Contracts II: Breach—Part 1

Law of Breach

• Overview
• A breach of contract occurs when a performance duty under a contract is due and there's unjustifiable non-performance.
• Restatement (Second) of Contracts § 235(2) provides a legal definition.

Types of Breaches

• Immaterial/Partial Breach

• Non-breaching party must still perform but can sue for monetary damages resulting from the breach.

• Example: Jacob & Youngs v. Kent.

• Material Breach

• Non-breaching party has options to:

  • Suspend performance.
  • Provide notice and wait a reasonable time for breaching party to cure the breach.
  • Seek monetary damages for losses incurred.

• Total Breach

• An uncured material breach.

• Non-breaching party may:

  • Suspend performance and consider their duties discharged.
  • Terminate the contract.
  • Sue for damages.

Substantial Performance

• Definition

• A partial, immaterial breach characterized by trivial deficiencies in performance quality or quantity.

• Non-breaching Party's Reaction

• They must still perform their obligations under the contract.

• They can sue for monetary damages for the harm caused by the partial breach.

• Measuring Damages

• Generally, damages reflect the cost to remedy the defective performance.

• Notably, in Jacob & Young’s v. Kent, the court awarded damages based on diminution in market value rather than cost to cure.

• Determining Substantial Performance

• There’s no fixed formula; decisions rely on context and materiality analysis using a multi-factor test (Rest.2d § 241).

Material Breach

• Definition

• A failure to meet a significant performance obligation.

• Reaction for Non-breaching Party

• Can suspend performance while allowing reasonable time to cure the breach.

• They must not immediately discharge their obligations unless the breach is uncured.

• Multi-Factored Analysis (Rest.2d 241)

• Key factors include:

  • Deprivation of benefit.
  • Adequate compensation for injuries.
  • Forfeiture consequence for breaching party.
  • Likelihood and timing of cure.

• Notice and Cure Requirements

• The injured party must notify the breaching party and provide an opportunity for cure.

• Non-compliance with notice may lead to the non-breaching party becoming liable for breach.

Total Breach

• Definition

• Occurs when an uncured material breach no longer allows the non-breaching party to wait or when the breaching party fails to cure (Rest.2d § 242).

• Factors Concerning Total Breach

• Assess whether the delay harms the ability of the non-breaching party to arrange for substitutes.

• Consider if timely performance is significant.

• Non-Breaching Party's Options

• They may withhold performance, treat the contract as terminated, and sue for damages.

Case Illustrations

• Jacob & Youngs v. Kent

• In this case, an unintentional and trivial breach was identified.

• The court ruled on how to measure damages, deliberating on whether to use cost of completion or market value diminution.

• Sackett v. Spindler

• This case demonstrates how a material breach can escalate into a total breach.

• Important legal issues include whether Spindler could withhold performance and terminate the contract based on the circumstances of the breach.

Problems for Consideration

• Problem 1: Discusses a scenario involving a mistaken installation of a kitchen fixture that can be remedied at a low cost. Consider the materiality of the breach.
• Problem 2: Involves a builder who intentionally leaves out an installation as an act of anger, which could affect the legality of withholding payment for the unfinished work. Evaluate the materiality of this breach and consequences that follow.