George Mason School of Law

**George Mason School of Law

Contracts II

Conditions

This file may be downloaded only by registered students in my class, and may not be shared by themF.H. [email protected]

*Kinds of conditionsWhat is a condition?

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*Kinds of conditionsConsider: I promise to help you on your journey provided the crick dont rise.

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*Kinds of conditionsConsider: I promise to help you on your journey provided the crick dont rise.If the crick rises, am I in breach?*

*Kinds of conditionsInside and Outside the contractual obligations*

PromisesOther terms: non-promissory conditions, definitions, recitals, etc.

*Kinds of conditionsConsider now: I promise to help you on your journey (which you cant make it the crick rises) and I promise the crick wont rise*

*Kinds of conditionsInside and Outside the contractual obligations*

Promissory ConditionsNon-promissoryConditions

Another kind of conditionThe example at 623I agree to buy your dog for $400 at your house on Thursday.I come to your house with $400 on Thursday, but you tell me you wont give me the dog till SaturdayDo I have to pay you on Thursday?*

What does condition mean here?

Tender of goods is a condition of buyers duty to payUCC 2-507(1), 2-511(1)

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What does condition mean here?

Tender of goods is a condition of buyers duty to payUCC 2-507(1), 2-511(1)Both parties to stand ready, willing and able to perform

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Two kinds of conditionsA condition precedent is not a promise but an event which must occur before promissory obligations ariseA promissory condition is a promise which one party must be ready, willing and able to perform before the performance duties of the other party arise. *

*Stees p.73What are the possible legal outcomes here?

*Third and Minnesota, St Paul

*SteesWhat are the possible legal outcomes here?Builder assumes risk and is liable in damages for non-completionCf. School Dist. v. Dauchy at 74

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*SteesWhat are the possible legal outcomes here?Owner assumes risk And is liable for sellers damages Or must pay a higher priceCf. Restatement 89, Illustration 1

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*SteesWhat are the possible legal outcomes here?The quicksand put an end to the contract and no one is liable in damages

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*SteesWhat are the possible legal outcomes here?Can you tell which from the language of the contract?*

*SteesThe quicksand put an end to the contract and no one is liable in damages Mistake: Restatement 152(1)

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*SteesThe quicksand put an end to the contract and no one is liable in damages Mistake: Restatement 152(1)Is this a case of Restatement 154(b)? Or (c)?

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Frustration: Restatement 261Futurity? *


Frustration: Restatement 261Futurity?

Condition: Restatement 224. *

*SteesCondition: Restatement 224. Does this refer to a promissory or a non-promissory condition?*

*SteesCondition: Restatement 224. Does this refer to a promissory or a non-promissory condition?Cf. Restatement 225(3)*

*Stees

The quicksand put an end to the contract and no one is liable in damages Mistake: Restatement 152(1)Frustration: Restatement 261Condition: Restatement 224.

Should it matter which of these doctrines is invoked?*

*Stees

What did the court decide?

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*Stees

What did the court decide?If no mistake, frustration or condition is invoked, how would you decide who is liable?

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*Stees

How would one tell whether to invoke mistake, frustration or condition? Restatement: The intentions of the parties governs Mistake: Restatement 154Frustration: Restatement 261Condition: Restatement 226-27 *

*Stees

Suppose you knew or could reasonably predict how the parties would have bargained ex ante on formation of contract?Would you have any reason to second-guess this?*

*Stees

And just how would the parties have bargained ex ante in Stees?*

*Stees

And just how would the parties have bargained ex ante in Stees?Force majeur clausesAssignment of risk*


Contracts II

Conditions

F.H. [email protected]

Next dayScott 644-59Scott 659-82

Next week: Scott 65-72

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Defining Conditions

A condition which is not a promise, and to which no liability attaches on its occurrence*

*Defining conditionsConsider: I promise to help you on your journey provided the crick dont rise.

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Defining Conditions

Conditions precedent: The obligations of the parties will not arise if x has occurred.Conditions subsequent: The obligations of the parties are suspended if x occurs.*

A second kind of condition

Promissory Conditions: A condition which is also a promise, and to which liability attaches on its occurrence*

*Promissory conditionsConsider now: I promise to help you on your journey (which you cant make it the crick rises) and I promise the crick wont rise*

Promissory conditions

What happens when this kind of condition occurs?The non-breaching party is excused from performance (absent waiver)*

*Promissory conditionsI agree to sell you my car, and tender delivery immediately. When do you have to pay if you want the car today?

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*Promissory conditionsI agree to sell you my car, and tender delivery immediately. When do you have to pay?Tender of delivery by seller and tender of payment by buyer are mutual conditions UCC 2-507(1), 2-511(1)Both parties to stand ready, willing and able to perform

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*Promissory conditionsI agree to sell you my car, and tender delivery immediately. When do you have to pay?Restatement 234(1)*

*Promissory conditionsI agree to sell you my car, and tender delivery immediately. When do you have to pay?Restatement 234(1)

When I agree to build you a house, when do you have to pay?*

*Promissory conditionsI agree to sell you my car, and tender delivery immediately. When do you have to pay?Restatement 234(1)

When I agree to build you a house, when do you have to pay?The work before pay rule of 234(2)*

*Work before Pay Stewart v. Newbury at 626

What did the contract say about payment?The presumption?*

*The duty to be ready, willing and ableBell v. Elder at 623

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*Bell v. Elder

*ElderslandBellPurchaser Bells sue to recover depositbecause Elders failed to supply water

*Bell v. Elder

What were the obligations of the parties as to performance?Seller to provide the water, power and roadsBuyer to pay a hook-up fee and apply for a building permit

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*Bell v. Elder

How much of this had been done?Seller to provide the water, power and roadsBuyer to pay a hook-up fee and apply for a building permit

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*Bell v. Elder

Why did the buyer want to back out?

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*Bell v. ElderCould buyers recover purchase price because sellers had not provided water etc?*

*Bell v. ElderCould buyers recover purchase price because sellers had not provided water etc?Here there was no order as to when each party should do their work and work before pay applied to both partiesPresumption of simultaneous performances*

*Divisibility

Can a party in breach of a promissory condition resist forfeiture by asserting that conditions are divisible? *

*Divisibility

Suppose that a builder contracts to build seven motels in seven different cities.Separate payment and completion schedule for each motel.Builder defaults on last motel.Could buyer rescind on all? *

*Divisibility

Suppose that a builder contracts to build seven motels in seven different cities.Separate payment and completion schedule for each motel.Builder defaults on last motel.Could buyer rescind on all? Restatement 240.*

*Divisibility

Same case, but now:All motels built to the same specificationsBuilder to be paid $7M for the seven motels.*

*Divisibility

Same case, but now:All motels built to the same specificationsBuilder to be paid $7M for the seven motels

Restatement 240, illustration 5

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*John. v. United Advertising 628Are highway signs different?

*Englewood CO

*John v. United Advertsing

Are highway signs different?Is this like losing your GPS signal at a crucial point? Take the first available U-Turn*


What are the options for the court?*


Are highway signs different?A material failure under Restatement 237? Trial courts finding of no damages*


Are highway signs different?Supposing the contract had omitted the divisibility clause?*

*Buffalo Seminary 631

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*Buffalo Seminary

Is education severable?(And just why was she expelled?)

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*Divisibility in the UCC

UCC 2-307Presumption of a single deliveryBut divisibility if presumed if a right to separate deliveries *

*Divisibility in the UCC

UCC 2-612: Installment ContractsOnus on seller to specify if delivery in lots. UCC 2-307Qu. If the buyer can reject the whole under 2-612(3)*

*A tertium quid

In addition to conditions precedent (and subsequent) and promissory conditions, there is logically a tertium quidAnd what is that?

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*Howard at 633

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*Howard at 633

Condition precedent in clause 5(b)

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*Howard

Condition precedent in clause 5(b)If this is not met, can Howard recover?If this is not met, is Howard liable in damages?

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*Howard

Qu. Clause 5(f)

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*Howard

Qu. Clause 5(f)If this is not met, Can Howard recover?If this is not met, is Howard liable in damages?

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*Howard

What are the options?Cf. Restatement 227, Comment d

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*Howard

What are the options?Cf. Restatement 227, Comment dCondition precedent, no promise that event will happenNot a condition precedent, but a promise that the event will happenPromissory conditions: A promise that the event will happen plus the event excuses the other party from performance

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*Howard

What are the options?Cf. Restatement 227, Comment dCf the three options of 227(2)

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*Howard

What is the presumption against forfeiture?Cf Restatement 227, comment b*

*Howard

Insurance law: contra proferentum*

*Bias against conditions

Cf. Carters Claim at 637

Main Electric at 637An information cost perspective?*

*Conditions and promises

Its helpful to have labels for the different kinds of terms we are talking about.*


From Restatement 227, distinguish:A condition but not a promise that event will happenA promise and a conditions that excuses the other party from performanceNone of the above but a promise that the event will happen

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Lets call these:Condition but not a promise: Conditions precedent (subsequent)

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Lets call these:A promise that the event will happen plus the event excuses the other party from performance: Promissory Conditions

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Lets call these:None of the above but a promise that the event will happen???

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Lets call these:None of the above but a promise that the event will happen: Warranties

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Lets call these:Conditions precedent (subsequent)Promissory conditionsWarranties

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*Promises and ConditionsConditions

Conditions PrecedentPromissory No liability if non-occurrence Liability if non-occurrenceRestatement 225(2)Restatement 225(3)


Conditions PrecedentPromissory(related to Mistake and Frustration)

*Promises and ConditionsPromises

ConditionsWarranties


ConditionsWarranties ElectionForfeitureDamages Damages only

*Conditions in the UCC

I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date.Assume that the price of copper has fallen. Can I reject the tender?*


I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date.Assume that the price of copper has fallen. Can I reject the tender? UCC 2-601 reject the whole*


I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date.Assume that the price of copper has fallen. Can I reject the tender? UCC 2-601 reject the whole So the obligation to deliver 500 is a condition*


I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date.The perfect tender ruleFail in any respect in UCC 2-601 *


I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date.Assume that the price of copper has risen. Can I accept the 400?*


I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date.Assume that the price of copper has risen. Can I accept the 400? UCC 2-601(c) accept any commercial unit*


I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date.Assume that the price of copper has risen. Can I accept the 400?Can I also sue for damages for the 100? UCC 2-711(1)(b)*


I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date.Assume that the price of copper has risen. Can I accept the 400?Can I also sue for damages for the 100? So the obligation to deliver 500 tons is both a promise and a condition*

*Conditions precedent and subsequent

Whats the difference?*


Whats the difference?CP: no performance due before eventRestatement 224

CS: Performance is due, but event extinguishes duty and claim for breachRestatement 224 cmt e, 230*


Whats the difference?Restatement 230(2)Good faithNo materially increased burden*


Gray v. Gardner at 640Parties bargain for a higher price provided a lesser quantity of sperm oil arrives between April 1 and October 1Buyer to pay a premium if a shortage*


Gray v. GardnerContract void if greater quantity of sperm oil arrives between April 1 and October 1Was there a valid contract between April 1 and October 1?*


Gray v. GardnerContract void if greater quantity of sperm oil arrives between April 1 and October 1Was there a valid contract between April 1 and October 1?s argued not but Parker said yesa condition subsequentWhich means that onus of proof on buyer*

*Drafting CP and CS clauses

Draft the Gray v. Gardner promise as a CP as a CS*

*Attorney-approval clauses at 642

I agree subject to my lawyers approval.A valid condition subsequent?What if the attorney says no?Gaglia*

*Modification, Waiver, Estoppel: Clark v. West*The dirty little secret of textbook publishing revealed

*Modification, Waiver, Estoppel

Distinguish Modifications, waiver, estoppel*

*Modification, Waiver, EstoppelModifications are bilateral agreements to vary obligations under a contractPromises are modified*

*Modification, Waiver, EstoppelModifications are bilateral agreements to vary obligations under a contractWaivers are unilateral acts by one party to excuse anothers performance of an obligationConditions are waived*

*Modification, Waiver, EstoppelModifications are bilateral agreements to vary obligations under a contractWaivers are unilateral acts by one party to excuse anothers performance of an obligation(Promissory) Estoppel bars a promisor from enforcing a right where he knows that a promisee has detrimentally relied on him. *

*Modification, Waiver, Estoppel at common law

Agreement Required?Reliance required?ModificationWaiverEstoppel


Agreement Required?Reliance required?ModificationyesnoWaiverEstoppel


Agreement Required?Reliance required?ModificationyesnoWaivernonoEstoppel


Agreement Required?Reliance required?ModificationyesnoWaivernonoEstoppelnoyes

*Clark v. WestWhat was the promise?Now you know why textbooks are so long.

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*Clark v. WestWhat was the promise?Now you know why textbooks are so long.

Facts alleged on 647Would this be enough for an estoppel? A waiver?

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*The UCC:Wisconsin Knife Works

What was the contract?Spade BitsMetal CraftersWisconsin

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Wisconsin Knife Works

What was the contract?Metal Crafters given six Purchase Orders in Aug 1981 for delivery in Oct-NovNew purchase orders in July 1982Seller not able to deliver until December 198213 months lateJan 1983buyer rescinds*

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What was the evidence of modification and was it admissible?Consideration not a problem: 2-209(1) 1-304. Obligation of Good Faith.Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement.

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What was the evidence of modification and was it admissible?Consideration not a problem: 2-209(1)How would you interpret 2-209(2)What does except between merchants mean?*

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When does something which fails as a modification succeed as a waiver in 2-209(4)?can operate as a waiver*

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When does something which fails as a modification succeed as a waiver in 2-209(4)?Posner: so as not to render 2-209(2) otiose, lets add a reliance requirement to 2-209(4)*

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When does something which fails as a modification succeed as a waiver in 2-209(4)?Posner: so as not to render 2-209(2) otiose, lets add a reliance requirement to 2-209(4)But is 2-209(5) then otiose?*

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Posner: waiver ineffective unless other party relies2-209(5): before the other party relies, one who waives can retract*

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Posner: waiver ineffective unless other party relies2-209(5): before the other party relies, one who waives can retractSo retraction ineffective after relianceAnd before reliance?If it was a nothing, why not allow retraction?*

*Wisconsin Knife Works

What was the evidence of modification or waiver here?Was an unwritten modification valid?Was waiver available? UCC 2-209(4) Easterbrook on waiver: 2-209(5) implies that waiver requires reliance

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Easterbrook on waiver: 2-209(5) implies that waiver does not require reliance 1-107. Waiver or Renunciation of Claim or Right After Breach. Any claim or right arising out of an alleged breach can be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party.

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So how would Easterbrook prevent 2-209(2) from being otiose?*


So how would Easterbrook prevent 2-209(2) from being otiose?A stricter standard of proof as to intention?*


Contracts II

Conditions


Next day

Finish materials on warranties

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Conditions PrecedentPromissory No liability if non-occurrence Liability if non-occurrenceRestatement 225(2)Restatement 225(3)


ConditionsWarranties ElectionForfeitureDamages Damages only

*Avoiding forfeiture

Agreement Required?Reliance required?ModificationyesnoWaivernonoEstoppelnoyes

*Waiver and Post-contractual opportunism

Alaska PackersBuyer agrees to purchase a specially designed computer software program. Seller spends six months on this. With one month to go, buyer seeks a modification of the price.

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Opportunism and Perfect Tender?Buyer agrees to purchase potash with delivery at specified times. Seller is late one day with a delivery. The price of potash has fallen by 50%.*


How does modification open the door to post-contractual opportunism?Did Alaska Packers offer much protection?Is 2-209(1) a retreat? Would a modification only in writing help solve the problem? *

*Modification and Waiver in the UCCModifications are binding w/o consideration. UCC 2-209(1) but subject to obligation of Good Faith in 1-304.Modifications can be barred by express agreement, UCC 2-209(2), unless a signed written modificationBut waivers still permitted. UCC 2-209(4)Tho these can be retracted unless other parties changes position. UCC 2-209(5)

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*Why no waiver in Suzuki at 657?*

*Why no waiver in Suzuki at 657?

The onus of proof to satisfy 2-209(4)*

*Why no waiver in Suzuki?

Termination clauses and agency costsWisconsin Fair Dealership Law, 1974 135.03Cancellation and alteration of dealerships. No grantor, directly or through any officer, agent or employee, may terminate, cancel, fail to renew or substantially change the competitive circumstances of a dealership agreement without good cause. The burden of proving good cause is on the grantor.*

*George Mason School of Law

Contracts II

Warranties


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