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Contracts & Sales > Modules 7-9 - Breach, Remedies, Rights/Duties of Third Parties to Contract > Flashcards

Modules 7-9 - Breach, Remedies, Rights/Duties of Third Parties to Contract Flashcards

1
Q

When does a breach of contract occur?

A

if it is found that:
(1) the promisor is under an ABSOLUTE DUTY to perform; and
(2) this absolute duty to perform HAS NOT BEEN DISCHARGED

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2
Q

What must the non-breaching party show if they sue for breach?

A

they are WILLING AND ABLE to perform, but for the breaching party’s failure to perform

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3
Q

Determining materiality of breach: elements

A

(1) the AMOUNT OF BENEFIT RECEIVED by the non breaching party;
(2) ADEQUACY of compensation for damages to injured party;
(3) EXTENT OF PART PERFORMANCE by the breaching party;
(4) HARDSHIP by the breaching party;
(5) NEGLIGENT OR WILLFUL BEHAVIOR of the breaching party; and
(6) the LIKELIHOOD THAT BREACHING PARTY will perform the remainder of the contract

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4
Q

If the breaching party has substantially performed, then the non-breaching party IS/IS NOT excused from counter performance.

A

IS NOT

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5
Q

What is a minor breach?

A

breach is minor if the obligee gains the SUBSTANTIAL BENEFIT OF THEIR BARGAIN despite the obligor’s effective performance; does not relieve aggrieved party of their duty to perform under k

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6
Q

What can the non-breaching party do if the contract has been materially breached?

A

(1) treat the contract as at an end; and
(2) has the immediate right to ALL REMEDIES for breach of the ENTIRE CONTRACT, including total damages

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7
Q

Minor breach + anticipatory repudiation

A

treated as MATERIAL BREACH by non breaching party; can sue immediately for total damages and are PERMANENTLY DISCHARGED from further performance

UCC modification: permits a party to complete the manufacture of goods to avoid having to sell unfinished goods at the lower salvage value

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8
Q

Material breach of divisible contract

A

recovery is available for SUBSTANTIAL PERFORMANCE for the divisible part, even though there has been material breach of the entire contract

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9
Q

Failure to perform by the time stated IS/IS NOT generally a material breach is performance is rendered within a reasonable time.

A

IS NOT; it is material is time is a material aspect of the contract

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10
Q

Perfect Tender Rule: rejects common law substantial performance rule

A

if GOODS OR THEIR DELIVERY fail to conform to the k in ANY WAY, buyer generally may reject ALL, accept all, or accept any commercial units and reject the rest

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11
Q

Buyer’s right to reject under UCC cut off by acceptance

A

Buyer deemed to ACCEPT when:
(1) buyer indicates to seller that the GOODS CONFORM (after reasonable opportunity to inspect) OR they will keep the goods even though they dont conform;
(2) buyer FAILS TO REJECT WITHIN REASONABLE TIME after tender or delivery of goods, or fail to SEASONABLY NOTIFY seller of their rejection; or
(3) buyer does ANY ACT INCONSISTENT WITH SELLER’S OWNERSHIP

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12
Q

A buyer CAN/CANNOT revoke acceptance if there is a defect and they did not know about it, or could not reasonably discover defect.

A

CAN

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13
Q

Buyer’s responsibilities after rejecting goods

A

has to hold the goods with reasonable care at seller’s disposition for a time sufficient to permit seller to remove them; MERCHANT buyer has obligation to OBEY ANY REASONABLE INSTRUCTIONS from the seller as to the rejected goods

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14
Q

If the buyer rejects, and the seller does not give instructions, what are the buyer’s options?

A

(1) RESHIP the goods to the seller;
(2) STORE the goods for the seller’s account; or
(3) RESELL the goods for the seller’s account (public/private sale) after giving seller REASONABLE NOTICE of the intent to resell

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15
Q

Situations where buyer can revoke acceptance

A

Standard: can revoke acceptance if the goods have a defect that SUBSTANTIALLY IMPAIRS their VALUE TO THE BUYER, and:
(1) buyer accepted goods on REASONABLE BELIEF that defect would be CURED and it has not been; or
(2) buyer accepted goods because of the DIFFICULTY OF DISCOVERING THE DEFECTS or because of the seller’s ASSURANCES that the goods conformed to the k

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16
Q

When must revocation of acceptance of goods occur?

A

(1) within REASONABLE TIME after the buyer DISCOVERS or SHOULD HAVE DISCOVERED the defects; and
(2) BEFORE ANY SUBSTANTIAL CHANGE TO THE GOODS has occurred that is not caused by a defect present at the time the seller relinquished possession

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17
Q

Exceptions to Perfect Tender Rule: Seller’s Right to Cure

A

(1) cure by notice and new tender WITHIN TIME for performance (buyer MUST accept);
(2) seller’s right to cure BEYOND original contract term (if seller REASONABLY BELIEVED that the tender would be acceptable, seller has FURTHER REASONABLE TIME to make conforming tender upon notice to buyer)

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18
Q

When might a seller reasonably believe that a nonconforming tender is appropriate when it actually isnt?

A

(1) trade practices or PRIOR DEALINGS WITH BUYER led seller to believe that goods would be acceptable; or
(2) seller could NOT HAVE KNOWN of the defect, despite proper business conduct

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19
Q

Right to revoke acceptance of installment contract

A

installment can be rejected ONLY IF the nonconformity SUBSTANTIALLY IMPAIRS the value of the installment and CANNOT BE CURED

whole k breached only if the nonconformity SUBSTANTIALLY IMPAIRS the value of the ENTIRE K

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20
Q

Standard remedy for breach of contract

A

expectation damages: what the non breaching party would have received, but for the breaching party breaching the contract

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21
Q

definition of specific performance

A

order from the court to the breaching party to perform or face contempt of court charges

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22
Q

When is specific performance available as a remedy?

A

when legal remedy (money damages) is inadequate

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23
Q

When is specific performance not available as a remedy and why?

A

contracts for services; violates the 13th Amendment (prohibition against involuntary servitude)

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24
Q

Specific performance is ALWAYS available for contracts involving…

A

land, or unique/rare goods at the time that performance is due

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25
Q

Seller contracts to sell an antique painting to Buyer, then breaches. Can Buyer get the painting from Seller?

A

YES through specific performance; the antique painting is assumably unique unless told otherwise

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26
Q

What may the court order for a breach of an employment contract instead of specific performance, when there is no other legal remedy available?

A

injunction; ordering specific performance would violate 13th Amendment

court can enjoin breaching employee from working for competitor for duration of k if the services contracted for are RARE OR UNIQUE (NFL players breaching their k)

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27
Q

Covenants not to compete: Courts will grant order of specific performance to enforce k not to compete if:

A

(1) the SERVICES to be performed are rare; and
(2) the covenant is REASONABLE

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28
Q

For a covenant to be reasonable…

A

(1) REASONABLY NECESSARY to protect a LEGITIMATE INTEREST of the person benefitted by the covenant (employer/purchaser of business);
(2) must be reasonable as to its GEOGRAPHIC SCOPE AND DURATION; and
(3) must not HARM THE PUBLIC

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29
Q

Equitable defense against specific performance: laches

A

claim that II has delayed bringing the action and that the delay has PREJUDICED the D

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30
Q

Equitable defense against specific performance: unclean hands

A

party seeking specific performance is guilty of wrongdoing IN THE TRANSACTION BEING SUED UPON

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31
Q

Equitable defense against specific performance: bona fide purchaser

A

subject matter has been sold to a person who purchased FOR VALUE and in GOOD FAITH

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32
Q

Nonmonetary damages under Article 2: Buyer’s right to cancellation

A

rightfully reject goods b/c they DO NOT CONFORM TO K

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33
Q

Nonmonetary damages under Article 2: Buyer’s right to replevy identified goods

A

buyer must have made at least PART PAYMENT and seller HAS NOT DELIVERED; buyer may replevy the goods from the seller if:
(1) seller becomes INSOLVENT WITHIN 10 DAYS AFTER RECEIVING buyer’s payment; or
(2) goods were purchased for PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES

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34
Q

If buyer uses right to replevy identified goods, what must they do?

A

tender any unpaid portion of the purchase price to the seller

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35
Q

Nonmonetary damages under Article 2: Buyer’s inability to cover

A

buyer can replevy UNDELIVERED, IDENTIFIED goods from the seller if the buyer, AFTER REASONABLE EFFORT, is UNABLE TO SECURE ADEQUATE SUBSTITUTE GOODS

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36
Q

Nonmonetary damages under Article 2: Buyer’s right to specific performance

A

if goods are unique/rare, court can order specific performance EVEN WHERE THE GOODS HAVE NOT BEEN IDENTIFIED BY THE SELLER

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37
Q

Seller’s Nonmonetary Remedies: Seller’s right to withhold goods

A

buyer fails to make payment due ON OR BEFORE delivery, seller may withhold delivery; can also withhold if goods are sold on CREDIT and before ether goods are delivered, SELLER DISCOVERS THAT BUYER IS INSOLVENT

38
Q

If buyer pays cash even after seller learns that they are insolvent, what must seller do?

A

deliver the goods

39
Q

Seller’s Nonmonetary Remedies: Right to recover from buyer on buyer’s insolvency

A

If seller learns that a buyer has received delivery of goods ON CREDIT while insolvent, seller may:
(1) reclaim the goods UPON DEMAND; and
(2) WITHIN 10 DAYS after buyer’s receipt of the goods

10-day limit does not apply if a MISREPRESENTATION OF INSOLVENCY WAS MADE IN WRITING to the particular seller WITHIN 3 MONTHS before delivery

40
Q

Seller’s Nonmonetary Remedies: Right to recover shipped or stored goods from bailee (on buyer’s insolvency)

A

seller may stop delivery if they discover that buyer is insolvent; seller must deliver goods if buyer tenders cash

41
Q

Seller’s Nonmonetary Remedies: Right to recover shipped or stored goods from bailee (on buyer’s breach)

A

seller may stop delivery if the buyer BREACHES THE K or the seller HAS THE RIGHT TO WITHHOLD PERFORMANCE pending receipt of assurances

42
Q

Limitation on seller’s ability to force goods upon buyer

A

limited to an action for price when seller is unable to resell the goods to others at a reasonable price

43
Q

Seller’s Nonmonetary Remedies: Right to demand assurances

A

(1) reasonable grounds for insecurity;
(2) demand IN WRITING assurances that performance will be forthcoming at proper time (if not received within REASONABLE TIME, contract can be treated as repudiated)

until adequate assurances are obtained, party seeking assurances may SUSPEND THEIR OWN PERFORMANCE

44
Q

Compensatory damages

A

put the non breaching party IN THE POSITION THEY WOULD HAVE BEEN, had the promise been performed

45
Q

Standard measure of damages: Expectation damages (default)

A

sufficient damages for nonbreaching party to buy SUBSTITUTE PERFORMANCE

46
Q

Example: I agree to paint Beyonce’s house for $10,000. I breach. She pays another painter $3,000 to paint the house.
(i) How much can Beyonce recover from me?
(ii) Same facts, except Beyonce refuses to pay me after I have started painting her house. I have already spent $5,000. I expected to have $1,500 in profit. What are my damages?
(iii) If my profits were uncertain, what would my reliance damages be?
(iv) What would my damages be in restitution?

A

(i) $3,000; difference that would put her in the same position she would have been in, absent breach
(ii) $5,000 (what I already spent) + $1,500 (how much profit I expect) = $6,500
(iii) $5,000 (I spent $5,000 before she fired me)
(iv) might be $5,000 in restitution, this is uncertain

47
Q

Reliance damages

A

damages that the plaintiff has suffered based on their REASONABLE RELIANCE on the k

designed to put plaintiff in the position that it would have been in, had the k never been formed

48
Q

Incidental damages

A

CAN ALWAYS GET THESE; NOT FORESEEABLE DAMAGES DO NOT FALL FOR THIS TRICK!!!!!!!

expenses REASONABLY incurred by buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected

49
Q

Damages: Certainty rule

A

II must prove that losses suffered were CERTAIN in their nature and NOT SPECULATIVE

49
Q

Consequential damages

A

must be FORESEEABLE at the time of K FORMATION; measured on a REASONABLE PERSON STANDARD

To recover: breaching party must have KNOWN OR HAD REASON TO KNOW of the special circumstances giving rise to the damages

k for sale of goods: only BUYER can recover these

50
Q

Punitive damages

A

NEVER EVER EVER EVER GIVEN IN CONTRACTS CASES

51
Q

Nominal damages

A

may be awarded when a breach is shown BUT NO ACTUAL LOSS IS PROVEN

52
Q

Liquidated damages

A

must be an amount that is REASONABLE in view of the actual or anticipated harm caused by breach

53
Q

To enforce liquidated damages clauses:

A

(1) damages for contractual breach are DIFFICULT TO ESTIMATE OR ASCERTAIN at the time that the k IS FORMED; and
(2) amount agreed upon is a REASONABLE FORECAST of compensatory damages in the case of breach

reasonableness: comparison between the amount of damages PROSPECTIVELY probable at the time of k formation and the liquidated damages FIGURE

54
Q

If a court determines that the amount of a liquidated damages clause is unreasonable, what happens?

A

the court will deem the amount a PENALTY and will NOT ENFORCE the clause

55
Q

Buyer’s monetary damages options for breach of k under UCC Article 2

A

(1) Cover damages (cover price - original k price) = $x
(2) Market damages (market price - original k price) = $x
(3) Loss in value (value as promised - value as delivered) = $x

56
Q

Example: Brian contracts to buy carpeting for $2,500. Sean doesnt deliver. The market price for similar carpeting is $2,700. What are Brian’s damages if Brian pays $2,800 for the same carpeting?

A

$300, the amount of the difference between the cover price minus the original k price

57
Q

If seller delivers nonconforming goods that buyer accepts, and the goods breach one of the seller’s warranties, what happens?

A

buyer may recover as damages LOSS RESULTING WITH NORMAL COURSE OF EVENTS FROM BREACH, i.e., “loss in value” PLUS incidental and consequential damages

buyer has to give seller notice WITHIN REASONABLE TIME after the buyer DISCOVERS/SHOULD HAVE DISCOVERED THE DEFECT

58
Q

Example: Bridget contracts to buy an antique painting for $4,000. She later discovers it’s not antique, but keeps it anyway. The painting is worth $2,000. Had it been antique, it would be worth $5,000. What are Bridget’s damages?

A

$3,000; $5,000 (value as promised) - $2,000 (value as delivered) = $3,000 loss in value

59
Q

If seller anticipatory breaches the contract:

A

difference between the MARKET PRICE at the time the buyer LEARNED of the breach and the K PRICE

60
Q

When is a seller liable for consequential damages?

A

(1) they had REASON TO KNOW of buyer’s general/particular requirements; and
(2) subsequent loss resulting from those needs COULD NOT BE REASONABLY PREVENTED BY COVER

61
Q

Goods for resale

A

if the buyer is in the business of reselling goods, the seller is DEEMED TO HAVE KNOWLEDGE of the resale

62
Q

Sellers damages: buyer repudiates or refuses to accept conforming goods

A

Seller can:
(1) RESELL the goods and recover difference between K PRICE and RESALE PRICE
(2) Recover the difference between the MARKET PRICE (at the time of delivery) and K PRICE
(3) recover under LOST PROFITS only if the above options are inadequate (difference between k price and cost to seller) AND the seller is a lost volume seller

63
Q

Lost volume seller

A

if seller’s supply of goods is UNLIMITED (ex. car dealerships), the lost profits measure CAN BE USED because they are a lost volume seller

64
Q

Example: Cheryl contracts to buy a Model X for $100,000 from her local Tesla dealership out of its regular inventory. The dealership would’ve made a profit of $10,000. Cheryl backs out of the deal. A week later, the dealership sells the same car to someone else. What are the dealer’s damages?

A

dealership is a lost volume seller, so $10,000
has unlimited supply of goods (cars), and could have made 2 sales for $20,000 had Cheryl not backed out of the deal

65
Q

Damages for breach of land sale k

A

difference between K PRICE and FMV OF LAND

66
Q

Breach of employment k by employer

A

damages: full k price

67
Q

Breach of employment k by employee

A

damages: cost of replacing the employee

68
Q

Termination of an employment at-will k DOES/DOES NOT result in breach

A

DOES NOT

69
Q

Construction contracts: breach by owner

A

builder entitled to PROFITS that WOULD HAVE RESULTED from k, plus any COSTS EXPENDED

70
Q

Construction contracts: breach by builder

A

owner is entitled to the COST OF COMPLETION plus REASONABLE COMPENSATION FOR DELAY

71
Q

Avoidable damages: mitigation

A

Common law: non breaching party cannot recover damages that could have been avoided with REASONABLE EFFORT; can generally recover the EXPENSES OF MITIGATION

UCC: does not apply this rule unless goods cannot be resold at reasonable price or risk of loss was ON BUYER when goods damages/lost; SELLER GENERALLY CANNOT BRING ACTION FOR FULL K PRICE

72
Q

Contracts where losses generally have to be mitigated

A

Employment k; manufacturing k (dont continue working without being paid); construction k (dont continue working without being paid)

73
Q

Restitution

A

based on preventing UNJUST ENRICHMENT; measure of damages is the VALUE OF THE BENEFIT CONFERRED

74
Q

Restitution where k has been breached

A

non breaching party HAS NOT FULLY PERFORMED, can:
(1) cancel the k; and
(2) sue for restitution to prevent unjust enrichment

if non breaching party has FULLY PERFORMED, they are LIMITED TO THEIR DAMAGES UNDER THE K

75
Q

Restitution where plaintiff breaches

A

if the breach was INTENTIONAL: likely cannot get any restitution

modern view: courts will permit restitution but limit it to K PRICE - DAMAGES INCURRED AS RESULT OF BREACH

76
Q

Restitution of advance payments or deposit if buyer of goods breaches

A

buyer has paid PART of purchase price THEN breaches: recover some of the payments; seller may keep advance payments totaling 20% of purchase price OR $500, whichever is less

BALANCE MUST BE RETURNED TO BUYER

if liquidated damages clause is valid, seller only has to return the EXCESS OF BUYER’S PAYMENTS over the amount of liquidated damages

77
Q

K unenforceable - Quasi k remedy

A

restitution may be available if k was made but is UNENFORCEABLE and unjust enrichment otherwise would result

ex. celebrity is hired to sign autographs and is paid, but they die before they perform

78
Q

No k involved - Quasi k remedy

A

no contractual relationship between parties, may still be able to use restitution if:
(1) II has CONFERRED BENEFIT on D by rendering services;
(2) II conferred benefit with REASONABLE EXPECTATION OF BEING PAID;
(3) D KNEW OR HAD REASON TO KNOW of II’s expectation; and
(4) D would be UNJUSTLY ENRICHED if they were allowed to retain benefit without compensating II

79
Q

Rescission (invalidating a k)

A

grounds for rescission must have occurred either BEFORE OR AT THE TIME the k was formed; grounds are:
(1) MUTUAL MISTAKE of material fact;
(2) UNILATERAL MISTAKE if the other party KNEW OR SHOULD HAVE KNOWN of the mistake;
(3) Unilateral mistake if HARDSHIP BY MISTAKEN PARTY IS SO EXTREME that it outweighs the other party’s expectations under the k;
(4) MISREPRESENTATION OF LAW OR FACT by either party as to material factor that was relied on; and
(5) OTHER GROUNDS such as duress, undue influence, illegality, lack of capacity, and failure of consideration

80
Q

K reformation

A

agreement between parties is changed so that it CONFORMS to the original intent of the parties

81
Q

Grounds for k reformation

A

(1) Mistake (agreement between parties, agreement to put the agreement in writing, and variance between the original agreement and the writing);

(2) Misrepresentation (II can choose between reformation and avoidance; must be a misrepresentation of LEGAL EFFECT OF RECORD, not misrepresentation of subject matter [rescission/damages are proper there])

82
Q

The variance between the antecedent agreement and the writing must be established by ____________________.

A

clear and convincing evidence

83
Q

Do the parol evidence and SOF rules apply to k reformations?

A

NO is the majority; some courts apply SOF to contracts for sale of land still upon reformation

84
Q

General defenses to k reformation

A

can use general equitable defenses, but also BONA FIDE PURCHASER FOR VALUE is a defense

85
Q

State of limitations under UCC

A

4 years; parties can agree to shorten it to NO LESS than one year, but cannot agree to go beyond 4 years

86
Q

Accrual of an action for SOL purposes under UCC

A

statutory period begins to run when a party can bring suit, which is when the breach occurs

period begins to run REGARDLESS OF WHETHER THE AGGRIEVED PARTY KNOWS OF THE BREACH

87
Q

Accrual of breach of warranty action

A

breach occurs and limitations period begins to run UPON DELIVERY OF THE GOODS (true even if the buyer doesnt know of the breach until later)

88
Q

If there is an express warranty that explicitly extends future performance of the goods, the 4-year period doesnt begin to run until when?

A

the buyer SHOULD HAVE DISCOVERED the breach

89
Q

Because implied warranties cannot “explicitly” extend to future performance, they are breached, if at all, when?

A

UPON DELIVERY

Contracts & Sales (3 decks)

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