Order of Performance

In a large percentage of contracts, the parties are not required to perform simultaneously. Rather, one party must perform first and then the second party must perform. For example:

Michelangelo and Picasso enter a contract in which Picasso agrees to paint Michelangelo’s house and Michelangelo agrees to pay Picasso $10,000 after he is finished. In this situation, the contract clearly states that Picasso’s performance must come first, and Michelangelo’s performance will follow.

However, many times, contracts do not explicitly state who must perform first. In such instances, the amount of time that performance takes will dictate the order of performance.

The general rule is that, if one party’s performance will take some time while the other party’s performance can be done in a very short time, it is implied that the performance that takes some time must come first. For example:

Michelangelo and Picasso enter a contract in which Picasso agrees to paint Michelangelo’s house and Michelangelo agrees to pay Picasso $10,000. In this contract, there is no explicit statement as to who must perform first. However, by virtue of the general rule, it is implied that Picasso’s performance must come first because his performance will take a significant amount of time (probably several weeks) whereas Michelangelo’s performance can be completed within a matter of minutes.

If both performances can be done at the same time and the contract establishes one set time for both performances, then performance by each party is an implied condition to the other party’s performance. For example:

George is the owner of Babe’s Baseball Memorabilia. Mickey is an avid collector and often buys and sells memorabilia at George’s shop. Mickey has a signed Ted Williams baseball bat that he offers to sell to George. George and Mickey agree on a price of $5,000 and agree that on April 1st, Mickey will come to George’s store and they will make the exchange. In this situation, both performances can be rendered simultaneously (Mickey can give George the bat and, immediately, George can give Mickey the money). Further, this contract has established the same time, April 1st, for both performances. In this case, each party’s performance is an implied condition of the other party’s performance, so that Mickey showing up with the baseball bat is an implied condition of George having to pay $5,000 and George bringing the $5,000 is an implied condition of Mickey giving him the bat. If Mickey does not show up, George is not obligated to pay the money and if George does not have the money on April 1st, Mickey is not obligated to give him the bat.

If performance can happen simultaneously but no fixed time is established for performance, the same rules apply. For example:

If George and Mickey agree that George will buy Mickey’s bat for $5,000 but they do not establish a set time for the transaction to take place, the implied condition in the contract is that Mickey’s bringing the bat is a condition of George paying the $5,000 and George paying the $5,000 is a condition of Mickey giving him the bat.

Sometimes, it becomes clear before the time for performance that one party might not be able to perform on the contract. This is known as the prospective inability to perform. In situations where one party may not be able to perform when the time comes, the other party is excused from either performing or being ready to perform. For example:

Mickey has a signed Ted Williams bat that he has agreed to sell to George for $5,000. Subsequently, Mickey’s house burns down, and the bat is destroyed. In this situation, Mickey’s prospective inability to perform will excuse George from having to gather the money necessary to buy the bat.

Please note that the bankruptcy of one party does not qualify as a prospective inability to perform. Therefore, if one party to a contract goes bankrupt, the other party is not excused from performing.

However, the other party can suspend performance until the first party either completely performs or gives assurances that he will complete performance. For example:

The Boston Red Sox and Ramon Garcia enter into a contract under which Garcia will play for the Red Sox for one season and the team promises to pay Garcia $100,000 per month for each of the six months of the season. After month two of the season, Garcia finds out that the team is bankrupt. In this situation, Garcia is not allowed to just leave the team because bankruptcy is not considered a prospective inability to perform. However, he may suspend performance (refuse to play) until the team either pays him what they owe him or gives him adequate assurances that he will be paid the money he is owed. See Hanna v. Florence Iron Company, 222 N.Y. 290 (1918).

The U.C.C. also allows for one party to demand assurances of performance if the other party goes bankrupt.

Further, the U.C.C. says that if the bankrupt party does not give adequate assurances within thirty days of the assurances being asked for, the contract is considered to be repudiated by the bankrupt party and the other party can sue for breach. For example:

Sunshine and Squeeze Me enter into a contract in which Squeeze Me will buy five thousand bushels of oranges at $5 per bushel every month for five years. At the beginning of the third year, Sunshine finds out that Squeeze Me has gone bankrupt. According to the U.C.C., Sunshine is now entitled to demand adequate assurances of performance from Squeeze Me and, if Squeeze Me does not give Sunshine those adequate assurances within thirty days of Sunshine asking for them, the contract is considered repudiated by Squeeze Me and Sunshine can sue for breach. See U.C.C. 2-609.