Performance, breach, and discharge - Breach (including mater...

Learning Outcomes

This article explains breach of contract doctrine for the MBE, including:

• How to distinguish material, partial, and total breach under common law and the UCC using the Restatement materiality factors.
• How to apply the substantial performance doctrine in service and construction contracts, calculate damages, and decide when performance is still required.
• How to identify anticipatory repudiation, separate it from mere reasonable insecurity, and know when the nonbreaching party may sue immediately.
• What strategic options and remedies are available to the nonbreaching party after present or anticipatory breach, including suspension, termination, and expectation damages.
• How UCC perfect tender, installment contracts, and the seller’s right to cure operate, and how they contrast with common-law substantial performance.
• How “time is of the essence” clauses and delays in performance affect whether a breach is treated as material or only minor.
• How adequate assurances work under the UCC, when failure to provide them becomes repudiation, and how retraction of repudiation restores duties.
• How to approach typical MBE fact patterns testing performance, breach, and discharge, spotting which body of law applies and organizing a clear rule-based answer.

MBE Syllabus

For the MBE, you are required to understand performance, breach, and discharge in contract law, with a focus on the following syllabus points:

• Conditions and when duties to perform become absolute.
• Material vs. partial breach and substantial performance.
• Anticipatory repudiation, retraction, and adequate assurances.
• Differences between common law and UCC (perfect tender, installment contracts).
• Rights and remedies after breach, including when performance is excused.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following best describes a material breach?
   1. A minor deviation from the contract terms.
   2. A breach that substantially deprives the nonbreaching party of the benefit of the bargain.
   3. Any failure to perform on time.
   4. A breach that is promptly cured.
2. If a party unequivocally states before performance is due that they will not perform, this is:
   1. A partial breach.
   2. Anticipatory repudiation.
   3. Substantial performance.
   4. Accord and satisfaction.
3. After a material breach by one party, the nonbreaching party may:
   1. Only sue for damages but must continue performance.
   2. Suspend their own performance and sue for total breach.
   3. Ignore the breach and continue as if nothing happened.
   4. Demand specific performance only.
4. Which statement about anticipatory repudiation is correct?
   1. The nonbreaching party must always wait until performance is due to sue.
   2. The repudiating party can never retract their repudiation.
   3. The nonbreaching party may treat the contract as immediately breached.
   4. Anticipatory repudiation applies only to contracts for the sale of goods.

Introduction

A contract is breached when a party fails to perform as promised once its duty to perform has become absolute. Not all breaches are equal: some are so serious that they excuse the other party’s performance and allow suit for total breach, while others are minor and only give rise to damages with the contract continuing in force.

On the MBE, you must be able to:

• Decide whether a breach is material (sometimes called a “total” breach) or partial.
• Apply the substantial performance doctrine in service and construction contracts.
• Recognize anticipatory repudiation and understand how it differs under common law and the UCC.
• Know when the nonbreaching party may suspend or terminate performance, and what remedies are available.

Key Term: Material Breach
A breach that substantially defeats the purpose of the contract or deprives the nonbreaching party of the essential benefit of the bargain. It permits the nonbreaching party to treat the contract as terminated and to sue for total breach.

Key Term: Partial Breach
A breach that is relatively minor and does not destroy the contract’s value for the nonbreaching party. The contract remains in force; the nonbreaching party must still perform but may recover damages.

Key Term: Total Breach
A breach so serious (typically a material breach or an anticipatory repudiation that is not retracted) that it justifies the nonbreaching party in terminating the contract and seeking damages for all remaining performance.

Types of Breach: Material vs. Partial

A material breach is a failure to perform that goes to the heart of the contract, depriving the nonbreaching party of the substantial benefit expected. This type of breach excuses the nonbreaching party from further performance and allows them to sue for total breach.

A partial breach (sometimes called an immaterial breach) is a minor deviation from the contract terms. The nonbreaching party must still perform but may claim damages for the deficiency.

On MBE fact patterns, look for how badly the breach affects the nonbreaching party’s expectations. If the complaining party still receives the essential benefit of the bargain, the breach is usually partial; if that essential benefit is lost or seriously undermined, the breach is material.

Determining Materiality

Courts consider several factors to decide if a breach is material (these reflect the Restatement factors):

• The extent to which the nonbreaching party is deprived of the benefit expected.
• Whether the nonbreaching party can be adequately compensated in money for that loss.
• The extent of performance already rendered by the breaching party.
• The likelihood the breaching party will cure the breach, including whether they can and will do so promptly.
• The extent of hardship on the breaching party if the contract is terminated.
• Whether the breach was willful or in bad faith rather than inadvertent.

If the breach is material, the nonbreaching party may:

• Suspend their own performance, and
• Treat the breach as a total breach and sue for all damages.

If the breach is partial, the contract remains in force. The nonbreaching party:

• Must continue to perform, and
• May sue only for damages caused by the partial breach.

Key Term: Divisible Contract
A contract in which performance is divided into separate units or stages, with separate performance by each side exchanged for each unit. Substantial performance of one unit can allow recovery for that unit even if there is a material breach as to the rest.

In a divisible contract, a material breach of one part does not necessarily bar recovery for parts that have been substantially performed. On the MBE, where a large contract is clearly split into separately priced phases (e.g., three separate construction projects under one writing), think “divisible contract.”

Substantial Performance Doctrine

Under common law, if a party has substantially performed, minor defects do not excuse the other party’s performance, but damages may be awarded for the deficiency.

Key Term: Substantial Performance
Performance that, despite minor deviations, fulfills the essential purpose of the contract. It prevents the other party from canceling the contract and requires them to render their performance, but allows them to claim damages for any shortfall.

Substantial performance usually arises in long-term service or construction contracts where demanding literal perfection would be unfair. If the builder or service provider has:

• Performed in good faith,
• Completed most of the work, and
• Left only small, easily compensable defects,

the owner is usually required to pay the contract price, minus damages reflecting the cost to repair or the diminution in value.

Remember:

• Substantial performance prevents the breach from being treated as material.
• The nonbreaching party’s remedy is damages, not the right to refuse all performance.

Timely Performance and “Time Is of the Essence”

A common exam issue is whether a delay in performance is a material breach.

Key Term: Time Is of the Essence Clause
An express term stating that timely performance is critical. Missing the stated time is treated as a material breach, even if the delay is otherwise minor.

Unless:

• The contract explicitly states that “time is of the essence,” or
• The nature of the contract makes timing obviously critical (e.g., using a venue for a specific event, delivering goods for a fixed-date resale),

a failure to perform on the exact date specified is usually only a partial breach. The nonbreaching party must still accept performance but can recover damages caused by the delay.

Courts are more likely to treat delay as material in:

• Mercantile or market-sensitive contracts (e.g., delivery of commodities in a volatile market), or
• Situations where timing is tied to another fixed obligation.

UCC Perfect Tender vs Common-Law Substantial Performance

Article 2 of the UCC does not follow the common-law substantial performance doctrine. Instead, it uses the perfect tender rule for single-delivery contracts.

Key Term: Perfect Tender Rule
In a single-delivery sale of goods, the buyer may reject the goods if they or their delivery fail in any respect to conform to the contract, subject to the seller’s right to cure and special rules for installment contracts.

Key Term: Installment Contract
A UCC contract that requires or authorizes delivery of goods in separate lots to be separately accepted. Different rejection and breach rules apply.

Under the perfect tender rule, if the goods are nonconforming in any respect:

• The buyer may reject the entire shipment, accept the entire shipment, or accept any commercial unit(s) and reject the rest, and
• The buyer may also seek damages if appropriate.

However, there are important exceptions:

• Seller’s right to cure: If time for performance has not yet expired, and the seller seasonably notifies the buyer of their intent to cure, the seller may tender conforming goods within the contract time. Even after the time has passed, if the seller reasonably believed the goods would be acceptable (with or without a price allowance), a further reasonable opportunity to cure may be allowed.
• Installment contracts: The perfect tender rule does not apply. The buyer may reject an installment only if the nonconformity substantially impairs the value of that installment and cannot be cured. A single defective installment rarely justifies canceling the entire contract unless it substantially impairs the value of the whole contract.

The MBE often contrasts:

• Common-law substantial performance (service/construction contracts) with
• UCC perfect tender (sale of goods).

Be sure to identify whether you are in a common-law or UCC setting before deciding how strict the performance standard is.

Anticipatory Repudiation

Anticipatory repudiation occurs when, before performance is due, a party clearly and unequivocally indicates they will not perform.

Key Term: Anticipatory Repudiation
An unequivocal statement or voluntary act by a party, before performance is due, indicating that they will not perform their contractual obligations when the time comes.

Repudiation can be by:

• Clear words (“I am not going to perform our contract”), or
• Conduct that makes performance impossible (e.g., selling the only subject-matter goods to someone else).

Ambiguous expressions of doubt (“I’m not sure I can perform”) are not enough; those create “reasonable insecurity” but not anticipatory repudiation.

When there is a true anticipatory repudiation, the nonbreaching party may:

• Treat the repudiation as a present total breach and sue immediately,
• Suspend their own performance and wait to see if the other side retracts and performs, or
• Treat the contract as discharged and seek to arrange a substitute transaction.

Importantly, the nonbreaching party must still mitigate damages; they cannot continue incurring avoidable costs after a clear repudiation and then charge them all to the breacher.

Key Term: Adequate Assurances
Under the UCC, when one party has reasonable grounds for insecurity about the other’s performance, they may demand in writing adequate assurances. Until assurances are received, they may suspend their own performance. Failure to provide adequate assurances within a reasonable time (not more than 30 days) is treated as anticipatory repudiation.

An important distinction:

• Reasonable insecurity → right to demand adequate assurances (especially under UCC §2-609).
• Clear, unequivocal refusal → anticipatory repudiation (immediate rights described above).

Retraction of Repudiation

A repudiating party may retract their repudiation unless the nonbreaching party has already:

• Materially changed position in reliance on the repudiation (e.g., entered a substitute contract),
• Indicated that they consider the repudiation final, or
• Filed suit for breach.

Once a valid retraction occurs:

• The contract is reinstated, and
• The obligations of both parties are revived, with performance due as if no repudiation occurred (subject to any reasonable delay caused by the repudiation).

Minor Breach Coupled With Anticipatory Repudiation

Under common law, if a party commits a minor breach and then unequivocally repudiates future performance, the combination is treated as a total breach. The nonbreaching party may:

• Immediately sue for all damages (past and future), and
• Treat their own remaining duties as discharged.

MBE questions may hide this by giving you a small defect (partial breach) plus a later statement like “I will not do anything more under this contract.”

Adequate Assurances (UCC Focus)

Under the UCC, when a party has reasonable grounds for insecurity regarding the other party’s performance, they can:

• Demand adequate assurances in writing, and
• Suspend their own performance while they await those assurances.

If adequate assurances are not given within a reasonable time (no more than 30 days), the failure is treated as an anticipatory repudiation.

Example patterns:

• Rumors from a credible source that the buyer is insolvent.
• Repeated late payments or defective tenders.

Once satisfactory assurances are provided, the demanding party must resume performance; refusal at that point is a breach.

Exam Warning: Anticipatory Repudiation and Fully Performed Contracts

On the MBE, if a party has fully performed and is only waiting for payment, anticipatory repudiation does not allow immediate suit. The nonbreaching party must wait until payment is due.

This rule commonly appears in service contracts:

• Service provider has finished all work.
• Client says, long before the invoice is due, “I will not pay you.”

The service provider cannot sue immediately; they must wait until the payment date. Anticipatory repudiation is not available where the only remaining performance is the payment of a sum of money by the repudiating party.

Rights and Remedies After Breach

Key consequences to keep straight:

• Material (or total) breach (including an unretracted anticipatory repudiation):

  • Nonbreaching party may suspend performance.
  • Nonbreaching party may treat the contract as terminated.
  • Nonbreaching party may sue for total breach, seeking damages for all remaining performance.

• Partial (minor) breach:

  • Nonbreaching party must continue to perform.
  • Remedy is limited to damages caused by the partial breach.
  • Repeated minor breaches can, over time, amount to a material breach.

• Anticipatory repudiation:

  • Nonbreaching party may choose to:
    • Treat it as immediate total breach and sue (if performance on both sides is still remaining), or
    • Wait for performance to become due, or
    • Demand adequate assurances (UCC) if uncertainty rather than clear repudiation.
  • Repudiating party may retract unless the nonbreaching party has materially relied, accepted the repudiation as final, or sued.

MBE questions often test:

• Whether the nonbreaching party is excused from further performance, and
• Whether they may sue now (anticipatory repudiation) or must wait until performance is due.

Worked Example 1.1

A builder contracts to construct a house for a homeowner, with payment due upon completion. The builder completes 95% of the work, but omits a closet and uses a different brand of paint than specified. The homeowner refuses to pay, claiming material breach. Is the builder’s breach material?

Answer:
No. The builder has substantially performed. The omissions are minor and do not defeat the contract’s main purpose—providing a completed, habitable house of the agreed type. The homeowner must pay the contract price, but may deduct damages representing the cost of adding the closet and correcting the paint if warranted.

Worked Example 1.2

A supplier agrees to deliver 1,000 widgets to a retailer by June 1. On May 15, the supplier emails, “I will not deliver the widgets as promised.” What are the retailer’s options?

Answer:
The supplier’s statement is an anticipatory repudiation. The retailer may treat the contract as immediately breached and sue for damages (for example, cover by buying widgets elsewhere and claim the difference in price), or may wait until June 1 to see if the supplier performs after all. The retailer may also suspend its own related obligations, such as preparing to pay on delivery.

Worked Example 1.3

A painter is hired to paint a house by July 1. The painter finishes on July 2. Is this a material breach?

Answer:
No, assuming the contract does not expressly make time of the essence and the one-day delay does not cause serious harm. A one-day delay is a partial breach. The homeowner must pay the contract price, but may claim damages for any actual loss caused by the delay (for example, an extra day’s cost of temporary accommodation), if proven.

Worked Example 1.4

A wholesaler agrees to sell a retailer 500 laptops for delivery on March 1 under a UCC contract. The wholesaler delivers 500 laptops, but 50 are nonconforming. What may the retailer do?

Answer:
Under the perfect tender rule, the retailer may reject all the laptops, accept all of them and sue for damages for the nonconforming units, or accept any commercial units and reject the rest (e.g., accept 450 conforming laptops and reject the 50 defective ones). If there is still time within the contract period, the wholesaler has a right to cure by tendering conforming laptops after seasonable notice.

Worked Example 1.5

A homeowner contracts with a roofer to replace the roof by September 1 for $10,000. On August 15, the roofer says, “I will not do the job unless you agree to pay$15,000.” The homeowner immediately hires another roofer for $12,000 and sues the first roofer. How should a court treat the roofer’s statement?

Answer:
The roofer’s statement is an anticipatory repudiation. It is an unequivocal refusal to perform the original promise unless the homeowner agrees to a new, higher price. The homeowner was entitled to treat this as a total breach, hire a substitute, and sue for damages. Expectation damages are the difference between the cost of cover ($12,000) and the contract price ($10,000), i.e., $2,000, plus any additional foreseeable incidental damages.

Exam Revision Tip

If the facts do not specify whether a breach is material or partial, look for whether the nonbreaching party received the essential benefit of the bargain. If yes, think partial breach/substantial performance; if no, think material/total breach.

Key Point Checklist

This article has covered the following key knowledge points:

• A material (total) breach substantially deprives the nonbreaching party of the benefit of the bargain and excuses that party’s remaining performance.
• A partial (minor) breach does not excuse performance; the contract continues, but damages may be claimed for the shortfall.
• Substantial performance applies mainly to common-law service and construction contracts and prevents cancellation for minor defects.
• Under the UCC perfect tender rule, any nonconformity permits rejection, subject to the seller’s right to cure and special rules for installment contracts.
• Anticipatory repudiation requires an unequivocal refusal to perform before performance is due and allows the nonbreaching party to treat it as a present total breach.
• Under the UCC, reasonable insecurity gives rise to a right to demand adequate assurances; failure to provide them can itself be repudiation.
• A repudiating party may retract their repudiation unless the nonbreaching party has materially relied, sued, or indicated they consider it final.
• If the only performance left is payment of a sum of money by the repudiating party, anticipatory repudiation does not allow an early suit; the claimant must wait until payment is due.

Key Terms and Concepts

• Material Breach
• Partial Breach
• Total Breach
• Substantial Performance
• Divisible Contract
• Time Is of the Essence Clause
• Perfect Tender Rule
• Installment Contract
• Anticipatory Repudiation
• Adequate Assurances