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George Mason School of Law
Contracts II
Conditions
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F.H. Buckley
[email protected]
1
Kinds of conditions
 What is a condition?
2
Kinds of conditions
 Consider: I promise to help you on your
journey provided the crick don’t rise.
3
Kinds of conditions
 Consider: I promise to help you on your
journey provided the crick don’t rise.
 If the crick rises, am I in breach?
4
Kinds of conditions
 Inside and Outside the contractual
obligations
Promises
5
Other terms:
non-promissory
conditions,
definitions, recitals,
etc.
Kinds of conditions
 Consider now: I promise to help you on
your journey (which you can’t make it
the crick rises) and I promise the crick
won’t rise…
6
Kinds of conditions
 Inside and Outside the contractual
obligations
Non-promissory
Conditions
Promissory
Conditions
7
Another kind of condition
The example at 623
 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?
8
What does “condition” mean here?
 Tender of goods is a condition of
buyer’s duty to pay
 UCC §§ 2-507(1), 2-511(1)
9
What does “condition” mean here?
 Tender of goods is a condition of
buyer’s duty to pay
 UCC §§ 2-507(1), 2-511(1)
 Both parties to stand “ready, willing and
able” to perform
10
Two kinds of conditions
 A condition precedent is not a
promise but an event which must
occur before promissory obligations
arise
 A promissory condition is a promise
which one party must be ready,
willing and able to perform before the
performance duties of the other party
arise.
11
Stees p.73
 What are the possible legal outcomes
here?
Third and Minnesota, St Paul
12
Stees
 What are the possible legal outcomes
here?
 Builder assumes risk and is liable in
damages for non-completion
 Cf. School Dist. v. Dauchy at 74
13
Stees
 What are the possible legal outcomes
here?
 Owner assumes risk
 And is liable for seller’s damages
 Or must pay a higher price
 Cf. Restatement § 89, Illustration 1
14
Stees
 What are the possible legal outcomes
here?
 The quicksand put an end to the contract
and no one is liable in damages
15
Stees
 What are the possible legal outcomes
here?
 Can you tell which from the language of
the contract?
16
Stees
 The quicksand put an end to the contract
and no one is liable in damages
 Mistake: Restatement § 152(1)
17
Stees
 The 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)?
18
Stees
 The 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)?
 Frustration: Restatement § 261
 Futurity?
19
Stees
 The 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)?
 Frustration: Restatement § 261
 Futurity?
 Condition: Restatement § 224.
20
Stees
 Condition: Restatement § 224.
 Does this refer to a promissory or a nonpromissory condition?
21
Stees
 Condition: Restatement § 224.
 Does this refer to a promissory or a nonpromissory condition?
 Cf. Restatement § 225(3)
22
Stees
 The quicksand put an end to the contract
and no one is liable in damages
 Mistake: Restatement § 152(1)
 Frustration: Restatement § 261
 Condition: Restatement § 224.
 Should it matter which of these doctrines is
invoked?
23
Stees
 What did the court decide?
24
Stees
 What did the court decide?
 If no mistake, frustration or condition is
invoked, how would you decide who is liable?
25
Stees
 How would one tell whether to invoke
mistake, frustration or condition?
 Restatement: The intentions of the parties governs
 Mistake: Restatement § 154
 Frustration: Restatement § 261
 Condition: Restatement § 226-27
26
Stees
 Suppose 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?
27
Stees
 And just how would the parties have
bargained ex ante in Stees?
28
Stees
 And just how would the parties have
bargained ex ante in Stees?
 Force majeur clauses
 Assignment of risk
29
George Mason School of Law
Contracts II
Conditions
F.H. Buckley
[email protected]
30
Next day
 Scott 644-59
 Scott 659-82
 Next week: Scott 65-72
31
Defining Conditions
 A condition which is not a promise,
and to which no liability attaches on
its occurrence
32
Defining conditions
 Consider: I promise to help you on your
journey provided the crick don’t rise.
33
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.
34
A second kind of condition
 Promissory Conditions: A condition
which is also a promise, and to which
liability attaches on its occurrence
35
Promissory conditions
 Consider now: I promise to help you on
your journey (which you can’t make it
the crick rises) and I promise the crick
won’t rise…
36
Promissory conditions
 What happens when this kind of
condition occurs?
 The non-breaching party is excused from
performance (absent waiver)
37
Promissory conditions
 I agree to sell you my car, and tender
delivery immediately. When do you
have to pay if you want the car today?
38
Promissory conditions
 I 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
39
Promissory conditions
 I agree to sell you my car, and tender
delivery immediately. When do you
have to pay?
 Restatement § 234(1)
40
Promissory conditions
 I agree to sell you my car, and tender
delivery immediately. When do you
have to pay?
 Restatement § 234(1)
 When I agree to build you a house,
when do you have to pay?
41
Promissory conditions
 I agree to sell you my car, and tender
delivery immediately. When do you
have to pay?
 Restatement § 234(1)
 When I agree to build you a house,
when do you have to pay?
 The “work before pay” rule of 234(2)
42
Work before Pay
Stewart v. Newbury at 626
 What did the contract say about
payment?
 The presumption?
43
The duty to be ready, willing and able
Bell v. Elder at 623
44
Bell v. Elder
Elders
land
Purchaser Bells sue to recover deposit
because Elders failed to supply water
45
Bell
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
46
Bell v. Elder
 How much of this had been done?
 Seller to provide the water, power and
roads
 Buyer to pay a hook-up fee and apply for a
building permit
47
Bell v. Elder
 Why did the buyer want to back out?
48
Bell v. Elder
 Could buyers recover purchase price
because sellers had not provided water
etc?
49
Bell v. Elder
 Could buyers recover purchase price
because sellers had not provided water
etc?
 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
50
Divisibility
 Can a party in breach of a promissory
condition resist forfeiture by asserting
that conditions are divisible?
51
Divisibility
 Suppose 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?
52
Divisibility
 Suppose 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.
53
Divisibility
 Same case, but now:
 All motels built to the same specifications
 Builder to be paid $7M for the seven
motels.
54
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
55
John. v. United Advertising 628
 Are highway signs different?
56
Englewood CO
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”
57
John v. United Advertsing
 What are the options for the court?
58
John v. United Advertsing
 Are highway signs different?
 A “material failure” under Restatement §
237?
 Trial court’s finding of no damages
59
John v. United Advertsing
 Are highway signs different?
 Supposing the contract had omitted the
divisibility clause?
60
Buffalo Seminary 631
61
Buffalo Seminary
 Is education severable?
 (And just why was she expelled?)
62
Divisibility in the UCC
 UCC § 2-307
 Presumption of a single delivery
 But divisibility if presumed if a right to
separate deliveries
63
Divisibility in the UCC
 UCC § 2-612: Installment Contracts
 Onus on seller to specify if delivery in
lots. UCC § 2-307
 Qu. If the buyer can reject the whole
under 2-612(3)
64
A tertium quid
 In addition to conditions precedent
(and subsequent) and promissory
conditions, there is logically a tertium
quid
 And what is that?
65
Howard at 633
66
Howard at 633
 Condition precedent in clause 5(b)
67
Howard
 Condition precedent in clause 5(b)
 If this is not met, can Howard recover?
 If this is not met, is Howard liable in
damages?
68
Howard
 Qu. Clause 5(f)
69
Howard
 Qu. Clause 5(f)
 If this is not met, Can Howard recover?
 If this is not met, is Howard liable in
damages?
70
Howard
 What are the options?
 Cf. Restatement § 227, Comment d
71
Howard
 What are the options?
 Cf. Restatement § 227, Comment d
 Condition precedent, no promise that event
will happen
 Not a condition precedent, but a promise
that the event will happen
 Promissory conditions: A promise that the
event will happen plus the event excuses
the other party from performance
72
Howard
 What are the options?
 Cf. Restatement § 227, Comment d
 Cf the three options of § 227(2)
73
Howard
 What is the presumption against
forfeiture?
 Cf Restatement § 227, comment b
74
Howard
 Insurance law: contra proferentum
75
Bias against conditions
 Cf. Carter’s Claim at 637
 Main Electric at 637
 An information cost perspective?
76
Conditions and promises
 It’s helpful to have labels for the
different kinds of terms we are
talking about.
77
Conditions and promises
 From Restatement § 227, distinguish:
 A condition but not a promise that event
will happen
 A promise and a conditions that excuses
the other party from performance
 None of the above but a promise that the
event will happen
78
Conditions and promises
 Let’s call these:
 Condition but not a promise: Conditions
precedent (subsequent)
79
Conditions and promises
 Let’s call these:
 A promise that the event will happen plus
the event excuses the other party from
performance: Promissory Conditions
80
Conditions and promises
 Let’s call these:
 None of the above but a promise that the
event will happen???
81
Conditions and promises
 Let’s call these:
 None of the above but a promise that the
event will happen: Warranties
82
Conditions and promises
 Let’s call these:
 Conditions precedent (subsequent)
 Promissory conditions
 Warranties
83
Promises and Conditions
Conditions
84
Conditions Precedent
Promissory
No liability if non-occurrence
Restatement § 225(2)
Liability if non-occurrence
Restatement § 225(3)
Promises and Conditions
Conditions
Conditions Precedent
(related to Mistake
and Frustration)
85
Promissory
Promises and Conditions
Promises
Conditions
86
Warranties
Promises and Conditions
Promises
Conditions
Warranties
Election
Forfeiture
87
Damages
Damages only
Conditions in the UCC
 I 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?
88
Conditions in the UCC
 I 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”
89
Conditions in the UCC
 I 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
90
Conditions in the UCC
 I bargain for delivery of 500 tons of
copper, delivery by January 5. You
deliver 400 on that date.
 The perfect tender rule
 “Fail in any respect” in UCC § 2-601
91
Conditions in the UCC
 I 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?
92
Conditions in the UCC
 I 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”
93
Conditions in the UCC
 I 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)
94
Conditions in the UCC
 I 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 condition
95
Conditions precedent and subsequent
 What’s the difference?
96
Conditions precedent and subsequent
 What’s the difference?
 CP: no performance due before event
 Restatement § 224
 CS: Performance is due, but event
extinguishes duty and claim for breach
 Restatement § 224 cmt e, 230
97
Conditions precedent and subsequent
 What’s the difference?
 Restatement § 230(2)
 Good faith
 No materially increased burden
98
Conditions precedent and subsequent
 Gray v. Gardner at 640
 Parties bargain for a higher price
provided a lesser quantity of sperm oil
arrives between April 1 and October 1
 Buyer to pay a premium if a shortage
99
Conditions precedent and subsequent
 Gray v. Gardner
 Contract void if greater quantity of
sperm oil arrives between April 1 and
October 1
 Was there a valid contract between April
1 and October 1?
100
Conditions precedent and subsequent
 Gray v. Gardner
 Contract void if greater quantity of
sperm oil arrives between April 1 and
October 1
 Was there a valid contract between April
1 and October 1?
 Δs argued not but Parker said yes—a
condition subsequent
 Which means that onus of proof on buyer
101
Drafting CP and CS clauses
 Draft the Gray v. Gardner promise
 as a CP
 as a CS
102
Attorney-approval clauses at 642
 I agree “subject to my lawyer’s
approval.”
 A valid condition subsequent?
 What if the attorney says no?
 Gaglia
103
Modification, Waiver,
Estoppel: Clark v. West
The dirty little secret of textbook publishing revealed
104
Modification, Waiver,
Estoppel
 Distinguish Modifications, waiver,
estoppel
105
Modification, Waiver,
Estoppel
 Modifications are bilateral agreements
to vary obligations under a contract
 Promises are modified
106
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
107
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.
108
Modification, Waiver,
Estoppel at common law
Agreement
Required?
Modification
Waiver
Estoppel
109
Reliance
required?
Modification, Waiver,
Estoppel at common law
Modification
Waiver
Estoppel
110
Agreement
Required?
Reliance
required?
yes
no
Modification, Waiver,
Estoppel at common law
Agreement
Required?
Reliance
required?
Modification
yes
no
Waiver
no
no
Estoppel
111
Modification, Waiver,
Estoppel at common law
112
Agreement
Required?
Reliance
required?
Modification
yes
no
Waiver
no
no
Estoppel
no
yes
Clark v. West
 What was the promise?
 Now you know why textbooks are so
long.
113
Clark v. West
 What was the promise?
 Now you know why textbooks are so
long.
 Facts alleged on 647
 Would this be enough for an estoppel?
 A waiver?
114
The UCC:
Wisconsin Knife Works
 What was the contract?
Metal Crafters
Wisconsin
Spade Bits
115
Wisconsin Knife Works
 What was the contract?
 Metal Crafters given six Purchase Orders
in Aug 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—buyer rescinds
116
Wisconsin Knife Works
 What was the evidence of
modification and was it admissible?
 Consideration not a problem: 2-209(1)
 § 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.
117
Wisconsin Knife Works
 What was the evidence of
modification and was it admissible?
 Consideration not a problem: 2-209(1)
 How would you interpret 2-209(2)
 What does “except between merchants”
mean?
118
Wisconsin Knife Works
 When does something which fails as a
modification succeed as a waiver in 2209(4)?
 “can operate as a waiver”
119
Wisconsin Knife Works
 When does something which fails as a
modification succeed as a waiver in 2209(4)?
 Posner: so as not to render 2-209(2)
otiose, let’s add a reliance requirement
to 2-209(4)
120
Wisconsin Knife Works
 When does something which fails as a
modification succeed as a waiver in 2209(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?
121
Wisconsin Knife Works
 Posner: waiver ineffective unless
other party relies
 2-209(5): before the other party
relies, one who waives can retract
122
Wisconsin Knife Works
 Posner: waiver ineffective unless
other party relies
 2-209(5): before the other party
relies, one who waives can retract
 So retraction ineffective after reliance
 And before reliance?
 If it was a nothing, why not allow
retraction?
123
Wisconsin Knife Works
 What 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 requires reliance
124
Wisconsin Knife Works
 Easterbrook on waiver: 2-209(5)
implies that waiver does not require
reliance
 § 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.
125
Wisconsin Knife Works
 So how would Easterbrook prevent 2209(2) from being otiose?
126
Wisconsin Knife Works
 So how would Easterbrook prevent 2209(2) from being otiose?
 A stricter standard of proof as to
intention?
127
George Mason School of Law
Contracts II
Conditions
F.H. Buckley
[email protected]
128
Next day
 Finish materials on warranties
129
Promises and Conditions
Conditions
130
Conditions Precedent
Promissory
No liability if non-occurrence
Restatement § 225(2)
Liability if non-occurrence
Restatement § 225(3)
Promises and Conditions
Promises
Conditions
Warranties
Election
Forfeiture
131
Damages
Damages only
Avoiding forfeiture
132
Agreement
Required?
Reliance
required?
Modification
yes
no
Waiver
no
no
Estoppel
no
yes
Waiver and Post-contractual
opportunism
 Alaska Packers
 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.
133
Waiver and Post-contractual
opportunism
 Opportunism and Perfect Tender?
 Buyer agrees to purchase potash with
delivery at specified times. Seller is late
one day with a delivery. The price of
potash has fallen by 50%.
134
Waiver and Post-contractual
opportunism
 How does modification open the door
to post-contractual opportunism?
 Did Alaska Packers offer much
protection?
 Is 2-209(1) a retreat?

Would a modification only in writing help solve the
problem?
135
Modification and Waiver
in the UCC
 Modifications are binding w/o consideration.
UCC § 2-209(1) but subject to obligation of
Good Faith in § 1-304.
 Modifications can be barred by express
agreement, UCC § 2-209(2), unless a signed
written modification
 But waivers still permitted. UCC § 2-209(4)
 Tho these can be retracted unless other
parties changes position. UCC § 2-209(5)
136
Why no waiver in Suzuki at
657?
137
Why no waiver in Suzuki at
657?
 The onus of proof to satisfy 2-209(4)
138
Why no waiver in Suzuki?
 Termination clauses and agency costs
 Wisconsin Fair Dealership Law, 1974

139
135.03 Cancellation 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.
George Mason School of Law
Contracts II
Warranties
F.H. Buckley
[email protected]
140