Contracts

The performance of one contractual promise is usually a condition precedent to the duty of immediate performance of the return promise. Less than complete performance is a breach of contract. A court will apply the doctrine of "substantial performance" to excuse the condition of complete performance in the case of:

A constructive condition and a minor breach A court will apply the doctrine of substantial performance to excuse the condition of complete performance in the case of a minor breach and a constructive condition. The condition of complete performance may be excused if the party has rendered substantial performance. Courts generally apply this doctrine only where a constructive condition is involved. The doctrine of substantial performance will not apply to excuse an express condition, as this would likely defeat the express intent of the parties. If there is a material breach, then performance has not been substantial, and thus the doctrine would not apply.

At common law, which of the following generally would not legally excuse a condition?

A minor breach of contract An actual breach of the contract might excuse a condition, but only if the breach is material. A minor breach may at best suspend the duty, but it will not excuse it. Divisibility of a contract is a concept designed to avoid the harsh result of forfeiture. If a contract can be divided into parts and one party performs some but not all of the parts, the condition precedent that the whole contract be performed before the other party has a duty to perform is excused. If a party having a duty of performance that is subject to a condition prevents the condition from occurring through failure to cooperate, the condition will be excused if such prevention is wrongful. One having the benefit of a condition under a contract may grant a waiver of the condition, or in other words, indicate by words or conduct that she will not insist on that condition's being met.

Which of the following scenarios is an example of prospective inability to perform?

A prospective inability or unwillingness to perform occurs when one party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. An example of this would be when a buyer declares bankruptcy prior to the time set for performance of the contract. A reasonable person could question whether one who had just declared bankruptcy would have the necessary funds to follow through with a purchase. The effect of this prospective failure would be to allow the seller to suspend further performance until she receives adequate assurances that the buyer's performance will be forthcoming. If the buyer does not provide adequate assurances, the seller can treat this as a repudiation of the contract. A mere rumor that the buyer has been getting price quotes from other sellers would probably not rise to the level of a prospective inability to perform. The buyer has given no indication that he is unable or unwilling to follow through with performance on the contract. He might simply be researching prices for future contracts, or the rumor could be false. Without more information, it is not reasonable to suspect that the buyer intends to breach the contract. Anticipatory repudiation occurs if a promisor, prior to the time set for performance of his promise, actually indicates that he will not perform when the time comes. Thus, if a buyer states that he has changed his mind and will not purchase the item in the contract, or sends a letter stating that he is unable to obtain financing and cannot proceed with the purchase, this would serve as an actual anticipatory repudiation, not a prospective inability to perform. The difference between the two is the degree of certainty. An anticipatory repudiation must be unequivocal and coming from the repudiating party, not just based on what the other party suspects, even if the suspicion is quite reasonable, such as in the case of bankruptcy.

A waiver of a condition__________.

A waiver severs the right to treat the failure of the condition as a total breach excusing counterperformance. Although counterperformance is not excused when there has been a waiver, the waiving party does not waive her right to damages for defective performance by the other party. Consideration is generally not required for a valid waiver of a condition. One having the benefit of a condition under a contract may indicate by words or conduct that she will not insist on that condition's being met; the waiver need not be in writing and signed by the waiving party to be enforceable.

When a condition is not satisfied or a duty of performance is broken, and the beneficiary of the condition or duty nevertheless chooses to continue under the contract, a court will hold this to be __________.

An election waiver When a condition or a duty of performance is broken, and the beneficiary of the condition or duty nevertheless chooses to continue under the contract, a court will hold this to be an election waiver. An election waiver does not require estoppel (although estoppel elements are often present). When a party indicates that she is "waiving" a condition before it is to happen, and the person addressed detrimentally relies on the waiver, a court will hold this to be an estoppel waiver. A prospective unwillingness to perform occurs when one party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. The effect of this prospective failure would be to allow the seller to suspend further performance until she receives adequate assurances that the buyer's performance will be forthcoming. If the buyer does not provide adequate assurances, the seller can treat this as a repudiation of the contract. Anticipatory repudiation occurs when a promisor, prior to the time set for performance of his promise, indicates that he will not perform when the time comes.

__________ best describes the primary difference between excuse of condition by prospective unwillingness to perform and excuse of condition by anticipatory repudiation because _____________.

Degree of certainty; prospective unwillingness to perform is based on the other party's perception that a party will be unwilling or unable to perform when performance is due, whereas anticipatory repudiation occurs when a party clearly indicates his own unwillingness to perform before performance is due. The primary distinction between anticipatory repudiation and prospective inability to perform is one of degree of certainty. Anticipatory repudiation occurs when a party to a contract, prior to the time set for performance, indicates that he will not perform when performance is due. Prospective unwillingness to perform occurs when a party has reasonable grounds to believe that the other party will be unable or unwilling to perform when performance is due. Hence, the terms are not interchangeable; prospective inability or unwillingness to perform is not an anticipatory repudiation because such a repudiation must be unequivocal, whereas prospective failure to perform involves conduct or words that merely raise doubts that the party will perform. Both excuse of condition by prospective unwillingness to perform and excuse of condition by anticipatory repudiation involve similar timing, because both occur before the time of performance. Generally speaking, neither excuse of condition by prospective unwillingness to perform nor excuse of condition by anticipatory repudiation is final. Both can be retracted before the time of performance so long as the other party has not changed position in reliance on the prospective failure or anticipatory repudiation.

The failure of a condition:

Discharges the liability of the promisor whose obligations on the conditional promise never mature The failure of a contractual provision that is only a condition discharges the liability of the promisor whose obligations on the conditional promise never mature. Unlike an unexcused failure to perform a promise, the failure of a condition is not a breach of contract, and it does not give rise to liability. A condition states that an event must occur or fail to occur before a party has a duty to perform under a contract. It is the fulfillment of that stated condition, not the failure of the condition, which creates or extinguishes a duty to perform under the contract.

At common law, which of the following would legally excuse a condition?

Material breach, waiver, or substantial performance Material breach, waiver, and substantial performance each suffice to excuse a condition and relieve a party of the duty to perform. An actual breach of the contract when performance is due will excuse the duty of counterperformance. At common law, the breach must be material to excuse the condition; a minor breach will not excuse it. Thus, the choices including minor breach are incorrect. Technically, if a promise has not been completely performed, the other performance is not due. At common law, this condition of complete performance may be excused if the party has rendered substantial performance. Also, conditions may be excused by impossibility and impracticability. Failure to cooperate by the other party may also excuse a condition. If a party having a duty of performance that is subject to a condition prevents the condition from occurring, the condition will be excused. Anticipatory repudiation will excuse a condition. Retraction of the repudiation will not only fail to excuse a condition but, if effective, will make the condition binding again.

Under the doctrine of substantial performance, can one party recover damages for the other party's incomplete performance?

Under the doctrine of substantial performance, even though the party who has substantially performed is able to enforce the contract, the other party will be able to mitigate by deducting damages suffered due to the first party's incomplete performance. The doctrine of substantial performance applies only if the breach is minor. If the breach is material, the performance is not considered substantial, and the party is in breach. Damages could be recovered for a material breach—but not under the doctrine of substantial performance. Similarly, if the performing party's breach was willful, most courts will not apply the substantial performance doctrine. A willful breach would be considered a standard breach of contract, and the regular damages rules would apply. While it is true that the doctrine of substantial performance was adopted to avoid the harsh result that could occur if complete performance were required, this does not preclude the nonbreaching party from also recovering any damages suffered due to the other party's incomplete performance. It just means that the nonbreaching party has a duty to perform in spite of the incomplete performance.