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- Rule: A condition is another way to shift risk by stating that one party’s contractual obligation will kick in ONLY IF some future event takes place.
- Rule: Conditions can be EXPRESS or IMPLIED.
Conditions - Express Conditions
- Rule: Express conditions are created by LANGUAGE in the K. Look for magic words like “only if,” “provided that,” “on the condition that,” “only in the event that,” etc.
- Rule: Express conditions must be STRICTLY SATISFIED—UNLESS the condition is somehow excused.
- Waiving a Condition —> TWO WAYS
- 1. The party receiving the protection of the condition may waive the condition by WORDS OR CONDUCT.
- 2. A condition will also be waived if the party WRONGFULLY INTERFERES or HINDERS the occurrence of the condition. (This will be judged by a good-faith standard)
Conditions - Satisfaction Condition (Express Condition/Satisfaction Ks)
- How do you determine if a satisfaction condition is met?
- Objective Approach —> The preferred approach is to use an objective standard of satisfaction, meaning that if most reasonable people would be satisfied, then the condition is met.
- Subjective Approach —> K’s involving aesthetic taste, such as art or tutoring services, will measure whether any satisfaction conditions are met w/ a subjective standard. The party can still breach if they claim dissatisfaction in bad faith.
Conditions - Constructive Condition of Exchange (Implied Condition/CCE)
Rule: The CCE says that one party’s performance is conditioned on the other side’s performance.
Conditions - CCE CL
- Rule: The CCE need NOT be satisfied PERFECTLY. The doctrine of substantial performance states that a party will satisfy the CCE if there is NOT A MATERIAL BREACH. (fact intensive inquiry)
- 1. Substantial performance works to satisfy the CCE ONLY IF the failure is NOT WILLFUL.
- 2. A non-breaching party may recover damages for deficiencies (typically measured as the cost to complete the performance, but sometimes damages will be limited to the diminution in market value)
- 3. A breaching party who fails to satisfy the CCE—due to a material breach or failure to substantially perform—cannot get payment under the K (but maybe quasi-contract)
- 4. A breach party who fails to satisfy an express condition cannot usually get payment under a quasi-contract.
- 5. Divisibility —> If a K is clearly divisible, then it will be “chunked up” (split up) for the purposes of determining substantial performance.
Conditions - CCE UCC
- Rule: The UCC requires PERFECT TENDER. If you are in a goods contract case, don’t discuss substantial performance or material breach. (there are exceptions though)
- Perfect Tender —> Requires: (1) Perfect GOODS; AND (2) Perfect DELIVERY. If not perfect tender, you can reject the goods, but that does not mean you are rejecting the offer.
- Failure to tender perfect GOODS —> If a seller fails to tender perfect goods and time is left on the K or the seller had reasonable grounds to believe that the buyer would accept, then the buyer must give the seller a chance to CURE.
- Failure to tender perfect DELIVERY —> The default method of delivery is one delivery of the goods, but the UCC allows for INSTALLMENT Ks. In this case, the buyer can reject a specific delivery that isn’t perfect ONLY when there is a SUBSTANTIALLY IMPAIRMENT in the installment that cannot be cured.
- Revoke Acceptance —> A buyer may revoke the acceptance of the goods where the goods seem okay at delivery, but later a defect is discovered within a reasonable time.
Conditions - CCE UCC - Common Methods of tender/delivery for goods Ks
- Seller’s place of business —> If the goods are tendered/delivered at the seller’s place of business, then the seller just needs to give the goods to the buyer.
- Shipment Contract —> If the K is a shipment K, then the seller must take three actions to satisfy tender requirements:
- 1. Get the goods to a COMMON CARRIER;
- 2. Make arrangements for DELIVERY; AND
- 3. NOTIFY the buyer.
- Destination/Delivery Contract (identified by “Freight on Board” [“F.O.B.”] buyer’s business)—> The seller must get the goods to the buyer’s business and notify the buyer.
Conditions - CCE UCC - Risk of Loss
- Rule: Look for a goods K followed by damage or destruction of the goods before the buyer receives them.
- STEP 1—Check whether the parties have dealt with this risk in the K. If so, their agreement will control.
- STEP 2—If not, ask whether either party has breached (typically another part of the K). If so, that breaching party bears the risk of loss. (applies even if the breach is totally unrelated to delivery damages)
- STEP 3—If there is no breach, and the goods are being shipped, then ask what type of delivery contract it was. For a SHIPMENT K, the liability of risk of loss is with the BUYER. For a DELIVERY K, the liability of risk of loss is with the SELLER.
- STEP 4—In all other cases, ask whether the seller is a merchant. If seller is a merchant, the risk of loss stays w/ the seller until the buyer RECEIVES the goods. If seller is NOT a merchant, the risk of loss moves to the buyer when the seller TENDERS the goods.