Standards of Contract Performance

• Author: Franklin G. Snyder, Mark Edwin Burge
• Pages: 427-450

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UNIT 21: STANDARDS OF CONTRACT PERFORMANCE 427

Unit 21

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PERFORMANCE AND BREACH

Part One

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Standards of Contract Performance

FOCUS OF THIS UNIT

When Does Breach Occur? Assume that two parties are in a valid contract,

but one party now believes the other has breached the contract. How does a lawyer

tell when a contract has been breached? Determining whether a breach has occurred

requires a standard for what it means to perform. Put another way, a legal system

could have a rule that says that to comply with a contract means one must do exactly

what one promised to do, without any deviation whatsoever. On the other hand, a

legal system could have a rule in which doing pretty much what one promised to do—

getting close enough—is sufficient.

Perfect Tender. As it happens, contract law uses both of those rules. The first

is called, in modern legal parlance, the “perfect tender” rule. If a party’s tender of

performance fails in any way to meet the contract requirements, the party cannot

recover under the contract.

1

Over the years this first approach tended to develop

among merchants engaged in trade, where courts tended to put weight on the

expertise of business people and tended to give them credit for saying exactly what

they meant. In the words of a well-known British judge, in commercial transactions

there is “no room” for things that “are almost the same, or which will do just as well.”

Substantial Performance. Side by side with this, however, was an approach

that allowed for at least a little flexibility, especially in situations like construction

where some deviations from almost inevitable. Thus, in cases like Glacius v. Black,

50 N.Y. 145 (1872), it was held that “mere technical, inadvertent or unimportant

omissions or defects” would not amount to a breach that would allow the other party

to back out of the transaction. What counts as “technical, inadvertent or

unimportant,” however, was a matter of some dispute, and can be so today. This

approach is typically known as the “substantial performance” doctrine. The modern

American common law of contracts frequently follows the substantial performance

1

[Although, as we will see later when we get to damages for breach, there are altern ative

theories on which a party that has not performed perfectly can still recover something. —Eds.]

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428 CHAPTER VII: PERFORMANCE AND BREACH

doctrine, so that close-enough performance is not a breach. If that approach strikes

you as unfair to the party whose expectation is impaired, realize that courts are

reluctant to determine that a failure of performance that causes substantial prejudice

to the other party is “substantial performance” of the contract.

The UCC and Perfect Tender. When the Uniform Commercial Code was being

drafted in the 1940s, however, merchants and the lawyers who represent them were

adamant that the concept of “perfect tender” be included in the rules for sales of goods.

This fact might surprise you if you would assume merchants would like a rule that

allowed them to deliver things that did not quite meet the buyer’s specifications.

Merchants, in fact, are virtually always both buyers and sellers of goods. In their

“buyer” capacity, these merchants benefit from a strict perfect tender standard. They

do not want to be bound to accept products from its suppliers that are almost as good

as what it ordered. A computer manufacturer, for example, wants components that

are exactly what it wanted so that it can ensure that its product does exactly what

the manufacturer promises. Thus, the “perfect tender” rule has been enacted by

statute for sales of goods—at least in a one-shot (or non-installment) sale. The perfect

tender rule is now embodied in section 2-601 of the UCC, and you should now read

that section.

If the perfect tender rule strikes you as too harsh for trivial non-conformity to

the contract, realize that the rule is frequently blunted by some of the other doctrines

we have studied, such as the duty of good faith. A buyer claiming breach for a trivial

reason cannot in good faith use the trivial nonconformity as an excuse to escape the

contract with the seller where the buyer’s real reason for wanting out is that it found

a better price somewhere else. Another amelioration of the perfect tender rule is UCC

section 2-508, which gives the seller of non-conforming goods an opportunity to “cure”

the nonconformity in certain situations. Read section 2-508 to see the extent of a

seller’s right to cure.

The perfect tender rule is not applied to installment contracts; that is, contracts

where goods are delivered in separate lots instead of all at once. In such contracts,

breach requires the occurrence of a defect that “substantially impairs the value of

that installment and cannot be cured.” If you find that language to be much closer to

the common-law substantial performance doctrine, then you are correct. Read section

2-612 of the UCC for the rule on breach of installment contracts.

Advantages and Disadvantages of Both Approaches. One advantage of the

perfect tender rule is that the parties can clearly specify exactly what they want.

Another is that it provides a bright line that allows parties t o avoid litigation. One

serious disadvantage, however, is that a party may suffer an enormous loss over a

relatively minor deviation. For example, in one New York case, Dauchey v. Drake, 85

N.Y. 407 (1881), a company that was supposed to place advertisements for a patent

medicine (“Plantation Bitters & Sea Moss Farina”) in 1,075 newspaper wound up

breaching its contract because it only succeeded in getting the ads into 1,022 of them.