Updated August 9, 2014: Comments by Harley Meyer have prompted me to update this post.
Harley makes a couple of points. He focuses on the notion that courts will allow for cure, regardless of what the contract says. I haven’t yet researched this extensively, but I’ve found enough to suggest that drafters shouldn’t assume that that’s the case.
For example, Robert A. Feldman & Raymond T. Nimmer, Drafting Effective Contracts: A Practitioner’s Guide § 5.09 (2014), says, “Do not assume that the law will provide an opportunity to cure if one is not expressly provided; it may not.” It cites to that effect Creative Extruded Prods., Inc. v. Amity Mold Co., 2008-Ohio-6035, 179 Ohio App. 3d 475, 478, 902 N.E.2d 531, 533.
Uniform Commercial Code section 2-508 gives the seller the right to cure a nonconforming tender in certain circumstances. But that applies only to sale of goods. Furthermore, it applies only in specified contexts, as opposed to permitting cure of all breached obligations. Finally, the parties can vary the section 2-508 standards by agreement. Here’s what Philip T. Lacy & Ralph C. Anzivino, Uniform Commercial Code Transaction Guide § 9:8 has to say (footnotes omitted):
An express term can also be drafted to restrict a seller’s statutory right to cure. Such terms include a “no replacement” clause which precludes the seller from curing a nonconforming tender. Such a clause should be conspicuous and called to the seller’s attention if it is inconsistent with a prior course of dealings or trade usage. In most cases a “no replacement” clause should be limited to preclude only a cure after the time for performance has expired.
As a practical matter, the contracts for sale of goods that I’ve worked on recently give the seller the opportunity to fix nonconforming goods, although it doesn’t use the word “cure.” That’s consistent with my preference for providing for “cure”—whether or not you use that word—only in specific contexts.
That relates to my response to Harley’s other point, which is that including “capable of being cured” language should address my concerns. Yes, that language would eliminate the most blatant dysfunction you see in cure provisions, but beyond that, I prefer not to give a party a right to cure across the board. I don’t think it makes sense.
By the way, the phrase capable of being cured is odd. Capability refers to one’s ability to take an action—a breach isn’t capable of anything. Instead, I’d refer to feasibility of cure. But that’s moot, given that I don’t use catch-all cure provisions.
And here’s a bonus issue: If you can preclude a party’s right to cure, shouldn’t that eliminate the concern that has given rise to “time is of the essence” provisions? Well, perhaps, but since you can’t count on a court’s not cutting that party some slack, adding a don’t-cut-any-slack provision would be prudent. (I of course wouldn’t use time is of the essence to address that concern; see MSCD or this 2009 post.)
***
[Original September 26, 2013 post follows]
I’ve got a problem with the notion of “curing” breach of a contract obligation. Consider the following language, which constitutes one of the elements of a definition of “Seller Default”:
the Seller breaches any obligation under this agreement and, if that breach is capable of being cured, fails to cure that breach in the 30 days after the Buyer notifies the Seller of that breach, except that if that breach is capable of being cured but not within 30 days and the Seller is using reasonable efforts to cure that breach promptly, that breach will not constitute a Seller Default if the Seller continues to use reasonable efforts to cure it and cures it no later than 90 days after the Buyer notifies the Seller of that breach;
But what does it mean to cure a breach? When is a breach capable of being cured? Here are three scenarios:
- Acme is under an obligation to deliver some equipment by September 26, 2013. Acme fails to do so; Acme has breached the obligation. Acme delivers the equipment on October 1, 2013. Has Acme cured its breach? No: to comply with the obligation, Acme would have had to meet the original deadline. There’s no way that it could go back in time to fix its failure to meet the deadline.
- Acme is under an obligation not to transfer the some shares. It nevertheless transfers the shares, so it’s in breach. It buys back the shares. Has it remedied its breach? No: you can’t unbreak an egg.
- Acme is under an obligation to clean the some premises to the satisfaction of WidgetCo no later than October 1, 2013. Acme announces on September 26, 2013, that it has done so, but WidgetCo isn’t satisfied. Is Acme in breach? I suggest that it’s preferable to consider that Acme isn’t in breach, as the deadline hasn’t passed, and I’ve seen caselaw to that effect. If Acme does some more cleaning so that WidgetCo is satisfied before the deadline, it will have complied with the deadline, so there would be nothing to cure. And even if you assume that Acme is in breach on September 26, why give Acme additional time beyond the October 1 deadline?
So I suggest that the notion of cure is more confusing than helpful. But I’m open to other ideas.
What language do you use to get around the common use of the word cure in a concise manner?
It’s not a matter of using different words to express that meaning. Instead, it’s a matter of that meaning not making sense. But I’m waiting for someone to tell me that I’m missing something.
One way, I guess, would be to define “Cure” as something like “taking actions that cause the breaching party to be in compliance with the contract section that was breached and to have remedied the effects of the period while the party was in breach”. It’s still vague, but it’s maybe a little better than just using the word “cure”.
No harm, no foul.
Curing is just the notion of eliminating the damages, right? If you act quickly enough to fix something that you broke, the damages that would require a remedy go away, and no one is (or should be) legitimately interested in technical breaches of commercial contracts under normal circumstances.
But breach is one thing, damages another. The absence of damages doesn’t eliminate breach. “Cure” language suggests that the breach goes away.
I get sick. I take medicine. I’ve been cured. Yes, I was still sick, but my sickness has been cured.
I’ve never heard of someone contending that a cured breach didn’t constitute a breach at one time. A cure isn’t nunc pro tunc. Even the word cure necessitates a pre-existing problem. (Only hypochondriacs can be cured of something they didn’t actually have.)
Some provisions don’t allow for the same type of breach to be cured twice. That’s more evidence that the breach is always considered to have occurred and isn’t “erased” for any purpose other than explicit handling of available remedies.
But the cure isn’t perfect. Consider my first two scenarios. In the first, it’s late. In the second, who knows what implications might flow from the prohibited transfer having taken place. Why should I have to accept those flaws?
That’s a discussion about whether a party should allow a type of breach to be cured, not about whether the word “cure” implies something different. Lots of breaches aren’t added to the “default” bucket and go straight into the “event of default” bucket.
Then I’d rather forget about a blanket “cure” provision and deal one at a time with instances where the party under the obligation wants to be given a second chance. And I wouldn’t use the word “cure.”
I completely agree with point #1 if it’s not deliberate or thought out. Loan agreements do this well.
A blanket provision simply punts the issue 30 days forward so you can decide then whether the other side fixed the breach to your satisfaction or whether you think they didn’t and thus it’s not cured and you want to pursue other remedies. It’s like a time out for first-party mitigation rather than mediation. As a practical idea, not so bad, given the dramatic transaction costs of terminating and litigating.
I don’t think the word “cure” is the (or a) problem. Makes me wonder what the cases say – whether it ever gets interpreted in the way you propose. That would be evidence for a change.
So you punt the issue, then you get into a fight as to whether the mess has been cleaned up sufficiently to constitute “cure.” I don’t like it, I tell you!
My objection to “cure” is that it hides all sorts of subtlety.
I’m not sure what you mean by “evidence for a change.” MSCD cites dozens of cases, so I note what courts say. But I don’t want to win fights, so the first order of business is to avoid confusion.
Yes, and yes.
You could accomplish the same purpose by referring any breach (again, excluding some as with “events of default”) to a dispute resolution process that has to run 30 days (the same as any putative cure period) before a party can terminate or litigate. That sparks the discussion on what the breaching party has to do to clean up the mess to the non-breaching party’s rasonable satisfaction. None of that requires the word “cure” and the mechanism is almost the same – nothing prevents the breaching party from trying to fix things in advance to hit the “reasonableness” standard.
“Cure” isn’t in the index to MSCD, so I can’t find those references readily. If cure isn’t interpreted as you propose (“”Cure” language suggests that the breach goes away”), then the word itself, qua word, isn’t the problem.
I want to be clear that I’m separating the “cure as a bad word” notion from “cure as a shortcut for fuzzy remedy” notion.”
I’m 100% with you on the second. Eliminating unrecognized fuzziness is the #1 thing I’ve learned from you, and no one has to pretend to be an arcane grammar scholar to make huge strides in clarifying agreements.
Moving offline to spit out a version of my offhand provision above. Email to follow.
The third edition makes no mention of “cure.” Add that to the long list of items to include in fourth edition!
Ken:
In a services agreement, it is fairly typical for the buyer to have the right to terminate for an uncured material breach, with no scope-limitation on what breaches can be subject to cure. Where there are scope-limitations, they are usually either (a) specific carve-backs for confidentiality and such or (b) something along the lines of “unless incapable of being cured.” The reason for that is that it is very difficult to predict how a breach will arise in many services agreements or what the effects would be. This is a valuable use of vagueness. Don’t throw the baby out with the bathwater.
Chris
I don’t like the concept of “cure” as it’s usually drafted. Rick’s comment above (and Ken’s response RE damages), illustrates why: Acme is supposed to keep the premises clean for a lease of 2 years, and it fails to do so. Widgetco hires and pays a contractor $1,000 to clean the premises starting Monday. Over the weekend, Acme cleans the premises. Acme has cured the breach most likely, but Widgetco is probably still out the money because the contractor has turned down other work and isn’t going to refund $1,000.
If the concept of cure is included, it should at least be clear that a breach is not cured until (a) the breaching party is in compliance with the agreement (i.e., Acme is keeping the premises clean), and (b) the effects of the previous breach (Widgetco’s cost in hiring a contractor) have been remedied (Widgetco was repaid).
In addition, cure should only apply to specific sections of an agreement and not all of a party’s obligations. For example, if you promise to defend me from an infringement claim and you don’t, I probably don’t even want to have to think about whether that’s subject to a cure right; same goes for your failure to keep my information confidential.
correction, Rick’s comment below …
The bit about remedying the effects could in effect turn into mini settlement discussions of the sort that you could have even without a “cure” provision.
Ken:
Absolutely, but it is a bounded negotiation if a cure provision is present. Assume that the agreement has a right to terminate on material, uncured breach. The non-breaching party can’t terminate if the breaching party cures. Even with that inadequate level of precision about the hypothetical facts, you now know that the non-breaching party bears some risk of breaching the agreement if the court founds that it terminated when it had no right to do so. This helps the breaching party remove the non-breaching party’s (hopefully temporary) emotions from the situation and negotiate to a successful continuation of the relationship. That’s what a cure provision buys you.
Chris
I think you’re completely right and should move on to how to draft the contract in the first place to deal with the issue clearly.
1/ “Cure” probably means something like “make the injured party whole, as nearly as possible” and really means, deep down, the same thing that a contract “remedy” means: put the injured party in the same position it would have held had there not been a breach. All the faults that afflict “cure” also afflict the term “remedy,” but the latter is still “helpful.”
2/ Different kinds of contract breaches are open to different kinds of remedies. Making an installment payment late can be covered by a late charge. If the wedding lads don’t set up the tents for your daughter’s wedding timely, setting them up three days after the wedding is no cure, no help, no remedy, so money will have to fill in. Money’s inadequate, but no more so than for a tortiously broken leg.
3/ So the lesson to be drawn is that the drafter must specify remedies for whatever kinds of breach really matter. I mean, if the tent lads are supposed to start five days before the wedding, but they breach by starting two days before the wedding, but they get everything erected by the wedding day, is it a case of “no harm, no foul,” such that a prescribed “remedy” for such a breach might be characterized as an (impermissible) penalty and not enforced by a court?
Wright:
Only we lawyers would think that there is a difference between cure and remedy. The thesaurus gives them as synonyms!
Chris
Confusing? Heck, it’s a free breach (or in many cases, unlimited extensions of time).
I think that the breach is in fact “cured” in your second example, because the required position has been restored and therefore (we assume, without more information) no harm has occurred to the counterparty, or can now occur, from that breach.
I don’t think a “cure” is used to mean that there was never a breach. Often the concept is used in circumstances where a cure prevents some action being taken (e.g. termination immediately on notice) but damages are not prohibited by the cure. (Having said that, if more-than-nominal damages are still available in practice, because harm has been caused, can one really say a breach has been cured? So the distinction may be academic.)
I do agree that the concept is not always going to translate clearly to practical examples, and so there is a risk of getting into arguments over whether a particular breach can be cured, and if so whether it has in fact been cured. If a concise way can be found in a particular case to be more explicit, it should be considered.
If using the concept generally though (like the example text in the post), one can’t set out every reasonable circumstance in which a contract can be breached and set parameters for valid cures – the provisions would be 10 times the length of the rest of the contract. Doing away with the concept entirely might help clarity, but it hinders commercial negotiation and good commercial practice, because parties surely want to encourage cures? Isn’t it best for the counterparty if Acme buys the shares back?
In my second example, the obligation was breached, although perhaps there were no damages. Using the “word” cure to signal that breach should be ignored if there are no damages seems very confusing. And perhaps unnecessary: if there were no damages, that by itself has consequences. For one thing, it would be hard to justify termination.
If the idea behind “cure” is to preclude termination but not damages, I suggest that’s it’s unrealistic to expect the reader to derive that meaning from the word. But I agree that it would be odd to speak of cure if there are damages.
Regarding the sample language in the post, I’d be inclined to say instead “The Seller materially breaches any obligation under this agreement.” That eliminates any concern regarding termination even though there are minimal or no damages.
And if it’s best for the counterparty that Acme buy the shares back, then the obligation should have instead referred to Acme’s being in possession of the shares, instead of prohibiting transfer.
I don’t thing that there is anything wrong with the word cure. It means, in brief, to perform the covenant that was breached and make
compensatory payments if required by contract or law. The problem is drafters who do not properly draft a cure provision. The provisions should provide for a
notice of default that states
the breach,
·
what constitutes a cure,
·
what consequences flow from the initial breach,
what the breaching party must do to address the consequences.
Paradigmatic are the cure provisions in a credit agreement. First, for example, the credit agreement defines failure to pay interest timely as a breach. The agreement then grants a grace period. If the interest is paid during the period, all is still not right. The contract includes other provisions. During the period beginning on the due date and ending on the payment date, the borrower owes interest at a default interest rate not only on the principal but on the late interest. That too must be paid.
Credit agreements also demonstrate how the right to cure can be limited. The agreements specifically limit the right to cure to breaches of specific covenants: for example, breach of covenant to deliver financial
statements no later than March 30. This can be fixed. But the agreement also prohibits the right to cure for the breach of the covenant not to merge. Too hard to
undo. Once a party has breached, the deed is done.
Drafters can gain insight on how to draft cure provisions properly from statutes that directly address the issue; for example, Uniform Computer
Information Transactions Act § 703 –
Cure of Breach of Contract. (You can find the provision on Westlaw.) The comments note that the scope of cure can be a problem, but that’s a drafting
problem, not a problem with the word cure.
The comments are particularly useful in explaining different issues relating to cure. With the proper understanding of these issues, the drafter should be able to draft a better cure provision.
Drafters court problems when their provisions are vague and refer to breaches that can be
cured and those that can’t. The vagueness invites litigation. Here, specificity probably advantages both parties.
Sure, be specific. My principal objection is to using the word “cure” in a contract in the manner illustrated in the post and expecting anything but confusion to result. Your comment appears to accept that point. Once you’re specific, no particular function remains for the word “cure,” although one could use it as a label.
Tina:
With respect, I would never draft an agreement that was this formulaic. I suspect that this discussion is being misled by its focus on credit agreements, which are among the easiest kinds of agreements for handling issues because so many of the issues have clear-cut lines around the payment of money. It’s really only in the business-condition covenants that things turn as murky as a normal operating, long-term purchase, acquisition, or services agreement.
In the context of a service agreement, why would the service recipient be in a good position to state what constitutes a cure, when the service provider probably has far more experience in working out problems? And why should the service recipient have to delay providing its breach notice to take the time to speculate about what the consequences might be? Those are both things that could be usefully discussed by phone once the service provider states its intention to cure.
In cure provisions, vagueness is a necessary feature, not a bug that can be eliminated.
Chris
Chris,
My apologies if this is a duplicate post. Disquis and I had a misunderstanding.
You are absolutely correct. Formulas are not absolutes. I would compare it to a precedent that must be tailored for the business transaction and contract. Thanks for making the point.
Tina
Ken: Aren’t you more concerned about Seller breaching any material obligation than with materially breaching an obligation?
Oh god, don’t make me think about that now, my head will explode! ;-)
Actually, that’s an issue that I just realized didn’t make it into the third edition. It’s discussed in 2.90 of The Structure of M&A Contracts: “By contrast, [having ‘material’ modify ‘obligation’] would seem both overinclusive and underinclusive—it would be rendered inaccurate by any default under any of the contracts in question, no matter how trivial, but wouldn’t be rendered inaccurate by default under a contract that doesn’t meet the high level of significance inherent in Material, no matter how serious the consequences of that default.”
“Using the “word” cure to signal that breach should be ignored if there are no damages seems very confusing.”
That isn’t quite what I meant. There clearly was harm when the shares were sold, but by buying back the shares the harm disappeared (we assume for these purposes).
The breach could, therefore, have been material to begin with – perhaps these shares were absolutely fundamental to some scheme. The breach is still curable. I therefore don’t think the “materially breaches” concept does the same thing.
Having the obligation refer to possession of the shares could be another way around the issue, but it depends how the rest of the agreement is constructed. Let’s take a commonly-seen termination provision I mentioned, where there is an immediate right to terminate if the agreement is breached, except that if it’s a curable breach then you get x days to cure it before the termination right applies. Without the cure concept, the termination right for breaching the “possesion” provision arises immediately if the shares are sold, unlike with the cure provision. Arguably it doesn’t disappear even when the shares are bought back, depending on how the termination clause is drafted. So again, it’s slightly different.
I agree that in some contexts it’s appropriate to give the other guy a second chance. But I’d prefer to be specific rather than invoking “cure,” which is jargon. I might provide for notice upon breach, then say “If Acme receives the delayed report no later than X days after that notice, WidgetCo’s delay in submitting that report will not constitute breach of this section X.” What do you think?
I’m against the idea of trying to define in advance how to handle every* potential breach — this may be because most of the contracts I work on have an ongoing component of one sort or another. There can be dozens of requirements, and in many cases the drafters don’t know in advance which ones will be pain points on the ground. Some reports never get read; another might be unexpectedly critical.
I’m not at all hung up on the word used, but a straightforward and low-overhead mechanism to say “hey, you screwed up; fix it in a week or you’re fired” has proven to be very a useful relief valve, at least in the context of service agreements.
* Of course, there are some areas where the importance is known, and the parties agree to a resolution mechanism. An SLA with penalties for failure to meet metrics is one example.
Conceptually, I’m OK with the “fix it” approach if it’s acknowledged that the breach happened and that if the mess is cleaned up a legal fiction will be used to say that it never happened. But I’d be loath to have that apply across the board, as in some contexts it won’t make sense and could create problems. I’d rather use a materiality standard to make it clear that you can’t have default for trivial stuff. In other words, if something really bad happens and you’re out of time to fix it, you can’t complain.
Agreed. The provisions I see usually refer to a material breach.
Cure is not jargon. It is a legal term that drafters can use to characterize in general terms what the parties have agreed to. Here are two possible sentences from a contract.
If there is a breach, the breaching party may do the following:
If there is a breach, the breaching party may cure the breach by doing the following:
The second sentence is better drafting. It gives the reader a roadmap for where the contract is headed. The subsequent provisions take the general concept of cure and then make it transaction-specific. I’m unaware of another verb that would do the job as well.
My remark was limited to its use as a label. As regards what words to use in specific contexts, that will require a closer look.
My view on this is closer to Tina’s. “Cure” is a metaphor to illness (not, for example, to curing plastic or rubber) that was clever the first time someone used it but that has become, if not stale, then at least ritualized. It is always helpful, as you do, to re-examine these rituals to see if there’s anything to them. In this case, I think there is.
In contract law there is, of course, no right to cure a breach, but most contracts of any complexity and duration have a provision that says, in effect, a failure to comply with some obligation will *not* constitute a breach entitling the other party to damages or to terminate, if the party’s non-compliance is rectified (do you like that word better?) within a designated period. Not every non-compliance can be rectified, of course.
I really don’t see much confusion arising from the notion of curing a breach or rectifying non-compliance–it involves (as the UCC and many states’ property laws have it) tendering [presumably proper] performance of the obligation before the clock runs out. And of course it’s the contract that sets the ground rules: most will say that a breach of confidentiality cannot be cured, which is intuitively sound, and some go on to say that if a party has to cure too many cases of non-compliance (non-compliance usually being something the other party has to identify to the party in breach, thereby causing some inconvenience and justifiable fraying of temper), the repetition itself becomes a non-curable breach.
I think it would add too much unnecessary length to a contract to specify for every obligation what would constitute cure of its breach. One way to avoid this might be to add “to the [non-breaching party]’s reasonable satisfaction” as the standard. After all, a party in breach is really holding on at the other party’s sufferance, and I’m pretty sure this is how these matters are resolved in practice.
Perish the thought that I should get hung up on what word to use. “Cure,” “remedy,” “rectify,” I’m not sure I care, as long as it’s used in a way that makes sense.
My point in initially making this post was a limited one: to emphasize that cure shouldn’t be understood as eliminating a breach. Instead, cure involves making the best of a bad job. That might not count as news to some people, but it wasn’t something that I’d had occasion to focus on.
It follows that cure involves performance that deviates from the obligation as framed in the contract. That’s why I’m a wary of a blanket right to cure. And consider the boatloads of extra time afforded in the sample provision I quoted in the post.
So I’m considering limiting “cure” to contexts where performance can readily be measured. For example, giving a party a few extra days to make a payment after they missed the first deadline. And I’m considering otherwise qualifying by materiality the right to terminate for nonperformance of an obligation, so no one can terminate for minor stuff that the parties should be able to sort out.
By the way, regarding your reference to “before the clock runs out,” that falls within the third bullet point in my post. Whether you call noncompliant performance before the clock runs out “breach” or not, it’s very different from irrevocable noncompliance that can only be cleaned up. If more time is left for performance, giving the noncompliant party a second chance is a no-brainer.
FWIW Cure sounds to me like US lawyers’ jargon. I am more used to seeing the word remedy. Many of my contracts are with parties whose first language is not English or which are negotiated by non-lawyers and I think we should try to avoid using words that may confuse.
One modest argument in favor of not using “remedy” in this context is that “remedy” has a broader meaning, namely what you get through dispute resolution.
I’m going to avoid the “which word to use” discussion, because, as usual, I think you’re making a mountain out of a molehill. :) Instead, I want to focus on undoing a breach because this is the crux of the issue, IMHO.
The easiest example is a payment obligation upon which a license is granted. The licensee only has the right to use the license so long as they meet the payment schedule. Missing a payment might even have its own specific cure period (need to pay within 45 days or receipt) and its own contractual damages language (the adding of interest).
Most breach provisions ALSO allow a remedy of termination of the license if payment isn’t received. But if payment is late, but made with interest, every license and licensor I’ve ever worked with would consider that a cured breach.
Oh, and to discuss the other side of the coin, I also use Service Level Agreements with penalties for missed obligations – and, in fact, I typically insert specific “death by ducks” language to prevent an over-use of a cure concept (that eventually, the payment of SLA penalties doesn’t make us whole and it’s now probable that the seller can’t actually EVER meet the SLAs.
So, call it whatever you want, but I’m keeping the concept. :)
You posted your comment right after a comment in which I said that I’m not sure I care about which word is used, so your “mountain out of a molehill” observation might have been gratuitous.
You want to allow someone to fix a missed payment? Sure! I think you missed the point that my objection is to blanket cure provisions.
I think there’s definitely value in being clear with what we mean by “cure” as with many of the other common terms we tend to throw into contracts. It’s too easy to get sloppy otherwise, and sloppy contracts make for messy litigation.
Ken, you salvaged the word “shall” from the dungheap and gave it useful new life. Do the same for “cure.” It’s worth it. Though you deplore the use of “cure” as a label, perhaps that’s its best use: a label for the kind of infinitely various provisions for how a breaching party can address its breach so as to cut off the right of the nonbreaching party to accelerate the debt or otherwise declare a default.
(Tap tap. Is this thing on?) Now hear this: I’m currently agnostic as to which word to use to refer to this phenomenon, and I don’t think I’ll ever get worked up about it. That’s not the issue.
Instead, my concern is the notion of a blanket provision that says, Sure, we’ll give you more time to fix any obligation that you breach. When it comes to using that concept with respect to a particular breach, I suspect that most times I won’t need to use the word cure, but that will have to wait until I look at that issue more closely.
You can be sure that I’ll write an article about this.
Ken:
First, the usual place for a clause permitting cure is in a termination provision. In my experience, it does not generally excuse damages arising from the breach. That is important because it limits the issue to a single remedy. And in many contracts, that remedy is not all that meaningful. In a service contract that can be terminated without cause on some number of days notice, the real issue is whether the customer ends up being satisfied with the vendor’s recovery. The cure provision essentially gives the vendor the right to try for some period of time, giving the customer a little time to cool down. Ultimately, it would be a very rare vendor to insist that it cured a breach within ten days so that it could get paid for the remaining thirty days before the customer can terminate without cause. That may be one source for loose language (because the outcome of the cure provision is low stakes) and for language where the non-breaching party has to b satisfied by the cure.
Second, I also find it hard to define cure abstractly. I could give specific examples that don’t amount to a rule. For example, where a contract does not specify a date for delivery of something and does not say that later delivery is material breach, then I would feel pretty good that late delivery cures non-delivery. Likewise, I’d assume that payment of money with interest cures late payment. (Otherwise, vendors can terminate all their customers who previously paid late along with a late fee.)
But one of the problems with cure as a concept is that it is intended to excuse breach, not because the breaching party has somehow turned a breach into a non-breach, but because the breaching party has made amends and done the things that make you believe it won’t repeat. Where the cure is not so tightly defined as to be an elimination of all of the effects of the breach (e.g., in many loan documents), the vagueness is purposeful and acceptable: it invites the breaching party to make amends, invites the non-breaching party to accept those amends, and places the non-breaching party at risk if it rejects the cure.
I wonder how many reported cases there are where one party contended that it had cured, and other party argued that it had not. I would bet there are not many. Where that happens, the clause has not fulfilled its purpose of providing the parties with a ritual through which one party obtains forgiveness.
Chris
Ken:
As an addendum, I’d note that your section on vagueness (MSCD 7.33 – 7.39) says a lot that seems to apply to the concept of cure. In my view, the vagueness of cure is not “inherently pernicious.” As a drafter, I would invoke cure “whenever lack fo control (over the future, over someon else’s conduct) renders precise standards unworkable.” Instead, I in a dispute, I would expect to look to “the ‘reasonable person’ standard to determine whether a provision incorporating vagueness has been satisfied.”
As your book has entire chapters on other commonly used vague terms (such as reasonable efforts and material), I would love to see a chapter on cure. Your chapters on reasonable efforts and material both suggest that, where you can partially address specific instance of the required level of efforts or things that are or are not material, you should address them. I would use the same approach for cure. In some cases, like failure to pay an amount on time, cure is simple: pay the amount, interest, and any late fee. There is not reason not to address that. But you will still need vagueness to adequately address the unknown unknowns.
Chris
Chris, I just came across this article from the Wisconsin Bar. It describes a few cases, notably one distinguishing auto dealer commitment as cured by substantial performance from damages arising from the earlier breach, which did not justify termination by the mfr. http://www.wisbar.org/NewsPublications/WisconsinLawyer/Pages/Article.aspx?Volume=83&Issue=10&ArticleID=2031
All it tells me is that our collective judgments about what is “cure” are broader than we all thought. Not the first time I’ve had that realization on this blog!
Thanks for the link: I’ll need all the ammunition I can get when to comes to preparing a treatment of this topic for the fourth edition of MSCD.
Yes Ken you are missing something.
Your focus should be on the subject matter or objective of the contract. Be it a material or an immaterial breach the rules state the seller has a right to cure. A “cure” being additional time allotted by rule of law to give the seller more time to perform their part of the bargain as set forth in the contract. As long as the seller adheres to the rules to cure.
Now circumstances will determine what remedies the buyer may have; but you can think of the rule for “cure” as being analogous to the “knockout rule” where the court will replace competing “terms” with the court’s terms.
So even though there maybe a delivery date, the court is saying that as long as the breaching seller follows the rules the seller gets a little more time to perform – because that’s the rule.
Thank you for reminding me of the default rules. But I think my point still stands: in some contexts, breach will break an egg; since you can’t unbreak an egg, I don’t think it’s helpful to suggest, by means of an omnibus cure provision, that you can.
Hello Ken,
Sometimes the trees in the forest cause us to lose focus of the forest/big picture. When we look at contract case law over time and tort case law for that matter there are certain patterns related to the favoring burgeoning industries, to the facilitation of commerce and to the economy in general (economics).
All this has helped shape contract theory in terms of economic efficiency, economic waste, etc. In the “evolution” of contract theory one thing arose and is still dominant today – the rules of law are there to help facilitate trade (setting aside the “mirror image rule” as one example). Trade relations and remedies may not be perfect – as we have learned from case law.
But none the less the overall arching philosophy is to FACILITATE TRADE. Now after all this blabber, go back to the original element you posted to answer your concerns about being unable to “unbreak an egg” you will read:
“if that breach is capable of being cured, ….”
The rule does not expect anyone to unbreak an egg.
The problem that exists is understanding the contours of the case law to determine what constitutes “capable of being cured” and what is acceptable as being incapable of being cured.
Yes, the “capable of being cured” bit sidesteps a lot of illogic. But if I’m the one cutting slack, I’d generally prefer to do it for specific provisions.
But in a given transaction the notion of across-the-board cure might not raise any problems. And if as you say the default rules would result in the seller being cut some slack, it doesn’t help to have the contract suggest that that’s not the case.
It’s early days yet in my analysis of this.
Hello Ken,
The problem that two parties have when they end up in a contract dispute is analogous to two siblings fighting.
Well as soon as mom or dad (the Court) hear the ruckus they in simplistic terms separate the two children (the parties) and tell them to get along.
Sometimes mom or dad let the siblings sort it out, and other times they have their set of rules they expect the siblings to adhere to regardless of what the children may have agreed to or not.
We just have to live with it and to understand that when a contract suggests the seller will not be cut any slack and that suggestion is contrary to the courts rules for cure, that suggestion is bullshit because the court in theory may rule otherwise.
Similarly, if the specif provisions you want to cut some slack do not adhere to the existing case law for cure, the court may impose their rules.
Just like in mathematics trying to simplify a complicated exponential expression – when lost amongst the trees in the forest – just follow the rules.
You’ll see that I’ve updated this post to address your comments. Thanks for prompting me to do so!
Here is what international practice tells us. The action is breach. The result is damage. One can cure the damage but the breach is a part of record of breaching party. Any party should consider doing buisnes with someon guilty of breach, whether the damage was cured or not.
Ken:
I think that you are focusing on the wrong outcome. I doubt many people would argue for a concept of cure that negates the fact of breach. The most common use of cure is in eliminating the non-breaching party’s additional remedy of termination if the breaching party cures the breach. In that circumstance, the cure can’t literally eliminate the breach for the reasons you elucidate. But it can mitigate many of the effects to a sufficient degree that a reasonable counter-party would be willing to continue the relationship. As I see it, the cure provision is to force a possibly upset or embarrassed counter-party into not terminating an agreement where a reasonable person would not do so because the breaching party did enough to fix things. (I.e. it is intentionally vague for many, many agreements.)
So, in your examples:
– Acme’s later delivery of equipment might be sufficient cure to avoid termination. Acme might need to send a technician on its own nickel to accelerate installation of the equipment.
– Acme’s repurchase of the shares might suffice. It would depend on the reason for the no-transfer restriction and the effect of the particular transfer. To cure, Acme might need to pick up the cost of some tax proceeding or share profits.
– Acme’s failure to have the premises clean on September 26 is not a breach, so is no subject to cure. If the premises are not clean on October 1, breach would occur then. Acme would need to make the place clean at a minimum. Depending on the circumstances, it might need to help fund the excess costs of a tenant’s delayed move-in or something like that.
These are all fair asks in a situation where Acme is trying to cure the breach to the degree needed to maintain a relationship that goes beyond the specific transaction in which the breach occurred. To me, there is no point to a cure provision in a one-time transaction; or, at the very least, cure should be possible only under some circumstances, where no injury arises from the breach (e.g., Acme delivers a day late, but the buyer wasn’t ready to receive it anyway).
Chris
My company leased a place. We’ve since stopped business there, but the lease doesn’t end until the end of the year. We send security guards around to check the place each day, but the place is otherwise empty. The landlord changed the locks. When we called this a breach of the lease, landlord claims to have ‘cured’ by restoring the locks to their original condition such that our keys worked again.
I expect if we pounced on this and called this grounds for early termination of our tenancy (and the rent that all things being equal, we’d rather not pay), a judge would tell us to go to bed. One thing to lock us out a of a building that we’re using to make a living. Quite another to lock us out of a building we’re present at as little as possible.
I’ve never liked ‘cure’ provisions either, but I equally dislike “termination of the agreement” provisions, which when picked apart aren’t actually what people want. People want their obligation to pay money to end. Or their obligation to deliver a thing to end. But not the entire agreement.
My guess is the idea for ‘curing’ things is to stave off the rather draconian result of an entire agreement ending over even a material failure to fulfill a promise. If we stop talking about whole agreements disappearing, we can stop talking about having to wave the cure wand to pretend something never happened.
Is there such thing as excessive use of a cure provision? And if so, is that considered breach?