Contracts - Breach, Remedies, and Third-party Rights & Duties

Question 1

The non monetary remedies for breach of contract are

Answer 1

(1) specific performance
(2) injunction
(3) reformation
(4) reclamation
(5) good faith purchaser in entrustment

Question 2

Specific performance is available as a remedy for

Answer 2

(1) contracts for sale of real estate (rule: ALL LAND IS UNIQUE)
(2) contracts for sale of UNIQUE goods like antiques, art, custom made goods (or other appropriate circumstances)

Question 3

Courts are generally reluctant to grant specific performance because SP is appropriate only if

Answer 3

the legal remedy (money damages) is inadequate (the adequacy test).

Question 4

An injunction might be available as a contract remedy for ______ contracts.

Answer 4

services.**E.g. the Eagles could get an injunction preventing T.O. from playing for another team (but cannot get specific performance requiring T.O. to play for them).

Question 5

Under reformation, ______ will change the contract.

Answer 5

the court. On the bar, reformation is usually the wrong answer.

Question 6

Reformation might be an appropriate remedy where there is

Answer 6

(1) a mistake in writing the agreement, like a clerical error; or
(2) fraudulent misrepresentation as to what is in the agreement

Question 7

“Reclamation” is the

Answer 7

right of an unpaid seller to get his or her goods back.

Question 8

In order for an unpaid seller to recover her goods in reclamation, the

Answer 8

(1) buyer must have been insolvent at the time it received the goods
(2) seller demanded the return of the goods within 10 days of buyer’s receipt**
(3) buyer still has the goods at the time of demand

**If before delivery buyer makes an affirmative representation of solvency, the 10-day rule becomes a “reasonable time” rule.

Question 9

The good faith purchaser in entrustment rule applies where

Answer 9

an owner leaves her goods with a person who sells goods of that kind and that person wrongfully sells the goods to a good faith purchaser, the good faith purchaser’s purchase cuts off the rights of the original owner.**This is like the bonafide purchaser rule in property law.

Question 10

The types of money damages for breach of contract are

Answer 10

(1) expectation damages
(2) reliance damages
(3) restitution

Question 11

Expectation damages are intended to

Answer 11

put the plaintiff in the same economic position as if the contract had been performed.

Question 12

Reliance damages are intended to

Answer 12

put the plaintiff in the same economic position as if the contract had never happened (this often takes the form of reimbursement for expenses up to this point)

Question 13

Reliance damages are often appropriate in circumstances where

Answer 13

expectation damages are too difficult to calculate or too speculative or too uncertain.

Question 14

Restitution damages are intended to

Answer 14

put the DEFENDANT in the same position as if the contract had never happened to prevent unjust enrichment.

Question 15

The relevant measure when determining restitution damages is

Answer 15

the amount to which the defendant has been unjustly enriched.

Question 16

If the seller of goods breaches and the buyer keeps the goods, the measure of damages is

Answer 16

the FMV of the goods had they been perfect minus the FMV of the goods as delivered.

Question 17

If the seller of goods breaches and the seller keeps the goods, the measure of damages is

Answer 17

(1) the market price at the time of discovery of the breach minus the contract price; OR
(2) if buyer “covers” by buying replacement goods in good faith without reasonable delay, the actual replacement price minus the contract price

Question 18

If the buyer of goods breaches and the buyer has the goods, the measure of damages is

Answer 18

the contract price.

Question 19

If the buyer of goods breaches and the seller has the goods, the measure of damages is

Answer 19

(1) the contract price minus the market price at time and place of delivery; OR
(2) if seller has resold the goods, the contract price minus the resale price
(3) in some situations, provable lost profits

Question 20

If the buyer of goods breaches and the goods are part of seller’s regular inventory (“off the rack”), the measure of damages is

Answer 20

the seller’s lost profits. This is called the lost volume seller rule.

Question 21

A seller’s lost profits are the acceptable measure of damages only if

Answer 21

the buyer of goods breaches and the goods are part of seller’s regular inventory (“off the rack”). This is called the “lost volume seller rule”.

Question 22

Costs incurred in dealing with breach are _____ recoverable and __________.

Answer 22

always; in addition to expectation/reliance/restitution damages. These are called “incidental damages.”

Question 23

Consequential damages must be _______ in order to be recoverable.

Answer 23

(1) reasonably foreseeable by the defendant at the time of contract formation (almost like a notice requirement);
(2) unavoidable through reasonable efforts; and
(3) provable by reasonable certainty

Question 24

Incidental damages (are/are not) required to be foreseeable.

Answer 24

are not.

Question 25

Incidental damages are costs

Answer 25

incurred in dealing with a breach, like advertising costs incurred in trying to find a replacement deal. They are always recoverable.

Question 26

Under the duty to mitigate, there is no recovery for damages that could have been

Answer 26

avoided without undue burden on plaintiff.

Question 27

In proving that damages could have been avoided, the burden is on

Answer 27

the defendant to plead and prove.

Question 28

There is no duty to mitigate if the subsequent offer is

Answer 28

inferior and not substantially similar.

Question 29

Damages must be proven with __________ in order to be recoverable.

Answer 29

reasonable certainty

Question 30

Liquidated damages are valid if

Answer 30

(1) damages were difficult to forecast at the time of contract formation; and
(2) the provision is a reasonable forecast**

It cannot be too high, otherwise its invalid as a penalty clause.

Question 31

Limitation of remedies clauses are clauses that

Answer 31

limit the amount (a cap) that can be recovered.

Question 32

Limitation of remedies clauses are valid unless they are

Answer 32

too low to the point of being unconscionable.

Question 33

Liquidated damages clauses are generally not valid if

Answer 33

they do not vary with the severity of the breach or are too high.

Question 34

Excuses for nonperformance are

Answer 34

(1) the other party’s nonperformance
(2) failure of a performance condition
(3) anticipatory repudiation
(4) inability to perform
(5) rescission
(6) accord and satisfaction
(7) modification
(8) novation
(9) impossibility
(10) impracticability
(11) frustration of purpose
(12) subsequent law or regulation making performance illegal

Question 35

In order for one party’s performance to be excused by the other party’s nonperformance,

Answer 35

the other party’s nonperformance must constitute a MATERIAL breach.

Question 36

Whether a breach is material or minor is a question of

Answer 36

fact.

Question 37

If the other party’s nonperformance is a minor breach, the first party must still

Answer 37

perform, but can sue for damages.

Question 38

A material breach is one that

Answer 38

substantially undermines the benefit of the bargain. On the exam, if the breaching party performs less than half the required work, call that a breach.

Question 39

A material breach ______ the other party’s performance.

Answer 39

excuses. The breaching party might still be able to recover for any benefit conferred on the non-breaching party under restitution.

Question 40

Under the divisible contract exception, the material breach rule is applied

Answer 40

on a unit by unit basis. E.g. the contract pays a painter $1,000 per apartment instead of $10,000 to paint 10 apartments.

Question 41

The doctrine of substantial performance states that

Answer 41

partial or substantially similar performance can stand in for the performance specified in the contract.

Question 42

Substantial performance does not apply to

Answer 42

UCC Article 2 sales of goods. The perfect tender rule still applies to sales of goods.

Question 43

A performance condition is

Answer 43

a mutually agreed upon promise modifier in the contract that limit other obligations already in the contract.

**Conditional acceptance is NOT conditional performance.

Question 44

In order to distinguish between conditional acceptance and a performance condition, look to see

Answer 44

whether the condition must be met BEFORE the contract is formed versus the condition is included in the contract itself

Question 45

A covenant/promise (is/is not) a condition.

Answer 45

is NOT.

Question 46

Express conditions are typically accompanied by words like

Answer 46

if, provided that, so long as, subject tot, in the event that, unless, when, until, on donation that

**Most bar exam fact patterns do NOT have express conditions

Question 47

The standard for satisfying express conditions is

Answer 47

strict compliance.

Question 48

If an express condition is based on approval of one of the contracting parties, the condition will be treated as satisfied if a

Answer 48

reasonable person would approve it, unless the subject matter is art or another matter that is inherently discretionary.

Question 49

Conditions on performance can be excused through

Answer 49

(1) estoppel

(2) waiver

Question 50

Estoppel excuses the occurrence of a condition when

Answer 50

(1) the party protected by the condition makes a statement BEFORE the condition is to occur; AND
(2) the other party changes their position in reliance on that statement

Question 51

Waiver excuses a condition when

Answer 51

the person protected by the statement makes a statement AFTER the conditioning event was to occur. Does not require the other party to change their position.

Question 52

Anticipatory repudiation occurs when there is an

Answer 52

(1) unambiguous statement that the repudiating party will not perform
(2) made prior to the time that performance was due.

Question 53

Anticipatory repudiation _______ the other party’s duty to ________.

Answer 53

excuses; perform

Question 54

Anticipatory repudiation generally rives rise to an _______ claim for _________.

Answer 54

immediate; damages for breach

Question 55

Anticipatory repudiation can be retracted so long as

Answer 55

there has not been a material change in position by the other party.

Question 56

If a repudiation is retracted, the duty to perform is ______ but performance can be delayed until ________.

Answer 56

reimposed; adequate assurance from the repudiator is provided

Question 57

“Inability to perform” only arises when consideration was

Answer 57

unique (e.g. instead of receiving money a painter is going to receive a signed photograph). This is like anticipatory repudiation by conduct.

Question 58

Rescission is proper where

Answer 58

performance is still remaining** from each of the contract parties (executory contract) and the parties mutually agree to cancel the contract.

**BOTH parties must not have fully performed for a contract to be rescindable.

Question 59

An “accord” is

Answer 59

an agreement by the parties to an already existing obligation to accept a DIFFERENT PERFORMANCE in satisfaction of the existing obligation.

Question 60

“Satisfaction” is

Answer 60

the doing of the different performance agreed to in an “accord.”

Question 61

An accord is not valid if one the parties is simply agreeing to do

Answer 61

less than what is already required. (e.g. paying less than an entire debt)

Question 62

If an accord is not performed, then the other party can

Answer 62

sue on either the original obligation OR the accord. It is the aggrieved party’s choice, must make a choice.

Question 63

If an accord is properly performed, the original contract obligation is

Answer 63

excused due to accord and satisfaction.

Question 64

“Modification” is

Answer 64

an agreement by the parties to an existing obligation to accept a DIFFERENT AGREEMENT in satisfaction of the existing obligation.

Question 65

“Novation” is

Answer 65

an agreement between BOTh parties to an existing contract for the substitution of a new party (i.e. same performance, different party)

Question 66

Novation excuses the contracted for _______ of the party who __________.

Answer 66

performance; substituted for or replaced

Question 67

The theoretical way to tell the difference between modification and accord and satisfaction is that

Answer 67

in modification, the parties like and trust each other, so getting rid of the old agreement for a new agreement is fine.

In accord and satisfaction, the parties don’t like and trust each other, so the old agreement is only wiped out if the accord is performed.

Practically speaking, look for “if…then” on the bar exam.

Question 68

Delegation is different from novation in that

Answer 68

delegation does not require both parties to agree, it is where one party delegates some duties under the contract to another party. The first party remains liable.

Question 69

Impossibility, impracticability, and frustration of purpose all entail the following three things:

Answer 69

(1) something happens after contract formation but before the completion of contract performance
(2) that was unforeseen

Question 70

Differences between impossibility and impracticability are

Answer 70

(1) impossibility is objective, impracticability is subjective
(2) impossible means it CAN’T be done, impracticable means it can only be done with extreme and unreasonable difficulty or expense.

Question 71

Destruction of building projects are generally do not give rise to

Answer 71

impossibility concerns.

Question 72

If the subject matter of a contract is destroyed and the risk of loss has transferred to the buyer, the buyer’s performance obligations _____ excused.

Answer 72

are NOT. It is never impossible to pay money.

Question 73

If the subject matter of a contract is destroyed and the risk of loss is still on the seller, the seller’s performance obligations _____ excused if _________.

Answer 73

are; the subject matter was specific or unique, otherwise the seller must obtain replacement items (my 1973 Cadillac versus 100 widgets)

Question 74

Death excuses a contract only if the person who died was

Answer 74

(1) a party to the contract who is (2) a “special” person.

Question 75

A “special” person is usually someone who is

Answer 75

specifically identified, famous, someone you waited for, etc.

Question 76

The death of a person who is not a party to a contract (does/does not) excuse performance.

Answer 76

does not

Question 77

The death of a person who IS a party to the contract but is not a “special” person (does/does not) excuse performance

Answer 77

does not

Question 78

If a law or regulation is passed that makes performance of the contract illegal, performance is

Answer 78

excuses performance due to impossibility.

Question 79

If a law or regulation or other event that occurs AFTER contract formation makes the mutually understood purpose of the contract illegal, performance is

Answer 79

excused due to frustration of purpose.

Question 80

The three third party problems are

Answer 80

(1) third party beneficiaries
(2) assignments of contract rights
(3) delegation of contract duties

Question 81

A third party beneficiary is someone for whom

Answer 81

two other parties contract for her benefit.

Question 82

A third party beneficiary problem arises when

Answer 82

two parties contract for the benefit of a third party.

Question 83

Third party beneficiaries (are/are not) able to enforce contracts that others have made for their benefit.

Answer 83

are

Question 84

Under third party beneficiary law, the promisor is

Answer 84

the person who is making the promise that benefits the third party.

Question 85

Under third party beneficiary law, the promisee is

Answer 85

the person who obtains the promise that benefits the third party.

Question 86

In order to enforce a contract as a third party beneficiary, the third party must be

Answer 86

INTENDED, not incidental.

Question 87

When considering efforts to cancel or modify a contract for which there is a third party beneficiary, the third party must assent if to the change if her rights have “vested.” Her rights vest at the time she

Answer 87

(i) manifests assent to the promise in a manner invited or requested by the parties; or
(ii) brings suit to enforce the promise; or
(iii) materially changes position in justifiable reliance on the promise

Question 88

On the bar exam, a third party beneficiary is usually intended if the party’s name is

Answer 88

in the contract itself.

Question 89

Intended beneficiaries are either donees or creditors, but on the bar exam assume

Answer 89

that the party is a donee unless told that the party was a creditor of the promisee.

Question 90

If a third party knows of and has relied on or assented as requested to a contract, the contract

Answer 90

can no longer be modified without her consent unless the contract otherwise provides.

Question 91

Under third party beneficiary rules, a beneficiary can sue _____ directly.

Answer 91

promisor

Question 92

Under third party beneficiary rules, the promisee can sue ______ directly.

Answer 92

promisor

Question 93

Under third party beneficiary rules, a ______ beneficiary cannot sue a promisEE but a ______ beneficiary can sue a promisEE.

Answer 93

donee; creditor

Question 94

If the third party beneficiary sues the promisor, the promisor can assert any defense that he would have had if sued by the

Answer 94

promisee directly.

Question 95

An assignment is

Answer 95

a transfer of rights under a K in two separate steps: (1) contract between two parties and (2) one of the parties later transfers rights under that contract to a third-party

Question 96

The assigner is the party

Answer 96

to the contract who later transfers rights under the contract to another.

Question 97

The assignee is the party

Answer 97

who is not a party to the contract that receives the contract rights.

Question 98

The obligor is the

Answer 98

other party to the contract.

Question 99

An assignee is able to _________ the contract.

Answer 99

enforce

Question 100

Assignments of contract rights can be limited by

Answer 100

(1) prohibition clauses in the K
(2) invalidation clauses in the K
(3) common law if assignment substantially changes duties and obligations of obligor

Question 101

An assignment prohibition clause has the result of

Answer 101

taking away the right to assign but not the power. Thus, an assignment

(1) assignor is liable for breach of K
(2) but assignee can still enforce the assignment if assignee did not know of the prohibition clause

Question 102

An assignment invalidation clause has the result of

Answer 102

taking away both the right AND power. Thus, an assignment

(1) assignor is liable for breach of K
(2) assignee has NO rights

Question 103

Even if a contract does not limit the right to assign, common law bars an assignment that

Answer 103

substantially changes the duties of the obligor.

Question 104

The two main types of assignments are

Answer 104

(1) assignment of the right to payment

(2) assignments of other performance rights.

Question 105

Generally, assignments of the right to payment _______ change the duties of the obligor.

Answer 105

do not substantially

Question 106

Assignments of performance rights ______ change the duties of the obligor.

Answer 106

can substantially

Question 107

The requirements for an effective assignment are

Answer 107

(1) language of present assignment (“I assign”, a promise to assign is not enough)
(2) consideration is NOT required

Question 108

Under a proper assignment, the assignee has the right to

Answer 108

sue the obligor.

Question 109

The obligor has the same defenses against the assignee that it would have against the

Answer 109

assignor.

Question 110

The obligor’s continued payment to the assignor is effective until

Answer 110

the obligor learn/knows of the assignment.

Question 111

If there are multiple gratuitous assignments, the general rule is that

Answer 111

the last assignee in time wins.

Question 112

A gratuitous assignment can be ________ revoked.

Answer 112

freely

Question 113

Revocation of a gratuitous assignment can be accomplished by

Answer 113

(1) making of another assignment (hence the rule)
(2) bankruptcy
(3) death
(4) assignor taking performance directly from the obligor

Question 114

If there are multiple assignments for consideration or a mix with gratuitous assignment, the general rule is that

Answer 114

the first assignee in time wins.

Question 115

A subsequent assignment for consideration takes priority over an earlier assignment for consideration only if

Answer 115

(1) the later assignee does not know of the earlier assignment; and
(2) the later assignee is the first to obtain payment, a judgment, a novation, or indicia of ownership**

**Being the first to notify is not sufficient.

Question 116

Multiple assignments for consideration are a breach of ______. The assignor warrants that the rights assigned are ____________.

Answer 116

warranty; assignable and enforceable.

Question 117

Delegation occurs when a party to a contract

Answer 117

transfers work under that contract to a third party.

Question 118

The delegating party is the party who

Answer 118

delegates the work.

Question 119

The delegatee is the party who

Answer 119

takes the work from the delegating party.

Question 120

The obligee in a delegation is the party who

Answer 120

is the other party to the K.

Question 121

Generally, contractual duties are delegable unless

Answer 121

(1) the contract prohibits delegations OR assignments; or
(2) the contract calls for VERY SPECIAL skills; or
(3) the person to perform under the contract has a VERY SPECIAL reputation

Question 122

On the bar exam, the term assignment is often used to mean both

Answer 122

assignments AND delegations.

Question 123

The delegatee (person to whom the work was delegated) _______ sue the obligee.

Answer 123

cannot.

Question 124

If a party delegates in the face of a contract provision prohibiting delegation or assignments, the party _______ recover under the contract.

Answer 124

cannot. But might be able to under restitution.

Question 125

A contractual provision prohibiting assignments also prohibits _______.

Answer 125

delegations.

Question 126

If the third party delegatee does not perform, then

Answer 126

(1) the delegating party always remains liable to the obligee; and
(2) the delegatee is liable to either party only if she receives consideration from the delegating party (i.e. the delegating party pays the delegatee to do the work)

Question 127

Any time there is a delegation for consideration, it always creates

Answer 127

a third party beneficiary.

Question 128

Under the UCC, the four different different measures of damages when a buyer defaults after putting down a deposit on a good are

Answer 128

(1) liquidated damages if present in the contract and reasonable
(2) 20% of the contract price or $500, whichever is less
(3) resale price minus contract price (only works if resale price was lower than the contract price)
(4) if seller is a volume merchant w/r/t to the good, lost profit

Question 129

Generally, under the UCC the right to receive goods under a requirements/output contract ______ assignable, unless

Answer 129

is not; the assignee acts in good faith not to alter the terms of the contract.

Question 130

In contracts not involving the sale of goods, the condition of complete performance may be excused if the party has rendered

Answer 130

substantial performance.

Question 131

The rules for determining whether performance is substantial are the same as those for determining whether

Answer 131

a breach is minor or material. If the breach is minor, performance is substantial. If the breach is major, performance is not substantial.

Question 132

To determine whether a breach is material, the court looks at:

Answer 132

the amount of benefit received, the adequacy of damages, extent of performance, hardship to the breaching party, and whether the breach was negligent or willful.