Contracts

Question 1

1st question you ask when confronted with contract question

Answer 1

what law applies

1) common law
2) sale of goods (UCC)

Question 2

second question you ask when confronted w K question

Answer 2

was a contract formed

Question 3

Contract needs:

Answer 3

mutual assent (offer +acceptance)

+ consideration
(- absence of defenses)

Question 4

types of contract

Answer 4

express: formed by words
implied: formed by conduct

Question 5

quasi contract remedy

Answer 5

restitution

Question 6

A bilateral contract is one consisting of the exchange of mutual
promises; that is,

Answer 6

a promise for a promise. Each party is both a
promisor and a promisee.

Question 7

A bilateral contract offer can be accepted
in

Answer 7

any reasonable way.

Question 8

A unilateral contract is one in which the offeror requests

Answer 8

performance
rather than a promise.

Question 9

A unilateral contract, which
requires full performance, occurs in only two situations:

Answer 9

(1) when the
offeror clearly (unambiguously) indicates that completion of performance is the only manner of acceptance; and (2) where there is an
offer to the public, such as a reward offer.

Question 10

“Goods” are

Answer 10

all things movable at the time they are identified as the
items to be sold under the contract.

Question 11

Article 2 generally defines “merchant” as

Answer 11

one who regularly deals in goods of the kind sold or who otherwise
by their profession holds themselves out as having special knowledge or skills as to the practices or goods involved

Question 12

A void contract is

Answer 12

one that is totally without any legal effect from the
beginning (for example, an agreement to commit a crime). It cannot
be enforced by either party

Question 13

A voidable contract is one that

Answer 13

one or both parties may elect to
avoid, such as by raising a defense that makes it voidable, like
infancy or mental illness.

Question 14

An unenforceable contract is

Answer 14

otherwise valid but isn’t enforceable
due to a defense, such as the statute of limitations or Statute of
Frauds.

Question 15

For a communication to
be an offer, it must

Answer 15

create a reasonable expectation in the offeree
that the offeror is willing to enter into a contract on the basis of the
offered terms.

Question 16

In deciding whether a communication creates this
reasonable expectation, ask:

Answer 16

Was there an expression of a promise, undertaking, or commitment to enter into a contract?

Were there certainty and definiteness in the essential terms?

Was there communication of the above to the offeree?

Question 17

Advertisements, catalogs, circular letters, and the like containing
price quotations are usually construed as

Answer 17

mere invitations for
offers.

Question 18

An offer must be definite and certain in its terms. The basic inquiry is
whether

Answer 18

enough of the essential terms have been provided so that a
contract including them is capable of being enforced.

Question 19

offers usually must include

Answer 19

offerees name, offers subj matter, price

Question 20

land sale offers must include

Answer 20

1) price
2) description of land

Question 21

sale of goods offer must include:

Answer 21

quantity term

Question 22

requirements contract

Answer 22

Buyer promises to buy from seller all good buyer requires

Question 23

output contract

Answer 23

seller promises to sell to buyer all goods seller produces

Question 24

employment contract; if the duration of the employment is not specified, the offer, if accepted, is

Answer 24

construed as
creating a contract terminable at the will of either party.

Question 25

1) lapse of time

Answer 25

offer terminated if not accepted within reasonable time

Question 26

2) rejection

Answer 26

offer terminates when the offeree rejects it

Question 27

counter offer =
mere bargaining =
conditional acceptance=

Answer 27

rejection
doesnt equal rejection
rejection+ new offer

Question 28

revocation

Answer 28

offeror’s retraction of offer

Question 29

offer revoked indirectly if

Answer 29

1) offeree receives correct info
2) from reliable source
3) of offeror’s acts indicating revocation

Question 30

revocations effective upon

Answer 30

receipt

Question 31

option contract

Answer 31

offeree gives consideration for offeror to not revoke offer for period of time

Question 32

merchants firm offer rule

Answer 32

merchant promises
in signed writing
to keep offer open for time stated or reasonable time

***enforceable for up to 3 months

Question 33

detrimental reliance; When the offeror could reasonably expect that the offeree
would rely to their detriment on the offer, and the offeree does
so rely, the offer will be held

Answer 33

irrevocable as an option contract
for a reasonable length of time.

Question 34

start performance of unilateral contract offer=

Answer 34

irrevocable offer

Question 35

mere preparation to perform does not equal

Answer 35

start of performance

Question 36

The following events will terminate an offer by operation of law:

Answer 36

a. Death or insanity of either party (unless the offer is of a kind
the offeror could not terminate, such as, an option supported by
consideration). Death or insanity need not be communicated to
the other party
b. Destruction of the proposed contract’s subject matter OR
c. Supervening illegality

Question 37

A unilateral contract is not accepted until

Answer 37

performance is completed

Question 38

improper shipment =

Answer 38

acceptance and breach

Question 39

The shipment of nonconforming goods is an acceptance creating
a bilateral contract as well as a breach of the contract unless

Answer 39

the
seller seasonably notifies the buyer that a shipment of nonconforming goods is offered only as an accommodation

Question 40

The buyer
is not required to accept accommodation goods and may reject
them. If the buyer rejects,

Answer 40

the shipper isn’t in breach and may
reclaim the accommodation goods, because the tender does not
constitute an acceptance of the buyer’s original offer.

Question 41

Unless the offer provides otherwise, acceptance of an offer to enter
into a bilateral contract must be

Answer 41

communicated to the offeror

Question 42

silence

Answer 42

does not equal acceptance

Question 43

acceptance must ____ offer terms at common law

Answer 43

mirror

Question 44

article 2: offerees additional term not part of K UNLESS

Answer 44

1) both are merchants
2) its not material and
3) offeror doesnt object

Question 45

no mirror image rule under

Answer 45

article 2

Question 46

material change?

Answer 46

causes hardship or surprise

Question 47

If both parties to the contract are merchants, additional terms
in the acceptance will be included in the contract unless:

Answer 47

1) materially alter the original terms of the offer,

2) expressly limits acceptance to the terms of the offer
OR

3) offeror has already objected to the particular terms, or objects within a reasonable time after notice of them is received

Question 48

mailbox rule

Answer 48

acceptance is effective when sent

Question 48

industry custom is

Answer 48

not a material change

Question 49

mailbox rule applies unless

Answer 49

1) offer states otherwise
2) offer is irrevocable
3) rejection sent before acceptance

Question 50

forbearance can constitute ___

Answer 50

consideration

Question 51

A promise given in exchange for something already done

Answer 51

does not
satisfy the bargain requirement

Question 52

In general, courts ____ inquire into the adequacy or fairness of
consideration

Answer 52

do not

Question 53

if something is entirely devoid of value
(token consideration),

Answer 53

it is insufficient.

Question 54

preexisting legal duty rule

Answer 54

Traditionally, performing or promising to perform an existing legal
duty is insufficient consideration.

Question 55

The preexisting legal duty rule is riddled with exceptions. There
is consideration if:

Answer 55

a) New or different consideration is promised;

b) The promise is to ratify a voidable obligation (for example, a
promise to ratify a minor’s contract after reaching majority or a
promise to go through with a contract despite the other party’s
fraud);

c) The preexisting duty is owed to a third person rather than to
the promisor;

d) There is an honest dispute as to the duty; OR

e) There are unforeseen circumstances sufficient to discharge a
party (such as impracticability), or under the modern view, if the
modification is fair and equitable in view of circumstances not
anticipated when the contract was made.

Question 56

a good faith agreement modifying a contract subject to
the UCC needs____ to be binding.

Answer 56

no consideration

Question 57

A debt can be discharged through an accord and satisfaction. In general, an accord must be supported by

Answer 57

consideration

Question 58

Consideration is not necessary if the facts indicate that the promisor
should be estopped from not performing. A promise is enforceable if
necessary to prevent injustice if:

Answer 58

a. The promisor should reasonably expect to induce action or
forbearance, and

b. Such action or forbearance is in fact induced.

Question 59

defendants w/o capacity can _____

Answer 59

disaffirm K

Question 60

retaining benefits after gaining capacity =

Answer 60

implied affirmation

Question 61

“Necessaries” are items necessary for subsistence, health, or
education (including food, shelter, clothing, and medical care).
A minor may disaffirm a contract for necessaries but will be
liable in _______ for the value of benefits received.

Answer 61

restitution

Question 62

Contracts induced by ________are voidable and
may be rescinded as long as they are not affirmed.

Answer 62

duress or undue influence

Question 63

If the contract includes a term with at least two possible meanings,
the result depends on the parties’ awareness of the ambiguity:
a. Neither party aware

Answer 63

no contract unless both parties intended
the same meaning;

Question 64

If the contract includes a term with at least two possible meanings,
the result depends on the parties’ awareness of the ambiguity:
b. Both parties aware

Answer 64

no contract unless both parties intended
the same meaning;

Question 65

If the contract includes a term with at least two possible meanings,
the result depends on the parties’ awareness of the ambiguity:
c. One party aware

Answer 65

binding contract based on what the ignorant
party reasonably believed to be the meaning of ambiguous
words.

Question 66

If both parties entering into a contract are mistaken about existing facts (not future happenings) relating to the agreement, the contract
may be voidable by the adversely affected party if:
(i) The mistake concerns a basic assumption on which the contract
is made (for example, the parties think they are contracting for
the sale of a diamond but in reality the stone is a cubic zirconia);

Answer 66

(i) The mistake concerns a basic assumption on which the contract
is made (for example, the parties think they are contracting for
the sale of a diamond but in reality the stone is a cubic zirconia);

(ii) The mistake has a material effect on the agreed-upon
exchange (for example, the cubic zirconia is worth only a
hundredth of what a diamond is worth);

AND

(iii) The party seeking avoidance did not assume the risk of the
mistake

Question 67

If only one of the parties is mistaken about facts relating to the
agreement, the mistake will not prevent formation of a contract. But,
if the nonmistaken party knew or had reason to know of the mistake made by the other party, the contract is

Answer 67

voidable by the mistaken
party. As with mutual mistake, the mistake must have a material effect
on the agreed-upon exchange, and the mistaken party must not have
borne the risk of the mistake.

Question 68

The concept of ______allows a court to modify or refuse to
enforce an entire contract or a provision in it to avoid “unfair” terms,
usually due to some unfairness in the bargaining process (that is,
procedural unconscionability). Unfair price alone is not a ground for _____

Answer 68

unconscionability

Question 69

unconscionability test

Answer 69

unfair surprise and oppressive terms

**tested when K formed

Question 70

statute of frauds

Answer 70

when is writing reqd

when is oral k not enough

Question 71

statute of frauds categories

Answer 71

Marriage
Year

Land Sales
Executors
Goods for $500
Sureties

(my legs)

Question 72

marriage

Answer 72

k where marriage is consideration
doesnt include promise to marry

Question 73

K’s impossible to complete in _____ subj to state of frauds

Answer 73

1 year

**time of actual performance doesnt matter

Question 74

A promise creating an interest in land must be evidenced by a
writing. This includes not only agreements for the sale of real
property, but also:

Answer 74

• Leases for more than one year
• Easements of more than one year
• Mortgages and most other security liens
• Fixtures
• Minerals (or the like) or structures if they are to be severed by
  the buyer

Question 75

A promise by an executor or administrator to pay the estate’s debts
out of _____ must be evidenced by a writing.

Answer 75

their own funds

Question 76

A promise to answer for the debt or default of another must be evidenced by a writing. The promise may arise as a result of a tort or contract, but it must be collateral to another person’s promise to pay, and not a primary promise to pay.

However, if the main purpose or leading object of the promisor is to serve a pecuniary interest of his own, the contract is

Answer 76

not within the Statute of Frauds even though
the effect is still to pay the debt of another (for example, homeowner promises to pay contractor’s debt to building supplier if contractor does not pay, so contractor can obtain supplies to work on homeowner’s house).

Question 77

modifications must be in writing only if

Answer 77

modified k within Statute

Question 78

clauses prohibiting oral modification

Answer 78

unenforceable in common k’s

enforceable in art 2 k’s

Question 79

land sale exceptions

Answer 79

lease of less than or equal to 1 year
part performance of real estate Ks

-payment, possession, improvement
-need 2 of 3

Question 80

exception for service ks

Answer 80

full performance K satsifies statute of frauds

**no part performance exception for service ks

Question 81

sale of goods exception

Answer 81

goods accepted
goods paid for
substantial beginning on custom goods

Question 82

judicial admissions exception

Answer 82

agreement admitted to under oath enforceable w/o writing

Question 83

merchants confirmatory memo

Answer 83

merchants
agree to K
one party sends signed writing containing quantity terms
no objection by recipient w/in 10 days

Question 84

K for sale of goods $500+ must have

Answer 84

quantity term
D’s signature

Question 85

k for services must include

Answer 85

all material terms
D’s signature

Question 86

When the parties to a contract express their agreement in a writing with the intent that it embody the final expression of their bargain, the writing is an ________ ” Any other expressions—written or oral—made prior to the writing, as well as any oral expressions
contemporaneous with the writing, are inadmissible to vary the terms of the writing.

Answer 86

the writing is an “integration.”

Question 87

Is the Writing an “Integration”?
There are two components:

Answer 87

(1) whether the writing was intended as
the final expression of the agreement; and

(2) whether the integration
was intended to be complete or partial.

Evidence is admissible to show the parties’ intent

Question 88

exceptions to Parol Evidence Rule

Answer 88

partially integrated writing

defense against formation

explain vague term

correct clerical error

Question 89

course of perfromance

Answer 89

parties conduct under prior installments of current contract

Question 90

course of dealing

Answer 90

parties conduct in prior contracts

Question 91

trade usage

Answer 91

industry norms parties are aware of

Question 92

any description of the goods, and any sample or model creates an
_______if the statement, description, sample, or model
is part of the basis of the bargain.

Answer 92

express warranty

Question 93

implied warranty of merchantability

Answer 93

goods fit for ordinary forseeable purpose

Question 94

implied warranty of fitness for particular purpose

Answer 94

buyer comes in w special purpose

seller knows of special purpose

sellers picks out goods fit for buyers special purpose

Question 95

as is or with all faults serve to

Answer 95

disclaim all implied warranties

Question 96

Parties may include in their contract a clause limiting the
damages available in the case of breach of warranty (for
example, “remedy for breach of warranty is limited to repair
or replacement of the defective goods”). However, such a
limitation won’t be upheld if it’s ______

Answer 96

unconscionable

Question 97

If the buyer has a right to reject the goods, the risk of loss
doesn’t pass to the buyer until

Answer 97

the defects are cured or the
buyer accepts the goods in spite of their defect

Question 98

All contracts for the sale of goods require delivery of the goods.
A contract’s delivery terms are important because they determine

Answer 98

when risk of loss passes from the seller to the buyer if the goods are
damaged or destroyed

Question 99

(common carrier) risk of loss shifts from seller to buyer when _____

Answer 99

seller completes its delivery obligations

Question 100

shipment contract. (assume this)

Answer 100

seller delivers goods to common carrier

arranges for delivery and

notifies buyer

risk of loss passes to buyer on delivery to carrier

Question 101

destination k

Answer 101

seller must deliver goods to buyers location

Question 102

common law k

Answer 102

substantial performance is enough, meets k’s essential purpose

Question 103

Article 2 generally requires____—the delivery and condition of the goods must be exactly as promised in the contract.

Answer 103

a perfect tender

Question 104

installment ks

Answer 104

req delievry of goods in sep installments over specified period

Question 105

The buyer has a right to inspect the goods before they pay unless

Answer 105

the
contract provides for payment C.O.D. or otherwise indicates that the
buyer has promised to pay without inspecting the goods.

Question 106

A contract may provide that a party does not have a duty to perform
unless some condition is fulfilled. In that case, the party’s failure to
perform is justified if

Answer 106

the condition was not fulfilled.

Question 107

express conditions must be

Answer 107

perfectly satisfied

Question 108

f the contract involves personal taste or personal judgment
(for example, portraits, dental work), a condition of satisfaction
is fulfilled only if the promisor is personally satisfied. But note:

Answer 108

Even if a condition requires personal satisfaction, a promisor’s
lack of satisfaction must be honest and in good faith.

Question 109

A condition precedent is one that must occur____ an absolute duty
of immediate performance arises in the other party.

Answer 109

before

Question 110

conditions subsequent

Answer 110

events after performance that could terminate duty to pay

Question 111

if a party having a duty of performance that is subject to a condition
(that is, the party protected by the condition) prevents the condition from occurring, the condition will be excused if

Answer 111

the prevention
is wrongful (meaning, the other party would not have reasonably
contemplated or assumed the risk of this type of conduct).

Question 112

waiver of condition

Answer 112

voluntary giving up of conditions protection

Question 113

anticipatory repudiation

Answer 113

early statement of non performance

Question 114

repudiations can be ____ if not relied on

Answer 114

retracted

Question 115

failure to give adequate assurances

Answer 115

party may ask for assurance other party will perform

if assurance not received= anticipatory repudiation

Question 116

cannot use adequate assurance provision to rewrite K or demand certain assurance only entitled to

Answer 116

adequate assurance

Question 117

rescission

Answer 117

partys mutual agreement to cancel k

each party must have some performance remaining for effective recession

Question 118

modification

Answer 118

replace existing k terms w new terms immediately

tip: debt excused immediately

Question 119

accord and satisfaction

Answer 119

agreement to accept different performance to satisfy existing duty

tip: debt excused later

Question 120

novation

Answer 120

agreement to substitute new party for existing party

Question 121

delegation

Answer 121

one party finds replacement party to perform

original partys obligations not excused

Question 122

impossibility/ impracticability

Answer 122

later unforeseen event makes partys performance impossible

Question 123

death or incapacity of essential person to K ___

Answer 123

excuses performance

Question 124

if performance made illegal by subsequent govt regulation ____

Answer 124

performance excused

Question 125

destruction of K’s subj matter

Answer 125

excuses performance

Question 126

frustration of purpose

Answer 126

both parties understood the central purpose

performance excused if k;s essential purpose undermined

Question 127

A
novation will serve to discharge the old contract. The elements for
a valid novation are:

Answer 127

(1) a previous valid contract; (2) an agreement
among all parties, including the new party (or parties) to the new
contract; (3) the immediate extinguishment of contractual duties as
between the original contracting parties; and (4) a valid and enforceable new contract

Question 128

when does a breach occur

Answer 128

If it is found that (1) the promisor is under an absolute duty to
perform, and (2) this absolute duty of performance has not
been discharged, then this failure to perform in accordance with
contractual terms will amount to a breach of the contract.

Question 129

If the obligee does not receive the substantial benefit of their
bargain, the breach is considered material. If the breach is material,
the nonbreaching party

Answer 129

(1) may treat the contract as at an end; that is,
any duty of counterperformance owed by them will be discharged,
and (2) will have an immediate right to all remedies for breach of the
entire contract, including total damages

Question 130

In determining whether a breach is material or minor, courts look at:

Answer 130

a. The amount of benefit received by the nonbreaching party
b. The adequacy of compensation for damages to the injured
party
c. The extent of part performance by the breaching party
d. Hardship to the breaching party
e. Negligent or willful behavior of the breaching party AND
f. The likelihood that the breaching party will perform the
remainder of the contract

Question 131

If a minor breach is coupled with an anticipatory repudiation (see
6.4.6), the nonbreaching party may treat it as a material breach; that
is, they may

Answer 131

sue immediately for total damages and are permanently
discharged from any duty of further performance.

The UCC modifies this to
permit a party to complete the manufacture of goods to avoid having
to sell unfinished goods at the lower salvage value.

Question 132

Failure to perform by the time stated in the contract is generally
not a material breach if performance is rendered within a reasonable time. However, if the nature of the contract makes timely
performance essential, or if the contract expressly provides that
time is of the essence, then failure to perform on time is

Answer 132

usually a
material breach.

Question 133

Article 2 generally doesn’t follow the common law substantial performance doctrine. Instead, it follows the perfect tender rule—if goods
or their delivery fail to conform to the contract in any way, the buyer
generally may

Answer 133

reject all, accept all, or accept any commercial units
and reject the rest.

Question 134

A buyer’s right to reject under the perfect tender doctrine generally is
cut off by acceptance. Under Article 2, a buyer accepts when:

Answer 134

After a reasonable opportunity to inspect the goods, they
indicate to the seller that the goods conform to requirements or that they will keep the goods even though they fail to
conform;

They fail to reject within a reasonable time after tender or
delivery of the goods or fail to seasonably notify the seller of
their rejection; OR

They do any act inconsistent with the seller’s ownership.

Question 135

The buyer may revoke their acceptance if the goods have a defect that
substantially impairs their value to the buyer and:

Answer 135

They accepted the goods on the reasonable belief that
the defect would be cured and it has not been OR

They accepted the goods because of the difficulty of
discovering the defects or because of the seller’s assurance that the goods conformed to the contract.

Question 136

Revocation of acceptance must occur:

Answer 136

(1) within a reasonable time
after the buyer discovers or should have discovered the defects;
and (2) before any substantial change in the goods occurs that is
not caused by a defect present at the time the seller relinquished
possession

Question 137

If the buyer has rejected goods because of defects, the seller
may within the time originally provided for performance “cure”
by

Answer 137

giving reasonable notice of their intention to do so and
making a new tender of conforming goods that the buyer must
then accept.

Question 138

If the legal remedy (that is, money damages) is inadequate, the
nonbreaching party may seek

Answer 138

specific performance, which is an order
from the court to the breaching party to perform or face contempt of
court charges.

Question 139

Specific performance is always available for land sale contracts,
because

Answer 139

all land is unique

Question 140

Most courts will grant an order of specific performance to enforce
a contract not to compete if:

Answer 140

(1) the services to be performed are
unique (thus rendering money damages inadequate); and (2) the
covenant is reasonable.

Question 141

for covenant not to compete to be reasonable…

Answer 141

The covenant must be reasonably necessary to protect
a legitimate interest of the person benefited by the
covenant (that is, an employer or the purchaser of the
covenantor’s business);

The covenant must be reasonable as to its geographic
scope and duration (meaning, it cannot be broader than
the benefited person’s customer base and typically cannot
be longer than one or two years); and

The covenant must not harm the public.

Question 142

In addition to standard contract defenses, an action for specific
performance is subject to the equitable defenses of:

Answer 142

Laches—a claim that the plaintiff has delayed bringing the
action and that the delay has prejudiced the defendant;

Unclean hands—a claim that the party seeking specific
performance is guilty of wrongdoing in the transaction
being sued upon; and

Sale to a bona fide purchaser—a claim that the subject
matter has been sold to a person who purchased for
value and in good faith.

Question 143

If a buyer has made at least part payment of the purchase price of goods that have been identified under a contract and the
seller has not delivered the goods, the buyer may replevy the
goods from the seller in two circumstances:

Answer 143

(i) The seller becomes insolvent within 10 days after receiving
the buyer’s first payment; or

(ii) The goods were purchased for personal, family, or household purposes.
In either case, the buyer must tender any unpaid portion of the
purchase price to the seller.

Question 144

In addition, the buyer may replevy undelivered, identified
goods from the seller if the buyer, after reasonable effort, is

Answer 144

unable to secure adequate substitute goods (that is, cover).

Question 145

A right closely related to the buyer’s right to replevy is the right
to specific performance “where the goods are unique or in other
proper circumstances.” The court may order specific performance even where

Answer 145

the goods have not yet been identified to
the contract by the seller

Question 146

If a seller learns that a buyer has received delivery of goods
on credit while insolvent, the seller may reclaim the goods
upon demand made within

Answer 146

10 days after the buyer’s receipt of
the goods. However, the 10-day limitation does not apply if a
misrepresentation of solvency has been made in writing to the
particular seller within 3 months before delivery.

Question 147

Actions or circumstances that increase the risk of nonperformance by
a party to a contract but don’t clearly indicate that performance will
not be forthcoming may not be treated immediately as an anticipatory repudiation (see 8.2.2.b. below). Instead, if there are reasonable
grounds for insecurity with respect to a party’s performance, the
other party may

Answer 147

demand in writing assurances that the performance
will be forthcoming at the proper time.

Until they receive adequate
assurances, the party may suspend their own performance.

If the
proper assurances are not given within a reasonable time (that is,
within 30 days after a justified demand for assurances),

they may
then treat the contract as repudiated.

Question 148

Reliance damages award the plaintiff the cost of
their performance; that is, they are designed to

Answer 148

put the plaintiff
in the position that would have been in had the contract never
been formed.

Question 149

Compensatory damages may also include incidental damages.
Incidental damages are most commonly associated with
contracts for the sale of goods and typically include

Answer 149

expenses
reasonably incurred by a buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected and other
expenses reasonably incident to the seller’s breach, and by the
seller in storing, shipping, returning, and reselling the goods as
a result of the buyer’s breach.

Question 150

Consequential damages are special damages and reflect losses
over and above standard expectation damages. They arise
because of the nonbreaching party’s particular circumstances,
and most often they consist of lost profits. These damages
may be recovered only if, at the time the contract was made,

Answer 150

a reasonable person would have foreseen the damages as a
probable result of a breach. Foreseeability is the key issue for
consequential damages. To recover consequential damages,
the breaching party must have known or had reason to know
of the special circumstances giving rise to the damages. Note
that in contracts for the sale of goods, only a buyer may recover
consequential damages.

Question 151

The parties to a contract may stipulate what damages are to be paid
in the event of a breach. These liquidated damages must be

Answer 151

in an
amount that is reasonable in view of the actual or anticipated harm
caused by the breach

Question 152

Liquidated damage clauses will be enforceable if the following
two requirements are met:

Answer 152

a) Damages for contractual breach are difficult to estimate or
ascertain at the time the contract is formed; and

b) The amount agreed on is a reasonable forecast of compensatory damages in the case of breach.

The test for reasonableness
is a comparison between the amount of damages prospectively
probable at the time of contract formation and the liquidated
damages figure.

If the liquidated damages amount is unreasonable, the courts will construe this as a penalty and will not
enforce the provision.

Question 153

If the seller doesn’t deliver, or the buyer properly rejects the
goods or revokes acceptance of the goods, the buyer’s basic
damages consist of the difference between the contract price
and either:

Answer 153

(1) the market price or (2) the cost of buying replacement goods (cover), plus incidental and consequential damages,
if any, less expenses saved as a result of the seller’s breach.

Question 154

If the buyer measures damages by the difference between
contract price and market price, market price usually is determined as of

Answer 154

the time the buyer learns of the breach and at the
place of tender.

Question 155

If the buyer accepts goods that breach one of the seller’s
warranties, the buyer may recover as damages “loss resulting
in the normal course of events from the breach.” The basic
measure of damages in such a case is

Answer 155

the difference between
the value of the goods as delivered and the value they
would have had if they had been according to contract, plus
incidental and consequential damages.

Question 156

To recover damages for any defect as to accepted goods, the
buyer must,

Answer 156

within a reasonable time after they discover or
should have discovered the defect, notify the seller of the
defect. If they do not notify the seller within a reasonable time,
they lose their right to sue. “Reasonable time” is, of course, a
flexible standard

Question 157

The measure of damages when the seller anticipatorily
breaches the contract is the difference between

Answer 157

the market
price at the time the buyer learned of the breach and the
contract price.

Question 158

As noted above, a seller is liable for consequential damages
arising from their breach if:

Answer 158

(1) they had reason to know of the
buyer’s general or particular requirements, and (2) the subsequent loss resulting from those needs could not reasonably be
prevented by cover. Particular needs must be made known to
the seller, but general requirements usually need not be.

Question 158

The Code provides three measures for damages for when the
buyer wrongfully repudiates or refuses to accept conforming
goods. In addition to incidental damages (for example, costs of
storing, shipping, reselling), the seller can:

Answer 158

(i) Resell the goods and recover the difference between the
contract price and the resale price

(ii) Recover the difference between the market price
(measured as of the time and at the place of delivery) and
the contract price, or

(iii) If the above measures are inadequate because the seller
could have made an additional sale, recover under a “lost
profits” measure the difference between the contract price
and the cost to the seller.

Question 159

If the buyer has accepted the goods and has not paid, or has
not accepted the goods, and the seller is unable to resell
them at any reasonable price, or if the goods have been lost or
damaged at a time the risk of loss was on the buyer, the seller
may

Answer 159

maintain an action against the buyer for the full contract
price.

Question 160

The standard measure of damages for breach of land sale contracts
is the difference between the

Answer 160

contract price and the fair market
value of the land.