Performance, Modification, and Excuse (MBE)

Question 1

What is The Preexisting Duty Rule?

Coverage?

Answer 1

A promise to increase compensation for duties already owed under an existing contract is unenforceable because there is no consideration

Common law contracts

Question 2

Exceptions to the Preexisting Duty Rule

(2)

Answer 2

1. Mutual Modification
2. Unforseen Circumstances

Question 3

Mutual Modification Requirements?

Effect?

Coverage?

Answer 3

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

then, A promise to increase compensation under an existing contract is enforceable as a mutual modification

Common Law only

Question 4

Unforseen Circumstances Requirements?

Effect?

Coverage?

Answer 4

The preexisting duty rule will not apply if:

A promise of increase compensation because performance has been rendered substantially more burdensome than reasonably anticipated

Common Law only

Question 5

Modification requirements under the UCC

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

Seller’s Obligation under the UCC

Answer 6

transfer and deliver the goods

Question 7

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 common carrier

Question 9

What are Non-carrier cases

Answer 9

Apply when the parties do not agree to use a common carrier

Question 10

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

Answer 10

(1) If seller is not a merchant:

Risk of loss passes to buyer upon tender of delivery

(2) If seller is a merchant:

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) Critical distinction:
(a) Shipment contract: seller promises to turn goods over to the carrier

Risk of loss passes to buyer once the goods are delivered to the carrier.

(b) Destination contract: the seller promises to tender delivery at a particular destination point

Risk of loss passes to the buyer when the goods are tendered to the destination point.

Question 12

When will Unilateral Mistake excuse performance?

Answer 12

(a) Defined: a single party operating under a faulty assumption about a material fact at formation
(b) The rule: A single party mistaken is not excused
1) Exception #1: Mistake excused if 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

Question 14

When will impossibility excuse both parties from a contract?

Answer 14

Requirement #1: The impossibility must be objective

Requirement #2: The impossibility was not known at formation

Question 15

In what circumstances are we likely to find objective impossibility?

(3)

Answer 15

Circumstance #1: Where the subject matter of the contract is destroyed

Circumstance #2: where there is a personal service contract and the performing party has died or become incapacitated

Circumstance #3: When supervening law renders performance legally impermissible

Question 16

Objective impossibility occurs: where

Answer 16

the performance is literally impossible for anyone because of circumstances beyond the control of the parties

Question 17

When will the doctrine of impracticability excuse perofrmance?

Answer 17

(a) The contingency causing the impracticability was unforeseen; and,
(b) The increase in the cost of performance is far beyond what either party anticipated

Question 18

UCC cases where impracticability has been found typically involve (3)

Answer 18

Shortages cause by war or embargo

Crop failure

Unforeseen shutdown of major sources of supply

Question 19

When will doctrine of frustration of prupose excuse performance?

Answer 19

Requirement #1: It must be parties principal purpose of entering the contract is frustrated

Requirement #2: The frustration was substantial in nature. Big frustration, total frustration

Requirement #3: The non-occurrence of the frustrating event, must have been a basic assumption

Question 20

When will Rescission exclude performance

Answer 20

both parties to a contract are mid-performance. Consideration is provided by the discharge of the other’s duties

Question 21

When will Accord & Satisfaction excuse performance

Answer 21

The parties may make an accord, which is: a contract under which the obligee promises to accept substituted performance in satisfaction of the obligor’s existing duty

When obligor performs accord, then there is satisfaction.

Question 22

When is an Accord Valid?

Answer 22

(a) where the accord involves an agreement for partial or substituted performance: the substituted performance differs significantly from the original performance or it’s obligation is doubtful à cannot be a pre-existing duty.
(b) where the accord involves an agreement for partial payment: there is a good faith or bonafide dispute about the amount owed.

Question 23

When may a contract be anticipatoryly repudiated?

Answer 23

a. a party’s definitive statement indicating it will commit a breach of contract;
b. a party’s 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, 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.
(2) The failure to respond with reasonable assurances constitutes a repudiation by the non-responding party. This can occur where the other party:
(a) Does not respond to the demand within a reasonable time (30 days under the UCC)
(b) Does not respond in a way that provides reasonable assurances

Question 26

Rights of the Aggrieved Party upon Repudiation

(3)

Answer 26

(1) The aggrieved party can cancel the contract and terminate all obligations under the contact;
(2) The party can bring an action for damages or specific performance; and,
(3) The party can ignore the repudiation and continue under the contract

Question 27

When can a repudiation no longer be retracted?

(3)

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

Express versus Implied Conditions?

Failure can excuse performance in…

Answer 28

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

Common Law contracts

Question 29

Failure of an express condition will . . .

Answer 29

discharge the party’s obligation to perform

Question 30

When do failed express conditions not discharge performance?

(3)

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 excuse a performance obligations so as to avoid a grossly disproportionate loss for a relatively minor infraction.

Question 31

Implied conditions fall into two categories

Answer 31

Material Breach

Sbustantial Performance

Question 32

When is an implied condition a material breach?

What is the effect?

Answer 32

If the breach is serious enough, performance is so bad, the court will treat the breach in the same way it would treat a failure of an express condition. This is called: material breach

• Particular application in construction contracts
• The aggrieved party is discharged from his own performance obligations

Question 33

When has the implied condition been substantially performed?

Effect?

Answer 33

If the breach is less serious, the court will treat the party’s performance as “close enough,” meaning that the party has rendered: substantial performance

The aggrieved party will not be discharged from his own performance obligations

Question 34

Five factors used to distinguish between material breach and substantial performance.

Answer 34

i) the extent to which the aggrieved party will be deprived of the benefit that she reasonably expected to receive under the contract;
ii) the extent to which the aggrieved party can adequately be compensated via damages for the defective performance;
iii) the extent to which the breaching party will suffer forfeiture if a material breach is found;
iv) the likelihood that the breaching party will cure his failure; and
v) 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 available to mitigate the consequences for the breaching party.

Answer 35

1. Divisibility of the Contract
2. Quantum Meruit

Common Law

Question 36

Performance obligations when there is a failed condition in a divisible contract.

Answer 36

The legal test for “divisibility” of the contract: The contract is easily apportioned into agreed equivalents

Excused for the divisible part that is breached but not for 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

Question 38

Quantum Meruit

Applies?

Effect?

Answer 38

Where a party failed to fulfill an express condition or is in material breach, he may still be able to recover in quantum meruit:

i) The breaching party may recover the reasonable value of the benefits conferred.
ii) However, such recovery will be reduced by the damages caused by his breach of contract.

Question 39

Failure of a 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

UCC: Seller is in breach of the contract if

Answer 40

the goods fail in any respect to conform to the contract

Question 41

What is the perfect tender rule?

Answer 41

Under the perfect tender rule, in the UCC, 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 42

Buyer’s options if UCC seller fails to make a perfect tender

(3)

Answer 42

1. Reject Goods
2. Accept Goods
3. Accept Part and Reject Part

Question 43

For a buyer to reject goods, the buyer must

…the buyer may then

If non compliant?

Answer 43

a) For a buyer to reject the goods, the buyer must: Exercise the right of rejection within a reasonable time + notify seller
b) Once a buyer rejects the goods, the buyer may: Sue for damages; unless, cure applies
c) If the buyer does not effectuate rejection in the manner specified above, then he has made a failed rejection, which:

Is a deemed acceptance of the goods by the buyer

Question 44

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

Answer 44

buyer has had a reasonable opportunity to inspect the goods + signifies acceptance through:

i) Stating to the seller that the goods conform to the contract;
ii) Taking the goods despite their nonconformance; iii) Failing to make an effective rejection; or,
iv) 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?

(2)

Answer 45

i) the buyer must:

Pay the contract price of those goods

ii) the buyer may also:

Seek damages for any non-conformity if seller is notified

Question 46

If the buyer accepts part of the seller’s goods and rejects part, the buyer can only do so in terms of

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 non-conforming tender, but time for performance remains under the contract, then the seller may cure

UCC

Question 48

What are the requirements of Seller’s right to cure?

Answer 48

i) Seller must give buyer reasonable notice; and,
ii) Seller must cure by the contract deadline

Question 49

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

Answer 49

1. Right to cure
2. Show reasonable grounds to believe delivery was acceptable
3. Proof of Reasonable grounds by seller

Question 50

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

Requirements?

Answer 50

After the deadline for performance under the contract

Two requirements:

i) Seller must give buyer seasonable notice of intention to cure;
ii) 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

evidence of:

i) express assurances to that effect from the buyer; or,
ii) trade usage, course of dealing, performance

Question 52

If an installment contracts and a non-conforming tender, there are three possibilities that the UCC deals with:

Answer 52

a) If the non-conforming tender substantially impairs the value of the whole contract: there is a breach of the whole contract and it can be canceled
b) If the non-conforming tender substantially impairs the value only of this particular installment: the buyer can reject the installment but cannot cancel the entire contract
a) If the non-conforming tender does not even substantially impair the value of this particular installment: The buyer must allow the seller the opportunity to cure