Defenses - Contracts Foundations Episode

What defenses to breach of contract are discussed in the lecture?

Failure of a condition, impossibility, impracticability, frustration of purpose, illegality, and modification.

What is a condition?

An event or state of affairs that triggers or terminates a contractual duty.

What is a condition precedent?

An event that must occur before a particular contractual duty becomes due.

What generally happens if a condition precedent does not occur?

The duty dependent on that condition does not become due, and the obligated party may be excused from performing.

What defense may a party raise when a required condition does not occur?

Failure of a condition.

What words commonly signal a condition?

If, only if, provided that, so long as, subject to, and unless.

David agrees to buy a house if he obtains a mortgage at 5% interest or less. What is the condition precedent?

Obtaining a mortgage at 5% interest or less.

If David cannot obtain the required mortgage, must he purchase the house?

Generally no, because the condition precedent to his duty to purchase did not occur.

What should you identify in a failure-of-condition question?

The required event, the duty dependent on it, and whether the event occurred.

What is impossibility?

A defense that may discharge a duty when an unexpected event makes the promised performance objectively impossible.

What does objectively impossible mean?

No one can accomplish the particular performance required by the contract.

Is a party's personal inability to perform enough to establish objective impossibility?

No. The promised performance itself must be impossible, rather than merely impossible for that party.

When can death or incapacity excuse contractual performance?

When the particular person is essential to the performance promised.

Why may a unique artist's incapacity discharge a portrait contract?

The contract requires that artist's particular talent, which another artist cannot supply.

Does an employee's injury generally excuse a painting company's duty to paint a house?

No, if another employee can perform the work.

What is the key question when death or incapacity is raised as a defense?

Whether the contract requires that particular person's performance or permits a substitute.

When can destruction of property excuse performance?

When the destroyed property is essential to the particular performance promised.

A contractor agrees to remodel an existing house, but a tornado destroys it. What defense may apply?

Impossibility, because the particular house to be remodeled no longer exists.

A contractor agrees to build a new house, but the unfinished house is destroyed. Is performance generally discharged?

No. The contractor can generally rebuild the house.

Why does destruction affect a remodeling contract differently from a new-construction contract?

Remodeling requires the particular existing structure, while new construction generally remains possible through rebuilding.

When may destruction of a supplier's source excuse delivery?

When both parties contemplated that particular source as essential to the agreement.

A contract depends on goods from a particular crop, and that crop is destroyed. What defense may apply?

Impossibility based on destruction of the specific source contemplated by the parties.

A seller promises generic goods, but its own inventory is destroyed. Is impossibility generally available if replacements can be obtained?

No. The seller can obtain replacement goods elsewhere.

What should you ask when a seller's source of goods is destroyed?

Whether the agreement depended on that specific source or merely required goods of a certain type and quantity.

What is impracticability?

A defense that may discharge performance when an unexpected event creates extreme and unreasonable difficulty.

Must performance be completely impossible for impracticability to apply?

No. Performance may remain possible but involve extreme and unreasonable difficulty.

How does assumption of risk affect impracticability?

A party generally cannot rely on impracticability if it assumed the risk of the difficulty.

What events may support impracticability?

War, embargo, catastrophic crop failure, severe raw-material shortages, or shutdown of an essential supplier.

Are ordinary increases in cost generally sufficient to establish impracticability?

No. Mere increases in cost rarely justify discharge.

A contractor discovers granite that makes foundation work much more expensive. Does that automatically establish impracticability?

No. Increased expense alone may be insufficient, and the contractor may have assumed the risk of the site condition.

Why does foreseeability matter in the granite example?

If granite is a known possibility in the area, the contractor may be treated as having assumed that risk.

What should you examine in an impracticability question?

The unexpected event, the severity of the resulting difficulty, and whether the party assumed the risk.

What is frustration of purpose?

A defense that may discharge a duty when a later event substantially defeats the contract's principal purpose, even though performance remains possible.

What must the parties know for frustration of purpose to apply?

Both parties must know the principal purpose that is later frustrated.

Does frustration of purpose require performance to be impossible?

No. The parties may still be able to perform, but the transaction's principal purpose has been substantially defeated.

A promoter rents equipment for a concert, but a regional power outage prevents the concert. What defense may apply?

Frustration of purpose, if both parties knew the equipment was being rented for that concert.

Why is the concert example frustration of purpose rather than impossibility?

The equipment can still be delivered and payment can still be made, but the known purpose of the rental has been defeated.

What is the central difference between impossibility and impracticability?

Impossibility means the promised performance cannot be accomplished; impracticability means it entails extreme and unreasonable difficulty.

What is the central difference between impracticability and frustration of purpose?

Impracticability concerns difficulty in performing; frustration concerns the loss of the transaction's principal purpose.

What is the general effect of an agreement to accomplish an illegal purpose?

The agreement is generally unenforceable.

What is subsequent illegality?

A legal change after formation that makes the required contractual performance unlawful.

What effect can subsequent illegality have on a valid contract?

It may discharge the parties from further contractual performance.

A new law prohibits the sale of the contracted product. What defense may apply?

Subsequent illegality.

How does initial illegality differ from subsequent illegality?

Initial illegality makes the agreement unenforceable from the outset; subsequent illegality arises after formation and may discharge future duties.

What is a contract modification?

A subsequent agreement changing the terms or performance required by an existing contract.

How does modification differ from defenses that excuse performance altogether?

Modification changes what performance is owed rather than necessarily eliminating the duty to perform.

When is modification commonly raised as a defense?

When a party is sued for failing to perform the original terms but claims the parties validly changed those terms.

What is required for mutual assent to a modification?

Both parties must agree to the change.

Does a common law modification generally require new consideration?

Yes, unless an applicable exception permits enforcement without new consideration.

An owner accepts a house without the promised basement for the same price, and the contractor gives nothing new in return. What problem arises?

The modification generally lacks new consideration under common law.

Why does merely promising an existing contractual duty generally fail to supply new consideration?

The party is already legally obligated to perform that duty.

How can the parties supply consideration for a modification?

By exchanging new promises or changes to their existing obligations.

An owner agrees to omit the basement, and the contractor agrees to finish one week earlier. What supports the modification?

The exchanged changes provide new consideration.

What unanticipated-circumstances exception may support a common law modification?

Some courts enforce a modification without new consideration if it is fair and equitable in light of circumstances not anticipated at formation.

Does a modification of a sale-of-goods contract require consideration under the UCC?

No.

What does a UCC modification require instead of new consideration?

The parties' agreement and good faith.

Can a bad-faith modification demand be enforceable under the UCC merely because consideration is unnecessary?

No. The modification must satisfy the good-faith requirement.

What should you examine to determine whether a modification requires written evidence under the Statute of Frauds?

Whether the contract as modified falls within the Statute of Frauds.

If the contract as modified falls within the Statute of Frauds, what is generally required?

Sufficient signed written evidence of the modified agreement.

Is a contract to construct a house automatically within the Statute of Frauds merely because it concerns real property?

No. Construction services are not automatically a transfer of an interest in land, though another Statute of Frauds category may apply.

Does the parol evidence rule exclude subsequent modifications?

No. It does not exclude agreements made after the original contract.

Does avoiding the parol evidence rule automatically make a later modification enforceable?

No. The modification must still satisfy applicable requirements such as mutual assent, consideration or an exception, good faith, and the Statute of Frauds.

What should you check first when analyzing the rules governing a modification?

Whether common law or UCC Article 2 applies.

What should you check in a common law modification question?

Mutual assent, new consideration or an applicable exception, and any Statute of Frauds requirement.

What should you check in a UCC modification question?

Agreement, good faith, and any applicable writing requirement; new consideration is unnecessary.

What three possibilities can explain why a party is not liable for failing to provide the originally expected performance?

The duty never arose, was discharged, or was validly modified.