Condition and Performance

Condition

future event that must take place before rights or obligations are created, destroyed, or enlarged

Failure of condition—relieves party of obligation to perform.

Express Condition

contract includes words like “on the condition that” or “provided that”

• Condition must be complied with fully unless excused; substantial performance will not suffice

• Enforceable even when failure to meet condition results in denial of compensation

• DE Point of Law—substantial compliance with expressly stated notice requirement (i.e., actual notice) generally sufficient

Implied Condition

those deemed to be part of contract because agreement suggests that parties truly intended condition but failed to expressly include it or because fairness requires its inclusion

• Only substantial performance is required to satisfy condition

• UCC—implies duty of cooperation when performance of one party depends on cooperation of other party

• DE Point of Law—implied conditions also called “constructive conditions”

Timing of conditions

1. Condition precedent—condition precedes obligation to perform

2. Condition subsequent—condition excuses duty to perform after particular event occurs

3. Concurrent conditions—each party’s duty to perform is conditioned on other party’s duty to perform (each party must perform simultaneously)

Satisfaction of conditions

examined against objective reasonable person standard unless aesthetic taste is involved (then subjective standard; party must use good faith when assessing satisfaction; dissatisfaction must be honest but may be unreasonable)

Performance of contractual duty

1. Order of performance

2. Substantial performance

3. Perfect tender under UCC

4. Divisible or installment contracts

5. Implied duty of good faith and fair dealing

Order of performance

unless language or circumstances indicate otherwise, performance is due:

• When one party’s performance requires period of time—that party must complete performance before other party is required to perform

• When both parties’ performance can be rendered at same time—both parties must perform at same time; one party’s failure to perform excuses other party’s performance

Substantial performance (does not generally apply to contracts for sale of goods)

• Express condition precedent—parties are generally held strictly to condition; full compliance is required before other party’s performance is due

• Implied or constructive condition precedent—party who substantially complies with condition can trigger other party’s obligation to perform

Substantial performance - Damages

contract price minus any amount it will cost other party to obtain complete performance as promised

• Even if no substantial performance, potential recovery through restitution

• Failure to substantially perform is material breach

Substantial performance - Willful breach

more likely to be treated as material breach (i.e., substantial performance is less likely to be found when breach is willful)

• DE Point of Law—time-is-of-the-essence clause alone is not sufficient to support breach-of-contract claim; clause must be coupled with proven deviation from firm, contractual deadline

Perfect tender under UCC

• Seller must transfer ownership and tender goods conforming to warranty obligations

• Buyer may inspect goods and, upon acceptance, has obligation to pay for them

• Perfect-tender rule—substantial performance insufficient (except for installment contracts and when parties agree)

Perfect tender under UCC - Transferring ownership

• Automatic warranty of good title, rightful transfer, and goods free of security interest of which buyer is unaware

• Actual knowledge of security interest nullifies warranty of title

Perfect tender under UCC - Seller’s obligation to tender goods

must be in accordance with contract provisions or with UCC if contract is silent on tender

Method of tender - Seller’s place of business

seller must place goods at disposition of buyer and give buyer notice, if necessary

Method of tender - Shipment contract

Shipment contract (e.g., “FOB seller’s place of business”)—seller must deliver goods to carrier and make contract for their shipment; when contract is silent, shipment contract is presumed when contract requires shipment by third-party carrier

Method of tender - Destination contract

Destination contract (e.g., “FOB buyer’s place of business”)—seller must deliver goods to place specified in contract and tender them there by holding them at buyer’s disposition

Perfect tender under UCC - Buyer’s obligations

Buyer’s obligations—once conforming tender is made, buyer is generally obligated to accept and pay contract price; rejection amounts to breach of contract

Perfect tender under UCC - Buyer’s right to inspect before payment

Buyer’s right to inspect before payment—generally, right to inspect goods that are tendered, delivered, or identified to contract for sale, unless contract provides otherwise

Perfect tender under UCC - Contract specifications left to one party

Contract specifications left to one party—otherwise valid contract not invalid merely by omitting details to be specified by one party; specifications must be commercially reasonable and made in good faith

Divisible or installment contracts - Common Law

CL—various units of performance divisible into distinct parts

• Recovery limited to amount promised for segment of contract performed

• Damages recoverable for breach of other segments

Divisible or installment contracts - UCC

UCC—goods delivered in multiple shipments, each to be separately accepted

• Perfect-tender rule does not apply

• Right to reject determined by “substantial conformity” standard—buyer can only reject if nonconformity substantially impairs value to buyer and cannot be cured

• Buyer may cancel contract only if nonconforming tender substantially impairs value of entire contract

Implied duty of good faith and fair dealing

• Imposed on each party in any contract (CL or UCC)

• Good faith—honesty in fact and observance of reasonable commercial standards of fair dealing

• DE Point of Law—plaintiff’s breach of duty of good faith and fair dealing can be raised as affirmative defense to breach-of-contract claim

Suspension or Excuse of Conditions

WWEEF

1. Waiver

2. Wrongful interference

3. Election

4. Estoppel

5. Forfeiture

Waiver

party whose duty is subject to condition can waive nonmaterial condition by words or conduct; conditions material to party’s primary purpose may be reinstated by party; nonmaterial condition may be reinstated if:

• Waiving party communicates retraction of waiver before condition is due and

• Other party has not suffered detrimental reliance.

• DE Point of Law—contractual provisions (including “no oral modifications” clauses) can be waived orally or by course of conduct; oral waivers not favored and must be supported by parties’ clear intention to alter written agreement

Wrongful interference

if party whose duty is subject to condition wrongfully prevents or interferes with occurrence of that condition, then condition is excused, and interfering party has absolute duty to perform (per implied duty of good faith and fair dealing)

Election

party who chooses to continue with contract after condition is broken effectively waives that condition

Estoppel

once party waives condition, party can be estopped from using that condition as defense if other party reasonably relied on waiver

Forfeiture

court may excuse nonmaterial condition if non-occurrence would cause disproportionate forfeiture.