Breach Flashcards
(34 cards)
Breach Gen Rule:
When performance of a duty under a contract is due, then
When performance of a duty under a contract is due, any nonperformance is breach.
If a breach constitutes a material failure of performance, then _________.
If a breach constitutes a material failure of performance, then the non-breaching party is discharged from all liability under the contract.
A material breach is _______.
Material breach is
- one that goes to the very substance/root/essence of the contract AND
- is so substantial as to justify an injured party’s regarding the whole transaction as at an end
Factors to be Considered for Breach
(§ 241)
(1) Extent of Lost Performance: the extent to which the injured party will be deprived of the benefit which he reasonably expected
(2) $$$ : the extent to which the injured party can be adequately compensated for that part of the benefit for which he will be deprived (Bowen: the purpose of the contract was employment…can’t really compensate with money)
(3) Forfeiture : the extent to which the party failing to perform will suffer forfeiture (how much is breaching party gonna lose if we cancel the contract?)
(4) Likelihood of Cure : the likelihood the party failing to perform will cure his failure, if the contract is not cancelled.
(5) Culpability : the extent to which the behavior of the party failing to perform comports with standards of good faith and fair dealing
Key to material breach analysis is
Key to material breach analysis is deciding what is the overriding purpose of the contract
Bowen: the court found that the essence of the contract was for services and employment…he failed to do that job well/at all, so he materially breached
B&B Equipment v. Bowen
P hired D to replace a retiring partner and agreed to loan him $15K to purchase 100 shares of stock in company. D began to spend less time in the company and P discharged him. They failed to agree on a settlement, P filed suit to obtain judgment declaring right to terminate contract under which D was entitled to corporate stock. D counterclaimed for a declaration that the K was valid.
HOLD: A rescission of a contract for breach by the other party must relate to a vital provision going to the very substance or root of the agreement, and cannot relate to a subordinate or incidental matter. Major purpose of transaction was performance of services; P did not make this deal to obtain capital; they wanted to make a partner. D’s failure to perform duties was a material breach warranting rescission.
Lane Enterprises v Foster
(bridge components)
P agreed to supply bridge components in two separate installments; P contracted with D to coat metallic bridge components in compliance with ODOT standards. P shipped first stage’s worth – during first recoating, there was residue, ODOT said this was no good and that it needed to be recoated. D said it couldn’t do it. P said it would withhold payment unless work was done on the second stage, and D would be charged for field repairs done by another company. P sent D a letter requesting assurances that it could be done. D said no more work until you pay us. P hired another company to complete second stage; sued D for damages, stating material breach. D argued that withholding full payment = material breach.
HOLD: Ratio of the part performed to the part to be performed is important in determining material breach. P only withheld 5% of the total contract price; D’s failure to give adequate assurance of performance amounted to anticipatory breach.
§ 241: To determine if there is a material breach, the following elements are considered:
- Extent to which injured party will be deprived of the benefit he expected.
- Extent to which injured party can be adequately compensated.
- Extent to which party failing to perform will suffer forfeiture.
- Likelihood that the party failing to perform will cure his failure.
- Extent to which breaching party will cure failure/use good faith.
Difference between material breach and substantial performance
They serve different purposes”
Substantial performance - stay in the K & get paid (deals with a question of the quality of performance that triggers the obligation of the other party to perform)
Material breach - gets you out of the K
Party has substantially performed unless
Party has substantially performed unless nonperformance constitutes a material breach
(i.e. if you have substantially performed, there’s no material breach, if you have materially breached, you have not substantially performed)
§241: circumstances in determining whether a failure is material
Issues are:
(a) extent that injured party is deprived of expected benefit;
(b) extent that injured party can be adequately compensated;
(c) extent that party failing to perform will suffer forfeiture;
(d) likelihood that party failing to perform will cure his failure;
(e) extend to which failing party’s behavior comports with good faith.
(f) willful or intentional deviations from contract are not allowed
Jacobs & Young v. Kent
(stipulation of Reading pipe not followed)
F: P built a country home for D under a contract that specially called for Reading brand pipes. A year after the home was completed, D learned that the pipe actually used was Cohoes. Nothing dissimilar between types of pipes. P sued to recover the unpaid balance on construction.
H: this was substantial performance. There are two types of damages possible. Cost to replace makes no sense, because the pipes are installed. Also, the pipes are functional equivalents - even made it past D’s inspector. Other method is diminution of value, which is negligible. YES SUB. PERF. BECAUSE DEVIATION MADE IN GOOD FAITH
R1: Factors to consider whether literal fulfillment is to be implied by law as a condition:
- purpose to be served
- desire to be gratified
- excuse for deviation from the letter
- cruelty of enforced adherence
R2: Classes of Promises: (consideration of justice and presumable intention will decide which class this promise falls into)
- independent – never by fair construction be conditions of one another
- dependant – must always be conditional
- dependant – conditions when there is departure in point of substance will still be viewed as independent and collateral when the departure is insignificant
Damages: Not cost of replacement but difference in value. – cost of pipe, difference in value of house due to pipe difference (minimal assuming no special value held for Reading pipe) and cost of completion. No cost of performance based on economic waste theory
Anticipatory repudiation occurs when
Anticipatory repudiation occurs when one party cancels a contract if, before the time of performance arrives, the other party indicates that they do not intend to perform and intends to repudiate contract.
Anticipatory repudiation is based on the idea that
- two parties to a contract are engaged in a relationship with one another before performance
- there is an implied promise not to do anything to prejudice the expectations of the other party
Rationale for Allowing Anticipatory Repudiation/Suit Before the Time of Performance
- If not, plaintiff would have no other option while waiting to sue
- In addition, plaintiff would have to still expend costs in preparing for a performance that probably was not coming
Rule: For anticipatory repudiation, there has to be
Rule: For anticipatory repudiation, there has to be definite and unequivocal manifestation of an intention not to render performance
** A mere request for a change in the terms or a request for cancellation of the contract is not in itself enough to constitute a repudiation (Sea Colony)
§2-610, 963: anticipatory repudiation
when either party repudiates a contract with respect to performance not yet due, the aggrieved party may:
(1) await performance;
(2) resort to remedy for breach;
(3) in either case, suspend his own performance. (immediate action, no need to wait for date of performance to arrive)
Harrel v. Sea Colony
breached condo contract
F: P agreed to buy condo from D.
I: Did P’s letter asking for a mutual rescission constitute an anticipated repudiation allowing D to breach contract and sell to a third party? Is the agent for D liable?
R1: agent not liable since principal’s identity is fully disclosed.
H: no, D unilaterally attempted to convert P’s request for a mutual rescission of the contract to an anticipatory breach or repudiation. A mere request for a change in the terms or a request for cancellation of the contract is not in itself enough to constitute a repudiation.
R2: To constitute an anticipatory breach of contract; there must be a definite and unequivocal manifestation of intention on part of the repudiator that he will not render the performance when the time fixed for the it in the contract arrives.
Assurances of Performance
Rule: When reasonable grounds for insecurity arise with respect to the performance of either party, the other may,
- in writing,
- demand adequate assurance of due performance, AND
- until he receives such assurance may if commercially reasonable suspend any performance for which he has not already received the agreed return.
If the party does not receive such assurances of performance, that is adequate grounds for anticipatory repudiation giving the aggrieved party the right to cancel the contract.
Assurances of Performance §2-209
Elements
(1) Reasonable grounds for insecurity (case by case anaysis, but have to let the other party know what your grounds for insecurity are so that they may address them)
(2) Demand in writing
(3) Suspended Performance
(4) Wait reasonable time (no longer than 30 days)
** NOTE: Demand for assurances cannot ask to change the K in any way, cannot ask for more than you are entitled to (EX: can’t ask for payment if payment isn’t yet due under the K)
MUST BE DONE CORRECTLY OR SUSPENSION OF PERFORMANCE IS NOT JUSTIFIED AND B.O.K. OCCURS
Scott v. Crown,
bushels of wheat contract rescinded in belief that buyer couldn’t pay
P and D had contract for wheat; then two other contracts for wheat. During the payment period for the first payment, P was delivering the 2nd batch; found out from banker that D was not best trader and that Ag. Dept. had complaints against D. P tried to reach D by phone, and refused to load grain onto truck when it arrived for pickup. D asked P to resume delivery; later sent letter canceling contracts unless P delivered wheat. P demanded assurances that D would pay for all wheat shipped to ate. D canceled the contracts, sued for breach of contract.
I: Did S have reasonable grounds for insecurity and did they properly ask for adequate assurance?
H1: Yes, there was reason for insecurity but assurance was asked for improperly. Driver isn’t appropriate person to ask for assurance and request was oral.
R: demand for adequate assurance must be done in writing, oral demand is not enough.
H2: No subsequent pattern of interaction between parties that would clearly demonstrate that B understood S had asked for assurance of performance. In actuality, S’s actions constituted an anticipatory repudiation allowing B to cancel contract.
R2d § 251 Demand for Assurances
(1) : Where reasonable grounds arise to believe that obligor will breach by nonperformance, obligee may demand adequate assurance of due performance and may, if reasonable, suspend any performance for which he has not already received agreed exchange.
(2) : Obligee may treat the obligor’s failure to provide an assurance within a reasonable as a repudiation.
You don’t have to perform as promised if:
- contracting partner was supposed to perform first and
- it materially failed to perform and
- it did not cure this failure
Perfect Tender Rule
Seller has to deliver goods that conform exactly to the K & any defect can allow buyer to reject goods
“non-conforming” hinges on what K says
UCC moderates the harshness of this by allowing a Seller a time to cure
