Common Law Performance Issues

Question 1

When does Material Breach occur?

Answer 1

Occurs when one Party’s failure to perform under K substantially deprives the other party of the benefit they bargained for.

Question 2

Rules concerning CL Material Breach:

Answer 2

1. MB by one party excuses performance by the other.
2. Materiality of breach is a question of fact
3. Damages: recoverable for any breach to the extent they are foreseeable as a probable result of the breach.

Question 3

Material Breach: Timeliness of performance

Answer 3

Failure to perform by the time stated in the K is not a MB if performance is rendered within a reasonable time after the time stated.

Exception: Time is of the Essence Clauses.

• if timely performance is essential as stated in the K, failure to perform by that time is a MB.
• Arises if one party indicates as a term of the K that performance by a given date is essential.

**Material breach rules do not apply to UCC Ks.

Question 4

Substantial Performance

Answer 4

Under CL, if one party has substantially performed (SP), the other party is obligated to perform and complete performance.

Question 5

What constitutes substantial performance?

Answer 5

Usually considered at least halfway complete

• less than perfect performance by one party does not excuse the other party from his obligation
• thus, SP by A obligates B to perform; but B may seek money damages for the difference b/w the performance rendered and the performance expected.

*Look for SP issues in construction Ks or other similar service Ks.

Question 6

Factors considered to determine material breach

Answer 6

a) Extent to which nonbreaching party will suffer loss
b) Extent to which nonbreaching party can be adequately compensated for loss
c) Extent to which breaching party will suffer forfeiture
d) Likelihood of cure by breaching party
e) Absence of good faith or fair dealing by breaching party

Question 7

Does substantial performance constitute material breach?

Answer 7

NO. Under common law, a material breach of contract allows the nonbreaching party to withhold performance.

A breach is material when the nonbreaching party does not receive the substantial benefit of its bargain, so substantial performance does not constitute a material breach (except as to an express condition).

Question 8

Under common law, if the breach is minor (i.e., the breaching party has substantially performed), must the non-breaching party still perform under the contract?

Answer 8

YES. This allows a party who substantially performs to recover on the contract even though that party has not rendered full performance.

Question 9

Generally, the substantially performing party can recover the…?

Answer 9

The contract price minus the cost to the other party of obtaining the promised full performance.

Question 10

The breaching party who failed to substantially perform generally cannot recover contract damages, but may be able to recover what type of damages?

Answer 10

Restitution Damages.

However, most courts hold that recovery in restitution is only available if the breach was not willful.

Consequently, a party who intentionally furnishes services that are materially different from what was promised cannot recover anything in restitution unless the non-breaching party has accepted or agreed to accept the substitute performance.