Contracts > V. Breach of Contract Remedies

Question 1

As a general rule, a nonbreaching party must minimize their damages from the breach as much as possible by either:

Answer 1

discontinuing work or covering

Question 2

What is covering?

Answer 2

Covering = ordering/buying similar goods from another seller (i.e. making a reasonable purchase of substitute goods)

Question 3

Under the UCC, what is the damages calculation when the nonbreaching party covers?

Answer 3

When the nonbreaching party covers, their damages are the difference between the K price and the cover price. Cover price – K price = standard remedy

Question 4

What is the purpose of contract damages and the analysis for any breach situation on the exam?

Answer 4

(1) The purpose of contract damages is to compensate the plaintiff. (2) The various money damages rules compensate the nonbreaching party by protecting their expectation that the other party wouldn’t breach. (3) We assume that the nonbreaching party intended no breach. (4) We try to put the plaintiff in the same dollar position as if there were no breach, which includes anticipated profits from the contract.

Question 5

The nonbreaching party may enjoy expectation damages in 2 different ways. Explain how to calculate these expectation damages by looking at a test question:

Answer 5

First, look to facts for dollar value of performance without breach. Second, look to facts for dollar value of performance with breach. Finally, compare the two to determine the amount of damages

Question 6

If there’s a material beach, what two expectation damages calculations are available to the nonbreaching party?

Answer 6

Remember: Compare Dollar value of performance without breach and dollar value of performance with breach. #1 Benefit of the Bargain: Pay the breaching party the initial K price minus the cost of having to find someone else to complete performance. #2: Set Aside the Bargain: Pay the breaching party the net benefit received (i.e. the reasonable value of the breaching party’s services, less any damages incurred due the breaching party’s failure to perform).

Note: The nonbreaching party could in addition make an argument that the K is divisible if there is a K provision that says payment is to be made only on completion of all units. Courts often construe this provision as merely stating a time for payment rather than a condition making the K indivisible.

Question 7

What damages are available to the breaching party who sues after he materially breached?

Answer 7

The breaching party is entitled to the reasonable value of the services they have already provided (restitution damages for the fair value of any benefit conferred) minus the nonbreaching party’s damages (harm/injury resulting from the breach of the K).

Question 8

When, if ever, may a nonbreaching buyer or seller recover incidental or consequential damages?

Answer 8

Either a nonbreaching buyer or a nonbreaching seller may recover incidental damages, but only a buyer may recover consequential damages.

In contracts for the sale of goods, compensatory damages may also include incidental damages. Either a nonbreaching buyer or a nonbreaching seller may recover incidental damages for a breach of a contract for the sale of goods. Incidental damages include expenses reasonably incurred by the 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.

Consequential damages are special damages over and above standard expectation damages. These damages result from the nonbreaching party’s particular circumstances and are recoverable only if a reasonable person would have foreseen them as a probable result of breach. Note that in contracts for the sale of goods, only a buyer may recover consequential damages.

Question 9

Is specific performance available as a remedy for a breach of a contract to provide services?

Answer 9

Specific performance is not available for breach of a contract to provide services, even if the services are rare or unique and a legal remedy would be inadequate.

This is because of problems of enforcement (it would be difficult for the court to supervise the performance) and because the courts feel it is tantamount to involuntary servitude, which is prohibited by the Constitution.

Generally a court may grant specific performance, which is essentially an order from the court to the breaching party to perform or face contempt of court charges, if the legal remedy is inadequate. The legal remedy (damages) generally is inadequate when the subject matter of the contract is rare or unique. The rationale is that if the subject matter is rare or unique, damages will not put the nonbreaching party in as good a position as performance would have, because even with the damages the nonbreaching party would not be able to purchase substitute performance. A contract to provide services is an exception to this general rule for the reasons stated above.

Question 10

In the case of a breach of an employment contract by the employee, the employer may recover

Answer 10

The cost to replace the employee regardless of whether the breach was intentional

The employer is entitled to recover what it costs to replace the employee (i.e., the wages the employer must pay to a replacement employee minus the breaching employee’s wages) regardless of whether the breach was intentional. The breaching employee may offset money owed for work done to date.

Question 11

In the case of breach of contract, must the nonbreaching seller resell the goods to prevent avoidable damages?

Answer 11

No. Under Article 2, when a buyer refuses to accept goods or repudiates the contract, a seller MAY resell the goods, but is not required to do so. Market damages are available if the seller does not resell.

Question 12

In the case of breach by the seller in a sale of goods contract, if the buyer ____________, the appropriate measure of damages is the difference in 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.

Answer 12

Accepts nonconforming goods

In the case of breach by the seller in a sale of goods contract, if the buyer accepts nonconforming goods, the appropriate measure of damages is the difference in 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.

If the buyer rejects or revokes acceptance of nonconforming goods (which has the effect of a rejection), the buyer is entitled to the difference between the contract price and either the market price or the cost of buying replacement goods, plus incidental and consequential damages.

Question 13

In a construction contract, if the property owner breaches the contract before construction has started, the builder is entitled to ____________.

Answer 13

the profits he would have derived from the contract.

In a construction contract, if the property owner breaches the contract before construction has started, the builder is entitled to the profits he would have derived from the contract. He is not entitled to the contract price, because the contract price includes costs that he has not yet incurred. The profits measure puts him where he would have been had the promise been performed.

If the breach occurs during construction, the builder is entitled to the profits he would have derived from the contract plus any costs he has incurred to date, or the contract price minus the cost of completion.

If the owner breaches the contract after completion, the damages measure is the contract price, plus interest.

Question 14

In the event of a breach by the buyer in a sale of goods contract, possible measures of damages that may be recovered by the seller include:

Answer 14

Possible measures of a seller’s damages in the event of a breach by the buyer in a sale of goods contract include: the difference between the contract price and the market price, the difference between the contract price and the resale price, and lost profits.

Question 15

For breach of a sale of goods contract, from when are the the buyer’s and the seller’s damages measured?

Answer 15

For breach of a sale of goods contract, the buyer’s damages are measured as of the time he learns of the breach, while the seller’s damages are measured as of the time for delivery.

Question 16

Specific performance is available when the legal remedy is inadequate. Damages are generally inadequate when the subject matter is rare or unique. Thus, specific performance is available for contracts involving

Answer 16

the sale of land or unique or rare goods.

Specific performance is not available for breach of service contracts, even if the services are rare or unique. This is because of the difficulty of enforcement and because it could be considered involuntary servitude.

Question 17

What are reliance damages and when are they used?

Answer 17

Reliance damages put the plaintiff in the position she would have been in had the contract never been formed. If the plaintiff’s expectation damages will be too speculative to measure, the plaintiff may elect to recover reliance damages instead.

Question 18

What are liquidated damages?

Answer 18

Liquidated damages are the damages stipulated to by the parties to a contract. Parties to a contract may stipulate what damages are to be paid in the event of a breach, provided the amount is reasonable in view of the actual or anticipated harm caused by a breach.

Question 19

What are consequential damages?

Answer 19

Consequential damages are damages resulting from the breach that any reasonable person would have foreseen would occur from a breach at the time of entry into the contract.

Question 20

When a party that offers a rare or unique service has breached a service contract, the court may grant __________ to the nonbreaching party.

Answer 20

A court may grant injunctive relief to enjoin a breaching party from working for a competitor throughout the duration of the contract if the services contracted for are rare or unique.

Specific performance is not available for breach of a contract to provide services, even if the services are rare or unique because it is difficult to supervise and most courts find that it is tantamount to involuntary servitude.

Question 21

In the case of a breach of an employment contract by the employer before performance begins, the measure of the employee’s damages is __________. What if the breach occurs during performance?

Answer 21

The full contract price regardless of when the breach occurs

Question 22

A seller agrees to sell Blueacre to a buyer for $100,000. When the seller’s assistant types the contract, it states that it is for the sale of Blackacre, another of the seller’s properties. Neither the buyer nor the seller noticed the reference to the different parcel before signing.
If the seller refuses to convey Blueacre, the best remedy available to the buyer in this situation is reformation, rescission, or restitution

Answer 22

Reformation is the best remedy available to the buyer in this situation. In reformation, the original contract is valid, but the subsequent writing does not conform to the original contract. In a reformation action, the writing setting forth the agreement between the parties is changed by the court so that it conforms to the original intent of the parties.

Question 23

Rescission is not the appropriate remedy. Rescission is a remedy whereby the original contract is considered voidable and rescinded. The parties are left as though the contract had never been made. It is available in cases of

Answer 23

mistake, misrepresentation, duress, etc.

Unlike the reformation situation, in a rescission action the original contract is voidable because of misrepresentation, duress, etc. Also, if the buyer wishes to continue with the sale, rescission is not the best remedy.

Question 24

Restitution is a remedy based on _____________ in cases of breach of contract, unenforceable contracts, and sometimes when there is no contract at all (quasi-contract).

Answer 24

preventing unjust enrichment

Question 25

When a buyer, pursuant to a sale of goods contract, accepts nonconforming goods, the buyer’s measure of damages is:

Answer 25

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

When a buyer, pursuant to a sale of goods contract, accepts nonconforming goods, the buyer’s measure of damages is for breach of warranty; i.e., 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.

The difference between the contract price and the market price, plus incidental and consequential damages, and the difference between the contract price and the cost of replacement goods, plus incidental and consequential damages, are both “benefit of the bargain” measures, which are appropriate when the seller does not deliver or the buyer rejects the goods. They are not the appropriate measures when the buyer has accepted the goods.