Chapter 10 – Performance: Required or Excused?

Discharge

• Discharge means to “release”
• Failure to perform obligation set forth in a contract is not a breach if performance has been discharged.

Types of Discharge

• Discharge due to unmet conditions
• Discharge by agreement
• Discharge by operation of law
• Impossibility
• Breach as excusing performance

Bankruptcy

• Liquidation or reorganization
• Automatic stay prevents creditors from acting
• Trustee decides: assume, assign, or reject contract

Substantial Performance

• Courts usually look at the following:
  • Whether the contract is divisible
  • Whether the unfulfilled promise was dependent on some performance by the other party
  • Whether the end product can be used for its intended purpose
  • The benefit received by the non-breaching party
  • The degree of hardship to the breaching party
  • Whether money damages can be used to compensate for defects
  • Whether the party whose performance was imperfect acted in good faith
  • The consequences of any delay

Perfect Tender under the UCC

• Under the perfect tender rule, a buyer has a reasonable time to reject goods that fail, in any respect, to conform to the contract.
• This rule seems harsh when compared to the common law doctrine of substantial performance, but the Code does include provisions to lessen the impact.

Repudiation

• A party’s words or actions indicating intention not to perform the contract

Review Materials for Chapter 10

• Course of Dealing – What has been done by the parties in the past
• Cure – Seller delivers conforming goods before contract deadline, after buyer rejects non-conforming goods
• Cover – Buyer obtains substitute goods
• Tender Performance – Party’s indication that he is ready, willing, and able to perform
• Frustration of Purpose – Contact has no remaining value for party due to an unanticipated event
• Interchangeable – Fungible
• Perfect Tender Rule – Buyer has reasonable time to reject goods that fail, in any respect, to conform to the contract
• Satisfaction Clause – Contract provision requiring performance to the satisfaction of a specified individual
• Anticipatory Breach – Belief that other party will not perform
• Release – Discharge
• Major Breach – Substantial breach of contract, usually excusing other party from further performance; see Material Breach
• Insolvency – Unable to pay debts
• Repudiation – A party’s words or actions indicating intention not to perform the contract
• Perfect Performance – No deviations from contract; see Strict Performance
• Assurance – A pledge or guarantee that gives confidence or security
• Title – Ownership
• Substantial Performance – Only minor deviations from contact specification; acceptable in most service contracts
• Qui tam – Lawsuit in which a whistleblower can obtain reward for exposing misconduct involving government contracts.
• Material Breach – Substantial breach of contract usually excusing other party from further performance; see Major Breach
• Novation – New contract, involving new parties; cancels earlier contract
• Force Majeure – Contract provision excusing performance for an event such as “act of God,” fire, labor dispute, accident, or transportation difficulty
• Insecure Party – Party has good-faith belief that performance by other party is unlikely
• Objective Impossibility – Impossibility in an objective sense; not personal
• Tender – To make available
• Mitigate – Limit or reduce damages
• Strict Performance – No deviations from contract expectations; see Perfect Performance
• Rescission – Mutual agreement to cancel
• Bailee – Person, other than owner, who is in possession of goods under an arrangement called a bailment
• Commercial Impracticability – A party may be excused from contract obligations if an unforeseen circumstance makes performance impracticable
• Identified – Goods designated as the particular goods being sold
• Sale or return – Seller delivers goods to buyer who resells or returns them to seller; buyer takes title until sale or return
• Trade Usage – Industry standards for permissible deviations from specifications
• Time is of the essence – Any performance delay constitutes breach