Was there non-performance? Was that excused? Flashcards
non-performance - key question and 6 excuses
• If a question states that one of the parties failed to do what he agreed to do (i.e., non-performance), it is probably testing the remedies available for breach. Before moving to that issue, however, a preliminary question must be asked: Was the non-performance excused? If so, there is no breach.
• There are several excuses for non-performance:
– a. Failure of a Condition Precedent
– b. Other Party’s Breach
– c. Anticipatory Repudiation
– d. Prevention (a/k/a Failure to Cooperate or Bad Faith)
– e. Subsequent Agreement
– f. Subsequent Event
“Connie Ate Pasta Sauce On Salmon”
failure of condition precedent - general rules for express conditions not satisfied (rights of other party; how to satisfy EC)
• rule: If a condition precedent to a party’s performance has not occurred, that party’s performance is excused, but it doesn’t give you the right to sue for breach because conditions precedent are not promises/obligations
– Express conditions precedent may be satisfied only by strict compliance; that is, unless the condition occurs COMPLETELY, the duties subject to the condition are not enforceable.
»> ex) I agree to buy this house, provided that it is appraised for at least $2million
– The party whose performance is subject to a condition precedent must make a good faith attempt to satisfy the condition.
»> failure to make such an attempt will excuse the requirement of the condition precedent
»> compliance with an express condition precedent is excused if the party whose performance is subject to the condition voluntarily waives (by words or conduct) the condition.
– **note: a promise to do something that requires a (possibly risky) CP, can still qualify as consideration!
failure of condition precedent (express condition of party satisfaction - 3 rules)
• Express Condition—A Party’s Satisfaction. i.e. “your satisfaction guaranteed or your money back.”
If a contracting party’s performance is expressly conditioned on his or her “satisfaction” with the other party’s performance, the following rules apply:
– if the contract is for services that do not require personal taste or aesthetics (e.g., a contract to install a furnace), the party (whose performance is conditioned on his or her satisfaction) must act reasonably (objective test) in determining whether the other party’s performance is satisfactory; in close cases, courts will apply this objective test
– if the contract is for services that require personal taste or aesthetics (e.g. a contract with an artist or a contract with an interior decorator), the party (whose performance is conditioned on his or her satisfaction) must act in good faith (subjective test) in determining whether the other party’s performance is satisfactory
– if a third party (e.g., an architect) is to make the determination of “satisfactory” performance, the third party must act in good faith (subjective test)
failure of condition precedent (constructive conditions not satisfied - implied order of performance - 4 rules)
• Constructive Conditions (not satisfied): If the contract fails to provide for the order of performance, the following conditions are implied in law:
– if performance by one party will take time (e.g., builder in a construction contract), that party’s performance must take place prior to the other party’s performance (e.g., owner’s duty to pay)
– if performance by both parties may occur at the same time (e.g., sale of goods or real estate closing), the parties must tender simultaneously (i.e., each party’s tender is a condition precedent to the other party’s performance)
– if the contract sets a date certain for one party to perform but does not set a date for the other party to perform, the party subject to the date certain must perform first
– Unlike express conditions, constructive conditions may be satisfied by substantial compliance, unless the breach is willful (in which case strict compliance is required).
other party’s breach - UCC seller breach - (seller’s cure - 2 scenarios)
• the seller has a RIGHT to cure (upon notice that it will cure) if the time for performance has not yet expired
• the seller has an OPTION to cure if the seller is “surprised” that the buyer failed to accept the goods (e.g., because of prior course of dealing or the sale of pre-packaged goods from a reputable supplier) AND the seller can remedy the nonconformity within a reasonable time after expiration of the time for performance
»> assuming there needs to be notice here too
other party’s breach - non-goods (common law - 3 rules)
- Non-Goods. If one party is in material breach (i.e., the party has not substantially performed **distinguish from perfect tender required by UCC), the other party’s duty to perform is excused.
- **If the breach is not material, the non-breaching party must perform (i.e., pay) and then seek damages (or offset the amount of damages from final payment).
- Most courts require strict compliance if the breach is WILLFUL
other party’s breach - delay (common law)
• Delay (Common Law)
– A delay in performance will generally constitute a material breach only if it operates to significantly deprive the other party of the benefit of the contract. If time is “of the essence” and a party fails to perform on time, that party is in material breach. Under modern law, there is a presumption that time is not “of the essence,” unless the contract so states or other circumstances make the need for promptness apparent.
anticipatory repudiation - 4 rules (general rule, valid repudiation, retraction, adequate assurances)
• rule: If one party unambiguously/unequivocally declares (i.e., in a communication to the other party) that it will not perform prior to the date of performance, the other party’s performance is excused and that party has two choices:
– (1) await performance by the repudiating party for a commercially reasonable time (while suspending its own performance) – note that if you wait beyond this time, you waive damages that you reasonably could have avoided; or
– (2) treat the declaration as an immediate breach (e.g., bring suit, sell item to another buyer) even if it has notified the repudiating party that it would await performance and has urged a retraction.
- valid repudiation: It is not necessary for repudiation that performance be made literally and utterly impossible. Repudiation can result from action which reasonably indicates a rejection of the continuing obligation, including (1) a statement of intention not to perform except on conditions that go beyond the terms of the contract or (2) a sale of the goods to a third party that the seller was contractually obligated to deliver to the buyer.
- retraction: If the repudiating party retracts the repudiation before the non-repudiating party has materially changed position in reliance on the repudiation or has notified the repudiating party that the contract is terminated, the obligations of both parties are revived.
- adequate assurance: A party may demand in writing adequate assurances of future performance if that party has reasonable grounds for insecurity (e.g., something short of an anticipatory repudiation, such as credit problems). The party demanding adequate assurances may suspend its future performance until such assurances are received (which must be within a reasonable time, not to exceed 30 days). Failure to provide such assurances in a timely fashion constitutes an anticipatory repudiation.
prevention or failure to cooperate/bad faith
• If one party acts in such a way that it makes the other party’s performance impossible, the other party’s performance is excused.
– Example: On June 1, Owner entered into a contract with Contractor, requiring Contractor to remodel Owner’s kitchen for $25,000. Completion is scheduled for August 1. When Contractor has completed 50% of the job, Owner and Contractor get into an argument. After that time, Owner repeatedly refuses to let Contractor into her house, so Contractor is unable to complete the job by August 1. If Owner sues Contractor for breach of contract, what is Contractor’s best defense?
»> Prevention
other party’s breach - sale of goods (divisible contracts)
• Divisible Contracts (Common Law)
– If it is possible to apportion the parties’ performances into matching pairs that the parties treat as equivalents, a party who has performed one or more parts of the contract is entitled to collect the contract price for those parts, even if that party breaches the other parts of the contract.
– If the contract by its own terms is expressly indivisible, the court may not construe it otherwise.
subsequent agreement - novation
• Novation. All parties to the original contract (and the new third party) agree to substitute the new party for one of the original parties. In such case, the original party’s (the party who was replaced) performance is excused and the new party assumes that duty.
– **distinguish substitution from delegation (which would not be novation)
– A novation is never presumed; it must be clearly established.
subsequent agreement - accord and satisfaction
• Accord and Satisfaction. An agreement by the parties to a contract to accept a different type of performance by one party (the “accord”) and that party so performs (the “satisfaction”). The accord suspends the original performance; the satisfaction excuses the original duty.
– so essentially, the original duty is not fully excused until the new duty (accord) has been satisfied
»> **contrast with a contract modification where the original duty is immediately fully excused and the other party only has rights on the new/modified duty
– If there is no “satisfaction,” the other party may sue on the original agreement or the accord.
subsequent agreement - mutual rescission
• Mutual Rescission. An agreement by both parties to cancel the contract. A mutual rescission excuses performance only if both parties’ performances are still executory (i.e., neither party has fully performed).
**Under modern law, an oral rescission is generally valid, even if the underlying contract was subject to the SOF.
subsequent unexpected event - OBJECTIVE impossibility of seller performance; assumption of risk exception
• After the deal is executed (but before it is performed), an unexpected event occurs that renders performance by the seller of goods or real property or the provider of services:
– Objectively Impossible. No one could perform under such circumstances (e.g., (1) destruction of the subject matter – a contract to buy a particular horse, but the horse dies; (2) death or incapacity of a party in a personal services contract – a singer dies after signing a contract to star in an opera; or (3) a supervening illegality).
**note: performance must be OBJECTIVELY impossible (no one could perform), NOT merely subjectively impossible (defendant couldn’t perform)
• assumption of the risk exception: If, at the time of contracting, the parties were aware that an event was not certain to occur, that event may not be used to support a claim of impossibility or impracticability.
»> For example, if the current technology is not sufficient to meet the promises of a supplier of goods or services, the supplier will be deemed to have assumed the risk that it would not be able to develop the necessary “break through.”
subsequent unexpected event (commercial impracticability of seller performance)
– Commercially Impracticable. An unforeseen event that so drastically changes the duty of one party that it is no longer fair to make that party perform (e.g., an unexpected strike, war, outbreak of disease, shortage of raw materials, embargo). Elements:
(1) party to perform has encountered extreme and unreasonable difficulty/expense, AND
(2) the event’s nonoccurence was a basic assumption of the parties at the time of contracting
- An unforeseen event that simply makes a party’s performance more expensive is NOT sufficient to excuse performance, unless the increase in expenses is massive (e.g., a ten-fold increase) or the increase places the non-performing party on the brink of bankruptcy.
- ***If the unforeseen event is temporary in nature, the seller may only suspend performance. If the seller’s inability to perform as a result of the unforeseen event is only partial, the seller must provide pro rata performance to her customers, including regular customers who do not have any outstanding orders.
