Remedies: Damages for Breach of Contract

Question 1

Requirements for Compensatory Damages

Answer 1

1. Causal
2. Foreseeable at the time of contract
3. Reasonably certain (future loss not too speculative)
4. Unavoidable (duty to mitigate damages)

Question 2

Expectation Damages

Answer 2

Expectation Damages (benefit-of-the-bargain damages) are intended to put the nonbreaching party in the same position as if the contract had been performed.

Question 3

Formula for Expectation Damages

Answer 3

Expectation Damages = loss in value (difference between contracted price and what was actually received) + other loss (consequential + incidental damages) - cost avoided (additional cost nonbreaching party can avoid as a result of the breach) - loss avoided (beneficial effect due to ability to salvage or reallocate resources).

Question 4

Consequential Damages

Answer 4

Consequential damages result naturally from the breach, but need not be the usual result of a breaching party’s conduct. Instead, consequential damages need only be a reasonably foreseeable result of the breach in the parties’ specific circumstances.

Question 5

Incidental Damages

Answer 5

Incidental damages may be awarded as compensation for commercially reasonable expenses incurred as a result of the other party’s breach.

Question 6

Liquidated Damages

Answer 6

Liquidated damages are agreed upon in advance by the party. In order to be enforceable, (1) they must be reasonable, and (2) damages must be difficult to calculate.

Question 7

Restitutionary Recovery

Answer 7

Restituationary recovery seeks to restore a party the benefit conferred on the other party (unjust enrichment)

Question 8

Restitutionary Recovery by the Nonbreaching Party

Answer 8

Restitution can result in a recovery for the nonbreaching party in a losing contract, even if recovery exceeds the contract price.

However, the nonbreaching party cannot seek restitution if he has performed all of his contractual duties and the only performance that remains due from the other party is the payment of a definite sum of money.

Question 9

Restitutionary Recovery by the Breaching Party

Answer 9

If a plaintiff has not substantially performed and is in breach of the contract, the plaintiff is not permitted to recover under the contract. However, if the defendant has benefited from the plaintiff’s performance, the plaintiff can generally recover in restitution for the benefit conferred on the defendant, less the defendant’s damages for the breach.

Question 10

Reliance Damages

Answer 10

Reliance damages put the party in the same position as if the contract were never formed.

Reliance damages can be recovered if a nonbreaching party incurs expenses in reasonable reliance upon the promise that the other party would perform.

Unlike restitutionary recovery, there is no requirement that the defendant benefit from the plaintiff’s expenditures.

A party cannot recover both reliance and expectation damages.

Reliance damages are mitigated by any losses that the plaintiff would have sustained if the contract had been performed.

Reliance damages generally may not exceed the full contract price.

Question 11

Damages for a Contractor’s Failure to Begin or Complete Construction

Building/Construction Contracts; Breach by the Contractor

Answer 11

The general measure of damages for a contractor’s failure to begin or complete construction is:

The difference between the contract price and the cost of construction by another builder + any progress payments made to the builder and compensation for delay in completion of the construction.

Question 12

Damages for a Contractor’s Defective Construction

Building/Construction Contracts; Breach by the Contractor

Answer 12

Damages for defective construction are generally measured by the cost of correcting the defect.

When a breach results in defective or unfinished construction, if the award of damages based on the cost to fix or complete the construction would result in economic waste, then a court may instead award damages equal to the diminution in the market price of the property caused by the breach.

Question 13

Damages for Owner’s Failure to Pay the Construction Contract Price

Building/Construction Contracts; Breach by the Owner

Answer 13

The general measure of damages for the owner’s failure to pay the contract price, in whole or in part, is:

The profits that the builder would have earned + any costs incurred by the builder, less any amount of payments by the owner and any materials purchased by the contractor that are used by the contractor on another job.

Question 14

Damages for Breach in Real Estate Contracts

Answer 14

Damages for failing to perform a real estate sales contract are measured by the difference between the contract price and the market value.

In the case of late delivery, damages are measured by the fair market rental value of the property for the time that the buyer was denied possession.

Question 15

Damages for Breach of Contracts to Lend Money

Answer 15

The measure of damages for a breach of contract to lend money is the additional cost of obtaining a loan from another lender (e.g. the difference in cost over time between the interest rates of the original loan and the subsequent loan)

Question 16

Buyer’s Remedies for Seller’s Failure to Tender Goods

Sale of Goods Contracts; Seller’s Breach

Answer 16

1. Cancel the contract
2. Recovery of payments already made to the seller
3. Cover (purchase similar good elsewhere and recover the replacement price)
4. Specific performance for unique goods
5. Damages (buyer may recover the market price - the contract price + incidental/consequential damages)
6. Replevin

Question 17

Damages as a Buyer’s Remedy for Seller’s Failure to Tender Goods

Answer 17

Buyer may recover the market price - the contract price + incidental/consequential damages.

The buyer can receive damages in the amount provided in a liquidated damages clause, provided it is reasonable.

Question 18

Replevin as a Buyer’s Remedy for Seller’s Failure to Tender Goods

Answer 18

Payment by the Buyer:
When the buyer has made at least partial payment for identified goods, the buyer can obtain undelivered goods from the seller if:
* (i) The seller becomes insolvent within 10 days of receiving the first payment from the buyer; or
* (ii) The goods were for family, personal, or household purposes, and the seller has repudiated or failed to deliver the goods as required by contract.
To obtain the goods, the buyer must tender any unpaid portion of the price to the seller.

Buyer’s Inability to Cover:
The buyer can also obtain identified, undelivered goods from the seller if:
* (i) The buyer is unable to effect cover;
* (ii) The circumstances reasonably indicate that reasonable effort to obtain cover will be unavailaing; or
* (iii) The goods have been shipped under reservation, and satisfaction of the security interest in the goods has been made or tendered.

Question 19

Buyer’s Remedies for Seller’s Nonconforming Tender

Sale of Goods Contracts; Breach by Seller

Answer 19

With nonconforming tender, a buyer can:
1. Accept goods;
2. Reject goods; or
3. Accept part and reject part

Question 20

Buyer’s Acceptance of Nonconforming Tender

Sale of Goods Contracts; Breach by Seller

Answer 20

The buyer accepts goods by:
1. Expressly stating acceptance;
2. Using the goods; or
3. Failing to reject the goods.

The buyer has the right to inspect the goods before deciding whther to accept or reject. Payment does not constitute acceptance if there is no right to inspection before payment.

Question 21

Damages for Nonconforming Goods when Buyer Accepts

Sale of Goods Contracts; Breach by Seller

Answer 21

When a buyer accepts goods that are nonconforming, the buyer may recover damages for the resulting loss. When the buyer accepts goods that violate one of the seller’s warranties, the buyer may recover damages measured as the difference between the value of the goods as accepted and the value they would have had if they had been as warranted + any appropriate incidental/consequential damages.

Question 22

Buyer’s Revocation of Acceptance of Nonconforming Goods

Sale of Goods Contracts; Breach by Seller

Answer 22

The buyer may revoke an acceptance of goods if the nonconformity substantially impairs their value to the buyer, AND
* (i) The buyer accepted the goods on the reasonable belief that the seller would cure the nonconformity, but the seller has failed to do so, OR
* (ii) The buyer accepted the goods without discovery of the nonconformity, and such acceptance was reasonably induced either by the difficulty of discovering the nonconformity before acceptance or because the seller gave assurances that the goods were conforming.

A buyer who justifiably revokes acceptance or rejects goods may be entitled not only to a return of purchase price paid, but also damages based on the difference between market price and the contract price or cover as well as any incidental/consequential damages.

Question 23

Buyer’s Withdrawal of Refusal to Accept Nonconforming Goods

Sale of Goods Contracts; Breach by Seller

Answer 23

A buyer’s original refusal to accept may be withdrawn by a later acceptance if the seller indicates that he is holding the tender open. However, if the buyer attempts to accept after his original rejection caused the seller to arrange for other disposition of the goods, then the buyer is liable for any ensuring damage.

Question 24

Buyer’s Rejection of Nonconforming Goods

Sale of Goods Contracts; Breach by Seller

Answer 24

To recover damages, the buyer must give notice to the seller of the breach within a reasonable time after the buyer discovers or should have discovered the breach. If such notice is not given, the buyer is barred from any remedy.

Upon a rightful rejection, the buyer is entitled to a return of any payments made on the goods.

The buyer must retain possession of rejected goods for a reasonable time to allow for the seller to reclaim them.

Question 25

Buyer's Responsibilities to Retain Possession after Rejection of Nonconforming Goods | Sale of Goods Contracts; Breach by Seller

Answer 25

The buyer **must retain possession** of rejected goods for a **reasonable time** to allow the seller to reclaim them. *Nonperishable goods:* In the absence of other instructions from the seller, **a merchant buyer** may **store** nonperishable goods at the seller's expense, **reship** them to the seller, or **sell** them for the seller's account. *Perishable goods:* If the goods are **perishable** and the seller has **no local agent** to whom they can be returned, in the absence of other instructions, **a merchant buyer is required to sell the goods on the seller's behalf.**

Question 26

Seller's Right to Cure Defective Tender | Sale of Goods Contracts; Breach by Seller

Answer 26

The seller has a right to cure a defective tender if: * (i) The **time for performance **under the contract has not yet elapsed; **OR** * (ii) The seller had **reasonable grounds** to believe that the **buyer would accept** despite the nonconformity. The seller must give notice of the intent to cure and make a new tender of conforming goods. Once cured, the tender is considered proper and valid.

Question 27

Seller's Options when Buyer Breaches | Sale of Goods Contracts; Breach by Buyer

Answer 27

When a buyer breaches, the seller can: 1. **Cancel** the contract 2. **Recover** the contract price if the buyer accepted 3. **Resell** the goods and recover the difference 4. Withhold or **stop delivery** 5. Contract **damages** (market price - contract price)

Question 28

Seller's Right to Price | Sale of Goods Contracts; Breach by Buyer

Answer 28

In certain circumstances, a seller may seek to recover the **full contract price + any incidental damages.** When a buyer has **accepted** the goods and fails to pay the price when it becomes due, the seller may **sue for the price.** If the **risk of loss** **has passed **to the buyer and the conforming goods are **lost or damaged**, the seller may maintain an action for the price of the conforming goods if the buyer fails to pay the price as it becomes due. If goods have been **identified** and the **buyer fails to pay** the price as it becomes due, the seller may recover the price **only if** the seller is **unable to sell the goods at a reasonable price** after a reasonable effort or circumstances indicate that such an effort will not yield a sale.

Question 29

Seller's Right to Reclaim Goods | Sale of Goods Contracts; Breach by Buyer

Answer 29

When an **insolvent buyer** receives goods **on credit,** and the seller learns that the buyer is insolvent, the seller may reclaim the goods, provided a demand is made **within 10 days** after the buyer's receipt of the goods. If the buyer pays with a **check that is subsequently dishonored,** then the seller may reclaim the goods following a demand made within a **reasonable time.** The seller's right to reclaim is subject to the right of a good faith purchaser.

Question 30

Stoppage of Goods in Transit Due to Breach by the Buyer | Sale of Goods Contracts; Breach by Buyer

Answer 30

A seller can stop the goods in transit because of the buyer's breach; goods can be stopped in transit **only if shipped in large-size lots.** The seller **cannot** stop goods in transit once: * (i) Buyer has received the goods; * (ii) Carrier or warehouseman has acknowledged the buyer's rights; * (iii) Goods have been reshipped by the carrier; or * (iv) Title has been given to or negotiated by the buyer.

Question 31

Stoppage of Goods in Transit Due to Buyer's Insolvency | Sale of Goods Contracts; Breach by Buyer

Answer 31

If the buyer becomes insolvent before the delivery of goods, then the seller can stop goods in transit and refuse delivery except for cash (regardless of the size of the shipment.

Question 32

Seller's Options in Response to Buyer's Wrongful Rejection | Sale of Goods Contracts; Breach by Buyer

Answer 32

If the buyer wrongfully rejects, then the seller has three alternative remedies and would also be entitled to incidental damages: 1. Collect Damages 2. Resell the Goods 3. Recover the Price

Question 33

Seller's Damages for Buyer's Wrongful Rejection | Sale of Goods Contracts; Breach by Buyer

Answer 33

The seller would ordinarily be entitled to the **contract price minus the market price** at the time and place of tender, **together with any incidental damages, less any expenses saved** as a result of the buyer's breach. For **lost volume sellers**, they are entitled to lost **profits**. In general, the measure of lost profit would be the list price minus the cost to the dealer or manufacturer. The seller can receive damages in the amount provided in a **liquidated damages** clause, if reasonable.

Question 34

Seller's Right to Resell Goods after Buyer's Wrongful Rejection | Sale of Goods Contracts; Breach by Buyer

Answer 34

If the seller elects to resell and sue for the contract price minus the resell price, then the resale must be (i) only of goods identified in the contract and (ii) commercially reasonable.

Question 35

Seller's Right to Recover Price after Buyer's Wrongful Rejection | Sale of Goods Contracts; Breach by Buyer

Answer 35

The seller can recover the price after rejection only if the seller is unable to sell the goods at a reasonable price after a reasonable effort or circumstances indicate that such an effort will not yield a sale.