Contracts II, Pages 920–926

Sackett v. Spindler

California Court of Appeal, 1967

Facts:

Defendant owned the majority of S&S Newspapers, where he also served as publisher, editor, and general manager. Defendant agreed to buy all outstanding shares of the company and to sell it for plaintiff for $85,000, to be paid in installments of $6,000, $20,000, and $59,000, and with plaintiff paying 6% interest on any unpaid balance. The contract required defendant to deliver all the stocks to plaintiff when the final payment was made.

Plaintiff paid his first payment on time and most of his second payment a week and a half late, but the check for the third payment bounced after coming a month late. Defendant still acquired all of the remaining stocks and gave all but 454 shares to plaintiff's attorneys to hold in escrow. When the check bounced, defendant reclaimed these shares.

Plaintiff then telegrammed defendant that he was ready, willing, and eager to transfer the remaining funds. The parties met and defendant told plaintiff that he would not complete the contract unless plaintiff paid the remaining balance and interest within 10 days. He also told plaintiff that the newspaper urgently needed capital. Plaintiff paid defendant $3,944.26 as an advance for working capital, but he did not pay defendant by the set date or even communicate with him. Defendant mailed plaintiff a week extension anyway, but plaintiff still did not pay. A week after this deadline was missed, plaintiff informed defendant that his assets were freed due to divorce proceedings and that he could then set up a financing agreement. In response, defendant's attorney informed plaintiff's that the contract was canceled due to the delay in payment and that he would no longer sell the stock, later clarifying that defendant was only willing to sell if plaintiff could pay the entire outstanding balance at that time.

Procedural History:

Trial court determined that plaintiff take nothing on his complaint and that defendant take $34,575.74 on his cross-complaint.

Plaintiff's Argument:

Plaintiff did not breach the contract because his duty was discharged by defendant reclaiming the stock from plaintiff's lawyer and by defendant's later "repudiation" of the contract.

Issue:

Was plaintiff's duty to perform discharged by defendant's conduct?

Evaluation:

Defendant's "repudiation" of the contract was only notification that defendant considered his own duty discharged as a result of plaintiff's breach. This would only be valid if plaintiff's breach was total.

Rule:

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Whether a breach of contract is total or partial depends upon its materiality. In determining the materiality of a failure to fully perform a promise the following factors are to be considered:

  1. The extent to which the injured party will obtain the substantial benefit which he could have reasonably anticipated;
  2. the extent to which the injured party may be adequately compensated in damages for lack of complete performance;
  3. the extent to which the party failing to perform has already partly performed or made preparations for performance;
  4. the greater or less hardship on the party failing to perform in terminating the contract;
  5. the wilful, negligent, or innocent behavior of the party failing to perform; and
  6. the greater or less uncertainty that the party failing to perform will perform the remainder of the contract.

Reasoning:

Although plaintiff did not repudiate the contract, the evidence warranted the inference that he did not intend to pay the balance due. Defendant was not required to wait longer and was allowed to treat plaintiff's nonperformance as a total breach of the contract. Defendant's attorney's letter was not a breach then and did not discharge plaintiff's duties.

Even if defendant did breach the contract, his duty to perform was conditional upon plaintiff's complete payment. As plaintiff never paid and merely tried to set up a financing agreement, defendant was not required to perform still. In addition, defendant's attorney told plaintiff that defendant was still willing to perform provided that plaintiff pay the entire balance, which would have nullified a repudiation anyway.

Holding:

Plaintiff's duty was not discharged. Affirmed with interest removed.


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