Formation determines whether the parties created an enforceable contract. The next stage asks what happens when the time for performance arrives.
A party may have promised to construct a building, deliver goods, provide personal services, pay money, obtain approval, or complete another contractual obligation. Liability does not follow merely because the promised result did not occur. The student must determine whether the duty became due, whether a condition was satisfied, whether the performance was legally sufficient, whether a breach was material, and whether an unexpected event excused nonperformance.
Performance problems therefore require careful sequencing. Before stating that a party breached, ask whether that party’s duty was conditional. Before concluding that a defective performance discharged the other party, determine whether the defect was material. Before applying the common-law substantial-performance doctrine to a sale of goods, determine whether Article 2’s perfect-tender rule controls. Before treating an expression of concern as anticipatory breach, determine whether the statement was unequivocal. Before excusing performance, identify whether the contract allocated the relevant risk.
The principal questions are:
- What performance was required?
- When was performance due?
- Was a condition satisfied or excused?
- Was performance substantial or defective?
- Was the breach material?
- Did a party repudiate before performance was due?
- Was performance discharged by impossibility, impracticability, frustration, or a force-majeure clause?
These questions are related but distinct. A condition controls whether a duty becomes due. A promise identifies an obligation whose nonperformance may constitute breach. Substantial performance concerns the sufficiency of common-law performance. Material breach determines whether the injured party must continue performing. Repudiation concerns a breach announced before the performance date. Excuse doctrines address extraordinary circumstances that may discharge duties without imposing ordinary breach liability.
I The Performance Analysis Framework
A complete performance analysis should proceed in sequence.
Identify the Obligation
Identify the specific obligation allegedly left unperformed.
Promise vs. Condition
Determine whether the obligation is a promise, a condition, or both.
Classify Condition
Classify any condition as express, constructive, precedent, concurrent, or subsequent.
Condition Status
Determine whether the condition occurred, was satisfied, was prevented, was waived, or may be excused.
Governing Law
Common law generally applies substantial-performance. Article 2 generally applies the perfect-tender rule.
Seriousness of Defect
Evaluate the nature and seriousness of any defective performance (Material vs. Minor).
Divisibility & Exceptions
Determine if the contract is divisible. In goods, analyze rejection, cure, and acceptance.
Repudiation & Excuse
Analyze anticipatory repudiation or excuse (impossibility, impracticability, frustration).
This order matters. A party does not breach a duty that never became due. A minor breach ordinarily does not excuse the other party’s remaining obligations. An event does not excuse performance merely because it made the contract unprofitable.
II. Conditions and Promises
A condition is an event that must occur, unless excused, before a contractual duty becomes due or is discharged.
A promise is a commitment to act or refrain from acting. Failure to perform a promise constitutes breach. Failure of a condition ordinarily means that a related duty does not become due.
The Distinction
Suppose Owner promises to pay Contractor $100,000 if an architect certifies that construction complies with the plans.
- Contractor’s obligation to construct according to the plans is a promise. Failure to do so may be breach.
- The architect’s certification may be a condition of Owner’s duty to pay. If certification does not occur, Owner’s payment duty may not become due (subject to prevention/waiver doctrines).
The same language may create both a promise and a condition. If Seller agrees to deliver machinery by June 1 and the contract states that timely delivery is a condition of Buyer’s duty to pay, Seller has promised timely delivery, and timely delivery also functions as a condition.
The distinction is important because the remedies differ. Breach of a promise may create damages. Failure of a condition may prevent the other party’s duty from arising even when no damages are independently available for the condition’s nonoccurrence.
A. Express Conditions
An express condition is created by contractual language showing that the parties intended an event to control a duty.
Common conditional phrases include: “Provided that,” “On condition that,” “If,” “Unless,” and “Subject to.” No particular phrase is automatically conclusive. The agreement must be read as a whole. Courts generally avoid interpreting language as a strict condition when a reasonable alternative interpretation would prevent an unjust forfeiture, particularly when the language is uncertain.
When a contract clearly establishes an express condition, strict compliance is ordinarily required. Substantial compliance may be insufficient.
Suppose an insurance policy requires written notice of a claim within thirty days as an express condition of coverage. Notice on the thirty-first day may fail the condition, subject to governing law and any doctrines limiting forfeiture. This strict treatment reflects freedom of contract. Courts are ordinarily reluctant to substitute a different event.
A court may excuse nonoccurrence to avoid disproportionate forfeiture when the condition is not a material part of the agreed exchange. This doctrine is limited. A court is less likely to excuse a condition that formed an important part of the parties’ risk allocation or that concerned the central exchange.
B. Constructive Conditions
Constructive conditions are supplied by law rather than stated expressly.
In many bilateral contracts, one party’s substantial performance is treated as a constructive condition of the other party’s remaining performance. The law organizes the exchange so that a party who materially fails to perform cannot insist that the other party fully perform.
Unlike express conditions, constructive conditions ordinarily do not demand literal perfection. Substantial performance may satisfy the condition, leaving the injured party with a damages claim for remaining defects.
Constructive conditions reflect fairness and exchange. They prevent one party from receiving the substantial benefit of performance while refusing all reciprocal performance because of a minor defect.
C. Conditions Precedent, Concurrent, and Subsequent
- Condition Precedent: Must occur before a duty becomes due. (e.g., A financing contingency making the buyer’s obligation to close dependent on obtaining a loan).
- Concurrent Conditions: Require simultaneous or mutually dependent performance. (e.g., In a cash sale, the seller’s tender of goods and the buyer’s tender of payment).
- Condition Subsequent: Terminates an existing duty when the specified event occurs. (e.g., An obligation to make payments continues unless a specified terminating event occurs).
III Satisfaction and Prevention of Conditions
A condition may be satisfied through occurrence of an event, completion of performance, certification, approval, passage of time, or delivery of notice. The contract determines what is required.
A party ordinarily may not wrongfully prevent a condition and then rely on its nonoccurrence. This is the prevention doctrine.
Suppose Seller must obtain Buyer’s approval of final product specifications before manufacturing begins. Buyer deliberately refuses to review the specifications so that Buyer can escape a now-unfavorable contract. Buyer may not prevent approval and then argue that Seller’s performance duty never arose.
The related duty of cooperation requires a party to take reasonable steps necessary to allow the other party to perform. A contract may not expressly state every cooperative act, but good faith may require access, information, approvals, scheduling, or other assistance essential to performance.
Exam Tip
When a condition fails, ask who controlled its occurrence. A party that wrongfully prevented the condition may be unable to rely on the failure.
Waiver
Waiver is the voluntary relinquishment of a known contractual right or condition. It may be express or implied through conduct.
If a buyer repeatedly accepts deliveries on the fifth day of each month despite a first-day delivery requirement, the buyer’s conduct may waive strict enforcement for those performances.
A waived condition may sometimes be reinstated through reasonable notice when the other party has not materially relied on the waiver. The party seeking reinstatement must ordinarily allow a fair opportunity for future compliance.
Waiver vs. Modification
- Modification changes the parties’ contractual obligations entirely. It may require consideration under common law or good faith under Article 2.
- Waiver excuses or relinquishes compliance with an existing condition or term. It may arise without a complete renegotiation of the agreement.
Reliance may make a waiver irrevocable. If one party reasonably changes position in response to the waiver, the waiving party may be prevented from suddenly insisting on strict compliance.
IV Substantial Performance (Common Law)
Under common law, a party who substantially performs may recover the contract price minus damages caused by the remaining defects.
Substantial performance does not mean perfect performance. It means performance sufficiently close to the promised result that the other party received the essential benefit of the bargain.
Relevant considerations include:
A material breach prevents substantial performance.
The analysis changes when the deviation was intentional and involved a clearly negotiated requirement. A party who knowingly substitutes materially different performance may be denied the protection of substantial performance. The doctrine seeks to prevent forfeiture without eliminating the injured party’s right to receive the promised benefit.
V. Material Breach
A material breach is sufficiently serious to excuse the injured party’s remaining performance and support an immediate claim for total breach.
No single factor is always controlling. The question is whether the failure defeats the essential purpose of the exchange or can be addressed through damages while performance continues.
A minor or partial breach permits damages but does not ordinarily excuse the injured party’s remaining obligations. Suppose a tenant is one day late with a minor maintenance report under a long-term commercial lease. The landlord may have a claim if the delay caused loss, but the defect is unlikely to justify terminating the entire lease. By contrast, a contractor’s abandonment of a half-completed building project may substantially deprive the owner of the expected benefit and constitute a material breach.
A breach may begin as material but be curable. The injured party’s rights may depend on whether the breaching party promptly corrects the defect and whether the contract allows time for cure.
Common Trap
Do not assume that every breach excuses the other party’s performance. A minor breach produces a damages claim but ordinarily leaves the remaining contractual duties in force.
VI. Divisible Contracts
A contract may be divisible when the parties’ performances can be separated into corresponding pairs of part performances that were treated as agreed equivalents.
Suppose an employer agrees to pay a consultant $5,000 for each of six independent training sessions. If the consultant completes four sessions and breaches by refusing to conduct the final two, the consultant may recover for completed units, subject to damages.
The result differs when the contract calls for one integrated performance. A promise to construct an entire building for one price may not be divisible merely because construction occurred in stages. Divisibility limits forfeiture when completed portions can fairly be separated from the breached remainder.
VII Article 2 and the Perfect-Tender Rule
Common-law substantial performance does not ordinarily govern a single delivery of goods under Article 2.
Under the perfect-tender rule, the buyer may generally reject goods if the goods or tender fail in any respect to conform to the contract. The buyer may reject all, accept all, or accept any commercial units and reject the rest. Rejection must occur within a reasonable time after delivery or tender, and the buyer must seasonably notify the seller.
The phrase “in any respect” makes the rule appear absolute, but several limitations prevent opportunistic rejection:
1. Seller’s Right to Cure
A seller may cure a nonconforming tender when the time for performance has not expired. The seller must seasonably notify the buyer of the intention to cure and provide conforming goods within the contract period.
Cure may also be permitted after the stated performance time when the seller had reasonable grounds to believe the nonconforming tender would be acceptable (based on prior dealings, trade practice, or history of accepting substitutions). The seller must seasonably notify the buyer and cure within an additional reasonable time.
2. Acceptance of Goods
A buyer accepts goods by indicating conformity, indicating willingness to retain despite nonconformity, failing to effectively reject after a reasonable opportunity to inspect, or acting inconsistently with the seller’s ownership.
Once the buyer accepts, the buyer must pay at the contract rate, but may still recover damages for nonconformity if proper notice is given. Acceptance changes the remedy: the buyer ordinarily can no longer reject the goods, but may seek damages or, in qualifying circumstances, revoke acceptance.
3. Revocation of Acceptance
Revocation is more demanding than rejection. A buyer may revoke acceptance when a nonconformity substantially impairs the value of the goods to that buyer AND:
- The buyer accepted on the reasonable assumption that the seller would cure, but cure did not occur; OR
- The buyer accepted without discovering the defect because inspection was reasonably difficult or because the seller’s assurances induced acceptance.
The substantial-impairment requirement prevents buyers from revoking for minor defects after accepting the goods.
4. Installment Contracts
An installment contract authorizes delivery in separate lots. The perfect-tender rule is modified for installments.
A buyer may reject a particular installment when the nonconformity substantially impairs the value of that installment and cannot be cured. The buyer may treat the entire contract as breached only when the nonconformity substantially impairs the value of the whole agreement. This standard protects ongoing commercial relationships from termination based on minor problems in one shipment.
VIII Anticipatory Repudiation & Assurances
Anticipatory repudiation occurs when, before performance is due, a party unequivocally indicates unwillingness or inability to perform.
Repudiation may occur through a clear statement (“I will not deliver the goods under any circumstances”) or a voluntary act making performance impossible (transferring unique property to another buyer). Uncertainty or pessimism (“I am worried that delivery may be difficult”) is not an unequivocal repudiation.
The injured party may generally:
- Treat the repudiation as an immediate breach.
- Suspend its own performance.
- Seek available remedies.
- Wait for performance for a commercially reasonable time.
Retraction
A repudiating party may retract before the other party: materially changes position in reliance, cancels the contract, or clearly indicates that the repudiation is considered final.
Prospective Inability and Adequate Assurances
Reasonable grounds for insecurity do not always amount to anticipatory repudiation.
Under Article 2, a party with reasonable grounds for insecurity may demand adequate assurance of due performance in writing. The party may suspend commercially reasonable performance while awaiting assurance. Failure to provide adequate assurance within a reasonable time (not exceeding 30 days under UCC) may constitute repudiation.
Exam Tip: Distinguish three levels: ordinary concern, reasonable insecurity supporting a demand for assurances, and unequivocal repudiation creating an immediate breach.
IX Excuse and Discharge
A party’s failure to perform is not necessarily breach when an extraordinary event discharges the duty. These doctrines are strongly influenced by risk allocation. A party cannot ordinarily invoke a default excuse doctrine to escape a risk expressly assumed in the contract.
1. Impossibility
Performance is discharged when an unforeseen event makes performance objectively impossible (e.g., death of a person necessary for unique services, destruction of essential subject matter, supervening illegality). "No one can perform" is different from "this party cannot perform."
2. Impracticability
Performance is excused when an unforeseen event makes it extremely and unreasonably difficult or costly, and the event's nonoccurrence was a basic assumption of the contract. Mere increase in cost is insufficient; it must be extreme and connected to an extraordinary event.
3. Frustration of Purpose
Applies when performance remains possible, but an unforeseen event substantially destroys the contract's principal purpose. The purpose must have been understood by both parties (e.g., renting a room solely to view a public event that is later canceled).
4. Force-Majeure Clauses
Expressly allocates risks arising from extraordinary events (natural disasters, war, strikes). The party invoking it must show the covered event caused the nonperformance. Express risk allocation displaces default excuse doctrines.
X. Integrated Hypothetical
"Owner contracts with Builder to construct a theater by September 1. The contract requires certification by Architect before final payment. Builder completes nearly all work but installs a comparable flooring material rather than the specified brand. Architect refuses certification solely because Owner secretly instructed Architect to prevent payment. Before the dispute is resolved, a government order prohibits operation of theaters for six months."
1. Promises & Conditions: Builder’s construction duties are promises. Architect’s certification is an express condition of Owner’s duty to make final payment.
2. Prevention Doctrine: Owner may not wrongfully prevent certification and rely on its nonoccurrence. The prevention doctrine may excuse the condition.
3. Substantial Performance vs. Material Breach: Builder’s flooring substitution raises substantial performance. If minor, functionally equivalent, and compensable with damages, Builder substantially performed. If central and Builder deliberately ignored the requirement, the breach may be material.
4. Frustration of Purpose: The government order does not make construction impossible. Frustration may arise if immediate operation was the contract’s principal purpose understood by both parties. A temporary inability to operate may be insufficient if the theater retains substantial long-term value.
5. Force-Majeure: A clause addressing government orders and delay may control the issue. You must read the clause before relying on default excuse doctrines.
XI. Bar-Style Analysis Notes
- For conditions, distinguish failure of a promise from nonoccurrence of a condition.
- For express conditions, identify clear conditional language and the strict-compliance rule.
- For constructive conditions, analyze substantial performance.
- For prevention, identify the party that controlled or obstructed the event.
- For waiver, identify a knowing relinquishment and any reliance or attempted reinstatement.
- For material breach, discuss deprivation of benefit, damages, forfeiture, cure, and good faith.
- For divisible contracts, identify corresponding pairs of agreed performance.
- For Article 2, begin with perfect tender but immediately examine cure, acceptance, revocation, installments, waiver, and good faith.
- For repudiation, require a clear and unequivocal statement or act.
- For insecurity, analyze adequate assurances rather than prematurely declaring repudiation.
- For excuse, identify the event, basic assumption, causation, risk allocation, alternatives, and contractual language.
Common Trap
Do not use impossibility, impracticability, and frustration interchangeably. Impossibility concerns whether performance CAN occur. Impracticability concerns extreme/unreasonable difficulty. Frustration concerns destruction of the principal purpose even though performance remains possible.
Chapter Summary
A condition is an event that must occur, unless excused, before a contractual duty becomes due. A promise is a commitment whose nonperformance constitutes breach. Express conditions require strict compliance. Constructive conditions (imposed by law) often permit substantial performance.
Conditions may be precedent, concurrent, or subsequent. A party may not wrongfully prevent a condition. Waiver may excuse compliance and arises expressly or through conduct.
Under common law, substantial performance allows recovery of the contract price minus damages for defects. A material breach excuses the injured party’s remaining performance; a minor breach permits damages but ordinarily leaves remaining duties intact.
Under Article 2, the perfect-tender rule generally permits rejection when goods fail in any respect to conform. Limitations include the seller’s right to cure (if time remains or based on reasonable grounds), acceptance, and installment contracts (which use a substantial-impairment standard). Revocation of acceptance requires a nonconformity substantially impairing value and justification for the initial acceptance.
Anticipatory repudiation requires an unequivocal indication of unwillingness or inability to perform. A repudiating party may retract before the injured party materially relies, cancels, or treats the repudiation as final. Reasonable insecurity may support a demand for adequate assurances.
Impossibility may discharge objectively impossible performance. Impracticability may excuse performance made extremely and unreasonably difficult. Frustration of purpose may apply when performance remains possible but the mutually understood principal purpose is substantially destroyed. Force-majeure clauses expressly allocate extraordinary risks and may displace default doctrines.
Contractual liability depends not only on what was promised, but also on whether duties became due, whether performance was sufficient, and whether nonperformance was breached, waived, or legally excused.
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