Areas to be Covered● Performance of contractual conditions – Express & Implied● Breach of Contract – Material – Anticipatory● Discharge – Impossibility – Frustration
Various Meanings of Conditions● Conditions of a contract = terms of the contract themselves● Conditions to a contract = contract will not be formed unless something happens. (see next slide)● Conditions of formation = what must be done to accept the offer and form a contract.● Conditions precedent – things that must take place before obligation to perform is triggered or discharged (to be discussed)
Contract without Conditions Remember, exchange of promises is what contracts are all about. Promise to pay price Buyer exchange Seller Promise to convey landPromise = undertaking to act or refrain from acting in a specified way at some future time.
Conditions to a Contract Contract formed (promises exchanged) CONDITION NOTCONDITION SATISFIED SATISFIED Rezoning granted Rezoning denied or in 60 days. not granted in 60 days Performance proceeds: Pay Price Buyer has no obligationBUYER exchange SELLER to perform (nor does seller) Convey land
Performance of Contractual Conditions● Note – up to now we have been dealing with the formation of a contract.● This section deals with the performance of a contract.● Condition = an event that is not certain to occur. – promised performance under K is subject to condition if parties agree that performance is contingent on the occurrence of an uncertain event.
Condition v. Promise● Condition - an event that is not certain to occur. – failure discharges party from further performance. – could give rise to remedy (damages, specific performance).● Promise (warranty) - undertaking to act or refrain from acting in a specified way at some future time. – failure is breach of contract. – generally, does NOT discharge party from further performance – gives rise to action for damages.
Intent to Create a Condition● Usually clearly set forth by the parties (express)● When not, then usual contract interpretation rules are applied and an implied condition can be found: – objective standard – use of extrinsic evidence, UNLESS parole evidence rule applies● Sometimes conditions are imposed upon parties by law – These generally amount to warranties (promises) – The text deals with this kind of implied condition
Express Conditions● A condition is express if: – language of the contract, – on its face and without use of extrinsic evidence, – states the intent to make performance contingent on the event.● Commonly used expressions: – “on condition that,” “provided that,” subject to,” “if” – no special language is needed, though● NOTE – there must be strict compliance with express conditions.
Implied Conditions (Examples)● Uniform Commercial Code: – Implied warranty of merchantability ● product works and can be used as expected – Implied warranty of fitness for particular purpose – Obligation of good faith in performance and enforcement ● implied in all contracts by virtue of common law. – Implied Warranty of Good Title
Performance of Conditions● Generally, a condition must be completely and totally performed.● Courts and statutes (UCC) have allowed on occasion for “substantial performance” – This is question of fact – may give rise to action for damages – courts may treat “condition” as “promise” that was part of the contract. ● UNLESS failure to meet “condition” goes to heart of K.
Intro to Breach of ContractContract executed on April 1 First Performance due Payment of $5,000 on April 5 (Vlad) condition precedent to Commencement of painting on April 15 (Mike) Second Performance Completion of painting on April 30 (Mike) condition precedent to Payment of $3,000 on May 1 Third Performance (Vlad)
Breach of Contract● To establish breach, one must ask: – Was a promise made, and if so, what was promised? – When was the promised performance due? ● if not past due, then no breach. – Was the performance in compliance with the promise? ● Any performance that falls short of that promised is a breach. – What is the proper response to the breach? ● proper response depends upon the impact of the breach
Significance of BreachIf the breach is total ● Withhold performance if deemed conditionand material ● the promisee may ● Terminate ● Claim full damages for breachIf the breach is material ● Suspend performancebut not total the promisee may ● Await cure (if none coming then becomes total) ● Claim compensation for any loss sufferedIf the breach is notmaterial (substantial ● Claim compensation for anyperformance) the promisee may loss suffered
Material Breach● Failure or deficiency of performance is so central to the contract that it substantially impairs its value.● Distinguish this from “substantial performance” – Material breach decides whether party can terminate the K. – Substantial Performance determines whether ones imperfect performance still entitles one to sue for the K price.
Examples of BreachContract executed on April 1 First Performance due Payment of $5,000 on April 5 (Vlad) condition precedent to Commencement of painting on April 15 (Mike) Second Performance Completion of painting condition precedent to on April 30 (Mike) Payment of $3,000 on May 1 Third Performance (Vlad)
Anticipatory Breach (Repudiation)● Manifesting an intent by words or actions that a party will “breach” the contract before performance is due. – Can be either express or implied – Repudiation may be retracted if other party has neither accepted the repudiation nor changed position in reliance on the repudiation.
Repudiation Example April 1 April 4 April 5 April 15-30 May 1 Contract Mike expresses Down payment Paint FinalEntered into intent not to due painting payment perform due Mike repudiates this obligation
Repudiation Example, K Underway April 1 April 5 April 15 April 18 May 1 Contract Down payment Mike begins Vlad expresses FinalEntered into due the painting intent to payment breach due Vlad repudiates this obligation Although performance of K is underway, this is still a repudiation not a “breach” because she made it before her performance was due.
Response to Repudiation● Accept repudiation by treating it as an immediate breach. – discharges party from further performance – K is terminate – party then can sue for relief for total breach.● Delay Responding – Wait to see if party will withdraw repudiation and perform. – Attempt to convince party to perform. – may accept repudiation at any time before retraction.
Elements of Repudiation● Must be material and total● Statement of conduct must clearly indicate that party intends to materially breach when performance comes due.● Must be voluntary (deliberate & purposeful)
Impossibility● Post-formation event● the non-occurrence of which was a basic assumption – this event cannot be caused by either party – party seeking to raise this must not have borne the risk● making performance impossible – Traditional rule – had to be literally impossible – Modern Rule (Impracticability) can be accomplished only through extreme and unreasonable difficulty.
Classic Impossibility● Death of a person who is to personally perform● Supervening illegality of a performance● Destruction of subject matter● Beyond these three, relief is normally only granted when: – an unexpected event inflicts loss on one party and provides a windfall gain for the other.
Modern Impracticability● Non-occurrence of post formation event was basic assumption of K.● Effect is to make performance unduly burdensome.● Party seeking relief was not at fault● Party seeking relief did not assume the risk
Frustration of Purpose● Post-formation event● the non-occurrence of which was a basic assumption – this event cannot be caused by either party – party seeking to raise this must not have borne the risk● seriously affects the value or usefulness of the benefit – frustrating the contracts central purpose.
Examples● I hire you to make two 10 meter by 5 meter signs for my business. I tell you that I want to put them in front of my store to grab the attention of people driving by.● You make the signs, but when I measure them they are 7 meters by 3 meters. I refuse to pay and you sue.● Will you be successful? What is the question here?
Example● Music promoter enters into contract with K-Fed (Mr. Britney Spears). He agrees to pay K-Fed $1 million for 10 live shows.● After the contract is signed, K-Fed and Brit split and no one is very interested in K-Fed anymore.● Ticket sales for the upcoming shows are dismal and its clear the promoter will lose millions on this deal. The promoter claims the lack of interest in K- Fed frustrates his purpose (to make a profit) and want out of the contract. Will the promoter win?