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Contracts & Sales - July 2025 (Themis) > Ch 8: Breach of Contract and Remedies > Flashcards

Ch 8: Breach of Contract and Remedies Flashcards

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1
Q

What constitutes a breach of contract?

A

Nonperformance of a duty to perform unless the duty is discharged

Discharge may occur by agreement, statute, inability to perform, or waiver.

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2
Q

Under common law, what is a material breach of contract?

A

A breach where the nonbreaching party does not receive the substantial benefit of its bargain

Allows the nonbreaching party to withhold performance and pursue remedies.

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3
Q

What is the consequence of a minor breach of contract?

A

The nonbreaching party can recover damages but must still perform under the contract

If accompanied by anticipatory repudiation, it may be treated as a material breach.

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4
Q

What is anticipatory repudiation?

A

Words or actions indicating a party’s intention not to perform or materially breach the contract before performance is due

Must be clear and unequivocal.

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5
Q

What options does a nonbreaching party have upon anticipatory repudiation?

A
  • Treat it as a breach and sue immediately
  • Ignore it and demand performance

Continued performance must be suspended if it would increase damages.

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6
Q

What is required for a party to retract a repudiation?

A

Must not have acted in reliance on the repudiation, accepted it, or commenced an action for breach

Notice of retraction must allow for performance.

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7
Q

What are expectation damages?

A

Intended to put the nonbreaching party in the same position as if the contract had been performed

Also called benefit-of-the-bargain damages.

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8
Q

What is the formula for calculating expectation damages?

A

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

Must be calculated with reasonable certainty.

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9
Q

What are direct damages?

A

Necessary and usual result of the defendant’s wrongful act

Compensate for loss, damage, or injury that was foreseeable.

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10
Q

What are consequential damages?

A

Damages arising from special circumstances unique to the parties, not necessarily from the transaction itself

Must be reasonably foreseeable to be recoverable.

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11
Q

What is the significance of foreseeability in damages?

A

Consequential damages must be reasonably foreseeable by the breaching party to be recoverable

Unforeseeable damages are not recoverable unless known possibilities existed.

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12
Q

What are incidental damages?

A

Compensation for commercially reasonable expenses incurred as a result of the breach

Include costs incurred in the sale of goods due to the seller’s breach.

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13
Q

What is the impact of economic waste in breach of contract?

A

If fixing a breach results in economic waste, courts may award damages based on the market price diminution instead

Economic waste occurs when repair costs are disproportionate to the benefit.

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14
Q

What is the difference between direct and consequential damages?

A

Direct damages are the necessary result of a wrongful act, while consequential damages arise from unique circumstances of the parties

Consequential damages must be foreseeable.

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15
Q

What is the UCC’s stance on consequential damages?

A

Consequential damages can only be recovered if specifically provided by a UCC provision or another rule of law

UCC grants buyers the remedy of collecting consequential damages in certain situations.

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16
Q

What does the term ‘reliance damages’ refer to?

A

Damages intended to compensate a party for expenditures made in reliance on the contract

Used when expectation damages are too speculative.

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17
Q

What happens if a party’s expectation damages are too speculative?

A

They may seek reliance damages instead

Courts prefer reliance damages when lost profits are difficult to quantify.

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18
Q

What are consequential damages for breach of warranty?

A

Consequential damages may be limited or excluded unless the limitation or exclusion is unconscionable.

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19
Q

Is limitation of consequential damages for injury to the person in consumer goods unconscionable?

A

Yes, it is prima facie unconscionable.

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20
Q

What are incidental damages?

A

Incidental damages may be awarded as compensation for commercially reasonable expenses incurred due to a breach.

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21
Q

What expenses are included in incidental damages for the seller’s breach?

A

Incidental damages include expenses for:
* Inspection
* Receipt
* Transportation
* Care
* Custody of goods rightfully rejected
* Commercially reasonable charges for effecting cover.

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22
Q

What are liquidated damages?

A

Liquidated damages are damages recoverable without proof of actual loss in case of a breach.

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23
Q

What is the two-pronged test for enforceability of liquidated damages?

A

The test requires:
* The amount must be reasonable and related to potential damages
* Actual damages must be uncertain and difficult to prove.

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24
Q

Are punitive damages recoverable in contract actions?

A

Rarely, except for fraud, violation of fiduciary duty, or acts of bad faith.

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25
What are nominal damages?
Nominal damages are a small sum awarded to vindicate rights when no actual loss occurred.
26
Are attorney's fees recoverable in contract actions?
Generally, no, unless agreed otherwise or authorized by specific law.
27
What is the duty to mitigate damages?
A party must avoid or mitigate damages by taking reasonable steps without undue risk, expense, or inconvenience.
28
What happens if a nonbreaching party fails to mitigate damages?
It reduces the damages recoverable but does not give the breaching party a right to sue.
29
What is restitution?
Restitution seeks to restore the benefit conferred on the other party to prevent unjust enrichment.
30
What are reliance damages?
Reliance damages are based on out-of-pocket expenses incurred by the nonbreaching party.
31
What is a key factor for specific performance to be granted?
Damages must be an inadequate remedy.
32
What is the significance of unique goods in specific performance?
Specific performance may be granted for contracts involving unique goods or real property.
33
Can specific performance be granted for personal services?
No, it is rarely granted for contracts involving personal services.
34
What are the buyer's remedies under the UCC if the seller fails to tender goods?
Buyer's remedies include: * Cancel the contract * Recover payments made for the goods.
35
What is the standard for recovery in restitutionary recovery?
Recovery is based on the benefit conferred on the defendant to prevent unjust enrichment.
36
What happens if a party breaches a contract but has conferred a benefit?
The breaching party can recover for the benefit conferred less the damages for the breach.
37
What is the effect of a liquidated-damages clause on restitution?
Restitution is not allowed if the clause is reasonable.
38
What is the first remedy a buyer has if the seller fails to tender the goods?
Cancel the contract ## Footnote The buyer may cancel the contract if the breach goes to the entire installment contract.
39
What can a buyer recover if they cancel the contract after the seller's breach?
Any payments made to the seller for the goods ## Footnote This includes payments for goods that were not delivered.
40
What security interest does a buyer have upon rightful rejection or justifiable revocation of acceptance?
A security interest in goods in possession for any payments made ## Footnote This includes expenses incurred in inspection, receipt, transportation, care, and custody.
41
How is the market price calculated in case of damages after a seller's breach?
Market price minus the contract price ## Footnote The market price is determined at the time of the breach at the place where tender was to occur.
42
What are incidental damages?
Costs related to the seller’s failure to perform ## Footnote Examples include warehousing, transportation, and inspection costs.
43
What are consequential damages?
Losses resulting from general or particular needs known to the seller at the time of contracting ## Footnote These losses could not be reasonably prevented.
44
What is the buyer entitled to if they purchase similar goods elsewhere after the seller's breach?
The replacement price minus the contract price ## Footnote This is known as 'cover'.
45
Under what circumstances can a buyer demand specific performance?
For unique goods or other proper circumstances ## Footnote Inability to cover is strong evidence of such circumstances.
46
What must a buyer do to obtain undelivered goods after partial payment?
Tender any unpaid portion of the price to the seller ## Footnote This applies if the seller has become insolvent within 10 days of the first payment.
47
What rights does a buyer have if the goods tendered are nonconforming?
The right to accept or reject all goods ## Footnote The buyer can accept one or more commercial units and reject the rest.
48
What is required for a valid rejection of goods by the buyer?
Notice to the seller within a reasonable time before acceptance ## Footnote The notice must be timely based on the parties' course of performance or trade usage.
49
What happens if a buyer accepts goods?
It precludes rejection of the goods ## Footnote Acceptance can occur through express statement, use of goods, or failure to reject.
50
What must a buyer do to revoke acceptance of goods?
Inform the seller within a reasonable time after discovering nonconformity ## Footnote Revocation must occur before any substantial change in the condition of the goods.
51
What is the seller's right to cure?
The right to correct a defective tender ## Footnote This right applies if the time for performance has not elapsed or if the seller believed the buyer would accept despite nonconformity.
52
What can a seller do if the buyer wrongfully rejects goods?
Collect damages, resell the goods, or recover the price ## Footnote The seller is also entitled to incidental damages.
53
What is a seller’s right to reclaim goods?
To reclaim goods from an insolvent buyer within 10 days of receipt ## Footnote This right is subordinate to the rights of a buyer in the ordinary course.
54
What is the measure of damages if a seller cannot resell goods after a wrongful rejection?
Contract price minus the market price at the time for tender ## Footnote This includes any incidental damages, less expenses saved due to the buyer's breach.
55
What must a seller do to stop goods in transit due to buyer's breach?
Stop goods only if shipped in large-sized lots ## Footnote This cannot be done if the buyer has already received the goods.
56
What happens if a buyer becomes insolvent before goods are delivered?
The seller can stop the goods in transit ## Footnote This allows the seller to refuse delivery except for cash.
57
What should a seller do if a buyer pays with a check that is later dishonored?
Reclaim the goods following a demand made within a reasonable time ## Footnote This right is subject to the rights of good-faith purchasers.
58
What is the first step in addressing risk of loss problems?
Check if the contract specifies the risk of loss ## Footnote If not, determine if there is a breach or repudiation by either party.
59
What is the reasonable price if not defined in the contract?
A reasonable price ## Footnote This applies when the contract does not specify a price.
60
What can the seller recover in addition to any listed remedies?
Incidental damages ## Footnote This includes storage and shipping costs.
61
What is the first step in determining risk of loss?
Check if the contract sets forth the risk of loss ## Footnote If it does, the agreement controls.
62
In the absence of a breach, who bears the risk of loss for non-identified goods?
The seller until delivery obligations are satisfied ## Footnote After delivery, the risk shifts to the buyer.
63
What is a shipment contract?
A contract where the seller must deliver goods to the carrier ## Footnote Often identified by the term 'FOB seller’s place of business.'
64
What is a destination contract?
A contract where the seller must deliver goods to a specified place ## Footnote Often identified by the term 'FOB buyer’s place of business.'
65
When does risk of loss pass to the buyer for goods held by a bailee?
When the buyer receives a negotiable document of title or bailee acknowledges the buyer's right ## Footnote This applies when goods are transferred without being moved.
66
When does risk of loss pass to the buyer if the seller is a merchant?
When the buyer takes physical possession ## Footnote Otherwise, it passes on tender of delivery.
67
What happens to risk of loss if the seller delivers nonconforming goods?
The risk remains on the seller until acceptance or cure ## Footnote If the buyer revokes acceptance, risk shifts back to the seller.
68
When does the risk of loss shift to the buyer if the buyer breaches?
Immediately upon breach after goods have been identified ## Footnote This applies to the extent of any lack of insurance coverage by the seller.
69
What occurs if identified goods are totally destroyed before risk of loss shifts?
The seller is excused from performance ## Footnote Neither party has breached the contract.
70
When does a seller retain an insurable interest in goods?
As long as the seller retains title or has a security interest ## Footnote Title passes when delivery obligations are completed.
71
When does a buyer obtain an insurable interest in goods?
As soon as the goods are identified in the contract ## Footnote Identification can occur by explicit agreement or at contract formation.
72
What gives the transferee the power to convey good title to a buyer?
Entrustment of goods to one who sells goods of that kind ## Footnote This applies if the buyer is in good faith and unaware of ownership rights.
73
What is a buyer in the ordinary course of business?
A buyer who purchases goods in good faith without knowledge of third-party ownership rights ## Footnote This does not include those acquiring goods in bulk or as security.
74
What is voidable title?
Title that can be invalidated due to fraud or lack of capacity ## Footnote A buyer may transfer good title to a good-faith purchaser even with voidable title.
75
What is the statute of limitations for breach of a sales contract under Article 2?
Four years ## Footnote This is the time frame to commence an action for breach.
76
When does a cause of action accrue for breach of warranty?
When delivery is made ## Footnote If expressly extended, it accrues when the breach is discovered.
77
What is reformation in contract law?
Modification of a contract by the court to reflect parties' intent ## Footnote It is a form of equitable remedy.
78
What does rescission do to a contract?
Unmakes the contract, returning parties to their original positions ## Footnote It treats the contract as if it never existed.
79
What is cancellation in the context of sales contracts?
Negation of a contract upon breach ## Footnote It allows for the pursuit of monetary damages.
80
What grounds can justify reformation, rescission, or cancellation?
* Mistake * Fraud * Undue influence * Duress * Lack of capacity ## Footnote These grounds must occur before or at the time of contract formation.
81
When can rescission be allowed due to failure of consideration?
When there has been a substantial failure of consideration ## Footnote Partial failure with part performance does not allow rescission.
82
What is a declaratory judgment?
An adjudication of rights and obligations under a contract ## Footnote It is not available for moot issues or theoretical problems.
83
What constitutes a breach of contract?
Nonperformance of a duty to perform unless the duty is discharged.
84
What is a material breach?
One that deprives the nonbreaching party of the substantial benefit of the bargain.
85
What can the nonbreaching party do in case of a material breach?
Withhold performance and pursue remedies.
86
What is a minor breach?
One that arises after the breaching party has substantially performed.
87
What can the nonbreaching party do in case of a minor breach?
Pursue remedies but must still perform.
88
Under the UCC, what must a seller do to avoid being in breach?
Strictly perform all contractual obligations.
89
What is anticipatory repudiation?
When a promisor repudiates a promise before the time for performance is due.
90
What must the repudiation of a promise be?
Clear and unequivocal.
91
What options does a nonbreaching promisee have upon anticipatory repudiation?
* Treat the repudiation as a breach * Ignore the repudiation and demand performance * Wait for actual breach before filing suit if applicable.
92
What is prospective inability to perform?
A party's expectation of performance may be diminished by an event occurring after contract formation.
93
What can a party demand if there are reasonable grounds for insecurity about the other party's ability to perform?
Assurances of performance.
94
What are compensatory damages meant for?
To compensate the nonbreaching party for actual economic losses.
95
What are expectation damages?
Damages meant to put the nonbreaching party in the same position as if the contract had been performed.
96
What is the formula for calculating expectation damages?
* Loss in value * Other loss * Costs avoided * Loss avoided.
97
What are consequential damages?
Damages that arise out of special circumstances unique to the parties to the contract.
98
What must be true for consequential damages to be awarded?
They must be reasonably foreseeable.
99
What are incidental damages?
Compensation for commercially reasonable expenses incurred because of the other party's breach.
100
What are liquidated damages?
Stipulated damages meant to reflect a reasonable estimate of the actual damages that would flow from a breach.
101
What are punitive damages?
Rarely available in contract actions, allowed if the breaching conduct is also a tort.
102
What are nominal damages?
Judgment for a small amount awarded when no actual damages are proven.
103
What must a nonbreaching party do to mitigate damages?
Avoid or mitigate damages to the extent possible.
104
What is restitutionary recovery?
Seeks to restore a benefit conferred on the defendant.
105
What are reliance damages?
Recoverable expenses incurred in reasonable reliance on the breaching party's promise to perform.
106
What is specific performance?
An equitable remedy available when damages are inadequate.
107
Under what circumstances can specific performance be granted?
* Difficulty of proving damages * Hardship to the defendant * Balance of the equities.
108
What are the buyer's remedies under the UCC for a seller's breach?
* Cancel contract * Recover expectation, incidental, and/or consequential damages * Purchase similar goods elsewhere. * Demand specific performance.
109
What is the seller's right to the price?
The seller may recover the full contract price under specific conditions.
110
What is the statute of limitations for a breach of sales contract under the UCC?
Four years after the cause of action accrues.
111
What is reformation?
Contract modification by the court to reflect the parties' intent.
112
What does rescission entail?
Unmaking of a contract, leaving parties in their pre-contract position.
113
What is a declaratory judgment?
An action to obtain an adjudication of the parties' rights and obligations under a contract.
114
What is a declaratory judgment?
A court action to obtain an adjudication of the parties’ rights and obligations under a contract when rights are unclear and an actual dispute exists. ## Footnote This action can be initiated by either party involved in the dispute.
115
What mnemonic can help organize the law of contracts?
AFTER ## Footnote This mnemonic assists in structuring contract essays on the bar exam.
116
What is the first issue to consider in the timeline of contract issues?
Remedies (if there was a breach) ## Footnote This is the first step when analyzing contracts in a legal context.
117
What comes after remedies in the contract issues timeline?
Excused or performed (conditions, breach, defenses) ## Footnote This step evaluates the circumstances surrounding the performance of the contract.
118
What is the third issue to consider in the contract issues timeline?
Third-party issues (assignment, delegation) ## Footnote This involves examining the rights and obligations of parties not directly involved in the contract.
119
What is the fourth issue in the timeline for contracts essays?
Applicable law (common law or UCC) ## Footnote This determines which legal framework governs the contract.
120
What is the final issue to consider in the timeline of contract issues?
Formation (mutual assent, terms, defenses) ## Footnote This step focuses on how the contract was created and the validity of its terms.

Contracts & Sales - July 2025 (Themis) (9 decks)

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