Performance & Breach · Feb 24
Floor. ~40 min: R2d § 237 + Jacob & Youngs. The doctrine the next class assumes you have covered.
Target. ~75 min: Floor + R2d § 241 + Khiterer + perfect tender + synthesis.
Modern performance doctrine rests on a historical shift.
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 or due simultaneously.
In determining whether a failure to render or to 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.
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.
2 Doug. 689, 99 Eng. Rep. 437 (K.B. 1773)
Court of King's Bench
Rule. Covenants in a contract are mutual and dependent where the performance of one is in the nature of a condition precedent to the performance of the other. Where dependent covenants exist, a party need not perform until the other has performed or tendered performance.
230 N.Y. 239, 129 N.E. 889 (1921)
New York Court of Appeals
Rule. Substantial performance of an entire contract satisfies the constructive condition of exchange and entitles the performer to the contract price less damages for the deficiency. Where the breach is trivial and innocent, damages are measured by diminution in value rather than the cost of completion, particularly where completion would involve economic waste.
6 Misc. 3d 1015(A), 800 N.Y.S.2d 348 (N.Y. Civ. Ct. 2005)
New York Civil Court, Small Claims Part
Rule. Substantial performance allows a party who has rendered performance with only minor, unintentional deviations to recover the contract price, subject to a deduction for damages. Where the deviation is not substantial, the remedy is the difference in value between what was promised and what was delivered, not the cost of replacement. Where the difference in value is negligible, the non-breaching party recovers only nominal damages, even though a breach is proven.
Once a breach occurs, materiality determines the nonbreaching party's rights:
Facts. Contractor agrees to build a 3,000 sq ft addition to Homeowner''s residence by December 1 for $200,000. By December 1, the structure is complete and weatherproof, but the kitchen plumbing is not yet connected (cost to complete: $4,000) and the exterior paint is two coats not three (cost to complete: $1,800). Homeowner refuses to pay the final $50,000 installment.
Question. Substantial performance or material breach? Apply the R2d § 241 factors.
Answer.
(a) Extent buyer deprived of expected benefit, the structure is usable but the kitchen is unfinished. Significant inconvenience but not loss of the whole benefit.
(b) Extent to which damages can compensate, $4,000 + $1,800 = $5,800 readily measurable. Easy to compensate.
(c) Extent of forfeiture to contractor if breach is material, $50,000 unpaid on a $200,000 contract. Severe forfeiture.
(d) Likelihood the contractor will cure, high; defects are minor and visible.
(e) Good faith of contractor, assume yes on these facts.
(f) (Add: time of essence, December 1 was named. December 1 has passed. But cure period and timeliness of substantial completion can still favor finding substantial performance.)
Verdict: substantial performance. Homeowner must pay the $50,000 less $5,800 in damages, and Contractor must complete.
Facts. Manufacturer ships 1,000 widgets to Buyer. The contract specifies "blue widgets, 2 inches in diameter." The shipment is 1,000 widgets, 2 inches in diameter, navy-blue instead of royal-blue. Functionally identical. Buyer rejects the entire shipment.
Question. Can Buyer reject under UCC § 2-601?
Answer. Yes. UCC § 2-601 perfect tender: "if the goods or the tender of delivery fail in any respect to conform to the contract, the buyer may reject the whole." A color deviation is non-conformity even if functionally equivalent. No substantial-performance cushion at the UCC.
Qualifications: (1) § 2-508 gives the seller a cure right, if the time for performance has not expired or the seller had reasonable grounds to believe the tender was acceptable, seller may cure. (2) § 2-612 installment-contract rule requires substantial impairment for installment-contract rejection. (3) Good-faith limit on rejection, buyer cannot reject pretextually to escape a bad bargain.
The doctrinal point: goods are returnable; services are not. Perfect tender works for goods because the buyer can send them back. Substantial performance protects services performers from forfeiture because the service is locked in.
Stretch problems from the chapter.
Rules. R2d § 237 (substantial performance / constructive conditions of exchange), § 241 (materiality factors), § 242 (when duties are discharged); UCC § 2-601 (perfect tender), § 2-612 (installments).
Cases. Kingston v. Preston · Jacob & Youngs v. Kent · Khiterer v. Bell.
Punchline. Substantial performance is the anti-forfeiture rule for constructive conditions: a trivial, innocent shortfall does not forfeit the price — pay it, less damages. Materiality is a BALANCE (§ 241), dominated by forfeiture and cure, and it RIPENS over time (§ 242). Goods are different: perfect tender governs, because rejected goods can be shipped back.
Open question. Substantial performance asks whether the breach is material after performance is rendered. What if a party signals before performance is due that they will not perform? Next class: anticipatory repudiation.
Next class: Repudiation
_Performance & Breach_ · Feb 25
Read McCloskey & Co. v. Minweld Steel and Hornell Brewing v. Spry with R2d §§ 250, 251 and UCC § 2-609. A supplier writes that it is having "considerable difficulty" sourcing steel. The buyer treats the letter as a repudiation and walks. When does a statement of trouble become an absolute refusal to perform? Come ready to answer. You may be called.