MBE: Contracts > Remedies > Flashcards
Remedies Flashcards
What is specific performance?
Specific performance is a non-monetary remedy. It is an equitable remedy that is available only if monetary damages are inadequate to compensate the injured party.
This is seen with real property (because real property is considered unique) and for the sale of goods ONLY if those goods are unique or there are “other proper circumstances” (such as unable to buy similar goods).
What is a non-monetary remedy for service contracts?
For service contracts, we don’t want specific performance to be the remedy. If monetary damages are inadequate to compensate the injured party, injunctive relief may be.
B buys goods on credit on May 10. B is insolvent on May 22, when B receives the goods. S demands their return on May 29. Does S have a right under Article 2 to get the goods back?
Yes, S has a right under Article 2 to get the goods back because the buyer was insolvent when he received the goods and the seller made a demand within 10 days (here, 7) after the buyer received them.
What are monetary remedies?
The monetary remedies are:
- punitive damages
- liquidated damages
- expectation damages
- incidental damages
- consequential damages
- avoidable damages
What are avoidable damages?
An injured party cannot recover damages he could have avoided (mitigated) with reasonable effort. This is essentially a common law rule.
K is fired in violation of her contract. She makes $900/week. Her former employer alleges that K can get a comparable job paying $800/week.
What are K’s damages?
K’s damages are $100/week.
For MBE purposes, comparable job = same kind of job in same city.
What are consequential damages?
Consequential damages are damages that were reasonably foreseeable to the breaching party at the time of the contract.
*NOT AVAILABLE to a seller under Article 2
M contracts with UPS to ship a broken mill shaft back to the manufacturer. UPS delays in shipping the shaft. M does not have another shaft.
As a result, the mill is shut for 9 extra days. Can M recover the $20,000 in profit it lost during that 9-day period?
No. M cannot recover the profit it lost because the damages were not reasonably foreseeable at the time of the contract to the manufacturer.
What are incidental damages?
Incidental damages are the cost to the injured buyer or seller of transporting/caring for goods after a breach and of arranging a substitute transaction.
After my breach, Seller has to store and insure the dishes, and advertises them for sale in the newspaper in an attempt to find another buyer.
Can Seller recover these expenses from me?
Yes, the Seller can recover these expenses from me. These expenses are incidental damages because the Seller is looking for the cost he suffered in transporting/caring for goods after a breach.
A car dealer contracts to sell a car out of its regular inventory to Jennifer for $7,000. The dealer would have made a $1,000 profit. Jennifer breaches.
A week later, the dealer sells the same car to Lena for $7,000. The market price of the car is $6,500. What are the dealer’s damages?
The dealer’s damages are the lost profit of $1,000. The dealer is a lost volume dealer and he could have sold two cars for $7,000 - instead he sells only one for $7,000.
What are expectation damages?
Expectation damages put the injured party in as good a position as full performance. This is the general rule.
What are typical expectation damages for a buyer?
For a buyer, the typical expectation damages are:
- cover damages: cover price - contract price
(pays $300 extra for the same/similar product) - market damages: market price - contract price
(buyer doesn’t cover in good faith or doesn’t cover at all) - loss in value: value as promised - value delivered
(if buyer keeps non-conforming goods)
What are liquidated damages?
Liquidated damages are upheld if damages were difficult to estimate at the time of the contract and are a reasonable forecast of probable damages. Liquidated damages clauses are permissible as long as they do not operate as a penalty.
D hires T to redo his office. The contract provides for damages of $100/day for each day T is late. T finishes 20 days late.
Is the liquidated damages clause valid?
Yes, the liquidated damages clause is valid because this is a reasonable forecast that is graduated per day.
D hires T to redo his office. The contract provides for damages of $2000 if T is late. Is this valid?
This liquidated damages clause is unlikely to be valid because it is just a lump sum.
What is the effect if the liquidated damages clause is struck down as a penalty?
If a liquidated damages clause is struck down as a penalty, the injured party is still entitled to normal damages.
T/F: Contract remedies are designed to compensate the injured party, not to punish the breaching party.
True. Punitive damages are not awarded for the breach of contract because the purpose of contract damages is to compensate, not punish.
On January 30, a company that designs and builds generators to standard industrial specifications received a telephone call from a buyer who ordered two generators at a price of $25,000 each. The parties agreed that delivery of the first generator would be on March 15, and the second on April 30. Payment was to be made no more than 30 days after delivery. On March 12, the company delivered the first generator, which the buyer accepted. On April 22, the company completed the second generator but had not yet notified the buyer. On April 23, the buyer, having made no payment to the company, canceled the agreement. The company brings an action against the buyer for breach of contract.
How much should the company recover in damages?
The company should recover $25,000 only. Contracts for goods for $500 or more must be evidenced by a writing to be enforceable. There are three exceptions to this rule: specially manufactured goods unsuitable for resale in the seller’s regular course of business, contracts admitted in court, and contracts partially accepted (enforceable to the extent of the acceptance). Here, the contract was for $50,000 and was oral. Thus, it will be enforceable only if one of the exceptions applies. The buyer’s acceptance of the first generator constitutes part acceptance that will make the buyer liable to the extent of the acceptance: $25,000.
If Buyer only has part performance to satisfy SoF requirement for a land sale contract - meaning he has done two of the following: payment, possession, and/or made valuable improvements, what are Buyer’s remedies?
If a Buyer can satisfy the SoF requirement typical for land sale requirements through part performance, he may enforce the oral contract only in equity. So Buyer can only sue for specific performance (get the orally agreed-upon land), not for damages.
If a contract violates the SoF, what remedies are available for the injured party?
If a contract violates the SoF, typically a party can sue for reasonable value of the services or part performance rendered OR for restitution of any benefit that has been conferred.
If the part performance took the contract out of SoF, the performing party can sue on the contract for expectation damages rather than just restitution.
T/F: Buyer’s damages are measured as of the time she learns of the breach, while the seller’s damages are measured as of time for delivery.
True.
The owner of an art gallery and her friend were discussing art after the friend had helped the owner move some furniture in her home. The friend mentioned that he was very fond of a particular artist. The gallery owner asked her friend if he would like to buy a painting by the artist, and the friend said that he would love it, but he only had $2,700. The gallery owner told her friend that she would let him have the painting for that price. The friend knew that the painting was priced at $7,000. He immediately wrote out a check for $2,700 and gave it to the gallery owner, who told him to visit the gallery on Monday to pick up the painting. On Sunday, a salesperson at the gallery sold that painting to a gallery customer. Neither the salesperson nor the customer knew of the agreement between the gallery owner and her friend. The customer took the painting with him on Sunday. When the friend arrived at the gallery on Monday, the painting was gone.
Can the friend obtain specific performance from the gallery owner?
The salesperson sold the painting in good faith to a customer. Because the gallery owner no longer actually has the painting, there is no way to specifically enforce her agreement to convey it to her friend.
Specific performance is granted when: (i) there is a valid contract; (ii) the legal remedy is inadequate; (iii) enforcement is feasible; and (iv) mutuality of remedy is present. The gallery owner and her friend had a contract, which is removed from the Statute because the friend tendered full payment for the painting. Also, the painting is unique so rendering the legal remedy (damages) would be inadequate.
Specific performance cannot be granted because the salesperson was unaware of the gallery owner’s agreement with her friend. With the subject matter of the contract having been transferred in good faith to a third party, there is no feasible means to enforce against the gallery owner her agreement to sell the painting to her friend. Thus, the right to specific performance is cut off.
P decided that she would turn the garage on her property into an exercise area. She entered into a written agreement with a contractor who agreed to do the job personally for $12,500, which included all requisite plumbing, electrical, and carpentry work. The contractor was to begin work by May 14. On May 15, he had not yet appeared to start the job. P called the contractor, who told her that he was hired for a big job that was going to pay him “a lot more money than that marginal project of yours, so I’m not going to work on your garage.” Over a period of several months, P made many calls to local contractors, but none of them would agree to do the job for the price agreed upon by the original contractor. On June 3 of the following year, P filed suit for specific performance against the original contractor.
Which of the following represents the contractor’s best argument in his defense against the property owner’s suit?
A - Specific performance is an equitable remedy, and because the property owner waited for over a year to sue, the equitable defense of laches will apply.
B - Specific performance is inappropriate, because a contract for services is involved.
C - Specific performance is inappropriate, because nominal legal damages are available to the property owner.
D - Specific performance is inappropriate, because the property owner’s failure to obtain another contractor for the job is an indication that $12,500 was an unfair price.
B is the right answer. Specific performance is inappropriate for the contract of services. To have specific performance, P must show that a legal remedy (damages) is inadequate unless there is a rare or unique good at issue.
(A) is wrong because specific performance is not going to work here. The defense of laches is also not present. Laches is available as an equitable defense if the plaintiff has unreasonably delayed in bringing the action and the delay is prejudicial to D. There is no automatic invocation of laches by a delay of one year before suit is filed. Here, there is no showing that the property owner’s delay in filing suit was unreasonable, given that she spent several months trying to find another contractor, nor that the contractor has been prejudiced by the delay. Therefore, laches will not provide the contractor with a strong defense.
(C) is incorrect because nominal damages would not be an adequate legal remedy. Nominal damages are appropriate where there is a breach, but no actual loss. Here, nominal damages would fail to compensate the property owner for the amount she will have to pay above the price agreed to by the contractor. By itself, the availability of nominal damages would not render specific performance an inappropriate remedy.
(D) The mere fact that the property owner could not find another contractor to do the job for the price agreed upon by the contractor does not establish that the contract was unconscionable. Thus, the contractor will not be successful in his contention that specific performance should be denied on the basis that the price for which he agreed to do the work was too low.
A distributor of electric toy trains and a hobby shop owner entered into a written contract providing that the distributor will tender to the shop owner four dozen of a popular electric train set at a price of $100 apiece, to be delivered no later than October 31, to take advantage of the holiday shopping season. The shop owner chose to order from this distributor because its price for the train set was lower than that of other distributors. Shortly after the shop owner placed his order, the distributor raised its prices due to a sudden surge in popularity of that train set. Because the distributor did not have enough train sets to accommodate everyone due to the surge of orders, it decided to deliver train sets only to those buyers who had ordered them at the increased price. The distributor notified the shop owner that it would not deliver the train sets it ordered. The shop owner filed an action to force the distributor to deliver the train sets at the agreed-upon price.
Will the court compel the distributor to deliver the train sets to the shop owner?
Because the shop owner can cover (i.e., buy the train sets from another source), a court will not grant specific performance. If the seller fails to deliver goods under a valid contract, the buyer has a number of remedies available, including the right to cover and the right to obtain specific performance if appropriate. A buyer may obtain specific performance of a contract for the sale of goods if the goods are unique or in short supply, but that does not appear to be the case here because the other distributors carried that train set. Thus, the shop owner can buy the train sets from another distributor and get the difference between the cost of the substitute goods and the contract price.
P was interested in renting a particular apartment because of its very distinctive features, but she was also considering a number of other options. Because she wanted some time to make up her mind, she contacted the building’s rental agent and asked him to reserve her right to rent the particular apartment. They made the following written agreement:
“Upon payment of $200, the student shall have the right to inform the agent that she wishes to rent the apartment any time on or before July 1. If she fails to notify the agent that she wants the apartment on or before July 1, the agent shall keep the $200. However, if she does notify the agent on or before July 1 that she desires the apartment, the agent will apply the $200 to her first month’s rent.”
P paid the agent $200.
On June 9, the agent rented the apartment to a third party who was unaware of the agent’s agreement with P. On July 1, the student told the agent that she wanted the apartment. He refused to rent it to her and returned her $200.
P sued, requesting the court to compel the agent to rent her the apartment. The court determined that the agent breached his agreement with P.
Would it be appropriate for the court to order the agent to rent the apartment to P?
The court should not order the rental agent to rent the apartment to P because her right to specific performance was cut off by the lease to the third party. A court will grant specific performance of a contract in certain circumstances (e.g., if money damages would be inadequate). While money damages generally are considered inadequate when a transfer of an interest in land is involved (including a transfer of a leasehold estate), a court will not grant specific performance if the subject matter of the contract has been transferred to a bona fide purchaser for value. A third party lessee who was unaware of the agreement between the agent and P would be considered a bona fide purchaser for value. Thus, even assuming that all of the elements for specific performance are present, the court still would not order the rental agent to lease the apartment to P here.
An association placed an order for 100 12-inch softballs with a manufacturer. Due to manufacturer’s error, the manufacturer shipped 100 16-inch softballs.
What are the association’s rights and duties?
Under the UCC, a shipment of conforming or non-conforming goods is an acceptance. Here, these are non-conforming goods. The association has two options: it can accept the non-conforming goods and get damages OR reject the non-conforming goods and sue for damages.
MM subcontracted with printer P to print brochures for $20,000 over several weeks. After providing $15,000 of printing services the first few weeks, P unjustifiably refused to perform any additional work. MM paid P $10,000 by this point and had to pay another printer $12,000 to print the balance. MM sued P for breach of contract and P counter-claimed for the reasonable value of benefits conferred by not paid.
What will the outcome of the litigation be?
MM should recover $2,000, the excess it had to pay over the contract price ($22,000 total when it was originally $20,000) to get the performance the printer had promised. The idea is to make the non-breaching party whole - where he would have been if the promise was performed.
The idea that P conferred benefits is unfounded. For P to get damages, it would need to argue that he is entitled to restitution.
A high-volume boat seller entered into a written contract with C for a boat of $120,000. The retailer could obtain from the manufacturer this boat for $90,500. As the contract provided, C paid the seller $40,000 in advance and promised to pay the full balance on delivery of the boat. There is no liquidated damages clause.
Prior to the delivery date, C notified seller that he could not afford the boat; seller then resold that boat to another person for $120,000.
If C sues seller for restitution of $40,000 advance payment, what should be the result?
C should recover $40,000 minus retailer’s lost profit.
There are four types of damages when a buyer defaults after putting down a down payment:
- allows deposit to serve as liquidated damages if the contract provides, within certain limits
- when the deposit is given and there is no liquidated damages clause, seller may keep 20% of the contract price or $500, whichever is less
- if not above, then resale price minus contract price
- if seller is a dealer and (3) is inadequate to put him in a position as if the promise went through, then it is lost profit
Here, 4 applies because the seller is a lost volume seller of boats.
There are four types of damages when a buyer defaults after putting down a down payment. What are they?
There are four types of damages when a buyer defaults after putting down a down payment:
- allows deposit to serve as liquidated damages if the contract provides, within certain limits
- when the deposit is given and there is no liquidated damages clause, seller may keep 20% of the contract price or $500, whichever is less
- if not above, then resale price minus contract price
- if seller is a dealer and (3) is inadequate to put him in a position as if the promise went through, then it is lost profit
A corporation whose subsidiaries include a major hotel chain planned to build a new hotel and advertised for bids to build the hotel within the next six months. Four bids were received, for $17 million, $17.2 million, $17.4 million, and $15 million. The corporation’s chief financial officer reviewed the bids, then emphatically told the corporation’s chief executive officer (“CEO”) that there was “no way” the low bidder could make a profit on the $15 million bid. The CEO made no response.
In fact, the builder had stayed up for 72 hours without sleep preparing the bid for the hotel project and had neglected to include the plumbing expenses in the bid. Typically, the cost of plumbing, including the shop’s profit, would have been about $2 million.
Shortly after the $15 million contract was signed by the CEO and the builder, the builder discovered his mistake and telephoned the CEO to tell her that he had forgotten to include the cost of plumbing, adding that he would normally charge $2 million for plumbing. The CEO agreed to pay the additional $2 million, but this arrangement was never reduced to writing. After the builder completed the project on time, the CEO sent him a check for only $15 million.
Can the builder compel the CEO to tender the additional $2 million?
A - Yes, because the CEO was on notice of the builder’s mistake.
B - Yes, because the builder relied to his detriment on the CEO’s promise.
C - No, because the builder had a preexisting legal duty to complete the project for $15 million.
D - No, because evidence of the agreement to pay the additional $2 million is barred by the parol evidence rule.
(A) CEO was on notice of builder’s mistake because CEO was told that there was “no way” that bid would make profit. Although the general rule is that a contract will not be avoided by a unilateral mistake, there is an exception where the nonmistaken party either knew or should have known of the mistake. Here the facts clearly indicate that the CEO knew that the builder’s bid could not be correct, yet relied on it anyway. Thus, the builder had grounds to avoid the contract.
Rather than completely avoid the contract here, the parties agreed to reform it, but they failed to record the reformation in writing. Nevertheless, the court will allow the parties to show the reformed terms because of the mistake.
A proud grandfather who planned to take pictures of his grandson’s graduation purchased a camera from a camera store. He used the camera on several occasions over the next few weeks without incident, but when he used it on the day before his grandson’s graduation, it caught fire and exploded, burning him and destroying an expensive coat he was wearing. Although the grandfather was in a great deal of pain because of his injuries, he insisted on attending his grandson’s graduation. However, because he no longer had a workable camera, the grandfather hired a professional photographer to take pictures of the special day.
In a breach of warranty action, which of the following represents the most that the grandfather may recover?
A - The difference between the value of the camera accepted and its value if it had been as warranted.
B - The difference between the value of the camera accepted and its value if it had been as warranted, plus medical costs for treating the grandfather’s burns.
C - The difference between the value of the camera accepted and its value if it had been as warranted, medical costs for treating the grandfather’s burns, and the cost to replace the grandfather’s coat.
D - The difference between the value of the camera accepted and its value if it had been as warranted, medical costs for treating the grandfather’s burns, the cost to replace the grandfather’s coat, and the cost of hiring the professional photographer.
(C) When a buyer accepts goods that turn out to be defective, he may recover as damages any “loss resulting in the normal course of events from the breach,” which includes the difference between the value of the goods accepted and the value they would have had if they had been as warranted, plus incidental and consequential damages.
Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt, and transportation, care, and custody of goods rightfully rejected. In this case, the grandfather incurred no incidental damages.
Consequential damages resulting from the seller’s breach include any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise, and injury to person or property proximately resulting from any breach of warranty. Here, the grandfather is entitled to breach of warranty damages for the loss of the camera-the difference between the value of the camera accepted and its value if it had been as warranted-plus damages for injury to his person (e.g., medical costs for treating the grandfather’s burns) and property (i.e., the cost to replace his coat) because they were proximately caused from the breach of warranty. Thus, (C) is correct.
A landowner entered into a written agreement with a real estate broker whereby the broker would receive a commission of 10% of the sale price if he procured a “ready, willing, and able buyer” for the landowner’s property and if the sale actually proceeded through closing. The broker found a buyer who agreed in writing to buy the property from the landowner for $100,000, the landowner’s asking price. The buyer put up $6,000 as a down payment. The agreement between the landowner and the buyer contained a liquidated damages clause providing that, if the buyer defaulted by failing to tender the balance due of $94,000 at the closing date, damages would be 10% of the purchase price. The landowner included that clause because she was counting on using the proceeds of the sale for a business venture that would likely net her at least $10,000.
The buyer became seriously ill and defaulted. When he recovered, he demanded that the landowner return his $6,000, and the landowner refused. The broker also demanded the $6,000 from the landowner and was refused. The broker and the buyer filed separate suits against the landowner, with the buyer pleading impossibility of performance. The two cases are consolidated into a single case.
How should the court rule as to the disposition of the $6,000?
A - The landowner keeps the entire $6,000, because the liquidated damages clause is reasonable.
B - The buyer gets the entire $6,000, because his performance was impossible.
C - The broker gets the entire $6,000, which is 60% of the commission he is entitled to, because he substantially performed his part of the contract by producing a buyer willing to pay the $100,000 asking price.
D - The broker gets $600 and the landowner gets $5,400, because the damages clause was reasonable and the broker is entitled to 10% of whatever the landowner realizes from the deal.
(A) The landowner may keep the $6,000 as liquidated damages. A liquidated damages clause is enforceable if: (i) damages are difficult to ascertain at the time of the making of the contract, and (ii) the damages are a reasonable forecast of compensatory damages. Here, the landowner was unsure what her damages would be if she did not receive the sales proceeds from the property, but $10,000 seemed a reasonable amount. Thus, both criteria for valid liquidated damages clauses are met.
(B) is incorrect because impossibility must be objective; i.e., performance cannot be accomplished by anyone. Physical incapacity of a person necessary to effectuate the contract may discharge contractual duties if that person’s performance is clearly impossible. (Usually this occurs in personal services contracts, where only that one person can perform the required duty.) Although the buyer was seriously ill, it is not clear that this made it impossible for him to produce the $94,000. Without more facts, it is reasonable to assume that someone else could have delivered the money or that his mortgage would still have gone through, etc.
(C) is incorrect because the conditions for the broker’s payment were not met: It is debatable whether he produced a “ready, willing, and able” buyer, and in any event the sale did not actually proceed through closing.
(D) is incorrect because the broker was to receive proceeds from the sale of the property; the $6,000 was damages and not sale proceeds.
A homeowner entered into a written agreement with a contractor whereby the contractor agreed to completely remodel the homeowner’s bathroom “to her specifications” at a cost of $10,000. The homeowner’s specifications were highly detailed and required custom-made fixtures that would not be usable in other bathroom remodeling jobs. The contractor ordered the custom-made fixtures and paid $4,000 for them when they were delivered to his place of business. Figuring up the cost of the fixtures and labor, the contractor estimated that he would make a total profit of $2,000 on the job after payment for materials and workers. Before the contractor began work on the project, but after he had paid for the fixtures, the homeowner told the contractor that she had had a change of heart and would probably be selling the house the following year, and so would not need a custom bathroom. The contractor made no attempt to sell the fixtures to another contractor and filed suit against the homeowner for damages.
What is the contractor likely to recover?
A - Nothing, because he failed to mitigate damages.
B - His expectation damages of $2,000.
C - $4,000, the cost of materials as restitution.
D - $2,000 as expectation damages, plus $4,000 in reliance damages.
The contractor can recover $2,000 as lost profits plus the $4,000 in costs he incurred before the homeowner breached the contract. The purpose of a damages remedy based on an affirmance of the contract is to give compensation for the breach; i.e., to put the nonbreaching party where he would have been had the promise been performed.
In a construction contract, if the owner breaches the contract after the builder has already begun his performance, the builder will be entitled to any profit he would have derived from the contract plus any costs he has incurred to date. This formula contains an expectation component (the profit the builder would have made) and a reliance component (the cost incurred prior to the breach). This formula is applicable to the facts in this case. The contractor has begun performance by ordering and purchasing the custom-made fixtures at a cost of $4,000. Because they are usable only for the homeowner’s purposes, their cost, which is treated just like any other expenditure of labor and material in a partially completed construction contract, can be recovered as reliance damages. The other element of his recovery is the $2,000 profit that he would have derived from the contract—his expectation damages. His total recovery will therefore be $6,000.
A breeder of quarter horses entered into an agreement with a rancher to sell and deliver two quarter horses, one to the rancher and the other to the rancher’s fiancée as a gift. Although the fair market value of each horse was $3,000, the horse breeder agreed to sell both horses together for a total price of $5,000. Under the agreement that the rancher wrote out and both parties signed, the horse breeder agreed to deliver one horse to the rancher on August 1, at which time the rancher agreed to pay the horse breeder $5,000. The horse breeder further agreed to deliver the other horse to the rancher’s fiancée on August 12.
On August 1, the horse breeder delivered the first horse to the rancher and, at the same time, the rancher gave the horse breeder a certified check for $5,000. On August 12, the horse breeder brought the second horse to the residence of the rancher’s fiancée and told her that the horse was a gift from the rancher. The rancher’s fiancée told the horse breeder that she loathed quarter horses and she refused to take the horse. The horse breeder brought this horse back to his farm and sent an e-mail to the rancher, informing him that his fiancée refused delivery and that he (the horse breeder) could not keep the horse. Two weeks later, after not hearing from the rancher, the horse breeder sold the horse to an interested party for $3,000.
If the rancher sues the horse breeder, how much should the rancher recover?
A - $3,000, the value of the second horse.
B - $2,000, the difference between the value of the horse delivered to the rancher and what the horse breeder received from the rancher.
C - Nothing, because the rancher was not financially harmed.
D - Nothing, because the horse breeder performed his part of the contract.
The rancher should recover $2,000 because that is the amount by which the horse breeder would be unjustly enriched. In a proper tender of delivery, the seller must put and hold conforming goods at the buyer’s disposition for a time sufficient for the buyer to take possession. The seller must give the buyer notice reasonably necessary to enable him to take possession of the goods. Proper tender of delivery entitles the seller to acceptance of the goods and to payment according to the contract. Having made a proper tender of delivery at the place designated by the rancher and having notified the rancher of his fiancée’s nonacceptance, the horse breeder has discharged his duty under the contract. When a party’s duty of performance is discharged, the other party is entitled to restitution of any benefits that he has transferred to the discharged party in an attempt to perform on his side. With the horse breeder’s contractual duty to deliver the second horse to the rancher’s fiancée discharged, the horse breeder would be unjustly enriched, to the detriment of the rancher, if he were permitted to keep the entire $5,000 paid to him by the rancher. The rancher conferred a benefit upon him by paying him $5,000 in exchange for two horses, one of which was to be delivered to the rancher, the other to the rancher’s fiancée. Because delivery to the fiancée cannot be accomplished, the rancher finds himself in a position of having paid $5,000 for one horse, the fair market value of which is $3,000. Thus, if the horse breeder is permitted to retain the sum of $5,000, he will be unjustly enriched by $2,000. Therefore, the rancher should recover restitution of $2,000.
On February 1, a national department store chain entered into a written agreement with a canoe manufacturer providing that the manufacturer would sell the department store any quantity of 16-foot aluminum canoes that the department store desired at a price of $250 per canoe, deliveries to be made 30 days after any order. The agreement was signed by authorized agents of both parties. On March 1, the department store sent the manufacturer an order for 500 canoes to be delivered in 30 days. The manufacturer immediately e-mailed the department store a confirmation of the order. Ten days later, the department store sent the manufacturer an order for an additional 500 canoes, to be delivered in 30 days. Five days after receiving the department store’s second order, the manufacturer e-mailed the department store and explained that a large sporting goods chain was willing to purchase all of the manufacturer’s output of 16-foot canoes at $275 per canoe and that the manufacturer would be unable to fill any of the department store’s orders.
The department store found another canoe manufacturer willing to provide it with 16-foot aluminum canoes for $280 per canoe and on April 15 filed an action against the manufacturer seeking damages for the manufacturer’s failure to deliver the 1,000 canoes ordered.
How should the court rule?
A - The department store is not entitled to any damages because no contract was formed by the parties’ communications.
B - The department store is entitled to cover damages of $30 per canoe only for 500 canoes but is not entitled to any damages for breach of the duty of good faith.
C - The department store is entitled to cover damages of $30 per canoe for 1,000 canoes but is not entitled to any damages for breach of the duty of good faith.
D - The department store is entitled to punitive damages equal to the lesser of 10% of the total sale price or $500 in addition to any cover damages that are due because the manufacturer breached the duty of good faith.
This question is best answered by eliminating the incorrect choices first. (A) is incorrect. A contract was formed here for 500 canoes. The original “agreement” between the parties was nothing more than an invitation seeking offers. It did not create a contract between the department store and the manufacturer because it was illusory—an agreement to buy only what is desired is not consideration. The “agreement” probably does not even qualify as an offer. An offer must express a commitment to conclude a bargain on the offered terms. Absent some quantity limitation, a court would probably find the “agreement” here too vague to constitute an offer; otherwise, the manufacturer could be committing itself to sell more canoes than it can supply. Thus, the department store’s first order will be construed as an offer, and the manufacturer’s confirmation will be construed as an acceptance of the offer, thus creating a contract.
(C) is incorrect because there was no acceptance of the department store’s second offer. If the original agreement did not create a contract, the second order must be construed as an offer. The manufacturer did nothing to accept the department store’s second offer. The manufacturer’s failure to reject the offer until five days after it was made does not constitute an acceptance. Therefore, no contract was formed for the additional 500 canoes.
(D) is incorrect because although it is true that the UCC imposes a duty of good faith on all parties, and failure to deliver under a contract simply because a better price can be obtained might violate this duty, the UCC does not provide for punitive damages for breach of this duty. When a seller fails to deliver goods, one remedy available to the buyer is cover damages—the difference between the contract price and the price of substitute goods. Because the manufacturer had agreed to sell the department store 500 canoes and failed to deliver, the department store reasonably bought replacement goods for $30 more per unit and is entitled to recover the additional $30 per unit.
