11 George Mason School of Law Contracts II Conditions F.H. Buckley

2 Stees  What are the possible legal outcomes here? 2 Third and Minnesota, St Paul

3 Stees  What are the possible legal outcomes here? The quicksand put an end to the contract and no one is liable in damages 3

4 Stees  What are the possible legal outcomes here? The quicksand put an end to the contract and no one is liable in damages Builder assumes risk and is liable in damages for non-completion 4

5 Stees  What are the possible legal outcomes here? The quicksand put an end to the contract and no one is liable in damages Builder assumes risk and is liable in damages for non-completion Owner assumes risk  and is liable for seller’s damages  or for contract price 5

6 Stees  What are the possible legal outcomes here?  Can you tell which from the language of the contract? 6

7 Stees The quicksand put an end to the contract and no one is liable in damages  Mistake: Restatement § 152(1) 7

8 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)? 8

9 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)?  See Illustration 5 9

10 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? 10

11 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? Sed Restatement § 266(1) 11

12 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? Sed Restatement § 266(1)  Condition: Restatement §

13 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? Sed Restatement § 266(1)  Condition: Restatement § 224. Futurity? See § 224 cmt b. 13

14 Stees Condition: Restatement § 224. What kind of a condition?  Condition Precedent  Condition Subsequent  What’s the difference? Restatement § 224, cmt e; Restatement §

15 George Mason School of Law Contracts II Conditions F.H. Buckley

16 Stees  On a “regret contingency,” what are the possible legal responses?  A taxonomy of remedies Of promises and conditions 16

17 Stees  What are the possible legal outcomes here? 17 Third and Minnesota, St Paul

18 Stees  What are the possible legal outcomes here? The quicksand put an end to the contract and no one is liable in damages Builder assumes risk and is liable in damages for non-completion Owner assumes risk  and is liable for seller’s damages  or for contract price 18

19 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 § 261  Condition: Restatement § 224. Should it matter which of these doctrines is invoked? 19

20 Stees What did the court decide? 20

21 Stees What did the court decide?  If no mistake, frustration or condition is invoked, how would you decide who is liable? 21

22 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 probable”  And what does that mean? 22

23 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 probable”  And what does that mean?  It overlaps with our sense of fairness? 23

24 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 probable”  Explicit bargains: CP Clare at p

25 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 probable” Restatement: The intentions of the parties governs  Mistake: Restatement § 154  Frustration: Restatement § 261  Condition: Restatement §

26 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 probable”  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? 26

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 probable”  And just how would the parties have bargained ex ante? 27

28 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 probable”  And just how would the parties have bargained ex ante  Force majeur clauses  Assignment of risk 28

29 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 probable” When to gap-fill? 29

30 Stees What did the court decide?  Why not split liability down the middle? 30

31 Stees What did the court decide?  Why not split liability down the middle? 31 RulePrecaution Cost Harm Liability on A only Liability on B only Joint Liability8050/50

32 Stees  I agree to sell you my car, and tender delivery immediately. If no more is said, when do you have to pay? 32

33 Stees  I agree to sell you my car, and tender delivery immediately. When do you have to pay? Restatement § 234(1) 33

34 Stees  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 34

35 Stees  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? 35

36 Stees  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? Restatement § 234(2), illustration 9  The “work before pay” rule 36

37 Paradine v. Jane  I agree to rent your house, but am prevented from doing so by war 37 Prince Rupert

38 Ready, willing and able: Bell v. Elder  What was the risk in question? 38

39 Bell v. Elder  What was the seller’s obligation in question? 39

40 Bell v. Elder  What was the seller’s obligation in question? To supply water  It didn’t do so but was “ready, willing and able” to do so on tender of the price And that’s all that was needed 40

41 What does a promise mean?  Jacob & Youngs v. Kent What was the breach? What remedy does the Π seek? 41

42 What is a condition?  What are Dependent vs. Independent Promises? 42 Benjamin Cardozo

43 What is a condition?  What are Dependent vs. Independent Promises? Dependent promises as “conditions”  Tender of price and of delivery under Article 2 Independent promises as mere “promises” 43

44 What is a condition?  What are Dependent vs. Independent Promises? Dependent promises as “conditions”  Tender of price and of delivery under Article 2 Independent promises as mere “promises” I know Cardozo called it a “promise” but I’m going to call it a “warranty”. 44

45 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? 45

46 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? 46

47 What is a condition?  Why did it matter whether the obligation to supply Reading Pipe was a condition or a warranty? Wait a minute—what about Coasian bargaining? 47

48 What is a condition?  Why did it matter whether the obligation to supply Reading Pipe was a condition or a warranty? Wait a minute—what about Coasian bargaining? Assume: Value of house with Reading pipe is $77,000 Value of house with Cohoes pipe is $76,900 Cost of replacement is $10,000 48

49 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 $77,000 Value of house with Cohoes pipe is $76,900 Cost of replacement is $10,000 So what would a Coasian bargain look like, given those numbers? 49

50 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 50

51 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.” 51

52 The perfect tender rule  UCC § Should goods be treated differently?  Is there a stronger reason to put the onus on the parties to opt out? 52

53 What is a condition?  “I promise to buy your car if it passes inspection.” If it doesn’t pass inspection, must I pay the price?  No, since passing the inspection is a condition 53

54 What is a condition?  “I promise to buy your car if it passes inspection.” If it doesn’t pass inspection, must I pay the price? If it doesn’t pass inspection, are you in breach?  Yes, if you have promised it would; no, otherwise 54

55 What is a condition?  “I promise to buy your car if it passes inspection.” So a condition might be a promise—or it might not. 55

56 A Taxonomy  “I promise to buy your car if it passes inspection.” So a condition might be a promise—or it might not.  “Pure conditions”: Conditions precedent or conditions subsequent  Promissory conditions  Mere warranties 56

57 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? 57

58 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 §

59 Divisibility  Same case, but now: All motels built to the same specifications Builder to be paid $7M for the seven motels. 59

60 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 60

61 John. v. United Advertising  Are highway signs different? 61

62 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 court’s finding of no damages 62

63 John v. United Advertsing  Are highway signs different? Supposing the contract had omitted the divisibility clause? 63

64 Buffalo Seminary  Really not severable?  Incentive problems? 64

65 Divisibility  UCC § A general presumption against divisibility Onus on seller to specify if delivery in lots. UCC § Qu. If not and partial delivery tendered. UCC §

66 George Mason School of Law Contracts II Conditions F.H. Buckley

67 Promises and Conditions Conditions Non-promissoryPromissory No liability if occurrence Liability if occurrence Restatement §§ 224, 225(2)Restatement § 225(3)

68 Promises and Conditions Conditions Non-promissoryPromissory (related to Mistake and Frustration)

69 Promises and Conditions Conditions Non-promissoryPromissory Forfeiture

70 Promises and Conditions Conditions Non-promissoryPromissory Promisee’s Election ForfeitureDamages (Rescission)

71 Promises and Conditions Conditions Non-promissoryPromissory Promisee’s Election ForfeitureDamages (Presumption against Forfeiture: UCC §§ 227(1), 229)

72 Promises and Conditions Promises ConditionsWarranties

73 Promises and Conditions Promises ConditionsWarranties Dependent PromisesIndependent Promises

74 Promises and Conditions Promises ConditionsWarranties Election Forfeiture Damages

75 Promises and Conditions Promises ConditionsWarranties Election Forfeiture DamagesDamages only

76 Conditions and promises  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? 76

77 Conditions and promises  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 § “reject the whole” 77

78 Conditions and promises  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 § “reject the whole”  So the obligation to deliver 500 is a condition 78

79 Conditions and promises  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? 79

80 Conditions and promises  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” 80

81 Conditions and promises  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) 81

82 Conditions and promises  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 (promissory) condition 82

83 Howard: Condition or Promise  What kind of condition is 5(b)? 83

84 Howard  Condition precedent in clause 5(b) If this is not met, can Howard recover? 84

85 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? 85

86 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?  Qu. Clause 5(f)? 86

87 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?  Qu. Clause 5(f) If this is not met, Can Howard recover? 87

88 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?  Qu. Clause 5(f) If this is not met, Can Howard recover? If this is not met, is Howard liable in damages? 88

89 Howard  The presumption against forfeiture Restatement § 227 (formerly §261) 89

90 Howard  The presumption against forfeiture Restatement § 227 (formerly §261)  227(1): a presumption that a warranty and not a promissory or non-promissory condition 90

91 Howard  The presumption against forfeiture Restatement § 227 (formerly §261)  227(1): a presumption that a warranty and not a promissory or non-promissory condition  227(3): a presumption that a promissory and not a non-promissory condition 91

92 Howard  Insurance law: contra proferentum rule of Restatement § 206 Illustrations on p. 635 Rhode at

93 Pay-if-paid clauses  Main Electric at 637 But see Restatement § 227, Illus. 1 93

94 Conditions precedent and subsequent  What’s the difference? 94

95 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,

96 Conditions precedent and subsequent  What’s the difference? Restatement § 230(2)  Good faith  No materially increased burden 96

97 Conditions precedent and subsequent  Gray v. Gardner Contract void if greater quantity of sperm oil arrives between April 1 and October 1  For whose benefit was this? 97

98 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? 98

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?  Δs argued not but Parker said yes—a condition subsequent Which means that onus of proof on buyer 99

100 Drafting CP and CS clauses  Draft the Gray v. Gardner promise as a CP as a CS 100

101 Attorney-approval clauses  I agree “subject to my lawyer’s approval.” A valid condition subsequent? Or not an acceptance and promisor can revoke offer: Gaglia 101

102 Modification, Waiver, Estoppel: Clark v. West 102 The dirty little secret of textbook publishing revealed

103 Modification, Waiver, Estoppel  What are Modifications? 103

104 Modification, Waiver, Estoppel  Modifications are bilateral agreements to vary obligations under a contract Promises are modified 104

105 Modification, Waiver, Estoppel  Modifications are bilateral agreements to vary obligations under a contract  What are Waivers? 105

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 106

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. 107

108 Agreement Required? Reliance required? Modificationyesno Waiverno Estoppelnoyes Modification, Waiver, Estoppel at common law

109 Clark v. West  What was the promise? 109

110 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? 110

111 Clark v. West  § 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. 111

112 Clark v. West  Election waivers: Lee v. Casualty at p.656  Estoppel waivers: Wisconsin Knife? 112

113 The UCC: Wisconsin Knife Works  What was the contract? Spade Bits

114 Wisconsin Knife Works  What was the contract? 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 after 50% completion under original orders 114

115 Wisconsin Knife Works  How does the UCC change things? 115

116 Wisconsin Knife Works  Modifications are binding w/o consideration. UCC § 2-209(1) 116

117 Wisconsin Knife Works  Modifications are binding w/o consideration. UCC § 2-209(1) Opportunism is addressed not by the consideration doctrine but by good fatih requirements  Comment 2 117

118 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. 118

119 Post-contractual opportunism  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? 119

120 Post-contractual opportunism  How does modification open the door to post-contractual opportunism? Did Alaska Packers offer much protection? 2-209(1)?  Obligation of good faith. Every contract or duty within this Act imposes an obligation of good faith in its performance or enforcement. 120

121 Wisconsin Knife Works  UCC § 2-209(2)????? 121

122 Wisconsin Knife Works  UCC § 2-209(2) Merchant-consumer contracts that specify a need for signed modifications can’t be modified orally 122

123 Wisconsin Knife Works  UCC § 2-209(2) Merchant-consumer contracts that specify a need for signed modifications can’t be modified orally What’s the purpose of this, per Easterbrook? 123

124 Wisconsin Knife Works  UCC § 2-209(2) Merchant-consumer contracts that specify a need for signed modifications can’t be modified orally  But must be separately signed by the consumer if on a form supplied but the merchant 124

125 Wisconsin Knife Works  UCC § 2-209(2) Merchant-consumer contracts that specify a need for signed modifications can’t be modified orally  But must be separately signed by the consumer if on a form supplied but the merchant Just what does this proviso add? 125

126 Wisconsin Knife Works  UCC § 2-209(2) Merchant-consumer contracts that specify a need for signed modifications can’t be modified orally  But must be separately signed by the consumer if on a form supplied but the merchant Posner: Must the anti-modification clause be separately signed? 126

127 Wisconsin Knife Works  UCC § 2-209(2) Merchant-consumer contracts that specify a need for signed modifications can’t be modified orally  Need not be signed if between merchants? Is this inconsistent with the first part? 127

128 George Mason School of Law Contracts II Conditions F.H. Buckley

129 PP  My bad… 129

130 The presumption against forfeiture  In favor of promises, not non- promissory conditions  In favor of warranties, not promissory conditions 130

131 Agreement Required? Reliance required? Modificationyesno Waiverno Estoppelnoyes Loss of the right to rescind: Modification, Waiver, and Estoppel

132 Wisconsin Knife Works  What was the evidence of modification or waiver here? 132

133 Wisconsin Knife Works  What was the contract? 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 after 50% completion under original orders 133

134 Wisconsin Knife Works  What was the evidence of modification or waiver here? Was an unwritten modification valid? Was waiver available? UCC § 2-209(4) 134

135 Wisconsin Knife Works  What 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? 135

136 Wisconsin Knife Works  What 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 136

137 Wisconsin Knife Works  What 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 And was there reliance here? 137

138 Wisconsin Knife Works  What 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 And was there reliance here? NMC’s work from July ‘82 on? 138

139 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 does not ordinarily require reliance 139

140 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 does not ordinarily require reliance  What instead it requires is an “intentional relinquishment of a known right.” 140

141 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 does not ordinarily require reliance  What instead it requires is an “intentional relinquishment of a known right.” And might work even if modification doesn’t. 141

142 Modification and Waiver in the UCC  Modifications are binding w/o consideration. UCC § 2-209(1)  Modifications can be barred by express agreement, UCC § 2-209(2) Unless signed written modification  But waivers still permitted. UCC § (4) Tho’ these can be retracted unless other parties changes position. UCC § 2-209(5) 142

143 Why no waiver in Suzuki? 143

144 Why no waiver in Suzuki?  Termination clauses and agency costs Wisconsin Fair Dealership Law, 1974  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. 144

145 Why no waiver in Suzuki?  Free riding in franchises 145 Dirty Macdonalds restaurant

146 George Mason School of Law Contracts II Warranties F.H. Buckley