breach of contract and remedies Flashcards
breach of K - in general
once duty to perform exists, nonperformance is a breach unless duty is discharged
breach of K - common law: material breach
(nonbreaching party does not receive substantial benefit of bargain)—allows nonbreaching party to withhold any promised performance and to pursue remedies for breach, including damages
breach of K - common law: minor breach
(breaching party has substantially performed)—nonbreaching party entitled to pursue remedies for nonmaterial breach (damages) but must perform under the K
break of K - UCC
In general, seller must strictly perform all obligations under K or be in breach
- Material breach only applies to installment Ks or when parties stipulate it in K
anticipatory repudiation - common law
Promisor repudiates before time of performance is due—repudiation must be
clear and unequivocal through words or acts
anticipatory repudiation - common law: nonbreaching party’s options
o Treat repudiation as a breach, or
o Ignore repudiation and demand performance of promisor, but suspend any performance by promisee if it would increase promisor’s damages
o If date of performance has not passed and the only performance left is payment,
must wait for actual breach before filing suit
anticipatory repudiation - common law: retraction of repudiation
can be retracted until:
- promisee acts in reliance on repudiation,
- accepts repudiation, or
- commences action for breach of K
anticipatory repudiation - common law: unilateral Ks
anticipatory repudiation does not apply
anticipatory repudiation - UCC
Anticipatory repudiation occurs when there has been an unequivocal refusal of buyer/seller to perform or when reasonable grounds for insecurity arise and the other party fails to provide adequate assurances within reasonable time (not to exceed 30 days)
anticipatory repudiation - UCC: retraction of repudiation
permitted if other party has not canceled the K or materially changed position
anticipatory repudiation - UCC: prospective inability to perform
party’s expectations of performance may be
diminished by an event occurring after K formation:
o A party can demand assurances if reasonable grounds for insecurity about other party’s ability to perform (and may suspend performance until provided); the demand must be in writing
o Failure to provide adequate assurances within reasonable time (limited to 30 days) treated as repudiation
what are the types of remedies/damages for breach of K? (8)
(1) expectation damages
(2) consequential damages and foreseeability
(3) incidental damages
(4) liquidated damages and penalties
(5) punitive damages
(6) nominal damages
(7) attorney’s fees
(8) mitigating damages
expectation damages in general
o Intended to put nonbreaching party in same position as if K had been performed
o Must be calculated with reasonable certainty
o Expectation damages = loss in value + other loss – cost avoided – loss avoided
-If using this formula, plaintiff should not
recover separately calculated consequential
and incidental damages
expectation damages - partial performance
partially performing party recovers work performed + expectation damages for work not yet performed
expectation damages - defective performance: construction Ks
damages; generally the cost to correct the defect
expectation damages - defective performance: sale of goods
damages equal to the difference between the value of the goods as warranted and the actual value of the tendered nonconforming goods
expectation damages - defective performance: real estate
damages for failure to perform = difference between K price and market value; damages for late delivery = fair market rental value
expectation damages - economic waster
applies to construction contracts:
o Occurs when the cost to fix or complete construction is clearly disproportional to
any economic benefit/utility gained as a result; court can award damages equal to the diminution in the market price of property
o If the breach is willful and only completion of the K will give the nonbreaching party the benefit of its bargain, court can award damages to fix or complete construction even if it results in economic waste
expectation damages - UCC breach of warranty damages
difference between the value of the goods
accepted and the value they would have had if they had been as warranted (often,
repair costs)
consequential damages and foreseeability - direct damages
necessary and usual result of D’s wrongful act (i.e., “loss of value)
consequential damages and foreseeability - consequential damages
damages that result from the breach, but arise out of special circumstances unique to the parties to the contract; must be reasonably
foreseeable to the breaching party (but need not be a usual result of D’s conduct), caused by the breach, and reasonably certain in value to be recovered
consequential damages and foreseeability - foreseeability
o Unforeseeable—not recoverable unless the breaching party had some reason to
know about the possibility of the unforeseeable consequential damages
o Damages are recoverable if they are natural and probable consequences of breach,
or if they were contemplated by the parties at K formation, or if they were
otherwise foreseeable
consequential damages and foreseeability - causation
D’s defense that P’s losses would have occurred regardless of D’s breach
consequential damages and foreseeability - reasonable certainty
o Dollar amount of damages must be proven with reasonable certainty
o If lost profits are too speculative, courts may limit recovery to reliance damages
(reasonable expenditures made in connection with the K)
consequential damages and foreseeability - limitation by agreement
An agreement to expressly exclude or limit consequential damages is generally enforceable
consequential damages and foreseeability - UCC
o Only buyers can seek consequential damages under the UCC; sellers permitted to seek consequential damages based on common law or other statutes
o Limitation of consequential damages for personal injury in the case of consumer goods is prima facie unconscionable
o Limitation of damages when the loss is commercial is NOT prima facie unconscionable
incidental damages - in general
compensation for commercially reasonable expenses incurred as a result of other party’s breach
incidental damages - seller’s breach
expenses incurred in inspection, receipt, transportation, care, and custody of goods rightfully rejected; expenses in effecting cover; and any other reasonable expense incident to the delay or other breach
incidental damages - buyer’s breach
any expenses incurred in stopping delivery; in the transportation, care, and custody of goods after the buyer’s breach; in connection with return or resale of the goods; or otherwise resulting from the breach
liquidated damages and penalties
damages stipulated by the parties to the K as a
reasonable estimation of actual damages to be recovered in the event of a breach
when are liquidated damages and penalties enforceable?
Enforceable if:
o Parties intended to agree in advance to damages that might arise from breach
o Stipulated amount was reasonable at time of K, bearing some relation to damages that might be sustained, and
o Actual damages would be uncertain in amount and difficult to prove
punitive damages
rarely available in K actions but may be available if conduct
nominal damages
when no damages are alleged/proven
attorney’s fees
in K, not recoverable absent express agreement or specific law
mitigating damages
- Party to K must avoid or mitigate damages to the extent possible by taking steps that do not involve undue risk, expense, or inconvenience
- Nonbreaching party held to standard of reasonable conduct in preventing loss
- Services K—a party is generally not required to accept any type of employment (only employment of the same type as the party was contracted to perform)
- Failure to mitigate reduces damages that may be recovered by nonbreaching party
restitution and reliance recoveries - restitutionary damages
restores to a party the benefit conferred on the other party:
* Measured by either the reasonable value of the D obtaining that benefit from another
source, or increase in the D’s wealth from having received that benefit
* If P has not substantially performed and is in breach, P not permitted to recover
restitution and reliance recoveries - restitutionary damages: recovery by nonbreaching party
o Nonbreaching party may recover for any benefit conferred on breaching party by
way of part performance or reliance
o Nonbreaching party may not recover restitution if he has fully performed and the
only remaining performance by the other party is the payment of a definite sum of
money
restitution and reliance recoveries - restitutionary damages: recovery by breaching party
o If D has benefitted from P’s performance, P can recover for benefit conferred less
the D’s damages for the breach
o P generally cannot recover if P’s breach was willful or if K provides that
nonbreaching party may retain the value of the breaching party’s performance as
liquidated damages
restitution and reliance recoveries - reliance damages
reasonable out-of-pocket expenses incurred by nonbreaching party:
* Recoverable if nonbreaching party incurs expenses in reasonable reliance upon the
promise that other party would perform
* Party cannot recover both reliance and expectation damages
specific performance in general
an equitable remedy possible when damages are an inadequate remedy
specific performance - factors considered in determining whether damages are adequate
- Difficulty of proving damages with reasonable certainty
- Hardship to D
- Balance of the equities
- Wishes and understandings of the parties
- Practicality of enforcement
- Mutuality of agreement
specific performance - real property
specific performance granted because real property is considered unique
specific performance - UCC
specific performance may be granted to the buyer when goods are rare or unique
specific performance - equitable defenses
laches (prejudicial delay in bringing the action) or unclean hands (nonbreaching party guilty of some wrongdoing in the transaction) may be raised by breaching party
UCC remedies - buyer’s remedies in general
when seller fails to perform or makes a nonconforming tender
UCC remedies - buyer’s remedies - failure to tender goods: cancel K
Cancel K—if breach of installment K goes to entire K
UCC remedies - buyer’s remedies - failure to tender goods: recovery of payments
upon cancellation, buyer entitled to recover payments made for tender; on rejection or revoked acceptance, also gets security interest in goods in buyer’s possession
UCC remedies - buyer’s remedies - failure to tender goods: damages
market price minus K price plus incidental and consequential damages
UCC remedies - buyer’s remedies - failure to tender goods: cover
buyer may purchase similar goods elsewhere and recover replacement price minus the K price
UCC remedies - buyer’s remedies - failure to tender goods: specific performance
for unique goods
UCC remedies - buyer’s remedies - failure to tender goods: replevin
buyer can obtain undelivered goods from seller if at least partial payment is made or the buyer is unable to effect cover
UCC remedies - buyer’s remedies - nonconforming tender in general
buyer has right to accept or reject all or part of the goods (and the right to inspect before making that decision)
UCC remedies - buyer’s remedies - nonconforming tender: rejection
buyer can reject goods if he gives notice to seller within a reasonable
time and before acceptance, and is then entitled to a return of any payments made
or to seek same remedies as if no tender was made
UCC remedies - buyer’s remedies - nonconforming tender: acceptance
buyer accepts goods by expressly stating acceptance, using the goods, or failing to reject the goods; to recover damages, buyer must give seller timely notice of breach; damages measured by difference between value of nonconforming goods and value of conforming tender (usually cost of replacement or repair), plus consequential and incidental damages
UCC remedies - buyer’s remedies - nonconforming tender: right to cure
seller has right to cure defective tender if time of performance under K has not yet elapsed or seller had reasonable grounds to believe that buyer would accept despite the nonconformity
UCC remedies - seller’s remedies - right to price
seller may recover the full price if buyer has accepted goods; conforming goods are destroyed or lost after risk has shifted to buyer; seller cannot reasonably sell identified goods
UCC remedies - seller’s remedies - right to reclaim goods
from insolvent buyer if he makes a demand within 10 days after buyer receives goods
UCC remedies - seller’s remedies - stoppage of goods in transit
permitted if buyer breaches or is insolvent
UCC remedies - seller’s remedies - wrongful rejection by buyer
seller can collect damages, resell the goods, or
recover the price, and, if the seller is a “lost volume” seller, lost profits; seller can also
collect incidental damages
UCC remedies - risk of loss: unidentified goods
if goods are damaged/destroyed and there is no breach, risk of loss is on seller until he satisfies delivery obligations (and then risk shifts to buyer)
o Shipment K—risk of loss passes to buyer when the seller gives possession of the
goods to the carrier and makes proper contract for their shipment
o Destination K—risk of loss passes to buyer when the seller tenders the goods at the
place specified in the K
UCC remedies - risk of loss: identified goods
seller is excused if goods are totally destroyed through no fault of the seller prior to the risk of loss being shifted to the buyer
UCC remedies: effect of a breach of K: seller’s breach
if seller delivers nonconforming goods, risk of loss remains on the seller until buyer accepts or there is cure
UCC remedies: effect of a breach of K: buyer’s breach
if buyer breaches/repudiates after goods have been identified but before risk of loss shifts, then risk immediately shifts to buyer (to extent of lack of insurance coverage by seller)
statute of limitations on a breach of a sales K or warranty
- Four years after cause of action accrues
- Generally, cause of action accrues when
breach occurs, regardless of whether
aggrieved party knows
- Generally, cause of action accrues when
- Parties may reduce four-year limitations period to not less than one year, but they may
not extend it
