Conditions Under Common Law

Question 1

What purpose do conditions serve?

Answer 1

• In some contracts, the obligation to perform is conditioned upon some event or action by the other party. Where there are such conditions in a contract, obligations are triggered when that conditioning event or action occurs.

Question 2

What are two types of conditions under the common law?

Answer 2

• Express conditions
• Implied conditions

Question 3

What happens upon the failure of an express condition?

Answer 3

• Any failure of an express condition (i.e., less than 100% strict compliance) will discharge the party’s obligation to perform.

Question 4

What are some examples of express conditions?

Answer 4

• Look for clear language of the parties.
  o EXAMPLE: “The party’s duty to perform is expressly conditioned on the promised performance.”
  o EXAMPLE: “There is no obligation to proceed unless and until the following steps are taken.”
  o EXAMPLE: “The party has a duty to perform on the condition that certain events occur” or, “only if certain event occur.”
  o EXAMPLE: “Payment is due upon completion.”
• OTHER CONDITIONAL PHRASES: “on condition that,” as long as,” “when,” “provided that”

Question 5

What are two situations in which the failure of an express condition may be excused?

Answer 5

• Two situations in which failure of the condition may be excused such that the performance obligation of the party who stood to benefit from the condition is not discharged:
  o Waiver
  o Bad faith conduct

Question 6

How would waiver make it so that performance is still required despite the failure of an express condition?

Answer 6

• The party who has been discharged from performing by the failed condition may waive the right to discharge and perform anyway.
  o NOTE: Some courts treat this as a mid-term modification, which in a common law case requires consideration.

Question 7

How would bad faith conduct make it so that performance is still required despite the failure of an express condition?

Answer 7

• When a party acts in bad-faith so as to prevent the condition, that party’s performance obligation will not be discharged.
  o EXAMPLE: In a contract for the sale of real property, the contract is conditioned on the buyer securing financing. If the buyer fails to apply for financing, this would be considered conduct in bad faith, and the buyer would be obligated to pay.

Question 8

When does an implied condition exist in a contract?

Answer 8

• When the possibility of a breach is not addressed by an express condition, it is still a breach; however, under the law of implied conditions, courts can treat that breach in one of two ways: either as a material breach or as substantial performance.

Question 9

What are the consequences of a material breach?

Answer 9

• If breach is serious enough, court will treat like failure of an express condition. The aggrieved party is generally discharged from his own performance obligations.

Question 10

What are the consequences of substantial performance?

Answer 10

• If the breach is less serious, court will treat performance as “close enough,” party has rendered substantial performance. The aggrieved party will not be discharged of his own performance obligations.

Question 11

What are two ways to mitigate the consequences of non-performance to a breaching party when a failed condition cannot be excused?

Answer 11

• Where a condition has failed and cannot be excused, there are other methods of enforcement to mitigate the consequences for the breaching party:
  o Divisibility
  o Quantum meruit

Question 12

How can a breaching party use divisibility to mitigate the consequences of non-performance?

Answer 12

• Breaching party can argue K is divisible and only part of K has been materially breached. A contract is divisible if it can be easily apportioned into agreed equivalents:
  o EXAMPLE: A one-year cleaning service contract would be divisible if the services were provided and paid for on a monthly basis, as it would be easy to apportion the larger exchange into “pairs of part performance” that are “properly regarded as agreed equivalents”—i.e., a month’s worth of cleaning in exchange for a month’s pay. To put it another way, the one-year contract is merely the sum of the 12 monthly exchanges.
  o EXAMPLE: A enters into a contract to build a house for B for $100,000, with progress payments of $5,000 due in monthly installments during construction and a balloon payment upon the architect’s certificate of satisfactory completion. The contract is not divisible, for the performances and the progress payments are not “agreed equivalents,” and the whole is greater than the sum of the parts, since no reasonable person would enter a free-standing contract for a month of construction work.
• TIP: If the whole is merely the sum of its parts, then it’s divisible. But if it’s more than the sum of the parts, it is not divisible (i.e., a house).

Question 13

What is the doctrine of quantum meruit?

Answer 13

• Where a party failed to fulfill an express condition or is in material breach, breaching party may still recover in quantum meruit the reasonable value of benefits conferred.

Question 14

What is an important limitation to quantum meruit?

Answer 14

• Recovery will be reduced by damages caused by breach.