Contracts II - Conditions

Question 1

How can conditions be categorized chronologically?

Answer 1

Precedent
Concurrent
Subsequent

Question 2

What three types of conditions exist there? (important for interpretation)
How does the professor categorize these for simplicity?

Answer 2

1) Express
2) Implicit
3) Constructed

Express are the same as inferred (implied in fact)

Question 3

What does the Restatements (First) say on interpretation of conditions?

Answer 3

The RESTATEMENT OF THE LAW OF CONTRACTS states:
$261. Interpretation of Doubtful Words As Promise or Condition
Where it is doubtful whether words create a promise or an express condition, they are interpreted as creating a promise; but the same words may sometimes mean that one party promises a performance and that the other party’s promise is conditional on that performance (note: that is the case with bilateral contracts, where there exist always two constructed conditions).

Question 4

Taken from Restatements (First):

A, an insurance company, issues to B a policy of insurance containing promises by A that are in terms conditional on the happening of certain events. The policy contains this clause: “provided, in case differences shall arise touching any loss, the latter shall be submitted to impartial arbitrators, whose award shall be binding on the parties.” Is this a condition or a promise?

Answer 4

This is a promise to arbitrate and does not make an award a condition precedent of the insurer’s duty to pay.

Question 5

Taken from Restatements (First):

A, an insurance company, issues to B an insurance policy in usual form containing this clause: “In the event of disagreement as to the amount of loss it shall be ascertained by two appraisers and an umpire. The loss shall not be payable until 60 days after the award of the appraisers when such an appraisal is required”. Is this a condition or a promise?

Answer 5

This provision is not merely a promise to arbitrate differences but makes an award a condition of the insurer’s duty to pay in case of disagreement.

Question 6

What does Restatements §225(3) say about conditions?

Answer 6

The general rule is that the non-occurrence of a condition is not considered a breach by a party unless that party is under a duty to ensure that the condition occurs.

In other words, if a condition specified in a contract does not happen, and neither party is obligated to make it happen, it typically does not give rise to a breach of the contract.

Question 7

Restatements §225(3):

The general rule is that the non-occurrence of a condition is not considered a breach by a party unless that party is under a duty to ensure that the condition occurs.

Which leeway have courts in interpreting such conditions?

Answer 7

The same term in a contract may be interpreted by courts in different ways. It can be seen not only as making an event a condition for one party’s duty but also as imposing a duty on the other party to ensure that the event occurs.

Even when a contract does not explicitly impose a duty on a party for the occurrence of a condition, the court may, in certain situations, supply or imply such a duty.

Question 8

Highland Inns Corp. v. American Landmark Corp. (1983) involved the payment of earnest money. Why did American Landmark Corp. try to argue that there was no contract because the condition preceding?

Answer 8

If that were true, there would have been no contract and they could have claimed damages under quasi-contract (restitution) for unjust enrichment.

Question 9

Where did we have the case of a preceding condition leading to a failure of contract?

Answer 9

Smith v. Toyota. The contract was conditional on the wife’s approval, which was not given.

Question 10

What happens to a conditional promise if the conditions fails?

Answer 10

It turns into an illusory promise.

Question 11

What is the trend nowadays for courts with earnest money?

Answer 11

More courts treat them as liquidated damages.

Question 12

What is test for liquidated damages? (repetition)

Answer 12

Whether they are reasonable. Reasonable at the time they were constructed not at the time of the damage. It’s possible that the actual damages might be much higher or lower. Courts will not consider this.

Highland Inns Corp. v. American Landmark Corp. (1983) is such an example. The actual damage from the resale of the building was much higher to Highland Inns than the liquidated damages (earnest money).

Question 13

Howard v. Federal Crop Insurance Corp. (1976) - what did this case teach about insurance policies?

Answer 13

They are full of conditions to avoid having to pay insurers.

Question 14

5(f) The tobacco stalks on any acreage of tobacco of types 11a, 11b, 12, 13, or 14 with respect to which a loss is claimed shall not be destroyed until the Corporation makes an inspection.

Howard v. Federal Crop Insurance Corp. (1976) - How did the court interpret this? As a condition or a promise?

Answer 14

The court interpreted this as a promise (forfeiture).
However, according to the professor, this could have easily been interpreted as a condition.

Question 15

In Electrol, Inc. v. Kern contractors Inc. (1981), the parties had agreed to involve a third party (an architect or engineer) to determine if additional costs were generated and, thus, a sub-contractor should be compensated. Did the court find that this could be challenged?

Answer 15

No. Courts have held such arbitration clauses as binding. Exceptions are bad faith or failure to exercise honest judgement. Court held that the provision was sufficiently clear and conclusive, therefore binding.

Question 16

Important: What is the professor’s conclusion on conditions and why they are not in the Restatements?
What needs to be analysed?

Answer 16

It’s always possible to state the same condition for preceding and subsequent. That’s why you don’t find either of these terms in the restatements.

Preceding or subsequent does not matter to the analysis. What matters if it’s a condition, a promise, both, or neither.

Question 17

Is it possible to describe all conditions as precedent if only the form of the condition is considered?

Answer 17

It is possible to describe all conditions as precedent and all conditions as subsequent if only the form of the condition is considered. The question must always be asked, precedent or subsequent to what? There must be a reference point in the transaction to which the condition is related. In terms of substance, if an existing contractual duty cannot be activated until a condition has occurred, the condition is necessarily precedent.

Question 18

What two standards of satisfaction exist?
Absent express contractual language indicating which standards to apply, which is the standard used by courts?

Answer 18

The objective reasonable satisfaction standard: applied for commercial quality, operative fitness, mechanical utility by persons capable of judging
The subjective reasonable satisfaction standard: applied for personal aesthetics and taste

Absent express: Objective

Question 19

If artworks are not to the personal liking of buyers, do buyers have to buy it? Do we find this in the restatements?

Answer 19

No. Subjective reasonable satisfaction standard.

RESTATEMENT (SECOND) OF CONRACTS § 228, comment a, supports this standard: “If the agreement leaves no doubt that it is only honest satisfaction that is meant and no more, it will be so interpreted, and the condition does not occur if the obligor is honestly, even though unreasonably, dissatisfied.”

It is hard to prove that it’s not honest satisfaction (this is a good faith standard).

Question 20

What would be an obvious example of an architect exercising bad faith?

Answer 20

if they refuse to examine the work performed.

Question 21

Under the Uniform Commercial Code (UCC) where parties in a contract rely on the judgment of a specific expert to determine the price of certain items they are buying or selling and if the parties have explicitly chosen this expert, not just as a reference but as a crucial condition for their buying and selling duties, what happens if this expert is unavailable?

Scenario A: Artwork
Scenario B: Commodities

Answer 21

UCC § 2-305

Scenario 1: Work of Art

If the expert’s judgment is vital to determine the price of a work of art, and the parties have specifically chosen this expert, the contract might not proceed if that expert is not available. In this case, there’s no substitution with a standard of reasonableness.

Scenario 2: Commodity

On the other hand, if the expert is named to determine a specific grade of a commodity like cotton, the assumption is that the parties would be bound by the contract even if that particular expert is not available. In this scenario, the contract is expected to move forward even without the originally designated expert.

Question 22

What does “Sale on Approval” mean under the UCC?
What does the UCC say about determining if parties have entered into a contract with “Sale on Approval”?

Answer 22

Under the UCC, “Sale on Approval” refers to a provision (§ 2-326(1)(a)) allowing a buyer to return goods, even if they conform to the contract, in transactions characterized as “sales on approval.” A sale on approval is a type of sale where the buyer has the right to inspect the goods before deciding whether to accept or reject them.

However, the UCC doesn’t provide specific tests to determine if the parties have indeed entered into such a contract, leaving the determination to common law principles.

Question 23

According to the book, how are conditions created?

Answer 23

According to the book, conditions are created by either of two methods:

Express Conditions: Created when the parties manifest an intention (by words or conduct) that the duty to perform is subject to the occurrence of some fact or event other than a mere lapse of time. These conditions are “real” conditions established by the agreement of the parties, and the agreement may be manifested in words or by conduct. When created by the conduct of the parties, they may be referred to as “implied in fact” conditions.

Constructive Conditions: Created by a court, in the interests of equity and justice, even though the parties have not manifested such an intention. This occurs when the court reads a condition into a contract for reasons of its own, notwithstanding the lack of any manifestation (words or conduct) by the parties. Constructive conditions are constructed by the court in the pursuit of equity and justice.

Question 24

In what situation can the discovery of a condition be justified on either of two theories (express or constructive), and the court is likely to ignore the distinction in discovering a condition?

Answer 24

The discovery of a condition can be justified in a situation where the manifestations of intention are uncertain, making it difficult to determine whether a court may justifiably find that the parties intended a condition. In such cases, the court is likely to ignore the distinction between express and constructive conditions and may discover a condition based on either theory (We have seen this in several cases, the courts do not make that distinction).

Question 25

Why were earlier courts reluctant to openly acknowledge that they could "make a contract" for the parties?

Answer 25

Earlier courts were reluctant to openly acknowledge that they could "make a contract" for the parties because they were hesitant to exercise such a significant role in altering the terms of the agreement. This reluctance was based on a traditional view that courts should interpret contracts rather than actively shape or create contractual obligations. The courts often disguised their role in altering contracts under the fiction of interpretation, avoiding direct admission of their capacity to effectively "make a contract" for the parties involved. Modern courts, however, have become more willing to admit that conditions may be found to exist, even if it goes against the manifested intention of the parties. This shift in approach reflects a recognition that, in certain situations, discovering or establishing conditions may be necessary to achieve a **just and equitable result,** especially when strict adherence to the parties' intentions could lead to unfair or unjust outcomes.

Question 26

A franchise agreement provided that the agreement could be terminated if the franchisee was in breach, but was silent as to whether it could be terminated by the franchisee where the franchisor had breached. The franchisor had committed many breaches but the franchisee could not establish damages. What did the court hold and do to create a just and equitable result?

Answer 26

The court held that the failures of the franchisor to perform were not only breaches of its duties but also failures of conditions precedent to the activation of the franchisee's duties. In doing so, the court essentially treated the franchisor's breaches as conditions that needed to be satisfied before the franchisee's duties could be triggered. This approach prevented the franchisee from being left without a remedy, even though damages could not be established, and aimed to achieve a just and equitable result in light of the contractual silence regarding termination by the franchisee for the franchisor's breaches.

Question 27

What are the three common failures of manifestations of intent in a bilateral transaction?

Answer 27

1. The order in which respective promises must be performed. 2. The effect of partial failure or delay in performance on the rights and duties of the other party. 3. The effect of prospective inability or unwillingness of one party to perform on the rights and duties of the oIther party.

Question 28

In a contract where A agrees to work for B for one year with a $36,000 salary, what vital information is often missing, and how does this absence impact the determination of rights and duties when disputes arise?

Answer 28

The contract lacks specifications regarding the order of promise performance, the consequences of partial failure or delay, and the impact of a prospective inability or unwillingness to perform. This absence necessitates the law to "make a contract" for the parties, particularly when specific questions about mutual performances arise, preventing potential injustice.

Question 29

If there is no order of performance specified in the contract, which order does the Restatements assume?

Answer 29

Concurrent performance. Restatements (Second) §234.

Question 30

In Bell v. Elder, the parties were in a "deadlock" situation. Neither of the parties have performed (obtained a building license and provided water). What did the court here do?

Answer 30

The court constructed conditions for both sides to excuse both duties to perform as neither of the conditions have been satisfied.

Question 31

What do conditions do in relation to duties or obligations?

Answer 31

Conditions either discharge duties or obligations or activate them.

Question 32

Through the application of constructive conditions, what did courts achieve in comparison to the situation before that approach?

Answer 32

Before that approach, parties with a contract could sue each other for non-performance (breach). There was one law suit for each promise (hence two lawsuits). They could not be combined as the promises were independent. This was inefficient and expensive to the parties.

Question 33

What does "to tender performance", e.g., to tender payment mean in the context of contracts?

Answer 33

It means demonstrating willingness, readiness, and ability to perform, e.g., conduct the payment.

Question 34

Under the old approach, promises were independent from each other. What did the new approach with constructed concurrent conditions create?

Answer 34

Through this approach, conditions became dependent on each other. If a party has not tendered performance, it can also not sue the other party.

Question 35

What the is the intention behind courts imposing conditions on each party?

Answer 35

To enforce justice.

Question 36

Assume that two parties agree that one party will deliver dresses. Payment will be due three days after delivery. Which of these promises are dependent or independent?

Answer 36

The promise to deliver dresses is independent The promise to pay three days later is dependent on the delivery. These are constructed conditions. These are conditions preceding.

Question 37

What two purposes do constructive conditions have?

Answer 37

First, to order the sequence of performances. Second, to bar parties from legal remedies until they have tendered their performance or performed themselves.

Question 38

Assume that a seller agrees to provide 10,000 bricks per week, and the buyer is given a 3-day window for payment. This is a weekly delivery. Are there constructive conditions? Are the promises dependent or independent?

Answer 38

Each promise is dependent on the earlier promise with exception for the first delivery, which is independent. All promises have constructed conditions.

Question 39

When we find "duty" or "obligation" in a text, it's an indicator for what?

Answer 39

That there exist promises. Duties and obligations are legal effects from promises.

Question 40

What is the difference between a condition implied in fact and a condition implied in law?

Answer 40

Implied in fact: Implied condition (same as express condition) Implied in law: Constructed condition

Question 41

In the Federal Crop Insurance case, what did the court do to protect the farmer?

Answer 41

It changed what sounded like a condition in the policy to a promise. If it had been a condition, it would have led to a forfeiture (discharge of an obligation for the insurance company).

Question 42

Constructive condition requires substantial performance - explain this

Answer 42

Cardozo. A constructive condition typically involves the idea that the party's performance under a contract is tied to certain events or conditions. For a constructive condition to be satisfied, substantial performance by the obligated party is necessary. In simpler terms, substantial performance means fulfilling the essential and major requirements of the contractual obligations. The party must do a significant or essential portion of what was agreed upon, even if there might be minor, immaterial deviations. This concept ensures that the party has made a genuine effort to fulfill their side of the contract, meeting the core expectations. So, in the context of a constructive condition, meeting the requirement of substantial performance is crucial for triggering or satisfying the condition. Until substantial performance occurs, the associated condition may not be considered fulfilled, and the corresponding obligations or promises under the contract may not be triggered or enforced.

Question 43

How does the performance required for constructive conditions differ from express conditions?

Answer 43

Constructive conditions allow for a degree of flexibility by recognizing substantial performance, while express conditions mandate strict adherence to explicitly stated terms without room for minor deviations. This distinction plays a pivotal role in determining the rights and obligations of the parties involved based on the nature of the conditions specified in the contract (Cardozo).

Question 44

What is the difference between substantial performance and material breach?

Answer 44

Substantial Performance: The performing party can claim the contract price or compensation, and the non-breaching party is generally obligated to fulfill their side of the bargain, with allowances for any deficiencies. Material Breach: The non-breaching party can claim remedies such as damages or, in some cases, terminate the contract due to the significant failure by the other party.

Question 45

In Jacobs & Youngs, Inc. v. Kent (1921) (construction case), what would have happened if the obligation to use a pipe from a certain manufacturer would have stemmed from an express condition? How could this express condition have been implemented?

Answer 45

Condition could have been written into the contract. There would have been a forfeiture, i.e., the builder would have lost the right to sue due to lack of strict compliance.

Question 46

Which restatements article is the most important for conditions? What does it say (3)?

Answer 46

1. Section 237 of the Restatement (Second) of Contracts states that for parties in a contract where they exchange promises, a key condition for each party to continue with their responsibilities is that the other party hasn't significantly failed to fulfill their obligations on time (doctrine of constructed conditions). 2. Comment d in the same section adds that if the parties specifically make an event a crucial part of their agreement, there's no flexibility in determining how significant the failure to make that event happen can be (strict compliance). 3. So, if the contract makes complete and exact performance a requirement, just doing a satisfactory or substantial job isn't enough. If you want relief under the contract, you'd need to show a valid excuse for why that crucial event (condition) didn't occur, preventing a complete loss of rights (forfeiture) ("extreme" forfeiture leads to unfair outcome and express conditions is relatively unimportant to the owner).

Question 47

In a construction case where a builder has unintentionally built the walls incorrectly, two possible outcomes may arise based on legal considerations. The lawsuit is from the non-breaching party? (the building owner)

Answer 47

In a construction case where a builder has unintentionally built the walls incorrectly, two possible outcomes may arise based on legal considerations: Outcome 1: Material Breach Recognized: Scenario: If the cost of rectifying the incorrectly built walls is deemed higher than the builder's claim, the court may recognize this as a material breach. Implications: The builder is considered to have substantially failed to meet a significant and essential part of the contract (building the walls correctly). The non-breaching party (typically the property owner or the party receiving the construction services) may be entitled to remedies such as damages, contract termination, or specific performance. The court might allow the non-breaching party to recover the additional costs incurred due to the builder's material breach. Outcome 2: Economic Waste Doctrine Applied: Scenario: Alternatively, the court could apply the economic waste doctrine, especially if the cost of correcting the error is deemed disproportionate to the overall value or purpose of the construction project. Implications: The economic waste doctrine recognizes that requiring extensive corrections for a minor error might be economically impractical or wasteful. The court may decide that the cost of tearing down and rebuilding the walls outweighs the benefits and economic value of doing so. In such cases, the court may limit the remedies available to the non-breaching party, possibly awarding damages for the diminished value but not requiring full reconstruction.

Question 48

What is a condition?

Answer 48

A condition is an “operative fact” upon which, unless excused, rights and duties depend

Question 49

Who controls a condition?

Answer 49

A condition might be within the control of a participant or some third party, or any other fact

Question 50

For contracts, to which facts is the term "conditions" limited chronologically?

Answer 50

To facts established after the formation and before the termination of the contract

Question 51

What are interrelated promises?

Answer 51

Promises that are dependant on each other

Question 52

Is the implication of a condition in a promise a two-way relationship?

Answer 52

No, the implication of a condition in a promise doesn't necessarily imply the reverse – that every condition implies a promise.

Question 53

What determines whether a clause in a contract constitutes a promise or an express condition?

Answer 53

The determination of whether a clause in a contract is a promise or an express condition **depends on the parties' intent**. However, it's crucial to recognize that interpreting language in a contract **always requires context** and takes place within that context.

Question 54

What do courts generally disfavor, as exemplified in Howard v. FCIC, Restatement (Second) sections 227 and 229? What consequences does that have? What is the pivotal consideration?

Answer 54

Courts generally disfavor **disproportionate forfeitures**, leaning towards interpreting language about a speaker's actions as **promises** rather than conditions. Express identifications of a clause as a condition may be disregarded, with the **pivotal consideration** being whether the parties knowingly allocated the associated risk.

Question 55

In Dahl v. Hem Pharmaceuticals Corp. (1999), we addressed the "past performance problem" for unilateral offers. How does the Restatements solve that problem? What is the section?

Answer 55

§ 45. Performance creates an options contract, which cannot be revoked.

Question 56

Dahl v. Hem Pharmaceuticals Corp. (1999), in the professor's view, why should have this contract been invalid?

Answer 56

The plaintiffs asked for specific performance; drugs that had not been admitted by the FDA. This would go against public policy.

Question 57

In Dahl v. Hem Pharmaceuticals Corp. (1999), we addressed the "past performance problem" for unilateral offers. The Restatement solves the problem by creating that performance creates an option. What is the problem with this? (Two)

Answer 57

First, this favours the optionee who can back out anytime. Second, how much "performance" does an optionee have to show that the option was created? This is a difficult question to answer.

Question 58

Five ways how express conditions can be made void

Answer 58

* Supervening law * Willful prevention of the condition by benefactor of failure of condition * Anticipatory repudiation * Waiver * Estoppel

Question 59

Supervening law bars express conditions. What does that mean?

Answer 59

Law that happens after the contract is made and makes a promise illegal or an express condition illegal or an entire contract illegal.

Question 60

Willful prevention by a party benefited by the failure of the condition excuses an express condition, give an example from the insurance industry

Answer 60

If there exists a condition that insurance is only paid out after an inspector has agreed that damage exists, but the insurance company wilfully never dispatches an inspector

Question 61

Anticipatory repudiation excuses express conditions. What does that mean? Describe a scenario.

Answer 61

Anticipatory repudiation, also known as anticipatory breach, occurs when one party to a contract makes it clear, either through words or actions, that they do not intend to fulfill their contractual obligations before the agreed-upon performance is due. In other words, it's a situation where one party anticipates that the other will not uphold their end of the bargain as per the terms of the contract. 1) Announcement of Non-Fulfillment: One party has explicitly stated that they will not go through with the contract before the performance is supposed to take place. 2) Effects on the Other Party: The other party is then faced with a decision: they can either treat the repudiation as an immediate breach of contract and take legal action, or they can wait until the performance date to see if the repudiating party changes their mind. 3) Constructive Conditions: The dilemma arises due to what is known as constructive conditions. The party who wants to uphold the contract might be hesitant to take immediate legal action because doing so could be seen as a failure to fulfill their own constructive conditions, such as tendering performance.

Question 62

You receive an email from a supplier that they will not supply. What kind of case is this? What options do you have?

Answer 62

Anticipatory repudiation. You have the option to either wait until the non-performance occurs (within the agreed timeframe) or sue immediately.

Question 63

You receive an email from a supplier that they will not supply. If it were not for anticipatory repudiation, why could we not sue immediately?

Answer 63

Because our performance has not been tendered. However, anticipatory repudiation excuses express conditions. Therefore, the constructed condition existing in bilateral contracts is excused.

Question 64

Waivers in conditions. Assume that the rent is due on 5th every month, but the landlord waives that requirement and states the 10th. Can he reinstate the original condition?

Answer 64

Yes, he can, but only within reasonable notice. He cannot if the tenant has relied on the waiver.

Question 65

I make a promise to you. How is this related to constructive conditions?

Answer 65

My promise is a constructive condition to you to perform and vice versa.

Question 66

In the interests of justice, courts generally construe promises in a bilateral contract as mutually dependent. Which case?

Answer 66

Kingston v. Preston

Question 67

Unless a contrary intent appears, the performances are constructive concurrent conditions. Sources?

Answer 67

Bell v. Elder; Restatement (Second) §§ 234, 238

Question 68

Can contracts be divided under the common law and under the UCC?

Answer 68

UCC § 2-307 treats any sale of goods that is deliverable in installments as divisible if the counter-performance can be allocated to each installment, unless expressly made “entire” At common law, contracts were “entire” unless expressly made divisible

Question 69

Does partial failure of performance excuse refusal of counter-performance?

Answer 69

A partial failure of performance does not excuse more than partial refusal of counter-performance (this leads us to the idea of partial performance)

Question 70

I pay you if I'm satisfied with the outcome - is this an illusory promise?

Answer 70

It sounds like one but it's not. It's a valid promise.

Question 71

Architect’s and engineer’s certificates are usually strictly enforced. What are the exceptions? (3)

Answer 71

Bad faith (e.g., corruption) Incapacity A refusal to decide

Question 72

Architect’s and engineer’s certificates - what kind of condition is this?

Answer 72

Condition of satisfaction

Question 73

In what kind of cases will courts preclude substantial performance?

Answer 73

If the breach was wilful.

Question 74

Is wilful intentional?

Answer 74

Not just intentional, but stronger.

Question 75

Does "economic waste" exclude the any damages?

Answer 75

No, it limits the damages.

Question 76

When there is substantial performance, what kind of breach is it?

Answer 76

Partial. Substantial performance is the opposite of material breach.

Question 77

Why can it be risky to sue for material breach?

Answer 77

Asserting a material breach in a lawsuit can be risky because the party making the claim may themselves be subject to scrutiny. The legal process may reveal facts or circumstances that could demonstrate the claimant's own material breach, highlighting the importance of careful consideration and legal advice before pursuing such actions.

Question 78

What legal recourse does a party have when concerned about the other party's ability to perform contractual obligations, according to UCC and Restatement? Mention the sources.

Answer 78

A concerned party can demand **"adequate assurances"** of performance rather than immediately declaring a material breach. If the other party fails to provide adequate assurances within a reasonable time, it can be considered a material breach, giving the concerned party the right to treat the contract as terminated and pursue remedies for breach. This mechanism encourages communication and resolution of uncertainties during contract performance. UCC 2-609 and Restatement §251

Question 79

What are the three reasons to excuse performance?

Answer 79

Impossibility, impracticability, and frustration

Question 80

What are two reasons impossibility can be invoked?

Answer 80

When something physically is no longer possible (e.g., the theatre burns down). When performance is impossible because of new legal barriers (e.g., laws or regulations).

Question 81

What does Impracticability mean?

Answer 81

Courts will excuse performance when it remains possible, but has become “commercially impracticable,” UCC § 2-615 ◼ Not if the problem was foreseen (or foreseeable) ◼ The question turns on whether the contract “allocated the risk"

Question 82

Where do we find frustration in the Restatements? What are the requirements?

Answer 82

Courts sometimes excuse a contract when its purpose disappears, Restatement (2nd) § 265 ◼ The frustrating event must have been unforeseen or unforeseeable ◼ The question turns on whether the parties allocated the risk in the contract

Question 83

Do conditions change the entire contract?

Answer 83

It's possible that contracts influence only certain obligations in the contract or the entire contract.

Question 84

Jacob & Youngs, Inc. v. Kent ("Pipe case") introduced the concept of substantial performance for the failure to perform. How does it relate to conditions? What are the two possible scenarios?

Answer 84

When a failure to perform a promise is considered substantial, the promise will be construed as a condition of the other party's obligation. When the failure to perform is considered insubstantial, the promise will be deemed independent and not a condition of the other party's obligation to perform.

Question 85

Jacob & Youngs, Inc. v. Kent ("Pipe case"): When the failure to perform is considered insubstantial, the promise will be deemed independent and not a condition of the other party's obligation to perform. How was this for Jacob (the contractor) relevant?

Answer 85

He could prove that his performance was substantial. Therefore, the counterparty was not excused from non-performing.

Question 86

Are there any requirements according to public policy for disclaimers of liability?

Answer 86

Public policy requires that disclaimers of liability be **conspicuous and reasonable,** particularly given that the disclaimer applies to people who have no opportunity to negotiate over the terms of the contract.

Question 87

Where can we find manifestations of public policy limitations in the UCC?

Answer 87

Codified by statutory provisions of the UCC, §§ 2-316, 2-318 ◼ Disclaimers of liability must be clear and conspicuous

Question 88

UCC § 2-318 refers to Third-Party Warranty, how has it been implemented in different states? (3 alternatives) Which one is the least implemented?

Answer 88

UCC § 2-318 offers three alternative formulations for the extension of a seller's warranty to individuals beyond the immediate buyer. Here's a summary of the three alternatives: Alternative A Seller's warranty, whether express or implied, extends to any natural person in the buyer's family or household, or a guest in their home, if it's reasonable to expect that such person may use, consume, or be affected by the goods. This alternative emphasizes a close relationship between the buyer and the affected person, and the seller cannot exclude or limit the operation of this section. Alternative B Seller's warranty, whether express or implied, extends to any natural person who may reasonably be expected to use, consume, or be affected by the goods. This alternative expands the scope beyond family and household members to include anyone reasonably expected to be affected by the goods. The seller cannot exclude or limit the operation of this section. Alternative C (only California) Seller's warranty, whether express or implied, extends to any person who may reasonably be expected to use, consume, or be affected by the goods and is injured by a breach of the warranty. This alternative is similar to Alternative B but specifically emphasizes injury to the person. The seller may not exclude or limit the operation of this section concerning injuries to the person covered by the warranty.

Question 89

Where do we find in the Restatement the term regarding Standardized Agreements? What are the three important provisions?

Answer 89

§211 - this is effectively customer protection 1) When a part signs or manifests assent to a standardized writing, he adopts the writing as an integrated agreement with respect to the terms included in the writing (i.e. this is a partially integrated contract, claims can be made that there were other conditions not included). 2) Such standardized writings will be interpreted like an average person would understand it. 3) If the creator of the writing has reason to believe that the signing/assenting party would not do so if they knew the writing contained a certain term, this term is not part of the agreement. - this ensures that the contract does not contain any indecent or unreasonable terms

Question 90

Unconscionability - where can we find it? what consequence does it have?

Answer 90

A contract is unconscionable if it is one that “no man in his senses and not under delusion would make … and no honest and fair man would accept”. UCC 2-302. Contract or certain obligations in a contract will not be enforced. Some courts have adopted it in common law (outside UCC). Nowadays, it is barely used anymore.

Question 91

Unconscionability - what are the two requirements?

Answer 91

Two requirements must be met for unconscionability to apply: ◼ Substantive unconscionability (terms must be unfair) ◼ Procedural unconscionability (procedure must be unfair)

Question 92

UCC § 2-209(1) allows for modifications without requiring consideration. Are there circumstances under which modifications to an existing contract would have to be considered a new contract?

Answer 92

Sometimes the parties agree to terminate a contract and initiate a new one. Terminating the old contract could be considered a modification of the old contract. The new contract, assuming there is at least a moment with no contract between the parties, is a new contract that requires its own validation device, etc.

Question 93

Do courts applying the UCC use the plain meaning rule?

Answer 93

No. § 2-202 allows evidence of course of dealing, course of performance, or usage of trade to give meaning to the contract.

Question 94

Louella ordered 1300 sheets of glass from Seller, with Louella to provide shipping instructions. The contract provided that Louella could cancel her contract “at any time before shipment.” Seller thereafter decided not to sell the glass to Louella before she provided any shipping instructions. a. Seller’s promise to sell glass would become binding only upon shipment before cancellation. b. Seller’s promise to sell glass was binding even before Louella provided shipping instructions.

Answer 94

A) Louella has the right to cancel according to the contract.