Contracts 3 - K Performance, Excuse

Front 1

What are the laws governing contract performance?

What is the perfect tender rule in the context of performance of Ks for a sale of goods (A2)?

Back 1

(1) Common law
(2) Article II sale of goods

The perfect tender rule states that if tender (performance) is not perfect, buyer may reject the goods

Front 2

What are the rules of performance under the common law?

Back 2

(1) Performance does NOT have to be perfect--substantial performance is sufficient (substantial performance = no material breach)
(2) Finishing late is NOT a material breach UNLESS the K or circumstances indicate that time is of the essence (i.e. mercantile K where timely performance as agrees is important = unjustified delay is material breach)

Front 3

What are the general considerations for K performance under Article II?

Back 3

(1) Perfect tender rule
(2) option to cure
(3) installment K
(4) buyer acceptance
(5) buyer revocation of acceptance
(6) buyer obligation to pay

Front 4

What is the perfect tender rule and the option to cure?

Back 4

PERFECT TENDER RULE: buyer may reject goods if tender is not perfect in (1) time, (2) place, or (3) product

A seller who fails to make perfect tender may have an option to cure. It usually depends on whether time for performance has expired
(1) if time has not expired, the seller has an option to cure
(2) if time has expired, the seller does not have option to cure UNLESS prior dealings based on specific facts demonstrate that buyer had been flexible in accepting non-conforming goods in the past (if this is the case, then seller will have option to cure even if time for performance has expired)

Curing:
(1) Single delivery K: seller can cure by (10 giving reasonable notice and (2) new tender of conforming goods within time for performance (buyer must accept)
(2) Installment K: defective shipment CANNOT be rejected if defect can be cured

Front 5

What are installment K's, and what are the rules regarding rejecting installment K's?

Back 5

Definition: An installment K requires or authorizes delivery in separate installments.

Rejection:
i. Perfect Tender Rule does NOT apply to installment contracts, making buyer harder to reject – assumption is that the seller will make it right the next time
ii. Buyer may reject ONLY for SUBSTANTIAL impairment, THAT installment
iii. The whole contract is breached ONLY IF the nonconformity (1) substantially impairs the value (2) of the entire contract

Front 6

What are the rules regarding buyer's acceptance of goods?

Back 6

Distinguish from acceptance of offer: Acceptance of offer is a formation issue, here there already is a contract, and it is a Performance Issue

Implied acceptance: When buyer keeps goods after having an opportunity to inspect them (does not have to actually inspect)

Consequences of acceptance:
i. Once buyer accepts goods, (1) it’s too late to reject them, BUT (2) Buyer who accepts can still get damages against seller for breach

Front 7

What is implied acceptance of goods?

Back 7

Implied acceptance is when buyer keeps goods after have an opportunity to inspect them. Note, if there’s a long delay between receipt/complaint, look for implied acceptance. Also note that merely paying for goods is not an implied acceptance

Front 8

Can a buyer revoke acceptance of goods?

Back 8

A buyer cannot revoke acceptance of goods, EXCEPT buyer can revoke if:
i. Revocation within a reasonable time after buyer discovers defect
ii. The non-conformity substantially impairs the value of the goods, AND
iii. Was difficult to discover – it was a latent defect; wouldn’t have been obvious even if the buyer had inspected the good

Buyer responsibility for goods after rejection: hold them with (1) reasonable care and (2) to obey reasonable instructions
a) If seller gives no instructions within a reasonable time, buyer may reship, store, resell for the seller’s account, BUT cannot destroy them

Front 9

What are the consequences of a buyer's rejecting or revocation of acceptance of goods?

Back 9

1) RETURN: Buyer can return the goods to seller at seller’s expense
2) REFUND: Buyer can get back any money buyer has paid for goods.
3) DAMAGES: Buyer can get damages from seller for breach of K.

Buyer responsibility for goods after rejection: hold them with (1) reasonable care and (2) to obey reasonable instructions
a) If seller gives no instructions within a reasonable time, buyer may reship, store, resell for the seller’s account, BUT cannot destroy them

Front 10

What are the rules regarding buyer's obligation to pay?

Back 10

A check is okay, but seller can refuse it.

However, if buyer gives seller check right at deadline and seller refuses, buyer still has reasonable time to get cash although the deadline has passed

Buyer’s Right of Inspection – buyer has a right to inspect the goods BEFORE she pays UNLESS the contract indicates that the buyer has promised to pay without inspecting the goods (ex. Cash On Delivery)

Front 11

What are the later events that may provide an excuse from performance?

Back 11

(1) other party's breach
(2) anticipatory repudiation
(3) Later agreement
(4) impossibility
(5) frustration of buyer's primary purpose
(6) Failure of express condition

Front 12

When may the other party’s breach provide an excuse for non-performance under A2?

Back 12

SALE OF GOODS (A2)
a. Perfect Tender Rule - If seller’s performance of (1) a non-installment K (2) is not perfect in every respect, buyer has BOTH (3) excuse AND damages (damages require notice)
(2) Buyer's options:
i. May reject all of the goods, not just the non-conforming ones
ii. May accept all of the goods, not just the conforming ones
iii. May accept some of the goods and reject the rest
iv. Whichever option the buyer chooses, he can still get damages because the seller breached the contract by not making the perfect tender (damages require notice within reasonable time after time should have discovered)
(3) EXCEPTION: Installment K:
---Installment can be rejected ONLY IF (1) nonconformity substantially impairs value of installment and (2) cannot be cured
---Whole K breached ONLY IF nonconformity substantially impairs value of entire K

Front 13

When is there excuse due to other party's breach under common law contracts?

Back 13

-COMMON LAW Ks:
(1) Generally: (1) damages BUT (3) NO excuse for constructive conditions UNLESS material breach (no substantial performance)
---Waiving condition does NOT waive damages
---Substantial performance doctrine does NOT apply to either (1) constructive conditions, or (2) willful breach
---Lateness is not a substantial breach UNLESS (1) K or (2) circumstances indicate time is of essence.

(2) If buyer excused, seller can still recover restitution for reasonable value of work performed

(3) Divisible K: If (1) payment made on per unit basis, (2) breaching party can recover (3) K price for (4) any unit on which he has substantially performed
---if lump sum payment, substantial performance is based on the entire K

Front 14

What is anticipatory repudiation?

Back 14

Definition: Where a (1) promisor, prior to the time set for performance of her promise, (2) expressly indicates that (3) she will not perform when the time comes (not merely expression of doubt—may request adequate assurance)
---Expression of doubt is not anticipatory repudiation, only prospective inability/unwillingness to perform

Effect: same as material breach (provides excuse)

EXCEPTION: Can RETRACT anticipatory repudiation IF seller has not relied on it (i.e. taking another job)

Front 15

What is adequate assurance?

Back 15

A party with (1) reasonable grounds for being insecure about the other party’s performance (2) may request in writing adequate assurance that the other party will perform in accordance with the contract (i.e. learning from other buyers that seller's goods are defective)
---What is "adequate" depends on the facts

CANNOT use this provision to either (1) re-write K or (2) demand particular kind of assurance

Failure to give adequate assurance = requesting party can treat as anticipatory repudiation (excuse)

Front 16

What are the types of later agreements that provide for excuse of the original K?

What is a rescission?

Back 16

(1) Rescission
(2) modification
(3) accord and satisfaction
(4) novation

Rescission = An agreement to cancel the contract where (1) each party (2) must have at least SOME performance remaining (remaining performance functions as consideration)
---May be made orally UNLESS subject matter to be rescinded falls within (1) SOF or (2) sale of goods A2

Front 17

What is modification?

Back 17

a. An agreement (1) to replace an existing contract with a new one, (2) effective immediately (i.e. Helen agrees to discharge O’s debt now if O promises to mow lawn for year)

Consideration = discharge in exchange for new promise

Front 18

What is an accord and satisfaction?

Back 18

Accord – an (1) agreement to accept different performance in (2) future satisfaction of (3) an existing duty: the existing duty is extinguished only when the accord is satisfied
---Compare to modification: modification takes effect immediately, accord is satisfied in future
a) Agree to discharge debt immediately upon agreement to mow my law for a year = modification
b) Agree to discharge debt after if you mow my lawn for a year = accord and satisfaction

ii. Consideration Requires:
(1) New value greater than original consideration, OR
(2) If the value is lesser than the original consideration, will suffice IF (a) the new consideration is of a different type OR (b) the claim is to be paid to a third party
2) NOT Partial payment of an undisputed debt (will not suffice)

Front 19

What happens when an accord and satisfaction is breached?

Back 19

i. By debtor – the creditor may sue EITHER on the original undischarged contract OR for breach of the accord agreement
ii. By creditor (by bringing suit against debtor under the original contract) – the debtor may either (1) raise the accord agreement as an equitable defense and ask that the contract action be dismissed, or (2) wait until she is damages and bring an action at law for damages for breach of the accord contract

Front 20

What is a novation?

Back 20

An (1) agreement to substitute a new party for an existing one (2) requiring non-substituting party’s consent

(1) Consenting party gives up her rights against the party substituted out
(2) If no consent – this is delegation; the non-substituting party still has her rights against the other party

Front 21

What are the types of impossibility?

What is impossibility?

Back 21

(1) destruction of something necessary for performance
(2) death/incapacity of essential person
(3) supervening government regulation
(4) increase in cost of seller's performance

A later unforeseen event that makes performance impossible may provide seller w/ an excuse.

Under A2, the doctrine is call impractability

Front 22

In the context of impossibility, how does the destruction of something necessary for performance impact a party's need to perform?

Back 22

COMMON LAW: Destruction provides an excuse for non-performance
---EXCEPTION: Building K: Contractor’s duty to construct a building is not discharged by destruction of the work in progress unless the other party has assumed that risk (not impossible)
---compare to repairer, whose duties to repair are impossible if building destroyed

SALE OF GOODS (A2): Same general rule, but two “wrinkles”:
1) ROL (a seller who bore ROL when goods were damaged or destroyed is excused by impractability, but if ROL has already passed to buyer, then seller doesn’t need an excuse); and
2) UNIDENTIFIED GOODS (Seller is excused only if the goods that were damaged or destroyed had been “identified to K,” that is set aside for sale to this particular buyer)

Front 23

In the context of impossibility, when does death or incapacity provide an excuse for non-performance?

Back 23

Excuse only if death/incapacity of unique person (i.e. painter of portrait, not painter of house)

 

Liability for $ is not unique

Front 24

When does a supervening government regulation provide for impossibility?

Back 24

When the government passes a law prohibiting the performance

Front 25

When does increase in the cost of seller's performance provide an excuse for non-performance?

Back 25

-MBE: the increase in the cost of the seller’s performance almost never excuses the seller (seller assumed the risk by entering a fixed K)

-NYBE: seller may be excused. Look at (1) the dollar amount (how many more dollars will it cost seller?) and (2) the percentage increase

Front 26

What is frustration of buyer's purpose?

Back 26

Analogous to seller's impossibility: Frustration of buyer's purpose is a buyer’s excuse when:
a. Both parties knew the buyer's purpose at time of contracting
b. There is some supervening act or event leading to the frustration
c. At the time of entering into the contract, the parties did not reasonably foresee the act or event occurring, AND
d. The purpose of the contract has been completely or almost completely destroyed by this act or event

Front 27

What is a failure of an express condition, and what is required for complying with them?

Back 27

Failure of an express condition limits obligations created by other K language; it does not create an independent obligation. You should look for words like “if,” “as long as,” “when,” “provided that,” “on condition that” and “unless" (for example, buyer contracts to buy a house, provided it is appraised for at least $300,000. The house is appraised for $299,500. Thus, buyer is excused from buying the house, although he can still buy the house if he wants to).

Types:
1) Condition precedent: event occurs before a party is obligated to perform (most conditions are condition precedent; “if”)
2) Condition concurrent: runs alongside the obligation (“as long as”)
3) Condition subsequent: event cuts off obligation (“until”)
(4) Satisfaction clauses: have to pay only if buyer is "satisfied"

Strict compliance is required, otherwise other party excused
EXCEPTION for satisfaction clauses:
---measured by a reasonable person standard UNLESS K deals with art or matters of personal taste.

Front 28

When may the occurrence of an express condition be excused?

Back 28

Occurrence of a condition may be excused by the later action or inaction of the person who is protected by the condition (ID person express condition protects, then see if she did anything to forfeit that protection):

(1) Failure to cooperate (i.e. B has to buy the house if he gets the mortgage – if B makes no effort to get the mortgage, B loses protection of the condition and now is unconditionally bound to buy the house)
(2) Waiver: voluntarily giving up protection
---May retract waiver UNLESS other party has detrimentally relies (estoppel)
---Election waiver: if party continues under K after other party breaks condition or performance duty, she is deemed to have waived condition or duty