Contracts Midterm II

Question 1

What is a condition?

Answer 1

§ 224 - A condition is an event that is uncertain to occur which must occur unless its nonoccurrence is excused before performance under a contract becomes due

Question 2

Is the passage of time a condition?

Answer 2

§ 224 (b) - the passage of time is not a condition since there is no uncertainty that that will occur

Question 3

Will a court read a contract to include a duty or a condition given ambiguous language?

Answer 3

§ 227 a court will interpret unclear language to create a duty rather than a condition

Question 4

What is the condition implied in every contract?

Answer 4

§ 205 - Every contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement

UCC § 1-304 - Every contract or duty within the UCC imposes an obligation of good faith in its performance and enforcement.

Question 5

What are the two kinds of express conditions?

Answer 5

Condition precedent - a condition which must be met in order to trigger a duty

Condition subsequent - now called termination (§ 230), failure to meet the condition extinguishes a duty after performance has become due (along with any claim for breach)

Question 6

What is the effect of an express condition?

Answer 6

When the condition is met, the performance is due

A party’s breach excuses the other party’s performance if the non-breaching party’s obligations were dependent on the breaching party’s obligations. (Kingston v. Preston, § 224)

Question 7

What is the purpose of an express condition?

Answer 7

They are meant to mitigate the risk of the obligor

Question 8

How are express conditions enforced?

Answer 8

Express conditions are strictly enforced

Question 9

How are express conditions waived?

Answer 9

1. Volitionally waived

2. Implicitly waived through prevention or inaction

Question 10

When are express conditions excused?

Answer 10

• When they are prevented (§ 245 Prevention - When a party’s breach by non-performance contributes materially to the non-occurrence of a condition of his duties, the non-occurrence is excused)
• When they result in unjust forfeiture (§ 229 Forfeiture - If nonoccurrence of a condition causes disproportionate forfeiture, a court may excuse the nonoccurrence, unless its occurrence is material to the contract.)

Question 11

What is prevention?

Answer 11

§ 245 - When a party’s breach by non-performance contributes materially to the non-occurrence of a condition of his duties, the non-occurrence is excused.

Question 12

Can an express condition be prevented?

Answer 12

Yes, inhibiting the ability to progress or failing to take reasonable action will qualify as prevention.

Reasonable steps are required, but a party need not incur extraordinary expense to establish reasonableness or good faith

Question 13

How is an express condition of satisfaction measured?

Answer 13

§ 228 If satisfaction is a condition that must be met before the other party has to perform, a reasonable person’s opinion of satisfaction (if practicable) will be used to determine if the act satisfied the condition. If it is not practicable, then a subjective standard will be used. It is a breach if you say something is unsatisfactory in bad faith.

Question 14

How is a deadline considered as an express condition?

Answer 14

§ 242(d) “time is of the essence” is not sufficient to create a time condition and a specific date for performance does not necessarily meant that performance by that date is of the essence of the contract.

Question 15

What are the mitigating doctrines for express conditions?

Answer 15

Waiver
Estoppel
Election
Unjust forfeiture 
Prevention
Good faith requirement
Reasonable person standard

Question 16

What is the waiver doctrine with relation to express conditions?

Answer 16

A party that has waived without consideration a condition within the other party’s control before the time for occurrence of the condition can retract the waiver and reinstate the requirement that the condition occur unless the other party has relied on it such that it would be unjust

This can be undermined by an anti-waiver clause

Question 17

When does an obligor’s continued acceptance constitute waiver?

Answer 17

§ 246 - An obligor’s acceptance (or retention for an unreasonable time of the obligee’s performance) with knowledge of or reason to know of the non-occurrence of a condition of the obligor’s duty, operates as a promise to perform in spite of that non-occurrence

Question 18

What is the effect of an obligor’s acceptance of part performance constitute?

Answer 18

§ 247 - Acceptance of part performance that is nonconforming operates as a promise to perform despite subsequent nonconformity of that same element

Question 19

What is estoppel?

Answer 19

A party that has (without consideration) waived a condition that is within the other party’s control before the time for occurrence of the condition, can retract the waiver and reinstate the requirement that the condition occur UNLESS the other party has relied to such an extent that retraction would be unjust

Question 20

What is election?

Answer 20

When the time for occurrence of a condition has expired, the party whose duty is conditional has a choice between taking advantage of the nonoccurrence of the condition and treating the duty as discharged OR disregarding the nonoccurrence of the condition and treating the duty as unconditional

Question 21

What is the rule from Luttinger v. Rosen?

Answer 21

A condition precedent must be met before performance by the parties is required under a contract, and the contract will not be enforced if the condition is not met.

Question 22

What is the rule from Internatio-Rotterdam v. River Rice Brand?

Answer 22

If a contract indicates that time is of the essence, then strict compliance with the timing of performance is required to avoid a breach of the contract.

Question 23

What is the rule from Gibson v. Cranage?

Answer 23

If an express contract between seller and purchaser requires that the article to be purchased meet the unqualified approval of the purchaser, such approval is a condition precedent to the purchaser’s obligation to pay.

Question 24

What is the rule from McKenna v. Vernon?

Answer 24

A party that repeatedly, albeit, passively waives a provision in a contract that is for his own benefit, may not later seek to enforce that provision.

Question 25

What is a constructive condition?

Answer 25

A party’s failure to render or offer a performance is a possible excuse for the non-performance of a duty undertaken by the other party when the commitments are dependent covenants Any such excuse is subject to the interpretation of the court to determine the justness of such an interpretation

Question 26

What Restatement forms the basis of constructive conditions?

Answer 26

§ 234 - The doing comes before the paying 1. Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are due simultaneously, unless language/circumstances indicate contrary 2. Except in (1), where performance of only one party under an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless language or circumstances indicate contrary

Question 27

What is the effect of an uncured material failure?

Answer 27

§ 237 - If there is an uncured material failure then further performance is excused

Question 28

What do constructive conditions look like under the UCC?

Answer 28

UCC § 2-507 - Tender of delivery is a condition to the buyer’s duty to accept the goods and to pay for them UCC § 2-511 - Tender of payment is a condition to the seller’s duty to tender and complete any delivery

Question 29

How are strictly are constructive conditions enforced?

Answer 29

Less strictly than express conditions

Question 30

What are the mitigating doctrines of constructive conditions?

Answer 30

In order of preference: - Substantial performance - Divisibility - Restitution

Question 31

What is the rule from Kingston v. Preston?

Answer 31

When one party’s performance under a contract is dependent on the prior performance of the other party, the other party’s performance is a condition precedent and performance will be excused unless the condition is satisfied. (Constructive condition)

Question 32

What is the rule from Stewart v. Newbury?

Answer 32

Where a contract requiring performance of work does not specify the timing of payment, then the work must be substantially performed before payment is required. (Constructive condition)

Question 33

What is substantial performance?

Answer 33

Performance of the constructive condition has been sufficiently completed such that the court will deem that it should be treated as full performance of the condition. If substantial performance is found, then the performance of the other party is triggered, though a suit for damages on the breach is still feasible.

Question 34

Does substantial performance apply to express conditions?

Answer 34

No, it only applies to constructive conditions.

Question 35

Does substantial performance exist under the UCC?

Answer 35

No, a sale of goods must comply with perfect tender.

Question 36

When is substantial performance said to have occurred?

Answer 36

When an unintentional, immaterial breach occurs

Question 37

What actions will preclude a finding of substantial performance?

Answer 37

A willful deviation from the terms of the contract will always preclude a finding of substantial performance. (§ 241 (e) - behavior must comport with the standards of good faith and fair dealing) Or if there are structural defects or if defects exceed a certain percentage of the contract price.

Question 38

Who determines whether or not substantial performance has occurred?

Answer 38

It is a question for the jury

Question 39

What is the rule from Jacobs & Young v. Kent?

Answer 39

If a party substantially performs its obligations under a contract, that party will not be forced to bear the replacement cost needed to fully comply with the agreement but instead will owe the non-breaching party the difference in value between full performance and the performance received.

Question 40

What is divisibility/severability?

Answer 40

§ 240 - If the performances to be exchanged can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a party’s performance of that part of the contract triggers the other party’s duty to perform as if it were its own contract.

Question 41

What are examples of things that do not qualify as divisible?

Answer 41

- Progress payments | - An itemized list

Question 42

How is an entire contract enforced?

Answer 42

If a contract is entire – full performance is a condition precedent to payment. The obligation to pay comes after delivery and delivery is a constructive condition so the obligee could end up suffering forfeiture.

Question 43

What is the rule from Gill v. Johnstown Lumber Co.?

Answer 43

When parties agree that payment for delivered goods will be made on a per-unit basis, the performance of that obligation is severable and compensation can be had for units that are delivered, even if full performance is not accomplished.

Question 44

What is the perfect tender rule?

Answer 44

UCC 2-601 - if the goods or tender of delivery fail in any respect to conform to the contract the buyer may: 1. Reject the whole 2. Accept the whole 3. Accept any amount and reject the rest

Question 45

What are the requirements of rejection?

Answer 45

UCC § 2-602 - Rejection must occur within a reasonable time after delivery or tender. It is ineffective unless the buyer seasonably notifies the seller. 2-602 (2)(a) - any exercise of ownership by the buyer after rejection is wrong 2-602 (2)(b) - If the buyer has taken possession of the goods, he is under a duty to hold them with reasonable care 2-602 (2)(c) - the buyer has no duty beyond that

Question 46

What constitutes acceptance?

Answer 46

UCC 2-606 1(a) - after a reasonable opportunity to inspect the goods, the buyer signifies that they are conforming or that he will accept them despite nonconformity or 1(b) - the buyer fails to make an effective rejection after having time to inspect the goods by not notifying within a reasonable time 1(c) - when the buyer acts inconsistent with the seller’s ownership and that act is ratified by the seller

Question 47

When can revocation of acceptance occur?

Answer 47

UCC § 2-608 - The buyer may revoke acceptance even after accepting the goods if the buyer: 1. reasonably assumed the nonconformity would be cured but it has not been seasonably cured or 2. without discovering nonconformity if his acceptance was reasonably induced by the difficulty of discovery or by the seller’s assurances Revocation must happen within a reasonable amount of time after the buyer did or should have discovered the grounds for revocation and before the goods have been substantially altered A buyer who revokes has the same duties as if he had rejected (must handle them with reasonable care)

Question 48

How does the perfect tender rule affect installment contracts?

Answer 48

UCC § 2-612 (2) - any installment that in non-conforming can be rejected, unless it can be cured and the seller gives adequate assurance of intent to cure then it must be accepted UCC § 2-612 (3) - If nonconformity of an installment substantially impairs the value of the whole contract there is a breach of the whole. But if the aggrieved party accepts the nonconforming installment without seasonably notifying of cancellation, then the contract is reinstated

Question 49

Can a seller cure?

Answer 49

UCC § 2-508 - Where the goods have been rejected but the time of performance has not yet expired, a seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery When the buyer rejects the goods but the seller had reasonable ground to believe the goods would be acceptable, the seller may have a reasonable amount of time to substitute conforming tender.

Question 50

Does the perfect tender rule exist outside of a sale of goods?

Answer 50

No it only applies to the sale of goods.

Question 51

What is the rule from Bartus v. Riccardi?

Answer 51

Unless a seller and buyer have agreed to strict performance, the seller’s delivery of a nonconforming article to the buyer may be remedied by the seller if the seller reasonably believed that the buyer would accept the nonconforming good and the seller seasonably notifies the buyer of the seller’s intent to substitute a conforming good.

Question 52

What are the elements of procedurally and substantive proper rejection?

Answer 52

1. First, the buyer must not have accepted the goods, for acceptance precludes rejection 2. Second, the goods or their tender must not conform to the contract 3. Third, the seller must either have no cure right or must not have exercised it effectively and rightfully 4. AND even with all 3, buyer still must reject goods in a procedurally proper way under 2-602 (reasonable time + seasonably notify)

Question 53

What are the four possible types of rejection?

Answer 53

Substantively proper rejection – rightful Substantively improper rejection – wrongful Procedurally proper rejection – effective Procedurally improper rejection – ineffective

Question 54

What is the effect of a rightful ineffective rejection?

Answer 54

No rejection at all Buyer will, by passage of time, be deemed to have accepted the goods, and its rights will at most be revocation under 2-608 – a considerably narrower option

Question 55

What is the effect of a wrongful effective rejection?

Answer 55

Real rejection, ending buyer’s obligation to pay But since the rejection was wrongful, buyer will be in breach and subject to damages

Question 56

What are the damages for a total breach?

Answer 56

§ 236 (1) - a claim for damages for total breach is one for damages based on all of the injured party’s remaining rights to performance

Question 57

What are the damages for a partial breach?

Answer 57

§ 236 (2) - a claim for partial breach is one for damages based on only part of the injured party’s remaining rights to performance

Question 58

Who determines whether a breach is partial or total?

Answer 58

An injured party decides whether to treat the breach as partial or total

Question 59

What are the elements that affect the materiality of a breach?

Answer 59

§ 241 - the following are considerations in materiality of a breach: - Denial of bargained benefit for aggrieved party - Adequacy of monetary damages for the aggrieved party - Amount of forfeiture to be suffered by breaching party - Ability or likelihood of cure on the part of the breaching party - Good faith actions of the breaching party

Question 60

Who determines if there is a material breach?

Answer 60

The court

Question 61

When can a party suspend performance or terminate a contract?

Answer 61

When a total material breach has occurred (subject to considerations of § 241)

Question 62

Can you suspend or terminate if you experience a breach?

Answer 62

Treat as partial breach - continue performance Treat as total breach - in suspending or terminating the contract, you risk being in breach yourself if the court does not find that the breach you suffered was in fact material.

Question 63

What happens if the breach is not a total material breach?

Answer 63

Then you must continue performing but you can pursue expectation damages for the specific loss of the partial breach

Question 64

What is the rule from K&G Construction v. Harris?

Answer 64

Unless the parties agree otherwise, a party's promise to perform part of an installment contract is dependent on the other party's fulfillment of its promise concerning that part.

Question 65

What is the rule from Walker & Co. v. Harrison?

Answer 65

A minor failure of performance is not a serious enough breach to justify repudiation of the entire contract.

Question 66

What is after-acquired evidence?

Answer 66

General rule: a party terminates a K without justification, but later discovers facts that, had they been known, would have justified termination, may use those facts to avoid liability Can provide a complete defense

Question 67

What is required of a party in a contract?

Answer 67

A party must take affirmative steps to cooperate with the other party, even though the parties have not troubled to express such a duty in their agreement.

Question 68

What is the rule from Iron Trade v. Wilkoff?

Answer 68

That one party to a contract makes performance by the other party more difficult does not excuse the second party’s non-performance

Question 69

What is express anticipatory repudiation?

Answer 69

§ 250 (1) Express AR - A statement of intention to breach that may be treated as total breach by the injured party

Question 70

What is implied anticipatory repudiation?

Answer 70

§ 250 (2) Implicit AR - A voluntary affirmative action that renders the party unable to or apparently unable to perform I.e. you sell to someone else or file for bankruptcy, etc

Question 71

Can a party demand assurance after implied repudiation?

Answer 71

§ 251 - When reasonable grounds arise to believe the obligor will commit a breach by non-performance the obligee may demand adequate assurance of due performance and may, if reasonable, suspend performance until assurance is received § 252 - If an obligor becomes insolvent such that breach is expected, the obligee may suspend performance until receipt of assurance

Question 72

What are the effects of repudiation?

Answer 72

§ 253 (1) - repudiation gives rise to a claim for total breach § 253 (2) - repudiation discharges the duty of the other

Question 73

Can a repudiation be retracted?

Answer 73

§ 256 (1) - a retraction and notification to the injured party must occur before the injured party materially changes his position in reliance on the repudiation or indicated that they considers the repudiation final § 256 (2) - a retraction may occur implicitly where the circumstances that formed the basis of the repudiation have ceased to occur and the injured party is aware

Question 74

Does the injured party lose their right to damages if they urge retraction?

Answer 74

§ 257 - the urging of the injured party does not change the effect of a repudiation.

Question 75

What options does an injured party have under anticipatory repudiation in a sale of goods?

Answer 75

UCC § 2-610 - the injured party may: 1. Await performance for a commercially reasonable amount of time 2. Resort to any remedy for breach even if performance is still awaited or retraction is urged 3. Suspend performance or proceed despite repudiation

Question 76

Can an AR be retracted in a sale of goods?

Answer 76

UCC § 2-611 (1) - Until next performance is due, the repudiation can be rescinded unless the injured party has changed their position in reliance on the repudiation or notified the breaching party that they view the repudiation as final UCC § 2-611 (2) - Retraction must be clearly indicated and include any assurance justifiably demanded UCC § 2-611 (3) - Retraction reinstates rights of repudiating party

Question 77

What are the options available to a party who has experienced anticipatory repudiation?

Answer 77

- They can treat it as total breach and view their duty as discharged - They can urge the rescission of the repudiation (but this does not affect their right to any remedy) - They can seek or accept alternate work - They can wait to see what happens

Question 78

What is the rule from Cosden Oil v. Helm?

Answer 78

Under the Uniform Commercial Code as enacted in Texas, a buyer’s damages for the seller’s anticipatory repudiation of a contract are to be measured a reasonable time after repudiation occurs.

Question 79

What is the rule from Hochster v. De La Tour?

Answer 79

When one party to an agreement is informed by another party to the agreement that the second party intends to breach the agreement, the first party has an option to file suit for damages immediately in anticipation of the breach, or to wait until the act was supposed to be done.