Breach of K Issues

Question 1

Material Breach-Common Law

Answer 1

A contract breach is material where there was not substantial performance on the contract. The following are factors to consider in the analysis:

1. Party did not receive substantial bargain of benefit.
2. Extent of any part performance.
3. Willfulness of breach: The more intentional it is, the more likely it’s a material breach.
4. Time is not of the essence in a contract unless specifically agreed to, and thus a delay will not amount to a material breach.

Question 2

Minor Breach-Common Law

Answer 2

A minor breach occurs when the non-breaching party receives the substantial benefit of the bargain despite the defective performance of the other party. A minor breach does not relieve the aggrieved party of her duty to perform under the contract; it merely gives her a right of damages for the breach.

Question 3

Minor Breach (CL) Couples with Anticipatory Repudiation

Answer 3

If a minor breach is coupled w/an anticipatory repudiation, the non-breaching party may treat it as a material breach, meaning may sue immediately for total damages and is permanently discharged from any duty of performance.

Question 4

Material breach under UCC

Answer 4

Material breach under UCC is a breach, but the rules vary depending on whether it is a:

1. Perfect tender
2. Installment contracts
3. Seller’s right to cure
4. Divisible contract

Question 5

Perfect tender

Answer 5

The “perfect tender” rule applies to contracts for a single delivery and provides that if the goods tendered fail to conform to the contract in any respect, the buyer has three choices:

a. Reject the whole within a reasonable time; or
b. Accept the whole; or
c. Accept any commercial unit and reject the rest.

Question 6

2. Installment contracts-Exception to The “perfect tender” rule

Answer 6

The “perfect tender” rule does not apply to installment contracts where the parties have contracted for more than one delivery.

Question 7

Seller’s right to cure-Exception to The “perfect tender” rule

Answer 7

The buyer’s right to reject nonconforming goods is subject to the seller’s right to cure the defect. A seller may cure the defect any time before performance is due, with the following provisions:
a. Notice: The seller must give notice to the buyer; and
b. New tender: The seller must make a new tender within the time for performance.
The seller may even make a new tender after the time for performance if the seller has a reasonable belief this would be acceptable to the buyer.

Question 8

Divisible contract

Answer 8

A divisible contract is one where the parties have divided up their performance into agreed equivalents, which means that each corresponding part performance is roughly equal to the corresponding part compensation. (E.g.: A and B agree that B will paint 15 identical cars of A for $ 500 each.)

Breach of a divisible contract: For purposes of breach, each agreed equivalent operates as a separate contract.

Question 9

Anticipatory repudiation

Answer 9

An anticipatory repudiation is an unequivocal expression by a party, occurring before the time for performance is due, that she will not perform under the contract.

Question 10

Nonrepudiating party response

Answer 10

Once a party has anticipatorily repudiated, the nonrepudiating party can take three courses of action:

a. Sue immediately: Sue immediately for breach even though the time to perform under the contract has not yet passed; or
b. Suspend performance: Suspend performance and wait until performance is due to sue; or
c. Urge performance: The nonrepudiating party may urge performance under the contract and sue later if their efforts are futile.

Question 11

Right to demand adequate assurances

Answer 11

Right to demand adequate assurances: Where the conduct of a party is not unequivocal enough to rise to the level of an anticipatory repudiation, but does cause reasonable grounds for insecurity about their forthcoming performance, the insecure party can demand adequate assurances of due performance. This must be done in writing and he may suspend his own performance until receiving adequate assurances.

Question 12

Accomodation

Answer 12

A Shipment of non-conforming goods ordinarily is an acceptance creating a bilateral contract as well as a breach of that contract. But the result is different if the seller seasonably notices the buyer that a shipment of non-conforming goods is offered only as an accommodation to the buyer; in that case, the shipment is a counteroffer, not an acceptance and a breach, and the buyer is free to accept it or reject it.

Question 13

Right to Reject cut off by Acceptance

Answer 13

A buyer’s right to reject under the perfect tender rule is generally cut off by acceptance. A buyer accepts when:

1. After a reasonable opportunity to inspect the goods, she indicates to the seller that they conform or that she will keep them even though they fail to conform; or
2. She fails to reject w/in a reasonable time after tender or delivery or fails to seasonably notify the seller of her rejection; or
3. She does any act inconsistent w/the seller’s ownership.

Question 14

Buyer’s Responsibility for Goods after rejection

Answer 14

After rejecting the goods in her physical possession, the buyer is obligated to hold them with reasonable care and to obey the seller’s reasonable instructions.

Question 15

Buyer’s Right to Revoke Acceptance

Answer 15

Once goods are accepted, the buyer can no longer reject them and the buyer is obligated to pay the price less any damages resulting from the seller’s breach. But under limited circumstances, a buyer may revoke an acceptance already made.

Question 16

When Revocation is Allowed (UCC Breach)

Answer 16

The buyer may revoke the acceptance if the goods have a defect that substantially impairs their value to her and:

1. She accepted them on the reasonable belief that the defect would be cured and it has not been; or
2. She accepted them because of the difficulty in discovering defects or because of the seller’s assurance that the goos conformed to the contract.

Question 17

When Revocation must Occur (UCC Breach)

Answer 17

Revocation must occur:

1. W/in 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 18

Risk of Loss

Answer 18

All Ks for the sale of goods require delivery of the goods.

Question 19

Non-Carrier Case:

Answer 19

A non-carrier case is a sale in which it appears that the parties didn’t intend that the goods would be moved by a common carrier (e.g. when you buy groceries).
If seller is a merchant: the risk of loss passes to the buyer only when she takes physical possession of the goods.
If Seller is not a merchant: the risk of loss passes to the buyer upon tender of delivery.

Question 20

Carrier Case

Answer 20

A carrier case is a sale in which it appears that the parties intended the goods to be moved by a carrier. There are two types of carrier cases: Shipment Ks and Destination Ks.

Question 21

Shipment Ks

Answer 21

If the K authorizes or requires the seller to ship the goods by carrier but does not require him to deliver them at a particular destination, it is a shipment K and risk of loss passes to the buyer when the seller delivers the goods to the carrier, makes reasonable arrangements for delivery, and notifies the buyer.

Question 22

Destination Ks

Answer 22

If the K requires the seller to deliver the goods at a particular destination, the risk of loss passes to the buyer when the goods are tendered to the buyer at the destination.

Question 23

F.O.B

Answer 23

The letters F.O.B. are always followed by a location, and the risk of loss passes to the buyer at the named location. The seller bears the risk and expense of getting the goods to the named location. These ks can be either shipment Ks or destination Ks, depending on the location named.

Question 24

Effect of Breach on Risk of Loss

Answer 24

Defective Goods: If goods are so defective that the buyer has a right to reject them, the risk of loss doesn’t pass to the buyer until the defects are cured or she accepts the goods in spite of their defects. A buyer generally has the right to reject for any defect.
Revocation of Acceptance: If the buyer rightfully revokes acceptance, the risk of loss is treated as having rested on the seller from the beginning to the extent of any deficiency in the buyer’s insurance coverage.

Question 25

Risk in Sale or Return

Answer 25

In a sale or return K, the buyer take goods for resale, but may return them if she is unable to resell them. IF the goods are returned to the seller, the risk remains on the buyer while the goods are in transit.

Question 26

Risk in Sale on Approval

Answer 26

A sale on approval K is one where the buyer takes goods for use but may return them even if they conform to the K. The risk of loss does not pass to the buyer until she accepts.

Question 27

Express Warranty

Answer 27

An express warranty is made explicitly. Usually Any:

1. Affirmation of fact or promise made by seller.
2. Description of the goods, or
3. Any sample or model creates an express warranty, if the statement description or sample is part of the basis of the bargain.

Question 28

Implied warranty of merchantability

Answer 28

Implied warranty of merchantability warrants that goods will be fit for the ordinary purpose for which such goods are used.

Question 29

Warranty of fitness for a particular purpose

Answer 29

Warranty of fitness for a particular purpose only applies where the buyer relies on the seller’s judgment to select appropriate goods for a stated purpose.

Question 30

Implied covenant of good faith and fair dealing

Answer 30

Is inherent in every contract.

Question 31

Warranty-Statements of value or opinion

Answer 31

A statement relating merely to the value of the goods, or a statement purporting to be only the seller’s opinion or commendation of the goods, doesn’t create an express warranty.

Question 32

Disclaimer of Express Warranty

Answer 32

Generally, these cannot be disclaimed

Question 33

Disclaimer of Implied Warranty of Merchantability

Answer 33

Can only be disclaimed or modified by mentioning “merchantability” or by expressions such as as is, or with all faults. If the contract is in writing, the disclaimer must be conspicuous.

Question 34

Disclaimer of Implied Warranty of Fitness

Answer 34

Can be specifically disclaimed only by a conspicuous writing. A written disclaimer is sufficient if it says as is, or with all faults, or there are no warranties which extend beyond the description on the face hereof.

Question 35

General Disclaimer Methods

Answer 35

1. By inspection or refusal to inspect, or

2. By course of dealing

Question 36

Limitations on Remedies

Answer 36

These don’t eliminate warranties, but simply limit or set recovery bars for any breach of warranty. Parties may include in their K a clause limiting the damages available in the case of breach of a warranty. Such a limitation generally will be upheld unless the limitation is unconscionable. Disclaimers that limit damages for PI caused by a breach of warranty on consumer goods are prima facie unconscionable.

Question 37

Who do Warranties Extend to?

Answer 37

The Seller’s warranty liability extends to any natural person who is in the family or household of the buyer or who is a guest in the buyer’s home if it is reasonable to expect that the person may use, consume, or be affected by the goods and the person suffers personal injury because of the breach of warranty.

Question 38

Accord

Answer 38

An accord is an agreement where one party promises to render substitute performance and the other promises to accept that substitute in discharge of the existing duty. It does not discharge the obligation under the original agreement until the substitute performance has been completed (a satisfaction). Must be supported by consideration.

Question 39

Satisfaction

Answer 39

A satisfaction is the performance of the accord, which then discharges both the original agreement and the accord.

Question 40

Effect of Breach of Accord Agreement before Satisfaction

Answer 40

Breach by Debtor: creditor may sue either on the original undischarged K OR for a breach of the accord agreement
Breach by Creditor: Debtor can 1) raise the accord agreement as an equitable defense, or 2) wait until she is damaged and then bring an action at law for damages for breach of the accord K.