Post-Contractual Defenses

Question 1

What are the post-contractual defenses?

Answer 1

1) Mistake
2) Impracticality/ Impossibility
3) Frustration of Purpose

Question 2

Restatement 151: Mistake Defined

Answer 2

A mistake is a belief that is not in accord with the facts.

Question 3

Rest 152: When Mistake of Both Parties Makes a Contract Voidable

Answer 3

(1) Where a mistake is of both parties at the time a contract was made as to a basic assumption on which the contract was made a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of mistake.
(2) In determining whether the mistake has a material effect on the agreed exchange of performances, account is taken of any relief by way of reformation, restitution, etc.

Question 4

Rest. 153: When Mistake of One Party makes a Contract Voidable

Answer 4

Where a mistake of one party at the time a contract was made as to a basic assumption on which he made the contract has a material effect on the agreed exchange of performances that is adverse to him, the contract is voidable by him if he does not bear the risk of the mistake and

(a) the effect of the mistake is such that enforcement of the contract would be unconscionable, or
(b) the other party had reason to know of the mistake or his fault caused the mistake.

Question 5

Rest. 154: When a party Bears the Risk of a Mistake

Answer 5

A party bears the risk of a mistake when:

(a) the risk is allocated to him by agreement of the parties, or
(b) he is aware, at the time of contracting, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or
(c) the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

Question 6

What is required for a mutual or bilateral mistake?

Answer 6

1) Basic Assumption
2) Material Effect
3) No Risk Assumed

Question 7

What is required for a unilateral mistake under 153?

Answer 7

1) Basic Assumption
2) Material Effect
3) No Risk Assumed
4) One party acted unconscionability or with a reason to know of the mistake by the other party.

Question 8

What is the old rule of impossibility from Stees v. Leonard?

Answer 8

“If a man binds himself, by a positive, express contract, to do an act in itself possible, he must perform his engagement, unless prevented by the act of God, the law, or the other party to the contract. No hardship, no unforeseen hindrance, no difficulty short of absolute impossibility, will excuse him from doing what he has expressly agreed to do.”

If someone binds themselves to some action, nothing short of absolute impossibility will excuse that performance.

Question 9

Is Mutual Mistake an acceptable basis for rescission?

Answer 9

Yes, a contract may be rescinded when there is a mutual mistake of material fact which constitutes an essential part of the condition and contract.

Question 10

What is the rule about a party with only limited knowledge, but treats it as sufficient?

Answer 10

a party bears the risk of mistake when he is aware, at the time of contracting, that he has only limited knowledge with respect to the facts to which the mistake related but treats his limited knowledge as sufficient.

Question 11

What is the purpose of contract law?

Answer 11

To protect the parties expectations and interests.

Question 12

What is the required for a Mutual Mistake and the legal consequence of this?

Answer 12

Both parties have a mistaken belief in the facts.
Requires: Basic assumption, material effect, and no risk allocated.
Legal consequence: voidable by injured party.

Question 13

What is required for a unilateral mistake and the legal consequence of it?

Answer 13

One party have a belief of the facts.
Requires: Basic assumption, material effect, no risk allocated, and either: 1) unconscionability, or 2) other party knows of the mistake, or 3) other party caused the mistake.

Question 14

What is required for impracticability of performance?

Answer 14

Requires a change in circumstance from the time of contracting to current situation.

Question 15

When is a thing impracticable?

Answer 15

A thing is impossible in legal contemplation when it is not practicable; and a thing is impracticable when it can only be done at an excessive and unreasonable cost.
Performance is possible, but exceedingly burdensome.

Question 16

What is the difference between impossibility and impracticability?

Answer 16

Impossibility: Not physically possible
Impracticability: Physically possible, but exceedingly burdensome.

Question 17

Define: Supervening Impracticability

Answer 17

Some event occurring after the contract is formed which makes performance impracticable.

Question 18

Define: Existing Impracticability

Answer 18

Performance is impracticable because of something that occurred at the time of contract formation but was unknown to the parties.

Question 19

When performance depends on the continued existence of a given person or thing, when happens when that person or thing no longer exists?

Answer 19

When a contract depends on the continued existence of a person or thing there is an implied condition on the existence of that person or thing. If that ceases to exist, the performance is excused.

Question 20

What happens when performance of a contract becomes impossible without the fault of either party?

Answer 20

The performance of the contract is excused.

Question 21

What happens when the person who is required to perform a personal service becomes ill or dies?

Answer 21

A duty to perform a “personal” service is usually excused when the person required to perform suffers death or illness.

Question 22

UCC 2-613: Casualty to Identified Goods

Answer 22

A contract is avoided if goods that are required for performance of the contract suffer a casualty without the fault of either party before risk of loss passes to the buyer.

Question 23

UCC 2-615: Excuse by Failure of Presupposed Conditions

Answer 23

Provides relief when the seller’s performance has been made impractical by the occurrence of a contingency the nonoccurrence of which was a basic assumption on which the contract was made.

Question 24

UCC 2-614: Substituted Performance

Answer 24

Provides relief when the agreed method of delivery becomes commercially impracticable

Question 25

What is the three step process to determine when a thing is impossible?

Answer 25

1) A contingency - Something unexpected must have occurred.
2) The risk of unexpected occurrence must not have been allocated either by agreement or by custom.
3) Occurrence of the contingency must have rendered performance commercially impracticable.
If the act does not fulfill all three requirements then the plea of impossibility will fail.

Question 26

What is the definition of “commercially impracticable?”

Answer 26

UCC 615 requires:

1) Excessive Cost and
2) A substantially increased performance obligation.

Question 27

What happens when a sub-contractor specifically named in the contract ceases to exist?

Answer 27

If a sub-contractor is specifically named in the contract, then when they cease to exist then the contract will fail.
The source of supply listed in the contract is considered a term of the contract vs when the source is not listed, it is not a term.

Question 28

What is a force-majeure clause?

Answer 28

It will allow for excused performance under a contract for specific and defined events occurrence. Parties must specify these events to have a valid force-majeure clause.

Question 29

What can be included in a force-majeure clause?

Answer 29

Anything that is not against public policy or illegal and both parties agree to.

Question 30

Is the defense or impracticability possible when the hardship was foreseeable?

Answer 30

No, the court will disallow the defense of impracticability when the hardship was foreseeable. The party assumes the risk of a foreseeable event.

Question 31

Rest. 261: Discharge by supervening impracticability

Answer 31

Where, after a contract is made, a partys performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.

Question 32

Rest. 265: Discharge by supervening frustration

Answer 32

Where, after a contract is made, a partys principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.

Question 33

What is the most fundamental meaning of frustration of purpose?

Answer 33

Performance is possible, but utterly useless.

The reason the contract was entered into is no longer useful, so one party has no interest in the contract anymore.

Question 34

Define: Impossibility from Chase Precast v. Paonessa

Answer 34

“the parties shall be excused when performance becomes impossible from the accidental perishing of the thing without the fault of either party.”

Question 35

Define: Frustration of Purpose from Chase Precast v. Paonessa

Answer 35

“When an event neither anticipated nor caused by either party, the risk of which was not allocated by the contract, destroys the object or purpose of the contract, thus destroying the value of performance, the parties are excused from further performance.”

Question 36

Can a buyer raise a defense of impracticability or frustration of purpose?

Answer 36

No, because a buyer just has to pay. There is so few things that can get in the way of simply paying.

Question 37

What does FOB mean?

Answer 37

Free On Board. But once the goods reach the location where they stoop being FOB, they belong to the other party.

Question 38

Restatement 204: Supplying an Omitted essential term

Answer 38

When the parties to a bargain sufficiently defined to be a contract have no agreed with respect to a term which is essential to a determination of their rights and duties, a term which is reasonable in the circumstances is supplied by the court.

Question 39

What is a Half-Measure?

Answer 39

The court writes a term into a contract which provides restitution for a benefit.