Breach, Repudiation & Excuse — Contracts

Riverside Homes builds Dana a house in Franklin for $500,000. The specifications call for Reading brand copper pipe. The builder installs Cortland brand instead. Identical grade, identical price, identical function, and nobody noticed until the walls were closed. Everything else is perfect. Dana wants to withhold the price until somebody tears those walls open and swaps the pipe. Can she?

No. The builder substantially performed, so Dana owes the $500,000 minus damages that round to almost nothing. Now move one fact. Leave the house with no roof, and Dana can withhold everything and walk. Same contract, opposite answers. Today, the back half of contract law. How badly must a deal break before you can walk?

Here is the route. First, how bad a breach has to be, and the stricter rule for goods. Then repudiation, when the other side bails out before performance is even due. Then the excuse family, impossibility, impracticability, and frustration of purpose. Then risk of loss, who eats destroyed goods. Then the five ways a live duty gets discharged. And finally employment.

Start with the picture the topic rests on. In a two-sided contract, each side's performance is a condition of the other's, read in by the court even when unstated. And a breach is a failure to perform when performance is due, with no legal excuse.

But not all breaches are equal, and measuring severity is the whole game. A minor breach means the breaching party substantially performed. You got essentially what you bargained for, with a small unintended gap, so you must still perform but recover damages for the shortfall. A material breach is the opposite, so you may withhold your counter-performance and sue.

And an uncured material breach hardens, after a reasonable time, into a total breach. Now your remaining duties are discharged and you sue for the full loss. Chipped tile is minor. Pay, and deduct the repair. A house with no roof is material.

How do courts sort them? Restatement § 241 gives five factors. One, how much expected benefit the injured party loses. Two, whether damages can adequately make up that loss. Three, how much the breaching party forfeits if this is called material. Four, how likely it is to cure. Five, whether it acted in good faith.

Run them on Dana. She got substantially the house she bargained for. Ripping open finished walls to swap identical pipe is enormous forfeiture for zero benefit, damages are near zero, and there was no bad faith. Minor breach, so the builder recovers the price minus the defects.

Two limits. A party who materially breaches cannot use substantial performance until it cures, and a bad-faith shortcut is more likely to be called material. Then the limit that matters most. Substantial performance is common law only.

Timing next. Late performance is only a minor breach by default. That flips when time is of the essence, and courts do not presume it from a stated date alone. The parties must make it essential, by clause or by circumstances.

Now the goods contrast, and it is stark. For a sale of goods the UCC replaces substantial performance with perfect tender, § 2-601. On a single-delivery sale, if the goods fail in any respect to conform, the buyer may reject the whole, accept the whole, or accept some units and reject the rest.

Try it. Chipped tile on a house build. Minor or material? Minor, so pay and deduct. The same trivial nonconformity on a single-delivery sale of goods. Reject or not? Reject. Same defect, opposite result, because you switched bodies of law.

Two qualifiers soften that. The seller has a right to cure under § 2-508 if it reasonably believed the tender would be acceptable. And § 2-612 drops perfect tender for installments, letting a buyer reject one only if the defect substantially impairs that installment's value.

Section two. Sometimes a party tells you, before performance is even due, that it will not perform. The law does not make you wait for the axe. It treats a clear advance refusal as a present breach. That is anticipatory repudiation.

It takes an unequivocal statement, or a voluntary act showing the party cannot or will not perform. Unequivocal is the key word. We are not delivering the tractors is a repudiation. I am worried I might come up short is not. Neither is can we talk about pushing the date. But selling someone else the unique item you promised does count.

Once the other side repudiates you have four options. Sue right away, treating it as an immediate total breach. Wait a commercially reasonable time and urge performance, subject to the duty to mitigate. Suspend your own performance. Or encourage retraction.

And the repudiator may retract, unless you have already sued, materially changed position in reliance, or told it you treat the repudiation as final.

Now two limits that trip people. First, insecurity is not repudiation. If the other side has only made you nervous, you have nothing to sue on. Second, the one-sided-obligation trap. Repudiation gives no early suit when you have fully performed and the only thing left is the other side's duty to pay you money.

A lender fully funds a loan. The borrower announces, I will never repay you. The lender cannot accelerate on a repudiation theory. It waits for a missed payment, absent an acceleration clause. The doctrine frees parties who still owe each other performance. It does not accelerate a pure debt.

So what do you do in the gray zone? Demand adequate assurance. When reasonable grounds for insecurity arise, you may demand it and suspend your own performance until you get it. Under § 2-609 the demand must be in writing. The common law recognizes the same right without one.

Here is the payoff rule, worth memorizing. The other party must give adequate assurance within a reasonable time, under the UCC no longer than 30 days. Fail that, and the failure is itself a repudiation you may act on.

Watch it work. Olympia Foods agrees to buy 10,000 pounds of coffee from Bean Co. in Columbia, delivery in 60 days. Olympia learns Bean's only warehouse burned and Bean is missing shipments. No refusal, so no repudiation. But Olympia has reasonable grounds, so it demands assurance in writing. Silence past 30 days is the repudiation.

Section three. When does a surprise event let a party out of a duty it can no longer sensibly perform? The logic is risk allocation, and three cousins share one backbone. A supervening event after formation, whose non-occurrence was a basic assumption, occurring without the fault of the party seeking excuse, who also did not assume the risk.

All three discharge a duty, which is why the failure to perform is not a breach. Impossibility first, and it is objective. The thing cannot be done by anyone, not merely by you. Running out of money is never impossibility. Three situations qualify automatically. Death or incapacity of a person essential to a personal-services contract. Destruction, without fault, of the thing performance needs. And supervening illegality.

Impracticability is the middle cousin. Performance can technically be done, but only at extreme and unreasonable cost or difficulty. Supervening event, basic assumption, performance made impracticable, no fault and no assumed risk. That is Restatement § 261, and § 2-615 does the same work for goods.

Now the bar, because this is where candidates lose points. An ordinary cost increase, even a steep one, is almost never enough. Market swings are exactly the risk a fixed-price contract allocates. You need an extreme, unforeseen event, not an expensive quarter. Excuse can also be partial, and temporary impracticability only suspends a duty while it lasts.

Frustration of purpose is the odd cousin. Performance is still entirely possible. It has just become pointless. You rent a balcony room for a day to watch a parade, and the parade is cancelled. Handing over the room is possible. It is simply worthless now.

The elements. A supervening event after formation, which substantially frustrates the party's principal purpose. That purpose was realized and understood by both parties. Its non-occurrence was a basic assumption. And the frustrated party is not at fault and did not assume the risk.

Because the party raising it almost always owes money, and paying is always possible, courts police it strictly. Ravi rents Nadia's rooftop terrace in Franklin for the evening of July 4 for $3,000 to watch the city's fireworks. The contract recites that purpose. The city cancels for a storm.

Standing on the terrace is still possible, but its value to Ravi is gone. Both parties knew the purpose and nobody was at fault, so frustration likely discharges his duty to pay. Now suppose the contract had just said a rooftop space for a private party. No frustration. That purpose was neither basic nor shared.

Finally, parties often write their own excuse rule. A force majeure clause lists events, war, disaster, government action, pandemic, strikes, that excuse performance. When the contract has one it controls, and courts read it narrowly.

Section four, narrow but high-stakes. Goods are destroyed after the contract is made but before the buyer has them, and nobody is at fault. Who eats the loss? If risk passed to the buyer, the buyer owes the full price for goods that no longer exist.

The ladder is § 2-509, worked in order. Agreement first, if the contract allocates risk, that controls. Then read the shipping term. In a shipment contract, where the seller need only get the goods to a carrier, risk passes when they are duly delivered to it.

In a destination contract, where the seller must deliver to a named place, risk passes when the goods are tendered there. A bare instruction to ship is presumed a shipment contract, so risk passes early. With no carrier, a merchant seller keeps the risk until the buyer receives the goods, a non-merchant passes it on tender.

See it work. A grower in Olympia sells 200 crates of oranges to a diner, term FOB grower's warehouse, a shipment term. The crates go onto a carrier in perfect condition, the truck crashes through nobody's fault, and the oranges are ruined. Risk passed when the crates hit the carrier, so the diner owes the price.

Flip the term to FOB diner's restaurant, a destination term, and the risk is still the grower's. Read the shipping term first.

But breach overrides the ladder, and § 2-510 pushes risk toward the party in the wrong. If the goods are nonconforming enough that the buyer may reject, risk stays on the seller until cure or acceptance.

And one neighbor to keep straight. Under § 2-613, specific goods identified at contracting and destroyed without fault before risk passes avoid the contract entirely.

Section five. Even a valid, unbroken duty can be wiped off the board by a later agreement. Five routes. Accord and satisfaction, substituted contract, novation, mutual rescission, and release.

An accord is a new agreement to accept a different performance, often less money, to satisfy an existing duty. The accord alone only suspends the original duty. Satisfaction is actually performing it, and that discharges both. So if the debtor breaches the accord before performing, the creditor may sue on either the original duty or the accord.

An accord needs consideration, and settling a genuinely disputed or unliquidated claim supplies it. Paying part of an undisputed, fixed debt does not. Related, under § 3-311, cashing a check conspicuously marked as tendered in full satisfaction of a disputed claim discharges the whole claim.

A substituted contract is the near neighbor, and the line is intent. An accord keeps the original duty alive in the background. A substituted contract replaces it immediately, so your only remedy is on the new contract.

A novation swaps in a brand-new party. All three agree that a new obligor steps into the original's shoes, the original is released, and everyone accepts. Here is the heavily tested contrast. You delegated your duty and the delegate botched it. Off the hook? No. Delegation is not novation. Only the other side's consent to release you does that.

Mutual rescission is both parties calling the whole thing off. When both still owe performance, each side's surrender is consideration for the other's. But if one has already fully performed, that bare agreement lacks consideration as to that party.

And a release is a writing surrendering an existing right. Read its scope, because a release discharges only what its words reach.

Last section, employment, and it turns on one distinction. The default is at-will. With no agreed term, either side may end the relationship at any time, for any reason or none, without breaching. A definite-term contract is different. The employer may end it early only for cause.

Tech Corp hires Mara in Columbia on a two-year contract at $120,000 a year, then fires her at 10 months with no cause. Breach. Her damages are the roughly 14 months of salary left, minus what she earns or reasonably could earn in comparable work. She must mitigate, but need not take a clearly inferior job. At-will, the identical firing would breach nothing.

One wrinkle. A promise of permanent or lifetime employment is usually read as at-will absent additional consideration.

A word on authorities, because this episode named no cases, and that was deliberate. This topic runs on Restatement and UCC section numbers, and that is how it is tested. NextGen questions hand you a fact pattern and ask which doctrine applies. They will not ask for case names.

If you keep only three, keep these. Restatement § 241, the five materiality factors, because it decides whether you may walk away. Then § 2-609 and its 30-day rule, because it turns silence into a repudiation. And § 2-509, because the shipping term decides who eats the loss.

Now the traps, gathered in one place. One. Substantial performance is common law only. Do not apply it to a single-delivery sale of goods, where perfect tender lets the buyer reject for any nonconformity, subject to the seller's right to cure. Two. I might not be able to perform is not repudiation. You need a clear, unequivocal refusal.

Three. Repudiation gives no early lawsuit when you have fully performed and are only owed money. Wait for the due date. Four. A big cost increase or a bad market is almost never impracticability. That is the risk the contract already allocated. Five. Frustration needs a purpose that was basic, shared, and now nearly destroyed.

Six. On risk of loss, read the shipping term first. FOB seller is a shipment term, so risk passes early at the carrier. FOB buyer or a named destination passes it late. And a breach flips the risk onto the breaching party. Seven. Delegation is not novation. Eight. Firing an at-will employee breaches nothing at all.

Time for the quick check, straight from the BARGO question bank. A finance company lends a borrower $200,000, fully disbursing the entire loan, repayable in a single lump sum in two years. The loan has no acceleration clause. Six months later the borrower tells the finance company plainly, I am never going to repay you.

The finance company wants to sue immediately for the full balance on an anticipatory repudiation theory, rather than wait out the term. Can it?

Option one. Yes, because the borrower's statement was an unequivocal repudiation of the loan. Option two. Yes, because a party may always sue as soon as the other side repudiates. Option three. No, because repudiation cannot accelerate a fully performed debt. Pause here if you want a moment.

The answer is option three. Repudiation frees up parties that still owe each other performance, but it does not accelerate a pure debt. Where one side has fully performed and the only remaining duty is the other's obligation to pay money, the doctrine does not apply. The creditor waits until a payment is due.

Options one and two are the classic trap. The refusal truly is unequivocal, and ordinarily that would let an injured party sue early. The fully-performed-creditor exception blocks it. The barrier is the debt-acceleration rule, not the clarity of the statement. There are thirty plus more questions on this topic alone.

Five things to take away. One. Minor breach means you still perform and collect damages. Material breach means you may withhold, and once uncured it goes total and you walk. Two. Substantial performance saves the common-law party. It does not reach goods, where perfect tender rules.

Three. Repudiation needs an unequivocal refusal, it does not accelerate a pure debt, and in the gray zone you demand assurance and count 30 days. Four. Impossibility, impracticability, and frustration all need a supervening event, a basic assumption, no fault, and no assumed risk.

Five. Read the shipping term for risk of loss, and name the discharge route precisely, because delegation is not novation. Which is why Dana pays for a house plumbed in the wrong brand of pipe. She got what she bargained for. Next time, Remedies.

Practice this topic with more than 2,900 exam-style questions, free to start, at nextgenbargo.com. This episode is for education and exam preparation only, not legal advice, and we are not affiliated with or endorsed by the NCBE or any bar examining authority.