8. CONTRACTS: Breach
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MATERIAL OR MINOR BREACH
MINOR: if the obligee gains the substantial benefit of her bargain despite obligor's defective performance, would include insubstantial delays in performance, or small deficiencies in quality or quantity when precision is not critical; the effect of a minor breach is to provide a remedy for the breach to the aggrieved party, the aggrieved party is not relieved of her duty to perform.
MATERIAL: if 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; nonbreaching party may (1) treat the contract as at an end, ie, any duty of counterperformance will be discharged, and (2) will have an immediate right to all remedies for breach of the entire contract, including total damages.
MINOR BREACH COUPLED WITH ANTICIPATORY REPUDIATION: the non-breaching party may treat it as a material breach; ie, she may sue immediately for total damages and is permanently discharged from any duty of further performance; the aggrieved party must not continue because to do so would be a failure to mitigate damages.
MATERIAL BREACH OF DIVISIBLE CONTRACT: recovery is available for substantial performance of a divisible part even though there has been a material breach of the entire contract.
DETERMINING MATERIALITY OF THE BREACH
In determining materiality, courts consider the following six criteria:
-- amount of benefit received -- the greater the extent the less material
-- adequacy of damages -- extent to which the injured party may be adequately commpensated in damages, the greater the extent, the less material the breach
-- extent of part performance -- the greater the extent, the less material the breach
-- hardship to breaching party -- should the contract be terminated
-- negligent or willful behavior
-- likelihood of full performance
BREACH BY FAILURE OF TIMELY PERFORMANCE
The basic Q here is whether the parties must perform on time. Assuming that the defaulting party had a duty of immediate performance when his failure to perform occurred, his failure to perform on time will always be a breach. There are, however, additional specific rules for determining the materiality of breach by failure of timely performance:
-- unless the nature of the contract is such as to make performance on the exact day agreed upon of vital importance, or the contract by its terms provides that time is of the essence, failure by a promisor to perform at the stated time will not be material
-- 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
-- in mercantile contracts, timely performance as agreed is important, and unjustified delay is material
-- more delay in land contracts is required for materiality than in contracts for goods
-- in equity, the courts generally are much more lenient in tolerating considerable delay; they will tend to find the breach immaterial and award compensation for the delay where possible
PERFECT TENDER RULE -- SALE OF GOODS
Art 2 does not follow the common law substantial performance doctrine. If goods or their delivery fail to conform to the contract in any way, the buyer generally may reject it all, accept all, or accept any commercial units and reject the rest.
commercial unit -- 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
- A buyer's right to reject is cut off by acceptance. A buyer accepts when:
- -- 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;
- -- 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
- -- she does any act inconsistent with the seller's ownership.
- If in connection with rejection 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:
- -- the seller could have cured the defect if he had been told about it; or
- -- 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.
BUYER'S RESPONSIBILITY FOR GOODS AFTER REJECTION
Buyer must hold goods with reasonable care for a sufficient time to permit the seller to remove them. A merchant buyer has an obligation to obey any reasonable instructions as to the rejected goods.
When seller gives no instructions on disposal of goods within a reasonable time after notification of rejection, the buyer may reship the goods to seller, store them for the seller's account, or resell them for the seller's account. Buyer has a security interest in rejected goods in her possession for any part of the price already paid and for expenses reasonably incured.
If buyer does resell the goods, she is entitled to have her expenses of selling and any commission ordinarily paid in the trade or, if there is none, a reasonable commission not exceeding 10%.
BUYER'S RIGHT TO REVOKE ACCEPTANCE
Once goods are accepted, the buyer's power to reject generally is terminated and the buyer is obligated to pay the price less any damages resulting from the seller's breach. However, under limited situations, a buyer may revoke acceptance, which has the effect of a rejection.
- They buyer may revoke acceptance if the goods have a defect that substantially impairs their value to her and:
- -- she accepted them on the reasonable belief that the defect would be cured and it has not been; and
- -- she accepted them because of the difficulty of discovering defects or because of the seller's assurance that the goods conformed to the contract.
- Revocation of acceptance must occur:
- -- within a reasonable time after buyer discovers or should have discovered the defects; and
- -- before any substantial change in the goods occurs that is not caused by a defect present at the time the seller relinquished possession.
EXCEPTIONS TO THE PERFECT TENDER RULE
INSTALLMENT CONTRACTS: right to reject is much more limited than in a single delivery contract situation, installment contracts follow a rule akin to the common law substantial performance doctrine, an installment can be rejected only if the nonconformity substantially impairs the value of that installment and cannot be cured; the whole contract is breached only if the nonconformity substantially impairs the value of the entire contract.
SELLER'S RIGHT TO CURE:
WITHIN TIME: 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 that the buyer must then accept.
BEYOND TIME: in cases where buyer rejects a tender of nonconforming goods that the seller reasonably believed would be acceptable 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.
INSTALLMENT CONTRACTS: Art 2 provides that a defective shipment in an installment contract cannot be rejected if the defect can be cured.
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