Contracts Final (13): Material Breach

Effect of Other Party's Duties of a Failure to Render Performance - 237

Except as stated in §240, it is a condition of each party's remaining duties to render performances to be exchanged under an exchange of promises that there be no uncured material failure by the other party to render any such performance due at an earlier time.

Part Performance as Agreed Equivalents - 240

If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a party's performance of his part of such a pair has the same effect on the other's duty to render performance of the agreed equivalent as it would have if only that pair of performances had been promised.

Circumstances Significant in Determining When Remaining Duties Are Discharged - 242

In determining the time after which a party's uncured material failure to render or to offer performance discharges the other party's remaining duties to render performance under the rules stated in §§237 and 238, the following circumstances are significant . . . (a) Those stated in §241; (b) The extent to which it reasonably appears to the injured party that delay may prevent or hinder him in making reasonable substitute arrangements; (c) The extent to which the agreement provides for performance without delay, but a material failure to perform or to offer to perform on a stated day does not of itself discharge the other party's remaining duties unless the circumstances, including the language of the agreement, indicate that performance or an offer to perform by that day is important

Circumstances Significant in Determining Whether a Failure is Material - 241

In determining whether a failure to render or offer performance is material, the following circumstances are significant: (a) the extent to which the injured party will be deprived of the benefit which he reasonably expected; (b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

Total Breach

• A breach is total if the breach is material AND the breaching party fails to correct or cure the breach within a reasonable period of time • Once a breach becomes total, the non-breaching party's performance obligations under the contract are considered discharged (§242) • Non-breaching party has a right to cancel the contract and immediately sue for damages for total breach (all actual damages to that point and any future damages that would reasonably flow from the breach)

Partial Breach

• Either an immaterial or a material breach (§241) can represent a partial breach • Non-breaching party is entitled (but not required) to suspend (but not cancel) its own performance for a material breach until such time as correction or cure of the breach is forthcoming • If breach is immaterial, the non-breaching party is not entitled to suspend its own performance under the contract

Process for Analyzing a Breach of an Obligation of Performance

• STEP ONE - Determine whether the breach is material o Materiality is normally a question of fact to be considered under the factors of §241 • STEP TWO - Determine whether the breach has become total o §242 governs whether a reasonable time for cure of a material breach has passed thus turning a material breach into a total breach

The Doctrine of "Substantial Performance"

• What is "substantial performance"? The difference between a "material" breach and an "immaterial" breach. • Jacob & Youngs v. Kent - immaterial means "that the defect was insignificant in its relation to the project" - "The courts never say that one who makes a contract fills the measure of his duty by less than full performance. They do say, however that an omission both trivial and innocent, will sometimes be atoned for by the allowance of the resulting damage...."