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Thursday, February 3, 2011

Jim Bean v. Jose Cuervo: A Lesson on Material v. Minor Breach

It is not often that two of my favorite things – contract law and tequila --  converge in one place.  At least, whenever I enjoy my favorite sipping tequila, I get up the courage to move the conversation to contract law, and my attempts usually get derailed quickly.

Jim-beam-white Thankfully, a recent case from a New York County trial court manages Jose-Cuervo-Especial-lg
to merge my two interests.  Jim Beam Brands Co. (Jim Bean) has sued Tequila Cuervo Law Rojena S.A. de C.V. (Cuervo) for breach of a contract settling a previous trademark dispute.  Jim Beam holds the trademark for the names “Old Crow” and “Crow,” and various crow designs for whiskey and bourbon.  In the previous suit, Jim Beam sued Cuervo when Cuervo used a crow design and the word “crow” in advertising Cuervo products.  Eventually, they settled the dispute and agreed to limit Cuervo's use of the bird design.

Now, Jim Beam sues Cuervo, claiming breach of the contract.  Cuervo admits that, for seven years, it variously used a bird design in violation of the settlement.  Thus, Jim Beam sued claiming that Cuervo breached the contract.  Cuervo responded that the breach was not material.  The court held: so what, reminding Cuervo even minor breaches may entitle a party to damages.  The court recited the black letter law:

The New York courts routinely allow a nonbreaching party to seek damages, not only for a material breach (Texter v Trotta, 48 AD3d 455 [2d Dept 2008]), but also for a minor, or immaterial, breach as. well (Seidlitz v Auerbach, 230 NY 167 [1920]).

The materiality or non-materiality of a breach of contract only goes to the question of the type of remedy that may be allowed, not to the issue of liability. In order to be entitled to nonmonetary relief for breach of a contract, the non-breaching party must demonstrate that the breach was material.

"The right to rescission generally exists as an alternative remedy to an action for damages where there has been a material breach of a contract [emphasis added] (Manning v Manning, 97 AD2d 910, 911 [3d Dept 1983]); Richard A. Hutchens CC, L.L.C. v State of New York, 59 AD3d 766 [3d Dept 2009] [a material breach entitles injured party to seek rescission]); Jones v Jones, 232 AD2d 3130020[1st Dept 1996] [material breach entitles non-breaching party to seek rescission]).

However, even a minor breach allows the innocent party some measure of damages to put it in the same position that it would have been in if no breach had occurred.  

Thus, the court ruled for Jim Bean on liability and ordered a trial on damages.  

Jim Bean Brands Co. v. Tequila Cuervo La Rojena S.A. De C.V., 600122/08, NYLJ 1202480086862, at *1 (Sup. NY, Decided January 27, 2011) (Justice Richard B. Lowe, III).

[Meredith R. Miller]

 

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