WHEN DOES A BREACH OCCUR?
- If it is found that:
(1) promisor is under absolute duty to perform, and
(2) absolute duty of performance has not been discharged, then failure to perform will be a BOK. - Nonbreaching party who sues for BOK must show they are willing & able to perform but for breaching party’s failure to perform.
MATERIAL OR MINOR BREACH—COMMON
LAW CONTRACTS
- Once you have determined there is BOK, next for CLKs is to determine whether breach is material/ minor.
Determining Materiality of Breach
In determining whether a breach is material/minor, cts look at:
(1) Amount of benefit received by nonbreaching party
(2) Adequacy of compensation for damages to injured party
(3) Extent of part performance by breaching party
(4) Hardship to breaching party
(5) Negligent/willful behavior of breaching party; AND
(6) Likelihood that breaching party will perform remainder of K
Tip
On MBE, you will not be asked to make a fact
determination about whether breach is material.
If you find yourself going down that road, reconsider
what the question is asking. Note that it is still worthwhile to know the factors above should you need to discuss them in an essay answer.
Effect of Minor Breach
- BOK is minor if obligee gains substantial benefit of their bargain despite obligor’s defective performance.
- Minor breach does not relieve aggrieved party of their duty of performance under the K; it merely gives them a right to damages for minor breach.
Effect of Material Breach
- If obligee does not receive substantial benefit of
their bargain, breach is considered material. - If breach is material, nonbreaching party
(1) may treat K as at an end (any duty of counterperformance owed by them will be discharged), and
(2) will have immediate right to all remedies for BOK,
including total damages.
Effect of Minor Breach Coupled with Anticipatory Repudiation
If a minor breach is coupled with an anticipatory repudiation, nonbreaching party may treat it as a material breach (they may sue immediately for total damages and are permanently discharged from any duty of further performance).
- Cts hold that aggrieved party must not continue on, b/c to do so would be a failure to mitigate damages.
-UCC modifies this to permit a party to complete manufacture of goods to avoid having to sell unfinished goods at lower salvage value.
Effect of Material Breach of Divisible Contract
- In a divisible K, recovery is available for substantial
performance of a divisible part even though there has been a material breach of entire K
Tip
Minor breach may allow aggrieved party to recover damages, but they still must perform under the K. If breach is a material one, aggrieved party need not perform.
Timeliness of Performance
- Failure to perform by time stated in K is generally not a material breach if performance is rendered
w/in a reasonable time. - However, if nature of K makes timely performance essential, or if K expressly provides that time is of the essence, then failure to perform on time is usually a material breach.
- Merely including a date for performance does not make time of the essence.
- Cts look at all circumstances to determine whether performance on the specified date was vitally important & whether parties truly intended it to be so.
PERFECT TENDER RULE—SALE OF GOODS
- Art 2 generally doesn’t follow CL substantial
performance doctrine. - Instead, it follows perfect tender rule (if goods/their delivery fail to conform to K in any way, buyer may reject all, accept all, or accept any commercial units and reject the rest).
Right to Reject Cut Off by Acceptance
- Buyer’s right to reject under PTD generally is cut off by acceptance.
- Under Art 2, buyer accepts when:
(1) After a reasonable opportunity to inspect goods, they indicate to seller that goods conform to reqs/ they will keep goods even though they fail to conform;
(2) They fail to reject w/in a reasonable time after tender/delivery of goods/fail to seasonably notify seller of rejection; OR
(3) They do any act inconsistent w/ seller’s ownership.
Buyer’s Responsibility for Goods After
Rejection
- After rejecting goods in their physical possession, buyer must not treat goods as if they own them.
- Buyer has an obligation to hold goods w reasonable care at seller’s disposition for time sufficient to permit seller to remove them.
- If seller has no agent/place of business w/in market area where goods are rejected, merchant buyer has a further obligation to obey any reasonable instructions as to rejected goods (ex. arrange to reship goods).
- If seller gives no instructions w/in reasonable time, buyer may
(1) reship goods to seller,
(2) store them for seller’s account, or
(3) resell them for seller’s account in a public/private sale after giving seller reasonable notice of intent to resell. - If buyer properly resells rejected goods, they are entitled to recover expenses & reasonable commission.
- If buyer wrongfully exercises ownership over rejected goods, seller has an action against buyer for conversion.
Buyer’s Right to Revoke Acceptance
- Once goods are accepted, buyer’s power to reject goods generally is terminated & buyer is obligated to pay price less any damages resulting from seller’s breach.
- Under limited situations, buyer may revoke an acceptance already made.
- A proper revocation of acceptance has effect of a rejection.
When Acceptance May Be Revoked
- Buyer may revoke acceptance if goods have defect that substantially impairs value to buyer and:
(1) They accepted goods on reasonable belief defect would be cured & it has not been OR
(2) They accepted goods b/c of difficulty of discovering defects/ b/c of seller’s assurance that goods conformed to K
Revocation of acceptance must occur:
(1) w/in a reasonable time after buyer discovers/should have discovered defects; and
(2) before any substantial change in goods occurs that is not caused by a defect present at time seller gave up possession.
Exceptions to the Perfect Tender Rule
- Seller’s Right to Cure - Single Delivery K: Seller Can Cure by Notice & New Tender W/in Time for Performance
- If buyer has rejected goods b/c of defects, seller may w/in time originally provided for performance “cure” by giving reasonable notice of their intention to do so & making a new tender of conforming goods that buyer must accept.
Seller’s Right to Cure Beyond Original Contract
Time
- Seller has no right to cure beyond original K time.
- However, if buyer rejects a tender of nonconforming goods that seller reasonably believed would be acceptable “with/without money allowance,” seller, upon a reasonable notification to buyer, has a further reasonable time beyond original K time w/in which to make a conforming tender.
- Seller will probably be found to have had reasonable cause to believe tender would be acceptable if seller can show that
(1) trade practices/prior dealings w/ buyer led seller to believe goods would be acceptable, or
(2) seller could not have known of defect despite proper business conduct (ex. packaged goods purchased from supplier).
Installment Contracts
- Right to reject when K is an installment K (when there is to be >1 delivery) is much more limited than in a single delivery K situation.
- Installment Ks follow a rule akin to CL substantial performance doctrine.
- In an installment K situation, an installment can be rejected only if the nonconformity substantially impairs value of that installment & cannot be cured
- In addition, whole K is breached only if nonconformity substantially impairs value of entire K
ANTICIPATORY REPUDIATION
- Recall that anticipatory repudiation can be treated as immediate BOK
BREACH OF WARRANTY
- Sellers give warranties as to condition of goods that apply even after acceptance.
- Failure to live up to these warranties constitutes a BOW, for which a remedy is available.
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What is a Contract and What Law Applies14
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Mutual Assent: Offer42
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Mutual Assent: Acceptance30
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Consideration21
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Requirement that No Defenses Exist58
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Determining Terms of the K66
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Performance & Excuse of Non Performance113
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Breach20
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Remedies78
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Rights and Duties of Third Parties to the K33
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MBE One Sheet27
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MEE One Sheet14
