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What is a material breach? What rights for non-breaching party?
- When the non-breaching party does not receive substantial benefit of the bargain
- If one party materially breaches, other party is excused from his performance because he did not receive the substantial benefit of the bargain.
- (e.g., P doesn't have to pay, but look to quasi-contract law for D's recovery)
What is a minor breach? What rights for non-breaching party?
- When the non-breaching party does receive substantial benefit of the bargain
- --Can recover setoff but must perform under the K
What performance is required by the parties to avoid a material breach?
- 1) CL: substantial performance
- e.g., service K, less than ½ work has been done is material breach
- 2) UCC: perfect tender rule [buyer has option to reject goods that are not perfect]
Perfect Tender Rule [UCC]
- General Rule: the failure of a perfect tender is a breach, and buyer can reject
- Exception: installment K's
Buyer's remedy when less than perfect tender is delivered?
- 1) Buyer has the option to reject the delivered goods, so long as the buyer acts in good faith.
- 2) Buyer still has K law rights to enforce the K, even if he rejects
- 3) Buyer may accept nonconforming or partial delivery of goods and pay the contract price for the goods accepted. Buyer retains the right to offset its damages (recover the difference between contract price and cover price)
When can seller cure imperfect tender?
- 1) if he reasonably believed that the goods delivered would be acceptable [usually based on prior transactions, or if the defect is so minor]
- Seller gets a further reasonable time beyond original contract deadline to make a conforming tender
- 2) seller gives notice of intention to cure, as long as he can perform the contract by the contract deadline
What if Buyer accepts goods, and they're not perfect?
- General rule: If buyer has accepted goods, buyer CANNOT later reject [but may be able to revoke acceptance]
- 1) Acceptance requires opportunity to inspect (payment without opportunity for inspection is not acceptance)
- 2) Rejection must be timely. Failure to reject after the buyer had reasonable time to reject is acceptance.
- 3) Effect of buyers keeping goods is implied acceptance [1 month rule of thumb]
Revocation of acceptance
- Buyer can revoke acceptance if
- 1) nonconformity substantially impairs value of goods;
- 2) excusable ignorance of grounds for revocation or reasonable reliance on sellers assurances of satisfaction; and
- 3) revocation w/in a reasonable time after discovery of nonconformity.
Installment Sales Ks, when is it material breach?
- K requires/authorizes delivery of the goods in separate deliveries to be separately accepted; ongoing relationship by K
- Buyer may declare a total breach of an installment contract only if the defect substantially impairs the value of the entire contract.
- Exception to the perfect tender rule!
Divisible Contract, what is a material breach?
- 1) Contract law recovery for the partial performance, on a per unit basis [even if it's a substantial performance of the divisible part!]
- 2) P can still sue for losses due to the material breach
- Look for whether the price is stated as a: per performance/per unit basis
Express Performance Conditions
- Language in the K, mutually agreed upon by parties, that limits or extinguishes obligations created by other language in K
- Non-performance of EXPRESS condition: excuse of performance
How can conditions be satisfied?
- 1) express - strict, literal compliance
- 2) personal satisfaction - [I will only pay you if satisfied with the work] good faith required, courts look at whether a RP would be satisfied
Excuse of Conditions
- 1) Estoppel (before event occurs)
- 2) Waiver (after)
Estoppel of condition
Estoppel (Prevention): person protected by condition does something to hinder or prevent condition from happening
Waiver of condition
- person protected by condition can give up condition through words or conduct expressing that she will not insist upon it.
- If the other party acts in detrimental reliance on it, a court will hold this to be a binding waiver.
- Waiver can be retracted any time before the other party has detrimentally relied on it
What is Anticipatory Repudiation?
Prior to performance being due, a repudiating party makes an unequivocal statement that he will not perform
What is the non-repudiating party entitled to do, when a party makes an anticipatory repudiation?
- 1) sue immediately
- 2) suspend performance, and sue when performance is due
- 3) treat repudiation as a rescission and a discharge
- 4) urge performance
Can anticipatory repudiation be retracted?
- Can be retracted unless:
- 1) accepted, or
- 2) detrimental reliance by non-repudiating party
- If retracted, duty to perform is re-imposed but performance can be delayed until adequate assurance is provided.
When can you demand Adequate Assurances?
- Article 2 [goods ONLY]: adequate reassurances when performance is uncertain
- Defendant makes ambiguous stmt that raises doubt as to whether he will perform, but doesnt rise to anticipatory repudiation
- Innocent party can suspend performance until it gets adequate assurance, if
- 1) P has reasonable grounds for insecurity
- 2) P must make written demand for adequate assurances
- 3) must be commercially reasonable to stop performance
What is Recission, and When can it occur?
- later agreement to cancel the K
- Requires: remaining performance for both parties
What is Accord/Satisfaction?
- Later agreement, with different consideration, to accept a different performance in satisfaction of existing obligation; excuses original obligation
- If amount of the debt is in dispute, accord is available w/no new consideration
- But if amount of debt is not in dispute, accord must be supported by different consideration
Remedies for breach of accord K?
- 1) If accord K is breached by debtor - creditor can sue on either original K or accord K, but not both
- 2) If accord K is breached by creditor - debtor can either raise accord agreement as a defense in creditor's action, or wait until he is damaged (i.e., creditor wins suit for original K) and then bring suit for damages for breach of the accord K.
What is Modification of a K?
- substituted agreement, replaces old agreement with new agreement. you can only sue on new agreement
- Making of new agreement itself excuses performance of old obligations
- Even reiterating importance of set date, to make it a time of the essence K, is considered a modification
- CL: new consideration reqd to modify
Discharge of duty to perform
- --by events--
- 1) Impossibility
- 2) Impracticability
- 3) Frustration of Purpose
- --by the parties--
- 4) Modification
- 5) Rescission
- 6) Novation
- 7) Accord and Satisfaction
- duties objectively cant be performed by anyone
- 1) death or physical incapacity
- 2) illegality
- 3) destruction of subject matter
Damage or Destruction of Subject Matter of K
- Risk of loss rules
- 1) P contracts to paint house. After P begins painting, house burns down. P is excused from performing.
- 2) B contracts to build house. After B begins work, house burns down. B is NOT excused from performing [ability to perform is not affected]
Risk of loss for goods?
- When risk of loss is on buyer: buyer must pay.
- When risk of loss on seller:
- 1) If one of a kind item, seller excused from performance
- 2) If a commodity or replaceable, seller NOT excused
- Generally, death after the K doesnt excuse performance
- In services K, if service isnt unique (can be delegated), death does NOT excuse performance
- BUT exception: if dead party is unique/special, can only be performed by the special person -> performance excused
Subsequent Law or Regulation:
- Later law makes performance illegal: excused by (legal) impossibility
- Later law makes mutually understood purpose illegal, cancelled, or otherwise nullified: excused by frustration of purpose
- e.g., performance of the contract is NOT illegal, but nonetheless performance is excused.
- subjective test
- 1) extreme and unreasonable difficulty and/or expense [CL]
- 2) nonoccurance of which was a basic assumption of the parties [UCC, foreseeability not required]
Frustration of Purpose
- 1) Unforseen supervening event
- 2) which destroys the purpose or value of the K, and
- 3) the purpose was understood by both parties at the time of K