Chapter 19

Question 1

Compensatory

Answer 1

To cover direct losses and costs

Question 2

Consequential

Answer 2

To cover indirect and foreseeable losses

Question 3

Punitive

Answer 3

To punish and deter wrongdoing

Question 4

Nominal

Answer 4

To recognize wrongdoing when no monetary loss is shown

Question 5

Loss of the bargain

Answer 5

Compensatory damages - direct damages including incidental damages

Question 6

Determining whether a breach of contract has resulted in damages involves a 2-step process

Answer 6

1. Establish that there is a contract that has been breached
2. Did the breach cause the damages? If yes, then how do we measure the damages?

Question 7

Standard Measure

Answer 7

The standard measure of compensatory damages is the difference between the value of the breaching party’s promised perfromance under the contract and the value of his/her actual performance

Question 8

Sale of Goods

Answer 8

the usual measure of compensatory damages is an amount equal to the difference between the contract price and the market price

Question 9

Sale of Land - Seller’s breach

Answer 9

The remedy for a seller’s breach of a contract for the sale of real estate is specific performance

Question 10

Sale of Land - Buyer’s breach

Answer 10

The measure of damages is typically the difference between the contract price and the market price of the land (used when specific performance is not available)

Question 11

A minority of states apply a different rule when the seller breaches the contract and the breach is not deliberate (intentional).

Answer 11

These states limit the prospective buyer’s damages to a refund of any down payment made plus any expenses incurred (such as fees for title searches, attorneys, and escrows). Effectively returns purchasers to the positions they occupied prior to the sale.

Question 12

Written contracts often have a clause that specifies certain amount of money is to be paid in the event of a future default or breach.

If the court deems this clause to be a penalties clause…

Answer 12

it is not enforced

Question 13

Sometimes a clause is called a liquidated damages clause but the court deems it to be…

Answer 13

a penalties clause.

Question 14

Liquidated Damages Clause: enforceable – if:

Answer 14

1. When the contract was formed it was clear damages would be difficult to estimate; and
2. The amount set as damages is reasonable

Question 15

Penalties Clause

Answer 15

Not enforceable

Question 16

To determine if a particular provision is for liquidated damages or for a penalty, a court must answer two questions:

Answer 16

1. When the contract was entered into, was it apparent that damages would be difficult to estimate in the event of a breach?
2. Was the amount set as damages a reasonable estimate and not excessive?

If the answers to both questions are yes, the provision normally will be enforced. If either answer is no, the provision usually will not be enforced.

Question 17

Rescission

Answer 17

an action to undo, or terminate, a contract—to return the contracting parties to the positions they occupied prior to the transaction

Question 18

When is rescission available?

Answer 18

When fraud, a mistake, duress, undue influence, misrepresentation, or lack of capacity to contract is present, unilateral rescission is available. Also could be available by statute

Question 19

The failure of one party to perfrom entitles the other party to __________ the contract.

Answer 19

rescind

Question 20

Rescission of a contract on the basis of a breach is appropriate where the breach is found to be…

Answer 20

material and willful

Question 21

Restitution

Answer 21

An equitable remedy under which a person is restored to his or her original position prior to loss or injury, or placed in the position he or she would have been in had the breach not occurred

Question 22

What actions must be taken under restitution?

Answer 22

If the property or goods can be returned, they must be. If the goods or property have been consumed, restitution must be made in an equivalent dollar amount.

Question 23

Specific Performance

Answer 23

An equitable remedy requiring the breaching party to perfrom as promised under the contract; usually granted only when money damages would be an inadequate remedy and the subject mater of the contract is unique (for example, real property)

Question 24

Why is specific perfromance attractive to a nonbreaching party?

Answer 24

It provides the exact bargain promised in the contract

Question 25

What are unique goods that could be entitled to specific performance?

Answer 25

Paintings, sculptures, or rare books/coins, LAND

Question 26

Reformation

Answer 26

an equitable remedy used when the parties have imperfectly expressed their agreement in writing

Question 27

What does reformation allow the court to do?

Answer 27

rewrite the contract to reflect the parties’ true intentions.

Question 28

What are instances when reformation would be appropriate?

Answer 28

Fraud, mutual mistake, written contract incorrectly states the parties’ oral agreement, covenants not to compete (unreasonable area/time constraints)

Question 29

Quantum Meruit

Answer 29

A Latin phrase, meaning “as much as he deserves,” that describes the extent of compensation owed under a quasi contract

Question 30

Waiver

Answer 30

An intentional, knowing relinquishment of a legal right

Question 31

What are the consequences of a waiver breach?

Answer 31

The waiver erases the past breach, and the contract continues as if the breach had never occurred

Question 32

A contract may include provisions stating that…

Answer 32

no damages can be recovered for certain types of breaches or that damages will be limited to a maximum amount

Question 33

A contract may provide that the only remedy for breach is…

Answer 33

replacement, repair, or refund of the purchase price

Question 34

A contract may provide that one party can seek injunctive relief if…

Answer 34

the other party breaches the contract

Question 35

Provisions stating that no damages can be recovered

Answer 35

exculpatory clauses

Question 36

Provisions that affect the availability of certain remedies

Answer 36

limitation-of-liability clauses