When does a breach of contract occur?
- When there is a failure of consideration — A breach of contract occurs when a party to a contract fails to perform under the contract.
- When there is a failure to perform the contract — A breach of contract also occurs if the consideration the party is required to give otherwise fails through because of something they did.
- When a breach of contract occurs then the other party may invoke these two failures as a basis for rescinding or terminating the contract.
- The contract can be rescinded or terminated as long as the failure or refusal to perform constitutes such a material breach as to justify rescission or termination. 
In addition to the specific elements set forth below, refer to §XI.1:20 (Breach of Contract In General) for elements necessary in any breach of contract action.
1:21 Failure to Execute a Promise
Failure of consideration is the failure to execute a promise, the performance of which has been exchanged for performance by the other party.
This failure may arise from a willful breach of the promise. 
1:22 Breach Must Be Material
For a breach to justify the abandonment of the contract, the promise must “go to the root of the contract,”.
In this way, a failure to perform it would render the performance of the rest of the contract different in substance from what was contracted. 
1:31 Failure to Execute a Promise
The promise that is breached need not be expressly stated in the contract. 
Failure of consideration (as distinguished from lack of consideration) is not based upon facts existing at the time the parties entered the contract.
- Instead, failure of consideration is based upon some fact or contingency that occurs between the time the parties contracted and the action resulting in the material failure of performance by one of the parties.
- Therefore, the contract is not void, but rather is a ground for rescinding the contract, which remains in effect until it is rescinded or terminated. 
- For example, there is no failure of consideration under a marital property settlement agreement where a wife secured a writ of execution and caused the sale of the property to satisfy a debt due to the plaintiff’s husband.
- In another example, a court held that no failure of consideration existed where, under a promissory note, the payee failed to obtain construction financing and accomplish other acts. These acts were not conditions precedent to the issuance of the note.
- Complete failure of consideration existed when the defendant, who promised to construct an apartment building and furnish all materials and labor free and clear of liens, in exchange for a note and deed of trust from the owner, abandoned the project with $15,000 in mechanic’s liens before completion. The owner spent more than the contract price to complete the construction. 
- Where an insured signed a release in connection with an insurance settlement, the lapse of eight days between signing the release and receiving the check will not constitute a failure of consideration.
- A party may rescind for the partial failure of consideration even if there has been a partial performance by the party against whom the rescission is sought. 
- A house manufacturer’s failure to deliver the house to the buyer constituted an entire failure of consideration for the contract of sale. 
1:32 Breach Must Be Material
To determine if a breach is a material, courts consider the following:
- the extent of actual performance or preparation;
- the defaulting party’s good faith, or lack thereof;
- hardship, if any, resulting to the defaulting party; and
- the adequacy of damages to compensate for the non-defaulting party. 
A party must assume a legal duty in making the promise.
For example, a buyer’s obligation to proceed diligently and in good faith with recordation of a tract map and obtain city approval to develop property constitutes valid consideration.
1:32a Willful Failure to Perform
A willful default may be material even though the innocent party suffers no economic loss. 
- For example, in a 1968 case, an owner was justified in rescinding an exclusive listing agreement where the broker did not produce any prospective buyers and made only nominal efforts to advertise the property.
- The fact that the seller might have sold its product elsewhere did not diminish the materiality of the buyer’s failure to purchase its requirements from the seller. 
- In this case, the court held that the default was material even though the innocent party suffered no economic loss.
- In another example, after receiving ample notice to correct the problem, a plaintiff’s failure to correct stucco defects on the defendants’ house was willful and intentional, and therefore, a material breach that justified defendants’ rescission of the contract. 
- In a third example, a vendor’s failure to install certain improvements on lots to be conveyed, including water pipes, sidewalks, and curbing, under the terms of a contract, was a material failure of consideration. The lots were less valuable without these improvements. 
1:32b Delay in Performance/“Time Is of the Essence”
Mere delay in performing a contract is not a material breach unless the delay is such as to warrant the conclusion that the party does not intend to perform. 
- For example, an eight-day delay in the plaintiff’s receipt of insurance proceeds after signing release form was not such a material breach as to give the plaintiff the right to rescind release.
Delay in performance is a material failure of consideration only if time is of the essence. 
If prompt performance is, by the express language of the contract, or by its very nature, a vital matter, then time is of the essence of the contract.
- In this case, a delay in performance is a material failure of consideration. 
Time is not of the essence unless it appears that it was the intention of the parties from the terms of the contract or, in light of all circumstances.
- However, no specific words are necessary to make the time of the essence. 
- For example, a defendant water company’s use of a specific date for payment of annual dues as a means to ensure prompt payment. It was not an indication that failure to perform at the agreed time would result in immediate termination and forfeiture of the plaintiff’s right to receive water.
The timing of the breach is relevant in determining the materiality of the breach.
- A breach before or at the outset of performance may justify rescission when the same breach late in performance would not be significant.
- When the failure to perform is at the outset, it is helpful to consider whether it would be more just to free the injured party or to require him to perform his promise.
- In both cases, this would give the injured party a right of action if the failure to perform was wrongful. 
- For example, in a 1955 case, a subcontractor failed to cooperate with the general contractor on several occasions even though dollar amounts involved were relatively minor.
- Because the contract provided that time was of the essence, and all indications were that the subcontractor’s delay and failure to cooperate were going to continue throughout the term of the contract, the court held that the subcontractor materially breached the contract.
When no time is specified for doing an act, other than paying money, demand for performance is necessary to put the promisor in default. 
- Rescission 
- Failure of consideration for rescinding party’s obligation, in a material respect and from any cause, is a sufficient basis for unilateral rescission.
- No Notice of Rescission Required 
- For example, a defendant was not required to give notice of rescission after discovering that the plaintiff builder abandoned his construction obligations. 
- Restitution 
- In one case, a buyer of the prefabricated house could recover purchase price paid to the seller who won a house in the contest when the manufacturer of the house failed to deliver it.
- Compensatory Damages 
- In a 1955 case, a subcontractor failed to perform. A general contractor was entitled to recover damages equal to the difference between the price for which subcontractor agreed to do lathing and plastering work and the reasonable cost of completing the job. 
- Where the failure of consideration is not material, damages are the plaintiff’s sole remedy and rescission is not available.
1:50 TIME LIMITATION TO FILE A LAWSUIT
The statute of limitations is four years for claims based on a written instrument. 
For claims based on an oral agreement, the limitations period is two years. 
“Failure of consideration” and “failure to perform” are often used as affirmative defenses to a charge of breach of contract, as well as grounds for rescinding or terminating a contract. If a defendant relies on the plaintiff’s failure to perform as a defense to his nonperformance, he must plead and prove such failure to perform specifically as an affirmative defense. 
- No Notice of Rescission Required
- A party does not waive his right to rely upon the defense of failure of consideration by failing to announce a formal rescission.
- He can either take affirmative action by rescinding the contract or wait and defend against the action on the ground of failure of consideration. 
 Taliaferro v. Davis, 216 Cal. App. 2d 398, 412, 31 Cal. Rptr. 164, 172 (1963); Cal. Civ. Code §1689.
 Bliss v. California Coop. Producers, 30 Cal. 2d 240, 248, 181 P.2d 369, 374 (1947); Taliaferro v. Davis, 216 Cal. App. 2d 398, 410-11, 31 Cal. Rptr. 164, 172 (1963).
 Walker v. Harbor Bus. Blocks Co., 181 Cal. 773, 780, 186 P. 356, 359 (1919).
 Bliss v. California Coop. Producers, 30 Cal. 2d 240, 249, 181 P.2d 369, 374 (1947)
 Taliaferro v. Davis, 216 Cal. App. 2d 398, 411, 31 Cal. Rptr. 164, 172 (1963)
 Boswell v. Reid, 199 Cal. App. 2d 705, 713, 19 Cal. Rptr. 29, 34 (1962).
 Benson v. Andrews, 138 Cal. App. 2d 123, 132, 292 P.2d 39, 44 (1955).
 Hofland v. Gustafson, 132 Cal. App. 2d Supp. 907, 909, 282 P.2d 1039, 1041 (1955).
 Coleman v. Mora, 263 Cal. App. 2d 137, 150-51, 69 Cal. Rptr. 166, 173-74 (1968)
 Nelson v. Sperling, 270 Cal. App. 2d, 194, 195, 76 Cal. Rptr. 481, 482 (1969).
 BAJI 10.82.
 Bleecher v. Conte, 29 Cal. 3d 345, 350, 352, 213 Cal. Rptr. 852, 854, 856 (1981)
 Coleman v. Mora, 263 Cal. App. 2d 137, 150, 69 Cal. Rptr. 166, 173 (1968)
 Wilson v. Corrugated Kraft Containers, Inc., 117 Cal. App. 2d 691, 697, 256 P.2d 1012, 1016 (1953)
 Bonadelle Construction Co. v. Hernandez, 169 Cal. App. 2d 396, 399, 337 P.2d 85, 87 (1959).
 Walker v. Harbor Bus. Blocks Co., 181 Cal. 773, 782, 186 P. 356, 360 (1919).
 Hofland v. Gustafson, 132 Cal. App. 2d Supp. 907, 909-10, 282 P.2d 1039, 1041 (1955)
 Johnson v. Alexander, 63 Cal. App. 3d 806, 813, 134 Cal. Rptr. 101, 105 (1976).
 Johnson v. Alexander, 63 Cal. App. 3d 806, 811, 134 Cal. Rptr. 101, 104 (1976).
 Henck v. Lake Hemet Water Co., 9 Cal. 2d 136, 143-44, 69 P.2d 849, 852-53 (1937)
 Associated Lathing and Plastering Co. v. Louis C. Dunn, Inc., 135 Cal. App. 2d 40, 50, 286 P.2d 825, 830 (1955)
 Johnson v. Alexander, 63 Cal. App. 3d 806, 813, 134 Cal. Rptr. 101, 105 (1976).
 Nelson v. Sperling, 270 Cal. App. 2d 194, 195, 76 Cal. Rptr. 481, 482 (1969)
 Benson v. Andrews, 138 Cal. App. 2d 123, 136, 292 P.2d 39, 47 (1955)
 see also Russ Lumber & Mill Co. v. Muscupiabe Land & Water Co., 120 Cal. 521, 527, 52 P. 995, 997 (1898)).
 Nelson v. Sperling, 270 Cal. App. 2d, 194, 195, 76 Cal. Rptr. 481, 482 (1969)
 Associated Lathing and Plastering Co. v. Louis C. Dunn, Inc., 135 Cal. App. 2d 40, 51, 286 P.2d 825, 831 (1955)
 Hofland v. Gustafson, 132 Cal. App. 2d Supp. 907, 909, 282 P.2d 1039, 1041 (1955)
 Cal. Civ. Proc. Code §337(1).
 Cal. Civ. Proc. Code §339(1).
 See Bliss v. California Coop. Producers, 30 Cal. 2d 240, 248, 181 P.2d 369, 374 (1947); Boswell v. Reid, 199 Cal. App. 2d 705, 713, 19 Cal. Rptr. 29, 34 (1962).
 Benson v. Andrews, 138 Cal. App. 2d 123, 136, 292 P.2d 39, 47 (1955).