Areas to be Covered

● Performance of contractual conditions– Express & Implied

● Breach of Contract– Material

– Anticipatory

● Discharge– Impossibility

– Frustration

Various Meanings of Conditions

● Conditions of a contract = terms of the contract themselves

● Conditions to a contract = contract will not be formed unless something happens. (see next slide)

● Conditions of formation = what must be done to accept the offer and form a contract.

● Conditions precedent – things that must take place before obligation to perform is triggered or discharged (to be discussed)

Contract without Conditions

Remember, exchange of promises is what contracts are all about.

Promise = undertaking to act or refrain from acting in a specified way at some future time.

Promise topay price

exchange

Promise toconvey land

Buyer Seller

Conditions to a Contract

Contract formed(promises exchanged)

CONDITION SATISFIED CONDITION NOTSATISFIED

Rezoning grantedin 60 days.

Rezoning denied ornot granted in 60 days

Buyer has no obligationto perform (nor does seller)

Performance proceeds:

Pay Price

exchange

Convey land

BUYER SELLER

Performance of Contractual Conditions

● Note – up to now we have been dealing with the formation of a contract.

● This section deals with the performance of a contract.

● Condition = an event that is not certain to occur.– promised performance under K is subject to condition if

parties agree that performance is contingent on the occurrence of an uncertain event.

Condition v. Promise

● Condition - an event that is not certain to occur.– failure discharges party from further performance.

– could give rise to remedy (damages, specific performance).

● Promise (warranty) - undertaking to act or refrain from acting in a specified way at some future time.– failure is breach of contract.

– generally, does NOT discharge party from further performance

– gives rise to action for damages.

Intent to Create a Condition

● Usually clearly set forth by the parties (express)● When not, then usual contract interpretation rules

are applied and an implied condition can be found:– objective standard

– use of extrinsic evidence, UNLESS parole evidence rule applies

● Sometimes conditions are imposed upon parties by law– These generally amount to warranties (promises)

– The text deals with this kind of implied condition

Express Conditions

● A condition is express if:– language of the contract,

– on its face and without use of extrinsic evidence,

– states the intent to make performance contingent on the event.

● Commonly used expressions:– “on condition that,” “provided that,” subject to,” “if”

– no special language is needed, though

● NOTE – there must be strict compliance with express conditions.

Implied Conditions (Examples)

● Uniform Commercial Code:– Implied warranty of merchantability

● product works and can be used as expected

– Implied warranty of fitness for particular purpose

– Obligation of good faith in performance and enforcement

● implied in all contracts by virtue of common law.

– Implied Warranty of Good Title

Performance of Conditions

● Generally, a condition must be completely and totally performed.

● Courts and statutes (UCC) have allowed on occasion for “substantial performance”– This is question of fact

– may give rise to action for damages

– courts may treat “condition” as “promise” that was part of the contract.

● UNLESS failure to meet “condition” goes to heart of K.

Intro to Breach of Contract

Contract executed on April 1

condition precedent to

condition precedent to

Payment of $5,000 on April 5(Vlad)

First Performance due

Third Performance

Second Performance

Commencement of paintingon April 15 (Mike)

Completion of paintingon April 30 (Mike)

Payment of $3,000 on May 1(Vlad)

Breach of Contract

● To establish breach, one must ask:– Was a promise made, and if so, what was promised?

– When was the promised performance due?● if not past due, then no breach.

– Was the performance in compliance with the promise?● Any performance that falls short of that promised is a breach.

– What is the proper response to the breach?● proper response depends upon the impact of the breach

Significance of Breach

If the breach is totaland material

If the breach is materialbut not total

If the breach is notmaterial (substantialperformance)

the promisee may

the promisee may

the promisee may

● Withhold performance● if deemed condition

● Terminate● Claim full damages for breach

● Suspend performance● Await cure (if none coming then

becomes total)● Claim compensation for any

loss suffered

● Claim compensation for any loss suffered

Material Breach

● Failure or deficiency of performance is so central to the contract that it substantially impairs its value.

● Distinguish this from “substantial performance”– Material breach decides whether party can terminate

the K.

– Substantial Performance determines whether one's imperfect performance still entitles one to sue for the K price.

Examples of Breach

Contract executed on April 1

condition precedent to

condition precedent to

Payment of $5,000 on April 5(Vlad)

First Performance due

Third Performance

Second Performance

Commencement of paintingon April 15 (Mike)Completion of paintingon April 30 (Mike)

Payment of $3,000 on May 1(Vlad)

Anticipatory Breach (Repudiation)

● Manifesting an intent by words or actions that a party will “breach” the contract before performance is due.– Can be either express or implied

– Repudiation may be retracted if other party has neither accepted the repudiation nor changed position in reliance on the repudiation.

Repudiation Example

April 1 April 5 April 15-30 May 1

ContractEntered into

Down paymentdue

Paint painting

Finalpayment

due

April 4

Mike expressesintent not to

perform

Mike repudiatesthis obligation

Repudiation Example, K Underway

April 1 April 15 April 18 May 1

ContractEntered into

Mike beginsthe painting

Vlad expressesintent tobreach

Finalpayment

due

April 5

Down paymentdue

Vlad repudiatesthis obligation

Although performance of K is underway, this is still a repudiationnot a “breach” because she made it before her performance was due.

Response to Repudiation

● Accept repudiation by treating it as an immediate breach.– discharges party from further performance

– K is terminate

– party then can sue for relief for total breach.

● Delay Responding– Wait to see if party will withdraw repudiation and

perform.

– Attempt to convince party to perform.

– may accept repudiation at any time before retraction.

Elements of Repudiation

● Must be material and total● Statement of conduct must clearly indicate that

party intends to materially breach when performance comes due.

● Must be voluntary (deliberate & purposeful)

Discharging a Contract

● Performance● Agreement

– accord & satisfaction

● Breach● Frustration

Impossibility

● Post-formation event● the non-occurrence of which was a basic

assumption– this event cannot be caused by either party

– party seeking to raise this must not have borne the risk

● making performance impossible– Traditional rule – had to be literally impossible

– Modern Rule (Impracticability) can be accomplished only through extreme and unreasonable difficulty.

Classic Impossibility

● Death of a person who is to personally perform● Supervening illegality of a performance● Destruction of subject matter

● Beyond these three, relief is normally only granted when:– an unexpected event inflicts loss on one party and

provides a windfall gain for the other.

Modern Impracticability

● Non-occurrence of post formation event was basic assumption of K.

● Effect is to make performance unduly burdensome.

● Party seeking relief was not at fault● Party seeking relief did not assume the risk

Frustration of Purpose

● Post-formation event● the non-occurrence of which was a basic

assumption– this event cannot be caused by either party

– party seeking to raise this must not have borne the risk

● seriously affects the value or usefulness of the benefit– frustrating the contract's central purpose.

Frustration of Purpose Example

Krell v. Henry

Examples

● I hire you to make two 10 meter by 5 meter signs for my business. I tell you that I want to put them in front of my store to grab the attention of people driving by.

● You make the signs, but when I measure them they are 7 meters by 3 meters. I refuse to pay and you sue.

● Will you be successful? What is the question here?

Example

● Music promoter enters into contract with K-Fed (Mr. Britney Spears). He agrees to pay K-Fed $1 million for 10 live shows.

● After the contract is signed, K-Fed and Brit split and no one is very interested in K-Fed anymore.

● Ticket sales for the upcoming shows are dismal and it's clear the promoter will lose millions on this deal. The promoter claims the lack of interest in K-Fed frustrates his purpose (to make a profit) and want out of the contract. Will the promoter win?