Contract Law Lecture Two (of 3) (Part 2): Performance and Breach

Law School

Analysis of Contract Performance, Breach, and Remedies

This lecture script outlines key aspects of contract law, focusing on performance, breach, and remedies. Here's a summary:

Performance and Obligations:

Conditions are events that must occur before a party's performance is due.

Express conditions are explicitly stated in the contract. Failure to meet these discharges the obligation, unless waived.

Implied conditions are supplied by courts for fairness. Substantial performance often suffices for implied conditions, with compensation for minor defects.

Common Law vs UCC:

Common law contracts (e.g., service agreements, real estate) use a substantial performance standard. If a party has substantially met the core requirements, the other party must fulfill their obligations, though damages may be claimed for minor issues.

UCC Article 2 (sale of goods) applies the perfect tender rule. Goods must conform exactly to the contract terms. The buyer can reject non-conforming goods, though the seller may have a right to cure.

Breach of Contract:

Material Breach: A significant failure to perform, depriving the non-breaching party of a key benefit. This allows the non-breaching party to terminate the contract and sue for total damages.

Minor Breach: A small deviation from the contract where substantial performance has occurred. The non-breaching party must still perform but can seek damages for the shortfall.

Anticipatory Repudiation: When one party indicates they will not perform future obligations, the other party can treat it as a breach or wait to see if the party changes their mind. There must be a clear, unequivocal statement or action showing that performance will not occur.

Installment Contracts: Under the UCC, a non-conformity in one installment typically doesn't justify canceling the entire contract, unless it substantially impairs the whole contract value and the breach can’t be cured.

Cure Rights: A seller who tenders non-conforming goods before the delivery deadline may correct the defect within the contract’s timeline.

Remedies:

Monetary Damages:

Expectation Damages: Aims to put the non-breaching party in the position they would have been in had the contract been performed.

Consequential Damages: Compensate for indirect, foreseeable losses arising from the breach, provided the breaching party knew of the special circumstances.

Reliance Damages: Reimburses expenses incurred in reliance on the contract.

Restitution: Prevents unjust enrichment by restoring to the injured party any benefit conferred on the breaching party.

UCC-Specific Damages: For sellers, this may include the difference between contract price and resale price, or market price, or even lost profits for lost volume sellers. For buyers, it may include the difference between cover price and contract price or between market price and contract price.

Equitable Remedies:

Specific Performance: A court order to perform the contract, reserved for unique subject matters.

Injunction: An order to do or refrain from doing something, often in the context of non-compete clauses.

Rescission: Cancels the contract and restores the parties to their pre-contract positions, often in cases of fraud.

Reformation: Rewrites the contract to reflect the parties' true intent.

Practical Approach for Exams:

State the governing law (common law or UCC).

Check for a valid contract.

Identify performance obligations and conditions.

Determine if a breach occurred and if it was material or minor.

Consider available remedies.

Illustrative Example:

Paula hires Derek to build a greenhouse. Derek almost completes the project but is not fully done by the deadline.

The analysis suggests that Derek has substantially performed under common law. He is entitled to the contract price minus the cost of completing the remaining shelving.

Paula's refusal to pay is likely unjustified, given the minor nature of the remaining work that Derek can cure.

Derek can sue for expectation damages or restitution if the con