Performance, breach, and discharge - Excuse of conditions

Learning Outcomes

This article explains excuse of conditions within contract performance, breach, and discharge, including:

• Distinguishing conditions from promises, and express from implied (constructive) conditions, and predicting the consequences of non-occurrence versus breach on the MBE.
• Identifying condition precedent, condition subsequent, and concurrent conditions, and mapping them onto the sequence of contractual performance.
• Applying strict compliance to express conditions and substantial performance to constructive conditions, with particular attention to the constructive condition of exchange in service and construction contracts.
• Determining when a failure of condition discharges a duty entirely, when it results only in damages for breach, and how material versus minor breach changes the analysis.
• Analyzing how waiver, estoppel, prevention, hindrance, and disproportionate forfeiture can excuse conditions and thereby preserve contractual rights and remedies.
• Using divisibility, substantial performance, and material breach analysis to decide whether payment is due, whether performance can be withheld, and what remedies are available.
• Contrasting common-law substantial performance with the UCC perfect tender rule, including installment contracts, cure, and waiver of conditions under Article 2.
• Applying these doctrines systematically to MBE-style fact patterns involving performance, breach, repudiation, and discharge to select the best answer among close options.

MBE Syllabus

For the MBE, you are required to understand excuse of conditions in the broader topic of performance, breach, and discharge, with a focus on the following syllabus points:

• Distinguishing conditions from contractual promises and explaining the consequences of non-occurrence versus breach.
• Recognizing express conditions (including satisfaction clauses) and implied/constructive conditions.
• Determining when substantial performance satisfies constructive conditions and when a failure is a material breach.
• Applying the doctrine of divisibility and its impact on the constructive condition of exchange.
• Identifying when a condition is excused by waiver, estoppel, prevention or hindrance by the other party, or to avoid disproportionate forfeiture.
• Understanding condition precedent, condition subsequent, and concurrent conditions in the sequence of performance.
• Explaining how anticipatory repudiation and prospective inability to perform interact with conditions and the duty to perform.
• Contrasting common-law substantial performance with the UCC perfect tender rule, including how conditions can be waived under Article 2.
• Assessing remedies when a condition fails versus when it is excused.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following best describes an express condition in a contract?
   1. A term implied by law to ensure fairness.
   2. A term stated explicitly in the contract that must occur before a duty arises.
   3. A promise to perform in good faith.
   4. A minor term that can be disregarded.
2. If a party prevents the occurrence of a condition that benefits them, what is the likely result?
   1. The condition is excused, and the other party’s duty is discharged.
   2. The contract is void for uncertainty.
   3. The condition is enforced strictly.
   4. The contract is automatically terminated.
3. Under the doctrine of substantial performance, which type of condition may be satisfied by less than complete performance?
   1. Express condition precedent.
   2. Express condition subsequent.
   3. Constructive (implied) condition of exchange.
   4. Condition of satisfaction (aesthetic).

Introduction

A party’s duty to perform under a contract is often subject to the occurrence of a condition. When a condition fails, the duty may be excused, but there are important exceptions and doctrines that may still require performance or provide remedies. Understanding when and how conditions are excused is essential for MBE contract questions.

Key Term: Condition
A fact or event, not certain to occur, which must occur before a contractual duty becomes due or is discharged.

Conditions are about timing and triggering duties. Non-occurrence of a condition generally means the duty it qualifies never becomes due (or is cut off), even if neither party is at fault. That is very different from breach of a promise, which gives rise to damages but does not necessarily prevent a duty from arising.

Conditions vs. Promises

On the MBE, always ask: is this term a condition, a promise, or both?

• If it is only a condition, non-occurrence means the related duty never becomes due; there is usually no breach claim just from the condition’s failure.
• If it is only a promise, failure is a breach, but the other party’s duty to perform may still be due (depending on materiality).
• Many clauses function as both: performance is promised, and its occurrence is also a condition of the other party’s duty.

Language like “on the condition that,” “provided that,” “if and only if,” strongly suggests a condition.

Types of Conditions

Conditions can be classified in two overlapping ways: by how they are created, and by when they operate in the life of the contract.

By how they are created:

Key Term: Express Condition
A condition stated in clear, unambiguous language in the contract, requiring strict compliance for a duty to arise.

Key Term: Implied (Constructive) Condition
A condition not expressly stated but supplied by law or the nature of the agreement, often satisfied by substantial performance.

By when they operate:

Key Term: Condition Precedent
An event that must occur before a party’s duty to perform becomes due.

Classic example: “Buyer’s obligation to purchase is conditioned on Buyer obtaining a 30-year mortgage at 6% or less.”

Key Term: Condition Subsequent
An event that, if it occurs after a duty has arisen, cuts off or discharges an existing duty.

Example: “Teacher’s salary shall continue until the school loses its charter.” Loss of charter is a condition subsequent.

Key Term: Concurrent Conditions
Duties that are due at the same time; each party’s performance is conditioned on the other’s tender of performance.

Most ordinary sales of land or goods involve concurrent conditions: seller must be ready to tender the property and buyer must be ready to tender the price at closing.

Constructive Condition of Exchange and Material Breach

In most bilateral, non–UCC contracts, the law imposes a constructive condition of exchange.

Key Term: Constructive Condition of Exchange
A court-imposed ordering of performances in a bilateral contract, making one party’s performance a condition of the other party’s duty to perform.

Typically, the party performing first (e.g., a builder) must perform substantially before the other party’s duty to pay becomes due. This leads directly to the doctrines of substantial performance and material breach.

Key Term: Material Breach
A failure of performance so serious that the other party is justified in treating its own remaining duties as discharged.

A material breach means the constructive condition of exchange has not been satisfied; the other side may withhold its performance. A minor breach means the condition is satisfied by substantial performance; the other side must still perform but can claim damages.

Key Term: Substantial Performance
Performance that, while not complete, is close enough to satisfy an implied condition, entitling the performing party to the contract price minus damages for any defects.

Strict vs. Substantial Performance

Express conditions must be strictly satisfied. If an express condition is not met, the duty subject to that condition does not arise (unless the condition is excused). Courts are reluctant to rewrite explicit conditional language.

In contrast, implied (constructive) conditions—such as the constructive condition of exchange in bilateral contracts—may be satisfied by substantial performance, especially in service or construction contracts.

Exam Warning:
Do not confuse express conditions (which require strict compliance) with promises or constructive conditions (which may be satisfied by substantial performance). Failure to distinguish these may lead to incorrect answers on the MBE.

Under the UCC, the standard is even stricter.

Key Term: Perfect Tender Rule
Under UCC Article 2, the seller must deliver goods that conform exactly to the contract terms in all respects; any nonconformity allows the buyer to reject.

The buyer’s duty to pay is effectively conditioned on perfect tender. However, even in the UCC world, buyers can waive conditions or be estopped from insisting on them.

Excuse of Conditions

Even when an express or constructive condition is not literally satisfied, the law may treat the condition as excused, so that the associated duty becomes absolute. Common bases for excuse include:

• Waiver
• Estoppel
• Prevention or hindrance
• Disproportionate forfeiture
• Prospective inability to perform and adequate assurances

Key Term: Waiver
The intentional and voluntary relinquishment of a known right, such as the right to insist on a condition.

Key Term: Estoppel
A doctrine preventing a party from insisting on a condition when the party’s words or conduct reasonably induced the other party to rely on the condition not being enforced.

Key Term: Prevention
When a party wrongfully interferes with or hinders the occurrence of a condition, excusing the condition and making the related duty absolute.

Key Term: Forfeiture
The loss of a significant contractual right or benefit—such as payment for substantial work—due solely to the non-occurrence of a condition.

Courts are particularly willing to excuse conditions where strict enforcement would lead to a disproportionate forfeiture—for example, where a contractor would lose the entire contract price due to a minor, good-faith deviation.

Satisfaction Clauses

Some express conditions make a party’s duty depend on their being “satisfied” with the other’s performance.

Key Term: Satisfaction Clause
An express condition making one party’s duty to perform dependent on that party’s satisfaction with the other party’s performance.

If the satisfaction involves aesthetic taste or personal judgment (art, design, portraits), a subjective standard applies: the party must be honestly (in good faith) dissatisfied. If the satisfaction involves commercial quality or utility (e.g., whether machinery performs), an objective reasonableness standard is used.

Key Term: Condition of Satisfaction
An express condition precedent requiring that one party be satisfied (subjectively or objectively) before the other party’s duty arises.

Worked Example 1.1

A contract states: “Painter will be paid $10,000 if, and only if, the homeowner is completely satisfied with the work.” Painter completes the job, but the homeowner honestly dislikes the color, even though most people would find it acceptable. Must the homeowner pay?

Answer:
No. This is an express condition of personal satisfaction. Because the contract concerns aesthetic taste, the subjective standard applies. If the homeowner is honestly dissatisfied (even unreasonably), the condition is not met, and the duty to pay does not arise. However, if the homeowner claimed dissatisfaction in bad faith, a court could treat the condition as satisfied.

Substantial Performance and Divisibility

Substantial performance is only relevant to constructive conditions. It does not rescue a party who fails to meet an express condition. Courts consider factors such as the benefit received, the extent of performance, willfulness, and the cost of curing the defect.

Sometimes a contract is divisible.

Key Term: Divisible Contract
A contract whose performances can be broken into corresponding pairs of part performance and part payment so that each pair can be treated as a separate mini-contract.

If a contract is clearly divisible (e.g., payment per unit completed), a party who substantially performs one unit may recover for that part even if they materially breach another part.

Worked Example 1.2

Builder contracts to construct a house for Owner for $500,000. Builder completes the house, but uses a slightly different brand of windows than specified, with no impact on value or appearance. Owner refuses to pay, citing noncompliance with the contract.

Answer:
Owner must pay, minus any damages for the minor defect. The constructive condition of exchange is satisfied by substantial performance. Using a comparable brand is a minor deviation; it does not excuse payment, but Owner may recover any measurable difference in value (often zero).

Waiver and Estoppel

A party protected by a condition can choose not to rely on it.

• Express waiver: “We’ll go ahead even though the financing is at 6.5%.”
• Implied waiver: Accepting late or defective performance without objection, and continuing with the contract.

Waivers generally apply to conditions, not to the basic exchange of promises. Under the UCC, attempted oral modifications that fail the Statute of Frauds often operate as waivers, and can sometimes be retracted if there is no detrimental reliance.

A related concept is estoppel: if Party A leads Party B to reasonably believe that A will not insist on a condition, and B relies by changing position, A may be estopped from later enforcing the condition.

Worked Example 1.3

Seller agrees to sell land to Buyer, “provided Buyer secures financing at 5% or less.” Buyer only obtains a loan at 6% but still wants to proceed. Seller agrees to close the deal. Later, Seller refuses to sell, arguing the condition was not met.

Answer:
Seller’s agreement to proceed is a waiver of the express financing condition. Seller cannot later insist on the condition after waiving it. Buyer’s duty to tender the price and Seller’s duty to convey title are now unconditional, subject to the rest of the contract.

Prevention and Hindrance

If the party who benefits from a condition wrongfully prevents its occurrence, the condition is excused.

Example patterns:

• Buyer refuses to submit required financial documents, then claims the “loan approval” condition failed.
• Employer refuses to allow an employee to complete a probationary period, then claims the “satisfactory completion” condition did not occur.

In such cases, the law treats the condition as if it occurred.

Worked Example 1.4

Buyer agrees to purchase Seller’s house, “on condition that Buyer obtains a commitment for a 30-year mortgage at the prevailing market rate.” Buyer secretly wants out of the deal and deliberately fails to apply to any lenders. Buyer then tells Seller, “The condition failed; I’m not obligated.”

Answer:
Buyer’s conduct wrongfully prevented the occurrence of the mortgage condition. Under the prevention doctrine, the condition is excused, and Buyer’s duty to purchase becomes unconditional. Seller can sue Buyer for breach.

Forfeiture and Good Faith

Courts construe ambiguous clauses against forfeiture. If enforcing an express condition would cause a party to lose a large benefit despite substantial, good-faith performance, courts may:

• Interpret the term as a promise rather than a condition, or
• Excuse the non-occurrence of the condition to prevent disproportionate forfeiture.

This is especially true in service contracts where the breaching party’s default is minor and unintentional.

Prospective Inability and Adequate Assurances

Sometimes it is not the condition itself that fails, but the confidence that it will occur. If one party has reasonable grounds to believe the other will be unable or unwilling to perform, the law allows the first party to suspend performance.

Key Term: Prospective Inability to Perform
Reasonable grounds to believe that a party will be unwilling or unable to perform when due; it can justify suspension of the other party’s performance until adequate assurances are provided.

Under common law and the UCC:

• The insecure party may demand adequate assurances.
• If adequate assurances are not provided within a reasonable time, the failure to assure can be treated as a repudiation, and the constructive condition of exchange is excused.

This doctrine operates alongside anticipatory repudiation, but deals with doubts, not clear refusals.

Worked Example 1.5

Supplier has delivered on time under a long-term contract. After a shipment is 30 days late and industry reports say Supplier is near bankruptcy, Buyer hears a rumor that Supplier has shut its plant. Buyer stops performance and demands financial information. Supplier refuses to provide any information, saying, “Trust us; we’ll ship when we can.”

Answer:
Buyer has reasonable grounds for insecurity and may suspend its own performance while demanding adequate assurances. Supplier’s refusal to provide assurances can itself excuse the constructive condition of exchange and allow Buyer to treat the contract as repudiated.

Express Conditions vs. Substantial Performance

It is important to remember that substantial performance does not excuse express conditions. When the parties have clearly stated that “payment is expressly conditioned on X,” X must occur (or be excused); mere “almost-X” is not enough.

Worked Example 1.6

Owner’s contract with Contractor states: “Owner’s obligation to pay the $50,000 bonus is expressly conditioned on Contractor attending work every business day of the 10‑week project.” Contractor completes the project on time and to specification but misses one day in week 9 due to illness. Contractor claims substantial performance.

Answer:
Contractor has substantially performed the contract work, but the bonus is subject to an express condition—perfect attendance. Courts will enforce express conditions strictly unless excused. Contractor is entitled to the base contract price, but not the bonus, unless a court finds waiver or excuses the condition to avoid extreme forfeiture.

Conditions Under the UCC

Although the UCC does not use the same vocabulary, the buyer’s obligation to pay is effectively conditioned on the seller’s perfect tender of conforming goods. However:

• Buyers can waive strict compliance (e.g., by accepting nonconforming goods without timely objection).
• In installment contracts, the right to reject is limited to nonconformity that substantially impairs the installment.
• Sellers have a right to cure, which in effect keeps the buyer’s duty to pay in suspense until cure occurs.

These are functional uses of conditions and excuses even in the Article 2 context.

Exam Technique: Identifying and Classifying the Term

When confronted with a performance/breach/discharge question:

1. Quote or paraphrase the relevant language.
2. Ask: Is this a condition, a promise, or both?
3. If a condition:
   • Is it express or constructive?
   • Has it occurred, or been waived, prevented, or excused?
4. If a promise:
   • Has there been substantial performance or a material breach?
   • What remedies follow?

Revision Tip:
Always identify whether a term is an express condition, an implied condition, or a promise. This determines the standard of performance and the consequences of non-occurrence.

Key Point Checklist

This article has covered the following key knowledge points:

• A condition is an event that must occur before a contractual duty arises or is discharged.
• Terms can be conditions, promises, or both; non-occurrence of a pure condition is not itself a breach.
• Express conditions require strict compliance; implied (constructive) conditions may be satisfied by substantial performance.
• Condition precedent, condition subsequent, and concurrent conditions structure when duties arise and end.
• The constructive condition of exchange and the doctrine of substantial performance govern common-law bilateral contracts.
• A material breach means the constructive condition is not satisfied and discharges the other party’s duty; a minor breach does not.
• Divisible contracts allow recovery for completed units even if there is breach as to others.
• Under the UCC, the perfect tender rule effectively makes conforming tender a condition of the buyer’s duty to pay.
• Conditions may be excused by waiver, estoppel, or prevention/hindrance by the other party.
• Courts may excuse conditions to avoid disproportionate forfeiture where performance is substantial and in good faith.
• Prospective inability to perform and the right to demand adequate assurances can suspend performance pending clarification.
• Satisfaction clauses use subjective standards for aesthetic judgments and objective standards for commercial quality, but always require good faith.

Key Terms and Concepts

• Condition
• Condition Precedent
• Condition Subsequent
• Concurrent Conditions
• Express Condition
• Implied (Constructive) Condition
• Constructive Condition of Exchange
• Substantial Performance
• Material Breach
• Divisible Contract
• Perfect Tender Rule
• Satisfaction Clause
• Condition of Satisfaction
• Waiver
• Estoppel
• Prevention
• Forfeiture
• Prospective Inability to Perform