Breach of Contract and Remedies

Question 1

Breach of Contract

Answer 1

Once a duty to perform exists, nonperformance is a breach of contract unless the duty is discharged. Discharge may occur for various reasons, including by agreement, statute, inability to perform, or waiver.

Question 2

Anticipatory Repudiation

Answer 2

Anticipatory repudiation refers to words or actions that clearly, voluntarily, and unequivocally indicate a contracting party’s intention not to perform or to materially breach the contract before the time for performance arises or elapses.

Question 3

Damages for Breach of Contract

Answer 3

Relief available:

1. Compensatory damages (compensation for actual economic loss)
2. Liquidated damages
3. Reliance damages
4. Restitutionary relief

Compensatory damages = (expectation + consequential + incidental damages) − mitigation

Question 4

Expectation Damages

Answer 4

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

Formula: Expectation damages = loss in value + other loss − cost avoided − loss avoided

Question 5

Expectation Damages: Loss in Value

Answer 5

Loss in value is the difference between the performance that the nonbreaching party should have received under the contract and what was actually received, if anything. These are also referred to as a party’s direct damages.

Question 6

Expectation Damages: Other Loss

Answer 6

Other loss comprises consequential and incidental damages, if any.

Question 7

Expectation Damages: Cost Avoided

Answer 7

Cost avoided is the additional cost that the nonbreaching party can avoid by rightfully discontinuing performance under the contract as a result of the other party’s breach.

Question 8

Expectation Damages: Loss Avoided

Answer 8

Loss avoided is the beneficial effect of the breach due to the nonbreaching party’s ability to salvage or reallocate resources that otherwise would have been devoted to performing under the contract. Loss avoided is subtracted only if the savings results from the injured party not having to perform rather than from some unrelated event

Question 9

Direct Damages (Common Law)

Answer 9

Direct damages are the necessary and usual result of the defendant’s wrongful act.

Question 10

Consequential Damages (Common Law)

Answer 10

Consequential damages are damages that arise out of special circumstances unique to the parties to the contract, rather than arising necessarily from the transaction itself.

Question 11

Incidental Damages

Answer 11

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

Question 12

Liquidated Damages

Answer 12

Liquidated damages are damages to be recovered by one party without proof of actual loss in the event the other party breaches the contract.

Two Prong Test:

i. The amount of liquidated damages was reasonable, bearing some relation to the damages that might be sustained; and

ii) Actual damages were uncertain in amount and would be difficult to prove.

Question 13

Punitive Damages

Answer 13

Punitive damages are a sum awarded to punish the defendant for outrageous conduct and deter similar conduct in the future.

Question 14

Nominal Damages

Answer 14

Nominal damages represent a small sum of money awarded to vindicate a plaintiff’s rights when no actual loss or damage occurred (e.g., $1).

Question 15

Restitution

Answer 15

Restitution seeks to restore to a party the benefit conferred on the other party. When a plaintiff unjustly enriches a defendant, restitution generally allows the plaintiff to recover on the benefit that she conferred on the defendant (rather than on the harm she suffered).

Question 16

Reliance Damages

Answer 16

Reliance damages are based on the out-of-pocket expenses incurred by the nonbreaching party. Reliance damages put the party in the same position as if the contract were never formed.

Question 17

Specific Performance

Answer 17

When damages are an inadequate remedy, the nonbreaching party may pursue the equitable remedy of specific performance.

To determine whether the legal remedy is adequate, the court will consider a variety of factors, including:

i) The difficulty of proving damages with reasonable certainty;

ii) Hardship to the defendant;

iii) Balance of the equities;

iv) The wishes and understandings of the parties;

v) Practicality of enforcement; and

vi) Mutuality of the agreement.

Question 18

Buyer in the Ordinary Course of Business

Answer 18

A buyer in the ordinary course of business is one who, in good faith and without knowledge of a third-party’s ownership rights or security interest, buys goods from someone selling goods of that kind.

Question 19

Reformation

Answer 19

Modification of a contract by the court upon petition by a party:

based on the failure of the contract to reflect the parties’ intent

Question 20

Rescission

Answer 20

Unmaking of a contract:

leaves the parties in the same position as if the contract had never existed

Question 21

Cancellation

Answer 21

Negation of a contract for the sale of goods:

Either party may cancel upon breach of the other, but this does not prevent either party from pursuing monetary damages.

Question 22

Declaratory Judgment

Answer 22

If the rights and obligations of the parties under a contract are unclear and the parties dispute those rights and obligations, then either party may bring a declaratory-judgment action to obtain an adjudication of those rights and duties. Declaratory judgment is not available, however, to resolve moot issues or theoretical problems that have not risen to an actual dispute.