Contracts Outline

Contracts Outline – Fall 2009
Professor Catherine Sandoval
 
Conditions, Breach and Other Aspects of Performance
 
I. Conditions Generally
 
A.     Definition of “condition”: an event which must occur before a particular performance is due is called a “condition” of that performance
            – Corbin’s definition of condition: some operative fact subsequent to acceptance and prior to discharge, a fact upon which the rights and duties of the parties depend
            – condition: an event that is not certain to occur [EE p. 518] 1)      Condition Precedent:
a.       condition precedent (dependent covenant): one’s duty to perform does not mature until the other party has first performed
 
Case: Glaholm v. Hays
– charter between P and D called for the vessel to sail on or before the 4th day of the next February and the Ps didn’t sail but remained in England
Legal Significance: If an action is to be undertaken in a contract by a certain date, that date is a condition precedent that must be met for the other party to perform. [Casebook pp. 773-775, January 15, 2009]  
condition subsequent: terminates a duty that came into existence when the contract was formed
2)      Concurrent condition: a concurrent condition is a particular kind of condition precedent which exists only when the parties to a contract are to exchange performances at the same time; found most frequently in contracts for the sale of goods and contracts for the conveyance of land
3)      Express condition: if the parties explicitly agree that a duty is conditional upon the happening of some event that event is and “express” condition
a.       requires strict compliance
b.      non-promissory conditions (pure conditions): conditions in a contract that neither party can promise and ensure will happen (Ex. weather, accident in insurance contract)
c.       promissory condition – to make an event a condition of one party’s own duty and to have the other party promise to bring the event about
–          must be able to differentiate between
1.      an event that is merely promised by a party,
2.      an event that is both promised by a party and designated as an express condition to the other party’s duty, and (promissory condition); and
3.      an event that is merely an express condition to one party’s duty (non-promissory condition)
4)      Constructive condition: if the happening of an event is made a condition of a duty because a court so determines, the condition is a “constructive” one (condition “implied in law”)
                  a. requires substantial compliance
5)      Impliedly-in-fact: duty to perform is conditional on other party’s performance based on expectation and custom
 
B.     Distinctions between conditions and promises: if an act is a condition on the other party’s duty, and the act fails to occur, the other party won’t have to perform; if the act is a promise, and it doesn’t occur, the other party can sue for damages; but the two don’t automatically go together
1)      Distinguishing conditions and promises: to determine whether a particular act is a condition, a promise, or both, the main factor is the intent of the parties; review the language (“upon a condition” indicates a condition, whereas, “I promise” or “I warrant” indicates a promise)
–          promise: an undertaking to act or refrain from acting in a specified way at some future time; a declaration that one will or will not do something; made by action of one party to create an obligation or detriment in the promisor; fulfillment discharges a duty; non-fulfillment constitutes breach with right to damages [PP] –          condition:
1.      an operative fact occurring after acceptance but before discharge of obligations upon which the rights and duties of the parties depend;
2.      made by agreement of both parties;
3.      used to postpone a duty or other relationship [PP] –          note that sometimes a failure to keep a promise will also generally constitute the failure of a constructive condition
 
Case: Howard v. Federal Crop Ins. Corp.
– P’s tobacco crops were damaged due to severe weather; D-insurance company refused to honor insurance claim because P replanted the damaged field before D had a chance to inspect which was required by their contract
Legal Significance: Insurance policies are construed most strongly against the insurer. When it is doubtful that words are creating a promise or a condition, the language will be construed as a promise. [PP] If nothing indicates that a clause in an agreement is a condition precedent, then it is construed as a promise, especially if other clauses are specifically treated as conditions precedent and are titled as such but the clause in question is not. [Casebook pp. 775-779, January 15, 2009]  
Restatement of Contracts Section 225 Effects of the non-occurrence of a condition
1.      Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused.
2.      Unless it has been excused, the non-occurrence of a condition discharges the duty when the condition can no longer occur.
3.      Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur.
 
II. Express Conditions
Strict compliance: strict compliance with an express condition is ordinarily required
 
Case: Merritt Hill Vineyards, Inc. v. Windy Heights Vineyard, Inc.
– P entered into a written agreement with D to purchase a majority stock interest in a vineyard and tendered a $15k deposit; closing was subject to fulfillment of conditions by D and if not fulfilled, deposit would be returned per contract
Legal Significance: Seller’s failure to meet condition entitles Buyer to return of deposit but not damages, absent breach of an independent promise. A condition precedent excuses the other party’s performance but does not constitute a breach of contract such that the other party is entitled to consequential damages unless specifically agreed upon. [Casebook pp. 761-763, January 15, 2009]  
Case: Luttingger v. Rosen
– seller’s trying to obtain loan at specific amount at specific interest rate complete due diligence and when unable to find loan, cancel agreement and request deposit which is denied
Legal Significance: The law does not require the performance of a futile act. When a condition precedent has not been met, there is no contract and the parties have no obligation to one another except for those specified when the contract has failed. [Casebook pp. 787-788, January 22, 2009]  
1)      Avoidance of forfeiture: courts will avoid applying the “strict compliance” rule where a forfeiture would result
–          forfeiture will result when one party has relied on the bargain (e.g. by preparing to perform or by making part performance), and insistence on strict compliance with the condition would cause him to fail to receive the expected benefits from the deal
 
Restatement (Second) of Contracts Section 227(1)
– in resolving doubts as to whether an event is made a condition of obligor’s duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee’s risk of forfeiture, unless the event is within the obligee’s control or the circumstances indicate that he has assumed the risk
 
Case: J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.
– tenant sent notice to exercise option for renewal of lease past due date; landlord refused to accept it but would not have suffered if tenant was given a chance to accept
Legal Significance: Notice exercising an option is ineffective if it is not given within the time specified.
§ The tenant is entitled to the benefit of equity, which relieves against such forfeitures contract of valuable lease terms when default in notice has not prejudiced the landlord, and has resulted from an honest mistake, or similar excusable fault. [Casebook pp. 799-806, January 29, 2009]  
Case: Holiday Inns of America, Inc. v. Knight
– Ds paid set sums of money to keep option alive to purchase property; sent third payment late and Ps said the option was no longer available
Legal S