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Contracts
University of Kansas School of Law
Drahozal, Christopher R.

IV. Performance and Breach (664)

Intro

•Conditions act as a protection for assuring a party’s expectations in the face of a threat it will not receive what was promised in exchanged.
•Constructive conditions/implied conditions are determined according to the order of the performance required by the contract.
•3 ways a court may mitigate the harsh results of conditions where constructive conditions are involved:
1. substantial performance
2. divisibility
3. restitution
•When a breach occurs during the course of performance there is a right to suspend performance and terminate the contract.

Conditions

•Condition v Duties
•Duty is something you are obliged to do under the contract- absolute, or they can be conditional- not absolute.
•If the condition is met, then you have to go through with the performance.

Effects of Conditions

•Restatement (Second) § 224:
”A condition is an event, not certain to occur, which must occur… before performance under a contract becomes due.”

A. Express Conditions

Luttinger v. Rosen (665-667, Note 2)
ISSUE
•Is plaintiff entitled to the return of his deposit when the condition of the specific interest rate was not met by a lending agency?
REASONING
•Yes. Under the contract, plaintiff used due diligence. “The law does not require the performance of a futile act.” Furthermore, the contract clearly stated the condition upon which the parties promised to purchase. If this condition wasn’t met, plaintiff had no obligation to buy def’s property and was entitled to his deposit.
NOTES
•Must be a strict compliance with express conditions.

Note 2
•How hard did the Luttinger’s have to try to get the loan?
•How long did they have to procure the loan?

Problems of Interpretation

Condition, Duty, or Both (672-673)

•Cargo owner wants ship owner to carry goods to Cadiz, willing to pay 10% premium to “sail with the next wind.”
•Duty of ship owner to sail with the next wind
-If he sails with the next wind, duty of cargo owner to pay
-Even if the ship owner doesn’t sail, cargo owner still has to pay, but cargo owner can then sue for breach of contract
-Cargo owner has an absolute duty to pay according to the language.
•Duty of cargo owner to pay the premium is subject to condition that ship owner sails with the next wind
-condition is not met if ship owner doesn’t sail with the next wind
-Cargo owner cannot sue for damages if ship owner does not sail with the next wind, however cargo owner does not have to pay the premium
•Ship owner promises to sail with the next wind and the Cargo owner promises to pay premium if ship sails with the next wind
-Both a duty and a condition
-Ship owner is liable for damages caused by delay and the cargo owner will not have to pay the premium

•If language is unclear, the court prefers an interpretation that imposes a duty rather than a condition.
•Restatement Second § 227(1):
•The preferred interpretation avoids the harsh results that might otherwise result from the non-occurrence of a condition and still gives adequate protection to the obligor under the rules… relating to promises for an exchange or performances.”

Peacock Construction v Modern Air Conditioning Inc (674-676)
FACTS
•General contractor- I promise to pay:
-work completed
-acceptance by architect
-full payment by owner
•Subcontractor: says that those were not conditions of contract, rather setting out a time table.
•Who takes on the risk when the owner goes bankrupt?
ISSUE
•whether plaintiff’s payment by the owner was intended to be a condition precedent to paying the subcontractors.
RULE
•Intent in most cases is that payment by the owner to the general contractor is not a condition precedent to the general contractor’s duty to pay the subcontractors.
•Duty to pay is absolute and the general contract must assume the risk of the owner.

Mattei v Hopper (72-75)
ISSUE
•Whether the clause making the buyer’s performance subject to the acquisition of satisfactory leases rendered the contract void as being illusory.
RULE
•A contract provision making the performance of the buyer subject to the judgment of the buyer is not automatically invalid for lack of mutuality or illusoriness, but rather is a binding contract requiring the buyer to exercise good-faith in his judgment.
NOTES
•Court holds promise not illusory b/c subjects to satisfaction condition
•Dissatisfaction must be “reasonable” if commercial value or quality
•Dissatisfaction must be in “good faith” if based on “fancy, taste, or judgment.”
•P 74 Dissatisfaction Restatement § 265

Gibson v Cranage (677-678, Note 4)

FACTS
•Father: duty to pay for painting; “if it was not perfectly satisfactory to me in every particular. I need not take it or pay for it.”
ISSUE
•Is there a breach of contract when the conditions state performance is required only if the party is satisfied with the results?
RULE
•Under the agreement the def was the only person who had the right to decide this question and he may insist upon his right to refuse as given to him by the contract.

Note 4
•The case of the Cheaper Chips

FACTS
•Potato farmers contracted to sell 12 loads of potatoes that “chipt to perfection” at $4.25 per hundredweight.
•Price then declined to $2.00 per hundredweight and the buyer rejected the last nine loads claiming they did not chip satisfactorily.
•Farmers had experts test them and found them satisfactory.

nt def a bill, which they refused to pay.
ISSUE
•If no expressed condition as to payment is in the contract (silent), is it according to custom or reasonable time?
RULE
•No. This was an entire contract. Where a contract is made to perform work and no agreement is made as to payment, the work must be substantially performed before payment can be demanded.

C. Substantial Performance as a Mitigating Doctrine

Substantial Performance (700)
•Where constructive rather than expressed conditions are concerned, the rule is often one of substantial performance.

Jacobs & Young v. Kent (507-510)
FACTS
•Plaintiff built a country residence for the def.
•1 yr later the def complained of a defect in performance b/c under the contract specific material was agreed upon.
•The plumbing was encased in the walls and obedience meant more than substitution, it meant demolition of substantial portions of the completed structure.
•Plaintiff left the work untouched and evidence supported the contention that the omission was neither fraudulent nor willful.
ISSUE
•Whether the contractor, who rendered substantial performance, should pay the cost of replacement, or the difference in value for trivial or innocent omission of a contract condition?
HOLDING
•Difference in value.
PROCEDURAL HISTORY
•Trial ct judgment for def entered upon a directed verdict, plaintiff appeals.
•Order of the App Div reversing judgment for defendant entered on verdict directed by the court and granting new trial, defendant appeals.
•Order affirmed and judgment absolute directed in favor of plaintiff.
RULE
•An omission, both trivial and innocent, will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a condition to be followed by forfeiture.
REASONING
•Where by inadvertence or mistake a minor deviation has been made, which involves no damage to the def, and def takes possession of and continues to use the building without seeking to disturb in any respect the work done by the contractor, the contractor is entitled to prove that he had substantially performed, that the def suffered no damage through such innocent mistake, and