Performance_Excuse Flashcards
PERFECT TENDER RULE
In the sale of GOODS (Art. 2/UCC), what is the perfect tender rule?
NOTE: ONLY APPLIES TO SALES OF GOODS
Perfect Tender Rule =
1) If tender is NOT PERFECT, buyer may…
2) reject some OR all goods; BUT…
3) a seller who has failed to make perfect tender MAY have an option to cureIF…
(i) the time to perform has NOT expired (e.g. if
seller tenders imperfectly EARLY, then he’d have
opp to cure); OR
(ii) past CONDUCT shows that buyer is flexible in
taking imperfect goods (narrowly applied)
→ REJECTION OF GOODS:
1) A less than perfect tender generally gives the buyer the option to reject goods if buyer acting in good faith; BUT
2) Buyer must take reasonable care of goods and discontinue any use; AND
3) Rejection is not limited by a concept of
(i) Cure;
(ii) Installment Ks; or
(iii) Acceptance
→ Perfect Tender Rule does NOT apply to installment Ks (where K requires or authorizes delivery in separate installments), so buyer CANNOT readily REJECT an installment
→ INSTALLMENT K Rejection: buyer may ONLY reject an installment for substantial impairment (i.e. a MAJOR fuckup) (Note that an installment K is delivery of goods in separate lots to be separately accepted. This is different from entering into a single K and paying for the goods in installments!)
Consequences of IMPERFECT TENDER: can
(i) return for refund; AND
(ii) get any damages
What is the substantial performancerule (under common law) AND how does it relate to excuse AND damages?
Substantial performance: Under the common law, performance DOESN’T have to be perfect; if there issubstantial performance then any breach is NOT material
Normally finishing late is NOT a material breach UNLESS the K or circumstances indicate that “time is of the essence”
Excuse: ONLY amaterial breach(insubstantial performance) provides an EXCUSE (non-breaching party doesn’t have to perform) IF it’s animmaterialbreach, non-breaching party MUST STILL performand then sue for damages
Damages to non-breaching party: the injured party can recover damages for ANY breach of K (whether it’s material or not)
Breaching party recovery: If material breach leads to excuse, the breaching party can recover the reasonable value any benefit conferred thru RESTITUTION
Divisible K: where pmt is to be made on PER UNIT basis, the breaching party can recover the K price for any unit for which he substantially performed
ANTICIPATORY REPUDIATION
What is anticipatory repudiation AND how does it provide an excuse?
Anticipatory repudiation (AR)occurs IF a promisor, prior to the time set for performance, indicates (unambiguously/unequivocally)that he will NOT perform when the time comes
AR is a MATERIAL BREACH and serves as an excuse for the non-breaching party to end performance
AR generally gives rise to an IMMEDIATE CLAIM for damages for breach unless the claimant has already finished performance
→ NOTE: in that case the claimant must wait until the K deadline before claiming damages
RETRACTION: A breaching party CAN retract a repudiation AS LONG AS the there has not been a material change in the position of the non-breaching party (e.g. she didn’t RELY on that AR in trying to cover)
→ NOTE: After Retraction of Repudiation the duty to perform by non repudiating party is reinstated but it can be delayed until adequate assurance is provided
Excuse for INSECURITY AND ADEQUATE ASSURANCE
What is adequate assuranceAND how can it provide an excuse?
Note: NY Distinction
Effect of INSECURITY:
If the words or conduct of a party give “reasonable grounds” for insecurity then that party can:
(i) IN WRITING demand adequate assurance; AND
(ii) can SUSPEND performance until adequate assurance is received (IF COMMERCIALLY FEASIBLE)
ADEQUATE ASSURANCE:
a party with reasonable grounds for being insecure about the OTHER party’s performance may request in WRITING adequate assurance that the other party will perform in accordance w/ the K
If the OTHER party fails to provide adequate assurances that performance will be forthcoming, the innocent party CAN treat the lack of response as a REPUDIATION and is EXCUSED from performance
Retraction of repudiation by violating party is possible IF communicated to the innocent party
NOTE: NY DISTINCTION
Generally limited to the SALE of GOODS BUT also has been used in a COMPLEX LONG TERM COMMERCIAL CONTRACT
RESCISSION
MODIFICATION
ACCORD & SATISFACTION
NOVATION
What are the 4 forms of later agmts that will excuse performance?
1) RESCISSION:
An agmt by BOTH sides to cancel the K, which COMPLETELY excuses performance on the original K by either side
→ NOTE: for a rescission to be effective, EACH party MUST have at least SOME performance remaining (to provide consideration)
2) MODIFICATION:
An agmt to replace an existing K with a NEW ONE; modification takes place immediately
→ NOTE: BAR EXAM TIP: If you see the words “instead of” think modification
3) ACCORD and SATISFACTION:
→ An ACCORD is an agmt to accept performance in FUTURE satisfaction on an existing duty
→ SATISFACTION is performance of the accord (e.g. Parties agree that if X mows Ys lawn for a year, THEN X’s debt to Y will be discharged)
→ NOTE: Modification vs. accord/satisfaction: the difference is WHEN the new agmt takes effect
IMMEDIATE EFFECT FOR CHANGE = Modification
FUTURE EFFECT FOR CHANGE = Accord & Satisfaction
Accord, like a modification, req’s consideration (but it may be of lesser value than the original value SO LONG AS it’s a different obligation)
Accord DOESN’T make the underlying obligation of original K go away; it just “suspends it” until a satisfaction
The existing duty is extinguished ONLY WHEN the accord is satisfied
A breach of an accord = can sue on EITHER original K OR the accord
4) NOVATION:
An agmt to substitute a NEW party for an EXISTING party
→ NOTE: If the NEW party doesn’t perform, CAN’T sue the old party (as they were excused)
NOTE: Cf.
DELEGATION OF DUTIES:
1) ONLY one of the existing parties agrees w/ a 3d party to take his place
2) REPLACED party can STILL be sued for non performance
VERSUS
NOVATION WHICH REQUIRES:
1) BOTH parties to the original K must agree to the NOVATION
2) The person excused no longer has K libility
IMPOSSIBILITY / IMPRACTICABILITY
What is impossibility (impracticability)AND how can it provide an excuse to performance?
NOTE: NY Distinction
3 STEPS FOR THE ANALYSIS
1) Which Party is arguing that her performance is excused?
2) What is her performance?
3) Did a post-contract occurrence affect her ability to perform and NOT JUST the cost of her performance?
IMPOSSIBILITY = a later UNFORSEEN event that makes performance IMPOSSIBLE may provide an excuse (i.e. the K is discharged)
→ NOTE: Under Art. 2/UCC, known as impracticability
3 ways impossibility may provide excuse…
1) DAMAGE/DESTRUCTION of something NECESSARY for performance
→ NOTE: Common law: destruction PROVIDES an excuse for non-performance
→ NOTE: Sale of goods (Art. 2/UCC): A SELLER(NOT the buyer) can be excused from performance ONLY IF:
(i) the seller bore the RoL; AND
(ii) the goods that were damaged/destroyed had been “identified in the K” (i.e. they were not fungible)
→ IF BUYER BORE RoL then Buyer still PAYS
2) DEATH/INCAPACITY
Generally NOT excusable BUT the DEATH/INCAPACITY of an ESSENTIAL person excuses performance (not just any person, but a “star employee”)
→ NOTE: If the duty is delegable to a 3d party OR the incapacity is TEMPORARY, then it is NOT excused
3) Supervening GOVERNMENTAL regulation
Excusable K…BUT regulation leading to an increase in the COST of the seller’s performance usually NOT excusable
Excused if performance of K become illegal – IMPOSSIBILITY
NY DISTINCTION: there is more FLEXIBILITY for increases in costs depending on the absolute amt of increase and the % increase
FRUSTRATION OF PRIMARY PURPOSE
What is frustration of primary purposeAND how can it provide an excuse to performance?
FRUSTRATION OF PRIMARY PURPOSE exists IF at time of K:
(i) BOTH parties know a specific purpose for K, which is
(ii) then (unexpectedly)frustrated
This EXCUSESperformance (e.g. rent apt to see parade which is then cancelled) even though performance is STILL possible
EXCUSE b/c of NON PERFORMANCE OF EXPRESS TERM
What is anexpress conditionAND how can it provide an excuse to performance?
An express condition limits the obligation created by OTHER K language (does NOT create an independent obligation)
STRICT COMPLIANCE with explicit condition is mandated, OTHERWISE performing party would have an EXCUSE (e.g. X Ks to buy a house,provided that it appraises for at least $1mm; if it appraises for $900k, X has an EXCUSE not a breach)
Two types:
(i) CONDITION PRECEDENT: Performance is excused UNTIL and UNLESS the condition occurs (e.g. X agrees to do a certain act IF a condition is satisfied);
(ii) CONDITION SUBSEQUENT: Condition that occurs after the start of performance that excuses (further) performance when it occurs (e.g. X agrees to provide a certain service UNTIL a condition is satisfied)
Key words:“if”; “provided”; “on condition that”; “so long as”; “unless”; “when”; “until”
Satisfaction of clauses:
→ STRICT COMPLIANCE is required for “satisfaction” of a condition when there is language of an express condition (sometimes not followed by cts if a party would be excessively hurt (e.g. copper Reading pipes)
→ A condition of personal “Satisfaction” is based on a REASONABLE person (objective), UNLESS the K involves artOR matters of personal taste where subjective std is allowed
Excusing a Condition:
occurrence of a condition may be excused by
(i) the later action; OR (ii) inaction of the person who is protected by the condition
OR
Waiver: by the protectee
Identify the person who is protected by the express condition AND see if they did anything to forfeit that protection, LIKE…
Failure to cooperate: if the protectee does NOT cooperate in good faith, then the condition may be waived (e.g. good faith effort to obtain a mortgage in a house sale)
PAROL EVIDENCE AND CONDITIONS:
Express conditions are based on the words of the parties which are usually in a written contract BUT the courts will consider evidence that such an agreement was agreed to orally notwithstanding parol evidence rules
ACCEPTANCE OF THE GOODS
What are 3 testable issues pertaining to acceptance?
ACCEPTANCE OF GOODS: Acceptance can be for some OR all goods
1) NO REJECTION: Once there is an ACCEPTANCE of the goods (expressly or impliedly), there CANNOT be a rejection of the goods (but buyer can STILL get damages for breach)
Generally an acceptance CANNOT be revoked UNLESS…the non-conformity(i) substantially impairs the value of the goods; AND (ii) the non-conformity was DIFFICULT to discover (i.e. it was a latent defect)
2) “IMPLIED ACCEPTANCE” = the buyer KEEPS the goods AFTER having an opportunity to inspect the goods
* **(BAR EXAM TIP: look for long delay b/t receipt and complaint…MAY be implied acceptance)
3) CONSEQUENCES OF ACCEPTANCE: (i) obligation to pay seller; AND (ii) can seek damages
Note: A check is generally OK, but the seller CAN refuse it [NOTE: if check is refused, the buyer would have reasonable time to get cash if tender is at the deadline]
REVOCATION OF ACCEPTANCE OF GOODS
What effect does a revocation of acceptance have and what is required to revoke an acceptance?
EFFECT OF REVOCATION OF ACCEPTANCE:
→ The effect of revocation of acceptance IS THE SAME AS that for rejection of the goods
→ NOTE: In general, a buyer CANNOT reject goods after it has accepted them. BUT in LIMITED CIRCUMSTANCES a buyer can effect a cancellation of the contract by revoking its acceptance of the goods
REQUIREMENTS FOR REVOCATION OF ACCEPTANCE:
The following must be met to revoke an acceptance of goods:
1) the NONCONFORMITY SUBSTANTIALLY IMPAIRS the value of the goods; AND
2) their is an EXCUSABLE IGNORANCE or GROUNDS FOR REVOCATION or REASONABLE RELIANCE on SELLER’S ASSURANCE of SATISFACTION; AND
3) REVOCATION is WITHIN a REASONABLE TIME after discovery of the nonconformity.
REJECTION OF GOODS
REVOCATION OF GOODS
***Guaranteed Bar Exam Question: Question will present... (i) a sale of goods... (ii) where the buyer has the goods.. (iii) and the buyer wants to give the goods back
Q: Can the buyer reject the goods?
Q: Can the buyer revoke the goods?
COMPARISON:
REJECTION of GOODS versus REVOCATION of GOODS
REJECTION of GOODS
TIMING: Early (before acceptance)
STANDARD: Perfect Tender Standard (generally)
REVOCATION of GOODS
TIMING: Later (after acceptance)
STANDARD: Substantial Impairment Standard
BOTH
OTHER REQUIREMENTS:
(i) Seasonably notify seller
(ii) Hold the goods for seller
(iii) Follow reasonable seller instructions
CONSEQUENCES:
(i) Goods go back to seller
(ii) No buyer payment obligation
EXCUSE B/C OF NON PERFORMANCE BY OTHER PARTY
If the other party does not perform under the contract than the party that was ready to perform is excused
(e.g. P was contracted to paint O’s house but is a no-show. O is excused from performing (paying O))
EXCUSE B/C OF IMPROPER PERFORMANCE
(Common Law Rule)
Note: UCC version of this rule is the PERFECT TENDER Rule
Common Law and Material Breach Rule:
1) Damages can be recovered for any breach
2) Only a material breach by one party excuses the other party from performing under the contract (common law)
3) Whether a breach is material is a fact question
4) If there is substantial performance than the breach is not material
Material breach based on the QUALITY of performance
e.g. painting a house purple versus wrong shade of white used in painting the closet ($25 fix)
Material breach based on the QUANTITY Term
material = performance of an amount clearly less than 50%
Divisible K: where pmt is to be made on PER UNIT basis, the breaching party can recover the K price for any unit for which he substantially performed
