Breach of Contract Flashcards
Common law materiality factors
Under the common law, the materiality factors are used to determine the degree of breach:
- (i) amount of benefit not received,
- (ii) the extent of damages (if only monetary, more likely partial),
- (iii) forfeiture suffered by the breaching party,
- (iv) likelihood of cure by the breaching party, and
- (v) lack of good faith and fair dealing of the breaching party.
Partial breach
Breaching party substantially performed, meaning that there were only small deficiencies where precision is not critical.
The non-breaching party is not relieved of contractual duties, but can seek damages for the breach.
Material breach
Breaching party fails to substantially perform, meaning that the breach deviates significantly from what was promised.
The non-breaching party may suspend performance, giving the breaching party an opportunity to cure, or for the breach to become total. The non-breaching party can still recover damages for the breach.
Total breach
Breaching party committed substantial deviations that will not be cured.
The non-breaching party may withhold performance, terminate the contract, recover damages for the breach, and possibly seek other remedies.
When may contractual duties be discharged?
A court may conclude that a non-performing party was not in breach because their duties were discharged. A contractual duty can be discharged by:
- (a) full performance,
- (b) tender of performance which is rejected,
- (c) agreement by the parties,
- (d) any valid defense or excuse,
- (e) occurrence of a condition, or
- (f) total breach or repudiation by the other party.
UCC seller’s nonperformance rule
A seller may breach a contract by:
- (a) not delivering the goods,
- (b) failing to make a perfect tender,
- If the seller delivers goods that fail to conform to the contract terms, even if the defect is not material, the buyer may:
- (1) reject the whole and sue,
- (2) accept the whole and sue,
- (3) accept part of the goods, reject part of the goods, and sue.
- Note: the seller has the right to cure if the time of performance has not expired.
- If the seller delivers goods that fail to conform to the contract terms, even if the defect is not material, the buyer may:
- (c) breach of warranty, or
- (d) anticipatory repudiation.
UCC buyer’s nonperformance rule
There are three ways in which a buyer might not perform his duties:
- (a) wrongful rejection of the goods,
- (b) failure to make payment, or
- (c) anticipatory repudiation.
Acceptance, rejection, and reasonable time requirement (perfect tender)
- Acceptance: If the buyer accepts the goods, he loses the right to reject the goods. The buyer is given a reasonable time to inspect goods to see if they are conforming. An acceptance occurs if buyer then indicates to the seller that he will take the goods (even if the goods are non-conforming) or if buyer fails to reject the goods in a reasonable time.
- Rejection: The buyer must reject the goods within a reasonable time or he will be deemed to have accepted the goods. If the buyer rejects the goods, then he must “seasonably notify the seller” of his rejection. A buyer who remains in possession of the goods after rejection must hold the goods using reasonable care to give the seller a chance to retrieve them.
- Reasonable Time: Normally, a buyer is given an opportunity to inspect the goods. What is reasonable will depend on the transaction.
Revocation of acceptance
If the buyer accepts the goods and later discovers that they do not conform, the buyer may revoke his acceptance, but only if the goods substantially deviate from the contract terms.
The revocation must occur within a reasonable time after the buyer discovers the non-conformity and before any substantial change in the condition of the goods occurs. If the goods are in the care of the buyer, then the buyer must care for the goods until the seller can retrieve the goods in a reasonable time.
Seller’s right to cure after breach
If a buyer rejects delivery of goods under the perfect tender rule, then a seller has a right to cure the improper tender provided that the seller acts in good faith and the time of performance has not passed. Additionally, the seller must also give notice to the buyer that he intends to cure and then make a delivery of conforming goods with the deadline set forth in the contract. If the buyer does not give the seller a chance to cure under these circumstances, then the buyer may have breached the contract.
If the time of performance has passed, a seller has a second chance to cure under certain limited circumstances. First, the seller must have had reasonable grounds to believe its non-conforming tender would be acceptable with or without money allowance. This might occur if the parties have had a prior course of dealing where non-conformity was allowed within certain limits. While the buyer may still reject the non-conforming goods, the seller has a further reasonable time to substitute a conforming tender, but only if seller seasonably notifies the buyer.
Installment contracts (exception to perfect tender)
An important exception to the perfect tender rule is when the parties have entered an installment contract. An installment contract is one which requires or authorizes the delivery of goods in separate lots to be separately accepted.
For such contracts, the buyer can only reject an installment if the non-conformity substantially impairs the value of that installment and the non-conformity cannot be cured by the seller. The buyer is only afforded the right to cancel the entire installment contract if one or more of the non-conforming installments substantially impairs the value of the whole contract.
