Illegality in the procurement and
Illegality in Performance
• Sirkin v. Fourteenth Street Store, p.553
Sirkin
Promise to pay
bonus
(bribe)
Promise to
buy from
Sirkin
Buying
Agent for
Store
This Kx is illegal on its
face: illegality in the
subject matter
Illegality in the procurement and
Illegality in Performance
(Sirkin v. Fourteenth Street Store)
Sirkin
Promise to Sell
goods
Promise to
buy and pay
for goods
Buying
Agent for
Store
This
is NOT
illegalonon
This Kx
is the
Kx sued
its face—just a Kx for the
sale of goods
(Sirkin v. Fourteenth Street Store)
• Sirkin delivers the goods as promised, but
Store refuses to pay. Sirkin sues, and Store
repsonds that the Kx was unenforceable due
to illegality.
• What then, is the issue here?
– Whether the Kx for the sale of goods between
Sirkin and Fourteenth Store which was legal on its
face and as to its subject matter was nonetheless
unenforceable because it was procured by Sirkin
by bribing the Store’s purchasing agent?
(Sirkin v. Fourteenth Street Store)
• Rule?
– A Kx is unenforceable where, though legal on its
face and not illegal as to its subject matter, is
procured illegally.
• What then, is the issue here?
– Whether a Kx, legal on its face and legal as to its
subject matter, is nonetheless unenforceable
where it was procured illegally?
(Sirkin v. Fourteenth Street Store)
• What is the rationale behind the rule?
– Refusing to enforce the Kx illegally procured
discourages bribes to acquire Kx’s.
• Recall that, where no action is available for
breach of Kx, or where a Kx is unenforceable due
to, for instance, the statute of frauds, the
complaining party might still recover in a
Restitution (Quasi-Kx) action. Wasn’t Fourteenth
Store unjustly enriched? Shouldn’t Sirkin at least
be able to recover the value of the benefit (the
goods) conferred?
(Sirkin v. Fourteenth Street Store)
• Restitution is generally not available where a Kx is
unenforceable due to illegality, whether in the
subject matter or in the procurement. What is
the rationale for denying restitution?
– Were the party who procures a Kx illegally able to
recover in restitution, there would be little
disincentive to enter into illegal Kx’s. Rather, there
would be incentive to enter into an illegal Kx, or
procure a Kx illegally, as in the Sirkin case, knowing the
worst outcome would be the return of the benefit
conferred.
Illegality in the procurement and Illegality in
Performance
McConnell v. Commonwealth Pictures, p.553
Promise to pay
$10K plus %
Commonwealth
Pictures
Promise to get
distribution rights
McConnell
• Was the Kx between McConnell and Commonwealth Pictures
illegal in its subject matter (on its face)? No
• Was the Kx procured illegally? No
Illegality in the procurement and Illegality in
Performance
(McConnell v. Commonwealth Pictures)
• The court refuses to enforce the Kx due to illegality—
where did the illegality occur?
– The illegality is in the performance. The illegality is after
Kx formation.
• Doesn’t this open the door to the avoidance of Kx
liability and, perhaps, unjust enrichment if a Kx legal
on its face and not procured illegally is unenforceable
where there is any illegality in the performance?
Illegality in the procurement and Illegality in
Performance
(McConnell v. Commonwealth Pictures)
• Consider this hypo: A agrees to deliver a package to B
in exchange for B’s promise to pay $50. In delivering
the package, B exceeds the speed limit and gets a
ticket. Should the Kx be found unenforceable on the
grounds that there was illegality after formation, i.e.,
illegality in the performance? See the opinion at
p.554.
– The court in McConnell qualifies the rule: the illegality in
performance must be major (not minor or trivial) and must
be directly connected to the obligation sued upon.
Mitigating Doctrines: Recovery in
Restitution
• The general rule, as noted, is that Restitution
is not available as an alternative to a Kx action
where the Kx is unenforceable owing to
Illegality. There are, however, exceptions:
(1) Where the illegality is in the performance (ala
McConnell) and is collateral, i.e., not directly related
to performance of the Kx (e.g., getting a speeding
ticket while performing (in some jurisdictions, this
likely won’t even bar recovery in Kx)
Mitigating Doctrines: Recovery in
Restitution
• Exceptions:
(2) In Pari Delicto Doctrine: Where the parties are not
equally at fault (are not in pari delicto), the party less
guilty can recover in Restitution (again, not on the Kx)
from the more guilty party. For instance, where a party
engages in an illegal gambling Kx and is cheated by the
other, the party cheated can recover his losses in
Restitution.
Courts will not apply the doctrine to permit
Restitution where the party seeking it has engaged in
serious misconduct.
Mitigating Doctrines: Recovery in
Restitution
• Exceptions:
(3) Repentence: If a party to an illegal Kx withdraws
within the time for repentance, he may recover in
Restitution for the other for the value of any benefit
conferred. For instance, a contestant who paid to fix
a contest so she would win a prize may recover what
she paid on repenting.
The party need not literally repent; rather, a
claim for Restitution constitutes the point of
repentance.
Mitigating Doctrines: Recovery in
Restitution
• Requirements for the Repentance Doctrine
– The illegal purpose must not have been
accomplished and can be avoided by allowing the
plaintiff recovery in Restitution.
– The illegality must not have been so serious and
turpitudinous in itself that the court regards the
very formation of the Kx in the first place as a
substantial offense.
(B) Judicially Created Public Policy:
Hopper v. All Pet Animal Clinic, p.557
Clinic
Promise to pay for
work as vet
Promise to
Work
Promise (covenant)
not to compete
Terms of the covenant:
• No small animal
practice
• Three years
• Within 5 miles of
Laramie
Hopper
(Hopper v. All Pet Animal Clinic)
• Hopper is terminated and opens vet practice
that competes with Clinic in violation of the
covenant not to compete.
• Clinic sues for Br/Kx, seeking damages and an
injunction. The trial court granted the
injunction, but found the damages claim too
speculative. Both parties appealed.
• Hopper argued that no-compete clause
violated public policy.
(Hopper v. All Pet Animal Clinic)
• What, according to the court, is the general view
with regard to covenants not to compete?
– The are generally disfavored because they interfere
with the right to work and suppress competition
which operates to the disadvantage of the public.
• Since such covenants are looked on with disfavor,
what does that mean as a practical matter for the
party seeking to enforce it?
– The burden is on the employer to show the covenant
is reasonable and is necessary to protect the
employer’s business interests.
(Hopper v. All Pet Animal Clinic)
• Whether a covenant not to compete is
enforceable thus entails a balancing of the
legitimate business interests of the employer
and the interests of the employee.
• The court cites Re 2nd §188 which restates the
majority approach, the so-called ‘Rule of
Reason’. What are the three factors
considered under that rule? See first full
paragraph, p.558.
(Hopper v. All Pet Animal Clinic)
• What are the special interests of the Clinic in need of
protection identified by the court? See last paragraph,
p.558.
• The employee’s (Hopper’s) interest must be considered
against the employer’s interests: specifically, the covenant
cannot work an ‘undue hardship’. Undue hardship would
result where a covenant, unreasonable as to scope,
duration, or geography, effectively prevents an employee
from working. For instance, had the covenant in the case at
hand restricted Hopper’s ability to practice for 50 years, she
would have effectively been foreclosed from small animal
practice in the area for what would likely be regarded an
unreasonable period.
(Hopper v. All Pet Animal Clinic)
• The court concludes the covenant was reasonable in its
geographic limits—no small animal practice within five
mile of Laramie city limits. In concluding that the fivemile limitation was reasonable, the court distinguishes
Cukjati v. Burkett (p.559), wherein the Texas court held
a twelve mile geographic limitation was excessive. How
did the court decide five miles was reasonable?
• Apart from the reasonableness of the geographic
limitation, what other fact about the location of the
parties suggested no undue hardship was worked on
Hopper by prohibiting small animal practice within five
miles of Laramie?
(Hopper v. All Pet Animal Clinic)
• What about the duration of the covenant—three years?
The court held that was too long: too long in what regard?
– Three years was excessive in that it was unnecessary to protect
the Clinic’s interest. One year was enough to accomplish that:
why? See last paragraph, p.559.
• The third factor to be considered in determining whether a
no-compete clause violates public policy (in addition to the
interests of the employer and employee) is the impact on
the public. The court summarily determines the public
would not be injured (in the form of detrimental reduction
of competition) by the clause.
(Hopper v. All Pet Animal Clinic)
• In sum, a covenant not to compete is
enforceable to the extent it is reasonable in
scope, duration, and geographic limits. The
covenant must impose only such limitations as
are necessary to protect the employer’s
legitimate business interests. After that, the
covenant will still be unenforceable if it works
an undue hardship on the employee or injures
the public.
Chapter 8: Performance and Breach,
p.691
Section 1. Conditions
• In bilateral Kx, parties exchange promises, one being
consideration for the other, but each enters into Kx
expecting, at some point, performance of the thing
promised. Rules relating to performance are aimed at
protecting that expectation.
• First, expectations are protected by affording a claim
for damages to the disappointed party when
performance is not forthcoming, but also by allowing
that party to suspend its own performance where the
other fails to perform.
(Chapter 8: Performance and Breach)
Section 1. Conditions
• Courts have relied on the concept of conditions in
developing the rules relating to performance. A
condition is an event that must occur before
performance of a thing promised is due. For
instance, in a Kx for insurance, the insurer is not
obligated to perform until the loss contingency
occurs(e.g., house burns down, etc.). Condition is
defined in Re 2nd §224.
(Chapter 8: Performance and Breach)
• A condition may be beyond the control of the
Kx’ing parties; that is, the condition could be an
external event: “I promise to play tennis with you
tomorrow if the sun is shining”. Here, the sun
shining is an external event beyond the control of
the parties. That event is a condition precedent
to the duty to play tennis as promised. NOTE:
that does NOT mean no Kx is formed—it means
there is no duty to perform what was promised
unless and until the condition precedent is met.
(Chapter 8: Performance and Breach)
• The condition may be a “Promissory” condition
and within the control of the parties: “I promise
to pay you $50 if you promise to wash my Jeep”.
The duty to pay $50 (perform the thing promised)
is subject to a promissory condition precedent—
your promising to wash my Jeep.
• Conditions, whether an external event or
promissory, are of three types: Precedent,
Subsequent, or Concurrent.
(Chapter 8: Performance and Breach)
• Condition Precedent: an contingency that must occur
before there is a duty to perform the thing promised.
Conditions Precedent are thus duty-creating: “I promise to
mow your grass tomorrow if its sunny and warm”. If the
tomorrow it proves to be sunny and warm, the condition
precedent to my promised performance, mowing, has been
met and the duty to mow arises.
• Condition Subsequent: terminates a duty to perform: “I
promise to mow your grass tomorrow unless it rains”.
There is no condition precedent to my having to mow-it
arises tomorrow without contingency. However, my extant
duty to mow may be extinguished or terminated by a
condition subsequent—it rains tomorrow. Unless and until
it rains, I had a duty to mow your grass.
(Chapter 8: Performance and Breach)
Under the Restatement §224 et seq
• The Restatement, in defining condition, abandons the
terms condition precedent and condition subsequent.
The concepts remain, but the terminology is changed.
• Under the Restatement view, a condition refers to an
event that must occur before the duty to perform
arises (namely, a condition precedent), §224
• The concept of condition subsequent is, in §230, a
“Duty Terminating Event” (namely, a condition which, if
it occurs, terminates a duty to perform). Strictly
speaking, then, under the Restatement view, a
condition subsequent is not really a condition—it’s a
duty terminating event.
(Chapter 8: Performance and Breach)
Under the Restatement §224 et seq
• Events certain to occur are not conditions: thus,
the mere passage of time does not constitute a
condition—e.g., a promise to pay $50 at the end
of 30 days is an unconditional promise.
• As the concepts of condition precedent and
condition subsequent are very much alive and
well in the Restatement under new names, we
will continue to refer to conditions precedent and
subsequent.
• We will discuss Concurrent Conditions in the
materials on Constructive (Implied) Conditions.
(Chapter 8: Performance and Breach)
Express Conditions: “No Breach, Compliance”
Luttinger v. Rosen, p.692
• The Seller endeavors to retain the Luttingers’
earnest money deposit: what are the Seller’s
arguments?
– In effect, the Seller is stating that he is entitled to
retain the deposit because the Luttingers had
breached, that is, they had failed to close and pay
for the house.
Express Conditions: “No Breach, Compliance”
(Luttinger v. Rosen)
• Were the buyers in breach? Assume the shoe
were on the other foot; that is, assume that
seller had sued the buyers to force them to
close or pay damages. What would the
buyers’ response have been?
Express Conditions: “No Breach, Compliance”
(Luttinger v. Rosen)
2. Kx Formation
Kx for sale of house
3. Enforcement—No bars to Enforcement
4. Performance and Breach
As plaintiff, seller would allege: “Breach by
defendant, buyers, did not take and pay for the
property”
Express Conditions: “No Breach, Compliance”
4. Performance and Breach
“Breach by defendant, buyers, did not take and pay for
the property”
When there is an allegation of breach, the party against
whom breach is alleged has the opportunity to respond.
There are several responses to breach we will consider.
The first is,
“No breach, compliance”. With this response, the
responding party is declaring they are fulfilling the terms
of the Kx.
Express Conditions: “No Breach, Compliance”
(Luttinger v. Rosen)
• In the case, buyers did not, in point of fact, close on the
house (take and pay for it as agreed in the Kx for sale).
• The buyers’ response is they were in compliance owing
to the express condition precedent to their having to
perform, namely, their getting a 20 year mortgage at 8
¼ %. Getting a mortgage from a bank on those terms
was a condition precedent to their having to close on
the property. That condition was not met, such that
the buyers’ duty to perform never arose.
Express Conditions: “No Breach, Compliance”
(Luttinger v. Rosen)
• What were the seller’s replies to the Luttingers’
response that they were in compliance?
1. The mortgage contingency clause was not a
condition precedent. How does the court deal with
this first argument?
The court dispenses with the argument by providing a
definition for condition precedent: a fact or event which the
parties intend must exist or take place before there is a right to
performance.
Express Conditions: “No Breach, Compliance”
(Luttinger v. Rosen)
2. The buyers didn’t apply for loans at all the banks in the area—
that is, the buyers failed to use due diligence in securing a loan.
The court disagrees: what facts convinced the court the buyers had
used due diligence?
3. Even if the mortgage contingency clause was an express
condition precedent, and even if the buyers used due diligence to
secure a loan as described in the Kx for sale, the condition was
satisfied (seller argues the trial court erred in finding the condition
was not met). On what basis, according to the seller, was the
condition precedent met?
– Seller urges the condition was satisfied by seller’s offer to
effectively make up the difference in the interest by providing
financing to the buyer at the 8 ½ %, an offer the buyers refused.
Sounds pretty good. Why didn’t the court buy it?
Express Conditions: “No Breach, Compliance”
(Luttinger v. Rosen)
– See the language in the opinion, last paragraph,
p.693, beginning, “In this case the language of the
contract is unambiguous . . . .” What does that
suggest regarding the level of compliance with
express conditions to which parties have agreed in
a Kx? Why might not the offer to finance have
been satisfactory to the Luttingers? See Note 3,
p.694. Yeah, strict compliance.
(Luttinger v. Rosen)
• Effects of the failure of the condition:
First, the Luttingers did not have to perform (close).
Second, the condition having not been met, after a
reasonable time their duty was discharged and they
could treat the Kx as terminated.
• Note 2: By definition, conditions are events not certain
to occur; thus, there is some risk they might not be
met (e.g., the Luttingers couldn’t get financing on the
terms they wished even with due diligence). The
condition allocated the risk that the Luttingers couldn’t
get financing to the seller.
Internatio-Rotterdan, Inc. v. River Brand Rice
Mills, Inc., p.695
• Let’s simplify: IR was a buyer exporter shipping rice to
Japan. River Brand was a processor/seller who agreed to
sell rice to IR.
• IR (buyer) was to ‘nominate’ (declare) the ships to carry the
rice to Japan and notify River Brand (seller) after seller had
allocated the rice totals between Houston and Lake
Charles.
• The language of the Kx required shipment in December
1952. Buyer was to give seller two weeks notice of
shipping instructions. In order for seller to comply with the
term of the Kx that required delivery in December, buyer
would have had to give notice by December 17th;
otherwise, seller could not deliver in the month of
December.
(Internatio-Rotterdan v. River Brand Rice)
• Buyer hit a snag with in the form of export
restrictions and could not designate the delivery
particulars for the rice allocated to Houston.
Thus, the buyer could not notify seller of Houston
delivery details by December 17th.
• When it did not receive delivery instructions for
Houston on the 17th seller rescinded the Kx the
next day. Meantime, the cost of rice, subject to
radical fluctuation, had risen by 20%. Buyer sued
seller for breach, not delivering the Houston rice.
(Internatio-Rotterdan v. River Brand Rice)
*Interlude:(B) Problems of Interpretation— promissory duty versus
promissory condition, p.700
• Recall that conditions may be either events outside the control of the
parties (e.g., I promise to play golf with you tomorrow if it reaches 85
degrees by ‘noon’), or events within the control of the parties, i.e.,
promissory conditions (e.g., “I promise to play golf with you tomorrow
on condition that you buy lunch at the clubhouse first”. InternatioRotterdam v. River Brand Rice Mills involves an express promissory
condition.
• Promissory Condition versus Promissory Duty
– Consider the following: “I promise to play golf with you tomorrow if
you promise to buy lunch before we play”. If you agree, the latter
creates a promissory duty for you to buy lunch which, if you fail to
perform, entitles me to damages for breach of Kx. Ignoring for the
moment the matter of Constructive Conditions, your buying lunch is
not a condition precedent to my performance, playing golf. Thus, your
failure to buy lunch might entitle me to Kx damages, but it does not
excuse my playing golf—it is not a condition precedent to my playing.
(Internatio-Rotterdan v. River Brand Rice)
(Promissory Condition versus Promissory Duty)
– Now assume this variation: “I promise to play golf with you
tomorrow on condition that you buy lunch first”. Now, your
buying lunch is not merely a duty; rather, it is an express
condition precedent to my performance, playing. If you don’t
buy lunch, my duty to play never arises. However, I am not
entitled to damages as no promissory duty to buy lunch was
created on that language.
– Finally, I could make your buying lunch both a duty and a
condition: “I promise to play golf with you tomorrow if you
promise to buy lunch first, and your buying lunch is a condition
of my playing”. On this language, there is a promissory duty to
buy lunch, for the breach of which I might recover damages. In
addition, your buying lunch is an express condition precedent to
my having to play. If you don’t buy lunch, I am entitled to
damages for the breach of duty and my performance, playing,
never arises as the condition precedent to my having to play
was not met.
(Internatio-Rotterdan v. River Brand Rice)
Kx Formation: Kx for the sale of rice
Enforcement: no bars to enforcement
Performance and Breach:
P (Buyer/IR) alleges: “Breach by D, Seller (River
Brand Mills), did not deliver the Houston Rice”.
D’s (Seller’s) Response: “No breach, Compliance:
my performance was subject to an express condition
precedent—your providing shipping/delivery
instructions by December 17th so that delivery could
be completed within December as provided by the
Kx”
(Internatio-Rotterdan v. River Brand Rice)
What are Buyer’s two replies (responsive arguments)
to Seller’s No breach, compliance response?
1. The promissory obligation to provide two weeks
notice of delivery details was not a condition. Rather,
it was promissory duty for the breach of which seller
might be entitled to damages. But Seller still was
required to perform.
• Does the court find the two-weeks notice requirement
was a promissory condition or duty? On what basis?
– The court finds the requirement to be a condition
precedent to Seller’s performance, as the Seller could not
possibly perform without the delivery instructions. See
second full paragraph, p.696.
(Internatio-Rotterdan v. River Brand Rice)
(What are Buyer’s two replies (responsive
arguments) to Seller’s No breach, compliance
response?)
2. If giving instructions two weeks in advance of
delivery was a condition of Seller’s performance,
the condition was satisfied. We (Buyers) gave
two weeks notice. What is the Seller’s
responsive argument?
– Seller argues that the condition required Buyer to
provide notice by December 17th, such that Seller
could deliver the Houston rice within the month of
December as required by the Kx for sale.
(Internatio-Rotterdan v. River Brand Rice)
• Having found that the two-week notification
requirement was an express, promissory
condition of Seller’s performance (delivering
the Houston rice), it remained for the court to
interpret the condition: was Buyer required to
give notice by December 17th for December
delivery, or could Buyer give two weeks notice
with Seller then obligated to deliver after
December?
(Internatio-Rotterdan v. River Brand Rice)
• The court concludes that the condition required
not just two weeks notice, but that Buyer provide
the deliver instructions by December 17th such
that Seller could deliver in the month of
December. Notification to ship after the 17th did
not meet the condition, such that Seller’s duty to
deliver the Houston rice under the Kx never
arose. Moreover, as the condition could never be
met after the 17th, Seller could regard the Kx as
terminated and rescind, as it did on the 18th.
• Why did the court interpret the condition to
require notification in time for delivery in
December? See last paragraph, p.693-94.
(Internatio-Rotterdan v. River Brand Rice)
• The court seems to regard the two week notification
requirement as creating a duty as well, such that the
buyer’s failure to satisfy the condition would give rise
to an action on behalf of the sellers for breach. The
sellers did not, however, pursue that action, doubtless
because they had profited significantly from the rise in
price and could show no damages resulting from
seller’s breach.
• Note, p.71: Preference in Interpretation. The general
rule is that in cases of doubt, courts prefer to find duty
versus condition to avoid “harsh results”, i.e., where
the condition is not met, one party is denied the
other’s performance. See Note (2) Effect of Forfeiture,
p. 706.
Peacock Construction Co. v. Modern Air
Conditioning, Inc., p.701
• The Kx between the general contractor and
the sub provided that the general would not
pay its subs until it had been paid by the
owner. The owner did not pay and the
general contractor did not pay its subs on the
basis that the owner’s paying was an express
condition precedent to its having to perform.
(Peacock Construction Co. v. Modern Air
Conditioning, Inc.)
• The court says the clause is ambiguous: what
is the ambiguity? That is, what are the two
possible interpretations of the clause?
– Payment by the owner could be interpreted as
either a condition precedent to Peacock’s having
to pay Modern Air Condition or as establishing the
time for payment.
(Peacock Construction Co. v. Modern Air
Conditioning, Inc.)
• According to the court, deciding which
interpretation to assign the clause is a matter
of deciding on the parties’ intent. The intent
of the parties’ seems a question of fact—who
should decide the question of what the
parties intended?
– Though the parties’ intent is a factual question, as
it involves interpreting the Kx, it is a question of
law for the court
(Peacock Construction Co. v. Modern Air
Conditioning, Inc.)
• Kx interpretation, then, is a matter for the court,
such that determining what the parties meant in
the event of an ambiguity is a question of law. In
the case, the court interpreted the payment
clause as establishing a time for payment, not a
condition precedent to payment. On what basis
did the court arrive at that interpretation? See
first two paragraphs at p.703.
Gibson v. Cranage, p.704
• The pertinent clause in the Kx provided that
the defendant did not have to take and pay for
the portrait of his daughter unless he was
completely satisfied. What, according to the
court, did the clause create?
– The clause created an express condition precedent
to defendant’s having to pay. Satisfaction was to
be based on defendant’s personal judgment, i.e.,
whether he personally (subjectively) was satisfied
with the painting.
(Gibson v. Cranage)
• Wasn’t defendant’s promise to pay for the
painting ‘if he liked it’ illusory, such that there
was no Kx formed at all?
– Implied in the promise to pay for the painting if it
was personally satisfactory was a duty to make
the determination in good faith.
What if defendant had refused even to look at the
painting?
That would have constituted a breach of the duty of
good faith.
(Gibson v. Cranage)
• Note (2) Effect of Forfeiture, p.706. We have seen that courts
prefer to interpret promises as imposing a duty, rather than
creating a condition, so as to avoid a forfeiture. Didn’t reading the
satisfaction clause in the Gibson case work a forfeiture on the
plaintiff, painter? After all, it’s not as though he can sell the portrait
of the defendant’s daughter to someone else. What facts might
have contributed to the court’s decision in holding the satisfaction
clause to be some sort of promissory duty? Or, why didn’t the
court find that the clause should be read to require reasonable
satisfaction rather than personal satisfaction on the part of the
defendant?
– The satisfaction clause was likely a marketing ploy. Plaintiff perused
the obits looking for clients then presented them with the no-risk
satisfaction term. The plaintiff assumed the risk of dissatisfaction.
– Express conditions are not found lightly, but where they are found, they
are strictly read and applied.
Following
• Third Party Satisfaction: to reduce the risk of
forfeiture associated with conditioning
performance on a contracting party’s
satisfaction, performance is frequently
premised on the satisfaction of a third,
independent party, such as an expert.
(C)Mitigating Doctrines, p.708
• Courts have developed several doctrines in
mitigation of the harsh results that sometimes
follow from express conditions in the form of
forfeiture.
– Prevention: the No Breach, Compliance owing to
an express condition precedent is not available to
a party who prevents the event/condition from
occurring. See example of real estate broker at
p.709.
(C)Mitigating Doctrines
• Waiver, Estoppel and Election, p.710
Waiver and Estoppel: Contract parties may waive an
express condition in their Kx. Note that if a
condition has been waived, the party waiving it may
retract the waiver provided the time for the
condition’s occurrence has not passed. The waiver
cannot be retracted, however, if the other party has
relied on the retraction (estoppel). Waiver of a
condition after the time for its occurrence has
passed may not be retracted, whether or not there
has been reliance on the retraction. Re.2nd §84
(C)Mitigating Doctrines
• Waiver, Estoppel and Election
Election: Where the time for the condition to occur
has expired, the party whose performance depends
on the condition being met may ‘elect’ to disregard
the condition and proceed with performance.
McKenna v. Vernon, p.711
• Kx Formation:
Builder (McKenna)
Promise to build
theater
Promise to pay
• Begin paying
Installments when
80% completed
• Final installment on
completion
Owner (Vernon)
(McKenna v. Vernon)
• Enforcement: no bars
• Performance and Breach
– Breach by Defendant, Vernon, did not pay final
installment
– Response: No Breach, compliance: my duty to pay
was subject to an express condition—architect’s
certificate
Was the architect’s certificate a condition precedent
to Vernon’s having to pay?
(McKenna v. Vernon)
• Yes. Nevertheless, McKenna prevails: Vernon was
not in compliance. Why not?
– By repeatedly paying Vernon as the work progressed
without requiring the architect's certificate, Vernon
waived the condition. A prototypical case of waiver.
Could Vernon have ‘retracted’ the waiver?
Yes, provided McKenna had not relied. For instance, had
Vernon made several installment payments, he might
have informed McKenna that no further payments
would be forthcoming absent the certificate.
Hicks v. Bush, p.713
• The Agreement:
Hicks
Promise to transfer
shares to holding
company
Express condition
precedent: if expansion
funds available
Not in written
agreement
Shareholders of Bush
Hicks v. Bush
• Performance and Breach
– Hicks alleges: Breach by Defendant/Shareholders,
did not transfer shares of Bush to holding
company
– Response: No breach, compliance: our
performance, transferring the shares, was subject
to a condition precedent, viz, availability of
expansion funds. The condition was not met
– Hicks’ reply: there is no such express condition in
the agreement
Hicks v. Bush
• The condition, according to the
defendants/shareholders, was oral and did not
find its way into the final writing. Is there
anything to prevent the introduction of
evidence proving up the condition?
• The facts implicate the Parol Evidence Rule: a
good time for review!
Hicks v. Bush
• Does the PER apply?
– Yes: there was a final writing of the parties forming Kx
If the Kx was fully integrated (or, “entire”) evidence of
terms not in the writing, whether contradictory or
supplementary, is precluded by the Rule. Was the Kx
fully integrated?
Yes. Nevertheless, the court allows parol evidence to
prove-up the condition precedent. What does the court
hold, and what is the rule of the case?
Hicks v. Bush
• Parol evidence is always allowed to prove an
express condition, provided the condition
does not contradict the terms of the writing.
Put another way, the rule barring
supplementary parol evidence when the
agreement is fully integrated is subject to an
exception in the case of a condition.
Section 2: Constructive Conditions (No
Breach, Justification), p.716
• No breach, Justification—the Breaching
Plaintiff
• The response is, “Although I am not
performing (not in compliance with the Kx
terms), my non-performance is justified by
your breach”. Thus, there is an admission of
non-performance, though not breach, such
that the plaintiff’s breach forecloses the Kx
action.
Section 2: Constructive Conditions (No
Breach, Justification
• Four Elements of Justification Response
1. Plaintiff was in breach
2. Defendant’s duty to perform was dependent on
Plaintiff’s performance (i.e., Plaintiff’s performance
was a condition of Defendant’s performance)
3. Plaintiff’s performance was a condition precedent to
Defendant’s performance
4. Plaintiff’s breach was of sufficient magnitude to
justify Defendant’s withholding its performance (i.e.,
Plaintiff’s performance, if any, was less than
substantial performance)
Constructive Conditions: Kingston v.
Preston,p.717
• Preston was a silk merchant, Kingston, his
apprentice. In the agreement between them,
Preston agreed to retire after 15 months,
selling the business to Kingston. Kingston was
to pay for the business in monthly
installments and provide security (essentially,
offering collateral of some sort in the event
Kingston defaulted) which he failed to supply.
Preston refused to convey the business to
Kingston, who sued for breach of Kx.
Constructive Conditions: Kingston v.
Preston
• Preston responds, no breach, justification: my not
conveying the business is justified by your breach,
not providing security to assure the installments
will be paid.
• What is Kingston’s argument in reply?
– Kingston argues that the two obligations, his to
provide security and Preston’s, to convey the business
are independent. That is, while it might be that
Kingston owed a duty to provide security and might
be liable for damages for non-performance, his
providing security was not a condition of Preston’s
performance, conveying the business.
Constructive Conditions: Kingston v.
Preston
• The court identifies three kinds of covenants
(obligations arising from promises)
– Independent covenants: performance by neither party
is a condition of the other’s performance. This was
Kingston’s argument
– Dependent covenants: where performance of one
party is a condition precedent to performance by the
other
– Mutually dependent covenants: where the
performance of each party is dependent on the
performance by the other, i.e., the performances are
to be at the same time.
Constructive Conditions: Kingston v.
Preston
• In the case, the court held that Kingston’s
performance, providing security for the payments
to Preston, was a constructive (implied) condition
precedent of Preston’s performance, conveying
the business. Since Kingston failed to perform,
the condition was not met, and Preston had no
duty to convey the business. Why did the court
conclude Preston’s duty to convey was
dependent on Kingston’s providing security? See
final paragraph of the opinion, p.718
Time for Performance, p.718
• The parties can expressly provide for the time
for, and order of, performances in their Kx.
Where the Kx is silent, the default rule is:
where one party is to do something and the
other pay or give something, the doer is to go
first. E.g., “I promise to pay you $50 if you
promise to mow my lawn”. Absent language
to the contrary, the mowing is to be
performed first and is a constructive condition
precedent to paying.
Stewart v. Newbury, p.719
• The agreement for excavation did not provide
for progress payments. Plaintiff, Stewart,
failed to prove-up that there had been an
agreement on that score over the telephone.
• In any event, the trial court found as a matter
of fact that there was no provision for
progress payments. What was the trial court’s
instruction to the jury to which Defendant,
Newbury, objected?
Stewart v. Newbury, p.719
• The trial court instructed the jury that if they found there
was no provision for payments, then Stewart was entitled
to payments at reasonable intervals. Why did the appellate
court find that incorrect? It seems so . . . well, reasonable.
• The appellate court simply recites the basic default rule:
where one party is to do something and the other pay,
absent language to the contrary, performance by the party
to do something is a condition precedent to the other’s
having to pay. Note, by the way, the court’s observation
that Stewart had not substantially performed. We will
consider the doctrine of substantial performance under the
materials on mitigating doctrines.
• The default rule is universal but rarely comes up because
express provision for payment is likewise universal.
Concurrent Conditions and Tender,p.721
• Recall the third type of condition described by
the court in Kingston v. Preston: Concurrent
conditions, where each party’s performance is
a condition of the other, neither being a
condition precedent. Where conditions are
concurrent, both parties must at least ‘tender’
performance, i.e., show they were ready to
perform. Note the example from Kx’s for the
sale of goods, p.722.
Mitigating Doctrines, p.723
• Substantial Performance
– Where a promissory condition is express, as in Luttinger,
nothing short of strict adherence to the terms of the
condition will satisfy it. In that case, financing for the
purchase of the house from a source other than a bank
would not satisfy the express condition in the sales Kx. In
short, ‘real close’ won’t do to satisfy an express condition.
– Recall that the failure of a condition, express or
constructive, works a forfeiture on one party-the
breaching plaintiff. (Remember, that’s the reason courts
will find a promissory condition versus a promissory duty if
there’s any doubt that an express condition is intended).
Mitigating Doctrines, p.723
• Substantial Performance
– With the dependency of promises (i.e., one party’s
performance is a constructive condition precedent of
the other’s duty to perform) firmly entrenched in Kx
law, the risk of forfeiture is elevated and the potential
for harsh results increases. It is one thing to insist on
meticulous satisfaction of an express condition
precedent that was the subject of negotiation, it is
another to insist on fastidious satisfaction of a
constructive condition.
– The following case, Jacobs & Young v. Kent
demonstrates the point concretely and emphatically.
Jacob & Young v. Kent, p.725
• Kx Formation
promise to pay
Kent (Owner)
J&Y (Builder)
Promise to build
& use Reading
pipe
• Enforcement: Enforceable
Jacob & Young v. Ken
• Performance and Breach:
Allegation?
– Breach by D, Kent, did not pay final installment due on
completion.
Response?
– No Breach, Justification: my not paying is justified by
your breach, not using Reading Pipe (i.e., full
performance meant using Reading Pipe, and the
builder’s performance was a constructive condition
precedent of the owner’s performance, paying).
Jacob & Young v. Ken
• Was using Reading Pipe an express condition precedent of
owner’s having to pay? What does Cardozo’s analysis and
the outcome of the case indicate?
– Where there is an express promissory condition precedent to a
party’s having to perform, nothing short of complete
satisfaction of the condition will do: strict compliance is
required. Had the court determined that using Reading Pipe
was an express condition precedent to Kent’s performance,
paying the builder, J&Y’s using pipe just as good would not
satisfy the condition, would not constitute full performance.
Recall Luttinger: the express condition in the Kx called for 8 ½ %
financing from a bank: substitute financing from the seller
wouldn’t do: with express conditions, real close isn’t good
enough.
Jacob & Young v. Ken
• Using Reading Pipe, then, was a promissory
duty-part of the builder’s performance, not an
condition precedent to payment.
• That said, wasn’t the builder’s performance a
constructive condition of Kent’s performance,
paying?
– Yes.
Jacob & Young v. Ken
• Ok, so the builder’s performance in
accordance with the specs in the kx, including
the use of Reading Pipe, was a constructive
condition precedent to Kent’s paying. Did the
builder fully perform?
– Certainly not: the builder is in breach.
Nevertheless, the builder prevails
Jacob & Young v. Kent
Let’s rework the analysis in light of the holding:
• Performance and Breach:
– Breach by D, Kent, did not pay final installment
due on completion.
Response
– No Breach, Justification: my not paying is justified
by your breach, not using Reading Pipe.
Anytime there is an allegation of breach, the party
against whom it is alleged is entitled to respond.
Jacob & Young v. Kent
Response
– No Breach, Justification: my not paying is justified by
your breach, not using Reading Pipe.
Since Kent has alleged that J&Y breached, J&Y may
respond. Does the builder have a response to the
allegation of breach? So far, we’ve considered:
No breach, compliance
No breach, justification
Neither works here: the builder did not comply with the
Kx terms, nor was the builder’s not using Reading Pipe
‘justified’ by Kent’s not paying.
Jacob & Young v. Kent
While we will consider other Responses later (none
of which would apply in this case in any event), all
that is available to the builder is to admit breach:
again, a breaching plaintiff.
How, then, does the builder recover?
Enter the doctrine of substantial performance
Jacob & Young v. Kent
– Substantial performance means pretty much what it
sounds like: the Kx’ing party mostly performed. The same
concept can be stated alternatively in terms of immaterial
breach. That is, where a party has substantially
performed, by hypothesis the breach resulting from the
failure fully to perform must be an immaterial breach:
Substantial
Full
Performance Performance
Kx Formation
If this is substantial
performance . . .
This must be an
immaterial breach
Jacob & Young v. Kent
– The term, substantial performance, is generally used in the
construction cases, while the term, immaterial breach, is
generally used in other contexts. Again, the are two sides
of the same coin.
Kx Formation
Substantial
Performance
What is left undone
= immaterial breach
Full
Performance
Jacob & Young v. Kent
• What, precisely is the effect of the doctrine? That
is, what is the effect of substantial performance
by a breaching plaintiff? First, consider this:
when a party raises the No breach, justification
response, what is it that party is asserting is
justified?
– The assertion is that the non-breaching party is
justified in withholding its performance which is not
due unless and until the other party has performed
(constructive condition precedent)
Jacob & Young v. Kent
• Where a breaching party has substantially
performed, such that the breach is immaterial,
the non-breaching party is NOT justified in
withholding its performance. What is the policy
at work in this mitigating doctrine?
– Avoid forfeiture in the event of an immaterial breach.
Did it really matter to Kent which brand of pipe was
used, provided it was the same quality? What if Kent
had paid only half the Kx price due? Should he be able
to keep the house while paying only half based on the
failure of the constructive condition, i.e., full
performance in every detail by J&Y?
Jacob & Young v. Kent
• Can you state the principle in terms of
constructive conditions?
– Where performance by one party is a constructive
precedent condition precedent of performance by
the other, the condition is satisfied on substantial
performance. Substantial performance is not full
performance and constitutes a breach, but it is
enough to satisfy the constructive condition such
that the non-breaching party is not justified in
withholding its performance.
Jacob & Young v. Kent
• What is the view of the Dissent?
• Kent did state in the Kx that he wanted Reading
Pipe—why didn’t that create an express
condition? See last sentence of the last
paragraph, p.725.
• Why was it that the builder didn’t use Reading
Pipe? Does it matter? See the end of the
majority opinion, p.726. Compare Plante, infra.
• What if the pipe used proved to be significantly
inferior to the Reading Pipe called for?
Jacob & Young v. Kent
• While J&Y substantially performed so that
Kent was not justified in withholding his
performance, an immaterial breach is a
breach, nonetheless. As the builder would
seem to have no response, should Kent be
entitled to anything?
Plante v. Jacobs, p.728
Promise to
pay
Jacobs
Promise to build
per specs
Jacobs
• Kx Price=$26, 765
• Defendant pays $20,000
• Plaintiff failed to furnish several item
agreed to (about $1,600)
• Wall misplaced: didn’t effect value; cost
to complete-$4,000
• Plaintiff sues for balance (lien)
Plante v. Jacobs
• Kx Formation
• Enforcement
• P&B
– Breach by D, Jacobs, did not pay
– Response: No breach, justification: our not paying is
justified by your breach, $1,600 in items not furnished
and misplacing the wall—breaching plaintiff
– Plaintiff’s response: No response: breach, but . . .
• substantial performance: I am in breach, but I substantially
performed so you are not justified in withholding your
performance (breach immaterial)
Plante v. Jacobs
– Plaintiff’s response: substantial performance
– The court finds that the builder, Plante,
substantially performed: what facts were at the
basis of that determination?
• Plan was a stock floor plan showing no details as to
constructing
• No blueprints, no architect
• Specs (with a few mods) were on standard printed
forms
• The Jacobs were living in the house
Plante v. Jacobs
• Given those fact, it is concluded that the
“essential purpose of the Kx” was fulfilled, i.e.,
Plante substantially performed and, though in
breach, the Jacobs were not justified in
withholding their performance.
• That said, the Jacobs nevertheless successfully
alleged breach by Plante—not supplying several
items such as gutters, sidewalks, etc. Moreover,
there’s the matter of the misplaced wall: the
living room was a foot smaller than called for and
the Jacobs wanted a wider living room.
Plante v. Jacobs
• Jacobs: “Breach by Plaintiff, Plante, did not
furnish [a bunch of items amounting to
something over $1,600] and misplaced the
wall.”
• Response by Plante/builder: None-admit
breach.
• Remedy: having established breach, the
Jacobs are entitled to a remedy for Br/Kx.
Plante v. Jacobs
• Remedy
– For the cluster of sundry items: cost to
complete/replace
– What about damages for the misplaced wall? The
cost to repair/replace was $4,000 and entailed
considerable reconstruction. The trial court did not
award them the cost to repair/replace, and the
appellate court affirmed. Why did the court deny
those damages? What was the measure of recovery
for Plante’s breach in misplacing the wall?
Plante v. Jacobs
• It appears that Plante’s breach was willful (the
parties were in dispute during the course of
construction). In Jacobs & Young v. Kent it
seems the use of Cohoe pipe, rather than
Reading Pipe, was inadvertent. Did Cardoza
indicate whether the result in that case might
have been different if the failure to use
Reading Pipe had been a deliberate breach?
Plante v. Jacobs
• In Jacobs & Young, Cardozo suggested that the
builders could not have made out a case for
substantial performance if the breach had
been willfull/deliberate.
• Is the standard for substantial performance in
Wisconsin different?
– The Wisconsin court seems to go well beyond the
New York view as espoused in Jacobs & Young.
Perfect Tender Rule in Sale of Goods
• The traditional rule required that a seller make
“perfect tender”, that is, the seller was
required to perform perfectly in every regard,
including even shipping details.
• Article 2 governing sale of goods retains the
traditional rule: what is the rationale? See first
full paragraph, p.732.
• The drafters did, however, relax the rule to
some degree
Perfect Tender Rule in Sale of Goods
• The drafters did, however, relax the rule to
some degree.
– §2-508: allows seller to ‘cure’ defects
– §2-608: if buyer has already accepted the goods,
she can only revoke and return the goods if the
defect substantially impairs their value.
– §2-612: similar to §2-608 where delivery of goods
is in installments
Mitigating Doctrines: (B)Divisibility, p.733
• Gill v. Johnstown Lumber Co.
Kx Formation: Gill agrees to drive four million feet of
logs down river to Johnstown Lumber’s facility. The
price was allotted variously at $1 per thousand feet,
.75 per thousand feet, and so forth, depending on
the type of logs (oak, pine, etc.). Due to a flood,
much of the lumber was carried past Johnstown
Lumber Company’s facility to the Potomac, from
which it was washed into the Chesapeake.
Gill v. Johnstown Lumber Co.
• P&B
– Breach by D, JLC, did not pay
– Response: No breach, justification: our not paying
is justified by your failure to deliver (most?) of the
lumber.
– Gills’ Response to the allegation of breach?
• Essentially, must concede breach, and Gill’s
performance, delivering the lumber, was a constructive
condition precedent to JLC’s having to pay.
Gill v. Johnstown Lumber Co.
• P&B
– Gill has no response to the allegation of breach.
What about substantial performance?
– No: apparently, Gill successfully drove less lumber
than was lost. His breach, that is to say, was
material.
– What, then, is Gill’s argument that he should be
paid for the lumber that did reach JLC’s facility?
• The Kx was divisible, such that he should be paid for
those portions completed.
Gill v. Johnstown Lumber Co.
• Divisibility, like substantial performance,
ameliorates the sometimes harsh results of
constructive conditions, i.e., forfeiture.
• The doctrine only applies, however, if the Kx is
divisible. It does not apply where the Kx is
“Entire” (not to be confused with the use of
that term as it applies to the PER!). How does
one distinguish the two; that is, what is the
test for deciding whether a Kx is divisible?
Gill v. Johnstown Lumber Co.
• A Kx is divisible, as opposed to Entire, where it
is “apportioned or apportionable”.
• The doctrine only applies, however, if the Kx is
divisible. It does not apply where the Kx is
“Entire” (not to be confused with the use of
that term as it applies to the PER!). How does
one distinguish the two; that is, what is the
test for deciding whether a Kx is divisible?
Gill v. Johnstown Lumber Co.
• A Kx is divisible, as opposed to Entire, where it
is “apportioned or apportionable”. On what
basis did the court in Gill decide the Kx was
apportioned?
Gill v. Johnstown Lumber Co.
• The price for driving the logs was based on units
of performance: so much for each 1000 feet of
logs driven to the facility. It is enough if the Kx
states prices for separate parts or units of the
performance, or if, for instance, a price list
provides separate prices for various items.
• Is there any other requirement? Consider Note
(1), p.734. Was the Kx divisible by distances?
Gill v. Johnstown Lumber Co.
• See Re.2nd §240. There are two requirements
in the Restatement: first, the performance
must be apportioned; second, corresponding
parts (i.e., a unit of performance and
corresponding unit of payment) must be
regarded as equivalents. Would driving the
logs 50% of the way be regarded as the
equivalent of 50% payment?
Gill v. Johnstown Lumber Co.
• Here’s another set of examples
1. Builder contracts to build three houses for
owner at $100,000 each. Builder completes one
house, but does not build the other two. Owner
refused to pay anything. Has builder
substantially performed? No. Is the Kx divisible?
Probably: first, the Kx is apportioned, viz,
$100,000 per house. Are the parts of
performance and units of payment equivalents?
Again, probably. The Kx is divisible.
Gill v. Johnstown Lumber Co.
• (Examples)
2. Builder contracts to one house for owner at a cost of
$100,000. The Kx provides that builder is to receive
$50,000 on finishing half the work, the remaining
$50,000 on completion of the house. Assume Builder
stops after completing half the house. Substantial
performance? Doubtful. Is the Kx divisible? Arguably, it
is apportionable--$50,000 for the first half, $50,000 for
the second half. Are the corresponding pairs of
performance (50% of the work, 50% payment)
equivalents? That is to say, are half a house and half
payment regarded as equivalents? Likely not.
Gill v. Johnstown Lumber Co.
• That driving some logs to the JLC facility is
equivalent to the units of payment for those
logs seems to be implicit in the court’s
holding. That is, the case rests on the
unstated premise that driving part of the
lumber benefited JLC to that extent.
Mitigating Doctrines: (C)Restitution, p.735
• We have seen that where there is no recovery
in a Kx action because an action cannot be
stated, whether because there is no Kx formed
or it is unenforceable, recovery might be had
in a cause of action for Restitution (Quasi-Kx).
• Restitution may also be available where a Kx
action fails at the level of Performance and
Breach.
Mitigating Doctrines: (C)Restitution, p.735
• For instance, where the aggrieved party is in breach
and has no response and cannot deploy one of the
ameliorating doctrines (substantial performance or
divisibility), recovery still might be had in restitution,
avoiding complete forfeiture. What is the traditional
view on restitution for breaching plaintiffs?
• The traditional view did not allow recovery in
restitution for a breaching plaintiff, particularly where
the breach was willful. The rationale was that a party
might perform as much as suited him, then stop
performing knowing that he might still cut his losses by
recovering in a Restitution action rather than an action
on the Kx.
Mitigating Doctrines: (C)Restitution, p.735
• Espousing the traditional view, one court asserted
that to permit a breaching plaintiff to recover in
Restitution would “tend to demoralize the whole
country, . . . ; all faith and fair dealing would be at
an end, and all confidence between man and
man would be destroyed.”
• In a bold stroke, the following case rejected the
traditional view, and in the century and a half to
follow, the liberal view adopted in the that case
became the majority view.
Britton v. Turner, p.736
• Kx Formation
Promise to pay $120
Britton
Kx Formation
Promise to work for one
year
Archbold
Britton quits
1 yr
Britton v. Turner
• P&B
– Breach by D, Turner, did not pay
– Response: No breach, justification: my not paying
is justified by your breach, quitting after 9 ½
months.
– Britton’s response to allegation of breach?
– None: Britton’s full performance was a
constructive condition precedent of Turner’s
performance, paying $120
Britton v. Turner
• P&B
• (Britton-breaching plaintiff)
• What about substantial performance?
– Note the the date, substantial performance not
available.
• Divisibility? That doctrine was available: was
the Kx divisible?
– No. Payment was a single, lump sum of $120 to
be paid at the end of one year, full performance
by Britton.
Britton v. Turner
• Britton, thus, cannot state a cause of action in
Kx:
1.
2.
3.
4.
Scope
Kx Formation: no problems
Enforcement: no bars
Performance and Breach
1. No breach, justification
C/A: Restitution
1. Unjust
2. Enrichment
Britton v. Turner
• Note in the second paragraph of the opinion
at p.736, the court refers to “quantum
meruit”, yet another (and decidedly quaint)
name for a Restitution action.
• Why did the Britton court abandon the
traditional view denying restitution to a
breaching plaintiff? See the example the
court uses to demonstrate the rationale at
paragraphs four and five, p.737.
Britton v. Turner
• The case is remanded for a determination of
damages due Britton in Quasi Kx, namely, the
value of the benefit conferred (the “worth” of
Britton’s labor for 9 ½ months). How had the
jury calculated the worth of the benefit? See
first (incomplete) paragraph at the top of
p.742.
• Did the court impose any limit on recovery?
See third full paragraph, p.741.
Britton v. Turner
• Britton was a breaching plaintiff without a
response: wasn’t Turner entitled to damages for
breach of Kx? See last paragraph of the opinion.
• Consider again Gill v. Johnston Lumber. While Gill
recovered for the parts of the Kx performed as
the Kx was divisible, Gill was also a breaching
plaintiff, suggesting JL Co. was entitled to
damages for breach. The reason they could not
recover is Gill had a response, no breach excuse,
to be considered in upcoming materials.
Kirkland v. Archbold, p.443
• A contemporary application of Britton v. Turner.
There is no possibility of recover in an action on
the Kx. The contractor was clearly in breach, and
could offer no response other than admitting
breach. There is no claim of substantial
performance that would allow a breaching
plaintiff to recover on the Kx, less damages
occasioned by the plaintiff’s breach. Nor is the Kx
divisible. Plaintiff recovers in restitution.
• How would the plaintiff/builder’s restitution
damages be measured?
Kirkland v. Archbold, p.443
• Example: Assume Builder agrees to build a
home for Owner for $1 million. The cost of
Builder’s performance is $900,000, such that
the $100,000 difference represents Builder’s
profit.
• Assume further that Builder and Owner have a
dispute and that Builder stops work having
spent $500,000. The cost to Builder to
complete the house would be $400,000.
Kirkland v. Archbold, p.443
• Assume now that Builder was at fault in the
dispute, is a breaching plaintiff without response
to whom the mitigating doctrines of substantial
performance and divisibility are not available.
Recovery can only be had in Restitution.
• Owner secures another builder to finish, but at a
cost of $600,000. What, then, is the value of the
benefit received by Owner from the first builder,
suing in restitution?
Kirkland v. Archbold, p.443
• If Owner is at fault in the dispute and is in
breach, Builder could recover its expectation
damages in an action on the Kx, calculated in
either of two ways: Kx Price minus cost
avoided: (1)$1 million less the $400,000
Builder saved in not having to finish the house
= $600,000. (2) Cost of performance plus
profit: $500,000 spent at the time of breach
plus $100,000.
Suspending Performance and
Terminating the Kx, p.75
• Walker & Co. v. Harrison, p.748
• Unlike the prior cases on the justification
response, here, the dispute is in midstream.
• Why wasn’t the failure of the lessor to
maintain the sign a material breach? See
Re.2nd §175.
• How would you have advised the Harrisons
before they discontinued paying the rentals on
the sign?
Hindrance and Prevention, p.758
• Iron Trade Products v. Wilkoff Co., p.759
Wilkoff
(Seller)
Promise to sell rails
Promise to buy rails
ITP
(Buyer)
• Seller doesn’t deliver the rails, owing to a rising
market. What, according to Seller, contributed
the added cost of its performance?
Iron Trade Products v. Wilkoff Co
• P&B
– Breach by D, Seller, did not deliver rails
– Response?
– This is effectively a ‘no breach, justification response:
‘my non-performance is justified by your breach,
preventing/hindering my performance’. What,
apparently, is the duty breached here (as argued by
Seller)? Is it express or implied?
– Each party has an implied duty not to prevent or hider
the other’s performance.
Iron Trade Products v. Wilkoff Co
• Why wasn’t ITP, the buyer, in breach of that
duty to Wilkoff, the seller?
• Merely making the other party’s performance
more difficult, absent bad faith, is not
prevention of performance.
• With no response to the allegation of breach,
buyer, ITP, prevails.
Section5: Prospective
Nonperformance, p.765
• (A) Breach by Anticipatory Repudiation
– What is repudiation?
– A statement of intention by a contracting party
not to perform. See Re.2nd, §250.
Hochster v. De La Tour, p.766
• Plaintiff agreed to work as a courier for
Defendant for three months, beginning June
1st. Defendant notified by letter May 11th of
his repudiation of the Kx.
• Plaintiff brought an action for breach of Kx
May 22nd, ten days before performance by
either party was due. In the interim, the
plaintiff found employment on the same
terms elsewhere, but commencing July 4th.
Hochster v. De La Tour, p.766
• What did the defendant argue regarding the
plaintiff’s entering into another employment Kx
before June 1st?
• Defendant argued that Plaintiff had to remain
ready to perform up until June 1st when
defendant was to perform. What did the court
hold on that issue?
• The court held that after defendant’s repudiation,
the plaintiff was free to seek an alternative Kx
elsewhere. What was the court’s rationale? See
first full paragraph, p.767.
Hochster v. De La Tour, p.766
• What was the other issue before the court?
• The defendant argued that plaintiff could not
bring an action for breach of Kx until June 1st,
when breach actually would have occurred:
defendant’s performance was not due until that
time.
• The court held, however, that the plaintiff need
not have waited until the time for performance,
but could bring his action at any time after
repudiation. What was the court’s rationale? Is
that rationale sound? See Note 1, p.770.
Hochster v. De La Tour, p.766
• Sound or not, non sequitur notwithstanding,
the holding is universally followed in American
courts.
Kanavos v. Hancock Bank, p.771
• What if, in Hochster v. De La Tour, supra, the
plaintiff had fallen ill and could not have travelled
with, and acted as courier for, the defendant?
What is the rule from Kanavos on the matter?
• The court in Kanavos states the fundamental rule:
to recover damages where defendant will not
perform, the burden is on the plaintiff to show it
could have performed; otherwise, defendant’s
repudiation did not cause plaintiff’s loss.
Ch.9 Basic Assumptions: Mistake, Impracticability and
Frustration (Herein, No Breach, Excuse) p., 807
• Mistake, Impracticability (sometimes treated as a
category of Impossibility) and Frustration of Purpose
populate the No Breach, Excuse response. All three
involve the existence of circumstances, conditions or
events that render performance difficult or impossible,
or which frustrate the object of the Kx, and which
might excuse one party’s non-performance.
• In the case of Mistake, the circumstances or conditions
were extant at the time of Kx formation, but were
unknown to the parties. In the cases of Impracticability
and Frustration of Purpose, excuse is premised on
conditions, circumstances or events that arose after Kx
formation.
Section 1: Mutual Mistake. P.808
• It is necessary to distinguish Mutual Mistake from Unilateral
Mistake. The traditional rule regarding Unilateral Mistake is that it
does not excuse performance. Many of the cases in the area
involve construction contracts and bid errors. Some inroads have
been made, with courts allowing avoidance where it would be
unconscionable to do otherwise; however, for the most part, courts
are reluctant to excuse a party’s performance on the ground of
mutual mistake.
• Of course, where the other party knows of the mistake and that fact
can be demonstrated, performance will likely be excused or,
alternatively, the party knowing of the mistake estopped from
enforcing the Kx.
• Where the mistake is obvious (e.g., A offers to sell her patently
expensive sports car worth $50,000 to B for $500) it is always
possible to argue no offer (B not justified in believing an offer was
made), and so no Kx.
Section 1: Mutual Mistake
• Mutual Mistake occurs when both parties are
mistaken as to the facts existing at the time of
Kx formation.
• To avoid Kx based on mutual mistake, the
disadvantaged party must show three
elements: (See Re.2nd §154)
1. The mistake must be of a basic assumption on
which the Kx was made (e.g., an essential term
of the agreement). Compare “Diamond in the
Rough Case” with “Pregnant Cow Case”, p.815.
Section 1: Mutual Mistake
• (To avoid Kx based on mutual mistake, the
disadvantaged party must show three elements:)
2. The mistake must be material. Inducement to Kx (“I
wouldn’t have entered into the Kx if I’d known the
facts”) satisfies the materiality element for
Misrepresentation, but not for avoidance based on
mutual mistake: more is required. Materiality in
that context requires that enforcement would be
fundamentally unfair.
3. The mistake must not have involved a risk the party
seeking rescission or avoidance assumed, expressly
or impliedly. This requirement eliminates most of
the cases concerning mistake as to value or quality.
Section 1: Mutual Mistake
(3. Risk not allocated) The risk that facts at the time of
formation might not be known may be allocated
• Expressly in the Kx (e.g., buyers of a house assume the
risk that the plumbing is bad where the Kx for sale
provided the house was sold “as is”.
• The party seeking to disaffirm/ avoid for mutual
mistake entered the Kx lacking knowledge of the facts
simply took the risk. See, Re.2nd, §154(b). See, e.g.,
“Diamond in the Rough Case”, p.815).
• The risk is allocated by the court to best risk bearer
(e.g., seller of land in best position to know oil under
surface).
Section 1: Mutual Mistake
(3. Risk allocated by court) Recall Watkins v.
Carrig: Could the excavator have avoided the Kx
based on mutual mistake? Apply the three
elements.
Stees v. Leonard, p.808
• What was the mistake in this case as to facts
unknown at the time of Kx formation? Were
both parties mistaken (i.e., is this a case of
mutual mistake?
• What does the court hold, and what is the rule
from the case? See second full paragraph, p.809.
– Stees represents a strong statement of the traditional
view. Nothing short of literal impossibility will excuse
a party from performing. The duties of the parties as
expressly provided in the Kx are absolute.
Renner v. Kehl, p.811
• Kx for the sale of land. Both seller, the Kehls,
and the buyer, Renner, were under the
mistaken impression that the land would be fit
for growing “jojoba”, when, indeed, it was not
fit for that purpose as revealed by the test
wells dug by the buyers.
• What is the cause of action brought by
Renner?
(Renner v. Kehl)
• What is the cause of action brought by
Renner?
• The action is for rescission premised on
mutual mistake.
• Are the elements necessary to show mistake
satisfied on the facts of this case?
• What is the remedy sought by Renner on
successful rescission?
(Renner v. Kehl)
• What damages did the trial court award Renner?
– The trial court ordered Kehl to return Renner’s down
payment, together with expenses incurred by Renner in
developing the property, including the cost of drilling the
test wells.
• The Arizona Court of Appeals upheld the trial courts
award. The Arizona Supreme Court remanded on the
question of damages. What was the proper measure
of damages for a rescinding party?
– Absent misrepresentation, the proper measure of
damages for rescission is restitution. What was the proper
measure of damages available to Renner?
(Renner v. Kehl)
• First, the rescinding party (Renner) was
required to return any benefit received under
the Kx. What benefit, according to the court,
might Renner have received?
– Fair market value of the use of the property for
the period Renner was in possession (i.e., rental
value)
(Renner v. Kehl)
• Next, Renner, the rescinding party, is entitled
to receive the value of any benefit conferred
on the Kehls. What would that include?
– Down payment plus the value of any
improvements made to the property which
enhanced its value to the Kehls.
– What about the cost of drilling the test wells? The
trial court awarded damages to Renner for those
costs.
(Renner v. Kehl)
• The wells did not enhance the value of the property
and so did not constitute a benefit conferred for which
Renner was entitled to recover in restitution. What
sort of damages, then, would the cost of the wells
represent (the trial court referred to those costs as
‘consequential damages’)?
– The trial court was mistaken: the cost of digging the test
wells was a cost in reliance. Recall Kirksey v. Kirksey: sister
in law incurred costs in moving to brother in laws land, but
he received no measureable benefit from those
expenditures-the were reliance damages. Either way, they
were not recoverable by Renner as they did not constitute
restitutionary damages.
Section 2: Impracticability, p.821
(No Breach, Excuse)
• Taylor v. Caldwell, p.825
– Taylor contracted to rent Surrey Gardens and
Music Hall for four days for a series of concerts
and the like. Shortly thereafter, the Hall burned to
the ground. Taylor sued for breach of Kx.
P&B: Breach by D, Caldwell, did not provide the Hall
Response, no breach Excuse-Impossibility
Section 2: Impracticability
(No Breach, Excuse)
• The court holds that Caldwell is excused as
performance was literally impossible. What was the
court’s rationale for concluding that Caldwell was
excused from his performance? See first paragraph,
p.826.
– The court’s rationale appears to rest on the doctrine of
implied conditions, the a party’s performance is subject to
the condition that performance be possible. A narrower
reading might be that the continuing existence of the
subject matter of the Kx will continue to exist, such that if
does not, a condition of performance has not been met
and performance is excused.
Section 2: Impracticability
(No Breach, Excuse)
• Though Taylor v. Caldwell is the leading case on the
matter of excuse based on impossibility, the rationale
upon which it rests-the doctrine of implied conditionshas given way to a more direct form of analysis
premised on risk allocation (note that the Taylor court
observes the risk the music hall might not be available
was not allocated in the Kx by way of express warranty
or condition, first paragraph, p.826).
• The current analysis deployed by courts somewhat
resembles that used in deciding whether a party
should be excused based on mutual mistake in terms of
risk analysis.
Analysis: Impossibility
1. Did an unforeseen, supervening event arise?
(Recall that mutual mistake is the appropriate
doctrine where the is a mistake as to facts that
exist at the time of Kx formation.)
2. Did the event render performance impossible?
3. Was the risk of the event allocated by Kx or
otherwise?
4. Which party is the better risk-bearer?
What result in Taylor v. Caldwell under this analysis?
Mineral Park Land Co. v. Howard, p.821
MPL Co. (D)
Kx to build
bridge
LA County
Promise to take all gravel
needed for project from
P’s land, 5 cents per yd
MPL Co. (D)
Howard (P)
Grant right to
take gravel for
bridge project
(Mineral Park Land Co. v. Howard)
• D took about half the gravel it required for the
project from P’s land as agreed; however, to
take the remainder of the gravel it needed
from P’s land would have required
extraordinary means and methods, the cost of
which to D would have been ‘prohibitive’.
• Accordingly, D acquired the remaining gravel
for the project elsewhere.
(Mineral Park Land Co. v. Howard)
• Kx Formation
• Enforcement
• Performance and Breach
– P, Howard, alleges breach by D, MPL Co., did not
take and pay for all gravel needed for the project
from my land.
– Response: No breach, excuse: my nonperformance, not taking all the gravel required for
the project, is excused because of impossibility
(impracticability).
(Mineral Park Land Co. v. Howard)
• Was D’s performance literally impossible? What
result under Taylor v. Caldwell?
• Does the court conclude D was excused owing to
impossibility? How did it define that term? See
paragraph four, p.823.
• Does the court go so far as to say performance in
impossible/impracticable where it proves to be
more expensive than the party seeking to avoid
enforcement contemplated? See same
paragraph.
(Mineral Park Land Co. v. Howard)
• The analysis for Impracticability is nearly identical
with that for Impossibility (literal impossibility ala
Taylor v. Caldwell) with a single adjustment:
1. Did an unforeseen, supervening event arise? (Recall
that mutual mistake is the appropriate doctrine
where the is a mistake as to facts that exist at the
time of Kx formation.)
2. Did the event render performance impracticable?
3. Was the risk of the event allocated by Kx or
otherwise?
4. Which party is the better risk-bearer?
(Mineral Park Land Co. v. Howard)
• The court essentially says D was excused
because performance was more costly: few
cases have gone so far as to say mere added
expense constitutes impracticability. The
court does indicate that D’s cost to perform
was significantly higher.
• Is it also possible that the court regarded
Howard as the better risk bearer? Why might
that be the case?
Transatlantic Financing Corp. v. U.S., p.830
• Scope: the court repeatedly refers to UCC §2-615. Does the
Article 2 apply to this case?
• If not, why does the court refer to it?
– Well developed commentary useful by analogy
Elements of Impossibility/Impracticability Response
1. Was the closing of the Canal a supervening
contingency/event? Does it matter that the event was,
perhaps, forseeable?
2. Was the risk that the Suez route might not be available
allocated? What facts suggest it might have been
impliedly allocated to TFC, if at all? See first full
paragraph, p.835. What does the court conclude on the
question of allocation?
Transatlantic Financing Corp. v. U.S., p.830
3. The Kx price of carriage was something over $300,000;
the additional expense to TFC in having to sail around the
Cape of Good Hope was something over $40,000. Did
that render TFC’s performance impracticable?
• Note that, unlike in the Mineral Park case, where the D
raised impracticability as a response to the allegation
of breach, the suitor in this case is TFC. That is to say,
TFC isn’t defending its non-performance based on
excuse: TFC fully performed and now seeks restitution
for the value of the benefit conferred on the U.S. The
court suggests this was a tactical error on the part of
TFC. How so? See last paragraph, p.835-836. What
should TFC have done instead?
Transatlantic Financing Corp. v. U.S., p.830
• Force Majeure Clauses: parties sometimes
expressly provide for excusing there
performance in the event of named
contingencies, e.g., delay. Such clauses are
generically referred to as Force Majeure
clauses.
Section 3: Frustration of Purpose, p.854
• No breach, Excuse, Frustration of Purpose
bears a close relationship to the
Impossibility/Impracticability response.
However, in the case of frustration of purpose,
performance of the Kx is possible, but the
reason for its making has dissolved. The term
sometimes used is ‘failure of consideration’.
Krell v. Henry, p.854
• The prototypical frustration case. Henry was
certainly capable of performing-paying the
price of the rental: there was no impediment
to performance. On what basis was
Defendant excused from performance?
– The basis upon which the kx was formed was
frustrated, excusing Henry’s performance.
Krell v. Henry
• The modern analysis for the frustration response
is, it should come as no surprise, nearly identical
with that for Impossibility:
1. Did an unexpected event occur?
2. Did the event frustrate the purpose of the Kx,
rendering the consideration to be received
valueless?
3. Was the risk of the event allocated by Kx or custom?
4. Who should bear the risk of the event and
consequent frustration of purpose?
Swiss Canadian Co. v. Banet, p.858
• What was the unexpected event which, from
the buyer’ (defendant’s) perspective
frustrated the Kx?
• Did, indeed, the event frustrate the purpose
of the Kx? See near bottom of paragraph 2,
p.860.
• In any event, was the risk of the “event”
allocated in the Kx? Were the shipping
instructions relevant in deciding the question?
Chapter 7 Remedies for Breach: Section 2.
Measuring Expectations, p.606
• Once it ha been shown that a Kx has been formed, is
enforceable and has been breached, the plaintiff is
entitled to a remedy for Br/Kx. The remedies therefore
may compensate the plaintiff for lost expectations for
the defendant’s non-performance (expectancy, or
expectation interest), for costs incurred in relying on
the Kx (reliance interest) and for any benefit conferred
by the plaintiff on the defendant (restitution interest).
The latter, restitution interest, in this context refers to
restitution as a remedy for Br/Kx, NOT to restitution as
a cause or action (Quasi Kx, Quantum Meruit, etc.).
Chapter 7 Remedies for Breach: Section 2.
Measuring Expectations, p.606
• Generally, the injured party fares best with
compensation based on lost expectations, but
compensation based on either reliance or
restitution may sometimes exceed the
recovery based on the plaintiff’s expectation
interest.
Measuring Expectation Interest
• Compensatory Damages: Farnsworth’s
Formula (A): Loss on the Bargain = Loss in
Value + Other losses – Cost Avoided
• Loss in Value = the difference between what
plaintiff expected to get (i.e., was promised)
and what plaintiff actually got, if anything (i.e.,
partial performance by breaching party).
• Cost Avoided is the savings to the plaintiff
from breach.
Measuring Expectation Interest
• (Farnsworth’s Formula (A))
Loss on Bargain
Loss in Value
What breaching
party was to have
done
Cost Avoided
Savings to non-breaching party
from not having to perform all
or part of its obligations
because of D’s breach
What breaching
party actually did
Measuring Expectation Interest (Plus Incidentals)
• Translating Formula A into Quadrants
Expected to get
Actually Got (i.e.,
part performance
by breaching
party)
Net of these
quadrants = Loss
in Value
Net of these
quadrants Cost
Avoided
Expected to Give
Actually Gave
(i.e., part
performance by
non-breaching
party)
PLUS
Incidentals (post
breach expenses)
Not what Plaintiff
expected to give,
but what P ended
up having to give
b/c of D’s breach
Measuring Expectation Interest
(Formula A)
• Hypo:
Prom to build
Contractor
Owner
Prom to pay $100K
• Kx price for the work is $100K
• Assume Contractor’s cost to build is $80K (profit is $20K)
• After spending $50K, Contractor is wrongfully dismissed by
Owner
• Owner paid Contractor nothing to that point
Measuring Expectation Interest
(Formula A)
• Hypo:
Prom to build
Contractor
Owner
Prom to pay $100K
Expected to get
$100K
Expected to Give
$80K
Actually Got -0-
Actually Gave $50K
Loss in
Value=$100K
Cost
Avoided=$30K
Loss in Value – Cost Avoided = Loss on
Bargain=Expectation Damages
$100K-$30K=$70K
Measuring Expectation Interest
• Compensatory Damages: Farnsworth’s
Formula (B):
• Profit + Cost of Reliance = expectation
damages/Loss on the Bargain
Measuring Expectation Interest
• (Farnsworth’s Formula (B))
Loss on Bargain
Cost NOT
avoided (i.e.,
amount spent in
reliance)
Kx Price – Kx Cos
= Profit (i.e.,
Expected to get
less Expected to
Give
Measuring Expectation Interest
(Formula B)
• Hypo:
Prom to build
Contractor
Owner
Prom to pay $100K
Expected to get
$100K
Actually Got -0-
MINUS
Expected to Give
$80K
Actually Gave $50K
Cost of
Reliance
Profit + Cost of Reliance=Expectation Dmgs
=
PROFIT
Lost Profits and Fixed Costs, p.608
Vitex Mfr. Corp. v. Caribtex Corp., p.609
Formula A
Prom to process wool
Vitex
Owner
Prom to supply wool
and pay for processing
Expected to get
$31,250
Expected to Give
$10,136
Actually Got -0-
Actually Gave -0-
Loss in
Value=$31,250
Cost
Avoided=$10,136
Loss in Value – Cost Avoided = Loss on
Bargain=Expectation Damages
$31,250-$10,136=$21,114
Vitex Mfr. Corp. v. Caribtex Corp
• The issue in the case involves a dispute over
what part, if any, overhead should play in
calculating damages. What is overhead?
– These are the fixed costs of doing business, or the
“continuous expenses of running the business
irrespective of the outlay on a particular contract”.
Examples include, property taxes, salaries,
administrative expenses and the like.
Vitex Mfr. Corp. v. Caribtex Corp
• The defendant, Caribtex, asserts that the
plaintiff’s overhead should be a factor in
determining damages due to the plaintiff.
Which component of the damages formula
would be effected by the inclusion of
overhead?
– Caribtex argued that a portion of plaintiff’s
overhead should be allocated pro rata to the Kx
between them and included as a cost avoided. To
do so would, of course, reduce plaintiff’s recovery.
Vitex Mfr. Corp. v. Caribtex Corp
• The court holds that overhead costs are not
part of cost avoided. What is the court’s
rationale?
– Not having to perform the Kx with Caribtex did not
reduce plaintiff’s overhead cost: they would be
the same with or without the Caribtex Kx.
Accordingly, Vitex saved nothing by way of
overhead in avoiding performance owing to
Caribtex’s breach: overhead was not a cost
avoided.
Vitex Mfr. Corp. v. Caribtex Corp
• Doesn’t the court’s characterization of
overhead fly in the face of accounting
principles (see last paragraph, p.611.) How
does the court address that point? See first
two paragraphs, p.612.
Laredo Hides Co. v. H&H Meat Products
Co., p.613
• Scope
– Subject matter: which law within the state?
– This is a Kx for the sale of goods, and is thus
governed by UCC Article 2.
• Kx Formation: Kx for the sale of hides
• Enforcement-no bars
• P&B: Breach by seller, H&H, did not deliver
hides
– What response does H&H initially raise?
Laredo Hides Co. v. H&H Meat
Products Co
• H&H’s “No breach, justification”. The response
fails: why? See second paragraph, p.614. What,
do you suppose, was the real reason H&H didn’t
deliver the hides as promised?
• With no response to the allegation of breach, it
remains only to determine the remedy available
to Laredo Hides. Note that, when it was unable
to obtain the hides it needed elsewhere, LH
initially sought specific performance.
• What, in the end, did LH do when H&H refused to
deliver the hides?
Laredo Hides Co. v. H&H Meat
Products Co
• LH bought the hides it needed from another
seller at a considerably higher cost. As the
case is governed by the UCC, the Codes
provisions on damages control.
• What are a buyer’s options under Article 2 on
seller’s default?
• The beginning point is UCC 2-711 which
essentially contains a menu of options for the
buyer. What options are available?
Laredo Hides Co. v. H&H Meat
Products Co
• Which option did LH choose?
• LH chose to ‘cover’: see 2-712.
• What other options might LH have elected
under that provision?
Laredo Hides Co. v. H&H Meat
Products Co
• 2-712 Cover
1. Damages = Cost to cover (i.e., cost of substitute
goods) – Kx Price. Note ‘without unreasonable
delay” qualification: what purpose does it serve?
2. Authorizes Incidental and Consequential
damages.
• 2-713 Damages for Non-delivery/Repudiation
1. Damages = Market Price – Kx Price + Incidental
and Consequential damages.