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CONTRACTS 13: A party who first breaches a contract cannot maintain an action against the other party for his subsequent breach.
In July 2017, the parties entered into an agreement for plaintiff to purchase the assets of defendant, C Corp. The Asset Purchase Agreement stated: On the Effective Date, Plaintiff will submit to C Corp by wire transfer the sum of twenty-two thousand United States dollars.
Substantial Breach
It is undisputed that plaintiff did not make the required payment on the specified effective date of the Asset Purchase Agreement.
On July 30, 2017, plaintiff, informed defendant that he needed to open a bank account in the United States to enable plaintiff to make the $22,000 payment, which he intended to do on Tuesday, August 1, 2017. Defendant simply responded, great.
When payment still had not been received by August 9, 2017, defendants notified plaintiff that they were rescinding the agreement.
Action to Enforce
Plaintiff filed an action to enforce the agreement. Plaintiff argues that the timing of the specified payment was not crucial.
It is also undisputed that plaintiff had not established a bank account in this country to enable it to wire the money to C Corp before defendants rescinded the agreement. Even if plaintiff’s failure to pay the specified $22,000 amount on the stated effective date is not considered a substantial breach, there is no genuine issue of material fact that plaintiff substantially breached the agreement by failing to make any effort to make the specified payment for at least two weeks after the agreement’s stated effective date.
The trial court ruled that plaintiff’s obligation to pay the purchase price is a substantial term of the Purchase Agreement and that plaintiff’s failure to pay the purchase price when required is a material failure of performance.
Summary Disposition
Parties then filed cross-motions for summary disposition, the trial court denied plaintiff’s motion and granted defendants’ motion.
Given that C Corp had a limited period in which it was obligated to perform, the trial court did not err by finding that plaintiff’s failure to make the required payment on the specified effective date, or at any point in the following two weeks, qualified as a substantial breach of the parties’ agreement
A party claiming breach of contract must prove by a preponderance of the evidence that (1) there was a contract, (2) the other party breached the contract, and (3) damages resulted to the party claiming a breach. A party who first breaches a contract cannot maintain an action against the other party for his subsequent breach or failure to perform. This rule only applies when the initial breach is substantial.
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