CONTRACTS II
I. Performance and Breach (Circumstances were the law excuses some one from performing a K)
A. Express Conditions: A condition not performed is not to make them in breach, it allows the other party to not perform WITHOUT being in breach. Remember why we have them!!
1. Definitions:
a. A condition is an event that must occur before performance under a K becomes due.
b. Any event can be a condition except those that certain to occur,
i. can even include events that are not in the control of either party;
c. Express Condition:
i. Definition: The K’s language itself actually says that “unless this event occurs, at least one person does not need to perform.”
ii. Does not need to be specific words, can be any word that carries that meaning:
iii. Doctrine of strict compliance: Applies only to express conditions and says the condition has not occurred unless it has happened in every respect as said in the K. Every part of the condition must be fulfilled in order for the condition to be fulfilled. (this is the test to see if a express condition has occurred)
2. Ways to tell if a condition has been met:
a. Condition or Duty or Both or Neither:
i. Covenant: Something some one promised to do
ii. Neither: There can be event described in a contract that is neither a covenant or a duty.
1) If something is certain to occur, then it is neither a covenant nor a duty.
b. Doctrine of Strict Construction: is interpreted most favorable to the non-drafting party
c. Implied Good Faith (For individual satisfaction) (Gibson test)
i. If seeing if some one is satisfied for something subjective (paint a portrait), the test will be satisfactory in good faith.
iii. If it’s a matter of an objective thing (paint house) it would be standards of satisfaction of a reasonable person.
b. Third Party Satisfaction: The test to see if a condition is fulfilled when it’s a matter of satisfaction can be determined on a third parties satisfaction. The third party is usually an expert of some type.
i. This would be an Subjective test of good faith of that professional. (49 States go by this, Only NY go by a reasonableness test (subjective))
ii. Policy Reasons:
1) This is because both parties need to approve who the third party is and get some say in it so they have to live by it.
2) This also helps judicial economy by having the determination of if the condition is good enough done outside the court my experts instead of bring all of these into the courts. This is kind of like the two parties already selecting a judge. This will hold unless there is corruption involved or if the decision was SO unreasonable that we have to presume that it was not made in good faith.
3. Mitigating Doctrines (consideration and estoppal??)
a. Waivers: Giving up protection of the condition by word or action by the obligor.
i. Retraction: If you waiver the condition, you can retract your waiver and bring back the condition IF it is retracted BEFORE the time that the condition would have needed to be done.
1) When a party fails to enforce the condition multiple time then it can be viewed as an implied waiver. Typically needs to be 3 or more times that the condition was not enforced. (McKenna v Vernon)
ii. “No future waiver” clauses in a K are generally enforceable (EX: rent lease say future lack of enforcement does not mean a waiver of the condition)
iii. 3 circumstances in which a person CAN NOT retract a waiver:
1) Promissory Estoppel (reliance on the waiver)
2) Consideration (waiver was negotiated for the K)
3) When the waiver become an election
b. Election: This is when a waiver is done AFTER the time of the “occurrence of the condition”
i. The difference between an election and a plain waiver is that an election can NOT be reinstated.
ii. If you express a waiver before the set time for the occurrence of the waived condition and then try to retract the waiver AFTER that “timing”, this waiver is converted into an election.
c. Forfeiture of Conditions (forfeiture of conditions)
i. It is a rule of construction, if there is a doubt as to whether it is an express condition, then the court is inclined to interpret that there is no express condition. (Ambiguous K)
ii. Rstmnt 2nd 2-229: a court may excuse the non-occurrence of a condition if to do otherwise would result in a disproportionate forfeiture.
1) Disproportionate: Court has to balance the risk assumed by the parties going into the K??
iii. Oral conditions: can be enforceable in written fully integrated K if it is a condition to the entire K AND in applied to both parties.
B. Constructive Conditions of Exchange: The event that the court will label as a constructive condition is always something that a party promises to do in a K that is, things that are dependent on one another.
1. Dependant Covenant Def.: A covenant that does not have to be performed unless some other event has occurred usually the first covenant (performance) of the other party.
2. Implied Condition: Any time there is a dependent covenant, on the other side there is going to be a matching condition. (implied) (Need two things for this combo)
· Court does this only when the fallowing factors have been determined:
i. Look at the relative importance involved (thing 2 needs to be relevant to thing 1)
ii. Must look at the timing of the performance (sequencing)
a. Will never have a constructive condition that is to occur after a dependent covenant. A covenant (or constructive condition) occurs, and the fallowing action would be a dependent covenant (or an implied condition if that’s how the court interprets the action).
3. Concurrent conditions and Tender: If both actions on the different sides can be done at the same time and there is nothing in the K that says who goes first, then this is considered to be either:
ii. dependent conditions; or
iii. implied dependent conditions
1. Tender: show that you ready, willing and able to do your covenant (at the time, place and in the manner that the K requires).
2. If one side showed “tender” that they are ready and the other side isn’t ready or refuses then the side that is not ready is in beach and the side that had tender no longer needs to perform there side of the K.
4. The work before pay Rule: When one covenant takes time and the other one can happen instantaneously, the court will interpret it as work before pay. The one that takes time before the instant covenant. This tells us the order when the K does not tell us.
5. Substantial Performance: The test for the occurrence of a constructive condition. This means that the performance does not need to be performed EXACTLY as the K ordered but performed a large part of it. (80% maybe??)
i. This is the rule to constructive conditions as doctrine of strict compliance is to express conditions.
ii. Good faith and intent of performing party is sometimes taken into consideration
5. Perfect Tender Rule (UCC): In a K for purchase and sale of goods, if the seller tenders good that fail in any way to conform to the K, the buyer has the right to reject those goods.
i. ANY non-conforming in the good gives the buyer the right to reject the good. The buyer then has no obligation to pay because turning over the good was supposed to be a constructive condition to the buyers obligation to pay for them.
ii. With goods, we DO NOT apply the substantial performance rule. Instead, we have strict compliance for constructive conditions.
6. Mitigating Doctrines
i. Can be estoppel and waiver and elections and consideration just like for express.
ii. Severable or Divisible K’s
a. “If the part to be performed by one party consists of several and distinct items, and the price to be paid by the other is (1) apportioned to each item to be performed, or (2) is left to be implied by law, such a K will generally beheld to be severable….But if the consideration to be paid is single and entire the K must be held to be entire, although the subject of the K may consist of several distinct and wholly independent items.” (Johnstown Lumber Co.)
1) For each mini K, all of the same rules apply as for regular K’s
2) The words (language) of the K need to actually say that there will be a price paid apportioned to each item.
3) The parties view each side of the rule as agree equivalence.
b. Even if you can find the paired performances and the price is stated per unit or quantity, court may still find K not to be divisible if to find it divisible would defeat the overall purpose of the K.
7. Restitution
a. When the employee has given something and the employer has accepted it, then based on unjust enrichment, t
surance of Due Performance
A. UCC 2-609 But also applies to common law issues too.
a. This is triggered by reasonable grounds for insecurity about the other parties future performance
b. X has a right to demand assurance from Y that Y will perform (in writing).
c. If this demand is made, at that point X has a right to temporally suspend their performance
d. If assurances not received within 30 days, then the other party doesn’t have to perform and the repudiation can be considered a material breech
II. Failure of Basic Assumptions
A. Mutual Mistake: (timing when K is formed) At the time of the K’s formation, both parties have the same incorrect assumption regarding some existing fact relevant to the transaction.
2. Mutual Mistake Needs:
i. Mutual mistake of fact that was material (not trivial)
ii. Both parties had the same mistake & same state of mind
iii. The error must be based on a basic assumption on which the K was based AND
iv. If the K is not rescinded, the party seeking to rescind will suffer a pecuniary loss (they receive less in value than they part with)
a. EX: growing jojoba plants in the desert
B. Impracticability of Performance: (timing after K is formed)After formation of the K, something happens that makes the promised performance of one party much more difficult than contemplated.
1. Impracticability Def: (protects promisor)
b. Impracticability is something that falls short of impossible.
1. Non-occurrence of event was a basic assumption (both parties didn’t anticipate the event occurring)
2. occurrence of that event makes performance as promised impossible or impracticable
3. Effected party (one who’s actions were made impracticable) didn’t assume the risk of events occurrence.
c. 3 Conditions MUST be met to be impracticable:
i. Something unexpected must have occurred (a contingency)
ii. Risk of the unexpected occurrence must not have been allocated either by agreement or by custom AND
iii. Occurrence of the unexpected event must have rendered performance commercially impracticable.
d. Remedy
i. If all elements are found, performance is discharged
B. Frustration of Purpose: (timing after K is formed)After formation of the K, something happens that prevents one of the parties from enjoying the benefit it would otherwise have had from the other party’s performance. (Protects promisee)
1. Non-occurrence of event was basic assumption (both parties didn’t anticipate the event occurring)
2. WAS NOT EITHER PARTIES FUALT
3. Event has to have rendered the exchange agreed upon for the promise in suit to become commercially valueless.
4. Effected party (one who’s actions were made impracticable) didn’t assume the risk of events occurrence.
Half Measures
1. Doctrine of Divisibility &
a. If the K is devisable, then these 3 doctrines can be applied to each of the divisible part. You could come out with a case of “partial impracticability”
2. Unjust enrichment as a basis of restitution for any benefits that have been occurred.
a. Allowing restitution to a party who had partially performed a K (Yun v city of chickapea: after bridge burnt down still got money for work put in)
b. Rule: If the excused party had rendered part of his or her performance before the remainder has become discharged, and the K is not devisable, the excused party is entitled to restitution for any benefit conferred on the other party
II. Damages
C.
