B & B Equipment Co. v. Bowen

Missouri Court of Appeals · Contracts

Contractsrescissionmaterial breachdivisible contractsspecific performancematerial breachrescissionentire vs severable contract

Facts

In 1968, Bowen entered an oral agreement with the corporation to replace a retiring owner as an equal participant in the business. The corporation bought 100 shares from the retiring owners for $15,000 and agreed to sell them to Bowen; Bowen paid $2,500, would receive dividends on the shares, and would repay those dividends to the corporation until the remaining purchase price and interest were satisfied, at which point the shares would be delivered to him. In return, Bowen was to keep the corporate records and books and devote his full time and attention to the business, including sales. The evidence supported findings that Bowen increasingly pursued outside business, inadequately performed bookkeeping and sales assistance, was warned about those shortcomings, and was ultimately discharged in 1976, after which B & B elected to rescind and tendered back the amounts Bowen had paid.

Issue

Did Bowen commit a material breach of the 1968 agreement sufficient to justify rescission, and was the agreement severable so that any breach of the employment obligations would not affect Bowen's right to buy the stock? Also, was the trial court's remedy adequate in equity?

Rule

A party may rescind for the other party's breach only when the breach concerns a vital provision going to the very substance or root of the agreement, not a merely incidental matter. Materiality may be evaluated by considering such factors as the extent of the expected benefit lost, adequacy of damages, partial performance, hardship of termination, the breaching party's culpability, and the likelihood of future performance. A contract is entire rather than severable when the parties assented to its promises as a single whole and there would have been no bargain if one set of promises were removed. A party who has materially breached is not entitled to specific performance.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

In Tulsa, Prairie Axle Supply agreed to let Nora Kim acquire one-third of the company’s shares on unusually favorable terms. She paid a small upfront amount, and the rest of the price would be satisfied largely through distributions, in exchange for keeping the company books and devoting her full working time to operations; after repeated warnings, she spent much of the week on her private brokerage venture and left the accounting records badly behind.

If Prairie Axle seeks rescission of the entire agreement, what is the strongest argument for allowing rescission?

Explanation. Rescission for breach is available only when the breach goes to a vital provision constituting the root of the agreement. Where the company’s real object was obtaining the employee’s full-time services, failures in those duties are material even if the contract also includes a stock-acquisition feature. The opinion rejected any idea that every breach or every stock-related dispute justifies rescission, and it noted that inability to measure damages can support rescission rather than defeat it. (Derived from B & B Equipment Co. v. Bowen (n.d.).)