Performance, Modification, and Excuse

Question 1

Define the preexisting duty rule?

Answer 1

At common law, a promise to increase compensation for duties already owed under an existing contract is unenforceable because there is no consideration for the increase.

Question 2

What are the exceptions to the preexisting duty rule?

Answer 2

1) Mutual modification
2) Unforeseen circumstances
* More Info:* Pre-existing Duty Rule Exceptions

Question 3

What are the requirements for mutual modification?

Answer 3

At common law, a promise to increase compensation under an existing contract is enforceable as a mutual modification if:

1) Both parties agree to a performance that is different from the original contract
2) Difference from the original contract is not a mere pretense

Question 4

What are the requirements of the unforeseen circumstances exception to the preexisting duty rule?

Answer 4

The preexisting duty rule will not apply if a promise of increased compensation occurs because performance has been rendered substantially more burdensome than was reasonably anticipated.

(common law rule exception only)

Question 5

What is required to modify a UCC contract?

Answer 5

An agreement modifying an existing contract for the sale of goods needs no consideration as long as it is made in good faith.

Question 6

What is a seller’s obligation under the UCC?

Answer 6

To transfer and deliver the goods sold

Question 7

What is a buyer’s obligation under the UCC?

Answer 7

Accept and pay for the goods

Question 8

What are carrier cases?

Answer 8

When the parties to a contract agree to use a specified common carrier (transporter) to deliver goods

Question 9

What are non-carrier cases?

Answer 9

When the parties to a contract do not agree to use a common carrier to deliver goods.

Question 10

In non-carrier cases, when does the risk of loss pass?

Answer 10

1) If the seller is not a merchant, then the risk of loss passes to the buyer upon tender of delivery.
2) If the seller is a merchant, then the risk of loss passes when the goods are physically in the buyer’s possession.

Question 11

In carrier cases, when does the risk of loss transfer?

Answer 11

1) If the seller promises to turn goods over to the carrier, then the risk of loss passes to buyer once the goods are delivered to the carrier.
2) If the seller promises to tender delivery at a particular destination point, then the risk of loss passes to the buyer when the goods are tendered to the destination point.

Question 12

When will a unilateral mistake excuse performance?

Answer 12

If one party enters into a contract under a faulty assumption about a material fact at formation, the mistaken terms are not excused unless the other party knew or had reason to know the other party’s mistake.

Question 13

When will a mutual mistake excuse a contract?

Answer 13

1) The mistaken assumption relates to material facts
2) The mistake is made by both parties

And

3) The disadvantaged party did not bear the risk of mistake
* More Info:* Mutual Mistake

Question 14

When will impossibility excuse both parties from a contract?

Answer 14

1) The contract becomes objectively impossible to perform
2) The impossibility was not known at formation
* More Info:* Impossibility

Question 15

What are common examples of objective impossibility?

Answer 15

1) The subject matter of the contract is destroyed
2) There is a personal service contract and the performing party has died or become incapacitated
3) Supervening law renders performance of the contract illegal

Question 16

When is performance objectively impossible?

Answer 16

The performance is literally impossible for anyone to perform in any manner due to circumstances beyond the control of the parties.

Question 17

When will the doctrine of impracticability excuse perofrmance?

Answer 17

1) The contingency causing the impracticability was unforeseen
2) The increase in the cost of performance is far beyond what either party anticipated
* More Info:* Impracticability

Question 18

In what UCC cases is impracticability typically found?

Answer 18

1) Shortages caused by war or embargo
2) Crop failure
3) Unforeseen shutdown of major sources of supply

Question 19

When will the doctrine of frustration of prupose excuse performance?

Answer 19

1) The parties’ principal purpose of entering the contract is frustrated
2) The frustration is substantial

And

3) The non-occurrence of the frustrating event was a basic assumption in forming the contract

Question 20

When will rescission excuse performance?

Answer 20

When both parties to a contract are mid-performance and consideration is provided by the discharge of the other’s duties

Question 21

When will accord and satisfaction excuse performance?

Answer 21

1) The obligee promises to accept substituted performance in satisfaction of the obligor’s existing duty
2) The obligor performs the substituted performance
* More Info:* Accord and Satisfaction

Question 22

When is an accord valid?

Answer 22

1) When the accord involves an agreement for partial or substituted performance, and the substituted performance differs significantly from the original performance or it’s obligation is doubtful (≠ a pre-existing duty)
2) When the accord involves an agreement for partial payment, and there is a good faith or bonafide dispute about the amount owed

Question 23

When may a contract be anticipatorily repudiated?

Answer 23

1) A party’s makes a definitive statement indicating it will commit a breach of contract

Or

2. A party’s makes a voluntary act that renders the party unable to perform its contractual obligations

Question 24

When can a party request an assurance of performance?

Answer 24

If anticipatory repudiation cannot be established but there are reasonable grounds for insecurity, then the insecure party can make a demand for adequate assurance of performance.

Question 25

When can a party suspend performance due to insecurity?

Answer 25

1) Upon making a demand for assurances, a party with reasonable grounds for insecurity may suspend his own performance, so long as it is commercially reasonable to do so. The failure to respond with reasonable assurances constitutes a repudiation by the non-responding party. This can occur where the other party:
1) Does not respond to the demand within a reasonable time (30 days under the UCC)

Or

2) Does not respond in a way that provides reasonable assurances

Question 26

Rights of the aggrieved party upon the repudiation of a contract?

Answer 26

1) The aggrieved party can cancel the contract and terminate all obligations under the contact
2) The aggrieved party can bring an action for damages or specific performance

And

3) The aggrieved party can ignore the repudiation and continue under the contract

Question 27

When can a repudiation not be retracted?

Answer 27

A party who has made an anticipatory repudiation to the other party may retract the repudiation unless and until the other party:

1) Acts in reliance upon the repudiation
2) Accepts the repudiation by signaling their acceptance to the breaching party

Or

3) Commences a suit for damages or specific performance

Question 28

Define express and implied conditions.

Answer 28

1) Express conditions: Those conditions that are expressly included in the contract as conditions.
2) Implied conditions: A fiction employed by the courts to deal with the potential effects of breaches of contract in common law contracts

Question 29

What is the effect of the failure of an express condition?

Answer 29

It will discharge the party’s obligation to perform

Question 30

When do failed express conditions not discharge performance?

Answer 30

1) Waiver: The party who has been discharged by the failed condition may waive that right and perform anyway
2) Bad Faith Conduct: When a party acts in bad faith as to prevent the condition, his conduct will not be discharged
3) Gross Forfeiture: courts will enforce a performance obligation so as to avoid a grossly disproportionate loss for a relatively minor infraction

Question 31

What are the two types of failed implied conditions?

Answer 31

1) Material breach
2) Substantial performance

Question 32

When is the failure of an implied condition a material breach?

Answer 32

If the breach is serious enough or performance is so bad, then the court will treat the breach in the same way it would treat a failure of an express condition. The aggrieved party is discharged from his own performance obligations.

Question 33

When does the failure of an implied condition result in substantial performance?

Answer 33

If the breach is not serious, then the court will treat the party’s performance as substantial. The aggrieved party will not be discharged from his own performance obligations.

More Info: Implied Condition Failure and Substantial Performance

Question 34

What five factors are used to distinguish between a material breach and a substantial performance?

Answer 34

1) The extent to which the aggrieved party will be deprived of the benefit that she reasonably expected to receive under the contract
2) The extent to which the aggrieved party can adequately be compensated via damages for the defective performance
3) The extent to which the breaching party will suffer forfeiture if a material breach is found
4) The likelihood that the breaching party will cure his failure
5) The extent to which the breach was willful or in bad faith rather than merely negligent or innocent

Question 35

Where a condition has failed and performance cannot be excused, what other methods of enforcement are available to mitigate the consequences to the breaching party?

Answer 35

1) Divide the contract

Or

2) Quantum meruit at common law.

Question 36

What performance obligations remain when there is a failed condition in a divisible contract?

Answer 36

If the contract is easily apportioned into agreed equivalents, then the failure excuses the performance of the divisible portion that is breached, but not the performance of the other portions.

Question 37

Divisibility of the contract and quantum meruit allow for which party to recover?

Answer 37

The breaching party (common law rule only)

Question 38

When does quantum meruit apply?

Answer 38

When a party failed to fulfill an express condition of a contract or is in material breach of the contract, he may still be able to recover in quantum meruit in this way:

1) The breaching party may recover the reasonable value of the benefits conferred
2) Recovery will be reduced by the damages caused by his breach of contract
* More Info:* Quantum Meruit

Question 39

What is the effect of failed condition in the UCC?

Answer 39

Under the perfect tender rule, the terms of a contract for the sale of goods are enforced exactly. Every contract term is thus treated as an express condition, and a breach by seller will relieve the payment obligation of the buyer.

Question 40

Pursuant to the UCC, when is a seller in breach of a contract?

Answer 40

The goods tendered fail in any respect to conform to the contract

Question 41

What is the perfect tender rule?

Answer 41

Under the perfect tender rule of the UCC, the terms of a contract for the sale of goods are enforced exactly. Every contract term is treated as an express condition, and a breach by the seller will relieve the payment obligation of the buyer.

Question 42

What are a buyer’s options if a UCC seller fails to make a perfect tender?

Answer 42

1) Reject the goods
2) Accept the goods
3) Accept part and reject part

Question 43

What must a UCC buyer do to reject goods?

Answer 43

1) The buyer must exercise the right of rejection within a reasonable time and notify the seller of the rejection
2) Sue for damages unless the right to cure applies

If the buyer does not effectuate rejection, then he has made a failed rejection, which is deemed an acceptance of the goods by the buyer.

Question 44

How does a buyer’s acceptance of a seller’s goods occur?

Answer 44

The buyer must have a reasonable opportunity to inspect the goods and signify his acceptance through:

1) Stating to the seller that the goods conform to the contract
2) Taking the goods despite their nonconformance
3) Failing to make an effective rejection
4) Taking any action inconsistent with seller’s ownership

Question 45

What are the legal consequences of the buyer’s acceptance of the seller’s goods?

Answer 45

1) The buyer must pay the contract price of those goods

And

2) The buyer may also seek damages for any non-conformity if the seller is notified

Question 46

If the buyer accepts part of the seller’s goods and rejects the other part, how may the buyer divide the goods?

Answer 46

Commercial units of the good (cannot accept 1/2 a unit).

Question 47

When does a seller of goods have the right to cure?

Answer 47

If a seller makes a nonconforming tender, but time for performance remains under the contract, then the seller may cure under the UCC.

Question 48

What are the requirements for a seller’s right to cure?

Answer 48

1) The seller must give the buyer reasonable notice
2. The seller must cure by the contract deadline

Question 49

How can a seller of goods overcome a breach of the perfect tender rule?

Answer 49

1) Cure the breach
2) Show reasonable grounds to believe delivery was acceptable

And

3) Show reasonable grounds that the buyer would accept the nonconformity

Question 50

When can a seller of goods assert reasonable grounds to believe delivery was acceptable?

Answer 50

After the deadline for performance under the contract, the seller must give the buyer reasonable notice of the intention to cure, the buyer must accept the seller’s offer to cure, and the seller must cure within a reasonable time.

Question 51

How can a seller of goods prove that he had reasonable grounds to believe that the buyer would accept nonconformity?

Answer 51

Produce evidence of:

1) Express assurances to that effect from the buyer

Or

2) The nonconformity being appropriate due to trade usage, course of dealing, or course of performance