1. Constructive Conditions Contracts – Prof Merges April 19, 2011

2. Conditions Express Constructive

3. Express conditions Clear conditional language –“It shall be a condition of buyer’s performance under this contract that buyer obtain suitable financing for the purchase of Owner’s house”

4. Express conditions (cont’d) Other language that creates a condition E.g., Internatio-Rotterdam: “delivery in December with 2 weeks call”

5. Express conditions Language creating a condition –Must be seen in light of all facts and circumstances: CONTEXT matters Presumption against construing language as a condition: Peacock as an example of why

6. Mitigating Doctrines 1.Prevention: Luttinger calls bank, says “do not approve our loan” 2.Waiver: Luttinger says “Don’t worry about the loan rate, we will buy” 3.Interpretation to avoid a forfeiture: Peacock; Jacobs & Young

7. Constructive Conditions Explicit condition: (Luttinger): “subject to and conditional upon” Constructive condition: When a court believes the same effect as an explicit condition – discharge – is warranted by the facts, even though there is no express condition in the K

8. Kingston v. Preston

9. Lord Mansfield

10. Kingston v. Preston Facts Procedural History

11. What did the K say? Pmts by apprentice Kingston for purchase of Preston’s business, £ 250 per month Kingston to give “good and sufficient security at and before the sealing and delivery of the deeds”

12. What is π’s argument here?

13. Why doesn’t Kingston argue that the security he offered was “good and sufficient”?

14. What is π’s argument here? State the π’s (apprentice’s) argument in terms of conditions

15. What is Δ’s argument here?

16. State the Δ’s argument in terms of a condition

17. Terminology “Independent Covenants” – old Yearbook discussion from 1500  Two interlocking promises; each must be treated as independent

18. UncleNephew

19. UncleNephew “K-1” “K-2”

20. “Dependent promises” My duty to perform depends upon your prior performance If you do not perform, my remedy is nonperformance, as opposed to suit for breach

21. Mansfield’s 3 categories – p. 717 1.Mutual and independent 2.“Conditions and dependent” 3.Mutual, to be performed at the same time

22. Example Independent: see why? PEACOCK CONSTRUCTION: Owner pmt is independent of GC’s duty to pay

23. Kingston: Preston’s duty to convey business dependent upon apprentice’s supplying good security Dependent promises

24. Category 3: Mutual, performed at same time Sometimes called “simultaneous” Only difference: Party asserting nonoccurrence must show (1) Nonoccurrence, PLUS (2) that he/she was “ready, willing and able to perform”

25. Category 3: typical at closing If seller has bad title at closing, buyer must show (1) good title was a condition, and (2) buyer was “ready, willing and able” to perform at closing No one will lend to buyer? No excuse, no remedy in breach

26. Ready, Willing and Able doctrine Hellrung v. Hoechst, 384 SW2d 561 (Mo. 1964) Buyer who says “I will give you the money if you will give me title,” did not have money in possession: no discharge for buyer, no breach by seller

27. Stewart v. Newbury Plaintiff built 1 floor of defendant’s building, sought payment of $896 for 1 st installment of work Defendant said work defective, refused to pay; Plaintiff brought suit to recover $896

28. Defendant’s argument: constructive conditions Full and satisfactory performance by plaintiff was a constructive condition of defendant’s obligation to pay Faulty and incomplete performance by plaintiff excused defendant of obligation to perform

29. Plaintiff’s argument 85% customary payment rule should apply here Defendant breached when it did not pay 1 st bill; this excused defendant from obligation to perform

30. Holding Defendant wins No obligation to pay until work is complete UNLESS the K provides otherwise

31. Default rule Good default rule? Burden on builder to specify progress pmts Otherwise, must wait until the end

32. Substantial performance Described as a “mitigating doctrine” What does it “mitigate”? –The harsh impact of a constructive condition

33. Constructive condition not met... Results in excused performance on the part of the contracting party in whose favor the constructive condition runs His may be harsh; may work a “forfeiture” in the words of the older cases

34. What is forfeited? The right to compensation for your performance The money due to you from having almost precisely performed (and hence complied with the constructive condition)

35. What is “substantial performance”? Step 1: There is a constructive condition – A excused from performance when B’s performance not perfectly rendered Step 2: B almost completely complied with the condition; failed in a small or minor respect

36. Jacob & Youngs v. Kent Stated in terms of constructive conditions: –The completion of the house with all specifications complied with, including Reading pipe, is a constructive condition of the owner’s obligation to perform Condition not met; owner need not perform (make final pmt)

37. Kirkland v. Archbold Restitution: another mitigating doctrine Why needed here? Failure to comply with a constructive condition; K performance excused

38. Restitution A “mitigating” remedy – mitigates the harshness of the constructive condition doctrine Otherwise, party in whose favor a condition runs can keep all benefits if condition not met in some minor respect

39. Kirkland Plaintiff/builder wanted to be excused from continued performance, and collect the 1 st $1000 payment Not permitted; K not “severable” (1st pmt not a constructive condition) But: restitution for part performance