Constructive Conditions Contracts – Prof Merges April 19, 2011.
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Transcript of Constructive Conditions Contracts – Prof Merges April 19, 2011.
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Constructive Conditions
Contracts – Prof Merges
April 19, 2011
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Conditions
• Express
•Constructive
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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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Express conditions (cont’d)
• Other language that creates a condition
• E.g., Internatio-Rotterdam: “delivery in December with 2 weeks call”
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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
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Mitigating Doctrines
1. Prevention: Luttinger calls bank, says “do not approve our loan”
2. Waiver: Luttinger says “Don’t worry about the loan rate, we will buy”
3. Interpretation to avoid a forfeiture: Peacock; Jacobs & Young
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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
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Kingston v. Preston
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Lord Mansfield
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Kingston v. Preston
• Facts
• Procedural History
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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”
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What is π’s argument here?
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What is π’s argument here?
•Why doesn’t Kingston argue that the security he offered was “good and sufficient”?
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What is π’s argument here?
• State the π’s (apprentice’s) argument in terms of conditions
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What is Δ’s argument here?
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What is Δ’s argument here?
• State the Δ’s argument in terms of a condition
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Terminology
• “Independent Covenants” – old Yearbook discussion from 1500
Two interlocking promises; each must be treated as independent
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Uncle Nephew
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Uncle Nephew
“K-1”
“K-2”
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“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
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Mansfield’s 3 categories – p. 717
1. Mutual and independent
2. “Conditions and dependent”
3. Mutual, to be performed at the same time
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Example
Independent: see why?
PEACOCK CONSTRUCTION: Owner pmt is independent of GC’s duty to pay
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• Kingston: Preston’s duty to convey business dependent upon apprentice’s supplying good security
Dependent promises
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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”
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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
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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
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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
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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
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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
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Holding
• Defendant wins
• No obligation to pay until work is complete
• UNLESS the K provides otherwise
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Default rule
• Good default rule?
• Burden on builder to specify progress pmts
• Otherwise, must wait until the end
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Substantial performance
• Described as a “mitigating doctrine”
• What does it “mitigate”?
– The harsh impact of a constructive condition
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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
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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)
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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
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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)
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Kirkland v. Archbold
• Restitution: another mitigating doctrine
• Why needed here?
• Failure to comply with a constructive condition; K performance excused
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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
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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