1. 11 George Mason School of Law Contracts II Conditions This file may be downloaded only by registered students in my class, and may not be shared by them F.H. Buckley fbuckley@gmu.edu

2. 2 Kinds of conditions  What is a condition? 2

3. 3 Kinds of conditions  Consider: I promise to help you on your journey provided the crick don’t rise. 3

4. 4 Kinds of conditions  Consider: I promise to help you on your journey provided the crick don’t rise. If the crick rises, am I in breach? 4

5. 5 Kinds of conditions  Inside and Outside the contractual obligations 5 Promises Other terms: non-promissory conditions, definitions, recitals, etc.

6. 6 Kinds of conditions  Consider now: I promise to help you on your journey (which you can’t make it the crick rises) and I promise the crick won’t rise… 6

7. 7 Kinds of conditions  Inside and Outside the contractual obligations 7 Promissory Conditions Non-promissory Conditions

8. Another kind of condition The example at 623  I agree to buy your dog for $400 at your house on Thursday.  I come to your house with $400 on Thursday, but you tell me you won’t give me the dog till Saturday  Do I have to pay you on Thursday? 8

9. What does “condition” mean here?  Tender of goods is a condition of buyer’s duty to pay UCC §§ 2-507(1), 2-511(1) 9

10. What does “condition” mean here?  Tender of goods is a condition of buyer’s duty to pay UCC §§ 2-507(1), 2-511(1) Both parties to stand “ready, willing and able” to perform 10

11. Two kinds of conditions  A condition precedent is not a promise but an event which must occur before promissory obligations arise  A promissory condition is a promise which one party must be ready, willing and able to perform before the performance duties of the other party arise. 11

12. 12 Stees p.73  What are the possible legal outcomes here? 12 Third and Minnesota, St Paul

13. 13 Stees  What are the possible legal outcomes here? Builder assumes risk and is liable in damages for non-completion  Cf. School Dist. v. Dauchy at 74 13

14. 14 Stees  What are the possible legal outcomes here? Owner assumes risk  And is liable for seller’s damages  Or must pay a higher price Cf. Restatement § 89, Illustration 1 14

15. 15 Stees  What are the possible legal outcomes here? The quicksand put an end to the contract and no one is liable in damages 15

16. 16 Stees  What are the possible legal outcomes here?  Can you tell which from the language of the contract? 16

17. 17 Stees The quicksand put an end to the contract and no one is liable in damages  Mistake: Restatement § 152(1) 17

18. 18 Stees The quicksand put an end to the contract and no one is liable in damages  Mistake: Restatement § 152(1) Is this a case of Restatement § 154(b)? Or (c)? 18

19. 19 Stees The quicksand put an end to the contract and no one is liable in damages  Mistake: Restatement § 152(1) Is this a case of Restatement § 154(b)? Or (c)?  Frustration: Restatement § 261 Futurity? 19

20. 20 Stees The quicksand put an end to the contract and no one is liable in damages  Mistake: Restatement § 152(1) Is this a case of Restatement § 154(b)? Or (c)?  Frustration: Restatement § 261 Futurity?  Condition: Restatement § 224. 20

21. 21 Stees Condition: Restatement § 224.  Does this refer to a promissory or a non- promissory condition? 21

22. 22 Stees Condition: Restatement § 224.  Does this refer to a promissory or a non- promissory condition?  Cf. Restatement § 225(3) 22

23. 23 Stees The quicksand put an end to the contract and no one is liable in damages  Mistake: Restatement § 152(1)  Frustration: Restatement § 261  Condition: Restatement § 224. Should it matter which of these doctrines is invoked? 23

24. 24 Stees What did the court decide? 24

25. 25 Stees What did the court decide?  If no mistake, frustration or condition is invoked, how would you decide who is liable? 25

26. 26 Stees How would one tell whether to invoke mistake, frustration or condition? Restatement: The intentions of the parties governs  Mistake: Restatement § 154  Frustration: Restatement § 261  Condition: Restatement § 226-27 26

27. 27 Stees Suppose you knew or could reasonably predict how the parties would have bargained ex ante on formation of contract?  Would you have any reason to second-guess this? 27

28. 28 Stees And just how would the parties have bargained ex ante in Stees? 28

29. 29 Stees And just how would the parties have bargained ex ante in Stees?  Force majeur clauses  Assignment of risk 29

30. 30 George Mason School of Law Contracts II Conditions F.H. Buckley fbuckley@gmu.edu

31. Next day  Scott 644-59  Scott 659-82  Next week: Scott 65-72 31

32. Defining Conditions  A condition which is not a promise, and to which no liability attaches on its occurrence 32

33. 33 Defining conditions  Consider: I promise to help you on your journey provided the crick don’t rise. 33

34. Defining Conditions  Conditions precedent: The obligations of the parties will not arise if x has occurred.  Conditions subsequent: The obligations of the parties are suspended if x occurs. 34

35. A second kind of condition  Promissory Conditions: A condition which is also a promise, and to which liability attaches on its occurrence 35

36. 36 Promissory conditions  Consider now: I promise to help you on your journey (which you can’t make it the crick rises) and I promise the crick won’t rise… 36

37. Promissory conditions  What happens when this kind of condition occurs? The non-breaching party is excused from performance (absent waiver) 37

38. 38 Promissory conditions  I agree to sell you my car, and tender delivery immediately. When do you have to pay if you want the car today? 38

39. 39 Promissory conditions  I agree to sell you my car, and tender delivery immediately. When do you have to pay? Tender of delivery by seller and tender of payment by buyer are mutual conditions  UCC §§ 2-507(1), 2-511(1) Both parties to stand “ready, willing and able” to perform 39

40. 40 Promissory conditions  I agree to sell you my car, and tender delivery immediately. When do you have to pay? Restatement § 234(1) 40

41. 41 Promissory conditions  I agree to sell you my car, and tender delivery immediately. When do you have to pay? Restatement § 234(1)  When I agree to build you a house, when do you have to pay? 41

42. 42 Promissory conditions  I agree to sell you my car, and tender delivery immediately. When do you have to pay? Restatement § 234(1)  When I agree to build you a house, when do you have to pay? The “work before pay” rule of 234(2) 42

43. 43 Work before Pay Stewart v. Newbury at 626  What did the contract say about payment? The presumption? 43

44. 44 The duty to be ready, willing and able Bell v. Elder at 623 44

45. 45 Bell v. Elder 45 ElderslandBell Purchaser Bells sue to recover deposit because Elders failed to supply water

46. 46 Bell v. Elder  What were the obligations of the parties as to performance?  Seller to provide the water, power and roads  Buyer to pay a hook-up fee and apply for a building permit 46

47. 47 Bell v. Elder  How much of this had been done?  Seller to provide the water, power and roads  Buyer to pay a hook-up fee and apply for a building permit 47

48. 48 Bell v. Elder  Why did the buyer want to back out? 48

49. 49 Bell v. Elder  Could buyers recover purchase price because sellers had not provided water etc? 49

50. 50 Bell v. Elder  Could buyers recover purchase price because sellers had not provided water etc? Here there was no order as to when each party should do their work and “work before pay” applied to both parties Presumption of simultaneous performances 50

51. 51 Divisibility  Can a party in breach of a promissory condition resist forfeiture by asserting that conditions are divisible? 51

52. 52 Divisibility  Suppose that a builder contracts to build seven motels in seven different cities. Separate payment and completion schedule for each motel. Builder defaults on last motel. Could buyer rescind on all? 52

53. 53 Divisibility  Suppose that a builder contracts to build seven motels in seven different cities. Separate payment and completion schedule for each motel. Builder defaults on last motel. Could buyer rescind on all? Restatement § 240. 53

54. 54 Divisibility  Same case, but now: All motels built to the same specifications Builder to be paid $7M for the seven motels. 54

55. 55 Divisibility  Same case, but now: All motels built to the same specifications Builder to be paid $7M for the seven motels  Restatement § 240, illustration 5 55

56. 56 John. v. United Advertising 628  Are highway signs different? 56 Englewood CO

57. 57 John v. United Advertsing  Are highway signs different? Is this like losing your GPS signal at a crucial point?  “Take the first available U-Turn” 57

58. 58 John v. United Advertsing  What are the options for the court? 58

59. 59 John v. United Advertsing  Are highway signs different? A “material failure” under Restatement § 237?  Trial court’s finding of no damages 59

60. 60 John v. United Advertsing  Are highway signs different? Supposing the contract had omitted the divisibility clause? 60

61. 61 Buffalo Seminary 631 61

62. 62 Buffalo Seminary  Is education severable? (And just why was she expelled?) 62

63. 63 Divisibility in the UCC  UCC § 2-307 Presumption of a single delivery But divisibility if presumed if a right to separate deliveries 63

64. 64 Divisibility in the UCC  UCC § 2-612: Installment Contracts Onus on seller to specify if delivery in lots. UCC § 2-307 Qu. If the buyer can reject the whole under 2-612(3) 64

65. 65 A tertium quid  In addition to conditions precedent (and subsequent) and promissory conditions, there is logically a tertium quid And what is that? 65

66. 66 Howard at 633 66

67. 67 Howard at 633  Condition precedent in clause 5(b) 67

68. 68 Howard  Condition precedent in clause 5(b) If this is not met, can Howard recover? If this is not met, is Howard liable in damages? 68

69. 69 Howard  Qu. Clause 5(f) 69

70. 70 Howard  Qu. Clause 5(f) If this is not met, Can Howard recover? If this is not met, is Howard liable in damages? 70

71. 71 Howard  What are the options? Cf. Restatement § 227, Comment d 71

72. 72 Howard  What are the options? Cf. Restatement § 227, Comment d  Condition precedent, no promise that event will happen  Not a condition precedent, but a promise that the event will happen  Promissory conditions: A promise that the event will happen plus the event excuses the other party from performance 72

73. 73 Howard  What are the options? Cf. Restatement § 227, Comment d  Cf the three options of § 227(2) 73

74. 74 Howard  What is the presumption against forfeiture? Cf Restatement § 227, comment b 74

75. 75 Howard  Insurance law: contra proferentum 75

76. 76 Bias against conditions  Cf. Carter’s Claim at 637  Main Electric at 637 An information cost perspective? 76

77. 77 Conditions and promises  It’s helpful to have labels for the different kinds of terms we are talking about. 77

78. 78 Conditions and promises  From Restatement § 227, distinguish:  A condition but not a promise that event will happen  A promise and a conditions that excuses the other party from performance  None of the above but a promise that the event will happen 78

79. 79 Conditions and promises  Let’s call these:  Condition but not a promise: Conditions precedent (subsequent) 79

80. 80 Conditions and promises  Let’s call these:  A promise that the event will happen plus the event excuses the other party from performance: Promissory Conditions 80

81. 81 Conditions and promises  Let’s call these:  None of the above but a promise that the event will happen??? 81

82. 82 Conditions and promises  Let’s call these:  None of the above but a promise that the event will happen: Warranties 82

83. 83 Conditions and promises  Let’s call these:  Conditions precedent (subsequent)  Promissory conditions  Warranties 83

84. 84 Promises and Conditions Conditions Conditions PrecedentPromissory No liability if non-occurrence Liability if non-occurrence Restatement § 225(2)Restatement § 225(3)

85. 85 Promises and Conditions Conditions Conditions PrecedentPromissory (related to Mistake and Frustration)

86. 86 Promises and Conditions Promises ConditionsWarranties

87. 87 Promises and Conditions Promises ConditionsWarranties Election Forfeiture DamagesDamages only

88. 88 Conditions in the UCC  I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date. Assume that the price of copper has fallen. Can I reject the tender? 88

89. 89 Conditions in the UCC  I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date. Assume that the price of copper has fallen. Can I reject the tender?  UCC § 2-601 “reject the whole” 89

90. 90 Conditions in the UCC  I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date. Assume that the price of copper has fallen. Can I reject the tender?  UCC § 2-601 “reject the whole”  So the obligation to deliver 500 is a condition 90

91. 91 Conditions in the UCC  I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date. The perfect tender rule  “Fail in any respect” in UCC § 2-601 91

92. 92 Conditions in the UCC  I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date. Assume that the price of copper has risen. Can I accept the 400? 92

93. 93 Conditions in the UCC  I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date. Assume that the price of copper has risen. Can I accept the 400?  UCC § 2-601(c) “accept any commercial unit” 93

94. 94 Conditions in the UCC  I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date. Assume that the price of copper has risen. Can I accept the 400? Can I also sue for damages for the 100?  UCC § 2-711(1)(b) 94

95. 95 Conditions in the UCC  I bargain for delivery of 500 tons of copper, delivery by January 5. You deliver 400 on that date. Assume that the price of copper has risen. Can I accept the 400? Can I also sue for damages for the 100?  So the obligation to deliver 500 tons is both a promise and a condition 95

96. 96 Conditions precedent and subsequent  What’s the difference? 96

97. 97 Conditions precedent and subsequent  What’s the difference? CP: no performance due before event  Restatement § 224 CS: Performance is due, but event extinguishes duty and claim for breach  Restatement § 224 cmt e, 230 97

98. 98 Conditions precedent and subsequent  What’s the difference? Restatement § 230(2)  Good faith  No materially increased burden 98

99. 99 Conditions precedent and subsequent  Gray v. Gardner at 640 Parties bargain for a higher price provided a lesser quantity of sperm oil arrives between April 1 and October 1  Buyer to pay a premium if a shortage 99

100. 100 Conditions precedent and subsequent  Gray v. Gardner Contract void if greater quantity of sperm oil arrives between April 1 and October 1 Was there a valid contract between April 1 and October 1? 100

101. 101 Conditions precedent and subsequent  Gray v. Gardner Contract void if greater quantity of sperm oil arrives between April 1 and October 1 Was there a valid contract between April 1 and October 1?  Δs argued not but Parker said yes—a condition subsequent Which means that onus of proof on buyer 101

102. 102 Drafting CP and CS clauses  Draft the Gray v. Gardner promise as a CP as a CS 102

103. 103 Attorney-approval clauses at 642  I agree “subject to my lawyer’s approval.” A valid condition subsequent? What if the attorney says no?  Gaglia 103

104. 104 Modification, Waiver, Estoppel: Clark v. West 104 The dirty little secret of textbook publishing revealed

105. 105 Modification, Waiver, Estoppel  Distinguish Modifications, waiver, estoppel 105

106. 106 Modification, Waiver, Estoppel  Modifications are bilateral agreements to vary obligations under a contract Promises are modified 106

107. 107 Modification, Waiver, Estoppel  Modifications are bilateral agreements to vary obligations under a contract  Waivers are unilateral acts by one party to excuse another’s performance of an obligation Conditions are waived 107

108. 108 Modification, Waiver, Estoppel  Modifications are bilateral agreements to vary obligations under a contract  Waivers are unilateral acts by one party to excuse another’s performance of an obligation  (Promissory) Estoppel bars a promisor from enforcing a right where he knows that a promisee has detrimentally relied on him. 108

109. 109 Agreement Required? Reliance required? Modification Waiver Estoppel Modification, Waiver, Estoppel at common law

110. 110 Agreement Required? Reliance required? Modificationyesno Waiver Estoppel Modification, Waiver, Estoppel at common law

111. 111 Agreement Required? Reliance required? Modificationyesno Waiverno Estoppel Modification, Waiver, Estoppel at common law

112. 112 Agreement Required? Reliance required? Modificationyesno Waiverno Estoppelnoyes Modification, Waiver, Estoppel at common law

113. 113 Clark v. West  What was the promise? Now you know why textbooks are so long. 113

114. 114 Clark v. West  What was the promise? Now you know why textbooks are so long.  Facts alleged on 647 Would this be enough for an estoppel? A waiver? 114

115. 115 The UCC: Wisconsin Knife Works  What was the contract? Spade Bits Metal Crafters Wisconsin

116. 116 Wisconsin Knife Works  What was the contract? Metal Crafters given six Purchase Orders in Aug 1981 for delivery in Oct-Nov New purchase orders in July 1982 Seller not able to deliver until December 1982—13 months late Jan 1983—buyer rescinds 116

117. 117 Wisconsin Knife Works  What was the evidence of modification and was it admissible? Consideration not a problem: 2-209(1) § 1-304. Obligation of Good Faith.  Every contract or duty within [the Uniform Commercial Code] imposes an obligation of good faith in its performance and enforcement. 117

118. 118 Wisconsin Knife Works  What was the evidence of modification and was it admissible? Consideration not a problem: 2-209(1) How would you interpret 2-209(2)  What does “except between merchants” mean? 118

119. 119 Wisconsin Knife Works  When does something which fails as a modification succeed as a waiver in 2- 209(4)? “can operate as a waiver” 119

120. 120 Wisconsin Knife Works  When does something which fails as a modification succeed as a waiver in 2- 209(4)? Posner: so as not to render 2-209(2) otiose, let’s add a reliance requirement to 2-209(4) 120

121. 121 Wisconsin Knife Works  When does something which fails as a modification succeed as a waiver in 2- 209(4)? Posner: so as not to render 2-209(2) otiose, let’s add a reliance requirement to 2-209(4) But is 2-209(5) then otiose? 121

122. 122 Wisconsin Knife Works  Posner: waiver ineffective unless other party relies  2-209(5): before the other party relies, one who waives can retract 122

123. 123 Wisconsin Knife Works  Posner: waiver ineffective unless other party relies  2-209(5): before the other party relies, one who waives can retract  So retraction ineffective after reliance  And before reliance? If it was a nothing, why not allow retraction? 123

124. 124 Wisconsin Knife Works  What was the evidence of modification or waiver here? Was an unwritten modification valid? Was waiver available? UCC § 2-209(4)  Easterbrook on waiver: 2-209(5) implies that waiver requires reliance 124

125. 125 Wisconsin Knife Works  Easterbrook on waiver: 2-209(5) implies that waiver does not require reliance § 1-107. Waiver or Renunciation of Claim or Right After Breach. Any claim or right arising out of an alleged breach can be discharged in whole or in part without consideration by a written waiver or renunciation signed and delivered by the aggrieved party. 125

126. 126 Wisconsin Knife Works  So how would Easterbrook prevent 2- 209(2) from being otiose? 126

127. 127 Wisconsin Knife Works  So how would Easterbrook prevent 2- 209(2) from being otiose? A stricter standard of proof as to intention? 127

128. 128 George Mason School of Law Contracts II Conditions F.H. Buckley fbuckley@gmu.edu

129. Next day  Finish materials on warranties 129

130. 130 Promises and Conditions Conditions Conditions PrecedentPromissory No liability if non-occurrence Liability if non-occurrence Restatement § 225(2)Restatement § 225(3)

131. 131 Promises and Conditions Promises ConditionsWarranties Election Forfeiture DamagesDamages only

132. 132 Agreement Required? Reliance required? Modificationyesno Waiverno Estoppelnoyes Avoiding forfeiture

133. 133 Waiver and Post-contractual opportunism  Alaska Packers  Buyer agrees to purchase a specially designed computer software program. Seller spends six months on this. With one month to go, buyer seeks a modification of the price. 133

134. 134 Waiver and Post-contractual opportunism  Opportunism and Perfect Tender? Buyer agrees to purchase potash with delivery at specified times. Seller is late one day with a delivery. The price of potash has fallen by 50%. 134

135. 135 Waiver and Post-contractual opportunism  How does modification open the door to post-contractual opportunism? Did Alaska Packers offer much protection? Is 2-209(1) a retreat?  Would a modification only in writing help solve the problem? 135

136. 136 Modification and Waiver in the UCC  Modifications are binding w/o consideration. UCC § 2-209(1) but subject to obligation of Good Faith in § 1-304.  Modifications can be barred by express agreement, UCC § 2-209(2), unless a signed written modification  But waivers still permitted. UCC § 2-209(4) Tho these can be retracted unless other parties changes position. UCC § 2-209(5) 136

137. 137 Why no waiver in Suzuki at 657? 137

138. 138 Why no waiver in Suzuki at 657?  The onus of proof to satisfy 2-209(4) 138

139. 139 Why no waiver in Suzuki?  Termination clauses and agency costs Wisconsin Fair Dealership Law, 1974  135.03 Cancellation and alteration of dealerships. No grantor, directly or through any officer, agent or employee, may terminate, cancel, fail to renew or substantially change the competitive circumstances of a dealership agreement without good cause. The burden of proving good cause is on the grantor. 139

140. 140 George Mason School of Law Contracts II Warranties F.H. Buckley fbuckley@gmu.edu