Contracts V—Breach

Question 1

When does a breach occur?

Answer 1

A breach occurs if it is found that
(i) the promisor is under an absolute duty to perform, and
(ii) 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 she is willing and able to perform but for the breaching party’s failure to perform.

Contracts V—Breach

Contracts>Breach (V.A)
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Question 2

What is a ‘minor breach?’

Answer 2

A breach of contract is minor if the obligee gains the substantial benefit of her bargain despite the obligor’s defective performance.

Examples would be insignificant delays in completing performance or small deficiencies in the quality or quantity of performance when precision is not critical.

The effect of a minor (immaterial) breach is to provide a remedy for the immaterial breach to the aggrieved party. The aggrieved party is not relieved of her duty of performance under the contract.

Contracts V—Breach

Contracts>Breach (V.B.1.a)
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Question 3

What is a ‘material breach?’

Answer 3

If the obligee does not receive the substantial benefit of her bargain as a result of failure to perform or defective performance, the breach is considered material.

If the breach is material, the consequences are more severe. The nonbreaching party

(i) may treat the contract as at an end, i.e., any duty of counter performance owed by her will be discharged, and
(ii) will have an immediate right to all remedies for breach of the entire contract, including total damages.

Contracts V—Breach

Contracts>Breach (V.B.1.b)
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Question 4

What is the effect if a court finds that a contract or any clause in the contract was unconscionable?

Answer 4

If a court finds as a matter of law that a contract or any clause of the contract was unconscionable when made, the court may:

(i) refuse to enforce the contract;
(ii) enforce the remainder of the contract without the unconscionable clause; or
(iii) limit the application of any clause so as to avoid an unconscionable result. [See, e.g., UCC §2-302]

Contracts V—Breach

Contracts>Requirement that No Defenses Exist (IV.G.3)
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Question 5

(2) Adequacy of Damages

Answer 5

Looks to the extent to which the injured party may be adequately compensated in damages.

The greater the extent > the less material the breach

Contracts V—Breach

Contracts>Determining Materiality of Breach (V.B.2.a.1)
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Question 6

(3) Extent of Part Performance

Answer 6

Looks to the extent the party failing to perform completely has already performed or made preparations to perform.

The greater the extent > the less material the breach

Contracts V—Breach

Contracts>Determining Materiality of Breach (V.B.2.a.2)
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Question 7

(1) Amount of Benefit Received

Answer 7

Looks at the extend to which the nonbreaching party will receive substantially the benefit she could have anticipated from full performance.

The greater the extent > the less material the breach

Contracts V—Breach

Contracts>Determining Materiality of Breach (V.B.2.a)
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Question 8

Determining Materiality of Breach

Answer 8

Generally, whether a breach is material or minor is a question of fact. In making the determination, courts apply the following six criteria:

(1) Amount of Benefit Received
(2) Adequacy of Damages
(3) Extent of Part Performance
(4) Hardship to Breaching Party
(5) Negligent or Willful Behavior
(6) Likelihood of Full Performance

Contracts V—Breach

Contracts>Determining Materiality of Breach (V.B.2)
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Question 9

Minor Breach Coupled with Anticipatory Repudiation

Answer 9

If a minor breach is coupled with an anticipatory repudiation the nonbreaching party may treat it as a material breach.

Contracts V—Breach

Contracts>Material or Minor Breach? (V.B.1.c)
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Question 10

Anticipatory Repudiation

Answer 10

Denying a contract before it can be fulfilled. The party can be sued for the breach. The two types are express and implied. Implied takes the contract duties and gives it to another party. Express is a direct refusal. (Black’s Law Dictionary)

Contracts V—Breach

Contracts>Material or Minor Breach? (V.B.1.c)
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Question 11

Material Breach of Divisible Contract

Answer 11

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

Contracts V—Breach

Contracts>Material or Minor Breach? (V.B.1.d)
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Question 12

Divisible Contract

Answer 12

One which is in its nature and purposes susceptible of division and apportionment, having two or more parts in respect to matters and things contemplatedand embraced by it, not necessarily dependent on each other nor intended by theparties so to be. (Black’s Law Dictionary)

Contracts V—Breach

Contracts>Material or Minor Breach? (V.B.1.d)
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Question 13

Hardship to breaching party related to materiality

Answer 13

If finding of materiality and termination of the contract would cause great hardship to the breaching party, the breach is less likely to be found to be material.

Contracts V—Breach

Contracts>Breach (V.B.4.a.4)
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Question 14

Negligent or willful behavior related to materiality

Answer 14

The more negligent or willful behavior, the more material the breach.

Contracts V—Breach

Contracts>Breach (V.B.4.a.5)
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Question 15

Likelihood of full performance related to materiality

Answer 15

The more likely the party failing to perform will perform the remainder of the contract, the less material the breach.

Contracts V—Breach

Contracts>Breach (V.B.4.a.6)
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Question 16

Time is of the essence

Answer 16

Traditionally, courts have held that a time is of the essence provision makes any delay material breach of contract. Recently, courts have looked at clauses with no surrounding circumstances indicating that performance on that date is of vital importance and found it to be only minor breach.

Contracts V—Breach

Contracts>Breach (V.B.4.b.1.a)
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Question 17

Nature of contract or time of the essence provision related to failure of timely performance

Answer 17

Unless the nature of the contract is such as to make performance on the exact day agreed upon vital, failure by a promisor to perform at the stated time will not be material

Contracts V—Breach

Contracts>Breach (V.B.4.b.1)
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Question 18

Failure of timely performance, general rule

Answer 18

The basic question is if the parties must perform on time. Assuming the defaulting party had a duty of immediate performance when his failure to perform occurred, then his failure to perform on time will always be a breach of contract.

Contracts V—Breach

Contracts>Breach (V.B.4.b)
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Question 19

How does delay affect the availability of equitable remedy?

Answer 19

In equity, the courts generally are much more lenient in tolerating considerable delay. Hence, they will tend to find the breach immaterial and award compensation for the delay where possible.

Contracts V—Breach

Contracts>Availability of Equitable Remedy (V.B.2.b.5)
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Question 20

How much delay is required in Land Contracts (when compared to mercantile contracts) before it constitutes a material breach?

Answer 20

More delay in Land Contracts is required for materiality than in mercantile contracts.

Contracts V—Breach

Contracts>Land Contracts (V.B.2.b.4)
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Question 21

If performance is ‘substantial,’ does it constitute a material breach?

How is ‘substantial’ determined?

Answer 21

If the performance is ‘substantial,’ the breach is not material.

Whether performance is ‘substantial’ depends on the quantity and quality of the performance.

Contracts V—Breach

Contracts>Material Breach and Substantial Performance (v.b.2.C)
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Question 22

When does a material breach occur in a Mercantile Contract?

Answer 22

In Mercantile Contracts, timely performance as agreed is important, and unjustified delay is material.

Contracts V—Breach

Contracts>Mercantile Contracts (V.B.2.b.3)
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Question 23

Define:

Perfect Tender Rule—Sale of Goods

Answer 23

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.

Article 2 generally does not follow the common law substantial performance doctrine.

Contracts V—Breach

Contracts>Perfect Tender Rule—Sale of Goods (V.C)
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Question 24

How does the timing of a delay in performance determine whether or not that delay was material?

Answer 24

Delay at the onset of performance before the delaying party has rendered any part of his agreed-on performance is more likely to be considered material than delay where there has been part performance.

Contracts V—Breach

Contracts>When delay occurs (V.B.2.b.2)
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Question 25

What is a ‘commercial unit’?

Answer 25

A ‘commercial unit’ is treated as a single whole for the purpose of sale, and division of which materially impairs its value (e.g., place setting of dishes).
May be a single article (e.g., a machine) or a set of articles (e.g., a suite of furniture), a quantity (e.g., a bale, a gross), or any other unit treated in use or in the relevant market as a single whole.
The test: ‘not only what unit has been the basis of contract, but also whether the partial acceptance produces so materially an adverse effect upon the remainder as to constitute bad faith.’
Example: Widgets are always sold in units of 100. Buyer orders 500 widgets. They arrive but are found to be defective. Buyer keeps 25 and rejects 475. Buyer is probably required to reject in units of 100 and the rejection of the 75 above 400 is probably wrongful.

Contracts V—Breach

Contracts>Perfect Tender Rule-Sale of Goods (C.1.)
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Question 26

When is the right to reject cut off?

Answer 26

A buyer’s right to reject under the perfect tender doctrine generally is cut off by acceptance.
Under Article 2, a buyer accepts when:
(i) After a reasonable opportunity to inspect the goods, she indicates to the seller that they conform to requirements or that she will keep them even though they fail to conform;
(ii) She fails to reject within a reasonable time after tender or delivery of the goods or fails to seasonably notify the seller of her rejection; or
(iii) She does any act inconsistent with the seller’s ownership.

Contracts V—Breach

Contracts>Perfect Tender Rule-Sale of Goods (C.2.)
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Question 27

When is a buyer unable rely on defect as justification for rejection?

Answer 27

If the buyer fails to state that the goods have a particular defect that is ascertainable by reasonable inspection, she cannot rely on that defect to justify rejection or to show seller’s breach if:

(i) The seller could have cured the defect if he had been told about it; or
(ii) Between merchants when the seller has, after rejection, made a request in writing for a full and final written statement of all defects upon which the buyer proposes to rely.

Example: Buyer has ordered blue widgets. Buyer rejects because the shipment did not contain the widget wrench that, under the contract, went with each widget. Buyer does not give the reason for rejection. If Seller had known the reason, he could have had the necessary number of widget wrenches at Buyer’s business within hours. That probably would have constituted an adequate cure. If so, Buyer’s rejection is unjustified; she will not be able to rely on the absence of the wrenches as a reason for rejection or as the basis for a claim for damages.

Contracts V—Breach

Contracts>Perfect Tender Rule-Sale of Goods (C.2.a.)
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Question 28

What is a Buyer’s Responsibility for Goods After Rejection?

Answer 28

(i) Hold Goods with Reasonable Care
The buyer has an obligation to hold them 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 an obligation to obey any reasonable instructions as to the rejected goods (i.e., she must arrange to reship the goods to a destination designated by the seller or resell on request of the seller, if reasonable).
(ii) If Seller Gives No Instructions on Disposal of Goods
The buyer may reship the goods to the seller, store them for the seller’s account, or resell them for the seller’s account.
The buyer has a security interest in rejected goods in her possession for any part of the price already paid and for expenses reasonably incurred in connection with handling them after rejection.

Contracts V—Breach

Contracts>Perfect Tender Rule-Sale of Goods (C.3.a.)(C.3.b.)
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Question 29

How can one treat anticipatory repudiation?

Answer 29

As an immediate breach of contract

Contracts V—Breach

Contracts>Anticipatory Repudiation (V.D)
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Question 30

Under what conditions can Sellers cure on Single

Delivery Contracts?

Answer 30

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 her intention to do so and making a new tender of conforming goods
which the buyer must then accept.

Contracts V—Breach

Contracts>Seller’s Right to Cure (V.C.5.b)
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Question 31

Under what conditions can Sellers cure beyond the

original contract time?

Answer 31

Ordinarily, the seller has no right to cure beyond the original contract time.
However, in cases where the buyer rejects a tender of nonconforming 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 (i) trade practices or prior dealings with the buyer led the seller
to believe that the goods would be acceptable, or (ii) the seller could not have
known of the defect despite proper business conduct (e.g., packaged goods
purchased from a supplier).

Contracts V—Breach

Contracts>Seller’s Right to Cure (V.C.5.b)
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Question 32

Under what conditions can Sellers cure on Installment

Contracts?

Answer 32

Article 2 provides that a defective shipment in an installment contract cannot be
rejected if the defect can be cured. Ordinarily, defects in the particular goods
themselves cannot be cured, so the buyer can reject them, but then might be
required to accept substitute goods under the provisions discussed above. Note that
a deficiency in quantity may be cured by an additional delivery, and a delivery of
too much may be cured by acceptance or return of a part.

Contracts V—Breach

Contracts>Seller’s Right to Cure (V.C.5.b)
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