Express and Constructive Conditions Flashcards
Intro to Conditions
Flashcard/Study Notes: Introduction to Conditions
Definition of a Condition:
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RESTATEMENT (SECOND) OF CONTRACTS §224:
A condition is “an event, not certain to occur, which must occur … before performance under a contract becomes due.”
Examples of Conditions:
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Omni Group Case:
- Clause: “This transaction is subject to purchaser receiving an engineer’s and architect’s feasibility report … If said report is satisfactory to purchaser, purchaser shall so notify seller in writing within fifteen (15) days … If no such notice is sent to seller, this transaction shall be considered null and void.”
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Conditions Precedent:
- Condition 1: Getting the feasibility report.
- Condition 2: Satisfaction with the report.
- These conditions must occur before the buyer’s performance (buying the land) becomes due.
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Home/Car Purchases:
- Home buyer’s duty to buy is conditioned on getting a home loan.
- Car buyer’s duty to buy is conditioned on getting a car loan.
- Condition: Getting the loan, an event that may not happen (loan may be denied).
Key Concepts:
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Condition vs. Promise:
- A condition is not always a promise; it is an event that must occur before performance is due.
- A promise is an assurance to do something, which may or may not be conditional.
- A promise may also be a condition in certain contexts, but not always.
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Effects of Non-Occurrence of a Condition:
- If a condition does not occur, the parties’ duties to perform are excused, and neither party can sue for breach.
- If a promise is not performed, it is a breach of contract, but the duties of further performance are not excused.
Comparison of Clauses:
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Omni Group Clause:
- Both conditions and promises (e.g., good faith efforts to get the report and satisfaction).
- If Omni Group failed to make a good faith effort or acted in bad faith, it would be a breach of the implied promises.
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Lottery Clause:
- “I will buy your land for $250,000 only if my lottery ticket wins.”
- Condition: Getting the winning ticket.
- No promise to win, so if the ticket doesn’t win, the buyer’s duty to perform is excused, and the seller cannot sue for breach.
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Promise to Wash Floors:
- “I promise to sell you my house and wash the floors.”
- Not a condition: The buyer’s duty to buy the house is not dependent on the floors being washed.
- If the seller doesn’t wash the floors, it’s a breach of contract, but the buyer must still go through with the purchase.
Summary:
- Conditions are events that must happen for performance under a contract to be required.
- A condition may also be a promise if the party is required to take steps to ensure the event occurs.
- The non-occurrence of a condition excuses performance and prevents breach.
- Promises are not dependent on conditions, and failure to perform is a breach, but performance is still required.
Types of Conditions
Express conditions are conditions actually stated as terms of the parties’ contract. Constructive conditions are conditions imposed by the courts in connection with bilateral contracts to achieve justice between the parties.
The third type of conditions, implied-in-fact conditions, are necessary conditions the court concludes that the parties must have intended to be part of their deal but did not expressly state in their agreement.
Express Conditions
Flashcard/Study Notes: Creation of Express Conditions
Definition of Express Condition:
- Express Condition: A condition explicitly stated in the contract, rather than implied.
- Determining if a term creates an express condition involves contract interpretation, and the parol evidence rule may be relevant.
Process of Identifying an Express Condition:
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Language Analysis:
- Courts determine if the language used conveys the intent to make performance dependent on the occurrence of an event.
- A term is an express condition if the language communicates the requirement of an event before further performance is due.
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Example of Omni Group Case:
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“Subject to” Clause:
- The term requiring reports in the Omni Group case is an express condition because the phrase “subject to” clearly communicates the intent to make further performance (buying the property) dependent on getting the report.
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“If” Clause (Satisfaction Condition):
- The term requiring satisfaction uses the word “if,” which generally suggests a conditional relationship. The clause states the transaction is “null and void” if the buyer is not satisfied. This conveys the intent to make performance dependent on satisfaction, making it an express condition.
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“Subject to” Clause:
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Common Student Error:
- Express Term ≠ Express Condition.
- A promise (e.g., seller’s promise to mop the floor) is an express term, not an express condition.
- For an express term to be an express condition, it must state that further performance depends on the event (e.g., “the buyer’s duty to buy is expressly conditioned on the seller mopping the floor”).
Types of Express Conditions:
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Satisfaction Clauses:
- A common form of express condition; often treated as a condition, especially in the context of satisfaction (e.g., “If I am satisfied with the report, I will proceed with the transaction.”).
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Pay When Paid Clauses:
- A recurring express condition in construction and service contracts. Performance (payment) is conditional upon another party’s payment being received first.
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Time Is of the Essence Clauses:
- Another type of express condition, where strict adherence to time is required. Delays in performance may excuse the other party’s duties.
Summary:
- Express conditions are explicitly stated terms that make performance dependent on the occurrence of an event.
- Key indicator phrases: “subject to,” “if,” “expressly conditioned.”
- Satisfaction clauses, pay when paid, and time is of the essence clauses are common examples of express conditions.
- Express terms (e.g., promises) are not the same as express conditions, unless the contract explicitly conditions performance on the occurrence of the event.
Express Conditions
Tacoma Northpark, LLC v. NW, LLC
FIRAC: Tacoma Northpark, LLC v. NW, LLC
96 P.3d 454 (2004)
Court of Appeals of Washington, Division 2
Facts:
- On November 22, 1999, O’Connor entered into a purchase agreement with NW for land, with the intention to build homes for sale.
- The purchase agreement had addenda that made the transaction contingent upon:
1. Final plat approval by the City of Tacoma.
2. Obtaining financing for construction loans.
3. Various feasibility reports, utility agreements, and permits.
- NW’s obligation was to provide final plat approval, but the City never approved the final plat.
- The agreement was delayed several times, but O’Connor and NW eventually closed on part of the property, with some lots assigned to United Builders of Washington, Inc.
- NW encountered financial difficulties and was unable to complete the platting process, and O’Connor declined to purchase the property “as is.”
- NW eventually sold the land to Tacoma Northpark without informing them of the prior agreement with O’Connor.
- Tacoma Northpark filed a quiet title action and O’Connor and United cross-claimed for breach of contract.
Issue:
- Whether NW’s failure to obtain final plat approval constituted a breach of contract, and whether O’Connor was entitled to damages, given that final plat approval was a condition precedent to the purchase agreement.
Rule:
- A condition precedent is an event that must occur before a party’s performance becomes due, and if it does not occur, it excuses the other party from their obligations without subjecting the non-performing party to liability.
- A promise requires performance, and if it is not performed, it constitutes a breach, subjecting the promisor to liability.
- In contract interpretation, the intent of the parties determines whether a term is a condition precedent or a promise. The courts generally favor interpreting uncertain terms as promises unless the language is clear that the term is a condition precedent.
Analysis:
- The addenda in the purchase agreement used phrases such as “subject to” and “contingent upon,” which indicated that final plat approval was intended to be a condition precedent, not a promise.
- Since final plat approval was a condition precedent, NW’s failure to secure it did not result in a breach of contract. O’Connor was not obligated to proceed with the purchase if the condition (final plat approval) was not fulfilled.
- NW’s efforts to obtain final plat approval, though unsuccessful, were made in good faith, and substantial evidence supported that NW acted in good faith throughout the process.
- Because the condition precedent was not met, O’Connor was not entitled to damages, as NW was not liable for failure to perform a contractual obligation but was excused from performance due to the unmet condition.
Conclusion:
- The court ruled that final plat approval was a condition precedent, not a promise. Since NW made a good faith effort to obtain the approval, and the condition was not fulfilled, the court affirmed the trial court’s decision that NW did not breach the contract, and O’Connor was not entitled to damages.
Express Conditions
Howards v Federal Crop Ins Corp
FIRAC: Howard v. Federal Crop Insurance Corp.
540 F.2d 695 (1976)
United States Court of Appeals, Fourth Circuit
Facts:
- In 1973, the Howards insured their tobacco crops under three policies issued by the Federal Crop Insurance Corporation (FCIC), covering losses due to weather damage.
- The Howards claimed their tobacco crops were severely damaged by heavy rains, resulting in a gross loss exceeding $35,000.
- After harvesting, the Howards plowed or disked the damaged tobacco fields to prepare for planting a rye cover crop before the FCIC adjuster could inspect the fields.
- The FCIC denied the claims, citing a policy provision (subparagraph 5(f)) that tobacco stalks should not be destroyed before an inspection.
- The district court ruled that the Howards’ failure to comply with this provision was a breach that forfeited their coverage.
Issue:
- Whether the provision in the insurance policy (subparagraph 5(f)) requiring tobacco stalks to remain undestroyed until the FCIC inspection creates a condition precedent that forfeits coverage if violated.
Rule:
- A condition precedent is an event or act that must occur before a party’s obligation to perform arises. If the condition is not met, the performance (or payment) obligation is excused.
- A warranty is a promise or assurance by one party, and failure to comply with a warranty may result in a forfeiture of benefits.
- Where the language of a contract or insurance policy is unclear, courts generally favor interpreting it as creating a promise rather than a condition precedent, and will not enforce a forfeiture unless the language plainly requires it.
Analysis:
- Subparagraph 5(b) of the policy clearly states it as a condition precedent to recovery, but subparagraph 5(f) does not use the term “condition precedent” and merely forbids the destruction of stalks before inspection.
- The Howards argued that the policy provision should be interpreted as an obligation or promise, not a condition precedent, based on the lack of explicit “condition precedent” language in subparagraph 5(f).
- The court reviewed the general legal principle that forfeitures in insurance contracts are disfavored, and any ambiguity in language should be construed against the insurer.
- The court distinguished this case from the precedent in Fidelity-Phoenix Fire Insurance Co. v. Pilot Freight Carriers, where the term “warranty” was used and had been construed as a condition precedent.
- The court emphasized that subparagraph 5(f) did not include language that would clearly indicate a condition precedent, such as stating that the insurance would not be payable until after inspection.
- The court applied the RESTATEMENT OF THE LAW OF CONTRACTS, which holds that when it’s unclear whether a provision is a promise or condition precedent, courts generally interpret it as a promise unless the language strongly supports a condition precedent.
- Based on these principles, the court found that subparagraph 5(f) did not operate as a condition precedent and thus the Howards’ failure to preserve the tobacco stalks did not forfeit their coverage.
Conclusion:
- The court reversed the district court’s decision granting summary judgment for FCIC. The court held that subparagraph 5(f) did not create a condition precedent and did not result in a forfeiture of the policy coverage. The case was remanded for further proceedings to resolve other factual issues.
What is a time is of the essence clause?
A “time is of the essence” clause is a standard provision in contracts that emphasizes the importance of strict adherence to deadlines. When included, it makes timely performance a critical part of the agreement, meaning that failure to meet deadlines may result in a breach of contract. These clauses are common and often considered “boilerplate” terms—standard language included without much thought about their consequences. However, it’s important to carefully consider the inclusion of such clauses, as they can significantly affect the rights and obligations of the parties involved.
Time is of the essence clauses
Pederson v McGuire
FIRAC Summary: Pederson v. McGuire, 333 N.W.2d 823 (1983)
Facts:
The case involves a real estate purchase agreement for Cargill Tract # 1 in Sioux Falls, South Dakota, between the appellees (Pedersons) and appellant (Sioux Sound Co.). The tract had a historical easement and a 1978 license for a private roadway crossing over a railroad easement. The appellant, after discovering the easement and license during a title search, canceled the agreement, citing issues with the license. Appellees made efforts to clear the title and offered to amend the license, but appellant refused, leading to a trial. The trial court ruled in favor of the appellees.
Issue:
Whether the “time is of the essence” clause in the purchase agreement made time a critical factor in the contract performance and whether appellant was justified in canceling the agreement due to title issues related to the 1978 license.
Rule:
1. Under SDCL 53-10-3, time is considered of the essence in a contract only if expressly stated, but it must align with the intentions of the parties and the purpose of the contract.
2. A contract may not be specifically enforced if the seller cannot deliver a title free from reasonable doubt, as per SDCL 21-9-6.
Application:
- The purchase agreement explicitly stated that “time is of the essence,” but the contract lacked specific timelines for full payment and deed transfer, making the performance obligations indefinite.
- Despite the “time is of the essence” clause, the court found that time was not critical because the contract did not set clear deadlines for performance, implying that a reasonable time for performance could be allowed.
- Appellees’ actions to clear the title, including efforts to cancel the easement and resolve the 1978 license issue, were deemed reasonable. The appellant had agreed to purchase the property subject to the easement and license, which were recorded at the time of agreement.
Conclusion:
The court affirmed the trial court’s decision, holding that the appellees had acted diligently to resolve the title issues and had cured any defects in the title. The trial court’s judgment was upheld, and the appellant’s cancellation of the agreement was not justified.
Satisfaction clauses
Mattei v Hopper
Facts: Plaintiff, a real estate developer, sought to purchase defendant’s land to construct a shopping center. The parties executed a deposit receipt agreement where plaintiff deposited $1,000 of the total $57,500 purchase price. The agreement allowed 120 days for plaintiff to secure satisfactory leases for the property. Defendant later refused to sell the property after the 120 days, even though plaintiff had secured leases and was ready to pay the remaining balance. Plaintiff sued for breach of contract.
Issue: Whether the contract was enforceable given the clause stating that the agreement was subject to plaintiff securing leases satisfactory to him. Specifically, the issue was whether the contract lacked mutuality of obligation or contained an illusory promise due to the “satisfactory leases” condition.
Rule:
A contract must have mutual obligations to be enforceable; otherwise, it lacks consideration and is void.
Clauses requiring satisfaction based on personal judgment (e.g., “satisfactory” leases) are valid if they are made in good faith, but they should not leave one party with the arbitrary right to withdraw from the contract.
Application:
The court found that the clause making the agreement subject to securing “satisfactory” leases was not necessarily a condition precedent, but a provision allowing plaintiff to terminate the contract if he was dissatisfied.
The court discussed the importance of mutuality in a contract and the requirement for both parties to have obligations. In this case, the “satisfactory” leases clause gave plaintiff the discretion to decide whether the leases met his requirements, but this did not render the contract illusory. The agreement still contained mutual obligations, as defendant had to convey the property and plaintiff had to pay the agreed purchase price.
The court distinguished between satisfaction clauses based on commercial value (which can be objectively measured) and those based on personal judgment (like the satisfaction of leases), which the court allowed to be enforced if done in good faith.
Conclusion: The court reversed the judgment, finding that the contract was enforceable. The clause regarding “satisfactory” leases did not render the contract illusory, as the provision was enforceable if plaintiff exercised his judgment in good faith.
What is a satisfaction clause?
Satisfaction Clause (U.S. Contract Law):
A satisfaction clause makes one party’s performance dependent on the other party’s satisfaction:
- Subjective Satisfaction: Based on personal taste or opinion; must act in good faith.
- Objective Satisfaction: Evaluated by measurable standards; uses a reasonableness standard.
Good faith and reasonableness are key principles. Common in contracts involving services or custom work.
Constructive Conditions
Definition: Constructive conditions are implied by courts to determine the order of performance in contracts, especially when no express conditions are stated. They help clarify who must perform first or if performance is concurrent.
Types:
1. Constructive Condition Precedent: One party must perform before the other.
2. Constructive Condition Concurrent: Both parties must perform or tender performance at the same time.
3. Independent Promise: A party must perform their promise regardless of the other party’s performance.
Key Concepts:
- Mutual Obligations: Courts impose constructive conditions to avoid chaos in contracts with multiple performances and no order specified.
- Performance Standards: For constructive conditions, courts use substantial performance rather than strict compliance, considering five factors to assess performance.
- Breach Consequences: Failure to meet a constructive condition excuses performance of dependent promises, similar to express conditions.
The Rules RE the effect of constructive conditions
Rules Regarding the Effect of Constructive Conditions
(1) If the court determines the parties intended that one party go first, it will impose a “constructive condition precedent,” which means that the party whose performance must happen second has no duty to perform unless the other party has performed.
(2) If the court determines the parties intended that both parties perform at the same time, it will impose a “constructive condition concurrent,” which means that each party must perform (render) or offer to perform (tender) for the other party to have a duty to perform.
(3) If the court determines the parties intended that a promise or set of promises must be performed regardless of whether any other performance is rendered first, the court will deem that promise “independent,” which means that the promisor must perform the promise regardless of whether the other party has performed any of his or her promises.
Creating a constructive condition
Kingston v Preston
FIRAC: Kingston v. Preston (1773)
Facts:
- Plaintiff and defendant entered into an agreement where the plaintiff was to serve the defendant as a silk-mercer for a year and a quarter, and in return, the defendant would give up his business to the plaintiff and his nephew (or another person nominated by the defendant).
- The agreement included the plaintiff accepting the business and stock, signing deeds of partnership, and providing security for £250 monthly payments to the defendant.
- The plaintiff claimed to have performed his duties but sued the defendant for failing to surrender his business.
- The defendant countered that the plaintiff did not provide sufficient security as required by the contract.
Issue:
- Whether the covenants in the agreement were independent or dependent, and if the plaintiff’s failure to provide security excused the defendant’s obligation to transfer his business.
Rule:
- There are three types of covenants:
1. Mutual and independent covenants.
2. Dependent covenants, where one party’s performance is contingent on the other party’s performance.
3. Mutual covenants that must be performed simultaneously.
Application:
- The court concluded that the covenants in the agreement were dependent, with the defendant’s obligation to transfer his business conditioned upon the plaintiff providing adequate security.
- The essence of the contract required the defendant to have security before giving up his business, making the plaintiff’s performance (providing security) a condition precedent to the defendant’s obligation to transfer his business.
Conclusion:
- Judgment was given for the defendant because the plaintiff’s failure to perform his part (providing sufficient security) excused the defendant from performing his obligations under the contract. The plaintiff’s promise to provide security was a condition precedent.
Creation of constructive condition
Price v Van Lint
FIRAC: Price v. Van Lint (1941)
120 P.2d 611 (1941), Supreme Court of New Mexico
Facts:
- On December 23, 1939, an agreement was signed between the plaintiff, C.S. Price, and the defendant, V.J. Van Lint, in which Van Lint agreed to deposit $1,500 for the plaintiff’s loan by February 1, 1940, for the construction of a building.
- In return, the plaintiff was to provide a mortgage-deed and insurance for the full loan amount as security for the loan. The loan was to be used for purchasing land from the Maxwell Land Grant Company, and a warranty deed would be executed once the plaintiff received it.
- Van Lint advanced $134 to the plaintiff as part of the purchase price of the land. However, due to unforeseen difficulties, Van Lint did not deposit the full loan amount as agreed by February 1, 1940.
- The plaintiff then sued for breach of contract, claiming damages due to the failure to deposit the loan funds as promised, which delayed his construction project.
Issue:
- Whether the promises made by the defendant to deposit the loan and by the plaintiff to provide a mortgage were dependent or independent covenants.
Rule:
- The general rule is that mutual covenants in a contract are independent unless the nature of the contract or the surrounding circumstances compel a contrary inference. Specifically, promises to pay money or perform an act are often considered independent unless the contract’s language or facts suggest that one party’s performance is a condition precedent to the other party’s performance.
Application:
- The court found that both parties were aware of the delay in the delivery of the deed to the property, and thus, the plaintiff would not be able to provide the mortgage until the deed was received.
- The court determined that the defendant’s promise to deposit the loan and the plaintiff’s promise to provide the mortgage were independent covenants. The defendant was obligated to deposit the loan, regardless of whether the plaintiff had received the deed or could provide the mortgage at that time.
- The mutual covenants in the contract were not dependent on one another. The plaintiff’s failure to provide the mortgage did not excuse the defendant’s failure to deposit the loan, as the contract’s performance was not conditioned on the plaintiff’s actions.
Conclusion:
- The court concluded that the defendant breached the agreement by failing to deposit the loan by February 1, 1940, as promised. The court ruled in favor of the plaintiff, awarding him damages of $543.55, which reflected the damages suffered due to the delay in the construction of his building.
Key Takeaway:
- The case illustrates how courts interpret mutual covenants in contracts to determine whether they are independent or dependent. In this case, the court held that the defendant’s promise to deposit the loan was an independent obligation, and the plaintiff was entitled to damages for the defendant’s breach, despite the plaintiff’s failure to provide the mortgage at the time of the breach.
What is a constructive condition in the context of a promise?
A constructive condition is a duty that must be fulfilled for another duty to arise.
In the hypothetical about the parent and child, what must the child do to receive her allowance?
The child must fully clean her room.
What actions did the child take in the cleaning scenario?
The child made her bed, vacuumed the carpet, and dusted the furniture.
What did the child miss in her cleaning efforts?
Two sheets of scrap paper that had fallen behind her desk.
Should the child receive her allowance for her cleaning efforts?
It depends on whether the constructive condition of substantial performance is met.
What distinguishes express conditions from constructive conditions?
Express conditions require perfect performance, while constructive conditions require substantial performance.
Fill in the blank: Constructive conditions require _______ performance.
substantial
True or False: A constructive condition must be completely fulfilled for the other party’s obligation to arise.
False
What is the relationship between the child’s duty to clean and the parent’s duty to pay?
The child’s duty to clean is a constructive condition precedent of the parent’s duty to pay.
occurence of constructive conditions
Plante v Jacobs
FIRAC Case Brief: Plante v. Jacobs
Facts:
In this case, the defendants, Jacobs, argued that the plaintiff, Plante, could not recover any amount for his construction work because he had not substantially performed the contract. Plante conceded he failed to complete certain items, including kitchen cabinets, gutters, downspouts, and other small items, totaling $1,601.95, which the defendants allowed. The defendants also claimed numerous other incomplete or faulty work items. The main dispute centered on the misplacement of a wall that caused the living room to be narrower by over a foot. The defendants argued that this mistake would cost approximately $4,000 to correct, while real estate experts testified that the change would not affect the house’s market value. Despite these issues, the defendants had already moved in and were living in the house.
Issue:
1. Whether the plaintiff, Plante, substantially performed the contract, despite failing to complete certain items and causing a misplacement of the living room wall.
2. Whether the defendants were entitled to recover damages based on the cost of repairs or the diminished value of the house.
Rule:
Under common law, substantial performance in a contract means that the performance meets the essential purpose of the contract. Substantial performance does not require perfection, but defects must not be of such magnitude that they defeat the contract’s main objectives. When a contract is substantially performed but incomplete, damages should be calculated based on the difference in value between the property as completed and its value had the contract been strictly followed. The diminished-value rule is typically applied when correcting defects would result in unreasonable economic waste.
Application:
The court ruled that Plante had substantially performed the contract, despite the incomplete items and the misplacement of the living room wall. The court emphasized that substantial performance does not mean strict adherence to every detail, especially when the contract’s specifications were general and not highly detailed. The court determined that the misplacement of the wall did not significantly impact the market value of the house, as confirmed by expert testimony, and thus, the defendants were not entitled to repair the wall at such a high cost. The damages should be based on the diminished value of the house rather than the cost of repairs, as correcting the wall would cause significant economic waste.
Regarding the disputed items, the court affirmed the trial court’s decision to allow damages based on repair costs for minor defects (e.g., ceiling cracks, patio repairs) but denied claims for extras not documented in writing, as the contract required written approval for such changes.
Conclusion:
The court affirmed the trial court’s judgment that the plaintiff had substantially performed the contract and that the defendants were entitled to damages based on the diminished value of the house, not the cost of repairs. The claims for extras were disallowed due to lack of written agreement. The judgment in favor of Plante was upheld.
Excuse of Conditions and Discharge of Obligations
Flashcard Summary:
- Breach: Any deviation from perfect performance of a contract, including both non-performance and defective performance.
- Discharge: The release of a party’s contractual obligations, typically occurring when a party fully performs their duties, but also possible in specific circumstances (e.g., listed in Table 12-1).
- Excuse: A situation where the court disregards or puts aside a condition upon which a duty depends, allowing the dependent duty to remain in effect even if the condition is not met.
Non-Occurrence of a Condition
Most commonly litigated. non-occurrence discharges or excuses any duty made dependent on the occurrence of that condition.
Waiver Estoppel and Prevention/Failure to Cooperate
Flashcard Summary:
- Non-Occurrence of a Condition can be excused by waiver, estoppel, or bad faith, but only for relatively minor issues.
- Waiver: An intentional relinquishment of a known right. A party may waive a condition and perform the duty anyway (e.g., insurer promises to cover an accident even if notice was late).
- Estoppel: A party is prevented from asserting a non-occurrence of a condition if they misstate facts or fail to disclose them, leading the other party to rely on the false impression (e.g., insurer tells the insured that notice can be given in 90 days instead of 30).
- Bad Faith: If one party prevents the other from performing, or if a party frustrates a condition, bad faith can excuse the non-occurrence. (e.g., buyer refuses to inspect the painting as required, excusing the condition).
- Application Complexity: The line between waiver and estoppel can be unclear, and bad faith often serves as a ground for discharge or excusing non-occurrence of a condition (e.g., Schultz and Prousi cases).
Schultz v LA Dons Inc
FIRAC: Schultz v. Los Angeles Dons, Inc.
- Facts: Schultz, a professional football player, signed a contract with the Los Angeles Dons to play during the 1948 season for $8,000. After reporting to training, he sustained a back injury, which led to his discharge by the team on August 12, 1948. Schultz claimed the discharge was without cause and that he was willing and able to perform his contractual duties after recovering from the injury. The team contended Schultz had failed to disclose his prior injury and was not physically fit to perform.
- Issue: Whether Schultz’s discharge was without cause and if he is entitled to the remaining contract amount of $7,500 despite not fully performing under the contract.
- Rule: A party may be discharged from a contract without cause, but if the discharge is unjustified, the discharged party can treat the contract as at an end and seek damages for lost profits.
- Application: The court found Schultz had performed all that was required of him under the contract before his injury. The discharge by the Dons was without good cause, and Schultz was not required to continue performing after the wrongful discharge. Despite the injury, which was sustained during the performance of his contract duties, the Dons had assumed the risk of such an injury under the contract terms.
- Conclusion: The court affirmed the judgment in favor of Schultz, awarding him $7,500 in damages. The failure to provide written notice of the injury was excused as the Dons had actual knowledge of the injury and had waived the requirement for written notice.
Prousi v Cruisers Div of KCS Intern Inc
FIRAC: Prousi v. Cruisers Div. of KCS Intern., Inc.
- Facts: Prousi purchased a yacht from Greenwich Boat Works, an authorized dealer of Cruisers, in April 1995. The yacht’s engine was manufactured and warranted by Crusader. Prousi reported several issues with the boat, including engine problems, and had repairs done by non-authorized dealers. In October 1995, after further issues with the engine, Prousi notified both Cruisers and Crusader about the engine’s defects. Prousi filed a lawsuit in October 1995, alleging warranty violations, arguing that defects in the installation or attachments to the engine caused water intrusion, rendering it inoperable.
- Issue: Whether Cruisers can deny warranty coverage due to Prousi’s failure to deliver the yacht to an authorized dealer as required by the warranty, and whether Cruisers waived this condition.
- Rule: A condition precedent to a warranty claim, such as delivering a boat to an authorized dealer, may be waived if the manufacturer’s conduct indicates an intention to relinquish that right. Waiver can arise from actions that mislead or prejudice the party relying on the waiver.
- Application: Cruisers argued that Prousi failed to perform the condition precedent (delivering the boat to an authorized dealer) and thus should be denied warranty coverage. However, Prousi presented evidence that Cruisers had waived the condition by providing replacement parts and offering reimbursement for repairs made by unauthorized dealers. Additionally, Prousi claimed that he was never informed about the warranty terms, which was unchallenged by Cruisers. A fact-finder could reasonably conclude that Cruisers’ conduct led Prousi to believe that bringing the boat to the New Jersey dealer was unnecessary.
- Conclusion: The court denied Cruisers’ motion for summary judgment, finding that Prousi had presented sufficient evidence of waiver. Prousi’s failure to perform the condition precedent could be excused if it was proven that Cruisers waived the requirement through its conduct.
Anticipatory Repudiation and Failure of Assurances
The topics of anticipatory repudiation and failure to provide assurances relate to situations where one party is likely to fail in performing their obligations under a contract. Here’s a breakdown of the key concepts:
Anticipatory Repudiation:
Definition: Occurs when one party clearly indicates, before the time for performance arrives, that they will not fulfill their contractual obligations. This is an unequivocal rejection or refusal to perform.
Legal Effect: If anticipatory repudiation occurs, it discharges any dependent duties of the other party, allowing them to stop performance or seek a remedy immediately.
Relationship with Failure of Assurances:
If a party has reasonable doubt about the other party’s ability or willingness to perform, they can demand assurance. If assurance is not provided, this could lead to a claim for anticipatory repudiation.
Failure of Assurances: If the party requesting assurance is not satisfied, they may treat this as anticipatory repudiation and act accordingly, either by halting performance or seeking damages.
In Rockingham County v. Luten Bridge Co., the court found that Rockingham’s notification to stop work on a bridge was an anticipatory repudiation, as it indicated they would not fulfill their obligation to pay for the completed work.
Wallace Real Estate Investment, Inc. v. Groves
881 P.2d 1010 (1994)
FIRAC Case Brief: Wallace Real Estate Investment, Inc. v. Groves, 881 P.2d 1010 (1994)
Facts:
Joanna Groves and her cousins, Charles and James Siler, owned 10 acres of undeveloped commercial property and entered into a contract with Roddy Cox on August 1, 1989, for $1,520,000. Cox made a $20,000 down payment and was allowed 30 days to conduct a feasibility study, after which he could either proceed with the sale or withdraw. Cox intended to assign his interest to Wallace Real Estate Investment, Inc. (Wallace), which he did in September 1989. The parties agreed to multiple addendums, extending the closing date and modifying extension payments. On December 13, 1990, Wallace informed the sellers he could not close on December 17, requesting a new agreement to close in January 1991. The sellers refused and proceeded with the closing on December 17, 1990. Wallace did not attend the closing, and the sellers canceled the agreement on December 24, 1990, retaining all payments made as liquidated damages. Wallace filed suit to recover the payments, and both the trial court and the Court of Appeals ruled in favor of the sellers.
Issue:
1. Whether the liquidated damages clause was enforceable.
2. Whether Wallace’s actions, particularly the December 13 letter, constituted an anticipatory breach of contract, excusing the sellers from performing.
Rule:
1. A liquidated damages provision is enforceable unless it is deemed a penalty or unlawful. In Washington, liquidated damages are enforceable if the agreement is entered into fairly and with a reasonable estimate of probable damages.
2. An anticipatory breach occurs when one party clearly repudiates the contract before the time for performance, excusing the other party from performing.
Application:
1. The court upheld the liquidated damages clause as reasonable. The provision was included to compensate the sellers for losses from holding the property off the market and from potential real estate price increases. The parties agreed to the clause in the context of their business dealings.
2. The court ruled that Wallace’s December 13 letter constituted an anticipatory breach. Wallace’s statement that he could not perform on December 17 and requested a new closing date was a clear and unequivocal repudiation of the contract. The sellers were entitled to rely on this breach and did not need to attend the scheduled closing.
Conclusion:
The court affirmed the decision in favor of the sellers. The liquidated damages clause was enforceable, and Wallace’s December 13 letter was deemed an anticipatory breach, excusing the sellers from performing and entitling them to retain the payments as liquidated damages.
Impracticability
Summary of Impracticability Elements and Rules:
Elements of Impracticability:
1. An unforeseen event occurs.
2. The event makes a party’s performance impracticable, significantly altering the nature of the required performance.
3. The non-occurrence of the event was a basic assumption of the contract.
4. The party claiming impracticability is not at fault for causing the event.
5. The party claiming impracticability did not assume the risk, either because:
- The contract does not assign the risk,
- The event was unforeseeable, or
- The event was beyond their control and could not be avoided.
Rules Regarding Impracticability:
1. Material Impracticability: If the impracticable performance is a key part of the contract, it excuses the performance and discharges the rest of the contract.
2. Non-material Impracticability: If the impracticable performance is not a key part, it is excused, but the rest of the obligations still stand.
Key Points:
- Impracticability can discharge obligations if the performance becomes impossible or excessively difficult, but the effect on the contract depends on whether the impracticable performance is material.
- Impracticability can also excuse non-occurrence of conditions (e.g., conditions that are non-material), which means it might not discharge the whole contract but rather excuse part of the performance.
- The impact of impracticability on future obligations depends on whether the performance is considered essential (material) or non-essential (non-material) by the court.
This principle of impracticability often involves determining whether the unforeseen event was within the control of the party and whether the risk of such an event was assumed by the contract.
