The Problem with “Curing” Breach (Updated)

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.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.