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Contracts

Contract Defenses

by Dina Allam

Jun
14

Sean Silverman is an attorney and teacher who has prepared numerous students for the MBE, both in person in New York, as well as over Skype for those located outside of New York.  For an indication as to his teaching style, visit his website at http://www.mbetutorial.blogspot.com.  And while there, feel free to submit a question.  If interested in receiving tutoring, feel free to contact him at ssilver0210@hotmail.com.

The defenses of impossibility, impracticability, and frustration of purpose are sometimes confusing in that they seem rather similar, and can be difficult to differentiate.  The following explains some key differences between these defenses to enforcement of a contract.

Before getting into the differences, let’s discuss one important similarity among these ideas. Your analysis as to these issues should only begin once you’ve determined that a party to the contract is under an immediate duty to perform. If a party is under an immediate duty to perform, the duty to perform might be discharged by impossibility, impracticability, or frustration of purpose. To claim impossibility, impracticability, or frustration of purchase, you must first ensure that the non-occurrence of the event that caused the impossibility, impracticability, or frustration of purpose was a basic assumption of the parties in making the contract, and that neither party has expressly or impliedly assumed the risk of the event occurring.

In regards to impossibility, contractual duties will be discharged if it has become impossible to perform them. Note that the impossibility must be objective (it’s not enough that the duties could not be performed by a given individual, it has to be true that the duties could not be performed by anyone). The impossibility must arise after the contract has been entered into. If, in fact, the impossibility existed prior to the contract being entered into, then you would have a formation problem (most likely mutual or unilateral mistake), and you would analyze in that respect. If you do use impossibility within your analysis of a contracts question, note that if a contract is discharged because of impossibility, each party is excused from duties arising under the contract that are yet to be performed. There is, however, a problem if a party has already performed some duties prior to the impossibility. To resolve this problem, each party may sue for rescission and receive restitution.

With impracticability, it has not become impossible for a party to perform his/her duties under a contract, but instead the party to perform has encountered extreme and unreasonable difficulty and/or expenses. You would analyze impracticability in the same manner as impossibility, allowing those who have already partially performed to rescind the contract and receive restitution. Note that impracticability often comes up in UCC Sales questions when contingencies such as war, strike, embargo, or other unforeseen circumstances can excuse the seller’s duty to perform. But also note that mere increases in cost are rarely sufficient to discharge a seller’s duty to perform; this was a risk that the seller assumed.

Frustration of purpose exists if the purpose of the contract has become valueless due to some event not the fault of the party seeking discharge. Note the difference between frustration of purpose, and impossibility/impracticability. With the latter two, performance of the duties to the contract could not be performed (perhaps because the subject matter of the contract had been completely destroyed, or one of the parties had died), but here, although the contract could still be performed, contractual duties will be discharged if the purpose of the contract has been frustrated. You’ll have to ensure that an act after formation of the contract has destroyed the purpose of the contract, neither parties could have reasonably foreseen the event that destroyed the purpose, and that the purpose of the contract was realized by both parties at the time of making the contract.

 

Copyright 2011 Sean Silverman and http://www.mbetutorial.blogspot.com.  Reprinted by permission.

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Breaking Down Buyer’s Remedies Under the UCC

by Dina Allam

Jun
28

Sean Silverman is an attorney and teacher who has prepared numerous students for the MBE, both in person in New York, as well as over Skype for those located outside of New York.  For an indication as to his teaching style, visit his website at http://www.mbetutorial.blogspot.com.  And while there, feel free to submit a question.  If interested in receiving tutoring, feel free to contact him at ssilver0210@hotmail.com

In a comment to my previous article concerning character evidence, I was asked to write about the distinction concerning buyer and seller remedies under the UCC. This is quite a bit of information, so I will divide the content into two separate articles. This article will focus on buyer’s remedies, and the next article will focus on seller’s remedies.

Let’s first discuss buyer’s right to reject non-conforming goods.  When the buyer receives goods from the seller, if those goods do not conform to the specifications as set forth in the contract, buyer can, under some circumstances, reject the goods, and then either cancel the contract or sue the seller.

Let’s assume buyer has rejected non-conforming goods tendered by the seller. The seller is then given the option within the time originally provided for performance, to cure the defect by giving reasonable notice of intention to cure, and making a new tender of conforming goods.   If the buyer had accepted the goods, rather than rejected, and those goods turn out to be non-conforming, the buyer is not entirely out of luck. The buyer can still revoke his acceptance if the defect in the goods substantially impair their value, and buyer accepted the goods on the reasonable belief that the defect would be cured (and it was not cured); or if the buyer accepted the goods because of the difficulty of discovering the defects or because the seller assured buyer that the goods conformed to the contract.  So, remember to consider both options that buyer has in regards to non-conforming goods: rejecting the goods, or revoking the acceptance of those goods.

Another option for buyer is to replevy identified goods.  All this means is that if the buyer has already tendered full payment and the seller becomes insolvent within 10 days after receiving the buyer’s first payment, or if the goods were purchased for personal, family, or household purposes, then the buyer will be able to obtain those goods from seller, provided that those goods have been identified (ie, specific and ascertained goods currently existing).

Finally, the court may order specific performance, which will again allow the buyer to obtain the goods from seller, but in such a case, it will not be a requirement that the goods be identified; it will instead suffice if the goods are unique.

Now, let’s move on to damages.  Let’s assume that the buyer has properly rejected non-conforming goods, or has revoked his acceptance of non-conforming goods.  The buyer will be entitled to the difference between the contract price, and the market price or cost of buying replacement goods. The purpose here is to put the buyer in the position he would have been in had the seller tendered conforming goods.  Buyer is also entitled to incidental and consequential damages, less expenses saved as a result of seller’s breach.

Another possibility is that the buyer has decided to accept goods, even though those goods do not conform to the contract.  In such a situation, the buyer is entitled to the difference between the value of the goods accepted, and the value they would have had if they had conformed to the contract, plus incidental and consequential damages. Buyer must remember to notify seller as to the non-conforming nature of the accepted goods, otherwise buyer will lose his ability to collect damages for the accepted goods.

As always, should you have any questions at all, or comments about any of the information in the article, feel free to leave them in the comments section of this post, so that I can address them.

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