Contracts

Performance & Breach

Conditions

Contract obligations may be absolute or conditional. When a party is accused of failing to perform under a contract they may respond that they have not breached the contract because any performance they were to render was conditional, i.e., any duty they may have has not yet arisen because some event has not yet occurred or any obligation they were under has been discharged because some event has occurred. (See Calif.Civ.Code § 1434.)

"Condition" Defined

An act or event, not certain to occur, which affects the duty of performance. (See, Rest.2d § 224.)

A condition precedent is an act or event, not certain to occur, which the parties intend must exist or take place before there is a right to performance. (See, Rest.2d § 224 and Calif.Civ.Code § 1436.)condition subsequent is an act or event, not certain to occur, which if it occurs discharges a duty of performance which has already arisen. (See, Rest.2d § 230 and Calif.Civ.Code § 1438.)

Dependent or Independent Promises?

There is a presumption that mutual promises in a contract are dependent. Promises are dependent if the parties intend performance by one to be conditioned upon performance by the other. (K&G Construction Co. v. Harris 223 Md. 305, 164 A.2d 451 (1960).) There is a strong presumption that a promise in a contract is not intended to be an independent promise unless a contrary intention is clearly manifested. Although neither party expressly conditions his promise on performance by the other, the law constructs a condition that performance or tender of performance, by one party is a condition precedent to the liability of the other party.

Conditions; Express or Constructive?

An express condition is one placed in the contract by the parties. A constructive condition (sometimes called an implied condition) is one imposed by law in order to do justice. Express conditions must be literally performed. Constructive conditions may be satisfied by substantial performance.

Neither Party May Hinder the Other Party's Performance

If a party prevents or makes impossible the performance or happening of a condition precedent, the condition is excused.  (Iron Trade Products v. Wilkoff Co. 272 Pa. 172, 116 A 150 (1922).) In the case of every contract there is an implied undertaking on the part of each party that  he will not intentionally and purposely do anything to prevent the other party from carrying out the agreement on his part.

Waiver and Estoppel

Where one party has indicated by words or conduct that he will not require a condition to be satisfied, and the other party materially changes his position in reliance, the first party is estopped from insisting that the condition be satisfied. Thus, waiver, the voluntary relinquishment of a known right, may give rise to an estoppel, if the other party changes their position to their detriment in reliance on the waiver. The estopped party is precluded from taking advantage of the other party's change of position.

Restitution for a Party in Default

A defaulting party who has not substantially performed may nevertheless be entitled to restitution as a means of avoiding unjust enrichment. A defaulting plaintiff, although unable to recover on the contract, may recover under a theory of quasi contract for the reasonable value of his services less any damages suffered by defendant. (Rest.2d § 374(1).)The general understanding of the community is that payment should be made for services actually rendered. A party in default is not necessarily deprived of all relief.

Material Breach

Material failure of consideration discharges the other party's duty; slight or partial failure may not have this effect. (Walker & Co. v. Harrison 347 Mich. 630, 81 N.W.2d 352 (1957).)

Actual and Anticipatory Breach

An unjustified or unexcused repudiation of or failure to perform a contract at the time performance is due is an actual breach. A repudiation which occurs before the time when performance is due is an anticipatory breach. (See, Franconia Associates v. U.S. 536 U.S. 129 (2002)) An express, unequivocal statement of an intention not to perform a duty at some time in the future operates as a repudiation and gives rise to an immediate action for breach. (Rest.2d § 243.) On a contract to do an act on a future day, a renunciation by one party dispenses with a condition to be performed in the meantime by the other party. There is no reason for requiring the other party to wait until performance is due before seeking his remedy. (Hochster v. De La Tour 2 E.&B. 678, 118 Eng. Rep. 922 (1853).) An express repudiation must be clear, positive and unequivocal in order to have the effect of an anticipatory breach. The doctrine of anticipatory breach has no application to money contracts where one party has fully performed and all that remains for the opposite party to do is to pay a certain sum of money at certain times. (Rest.2d § 243(3).) The rationale is that the aggrieved party has already fully performed and would not be harmed by awaiting counterperformance at the time promised. An anticipatory breach will also result from an implied repudiation, where the promisor puts it out of his power to perform. (See, Rest.2d § 250)

UCC 2-611 allows the seller an opportunity to retract his repudiation. A repudiation may be retracted before a change of position in reliance thereon. It is too late to retract a repudiation after the injured party changes position. All that is required to close the door to retraction is definite action indicating that the anticipatory breach has been accepted as final. (See also, Rest.2d § 256(1).)

Waiver of Breach

Instead of treating a breach as a termination of the contract, the injured party may waive the breach by electing to treat the contract as still alive, and remaining ready and able to perform on his or her own part, thereby limiting the claim to damages caused by the breach. (See, UCC 2-607(3)(a).)

Anticipatory Breach: Damages

The measure of damages for nondelivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with an incidental and consequential damages. (UCC 2-713.) The aggrieved party may await performance for a commercially reasonable time before resorting to his remedies of cover or damages. (UCC 2-610.)

Right to Assurance of Due Performance

Where a party to a contract is guilty of serious prospective inability or unwillingness to perform, the other party may make a demand for "adequate assurances of due performance." UCC 2-609 provides: 1) the aggrieved party is permitted to suspend his performance; 2) he is given the right to require adequate assurance; 3) failure to supply adequate assurances may create an anticipatory breach and thus give rise to all of the remedies available for such a repudiation. Some jurisdictions have extended the doctrine to contracts of all types, not just those for the sale of "goods." (See, Norcon Power Partners v. Niagara Mohawk Power Corp. 92 N.Y.2d 458, 705 N.E.2d 656 (1998)

Substantial Performance

A promisor who has rendered a "substantial performance" (albeit incomplete) can get judgment for the contract price, with a deduction for minor defects and nonperformance. I.e., the party who has substantially performed is limited to the contract price less the cost of completing the contract or correcting defects. (Jacob & Youngs v. Kent 230 N.Y. 239, 129 N.E. 889 (1921).) "Substantial performance" is defined as whether the performance meets the essential purpose of the contract.

Perfect Tender Rule

At common law, a buyer of goods possessed a legal right to insist upon "perfect tender" by the seller. This rule has been retained by the UCC. In a contract for the sale of goods, if the goods fail to conform exactly to the description in the contract (whether as to quality, quantity or manner of delivery) the buyer may reject the goods and rescind the contract. (UCC 2-601.)

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