Contracts Outline Brief

7/31/2019 Contracts Outline Brief

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Contracts Outline-Brief 3/5/2011 3:19:00 PM

A. Law of Conditionsa. Covenant

i. Promise in a Kb. Condition

i. Act or event, other than lapse of time, which must occur before aparticular performance is due.

ii. Purpose:1. Used to know which party has to act first

iii. Reason1. Using condition to shift risk.

B. Distinction Between Conditions and Promisesa. Importance of Distinctionb. Can a condition be a covenant?

i. Yesc. Are all conditions covenants?

i. No, because sometimes there are conditionsii. Ex: extra credit fact pattern

1. Death is a condition for payment, but not a promised. The act can be both a condition and a promise, but the fact that an act is a

condition does not make it by itself also a promise.

e. Important because of breachi. Covenant can be breached

ii. Condition cannot be breached1. If not

a. Met,b. Excused, orc. Waived

2. Then the promise that it modified does not maturea. For express conditions

i. Remember strict complianceii. If covenant is an express condition, immaterial does

not cut it because of strict compliance

1. Ex: promissory noteiii. If covenant, but not strictly complied with, can

argue for material breach

f. Make a promise or modifying some sort of liability?


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i. If its ambiguous if its a covenant or condition, go with covenant 1. Because the punishment for not meeting a condition is so severe, if

want to make something conditional, then make it absolutely clear

to other party that your promise will not mature until this condition

is met, if it is not clear, then we will call it a covenant, because youcan argue immaterial breach and then the covenant is met, liable

fore the breach, still met the covenant and dont have an issue.

g. Rule for distinguishing promises from conditionsi. Intent of parties

1. If, on condition that, provided that, unlessa. Intends a condition

2. I covenant that, I stipulate that, or I promise thata. Intent to make an event a duty rather than a condition

3. Actions of parties and circumstancesii. Interpretation as promise preferred: i

1. Interpretation is preferred which makes a term a promise creating aduty on the obligee that an event occur rather than a condition of

the obligors own duty, iffulfillment of the term is within the

obligees control.

a. Unilateral contracti. Insurance policies

1. Insured will never be found to have made apromise

2. Clause to put duty on the insured (to giveprompt notice of claim)

a. Interpreted as a condition upon theinsurance companys duty to make

payment

b. Rationale:i. If a partys performance of an act is treated as

condition to anothers duty, a non-performance of

that act completely discharges the latter from her

obligation.

ii. A party who breaches a promise, is liable only forwhatever damages he causes by the breach.

c. Ex: Jacob & Young Case


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i. Court found promise not a conditiond. Express language of condition as implied promise:

i. Ex:Defendant promises to purchase Plaintiffslaundry business; the sale is made conditional upon

Defendants obtaining a satisfactory lease fromthe owner of the building. Defendant fails to

bargain at all with the landlord, and claims that the

existing lease is unsatisfactory, thus discharging

him from his duty of purchase.

1. The conditioning of the contract onDefendants securing a satisfactory lease put

an implied obligation on him to use his best

efforts to obtain a satisfactory lease.

2. Failure to perform this implied dutyconstituted breach of the contract by

defendant.

C. Conditions Classified bya. Their impact upon a state of present liabilityb. Every condition modifies a promisec. Impact (Time):

i. Condition Precedent1. Act or event must occur before a duty to perform a contractual

promise arises.

2. This condition is a cp of this condition and this condition is a cp ofthat condition

3. Procedure: determines which party bears the burden of proofa. A party to whom a duty is owed must prove the occurrence

of all conditions precedent to that duty in order to compel

the party owing that duty to perform, or to show that the

latter has breached by not performing.

4. CP to enter into a K v. CP within a Ka. CP to enter into a K

i. You dont have to do anything to cause thatcondition to be met

1. Ex:


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a. Non-cooperation and wrongfulpreventiondoes not apply

ii. Condition Concurrent1. Parties agree to exchange performances at the same time.2. Contracts for the sale of goods and conveyance of land3. Ex: mortgages, sale of goods4. Ex: promise for performance, then payment

a. Performance is condition precedent to paymentb. So if you do not pay and condition not met = not breach

5. Ex: performance by each can be done at the same timea. A promises to deliver his car to B on a certain date, at

which time B is to pay for the car.

i. Delivery and payment are concurrent conditionsbecause their performance is rendered

simultaneously.

ii. Each persons performance is a condition precedentto the other persons duty.

iii. Unless A shows up with the car, B does not have topay.

iv. Unless B pays, A does not have to give up the car.iii. Condition Subsequent

1. Act or event that discharges a duty of performance that has alreadyarisen

2. already acting on the obligation, but if this, something, happens,you dont have to do thisK comes to an end

3. The obligation has already matured.4. Always expressed5. Procedure: determine which party bears the burden of proof

a. If the duty is subject to a condition subsequent, it is theparty owing the duty who must bear the burden of proving

that the condition has occurred and discharged him.

6. Ex: assignment clauses, insurance suitsa. suit on an insurance claim must be brought within a certain

time, or the claim is discharged

iv. Second Restatement


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1. Where there is doubt as to whether an event is a condition or anevent of discharge, it is to be treated as a condition.

D. Express Conditionsa. Created by agreements of the parties and must be strictly performed before the

other persons duty of performance arises; express because its in the K. b. Strict Compliance

i. Avoidance of Forfeiture1. A forfeiture would occur when one party has relied on the bargain

(either by preparing to perform or by actually making part

performance), and insistence on strict compliance with the

condition would cause him to fail to receive the expected benefits.

2. Defective performancea. One partys duty is made expressly conditional on the

performance of some act by the other, and latters

performance-deviating-confers a benefit on the former.

b. Condition is met by substantial performance because, ifnot, extreme hardship to the party who has defectively

performed will result.

c. Ex: Jacob & Youngs v. Kent3. Excuse of condition

a. Fulfillment of the condition is excused when extremeforfeiture would occur.

i. Liability insurance casesii. Policyholder fails to give prompt notice, which the

policy says is a condition to the insurers duty to

defend and pay.

4. Prejudice must not result from excuse5. Anti-forfeiture statutes

a. Allows the courts to relieve a party of a forfeiture, if hemakes full compensation to the other party, and has not

been grossly negligent, willful or in fraudulent breach

ii. Interpreted in Light of Parties Intentions1. If because of the circumstances surrounding the case, parole

evidence, industry custom, or anything else, it appears that the

parties did not intend to impose a strict express condition, this will


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not be done despite contractual language that appears to contain

such a condition.

a. Contrary interpretationc. Satisfaction of a Party

i. Subjective vs. objective: when there is doubt to which standard thesatisfaction clause implies, the court usually presumes that an objective

standard of reasonable satisfaction was meant.

1. Contracts as to which objective test used:a. Performance of K relates to mechanical fitness, utility, or

marketability, as in a building contract, sales of goods.

2. Contracts as to which subjective test used:a. Object of the K is to please the tastes or convenience of a

person where there is no real objective standard

b. Portraits, clothing, artistic performance, special foods ordrink, interior decoration

ii. Subjective Satisfaction1. Good faith test:the partys dissatisfaction must be in good faith

a. Evidence of unreasonableness:i. Some courts allow testimony as to the

unreasonableness of the expressed dissatisfaction as

supportive, though not conclusive, evidence of bad

faith by the obligor.

d. Satisfaction of a Third Party (subjective): duty of performance of a party to acontract may be expressly conditioned on the satisfaction of an independent third

party.

i. Usually an architect or professionalii. Architects Certificate:

1. Ex: Builder obtain from the owners architect a certificate statingthat the specifications have been complied with; final payment by

the owner is typically made conditional on the issuance of such a

certificate.

iii. Good Faith Required:1. Proof of dishonesty, fraud, and collusion with the obligor, or bad

faith will excuse the condition.

iv. Reasonableness:


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1. An unreasonable, refusal to express satisfaction by the outsidethird party is not an excuse for failure of the condition.

a. Quasi-contract recovery:i. A person who has failed to obtain the requisite

approval will often be able to recover the value ofhis performance in quasi-contract.

e. Demand as a Condition:i. One party agrees to render a performance whenever the other party

demands it. Making of the demand is a condition to any right of

enforcement of the contract.

1. Importance:a. Statute of limitations on the obligation begins to run only at

the time demand for its performance is made.

f. Ex:Contractor agrees to paint Owners house. The contract says that Owner willpay Contractor the agreed-upon amount, $5,000, within 10 days after satisfactory

completion of the work.

i. Satisfactory completion of the work by Contractor is an express conditionto Owners duty.implied in fact express condition

1. Court would reason that the parties intended to provide thatOwners payment duty would not fall due until 10 days after

satisfactory completion.

g. Ex: Inman v. Clyde Hall Drilling Co.h. Ex: promissory note

i. Article 31. Negotiable Promissory Note

a. If you have a negotiable promissory note, it can be sold to asubsequent purchaser who then can be a holder in due

course

i. Could pay twice, buyerii. Not a condition, but a covenant

iii. Payee wants because know in better position ofconfidence to be paid

2. Non-negotiable Promissory Notea. Never create a holder in due courseb. Can sell, but new buyer does not get all rights


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c. Buyer could defend that he already paid the note or alsopresent other defenses

d. Maker of note wants thisE. Constructive Conditions

a. Use of constructive conditions in bilateral contractsi. Each partys performance conditional on others

b. Order of performancei. Periodic payments or other alternating performances

1. Materiality difficult to determineii. Where no order of performance agreed upon

1. Where only one partys work requires period of timea. Servicesb. Wage earners

2. Simultaneous performancesa. Rationale

i. Maximum party protectionavoids risk ofperforming and the other party breach

ii. Avoids burden on either party to finance the otherparty until performance

b. UCC Rulei. 2-507 (1)

1. tender of delivery is a condition to thebuyers duty to accept the goods and, unless

otherwise agreed, to his duty to pay them.

ii. 2-511 (1)1. unless otherwise agreed tender of payment is

a condition to the sellers duty to tender and

complete any delivery.

c. Meaning of a tenderi. Performs, or

ii. Offers to perform with a present ability to do soiii. UCC: 2-503 (1)

1. If seller holds goods at buyers dispositionand gives the buyer any notification

reasonably necessary to enable him to take

delivery.


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iv. If both parties dont tender, then neither partybreached.

c. Independent vs. Dependent Promisesi. Independent promises: not treated as constructive conditions and

failure to perform one does not excuse performance of another

1. Insurance policiesa. Express conditions

2. Real estate leasesii. Dependent presumed

d. Divisible Contracts: treated as a series of separate contractsi. Test for divisibility

1. Construction contracts2. Service contracts3. Principle of fairness: to the non-breaching party

a. Value to other party4. UCC approach: discourages divisibility unless parties agree: 2-307

a. Where installments permittedi. 2-612 (2)

1. buyer can reject a defective installment ifthe defect substantially impairs the value of

that installment.

ii. 2-612 (3)1. buyer can treat a defective installment or a

default in making an installment as a total

breach if the defect or default substantially

impairs the value of the whole contract.

iii. Look for substantial conformityiv. As long as seller gives buyer adequate assurance

of cure, then buyer must accept it

1. pro-contract theorya. need to cooperate with each other

v. Can you repudiate the entire contract?1. Only if the matter is serious enough to

breach the whole contract

a. Ex: Building a machine and you areselling me the parts


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i. Last part you cannot give me,cannot get if from someone

else

ii. Now I can repudiate thecontract

F. Substantial Performancea. Doctrine of Substantial Performance

i. Relation to material breach1. If a party has materially breached her duty under a contract, she

has not substantially performed her obligation, and the other party

is discharged.

ii. Consequences of non-material breach1. Can still recover damages2. Other party has to perform

b. Suspension Followed by Dischargei. If party fails to substantially perform, but defects can be easily cured,

other partys duty to give a return performance is suspended

1. Defaulting party has a chance to cure his defective performanceii. If the defect is so substantial that it cannot be cured within a reasonable

time, or if the defaulter fails to take advantage of a chance to cure, the

other party is then discharged from any duty to perform, and he may also

sue for breach of contract.

c. Factors Determining Whether a Breach is Materiali. Deprivation of expected benefit: by the non-breaching party

ii. Adequacy of compensation for lossiii. Part performance: the greater the part of the performance, which has

been rendered by the breaching party, the less likely it is that a breach will

be deemed material.

1. Rationale: the more a breaching party has done on a contract, thegreater will be the resultant forfeiture if recovery is denied because

she has materially breached.

2. Breach at the outset: highly likely to be deemed materiala. Breaching party will suffer no forfeitureb. A buyer has the right to reject a sellers goods for small

defects, since the seller can resell the goods, no forfeiture is

usually involved


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iv. Likelihood of cure of breach: less likely to be deemed materialv. Willfulness of breach: more likely to be deemed material

1. Trivial defects still alloweda. Ex: Reading pipe case

vi. Delay in performance: material if it significantly deprives the other partyof the benefit of the contract

1. Time not necessarily of essence2. Express conditions3. Suspension

a. Even if breaching party cures, he is still liable for damages4. Substitute arrangements

d. Material Breach in Contracts for the Sale of Goods: perfect tender rulei. UCC provision

1. 2-601a. As long as the contract does not involve installments,

unless otherwise agreed, if the goods or the tender of

delivery fail in any respect to conform to the contract, the

buyer may

i. reject the whole;ii. accept the whole; or

iii. accept any commercial unit or units and reject therest

ii. Perfect tender rule (2-601)1. Buyer gives back the goods to the seller and is completely

discharged from the contract

2. Rule not strictly applied: must be substantial defect?3. Rationales used by courts

a. Trade usage, course of performance, course of dealingb. Mechanics for rejectionc. Seller has the right to cure the defect

4. Commercial unit?a. Depends on the circumstancesb. Ex: bottle of wine, crate of wine

i. can seller turn around and sell that1. 8 in a crate, can the seller sell only 6 if the

two bottles were broken, commercial unit is


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the crate and of 8 but have 6, seller can

reject.

5. Exceptionsa. Law does not notice small defects: de minimus non curet

lexi. Not bind to perfect tender rule

1. Ex: order 100 shoes but get 98, smalldeviation and should enforce the contract

a. look to intended use of shoesiii. Installment Contracts

1. 2-612(2)a. the buyer may reject any installment which is non-

conforming if the non-conformity substantially impairs the

value of that installment and cannot be cured.

2. Application of this test3. Cancellation of whole contract

a. 2-612(3)i. non-conformity of one installment gives the buyer

the right to reject subsequent installments and

cancel the contract if the non-conformity of the one

installment substantially impairs the value of the

whole contract.

b. Factors to be consideredi. Later installments are valueless without a cure of

the defective installment

ii. Defective installment cannot be curediii. Shaken faith doctrine

1. Defect in the early installment may give hebuyer reasonable fears that the seller will not

adequately perform on the later installments

iv. Mechanics of rejection1. Time for rejection

a. 2-602(2)i. rejection of goods must be within a reasonable time

after their delivery or tender. It is ineffective unless

the buyer seasonably notifies the seller.


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2. Must not be preceded by acceptancea. 2-606(1)

i. after a reasonable opportunity to inspect the goodsthe buyer signifies to the seller that the goods are

conforming or that he will take or retain them inspite of their nonconformity; or

ii. the buyer fails to make a timely rejection, but suchacceptance does not occur until the buyer has had a

reasonable opportunity to inspect the goods; or

iii. thebuyer does any act inconsistent with the sellersownership; but if such act is wrongful as against the

seller it is an acceptance only if ratified by him.

v. Revocation of acceptance: result is the same as if buyer had neveraccepted, and had instead properly rejected the goods

1. When revocation is alloweda. 2-608 (1)

i. If she accepted the goods on the reasonableassumption that their nonconformity would be cured

and it has not been seasonably cured; or

ii. If she accepted the goods without discovering theirnonconformity and if her acceptance was

reasonably induced either by the difficulty ofdiscovery before acceptance or by the sellers

assurances.

2. Limitationsa. Buyer must show a defect and that this defect is of

significance to the particular use to which she wanted to put

the goods

3. Timeliness of revocationa. 2-608 (2)

i. revocation must occur within a reasonable time atethe buyer discovers or should have discovered the

ground for it and before any substantial change in

condition of the goods which is not caused by their

own defects. It is not effective until the buyer

notifies the seller of it.


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4. Revocation vs. rejectiona. Period of time within which a buyer who has not accepted

the goods is longer

b. Buyer who seeks to revoke must make a stronger showingof nonconformity

i. Revoke: party must show that the goodsubstantially impairs the value of the contract to

him

ii. Reject: party must show the goods failed toconform in any respect

vi. Cure: seller has a right to cure limiting buyers right to reject and revokean acceptance

1. Statutory provisiona. 2-508 (1)

i. Where any tender or delivery by the seller isrejected because nonconforming and the time for

performance has not yet expired, the seller may

seasonably notify the buyer of his intention to cure

and may then within the contract time (reasonable)

make a conforming delivery.

2. Beyond contract timea. 2-508 (2)

i. If the seller reasonably thought that either:1. The goods, though nonconforming, would

be acceptable to the buyer; or

2. The buyer would be satisfied with a moneyallowance

ii. The seller gets additional time to cure after the timeunder the contract has passed.

iii. Ex: Bartus v. Riccardi, hearing aid case3. Effectiveness of cure4. Defense to 2-508

a. Shaken Faith Rulevii. Buyers obligation after rejection or revocation

1. 2-602 (2) (b)


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a. Buyer holds them with reasonable care at the sellersdisposition for a time sufficient to permit the seller to

remove them

2. 2-603 (1)a. Buyer must obey any reasonable instructions received from

the seller with respect to the goods and in the absence of

such instructions make reasonable efforts to sell them for

the sellers account if they are perishable or threaten to

decline in value speedily, if all three conditions are met:

i. The seller has no agent or place of business at themarket of rejection

ii. The buyer is a merchant (one who deals in goods ofthat kind; and

iii. The goods are in the buyers possession or control3. Reimbursement of buyer

a. 2-603 (2)i. Buyer can take his expenses out of any proceeds he

receives

viii. Other remedies after rejection or revocation1. Cover: 2-712

a. Contract priceprice paid to third person2. Contract-market differential

a. If the buyer does not cover, he may recover the differencebetween the contract price and the market price at the time

when the buyer learned of the breach (2-713(1)).

3. Incidental and consequential damagesa. Storing, selling, or returning rejected goods, and in

procuring substitute goods

b. 2-714 and 2-715G. Excuse of Conditions

a. Some circumstances in which the non-occurrence of a condition is excused, andthe party who benefitted from the condition is obliged to perform

b. Hindrance or wrongful preventioni. Intent of parties controls


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1. If the court finds that one party assumed the risk that the othermight act in such a way as to make the occurrence of a condition

more difficult or impossible, that condition will not be excused

2. Risk that other party will buy up suppliesa. A party who contracts to sell such commodities is usually

held to bear the risk that the market price will go up,

including the risk that it will go up due to purchases made

by the other party

b. Sole source of supplyi. If P knew not only that D had counted on buying

the rails from the same third person but that

alternative sources of supply would not be

available, D would probably have won the case.

3. More difficult but not impossiblea. If one partys actions dramatically raised the others cost of

performance (by causing the market price of contracted for

goods soar), this would probably be treated as excusing the

condition, even though the others performance is not

rendered literally impossible.

ii. Implied promise of cooperation1. Failure to cooperate is a breach, and if it is material, it relieves the

other party from performing and entitles him to damages.

iii. Duty of good faithc. Intent to forego the benefit of the condition (waiver)

i. Timing1. Before, or at the same time as, the contract is executed;2. After the contract is executed, but before the non-occurrence of the

condition occurs; and

3. After the non-occurrence of the conditionii. Waiver before or contemporaneous with the contract: standard form

contract and parties agree that strict compliance with some of its

conditions will not be insisted upon.

1. Parol evidencea. Prevents the introduction of evidence about oral statements

made before or at the same time as a written contract is


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executed, which contradicts the terms of that written

contract.

b. Most courts permit proof that a party has orally agreed notto insist upon a certain condition, if the other party can

show that he changed his position in reliance on thepromise.

iii. Waiver after contract: in effect modified the contract, consideration forthe waiver would normally be required. However, the courts have not

required consideration in at least several situations:

1. Condition not material part of the bargain: waiver of thecondition is still binding on the party, even without consideration

2. Promissory estoppel: waiver of condition is binding if it inducesthe other party to change his position in reliance on the waiver.

3. UCC: 2-209 (1): an agreement modifying a contract needs noconsideration to be binding.

a. Statute of fraudsi. Modification must be in writing for goods over

$500

ii. If SOF not met, (modification is oral and contract ismore than $500), 2-209 (4) states that attempts at

modification may operate as a waiver

1. 2-209 (5)a. a waiver may be retracted unless the

retraction would be unjust in view of

a material change of position in

reliance on the waiver.

4. Retraction of waivera. If there has been no consideration given for the waiver, and

the party receiving the benefit of the waiver has not

detrimentally relied on it, retraction of the waiver may

reinstate the condition.

iv. Waiver after non-occurrence1. May not be retracted2. Not binding by consideration or detrimental reliance3. Party whom the condition was intended to benefit may choose to

ignore the non-occurrence and continue with his performance


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4. Implied waivera. Continuation of performance by the person who would

have been benefitted by the condition

b. Acceptance of benefits under the contract by that person5. Continuation of performance

a. Strictly construedi. Party must voluntarily continue to perform, with

knowledge that such performance is not required

given the non-occurrence of the condition

ii. A party cannot refrain from cancelling the contractbecause he is waiting for the other party to attempt

to satisfy the condition, this does not give rise to a

waiver

6. Acceptance: party retains benefits under the contract after learningof the non-occurrence of the condition constitutes a waiver of this

condition2-606 (1)

a. If the benefits received are for payment for a performancethat the promisor already rendered, the condition is not

excused

7. Electiona. If a party waives a condition, the contract continues in

force, but she will still be able to sue later for damages ifthe non-occurrence of the condition also constitutes a

breach

b. Rather than waiving a condition, the party can terminateher performance (cancel the contract) and sue for total

breach

c. If the party continues to perform, she will subsequently notbe able to change her mind and cancel the contract.

8. Waiver of subsequent conditionsa. If a party accepts several similarly defective performances

without objecting, his conduct may lead the other party to

justifiably conclude that all conditions were intended to be

excused.

9. Right to damages not lost10.No duty to specify reason for rejection: for non-UCC cases


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a. As long as the defective performance constituted the breachof an express condition, or the material breach of a

constructive condition, the party receiving performance

may simply refuse to perform, without giving any reason at

all.b. Insufficient reason

i. The recipient may rely on the unstated failure of thecondition unless the breaching party would have

been able to cure the failure had he been notified of

it, and the non-breaching party knew or should have

known of the failure.

c. Insufficient reason in UCC casei. 2-605 (1)

1. if a buyer fails to specify a particular defectwhich is ascertainable by reasonable

inspection, she will be unable to rely on that

defect to justify his rejection of the goods, or

to establish breach, in two situations:

a. where the seller could have cured thedefect if stated reasonably; or

b. between merchants when the sellerhas after rejection made a request inwriting for a full and final written

statement of all defects on which the

buyer proposes to rely.

d. Excuse of condition because of impossibilityi. Constructive condition and its non-occurrence because of impossibility is

never excused

1. Both sides will be excused from performinga. Non-performer because the fact of impossibility prevents

him from being liable for breach

b. Other party because the nonperformance is the non-occurrence of a constructive condition and the condition is

not excused

ii. Express condition and was not material part of the exchange, its non-occurrence is excused


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H. Repudiation and Prospective Inability to Perform as Failures of ConstructiveConditions

a. General effect of prospective breachi. Subsequently be unable to perform

1. Such an indication of prospective non-performance acts as the non-occurrence of a constructive condition, in the same way as a

present material breach doesthe other party has the right to

suspend his own performance

ii. Anticipatory repudiation1. If he indicates that he would like to perform, but will be unable to,

he has not committed an anticipatory repudiation, but the other

party can still suspend his performance

iii. Concept stated in condition language1. It is a constructive condition of each partys duty of performance

that the other party not manifest a prospective inability or

unwillingness to perform

2. Party can sue prior to when contract payment is due for breach ofcontract

b. Insolvency or financial inability: the other party will be able to stop his ownperformance

i. Cancellation vs. suspension1. Certainty vs. uncertainty of other partys insolvency2. Anticipatory repudiation

a. Other party has right to cancelb. If other party does not cancel, the repudiator may have the

right to retract his repudiation, in which case the other party

must resume her performance

c. 2-611 (1)i. Removing the repudiators right of retraction as

soon as the other party has cancelled or materially

changed his position or otherwise indicated that he

considers the repudiation final

c. Right to adequate assurance of performancei. Ambiguous indication that the party may not be able to perform

1. Other party may suspend, not cancel the contract


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2. Other party has right to demand assurances for the other party thatthe latter will perform

a. If the latter fails to provide these assurances, this failurewill itself be considered a repudiation, entitling the other

party to cancel the contract.ii. UCC view

1. 2-609 (1)a. A contract for sale imposes an obligation on each party that

the others expectation of receiving due performance will

not be impaired. When reasonable grounds for insecurity

arise with respect to the performance of either party the

other may in writing demand adequate assurance of due

performance and until he receives such assurance may, if

commercially reasonable, suspend any performance for

which he has not already received the agreed return.

iii. Situations where applicable: for reasonable grounds of insecurity1. The buyer has fallen behind in payment of her account with the

seller, even though the items for which she already owes are part

of contracts completely separate from the one now in question.

2. The seller under a contract for precision part makes defectivedeliveries of the same kinds of parts to other customers, and the

buyer finds out about these defective shipments.3. A manufacturer gives a dealer an exclusive franchise for the sale of

his product, but breaches by selling though other dealers in several

isolated situations, although there is no default in orders, deliveries

or payments.

4. The buyer under a contract for the sale of real estate learns that theseller does not have present title to the property, and there is no

indication that she (the seller) has a reasonable prospect of gaining

title by scheduled closing date.

iv. Must be based on new factsv. Consequences of refusal to give assurances

1. 2-609 (4)a. After receipt of a justified demand failure to provide within

a reasonable time not exceeding thirty days such assurance


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of due performance as is adequate under the circumstances

of the particular case is a repudiation of the contract.

b. UCC-within 30 days..non-UCC-reasonable timevi. What constitutes adequate assurance

1. 2-609 (2)a. To be determined according to commercial standards

2. Demand for more than contract allowsa. When it amounts to a statement of intention not to perform

except on conditions which go beyond the contract, it

becomes a repudiation

vii. Also applicable where performance has begunI. Anticipatory Repudiation and Other Aspects of Breach

a. Total and Partial Breachi. Total breach: allows the wronged party to sue immediately for damages

based on the entire contract; would be such as put the wronged party in the

position he would have been in had the contract been completed

ii. Partial breach1. Non-material breach2. Aggrieved party must still perform3. Aggrieved party can sue for damages, immediately, stemming

from the partial breach.

b. Anticipatory Repudiation Generallyi. Aggrieved party may institute a suit for breach before the repudiators

time for performance has arrived

1. Prompt disposition2. Need for certainty

c. What Constitutes a Repudiationi. Modern view

1. Any positive statement by the obligor to the obligee which isreasonably interpreted by the obligee to mean that the obligor will

not or cannot perform his contractual duty

2. 3 categories by promisor which may constitute repudiationa. a statement by the promisor that he intends not to performb. an action by the promisor making his performance under

the contract impossible; and


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c. an indication by the promisor or via some other means thatthe promisor will be unable to perform, although he desires

to perform

ii. Promisors statement1. Language combined with conduct2. Made to promisee3. Proposals to modify the contract4. 2-610

a. a request for greater performance than that provided forunder the contract is repudiation when under a fair reading

it amounts to a statement of intention not to perform except

on conditions which go beyond the contract.

iii. Voluntary acts rendering performance impossible1. Performance must be impossible

iv. Prospective inability to perform1. Promisee may suspend his performance

v. Insolvency1. Grounds for insecurity

a. UCCi. Insolvency not grounds for repudiation

ii. Creates reasonable insecurityiii. Other party can demand assurancesiv. If assurances not given within 30 days, then other

party can cancel the contract

vi. Threatened breach must be materiald. Other Aspects of Repudiation

i. Repudiation after repudiators performance has fallen due (ordinaryrepudiation)

1. It discharges the other party, and allows that other party to bring animmediate action for total breach of contract, for all the damages

he has suffered and will suffer from the breach

2. Repudiation accompanied by partial breacha. Repudiatee (the injured party) the right to bring an

immediate action for total breach of contract

ii. Retraction of repudiation


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1. A repudiation may be retracted until the aggrieved party haseither: (common law)

a. Sued for breach, orb. Changed his position materially in reliance on the

repudiation, orc. Stated that he regards the repudiation as final

2. UCC: 2-611 (1)a. Until the repudiating partys next performance is due he

can retract his repudiation unless the aggrieved party has

since the repudiation cancelled or materially changed his

position or otherwise indicated that he considers the

repudiation final.

3. Applies to both anticipatory and ordinary repudiation4. Means of retracting

iii. The repudiatees option to sue or continue the contract1. Repudiatee may not ignore the repudiation and continue the

contract if to do so would aggravate her damages; she is thus

obligated to mitigate damages, or be disallowed from recovering

for those damages which could have been avoided.

2. 2-610a. the repudiatee may for a commercially reasonable time

await performance by the repudiating party and if therepudiatee awaits performance beyond a commercially

reasonable time he cannot recover resulting damages which

he should have avoided.

3. Where repudiation is ignored, then sued upona. UCC-2-610 (4)

i. Aggrieved party may resort to any remedy forbreach even though he has notified the repudiating

party that he would await the latters performance

and has urged retraction

b. Repudiatees insistence on performance does not constitutea waiver of his right to sue for breach.

iv. Repudiatees inability to perform1. The repudiatee may not recover if it is shown that he would have

been unable or unwilling to perform his share of the bargain


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2. Impracticability or frustration: could relieve repudiator from theduty to pay damages

v. Repudiation of a unilateral obligation to pay money1. No immediate suit for breach based on anticipatory repudiation

where the plaintiff owes no duties under the contract2. Payment of money

a. An anticipatory repudiation of an unconditional unilateralobligation to pay money t a fixed time does not give rise to

a claim for breach until that time has arrived.

3. Disability paymentsa. The plaintiff may sue only for those payments already due

as of the time of suit, not those which will come due

subsequently

4. Acceleration clausesa. The fact that a party misses one payment causes all future

installments to become immediately due

b. Therefore, the creditor can sue immediately for theoutstanding principal

vi. Damages for repudiation under UCC1. 2-713 (1)

a. The measure of damages for repudiation by the seller is thedifference between the market price at the time when thebuyer learned of the breach and the contract price, together

with any incidental and consequential damages

2. Logical answera. Learned of breach = learned of repudiation

3. End of commercially reasonable time4. Measurement at time for performance

vii. Right to demand assurances of performanceJ. Impossibility, Impracticability, and Frustratioion

a. Nature of the problemb. Risk allocationc. Supervening impossibility

i. Neither party aware of impossibilityii. One party aware of impossibility

d. Subjective vs. objective impossibility


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i. Financial inabilityii. Strikes

iii. Death or illnessK. Impossibility of Performance

a. Supervening impossibility generallyi. Destruction or other unavailability of the subject matter of the

contract;

ii. Failure of the agreed-upon means of performance;iii. Death or incapacity or a party; andiv. Supervening illegality.

b. Restatement approachi. Summary

1. That the event occurred after the contract was made2. That the event was one whose non-occurrence was a basic

assumption on which the contract was made;

3. That the event was not the fault of the party seeking thedischarge; and

4. That the language or circumstances dont dictate thatdischarge should be denied (i.e. because the parties allocated

the risk of the event to the party now seeking to use the

impossibility doctrine).

c. Destruction or unavailability of the subject matteri. Taylor v. Caldwell

1. Music hall burnt downii. Determining subject matter of the contract

iii. General rule1. If property which the performing party expected to use is

destroyed, that party is discharged only if the destroyed

property was specifically referred to in the contract, or at least

understood by both parties to be the property that would be

used.

2. It is not enough that the party who seeks discharge byimpossibility intended to use the destroyed property.

3. This rule is applied in construction cases, building repair cases,and contracts for the sale of goods.

iv. Contract to build a structure from scratch


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1. Standard rationalea. Contract did not provide for the building of the

particular structure that was destroyed, but for

building of some structure.

b. Therefore, the essential subject matter of the contractwas not destroyed.

2. Criticisma. Recovery where impossibility defense allowed

i. Impossibility defense merely permits her toavoid having to rebuild, and to avoid liability for

damages for breach.

ii. It will not help her to recover on the contract forthe work she did before the destruction.

3. Destruction due to soil conditionsa. Contractor implicitly assumed the risk that the soil

conditions would not be appropriate

4. Building renovationa. Discharged if the building is destroyed

i. Quasi-contractual recovery5. Contract for the sale of goods

a. Destruction of source of supply or means of productioni. Failure of source of supply

ii. Failure of productioniii. Partial failure

b. Destruction of identified goodsi. Where risk of loss has not passed

ii. Where risk of loss has passed to buyeriii. Partial loss

c. Goods not identified at the time of contractingi. Destruction of inventory or source of supply

ii. Contracts requiring shipment1. FOB Sellers plant2. FOB Buyers place of business

d. Impossibility of intangible but essential mode of performancei. Defective or unrealistic specifications


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1. Warranty of specifications2. State of the art not sufficient to meet specifications

a. Mutual mistake analysisb. Specifications drawn by vendor

ii. Impossibility due to failure of third person1. Source not specified in contract2. Where seller is unable to make contract with supplier3. Where sellers supply contract is breached4. Where supplier is excused by impossibility5. Breach by third persons in non-goods contracts

e. Death or illnessi. Death or illness of a party

1. No personal services by that party2. Personal services by that party

ii. Death or illness of a third personiii. Threat of illness or deathiv. Must not be a contrary allocation of riskv. Supervening illegality

1. Where one party at fault2. UCC: 2-615

vi. Temporary impossibility peracones, Italian restaurantL. Frustration of Purpose

a. Frustration of purpose distinguished from impossibilityi. The coronation cases

ii. Restatement formulationb. Factors to be considered

i. The extent to which the event that thwarted the promisors object wasforeseeable (and foreseen) by the parties when the contract was

madethe less foreseeable the event, the more likely the court is to

excuse performance under the frustration doctrine.

ii. The extent to which the parties did or did not implicitly allocate therisk of the event to the promisorif the parties implicitly allocated

the risk to the promisor, the court will not excuse performance

iii. The extent to which the event deprived the promise of all (as opposedto just some) of his anticipated benefit from the contractthe more


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complete the thwarting of benefit, the more likely the court is to

excuse performance

iv. Whether the party seeking discharge was at fault in bringing about(or failing to guard against) the eventmajor fault on that partys

part will normally block use of the defense.

v. Forseeability and the allocation of risk1. Allocation as dominant principle

c. UCC viewi. Does not expressly grant the frustration of purpose to buyers or

sellers

1. In sales cases, both sides are able to use this doctrineii. Use by buyers

1. Common law fills in the gapsiii. Use by sellers

M.Restitution and Reliance Where The Parties Obligations Have Been Discharged a. Shifting the lossesb. Return of down paymentc. Restitution

i. Time for measuring benefit1. Cheapest cost avoider

ii. Pro-rata contract priceiii. Reliance

1. Courts rarely giveiv. Contrary intent shown by parties


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