Duties: Discharge & Breach

Duties

  1. Three Possibilities
    1. Perf'ed: No C/A
    2. Discharged: No C/A
    3. Breached: C/A

Discharge

  1. Def.
    1. For policy rsns, ct discharges D's unperf'ed duty if rsbl 2 not perf.
  2. Doc's
    1. Gen. Impossibility
    2. Impossibility of Contemplated Means
    3. Legal Impossibility
    4. Financial Impracticability
    5. Frustration of Purpose
  3. Gen. Impossibility (Taylor Case)
    1. Reqt's
      1. Unforeseeable contingency
      2. W/O D's fault
      3. Render the perf. called 4 by the K
      4. Obj'ly impossible
      5. D did not assume the risk of the event's occurrence even if unforeseeable event
    2. Impossibility as Excuse v. Discharge
      1. As cond., can't excuse material cond.
    3. Sit's Triggering Impossibility
      1. Death / serious illness of essential person where essential may mean looking beyond legal rel.
        1. If phys'ly possible 2 do the duty, then not invoke impossibility even if death
      2. Destruction, material deterioration / unavailabiity of essential obj.
        1. Interp. issue b/c can't unilaterally expect 2 consid. obj. essential
        2. Must manifest intention 2 use it in the K by making it a term
      3. Views on Phys. Impossibility
        1. If phys'ly possible 2 get the essential obj, then no discharge & do it no matter how expensive
        2. Rest 1st: Also incl's econ. impossibility besides phys. impossibility
      4. Allocation of Risk
        1. If forced 2 change role in the mkt, discharged
        2. Ord'ly allocate risk 2 expert & base discharge on which party is the expert (inhouse expertise v. not)
        3. Can always expressly allocate risk
      5. Assumption of Risk
        1. Can assume tech'ly unforeseeable event
    4. Quasi K Recov.
      1. If conferred benefit w/expectation
      2. Focus on P's duties
      3. Dif. btwn repair v. construction K's on scope of risk & role in mkt
    5. Aff. Relief
      1. C/L View
        1. Negative discharge but no aff. relief after discharge
        2. So get no recov.
      2. Modern Rest 377 View
        1. Entitled 2 negative discharge
        2. Ask if entitled 2 aff. value of benefit conferred on the other party prior 2 intervening event
        3. Can get fair mkt value of benefit conferred
      3. Prof. Seavey
        1. If neither party @ fault 4 econ loss so not make sense 4 all / nothing
        2. Should split the loss
        3. No formal support of his opinion
  4. Impossibility of Contemplated Means of Perf. Doc.
    1. Reqts
      1. Go through gen. impossibility reqt's 1st
      2. Impossible 2 use
      3. No alt. means available
    2. C/L & UCC 2-614
      1. No discharge unless contemplated means impossible & no other commercially pract. means
      2. Can discharge from orig. means but new duty 2 use alt. mean
  5. Legal Impossibility
    1. Def.
      1. Not illegal @ the X of K formation but subseq. changes in law interferes w/execution of K
      2. Law acct 4 subseq. changes
    2. Gen. Impossibility Reqt's
      1. Still go through all reqt's of gen. impossibility before leg. impossibility
    3. Three Ways of Law Changes
      1. Domestic leg. body
        1. Cong. giving gen. rule so gen. applicability, not targeting any part. indiv.
      2. Domestic ct/adm agency
        1. Early C/L view that never discharge
        2. Prob's of obj. / subj. impossibility
        3. Now, look @ purpose of jgmt / decree & if not @ fault, then discharge even though aimed @ part. indiv.
      3. Foreign (for.) law
        1. Rest 458 not give discharge unless change in domestic law b/c assumed risk of change of for. law
        2. Modern View UCC 2-615)a discharges 4 change in for. law
    4. Def. of Domestic v. For. Law
      1. Domestic law isn't proced. def. of domestic but conflict / choice of law which gov's part. phase
    5. Free On Board (FOB)
      1. UCC 2-319: Up 2 part. pt. seller has title & risk of loss
      2. Ord'ly assume seller's plant 4 FOB
  6. Financial Impracticability (Mineral Park Case)
    1. Min. View of Recog'ing This Doc. (UCC & Rest)
    2. Wisdom of Recog'ing: Risk Allocation v. Econ. Eff.
      1. Not recog. b/c D assumed the risk of incr'ed cost
      2. Recog. b/c if give full expectation cost of compl'ion 2 P, wasting resources & encourage econ. waste
    3. Jud'al Manageability
      1. Prohibitive w/10 - 12X's the cost
      2. Arb. line so unsettling effect
      3. K is planned consensual trxn so imp. that doc. B manageable which is why maj. reject
  7. Frustration of Purpose (Krell)
    1. Foundation Frustrated Stand.
      1. Foundation isn't quest. of duty's content but spec. purpose of entering into K frstrated so duties can still B perf'able
    2. Reqt's
      1. One party had it in mind & other party knew / both as 2 know about spec. purpose
      2. Enhanced price is critical fact pattern 4 predictability concern
    3. Modern v. Conceived Doc.
      1. Conceived doc. also tried 2 limit the scope 2 spec. suitability of subj. matter
      2. Modernly, ignore that limitation

Breach

  1. Analysis
    1. If breach occurred
      1. Present
      2. Anticipatory Breach (AB)
    2. Charact. if breach material / minor
    3. Det. the legal conseq's

Present Breach

  1. Material v. Minor Breach
    1. Rest 275 Factors
      1. P's Perspective
        1. Extent 2 which P already received: if got essential stuff from barg, min. breach
        2. Probability of P getting remainder of what he barg'ed 4: longterm K's, then material breach
        3. Adeq. of $ as substitute 4 perf.: Dep's on stand'ed / spec. prod.
      2. D's Perspective: Based on D's Forfeiture
        1. Perf. D already compl'ed (in limine): If gross forfeiture, min. breach
        2. Net forfeiture: Even if material, can calculate fair mkt value
        3. Charact. of breach: Intentional, then material
      3. Some Jxn of Hard & Fast Rule
        1. If in limine / intentional, automatically material breach in some jxn's
    2. Evolution from C/L 2 USA 2 UCC
      1. Hard Fast Rules in C/L
        1. X of Essence
          1. Any delay is automatically material breach
          2. No need 2 show real world impact
          3. Ord'ly not of essence in pers. serv, construction / realty K's but essence in C/L realty option K & duty 2 deliv. in personalty K
          4. Can elect 2 treat as minor breach
          5. Some factors: unstable mkt, peak mkt, etc. which can imply X of essence
        2. Perfect Tender Rule
          1. Seller's tender must B abs'ly perfect, otherwise, material breach
      2. Uniform Sales Act
        1. Applies 2 all types of K's
        2. Dep's on terms & circ's 2 see if breach material 4 X of essence
        3. Gen'ly incorp. materiality & threw formalism out
      3. UCC 2-612, 2-608
        1. Specif. incorp. of materiality
        2. In 2-612)2 when innocent buyer reject part. installment & sub 3 when buyer walks away from entire K, invoked subst'ly impairs which is read as material impairment
        3. Balance material v. min. breach 4 both cases
        4. In 2-608 overturned seller's tender B abs'ly perfect
        5. Must show subst'l impairment of value & give notice in 2-608 by the buyer
  2. Conseq's of Material v. Minor Breach
    1. Material Breach
      1. P has rt 2 election of treating as minor breach
      2. If treat as minor, can keep in operation but mitigation of damages during remedy phase
      3. Rt. 2 term. K imm'ly & sue 4 all future profits & expectation
      4. Exceptions when can't term. K
        1. Aleatory K's: won't read in constructive cond. of exch. & see as 2 indep. prom's so duty 2 perf. not dep. on other party's perf. but this kind of K rare modernly
        2. Divisible K's: can treat as sep. mini K's, then D can recov. 4 parts D perf'ed & P can't walk away
          1. Divisible if perf. div'ed in parts, paired, & mini K's
    2. Minor Breach
      1. K tech'ly cont's in existence
      2. Innocent party can only temp'ly suspend perf.
      3. Innocent party retains C/A 4 actual econ. damage
      4. Recov. of damages more limited b/c only put U in status ante of U'r position before damages
      5. Self help
        1. Unilaterally assert new cond. & not settle unless D agrees 2 the deduction
        2. Split of auth. on whether P can deduct the estimate amt of damage & pay 4 only part of what was perf'ed
        3. UCC 2-717: In personalty, buyer can deduct amt owed, notify, & do self help
        4. C/L before wanted 2 protect ct's jxn so not allow but that policy is unrealistic now b/c of 2 many cases so movement away
        5. Caveat: Must B conservative in estimation b/c if outlandish, then would B breach

Anticipatory Breach (AB)

  1. Def.
    1. Before due date, D does something that P says is breach of K & ct would grant P accelerated C/A 4 breach
  2. Charact's
    1. Dif. X's
      1. X of alleged AB
      2. X of trial (last)
      3. Intermediate X (btwn above 2)
    2. P's rts
      1. Can imm'ly term. K
      2. Gets accelerated C/A 4 breach
  3. Stand.'s
    1. Contrast 2 Prosp. Non Perf. (excuse doc.)
      1. Prosp. non perf. is excuse so need 2 wait 4 activation of duty @ normal X
      2. AB is more go get accelerated C/A
      3. AB stand. is more rigorous & req. abs. refusal but prosp. non perf. req. only any common sense indication b/c conseq. more drastic
    2. C/L Stand. v. UCC Stand.
      1. C/L req's abs. & unequivocal refusal 2 perf. / distinct & positive statement of inability
      2. UCC 2-609)1 says innocent party has rt 2 demand assurance when rsbl grounds 4 insec. arises so not abs. statement & by sub)4, can say other party repudiated K if no decent response w/in rsbl X
  4. D's Axn 4 Breach
    1. Express Repudiation
    2. Vol'ly Disablement
      1. D not expressly say but does something, P knows & impairs expectation
      2. D entered into another K w/o convey, then AB b/c vol. cond. & infer intent won't perf.
      3. D's invol. prob. like debt, then not AB b/c not vol. but can have prosp. non perf.
  5. Recog. of AB v. Not Recog.
    1. Policy Justification
      1. In K formation, created leg'ly protected expectation of future perf. so even if due date not arrived, what U do before can impair that expectation so P can get accelerated C/A
    2. Hard 2 Compute Damages
      1. Longterm K, # uncert. so if give P accelerated C/A then more uncert.
    3. Two policies 4 recog. AB but limiting its scope
  6. X of AB
    1. Three Way Split 4 P's Position @ X of AB
      1. C/L view that P must have remaining duties 2 perf.
        1. Pressure that if not recog. AB, fear of committing breach
      2. C/L view that P must have @ least remaining cond's 2 fulfill
        1. Pressure that if not recog. AB, fear of losing rt. 2 enforce D's duty
      3. UCC 2-609 view that P's position is irrelev.
        1. Only req. impairment of legally protected expectation
    2. Ct's Hostility 2 Overcompensating P
      1. Lump sum so ct must figure out int. rate
      2. If longterm K P gets windfall if ct computes incorr'ly
      3. Can't set aside such jgmts b/c of res judicata
      4. If there R better ways, do that 4 D w/o AB
  7. X of Intermediate
    1. X'ly Repudiation
      1. There R no real world econ. damage b/c only psychic
      2. So curable by X'ly retraction 2 give expectation back
      3. If AB was vol'ly disablement, then when retract, need 2 get the ability 2 perf. back then notify P of repudiation
    2. P's Axns Cutting Off D's Retraction
      1. Both in C/L & UCC, P's firm declaration that exercising rt 2 elect
      2. Can file suit before retraction
      3. Change position
  8. X of Trial
    1. Pretexts O.K.
      1. In hindsight, if P couldn't perf. w/o D's fault, then maj. says no C/A
      2. Future & once breach
  9. Ct's Act in Bad Faith 2 Limit AB

This material is copyrighted by the author. Use of this material for profit is strictly prohibited without the written permission from the author.

Go Back to Law School Notes 1