Breach

Question 1

Breach Gen Rule:

When performance of a duty under a contract is due, then

Answer 1

When performance of a duty under a contract is due, any nonperformance is breach.

Question 2

If a breach constitutes a material failure of performance, then _________.

Answer 2

If a breach constitutes a material failure of performance, then the non-breaching party is discharged from all liability under the contract.

Question 3

A material breach is _______.

Answer 3

Material breach is

1. one that goes to the very substance/root/essence of the contract AND
2. is so substantial as to justify an injured party’s regarding the whole transaction as at an end

Question 4

Factors to be Considered for Breach

(§ 241)

Answer 4

(1) Extent of Lost Performance: the extent to which the injured party will be deprived of the benefit which he reasonably expected
(2) $$$ : the extent to which the injured party can be adequately compensated for that part of the benefit for which he will be deprived (Bowen: the purpose of the contract was employment…can’t really compensate with money)
(3) Forfeiture : the extent to which the party failing to perform will suffer forfeiture (how much is breaching party gonna lose if we cancel the contract?)
(4) Likelihood of Cure : the likelihood the party failing to perform will cure his failure, if the contract is not cancelled.
(5) Culpability : the extent to which the behavior of the party failing to perform comports with standards of good faith and fair dealing

Question 5

Key to material breach analysis is

Answer 5

Key to material breach analysis is deciding what is the overriding purpose of the contract

Bowen: the court found that the essence of the contract was for services and employment…he failed to do that job well/at all, so he materially breached

Question 6

B&B Equipment v. Bowen

Answer 6

P hired D to replace a retiring partner and agreed to loan him $15K to purchase 100 shares of stock in company. D began to spend less time in the company and P discharged him. They failed to agree on a settlement, P filed suit to obtain judgment declaring right to terminate contract under which D was entitled to corporate stock. D counterclaimed for a declaration that the K was valid.

HOLD: A rescission of a contract for breach by the other party must relate to a vital provision going to the very substance or root of the agreement, and cannot relate to a subordinate or incidental matter. Major purpose of transaction was performance of services; P did not make this deal to obtain capital; they wanted to make a partner. D’s failure to perform duties was a material breach warranting rescission.

Question 7

Lane Enterprises v Foster

(bridge components)

Answer 7

P agreed to supply bridge components in two separate installments; P contracted with D to coat metallic bridge components in compliance with ODOT standards. P shipped first stage’s worth – during first recoating, there was residue, ODOT said this was no good and that it needed to be recoated. D said it couldn’t do it. P said it would withhold payment unless work was done on the second stage, and D would be charged for field repairs done by another company. P sent D a letter requesting assurances that it could be done. D said no more work until you pay us. P hired another company to complete second stage; sued D for damages, stating material breach. D argued that withholding full payment = material breach.

HOLD: Ratio of the part performed to the part to be performed is important in determining material breach. P only withheld 5% of the total contract price; D’s failure to give adequate assurance of performance amounted to anticipatory breach.

Question 8

§ 241: To determine if there is a material breach, the following elements are considered:

Answer 8

• Extent to which injured party will be deprived of the benefit he expected.
• Extent to which injured party can be adequately compensated.
• Extent to which party failing to perform will suffer forfeiture.
• Likelihood that the party failing to perform will cure his failure.
• Extent to which breaching party will cure failure/use good faith.

Question 9

Difference between material breach and substantial performance

Answer 9

They serve different purposes”

Substantial performance - stay in the K & get paid (deals with a question of the quality of performance that triggers the obligation of the other party to perform)

Material breach - gets you out of the K

Question 10

Party has substantially performed unless

Answer 10

Party has substantially performed unless nonperformance constitutes a material breach

(i.e. if you have substantially performed, there’s no material breach, if you have materially breached, you have not substantially performed)

Question 11

§241: circumstances in determining whether a failure is material

Issues are:

Answer 11

(a) extent that injured party is deprived of expected benefit;
(b) extent that injured party can be adequately compensated;
(c) extent that party failing to perform will suffer forfeiture;
(d) likelihood that party failing to perform will cure his failure;
(e) extend to which failing party’s behavior comports with good faith.
(f) willful or intentional deviations from contract are not allowed

Question 12

Jacobs & Young v. Kent

(stipulation of Reading pipe not followed)

Answer 12

F: P built a country home for D under a contract that specially called for Reading brand pipes. A year after the home was completed, D learned that the pipe actually used was Cohoes. Nothing dissimilar between types of pipes. P sued to recover the unpaid balance on construction.

H: this was substantial performance. There are two types of damages possible. Cost to replace makes no sense, because the pipes are installed. Also, the pipes are functional equivalents - even made it past D’s inspector. Other method is diminution of value, which is negligible. YES SUB. PERF. BECAUSE DEVIATION MADE IN GOOD FAITH

     R1: Factors to consider whether literal fulfillment is to be implied by law as a condition:

1. purpose to be served
2. desire to be gratified
3. excuse for deviation from the letter
4. cruelty of enforced adherence

R2: Classes of Promises: (consideration of justice and presumable intention will decide which class this promise falls into)

1. independent – never by fair construction be conditions of one another
2. dependant – must always be conditional
3. dependant – conditions when there is departure in point of substance will still be viewed as independent and collateral when the departure is insignificant

Damages: Not cost of replacement but difference in value. – cost of pipe, difference in value of house due to pipe difference (minimal assuming no special value held for Reading pipe) and cost of completion. No cost of performance based on economic waste theory

Question 13

Anticipatory repudiation occurs when

Answer 13

Anticipatory repudiation occurs when one party cancels a contract if, before the time of performance arrives, the other party indicates that they do not intend to perform and intends to repudiate contract.

Question 14

Anticipatory repudiation is based on the idea that

Answer 14

• two parties to a contract are engaged in a relationship with one another before performance
• there is an implied promise not to do anything to prejudice the expectations of the other party

Question 15

Rationale for Allowing Anticipatory Repudiation/Suit Before the Time of Performance

Answer 15

• If not, plaintiff would have no other option while waiting to sue
• In addition, plaintiff would have to still expend costs in preparing for a performance that probably was not coming

Question 16

Rule: For anticipatory repudiation, there has to be

Answer 16

Rule: For anticipatory repudiation, there has to be definite and unequivocal manifestation of an intention not to render performance

** A mere request for a change in the terms or a request for cancellation of the contract is not in itself enough to constitute a repudiation (Sea Colony)

Question 17

§2-610, 963: anticipatory repudiation

when either party repudiates a contract with respect to performance not yet due, the aggrieved party may:

Answer 17

(1) await performance;
(2) resort to remedy for breach;
(3) in either case, suspend his own performance. (immediate action, no need to wait for date of performance to arrive)

Question 18

Harrel v. Sea Colony

breached condo contract

Answer 18

F: P agreed to buy condo from D.

I: Did P’s letter asking for a mutual rescission constitute an anticipated repudiation allowing D to breach contract and sell to a third party? Is the agent for D liable?

R1: agent not liable since principal’s identity is fully disclosed.

H: no, D unilaterally attempted to convert P’s request for a mutual rescission of the contract to an anticipatory breach or repudiation. A mere request for a change in the terms or a request for cancellation of the contract is not in itself enough to constitute a repudiation.

R2: To constitute an anticipatory breach of contract; there must be a definite and unequivocal manifestation of intention on part of the repudiator that he will not render the performance when the time fixed for the it in the contract arrives.

Question 19

Assurances of Performance

Rule: When reasonable grounds for insecurity arise with respect to the performance of either party, the other may,

Answer 19

• in writing,
• demand adequate assurance of due performance, AND
• until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.

If the party does not receive such assurances of performance, that is adequate grounds for anticipatory repudiation giving the aggrieved party the right to cancel the contract.

Question 20

Assurances of Performance​ §2-209

Elements

Answer 20

(1) Reasonable grounds for insecurity (case by case anaysis, but have to let the other party know what your grounds for insecurity are so that they may address them)
(2) Demand in writing
(3) Suspended Performance
(4) Wait reasonable time (no longer than 30 days)

** NOTE: Demand for assurances cannot ask to change the K in any way, cannot ask for more than you are entitled to (EX: can’t ask for payment if payment isn’t yet due under the K)

MUST BE DONE CORRECTLY OR SUSPENSION OF PERFORMANCE IS NOT JUSTIFIED AND B.O.K. OCCURS

Question 21

Scott v. Crown,

bushels of wheat contract rescinded in belief that buyer couldn’t pay

Answer 21

P and D had contract for wheat; then two other contracts for wheat. During the payment period for the first payment, P was delivering the 2nd batch; found out from banker that D was not best trader and that Ag. Dept. had complaints against D. P tried to reach D by phone, and refused to load grain onto truck when it arrived for pickup. D asked P to resume delivery; later sent letter canceling contracts unless P delivered wheat. P demanded assurances that D would pay for all wheat shipped to ate. D canceled the contracts, sued for breach of contract.

I: Did S have reasonable grounds for insecurity and did they properly ask for adequate assurance?

H1: Yes, there was reason for insecurity but assurance was asked for improperly. Driver isn’t appropriate person to ask for assurance and request was oral.

R: demand for adequate assurance must be done in writing, oral demand is not enough.

H2: No subsequent pattern of interaction between parties that would clearly demonstrate that B understood S had asked for assurance of performance. In actuality, S’s actions constituted an anticipatory repudiation allowing B to cancel contract.

Question 22

R2d § 251 Demand for Assurances

Answer 22

(1) : Where reasonable grounds arise to believe that obligor will breach by nonperformance, obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received agreed exchange.
(2) : Obligee may treat the obligor’s failure to provide an assurance within a reasonable as a repudiation.

Question 23

You don’t have to perform as promised if:

Answer 23

1. contracting partner was supposed to perform first and
2. it materially failed to perform and
3. it did not cure this failure

Question 24

Perfect Tender Rule

Answer 24

Seller has to deliver goods that conform exactly to the K & any defect can allow buyer to reject goods

“non-conforming” hinges on what K says

UCC moderates the harshness of this by allowing a Seller a time to cure

Question 25

Summary of UCC Right to Cure

When the seller delivers imperfect goods, the buyer can accept or reject (for any non-conformity)

Answer 25

• If buyer rejects, the deal is not off –> seller has the opportunity to cure (make a conforming delivery)
• If rejection is before the time performance is due (under the contract), the seller has an unconditional right to cure until the contracted time for performance.
• If rejection is after the time performance is due, seller has a limited right to cure if he had reason to believe the buyer would accept the goods with the non-conformity (such as, prior dealings suggest the buyer would take the goods as is)à if that is the case, the seller has a reasonable time to cure.
• If seller does not cure, the buyer has the right to cancel the contract

Question 26

“Acceptance” under UCC occurs when

Answer 26

Acceptance (in this context) occurs when the buyer has possession of the goods, AND:

1. Gives notice of intent to accept, OR
2. Fails to notify in a reasonable time, OR
3. Acts inconsistent with the sellers ownership of the goods.

Question 27

Once buyer has accepted the goods, he may revoke his acceptance if

Answer 27

the defect substantially impairs the value of the goods AND:

1. Buyer had accepted with the understanding that the seller would fix the defects, OR
2. Acceptance was induced by difficulty of discovering the non-conformity or the seller’s assurances.

Question 28

Revocation grants the buyer the right to remedies under the UCC, one of which is

Answer 28

cancellation of the contract

• this is better than rescission, which completely gets rid of the contract (meaning there is no right to sue because the contract doesn’t exist)
• with cancellation, you are freed from performance, and you can still sue

Question 29

Cost of Completion vs. Diminution in Value

Damages in Services Contracts

Answer 29

Damages for material breach should be

Cost of Completion: Damages for material breach should be the cost of whatever it would take to complete performance

• based on subjective expectation of the non-breaching party (that they want the job done)

Diminution in Value: the loss of value on the property by the job not being completedà based on objective analysis of value

Most courts use the objective approach

Question 30

Restatement § 348 Alternatives to Loss in Value of Performance

If a breach results in defective or unfinished construction and the loss in value is not proved with sufficient certainty, the injured party may recover damages based on

Answer 30

1. The diminution in the market price of the property caused by the breach, OR
2. The reasonable cost of completing performance if that cost is not clearly disproportionate to the probable loss of value.

Question 31

**Ramirez v. Autosport **

purchase of camper van with lots of problems

Answer 31

I: Whether a buyer may reject a tender of goods with minor defects that do not conform to contract and whether a seller may cure the defects:

R1: perfect tender rule – seller has to deliver goods that conform precisely to the contract

R2: seller’s right to cure – within the time set for the performance in the contract, the seller’s right to cure is unconditional. After expiration of this time, seller has a further reasonable time to cure if he believed reasonably that the goods would be accepted with or without a money allowance.

Depends on surrounding circumstances, i.e. amount of inconvenience to buyer, length of time needed by the seller to correct non-conformity, ability to salvage the goods by resale to others

R3: balance before acceptance – buyer’s right to reject NC goods with a 2nd chance for seller to conform goods under limited conditions

balance after acceptance – buyer may revoke acceptance only if the NC substantially impairs the value of the goods to him.

Question 32

Damages in Service Contracts

§348: alternatives to loss in value of performance

Answer 32

If breach results in the defective or unfinished construction and the loss in value of the injured party is not proved with sufficient certainty, he may recover damages based on:

1. diminution of the market price of the property (value rule), or
2. reasonable cost of completing performance or of remedying the defects if that cost is not disproportionate to the probable loss in value to him (cost of performance rule)

Question 33

Groves v. John Wunder

lease of land in exchange for removal of gravel and sand

Answer 33

F: P leased land to D for $105,000 for 7 years to remove gravel and sand with provision that and would be left level. D left land uneven. P sued. P granted $15,000, based on market value of land ($12,160) plus interest. Cost of performance would have been $60,000.

I: Award cost of performance or diminution in value if D has performed?

H: for P - new trial that could lead to the $60,000, judge applies cost of performance rule to grading contract despite disproportionate cost. cost of performance even if disproportionate

     R1:“where the contractor willfully and fraudulently varies from the terms of a construction contract, he cannot sue thereon and have the benefit of the equitable doctrine of substantial performance”

     R2 : the goal, given the lack of good faith, should be to give P what he has bargained for, what has been promised, and what he has been deprived

Question 34

Peevyhouse v. Garland Coal

strip mine lease, failure to restore land

Answer 34

F: Ps lease land to D for coal mining purposes, D agreed to perform certain restorative and remedial work at the end of lease period. P said he never would have contracted without this provision. D breaches duty to restore land. The cost of removing the holes would have been $25,000. The implied value of the land, total, was $2,800.

H - for P - limited to the $300, but the damages should be based on “relative economic merit”

R - while the default rule is cost of performance, if application of that rule would result in grossly disproportionate economic benefit as compared to the cost of performance, then use the value rule. Basis is that the remedial work was incidental to the primary purpose of the contract and economic benefit of cost of performance rule would be grossly disproportionate.

              Dissent: bad faith on part of D, should apply CoP regardless of disproportion