Chapter 8

Conditions and Breach

After parties agree to an exchange, if everything goes smoothly, they will have little need to seek the assistance of a court. You promise to mow your neighbor, Alice’s, lawn on Saturday and Alice promises to pay $40 on condition that you mow on Saturday. You mow, she pays. You complete the deal. Unfortunately, however, lots of things can go wrong, even between fine people such as you and Alice. You fail to mow, or mow poorly or only partially. She fails to pay or offers only some of the money. A dispute arises over whether you are supposed to mow first, or she is supposed to pay before you mow, or if you have a duty to mow even if it is raining.

You and Alice may have provided for all these contingencies in your agreement. But I doubt it. People rarely foresee all that can go wrong, and, for that matter, rarely provide in their contract for all of the contingencies they do foresee.¹ This is true not only for neighbors making an informal, personal agreement, but for large corporate titans engaged in exchanges worth millions of dollars.

Contract law supplies rules to resolve all of the issues between you and Alice, whether you have expressly addressed them or not. We call these rules the law of conditions and breach. Many students find this material daunting, but, after careful analysis, I have concluded that this material is really very easy. (Aren’t you relieved?) What holds students back is their lack of familiarity with lots of new terminology. You will learn about express and constructive (implied) pure conditions, express and constructive promissory conditions, independent and dependent promises, substantial performance, material breach, divisible contracts, and more.

A. TERMINOLOGY OF CONDITIONS AND BREACH

Let’s introduce the new principles so you can familiarize yourself with the terminology, then return to them in detail in the body of this chapter. Chapter 8 concerns things that can go wrong during contract performance and explains how to draft terms in advance to take care of these exigencies. Generally, mishaps fall into two categories, problems with the order of performance (who must perform first) and with the quality of performance (was the performance good enough). Let’s begin with order-of-performance issues. Consider again your contract with Alice to mow her lawn. Notice that Alice promised to pay you $40 on condition that you mow her lawn on Saturday, a job you have promised to do. Contract law says your mowing is an “express promissory condition precedent” (pronounced preceedent if you want to impress your teacher) to Alice’s duty to pay. You have promised to mow, hence the “promissory” part of the name of what you are to do. Further, Alice agreed to pay on condition that you mow, hence your mowing constitutes a “condition precedent” that must occur before she must pay.² The promissory condition precedent is “express” because you and Alice used the language of a condition in your contract—she agreed to pay “on condition” that you mow.³

Reread the previous paragraph a few times. Got it? Now more terminology that means the same thing as above. Older cases often used the terminology of “dependent” and “independent” promises.⁴ Alice’s promise to pay you is a dependent promise because her promise depends on your mowing. On the other hand, your promise to mow is an independent promise because you have promised to mow with no conditions attached.

Notice that you and Alice have set the order of performance of your contract by making your promise to mow an express promissory condition precedent to Alice’s duty to pay, and by failing to make Alice’s promise to pay a promissory condition precedent to your duty to mow. You have to mow first. Further, you have guided a court on what happens if you don’t mow and Alice sues. If you weasel out and go body surfing instead (yes, you live near the ocean), you have broken your promise to mow. Alice can sue you for breach of contract and recover damages. You have also failed to do what is necessary to mature her duty to perform her promise to pay you. Alice gets damages and doesn’t have to pay you anything. The court’s role here is pretty straightforward because you and Alice were good drafters. You expressly allocated both parties’ respective duties of performance in the contract.

But now let’s suppose your agreement with Alice states that you promise to mow and she promises to pay, and contains no express promissory conditions precedent. In this situation, a court dealing with a dispute between you and Alice cannot simply enforce the contract as written. Using the tools of interpretation and gap filling that we discussed in Chapter 7, the court must determine the “implied” or “constructive” promissory conditions in your contract. Did you agree to mow on condition that Alice performs her promise to pay, or is it the other way around? We shall study in detail how courts resolve such issues by looking at the evidence to see whether your agreement contains an implied-in-fact promissory condition precedent and, if not, which judicial gap fillers can be used to settle the issue.

Besides the order of performance, the other major kind of contract breakdown involves the quality of performance. Courts also analyze these disputes using the principles of express and implied promissory conditions. In Chapter 1, we posited the example in which Alice promises to pay you for mowing her lawn on condition that she is satisfied with the quality of your mowing. Your mower drips gasoline on several areas of Alice’s lawn, which kills the grass in those areas. (Would you please get rid of that mower!) If Alice is not satisfied with your mowing, she does not have to pay (and it looks like she has sufficient grounds for being dissatisfied).

Suppose, however, your contract says nothing about the quality of performance necessary before Alice must pay you. You demand payment, notwithstanding the many burned-out sections of Alice’s lawn. She refuses to pay and you sue. The court must determine whether your contract contains any implied conditions precedent to Alice’s duty to pay based on the quality of your performance. Contract law’s general answer is that Alice must pay only if you have “substantially performed.”⁵ The difficult issue, of course, is just what entails substantial performance in a given situation.

Still more terminology: A court that finds that you have not substantially performed also may say that you have “materially breached” the contract. But the result is the same whether the court decides you have failed to satisfy an implied promissory condition precedent, that you have not substantially performed, or that you have materially breached. Alice does not have to pay, and you owe her damages for breaking your promise to mow competently. If you substantially, but not fully, perform your promise to mow, you have immaterially breached. Alice must pay you because you have fulfilled the implied promissory condition precedent of substantial performance, but she can deduct the amount of damages she sustains because you didn’t fully perform.⁶

Even if you have materially breached, you may still get something for your efforts. Remember, if you have conferred a benefit over and above the damages you have caused, you might be able to recover under the theory of unjust enrichment.⁷ This is an important point to bear in mind as you read through the materials and wonder whether it is fair to allow one party to avoid her contract obligations even in the face of a material breach by the other party.

Just a little more terminology before we can look at all of this stuff in detail. Suppose you promise to mow Alice’s lawn on condition that the weather is sunny on Saturday. Alice promises to pay for the services. It is very cloudy on Saturday and you refuse to mow. You do not have to perform because of the failure of what is called a “pure” condition precedent to your duty to perform, namely a sunny day. Notice that you don’t have to perform, but you also have no cause of action against Alice. She didn’t promise you beautiful weather. Hence a sunny day is a “pure” not a “promissory” condition precedent.

Pure conditions do not always involve the occurrence of an event beyond the parties’ control (like the weather). In the previous examples, you promised to mow Alice’s lawn for $40 on Saturday. Suppose you made no promise to mow. Instead, Alice simply promised you $40 if you mow her lawn. In this situation, mowing her lawn is a pure condition precedent to Alice’s obligation to pay. Mowing is not a promissory condition precedent because you didn’t promise to mow. Of course, you and Alice haven’t even made an enforceable contract in this example because you haven’t furnished any consideration. You don’t have to do anything (so the “agreement” lacks mutuality of obligation).⁸ Alice has made an offer for a unilateral contract.⁹

B. EXPRESS CONDITIONS

1.Creation of an Express Condition

The introduction to this chapter has already described how an express condition operates. You promise to mow Alice’s lawn. Alice agrees to pay you $40 on condition that you mow. If you do not mow, she does not owe you anything.¹⁰ You failed to satisfy an express promissory condition precedent to her obligation to pay you. (She can also sue you for damages for breaking your promise to mow.) Parties don’t always draft their express conditions so clearly, however. Further, circumstances do not always reveal the parties’ intentions very well, so contract law sets forth rules of interpretation to determine whether contract language creates an express condition. Not surprisingly, many of these rules of interpretation coincide with the general rules of interpretation described in Chapter 7.¹¹

For example, contract law directs courts to look at the language of the alleged express condition on its face.¹² A manufacturer of blank compact disks makes arrangements with Freight Express to ship the disks to your local music store. (Yes, I know, this hypo is a bit outdated. But whatever I wrote here concerning digital music would be outdated by the time you read it.) The shipping contract states “Freight Express to deliver on or before June 4.” Is delivery by June 4 a condition precedent to the manufacturer’s duty to pay for the shipping? One ancient case involving shipment by sea stated that “[t]he very words themselves, ‘to sail on or before a given day’ do, by common usage, import the same as the words ‘conditioned to sail’ * * *.”¹³ A court may therefore conclude that the parties to the blank-disk shipping contract intended “to deliver on or before June 4” to be a condition precedent to the manufacturer’s obligation to pay.

Courts have faced the challenge of interpreting contract language to determine whether payment by an owner to a general contractor is a condition precedent to the general contractor’s obligation to pay the subcontractor. Language such as “pay-when-paid” may not be a condition precedent, but “provided that the owner pays,” “if the owner pays,” or (what is obviously best), “a condition precedent to the general’s obligation to pay” should establish a condition precedent.¹⁴

Courts also compare the language at issue with other language in the agreement. For example, if an agreement contains a list of express conditions, a court may assume that other terms omitted from the list are not conditions. Howard v. Federal Crop Ins. Corp.¹⁵ illustrates the point. The Howards sought to recover on an insurance policy after excessive rain damaged their tobacco crop. One of the provisions of the policy stated that “[i]t shall be a condition precedent to the payment of any loss” that the Howards establish that the contract protected them against the hazard that occurred.¹⁶ Another provision stated only that “[t]he tobacco stalks * * * shall not be destroyed until” the insurance company inspected them.¹⁷ The Howards plowed the tobacco fields before an adjuster could inspect them. The insurance company claimed that the second provision established a condition precedent to their obligation to pay, namely that the Howards had not destroyed the stalks before an inspection. But the court held that the provision was not a condition precedent, largely because the contract used the language of condition in the first clause, but not the second.¹⁸

The purpose of an agreement also influences courts in determining whether a term is a condition precedent.¹⁹ For example, courts usually assume that in the business world the time for delivery of a shipment of goods is very important.²⁰ Money is going to exchange hands, retailers need inventory to sell, such as blank disks (and you need the disks to rip off music companies by downloading music from the internet), etc. If Freight Express doesn’t deliver the disks to the music store until, say, June 10, the manufacturer therefore has a good argument that Freight Express has failed to satisfy an express promissory condition precedent to the manufacturer’s obligation to pay, namely delivery by June 4.²¹

Courts also may consider usage of trade, course of dealing, and course of performance in determining whether contract language creates an express condition.²² Consider the Freight Express example and suppose the contract says that “time is of the essence.” The manufacturer may show that in the freight trade this language means that the time of delivery is a condition precedent.²³ Evidence of a course of dealing or course of performance may play a similar role. For example, if the manufacturer and Freight Express treated the time of delivery as a condition precedent in many previous contracts that used the language “Freight Express to deliver on or before June 4,” a court should find that the language creates a condition precedent in the current contract.

If you have been following the discussion up to this point, you are probably aware that the ramifications of a judicial finding of a condition precedent can be pretty tough on a party. Freight Express doesn’t get paid. You mowed Alice’s lawn with your leaky mower for nothing. However, you may have a claim for unjust enrichment.²⁴ And we will soon consider several other vehicles for judicial avoidance of express conditions.²⁵ For now, I want to point out one principle used to avoid them. Contract law generally assumes that the parties did not intend an express condition and makes the party asserting one prove the condition.²⁶ For example, if the manufacturer cannot prove that delivery on time was an express promissory condition precedent to its obligation to pay Freight Express, the manufacturer will have to pay Freight Express even for a late delivery (at least if it is not too late).

2.The Content of an Express Condition

In the introduction to this chapter, we discussed what happens when an express condition precedent is not satisfied. In the preceding subsection, we looked at how courts determine the existence of an express condition. Another important question involving express conditions is just what is required to satisfy an express condition.

The question often comes up in “satisfaction” cases (no, not what the Rolling Stones were complaining about, but what we studied in Chapter 2).²⁷ If you have a good memory, you can recall the example in which you promise to purchase a water-color picture of your house “if you are satisfied with the picture.” Courts generally interpret your satisfaction to be an express condition precedent to your obligation to purchase the picture. But that is not the end of the matter. What exactly is the test of your satisfaction? We saw that courts often interpret satisfaction clauses to require “good faith” on your part.²⁸

Further, we saw that, for you to be in good faith, your decision must meet either a standard of reasonableness or honesty.²⁹ Reasonableness means that you cannot refuse to take the picture if the content and price compare favorably with other pictures of the same type.³⁰ Honesty means that you are actually dissatisfied with the picture, and that you did not have some other motive for rejecting the picture, such as that the painter’s mother was rude to you.³¹ Generally, if a satisfaction clause concerns “commercial value or quality, operative fitness, or mechanical utility” courts apply a reasonableness test.³² On the other hand, when satisfaction involves “fancy, taste, or judgment,” courts usually apply an honesty test.³³ Because your picture contract involves art work, courts likely will determine good faith based on the honesty test.³⁴

Putting all of this together, an express condition precedent to your obligation to take the artist’s picture is that you are satisfied with the picture. You must decide whether you are satisfied honestly. Contract law reaches these conclusions because they are the best estimate of what you and the painter intended. You each believed that you would decide whether you were satisfied with the picture based on its quality and not because of some extraneous factor.

Of course, courts must utilize their interpretation tools to determine the content of express conditions in other contexts as well. For example, suppose you agree to purchase Alice’s house for $150,000 on condition that you can obtain financing “from a bank or other lending institution* * * at an interest rate which does not exceed 8 and ¹/₂ percent per annum.”³⁵ You cannot obtain a better rate than 9 percent, but Alice offers to lend you the money at 8 and ¹/₂ percent herself. Must you accept Alice’s offer? The answer depends on the meaning of the express condition precedent. Is the condition precedent that you obtain financing at the agreed rate, or that you do so “from a bank or other lending institution.” The purpose of the clause might suggest the former. After all, why should you care if you borrow money from a bank or from Alice. In fact, these days you might prefer to borrow money from your seller, with banks finding no shortage of reasons for charging extra “fees” that you may not have considered. But a careful reading of the language indicates that only a bank loan will do. In fact, a court interpreted similar language literally and found that a “bank or other lending institution” had to make the loan to satisfy the condition precedent.³⁶

Suppose an employment contract contains a term requiring the satisfaction of the employer. Courts generally apply a subjective test of satisfaction on the theory that the employer must exercise personal judgment on whether an employee is working out. This approach applies only in the absence of language in the contract showing that the parties intended satisfaction to be measured objectively.³⁷

3.Avoiding Express Conditions

We’ve already mentioned (several times, sorry) that enforcing express conditions can lead to rather harsh results. We’ve also seen that courts utilize the tools of unjust enrichment and judicial interpretation to avoid harsh results. Here we introduce a few more judicial vehicles for avoiding express conditions.

a.Impossibility

Suppose you agree to purchase Alice’s house for $100,000. You also agree to pay an additional $10,000 if, after living there for one year, you have not had to make repairs to the house totaling more than $100. But six months after you purchase the house, Taylor Plantations makes you an offer you can’t refuse and you sell him the house. At the end of the year, Alice claims that you owe her $10,000. Obviously, the condition precedent to your obligation to pay the $10,000 has not been satisfied because you did not keep the house for a year.

A court could hold that you don’t owe Alice anything, since the express condition precedent remains unfulfilled. But a court might find, instead, that a reasonable person would believe that you promised to keep the house for a year, so that Alice would have a fair chance of earning the $10,000.³⁸ The court also could find that, by breaking your promise, the condition became impossible to satisfy. The court therefore could refuse to enforce the condition and make you pay $10,000.³⁹

If you’re tired of my Alice hypos, here’s a scenario based on a real case that illustrates the point. Suppose in a contract, Company 1 promises to issue stock options to Company 2 in return for certain services. The contract between the companies also gives Company 2 the right to resell the options back to Company 1 after a certain period of time. Company 2 claims Company 1 broke its promise to repurchase the options. Company 1’s defense: Issuing the stock options was a condition precedent to its obligation to repurchase them, and it never issued the stock options. The court entertaining similar facts had this to say:

Even if issuing the stock options was a condition precedent to [Company 1’s] obligation to repurchase, [Company 1] has excused that condition by breaching its promise to issue the options, and so the prevention doctrine dooms its case. Under the prevention doctrine, “if a promisor prevents or hinders fulfillment of a condition to his performance, the condition may be waived or excused.” [Citing cases and the Restatement (Second) of Contracts § 245]. For the prevention doctrine to apply, [Company 2] need only show that [Company 1] materially contributed to the non-occurrence of the condition. * * * [Company 1] controlled whether the stock options issued, and, even under its own interpretation, it had a contractual obligation to issue those options. By refusing to do so, [Company 1] plainly forfeited its right to rely on their issuance as an unfulfilled condition precedent to its obligation to repurchase [Company 2’s] options.⁴⁰

Sometimes conditions become impossible not because of anything a contracting party does, but because of events beyond the parties’ control. For example, an insured motorist disappears and his beneficiary cannot provide the “affirmative proof of death or injury” that the life insurance contract requires within six months of the accident. Years later, proof emerges that the insured accidentally drove his car into a river and drowned. Courts have split on whether to excuse the beneficiary from the condition of providing the proof on time, when it was impossible to do so.⁴¹

b.Waiver

A waiver is an “intentional relinquishment of a known right.”⁴² The waiving party can do so expressly or by her conduct.⁴³ A waiver effectively defeats an express condition. Suppose the insurance company in the above disappearing-driver example tells the beneficiary that she does not have to file a proof of death. If the statement constitutes an enforceable waiver, the insurance company cannot use the beneficiary’s failure to file the proof as a justification for avoiding the contract.

Obviously, then, the crucial issue is what constitutes an enforceable waiver? Must it be in writing? No (and some courts enforce oral waivers even if the parties have agreed that waivers must be in writing).⁴⁴ Must consideration support the waiver? No again.⁴⁵ Surely a waiver must at least require reliance, you say. No, a court may enforce a waiver even if there was no reliance. For example, if an insurance company waives a filing requirement after the time for filing has passed, such as a proof of loss, a court may enforce the waiver.⁴⁶

You can see that waivers are, as Johnny Carson used to say, “some crazy stuff,” and they represent a significant exception to the rule requiring that promises must be supported by consideration or be relied on to be legally enforceable. One significant limitation on all of this is that courts tend to restrict waivers without consideration or reliance to non-material relinquishments of a right, such as a waiver of an insured’s duty to file proofs of loss within a particular time period.⁴⁷ Parties generally cannot waive material terms without consideration or reliance. For example, suppose Champ’s Sporting Goods promises to pay $2000 to Ron D. Jockefeller, a manufacturer of sports apparel, for 1000 athletic supporters. Contract law would not recognize Champ’s waiver if, after paying, it released Jockefeller from its duty to deliver the goods.

Another limiting factor with respect to waivers is that a party can retract a waiver if the other party has a reasonable time to perform according to the original terms of the contract.⁴⁸ Suppose, for example, that immediately after the death of an insured, the insurance company waives a condition that the beneficiary file a proof of death within six months, notwithstanding the fact that the beneficiary has the proof and could comply. One month later, the insurance company retracts the waiver, before the beneficiary has relied in any way and while the beneficiary still has ample time to comply with the proof of death deadline. The insured would have to fulfill the condition.

A party may unwittingly waive a breach of a contract by accepting performance with knowledge of the breach.⁴⁹ Tell your client to reserve rights for breach before accepting any such defective performance!

c.Forfeiture

Some courts refuse to enforce an express condition simply because enforcement would cause excessive harm to one of the parties. A party seeking to avoid the condition does not have to show a waiver, impossibility, or unjust enrichment, just harm.⁵⁰ This judicial tactic is similar to the policing doctrine of substantive unconscionability that courts use to throw out offensive contracts and terms.⁵¹ But, whereas courts generally evaluate whether a term is substantively unconscionable by examining the situation at the time the parties made the contract, courts focus on the results of enforcing a condition in forfeiture cases: “[Forfeiture] is intended to deal with a term that does not appear to be unconscionable at the time the contract is made but that would, because of ensuing events, cause forfeiture.”⁵²

A leading case illustrating the harm or forfeiture principle is J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.⁵³ Reduced to its essentials, JNA leased a restaurant building to Chelsea. Chelsea had a right to renew the lease for a twenty-four year period, subject to a condition precedent that Chelsea request a renewal in writing at least six months before the original lease ended. Through negligence, Chelsea missed the deadline and did not notify JNA that it wanted to renew until about six weeks before the lease terminated. Chelsea had operated its restaurant for about five years and had invested a total of $55,000 improving it.

Chelsea sought to retain possession of the premises by asking the court to relieve it from a forfeiture. The court noted that Chelsea would forfeit its $55,000 investment and much of the restaurant’s good will if it could not renew the lease. Further, Chelsea’s delay in notifying JNA was not willful, the result of gross negligence, or part of a strategy to take advantage of a fluctuating real estate market. In addition, JNA had “regularly informed” Chelsea about its other obligations, such as paying taxes and insurance, but had waited until the renewal notice deadline had passed before reminding Chelsea of that condition. The court therefore decided that Chelsea was entitled to relief from the express condition, so long as JNA had not relied on Chelsea’s failure to satisfy the condition, for example, by committing the premises to another tenant. The court remanded the case for a new trial to determine the latter issue.

J.N.A. Realty Corp. helps us isolate several factors that support a finding of forfeiture. Where a tenant significantly invests in its leasehold, its failure to satisfy a condition is pardonable (not strategic or really stupid), the landlord lulls the tenant into failing to satisfy the condition, and the landlord has not relied on the condition, a court is very likely to refuse to enforce the condition against the tenant. Of course, these factors would apply to other types of contracts as well.

4.Condition Subsequent

Before we leave express conditions, I should introduce one additional wrinkle. So far we have been dealing with the interpretation and avoidance of express conditions precedent. There is another form of condition called a “condition subsequent.”⁵⁴ Whether a condition is precedent or subsequent depends on the language used by the drafter. We have seen that “Alice promises to pay you $40 on condition that you mow her lawn” is a condition precedent. The drafter could have drafted the same agreement as a condition subsequent: “Alice promises to pay you $40, but if you don’t mow her lawn on Saturday, she doesn’t have to pay.” All of what we have said so far concerning conditions precedent also applies to conditions subsequent such as this one. So why even make the distinction? Drafting a condition as subsequent rather than precedent may have some effect on allocations of burdens of proof.

If your agreement with Alice includes a condition precedent (“Alice promises to pay you $40 on condition that you mow her lawn”), you must mow before her obligation to pay matures. If you sue Alice for failing to pay, you will have to prove that you mowed. However, if your agreement includes a condition subsequent (“Alice promises to pay you $40, but if you don’t mow her lawn on Saturday, she doesn’t have to pay”), Alice already has the duty to pay, but she is excused if you don’t mow.⁵⁵ Alice therefore may have to prove that you didn’t mow. In many states, procedural rules may trump this simple drafting strategy, further diminishing the significance of drafting a condition precedent or subsequent.⁵⁶

C. IMPLIED CONDITIONS

Now let’s look more systematically at how courts resolve order and quality of performance issues when the parties have not drafted express conditions to deal with these matters.

1.Order of Performance

In the introduction to this chapter, we considered what happens if you promise to mow Alice’s lawn and she promises to pay, but your agreement contains no express language dealing with who must perform first. Courts must use the tools of interpretation and gap filling to determine the “implied” or “constructive” conditions in your contract that dictate the order of performance. Did you agree to mow on condition that Alice pays you first, or must you mow before she pays you?

Assuming the absence of evidence showing who you and Alice intended to perform first, contract law must supply the term. Contract law generally requires that the party whose performance will take longer go first.⁵⁷ This gap filler makes sense because it reflects the general practice of paying people after they perform services, not before.⁵⁸ We can assume you and Alice would have agreed to follow the general practice had you thought about the matter.

One famous case, Stewart v. Newbury,⁵⁹ presents an order-of-performance problem in the context of a construction contract. Through a series of letters, Stewart agreed to do the excavation and concrete work on Newbury Manufacturing Company’s new building. The agreement omitted any reference to pay periods, although Stewart contended that the parties agreed on the phone that Newbury would make payments “in the usual manner.”⁶⁰ Stewart also claimed that the custom was to pay 85% of work done every thirty days, with 15% to be paid when the work was completed. After Stewart sent a bill for three months’ work and Newbury refused to pay it, Stewart stopped working and sued Newbury. At trial, the judge charged the jury that if the parties did not agree to a payment plan, and no custom on payment existed to fill the gap, Newbury had to make payments “at reasonable times.”⁶¹ On appeal, the New York Court of Appeals held that the jury charge was in error. The correct rule was that Newbury had to pay only after Stewart had substantially performed the contract.

Stewart v. Newbury supports the rule that the party whose performance takes longer must perform first. But performance does not have to be perfect. Substantial performance is enough. More about substantial performance shortly.⁶²

Sometimes one performance does not take longer than the other. Contract law requires parties to such contracts to perform concurrently (at the same time). For example, Alice agrees to purchase your house. You and Alice can sit at a table across from each other and you can give her the deed to the property at the same time she slides a check in your direction. Remember, however, that you and Alice can fix the order of performance in any way you want. You can agree that you will pay for the property, and she will convey the deed two weeks later. You can agree that she will convey the land and you will pay after inspecting it. However, if you and Alice do not expressly fix the order of performance, contract law fills the gap by requiring concurrent performances.⁶³

Requiring concurrent performances makes sense when each party’s performance takes about the same amount of time. Neither party must take the risk that the other will not perform. For this reason, concurrent performances is what most parties would have adopted had they dictated the order of performance. In cases of concurrent performances, each performance is an implied promissory condition precedent to the other performance.⁶⁴ Your duty to convey is conditioned on Alice’s paying and vice versa. If Alice balks, you can sue her for breach of her promise to purchase, but only if you show you were ready, willing, and able to perform (in other words, you “tender” performance). If you fail to perform, Alice must tender performance before she can recover.⁶⁵

The UCC provides comparable gap-filling provisions for sales of goods, and it, too, favors concurrent performances. Section 2–507(1) provides in part that “[t]ender of delivery is a condition to the buyer’s duty to accept the goods and, unless otherwise agreed, to his duty to pay for them.” Conversely, section 2–511(1) provides that “tender of payment is a condition to the seller’s duty to tender and complete any delivery.”

2.Quality of Performance

The introduction to Chapter 8 posited the following problem: Alice promises to pay you for mowing her lawn, the mower drips gasoline on several areas, and Alice refuses to pay. We said that your substantial performance was an implied condition precedent to Alice’s duty to pay. Now it is time to learn more about the meaning of substantial performance. We discuss the related doctrine of material breach in the next subsection.⁶⁶

a.Substantial Performance

Jacob & Youngs, Inc. v. Kent⁶⁷ is a leading Cardozo opinion often used to teach substantial performance. Jacob & Youngs (“J & Y”) built a $77,000 house for Kent. The contract stated that “all wrought iron pipe must be well galvanized, lap welded pipe of the grade known as ‘standard pipe’ of Reading manufacture.”⁶⁸ Kent moved in, but failed to pay the balance due of over $3000 after he learned that most of the pipe in the house was not manufactured by Reading. J & Y’s subcontractor simply had not paid attention to this specification when installing the pipe. J & Y sued for the balance due and offered evidence at trial that the brands of pipe used in the house were of the same quality as Reading pipe and that the only difference was the name stamped on the pipe and where it was manufactured. The trial court excluded this evidence and directed a verdict for Kent.

If you carefully perused the introduction to this chapter, you know that the trial court should have excused Kent from the final payment only if the use of Reading pipe was a condition precedent to Kent’s obligation to pay. It follows that the trial court erred in excluding evidence that the pipe used was just as good as Reading pipe if the evidence could help determine whether Reading pipe was a condition. This is just what Cardozo found. He concluded that “the evidence, if admitted, would have supplied some basis for the inference that the defect was insignificant in its relation to the project.”⁶⁹ Further, he thought that the insignificance of the defect would show that (1) justice would be served by deciding that Reading pipe was not a condition precedent; and (2) the parties did not intend Reading pipe to be a condition precedent.

Cardozo observed the close relationship between a reasonable interpretation of the Reading pipe term and the parties’ probable intentions: “Intention not otherwise revealed may be presumed to hold in contemplation the reasonable and probable.”⁷⁰ Cardozo also elaborated on the various additional factors relevant in determining whether to treat the use of Reading pipe as a condition precedent: “We must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. Then only can we tell whether literal fulfillment is to be implied by law as a condition.”⁷¹ J & Y’s evidence was certainly relevant to the first two factors mentioned by Cardozo. If the purpose of the Reading pipe provision was to have reliable pipe in the house, and J & Y’s evidence was accurate, Kent got what he sought.⁷² The first two factors therefore suggest that the use of Reading pipe was not a condition precedent.

The latter two factors focus on J & Y’s situation, namely the reason for its breach and the consequences for J & Y if the court ruled that the use of Reading pipe was a condition precedent. Recall that the very same factors also influence whether a court will override an express condition on the grounds of forfeiture.⁷³ In fact, Cardozo’s discussion of these factors suggests that he might not have enforced even a clearly written express condition precedent requiring Reading pipe. After all, J & Y’s breach was not willful and J & Y would forfeit the remaining compensation for work done if the court found that Reading pipe was a condition precedent. On the other hand, Cardozo recognized the parties’ freedom to draft an express condition precedent.⁷⁴ At any rate, what is clear is that in the absence of an express condition requiring Reading pipe, Cardozo, considering all of the factors, would not find that Reading pipe was a condition precedent. He believed that the pipe used satisfied Kent’s purpose for requiring Reading pipe. J & Y’s breach was inadvertent, and J & Y would suffer a forfeiture if Reading pipe was a condition.

Jacob & Youngs thus stands for the proposition that, in the absence of an express promissory condition precedent requiring perfect performance, contract law usually does not require a perfect performance before the other party must perform. Although Cardozo did not use the terminology, contract law denominates what is required as “substantial performance.”⁷⁵ Put another way, J & Y’s substantial performance, not perfect performance, is the condition precedent to Kent’s obligation to pay.⁷⁶ Assuming J & Y’s evidence is credible that all wrought iron pipe is equal, Kent must pay the last installment, minus any damages for breach of its promise to use Reading pipe.⁷⁷ With respect to damages, however, Cardozo thought that the appropriate measure was the difference in value between the house with Reading pipe and with other pipe, which was probably zero if the pipe used was just as good as Reading.

We now understand that substantial performance means less than perfect performance. And, of course, we can assume it requires more than doing nothing. Between these extremes, we should apply the parameters Cardozo suggested for determining the quality of performance needed to satisfy the substantiality test. Plante v. Jacobs is another helpful case elaborating on these factors.⁷⁸ The Jacobs hired Plante to build a new home. The Jacobs selected a stock floor plan, with standard specifications, and made few changes. They moved into the “completed” house, only to find that their patio walls and floor were defective, cracks had appeared in the living room and kitchen ceilings, and a misplaced wall between the kitchen and living room narrowed the living room by more than one foot. The cost of rebuilding the wall was $4000. Adding other assorted defects, the cost of completing the house as promised would be about twenty-five to thirty percent above the purchase price. The Jacobs had already paid $20,000 for the $26,765 house. Do they have to pay the final installment of $6765?

Based on our discussion of Jacob & Youngs, we know that the issue here is whether Plante has substantially performed. If so, the Jacobs must pay the $6765, minus damages caused by the breach. The court focused on the fact that the Jacobs used a stock floor plan and held that Plante had substantially performed.⁷⁹ But the court did deduct the cost of repairing most of the defects from the $6765 due. The court was not moved, however, by the homeowner’s complaint about the misplaced wall after evidence showed that the error did not diminish the market value of the house.⁸⁰ Therefore, Plante substantially performed notwithstanding the misplaced wall and Jacobs could not recover damages for it measured by the cost of moving the wall.

Are you outraged by this result? The Jacobs wanted a nice new home, and instead they received an assortment of headaches. You may be mumbling that you can accept that a homeowner may have to swallow non-Reading pipe (not literally, of course), but not a living room with the wrong dimensions. Don’t forget, however, that construction headaches are unavoidable, and this appeared to influence the court: “Many of the problems that arose during the construction had to be solved on the basis of practical experience.”⁸¹ In addition, the Jacobs recovered damages measured by the cost of repairs for most of the defects. And the Jacobs must not have cared too much about the space in their living room, having selected a stock floor plan. The result probably would have been different if the Jacobs had painstakingly measured the size of the living room they desired and hired an architect to draw plans to realize their goal. Finally, you may be reassured to learn that, when considering a builder’s substantial performance, some other decisions give greater weight to the homeowners’ wishes.⁸²

b.Material Breach

As we have seen, most construction-breach cases ask whether a contractor has substantially performed. In contracts involving some other subject matters, courts often use different terminology, although the issues are the same. Specifically, courts ask whether a party has materially breached the contract.⁸³ A material breach occurs when, in the parlance of construction cases, a party fails to substantially perform. As with the lack of substantial performance, a material breach means that the breaching party has failed to satisfy an implied promissory condition precedent to the other party’s duty to perform.⁸⁴ The Restatement (Second) of Contracts, section 241, presents several factors for determining a material breach. These look very much like the factors for determining whether a contractor has substantially performed:

(a)the extent to which the injured party will be deprived of the benefit which he reasonably expected;

(b)the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;

(c)the extent to which the party failing to perform or to offer to perform will suffer forfeiture;

(d)the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;

(e)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.

One way of summarizing factors (a) and (b) is to ask whether the aggrieved party will get substantially what she bargained for in making the contract.⁸⁵ As with the inquiries into whether a party has substantially performed or whether the enforcement of an express condition will cause a forfeiture,⁸⁶ factors (c) through (e) focus on what will happen to the breaching party if the court finds a material breach and on the reasons for the breach.

Notwithstanding these rather facile generalizations about the Restatement factors, you should painstakingly apply each factor when dealing with a particular case. Consider again your leaky mower that spills gasoline on Alice’s lawn.⁸⁷ Alice expected a nice, freshly cut lawn, not a lawn that looks like green Swiss cheese. Clearly, the more sections of the lawn that the gasoline kills, the more persuasive is the argument that Alice did not receive what she reasonably expected (factor (a)) and that money damages will not make her whole (factor (b)). With respect to factor (b), think also of the embarrassment that Alice will suffer as the result of your work, which generally is not compensable. On the other hand, you will not be paid for your efforts if the court finds that you materially breached, and this may deter the court from declaring a material breach (factor (c)). (By the way, now may be a good time to remind you that even if the court finds that you materially breached and therefore excuses Alice from paying you, you may be able to recover under unjust enrichment if the amount of benefit you conferred exceeds the damages you caused.⁸⁸)

Sorry, you can’t cure the damage you’ve done to Alice’s lawn very effectively (other than by seeding the bare spots, which will take time to grow), so factor (d) hurts your argument that your breach was immaterial. On the other hand, assuming you didn’t know about the mower’s defect, your breach was inadvertent and not in bad faith, so factor (e) helps your cause.⁸⁹

You can see that applying the factors of section 241 doesn’t give an easy answer. Each factor is important, but not conclusive. None of the factors necessarily clearly favors one party or the other. Factors often contradict each other. Fortunately, section 241 is not the only guidance for lawyers and courts in litigating material breach cases. In addition, they can look at how other courts have dealt with breaches comparable to the one at hand. And chances are that they will find a nice analogous case, because the case reports are filled with breach cases of all stripes and colors. Here are three more examples: One court held that a sign maker’s two-month delay in cleaning a large sign leased for three years to a dry cleaner was not a material breach, even though the sign had been hit by a tomato (seriously).⁹⁰ Another court held that a subcontractor materially breached a contract to perform excavation work when he crashed a bulldozer into a house the contractor was building, destroying a wall and causing damages of $3400.⁹¹ A third court held that an employee who called his former employer a “slimebag” did not materially breach a severance agreement that provided: “Employee * * * agrees not to at any time disparage, defame, or otherwise derogate Employer’s Officers, Executive Committee Members, employees or agents.”⁹² (I can think of other names that might have led the court to a different conclusion.)

One thing is certain. Clients will call on lawyers for advice at the time of a contract breakdown. For example, what would you tell the contractor in the latter example if he called at the time of the mishap and asked whether he must pay the subcontractor for work done on the project. Suppose the value of the house was $20,000? $50,000? (The case arose in the late 1950s, so these are realistic numbers.) Not to put pressure on you, but if you give the wrong advice to the contractor, you may be doing your client a great disservice. Suppose you tell the contractor that the subcontractor has materially breached and, in response to that advice, the contractor refuses to pay the subcontractor and hires another subcontractor to do the excavation work. If your advice was wrong, you have induced your client to become the first materially breaching party, and he might have to pay large expectancy damages.⁹³ If you advise the contractor to pay the subcontractor and keep him on, and this advice is wrong, you have needlessly led your client into further dealings with a materially breaching party.

In fact, the second Restatement increases the challenge for lawyers advising at the contract-breakdown stage. The Restatement (Second) does not always excuse an aggrieved party from performing after the other party’s material breach. In some instances, the injured party initially may only suspend performance and wait for the other party to cure the default.⁹⁴ Under the second Restatement, therefore, a lawyer must predict whether the subcontractor’s collision with the wall constituted an immaterial or material breach, and, if material, whether the breach allows the contractor to suspend performance or to cancel the contract. In sorting out whether an injured party can suspend or cancel, the Restatement first refers to the factors in section 241 for determining the materiality of the breach.⁹⁵ Needless to say, the more definitive the factors are towards a finding of material breach, the more likely a court will excuse the injured party. (Why only suspend the contractor’s performance if the subcontractor completely knocked down the house due to gross negligence?) The Restatement (Second) also directs lawyers to consider whether the injured party needs to make substitute arrangements quickly and whether the agreement called for timely performance.⁹⁶ It is also important to consider whether the injured party gave reasonable notice of his grievance.⁹⁷

c.Divisible Contracts

While driving across the interstate in South Dakota on a family vacation many years ago, we saw a curious sign advertising a drug store in western South Dakota, called “Wall Drug” (at least that’s the name I remember—write me if you are from South Dakota and I have made a mistake). I have to admit that I became a bit annoyed at the intrusion of commercialism into what otherwise was a beautiful environment. Then we came across another sign, then another. To make a long story short, the signs appeared intermittently across the entire state, and by the time we saw the tenth sign or so, I was curious enough about this establishment to stop at what turned out to be a real tourist trap.

You are probably wondering whether I have turned this handy book about contract law into my own personal travelogue. You are about to see the wisdom of my ways. Suppose Wall Drug paid Simon’s Sign Company to build ten signs for $5000 each. Simon’s builds only five signs. Is Simon’s entitled to payment on the contract?⁹⁸ (Let’s not worry about Article 2 of the UCC for now, and focus on the common law treatment of this problem. We’ll see how the UCC treats problems relating to the quality of performance shortly.⁹⁹)

Contract law analyzes this problem by asking whether the contract between Wall Drug and Simon’s was “entire” or “divisible.” In an entire contract, the parties agree to a “ ‘single whole, so that there would have been no bargain whatever, if any promise or set of promises were struck out.’ ”¹⁰⁰ In a divisible contract (also called a “severable” contract), the parties’ promises “can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents * * *.”¹⁰¹ Here are the ramifications of this new classification: In determining whether Wall Drug must pay for the five signs, if the Wall Drug contract is entire, we ask the now familiar question of whether Simon’s breach was material. If the contract is divisible, however, Wall Drug must pay for each divisible portion of the contract that Simon’s successfully performed, meaning that Wall Drug must pay for five signs.¹⁰² Contract law determines whether a contract is entire or divisible based on the parties’ intentions. In the absence of express drafting on the matter, did the parties intend the building of each sign to be a condition precedent to payment for that sign (a divisible contract) or did they intend substantial performance of all the signs to be a condition precedent to payment (an entire contract)?¹⁰³ If the parties did not think about the matter, what would they have decided if they had dealt with it?¹⁰⁴

Wall Drug has a legitimate argument that the parties intended an entire contract if a sucker like me would have to read a minimum of ten signs before being lured into stopping at Wall Drug. If so, Simon’s probably has materially breached by producing only five signs. Contract law excuses Wall Drug from the contract because Simon’s has failed to satisfy a promissory condition precedent to payment. On the other hand, if each sign has value to Wall Drug, and that value is not diminished by having fewer total signs, the court may find that the parties intended a divisible contract. In that case, Wall Drug must pay for each of the five signs. Simon’s has satisfied an implied promissory condition precedent to payment for each of those signs.

d.Uniform Commercial Code

Let’s continue the analysis of the Wall Drug matter assuming that the building of the signs is a sale of goods and that UCC Article 2 applies.¹⁰⁵ Section 2–601 sets forth a “perfect tender” rule (although we will see that there are several noteworthy exceptions). Perfect tender means what it says: “[I]f the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may * * * reject the whole * * *.”¹⁰⁶ So, if the contract between Simon’s and Wall Drug called for one sign of 20 square feet, and Simon’s tendered a sign of 19.5 square feet, Wall Drug could reject the sign, unless an exception applies.

Section 2–601 requires perfect tender only when the parties have not contracted for a different result.¹⁰⁷ For example, if the contract expressly allowed small deviations in the size of the sign, Simon’s would not have to make a perfect tender in order to be paid. A further mitigating factor is the UCC’s emphasis on trade custom, course of dealing, and course of performance in determining the meaning of contracts.¹⁰⁸ For example, suppose sign manufacturers and their customers observe a custom that allows for certain deviations in the size of signs. A court would presume that Wall Drug and Simon’s intended to incorporate the trade custom into their contract. Simon’s would not have to tender a sign of exactly 20 feet.

Sticking with the “one sign” hypo for a moment, let’s consider another UCC section that also modifies the perfect tender rule. Under section 2–508, a seller can cure a deficiency in performance if the time for performance has not passed or if the seller reasonably believed the tender would be acceptable.¹⁰⁹ If Simon’s tendered the 19.5 foot sign on July 11, but delivery was not due until July 18, and Wall Drug rejected the sign, Simon’s would have the right to cure the defect by building another sign the right size or, if possible, repairing the existing one.¹¹⁰

In our original problem, of course, Simon’s agreed to build ten signs. Section 2–612, involving “installment contracts” (which are basically equivalent to divisible contracts),¹¹¹ addresses such a problem by codifying the entire-divisible contract framework discussed above.¹¹² Indeed, section 2–601 expressly refers to section 2–612 as an exception to the perfect tender rule. Section 2–612(2) states that “[t]he buyer may reject any installment which is non-conforming if the non-conformity substantially impairs the value of that installment and cannot be cured * * *.” The buyer must accept the non-conforming installment if “the seller gives adequate assurance of its cure * * *.” If Simon’s agrees to deliver ten signs at different times, but the second sign is 19.5, instead of 20 feet, Wall Drug can reject that sign only if the deficiency “substantially impairs” the value of that sign. Even if it does, Wall Drug cannot reject the installment if Simon gives adequate assurance that it will cure the deficiency. Thus, section 2–612(2) does not require perfect tender of individual installments of installment contracts.

Section 2–612(3) provides in part that “[w]henever non-conformity or default with respect to one or more installments substantially impairs the value of the whole contract there is a breach of the whole.” If Simon’s delivers only five out of ten signs in installments, Wall Drug can reject all five of them if having only five signs “substantially impairs the value of the whole contract.” Substantial impairment will depend, as before, on whether Wall Drug needed a minimum of ten signs to induce people to stop at the store or whether each of the signs had an independent value to Wall Drug. In other words, substantial impairment occurs when the seller commits what would be called a material breach at common law.

D. ANTICIPATORY REPUDIATION

Up to now, we have considered things that go wrong at the time of performance. Simon’s doesn’t deliver ten signs; you don’t show up on Saturday to mow Alice’s lawn; Alice refuses to pay you after you mow her lawn. This section deals with problems that develop after the parties make their contract, but before performance is due. The name “anticipatory repudiation” gives the subject matter away. Simon’s sends Wall Drug a letter months before delivery of the signs is due, stating that it will not build the signs; you tell Alice on Thursday that you have decided to go surfing on Saturday instead of mowing her lawn; Alice tells you on Wednesday that she will not pay you for mowing the lawn. The anticipatory repudiation doctrine presents many new issues. We’ll focus on two crucial ones: What constitutes a repudiation and what can the aggrieved party do after one?

Every casebook worth its salt (or worth the exorbitant price you paid for it) includes the great English case, Hochster v. De La Tour.¹¹³ In April of 1852, defendant engaged a courier to accompany defendant on a trip starting June 1. On May 11, defendant sent a letter to the courier saying he had changed his mind and did not want the courier’s services. The courier sued on May 22. Sometime after that, but before June 1, the courier accepted a substitute job starting July 4. The issues before the court were whether the courier could sue before the time for performance and whether the court should sustain the action even though the courier, having entered a substitute arrangement, could no longer perform the agreement.

The court answered both questions affirmatively. The court relied in part on the mitigation of damages principle: “[I]nstead of remaining idle and laying out money in preparations which must be useless, [plaintiff] is at liberty to seek service under another employer, which would go in mitigation of the damages to which he would otherwise be entitled for a breach of contract.”¹¹⁴ Further, the court was not swayed by the courier’s inability to perform the June 1 contract, which made it impossible for the defendant to change his mind: “It seems strange that the defendant, after renouncing the contract, and absolutely declaring that he will never act under it, should be permitted to object that faith is given to his assertion, and that an opportunity is not left to him of changing his mind.”¹¹⁵ Finally, the court rejected the argument that damages calculations will be too speculative if people can sue before the time for performance: “An argument against the action before the 1st of June is urged from the difficulty of calculating the damages: but this argument is equally strong against an action before the 1st of September, when the three months would expire.”¹¹⁶ The court felt that if the jury could ascertain damages during the time for performance, it could do so before that time. This argument would not be very persuasive, however, if the contract was long-term and the repudiation was months or even years before performance would begin.

Hochster establishes the right of an aggrieved party to treat an anticipatory repudiation as a breach of contract. Although the court relied in large part on the mitigation principle, the court offered the aggrieved party an election, either to sue immediately, as the courier did, or to wait until performance. In modern sale-of-goods cases, UCC section 2–610 limits the latter option, allowing an aggrieved party to wait only a “commercially reasonable time” for performance.¹¹⁷

Although the defendant in Hochster clearly repudiated the contract, the court also laid down an approach for determining, in less obvious cases, whether a party has repudiated. Suppose, for example, that the defendant’s letter to the courier said that the defendant “does not want to go on the trip after all.” According to the court, a party must “utterly renounce[ ] the contract, or [do] some act which render[s] it impossible for him to perform it.”¹¹⁸ Under this test, the “does not want to go” letter would not be a repudiation. And here’s another example of language that would not constitute a definitive repudiation: One court held that a statement by an investment company to its investors who wanted to withdraw their money that withdrawals were suspended for the “foreseeable future” “was not an unequivocal expression by the [company] of an intent to forgo its obligation to make a payment” by the deadline established by the contract.¹¹⁹

The Restatement (Second) of Contracts has adopted an objective test for determining when language or an act constitutes a repudiation. A statement must “indicat[e]” that the party will not perform.¹²⁰ An act must be “voluntary” and it must make the party “unable” or “apparently unable” to perform.¹²¹ The defendant’s letter stating that he does not want to go on the trip probably is not a repudiation because a reasonable person would believe that the defendant was merely unsure of his plans. On the other hand, a definitive statement that a party will not perform unless the other party agrees to new significant terms should constitute a repudiation. For example, if the defendant in Hochster wrote that he would not go on the trip unless the courier accepted a material pay cut, the defendant’s letter would constitute a repudiation.¹²² In addition, one court found that a concrete subcontractor’s letter to the general contractor constituted a repudiation. The letter stated that the subcontractor would shut down if the general did not accept the sub’s terms within hours.¹²³

The Restatement and UCC provide tools for parties faced with equivocal language or conduct. For example, the courier who receives a worrisome letter from the defendant about the prospect of performance can ask for “adequate assurance of due performance,” because the courier has “reasonable grounds for insecurity.”¹²⁴ If the courier doesn’t receive such assurances, he can treat the situation as a repudiation.¹²⁵ Of course, what constitutes “reasonable grounds for insecurity” and what constitutes “adequate assurance of due performance” suffer from the same lack of clarity as questions of material breach and the right to suspend or cancel.¹²⁶ For example, is a distributor’s poor history of making punctual payments and bounced checks enough to constitute “reasonable grounds for insecurity?” At least one court thought so.¹²⁷ Is a statement by the debtor that he will honor the contract in the future sufficient to constitute “adequate assurance of due performance,” or must the debtor prove that his financial situation has improved?¹²⁸ Obviously, the nature of the insecurity has a huge influence on what kind of assurances are necessary.

A party can retract an anticipatory repudiation before the other party has relied on it or indicates acceptance of the repudiation as final.¹²⁹ This suggests that an aggrieved party should notify the party repudiating the contract if the aggrieved party intends to treat the repudiation as final.¹³⁰

¹See Chapter 9, Section (C)(2).

²See, e.g., In re Deepwater Horizon, 786 F.3d 344, 361 (5th Cir. 2015) (“ ‘A condition precedent is either an act of a party that must be performed or a certain event that must happen before a contractual right accrues or a contractual duty arises’ ”) (quoting 13 Williston on Contracts § 38:7 (4th ed. 2014); Northern Heel Corp. v. Compo Indus., Inc., 851 F.2d 456, 461 (1st Cir. 1988) (“A condition is customarily an undertaking on one side to do something (Thing One) which, by its terms, is made a condition to the performance of some corresponding obligation (Thing Two) by the other party, as where the latter agrees to do Thing Two if the former shall carry out Thing One.”) (citing Dr. Seuss [pseud.], The Cat in the Hat 33–54 (Random House ed. 1957)); Merritt Hill Vineyards Inc. v. Windy Heights Vineyard, Inc., 460 N.E.2d 1077, 1081 (N.Y. 1984) (“A condition * * * is ‘an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.’ ”) (quoting Restatement (Second) of Contracts § 224 (1981)).

³Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 660 N.E.2d 415, 418 (N.Y. 1995) (“Express conditions are those agreed to and imposed by the parties themselves.”); Merritt Hill, 460 N.E.2d 1077; see also Smeader v. Mason, 67 N.W.2d 131, 133 (Mich. 1954) (“No liability can be predicated upon an agreement which the parties by express and unambiguous terms declared shall be void upon the failure of a condition. The language of the agreement being controlling, it is unnecessary to discuss the other questions raised by appellant.”).

⁴See, e.g., K & G Constr. Co. v. Harris, 164 A.2d 451, 454 (Md. 1960) (“Promises and counter-promises made by the respective parties to a contract have certain relations to one another, which determine many of the rights and liabilities of the parties. Broadly speaking, they are (1) independent of each other, or (2) mutually dependent, one upon the other. They are independent of each other if the parties intend that performance by each of them is in no way conditioned upon performance by the other * * *. Promises are mutually dependent if the parties intend performance by one to be conditioned upon performance by the other * * *.”) (emphasis omitted).

⁵See infra notes 67–82, and accompanying text.

⁶See infra notes 83–97, and accompanying text.

⁷See Chapter 3, Section(B)(2)(b).

⁸See Chapter 2, Section (A)(7); see also Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777, 785 (9th Cir. 2012).

⁹See Chapter 2, Section (B)(4).

¹⁰In re Deepwater Horizon, 786 F.3d 344, 361 (5th Cir. 2015) (“A condition precedent is either an act of a party that must be performed or a certain event that must happen before a contractual right accrues or a contractual duty arises”) (quoting 13 Williston on Contracts § 38:7 (4th ed. 2014)); Brown-Marx Assocs. v. Emigrant Sav. Bank, 703 F.2d 1361, 1367 (11th Cir. 1983) (“ ‘As a general rule, conditions which are either expressed or implied in fact must be exactly fulfilled or no liability can arise on the promise which such conditions qualify.’ ”) (quoting 5 Samuel Williston and Walter H.E. Jaeger, A Treatise on the Law of Contracts 184 (3d ed. 1961)).

¹¹See Chapter 7, Sections (B)(1)–(3).

¹²Glaholm v. Hays, 133 Eng. Rep. 743, 747 (C.P. 1841); see also MHR Capital Partners LP v. Presstek, Inc., 912 N.E.2d 43 (N.Y. 2009) (requirement that bank accept terms of consent form a condition precedent); MidAmerica Constr. Mgmt., Inc. v. MasTec N. Am., Inc., 436 F.3d 1257, 1262 (10th Cir. 2006) (“While no particular words are necessary for the existence of a condition, such terms as ‘if,’ ‘provide that,’ ‘on condition that,’ or some other phrase that conditions performance, usually connote an intent for a condition rather than a promise.”).

¹³Id.; Star of Detroit Line, Inc. v. Comerica Bank, 1999 WL 33454888, at *4 (Mich. Ct. App. 1999) (“[I]n determining whether an express condition precedent has been fulfilled or satisfied, Michigan courts look to the plain language of the contract in light of the surrounding circumstances.”).

¹⁴Compare Intl. Engr. Services, Inc. v. Scherer Const. & Engr. of Cent. Florida, LLC, 74 So.3d 531 (Fla. App. 2011) reh’g denied (2011) and Faulkner USA, LP v. Alaron Supply Co., Inc., 322 S.W.3d 357 (Tex App. 2010); see also Lemoine Co. of Alabama, L.L.C. v. HLH Constructors, Inc., 62 So. 3d 1020 (Ala. 2010).

¹⁵540 F.2d 695 (4th Cir. 1976).

¹⁶Id. at 696.

¹⁷Id.

¹⁸Id. at 698; Glaholm, 133 Eng. Rep. at 746 (“[S]ome distinction must have been intended by the contracting parties, between [a] particular clause and those which precede and follow it, as to the nature of the obligations thereby respectively created.”); see also Intl. Engr. Services, Inc. v. Scherer Const. & Engr. of Cent. Florida, LLC, 74 So.3d 531 (Fla. App. 2011) reh’g denied (2011) (court reads terms of contract together to determine whether there was a condition precedent); Cedar Point Apartments, Ltd. v. Cedar Point Inv. Corp., 693 F.2d 748, 755 n.9 (8th Cir. 1982) (“[C]ourts will not construe contract provisions to be conditions precedent to another party’s duty under the contract unless ‘required to do so by plain, unambiguous language or by necessary implication.’ ”) (quoting Kansas City S. Ry. Co. v. St. Louis-San Francisco Ry. Co., 509 S.W.2d 457, 460 (Mo. 1974)).

¹⁹See Chapter 7, Section (B)(1)(a).

²⁰John Morrell & Co. v. Burlington N., Inc., 560 F.2d 277, 280 (7th Cir. 1977) (upholding lower court’s finding that “defendant knew or should have known that timely delivery of a shipment of meat is essential to its value”); Chronister Oil Co. v. Elleron Chems. Corp., 1986 WL 13445, at *3 (S.D. Tex. 1986) (“The price of gas was dropping so precipitously by late December 1985, with each days’ delay frustrating [buyer’s] chances of profitably reselling the cargo, that [supplier] must have known [buyer] intended timely delivery. Where it is clear that there is a reason for timely performance (e.g., when delay causes the goods to depreciate) limits will be regarded as an essential part of the contract.”).

²¹See McFadden v. Henderson, 29 So. 640, 642 (Ala. 1900) (“ ‘If any time be agreed upon and the vendor fails to comply with the agreement, the vendee will not be bound to accept, if a compliance with the terms in respect of the time be an essential consideration of the bargain.’ ”) (quoting Story on Sales, § 310); Glaholm, 133 Eng. Rep. 743.

²²See Chapter 7, Section (B)(1)(b) for a discussion of these sources of evidence.

²³Cf. Gaskill v. Jeanette Enters., Inc., 554 S.E.2d 10, 13 (N.C. App. 2001).

²⁴See Chapter 3, Section (B)(2)(b).

²⁵See infra notes 38–53, and accompanying text.

²⁶Israel v. Chabra, 537 F.3d 86, 93 (2d Cir. 2008) (“New York courts are cautious when interpreting a contractual clause as a condition precedent, and they will ‘interpret doubtful language as embodying a promise or constructive condition rather than an express condition[ ]’ * * *.”) (quoting Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 660 N.E.2d 415, 418 (N.Y. 1995)); Standard Oil Co. v. Perkins, 347 F.2d 379, 383 (9th Cir. 1965) (“Nowhere in the agreement is notice made an express condition precedent to suit. And a court will not imply that a covenant is a condition unless it clearly appears the parties so intended it * * *.”); K & K Pharmacy, Inc. v. Barta, 382 N.W.2d 363, 365 (Neb. 1986) (“The party seeking to enforce a contract containing a condition precedent bears the burden of proof as to the occurrence of the condition, and if there is no evidence of the occurrence of the condition, the contract is not binding and cannot be enforced.”); Jacob & Youngs, Inc. v. Kent, 129 N.E. 889, 891 (N.Y. 1921) (“We must weigh the purpose to be served, the desire to be gratified, the excuse for deviation from the letter, the cruelty of enforced adherence. Then only can we tell whether literal fulfilment is to be implied by law as a condition * * *. [T]he law will be slow to impute the purpose, in the silence of the parties, where the significance of the default is grievously out of proportion to the oppression of the forfeiture.”).

²⁷See Chapter 2, Section (A)(7).

²⁸See, e.g., Mattei v. Hopper, 330 P.2d 625, 627 (Cal. 1958) (“Where the question is one of judgment, the promisor’s determination that he is not satisfied, when made in good faith, has been held to be a defense to an action on the contract.”); Brack v. Brownlee, 273 S.E.2d 390, 393 (Ga. 1980) (“[T]he purchaser may be entitled to a refund of his earnest money because the condition precedent of obtaining the loan was not fulfilled after the purchaser’s good faith efforts to do so * * *. As a general rule, however, if a purchaser fails to make a good faith effort to obtain financing after agreeing to the contract, he would forfeit his earnest money.”).

²⁹Mattei, 330 P.2d at 626–27; Royal Bank of Can. v. Beneficial Fin. Leasing Corp., 1992 WL 167339, at *6 (S.D.N.Y. 1992) (“[A] satisfaction clause may require objective or subjective dissatisfaction with the tendered performance, depending on the subject matter of the contract.”).

³⁰Davidson & Jones Dev. Co. v. Elmore Dev. Co., 921 F.2d 1343, 1354 (6th Cir. 1991) (“[S]atisfaction of conditions contained in the Assignment Agreement must be viewed from the perspective of a reasonable man, and not [plaintiff’s] subjective beliefs concerning their satisfaction.”); Mattei, 330 P.2d at 626–27 (“[I]n those contracts where the condition calls for satisfaction as to commercial value or quality, operative fitness, or mechanical utility, dissatisfaction cannot be claimed arbitrarily, unreasonably, or capriciously, and the standard of a reasonable person is used in determining whether satisfaction has been received.”).

³¹Forman v. Benson, 446 N.E.2d 535, 540 (Ill. App. Ct. 1983) (“Both plaintiff and defendant testified that an increased purchase price was discussed * * *. [W]e hold that while defendant may have had a basis in his personal judgment for rejecting plaintiff’s credit (i.e., outstanding debts and a $2,000 loss reflected in an income tax return), his attempted renegotiation demonstrates that his rejection was based on reasons other than plaintiff’s credit rating and was, therefore, in bad faith.”); Nebraska Panhandle Cmty. Action Agency, Inc. v. Strange, 200 N.W.2d 23, 25 (Neb. 1972) (“If the agreement leaves no doubt that honest satisfaction and no more is meant, the condition does not occur if the obligor is honestly, even though unreasonably, dissatisfied.”) (citing Restatement (Second) of Contracts § 254 (1972)).

³²Mattei, 330 P.2d at 626–27; see also Neb. Panhandle Cmty. Action Agency, 200 N.W.2d at 25 (“If a condition of an obligor’s duty is that he be satisfied with the obligee’s performance, an interpretation is preferred under which the condition occurs, provided a reasonable man in the position of the obligor would be satisfied and such a test is practicable.”).

³³Mattei, 330 P.2d at 627; K & K Pharmacy, Inc. v. Barta, 382 N.W.2d 363, 365 (Neb. 1986) (“[T]he evidence need only show honest dissatisfaction and no more.”).

³⁴See Gibson v. Cranage, 39 Mich. 49, 50 (1878) (“Artists or third parties might consider a portrait an excellent one, and yet it prove very unsatisfactory to the person who had ordered it and who might be unable to point out with clearness or certainty the defects or objections.”).

³⁵Luttinger v. Rosen, 316 A.2d 757, 757–58 (Conn. 1972).

³⁶Id. at 758 (“In this case the language of the contract is unambiguous and clearly indicates that the parties intended that the purchase of the defendants’ premises be conditioned on the obtaining by the plaintiffs of a mortgage as specified in the contract.”); see also Reagan v. Bankers Trust Co., 863 F. Supp. 1511, 1513 (D. Utah 1994) (“If the occurrence of a condition is required by the agreement of the parties, rather than as a matter of law, a rule of strict compliance traditionally applies.”) (quoting E. Allan Farnsworth, Contracts 571 (2d ed. 1990)).

³⁷See, e.g., Silvestri v. Optus Software, Inc. 814 A.2d 602, 606–07 (N.J. 2003).

³⁸E. I. Du Pont De Nemours Powder Co. v. Schlottman, 218 F. 353, 354–55 (2d Cir. 1914); see also In re Deepwater Horizon, 786 F.3d 344, 361 (5th Cir. 2015) (party not excused if it caused the failure of the condition); E.B. Harper & Co. v. Nortek, Inc., 104 F.3d 913, 919 (7th Cir. 1997) (“Good faith and fair dealing requires that parties use reasonable efforts to bring about the occurrence of conditions precedent within their control. * * * The duty is an implied promise between the parties that they will not do anything to injure the other party’s right to enjoy the benefits of the contract.”).

³⁹Du Pont, 218 F. at 355 (“Because the defendant has made the performance of this test impossible, the plaintiff should not be remediless.”); Canyon Land Park, Inc. v. Riley, 575 F.2d 550, 552 (5th Cir. 1978) (“It is generally agreed that one who unjustly prevents the performance or the happening of a condition of his own promissory duty thereby eliminates it as such a condition.”).

⁴⁰Cox v. Snap, Inc., 859 F.3d 304, 308–309 (4th Cir. 2017).

⁴¹Compare Trippe v. Provident Fund Soc’y, 35 N.E. 316, 317 (N.Y. 1893) (“[The condition] must * * * receive a liberal and reasonable construction in favor of the beneficiaries under the contract. The provision requires not only notice of the death, but ‘full particulars of the accident and injury.’ It is quite conceivable that in many cases of death by accident the fact cannot be and is not known until days or even weeks after it has occurred. Such conditions [in] a policy of insurance must be considered as inserted for some reasonable and practical purpose, and not with a view of defeating a recovery in case of loss by requiring the parties interested to do something manifestly impossible.”) and Hanna v. Commercial Travelers’ Mut. Accident Ass’n, 204 A.D. 258, 259 (N.Y. App. Div. 1922), aff’d 142 N.E. 288 (N.Y. 1923) (“[W]hen a person by express contract engages absolutely to do an act not impossible or unlawful at the time, neither inevitable accident nor other unforeseen contingency not within his control will excuse him, for the reason that he might have provided against them by his contract.”).

⁴²Irvin Water Dist. No. 6 v. Jackson P’ship, 34 P.3d 840, 847 (Wash. Ct. App. 2001); see also Wagner v. Wagner, 621 P.2d 1279, 1283–84 (Wash. 1980) (“It is necessary that the person against whom waiver is claimed have intended to relinquish the right, advantage, or benefit and his action must be inconsistent with any other intent than to waive it.”).

⁴³Fundamental Portfolio Advisors, Inc. v. Tocqueville Asset Mgmt., L.P., 850 N.E.2d 653, 658 (N.Y. 2006) (“[A] waiver ‘should not be lightly presumed’ and must be based on ‘a clear manifestation of intent’ to relinquish a contractual protection.”) (quoting Gilbert Frank Corp. v. Federal Ins. Co., 520 N.E.2d 512, 514 (N.Y. 1988)); Ryder v. Bank of Hickory Hills, 585 N.E.2d 46, 49 (Ill. 1991) (“Waiver may be made by an express agreement or it may be implied from the conduct of the party who is alleged to have waived a right.”); Wagner, 621 P.2d at 1284 (“[T]o constitute a waiver, other than by express agreement, there must be unequivocal acts or conduct evincing an intent to waive. Intent cannot be inferred from doubtful or ambiguous factors.”).

⁴⁴Becker v. HSA/Wexford Bancgroup, 157 F. Supp. 2d 1243, 1252 n.2 (D. Utah 2001) (“The parties to a contract may * * * make oral waivers of contract conditions.”); BOB Acres, LLC v. Schumacher Farms, LLC, 797 N.W.2d 723, 728 (Minn. Ct. App. 2011) (“[A]lthough the parties agreed that no waiver of a term would be operative unless made in writing, courts have permitted a waiver of such clauses by oral consent or by a party’s behavior in ignoring a contract provision knowing that a condition had not been met.”); E.A. Farnsworth, Contracts 525 (4th ed. 2004).

⁴⁵Koedding v. Slaughter, 481 F. Supp. 1233, 1239 (E.D. Mo. 1979) (“It is clear that a party may waive a condition* * *. It is also clear that consideration is not a prerequisite to the validity of such a waiver.”); Farnsworth, supra note 44, at 525.

⁴⁶Connecticut Fire Ins. Co. v. Fox, 361 F.2d 1, 8 (10th Cir. 1966) (favoring the rule that “allow[s] the insurer to waive or extend the [time] requirement even though the original time requirement had expired”). But see Globe Mut. Life Ins. Co. v. Wolff, 95 U.S. 326, 333 (1877) (“The doctrine of waiver, as asserted against insurance companies to avoid the strict enforcement of conditions contained in their policies, is only another name for the doctrine of estoppel. It can only be invoked where the conduct of the companies has been such as to induce action in reliance upon it, and where it would operate as a fraud upon the assured if they were afterwards allowed to disavow their conduct and enforce the conditions.”).

⁴⁷Cole Taylor Bank v. Truck Ins. Exch., 51 F.3d 736, 739 (7th Cir. 1995) (“Unless the right waived is a minor one * * * why would someone give it up in exchange for nothing?”); Farnsworth, supra note 44, at 527.

⁴⁸Computer Strategies, Inc. v. Commodore Bus. Machs., Inc., 483 N.Y.S.2d 716, 722 (App. Div. 1984) (“Commodore could not retract the waiver as it did not give Computer reasonable notice or time to alleviate the prejudice created thereby.”); Restatement (Second) of Contracts § 84(2) (“[T]he promisor can make [the promisee’s] duty again subject to the condition by notifying the promisee or beneficiary of his intention to do so if (a) the notification is received while there is still a reasonable time to cause the condition to occur * * *.”).

⁴⁹See, e.g., Walls v. Petrohawk Properties, LP, 812 F.3d 621, 625 (8th Cir. 2015) (“[O]ne party to a contract who, with knowledge of a breach by the other party, continues to accept benefits under the contract, and suffers the other party to continue in performance thereof, waives the right to insist on the breach”) (quoting Clear Creek Oil & Gas Co. v. Brunk, 255 S.W. 7, 8 (1923)). For additional discussion, see Chapter 2, Section (A)(8) of this book.

⁵⁰See, e.g., Holiday Inns of Am., Inc. v. Knight, 450 P.2d 42, 44 (Cal. 1969) (“ ‘Whenever, by the terms of an obligation a party thereto incurs a forfeiture, or a loss in the nature of a forfeiture, by reason of his failure to comply with its provisions, he may be relieved therefrom, upon making full compensation to the other party, except in case of a grossly negligent, willful, or fraudulent breach of duty.’ ”) (quoting Cal. Civ. Code § 3275). But see Cortez v. Cortez, 203 P.3d 857, 862 (N.M. 2009) (“Nevertheless, if the contractual language is clear and unequivocal, we will enforce a forfeiture, even where the terms result in a hard bargain.”) (citing United Props. Ltd. v. Walgreen Props., Inc., 82 P.3d 535, 539–40 (N.M. Ct. App. 2003)).

⁵¹See Chapter 6, Section (D)(2).

⁵²Restatement (Second) of Contracts § 229, cmt. b.

⁵³366 N.E.2d 1313 (N.Y.1977).

⁵⁴See, e.g., Detels v. Detels, 830 A.2d 381, 385 (Conn. App. Ct. 2003).

⁵⁵Midwest Oilseeds, Inc. v. Limagrain Genetics Corp., 387 F.3d 705, 720 (8th Cir. 2004) (“A condition subsequent discharges a duty that has already arisen under the contract.”) (citing John D. Calamari & Joseph M. Perillo, Contracts § 11–7 (3d ed. 1987)).

⁵⁶Smith v. Coldwell Banker Commercial N.E.R.A., LLC, 880 A.2d 1012, 1015 (Conn. App. Ct. 2005) (“The modern law of contracts does not recognize a substantive difference between conditions precedent and subsequent.”) (quoting Gingras v. Avery, 878 A.2d 404, 408 n.4 (Conn. App. Ct. 2005)).

⁵⁷International Ass’n of Firefighters Local 1596 v. City of Lawrence, 798 P.2d 960, 969 (Kan. Ct. App. 1990) (“Under a contract of service, the employee must render the service before payment is due.”) (citing 6 Samuel Williston & Walter H. E. Jaeger, Treatise on the Law of Contracts 85 (3d ed. 1962)); Restatement (Second) of Contracts § 234(2).

⁵⁸El Dorado Hotel Props. v. Mortensen, 665 P.2d 1014, 1017 (Ariz. Ct. App. 1983) (discussing Restatement (Second) of Contracts § 234); Edwin W. Patterson, Constructive Conditions in Contracts, 42 Colum. L. Rev. 903, 919 (1942) (“The policy of the law, here as in the tendency to construct concurrent conditions, is to minimize credit risks. If employers usually present less credit risks than employees, the rule of construction effectuates this end. That colleges and theaters ordinarily require payment in advance for the services which they furnish merely exemplifies the operation of the principle.”).

⁵⁹115 N.E. 984 (N.Y. 1917).

⁶⁰Id.

⁶¹Id. at 985.

⁶²See infra notes 67–82, and accompanying text.

⁶³Passehl Estate v. Passehl, 712 N.W.2d 408 (Iowa 2006) (law favors simultaneous performance); El Dorado Hotel Props., 665 P.2d at 1017 (“[W]here a time is fixed for the performance of one of the parties (the payment of $400,000.00 on March 1) and no time is fixed for the other (the approval and delivery of the release) simultaneous performance is possible and will be required unless the language or the circumstances indicate the contrary.”); Restatement (Second) of Contracts § 234(1).

⁶⁴Northern Heel Corp. v. Compo Indus. Inc., 851 F.2d 456, 461 (1st Cir. 1988) (“[T]he term ‘concurrent condition’ is merely ‘an elliptical expression for a condition precedent where performances are due at the same time.’ ”) (quoting 3A Arthur Linton Corbin, Corbin on Contracts 19, n.21); Southern Nat’l Bank v. Crateo, Inc., 458 F.2d 688, 695 (5th Cir. 1972) (“Concurrent conditions * * * do not differ from conditions precedent in the relation of time which the happening of the condition bears to the duty of immediate performance on the contract. They are, indeed, mutual conditions precedent.”) (quoting 5 Samuel Williston & Walter H. E. Jaeger, Treatise on the Law of Contracts 144 (3d ed. 1961)).

⁶⁵Southern Nat’l Bank, 458 F.2d at 695 (“If two persons are bound to give concurrently, one a book and the other the price, neither party will be liable until performance has either been made or tendered by the other. But though the tender may be absolute, it need be only conditional, that is, subject to receiving concurrent performance from the other side.”) (citing 5 Williston & Jaeger, supra note 64, at 144).

⁶⁶See infra notes 83–97, and accompanying text.

⁶⁷129 N.E. 889 (N.Y. 1921).

⁶⁸Id. at 890.

⁶⁹Id.

⁷⁰Id. at 891.

⁷¹Id.

⁷²See Richard Danzig, The Capability Problem in Contract Law: Further Readings on Well-Known Cases, 121–22 (1978) (“Jacob and Youngs were prepared to show equality of price, weight, size, appearance, composition, and durability for all four major brands of wrought iron pipe. Indeed, in addition to other witnesses, an employee of the Reading Company was prepared to testify to this effect.”).

⁷³See supra notes 50–53, and accompanying text.

⁷⁴Jacob & Youngs, 129 N.E. at 891 (“This is not to say that the parties are not free by apt and certain words to effectuate a purpose that performance of every term shall be a condition of recovery.”).

⁷⁵Plante v. Jacobs, 103 N.W.2d 296, 298 (Wis. 1960) (“Substantial performance as applied to construction of a house does not mean that every detail must be in strict compliance with the specifications and the plans. Something less that perfection is the test of * * * performance unless all details are made the essence of the contract.”); Crouch v. Gutmann, 31 N.E. 271, 273 (N.Y. 1892) (“Since the rule of exact or literal performance has been relaxed and recovery may be founded upon substantial performance, that term, in its practical application to building contracts, has perhaps necessarily become somewhat indefinite otherwise than that the builder must have in good faith intended to comply with the contract, and shall substantially have done so in the sense that the defects are not pervasive, do not constitute a deviation from the general plan contemplated for the work, and are not so essential that the object of the parties in making the contract and its purpose cannot, without difficulty, be accomplished by remedying them.”).

⁷⁶Brown-Marx Assocs., Ltd. v. Emigrant Sav. Bank, 703 F.2d 1361, 1368 (11th Cir. 1983) (“ ‘It is not substantial performance of “a condition” that must be rendered; “substantial performance” is the condition—the fact that must exist before payment is due.’ ”) (quoting 3A Corbin, supra note 64, at 314); Brink v. Hayes Branch Drainage Dist., 376 N.E.2d 78, 81 (Ill. App. Ct. 1978) (“[S]ubstantial performance is a condition precedent ‘not because it is so stated in words, but because justice requires it.’ ”) (quoting 3A Corbin, supra note 64, at 347).

⁷⁷Process America, Inc. v. Cynergy Holdings, LLC, 839 F.3d 125, 136–137 (2d Cir. 2016) (“A partial breach may entitle the non-breaching party to damages for the breach, but does not entitle the party to simply to treat the contract as at an end.”).

⁷⁸103 N.W.2d 296 (Wis. 1960).

⁷⁹Id. at 298.

⁸⁰Id. at 299.

⁸¹Id. at 298; see also Bernhardt v. McGuire & Pritchard, 607 S.W.2d 8, 12–13 (Tex. Civ. App. 1980) (“The Texas courts have applied the doctrine of ‘substantial performance’ to construction contracts since 1891. This doctrine recognizes that literal performance of each and every particular of such a contract is virtually impossible. Rather than require perfect performance of every particular, substantial performance is regarded as full performance.”).

⁸²See, e.g., O.W. Grun Roofing & Constr. Co. v. Cope, 529 S.W.2d 258, 262 (Tex. Civ. App. 1975) (“In the matter of homes and their decoration * * * mere taste or preference, almost approaching whimsy, may be controlling with the homeowner, so that variations which might, under other circumstances, be considered trifling, may be inconsistent with that ‘substantial performance’ on which liability to pay must be predicated.”); cf. Carter v. Quick, 563 S.W.2d 461, 465 (Ark. 1978) (“[The homeowner is interested] in having defective construction corrected so that he and his family may enjoy a properly constructed dwelling and he is not concerned with offsetting any loss on a possible resale of the property. In such a case, aesthetic values are properly involved.”).

⁸³See, e.g., Process America, Inc. v. Cynergy Holdings, LLC, 839 F.3d 125, 136 (2d Cir. 2016) (“Under New York law, a party’s performance under a contract is excused where the other party has substantially failed to perform its side of the bargain or, synonymously, where that party has committed a material breach.”); General Motors Corp. v. New A.C. Chevrolet, Inc., 263 F.3d 296, 317 n.8 (3d Cir. 2001) (“ ‘The doctrine of material breach is simply the converse of the doctrine of substantial performance. Substantial performance is performance without a material breach, and a material breach results in performance that is not substantial.’ ”) (quoting Farnsworth, supra note 44, at 496); Walker & Co. v. Harrison, 81 N.W.2d 352, 355 (Mich. 1957) (“What is our criterion for determining whether or not a breach of contract is so fatal to the undertaking of the parties that it is to be classed as ‘material’? There is no single touchstone. Many factors are involved.”).

⁸⁴Youell v. Grimes, 217 F. Supp. 2d 1167, 1174 (D. Kan. 2002) (“[A] material breach by either party relieves the other of its duty to perform under the contract.”); Restatement (Second) of Contracts § 237 (“[I]t 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.”).

⁸⁵See, e.g., Walls v. Petrohawk Properties, LP, 812 F.3d 621, 625 (8th Cir. 2015) (“[A] breach [of contract] is ‘material’ where there ‘is a failure to perform an essential term or condition that substantially defeats the purpose of the contract for the other party’ ”) (quoting Roberts Contracting Co. v. Valentine-Wooten Rd. Pub. Facility Bd., 320 S.W.3d 1, 7 (Ark. 2009)).

⁸⁶See supra notes 51–53, 67–82, and accompanying text.

⁸⁷See supra note 5, and accompanying text.

⁸⁸See supra note 7, and accompanying text.

⁸⁹See Restatement (Second) § 241(e) and cmt. f (“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 is * * * a significant circumstance in determining whether the failure is material * * *.”); see also Intervisual Commc’ns, Inc. v. Volkert, 975 F. Supp. 1092, 1102 (N.D. Ill. 1997) (“The single incident of inadvertent omission does not rise to the level of a material breach of contract * * *.”); Sackett v. Spindler, 56 Cal. Rptr. 435, 441 (Ct. App. 1967) (“[Breaching party’s] failure to perform could certainly not be characterized as innocent; rather it could be but ascribed to gross negligence or wilful conduct on his part.”).

⁹⁰Walker & Co. v. Harrison, 81 N.W.2d 352 (Mich. 1957).

⁹¹K & G Constr. Co. v. Harris, 164 A.2d 451 (Md. 1960).

⁹²Ohio Educ. Ass’n v. Lopez, 2010 WL 4102948, *1 (Ohio App. 2010).

⁹³Walker & Co., 81 N.W.2d at 355 (“[T]he injured party’s determination that there has been a material breach, justifying his own repudiation, is fraught with peril, for should such determination, as viewed by a later court in the calm of its contemplation, be unwarranted, the repudiator himself will have been guilty of material breach and himself have become the aggressor, not an innocent victim.”); see also Virginia Electric and Power Co. v. Bransen Energy, Inc., 850 F.3d 645, 655 (4th Cir. 2017) (“ ‘[A] party who commits the first breach of contract,’ if material, ‘is not entitled to enforce the contract’ and thereby excuses the nonbreaching party from performance.”) (quoting Horton v. Horton, 487 S.E.2d 200, 203–204 (1997)); Matter of Dallas Roadster, 846 F.3d 112, 117 (5th Cir. 2017) (after a material breach the injured party is discharged).

⁹⁴Restatement (Second) of Contracts § 242; see also id. at §§ 237, 241; RW Power Partners v. Virginia Elec. & Power Co., 899 F. Supp. 1490, 1496 (E.D. Va. 1995) (“ ‘Although a material breach justifies the injured party in suspending performance, it does not of itself justify the injured party in terminating the contract. Fairness ordinarily dictates that the party in breach be allowed a period of time—even if only a short one—to cure the breach if it can.’ ”) (quoting 2 E. Allan Farnsworth, Farnsworth on Contracts 447 (1990)).

⁹⁵Restatement (Second) of Contracts § 242(a); see also Norfolk S. Ry. Co. v. Basell USA Inc., 512 F.3d 86, 92 (3d Cir. 2008) (“The[ ] materiality factors are ‘to be applied in the light of the facts of each case in such a way as to further the purpose of securing for each party his expectation of an exchange of performances.’ ”) (quoting Restatement (Second) of Contracts § 241, cmt. a (1981)); Ragnar Enters. v. Tapley, 2002 WL 234841, at *3 (Wash. Ct. App. 2002) (“The materiality of a breach is an issue of fact that depends upon the circumstances of each particular case.”). The Norfolk S. Ry. Co. case has a good discussion of the various Restatement factors.

⁹⁶Restatement (Second) of Contracts § 242(b) & (c); see also Bailie Commc’ns, Ltd. v. Trend Bus. Sys., 765 P.2d 339, 343 (Wash. Ct. App. 1988) (“[T]he early character of [defendant’s] breach made a cure unlikely.”).

⁹⁷Restatement (Second) of Contracts § 242, cmt. b.

⁹⁸See John v. United Adver., Inc., 439 P.2d 53 (Colo. 1968).

⁹⁹See infra notes 105–112, and accompanying text.

¹⁰⁰United States v. Bethlehem Steel Corp., 315 U.S. 289, 298 (1942) (quoting Samuel Williston and George J. Thompson, A Treatise on the Law of Contracts 2422 (rev. ed. 1936)); see also Municipal Capital Appreciation Partners, I L.P. v. Page, 181 F. Supp. 2d 379, 394 (S.D.N.Y. 2002) (“A contract is generally considered to be entire when, by its terms and purposes, it contemplates that all of its parts are interdependent and common to one another. A contract is severable when its nature and purpose are susceptible to division and apportionment.”).

¹⁰¹Restatement (Second) of Contracts § 240; see also id., cmt. e; All-Ways Logistics, Inc. v. USA Truck, Inc., 583 F.3d 511, 517 (8th Cir. 2009) (“The agreement clearly contemplates that multiple-commission payment will be made, such that by its nature the contract is susceptible to division.”); Mun. Capital, 181 F. Supp. 2d at 394 (“ ‘[A] contract will not be regarded as severable’ unless ‘(1) the parties’ performances can be apportioned unto corresponding pairs of partial performances, and (2) the parts of each pair can be treated as agreed equivalents.’ ” (quoting Ginett v. Computer Task Group, Inc., 962 F.2d 1085, 1091 (2d Cir.1992)).

¹⁰²Restatement (Second) of Contracts § 240; see also John v. United Adver., Inc., 439 P.2d 53, 55 (Colo. 1968) (“So, if the contract be severable or divisible, then the plaintiff is only entitled to recover those monies paid defendant for signs No. 4 and 5, which sum is $120. But if the contract be deemed entire in nature, the plaintiff would be entitled to recover all of the monies paid by him to the defendant, which would be the sum of $680.”).

¹⁰³Compare Kornegay v. Aspen Asset Group, LLC, 693 S.E.2d 723, 734 (N.C. Ct. App. 2010) (“[T]he two promises made by Steve Clardy were in exchange for two distinct return promises by plaintiff: (1) 20% of profits in exchange for origination and implementation of investment projects, and (2) fair treatment in exchange for implementation efforts on projects plaintiff did not originate. The two promises were not interdependent in any way and were, therefore, divisible.”) with Raab v. Lander, 427 Fed. Appx. 182,185 (3d Cir. 2011) (“Here, Raab provided only a single, total payment for all of Lander’s obligations: $30,000. Accordingly, [despite Lander’s obligation requiring a series of actions at different times,] the contract is not severable.”).

¹⁰⁴Bjork v. Draper, 886 N.E.2d 563, 576 (Ill. App. Ct. 2008) (“In determining whether a contract is divisible, as in other aspects of contract interpretation, a court attempts to effectuate the intent of the parties. Of course, in reality, especially in a case that reaches litigation, the parties often will not have considered the question of divisibility in making their contract, so in practice ‘[t]he test is whether, had the parties thought of it, they would be willing to exchange the part performance irrespective of what transpired subsequently.’ ”) (quotations omitted).

¹⁰⁵For a discussion of the scope of Article 2, see Chapter 1, Section (B).

¹⁰⁶UCC § 2–601; see, e.g., Smith v. A World of Pups, Inc., 910 N.Y.S.2d 765 (N.Y. Civ. Ct. 2010) (buyer given the wrong dog and may reject the dog). How cruel to reject a nice dog.

¹⁰⁷UCC 1–102(3) (“The effect of provisions of this Act may be varied by agreement * * *.”).

¹⁰⁸See Chapter 7, Section (B)(1)(b); see also T. J. Stevenson & Co. v. 81,193 Bags of Flour, 629 F.2d 338, 356 n.33 (5th Cir. 1980) (“In practice the harsh edges of the perfect tender rule have been smoothed down in cases where the goods themselves are tendered: either a clause in the contract or trade custom or the past practice of the parties will be construed to permit minor discrepancies and an innocent delay of a day or two will not necessarily be fatal.”).

¹⁰⁹UCC § 2–508 provides:

(1)Where any tender or delivery by the seller is rejected because non-conforming and the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and may then within the contract time make a conforming delivery.

(2)Where the buyer rejects a non-conforming tender which the seller had reasonable grounds to believe would be acceptable with or without money allowance the seller may if he seasonably notifies the buyer have a further reasonable time to substitute a conforming tender.

See also Extrusion Painting, Inc. v. Awnings Unlimited, Inc., 37 F. Supp. 2d 985, 995 (E.D. Mich. 1999) (“[T]he Code mitigates the harsh effects that would otherwise result from [the perfect tender] rule by providing the [seller] with a correlative ‘right to cure’ * * *.”).

¹¹⁰See Bodine Sewer, Inc. v. Eastern Ill. Precast, Inc., 493 N.E.2d 705, 712 (Ill. App. Ct. 1986) (“[T]he time for performance had not expired at the time of [seller’s] attempted August 25, 1984, cure. We therefore conclude that the August 25, 1984, delivery of class V pipe constituted a perfect tender in cure of [seller’s] August 24, 1984, delivery of defective 30-inch class III pipe.”); see also Wilson v. Scampoli, 228 A.2d 848, 850 (D.C. 1967) (“ ‘The seller * * * should be able to cure (the defect) under subsection 2–508(2) in those cases in which he can do so without subjecting the buyer to any great inconvenience, risk or loss.’ ”) (quoting William D. Hawkland, Curing an Improper Tender of Title to Chattels: Past, Present and Commercial Code, 46 Minn. L. Rev. 697, 724 (1962)).

¹¹¹UCC § 2–612(1) (“An ‘installment contract’ is one which requires or authorizes the delivery of goods in separate lots to be separately accepted, even though the contract contains a clause ‘each delivery is a separate contract’ or its equivalent.”).

¹¹²See supra notes 100–104, and accompanying text.

¹¹³118 Eng. Rep. 922 (Q. B. 1853).

¹¹⁴Id. at 926. For more on mitigation of damages, see Chapter 5, Sections (A)(4) and (B)(2); see also Saewitz v. Epstein, 6 F. Supp. 2d 151, 156 (N.D.N.Y. 1998) (“[The] principle, known as the doctrine of anticipatory repudiation, provides that when there has been a repudiation of the contract by one party before the time for his performance has arrived, the other party may treat the entire contract as breached * * *.”).

¹¹⁵Hochster, 118 Eng. Rep. at 926; see also Franconia Assocs. v. United States, 536 U.S. 129, 143 (2002) (“Such a repudiation ripens into a breach prior to the time for performance only if the promisee ‘elects to treat it as such.’ ”) (citing Roehm v. Horst, 178 U.S. 1, 13 (1900)); Saewitz, 6 F. Supp. 2d at 156 (“It is firmly established that one who wrongfully renounces an obligation in contract should not be heard to complain when he is immediately sued by the non-breaching party.”).

¹¹⁶Hochster, 118 Eng. Rep. at 927.

¹¹⁷Trinidad Bean & Elevator Co. v. Frosh, 494 N.W.2d 347, 353 (Neb. Ct. App. 1992) (“Under the common law, a buyer in anticipatory repudiation cases was privileged to await a seller’s performance until the date performance was scheduled under the contract * * *. However, prior law was changed by § 2–610(a), which allows an aggrieved party to await performance only ‘for a commercially reasonable time.’ ”).

¹¹⁸Hochster, 118 Eng. Rep. at 926; see also Trinidad Bean, 494 N.W.2d at 350 (“Anticipatory repudiation centers upon an overt communication of intention or an action which renders performance impossible or demonstrates a clear determination not to continue with performance.”).

¹¹⁹Palmetto Partners, L.P. v. AJW Qualified Partners, LLC, 921 N.Y.S.2d 260, 264 (N.Y. App. Div. 2011).

¹²⁰Restatement (Second) of Contracts § 250; see also cmt. b (“In order to constitute a repudiation, a party’s language must be sufficiently positive to be reasonably interpreted to mean that the party will not or cannot perform.”); In re Broadstripe, LLC, 435 B.R. 245, 262 (Bankr. D. Del. 2010) (“no facially plausible claim that Broadstripe made any clear and precise statement giving rise to a claim for anticipatory repudiation.”); Eastbanc, Inc. v. Georgetown Park Assocs. II, L.P., 940 A.2d 996, 1005 (D.C. 2008) (“For a repudiation of a contract by one party to be sufficient to give the other party the right to recover for breach, the repudiating party must have communicated, by word or conduct, unequivocally and positively its intention not to perform.”); Wallace v. Kuehner, 46 P.3d 823, 828 (Wash. Ct. App. 2002) (“An anticipatory repudiation must be a positive statement or action indicating distinctly and unequivocally that a party cannot or will not perform its obligations.”).

¹²¹Restatement (Second) of Contracts § 250; see also N.L.R.B. v. Seedorff Masonry, Inc., 812 F.3d 1158, 1167 (8th Cir. 2016) (repudiation can be “manifested in a variety of ways”); Kasarsky v. Merit Sys. Prot. Bd., 296 F.3d 1331, 1337 (Fed. Cir. 2002) (“The [defendant’s] silence did not amount to a ‘statement or voluntary affirmative act.’ Thus, its delay in paying the attorney fees could not amount to a breach of the fee agreement, until it communicated its refusal to pay.”).

¹²²Restatement (Second) of Contracts § 250, cmt. b (“[L]anguage that under a fair reading ‘amounts to a statement of intention not to perform except on conditions which go beyond the contract’ constitutes a repudiation.”) (quoting UCC § 2–610, cmt. 2); see also Truman L. Flatt & Sons Co. v. Schupf, 649 N.E.2d 990, 994 (Ill. App. Ct. 1995).

¹²³See Joseph P. Carrara & Sons, Inc. v. A.R. Mack Const. Co., Inc., 931 N.Y.S.2d 813 (N.Y. App.Div. 2011).

¹²⁴Restatement (Second) § 251, cmt. a; UCC 2–609, cmt. 1 (The goal of the section is to provide “a continuing sense of reliance and security” on the contract); see also Diskmakers, Inc. v. DeWitt Equip. Corp., 555 F.2d 1177, 1179 (3d Cir. 1977) (“ ‘Any facts which should indicate to a reasonable merchant that the promised performance might not be forthcoming when due should be considered reasonable grounds for insecurity * * *.’ ”) (citing New Jersey Study Comment on N.J. Stat, Ann. § 12A:2–609); Koch Materials Co. v. Shore Slurry Seal, Inc., 205 F. Supp. 2d 324, 330 (D.N.J. 2002) (“When, in a contract for the sale of goods, 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 * * *. A party need not wait for an actual material breach to demand assurances; it need only show that it reasonably believed that such an event might be in the offing.”).

¹²⁵Koch Materials, 205 F. Supp. 2d at 330 (“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.”).

¹²⁶See supra notes 94–97, and accompanying text. For a review and discussion of the doctrine of adequate assurance of performance, see Norcon Power Partners, L.P. v. Niagara Mohawk Power Corp., 705 N.E.2d 656, 659–61 (N.Y. 1998).

¹²⁷Hornell Brewing Co. v. Spry, 664 N.Y.S.2d 698, 702–03 (N.Y Sup. Ct. 1997) (“[P]laintiff had reasonable grounds to be insecure * * *. Defendants were substantially in arrears almost from the outset of their relationship with plaintiff, had no financing in place, bounced checks, and had failed to sell even a small fraction of the product defendants * * * originally projected.”); see also Coral Bay, Inc. v. Zakaspace Corp., 1999 WL 446823, at *4 (N.D. Ill. 1999) (“[Defendant] never gave [plaintiff] assurance of payment, only continuous requests for [plaintiff] to ‘be patient.’ Since [plaintiff] had already been told by [defendant] to hold delivery on several Piccadilly invoices, and then [defendant] fell behind in its payments, [plaintiff] had reasonable grounds for insecurity and thus withholding performance.”).

¹²⁸See UCC § 2–609, cmt. 4 (whether verbal assurances are adequate depends on the circumstances); Cherwell-Ralli, Inc. v. Rytman Grain Co., 433 A.2d 984, 987 (Conn. 1980) (finding inadequate grounds for insecurity where “presidents of the parties had exchanged adequate verbal assurances only eight days before” buyer’s refusal to perform).

¹²⁹See, e.g., Anderson Excavating & Wrecking Co. v. Sanitary Improvement Dist., 654 N.W.2d 376, 383 (Neb. 2002) (“A repudiation can be nullified by a retraction of the statement before the injured party materially changes his or her position in reliance on the repudiation or indicates to the other party that he or she considers the repudiation to be final.”); Truman L. Flatt & Sons Co., 649 N.E.2d at 994–95 (“ ‘The effect of a statement as constituting a repudiation under Restatement (Second) § 250 or the basis for a repudiation under § 251 is nullified by a retraction of the statement if notification of the retraction comes to the attention of the injured party before he materially changes his position in reliance on the repudiation or indicates to the other party that he considers the repudiation to be final.’ ”) (quoting Restatement (Second) of Contracts § 256(1)); see also UCC § 2–611.

¹³⁰Restatement (Second) of Contracts § 256; see also Kinesoft Dev. Corp. v. Softbank Holdings Inc., 139 F. Supp. 2d 869, 898 (N.D. Ill. 2001) (“If the injured party notifies the repudiating party that it considers the repudiation final, either by statements to that effect or by filing a lawsuit, then it need not show reliance on the repudiation to prevent revocation.”).