Illustrations (349- 373)

Question 1

A gives B a “dealer franchise” to sell A’s products in a stated area for one year. In preparation for performance, B spends money on advertising, hiring sales personnel, and acquiring premises that cannot be used for other purposes. A then repudiates before performance begins.

Answer 1

If neither party proves with reasonable certainty what profit or loss B would have made if the contract had been performed, B can recover as damages his expenditures in preparation for performance (349. Damages Based on Reliance Interest)

Question 2

A contracts with B to stage a series of performances in B’s theater, each to have 50 per cent of the gross receipts After A has spent $20,000 in getting ready for the performances, B rents the theater to others and repudiates the contract, and A stages the performance at another theater. A’s expenditures in preparation for performance of the contract with B are worth $8,000 to him in connection with staging the performances at the other theater

Answer 2

If neither party proves with reasonable certainty what profit or loss A would have made if the contract had been performed, A can recover as damages the $12,000 balance of his expenditures in preparation for performance (349. Damages Based on Reliance Interest)

Question 3

A contracts to build for B a factory of experimental design for $1,000,000. After A has spent $250,000 and been paid $150,000 in progress payments, B repudiates the contract and A stops work. A’s expenditures include materials worth $10,000 that he can use on other jobs.

Answer 3

If neither party proves with reasonable certainty what profit or loss A would have made if the contract had been performed, A can recover as damages the $90,000 balance of his expenditures in preparation for the performance (349. Damages Based on Reliance Interest)

Question 4

A contracts to sell his retail store to B. After B has spent $100,000 for inventory, A repudiates the contract and B sells the inventory for $60,000.

Answer 4

If neither party proves with reasonable certainty what profit or loss B would have made if the contract had been performed, B can recover as damages the $40,000 loss that he sustained on the sale of inventory (349. Damages Based on Reliance Interest)

Question 5

A contracts to supervise the production of B’s crop for $10,000, but breaks his contract and leaves at the beginning of the season. By appropriate efforts, B could obtain an equally good supervisor for $11,000, but he does not do so and the crop is lost.

Answer 5

B’s damages for A’s breach of contract do not include the loss of his crop, but he can recover $1,000 from A (350. Avoidability as a Limitation on Damages)

Question 6

A contracts to buy from B a used machine from B’s factory for $10,000. A breaks the contract by refusing to receive or pay for the machine. By appropriate efforts, B could sell the machine to another buyer for $9,000, but he does not do so.

Answer 6

B’s damages for A’s breach of contract do not include the loss of the $10,000 price, but he can recover $1,000 from A. See Uniform Commercial Code § 2-708(1) (350. Avoidability as a Limitation on Damages)

Question 7

A contracts to buy grain from B for $100,000, which would give B a net profit of $10,000. A breaks the contract by refusing to receive or pay for the grain. If B would have made the sale to A in addition to other sales, B’s efforts to make other sales do not affect his damages.

Answer 7

B’s damages for A’s breach of contract include his $10,000 loss of profit (350. Avoidability as a Limitation on Damages)

Question 8

A contracts to employ B for $10,000 to supervise the production of A’s crop, but breaks his contract by firing B at the beginning of the season. By appropriate efforts B could only obtain a job as a farm laborer at $6,000, but he does not do so and remains unemployed.

Answer 8

B’s damages for breach of contract include his $10,000 loss of earnings (350. Avoidability as a Limitation on Damages)

Question 9

A contracts to sell to B a used machine to be delivered at B’s factory by June 1 for $10,000. A breaks the contract by repudiating it on May 1. By appropriate efforts B could buy a similar machine from another seller for $11,000, but the other seller will not deliver the similar machine to B’s factory and insists that B take possession of it two weeks earlier than he can install it in his factory, but B can arrange to have it stored for two weeks and shipped to his factory for $1,500.

Answer 9

B’s damages do not include the loss of the $25,000 profit, but he can recover the $1,500 as well as the $1,000 from A (350. Avoidability as a Limitation on Damages)

Question 10

A contracts to sell to B a used machine from A’s factory for $10,000. A breaks the contract by refusing to deliver the machine at that price, but offers to sell it to B for $11,000 without prejudice to B’s right to damages. B refuses to buy it at that price and, since he cannot find a similar machine elsewhere, loses a profit of $25,000 that he would have made from use of the machine.

Answer 10

B’s damages do not include the loss of the $25,000 profit, but he can recover $1,000 from A (350. Avoidability as a Limitation on Damages)

Question 11

A contracts to sell to B a used machine from A’s factory for $10,000. A breaks the contract by refusing to deliver the machine at that price, but offers to sell it to B for $11,000 conditioned on B’s surrendering any claim that he may have against A for breach of contract.

Answer 11

B’s damages may include the loss of the $25,000 profit (350. Avoidability as a Limitation on Damages)

Question 12

On May 1, A contracts to sell to B a stated quantity of grain for $100,000, delivery and payment to be made on July 1. On July 1, A breaks the contract by refusing to deliver the grain, but B does not buy substitute grain on the market on that date although he could do so for $110,000. On July 10, B buys substitute grain on the market for $120,000.

Answer 12

B’s damages for A’s breach of contract do not include the $20,000 above the contract price that he paid on July 10, but he can recover $10,000 from A (350. Avoidability as a Limitation on Damages)

Question 13

A contracts to sell to B a used machine to be delivered at A’s factory by June 1 for $10,000. A breaks the contract by repudiating it on May 1. B makes a reasonable purchase of a similar machine for $12,000 in time to be delivered at his factory by June 1. It later appears that, unknown to B, a similar machine could have been found for only $11,000.

Answer 13

Nevertheless, B can recover $2,000 from A. Compare Illustration 5. See Uniform Commercial Code § 2-712 (350. Avoidability as a Limitation on Damages)

Question 14

A, a carrier, contracts with B, a miller, to carry B’s broken crankshaft to its manufacturer for repair. B tells A when they make the contract that the crankshaft is part of B’s milling machine and that it must be sent at once, but not that the mill is stopped because B has no replacement. Because A delays in carrying the crankshaft, B loses profit during an additional period while the mill is stopped because of the delay.

Answer 14

A is not liable for B’s loss of profit. That loss was not foreseeable by A as a probable result of the breach at the time the contract was made because A did not know that the broken crankshaft was necessary for the operation of the mill (351. Unforeseeability and Related Limitations on Damages)

Question 15

A contracts to sell land to B and to give B possession on a stated date. Because A delays a short time in giving B possession, B incurs unusual expenses in providing for cattle that he had already purchased to stock the land as a ranch. A had no reason to know when they made the contract that B had planned to purchase cattle for this purpose.

Answer 15

A is not liable for B’s expenses in providing for the cattle because that loss was not foreseeable by A as a probable result of the breach at the time the contract was made (351. Unforeseeability and Related Limitations on Damages)

Question 16

A and B make a written contract under which A is to recondition by a stated date a used machine owned by B so that it will be suitable for sale by B to C. A knows when they make the contract that B has contracted to sell the machine to C but knows nothing of the terms of B’s contract with C. Because A delays in returning the machine to B, B is unable to sell it to C and loses the profit that he would have made on that sale

Answer 16

B’s loss of reasonable profit was foreseeable by A as a probable result of the breach at the time the contract was made (351. Unforeseeability and Related Limitations on Damages)

Question 17

A, a manufacturer of machines, contracts to make B his exclusive selling agent in a specified area for the period of a year. Because A fails to deliver any machines, B loses the profit on contracts that he would have made for their resale.

Answer 17

B’s loss of reasonable profit was foreseeable by A as a probable result of the breach at the time the contract was made (351. Unforeseeability and Related Limitations on Damages)

Question 18

A and B make a contract under which A is to recondition by a stated date a used machine owned by B so that it will be suitable for use in B’s canning factory. A knows that the machine must be reconditioned by that date if B’s factory is to operate at full capacity during the canning season, but nothing is said of this in the written contract. Because A delays in returning the machine to B, B loses its use for the entire canning season and loses the profit that he would have made had his factory operated at full capacity.

Answer 18

B’s loss of reasonable profit was foreseeable by A as a probable result of the breach at the time the contract was made (351. Unforeseeability and Related Limitations on Damages)

Question 19

A and B make a written contract under which A is to recondition by a stated date a used machine owned by B so that it will be suitable for sale by B to C. A knows when they make the contract that B has contracted to sell the machine to C but knows nothing of the terms of B’s contract with C. Because A delays in returning the machine to B, B is unable to sell it to C and loses the profit that he would have made on that sale. The profit that B would have made under his contract with A was extraordinarily large because C promised to pay an exceptionally high price as a result of a special need for the machine of which A was unaware.

Answer 19

A is not liable for B’s loss of profit to the extent that it exceeds what would ordinarily result from such a contract. To that extent the loss was not foreseeable by A as a probable result of the breach at the time the contract was made (351. Unforeseeability and Related Limitations on Damages)

Question 20

A, a private trucker, contracts with B to deliver to B’s factory a machine that has just been repaired and without which B’s factory, as A knows, cannot reopen. Delivery is delayed because A’s truck breaks down.

Answer 20

In an action by B against A for breach of contract the court may, after taking into consideration such factors as the absence of an elaborate written contract and the extreme disproportion between B’s loss of profits during the delay and the price of the trucker’s services, exclude recovery for loss of profits (351. Unforeseeability and Related Limitations on Damages)

Question 21

A contracts to publish a novel that B has written. A repudiates the contract and B is unable to get his novel published elsewhere. If the evidence does not permit B’s loss of royalties and of reputation to be estimated with reasonable certainty…

Answer 21

he cannot recover damages for that loss, although he can recover nominal damages. See Illustration 1 to § 347. (352. Uncertainty as a Limitation on Damages)

Question 22

A contracts to sell B a tract of land on which B plans to build an outdoor drive-in theatre. A breaks the contract by selling the land to C, and B is unable to build the theatre.

Answer 22

If, because of the speculative nature of the new enterprise the evidence does not permit B’s loss of profits to be estimated with reasonable certainty, his recovery will be limited to expenses incurred in reliance or, if none can be proved with reasonable certainty, to nominal damages (352. Uncertainty as a Limitation on Damages)

Question 23

A and B make a contract under which A is to construct a building of radical new design for B for $5,000,000. After A has spent $3,000,000 in reliance, B repudiates the contract and orders A off the site.

Answer 23

If the evidence does not permit A’s lost profits to be estimated with reasonable certainty, he can recover the $3,000,000 that he has spent in reliance. He must, however, then prove that amount with reasonable certainty (352. Uncertainty as a Limitation on Damages)

Question 24

A, a manufacturer, makes a contract with B, a wholesaler, to sell B a quantity of plastic. B resells the plastic to dealers. The plastic is discovered to be defective and B has many complaints from dealers, some of which refuse to place further orders with him.

Answer 24

B can recover the loss of good will if his loss can be estimated with reasonable certainty by such evidence as his business records before and after the transaction and the testimony of his salespersons and that of dealers (352. Uncertainty as a Limitation on Damages)

Question 25

A is employed as a school teacher by B. In breach of contract and without notice B discharges A by excluding him from the school building and by stating in the presence of the pupils that he is discharged.

Answer 25

Regardless of B’s motive in discharging A, A cannot recover punitive damages from B. A can recover compensatory damages under the rule stated in § 347, including any damages for emotional disturbance that are allowable under the rule stated in § 353 (355. Punitive Damages)

Question 26

A and B, who are neighbors, make a contract under which A promises to supply water to B from A’s well for ten years in return for B’s promise to make monthly payments and share the cost of repairs. After several years, the relationship between A and B deteriorates and A, in breach of contract and to spite B, shuts off the water periodically.

Answer 26

B cannot recover punitive damages from A. B can recover compensation damages under the rule stated in § 347 if he can prove them with reasonable certainty (§ 352), and the court may take into account the willfulness of A’s breach in applying that requirement. See Comment a to § 352 (355. Punitive Damages)

Question 27

A, a telephone company, contracts with B to render uninterrupted service. A, tortiously as well as in breach of contract, fails to maintain service at night and B is unable to telephone a doctor for his sick child.

Answer 27

B’s right to recover punitive damages is governed by Restatement, Second, Torts § 908: “Punitive damages may be awarded for conduct that is outrageous, because of the defendant’s evil motive or his reckless indifference to the rights of others” (355. Punitive Damages)

Question 28

A borrows money from B, pledging jewelry as security for the loan. B, tortiously as well as in breach of contract, sells the jewelry to a good faith purchaser for value.

Answer 28

A’s right to recover punitive damages is governed by Restatement, Second, Torts § 908: “Punitive damages may be awarded for conduct that is outrageous, because of the defendant’s evil motive or his reckless indifference to the rights of others” (355. Punitive Damages)

Question 29

A, B and C form a partnership to practice veterinary medicine in a town for ten years. In the partnership agreement, each promises that if, on the termination of the partnership, the practice is continued by the other two members, he will not practice veterinary medicine in the same town during its continuance up to a maximum of three years. A term provides that for breach of this duty “he shall forfeit $50,000 to be collected by the others as damages.” A leaves the partnership, and the practice is continued by B and C. A immediately begins to practice veterinary medicine in the same town. The loss actually caused to B and C is difficult of proof and $50,000 is not an unreasonable estimate of it. Even though $50,000 may be unreasonable in relation to the loss that might have resulted in other circumstances, it is not unreasonable in relation to the actual loss

Answer 29

Therefore, the term does not provide for a penalty and its enforcement is not precluded on grounds of public policy. See Illustration 14 to § 188 (356. Liquidated Damages and Penalties)

Question 30

A contracts to build a grandstand for B’s race track for $1,000,000 by a specified date and to pay $1,000 a day for every day’s delay in completing it. A delays completion for ten days.

Answer 30

If $1,000 is not unreasonable in the light of the anticipated loss and the actual loss to B is difficult to prove, A’s promise is not a term providing for a penalty and its enforcement is not precluded on grounds of public policy (356. Liquidated Damages and Penalties)

Question 31

A contracts to build a grandstand for B’s race track for $1,000,000 by a specified date and to pay $1,000 a day for every day’s delay in completing it. B is delayed for a month in obtaining permission to operate his race track so that it is certain that A’s delay of ten days caused him no loss at all.

Answer 31

Since the actual loss to B is not difficult to prove, A’s promise is a term providing for a penalty and is unenforceable on grounds of public policy (356. Liquidated Damages and Penalties)

Question 32

A contracts to sell his business, including land, buildings and stock in trade, to B. A repudiates the contract and B sues for specific performance

Answer 32

Specific performance of the entire contract may be granted, even though the stock in trade is of a kind that could be purchased elsewhere. However, in that case it is also within the court’s discretion to require A to convey the land and buildings and to pay damages for failure to deliver the stock in trade (359. Effect of Adequacy of Damages)

Question 33

A contracts to sell to B a painting by Rembrandt for $1,000,000. A repudiates the contract and B sues for specific performance.

Answer 33

Specific performance will be granted (360. Factors Affecting Adequacy of Damages)

Question 34

A contracts to sell to B the racing sloop “Columbia,” this sloop being one of a class of similar boats manufactured by a particular builder. Although other boats of this class are easily obtainable, their racing characteristics differ considerably and B has selected the “Columbia” because she is regarded as a witch in light airs and, therefore, superior to most of the others. A repudiates the contract and B sues for specific performance.

Answer 34

Specific performance may properly be granted (360. Factors Affecting Adequacy of Damages)

Question 35

A contracts to sell to B his interest as holder of a franchise to operate a hamburger stand. Because A has not yet opened his stand for business, it would be difficult to prove his expected profits with reasonable certainty. A repudiates the contract and B sues for specific performance.

Answer 35

Specific performance may properly be granted (360. Factors Affecting Adequacy of Damages)

Question 36

A, a manufacturer of steel, contracts to sell B all of its output of steel scrap for a period of five years. After one year, A repudiates the contract and B sues A for specific performance. The uncertainty in A’s output over the remaining four years would make it very difficult for B to prove damages.

Answer 36

Specific performance may properly be granted (360. Factors Affecting Adequacy of Damages)

Question 37

A contracts to supply B with water for irrigation. In reliance on his contract, B sows his land with rice. A repudiates the contract although he has water that he can supply and B sues for specific performance. The loss that B will suffer as a result of A’s failure to supply water is difficult of estimation

Answer 37

Specific performance may properly be granted (360. Factors Affecting Adequacy of Damages)

Question 38

A contracts to sell B 10,000 bales of cotton. A repudiates the contract on the day for delivery. B can buy cotton on the market at a somewhat higher price.

Answer 38

B will not be granted specific performance (360. Factors Affecting Adequacy of Damages)

Question 39

A contracts to sell to B 1,000 shares of stock in the X Corporation for $10,000. A repudiates the contract and B sues for specific performance. Other shares of X Corporation are not readily obtainable and B will suffer an uncertain loss as a result of diminished voting power.

Answer 39

Specific performance may properly be granted. If other shares were readily obtainable, even though at a considerably higher price, specific performance would be refused (360. Factors Affecting Adequacy of Damages)

Question 40

A contracts to obtain a patent for his invention and to assign a half interest in it to B, who promises to pay A’s expenses and $100,000. A repudiates the contract and threatens to assign the patent when it is issued to others. B sues A for specific performance.

Answer 40

Specific performance may properly be granted. The decree may enjoin A from assigning the patent to others and order him to proceed with the application and, on its issuance to execute an assignment to B, all conditional on appropriate payment by B (360. Factors Affecting Adequacy of Damages)

Question 41

On February 1, A contracts to sell his farm to B for $500,000, of which $100,000 is paid when the contract is signed and $400,000 is to be paid on A’s delivery of a deed on August 1. On March 1, A repudiates the contract. B sues A for specific performance.

Answer 41

Specific performance will be granted immediately, A’s performance not to take place until August 1 and to be conditional on the simultaneous payment by B of the $400,000 balance when the deed is tendered at that time. A may also be enjoined from making a conveyance to anyone else (360. Factors Affecting Adequacy of Damages)

Question 42

The facts being otherwise as stated in Illustration 11, B rather than A repudiates the contract on March 1 and A sues B for specific performance.

Answer 42

Specific performance will be granted immediately, B’s performance not to take place until August 1 and to be conditional on the simultaneous tender by A of the deed when the $400,000 balance is tendered at that time (360. Factors Affecting Adequacy of Damages)

Question 43

A contracts to sell land to B, a dealer in land, who contracts to sell it to C. C plans to build a home on the land and would be granted specific performance against B if B refused to convey the land to him. A repudiates the contract and refuses to convey the land to B and B sues A for specific performance.

Answer 43

Specific performance will be granted (360. Factors Affecting Adequacy of Damages)

Question 44

A, B and C form a partnership to practice veterinary medicine in a town for ten years. In the partnership agreement each makes an enforceable promise that if, on the termination of the partnership, the practice is continued by the other two members, he will not practice veterinary medicine in the same town during its continuance up to a maximum of three years. Each also makes an enforceable promise that for breach of this duty he will pay $50,000 as liquidated damages. A leaves the partnership, and the practice is continued by B and C. A immediately begins to practice veterinary medicine in the same town.

Answer 44

B and C sue A for an injunction and damages. In spite of the liquidated damage clause, A will be enjoined from practicing veterinary medicine in violation of his promise not to compete. B and C may not then recover damages under the liquidated damage clause but may recover damages for any actual loss caused by A’s breach, but not more than $50,000 (361. Effect of Provision for Liquidated Damages)

Question 45

A, a carpenter, contracts to repair B’s roof for $3,000. A does part of the work at a cost of $2,000, increasing the market price of B’s house by $1,200. The market price to have a similar carpenter do the work done by A is $1,800.

Answer 45

A’s restitution interest is equal to the benefit conferred on B. That benefit may be measured either by the addition to B’s wealth from A’s services in terms of the $1,200 increase in the market price of B’s house or the reasonable value to B of A’s services in terms of the $1,800 that it would have cost B to engage a similar carpenter to do the same work. If the work was not completed because of a breach by A and restitution is based on the rule stated in § 374, $1,200 is appropriate. If the work was not completed because of a breach by B and restitution is based on the rule stated in § 373, $1,800 is appropriate (371. Measure of Restitution Interest)

Question 46

A, a surgeon, contracts to perform a series of emergency operations on B for $3,000. A does the first operation, saving B’s life, which can be valued in view of B’s life expectancy at $1,000,000. The market price to have an equally competent surgeon do the first operation is $1,800

Answer 46

A’s restitution interest is equal to the benefit conferred on B. That benefit is measured by the reasonable value to B of A’s services in terms of the $1,800 that it would have cost B to engage a similar surgeon to do the operation regardless of the rule on which restitution is based (371. Measure of Restitution Interest)

Question 47

A, a social worker, promises B to render personal services to C in return for B’s promise to educate A’s children. A renders only part of the services and B then refuses to educate A’s children. The market price to have a similar social worker do the services rendered by A is $1,800.

Answer 47

If A recovers in restitution under the rule stated in § 373, an appropriate measure of the benefit conferred on B is the reasonable value to B of A’s services in terms of the $1,800 that it would have cost B to engage a similar social worker to do the same work (371. Measure of Restitution Interest)

Question 48

A contracts to sell a tract of land to B for $100,000. After B has made a part payment of $20,000, A wrongfully refuses to transfer title.

Answer 48

B can recover the $20,000 in restitution. The result is the same even if the market price of the land is only $70,000, so that performance would have been disadvantageous to B (373. Restitution when Other Party is in Breach)

Question 49

A contracts to build a house for B for $100,000, progress payments to be made monthly. After having been paid $40,000 for two months, A commits a breach that is not material by inadvertently using the wrong brand of sewer pipe.

Answer 49

B has a claim for damages for partial breach but cannot recover the $40,000 that he has paid A (373. Restitution when Other Party is in Breach)

Question 50

A, who holds a mortgage on B’s land, promises B that he will not foreclose the mortgage for another year, even if B makes no payments. In reliance on A’s promise, B makes valuable improvements. A forecloses in breach of his promise and buys the land at a judicial sale for the amount of the mortgage debt.

Answer 50

B can recover in restitution for the value of the improvements. Compare Illustration 1 to § 370; see also Illustration 12 to § 90 (373. Restitution when Other Party is in Breach)

Question 51

A contracts to work for B for one month for $10,000. After A has fully performed, B repudiates the contract and refuses to pay the $10,000.

Answer 51

A can get damages against B for $10,000, together with interest, but cannot recover more than that sum even if he can show that the benefit to B from the services was greater than $10,000 (373. Restitution when Other Party is in Breach)

Question 52

A contracts to sell a tract of land to B for $100,000. After B has paid the full $100,000, A repudiates and refuses to transfer title.

Answer 52

B has a right to $100,000 in restitution (373. Restitution when Other Party is in Breach)

Question 53

A contracts to build a building for B in return for B’s promise to transfer a tract of land to A and to pay $10,000. After A has built the building, B refuses to transfer title or to pay the $10,000

Answer 53

A has a right to the reasonable value of his work and materials (373. Restitution when Other Party is in Breach)