Implied or Constructive Conditions : Contract Law

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    1. Implied or Constructive Conditions
      1. Definitions
        1. An implied condition is one that can be implied from the parties’ conduct.
        2. A constructive condition is one that is not agreed on by the parties, but which is supplied by the court for fairness.
      2. Order of Performance
        1. Rst. 2d 234 (Prof. notes 234): Subsec (1) says where two promised performances can be rendered simultaneously, the performances are due simultaneously. Think simple cash transaction. (2) says “where the performance of only one party requires a period of time, his performance is due at an earlier time than that of the other party, unless the language or the circumstances indicate otherwise.” Think contract to build a new City Hall.
          1. Underlying issue is the same: if the parties have not expressly agreed, when should law impose conditions that, in effect, require one to extend credit to the other?
      3. Material Breach (The nature of a party’s breach determines what the other party can do in response: tiny breach, the other party can’t suspend their performance; material or substantial breach, the other party can repudiate or terminate the contract)
        1. Rst. 2d 253(2) (Prof notes this general section): a repudiation of the contract discharges the other party’s duty to perform and gives him a right to commence suit for breach of the entire contract. “Where performances are to be exchanged under an exchange of promises, one party’s repudiation of a duty to render performance discharges the other party’s remaining duties to render performance.”
      4. K&G Construction Co. v. Harris
        1. Facts: Harris ran a damn bulldozer into the house KG was building; KG sued Harris, claiming negligence as to the bulldozer and breach of contract, argued that Harris owed KG 450 in cover; Harris counterclaimed for the 1485 it hadn’t been paid for work done, and 1340 that it would have received had it finished the project; KG argues that the failure of Harris to perform his work in a workmanlike manner constituted a material breach of the contract, which justified KG’s refusal to make the Aug. 10 payment; and, since KG did not breach by withholding payment, Harris further breached the contract when it stopped performing on Sep. 12; Harris argues that when KG failed to make the Aug. 10 payment, KG breached its contract and thereby released Harris from any further obligation to perform; bulldozer question was submitted to the jury, and the jury found for KG in the amount of 3400 (for the damage to the house); the court found for Harris on the second claim and ordered KG to pay Harris 2824.50; Supreme Court revs’d the judg for Harris; Prof. thinks the court gets in wrong in this case–that Harris is being penalized twice. The Court here took a hard line).
          1. There is a presumption that mutual promises in a contract are dependent and should be regarded as such whenever possible
            1. The presumption is rebuttable: The intention of the parties as shown by the entire contract as construed in the light of the circumstances of the case, the nature of the contract, the relation of the parties, and other evidence tending to show the intent of the parties WILL BE CONTROLLING in deciding whether promises are independent or dependent.
          2. In the instant case, court holds that the promises in were mutually dependent, and the parties intended performance by one to be conditioned by performance of the other, AND the subcontractor’s promise was PRECEDENT to the promise of monthly payment by the general contractor.
            1. Court finds that general treated sub’s breach as a partial breach: as the promises were mutually dependent and the sub made a material breach in his performance, this justified the general in refusing to make the Aug. 10 payment.
            2. The sub then breached again when he discontinued work on Sep. 12–this rendered him liable to the contract for his increased cost in having the work done. ($450)
          3. Timeline:
            1. K&G hires Harris as a subcontractor
              1. K&G did not breach
            2. Aug. 9: Harris employee damages K&G house ($3,400)
              1. K&G did not breach
            3. Aug. 10: K&G withholds installment; Harris continues working
              1. K&G did not breach
            4. Sept. 12: K&G withholds second installment; Harris stops work
              1. Harris breached
            5. K&G hires another subcontractor
          4. Prof. notes Rst. 2nd § 242(c)
            1. Allows breaching party to cure
            2. “the extent to which the agreement provides for performance without delay, but a material failure to perform or to offer to perform on a stated day does not of itself discharge the other party’s remaining duties unless the circumstances, including the language of the agreement, indicate that performance or an offer to perform by that day is important.”
          5. Prof. notes Rst. 2nd § 374(1)
      5. Restatement 2d §237: Except as stated in §240, it is a condition of each party’s remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time.
        1. Illustration: A contracts to build a house for B for some amount, with progress payments while A is building. For no reason, B fails to remit a progress payment, and A opts to suspend building. B’s failure is an uncured material failure. A is not in breach, and B has no claim against A. A has a claim against B if it is damaged by the delay. However, if B makes a delayed payment and it is not too late to cure the material breach, A’s duties are not discharged.
      6. Taylor v. Johnston
        1. Facts: That fucking horses case; Court held stud owner did not commit actual or anticipatory breach
          1. Court concludes there was no actual breach of the contract because the time specified in the contract for performance (either September or end of December, 1966) had not yet expired by June 7 or June 14, the days that Sunday Slippers and Sandy Fork were bred to Chateaugay.
            1. D’s breach, if there was one, was therefore of necessity an anticipatory breach and has to be analyzed according to those principles.
          2. Court finds there were TWO POSSIBLE SEPARATE REPUDIATIONS
            1. D’s repudiated when they sold the stud and sent a letter to P’s “releasing” P’s of their “reservations” with the horse; but the D’s retracted their repudiation; thus, D’s retraction NULLIFIED D’s initial repudiation; no breach.
            2. The 2nd possible repudiation occurred after the mares were shipped to KY: Trial court found P was justified in concluding, based on D’s conduct and the conduct of D’s agents, that P was “getting the run-around” and D’s did not intend to fulfill their promise to breed the stud w/ the mares
              1. Court finds there was NO implied repudiation, either: although sale of the stud by the D’s made P’s breeding times subordinate to the shareholders, delayed the time for performance, and although it made performance more difficult to achieve, it was not outside the D’s power to perform, and such action did not render performance impossible.
      7. Anticipatory Breach/Repudiation
        1. Anticipatory Repudiation is a breach committed before the arrival of the actual time of required performance. It occurs when one party by declaration repudiates his contractual obligation before it is due. See Taylor v. Johnston,15 Cal. 3d 130(1975), supra.
        2. This is covered under UCC §2-609: (1) a contract for sale imposes an obligation on each party that the other’s expectation of receiving due performance will not be impaired. So, when a party has reason to believe that the contract’s performance is in jeopardy, he may demand in writing assurance, and may if commercially reasonable, suspend performance for which he has not already received the agreed return. Merchants must use commercial standards as grounds for reasonableness. §2-609(2). Acceptance of improper delivery or payment does not preclude the use of this in the future. (No waiver.) §2-609(3). A party receiving such a demand has repudiated the contract if he does not respond with assurances in a reasonable time not exceeding 30 days. §2-609(4).
        3. This clause was an attempt to battle problems with anticipatory repudiation. A lawyer may erroneously signal to his client that the other party has breached, and instruct him to cover his losses. At that point, his client may have breached if the other party actually hadn’t.
          1. Pros: instead of immediately putting the client in a situation where he may cause a breach, a lawyer can force the other party to give assurances that he will continue to perform as contracted, and then wait the month.
          2. Cons: introduces problematic concepts that may extend the weaseling a couple more moves.
            1. What are “reasonable grounds for insecurity?”
            2. When has a party given an “adequate assurance” of due performance?
            3. When is it commercially reasonable to suspend performance while awaiting assurance? (Remember the repudiatee is only authorized the suspension of performance “for which he has not already received the agreed return.”
      8. Koch Materials Co. v. Shore Slurry Seal, Inc.
        1. Facts: D, a construction company has entered a contract with P to provide asphalt as required. Then, D writes P saying that he is selling the company to a third party. P demands assurances that D will continue the contract, and D does not respond with assurances.
        2. Analysis: UCC 2-609(1) provides that when one party has reasonable grounds to doubt that the other party will be able to perform, the doubting party may demand of its counterpart assurance that performance will occur
          1. If no adequate assurance is forthcoming within a commercially reasonable time, or in any event within 30 days, the doubting party may treat its counterparty as having repudiated the contract. UCC 2-609 (3, 4)
          2. Prof notes the adequacy requirement, and also that the party does not have to reference or cite 2-609. Assurances are adequate where they would ‘instill in a reasonable merchant a sense of reliance that the promised performance will be forthcoming when due.’ (Cmt. 1, 2-609)
        3. Result: P had good reason to ask for assurances under §2-609, and D violated it when he did not respond. Summary judgment is granted.
      9. Jacob & Youngs, Inc. v. Kent
        1. Facts: Kent contracted w/ J to build K a house & put in the contract that J use a certain kind of pipe; J didn’t use the pipe; Cardozo held departure from the contract terms was “insignificant” and K owed J for the work rendered)
          1. Main focus: on the injured party (in this case, the homeowner): what did they expect? What did they get? Why did the parties enter into the contract (what was the expectancy)?
            1. Rst. 2d Sec. 229: To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of that condition unless its occurrence was a material part of the agreed exchange.
              1. What are some factors? Difference in quality; the “materiality;” the services that were provided versus the contract as a whole; the purpose of the contract
          2. Cardozo notes that a change will never be tolerated if it is so dominant or pervasive that it substantially frustrates the purpose of the contract.
            1. Prof notes: The question is one of degree; the test weighs the purpose to be served, the desire to be gratified, the excuse for deviation from the letter of the K, and the cruelty of enforced adherence.
              1. Only then can the court determine “whether literal fulfillment is to be implied by law as a condition” of the K.
              2. The parties are free to express in the K that performance of every term shall be a condition of recovery–BUT the court will hesitate to impute that purpose in the silence of the parties
        2. Result: One who makes a contract does not fulfill his duty by rendering less than full performance; however, a trivial and innocent omission will sometimes be atoned for by allowance of the resulting damage, and will not always be the breach of a CONDITION followed by a forfeiture.
        3. Substantial Performance
          1. Whenever you have implied conditions, substantial performance comes into play. This is a different rule then under the UCC. UCC uses “perfect tender” rule.
          2. This principle is relevant when a contractor’s performance is in some way deficient, through no willful act by the contractor, yet is so nearly equivalent that it would be unreasonable for the owner to deny the agreed upon payment. If a contractor successfully demonstrates substantial performance, the owner remains obligated to fulfill payment, less any damages suffered as a result of the deficiencies in workmanship by the contractor.
          3. In the instant case, the court cites Handy v. Bliss: “There may be omissions of that which could not afterwards be supplied exactly as called for by the contract without taking down the building to its foundations, and at the same time the omission may not affect the value of the building for use or otherwise, except so slightly as to be hardly appreciable.”
        4. Willfulness
          1. Cardozo: “The willful transgressor must accept the penalty of his transgression,” while “[t]he transgressor whose default is unintentional and trivial may hope for mercy if he will offer atonement for his wrong…” Why do we care? Don’t we normally ignore fault in breach of contract?
            1. Rst. 2d § 241(e): materiality of breach hinges in part on “the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing”
      10. Wilson v. Scampoli
        1. The defective TV set case; court held that seller was denied access and a reasonable opportunity to repair the damage & buyer did not show a breach of warranty entitling her to a new TV or rescission.
          1. Prof. notes 2-601 of UCC: if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may: reject the whole, or accept the whole, or accept any commercial unit or units and reject the rest (perfect tender rule).
            1. There are also formal requirements for rejecting that she did not do here: 2-602.
          2. Prof. also notes 2-605, things Kelly should have done to protect all of her rights in rejecting this television set. 2-605: “(1) The buyer’s failure to state in connection with rejection a particular defect which is ascertainable by reasonable inspection precludes the buyer from relying on the unstated defect to justify rejection or to establish breach….”
          3. Prof notes 2-608: Revocation of Acceptance in Whole or in Part.
            1. Prof notes you have more grounds to reject the grounds initially; and fewer options to revoke acceptance (only 2 options).
          4. UCC 2-508: Basically, a retail dealer would have reasonable grounds to believe that if merchandise was delivered in an unsatisfactory condition, he would have the right to substitute a conforming tender
            1. There are cases and comments in other sections of the Code that suggest under some circumstances, repairs and adjustments are contemplated as remedies under implied warranties
              1. They indicate that minor repairs or reasonable adjustments can be the means by which a defective tender can be cured