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Constructive Conditions. Contracts – Prof Merges April 19, 2011. Conditions. Express Constructive. Express conditions. Clear conditional language “It shall be a condition of buyer’s performance under this contract that buyer obtain suitable financing for the purchase of Owner’s house”.

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constructive conditions

Constructive Conditions

Contracts – Prof Merges

April 19, 2011

conditions
Conditions
  • Express
  • Constructive
express conditions
Express conditions
  • Clear conditional language
    • “It shall be a condition of buyer’s performance under this contract that buyer obtain suitable financing for the purchase of Owner’s house”
express conditions cont d
Express conditions (cont’d)
  • Other language that creates a condition
  • E.g., Internatio-Rotterdam: “delivery in December with 2 weeks call”
express conditions5
Express conditions
  • Language creating a condition
    • Must be seen in light of all facts and circumstances: CONTEXT matters
  • Presumption against construing language as a condition: Peacock as an example of why
mitigating doctrines
Mitigating Doctrines
  • Prevention: Luttinger calls bank, says “do not approve our loan”
  • Waiver: Luttinger says “Don’t worry about the loan rate, we will buy”
  • Interpretation to avoid a forfeiture: Peacock; Jacobs & Young
constructive conditions7
Constructive Conditions
  • Explicit condition: (Luttinger): “subject to and conditional upon”
  • Constructive condition:When a court believes the same effect as an explicit condition – discharge – is warranted by the facts, even though there is no express condition in the K
kingston v preston10
Kingston v. Preston
  • Facts
  • Procedural History
what did the k say
What did the K say?
  • Pmts by apprentice Kingston for purchase of Preston’s business, £ 250 per month
  • Kingston to give “good and sufficient security at and before the sealing and delivery of the deeds”
what is s argument here13
What is π’s argument here?
  • Why doesn’t Kingston argue that the security he offered was “good and sufficient”?
what is s argument here14
What is π’s argument here?
  • State the π’s (apprentice’s) argument in terms of conditions
what is s argument here16
What is Δ’s argument here?
  • State the Δ’s argument in terms of a condition
terminology
Terminology
  • “Independent Covenants” – old Yearbook discussion from 1500

 Two interlocking promises; each must be treated as independent

slide18

Uncle

Nephew

slide19

“K-1”

Uncle

Nephew

“K-2”

dependent promises
“Dependent promises”
  • My duty to perform depends upon your prior performance
  • If you do not perform, my remedy is nonperformance, as opposed to suit for breach
mansfield s 3 categories p 717
Mansfield’s 3 categories – p. 717
  • Mutual and independent
  • “Conditions and dependent”
  • Mutual, to be performed at the same time
example
Example

Independent:see why?

PEACOCK CONSTRUCTION: Owner pmt is independent of GC’s duty to pay

dependent promises23
Dependent promises
  • Kingston: Preston’s duty to convey business dependent upon apprentice’s supplying good security
category 3 mutual performed at same time
Category 3: Mutual, performed at same time
  • Sometimes called “simultaneous”
  • Only difference: Party asserting nonoccurrence must show (1) Nonoccurrence, PLUS (2) that he/she was “ready, willing and able to perform”
category 3 typical at closing
Category 3: typical at closing
  • If seller has bad title at closing, buyer must show (1) good title was a condition, and (2) buyer was “ready, willing and able” to perform at closing
  • No one will lend to buyer? No excuse, no remedy in breach
ready willing and able doctrine
Ready, Willing and Able doctrine
  • Hellrung v. Hoechst, 384 SW2d 561 (Mo. 1964)
  • Buyer who says “I will give you the money if you will give me title,” did not have money in possession: no discharge for buyer,no breach by seller
stewart v newbury
Stewart v. Newbury
  • Plaintiff built 1 floor of defendant’s building, sought payment of $896 for 1st installment of work
  • Defendant said work defective, refused to pay; Plaintiff brought suit to recover $896
defendant s argument constructive conditions
Defendant’s argument: constructive conditions
  • Full and satisfactory performance by plaintiff was a constructive condition of defendant’s obligation to pay
  • Faulty and incomplete performance by plaintiff excused defendant of obligation to perform
plaintiff s argument
Plaintiff’s argument
  • 85% customary payment rule should apply here
  • Defendant breached when it did not pay 1st bill; this excused defendant from obligation to perform
holding
Holding
  • Defendant wins
  • No obligation to pay until work is complete
  • UNLESS the K provides otherwise
default rule
Default rule
  • Good default rule?
  • Burden on builder to specify progress pmts
  • Otherwise, must wait until the end
substantial performance
Substantial performance
  • Described as a “mitigating doctrine”
  • What does it “mitigate”?
    • The harsh impact of a constructive condition
constructive condition not met
Constructive condition not met . . .
  • Results in excused performance on the part of the contracting party in whose favor the constructive condition runs
  • His may be harsh; may work a “forfeiture” in the words of the older cases
what is forfeited
What is forfeited?
  • The right to compensation for your performance
  • The money due to you from having almost precisely performed (and hence complied with the constructive condition)
what is substantial performance
What is “substantial performance”?
  • Step 1: There is a constructive condition – A excused from performance when B’s performance not perfectly rendered
  • Step 2: B almost completely complied with the condition; failed in a small or minor respect
jacob youngs v kent
Jacob & Youngs v. Kent
  • Stated in terms of constructive conditions:
    • The completion of the house with all specifications complied with, including Reading pipe, is a constructive condition of the owner’s obligation to perform
  • Condition not met; owner need not perform (make final pmt)
kirkland v archbold
Kirkland v. Archbold
  • Restitution: another mitigating doctrine
  • Why needed here?
  • Failure to comply with a constructive condition; K performance excused
restitution
Restitution
  • A “mitigating” remedy – mitigates the harshness of the constructive condition doctrine
  • Otherwise, party in whose favor a condition runs can keep all benefits if condition not met in some minor respect
kirkland
Kirkland
  • Plaintiff/builder wanted to be excused from continued performance, and collect the 1st $1000 payment
  • Not permitted; K not “severable” (1st pmt not a constructive condition)
  • But: restitution for part performance