Thursday, May 6, 2010
3 – Contracts - Performance (Conditions Continued)
3 – Contracts - Performance (Conditions Continued)
PLEASE NOTE THAT THE FOLLOWING IS TAKEN FROM SOME OF MY CLASS NOTES, SOME OF WHICH IS MY OWN PERSONAL WORK AND SOME OF WHICH BELONGS TO CONCORD LAW SCHOOL. IT IS POSTED TO HELP MY IL STUDENTS IN PARTICULAR. IT CANNOT BE DISSEMINATED WITHOUT EXPRESS, WRITTEN PERMISSION.
Last time for contracts, we had an introduction to conditions. Remember the first part of contracts is formation and the second part of contracts is performance. That’s where we are now. The first topic in performance is “Conditions.” After conditions, comes breach, but we aren’t there yet.
Let’s say that Buster promises to pay $25,000 for 20 pieces of special jewelry from Sydney, and Sydney promises to sell. In order to avoid any formation issues, let’s say that Buster and Sydney sign a written contract and in this written contract, Buster’s duty to pay is subject to his right to have an expert of his choosing to look at the jewelry and certify that it is of an acceptable quality.
Notice the words “subject to,” in the hypothetical. Words like these are indicative of a condition, of course, but what kind of a condition? The answer is more complicated than you might think. This clause creates an express satisfaction condition precedent to Buster’s duty to pay. It is an express condition because it was created by the parties at the time of contracting and included in the written agreement. It is a satisfaction condition because the jewelry must meet Buster’s expert’s satisfaction or standards. It is a precedent condition because the certification must happen before Buster’s duty to pay arises. Of course, this condition does not affect Sydney’s obligation to sell the jewelry. It only affects Buster’s duty to pay. In other words, Buster’s duty to pay only arises if the condition is satisfied.
Now, let’s assume that Buster’s expert looks at the jewelry and certifies to Buster that it is of an acceptable quality. This being the case, the condition is satisfied and now Buster has a duty to pay Sydney. On the other hand, let’s assume the expert looks at the jewelry and does not find it of an acceptable quality. Then the condition fails and Buster has no duty to pay Sydney.
Now let’s assume that Sydney hires her own independent and renowned expert who certifies that the jewelry is of the highest quality and value. Does Sydney’s expert’s certification satisfy the condition? The answer is no. Here is a good rule statement for you. An express condition must be strictly satisfied. In this case, the express condition was that Buster’s duty to pay arises if Buster’s expert certifies the jewelry. That did not happen. The condition was not strictly satisfied.
Let’s change the hypothetical a little bit and say that Buster decides he doesn’t really have the money to pay for the jewelry, so he tells his expert not to certify the jewelry. The condition is still not satisfied, but is Buster off the hook? No. Buster will have to pay because of wrongful prevention. The condition is excused.
Now, let’s consider a “constructive condition.” To do so, let’s change the hypothetical. Now, assume that there is no “subject to” clause in the contract and, when Buster comes to pay and take possession of the jewelry, he notices that this is not what he had expected and some of the jewelry is discolored and cracked. In this case, the court should imply a constructive condition that Buster’s duty to pay was subject to finding the jewelry was in reasonably good condition. This would be the failure of a constructive condition precedent.
The next consideration is the UCC’s “Perfect Tender Rule” from UCC 2-601. Since we are talking about 20 pieces of jewelry, let’s say that only 5 of those pieces are of poor quality. Pursuant to 2-601, Buster may choose from three alternatives. He can reject all of the jewelry – all 20 pieces, he can accept all 20 pieces – the whole, or he can accept any commercial unit or units (15) and reject the rest (5).
But, what rights does Buster have if he pays for the jewelry, takes possession and thereafter he discovers the flaws? This situation is covered under UCC 2-608. Buster can revoke his acceptance if he had no reasonable opportunity to inspect the goods prior to purchase, and discovered the defect within a reasonable time after delivery.
So now we have pretty much handled old Buster, so let’s look at Sydney. What right does she have regarding the defective jewelry? Pursuant to UCC 2-508 (1), Sydney will have the “Right to Cure” the defect – Sydney may fix the defective jewelry if the time for performance has not yet expired, by expressing an intent to cure. If the time for performance has expired, Sydney may still cure if she (Sydney) had reasonable grounds to believe that Buster would accept non-conforming tender.
Let’s jump back to the jewelry hypo. Now, let’s change things a bit and assume that Buster and Sydney have a written contract with the express condition that Buster’s expert must certify the jewelry as before. Let’s say that Buster calls Sydney and says, “I don’t really care about the certification. Just forget about it.” Then, later Sydney presents the jewelry to Buster and Buster refuses to take the jewelry. Is Buster on safe ground? The answer here is no. The condition has been waived. The point is that even though there once was a condition, by words or deeds, it can be waived.
But, what happens if, before Sydney tenders the jewelry, Buster calls her and says, “You know what? I changed my mind and now I will insist that my expert certify the jewelry before I will buy.” Can Buster now enforce the condition that has been waived? The answer is yes. An express condition can be waived and later restored, unless the waiver was given in exchange for a consideration. Of course, the answer would be no IF Sydney relies on Buster’s waiver. An example would be that after Buster waived the condition, Sydney finds another buyer who takes the jewelry and pays for it. The rule is the waiver cannot be reasserted after reliance. This is an estoppel argument. Because Buster has waived the condition and Sydney has relied on the waiver to her detriment, Buster is estopped from reasserting the condition.
Professor Doug Holden
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