§ 15.01 Breach Generally

[1] What Constitutes a Breach

Any non-performance of a contractual duty which has become due constitutes a breach. An anticipatory repudiation of obligations also serves to breach a contract.

In contracts for the sale of goods, in addition to repudiation, a seller breaches the contract by offering a tender or delivery of non-conforming goods, and the buyer breaches by wrongfully rejecting goods, wrongfully revoking acceptance of goods, or failing to make a payment when due.

[2] Material Breach in Non-Goods Contracts

If a party fails to perform a promise and the breach is material, and no cure is forthcoming, the aggrieved party may:

• cancel the contract and sue for all damages under the contract; or
• continue the contract and sue for partial damages

If the breach is not material, the aggrieved party may not cancel the contract and can only sue for partial damages.

Factors which are relevant to a determination of whether a breach is material are:

• the extent to which the aggrieved party will be deprived of the benefit he reasonably expected;
• the extent to which the aggrieved party can be adequately compensated for the benefit of which he will be deprived;
• the extent to which the breaching party will suffer forfeiture;
• the likelihood that the breaching party will cure his failure, taking into account all the circumstances including any reasonable assurances;
• the extent to which the breaching party has acted according to standards of good faith and fair dealing. [Restatement § 241]

§ 15.02 Anticipatory Repudiation

[1] What Constitutes a Repudiation

A party repudiates a contractual duty by:

• making a statement indicating that he will breach the contract
• engaging in a voluntary affirmative act that renders him unable to perform the duty
• failing to provide an assurance of due performance in response to such a request by the other party when there exists reasonable grounds to believe that the obligor will not perform.

[Restatement §§ 250, 251; UCC § 2-609(4), proposed revised § 2-610(2)]

[2] Effect of Anticipatory Repudiation

In non-goods contracts, anticipatory repudiation by one party entitles the other party to:

• bring an action for damages for total breach
• discharge his remaining obligations. [Restatement § 253]

In goods contracts, an anticipatory repudiation which will substantially impair the value of the contact to the aggrieved party, allows the aggrieved party to:

• await performance by the repudiating party for a commercially reasonable time
• seek remedy for breach even if he has notified the repudiating party that he would await performance and has urged retraction
• suspend his own performance. [UCC § 2-610]

[3] Retraction of Repudiation

In goods contracts, a repudiating party may retract his repudiation up to the time his next performance under the contract is due, unless the aggrieved party has since:

• cancelled
• materially changed his position
• otherwise indicated that he considers the repudiation final. [UCC § 2-611]

The Restatement likewise allows for retraction of repudiation under similar circumstances but without terminating the right of retraction upon the repudiating party's next performance installment. [Restatement § 256]

§ 15.03 Non-conforming Tender of Goods

[1] Rejection of Non-conforming Tender

[a] Generally

Within a reasonable time after delivery or tender of goods, a buyer may reject goods that fail to conform to the contract. In order for the rejection to be effective, the buyer must seasonably notify the seller of such rejection. [UCC § 2-602] The buyer cannot reject the goods once he has accepted them.

[b] Single lot contracts

If the non-conformity occurs under a single lot contract, the buyer may:

• reject the whole lot;
• accept the whole lot; or
• accept any commercial unit and reject the remainder [UCC § 2-601]

The UCC adopts the "perfect tender" rule for single lot contracts, and thus, the buyer may reject goods for any non-conformity, even if the seller has substantially performed. Nevertheless, the buyer's rejection must be exercised in good faith, and the seller is entitled to cure the non-conformity under certain conditions (see § 15.04).

[c] Installment contracts

The perfect tender rule, otherwise applicable to goods contracts, does not apply to installment contracts. A buyer may reject an installment only if the non-conformity substantially impairs the value of the installment, and cannot be cured, by means such as allowances against the price, or by a further delivery or partial rejection. [UCC § 2-612] Substantial impairment may pertain to the quality of the goods, timing of tender, quantity, etc.

Any material burden in curing the non-conformity must fall on the seller but the buyer must cooperate in curing the defective tender. For example, the buyer must make a reasonable minor outlay of time or money to cure an over-shipment. [UCC § 2-612, comment 5]

[2] Acceptance of Goods

An acceptance of a tender or delivery of goods can occur in one of the following ways:

• after a reasonable opportunity to inspect, the buyer indicates to the seller either that the goods conform to the contract or that he will retain them despite their non-conformity;
• after a reasonable opportunity to inspect, the buyer fails to make an effective rejection; or
• the buyer engages in any act that is inconsistent with the seller's ownership of the goods. [UCC § 2-606]

[3] Revocation of Acceptance of Non-conforming Goods

A buyer who initially accepts non-conforming goods may revoke the acceptance, if the non-conformity substantially impairs its value to him, and the buyer accepted it:

• on the reasonable assumption that the non-conformity would be cured and it has not been seasonably cured; or
• without discovering such non-conformity if his acceptance was reasonably induced by the difficulty of discovery before acceptance or by the seller's assurances. [UCC § 2-608(1)]

The buyer must notify the seller of the revocation within a reasonable time after he discovers or should have discovered such defects and before there is any substantial change in the condition of the goods. The revocation is not effective until the buyer notifies the seller of it.

§ 15.04 Cure of Non-conformities

If the buyer rejects a delivery or tender of non-conforming goods, the seller may be entitled to cure the conformity, although the seller may still be in breach with respect to the initial delivery. If the time for performance has not yet expired, the seller may seasonably notify the buyer of his intention to cure and then make a conforming delivery within the contract time. After the contract time has expired, the seller may have "further reasonable time" to make a conforming delivery, upon seasonably notifying the buyer, if the seller had reasonable grounds to believe the non-conforming goods would be acceptable with or without money allowance. Under the proposed revision, the standard for the seller's right to cure after the contract time has expired is no longer whether he had reasonable grounds to believe the non-conforming goods would be acceptable; the new standard is whether the cure is appropriate and timely under the circumstances.

The proposed revision makes additional changes to the rules governing cure, in all cases:

1)  A seller must have acted in good faith in order to be entitled to cure a non-conformity.

2)  A seller's right to cure is expanded to situations where the buyer has justifiably revoked an acceptance of goods, except in consumer contracts, when the buyer had accepted without prior discovery of the non-conformity and the acceptance was reasonably induced either by the difficulty of the discovery before acceptance or by the seller's assurances.

3)  A seller shall compensate the buyer for reasonable expenses incurred due to the seller's breach and subsequent cure. [UCC § 2-508]

In non-goods contracts, the Restatement suggests a party that commits a material breach may attempt to cure the breach [See Restatement § 241(d)]. However, many cases hold that there is no right in non-goods contracts for the breaching party to cure, unless the contract expressly provides such right.

§ 15.05 Assurance of Due Performance

[1] Right to Make a Demand for Assurances

Both the Restatement and the UCC provide that where there are reasonable grounds to believe that a party will not be able or willing to perform, the party entitled to receive such performance may make a demand for assurances from the other party that performance will be forthcoming. [Restatement § 251; UCC § 2-609] Such demand in goods contracts must be in writing. Between merchants, commercial standards dictate the reasonableness of grounds for insecurity and adequacy of any assurance offered.

[2] Suspension of Performance Pending Assurances

Upon making a demand for assurances, a party may, if reasonable, suspend any performance for which he has not already received the agreed exchange until he receives such assurance.

[3] Effect of Failure to Provide Assurances

A party's failure to provide assurances within a reasonable time – in goods contracts not to exceed 30 days – constitutes a repudiation of the contract by such party.