Conditions: Has Duty to Perform Become Absolute?

Question 1

What is a “Condition” ?

Answer 1

Either:

1. an event or state of the world that must occur or fail BEFORE a party has a duty to perform; OR
2. an event or state of the world, the occurrence or nonoccurence of which releases party from duty to perform

Question 2

What is the difference between failure of a condition and failure of promise?

Answer 2

failure of promise = breach of K and gives rise to liability

failure of condition = relieves a party of the obligation to perform

Question 3

How do you determine if a provision is a “promise” versus “condition”?

Answer 3

• Look at the intent of the parties

(courts will look at words, prior practices, custom etc)

In doubtful situations, most courts will consider it a PROMISE

Question 4

What are the 3 classifications of conditions?

Answer 4

1. Condition Precedent
2. Condition Concurrent
3. Condition Subsequent

Question 5

What is a “condition precedent”?

Answer 5

“condition precedent” = a condition that must occur BEFORE a duty of performance arises in other party

Question 6

What is a “condition concurrent”?

Answer 6

“Conditions Concurrent” = conditions that are capable of occurring together, and that parties are bound to perform at same time. In effect, each is a condition precedent of the other

Example –> tender of cash for deed.

Question 7

What is a “condition subsequent”?

Answer 7

“Condition subsequent” = one that, when it occurs, cuts off an already existing absolute duty of performance

Question 8

What is an “express condition”?

Answer 8

“express condition” = explicit contractual provision

Question 9

What is the rule re: promisor’s satisfaction as condition precedent?

Answer 9

• normally, a condition of satisfaction is fulfilled if it would satisfy a REASONABLE person

EXCEPTION: if the K involves personal taste or judgement, promisor must be PERSONALLY satisfied (note: if there is bad faith, the condition will be excused)

Question 10

What is the rule if satisfaction of 3rd party is condition precedent?

Answer 10

most courts will require the actual personal satisfaction of the 3rd party

• condition will be excused if 3rd person’s dissatisfaction is not honest and in good faith

Question 11

What is a “constructive or implied condition”?

Answer 11

• implied by courts

MOST common/important –> duty of each party to render performance is condition on the other party rendering his performance

Also common –> conditions requiring notice/cooperation
EXAMPLE –> if something needs repair, giving notice that repair is needed

Question 12

What happens if K is not enforceable due to failure of condition, but one party has already fully or partially performed?

Answer 12

• can usually recover for unjust enrichment

NOTE: recovery may be less advantageous than the K price

Question 13

What are the ways in which “Excuse” of a condition may arise (8)?

Answer 13

1. hindrance or failure to cooperate
2. actual breach
3. anticipatory repudiation
4. prospective inability or unwillingness to perform
5. substantial performance
6. divisibility of k
7. waiver or estoppel
8. impossibility, impracticability, or frustration

Question 14

What is the rule re: excuse of condition due to “hindrance or failure to cooperate”?

Answer 14

if party protected by condition prevents condition from occurring, it will be excused if the prevention is WRONGFUL

Question 15

What is the rule re: excuse of condition due to “actual breach”?

Answer 15

Actual breach of duty (when performance is due) will excuse duty of counter performance ONLY if the breach is MATERIAL

Question 16

What is the rule re: excuse of condition due to “anticipatory repudiation”?

Answer 16

“anticipatory repudiation” occurs if promisor indicates that he will not perform when the time comes.

if following requirements are met, anticipatory repudiation will excuse conditions:

1. must be a bilateral K w executory (unperformed) promises on both sides;
2. must stem from words/conduct that UNEQUIVOCALLY indicates he CANNOT or WILL NOT perform;

Question 17

What is the effect of an “anticipatory repudiation” ?

Answer 17

Non-repudiating party has 4 options:

1. treat anticipatory repudiation as TOTAL REPUDIATION and SUE immediately;
2. suspend his own performance and WAIT TO SUE until performance date;
3. treat repudiation as OFFER TO RESCIND and treat K as DISCHARGED;
4. IGNORE the repudiation and urge performance (note - this does not waive the repudiation. he can still sue for breach and is excused from performing unless promisor retracts repudiation)

Question 18

What is the rule re: retraction of repudiation?

Answer 18

Repudiating party may, at any time before his next performance is due, withdraw repudiation UNLESS the other party has:

1. canceled,
2. materially changed his position in reliance on repudiation; OR
3. otherwise indicated that she considers repudiation final

Question 19

What form may retraction of repudiation take?

Answer 19

• may be made in any manner that clearly indicates intention to perform, BUT must include any assurances justifiably demanded

Question 20

What is the rule re: excuse of condition by “prospective inability or unwillingness to perform”?

Answer 20

Occurs when party has REASONABLE GROUNDS to believe that the other party will be unable or unwilling to perform when performance is due.

(Distinguish from “anticipatory repudiation”)

EFFECT –>
1. innocent party may suspend further performance on her side until she receives ADEQUATE ASSURANCES that performance will be forthcoming.

2. IF other party FAILS to provide adequate assurances, innocent party may be excused from her own performance and may treat failure to provide assurances as a REPUDIATION

Question 21

What is the difference btwn excuse of condition by “prospective inability or unwillingness to perform” and “anticipatory repudiation”?

Answer 21

• anticipatory repudiation must be UNEQUIVOCAL
• prospective inability or unwillingness to perform involves conduct or words that merely RAISE DOUBTS that the party will perform

Question 22

What is the rule with regards to “retraction” and “prospective inability or unwillingness to perform”?

Answer 22

• As with anticipatory repudiation, retraction is POSSIBLE if defaulting party regains his ability/willingness to perform.
• HOWEVER –> this fact must be communicated to innocent party in order to be effective

Question 23

What is the rule re: excuse of condition by “substantial performance”?

Answer 23

• IN general, condition of complete performance may be excused if the party has rendered SUBSTANTIAL PERFORMANCE
• In this case, other party’s duty of counter-performance becomes absolute

EXCEPTIONS:

• will generally only apply to implied/constructive conditions
• not applicable if breach is WILLFUL or MATERIAL
• not applicable to SOG, which require perfect tender

NOTE ALSO: “damages offset” - even though party who has substantially performed is entitled to enforce K, other party will be able to mitigate by deducting damages due to incomplete performance

Question 24

What is the rule re: excuse of condition by “divisibility of k”?

Answer 24

IF:

1. K is DIVISIBLE; and
2. party performs one of the units of K

..he is entitled to the agreed upon equivalent for that unit, even if he fails to perform the other units.

EFFECT: it is NOT a condition precedent to the other party’s liability that the whole K be performed

HOWEVER –> other party has COA for failure to perform the other units and may withhold his counter-performance for those units

Question 25

What is a “Divisible K” (common law)?

Answer 25

THREE REQUIREMENTS:

1. performance of each party is divided into two or more parts under the K;
2. number of parts due from each party is the same; AND
3. performance of each part by one party is agreed on as the equivalent of the corresponding part from the other party (ie.. each performance is the quid pro quo of the other)

Question 26

What is a “Divisible K” (UCC Art 2 Installment K) ?

Answer 26

Art 2 assumes K is NOT divisible unless it authorizes delivery in several lots. In this case, it’s called an “installment K”

In installment Ks, the price, if it can be apportioned, may be demanded for EACH LOT, UNLESS a contrary intent appears

Question 27

What is the rule re: excuse of condition by estoppel ?

Answer 27

• if party indicates she is waiving a condition before it is to happen AND other party DETRIMENTALLY RELIES on waive, this will be a binding waiver
• No consideration is needed
• HOWEVER –> promise to wave condition may be retracted at any time PRIOR to detrimental reliance

Question 28

What is the rule re: excuse of condition by waiver?

Answer 28

When condition does not occur or duty of performance is broken, beneficiary of condition/duty must make an election:

1. terminate her liability; or
2. continue the K

If she chooses to continue, she will be deemed to have waived the condition.

This DOES NOT require consideration or estoppel, and CANNOT be withdrawn

HOWEVER –> if no consideration is given for the waiver, it must be ancillary or collateral to the main subject of K. In other words, one cannot waive entitlement to the entire or substantially entire return performance

NOTE –> waiver severs only the right to treat failure of the condition as total breach excusing counter-performance. Waiving party does NOT waive right to damages.

Question 29

What is the special rule re: waiver in installment K’s?

Answer 29

In an Installment K –> if waiver is not supported by consideration, beneficiary of waived condition can insist on strict compliance with the terms of the K for future performance (so long as there is no detrimental reliance on waiver) by giving notice that he is revoking the waiver

Question 30

What is the rule re: excuse of condition by impossibility, impracticability, or frustration?

Answer 30

Conditions may be excused by impossibility, impracticability, or frustration

• impossibility must be objective
• ## must arise after K