Contracts: Breach

Elements of Breach

(1) the promisor is under an absolute duty to perform; (2) the absolute duty of performance has not been discharged; and (3) the promisor does not perform. The nonbreaching party must show that they are willing and able to perform but for the breaching party’s failure to perform

Determining the Materiality of a Breach

The court will look at: (1) the amount of benefit received by the nonbreaching party; (2) the adequacy of compensation for damages to the injured party; (3) the extent of part performance by the breaching party; (4) hardship to the breaching party; (5) negligent or willful behavior of the breaching party; and (6) the likelihood that the breaching party will perform the remainder of the contract

Effect of Minor Breach

A breach is minor if the obligee gains the substantial benefit of their bargain despite the obligor’s breach. A minor breach does not relieve the aggrieved party of their duty of performance, it merely gives them a right to damages

Material breach

If the breach is material, the nonbreaching party: (1) may discharge their duty of counterperformance; and (2) will have an immediate right to all remedies for breach of the entire contract, including total damages

Minor Breach + Anticipatory Repudiation

If a minor breach is coupled with anticipatory repudiation, the nonbreaching party may treat it as a material breach. In fact, failure to do so would be a failure to mitigate damages. The UCC modifies this to permit a party to complete the manufacture of goods to avoid having to sell unfinished goods at a lower value

Material Breach of Divisible Contracts

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

Timeliness of Performance

Failure to perform within a time stated in the contract is generally not a material breach if the performance is rendered within a reasonable time. However, if the nature of the contract makes timely performance essential or the contract expressly states that time is of the essence, failure to perform on time is usually a material breach.

Article 2 Perfect Tender

If the goods or their delivery fail to conform to the contract in any way, the seller has breached and the buyer generally may reject all, accept all, or accept any commercial units and reject the rest

Right to Reject and Acceptance

A buyer’s right to reject under the perfect tender doctrine generally is cut off by acceptance. A buyer accepts when: (1) after reasonable opportunity to inspect, they indicate to the seller that the goods conform to requirements or will keep the goods despite nonconformance; (2) they fail to reject within a reasonable time after tender or delivery of the goods or fail to notify the seller of their rejection; or (3) they do any act inconsistent with the seller’s ownership

Buyer’s Responsibility after Rejection

After rejecting the goods, the buyer has an obligation to hold the goods with reasonable care at the seller’s disposition for a time sufficient for the seller to remove them. If the seller has no agent or place of business within the area, a merchant buyer has a further obligation to obey reasonable instructions such as arranging to reship the goods. If the seller gives no instructions within a reasonable time, the buyer may: (1) reship the goods to the seller; (2) store them for the seller’s account; or (3) resell for the seller’s account in a public sale (or private if reasonable notice given to seller). If the buyer properly resells the rejected goods, the buyer is entitled to recover their expenses and a reasonable commission. If the buyer wrongfully exercises control, the seller has an action for conversion

Buyer’s Right to Revoke Acceptance

Once goods are accepted, the buyer’s power to reject the goods generally is terminated and the buyer is obligated to pay the price less any damages resulting from the seller’s breach. However, under certain situations a buyer may revoke an acceptance already made, which has the effect of a rejection

Conditions Necessary for Revoking Acceptance

The buyer may revoke their acceptance if the goods had a defect that substantially impair their value to the buyer and: (1) they accepted the goods on the reasonable belief that the defect would be cured and it has not been cured; OR (2) they accepted the goods because of the difficulty of discovering the defects or because of the seller’s assurance that the goods conformed to the contract.

When Revocation of Acceptance Must Occur

Revocation of acceptance must occur: (1) within 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

Seller’s Right to Cure: Single Delivery Contracts

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 their intention to do so and making a new tender of conforming goods that the buyer must then accept

Seller’s Right to Cure Beyond Original Contract Time

Ordinarily the seller has no right to cure beyond the original contract time. However, if 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 to cure. A seller probably has reasonable cause to believe the tender would be accepted if: (1) trade practices or prior dealings with the buyer led the seller to the conclusion; or (2) the seller could not have known of the defect despite proper business conduct

Seller’s Right to Cure: Installment Contracts

The right to reject an installment is much more limited than in a single delivery contract situation. In an installment contract, an installment can be rejected only if the nonconformity substantially impairs the value of that installment and cannot be cured. In addition, the whole contract is breached only if the nonconformity substantially impairs the value of the entire contract

Anticipatory Repudiation

Anticipatory Repudiation can be treated as an immediate breach

Breach of Warranty

Failure to live up to the warranties even after acceptance is a breach of warranty for which remedy is available