This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
Among the causes for confusion between conditions in covenants, is the fact that the same provision of a contract may be both at once. It is possible and not uncommon for the parties to agree that one of them shall act or forbear to act in a certain specified way, and also to agree in express terms that the consequences of the failure of such party to perform shall discharge the adversary party from liability, either as to certain specified covenants of the contract or as to the entire contract.1 Such a condition differs from ordinary breach of executory covenants in that the relationship of the covenants and the materiality of the breach are important if they are merely covenants, but immaterial if they are also conditions.2 Such a condition also differs from the ordinary covenant in that in case of the condition, the consequences of breach are frequently agreed upon by the parties, and may be less than the discharge of the contract;3 while in case of breach, the consequences are fixed by law, and in case of breach of a vital covenant, either precedent or concurrent, the consequence is ordinarily the discharge of the contract.4
13 See ch. LXXXIV.
14 National Council v. Thompson, 153 Ky. 636, 45 L. R. A. (N.S.) 1148, 156 S. W. 132; Knowlton v. Patron's Androscoggin Fire Ins. Co., 100 Me. 481, 2 L. R. A. (N.S.) 517, 62 All. 289; R. H. White Co. v. Remick, 198 Mass. 41, 84 N. E. 113; Adams v. Guyandotte Valley Ry., 64 W. Va. 181, 61 S. E. 341.
See also, Union Saw Mill Co. v. Lake Lumber Co., 120 La. 106, 44 So. 1000.
Colorado. Hottel v. Poudre Valley Reservoir Co., 41 Colo. 370, 92 Pac. 918.
Illinois. Harley v. Sanitary District, 226 III. 213, 80 N. E. 771.
Massachusetts. White v. Abbott, 188 Mass. 99, 74 N. E. 305; Earnshaw v. Whittemore, 194 Mass. 187, 80 N. E. 620; R. H. White Co. v. Remick, 198 Mass. 41, 84 N. E. 113.
North Dakota. Sunshine Cloak &
Suit Co. v. Roquette, 30 N. D. 143, L. R. A. 191CE, 932, 152 N. W. 359.
Oregon. Higinbotham v. Frock, 48. Or. 129, 120 Am. St. Rep. 796, 83 Pac. 536.
Pennsylvania. Payne v. Roberts, 214 Pa. St. 568, 64 Atl. 86; Hunn v. Pennsylvania Inst. for Blind, 221 Pa. St. 403, 18 L. R. A. (N.S.) 1248, 70 Atl. 812.
West Virginia. Chandler v. French, 73 W. Va. 658, L. R. A. 1915B. 561, 81 S. E. 825 (so by construction adopted by court); Berry v. Humphreys, 76 W. Va. 668, 86 S. E. 568.
Wisconsin. Hodge v. Wallace, 129 Wis. 84, 116 Am. St. Rep. 938, 108 N. W. 212.
See Sec. 222.
2 See Sec. 2578 and ch. LXXXIV.
It may be provided in the contract that one of the parties promises a certain performance, and that in case of his failure to perform in accordance with such covenant, the adversary party may terminate the contract.8
Under a condition reserving to the property owner the right to complete the contract on the inability of the original contractor to perform, and to deduct the cost of completing the work from the contract price, the amount to be deducted is the actual cost of completing the work, which is not necessarily the amount which is paid to the parson who completes it or the amount which the property owner enters upon his books as the cost of such work.6 Under a provision in a building contract allowing the owner under certain conditions to complete the contract at the expense of the contractor, his doing so does not discharge the contract further than is necessarily affected by such provision.7 On the one hand, the contractor is entitled to the balance of the contract price above the cost of completion, as the owner can not refuse payment on the ground that the contractor has not performed the contract on his part to be performed;8 and, on the other hand, he is liable for whatever damage his default has caused the owner.9 However, a provision for an architect's certificate of completion as a condition precedent to the contractor's recovery is waived thereby.10 Under a provision that if the contractor abandons his contract the owner is to complete it, its abandonment by the contractor does not discharge the owner.11
3 See cases cited in this section.
4 See ch. LXXX1V.
5 England. Davies v. Swansea, 8 Exch. 808.
Illinois. Harley v. Sanitary District, 226 III. 213, 80 X. E. 771.
Kentucky. Henderson Bridge Co. v. O'Connor, 88 Ky. 303, 11 S. W. 18, 957.
Massachusetts. R. H. White Co. v. Remick, 108 Mass. 41, 84 X. E. 113.
Pennsylvania. Payne v. Roberts, 214 Pa. St. 568, 64 Atl. 86.
6 Hottel v. Poudre Valley Reservoir Co., 41 Colo. 370, 92 Pac. 918.
7 Christopher, etc., Co. v. Yeager, 202 I1I 186, 67 X. E. 166; Brown v. Baton
Rouge, 109 La. 967, 34 So. 41; Hay v. Bush, 110 La. 575, 34 So. 692; Crouch v. Gutmann, 134 X. Y. 45, 30 Am. St. Rep. 608, 31 X. E. 271; Hunn v. Pennsylvania Inst. for Blind, 221 Pa. St. 403, 18 L. R. A. (X.S.) 1248, 70 Atl. 812.
8 Charles v. Lumber & Mfg. Co., 22 Colo. 283, 43 Pac. 548; Hunn v. Pennsylvania Inst. for Blind, 221 Pa. St. 403, 18 L. R. A. (X.S.) 1248, 70 Atl. 812; Arndt v. Keller, 96 Wis. 274, 71 N. W. 651.
9 New York v. Construction Co., 146 X. Y. 210, 40 X. E. 771.
It may be provided, either in express words or in legal effect, that unless one party performs by a specified time, the adversary party shall be discharged.12 A common illustration of this type of combined covenant and condition is found in cases in which time is of the essence of the contract.13 Since in cases of this sort, the same provision is both condition and covenant at once, the courts are likely to use language concerning such provision as a covenant which should have been used with reference to such provision as a condition.
Provision is frequently made that failure to pay or to perform by a specified time, shall operate as a discharge of some or all of the rights under the contract, and where such provisionals clear and unequivocal, full effect is given thereto,14 at least as long as such provision is not intended to operate as a penalty.15 A provision for giving credit for insurance premiums may be upon condition that such premium shall be paid at a certain time or that the policy shall be void.16 A provision in the original policy for a certain number of days of grace in making the payment provided for by the policy, does not apply to a subsequent modification of the original contract providing for an additional extension of time.17
10 Campbell v. Coon, 149 N. Y. 556, 38 L. R. A. 410, 44 N. E. 300.
11 Marcus Sayre Co. v. Burnz (N. J. Eq.), 26 Atl. 911.
12 Sunshine Cloak & Suit Co. v. Roquette, 30 N. D. 143, L. R. A. 1916E, 932, 152 N. W. 359.
13 Sunshine Cloak & Suit Co. v. Roquette, 30 N. D. 143, L. R. A. 1916E, 932, 152 N. W. 359. See Sec. 2103 et seq.
14 United States. Klein v. New York Life Ins. Co., 104 U. S. 88, 26 L. ed. 662.
Alabama. Pan American Life Ins. Co. v. Carter, - Ala. - , 80 So. 75.
Georgia. Williams v. Empire Life Ins. Co., 146 6a. 246, 91 S. E. 44.
Kentucky. Standard Accident Ins. Co. v. Smith, 184 Ky. 155, 209 S. W. 848.
North Carolina. Underwood v. Jefferson Standard Life Ins. Co., 177 N. Car. 327, 98 S. E. 832.
Ohio. Union Mutual Life Ins. Co. v. McMillen, 24 O. S. 67.
Oregon. Wrenn v. University Land Co.. 65 Or. 432, 46 L. R. A. (N.S.) 897, 133 Pac 627.
Tennessee. Edington v. Michigan Mutual Life Ins. Co., 134 Tenn. 188, 183 S. W. 728.
15 See Sec. 2113 et seq.
16 Pan American Life Ins. Co. v. Carter, - Ala. - , 80 So. 75; Standard Accident Ins. Co. v. Smith, 184 Ky. 155, 209 S. W. 848; Underwood v. Jefferson Standard Life Ins. Co., 177 N. Car. 327, 98 S. E. 832.
17 Pan American Life Ins. Co. v. Carter, - Ala. - , 80 So. 75; Kansas City Life Ins. Co. v. Leedy, - Okla. - , L. R. A. 1917C, 917, 162 Pac 760.
Such provisions are not, however, extended by construction.18 A provision by which the engineer of one of the parties is given the power to "annul" the contract if in his judgment the contractor does not "prosecute the work faithfully and diligently," reserves the right to terminate the contract in case the engineer reaches this conclusion in good faith, but his judgment is not final as to the fact of the breach,19 and accordingly the United States can not recover the extra cost of completing the work.20
A condition in an instrument for the payment of money may provide that in case of certain specified defaults, as defaults in payment of interest, taxes upon the collateral security for the debt, and the like, the negotiable instrument shall become due forthwith.21 Such effect is given to a provision that a default in the payment of instalments "shall cause the whole note to be immediately due and collectable."22 Such provisions are, however, usually so drawn as to give to the holder of the negotiable instrument the option to declare the entire amount due or to treat the note as not due until the time of its original maturity.23
A provision fixing the time of payment is not treated as a condition unless it clearly appears that the parties intend to make it such.24 A provision for forfeiture if "premium, loan, or interest" is not paid when due, is held not to apply to a note taken for a premium.25
The question of forfeiture for non-payment of premiums is frequently complicated by the fact that at the time of default the policy has a paid-up value or surrender value, and by the fact that the policy occasionally contains provisions for automatic extension, and for the application of such paid-up value or surrender value to the payment of premiums for such extension.26
18 Inter-Southern Life Ins. Co. v. Duff, 184 Ky. 227, 211 S. W. 738; Friend v. Southern Life Ins. Co., -Okla. - , L. R. A. 1917B, 208, 160 Pac. 457; Lathrop v. Modern Woodmen, 63 Or. 103, L. R. A. 1918E, 333, 126 Pac. 1002; Lyke v. First National Life & Accident Ins. Co., - S. D. - , 171 N. W. 603; Langbehn v. American Ins. Co., - S. D. - , 171 N. W. 820.
19 United States v. O'Brien, 220 U. S. 321, 55 L. ed. 481.
20 United States v. O'Brien, 220 U. 8. 321, 55 L. ed. 481.
21 Hodge v. Wallace, 129 Wis. 84, 116 Am. St. Rep. 938, 108 N. W. 212.
22 Hodge v. Wallace, 129 Wis. 84, 116 Am. St. Rep. 938, 108 N. W. 212.
23 Consolidated Lumber Co. v. Maryland Fidelity & Deposit Co., 161 Cal. 397, 119 Pac. 506; Bardsley v. Wash-ington Mill Co., 54 Wash. 553, 132 Am. St. Rep. 1133, 103 Pac. 822; Zwiekey v. Haney, 63 Wis. 464, 23 N. W. 577.
24 Friend v. Southern Life Ins. Co., - Okla. -, L. R. A. 1917B, 208, 160 Pac. 457; Langbehn v. American Ins. Co., - S. D. - , 171 N. W. 820; Lyke v. First National Life & Accident Ins. Co., - S. D. - 171 N. W. 603.
25 Inter-Southern Life Ins. Co. v. Duff, 184 Ky. 227, 211 S. W. 738.
A provision that one of the parties may terminate the contract in case the other party makes default, does not prevent the transaction from amounting to a contract,27 and does not make it an option.28
A notice by the party not in default, to the effect that the breach in question renders the contract void and renders the adversary party liable in damages, does not amount to an election to waive damages and to avoid the contract.29