Excusing Performance

Question 1

Which excuses would relieve a party from performing their end of the contract due to faulty assumptions?

Answer 1

• Mistake
• Impossibility
• Impracticability
• Frustration of purpose

Question 2

If a party claims mistake, what kind of faulty assumption are they asserting?

Answer 2

• Faulty assumptions regarding present material facts

Question 3

What are two kinds of mistake?

Answer 3

• Unilateral mistake
• Mutual mistake

Question 4

May a party be excused from performing due to unilateral mistake?

Answer 4

• No. One party’s mistake about present material fact(s) is NOT excused unless the other party knew/had reason to know of the party’s mistake.
  o EXAMPLE: A agrees to sell B a cow, which A knows to be barren, and, as the parties are writing up and signing the agreement, B asks A a series of questions about the care and feeding of pregnant cows. Because A has reason to know that B is mistaken with respect to the cow’s capacity to bear calves, B’s obligation to purchase the cow is excused on account of unilateral mistake.

Question 5

May a party be excused from performing due to mutual mistake?

Answer 5

• Mutual Mistake: Voidable by disadvantaged party when all 3 met:
  o mistaken assumption relates to material facts (not just value);
  o mistake made by both parties; and
  o disadvantaged party did not bear risk of mistake under the K.
• EXAMPLE: A agrees to sell B a cow at beef cow prices because at the time of contracting, both parties were under the assumption that the cow was barren. A short time later, the cow was discovered to be with calf, which greatly increased her resale value. The contract is voidable at the option of A.
• EXAMPLE: A agrees to sell B a cow at beef cow prices. At the time of contracting, both parties share the mistaken impression that the cow is barren. B tells A that he is still going to try to breed the cow in any case. In this case, A bears the risk of B’s efforts succeeding, because if B succeeds, it will prove the parties’ assumption that the cow was barren wrong. So A is accordingly bound by the contract even if the cow turns out to be fertile.

Question 6

What kinds of faulty assumptions are made when a party wishes to excuse performance due to impossibility, impracticability, or frustration?

Answer 6

• Faulty Assumptions Regarding Future Facts

Question 7

What is the impossibility doctrine?

Answer 7

• Both parties excused if performance has been rendered impossible by events occurring after K formed.

Question 8

What are the two main requirements to prove impossibility?

Answer 8

• Impossibility must be objective
• The contingency that creates the impossibility was not known to the parties at the time of making the K; it arose after the K and was unanticipated

Question 9

When does objective impossibility occur?

Answer 9

• Objective impossibility occurs when performance literally impossible for anyone due to circumstances beyond control of the parties.
  o EXAMPLE: X promises to sell Y his horse, but the horse dies before X can deliver the horse.

Question 10

When does subjective impossibility occur?

Answer 10

• Subjective impossibility occurs when performance becomes impossible because of some failure or fault on the part of the performing party.
  o EXAMPLE: A party fails to have enough money to either make a promised payment or to obtain the components required for the production of a promised product.

Question 11

Under what three circumstances are we likely to find objective impossibility?

Answer 11

• Circumstance #1: When the subject matter of the K is destroyed.
  o EXAMPLE: Buyer promises to buy Farmer’s 2009 wheat crop, the entirety of which is destroyed just before harvest by wheat blight. The Farmer’s performance is excused on the basis of impossibility.
• Circumstance #2: When there is a personal services K and the performing party has died or become incapacitated.
• Circumstance #3: When supervening law or legal developments have rendered performance legally impermissible.

Question 12

What is the doctrine of impracticability?

Answer 12

• Courts are reluctant to excuse performance for any reason other than impossibility. However, under the doctrine of impracticability, a promisor may be excused from performance where the following two elements are proven:
  o contingency causing impracticability was unforeseen; and
  o increased cost/burden of performance would be far beyond what either party anticipated.

Question 13

Does the UCC recognize the doctrine of impracticability?

Answer 13

• Increased costs, and the rise or collapse of a market are viewed as business risks, the sorts of contingencies that fixed-price contracts are expected to account for.
• UCC cases where impracticability has been found typically involve shortages caused by war or embargo, local crop failure, or unforeseen shutdown of major sources of supply (e.g. natural disaster).

Question 14

What is frustration of purpose?

Answer 14

• Where a contingency occurs that dramatically reduces the value of performance to the receiving party.
  o EXAMPLE: The doctrine of frustration of contractual purpose has as its source the famous case of Krell v. Henry, which involved the owner of a London flat with a “ringside” view of the forthcoming coronation parade who agreed to lease the flat at premium prices to a lessee eager to witness the festivities. The parade was canceled when the King became ill, and the lessee’s contractual obligations to the owner were excused on the ground that going through with the rental agreement in the absence of its raison d’etre” cannot reasonably be said to have been in the contemplation of the parties at the date of the contract.”

Question 15

What is the modern test for proving frustration of purpose?

Answer 15

• (1) Principal purpose in entering K is substantially frustrated;
  o This means that the frustration of incidental or non-material purposes would not trigger the excuse of frustration of purpose.
• (2) Frustration was substantial in nature; AND
  o EXAMPLE: In a variation on Krell v. Henry, where the King did not become ill and the parade was not cancelled, the town erected bleachers that only partially obstruct the parade view from the apartment.
• (3) Non-occurrence of the event that caused frustration was a basic assumption of the K.

Question 16

Under which two scenarios would performance be excused by an agreement of the parties?

Answer 16

• Rescission
• Accord and satisfaction

Question 17

When is rescission permissible?

Answer 17

• Is permissible where both parties to a K have remaining performance due.
• Consideration is provided by each party’s discharge of the other’s duties.

Question 18

How do accord and satisfaction excuse a party from performing?

Answer 18

• The parties may make an accord, which is permissible when one party has already performed and is waiting on the other party to finish performing.

Question 19

What is an accord?

Answer 19

• Obligee promises to accept substituted performance in satisfaction of the obligor’s existing duty.
  o EXAMPLE: Purchaser has paid builder in full for the construction of a house. Because of difficulties that neither party to the contract could foresee, the builder is only able to partially complete the construction project. Purchaser agrees to a lesser performance in return for a partial re-payment. This agreement is an accord. Builder then completes the agreed-to substituted performance. This performance amounts to satisfaction of the accord.

Question 20

What are the legal effects of an accord?

Answer 20

• Accord and satisfaction satisfies the obligor’s original obligation.
• The accord alone does not discharge the obligor’s duty; it only suspends the obligor’s duty

Question 21

What is required for an accord to be valid?

Answer 21

• Consideration is required
• May be sufficient consideration if:
  o Where the accord involves an agreement for partial or substituted performance, the substituted performance differs significantly from the original performance, or its obligation is doubtful.
  o Where the accord involves an agreement for partial payment, there is a good-faith or bona fide doubt about the amount owed.