11 George Mason School of Law Contracts II Conditions F.H. Buckley [email protected]

**George Mason School of Law

Contracts II

Conditions

F.H. [email protected]

*SteesWhat are the possible legal outcomes here?

*Third and Minnesota, St Paul

*SteesWhat are the possible legal outcomes here?The quicksand put an end to the contract and no one is liable in damages

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*SteesWhat are the possible legal outcomes here?The quicksand put an end to the contract and no one is liable in damagesBuilder assumes risk and is liable in damages for non-completion

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*SteesWhat are the possible legal outcomes here?The quicksand put an end to the contract and no one is liable in damagesBuilder assumes risk and is liable in damages for non-completionOwner assumes risk and is liable for sellers damages or for contract price

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*SteesWhat are the possible legal outcomes here?Can you tell which from the language of the contract?*

*SteesThe quicksand put an end to the contract and no one is liable in damages Mistake: Restatement 152(1)

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*SteesThe 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)?

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*SteesThe 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)?See Illustration 5

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Frustration: Restatement 261Futurity? *


Frustration: Restatement 261Futurity? Sed Restatement 266(1)

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Condition: Restatement 224. *



Condition: Restatement 224. Futurity? See 224 cmt b.*

*SteesCondition: Restatement 224.

What kind of a condition?Condition PrecedentCondition SubsequentWhats the difference?Restatement 224, cmt e; Restatement 230. *


Contracts II

Conditions


*Stees

On a regret contingency, what are the possible legal responses?

A taxonomy of remediesOf promises and conditions*

*SteesWhat are the possible legal outcomes here?

*Third and Minnesota, St Paul

*SteesWhat are the possible legal outcomes here?The quicksand put an end to the contract and no one is liable in damagesBuilder assumes risk and is liable in damages for non-completionOwner assumes risk and is liable for sellers damages or for contract price

*

*Putting an end to the contract

The quicksand put an end to the contract and no one is liable in damages Mistake: Restatement 152(1)Frustration: Restatement 261Condition: Restatement 224.

Should it matter which of these doctrines is invoked?*

*Stees

What did the court decide?

*

*Stees

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

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*Stees

What did the court decide?If no mistake, frustration or condition is invoked, how would you decide who is liable? Cardozo at p. 66: Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probableAnd what does that mean?

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*Stees

What did the court decide?If no mistake, frustration or condition is invoked, how would you decide who is liable? Cardozo at p. 66: Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probableAnd what does that mean?It overlaps with our sense of fairness?

*

*Stees

What did the court decide?If no mistake, frustration or condition is invoked, how would you decide who is liable? Cardozo at p. 66: Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probableExplicit bargains: CP Clare at p. 79

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*Stees

What did the court decide?If no mistake, frustration or condition is invoked, how would you decide who is liable? Cardozo: Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probableRestatement: The intentions of the parties governs Mistake: Restatement 154Frustration: Restatement 261Condition: Restatement 226-27 *

*Stees

What did the court decide?If no mistake, frustration or condition is invoked, how would you decide who is liable? Cardozo: Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probableSuppose 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?*

*Stees

What did the court decide?If no mistake, frustration or condition is invoked, how would you decide who is liable? Cardozo: Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probableAnd just how would the parties have bargained ex ante?*

*Stees

What did the court decide?If no mistake, frustration or condition is invoked, how would you decide who is liable? Cardozo: Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probableAnd just how would the parties have bargained ex anteForce majeur clausesAssignment of risk*

*Stees

What did the court decide?If no mistake, frustration or condition is invoked, how would you decide who is liable? Cardozo: Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probableWhen to gap-fill?*

*Stees

What did the court decide?Why not split liability down the middle?*

*Stees

What did the court decide?Why not split liability down the middle?*

RulePrecaution CostHarmLiability on A only80100Liability on B only80100Joint Liability8050/50

*SteesI agree to sell you my car, and tender delivery immediately. If no more is said, when do you have to pay?

*

*SteesI agree to sell you my car, and tender delivery immediately. When do you have to pay?Restatement 234(1)

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*SteesI 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

*


When I agree to build you a house, when do you have to pay?*


When I agree to build you a house, when do you have to pay?Restatement 234(2), illustration 9 The work before pay rule*

*Paradine v. JaneI agree to rent your house, but am prevented from doing so by war*Prince Rupert

*Ready, willing and able:Bell v. ElderWhat was the risk in question?

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*Bell v. ElderWhat was the sellers obligation in question?

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*Bell v. ElderWhat was the sellers obligation in question?To supply waterIt didnt do so but was ready, willing and able to do so on tender of the priceAnd thats all that was needed

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*What does a promise mean?Jacob & Youngs v. KentWhat was the breach?What remedy does the seek?

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*What is a condition?What are Dependent vs. Independent Promises?*Benjamin Cardozo

*What is a condition?What are Dependent vs. Independent Promises?Dependent promises as conditionsTender of price and of delivery under Article 2Independent promises as mere promises*

*What is a condition?What are Dependent vs. Independent Promises?Dependent promises as conditionsTender of price and of delivery under Article 2Independent promises as mere promisesI know Cardozo called it a promise but Im going to call it a warranty.*

*What is a condition?What are Dependent vs. Independent Promises?Why did it matter whether the obligation to supply Reading Pipe was a condition or a warranty?*

*What is a condition?Why did it matter whether the obligation to supply Reading Pipe was a condition or a warranty?So how does one tell?*

*What is a condition?Why did it matter whether the obligation to supply Reading Pipe was a condition or a warranty?Wait a minutewhat about Coasian bargaining?

*

*What is a condition?Why did it matter whether the obligation to supply Reading Pipe was a condition or a warranty?Wait a minutewhat about Coasian bargaining? Assume:Value of house with Reading pipe is $77,000Value of house with Cohoes pipe is $76,900Cost of replacement is $10,000*

*What is a condition?Why did it matter whether the obligation to supply Reading Pipe was a condition or a warranty?Assume:Value of house with Reading pipe is $77,000Value of house with Cohoes pipe is $76,900Cost of replacement is $10,000So what would a Coasian bargain look like, given those numbers? *

*What is a condition?What are Dependent vs. Independent Promises?So how does one tell?Just what do you think the parties intended?Venial faults and oppressive retribution*

*What is a condition?What are Dependent vs. Independent Promises?So how does one tell?Would Cardozo permit the parties to bargain around this?It is a condition of the contract, failure of which will permit the owner to rescind, that the pipe be Reading Pipe.*

*The perfect tender rule

UCC 2-601Should goods be treated differently?Is there a stronger reason to put the onus on the parties to opt out?*

*What is a condition? I promise to buy your car if it passes inspection.If it doesnt pass inspection, must I pay the price? No, since passing the inspection is a condition

*

*What is a condition? I promise to buy your car if it passes inspection.If it doesnt pass inspection, must I pay the price?If it doesnt pass inspection, are you in breach?Yes, if you have promised it would; no, otherwise*

*What is a condition? I promise to buy your car if it passes inspection.So a condition might be a promiseor it might not.*

*A Taxonomy I promise to buy your car if it passes inspection.So a condition might be a promiseor it might not. Pure conditions: Conditions precedent or conditions subsequent Promissory conditions Mere warranties*

*DivisibilitySuppose 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? *

*DivisibilitySuppose 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.*

*Divisibility

Same case, but now:All motels built to the same specificationsBuilder to be paid $7M for the seven motels.*

*Divisibility

Same case, but now:All motels built to the same specificationsBuilder to be paid $7M for the seven motels

Restatement 240, illustration 5

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*John. v. United Advertising

Are highway signs different?

*

*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 A material failure under Restatement 237? Trial courts finding of no damages*

*John v. United Advertsing

Are highway signs different?Supposing the contract had omitted the divisibility clause?*

*Buffalo SeminaryReally not severable?Incentive problems?

*

*Divisibility

UCC 2-307A general presumption against divisibilityOnus on seller to specify if delivery in lots. UCC 2-612Qu. If not and partial delivery tendered. UCC 2-601*


Contracts II

Conditions


*Promises and ConditionsConditions

Non-promissoryPromissory No liability if occurrence Liability if occurrenceRestatement 224, 225(2)Restatement 225(3)


Non-promissoryPromissory(related to Mistake and Frustration)


Non-promissoryPromissory

Forfeiture


Non-promissoryPromissory Promisees Election

ForfeitureDamages (Rescission)


Non-promissoryPromissory Promisees Election

ForfeitureDamages (Presumption against Forfeiture: UCC 227(1), 229)

*Promises and ConditionsPromises

ConditionsWarranties


ConditionsWarrantiesDependent PromisesIndependent Promises


ConditionsWarranties ElectionForfeitureDamages


ConditionsWarranties ElectionForfeitureDamages Damages only

*Conditions and promisesI 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?*

*Conditions and promisesI 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*

*Conditions and promisesI 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*

*Conditions and promisesI 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?*

*Conditions and promisesI 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*

*Conditions and promisesI 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)*

*Conditions and promisesI 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 (promissory) condition*

*Howard: Condition or PromiseWhat kind of condition is 5(b)?

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*HowardCondition precedent in clause 5(b)If this is not met, can Howard recover?

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*HowardCondition precedent in clause 5(b)If this is not met, can Howard recover?If this is not met, is Howard liable in damages?

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*HowardCondition precedent in clause 5(b)If this is not met, can Howard recover?If this is not met, is Howard liable in damages?Qu. Clause 5(f)?

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*HowardCondition precedent in clause 5(b)If this is not met, can Howard recover?If this is not met, is Howard liable in damages?Qu. Clause 5(f)If this is not met, Can Howard recover?

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*HowardCondition precedent in clause 5(b)If this is not met, can Howard recover?If this is not met, is Howard liable in damages?Qu. Clause 5(f)If this is not met, Can Howard recover?If this is not met, is Howard liable in damages?

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*Howard

The presumption against forfeitureRestatement 227 (formerly 261)*

*Howard

The presumption against forfeitureRestatement 227 (formerly 261)227(1): a presumption that a warranty and not a promissory or non-promissory condition*

*Howard

The presumption against forfeitureRestatement 227 (formerly 261)227(1): a presumption that a warranty and not a promissory or non-promissory condition227(3): a presumption that a promissory and not a non-promissory condition*

*Howard

Insurance law: contra proferentum rule of Restatement 206 Illustrations on p. 635 Rhode at 638*

*Pay-if-paid clauses

Main Electric at 637But see Restatement 227, Illus. 1*

*Conditions precedent and subsequent

Whats the difference?*


Whats the difference?CP: no performance due before eventRestatement 224

CS: Performance is due, but event extinguishes duty and claim for breachRestatement 224 cmt e, 230*


Whats the difference?Restatement 230(2)Good faithNo materially increased burden*


Gray v. GardnerContract void if greater quantity of sperm oil arrives between April 1 and October 1For whose benefit was this?*


Gray v. GardnerContract void if greater quantity of sperm oil arrives between April 1 and October 1Was there a valid contract between April 1 and October 1?*


Gray v. GardnerContract void if greater quantity of sperm oil arrives between April 1 and October 1Was there a valid contract between April 1 and October 1?s argued not but Parker said yesa condition subsequentWhich means that onus of proof on buyer*

*Drafting CP and CS clauses

Draft the Gray v. Gardner promise as a CP as a CS*

*Attorney-approval clauses

I agree subject to my lawyers approval.A valid condition subsequent?Or not an acceptance and promisor can revoke offer: Gaglia*

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

*Modification, Waiver, EstoppelWhat are Modifications?*

*Modification, Waiver, EstoppelModifications are bilateral agreements to vary obligations under a contractPromises are modified*

*Modification, Waiver, EstoppelModifications are bilateral agreements to vary obligations under a contractWhat are Waivers?*

*Modification, Waiver, EstoppelModifications are bilateral agreements to vary obligations under a contractWaivers are unilateral acts by one party to excuse anothers performance of an obligationConditions are waived*

*Modification, Waiver, EstoppelModifications are bilateral agreements to vary obligations under a contractWaivers are unilateral acts by one party to excuse anothers performance of an obligation(Promissory) Estoppel bars a promisor from enforcing a right where he knows that a promisee has detrimentally relied on him. *

*Modification, Waiver, Estoppel at common law

Agreement Required?Reliance required?ModificationyesnoWaivernonoEstoppelnoyes

*Clark v. WestWhat was the promise?

*

*Clark v. WestWhat was the promise?Now you know why textbooks are so long.

Facts alleged on 647Would this be enough for an estoppel? A waiver?

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*Clark v. West

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.

*

*Clark v. West

Election waivers: Lee v. Casualty at p.656

Estoppel waivers: Wisconsin Knife?

*

*The UCC:Wisconsin Knife Works

What was the contract?Spade Bits

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Wisconsin Knife Works

What was the contract?Six Purchase Orders in Aug 1981 for delivery in Oct-NovNew purchase orders in July 1982Seller not able to deliver until December 198213 months lateJan 1983buyer rescinds after 50% completion under original orders*

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How does the UCC change things?*

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Wisconsin Knife WorksModifications are binding w/o consideration. UCC 2-209(1)

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Wisconsin Knife WorksModifications are binding w/o consideration. UCC 2-209(1)Opportunism is addressed not by the consideration doctrine but by good fatih requirementsComment 2

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*Post-contractual opportunism

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.

*


How does modification open the door to post-contractual opportunism?Did Alaska Packers offer much protection?2-209(1)? Would a modification only in writing help solve the problem? *


How does modification open the door to post-contractual opportunism?Did Alaska Packers offer much protection?2-209(1)? 1-203. Obligation of good faith. Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement. *

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Wisconsin Knife WorksUCC 2-209(2)?????

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Wisconsin Knife WorksUCC 2-209(2)Merchant-consumer contracts that specify a need for signed modifications cant be modified orally

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Wisconsin Knife WorksUCC 2-209(2)Merchant-consumer contracts that specify a need for signed modifications cant be modified orallyWhats the purpose of this, per Easterbrook?

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Wisconsin Knife WorksUCC 2-209(2)Merchant-consumer contracts that specify a need for signed modifications cant be modified orallyBut must be separately signed by the consumer if on a form supplied but the merchant

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Wisconsin Knife WorksUCC 2-209(2)Merchant-consumer contracts that specify a need for signed modifications cant be modified orallyBut must be separately signed by the consumer if on a form supplied but the merchantJust what does this proviso add?

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Wisconsin Knife WorksUCC 2-209(2)Merchant-consumer contracts that specify a need for signed modifications cant be modified orallyBut must be separately signed by the consumer if on a form supplied but the merchantPosner: Must the anti-modification clause be separately signed?

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Wisconsin Knife WorksUCC 2-209(2)Merchant-consumer contracts that specify a need for signed modifications cant be modified orallyNeed not be signed if between merchants?Is this inconsistent with the first part?

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Contracts II

Conditions


*

PP. 644-59

My bad

*

*

The presumption against forfeiture

In favor of promises, not non-promissory conditions

In favor of warranties, not promissory conditions

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*Loss of the right to rescind:Modification, Waiver, and Estoppel

Agreement Required?Reliance required?ModificationyesnoWaivernonoEstoppelnoyes

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Wisconsin Knife WorksWhat was the evidence of modification or waiver here?

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*


What was the contract?Six Purchase Orders in Aug 1981 for delivery in Oct-NovNew purchase orders in July 1982Seller not able to deliver until December 198213 months lateJan 1983buyer rescinds after 50% completion under original orders*

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Wisconsin Knife WorksWhat was the evidence of modification or waiver here?Was an unwritten modification valid?Was waiver available? UCC 2-209(4)

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Wisconsin Knife WorksWhat was the evidence of modification or waiver here?Was an unwritten modification valid?Was waiver available? UCC 2-209(4)So does waiver eat up modification?

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Wisconsin Knife WorksWhat was the evidence of modification or waiver here?Was an unwritten modification valid?Was waiver available? UCC 2-209(4)So does waiver eat up modification?Posner: Not if waiver requires reliance

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Wisconsin Knife WorksWhat was the evidence of modification or waiver here?Was an unwritten modification valid?Was waiver available? UCC 2-209(4)So does waiver eat up modification?Posner: Not if waiver requires relianceAnd was there reliance here?

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Wisconsin Knife WorksWhat was the evidence of modification or waiver here?Was an unwritten modification valid?Was waiver available? UCC 2-209(4)So does waiver eat up modification?Posner: Not if waiver requires relianceAnd was there reliance here?NMCs work from July 82 on?

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*Wisconsin Knife WorksWhat 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 does not ordinarily require reliance

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*Wisconsin Knife WorksWhat 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 does not ordinarily require reliance What instead it requires is an intentional relinquishment of a known right.

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*Wisconsin Knife WorksWhat 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 does not ordinarily require reliance What instead it requires is an intentional relinquishment of a known right. And might work even if modification doesnt.

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*Modification and Waiver in the UCCModifications are binding w/o consideration. UCC 2-209(1)Modifications can be barred by express agreement, UCC 2-209(2)Unless signed written modificationBut waivers still permitted. UCC 2-209(4)Tho these can be retracted unless other parties changes position. UCC 2-209(5)

*

*Why no waiver in Suzuki?*

*Why no waiver in Suzuki?

Termination clauses and agency costsWisconsin Fair Dealership Law, 1974 135.03Cancellation 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.*

*Why no waiver in Suzuki?Free riding in franchises*Dirty Macdonalds restaurant

*George Mason School of Law

Contracts II

Warranties


*****

Documents

11 George Mason School of Law Contracts II Conditions F.H. Buckley [email protected]