749 - 766, Rest.

§§ 231-239, 241 UCC §§ 2-503 | 507, 508, 511, 513, 601, 602, 606, 607, 608, 612, 711

Restatement and UCC Sections:

231: Criterion for determine when performances are to be exchanged under an exchange of promises:

Performances are to be exchanged under an exchange of promises if each promise is at least part of the
consideration for the other and the performance of each promise is to be exchanges at least in part for
the performance of the other.

232: When it is presumed that performances are to be exchanged under an exchange of promises:

Where the consideration given by each party to a contract consists in whole or in part of promises, all
the performances to be rendered by each party taken collectively are treated as performances to be
exchanged under an exchange of promises, unless a contrary intention is clearly manifested.

233: Performance at one time or in installments

(1) Where performances are to be exchanged under an exchange of promises, and the whole of one
party’s performance can be rendered at one time, it is due at one time, unless the language or
the circumstances indicate the contrary.
(2) Where only a part of one party’s performance is due at one time under Subsection (1), if the
other party’s performance can be so apportioned that there is a comparable part that can also
be rendered at that time, it is due at that time, unless the language or the circumstances
indicate the contrary.

234: Order of Performances:

(1) Where all or part of the performances to be exchanged under an exchange of promises can be
rendered simultaneously, they are to that extent due simultaneously, unless the language or the
circumstances indicate the contrary.
(2) Except to the extent stated in Subsection (1), where the performance of only one party under
such an exchange requires a period of time, his performance is due at an earlier time than that
of the other party, unless the language or the circumstance indicate the contrary.

235: Effect of performance as discharge and of non-performance as breach:

(1) Full performance of a duty under a contract discharges the duty

(2) When performance of a duty under a contract is due any non-performance is a breach

236: Claims for damage for total and partial breach:

(1) A claim for damages for total breach is one for damages based on all of the injured party’s
remaining rights to performance
(2) A claim for damages for partial breach is one for damages based on only part of the injured
party’s remaining rights to performance

237: Effect on other party’s duties of a failure to render performance:

Except as stated in Sec 240, it is a condition of each party’s remaining duties to render performances to
be exchanged under an exchange of promises that there be no uncured material failure by the other
party to render any such performance due at an earlier time.

238: Effect on other party’s duties of a failure to offer performance:

Where all or part of the performances to be exchanged under an exchange of promises are due
simultaneously, it is a condition of each party’s duties to render such performance tha the other party
either render or, with manifested present ability to do so, offer performance of his part of the
simultaneous exchange.

239: Effect on other party’s duties of a failure justified by non-occurrence of a condition

(1) A party’s failure to render or to offer performance may, except as stated in Subsection (2), affect
the other party’s duties under the rules stated in Sec 237 and 238 even though failure is justified
by the non-occurrence of a condition
(2) The rule stated in Subsection (1) does not apply if the other party assumed the risk that he
would have to perform in spite of such failure.

241: Circumstances significant in determining whether a failure is material:

In determining whether a failure to render or to offer performance is material, the following

circumstances are significant:

(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part of that benefit of
which he will be deprived
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking
account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with
standards of good faith and fair dealing.

Constructive Conditions of Exchange:

This section introduces problems of performance and non-performance that do not turn on express
conditions.
Two main instruments of the law for this:
1) Constructive Conditions
2) Material breach
“The commitments exchanged by the parties are dependent covenants”
 Kingston v. Preston: King’s Bench, 1773

Rule of Law:

When one party’s performance under a contract is dependent on the prior performance of the other
party, the other party’s performance is a condition precedent and performance will be excused unless
the condition is satisfied.

The court entered judgement for Preston: Preston does not have to sell because they were dependent
covenants.

Facts

Preston (defendant) was a silk merchant.

Kingston (plaintiff) agreed to serve as Preston’s apprentice.

Preston promised to sell the business to Kingston and a partner after the apprenticeship was completed,
who would continue to operate out of Preston’s home.

Kingston promised to provide Preston with “sufficient security” and pay fair value for the business.

Kingston was unable to put up sufficient security.

Kingston sued for breach of contract, arguing that he was willing to perform his obligations under the
contract but that Preston refused to sell the business.

Preston argued that Kingston never provided the promised security.

Kingston demurred.

Kingston asserted that Preston was still obligated to transfer the business as agreed, because the
parties’ mutual promises were independent of one another.

Consequently, Preston could not rely on Kingston’s breach to avoid his obligations under the contract.

Kingston argued that his non-performance merely provided a basis for Preston to bring a separate action
against Kingston for breach.

Conversely, Preston argued that the mutual promises made in their agreement were dependent on one
another, and that Kingston’s failure to perform relieved Preston of his obligation to perform.

Issue

When one party’s performance under a contract is dependent on the prior performance of the other
party, may that party avoid the contract if the prior condition is not satisfied?

Holding and Reasoning (Mansfield, L.)

Yes. Preston’s transfer of the business was dependent on Kingston satisfying the condition precedent of
providing adequate security. There are three types of covenants:
First, “mutual and independent covenants” require each party to perform his or her obligation,
irrespective of whether the other party has performed. The other party’s breach will not excuse
performance.

Second, conditional and dependent covenants, in contrast, condition the performance of one party on
the prior performance of the other. Thus, a party’s performance will be excused if the other party fails
to perform the prior condition.

Third, mutual conditions have to be performed concurrently. If both parties are obligated to perform at
the same time, a party who is ready, willing, and able to perform may be able to sue if the other party
refuses. It is unclear whether the willing party must first perform.

The intent of the parties controls the type of covenant at issue and the time that performances are
required.

Here, Kingston was to perform first by providing security for the transfer of Preston’s business. To find
the promises independent and require Preston to transfer his business without first receiving security
from Kingston would produce an unfair result.

Therefore, Kingston’s performance was a condition precedent that had to be met before Preston was
required to perform. Judgment is entered for Preston.

The time of performance has an important role in allocating the risk that one party will perform but will
not receive the other party’s return performance.

It’s generally a gap-filler that the doing must take place before the giving.

Stewart v. Newbury: Ct of Appeals of NY, 1917

Rule of Law

Where a contract requiring performance of work does not specify the timing of payment, then the work
must be substantially performed before payment is required.
Facts

Stewart (plaintiff) contracted to do excavation and concrete work for Newbury (defendant), with
payment to be made on a per-cubic-foot and per-ton basis, respectively.

However, the written contract made no specification as to when payment was to occur.

After working from July to September, Stewart submitted a bill.

Newbury responded by letter that the bill would not be paid because Newbury disagreed with the
content of the bill and because the work was not complete.

Stewart stopped working on the building and sued Newbury.

At trial, Stewart testified that after sending his bill, he had a telephone conversation with Newbury,
confirming that payment was to be made “in the usual manner.”

Stewart testified further that it was customary to receive payment for 85 percent of the work on a
monthly basis.

Newbury denied the phone conversation, and asserted that he was not obligated to pay Stewart’s bill
since Stewart had not completed the work.

The trial court instructed the jury that if the parties’ agreement was silent regarding the timing of
payment, Stewart was entitled to payment at reasonable intervals, and Newbury’s refusal to pay
entitled him to stop working and sue for damages.

The jury returned a verdict for Stewart and Newbury appealed.

The Appellate Division affirmed and Newbury appealed that decision.

Issue

If a contract for the performance of work does not specify when payment is to be made, must the work
be substantially performed before payment may be required?

Holding and Reasoning (Crane, J.)

Work must be substantially performed before payment is required if a contract of work does not specify
when payment is to be made.

It is well settled that when a contract is made for the performance of work but does not specify when
payment should be made, the work must be substantially performed before payment is required.

Here, the trial court instructed the jury to find for Stewart if the agreement did not specify the timing for
payment and Newbury failed to pay Stewart’s bill.

However, the rule directs the opposite outcome.

Since the agreement between Stewart and Newbury did not specifically require that some payment be
made monthly, then the rule of substantial performance applies and Newbury could not be required to
make payments until Stewart had substantially performed the contracted work.

Since the matter was submitted to the jury on two grounds, and it cannot be determined which of the
grounds the jury based its award, a new trial is necessary.

The judgment of the Appellate Division is reversed and the matter remanded to the trial court for a new
trial.

“Where two concurrent acts are to be done, the party who sues the other for non-performance must
aver that he has performed, or was ready to perform, his part of the contract”

Two senses of the word “tender”:

Stricer sense: it contemplates an offer coupled with a present ability to fulfill all the conditions resting
on the tendering party and must be followed by actual performance if the other party shows himself
ready to proceed

Looser sense: something less than this will do if “he fails to proceed in some manner”

vv doctrine of substantial performance vv

Jacob & Youngs v. Kent: Ct of Appeals of NY, 1921

Rule of Law

If a party substantially performs its obligations under a contract, that party will not be forced to bear the
replacement cost needed to fully comply with the agreement but instead will owe the non-breaching
party the difference in value between full performance and the performance received.

Kent owed the builder the unpaid balance on the house.

Facts

Jacob & Youngs (Jacob) (plaintiff) is a general contractor that built a country residence for Kent
(defendant).

The contract stated that Jacob was to be paid $77,000, and one specification in the contract was that all
pipes used be manufactured in Reading, Pennsylvania.

Jacob completed work in June 1914. In March 1915, Kent noticed that some of the pipe was
manufactured in other places besides Reading.
Kent demanded the pipe be replaced.

Replacement of the pipe, however, would require substantial additional work and expense by Jacob.

Additionally, the existing pipe was of the same quality as Reading pipe and was supplied based on an
innocent mistake by Jacob caused by the inattention of its subcontractor.

Jacob left the existing pipe untouched and asked for a certificate from Kent that the final payment of
$3,483.46 was due.

Kent refused to supply the certificate, and Jacob brought suit to recover damages.

At trial, Jacob was not allowed to introduce evidence that the pipe installed was of the same quality as
Reading pipe, and the jury entered a verdict for Kent. The appellate court reversed and granted a new
trial.

Issue

If a party substantially performs its obligations under a contract, will that party be forced to bear the
replacement cost needed to fully comply with the agreement?

Holding and Reasoning (Cardozo, J.)

If a party substantially performs its obligations under a contract, it was not be forced to be the
replacement cost needed to fully comply with the contract.

Jacob substantially performed its contract with Kent with only trivial defects and is thus entitled to
receive the remainder of the amount owed under the contract.

A party that substantially performs its obligations under a contract may recover expectation damages
for any remaining payment owed under the contract, minus an offset for defects in the party’s
performance.

“Substantial performance” is a question of degree and is appropriate for determination by a trier of fact.

The trier of fact appropriately concluded that the defect in the pipes supplied by Jacob is insignificant in
relation to the overall project.

Thus, even though full performance of the contract was not completed, principles of fairness and equity
justify not penalizing Jacob significantly by withholding payment when the effect of the defect itself was
so insignificant.

The need for fairness and equity in the enforcement of contracts outweighs the need for consistency
and certainty in legal principles as a policy matter, and justifies awarding expectation damages for Jacob
on the contract which it substantially performed.

The decision of the appellate court is affirmed.

Dissent (McLaughlin, J.)

Because Kent contracted for Reading pipe, that is what he should have received.
The majority of the pipe was not manufactured by Reading, meaning that Jacob's mistake was either
willful or grossly negligent.

In either case, Jacob should not avoid liability.

Jacob failed to install the agreed-upon pipes, and thus the contract was breached whether or not the
other pipes were of equivalent quality.

There was no evidence showing the cost of complying with the contract and installing the correct pipes,
or explaining why the wrong pipe was used.

The perfect tender rule:

During the 19th century, a rule developed that a buyer was entitled to reject goods unless the seller
made a “perfect tender”.

The requirement of perfection covered not only the quantity and quality of the goods but also the
details of shipment.

Learned Hand said “there is no room in commercial contracts for the doctrine of substantial
performance”.

The drafters of the UCC gave this reason for retaining the perfect tender rule (UCC 2-601):

“first…the buyer should not be required to guess at his peril whether a breach 9is material;
second…proof of materiality would sometimes require disclosure of the buyer’s private affairs such as
secret formulas or processes”

The code softens the rules in several ways

UCC 2-508 gives a seller the power to cure a defective tender “if the time for performance has not yet
expired (and, in some circumstances, even if it has expired)

The attempt to cure is within seller’s discretion.

UCC 2-608 allows a buyer who has already accepted goods to revoke that acceptance (and return the
goods to the seller) only if the non-conformity substantially impairs their value to him”

UCC 2-612 allows a buyer under a contract for delivery of goods in installments to reject an installment
only if non-conformity as to the goods substantially impairs the value of that installment

Bartus v. Riccardi: New York City Court, 1967

Rule of Law

Unless a seller and buyer have agreed to strict performance, the seller’s delivery of a nonconforming
article to the buyer may be remedied by the seller if the seller reasonably believed that the buyer would
accept the nonconforming good and the seller seasonably notifies the buyer of the seller’s intent to
substitute a conforming good.

Facts

Frank Riccardi (defendant) purchased a Model A-660 Acousticon hearing aid from Frank Bartus
(plaintiff), a licensed representative of Acousticon, making a down payment of $80.

When the hearing aid was delivered, however, it was a Model A-665, which was represented to be a
newer, improved version of the A-660.

Riccardi was fitted with the aid, but it immediately bothered him.

Approximately one week after receiving it, he returned the hearing aid to Bartus, complaining about
headaches it caused and that it was not the model he ordered.

Bartus offered to obtain an A-660, to which Riccardi did not respond affirmatively or negatively.

Neither party expressed anything about canceling their existing contract.

Bartus immediately contacted Acousticon, which promptly sent a letter to Riccardi offering to deliver
the A-660 or a replacement of the A-665 he had been given.

Riccardi declined to accept either, and Bartus then sued him for the balance owed on their contract.

The trial court considered the principal legal issue of the case.

Issue

Where a seller agrees to sell a particular item to a buyer and then delivers a different item out of an
honest belief that the buyer will accept such item, may the seller avoid the buyer’s rejection by
promptly notifying the buyer that the seller will replace the rejected item with the one originally
purchased?

Holding and Reasoning (Hymes, J.)

Yes. Under Uniform Commercial Code (UCC) § 2-508, which is operative under New York law, a
nonconforming delivery of goods may be cured by the seller

(1) within the period of the parties’ contract so long as the seller notifies the buyer of an intention to
replace the nonconforming goods with conforming goods and delivers such replacement within that
period or

(2) outside the contract period so long as the seller reasonably believed that the buyer would accept the
nonconforming goods and “seasonably” no tifies the buyer of the seller’s intention to replace the
nonconforming goods with conforming goods.

The purpose of the rule is to prevent the seller from undue harm caused by a buyer’s surprise rejection.
An exception to the rule lies where the parties agree or otherwise understand that the transaction is
subject to strict performance.
In this case, Bartus’s conduct satisfied the conditions of UCC § 2-508.

Because Model A-665 was intended to be a new and improved version of Model A-660, Bartus
reasonably believed that Riccardi would accept it.

After Riccardi’s rejection, Bartus acted seasonably in notifying Riccardi of his intention to deliver the A-
660. Riccardi did not purchase a hearing aid from someone else.

Thus, his position was not harmed by his initial receipt of the A-665 instead of the A-660. The court finds
in favor of Bartus.

When is a buyer justified in rejecting goods?

1) The buyer must not have accepted the goods

2) The goods or their tender must not conform to the contract
3) The seller must either have no cure right or ,must not have exercised it effectively and rightfully

Even if these three elements are in place, the buyer still must reject the goods in a procedurally proper
way under Sec 2-602.

Rejection must be within a reasonable time after delivery or tender and the buyer seasonably notify the
seller of the rejcection.

This leaves four possibilities:

Either the rejection is substantively proper or it is not\

And either it is procedurally proper or it is not.

A substantively proper rejection is termed rightful and a substantively improper rejection is wrongful.

A procedurally proper rejection is effective, a procedurally improper rejection is ineffective.

A rightful but ineffective rejection is no rejection at all.

A wrongful but effective rejection is a rejection.