CONTRACTS - Breach of Contract

BREACH OF CONTRACT - COMMON LAW

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Partial Acceptance

Buyer must pay at the contract rate for any goods accepted.

Paying for Goods

Mere payment for goods does not constitute acceptance, because the buyer has a rght of inspection and rejection.

Non-Conforming Goods

The buyer must pay at contract rate for all goods accepted, even if the goods are defective.

Termination of Performance for Material Breach

The non-breaching party may terminate their performance, and the contract, upon a material breach, if the breach is not cured by the breaching party within a reasonable period of time.

Free on Board/FOB

Under FOB, the seller bears the expense of putting goods int he possession of a carrier and having the goods loaded.

EXCLUSIVE DEALINGS CONTRACT/ Outputs or Requirements Contracts.

Under an exclusive dealing contact, the seller must use their best efforts to supply goods, and the buyer must use their best efforts promote the sale of goods.

Open Price Term

When a contract has an open price term, the price imposed is a reasonable price at the time of delivery.

BREACH OF CONTRACT - UCC

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Revocation of Acceptance

A buyer may revoke an acceptance, if the buyer discovers a defect after they have accepted the goods. However, a buyer who first accepts and then rejects goods, must make a stronger showing of nonconformity than a buyer who originally rejects. A revoking buyer must show that the nonconformity of the goods substantially impaired the value of the goods, and the impairment was difficult to discover.

Mitigation of Damages

A non-breaching party may not continue with the contract after a repudiation has taken place, merely to build up damages. Rather, the non breaching party must mitigate their damages by securing an alternate contract, if possible.

Retraction of Anticipatory Repudiation

A party who has anticipatorily repudiated may retract the repudiation prior to the time for performance. However, this right of retraction is cut off if the aggrieved party changes position in reliance on the repudiation, notifies the wrongdoer tha the repudiation is accepted, or sues for breach of contract.

Power to Transfer Goods

A purchaser of goods acquires all rights that the transferor had. Therefore, a person with voidable title may transfer foods to a good faith purchaser for value, except that a criminal may never transfer good title to stolen goods.

Time is of the Essence

A reasonable delay in performance will be considered a minor breach, unless time is of the essence, or the breaching party knew or should have known, of a special fact that made a deadline essential. Any delay for a time is of the essence contract, will be considered a major breach. Under the perfect tender rule of the UCC, all deadlines must be met and any delay will be considered a material breach.

Unilateral Contracts/Bilateral Contracts Performed by One Party

Anticipatory repudiation does not apply to unilateral contracts, or to bilateral contracts that are fully performed by one party. In these situations, a non-breaching party may sue for breach of contract on the day that performance of the other party is due.

PLAINTIFF'S RIGHT TO SUE FOR BREACH OF CONTRACT

Anticipatory repudiation occurs where a party indicates that they are unable or unwilling to perform. When this occurs, the other party has a right to suspend their performance and sue for breach of contract. Prospective inability to perform/voluntary disablement, is a lesser form of anticipatory repudiation, where a party indicates in some fashion that they would like to perform, but are having trouble actually performing.

MATERIAL V. MINOR BREACH - COMMON LAW

Courts will consider a number of factors to determine if a breach is material or minor including: *The deprivation of the expected benefit for the non-breaching party *The amount of performance already rendered. *The likeliness that the breaching party is willing and able to cure their performance *The willfulness of the breaching party *The good/bad faith of the breaching party *Whether or not time is of the essence int he performance of the contract.

Free Alongside/ FAS

FAS indicates tha the seller will deliver the goods to the carrier at the seller's own expense and tender a receipt, at which point the buyer arranges for the loading of the goods.

Implied Acceptance

Implied acceptance by the buyer occurs where the buyer keeps goods without objection, after having had an opportunity to inspect the goods. The buyer need not have actually inspected the goods. When there is a significant time span between delivery and a buyer's rejection, implied acceptance may indicate that the buyer's time for rejection has passed.

Delivery/Risk of Loss

Parties may agree as to when title passes, as long as title passes after goods are in existence, and have been identified in the contract. If the goods are lost or damaged before delivery, on party will bear the risk of the loss. If the seller bears the risk, the seller must provide new goods to the buyer at no additional cost, or else the seller will be liable for breach of contract. If the buyer bears the risk of loss, then the buyer must pay the contract price, or else the buyer will be liable for breach of contract.

Buyer's Timely Right of Inspection and Acceptance or Rejection of Goods

The inspection and/or rejection of goods must take place by the buyer within a reasonable period of time after the goods are delivered and before acceptance of the goods. The buyer must give prompt notice to the seller that the buyer is rejecting the goods, and follow reasonable instructions from the seller concerning the rejected goods. If the seller gives no instructions, the buyer must make reasonable efforts to sell the goods, and the buyer will be entitled to reimbursement for reasonable expenses of caring for goods and selling them, which is not to exceed ten percent of the gross proceeds.

SELLER'S RIGHT TO CURE

The perfect tender rule is modified by the seller's right to cure, and a seller who tenders non-conforming goods has a right to cure the defective performance without being said to have breached the contract. The right to cure is present when the seller notifies the buyer of their intention to cure by delivering conforming goods, and such notification occurs before the time for seller's performance. If the time for performance has passed, the seller will have a reasonable time to cure through tender of conforming goods if the seller thought that the non-conforming goods would be acceptable to the buyer.

Installment Contracts

The perfect tender rule is modified in the case of contracts which cover several deliveries under an installment contract, where each lot is separately delivered and accepted. Under an installment contract, a buyer may reject an installment which is non-conforming only where there is a substantial impairment in the delivery which cannot be cured. However, cancellation of the entire contract may occur only if a defect substantially impaired the value of the entire contract, because minor defects may be corrected in later installments.

Cost, Insurance and Freight/ CIF

The seller's price includes cost, insurance and freight to the buyer's destination. Delivery to a carrier shifts the risk of loss to the buyer. The seller sends documents tot he buyer who pays on tender of the document.

FOB Place of Destination/Buyers City

Under FOB place of destination/buyer's city, the freight charges are paid by the seller, and the seller bears the risk of loss for lost/damaged/destroyed goods until the goods are tendered at the buyer's location.

FOB Place of Shipment or Delivery/Seller's City

Under FOB place of shipment or delivery/seller's city, the buyers pays for the freight, and the risk of loss passes to the buyer upon delivery to the carrier, as long as the seller makes reasonable delivery arrangements and notifies the buyer of the delivery arrangements.

No Arrival/ No Sale

Under a no arrival/no sale arrangement, the seller will be relieved of a risk of loss if the goods are lost due to transport.

SUBSTANTIAL PERFORMANCE

Under the common law, a party who substantially performs their contractual duties will have fulfilled their duties under the contract, thus avoiding a material breach of contract. Any possible breach will be minor, and the non-breaching party will not be allowed damages. The non breaching party under a minor breach must still perform their duties before suing for damages.

THE PERFECT TENDER RULE, UCC 2-601

Under the perfect tender rule, buyers do not have to settle for a faulty or for an only substantial performance from the sellers. Therefore, if the goods fail in any respect to conform to the contractual requireemnts, a buyer may reject all of the goods, accept all of the goods, or accept any party and reject the remainder. Additionally a late payment may also be a material breach under the perfect tender rule, and all deadlines must be met. Any delay will be considered a material breach.

Payment and Price

Unless otherwise agreed, payment is due at the time and place of delivery for conforming goods. Payment by check is normally fine, but if the seller demands payment in legal tender, then the buyer must be given an extension of time reasonably necessary to secure legal tender.

No Common Carrier

Where a seller must deliver the goods, then the seller bears the risk of loss until the buyer takes possession of the goods. If the seller is a non-merchant, then the seller bears the risk of loss until the seller tenders the goods by making the goods available, informing the buyer where the goods are located, and how the buyer may retrieve the goods. If the contract gives the buyer the right to return the goods, and the buyer is buying the goods for their own use, then under 'sale of approval,' the risk of loss remains with the seller until the buyer has accepted the goods.

Divisible Contracts

Where both parties have divided up performance, into units of essentially equal equivalents, so that part performance is basically the compensation for the other party's part performance, the contract will be treated as separate/divisible contracts, and if one party partially performs the other needs to make a partial payement. If there is only one payment designated at the end of total performance, this will not necessarily indicate a lack of a divisible contract. The breaching party in a divisible contract who completes some segments of performance, will be entitled to payment for their completed performance, offset by damages for their failure to perform all segments of their performance. An employment contract will normally be divisible contract. The substantial performance test for common law contracts is applied separately to each divisible portion of the contract.

Divisible Contracts

Where both parties have divided up performance, into units of essentially equal equivalents, so that part performance is basically the compensation for the other party's part performance, the contract will be treated as separate/divisible contracts, and if one party partially performs the other needs to make a partial payment.

Anticipatory Repudiation or Prospective Inability to Perform/Voluntary Disablement

Where reasonable grounds arise for insecurity with respect to the performance of the other party, the insecure party may put into writing a demand for adequate assurances of performance. If there is a failure to give assurances in a timely fashion, which for the UCC is not to exceed thirty days, this will be considered an outright repudiation, which will allow the insecure party to cancel the contract and sue for breach of contract.

Right to Adequate Assurances of Performance for Prospective Inability to Perform

Where reasonable grounds arise for insecurity with respect to the performance of the other party, the insecure party may put into writing a demand for adequate assurances of performance. If there is a failure to give assurances in a timely fashion, which for the UCC is not to exceed thirty days, this will be considered an outright repudiation, which will allow the insecure party to cancel the contract and sue for breach of contract.

Seller's Right to Cure After Time for Performance

Where the seller's time for performance has passed, and the buyer was flexible in the past and received non-conforming goods, the seller may have additional time to cure.