Breach of Contract and Remedies

Question 1

When is there a breach of K? Is there an exception to this?

How does the CL distinguish level of breach?

How does the UCC determine when there is a breach?

Answer 1

A breach of K
-> once duty to perform exists, nonperformance is a breach UNLESS duty is discharged

CL distinguishes level of breach by considering breaches as either
-> material breaches
OR
-> minor breaches

UCC
-> in general, seller must strictly perform all obligations under K or be in breach

Question 2

Does the UCC have material breaches?

How does the CL determine what is a material breach? What can the non breaching party due when there is a material breach?

How does the CL determine what is a minor breach? What can the non breaching party due when there is a minor breach?

Answer 2

UCC
-> material breach only applies to installment Ks OR when parties stipulate it in K

CL Material Breach
-> non breaching party does not receive substantial benefit of bargain
-> allows non breaching party to withhold any promised performance and to pursue remedies for breach, including damages

CL Minor Breach
-> breaching party has substantially performed
-> non breaching party entitled to pursue remedies for minor breach (damages) BUT MUST perform under the K

Question 3

When does anticipatory reputation take place under CL?

What must the promisor do to repudiate?

What are the non breaching party’s options?

When can the non breaching party sue if the only last obligation of promisor is payment?

Is retraction of reputation allowed? If so, when is it no longer allowed?

Answer 3

Promisor repudiates before time of performance is due with regards to their respective obligation.

Repudiation must be clear and unequivocal through words or acts

Nonbreaching party’s options:
-> treat repudiation as a breach
-> ignore repudiate and demand performance of promisor, BUT suspend any performance by promisee if it would increase promisor’s damages

IF date of performance has not passed and the only performance left is payment, must wait for actual breach before filing suit

Retraction of repudiation allowed UNTIL
-> promisee acts in reliance on repudiation,
-> accepts repudiation,
OR
-> commences action for breach of K

Question 4

When does anticipatory repudiation occur under the UCC?

Is retraction of reputation allowed? If so, when is it no longer allowed?

Answer 4

Anticipatory reputation occurs when
-> there has been unequivocal refusal of buyer/seller to perform their respective obligations
OR
-> when reasonable grounds for insecurity arise AND the other party fails to provide adequate assurances within reasonable time (not to exceed 30 days) .

Retraction of reputation permitted if other party
-> has not cancelled the K
OR
-> materially changed position

Question 5

What does it mean for there to be a “prospective inability to perform work”?

When can a party demand assurance of performance under the UCC?

Once a demand of assurance of perfjoamcne is made, what can the party do?

What is the format requirement with regards to an assurance of performance?

How long does the opposing party have to respond to the demand of assurance of performance? What happens if they fail to respond within that time?

Answer 5

A party’s expectations of performance may be diminished by an event that occurs after the contract was made.

UCC- a party can demand assurances IF
-> reasonable grounds (can’t just do it because you want to) for insecurity about other party’s ability OR willingness to perform

ONCE such assurances are demanded, the party MAY suspend performance of their obligations until assurances are provided

A demand for an assurance of performance MUST be in WRITING.

Failure to provide adequate assurances within reasonable time (limited to 30 days) treated as repudiation.

Question 6

What is the goal of expectation damages?

What is the requirement with regards to the calculation method of expectation damages?

What is the general formula for expectation damages?

When using the general formula for expectation damages, what other damages can the party NO LONGER recover?

Answer 6

Intended to put non-breaching party in same position as if K had been performed

Must be calculated with reasonable certainty

Exception damages = loss in value + other loss - cost avoided - loss avoided

If using this formula, plaintiff should not recover separately calculated consequential and incidental damages.

Question 7

What expectation damages can a party get after partial performance on their obligations and when they are not in breach?

Answer 7

Partially performing party can recover = work performed + expectation damages for work not yet performed.

Question 8

Under what kind of Ks are expectation damages with regards to defective performance usually given?

Answer 8

-> Construction Ks
-> sale of goods Ks
-> real estate Ks

Question 9

What is the formula used for calculating expectation damages with regards to a defective performance under a:
-> construction K
-> sale of goods K
-> real estate K (failing to perform K)
-> real estate K (late delivery of real estate)

Answer 9

Construction K
-> Damages generally the cost to correct the defect

Sale of goods K
-> damages = market value of goods as warranted - actual value of the tendered non-conforming goods

Real estate K
-> damages for failing to perform K = market value - K price
-> damages for late delivery = fair market rental value of the property for the time that the buyer was denied possession.

Question 10

What kind of Ks are subject to expectation damages with regards to economic waste?

When does such a situation occur?

What is the calculation of damages under this situation?

Under what situation does an exception kick in with regard to expectation damages and economic waste? What becomes the new formula used to calculate expectation damages?

Answer 10

Applies to construction contracts.

Situaiton:
-> Occurs when the cost to fix OR compete construction is clearly disproportional to any economic benefit/utility gained as a result

Damages:
-> Court can award damages equal to the diminution in the market price of property.

If the breach is willful AND only completion of the K will give the non breaching party the benefit of its bargain
-> THEN court can award damages to fix or complete construction EVEN if it results in economic waste.

Question 11

What expectation damages can a party get from breach of warranty damages under the UCC?

What kind of cost is this often considered to be?

Answer 11

Damages = the value they would have had if they had been as warranted (often repair costs) - value of the goods accepted

This is often the repair cost.

Question 12

What are direct damages?

When are direct damages awarded?

What is the formula for direct damages?

Answer 12

Direct damages are the necessary and usual result of the D’s wrongful act.

They are awarded to compensate the plaintiff for the loss, damage, or injury that is conclusively presumed to have been foreseen or contemplated by the breaching party, AND are reflected in the difference between the value of the performance that the non-breaching party should have received under the contract and what was actually received (i.e., “loss of value” calculation for determining expectation damages).

Loss value calculation (formula for direct damages)
-> damages = value of performance as promised - value of performance as received

Question 13

How are consequential damages different to direct damages?

Must consequential damages be foreseeable to be recovered? What if the consequential damages were unforeseeable but breaching party new of them?

Answer 13

Consequential damages, on the other hand to direct damages, result naturally from the breach, BUT need not be the usual result of the breaching party’s conduct. Instead, consequential damages need only be a reasonably foreseeable result of the breach in the parties’ specific circumstances.
-> AKA damages that result from the breach, but arise out of special circumstances unique to the parties to the contract;

Consequential damages
-> 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
-> if consequential damages are unforeseeable then they still can be recovered if breaching party KNEW about the possibility of these unforeseeable consequential damages.

Question 14

When are damages considered “foreseeable” under consequential damages?

How is reasonable certainty calculated under consequential damages?

What type of damages are courts reluctant to consider as reasonable certain? What other form of damages do courts use with regards to this type of damages?

Answer 14

Damages are considered foreseeable IF
-> they were the natural and probable consequences of breach,
OR
-> if they were “in the contemplation of the parties at the time the contract was made,”
OR
-> if they were otherwise foreseeable

Reasonable certainty
-> dollar amount of damages must be proven with reasonable certainty

Court’s reluctant to consider lost profits as reasonable certain
-> if lost profits are too speculative, courts may limit recovery to reliance damages (reasonable expenditures made in connection with the K)

Question 15

What is the causation requirement for damages to be recovered?

What is D’s defense based off of causation?

Answer 15

There must be a causal link between
-> the breach
AND
-> the consequential damages for the damages to be recoverable.

The breaching party can DEFEND on the ground that the losses that the non-breaching party seeks to recover WOULD have occurred even if the K had not been breached.

Question 16

Can you limit consequential damages via agreement?

Answer 16

An agreement to expressly exclude or limit consequential damages is generally enforceable.

Question 17

How does the UCC treat consequential damages versus the CL?

Under the UCC, can you limit consequential damages for personal injury?

Under the UCC can you limit consequential damages for commercial losses?

Answer 17

-> Only buyers can seek consequential damages under the UCC.
-> Sellers permitted to seek consequential damages based on common law or other statutes

Limitation of consequential damages for personal injury in the case of consumer goods is prima facia UNCONSCIONABLE

Limitation of damages when the loss is commercial is NOT prima facia unconscionable

Question 18

What are incidental damages?

What are incidental damages a buyer can recover with regard to a seller’s breach?

What are incidental damages a seller can recover with regard to a buyer’s breach?

Answer 18

Compensation for commercially reasonable expenses incurred as a result of other party’s breach.

Seller’s breach provides a buyer with incidental damages with regards to
-> expenses incurred in inspection, receipt, transportation, care, and outstay of goods rightfully rejected;
-> expenses in effecting cover;
AND
-> any other reasonable expense incident to the delay or other breach

Buyer’s breach provides a seller with incidental damages with regards to 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

Question 19

What are liquidated damages and penalties?

When are liquidated damages enforceable?

Answer 19

Damages stipulated by the parties to the K as a reasonable estimation of actual damages to be recovered in the event of a breach.

Enforceable IF:
-> parties intended to agree in advance to damages that might arise from breach
-> stipulated amount was reasonable at time of K, bearing some relation to damages that might be sustained
AND
-> actual damages would be uncertain in amount and difficult to prove

Question 20

What are punitive damages?

Are punitive damages commonly given?

What are nominal damages?

Are normal damages commonly given?

Answer 20

Punitive damages are damages exceeding simple compensation and awarded to punish the defendant.

Punitive damages are RARELY available in K actions but may be available if conduct consisting breach is also recoverable under tort theory.

Nominal damages refer to a small sum of money awarded to a plaintiff to commemorate the fact the plaintiff won their civil case in court.

Nominal damages are given
-> when no damages are alleged/proven.

Question 21

Can you recover attorney’s fees as damages?

Answer 21

In K law, not recoverable absent express agreement or specific law.

Question 22

What is a party’s duty to mitigate damages? In what way is this duty limited?

What standard of conduct is the non-breaching party held to?

What happens if non-breaching party fails to mitigate?

How does this duty work with regards to a services K?

Answer 22

Party to K must avoid or mitigate damages to the extend possible by taking steps that do not involve
-> undue risk,
-> expense,
OR
-> inconvenience

Nonbreaching party held to standard of reasonable conduct in preventing loss.

Failure to mitigate reduces damages that may be recovered by non breaching party

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)

Question 23

What is restitutionary recovery?

How are restituionary damages calculated?

Answer 23

Restitutionary recovery aims to restore 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

Question 24

When can a non-breaching party recover through restitution? When can’t a non-breaching party recover through restitution?

Can the value of recovery through restitution exceed the value of the original K?

When can a breaching party recover through restitution? When can’t a breaching party recover through restitution?

Answer 24

Recovery by non breaching party through restitution
-> non-breaching party recover for any benefit conferred on breaching party by way of part performance or reliance
BUT
-> non-breaching 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.

For a non-breaching party the recovery through restitution can exceed the original K price, because restitution is measured differently (fair market value OR benefit conferred onto breaching party).

Recovery by breaching party through restitution
-> if P has not substantially performed, P cannot recover under the contract, but if D has benefited from P’s performance, P can recover restitution for benefit conferred onto D MINUS D’s damages for the breach
BUT
-> P generally cannot recover if P’s breach was willful or if K provides that non breaching party may retain the value of the breaching party’s performance as liquidated damages

Question 25

What are reliance damages?

How are reliance damages different from recovery through restitution?

When a party recovers reliance damages, what other kinds of damages can they not recover?

Answer 25

Reasonable out-of-pocket expenses incurred by non-breaching party due to reliance on other party’s promise to perform.

Unlike with a restitutionary recovery, with reliance damages, there is no requirement that the defendant benefit from the plaintiff’s expenditures.

Party cannot recover both reliance and expectation damages

Question 26

When is specific performance an equitable remedy?

What factors does the court consider to determine whether damages are adequate?

Answer 26

Specific performance is an equitable remedy possible when damages are an inadequate remedy

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
AND
-> mutuality of agreement

Question 27

Under what situations is specific performance usually granted?

Under what situations is specific performance usually NOT granted? Is there an exception here?

Answer 27

Specific performance usually granted in the following situations:
-> Real property - specific performance granted because real property is considered unique
-> UCC - specific performance may be granted to the buyer when goods are rare or unique

Specific performance usually not granted in the following situation:
-> courts rarely grant specific enforcement of contracts for personal services
-> EXCEPTION - courts MAY enforce non-compete clause

Question 28

What defenses can a breaching party raise against specific performance of a K?

Answer 28

Equitable defenses may be raised by breaching party
-> laches - prejudicial delay in bringing the action
-> unclean hands - non breaching party guilty of some wrongdoing in the transaction

Question 29

What are the buyer’s six remedies under a UCC breach when there has been a failure to tender goods?

Answer 29

-> Cancel K
-> Recovery of payments
-> Recover damages
-> Cover
-> Specific performance - for unique goods
-> Replevin

Question 30

When can buyer cancel an installment K under the UCC?

Answer 30

If breach of installment K goes to entire K, THEN can cancel entire installment K.

Question 31

When can a buyer recover payment under the UCC?

When does a buyer get a security interest in goods?

Answer 31

Recovery of payments
-> upon cancellation, buyer entitled to recover payments made for goods.

On rightful rejection or justifiable revocation of acceptance
-> a buyer also has a security interest in goods in his possession

Question 32

What is the formula used to calculate the damages a buyer can recover under the UCC?

Answer 32

Recover damages = market price - K price + incidental damages + consequential damages

Question 33

Does a buyer have a right to cover? If so, what kind of damages can they recover with regard to their cover?

Answer 33

Cover - buyer
-> may purchase similar goods elsewhere
AND
-> recover damages = replacement price - K price

Question 34

When can a buyer seek specific performance under the UCC?

Answer 34

Specific performance - for unique goods

Question 35

How does replevin work?

Answer 35

When the buyer has made at least partial payment for identified goods, the buyer can obtain the undelivered goods from the seller if:
-> The seller becomes insolvent within 10 days of receiving the first payment from the buyer;
OR
-> 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.
BUT
-> to obtain the REST of the goods, the buyer must tender any unpaid portion of the price to the seller.

Buyer’s inability to cover - The buyer can also obtain identified, undelivered goods from the seller if:
-> the buyer is unable to effect cover;
-> the circumstances reasonably indicate that reasonable effort to obtain cover will be unavailing;
OR
-> the goods have been shipped under reservation, and satisfaction of the security interest in the goods has been made or tendered.

Question 36

What are the buyer’s remedies (aka rights) under a UCC breach when there has been a tender of nonconforming goods?

Answer 36

Buyer has right to accept or reject all art part of the goods (and the right to inspect before making that decision)

Question 37

How does rejection work with regards to the seller tendering non-conforming goods?

What is buyer entitled to after rejection?

Answer 37

Rejection - buyer can reject goods if
-> he gives notice to seller within reasonable time
AND
-> before acceptance,

Buyer is then entitled to
-> a return of any payments made
OR
-> to seek same remedies as if no tender was made.

Question 38

How does the buyer accept goods after the seller tenders non-conforming goods?

What must the buyer give to the seller if the buyer seeks damages after accepting non-conforming goods?

What is the damages calculation used to calculate the damages amount?

What is the damages usually equal to without doing the math?

What additional types of damages can the buyer seek?

Answer 38

Acceptance - buyer accepts goods by
-> expressly stating acceptance,
-> using the goods,
OR
-> failing to reject the goods

To recover damages after acceptance, buyer must give seller timely notice of breach.

Damages = value of goods if there was a conforming tender - value of nonconforming goods

Usually cost of replacement or repair of nonconforming goods.

Other types of damages the buyer can seek:
-> consequential damages
-> incidental damages

Question 39

What right does the seller have, and when, after the seller tenders non-conforming goods?

Answer 39

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.

Question 40

Under what situations does the seller have the right to price?

Answer 40

Seller has right to price under the following situations:
-> seller may recover the full price if buyer has accepted goods;
-> conforming goods are destroyed or lost AFTER risk has shifted to buyer;
OR
-> goods have been identified and the buyer fails to pay the price, AND the seller is unable to sell the goods at a reasonable price after a reasonable effort or circumstances indicate such an effort will not yield a sale

Question 41

What rights does a seller have against an insolvent buyer?

Is there a situation where the above limitation regarding the seller’s rights doesn’t’ apply?

What happens if this right is used? Can the seller use his other rights?

Can the seller exercise his right if the buyer becomes insolvent after delivery?

Answer 41

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.

This 10-day limitation DOES NOT apply if the buyer has misrepresented solvency to the seller in WRITING within THREE months BEFORE DELIVERY.
-> Otherwise, the seller cannot base a right to reclaim goods on the buyer’s fraudulent or innocent misrepresentation of solvency or of intent to pay.

If exercised, precludes all other remedies with respect to the reclaimed goods.

Pre-delivery insolvency:
-> As a condition for the seller to reclaim goods from a buyer, the buyer must have received the goods on credit while insolvent.
-> If the buyer becomes insolvent AFTER DELIVERY, then the seller MAY NOT RECLAIM the goods.

Question 42

When can a seller stop the goods in transit?

What is the limitation with regards to the right to stop the goods in transit when the buyer is in breach?

Does the above limitation apply to when the buyer is insolvent?

When can the seller no longer stop the goods in transit when the buyer is in breach?

Answer 42

A seller can stop the goods in transit because of the buyer’s breach or when the buyer is insolvent.

Limitations with regard to this right when buyer is in breach
-> Goods can be stopped in transit only if shipped in large-sized (e.g., carload, truckload) lots.

Compare buyer’s breach: When a buyer is insolvent, the seller can stop goods in transit, regardless of the size of the shipment.

The seller cannot stop goods in transit when the:
-> buyer has received the goods;
-> carrier or warehouseman has acknowledged the buyer’s rights;
-> goods have been reshipped by the carrier;
OR
-> title has been given to or negotiated with the buyer.

Question 43

What are the seller’s remedies if the buyer wrongfully rejects?

When can a seller recover lost profits uniquely?

Answer 43

Seller has three remedies
-> collect damages (damages = K price - market price)
-> resell the goods (must give notice to buyer if seller will do private sale of goods)
-> recover the price (if the seller is unable to sell goods at a reasonable price after reasonable efforts)
AND
-> incidental damages (e.g. storage and shipping)

A seller can recover lost profits when they are a “volume seller.”
-> Although they can resell the goods at the same price as the contract price, they have lost the opportunity to sell them in the first instance when the buyer breached or repudiated.

Question 44

How does risk of loss vary depending on the situation?
-> dealing with unidentified goods
-> Shipment K
-> Destination K
-> identified goods

Answer 44

Unidentified goods
-> if goods are damaged or destroyed and there is no breach, risk of loss is on seller until he satisfies delivery obligations (and then risk shifts to buyer).

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.

Destination K
-> risk of loss passes to buyer when the seller tenders the goods at the place specified in the K

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

Question 45

How is risk of loss effected if there is a breach from:
-> seller
-> buyer?

Answer 45

Seller’s breach
-> if seller delivers nonconforming goods, risk of loss remains on the seller until buyer accepts OR there is cure.

Buyer’s breach
-> if buyer breaches or 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)

Question 46

What is the statute of limitations on breach of sales of goods K or breach of warranty under K?

When does cause of action begin accruing?

Can parties reduce or extend statute of limitations within the K?

Answer 46

Statute of limitations is 4 years after cause of action accrues

Generally, cause of action accrues when breach occurs, regardless of whether aggrieved party knows

Parties may reduce four-year limitations period to not less than one year, but they may not extend it