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.

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 Kinds of Terms  Consider: I promise to help you on your journey, the good Lord willin’ and the crick don’t rise. 2 I’m going to drown

3 Kinds of terms  Consider: I promise to help you on your journey provided the crick don’t rise. If the crick rises, am I in breach? 3

4 Kinds of terms  Now consider: I promise to help you on your journey provided the crick don’t rise. So this is not a promise: let’s call it a condition  If the event in question occurs, I am excused from performance 4

5 Kinds of terms  Now consider: I promise the crick won’t rise. If the crick rises, am I in breach? 5

6 Kinds of conditions  Now consider: I promise the crick won’t rise. Is there a problem about promising the occurrence of an event over which I have no control? 6

7 Kinds of conditions  Now consider: I promise the crick won’t rise. Is there a problem about promising the occurrence of an event over which I have no control?  Ever hear of earthquake insurance? 7

8 Kinds of conditions  Now consider: I promise the crick won’t rise. Is there a problem about promising the occurrence of an event over which I have no control?  Let’s call this a promise. Or a warranty. 8

9 Different kinds of terms  Some are obligations, some not 9 Promises Warranties Other terms: definitions, recitals, conditions, etc.

Express conditions: force majeur clauses  A party is not liable for failure to perform the party's obligations if such failure is as a result of Acts of God (including fire, flood, earthquake, storm, hurricane or other natural disaster), war, invasion, act of foreign enemies, hostilities (regardless of whether war is declared), civil war, rebellion, revolution, insurrection, military or usurped power or confiscation, terrorist activities, nationalization, government sanction, blockage, embargo, labor dispute, strike, lockout or interruption or failure of electricity or telephone service. 10

11 When will a court to imply a condition, absent express language? What kind of gap-filling will the court do? 11

12 When will a court to imply a condition, absent express language?  Paradine v. Jane at 77 12 Prince Rupert

13 How willing is a court to imply a condition, in the absence of express language?  Paradine v. Jane at 77 “If a lessee covenant to repair a house, though it be burnt by lightning, or thrown down by enemies, yet he ought to repair it.” 13

14 How willing is a court to imply a condition, in the absence of express language?  Paradine v. Jane at 77 “If a lessee covenant to repair a house, though it be burnt by lightning, or thrown down by enemies, yet he ought to repair it.” But “If a house be destoyed by tempest, or by enemies, the lessee is excused” (?!?) 14

15 How willing is a court to imply a condition, in the absence of express language?  Paradine v. Jane at 77 “If a lessee covenant to repair a house, though it be burnt by lightning, or thrown down by enemies, yet he ought to repair it.” But “If a house be destoyed by tempest, or by enemies, the lessee is excused” (?!?) Does it matter that the leasehold interest had passed? 15

16 Stees p.74  What is the claim? 16 Third and Minnesota, St Paul

17 Stees p.74  What are the possible legal outcomes? 17

18 Stees  What are the possible legal outcomes? Builder assumes risk and is liable Owner assumes risk and is liable No one is liable 18

19 Stees  What are the possible legal outcomes? Builder assumes risk and is liable in damages for non-completion as well as recovery of payments made and consequential losses 19

20 Stees  What are the possible legal outcomes? Builder assumes risk and is liable in damages for non-completion  If this seems hard, what might the builder do? 20

21 Stees  What are the possible legal outcomes? Owner assumes risk  And is liable for seller’s damages 21

22 Stees  What are the possible legal outcomes? Owner assumes risk Cf. Restatement § 89 (Modification), Illustration 1: By a written contract A agrees to excavate a cellar for B for a stated price. Solid rock is unexpectedly encountered and A so notifies B. A and B then orally agree that A will remove the rock at a unit price which is reasonable but nine times that used in computing the original price, and A completes the job. B is bound to pay the increased amount. 22

23 Stees  What are the possible legal outcomes? No one is liable The quicksand puts an end to the contract Let the loss lie where it falls 23

24 Stees  What are the possible legal outcomes? Builder assumes risk and is liable Owner assumes risk and is liable No one is liable  How would you express these difference in legal terms? 24

25 Stees  What are the possible legal outcomes? Builder assumes risk and is liable: warranty Owner assumes risk and is liable: warranty No one is liable: condition 25

26 Stees  What are the possible legal outcomes here?  Can you tell which from the language of the contract? 26

27 Stees  What doctrines might a court invoke to put an end to all obligations under the contracts? 27

28 Stees  What doctrines might a court invoke to put an end to all obligations under the contracts? Mistake Frustration/Impracticability Condition 28

29 Stees  Mistake Restatement § 152(1) Where a mistake of both parties at the time of contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake …. 29

30 Stees  Mistake Restatement § 152(1) Where a mistake of both parties at the time of contract was made as to a basic assumption on which the contract was made has a material effect on the agreed exchange of performances, the contract is voidable by the adversely affected party unless he bears the risk of the mistake …. 30

31 Stees  Mistake No mistake if Assumption of risk Restatement § 154 A party bears the risk of mistake when the risk is allocated to him by agreement of the parties, or he is aware, at the time the contract is made, that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledge as sufficient, or the risk is allocated to him by the court on the ground that it is reasonable in the circumstances to do so. 31

32 Stees  Frustration or Impracticability Restatement § 261 Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary. 32

33 Stees  Condition Restatement § 224 A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due. 33

34 Stees  Condition Restatement § 224 A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due. Restatement § 225(3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur 34

35 Stees  What did the court decide? 35

36 Stees  What did the court decide? The contractor must perform his engagement, unless prevented by an Act of God, the law, or the other party 36

37 Stees  What did the court decide? A presumption against conditions that excuse performance The “sanctity of contracts” “The promisor should provide against contingencies” 37

38 Stees  What did the court decide? The contractor must perform his engagement, unless prevented by an Act of God, the law, or the other party How would you define an Act of God? 38

39 Stees  What did the court decide? He must perform his engagement, unless prevented by the act of God, the law, or the other party If the parties had bargained for an excuse, the courts would honor this. What if we thought we knew how they would have bargained had they put their minds to it? 39

40 Stees  What did the court decide? He must perform his engagement, unless prevent by the act of God, the law, or the other party If the parties had bargained for an excuse, the courts would honor this. What if we thought we knew how they would have bargained had they put their minds to it? And just how do you think they would have bargained? 40

41 Stees  What did the court decide? Quicksand as an informational problem  Who was in the best position to discover or know of the problem? 41

42 Stees  What if one party is contractually bound to perform according to specifications that are defective? U.S. v. Spearin at 78 42

43 Stees  If contractors are liable for breach of promise, what remedies might be available to plaintiff homeowners? 43

44 Stees  If contractors are liable for breach of promise, what remedies might be available to plaintiff-homeowners? Damages for breach (give plaintiff the benefit of the bargain less the contract price) 44

45 Stees  If contractors are liable for breach of promise, what remedies might be available to plaintiff-homeowners? Damages for breach (give plaintiff the benefit of the bargain less the contract price) Set aside (rescind) the contract (absolve plaintiff from paying the price) on a breach of a condition 45

46 Stees  But observe that the condition was also a promise 46

47 Now it gets confusing  So the term condition can mean two entirely different things That wasn’t very smart, was it? 47

Two kinds of conditions  Non-promissory conditions are not promises and excuse performance by either party on their occurrence  No right to claim for damages 48

Two kinds of conditions  Promissory Conditions  are warranties (for which the innocent party may receive consequential damages on breach)  and conditions (which excuse performance by the innocent party) 49

50 Different kinds of conditions  Some are obligations, some not 50 Promissory Conditions Non-promissory Conditions

Promissory conditions: The example at 615  I agree to sell you my dog for $400, delivery at your house on Thursday.  I come to your house with my dog on Thursday. You tell me you want it but that you can’t pay me till Saturday  Do I have to deliver the dog on Thursday? 51

Promissory conditions  UCC § 2-511(1). Unless otherwise agreed, tender of payment is a condition to the seller's duty to tender and complete any delivery. 52

Promissory conditions  UCC § 2-511(1). Unless otherwise agreed, tender of payment is a condition to the seller's duty to tender and complete any delivery.  This is a condition (i.e., seller doesn’t have to deliver if buyer doesn’t pay) 53

Promissory conditions  UCC § 2-511(1). Unless otherwise agreed, tender of payment is a condition to the seller's duty to tender and complete any delivery.  And also a promise (i.e., a warranty in which seller is in breach if he doesn’t deliver when buyer pays) 54

Promissory conditions Turn this around  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? 55

Promissory conditions  UCC § 2-507(1). Tender of delivery is a condition to the buyer's duty to accept the goods 56

What does “condition” mean here?  Not every promise is a promissory condition, but only those promises which must be performed as a condition of the other party’s duty of performance Tender or delivery and payment as mutual conditions Both parties to stand “ready, willing and able” to perform 57

Promissory and non-promissory conditions  In what respect do promissory and non-promissory conditions resemble each other? 58

Promissory and non-promissory conditions  In what respect do promissory and non-promissory conditions resemble each other? The non-breaching party is excused from performance of a promissory condition, and both parties are excused on the occurrence of a non-promissory condition 59

Promissory and non-promissory conditions  In what respect do promissory and non-promissory conditions NOT resemble each other? 60

Promissory and non-promissory conditions  In what respect do promissory and non-promissory conditions NOT resemble each other? The breaching party is liable for damages on breach of a promissory condition, but not on the occurrence of a non- promissory condition 61

62 What about non-sale of goods  When does a promise amount to a promissory condition? 62

63 What about non-sale of goods  § 234(1). Order of Performances--Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary. 63

64 What about non-sale of goods  § 234(1). Order of Performances Where all or part of the performances to be exchanged under an exchange of promises can be rendered simultaneously, they are to that extent due simultaneously, unless the language or the circumstances indicate the contrary.  I.e., a presumption of conditions 64

65 What about non-sale of goods  § 234(2) Except to the extent stated in Subsection (1), where the performance of only one party under such an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the circumstances indicate the contrary. 65

66 What about non-sale of goods  § 234(2) Except to the extent stated in Subsection (1), where the performance of only one party under such an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the circumstances indicate the contrary. So he has to do everything before the other party has to perform 66

67 What about non-sale of goods  § 234(2) Except to the extent stated in Subsection (1), where the performance of only one party under such an exchange requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the circumstances indicate the contrary.  “Work before pay” 67

68 Promissory conditions  When I agree to build you a house, when do you have to pay? 68

69 Work before Pay Stewart v. Newbury at 619  What did the contract say about progress payments? 69

70 Work before Pay Stewart v. Newbury at 619  What did the contract say about progress payments? The presumption: If you want progress payments, you have to bargain for them 70

71 The duty to be ready, willing and able Bell v. Elder at 616 71

72 Bell v. Elder  What were the obligations of the parties as to performance? 72

73 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 73

74 Bell v. Elder 74 ElderslandBell Purchaser Bell sues to recover deposit because Elders failed to supply water

75 Bell v. Elder  Was the buyer acting opportunistically? 75

76 Bell v. Elder  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 76

77 Divisibility  Can a party in breach of a promissory condition resist forfeiture by asserting that conditions are divisible? 77

78 Divisibility  Suppose that a builder contracts to build seven motels in seven different cities, the same charge of $100K for each Builder defaults on last motel. Could buyer rescind on all? 78

79 Divisibility  Restatement § 240. If the performances to be exchanged under an exchange of promises 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 his part of such a pair has the same effect on the other’s duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised. 79

80 Divisibility  Restatement § 240. If the performances to be exchanged under an exchange of promises 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 his part of such a pair has the same effect on the other’s duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised. 80

81 Divisibility  Same case, but now: All motels built to the same specifications Builder to be paid $700K for the seven motels. 81

82 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 82

83 John. v. United Advertising 620  Are highway signs different? 83 Englewood CO

84 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” 84

85 John v. United Advertsing  What are the options for the court? 85

86 John v. United Advertsing  What are the options for the court?  Set aside the entire contract  Set aside the severable parts of it 86

87 John v. United Advertsing  A “material failure” of the entire contract?  Restatement § 237. Except as stated in § 240, it is a condition of each party’s remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time. 87

88 John v. United Advertsing  A severable contract Sever the breaches and enforce as to the rest? Supposing the contract had omitted the divisibility clause? 88

89 Divisibility in the UCC  UCC § 2-307 Delivery in Single Lot or Several Lots. Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot. A presumption of non-divisibility 89

90 Divisibility in the UCC  UCC § 2-307 Delivery in Single Lot or Several Lots. Unless otherwise agreed all goods called for by a contract for sale must be tendered in a single delivery and payment is due only on such tender but where the circumstances give either party the right to make or demand delivery in lots the price if it can be apportioned may be demanded for each lot. But this might be rebutted if separate deliveries contemplated 90

91 UCC § 2-612: Installment Contracts  § 2-612(1) An "installment contract" is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause "each delivery is a separate contract" or its equivalent 91

92 UCC § 2-612: Installment Contracts  § 2-612(2) The buyer may reject any installment which is non-conforming if the non- conformity substantially impairs the value of that installment and cannot be cured or if the non-conformity is a defect in the required documents 92

93 UCC § 2-612: Installment Contracts  § 2-612(3) Whenever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole. 93

94 Promises vs. Conditions 94 Promissory Conditions Non- promissory Conditions Bare promises, warranties

95 Three different kinds of terms  Non-promissory conditions  On its occurrence both parties excused  Promissory conditions  On its breach, innocent party may either rescind or sue for damages  Bare promises or warranties  On its breach, innocent party can sue for damages, but not rescind 95

96 Howard at 625 96

97 Howard  What are the farmer’s remedies if he did not comply with clause 5(b)? 97

98 Howard  What are the farmer’s remedies if he did not comply with clause 5(b)?  Could he be sued for failure to comply with it? 98

99 Howard  What are the farmer’s remedies if he did not comply with clause 5(b)?  Could he be sued for failure to comply with it?  So a non-promissory condition 99

100 Howard  And for non-compliance with Clause 5(f)? 100

101 Howard  Qu. Clause 5(f) If this is not met, Can Howard still recover? If this is not met, is Howard liable in damages? 101

102 Howard  What are the options? 102

103 Howard  What are the options?  Bare promise, warranty: Not a condition precedent, but a promise that the event will happen, breach of which gives FCIC a damages remedy at best  Promissory condition: A promise that the event will happen plus non-occurrence excuses the other party from performance  Condition precedent: No promise that event will happen, but non-performance excuses both parties 103

104 Howard  What are the options?  Held a Bare promise 104

105 What are the presumptions in the Restatement?  Restatement § 227(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk. 105

106 What are the presumptions in the Restatement?  Restatement § 227(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk. So a presumption against promissory and non-promissory conditions 106

107 What are the presumptions in the Restatement?  Restatement § 227(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether (a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligor's duty, or (c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, (a) = bare promise by obligee (b) = non-promissory condition (c) = promissory condition by obligee 107

108 What are the presumptions in the Restatement?  Restatement § 227(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether (a) a duty is imposed on an obligee that an event occur, or (b) the event is made a condition of the obligor's duty, or (c) the event is made a condition of the obligor's duty and a duty is imposed on the obligee that the event occur, the first interpretation is preferred if the event is within the obligee's control. I.e., bare promise 108

109 Conditions precedent and subsequent  What’s the difference? 109

110 The special case of insurance contracts  See the cases at 647  What’s the difference? 110

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. 111

112 Conditions precedent and subsequent  Conditions precedent Restatement § 224 A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due. 112

113 Conditions precedent and subsequent  Conditions subsequent Restatement § 230 “the occurrence of an event is to terminate an obligor’s duty”  Cf. Restatement § 224 cmt e 113

114 Conditions precedent and subsequent  Conditions subsequent Restatement § 230 “the occurrence of an event is to terminate an obligor’s duty” But not under 230(2) if the obligor is in breach of duties of good faith and fair dealing or no undue hardship to obligor 114

115 What are the presumptions in the Restatement?  Restatement § 227(3) An interpretation is preferred under which an event is a condition of an obligor’s duty is preferred over an interpretation under which the non-occurrence of the event is a ground for discharge of that duty after it becomes a duty to perform That is, a presumption of a condition precedent over a condition subsequent 115

116 Conditions precedent and subsequent  Gray v. Gardner at 633 116

117 Conditions precedent and subsequent  Gray v. Gardner Parties bargain for a price by providing that the contract is void if a greater amount of sperm oil arrive than in the same period of the prior year  Buyer to pay a premium if a shortage 117

118 Conditions precedent and subsequent  Gray v. Gardner Parties bargain for a price by providing that the contract is void if a greater amount of sperm oil arrive than in the same period of the prior year  If a condition precedent, onus on seller to show that the condition occurred 118

119 Conditions precedent and subsequent  Gray v. Gardner Parties bargain for a price by providing that the contract is void if a greater amount of sperm oil arrive than in the same period of the prior year  If a condition subsequent, onus on buyer to show the condition occurred 119

120 Conditions precedent and subsequent  Gray v. Gardner Parties bargain for a price by providing that the contract is void if a greater amount of sperm oil arrive than in the same period of the prior year  Held a condition subsequent: onus on defendant buyer who wants out of the contract 120

121 Drafting CP and CS clauses  Draft the Gray v. Gardner promise as a CP as a CS 121

122 Attorney-approval clauses at 635  I agree “subject to my lawyer’s approval.” Gaglia v. Kirchner at 635  If a buyer has an attorney approval clause, can the seller back out before such approval is given? 122

123 Recall the different kind of terms in Howard 123 Promissory Conditions Non- promissory Conditions Bare promises, warranties

124 Non-promissory Conditions  Restatement § 224 A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due. 124

125 Promissory Conditions  Restatement § 225(3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur 125

126 Promises and Conditions Conditions Conditions PrecedentPromissory No liability if non-occurrence Liability if non-occurrence Restatement § 224Restatement § 225(3 )

127 Promises and Conditions Promises ConditionsBare Promises (Warranties)

128 Promises and Conditions Promises ConditionsWarranties Election Forfeiture DamagesDamages only

129 Modification, Waiver, Estoppel: Clark v. West at 636 129 The dirty little secret of textbook publishing revealed

130 Modification, Waiver, Estoppel  Distinguish Modifications, waiver, estoppel 130

131 Modification, Waiver, Estoppel  Modifications are bilateral agreements to vary obligations under a contract Promises are modified 131

132 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 132

133 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. 133

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

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

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

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

138 Clark v. West  What was the promise? Now you know why textbooks are so long. 138

139 Clark v. West  What was the promise? Now you know why textbooks are so long.  Facts alleged on 636 Would this be enough for an estoppel? A waiver? 139

140 Clark v. West  Consider again the bias against forfeiture—if conditions are so easily waived 140

141 (1) An agreement modifying a contract within this Article needs no consideration to be binding. (2) A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. (3) The requirements of the statute of frauds section of this Article (Section 2-201) must be satisfied if the contract as modified is within its provisions. (4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. (5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. UCC § 2-209. Modification, Rescission and Waiver

147 Wisconsin Knife Works at 639  What was the contract?

148 Wisconsin Knife Works at 639  What was the contract? Spade Bits Metal Crafters Wisconsin Black & Decker Spade bit blank

149 Wisconsin Knife Works  What was the contract? Wisconsin orders 280,000 blanks from Metal Crafters in Aug-Sept 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—144,000 blanks produced but Wisconsin rescinds 149

150 Wisconsin Knife Works  What was the evidence of modification and what are the problems under the UCC? 150

151 2-209(1) An agreement modifying a contract within this Article needs no consideration to be binding. Posner: Replaced by good faith § 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. The UCC: Consideration is out

152 A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. What was the problem with UCC 2-209(2)?

153 Was there a signed modification here? Why would Wisconsin have wanted a “no modification” clause and why are they standard? What was the problem with UCC 2-209(2)?

154 A signed agreement which excludes modification or rescission except by a signed writing cannot be otherwise modified or rescinded, but except as between merchants such a requirement on a form supplied by the merchant must be separately signed by the other party. What does the proviso do?

155 How did Posner decide on modifications? Posner on modifications

156 How did Posner decide on waiver? Posner on waiver

157 2-209(4) Although an attempt at modification or rescission does not satisfy the requirements of subsection (2) or (3) it can operate as a waiver. How did Posner decide on Waiver?

158 Wisconsin Knife Works  When does something which fails as a modification succeed as a waiver in 2- 209(4)? “can operate as a waiver” 158

159 Wisconsin Knife Works  Does something which fails as a modification always succeed as a waiver in 2-209(4)? 159

160 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) 160

161 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? 161

162 Wisconsin Knife Works  But is 2-209(5) then otiose?  2-209(5) A party who has made a waiver affecting an executory portion of the contract may retract the waiver by reasonable notification received by the other party that strict performance will be required of any term waived, unless the retraction would be unjust in view of a material change of position in reliance on the waiver. 162

163 Wisconsin Knife Works  Posner: under 2-209(5), one who waives can retract if he waives before the other party relies  So 2-209(5) estoppel wouldn’t work but 2-209(4) waiver might 163

164 Wisconsin Knife Works  Why does Easterbrook dissent? 164

165 Wisconsin Knife Works  Why does Easterbrook dissent? Waiver has never required reliance 165

166 Wisconsin Knife Works  Why does Easterbrook dissent? Waiver has never required reliance Waiver in 2-209(4) might encompass either past or future performance Estoppel in 2-209(5) refers only to future (executory) performance 166

167 Wisconsin Knife Works  UCC § 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. 167

168 Wisconsin Knife Works  So how would Easterbrook prevent 2- 209(2) from being otiose? 168

169 Wisconsin Knife Works  So how would Easterbrook prevent 2- 209(2) from being otiose? A stricter standard of proof as to intention? 169

170 Agreement Required? Reliance required? Modificationyesno Waiverno Estoppelnoyes Avoiding forfeiture: Common Law

171 Agreement Required? Reliance required? Modification no consideration needed 2-209(1) Good Faith in § 1- 304 But no modification clause enforced 2-209(2) no Waiver Estoppel Avoiding forfeiture: UCC

172 Agreement Required? Reliance required? Modification WaiverNo Yes: Posner No: Easterbrook, tho’ a bar to retraction under 209(5) Estoppel Avoiding forfeiture: UCC

173 Agreement Required? Reliance required? Modification Waiver EstoppelNo Yes Avoiding forfeiture: UCC

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.

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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.

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Presentation on theme: "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."— Presentation transcript:

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