BAR FLASHCARDS - C7 Breach (1)

Question 1

WHEN DOES A BREACH OCCUR?

Answer 1

If it is found that (1) the promisor is under an absolute duty to perform, and (2) this absolute duty of performance has not been discharged, then this failure to perform in accordance with contractual terms will amount to a breach of the contract.
The nonbreaching party who sues for breach of contract must show that they are willing and able to perform but for the breaching party’s failure to perform.

Question 2

Breach

Answer 2

Failure to perform absolute duty (that has not been discharged).
Nonbreaching party must show that they are willing and able to perform, but-for the breach.

Question 3

COMMON LAW Breach: when is it material or minor?

Answer 3

Common law contract situation: determine whether that breach is material or minor.

A breach of contract is MINOR if the obligee gains the SUBSTANTIAL BENEFIT OF THEIR BARGAIN despite the obligor’s defective performance.

If the obligee does not receive the substantial benefit of their bargain, the breach is considered material.

Look at whether they have MATERIALLY BREACHEd or they have SUBSTANTIALLY PERFORMED (minor breach).

Question 4

Determining Materiality of Breach: In determining whether a breach is material or minor, courts look at…

Answer 4

In determining whether a breach is material or minor, courts look at:
a. The amount of benefit received by the nonbreaching party,
b. The adequacy of compensation for damages to the injured party,
c. The extent of part performance by the breaching party,
d. Hardship to the breaching party,
e. Negligent or willful behavior of the breaching party, AND
f. The likelihood that the breaching party will perform the remainder of the contract

Question 5

To determine substantial performance, courts look to:

Answer 5

• Benefit received by non-breaching party
• Part performance by breaching party
• Hardship to breaching party

Question 6

Effect of Breaches - minor and material

Answer 6

a. Minor Breach:
If they have substantially performed, the NON-breaching partty cannot avoid performance - instead, they must perform then pursue remedies for breach.
A miunor breach does NOT excuse non-breaching party’s performance.
A breach of contract is minor if the obligee gains the substantial benefit of their bargain despite the obligor’s defective performance.
A minor breach does not relieve the aggrieved party of their duty of performance under the contract; it merely gives them a right to damages (setoff) for the minor breach.

b. Material Breach:
If the obligee does not receive the substantial benefit of their bargain, the breach is considered material.
If the breach is material, the nonbreaching party
(1) may treat the contract as at an end; that is, any duty of counterperformance owed by them will be discharged, and
(2) will have an immediate right to all remedies for breach of the entire contract, including total damages.

Question 7

Material breach

Answer 7

• Occurs if No perforamnce or substantial performance
• No benefit of bargain to NON-breaching party
• Contract ended
• Counter-performance discharged, immediate right to remedies.

Question 8

Major breach vs minor breach EFFECT

Answer 8

A minor breach may allow the aggrieved party to recover damages, but they still must perform under
the contract.
If the breach is a material one, the aggrieved party need not perform.

Question 9

Minor Breach Coupled with Anticipatory Repudiation

Answer 9

If a minor breach is coupled with an anticipatory repudiation (see 6.4.6), the nonbreaching party may treat it as a material breach; that is, they may sue immediately for total damages and are permanently discharged from any duty of further performance. Indeed, the courts hold that the aggrieved party must not continue on, because to do so would be a failure to mitigate damages.

The UCC modifies this to permit a party to complete the manufacture of goods to avoid having to sell unfinished goods at the lower salvage value.

Question 10

Material Breach of Divisible Contract

Answer 10

In a divisible contract, recovery is available for substantial perfor- mance of a divisible part even though there has been a material breach of the entire contract.

Question 11

Breach - TIME for PERFORMANCE: Failure to perform within stated time

Answer 11

Failure to perform within stated time IS NOT a material breach if performance is eventually performed in a reasonmabe time, UNLESS:
- K makes time essential or provides that Time is of the essence. Courts look to all circumstances. (but including dates doesnt make time of essence)

Question 12

Timeliness of Performance: Failure to perform by the time stated in the contract

Answer 12

Failure to perform by the time stated in the contract is generally not a material breach if performance is rendered within a reasonable time.

However, if the nature of the contract makes timely performance essential, or if the contract expressly provides that time is of the essence, then failure to perform on time is usually a material breach.

Merely including a date for performance does not make time of the essence.

Note that while traditionally any delay in performance of a contract with a time of the essence provision was a material breach, modern courts look at all of the circumstances to determine whether performance on the specified date was vitally important and whether the parties truly intended it to be so.

Question 13

PERFECT TENDER RULE—SALE OF GOODS

Answer 13

Article 2 generally doesn’t follow the common law substantial performance doctrine.
Instead, it follows the perfect tender rule—if goods or their delivery fail to conform to the contract in any way, the buyer generally may reject all, accept all, or accept any commercial units and reject the rest.

Question 14

Perfect tender rule: If goods do NOT confirm, BUYER may:

Answer 14

• REJECT entire shipment
• ACCEPT entire shipment, or
• REJECT in PART, ACCEPT in PART.

Question 15

A buyer who accepts non-conforming goods - what is their damages?

Answer 15

Can get the difference between the value expected & the value received.

Question 16

Buyer Accepts Goods if they: (5)

Answer 16

• indicate goods conform to contract
• Indicate they will keep nonconforming goods
• Fail to reject within reasonable time
• Fail to notify seller of rejection
• Act inconsistent with seller’s ownership.

Question 17

Right to Reject Cut Off by Acceptance

Answer 17

A buyer’s right to reject under the perfect tender doctrine generally is cut off by acceptance.
Under Article 2, a buyer accepts when:
a. After a reasonable opportunity to inspect the goods, they indicate to the seller that the goods conform to requirements or that they will keep the goods even though they fail to conform;
b. They fail to reject within a reasonable time after tender or delivery of the goods or fail to seasonably notify the seller of their rejection; OR
c. They do any act inconsistent with the seller’s ownership.

Question 18

Buyer’s Responsibility for Goods After Rejection

Answer 18

After rejecting goods in their physical possession, the buyer must not treat the goods as if they own them.

The buyer has an obligation to hold the goods with reasonable care at the seller’s disposition for a time sufficient to permit the seller to remove them. If the seller has no agent or place of business within the market area where the goods are rejected, a merchant buyer has a further obligation to obey any reason- able instructions as to the rejected goods (for example, arrange to reship the goods).

If the seller gives no instructions within a reasonable time, the buyer may (1) reship the goods to the seller, (2) store them for the seller’s account, or (3) resell them for the seller’s account in a public sale or a private sale after giving the seller reasonable notice of the intent to resell. If the buyer properly resells the rejected goods, they are entitled to recover their expenses and a reasonable commission. If the buyer wrongfully exercises ownership over the rejected goods, the seller has an action against the buyer for conversion.

Question 19

Buyer’s Right to Revoke Acceptance

Answer 19

Once goods are accepted, the buyer’s power to reject the goods generally is terminated and the buyer is obligated to pay the price less any damages resulting from the seller’s breach.
However, under limited situations, a buyer may revoke an acceptance already made.
A proper revocation of acceptance has the effect of a rejection.

Question 20

When Acceptance May Be Revoked?

Revocation of acceptance must occur:

Answer 20

The buyer may revoke their acceptance if the goods have a defect that substantially impairs their value to the buyer and:
- They accepted the goods on the reasonable belief that the defect would be cured and it has not been OR
- They accepted the goods because of the difficulty of discovering the defects or because of the seller’s assur- ance that the goods conformed to the contract.

Revocation of acceptance must occur:
(1) within a reasonable time after the buyer discovers or should have discovered the defects; and
(2) before any substantial change in the goods occurs that is not caused by a defect present at the time the seller relinquished possession

Question 21

If buyer does not want to reject in whole, then the rejection has to be…

Answer 21

In commercial units. Keep one truck out of 100 trucks (not keep the GPS of the truck, etc…). Cannot keep the best part of the nonconforming goods.

Question 22

Exceptions to the Perfect Tender Rule: Seller’s Right to Cure

Answer 22

Seller has right to cure Nonconforming goods within time for performance, provided they seasonably notify the buyer of their intent to cure.

Question 23

Seller’s Right to Cure: Single delivery Contracts

Answer 23

Single Delivery Contracts:
- Seller Can Cure by Notice and New Tender Within Time for Performance: If the buyer has rejected goods because of defects, the seller may within the time originally provided for performance “cure” by giving reasonable notice of their intention to do so and making a new tender of conforming goods that the buyer must then accept.
- Seller’s Right to Cure Beyond Original Contract Time:
If goods delivered on time or later, determine whether seller had reason to believe goods would be acceptable. If they inspect before sending, helps to show reasonable grounds to believe acceptable to send. Then opportuntiy to cure.

Ordinarily, the seller has no right to cure beyond the original contract time. However, if the buyer rejects a tender of noncon-forming goods that the seller reasonably believed would be acceptable “with or without money allowance,” the seller, upon a reasonable notification to the buyer, has a further reasonable time beyond the original contract time within which to make a conforming tender.
A seller will probably be found to have had reasonable cause to believe that the tender would be acceptable if the seller can show that (1) trade practices or prior dealings with the buyer led the seller to believe that the goods would be acceptable, or (2) the seller could not have known of the defect despite proper business conduct (for example, packaged goods purchased from a supplier)

Question 24

Seller’s Right to Cure: Installment Contracts

Answer 24

• BUYER can reject installment if nonconformity substantially impairs value of installment and cannot be cured.
• Contract breached if nonconformity substantially impairs entire contract value.

The right to reject when a K is an installment contract (that is, when there is to be more than one delivery) is much more limited than in a single delivery contract situation.
Installment contracts follow a rule akin to the common law substantial performance doctrine.
In an installment contract situation, an installment can be rejected only if the nonconformity substantially impairs the value of that installment and cannot be cured (see below).
In addition, the whole contract is breached only if the nonconformity substantially impairs the value of the entire contract.

Question 25

ANTICIPATORY REPUDIATION

Answer 25

Recall that an anticipatory repudiation can be treated as an immediate breach of contract.
- Early statement of non-performance
- Repudiations can be retracted if not relied on.

Question 26

BREACH OF WARRANTY

Answer 26

Sellers give warranties as to the condition of the goods that apply even after acceptance. Failure to live up to these warranties consti- tutes a breach of warranty, for which a remedy is available.