Contracts II

8/3/2019 Contracts II

http://slidepdf.com/reader/full/contracts-ii 1/20

CONTRACTS II - 1997Joey Dudek

I. PAROL EVIDENCE RULE

• Definition of parol evidence rule: If there is a binding agreement that is either completely or partially integrated, evidence of prior agreements or negotiations is NOT admissible to

contradict a term of the writing

• integration: process of expressing the parties’ intent in a way that does NOT allow either party tocontradict expression

• 2 types of integration:i. complete: cannot be contradicted OR supplemented ii. partial: cannot be contradicted, but may be supplemented by evidence of consistent

additional terms

• integrated agreement: writing constituting final expression of parties intent as to one or more terms

• 5 questions to ask to determine if P/E rule. applies:1. Is #2 (2nd agreement) a binding agreement?

• If NO, P/E rule does NOT apply• Evidence is admissible to show that an agreement is NOT binding b/c of lack of

consideration, fraud, mistake, unconscionability, etc.

2. Is #2 an integrated agreement?• If NO, P/E rule does NOT apply

3. Is #2 a COMPLETELY integrated agreement?•

§ 210- an agreement that is intended by both parties to be a complete and exclusivestatement of the terms of the agreement

4. Is #1 inconsistent w/ #2?• if NO (1 and 2 are consistent), then P/E rule does NOT apply

5. Is #1 w/in the scope of #2?• if NO, then P/E rule does NOT apply

• general rule: parol evidence is ALWAYS admissible to show that agreement is voidable • P/E rule DOES NOT APPLY to evidence that shows:

1. writing was never intended to be operative 2. writing was to be effective ONLY upon happening of event 3. k lacks consideration 4. k is voidable due to duress, mistake, fraud, or illegality

• Important distinction: P/E rule does NOT apply to agreements made AFTER signing of a K .Evidence of modifications is admissible

• Rule: a binding and integrated agreement discharges prior agreements to the extent that they arei. inconsistent w/ the binding, integrated agreement



ii. w/in the scope of the binding, integrated agreement

• If the second agreement is ambiguous, then evidence of prior agreements should NOT be excludedas inconsistent, but should be admitted to help clarify the second agreement

• Modern trend as to P/E rule: determine intentions of parties by looking at ALL credible

evidence concerning agreement. Look at surrounding circumstances• ONLY exclude that evidence that in NOT credible

Merger clauses:

• Merger clause: provision in agreement that states that the written K is the entire

expression of the agreement between the parties

• merger clauses can be held to be unconscionable if “sprung” on the other party• if a merger clause is “boilerplate” then many cts will find that both parties did NOT intend

to be bound by clause

• merger clauses are NOT completely controlling, but do create a presumption that thewritten agreement was intended to be a complete integration

NOM clauses:• Many k’s have provision that the written K CANNOT be modified orally, only in writing

• These are known as No Oral Modification (N.O.M.) clauses

• At C/L, an oral modification WAS enforceable despite NOM

• UCC 2-209 changes the C/L in 2 ways:1. modification of K for sale of good needs NO consideration to be binding

2. If a K has a NOM, modifications must be written

Plain meaning rule:• If a writing appears to be plain and unambiguous on its face, its meaning MUST be

determined from the “4 corners” of the instrument, W/OUT resorting to extrinsic evidence• Modern trend is NOT to follow strict interpretation of plain meaning rule

• Most cts will follow the view of Corbin: No K should ever be interpreted and enforced

with a meaning that neither party gave it

• Differences between P/E rule and plain meaning rule: plain meaning rule is a principle of

interpretation, but P/E rule is NOT. (rule of evidence)

• The meaning of K is a question of fact (jury question), UNLESS the question could only

be answered one way by a reasonable jury

II. TRADE USAGE, COURSE OF DEALING

• Usage is a habitual or customary practice

• Gen rule: an agreement is interpreted in accordance w/ relevant usage IF:1. each party knew or had reason to know of the usage, AND2. neither party knew or had reason to know that meaning attached by other was NOT

consistent with the usage



• A usage of trade is one having such regularity of observance in a trade as to justify an

expectation that it will be observed w/ respect to a particular agreement

• Existence and scope of usage are questions of fact

III. FORM K’s

• Prior to 2-207, there was the “mirror image rule”: in order to exercise power of acceptance, replymust be an exact mirror image of offer

•

If reply was NOT a mirror image, then it was NOT an acceptance, but a counter offer • As more and more form K’s were being formed, there began to be “battle of the forms”



• § 2-207:1. A definite (main message) and seasonable (reas. time) expression of acceptance operates as

an acceptance to an offer, EVEN THOUGH it states terms additional to or different from those originally offered or agreed upon, UNLESS acceptance is made expressly

conditional upon assent of other party to the additional or different terms

2. The ADDITIONAL terms of the offeree’s response become part of the K, UNLESS a. the offer expressly limits acceptance to terms of offer

b. theterms materially alter the K c. notification of objection to the terms is received w/in a reasonable time after

they are received

3. Conduct by both parties that recognizes the existence of a K is sufficient to establish a

K , EVEN THOUGH the writings of the parties DO NOT establish a K . When thishappens, the terms of the K are those agreed upon in the writings, and other terms

incorporated under the UCC

• 2-207(1) - “Knockout rule”: when a K is formed under §2-207(1), conflicting or different terms

in the offer and acceptance knock each other out of the agreement

• 2-207(1) - The “expressly conditional” provision of 2-207(1) is intended to apply ONLY if theacceptance clearly indicates that the offeree does NOT wish to proceed w/ the transaction unless he is assured of offeree’s assent to the additional or different terms

• If offeree uses an “expressly conditional” clause in acceptance and offeror does NOT expressly

assent to offeree’s additional or different terms, then must look to conduct of parties [2-207(3)]

• 2-207 (2) - a term “materially alters” the K if it is a surprise or hardship

• 2-207(3) - NO K is formed by writings; K is formed by course of performance

IV. INTERPRETATION AND UNCONSCIONABILITY

• Generally, b/c form K are extremely difficult for the average person to understand, cts tend to be sensitive to claims of unconscionability when a form K is involved

• §211:3. When one party (the merchant, the person who has drawn up the k) has reason to believe

that the other party (the consumer, the party being presented the form K) would NOT assent

if he knew the writing contained a particular term, term is NOT part of the agreement

V. MISTAKE•

5 categories of mistake:

1. misunderstanding2. mutual mistake3. unilateral mistake4. mistake in transcription5. nondisclosure

A. Misunderstanding

• Raffles v. Wichelhaus - October boat/ December boat



B. Mutual mistake

• §152- where a mistake of BOTH parties (as to a basic assumption upon which the K was

made) has a material effect on the agreement, the K is voidable by the adversely affected

party UNLESS he bore the risk under §154

• § 154- party bears the risk of mistake when:a. risk is allocated to him by agreement b. he is aware at the time K is made that he has only limited knowledge of the facts

about which mistake was made and decides to proceed anyway c. ct allocates risk to him

• 154(b) is describing situation where person claiming mistake realized that there was a

possibility of mistake • If person is NOT cognizant of possibility of mistake, 154 (b) does NOT apply

• §2-314- Implied warranty of merchantability - a warranty that the goods shall bemerchantable is implied in K for their sale IF seller is merchant w/ respect to goods of thatkind

• merchantable: standard goods

B. Unilateral mistake

• §153 - If only one party makes a mistake (as to a basic assumption on which K was

made) that has a material affect on the exchange of performances, the K is voidable byhim IF :

a. he has NOT assumed risk under §154, AND b. either:

i. enforcement of K would be unconscionable ii. other party knew or had reason to know of mistake iii. other party caused mistake

C. Nondisclosure

• Misrepresentation- assertion of a fact that is NOT true

• §161 - a party has a duty to disclose a known fact IF : a. he knows that disclosure is necessary to prevent some previous assertion from be

a misrep. OR b. he knows that disclosure would correct a mistake as to a basic assumption about K

AND if nondisclosure amounts to failure to act in good faith, OR c. party knows that disclosure would correct a mistake in the written K , Or d. other party is entitled to know the fact b/c of relationship of trust and confidence

• If a party does NOT disclose a known fact under circumstances above, it is the equivalent of

a misrepresentation

• a misrepresentation is fraudulent IF the party intends assertion to induce other party toagree AND

1. he knows or believes assertion is untrue 2. he does not have confidence that he states or implies the truth

3. he knows that he does not have basis for what he states or implies as to the assertion



• a misrep. is material IF it would likely induce a reasonable person to agree to K

• If a party’s assent is induced by a fraudulent or material misrep. upon which party is justified in relying, K is voidable

• If the misrepresentation is made by a 3rd

party, K is still voidable by recipient UNLESS other party in good faith and w/out reason to know of misrep. materially relies on K

E. Mistake in transcription; reformation• General rule: party seeking to reform a K must prove by clear and convincing evidence

what the true terms of the agreed K were

• Basic idea of reformation: b/c of a mistake in transcription, the K does NOT reflect the

actual agreement of the parties.• Generally, SOF or P/E rule does NOT apply to reformation

VI. EFFECT OF CHANGED CIRCUMSTANCES

• UCC § 2-615: Delay in delivery or non-delivery is NOT a breach of K IF performance has

been made impracticable by the occurrence of a contingency that the non-occurrence of which was a basic assumption upon which K was made

• Res § 261 is the same idea: “Non-performance is NOT a breach…”

• examples of contingencies that the non-occurrence of which would be a basic assumptionupon K was made:

i. death of a person necessary for performanceii. destruction of a thing necessary for performanceiii. enactment of a governmental regulation or order

• 3 steps in determining impossibility of performance/changed circumstances:

1. contingency (something unexpected) must have occurred 2. the risk of unexpected occurrence must NOT have been allocated either by

agreement or custom

3. occurrence must have rendered performance commercially impracticable

- At what point, do added expenses become an impracticability that providesexcuse?

o Courts are not apt to excuse unless extra cost is above 50%, and thegreater the extra cost, the more likely the court will excuse

• Forseeability or even recognition of risk does NOT necessarily prove its allocation

• a duty is legally impossible if it is impracticable •

a duty is impracticable if it can only be done at an excessive or unreasonable cost

• Generally, all other thing being equal, seller bears risk UNLESS performance is extremely

burdensome. Then, buyer bears risk

• Increased cost of performance ALONE does NOT excuse performance UNLESS the rise is

due to some unforeseen contingency which alters the essential nature of the

performance



• Neither the rise or fall in the mkt. renders a performance impossible b/c that is the type of

occurrence that fixed price K’s are designed to protect against

Building of structure v. repairing a structure• If person has been hired to build a new structure, he bears the risk of its destruction

until completion and delivery

• Builder has NO claim either contractually or quasi-contractually against owner for partial performance

• If a person has been hired to repair an existing building, owner of building bears risk

• Repairer has a right to compensation for the reasonable value of goods and

materials used in repair done BEFORE destruction of building

Subcontractors on a new building:• Generally, where performance by subs on a K to do work on a new building is

rendered impossible, the Π subs

i. CANNOT recover from Δ contractor for the expenses incurred in

preparation ii. CAN recover for labor and materials “wrought” into structure (quantum

meruit)

Agreements to arbitrate:• C/L: agreement to arbitrate was NOT enforceable

• Nearly all states have passed statutes that make agreements to arbitrate enforceable

• MS has:1. statute that makes agreements to submit to arbitration future disputes in

construction K’s enforceable 2. statute that makes agreements to submit to arbitration present disputes

enforceable 3. BUT agreements to submit future disputes in NON-construction K’s are

NOT enforceable

• Once you start arbitration, you waive right to break agreement to arbitrate

Arbitration forms enforceable-Whether the provision was unconscionable?-Whether person signing agreement was authorized to waive right to sue.

•

“force majeure clauses” - excuses party for non-performance due to force majeure(usually act of God)

• K for sale of crops: usually if farmer cannot supply all or part of a specified amountto buyer b/c of crop failure, he is still responsible for the K and must satisfy by

purchasing needed commodity on open mkt.

• Frustration: where, after K is made, a party’s purpose is frustrated (not by hisfault) by occurrence of an event the non-occurrence of which was a basic assumption



on which K was made, remaining duties are discharged, unless K indicatesotherwise

- Ex: case about D renting room for purpose of watching the king’s procession.King got sick and procession was postponed. D declined to pay balance for the room, and Court discharged it –the buyer was relieved due to frustration of purpose

VII. 3RD PARTY BENEFICIARIES

• Basic problem: A contracts with B, and performance of K benefits C. To what extent should thelaw protect C’s interest although C is not in privity?

• 3rd party beneficiary = party who is not party to K but benefits from its performance• General common law rule: When a promise is made to one for the benefit of another, the one who

was to benefit from the K (beneficiary) may bring an action for its breach

• R § 302: 2 terms for 3rd party beneficiary:

1. intended beneficiary – has right of enforcement of K if recognition of a right to

performance in beneficiary is appropriate to meet intentions of K parties, AND either:

a. performance will satisfy a debt owed beneficiary (creditor beneficiary), OR b. circumstances indicatepromisee intended benefit of performance go to

beneficiary (donee beneficiary)

- promisor has a duty to perform to promise to intended beneficiary

2. incidental beneficiary – does not have right of enforcement of K against p’sor or p’see;incidental beneficiary is any to whom benefit was NOT intended

• 6 questions to decide if 3rd person was intended beneficiary:1. Would 3rd person be reasonable in relying on promise?

2.

Is promise written in way that promisor’s performance is to be rendered directly to 3rd

party?

If so, then it’s more likely that there will be a finding of intended beneficiary3. Does K mention 3

rdparty?

If so, more likely to be intended beneficiary4. Does p’see owe a duty to 3

rd party (e.g., creditor/beneficiary) that would be satisfied by performance?

5. Does p’see wish to make gift to 3rd

party?6. Has 3

rdparty or p’see suffered harm?

if only 3rd party suffers harm, then it is certainly likely that 3rd person will befound to be intended beneficiary

If promisee also suffers harm, must go to this question: Would 3rd

party’smaintaining a right of action interfere w/promisee’s remedial actions?

• P’see maintains the right to modify K w/ promisor

• Rights of 3rd party beneficiary are subject to p’see’s right to modify K • Rights of 3rd party ben. DO NOT rise above rights of p’see

• P’sor and P’see retain rights to modify or discharge K that benefits 3rd party UNLESS :1. agreement contains term that forbids modification or discharge 2. 3rd party beneficiary has materially changed position in reliance upon promise



• Promise creates NO DUTY to 3rd party ben. IF

i. NO K is formed between p’sor and p’seeii. K is voidable iii. K is unenforceable

• Right of 3rd party beneficiary is modified or discharged IF K ceases to be binding b/c of a. impracticability

b. non-occurrence of a conditionc. present or prospective failure of performanced. public policy

• Right of beneficiary against p’sor is NOT subject to:i. p’sor’s defenses against p’seeii. p’see’s defenses against p’sor

• Beneficiary’s right against p’sor IS subject to any defense arising out of beneficiary’s conduct

or agreements • R (2d) § 313 Government Contracts

(2) In particular, a promisor who contracts w/ a gov’t or gov’t agency to do an act for or render aservice to the public is not subject to contractual liability to a member of the public for consequentialdamages resulting from performance or failure to perform unless

(a) the terms of the promise provide for such liability (agreed damages provision); OR (b) the promisee is subject to liability to the member of the public for the damages and a direct

action against the promisor is consistent w/the terms of the K and w/the policy of the lawauthorizing the K and prescribing remedies for its breach

Individual 3rd party does not have the right to enforce a K made for the benefit of thegeneral public (3

rdparty not meant as intended beneficiary)

VIII. ASSIGNMENTS

A. Intro.• An assignment takes effect through the action of the assignor and assignee.

• Obligor need not accept the assignment to render it valid

• For an assignment to be valid against an obligor, the assignor MUST:i. make clear intent to relinquish the right to the assigneeii. NOT retain any control over right or any power of revocation

• When assignment is made for value, assignor’s right is extinguished

• Donative assignments:

1. Donative assignment is irrevocable IF it is in a signed writing

2. Except noted, an oral donative assignment is revocable and assignee’s right is

terminated bya. assignor’s death b. subsequent assignment by assignor c. notification of termination from assignor received by assignee

3. Donative oral assignment ceases to be revocable if before assignee’s right is

terminated , assignee obtains:



i. payment of obligationii. judgment against obligor iii. new K w/ obligor by novation

4. Donative oral assignment is irrevocable IFa. assignor should reasonably expect assignment to induce reliance by

assignee b. itdoes induce reliance, and

c. justice requires enforcement of assignment

• Non-donative oral assignment: absent statute, an assignment in exchange for

consideration is fully effective and irrevocable

• UCC 9-318(3) - The account debtor, upon proper notification of assignment, is bound to payassignee, NOT assignor

• Debtor’s failure to pay assignee after receiving notice gives rise to assignee’s claim for

wrongful payment (to assignor)

B. Assignment of rights and delegation of duties

ASSIGNMENT OF RIGHTS:• General rule: K rights are assignable

• Exception: when the K calls for rendition of personal services based upon arelationship of confidence between the parties

• K rights under a bilateral executory K can be assigned UNLESS:a. assignment would materially:

i. change duty of obligor ii. increase risk or burden of obligor iii. impair obligor’s chance of return performance iv. reduce value of K to obligor

b. assignment isforbidden by statute or is against public policy c. assignment is precluded by terms of K

• Clause in K stating that obligee CANNOT assign w/out permission of obligor inNOT absolute

• Cts will usually impose obligation of duty to deal in good faith upon obligor whorefuses to allow assignment

• Obligor can only refuse to allow assignment for good cause

• UCC is different ***********ASK ABOUT THIS*********•

UCC 9-318(4) - A term in a K between an account debtor (obligor) and assignor isineffective if it prohibits assignment of account rights

• Assignor can assign rights and debtor/obligee CANNOT stop it by term in k

DELEGATION OF DUTIES

• General rule: Delegant CANNOT free himself from liability by delegating dutiesof performance to another

• General rule II: Delegant CANNOT assign duties and liabilities under a K W/O

consent of party to whom liable



• Obligor can delegate performance of a duty UNLESS delegation is against public

policy or terms of the K

• Unless K states otherwise, a promise requires performance by a particular person

ONLY to the extent that the obligee has a substantial interest in having that

person perform (painting a portrait)

•

UNLESS obligee agrees, delegation of a duty DOES NOT discharge any duty orliability for non-performance of delegating obligor

• HYPO:Draw schematic here

• If delegee screws up job, obligee has cause of action against BOTH delegor and

delagee• If , HOWEVER, obligee and delagee have made a NEW K , then there is a novation

and obligor/delegor is no longer liable

C. Financing through assignment of claims

• HYPO:draw schematic here

• example of a “secured transaction”• obligee/assignor has assigned right to $800,000 that obligor owes him• This assignment was done a security for loans from assignee 1 and assignee 2• If obligee/assignor defaults on loans, who has priority

• Usually whoever has perfected their security interest first

4. Defenses of obligor against assignee in a commercial context



• § 336 - If right of obligee/assignor would be (1) voidable by obligor or (2) unenforceable

against obligor (if no assignment had taken place), then right of assignee is subject to

defense • In other words, if obligor would have had a defense against obligee/assignor, he can

assert that defense against assignee

• Res. 336 and UCC 9-318 are basically same, but 9-318 is clearer • 9-318 - defenses against assignee

The rights of the assignee are subject to:a. all terms of k between obligor and obligee/assignor and any defenses

arising out of K b. anyother defense or claim of obligor against obligee/assignor which

accrues BEFORE obligor receives notification of assignment

• ANY defense inherent to K are enforceable against assignee

• The date of notification of assignment is critical when the claims of obligor against

obligee/assignor arise independently of K creating the account

• Very possible that obligor is owed by obligee for a different K

•

The date determines what claims assignee is subject to

• Two theories on when claims of obligor accrue:1. when obligation to pay is incurred 2. when obligation is actually due and payable

E. Defenses in the Consumer context

• If an assignee is a good faith purchaser for value without notice of a negotiable instrument,he is a holder in due course (HDIC)

• A HDIC-assignee is NOT subject to defenses of obligor

• Consumer transactions are different than commercial trans.• In consumer transactions, the HDIC rule does NOT apply

IX. OBLIGATION TO PERFORM IN GOOD FAITH• Both the UCC(1-203)and Res.(255) impose an obligation to perform in good faith on all K’s

• MS employment at will: if there is no term of K for employment, employer may terminate K at will

and there is no obligation to do so in good faith• Bradley thinks this will change

X. SUBSTANTIAL PERFORMANCEA. General principles

• Definition of a “condition” - an event that must occur before performance under a K

becomes due, UNLESS non-occurrence is excused

• Jacob & Young v. Kent - “Reading pipe case”



• classic example of substantial performance

• Substantial performance doctrine reduces opportunistic claims of breach of K bysoftening the breacher/non-breacher distinction, thereby removing opportunities to exploit

inadvertent breaches

• Substantial performance: compliance in good faith w/ all important elements of a K

•

Doctrine seen often in construction setting• To recover in an uncompleted construction K on a claim of having substantially, but NOT

fully, performed, the contractor must make a good faith effort to perform andsubstantially perform agreement

• Doctrine of subst. perf. is altered when dealing w/ a K to build a person’s home and there isan issue as to taste

• General rule: a person has, particularly w/ respect to his home, a right to K for something

that EXACTLY meets his choice of taste and NOT be compelled to accept something

else

•

in the matter of homes and their decoration, mere taste or preference, approachingwhimsy, may be controlling w/ the homeowner, so that variations which might, under other circumstances, be considered trivial may be inconsistent w/ that “substantial

performance” upon which liability to pay is predicated

• distinguish between work not done and work not done up to standards of K

i. work not done - quantum meruitii. work not done to standards of K - subst. perf.

B. K for sale of goods

• OLD rule for k for sale of goods was the “perfect tender” rule•

perfect tender rule: buyer could reject ANY tender not exactly perfect

• perfect tender rule similar to §2-601• 2-601: Buyer’s right upon improper delivery of goodsIf goods delivered fail in ANY way to conform to K , buyer may:

a. reject the whole b. accept the wholec. accept any commercial unit and reject rest

• However, 2-601 is qualified in several important ways:1. good faith - buyer must reject in good faith

2. revocation of acceptance - 2-6083. installment K - 2-6124. cure by seller - 2-508

• 2-608: revocation of acceptance: If buyer accepts goods and THEN discovers defect, hemay revoke acceptance ONLY if the nonconformity substantially impairs value of goods(CANNOT USE 2-601)



1. Buyer who accepted goods KNOWING of nonconformance can revoke ONLY if he accepted upon a reasonable assumption that nonconformity would be cured and it has NOT been cured w/in a reasonable time

2. Buyer who accepted goods W/O knowing of defect can revoke ONLY if

acceptance was induced bya. difficulty in discovering defect, OR b. seller’s assurances

•

2-612-Intallment K’s- for installment K CANNOT USE 2-6011. Buyer can reject installment ONLY if

a. nonconformity substantially impairs value of installment, AND b. defect CANNOT be cured

2. Buyer CANNOT treat whole K as breached b/c of nonconformity of one

installment , UNLESS nonconformity substantially impairs value of entire K

• Test for “substantial impairment”:a. Is good usable by buyer? b. Is good usable by someone else? (can it be resold)

• 2-508 - Cure by seller:i. seller who has made a non-conforming tender or delivery can

make a conforming delivery w/in remaining time for performance, upon notice to buyer

ii. seller who has made a non-conforming tender or delivery and time for

performance has expired, may have a reasonable amount of additional time to

make a conforming tender, IF seller had reasonable grounds to believe that firsttender would be acceptable to buyer

•

Cure: potentially of great comfort to seller

• can minimize seller’s damages for breach of K

• Two different views of “cure” under 2-508a. PEB Study group:

i. Conforming delivery can be made by tendering new or additional goods,BUT NOT by money allowance

ii. Split as to whether repair (rather than replacement) suffices as cure

b. ABA Task force:i. Conforming delivery can be made by tendering new or additional goods,

BUT NOT by money allowance ii. Repaired goods SHOULD constitute a cure IF they satisfy original K

description

XI. EXPRESS CONDITIONSA. Intro.

• “express condition” refer to an explicit contractual provision that provides for either:1. that a party to a K is NOT obligated to perform UNLESS some event occurs or

does NOT occur



2. that if some event occurs or does NOT occur, the obligation of a party to perform

a duty is suspended or terminated

• Effects of nonoccurrence of a conditiona. Performance of a duty subject to a condition CANNOT become due unless

i. the condition occurs OR ii. nonoccurrence is excused

b. Nonoccurrence of a conditiondischarges the dependent duty when the condition canno longer occur

c. nonoccurrence of a condition is NOT a breach UNLESS party is under some duty that condition occur

• Excuse of a condition to avoid forfeiture- cts may excuse nonoccurrence of a condition IF forced occurrence would cause disproportionate forfeiture UNLESS condition was amaterial part of agreement

B. Distinctions between the operation of a promise and the operation of a condition

•

a party’s failure to fulfill a condition (w/o an independent promise to fulfill condition) isNOT a breach of K subjecting non-fulfilling party to damages for breach

• In short, if one party does NOT fulfill condition i. other party’s duty to perform is discharged, BUT

ii. other party CANNOT collect damages for breach of K

• Of course, breach of a promise DOES give rise to an action for damages

• For a condition to be fulfilled, the terms of the condition must be met exactly Must hit the“bulls-eye”, not just be close to target

•

No “substantial performance” of a condition

• If tendered performance of a condition are not exact, we automatically decide that other

party’s duty does not arise

C. Problems of interpretation

• the law of conditions can be rather harsh, so cts will try to interpret unclear language as promissory

• General rule: when the intent of the parties is not clear, the disputed language is generallyinterpreted to be promissory, rather than conditional

• This helps avoid automatic discharge of other person’s duty

• two ways to avoid automatic enforcement of a condition:

i. excuse ii. treat provision as promise, NOT condition

D. Conditions subsequent and conditions precedent

• precedent:i. some event must occur BEFORE a party becomes liable ii. Duty arises when condition precedent is fulfilled

• subsequenti. party is already liable, but will be relieved of liability by occurrence of some event



ii. Duty is discharged when a condition subsequent occurs

E. Conditions of cooperation

• General rule: Whenever cooperation of p’see is necessary for the performance of the promise by the p’sor, there is a condition implied-in-fact that cooperation will be given

F. Conditions of satisfaction

• two standards of satisfaction

a. reasonable person: used when K involves commercial quality, operational fitness,mechanical utility

b. standard of good faith: used when K involves personal taste

• General rule: If language or circumstances surrounding K reflect that parties actually

intended for one party to have the right to reject work for failure to satisfy private,

aesthetic taste, rejection is proper EVEN if unreasonable

• The risk to contractor in conditioning owner’s duty to pay on reasonable satisfaction can be avoided by making it the condition of satisfaction of a independent 3

rdparty

• In this case, cts usually interpret satisfaction to mean “honest satisfaction”

•

However, if 3rd

party’s dissatisfaction in honest, does NOT have to be reasonable• IF 3rd party’s dissatisfaction is unreasonable to the extreme, however, cts may excuse

condition by characterizing refusal as constructive fraud

G. Conditions of payment

• Intention of parties is controlling factor in each case• If disproportionate forfeiture is likely, cts will generally interpret language to be a promise

to pay, NOT a condition to pay

H. Excuse

• Excuse of a condition to avoid forfeiture- cts may excuse nonoccurrence of a condition IF

forced occurrence would cause disproportionate forfeiture UNLESS condition was amaterial part of agreement

• notice requirements in insurance cases- proper balance between interests of insurer andinsured requires factual inquiry into whether an insurer has been prejudiced by an

insured’s delay in giving notice of an event triggering insurance coverage

• If it can be shown that insurer suffered NO material prejudice from delay,nonoccurrence of the condition of timely notice may be excused b/c it is NOT a material

part of agreed exchange

XII. BREACH AND RESPONSEA. Order of performance

• § 233- where performances are to be exchanged under a bilateral K , AND the whole of a

party’s performance can be rendered at one time, it is due at one time, UNLESS language

of K or circumstances indicate contrary

• § 234 - where all or part of the performances under a bilateral K can be renderedsimultaneously, they are due simultaneously.

• 234 is kind of an “implied condition”



• 2-507 - tender of delivery is a condition to a buyer’s duty to accept or pay for goods • 2-511 - unless otherwise agreed, tender of payment is a condition to a seller’s duty to

tender and complete delivery

• General rule: when performances are to be simultaneous, neither party can recover damages

UNLESS he does something to put the other in default• Π must make a definite offer to perform while having the capacity to do so

• Π must be able to show that he was “willing and able” to perform at time performance was

due

B. Material breach

• 237 - it is a condition of each party’s remaining duties that there be NO uncured material

breach by other party

• In other words, if other party has an uncured material breach, Π can w/hold

performance

• Circumstances significant in determining if breach is material:

a. extent that injured party will be deprived of reasonably expected benefit

b. extent thatinured party can be adequately compensated for part of benefitdeprived

c. extent that party failing to perform will suffer forfeiture d. likelihood that party failing to perform will cure breach e. extent that behavior of party failing to perform comports to standards of god

faith and fair dealing

uncured material breach Total breach Partial breach§ 237 § 236(1) § 236 (2)suspend/withhold performance

cancel K damages

collect damages CANNOT w/hold performance

NO right to performanceNO duty to perform

• § 236 -

1. TOTAL breach:• injured party can collect damages based on ALL of his remaining rights of

performance • injured party has a right to cancel K

2. PARTIAL breach:• injured party can collect damages based on ONLY part of his remaining

rights to performance

• CANNOT w/hold performance



• CANNOT cancel K

• 243 (4) - when uncured material breach becomes a total breach

-Breach by non-performance gives rise to claim for TOTAL breach ONLY if it so

substantially impairs the value of the K to injured party that it is just to allow injure

party to cancel K , AND recover damages

• ONLY WHEN ABOVE OCCURS(substantial impairment of value of K ) CAN A

PARTY CANCEL K

XIII. ANTICIPATORY REPUDIATION

• § 250: A repudiation is a:a. statement by one party indicating that he will commit a breach that would give other

party a claim for total breach under §243, or

b. anaffirmative act which renders repudiator apparently unable to perform

• § 253: an anticipatory repudiation by one party:i. allows injured party to recover damages for total breach, AND ii. discharges injured party’s duties under K

• If a party to a K (1) demands a performance to which he has NO right under the K , and (2)states that, unless his demands are met, he will NOT render promised performance, then party

has anticipatorily repudiated

• However, mere request for a change in terms in K or cancellation of K is NOT a repudiation

• A party’s expressed doubts as to ability or willingness to perform is NOT a repudiation

• Although non-breaching party does NOT have to continue to perform AFTER the other party hasrepudiated, he MUST be able to show that he was willing and able to perform BEFORE the

repudiation

• When a p’sor repudiates a K, injured party has option of treating repudiation as a:1. total breach and immediately seeking damages, OR

2. empty threat (hoping that repudiating party will actually perform) and wait untilperformance is due and then seek damages

• However, IF injured party disregards repudiation and treats K as still in force, and repudiation isretracted prior to time performance is due, then repudiation is nullified and injured party MUST

wait until performance is due to seek damages

• §256 -1. STATEMENT of repudiation can be nullified by a retraction of the statement IF the

retraction comes prior to:



a. Π materially changing position based upon reliance on repudiation OR

b. Π notifies repudiator that he considers repudiation permanent

2. Effect of EVENTS constituting repudiation is nullified IF injured party knows that those

events have changed prior to:a. Π materially changing position based upon reliance on repudiation OR

b. Π notifies repudiator that he considers repudiation permanent

• 2-609(1) - When reasonable grounds for insecurity arise w/ respect to performance byeither party, the other may in writing demand adequate assurances of performance

• UNTIL such assurances are received, other party may suspend any performance due

• 2-609(4) - If a party, AFTER receipt of a justified demand to provide adequate

assurance w/in a reasonable time (not to exceed 30 days), does NOT provide such

assurance, it is a repudiation of the K

• In an action for damages b/c of an anticipatory repudiation, what date should be used tocompute damages: the date or performance or the date of repudiation?

•

Seems to be a split in the case law, but majority seems to accept date of repudiation

• 2-610: Injured party of an anticipatory repudiation may:a. for a commercially reasonable period time await performance by the repudiating

party, OR b. resort to any remedy for breach, even though he tells repudiating party that he

expects performance and urges retraction,

AND

c. in either case, may suspend his own performance

•

Injured party’s right to wait for repudiating party to perform is conditioned upon:i. waiting no longer than “commercially reasonable time”, andii. use good faith

• 2-713 - Measure of damages for repudiation by seller isMkt. price at time when buyer learned of breach - K pricedamages

• EXCEPTION to doctrine of anticipatory repudiation: if ALL duties on one side of the K

have been performed, and the only obligation remaining on other side is to perform aseries of separate acts, a breach of one or more of those acts DOES NOT permit suit to be brought for anticipatory repudiation

• REASON: there is NO total breach

• Example: 10 yr. loan to be paid back by monthly installmentsA misses third, fourth, and fifth payment



• Obvious problem w/ exception: it may force the innocent party to bring one suit after another, one for each unperformed act

• 2 ways around problem: 1. acceleration clause in K 2. Π can seek injunctive relief from a ct - prevent Δ from w/holding payments

Contracts II

Documents

Transcript of Contracts II