Contracts Practice Exams

I. Was Alicia's Communication a Valid Offer? The first issue is whether Alicia's March 1 letter constituted a valid offer. Under the Restatement (Second) of Contracts Section 24, an offer is a manifestation of willingness to enter into a bargain, made so as to justify another person in understanding that assent to the bargain is invited and will conclude it. Alicia's letter identified the specific subject matter (the 1959 Gibson Les Paul), stated a definite price ($250,000), and was communicated to an identified offeree (Ben). The language "I will buy" manifests a present willingness to be bound. This is a valid offer. II. Was Alicia's Offer Irrevocable? The next issue is whether Alicia's statement that the offer was "open until March 15" created an irrevocable option. Under the common law, a promise to hold an offer open is not enforceable without consideration. See Dickinson v. Dodds (1876). Unlike a UCC firm offer under Section 2-205, which can make a merchant's written offer irrevocable without consideration, the common law governs this transaction because a vintage guitar sold between private parties is likely a sale of goods, but Alicia is not a merchant in guitars. Even if the UCC applies, Section 2-205 requires that the offeror be a merchant, which Alicia, a collector, likely is not. Alternatively, under the common law, no consideration was given by Ben to keep the offer open. Therefore, the offer was revocable despite the stated deadline. III. Was the Offer Effectively Revoked Before Ben's Acceptance? The central issue is whether Alicia effectively revoked her offer before Ben accepted. Direct revocation requires communication to the offeree, and it is effective upon receipt. See Restatement (Second) Section 42. Alicia's email of March 11 was a direct revocation, but Ben did not read it until March 13. Under the majority rule, revocation by instantaneous communication (such as email) is effective when received, which could mean when it arrives in Ben's inbox (March 11) or when he actually reads it (March 13). Courts are split, but the traditional rule focuses on when the message is within the offeree's power to access. However, there is also the question of indirect revocation. Under Dickinson v. Dodds, an offer is effectively revoked when the offeree receives reliable information from a third party that the offeror has taken action inconsistent with the offer. On March 7, Carla told Ben that Alicia was no longer interested. Carla learned this directly from Alicia, making her a reliable source. This arguably constitutes an indirect revocation effective March 7, three days before Ben mailed his acceptance. Ben could argue that Carla's casual dinner party remark was not sufficiently reliable, as Carla was merely repeating social gossip rather than acting as Alicia's agent. Ben might further contend that Alicia only said she "changed her mind," which is equivocal and does not clearly indicate she would not perform. However, under Dickinson, the test is whether a reasonable person in Ben's position would understand that the offer had been withdrawn. A court would likely find that Carla's statement, coming directly from a conversation with Alicia, was sufficiently reliable to effect an indirect revocation. IV. Was Ben's Acceptance Timely Under the Mailbox Rule? Even if the offer was not revoked indirectly, the mailbox rule must be analyzed. Under the Restatement (Second) Section 63, an acceptance by mail is effective upon dispatch, provided it is a reasonable medium and properly addressed. Ben mailed his acceptance on March 10, which would normally be effective that day. Alicia's direct revocation via email was sent March 11 but arguably received on March 11 in her inbox terms. If the indirect revocation through Carla on March 7 is not effective, then Ben's acceptance on March 10 preceded the direct revocation. Under the mailbox rule, Ben's acceptance would be effective March 10, before the March 11 revocation, and a contract would exist. V. Conclusion and Remedies The outcome hinges on whether Carla's statement constituted an effective indirect revocation. If a court finds the indirect revocation effective on March 7, no contract was formed because the offer was already revoked when Ben mailed his acceptance on March 10. If the court rejects the indirect revocation theory, Ben's acceptance was dispatched on March 10 under the mailbox rule, before Alicia's direct revocation on March 11, and a valid contract exists. If a contract exists, Ben is entitled to expectation damages. Under Hawkins v. McGee and the Restatement (Second) Section 347, expectation damages put the non-breaching party in the position he would have been in had the contract been performed. Ben would recover $250,000 minus his duty to mitigate. Ben should seriously consider David's $210,000 offer as mitigation under the duty imposed by Rockingham County v. Luten Bridge Co. If Ben unreasonably rejects David's offer, his damages may be limited to $40,000 (the $250,000 contract price minus the $210,000 cover price). Ben should accept David's offer and pursue the $40,000 difference from Alicia.

I. Applicable Law As a threshold matter, this transaction involves the sale of goods (tomato seeds) between commercial parties, so Article 2 of the Uniform Commercial Code governs. Both parties appear to be merchants, as GreenGrow is in the business of purchasing farm supplies and FreshSeed is in the business of selling seeds. II. The Parol Evidence Issue — Tom's Oral Price-Matching Promise GreenGrow may attempt to introduce Tom's oral promise to match lower market prices. Under UCC Section 2-202 and the parol evidence rule, a written agreement intended as a final expression of the parties' terms may not be contradicted by prior or contemporaneous oral agreements. The contract contains a merger clause, which creates a strong presumption that the writing is fully integrated. See Gianni v. R. Russell & Co. Tom's oral price-matching promise directly contradicts the written term of $8 per pound, so it would be barred as a contradictory term even under the more liberal UCC approach. GreenGrow might argue that the oral promise is a consistent additional term under Section 2-202(b), but a promise to reduce the price below the stated contract price is contradictory, not merely supplemental. A court would almost certainly exclude this evidence. Therefore, the contract price remains $8 per pound, and GreenGrow's demand for a price reduction lacks legal basis. III. Late Delivery — Breach and the Perfect Tender Rule The shipment arrived on March 4, three days after the March 1 contractual deadline. Under the UCC's perfect tender rule (Section 2-601), if goods or the tender of delivery fail in any respect to conform to the contract, the buyer may reject the whole, accept the whole, or accept any commercial unit and reject the rest. A late delivery is a nonconforming tender. Moreover, the contract expressly stated "time is of the essence," reinforcing that delivery by March 1 was a material term. FreshSeed will argue that the delay was caused by an unprecedented snowstorm, invoking the doctrine of impracticability under UCC Section 2-615. Under Section 2-615, a seller is excused from timely delivery if performance has been made impracticable by a contingency the non-occurrence of which was a basic assumption on which the contract was made. Severe, unprecedented weather events can qualify as unforeseen contingencies. See Alimenta (U.S.A.) Inc. v. Gibbs Nathaniel (Canada) Ltd. However, the impracticability defense faces difficulties. FreshSeed waited until February 28 to ship goods that were due March 1, leaving virtually no margin for error on a cross-country shipment. A reasonable seller would have shipped earlier, especially given the explicit time-is-of-the-essence clause. Courts examine whether the seller's own delay in performance contributed to the problem. See Cliffstar Corp. v. Riverbend Products. Furthermore, even if the snowstorm was unforeseeable, FreshSeed bore the risk of late shipment by waiting until the last possible moment. The impracticability defense will likely fail because the contingency only caused a problem due to FreshSeed's own delayed shipment. IV. Non-Conforming Goods — The Conventional Seed Defect Beyond lateness, 2,000 of the 10,000 pounds were conventional rather than organic seeds. In the organic produce industry, this is a material defect: organic certification is essential to GreenGrow's business, and conventional seeds cannot be used in organic farming without jeopardizing certification. Under the perfect tender rule of Section 2-601, any nonconformity entitles the buyer to reject. This 20% deficiency in a core specification is clearly a nonconforming tender. FreshSeed might argue that it should be entitled to cure under UCC Section 2-508. Under Section 2-508(1), if the time for performance has not yet expired, the seller may cure by notifying the buyer and making a conforming delivery within the contract time. Here, however, the contract time had already expired when the goods arrived on March 4, so Section 2-508(1) does not apply. Under Section 2-508(2), even after the time for performance, the seller may have a further reasonable time to cure if the seller had reasonable grounds to believe the tender would be acceptable. FreshSeed had no reasonable basis to believe that conventional seeds would be acceptable to an organic farm, so this provision offers no refuge. V. GreenGrow's Right to Reject the Entire Shipment GreenGrow rejected the entire shipment, including the 8,000 pounds of conforming organic seeds. Under Section 2-601, the buyer may reject the whole if the goods fail in any respect to conform. Both the late delivery and the inclusion of conventional seeds independently justify rejection of the entire shipment. GreenGrow's rejection was proper, provided it was timely and in good faith. Rejection on March 4, the date of delivery, satisfies the requirement of a reasonable time under Section 2-602. One might question whether GreenGrow rejected in bad faith because the market price had dropped to $5 per pound, giving GreenGrow an economic incentive to escape the $8 contract. However, bad faith in rejection requires that the buyer use an insubstantial defect as a pretext. See Ramirez v. Autosport. Here, the defects are substantial — a three-day delay with a time-is-of-the-essence clause and a 20% shortfall in a core specification. The rejection is commercially reasonable regardless of the market decline. VI. Damages Analysis FreshSeed's Claim: FreshSeed sues for the contract price under Section 2-709. However, the price action is available only when the buyer has accepted the goods or the goods are lost or damaged. GreenGrow rightfully rejected, so FreshSeed cannot recover the contract price. FreshSeed may recover incidental damages (e.g., shipping costs) but has no viable breach claim because it was the breaching party. GreenGrow's Counterclaim: As the aggrieved buyer after rightful rejection, GreenGrow may recover cover damages under UCC Section 2-712. Cover requires a good faith, reasonable, and timely substitute purchase. GreenGrow purchased 10,000 pounds at $5 per pound. Cover damages are measured as the difference between the cost of cover and the contract price, plus incidental and consequential damages, minus expenses saved. Here, the cover price ($50,000) is actually less than the contract price ($80,000). GreenGrow's cover was cheaper than the original contract, meaning GreenGrow suffered no cover damages in the traditional sense. However, GreenGrow may recover incidental damages under Section 2-715(1), including the cost of inspecting the nonconforming shipment, costs of returning the rejected goods, and any additional shipping costs for the cover purchase. If GreenGrow suffered consequential damages — for example, if the three-day delay caused a late planting that reduced crop yield — those could be recoverable under Section 2-715(2) if foreseeable at the time of contracting and not preventable by cover. VII. Conclusion GreenGrow properly rejected the shipment based on both late delivery and non-conforming goods. FreshSeed's price action fails. FreshSeed's impracticability defense is weak given its own delay in shipping. GreenGrow's counterclaim for cover damages yields no positive recovery because the cover price was below the contract price, but GreenGrow may recover incidental and potentially consequential damages.

I. Breach of Oral Contract Maria's first potential theory is breach of an oral contract for the $100,000 build-out contribution. Greg, acting as Park's property manager, made a definite promise of $100,000 in exchange for Maria signing the five-year lease. The elements of a contract appear satisfied: offer (the $100,000 promise), acceptance (signing the lease), and consideration (Maria's commitment to a five-year lease at $6,000/month provides substantial consideration, as Park benefits from having a restaurant tenant). However, two significant obstacles arise. First, the Statute of Frauds may bar enforcement. Under the one-year provision, a contract that cannot be performed within one year of its making must be in writing. The build-out contribution itself could arguably be performed within one year (it is a one-time payment), so the one-year provision may not apply. Some jurisdictions, however, treat a promise made in connection with a multi-year lease as subject to the Statute of Frauds. More critically, if the jurisdiction has a statute of frauds provision covering real estate transactions or leases, an ancillary promise related to the leasehold may be swept in. The analysis is jurisdiction-specific, but the Statute of Frauds presents a real risk. Second, the parol evidence rule poses a barrier. The signed lease contains no mention of the build-out contribution and presumably contains a merger or integration clause. Under the parol evidence rule, a fully integrated written agreement cannot be supplemented or contradicted by prior or contemporaneous oral agreements. See Thompson v. Libby. Maria would need to argue that the lease is only partially integrated with respect to the landlord-tenant relationship, and that the build-out contribution is a collateral agreement supported by separate consideration. Under the collateral agreement exception, a prior oral agreement may be enforceable if it (1) is collateral in form, (2) does not contradict the written terms, and (3) is the type of agreement parties would not ordinarily be expected to include in the written document. See Mitchill v. Lath. The build-out contribution does not contradict any lease term (the lease is merely silent), but a court may find that a $100,000 financial commitment related to the leased premises is exactly the type of agreement one would expect to find in the lease. This is a close call. The claim has only moderate likelihood of success. II. Promissory Estoppel Maria's strongest theory is likely promissory estoppel under Restatement (Second) of Contracts Section 90. The elements are: (1) a clear and definite promise, (2) the promisor should reasonably expect the promise to induce action or forbearance, (3) the promise does induce such action or forbearance, and (4) injustice can be avoided only by enforcement. Greg's promise of $100,000 was clear and definite — a specific dollar amount for a specific purpose. Greg should reasonably have expected Maria to rely on the promise, as he knew she needed to invest heavily in renovations and was choosing among locations. Maria's reliance was substantial and reasonable: she signed the lease, declined two alternative locations, paid a $50,000 non-refundable deposit, spent $35,000 on architectural plans, and $15,000 on permits. Greg's encouragement to forgo written documentation ("Don't worry about paperwork") makes the reliance even more reasonable, as it was the promisor who discouraged the formality that would have protected the promisee. Critically, promissory estoppel can overcome both the Statute of Frauds and the parol evidence rule in many jurisdictions. See Restatement (Second) Section 139 (Statute of Frauds overcome by reliance); Alaska Democratic Party v. Rice (promissory estoppel applies notwithstanding parol evidence rule). The rationale is that these defenses should not be used as instruments of fraud. The measure of damages under promissory estoppel is flexible. Section 90 states that "the remedy granted for breach may be limited as justice requires." Some courts award full expectation damages (the $100,000 promise), while others limit recovery to reliance damages. Maria's reliance damages are at least $100,000 (the $50,000 deposit, $35,000 in plans, and $15,000 in permits), which happens to equal the promised amount. A court could award either measure and reach a similar result. This claim has a strong likelihood of success. III. Fraud or Misrepresentation Maria may assert fraud or negligent misrepresentation. To prove fraud, Maria must show (1) a false representation of material fact, (2) knowledge of falsity (scienter), (3) intent to induce reliance, (4) justifiable reliance, and (5) damages. See Restatement (Second) of Torts Section 525. If Greg never intended for Park to honor the $100,000 commitment, his promise constitutes a false representation of present intent, which is actionable as fraud. See Edgington v. Fitzmaurice (a misrepresentation of a present state of mind is a misrepresentation of fact). However, Maria would need to prove that Greg never intended to perform at the time of the promise, which is difficult without additional evidence. If Greg genuinely intended to fulfill the promise but Apex later reneged, there is no fraud by Greg. The fraud claim is weaker unless Maria can show that Greg or Park had already been negotiating with Apex at the time of the promise. This claim has a low-to-moderate likelihood of success. IV. Liability of Apex REIT as Successor A critical practical issue is whether Apex is liable for Park's obligations. When a company is acquired, the acquiring entity generally assumes the target's contractual obligations, particularly those connected to real property that transfers in the acquisition. If Apex acquired Park's assets including the building, Apex steps into Park's shoes as landlord and is bound by the lease. The question is whether Apex is also bound by the oral promise that is not in the lease. Under promissory estoppel, the equitable obligation arguably runs with the property because it is inextricably linked to the lease. Under the oral contract theory, Apex would argue it is not bound by a side agreement it never assumed. Under fraud, Apex would not be liable for Greg's pre-acquisition misrepresentations unless it assumed such liabilities in the acquisition agreement. Maria's strongest path against Apex specifically is the promissory estoppel theory, which creates an equitable obligation that a court could enforce against the successor landlord to prevent injustice. V. Damages If Maria prevails on the oral contract theory, she recovers expectation damages: the $100,000 promised contribution. If she prevails on promissory estoppel, she recovers at minimum her reliance damages: $50,000 (deposit) + $35,000 (plans) + $15,000 (permits) = $100,000 in out-of-pocket expenditures. She might also argue for the lost opportunity cost of the two alternative locations that are no longer available, though quantifying this is speculative. Under the fraud theory, she could recover both compensatory and potentially punitive damages. VI. Conclusion Maria's strongest claim is promissory estoppel, which avoids the Statute of Frauds and parol evidence obstacles and provides recovery of at least $100,000. The oral contract claim is viable but faces significant procedural barriers. The fraud claim is speculative without evidence of Greg's intent at the time of the promise. Maria should be advised to pursue promissory estoppel as her primary theory.

I. The Exclusive Remedy Clause (Section 4.2) The first issue is whether the Service Credit provision operates as a valid exclusive remedy that precludes NovaTech's claims for broader damages. Under UCC Section 2-719(1)(a), parties may agree to limit or alter the measure of damages recoverable, including by establishing exclusive remedies. Although this is a services contract and the UCC does not strictly apply, courts frequently apply UCC principles by analogy to software and cloud services agreements, and the common law similarly allows parties to contractually limit remedies. However, under UCC Section 2-719(2), where an exclusive remedy "fails of its essential purpose," the full panoply of UCC remedies becomes available. See Kearney & Trecker Corp. v. Master Engraving Co. An exclusive remedy fails of its essential purpose when circumstances cause it to deprive one party of the substantial value of the bargain. The Service Credit was designed for routine, minor outages — brief interruptions where a billing credit adequately compensates the inconvenience. A 72-hour catastrophic outage causing $2.6 million in damages, remedied by a $22,500 credit (less than 1% of the actual loss), does not provide NovaTech with any meaningful remedy. The credit is so disproportionate to the harm that it fails of its essential purpose. DataStream will argue that the parties are sophisticated commercial entities that negotiated this allocation of risk at arm's length, and that the low monthly fee of $45,000 reflects the limited liability DataStream assumed. This is a legitimate argument. Courts are reluctant to rewrite commercial bargains. See Cayuga Harvester v. Allis-Chalmers Corp. Nevertheless, the failure of essential purpose doctrine exists precisely for situations where the agreed remedy is rendered meaningless by the magnitude of the breach. A 72-hour outage caused by deliberately deferred maintenance is not the type of minor service interruption the Service Credit was designed to address. II. The Consequential Damages Exclusion (Section 8.1) Even if the exclusive remedy fails, the consequential damages exclusion must be independently analyzed. Courts are split on whether the failure of an exclusive remedy automatically invalidates a separate consequential damages limitation. The majority rule, following Kearney & Trecker, treats the exclusive remedy clause and the consequential damages limitation as independent provisions. Under this approach, even if the Service Credit fails of its essential purpose, the consequential damages exclusion in Section 8.1 survives and continues to bar recovery of lost profits and lost revenue. The minority rule holds that when the exclusive remedy fails, all contractual limitations on damages fall with it, restoring the full range of default remedies. NovaTech would prefer the minority rule but faces an uphill battle in most jurisdictions. NovaTech has two stronger arguments to invalidate the consequential damages limitation. First, unconscionability. Under UCC Section 2-719(3), a limitation of consequential damages for injury to the person in consumer goods cases is prima facie unconscionable. This is not a consumer goods case, but procedural and substantive unconscionability can still be argued. The substantive unconscionability argument is that the combination of the failed exclusive remedy and the consequential damages bar leaves NovaTech with virtually no remedy for a catastrophic breach — $22,500 for $2.6 million in harm. However, courts are generally reluctant to find unconscionability in contracts between sophisticated commercial parties, and NovaTech could have negotiated different terms or obtained business interruption insurance. Second, and more promisingly, NovaTech can argue that DataStream's conduct constituted gross negligence or willful misconduct, which many courts hold vitiates contractual limitations on liability. DataStream deliberately deferred critical maintenance on its backup generators as a cost-saving measure, knowing that its contractual obligation was to maintain 99.9% uptime. This was not a mere negligent oversight; it was a conscious business decision to increase the risk of exactly the type of failure that occurred. Courts have held that limitation of liability clauses do not shield a party from liability for willful or grossly negligent conduct because such conduct is fundamentally inconsistent with the contractual relationship. See Sommer v. Federal Signal Corp.; Schrier v. Beltway Alarm Co. If the court finds DataStream's conduct constitutes willful misconduct, both the exclusive remedy and the consequential damages limitation may be set aside. III. NovaTech's Damages Assuming NovaTech overcomes the contractual limitations, its damages fall into several categories. The $2.1 million in lost annual recurring revenue from the three departing hospital clients constitutes lost profits, which are consequential damages. To recover these, NovaTech must establish that they were foreseeable at the time of contracting under Hadley v. Baxendale. DataStream knew it was hosting a healthcare analytics platform with institutional clients, making it foreseeable that a prolonged outage would cause client attrition. NovaTech must also prove these damages with reasonable certainty, which it can do based on the actual contract values of the departing clients. The $500,000 in emergency remediation costs are likely incidental damages — costs incurred in reasonable response to the breach — and may not be subject to the consequential damages bar even if it is enforced, depending on how the court classifies them. Regarding NovaTech's claim for the $1.17 million in "saved" future fees: this mischaracterizes the nature of termination damages. If NovaTech terminates the PSA, it saves the obligation to pay future fees, but that is not a damage — it is a cost avoided. NovaTech cannot recover fees it will not pay. If NovaTech must pay higher fees to a replacement provider, the difference could be recoverable as cover damages. IV. DataStream's Mitigation Defense DataStream argues that NovaTech failed to mitigate by not maintaining its own backup systems. Under the duty to mitigate (Rockingham County v. Luten Bridge Co.), a non-breaching party cannot recover damages it could have reasonably avoided. NovaTech's CEO admitted the company had "no backup plan." However, the duty to mitigate does not require a party to take precautionary measures before the breach occurs — it requires reasonable steps after the breach. See Restatement (Second) Section 350. NovaTech had no obligation to maintain redundant systems in advance, especially when it was paying DataStream specifically for reliable hosting. The lack of a backup plan before the outage is not a failure to mitigate; it is simply the risk allocation the parties made. That said, if NovaTech took no reasonable steps during the 72-hour outage to minimize its clients' exposure — such as communicating with clients, offering partial service through alternative means, or invoking disaster recovery protocols — a court might reduce damages for post-breach failure to mitigate. The CEO's public statement about having "no backup plan" is also potentially damaging as an admission that undermines NovaTech's credibility and may affect the hospital clients' decisions. V. Conclusion The exclusive remedy clause likely fails of its essential purpose given the catastrophic nature of the breach. The consequential damages exclusion may survive as an independent provision under the majority rule, but NovaTech has a strong argument that DataStream's deliberate deferral of maintenance constitutes willful misconduct that vitiates all contractual liability limitations. If NovaTech prevails on that theory, it can recover the $2.1 million in lost revenue (as foreseeable consequential damages) and the $500,000 in remediation costs. The $1.17 million claim for future saved fees is not a cognizable damage. DataStream's mitigation defense is weak as applied to pre-breach precautions but may have some traction regarding NovaTech's post-breach conduct.

I. Is the Development Agreement Enforceable? — The Condition Precedent The threshold issue is whether a binding contract exists between Pinnacle and the City. The Development Agreement states it is "subject to approval of all necessary permits by the Riverside Planning Commission." This language creates a condition precedent — an event that must occur before the parties' obligations under the contract become enforceable. See Restatement (Second) of Contracts Section 224. Until the condition is satisfied, neither party has a duty to perform. The critical question is whether the condition was satisfied. The Planning Commission approved the permits, but with a material modification: increasing the affordable set-aside from 60% to 85%. This raises the question of whether a conditional approval satisfies a condition precedent requiring "approval." The answer depends on whether the modified approval is substantially different from what the parties contemplated. Under the Restatement (Second) Section 227, in resolving ambiguities about conditions, courts prefer interpretations that reduce the risk of forfeiture. However, the modification here is not ambiguous — the Commission fundamentally altered a core economic term of the deal. A permit approval with materially different conditions is not the same as the approval contemplated by the parties. The condition precedent has not been satisfied in its intended form, and therefore the parties' performance obligations have not yet been triggered. The City will argue that the agreement incorporated all permit conditions by reference ("subject to approval of all necessary permits") and that Pinnacle assumed the risk that permits might come with conditions. This is a reasonable textual argument. However, interpretation requires examining the parties' reasonable expectations. Pinnacle negotiated a specific affordable housing percentage (60%) as part of the economic structure of the deal. A permit condition that overrides a negotiated contract term does not merely impose a regulatory requirement — it rewrites the bargain. Under Section 228, a condition that one party's duty is subject to a third party's approval means approval of the performance as specified, not approval on fundamentally different terms. II. Mutual Mistake or Impracticability Alternatively, even if the condition precedent is deemed satisfied by the modified approval, Pinnacle can argue that the 85% requirement renders the contract impracticable. Under Restatement (Second) Section 261, a party's duty is discharged where performance is made impracticable by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made. Both parties assumed that a 60% affordable set-aside was the regulatory requirement. The Planning Commission's unexpected imposition of an 85% requirement is a supervening event that was not within the parties' basic assumptions. The City will counter that the Development Agreement expressly conditioned performance on permit approval, meaning Pinnacle assumed the risk of whatever conditions the Commission imposed. This is a strong argument. Under Section 261, impracticability is unavailable if the party claiming excuse assumed the risk of the occurrence. However, there is a difference between assuming the risk that permits might not be granted (which would simply prevent the condition from being satisfied) and assuming the risk that permits would be granted on terms that make the project economically ruinous. The former is a standard development risk; the latter transforms a $40 million project from viable to a $3.5 million loss. Pinnacle could also invoke frustration of purpose under Section 265. Pinnacle's principal purpose — to build an economically viable housing project subsidized by TIF financing — is substantially frustrated by the 85% requirement, which renders the TIF and land grant insufficient to make the project profitable. This is a closer argument than impracticability because the project is not physically impossible; it is merely unprofitable. Courts generally hold that mere unprofitability is insufficient for impracticability or frustration. See Waldinger Corp. v. CRS Group Engineers. Pinnacle must show that the loss is extreme and unreasonable, not merely that the deal became a bad bargain. A projected $3.5 million loss on a $40 million project (roughly 8.75%) may not reach the threshold of extreme hardship. III. The City's Anticipatory Breach Argument The City claims Pinnacle is in anticipatory breach. Under Restatement (Second) Section 253, an anticipatory repudiation occurs when a party makes a definite and unequivocal statement that it will not perform. Pinnacle informed the City that it "could not proceed under the revised terms." This is arguably a repudiation, but it is conditioned on the revised terms remaining in effect. A conditional statement — "I won't perform if X" — is not a clear repudiation if the condition (the 85% requirement) is itself in dispute. See Taylor v. Johnston. Pinnacle is not refusing to perform the original contract; it is refusing to perform a materially different contract. If the condition precedent analysis above is correct, Pinnacle has no duty to perform yet, and one cannot repudiate a duty that has not arisen. Furthermore, the City's claim that Pinnacle failed to begin construction within an implied reasonable time is weak. Pinnacle spent $1.2 million on pre-construction work and was awaiting permit approval — the very condition the contract required before construction could begin. A party cannot be in breach for failing to perform while a condition precedent to that performance remains unsatisfied. IV. Pinnacle's Obligations to Meridian Steel and Elite Electrical Both subcontracts are contingent upon "Pinnacle securing the City of Riverside development contract." This is itself a condition precedent in the subcontracts. The question is whether this condition has been satisfied. Pinnacle did sign the Development Agreement, but the Development Agreement itself is subject to the permit condition. The subcontract language refers to "securing" the development contract, which could mean either (a) executing the agreement, or (b) having a fully enforceable, unconditional obligation to proceed. If the condition is interpreted as merely requiring execution of the Development Agreement, then the subcontracts are triggered and Pinnacle must either perform or face breach claims. If, however, "securing" means having an operative, unconditional development obligation, then the subcontract conditions have not been satisfied because Pinnacle's obligations under the Development Agreement never became unconditional. Assuming the subcontracts are triggered, Pinnacle would be in breach by failing to proceed. Meridian and Elite would be entitled to lost profit damages under the expectation measure. However, Pinnacle may have an argument for excuse under impracticability, flowed down from the Development Agreement. The subcontractors assumed that the project would proceed as designed, and the Planning Commission's modified conditions were not foreseeable. The subcontractors' damages would also be limited to lost profits, not the full contract price, as they have a duty to mitigate by seeking alternative work. Alternatively, if the subcontract conditions are not satisfied, neither Meridian nor Elite has an enforceable claim against Pinnacle, though they may seek recovery under promissory estoppel for reliance expenditures (reserving materials and labor capacity) if they can show Pinnacle's conduct induced reasonable reliance beyond what the conditional contract contemplated. V. Remedies Available to Each Party Pinnacle's remedies against the City: If the condition precedent was not satisfied, the Development Agreement never became enforceable, and Pinnacle can recover its $1.2 million in pre-construction expenditures under restitution. Under Restatement (Second) Section 377, a party who has rendered performance under a contract that is discharged by the non-occurrence of a condition is entitled to restitution to prevent unjust enrichment. The City received the benefit of environmental assessments and architectural plans for the parcel. Alternatively, if the condition was satisfied but the contract is excused under impracticability, Pinnacle recovers reliance damages for the $1.2 million expended. The City's remedies against Pinnacle: If the court finds an enforceable contract and no excuse, the City can recover expectation damages, which would be measured by the cost of having another developer complete the project minus the contract price (cost of completion or diminution in value). Given that the City plans to rebid, the difference between the rebid price and Pinnacle's $40 million guaranteed maximum price would be the primary measure. The City might also claim consequential damages for delay in providing affordable housing, though these are speculative and difficult to quantify. Meridian and Elite's remedies against Pinnacle: If the subcontracts are enforceable and breached, lost profits (contract price minus cost of performance) plus incidental damages. Both subcontractors have a duty to mitigate by rebooking their reserved materials and labor capacity for other projects. VI. Conclusion Pinnacle's strongest argument is that the Planning Commission's 85% condition fundamentally altered the parties' bargain and therefore the condition precedent was not satisfied as intended, meaning the Development Agreement never became enforceable. Alternatively, even if enforceable, impracticability or frustration of purpose may excuse Pinnacle's performance, though the $3.5 million projected loss may fall short of the required threshold. The City's anticipatory breach argument fails because Pinnacle cannot repudiate obligations that have not arisen. The subcontractor claims turn on the interpretation of the contingency clause and whether "securing" the development contract requires an unconditional obligation. Pinnacle should be advised to negotiate a resolution with the City involving either a revised economic package that makes the 85% set-aside viable, or a mutual release with restitution of Pinnacle's pre-construction costs.