Breach of Contract and Remedies

Question 1

Material Breach

(Common Law)

Answer 1

i.e., when the nonbreaching party does not receive the substantial benefit of its bargain.

Question 2

Minor Breach

(Common Law)

Answer 2

i.e., the breaching party has substantially performed

Question 3

Breach

(UCC)

Answer 3

The seller generally must strictly perform all obligations. The doctrine of material breach only applies in installment contracts or it the parties so provide.

Question 4

Repudiation of promise

(Anticipatory Repudiation)

Answer 4

The repudiation must be clear and unequivocal (as opposed to mere insecurity), may be by conduct or words, and, if a statement, must be made to the promisee or a third-party beneficiary or assignee of the promise.

Question 5

Nonbreaching party’s options

(Anticipatory Repudiation)

Answer 5

The promisee can generally treat the repudiation as a breach and sue the promisor immediately or ignore it and demand performance.

Question 6

Nonbreaching party’s options

(when the date of performance has not passed plus full performance)

Answer 6

The promisee must wait until the promisor’s performance is due before filing suit.

(Typically occurs when the remaining obligation is the payment of money)

Question 7

Retraction of repudiation

Answer 7

May be retracted until such time as the promisee (i) acts in reliance on the repudiation, (ii) signifies acceptance of the repudiation, or (iii) commences an action for breach. Notice of the retraction must be sufficient enough to allow for the performance of the promisee’s obligations.

Question 8

Unilateral Contracts

(Anticipatory Repudation)

Answer 8

The doctrine of anticipatory repudiation does not apply to a unilateral contract when the offeror withdraws the offer once the offeree has begun to perform since offeree is not required to complete her performance.

Question 9

Prospective Inability to Perform

Answer 9

A party can demand assurance of performance if there are reasonable grounds for insecurity about the other party’s ability or willingness to perform.

Question 10

Expectation Damages

(in general)

Answer 10

Intended to put the nonbreaching party in the same position as if the contract had been performed. Must be calculated with reasonable certainty.

Question 11

Expectation Damages

(Partial performance)

Answer 11

A partially performing party can generally recover for work performed, plus expectation damages for the work not yet performed.

Question 12

Expectation Damages

(Economic waste)

Answer 12

In a construction contract, if the award of damages based on the cost to fix or complete the construction would result in economic waste, then a court may award damages equal to the diminution in the market price of the property caused by the breach.

Question 13

UCC–Breach of warranty damages

Answer 13

The difference at the time and place of acceptance between the value of the goods accepted and the value they would have had if they had been as warranted.

Question 14

Direct Damages

Answer 14

Are the necessary and usual result of the defendant’s wrongful act.

Question 15

Consequential Damages

Answer 15

Result naturally from the breach, but need not be the usual result of the breaching party’s conduct. Instead, they need only be a reasonably foreseeable result of the breach in the partie’s specific circumstances. They must be proven with reasonable certainty.

Question 16

Consequential Damages

(UCC)

Answer 16

Neither consequential nor special damages can be recovered under the UCC unless specifically provided by a UCC provision or by another rule of law.

Question 17

Incidental Damages

Answer 17

May be awarded to the nonbreaching party as compensation for commercially reasonable expenses incurred as a result of the other party’s breach.

Question 18

Liquidated Damages

(Enforeceability)

Answer 18

Two-prong test:

(i) The amount of liquidated damages was reasonable, bearing some relation to the damages that might be sustained; and

(ii) Actual damages were uncertain in amount and would be difficult to prove.

Question 19

Punitive Damages

Answer 19

Are not recoverable unless the conduct constituting the breach is also a tort for which punitive damages can be recovered.

Question 20

Mitigating Damages

Answer 20

A party must mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience.

Question 21

Restitutionary Recovery

Answer 21

Allows the plaintiff to recover on the benefit conferred by the plaintiff upon the defendant.

Question 22

Reliance Damages

Answer 22

May be recovered if a nonbreaching party incurs expenses in reasonable reliance upon the promise that the other party would perform. A party cannot recover both reliance and expectation damages.

Question 23

Specific Performance

(Factors Considered)

Answer 23

The difficulty of proving damages with reasonable certainty, hardship to the defendant, balance of the equities, practicality of enforcement.

Question 24

UCC Rejection Requirements

Answer 24

(i) Give notice to the seller;

(ii) Within a reasonable time; and

(iii) Before acceptance.

Question 25

Retain Possession

(UCC Rejection)

Answer 25

The buyer must retain possession of rejected goods for a reasonable time to allow for the seller to reclaim them.

Question 26

UCC Cover

Answer 26

The buyer may purchase similar goods elsewhere and recover the replacement price minus the contract price.

Question 27

Payment by the buyer

(UCC Replevin)

Answer 27

When the buyer has made at least partial payment for identified goods, the buyer can obtain the undelievered goods from the seller if:

(i) The seller becomes insolvent within 10 days of receiving the first payment from the buyer; or

(ii) The goods were for family, personal, or household purposes, and the seller has repudiated or failed to deliver the goods as required by the contract.

To obtain the goods, the buyer must tender any unpaid portion of the price to the seller.

Question 28

Buyer’s inability to cover

(UCC Replevin)

Answer 28

The buyer can also obtain identified, undelivered goods from the seller if:

(i) The buyer is unable to effect cover;

(ii) The circumstances reasonably indicate that reasonable effort to obtain cover will be unavailing; or

(iii) The goods have been shipped under reservation, and satisfaction of the security interest in the goods has been made or tendered.

Question 29

Perishable and nonperishable goods

(UCC Rejection)

Answer 29

In the absence of other instructions from the seller, a merchant buyer may store nonperishable goods at the seller’s expense, reship them to the seller, or sell them for the seller’s account. If the goods are perishable and the seller has no local agent to whom they can be returned, in the absence of other instructions from the seller, a merchant buyer is required to sell the goods on the seller’s behalf.

Question 30

Notice

(UCC Rejection)

Answer 30

To recover damages, the buyer must give notice to the seller of the breach within a reasonable time after the buyer discovers or should have discovered the breach.

Question 31

UCC Acceptance options

Answer 31

(i) Expressly stating acceptance;

(ii) Using the goods; or

(iii) Failing to reject the goods.

Question 32

Measure of damages for nonconforming goods

(UCC Acceptance)

Answer 32

When the buyer accepts nonconforming goods, the buyer may recover damages for the resulting loss. When the buyer accepts goods that violate a seller’s warranties, the buyer may recover damages measured as the difference between the value of the goods as accepted and the value they would have had if they had been warranted.

Question 33

Revocation of acceptance

Answer 33

A buyer may revoke an acceptance of goods if the nonconformity substantially impairs their value to the buyer and:

(i) The buyer accepted the goods on the reasonable belief that the seller would cure the nonconformity, but the seller failed to do so; or

(ii) The buyer accepted the goods without discovery of the nonconformity, and such acceptance was reasonably induced either by the difficulty of discovering the nonconformity before acceptance or because the seller gave assurances that the goods were conforming.

Question 34

Timing of revocation

Answer 34

The buyer must inform the seller of its decision to revoke within a reasonable time after the nonconformity is discovered or should have been discovered by the buyer.

Revocation of acceptance must occur before any substantial change in the condition of the goods not caused by the defect.

Question 35

Right to cure

Answer 35

The seller has a right to cure a defective tender if:

(i) The time for performance under the contract has not yet elapsed; or

(ii) The seller had reasonable grounds to believe that the buyer would accept despite the nonconformity.

Question 36

Right to reclaim goods

(Insolvent buyer)

Answer 36

When an insolvent buyer receives goods on credit, and the seller learns that the buyer is insolvent, the seller may reclaim the goods, provided a demand is made within 10 days after the buyer’s receipt of the goods.

Question 37

Stoppage of goods in transit

(Buyer’s breach)

Answer 37

A seller can stop the goods in transit because of the buyer’s breach; goods can be stopped in transit only if shipped in large-sized lots. The seller cannot stop goods in transit once the:

(i) Buyer has received the goods;

(ii) Carrier or warehouseman has acknowledged the buyer’s rights;

(iii) Goods have been reshipped by the carrier; or

(iv) Title has been given to or negotiated with the buyer.

If a buyer becomes insolvent before delivery, the seller can stop goods in transit, regardless.

Question 38

Wrongful rejection remedies

Answer 38

(1) Collect damages

(2) Resell the goods

(3) Recover the price

Question 39

Risk of Loss

(generally)

Answer 39

If goods that have not been identified are damaged or destroyed without the fault of either party to the contract, then the risk of loss is generally on the seller until the seller satisfies the contractual delivery obligations. Upon the happening of that event, the risk of loss shifts to the buyer.

Question 40

Risk of Loss

(Shipment contract)

Answer 40

If the contract is a shipment contract (F.O.B. seller’s place of business), then the seller must deliver the goods to the carrier, make a proper contract for their shipment, obtain and deliver any document necessary for the buyer to obtain possession of the goods, and give the buyer notice that the goods have been shipped.

Question 41

Risk of Loss

(Destination contract)

Answer 41

If the contract is a destination contract (F.O.B. buyer’s place of business), then the seller must deliver the goods to a particular place and tender them there by holding the goods at the buyer’s disposition and giving the buyer notice.

Question 42

Risk of Loss

(Goods held by a bailee)

Answer 42

When goods that are held by a bailee are to be transferred without being moved, the risk of loss generally passes to the buyer on the buyer’s receipt of a negotiable document of title covering the goods or on acknowledgement by the bailee of the buyer’s right to possession of the goods.

Question 43

Effect of a breach of contract on risk of loss

(Seller’s breach)

Answer 43

If the seller delivers nonconforming goods, the risk of loss remains on the seller until the buyer accepts or there is a cure.

Question 44

Effect of a breach of contract on risk of loss

(Buyer’s breach)

Answer 44

If the buyer repuidates or breaches after the goods have been identified but before the risk of loss shifts, then the risk of loss is immediately shifted to the buyer to the extent of any lack of insurance coverage by the seller.

Question 45

Effect of destruction of or damage to identified goods

Answer 45

If the contract deals with identified goods, then the seller is excused if the goods are totally destroyed through no fault of the seller prior to the risk of loss being shifted to the buyer. Neither party is required to perform; neither party has breached.