Slides · Class 37

By the end of class, you can

Apply the dependent-covenant analysis to a sequential-performance contract and decide whose duty is discharged on failure of condition.
Apply R2d § 224 / § 225 to a closing-conditions fact pattern, asking whether the operative language imposes a duty or qualifies one.
Apply the substantial-performance doctrine (Jacob & Youngs v. Kent) to a minor-deviation fact pattern and measure damages by diminution in value.

Today

Floor. ~40 min: R2d § 224 + Kingston. The doctrine the next class assumes you have covered.

Target. ~75 min: Floor + Internatio-Rotterdam + Morrison + R2d § 225 + Jacob & Youngs preview + synthesis.

R2d § 224: Condition Defined

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.

R2d § 225: Effects of the Non-Occurrence of a Condition

(1) Performance of a duty subject to a condition cannot become due unless the condition occurs or its non-occurrence is excused.

(2) Unless it has been excused, the non-occurrence of a condition discharges the duty when the condition can no longer occur.

(3) Non-occurrence of a condition is not a breach by a party unless he is under a duty that the condition occur.

R2d § 226: How an Event May Be Made a Condition

An event may be made a condition either by the agreement of the parties or by a term supplied by the court.

Condition or promise? The distinction that drives everything

A condition is an event, not certain to occur, that must occur (unless excused) before a duty becomes due (R2d § 224). A promise is a commitment to act or refrain (R2d § 2).

The consequences diverge sharply:

Failure of a condition discharges the duty it qualifies — but is not a breach. The duty simply never arose.
Failure of a promise is a breach, exposing the promisor to damages.

Same words can do either job. "Buyer's duty to pay is conditioned on delivery of a clean title" is a condition. "Seller shall deliver clean title" is a promise. The drafter's choice allocates risk and remedy.

Express vs. constructive conditions — and why strictness varies

Conditions come in two flavors, and they are enforced with different rigor:

Express conditions are stated in the contract ("if," "provided that," "on condition that"). They demand strict compliance — anything less, and the duty does not arise. Dove v. Rose Acre Farms: an employee lost his attendance bonus by missing two days, because perfect attendance was an express condition. The court enforced it literally.
Constructive (implied) conditions are supplied by the court to do justice — the implied condition that each party substantially perform before demanding the other's performance. These tolerate substantial performance; minor deviations are excused to avoid forfeiture.

The stakes: substantial performance (Jacob & Youngs) rescues a performer only when the condition is constructive, not express.

Classifying conditions: precedent, subsequent, concurrent

Conditions are also classified by their effect on the timeline of duties:

Condition precedent — an event that must occur before a duty arises. The default and most common type. Internatio-Rotterdam: the buyer's shipping notice was a condition precedent to the seller's duty to ship.
Condition subsequent — an event that terminates an already-existing duty. Rare; classic home is the insurance policy (coverage ends if no claim is filed within the policy period).
Condition concurrent — duties that must be performed simultaneously. The standard sale: tender of goods and tender of payment exchange at the same moment.

R2d § 227: Standards of Preference with Regard to Conditions

(1) In resolving doubts as to whether an event is made a condition of an obligor's duty, and as to the nature of such an event, an interpretation is preferred that will reduce the obligee's risk of forfeiture, unless the event is within the obligee's control or the circumstances indicate that he has assumed the risk.

(2) Unless the contract is of a type under which only one party generally undertakes duties, when it is doubtful whether

(a) a duty is imposed on an obligee that an event occur, or

(b) the event is made a condition of the obligor's duty, or

the first interpretation is preferred if the event is within the obligee's control.

(3) In case of doubt, an interpretation under which an event is a condition of an obligor's duty is preferred over an interpretation under which the non-occurrence of the event is a ground for discharge of that duty after it has become a duty to perform.

Internatio-Rotterdam, Inc. v. River Brand Rice Mills, Inc.

259 F.2d 137 (2d Cir. 1958)
United States Court of Appeals for the Second Circuit

Facts. Buyer agreed to purchase rice for December 1952 shipment "free alongside ship," with "two weeks' call" — the buyer had to give shipping instructions (naming the ship and destination) two weeks before delivery. The contract contemplated December shipment from Texas and/or Louisiana. The buyer failed to give timely shipping instructions for the Texas rice; the seller, facing congested mills and docks, rescinded. Between contracting and the deadline the price of rice rose, so the breaching buyer (not the seller) sued — to recover its cost to cover on the open market.

Holding. The seller could rescind. The buyer's giving of shipping instructions was a condition precedent to the seller's duty to ship; because December delivery went to the essence, notice was due on or before December 17, and the buyer's failure to give it discharged the seller's duty.

Rule. A single term can function as both a promise and a condition — a "promissory condition" (Corbin). Where giving notice of the shipping destination is the only way the seller can perform, the notice is both a promise by the buyer and a condition precedent to the seller's duty to ship. Its non-occurrence both discharges the seller's duty and (had the seller been damaged) would have been a breach.

Morrison v. Bare

2007-Ohio-6788 (Ohio Ct. App. Dec. 19, 2007)
Ohio Court of Appeals, Ninth District

Rule. A condition is not the same as a promise. The non-occurrence of a condition discharges the duty that the condition qualifies but is not itself a breach. A buyer to whom a condition has failed cannot insist on a renegotiated price; the buyer's options are to walk away or to waive the condition and proceed.

Kingston v. Preston

2 Doug. 689, 99 Eng. Rep. 437 (K.B. 1773)
Court of King's Bench

Rule. Covenants in a contract are mutual and dependent where the performance of one is in the nature of a condition precedent to the performance of the other. Where dependent covenants exist, a party need not perform until the other has performed or tendered performance.

Conditions taxonomy: substantial performance

Substantial performance doctrine applies precisely when the condition is constructive rather than express; Jacob & Youngs turns on that distinction.

Jacob & Youngs, Inc. v. Kent

230 N.Y. 239, 129 N.E. 889 (1921)
New York Court of Appeals

Rule. Substantial performance of an entire contract satisfies the constructive condition of exchange and entitles the performer to the contract price less damages for the deficiency. Where the breach is trivial and innocent, damages are measured by diminution in value rather than the cost of completion, particularly where completion would involve economic waste.

Conditions of satisfaction: subjective or objective?

Some contracts condition one party's duty on that party's satisfaction with the other's performance. The question: is satisfaction judged subjectively (the obligor's actual, personal approval) or objectively (whether a reasonable person in the obligor's position would be satisfied)?

Objective standard governs commercial quality, operative fitness, mechanical utility — anything a reasonable observer can judge. Morin Building Products v. Baystone (Posner, J.): a "final approval / artistic effect" clause on industrial aluminum siding was read against an objective reasonable-person standard to prevent the buyer from escaping payment on aesthetic whim.
Subjective (good-faith) standard governs genuinely personal aesthetics or fancy (a portrait, a custom suit) — but even then the obligor must be honestly, good-faith dissatisfied.

Courts lean objective to keep the contract from becoming illusory.

Worked example: the financing condition

Facts. Restaurant Operator signs a five-year lease with Landlord. Lease provides: "Operator''s lease obligation is conditioned upon Operator obtaining financing of $250,000 within 60 days." A separate clause: "Operator agrees to use commercially reasonable efforts to obtain such financing." Day 65, Operator has not obtained financing and walks away. Landlord sues.

Question. Did Operator breach? Was Operator''s duty to perform discharged?

Answer. Two clauses, two doctrinal pathways:
(1) The financing clause is a condition precedent to Operator''s lease duty (R2d § 224, § 225). If financing did not occur within 60 days, the duty did not arise.
(2) The "commercially reasonable efforts" clause is a separate promise. Failure of that promise is breach independent of the condition.

The promissory-condition structure: failure of financing discharges the lease duty but if Operator did not use commercially reasonable efforts (e.g., made one phone call), Operator breached the efforts promise. Landlord recovers efforts-promise damages but not full lease damages.

Drafting subtlety: the efforts clause is what prevents the financing condition from becoming a buyer''s free option.

Stretch: anti-forfeiture under R2d § 229

Facts. Homeowner takes out fire insurance. Policy says: "Insured must give written notice of any loss within 30 days." House burns down on day 1. Homeowner is hospitalized with smoke inhalation; her son notifies the insurer orally on day 5 and again on day 20; written notice arrives on day 45. Insurer denies coverage citing the 30-day condition.

Question. May a court excuse the failure of the written-notice condition?

Answer. R2d § 229: "To the extent that the non-occurrence of a condition would cause disproportionate forfeiture, a court may excuse the non-occurrence of the condition unless its occurrence was a material part of the agreed exchange."

Disproportionate forfeiture: total loss of fire coverage from a 15-day delay where insurer had actual notice and suffered no prejudice is the paradigm case. Excuse likely granted.

The material-exchange limit: timely notice serves the insurer''s legitimate interest in investigating fresh evidence, that is material in some cases (e.g., a long-stale loss where evidence is gone). Here, oral notice on day 5 protected the investigation interest. Excuse appropriate.

Compare Morrison: there the condition was the whole exchange (Bare wanted the bill before conveying). Excuse would have rewritten the deal. Here the condition is a procedural safeguard, not the consideration core.

Stretch: practice problem

Stretch problems from the chapter.

Problem 19.1. Renewal of a Restaurant Lease (J.N.A. Realty v. Cross Bay Chelsea). Tenant missed a six-month lease-renewal notice deadline after sinking $40,000+ into improvements. Evict, or excuse the failed condition?

Problem 19.2. Financial Satisfaction (Hutton v. Monograms Plus). A franchise refund clause "if unable to obtain financing suitable to him" — promise, condition, or both? Precedent or subsequent? Who holds it?

Walk through the analysis on the board. Hit the rule, the elements, the line of authority, the answer.

Class summary

Rules. R2d § 224 (condition defined), § 225 (effects of non-occurrence), § 226–§ 227 (how conditions are made / preference against forfeiture); promissory conditions (Corbin); R2d § 229 (anti-forfeiture excuse).

Cases. Internatio-Rotterdam v. River Brand Rice Mills · Morrison v. Bare · Kingston v. Preston · Jacob & Youngs v. Kent (preview).

Punchline. Name the term's function before you ask whether it was performed. Condition fails → duty discharged, no breach. Promise fails → breach. A promissory condition does both. And the law keeps softening harsh conditions — substantial performance, objective satisfaction, § 229 excuse — to prevent disproportionate forfeiture.

Open question. Jacob & Youngs introduces substantial performance. Next class: how do courts measure "substantial"? What factors govern when a deficiency tips into material breach?

Next time

Next class: Substantial Performance & Material Breach

_Performance & Breach_ · Feb 23

Read Jacob & Youngs v. Kent and Khiterer v. Bell. A contractor used the wrong brand of pipe, same quality, same price, in a house already built. The owner demanded the walls torn out. The contractor sued for the balance. When the breach is real but small, what does the owner get to insist on? Come ready to answer. You may be called.

Class 37: Conditions cont. + Substantial Performance setup