Chapter 19: Breach of Contract and Remedies

Question 1

Remedy

Answer 1

The relief provided or an innocent party when the other party has breached the contract

Question 2

2 Types of Remedies

Answer 2

1. At law
2. In equity

Question 3

Remedies at Law

Answer 3

Damages

Question 4

Remedies in Equity

Answer 4

1. Rescission and Restitution
2. Specific Performance
3. Reformation
4. Recovery Based on Quasi Contract

Question 5

Damages

Answer 5

Designed to compensate party for harm suffered as a result of another’s harmful act

Question 6

Types of Damages

Answer 6

1. Compensatory (Covers direct losses and expenses)
2. Consequential (Covers indirect and foreseeable losses)
3. Punitive (To punish and deter wrongdoing)
4. Nominal (To recognize wrongdoing when no monetary loss is shown)

Question 7

Compensatory Damages for Nonbreaching Party

Answer 7

Compensate loss of the bargain

Question 8

Compensatory Damages for Injured Party

Answer 8

Compensate damages sustained and proved

Question 9

How to measure for compensatory damages

Answer 9

Difference in value of promised performance and value of actual performance

Question 10

Compensatory Damages when Seller Breaches

Answer 10

Buyer’s damages are difference between contract and market price plus incidental damages

Question 11

Compensatory Damages when Buyer Breaches

Answer 11

Seller’s damages are just lost profits

Question 12

Remedy for Sale of Land Breaches

Answer 12

Specific Performance

Question 13

Remedy for Sale of Land Breaches when Specific Performance is not Available

Answer 13

Damages are the difference ebtween contract price and market price of land
(Majority Rule)

Question 14

Remedy for Sale of Land Breaches when Specific Performance is not Available (Minority Rule)

Answer 14

If seller breaches and not deliberate, buyer is only entitled to any down payment plus expense (no benefit of bargain)

Question 15

Construction Contracts (Owner breaches)
Before, During, After performance

Answer 15

1. Before performance has begun: Profits (contract price less cost of materials and labor)
2. During performance: Profits, plus cost incurred up to time of breach
3. After performance has been completed: Full contract price, plus interest

Question 16

Construction Contracts (Contractor breaches)

Answer 16

1. Damages are cost of completion (including compensation for delay in performance) for either failing to undertake construction or for stopping work
2. If contractor finishes late, damages are the loss of use

Question 17

Construction Contracts (Both owner & contractor breach)

Answer 17

Courts will try to strike a fair balance in awarding damages

Question 18

Construction Contracts & Economic Waste

Answer 18

Occurs when the cost of repairs or completing performance as required by the contract greatly outweighs the benefit to the owner
Courts will not award cost of completion

Question 19

Consequential (Special) Damages

Answer 19

1. Foreseeable losses and damages
2. Caused by special circumstances beyond the contract itself
3. Breaching party is aware or should be aware, breach will cause the injured party additional loss
4. Flows from consequences of a breach

Question 20

Punitive Damages

Answer 20

Purpose is to punish or deter future conduct by wrongdoer.
Not for small breaches.
Usually tort is involved

Question 21

Nominal Damages

Answer 21

1. No financial loss
2. Defendant is liable but only a technical injury
3. Establish that defendant acted wrongfully

Question 22

Mitigation of Damages

Answer 22

Innocent injured party is held to a duty to reduce the damages that he or she suffered.
Depends on the nature of the contract

Question 23

Liquidated Damages

Answer 23

Specific amount to be paid as damages in the event of future default or breach of contract. “Determined, settled, or fixed”
Purpose is to make injured party whole

Question 24

Penalties

Answer 24

Specifies a certain amount to be paid in the event of a default or breach of contract.
Courts will not enforce unless damages were difficult to estimate at the time the contract was entered into

Question 25

To determine if enforceable, courts must address:

Answer 25

1. Would damages be difficult to estimate in the event of a breach?
2. Was the amount set as damages reasonable?

If yes, enforceable
If no, not enforceable

Question 26

Rescission and Restitution

Answer 26

An action to undue or terminate a contract

Question 27

Mutual Rescission

Answer 27

A remedy whereby a contract is canceled, and the parties are restored to the original positions that they occupied prior to the transactions

Question 28

Unilateral rescission

Answer 28

Available where there is fraud, undue influence, mistake (exceptions only for unilateral mistake), duress or misrepresentation or lack of capacity (breach of contract remedy)

Question 29

Restitution

Answer 29

Requires that both parties return goods, property, or money previously conveyed. Can be obtained when funds or property have been transferred by mistake, or because of fraud or incapacity. Does not always need rescission.

Question 30

Specific Performance

Answer 30

Equitable remedy calling or the performance of the act promised in the contract. Avoids problems inherent in a suit for damages. Normally not available unless legal remedy (monetary damages) is inadequate

Question 31

Contracts for personal services

Answer 31

1. Courts will not normally grant specific performance
2. Courts do not want to have to monitor performance
3. Would amount to involuntary servitude

Question 32

Reformation

Answer 32

Available when parties have imperfectly expressed an agreement in writing. Can occur when fraud or mutual mistake (clerical error) is present

Question 33

Reformation allows:

Answer 33

Allows a contact to be reformed or rewritten to reflect the parties’ true intentions

Question 34

Reformation: Oral Contracts

Answer 34

Parties attempt to put an oral agreement into writing and make an error in stating terms. Court may allow oral evidence to correct terms

Question 35

Quasi contract

Answer 35

A fictional contract. Equitable theory imposed by courts to obtain justice and prevent unjust enrichment. Can be applied where parties have a contract which is unenforceable for some reason

Question 36

Quantum Meruit

Answer 36

As much as he or deserves

Question 37

Quantum Meruit Requirements

Answer 37

1. A benefit was conferred (granted) to the other party
2. Party conferring did so with the reasonable expectation of being paid
3. The benefit was not volunteered
4. Retaining benefit without paying for it would result in unjust enrichment of the party receiving the benefit

Question 38

Waiver of Breach

Answer 38

Nonbreaching party is willing to accept a defective performance of the contract

Question 39

When does a waiver of breach become a continued waiver

Answer 39

If a pattern of conduct that waives a number of successive breaches, it will operate as continued waiver.
Nonbreaching parties should give notice to breaching party that full performance will be required in the future. Damages can be recovered, but contract will not be terminated

Question 40

Limiting Remedies: Exculpatory Clauses

Answer 40

Provisions stating that no damages can be recovered. Courts don’t like.

Question 41

Limiting Remedies: Limitation of liability clauses

Answer 41

Provisions that affect the availability of certain remedies. Not enforceable if fraud or intentional misconduct