Goods - answer
Right to cure
Post Contract Deadline Remedy for Breaching Seller of Goods - answer
Reasonable grounds to believe Delivery was Acceptable
Right to cure
If seller makes a non-conforming tender but time for performance remains under the contract, seller may substitute conforming goods.
Seller must give seasonable notice of intent to cure
Seller must make conforming delivery by the contract deadline.
Requirements For Reasonable Grounds to believe delivery was acceptable Remedy
Seller must give buyer reasonable notice of intent to cure
Seller must make conforming delivery within a reasonable period of time
Proof of reasonable grounds by Seller
Seller may prove he had reasonable grounds to believe that buyer would accept nonconformity if he has evidence of:
- Express assurances to that effect from the buyer
- Trade usage, course of dealing, and course of performance evidence to that effect.
Imperfect Tenders in the Context of an Installment Contract for the sale of Goods - 3 possibilities dealt with under UCC
- Non-conforming tender substantially impairs value of the whole contract results in a breach of the whole contract and it can be cancelled.
- non-conforming tender substantially impairs the value of the installment, buyer can reject the installment but cannot reject the contract.
- non-conforming tender does not substantially impair the value of the particular installment, buyer must allow seller to cure the non conformity within a reasonable period of time.
