Conditions / Responses to Breach

Question 1

What is a condition?

Answer 1

A condition is an event, not certain to occur, which must occur before performance under a contract becomes due.

Must be some degree of uncertainty as to the occurrence of the event.
Passage of time, or even an event that is used to measure passage of time, cannot be a condition.

Question 2

Express Conditions and performance

Answer 2

Express conditions (explicitly stated condition precedent) requires STRICT compliance.

Coming really close to meeting the condition (even when it’s economically the same for the victim will not cut it

Question 3

Mitigating Doctrines Applicable to All Conditions: list doctrines

Answer 3

Active prevention
Passive prevention
Exception
Waiver
Estoppel
Election

Question 4

Mitigating All Conditions: Active Prevention

Answer 4

If you actively prevent the occurrence of a condition to your performance, you normally can’t invoke the non-occurrence as grounds for not performing.

Question 5

Mitigating All: “Passive” Prevention (don’t try to satisfy the condition)

Answer 5

The duty of good faith and fair dealing typically obligates a party to use reasonable effort to ensure that conditions under his control are satisfied.

If non-occurrence is the result of your breach of that duty, you can’t rely on non-occurrence as grounds for not performing.

Question 6

Mitigation All: Assumed the Risk

Answer 6

A promisor’s “active prevention” of a condition to his performance will not preclude him from invoking the non-occurrence of the condition as grounds for not performing if the promisee “assumed the risk” that the promisor would actively try to prevent the condition form occurring.”

Question 7

Mitigating All: Waiver

Answer 7

A waiver of a condition (promise not to invoke the non-occurrence as grounds for non-performance) is typically not enforceable if it’s not supported by consideration.

Typically allowed to say you are going to waive, and then change your mind before occurrence.

Question 8

Mitigation All: Waiver Exceptions

Answer 8

1. Estoppel — if the promisee justifiably relies on a promisor’s waiver of a condition and it would be unjust not to enforce the waiver, then the waiver is enforceable and may not be retracted.
2. Election — if the promisor waives a condition to his performance AFTER the time for the condition to occur has passed, he has “elected” to go forward with the contract, and may not retract his waiver.

Question 9

Constructive conditions: three categories of contracts

Answer 9

1. Independent covenants = since conditions are independent if other party breaches, you are not relieved from your duty to preform your duty.
2. Dependent, Successive covenants = performances are constructive conditions of each other.
   the party to go first can’t sue until she’s performed her obligations.
3. Dependent, concurrent covenants = conditions of each other, performed at the same time.
   A party can use only after she has “tendered” (shows up ready to perform)

Question 10

Covenants: How do you know which category the condition is?

Answer 10

1. Decide if it’s independent or dependent. Do you think the parties thought they were dependent? (presumption of the law is dependent covenants)
2. If dependent, decide if successive or concurrent.
   Default rules:
   — if performances are capable of being performed simultaneously, they are due at the same time.
   — if only one party can perform instantaneously and the other party will take awhile, the party that will take awhile has to preform first.
   DOING PRECEEDS GIVING

Question 11

Mitigating Constructive ONLY: Substantial Performance

Answer 11

When you have dependent constructive conditions of exchange where it is implied that one party’s performance is conditioned on the others, the condition is deemed satisfied by substantial performance. You don’t have to nail it.

Question 12

Mitigating ONLY constructive: How much performance is required for there to be substantial performance?

Answer 12

A party has substantially performed as long as they have not committed a material breach.
What is a material breach? see 241

Question 13

Mitigating ONLY conditions: Perfect Tender Rule & Tampering

Answer 13

UCC does not recognize substantial performance for the sale of goods.

2-601 Perfect Tender Rule
— in a contract for the sale of goods, if the buyer specifies that they want a specific item, the seller has to give the buyer that specific item.

2-508 to tamper it
— if the seller sends goods that are not perfect tender, they have until the time for delivery has expired to cure the defect.
— if the seller reasonably believed that the nonconforming goods would be acceptable to the buyer (maybe with some allowance like price reduction) seller may have a “further reasonable time” in which to cure.

Question 14

Mitigation constructive ONLY: Divisibility

Answer 14

If the contract is divisible, even if it’s not substantially performed, the victim must pay for the part of the performance that actually occurred.

Question 15

Mitigation constructive ONLY: when is a contract divisible?

Answer 15

When
1. it is possible to apportion the promised performances into corresponding parts of performances AND
2. it is apparent that the parties have agreed that one part of each pair was worth the same as the other pair.

Question 16

Mitigation constructive: what can we do if a breaching party is NOT entitled to substantial performance or divisibility ?

Answer 16

Restitution §374
Party is entitled to restitution for any benefit that he has conferred by way of part performance or reliance in excess of the loss that he has caused by his own breach.

Question 17

Breach by non performance: victim options flowchart

Answer 17

Question 18

Breach by non-performance: victim options CAUTION

Answer 18

If you get the material question wrong, and you suspend performance, YOU become the party in breach.

Question 19

Repudiation: When is there breach by non-performance BEFORE performance is due?

Answer 19

Anticipatory repudiation

A repudiation is
(a) a STATEMENT by the obligar to the oblige incidcating that the obligar will commit a breach that would itself give the oblige a claim for damages for total breach under 243 OR
(b) a voluntary affirmative action which renders the obligar unable or apparently unable to perform without such a a breach.

Question 20

Repudiation: consequences of an anticipatory repudiation (if victim has not fully performed)

Answer 20

1. Obligee is released from obligations (can go find other work without having to wait)
2. Obligee can bring an immediate suit for total breach
   UNLESS victim has already fully performed before repudiation, THEN the victim cannot sue until the time for performance comes due.

Question 21

One sided repudiation problem and solution

Answer 21

§ Bank lender, fully performs (loans money for 30 year term), borrower pays for a many months, then misses a payment and says he no longer is going to pay it back.
□ Go to 243 flowchart… not material under 241 (miss one payment).
® What about repudiation?
◊ Bank fully performed… can’t sue until time for performance comes due (30 years)….

		§ Solution:
			□ Include an "acceleration clause"
				® "In the event debtor defaults in making payments, all remaining payments shall immediately become due."
					◊ So now, you miss payment on month 7, the next 30 years becomes immediately due, and since time for full performance has come, bank can bring immediate action.

Question 22

How can you respond if you received a repudiation?

Answer 22

1. Terminate the contract (accept the repudiation, refuse further performance, and perhaps sue immediately)
   RISK = if you’re wrong about there being a repudiation, you will become the one in breach.
2. Stay the course (continue performance and give the repudiation a chance to repent).
   RISK = losses you could have avoided by accepting repudiation are not recoverable (Luten Bridge)

IF repudiation by conduct, a third option:
3. Demand assurance of performance (suspend performance until promised performance is reasonably secured)
RISK = Must make sure (a) you have reasonable grounds for expecting a breach and (b) the assurance you demand is reasonable.
^ if not these things, your suspension will amount to a breach

Question 23

When can a party retract a repudiation?

Answer 23

A party may retract it until either
1. The other party gives notice she has accepted the repudiation OR
2. Th either party relies on the repudiation in some way.
3. (obvious) if the time for performance has passed (they would be in breach…)

Question 24

Excuses for nonperformance and their differences

Answer 24

1. Mistake
   □ Facts existing at the time the contract was entered were different than one or both of the parties believed.
   ® Mistake of EXISTING FACT

        2. Impracticability 
            □ Events occurring AFTER the contract was executed caused one party's performance to be extremely difficult or impossible.
   	 
        3. Frustration of Purpose Events occurring AFTER the contract was executed caused one party's performance to become of very little value to the other party.

Question 25

Excuses: mistake

Answer 25

A. Mutual Mistake §152
1. Both parties are mistaken to a basic assumption on which the contract was made.
2. Mistake has a material effect on the agreed exchange.
3. The party seeking to avoid the contract does not bear the risk of the mistake. (see below)

	B. Unilateral Mistake
		1. One party was mistaken as to a basic assumption on which she entered the contract.
		2. The mistake has an adverse material effect on the deal from the perspective of the mistaken party.
		3. The mistaken party does not bear the risk of the mistake. (see below)
		4. Either
			A. Enforcement would be unconscionable OR
			B. The other party caused or had reason to know the mistake.

^^ the vast majority of unilateral mistake cases involve mistaken bids.

Question 26

Excuses: mistake — when does a party bear the risk of the mistake?

Answer 26

a) When the risk is allocated to her in the contract (“as is” clauses, etc.)
b) When the party is aware at the time the contract is made, that she has only limited knowledge with respect to the facts to which the mistake relates, but she treats her limited knowledge as sufficient (rolling the dice).
c) When the court allocated the risk of mistake to the party on the grounds that it is reasonable to do so….
Principles courts seem to follow in (c)
® Party seeking to avoid is the superior insurer (better able to insure against) / avoider (better able to avoid )
Mistake concerns value, and the party seeking to avoid is an expert on value.

Question 27

Excuses: Impracticability elements

Answer 27

1. The agreed performance has been rendered impracticable (requires all alternative means be impracticable)
2. The reason is the occurrence of the event whose non-occurrence was a basic assumption upon which the contract was entered. (continued financial capability / market conditions are NOT a basic assumption).
3. The occurrence of the event was not the fault of the party seeking to avoid (fault may include negligence)
4. The risk of the occurrence is not allocated to the party seeking to avoid by the language or circumstances.

Question 28

Excuses: frustration of purpose elements

Answer 28

1. the promisor’s principal purpose in entering K has been frustrated. (TOTAL frustration required — there is NOTHING in it for me anymore).
2. The reason is the occurrence of an even whose non-occurrence was a basic assumption upon which the K was entered.
3. The occurrence of the event was not the fault of the party seeking to void.
4. The risk of the occurrence is not allocated to the person seeking to void by the language or circumstances

Main/real difference with impracticability is the first element.