Contracts II Outline

CONTRACTS II – CLASS NOTES

SPRING 2016

JANUARY 12, 2016

[Reading Assignment: pp. 380–392]

CHAPTER 8 – CONDITIONS, PERFORMANCE AND BREACH

MUTUALLY DEPENDENT PROMISES

Covenant = Promise à Contract Law
Dependent: Not enforceable without proof of payment à TODAY
Historically, promises were independent and did NOT need proof of payment as is today.

FOCUS OF DEPENDENCY OF PROMISE to distinguish between CONDITIONS vs. PROMISES

HYPO:

I promise to sell my cow IF A pays me $800 by Friday.
Promise, condition, or both?
…..

SECTION 1. THE NATURE AND EFFECT OF EXPRESS CONDITIONS, THE TIME OF CLASSIFICATION OF CONDITIONS

CONDITIONS: TEMPORAL TYPES

Precedent (MOST COMMON TYPE)

A condition precedent must occur before a party’s duty to perform arises.
Example

A written agreement between Painter and Owner states “Owner will pay Painter ten days after Painter finishes painting Owner’s house.”
Painter’s painting of the house is a condition precedent to Owner’s duty to pay Painter.
Owner’s duty to pay does not arise until Painter finishes painting the house.

Concurrent

Conditions are concurrent if they are to happen at the same time.
Example

Seller and Buyer agree that Seller and Buyer will exchange goods and money at the same time.
The delivery of the goods and the payment of the money are concurrent conditions.

Subsequent (MORE RELEVANT TO PROPERTY LAW)

A condition subsequent takes away a right that previously existed.
One area in Contract Law where these conditions are found are INSURANCE Contract + Claims
Example

An automobile insurance contract provides “Insured will lose his/her right to reimbursement “if Insured fails to file a claim within six weeks of the occurrence of a reimbursable event.”
The failure to file a claim is a condition subsequent, which takes away the insured’s right to file a claim.

First semester case involving CONDITIONS = Mezadone case??

Property purchase where condition was finding buyer and securing a mortgage as written in the contract.

This semester we look at issues in the context of the contract already having been formed.

Restatements re: conditions, etc., involve such context.

KNOW KEY DISTINCTION OF CONDITIONS PRECEDENT TO . . .

PERFORMANCE VS. FORMATION

Performance:

….

Formation:

….

AUDETTE V. L’UNION ST. JOSEPH (1901)

[Widow claimant (P) v. Decedent’s insurer (D)]

SUMMARY of Case:

Before his death, Mr. Audette was insured by L’Union (D), which, in its policy terms, expressly required a sworn statement from a physician before it would honor any claims. Mr. Audette’s doctor refused to issue the sworn certificate due to “conscientious scruples” (i.e., religious belief requiring only oath to God), and without the certificate L’Union (D) refused to honor Mrs. Audette’s (P) claim. Mrs. Audette (P) sued to collect on the policy, but the trial court ruled in favor of the insurer, L’Union (D). Thus, Mrs. Audette (P) followed with this appeal, in which the court affirmed the trial court’s ruling, and held that Audette’s claim against L’Union was premature, and until the physician certificate was produced, there would be no valid claim for recovery of the benefits under the policy, meaning that L’Union’s (D) counter-performance (i.e., paying the claim to Mrs. Audette) was not due until such time of strict compliance.

Written proof (certificate) of decedent’s illness + Oath (physician’s sworn affidavit) = Condition Precedent

Had to occur BEFORE there could be any recovery on the insurance policy

Despite her “best efforts” P was not able to get the certificate and was denied recovery of insurance proceeds.
Condition was EXPRESS à Written explicitly on face of contract (FN1 p. 381):

“. . . It is agreed that in any such action or suit, proof by you of your compliance with the provisions of this paragraph shall be a condition precedent to any recovery.”

ISSUES:

(1) Where a party’s obligation to perform is conditioned on the act of an unrelated third party, does such third party’s refusal to perform the act excuse its necessity? NO.

(2) Must a party comply with ALL CONDITIONS EXPRESSED in the terms of the contract to compel the other party’s performance? YES.

RULES OF LAW:

Where a party’s obligation to perform is conditioned on the act of an unrelated third party, such third party’s refusal to perform the act does not excuse the necessity that such act be accomplished.
An insurer need not honor a claim unless the claimant has complied with all of its procedures as expressed in the terms of the contract, even if failure of compliance is out of a claimant’s control and not due to claimant’s lack of best efforts in procuring compliance.

An insurer may impose conditions in the nature of claim procedures with which the insured must comply in order to obtain benefits. When one engages for the act of a third-party, one must procure the act to be done, and the refusal of the third-party, without the interference of the other party, is no excuse.

ANALYSIS:

The sworn certificate in this case is a CONDITION PRECEDENT to L’Union’s (D) duty to pay a claim.
Until the condition is satisfied, L’Union’s (D) duty of performance does not become due.

Vocabulary:

CONDITION PRECEDENT: The happening of an uncertain occurrence which is necessary before a particular right or interest may be obtained or an action performed.

NOTES:

Fire insurance policy case cited in opinion as authority, where to recover