There are several consequence for nonperformance. Four to be exact: Express conditions, material breach, and anticipatory repudiation. Don’t worry about what these terms mean just yet, we will get there. This article covers the first of these consequences, namely express conditions. The takeaway from these terms is that they govern when performance is due and how it may be enforced.
Express conditions are provisions written into the contract that outline when performance is due. The performance becomes contingent on a specified condition occurring. Thus, the condition is expressly listed out in the contract, telling which party has the obligation of duty (and when).
enXco Development Corp. v. Northern States Power Co.
758 F.3d 940 (8th Cir. 2014).
enXco is the plaintiff. Summary judgment was granted in favor of Northers States Power (NSP) and enXco appealed.
Question
Did the trial judge error in finding that there was no temporary impracticality or disproportionate forfeiture?
Rule
A express condition makes performance required. If performance does not occur, the other party could terminate the contract. However, if found, temporary impracticability or disproportionate forfeiture could overpower the express condition.
Holding
There was no impracticability or disproportionate forfeiture. Affirmed.
Facts
enXco and NSP entered into two contracts to build wind powered energy on property. Within this contract, enXco was required to obtain a permit within a certain date. If the date came and went without the permit, then NSP would have the authority to terminate the contract.
enXco started the permit process too late. Additionally, they were delayed by bad weather, fears of endangered species, and court errors. As such, the permit was submitted almost two years later than it was supposed to. Because the permit required an extensive review, the permit was obtained a few months after the due date.
As such, NSP (not wishing to continue with the contract, the market had taken a turn for the worse) terminated the contract. enXco suffered millions of damages from the termination while NSP had minimal costs. Consequently, enXco sued for breach.
Analysis
There was an express condition present (obtain the permit by the due date). As such, performance was required, otherwise NSP was free to terminate the contract. Further, the excuses presented by enXco are without merit.
First, although the circumstances created difficulties for enXco, they still waited well beyond the time they could have started. Had they began even a few months sooner, which was possible, then they could have obtained the permit. Thus, impracticality was not an option.
Second, forfeiture is not an option because enXco still maintained title of all the land and other property under the contract. Even if there was a disproportionate forfeiture, it would not be enough to overcome the express condition (see concurring opinion).
Additional Notes
§ 235(2)
When performance of a duty under a contract is due any non-performance is a breach.
UCC 2-301
The obligation of the seller is to transfer and deliver and that of the buyer is to accept and pay in accordance with the contract.
§ 344 Purpose of Remedies
Judicial remedies . . . serve to protect one or more of the following interests of a promise:
(a) his “expectation interest,” which is his interest in having the benefit of his bargain by being put in as good a position as he would have been in had the contract been performed . . .
Note that the exception interest does not mean a specific performance.
§ 355 Punitive Damages
Punitive damages are not recoverable for a breach of contract unless the conduct constituting the breach is also a tort for which punitive damages are recoverable.
Note, punitive damages are almost never recordable. Only occurs for committing a tort or for wedding related contracts.
Express Conditions
If A, then B. This is pretty common for example:
- If your house burns down, I will replace it.
- If you buy the hotel, I will manage it.
- etc.
This condition can also be within your control or not.
Sometimes, we become confused with the difference between an express condition and a promise to perform. (We will describe the characteristic differences later). One of the differences is that an express condition requires strict compliance, not just substantial performance. Additionally, the failure of a condition excuses the performance.
Case Notes
There were two contracts in this case. The first contract outlined what was necessary to accomplish by the first contract so that the first contract goes into effect. If the first contract standards (at issue here was obtaining a permit) are not met, then the other contract can be terminated. The first contract contained a “long-stop date” which outlined the deadline for those standards. Here, the long-stop date was set out for almost two years later (21 months).
Unfortunately, enXco waited too long to start the process for obtaining the permit and several circumstances delayed their ability to obtain the permit. The permit was obtained too late and the contract was terminated. Thus, enXco argued that they should be excused because of impracticability and disproportionate forfeiture.
The takeaway: an express condition may be excused if there is impracticability or disproportionate forfeiture.
However, impracticability is not an option because the circumstances often occurred because of enXcos fault. Additionally, the court said that enXco assumed the risk by the delay.
Further, disproportionate forfeiture does not work according to §229 because enXco was able to keep all the land and materials which as a material part of the agreed exchange.
How could enXco have protected itself?
- Not wait for 2 years
- Have better lawyers
- Write a Force majeure clause (if a certain act of God event occurs, the term may be extended).
- Write a diligent prosecution clause
How could NSP protect themselves?
- Create an opt-out option if teh project becomes not economically viable.
§ 224 Conditions
A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due.
- Ascertainable event
- Not certain to occur (e.g. death is certain but say performance needs to occur if the person dies before a certain date).
- Not excused. Excuses include:
- Waiver (add, who had the ability to waive)
- Forfeiture
- etc.
When the condition occurs, the performance becomes due. Another smart idea is to add a provision for what happens if the condition never occurs (by setting a time limit for the condition).
§ 224 says what happens if there is a non-occurrence.
J.N.A. Realty Corp. v. Cross Bay Chelsea, Inc.
266 N.E.2 1313 (N.Y. Ct. App. 1977).
J.N.A. sued to evict Chelsea. The trial court and Appellate Term found in favor of Chelsea. However, the Appellate Division reversed in favor of J.N.A. resulting in Chelsea’s appeal.
Question
- Will the tenant suffer a forfeiture if the contract is enforced?
- If so, can the court grant relief even if the forfeiture came from the tenant’s inadvertence or negligence?
Rule
Forfeiture may be used to excuse an express condition obligation if the violation of the condition occurred due to minor negligence (inattention). However, if the violator exercises gross negligence or bad faith, or enforcement would prejudice the other party, forfeiture is not a reasonable excuse.
Holding
Forfeiture would occur if the condition is enforced and a remedy may be required. However, the courts do not know if it would prejudice the landlord to enforce. Reversed and a New Trial is granted.
Facts
J.N.A. signed a lease with Foro which would last 10 years. A significant part of this lease included the option to renew at the end of the 10 year term (for an additional 10 years) as long as notice was provided within the last 6 months of the lease.
Foro assigned the remaining 5 years left on the lease to Chelsea on the condition that the option be allowed to extend the lease for a period of 24 years instead of 10 years. All other provisions in the lease (including the notice) were to remain the same.
At the beginning of the assignment, Chelsea spent 40,000 on improvements. Later, Chelsea spent an additional 15,000 on improvements, some of which was spent after the notice of renewal was required.
Six months before the end of the lease came and went without notice of the renewal. J.N.A. wrote to Chelsea informing them of the lack of notice and that the tenancy would end at the end of the lease. Consequently, Chelsea sent notice but J.N.A. refused and sought these proceedings to enforce the express condition.
Analysis
The evidence here shows that the lack of notice occurred due to mere negligence. Negligence may be excused if the result is a forfeiture by enforcement of the condition. Here, Chelsea was simply inadvertent in failing to send notice. There is no evidence that the company acted in bad faith or gross negligence. As such, forfeiture may be an excuse. Here, forfeiture would occur. Chelsea had spent a total of 55,000 in improvement since the lease assignment. Additionally, enforcement of the condition would result in losing access to the premises and thus the customer’s good will. Therefore, the forfeiture could be used as an excuse.
However, there is no evidence in the record whether the excuse would prejudice J.N.A. Perhaps J.N.A. had already agreed with another party to lease the premises. Failing to enforce the condition in this situation would prejudice J.N.A. As such, the case is reversed and a new trial is granted to determine whether J.N.A. would be prejudiced against.
The dissent argues that forfeiture should not be an option due to negligence. Instead, the condition may only be excused when the enforcing party engaged in some fraudulent activity, or if there was a mistake.
Additional Notes
The condition here was that the notice needed to be given six months before the renewal. When the plaintiff wished to kick out the defendants, the defendant responded by saying the condition should be excused due to forfeiture.
“But it might cause a forfeiture if the tenant in possession has in good faith made substantial and valuable improvements to the property, if the lessor is not harmed by the delay in receiving notice and the lessee would sustain a substantial loss.”
Professor Vestal
Here, the tenant was at fault but not culpable. This was simply a ‘mere venial inattention.'” Thus, the defendant would be entitled to relief if there is no prejudice to the plaintiff. So, this needs to be remanded to determine if there is prejudice.
Professor Vestal agrees with the dissent. The date was set and the defendant should have known of the date. Any failure to meet that date should be inexcusable.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
