Modules 7-9 - Breach, Remedies, Rights/Duties of Third Parties to Contract

Question 1

When does a breach of contract occur?

Answer 1

if it is found that:
(1) the promisor is under an ABSOLUTE DUTY to perform; and
(2) this absolute duty to perform HAS NOT BEEN DISCHARGED

Question 2

What must the non-breaching party show if they sue for breach?

Answer 2

they are WILLING AND ABLE to perform, but for the breaching party’s failure to perform

Question 3

Determining materiality of breach: elements

Answer 3

(1) the AMOUNT OF BENEFIT RECEIVED by the non breaching party;
(2) ADEQUACY of compensation for damages to injured party;
(3) EXTENT OF PART PERFORMANCE by the breaching party;
(4) HARDSHIP by the breaching party;
(5) NEGLIGENT OR WILLFUL BEHAVIOR of the breaching party; and
(6) the LIKELIHOOD THAT BREACHING PARTY will perform the remainder of the contract

Question 4

If the breaching party has substantially performed, then the non-breaching party IS/IS NOT excused from counter performance.

Answer 4

IS NOT

Question 5

What is a minor breach?

Answer 5

breach is minor if the obligee gains the SUBSTANTIAL BENEFIT OF THEIR BARGAIN despite the obligor’s effective performance; does not relieve aggrieved party of their duty to perform under k

Question 6

What can the non-breaching party do if the contract has been materially breached?

Answer 6

(1) treat the contract as at an end; and
(2) has the immediate right to ALL REMEDIES for breach of the ENTIRE CONTRACT, including total damages

Question 7

Minor breach + anticipatory repudiation

Answer 7

treated as MATERIAL BREACH by non breaching party; can sue immediately for total damages and are PERMANENTLY DISCHARGED from further performance

UCC modification: permits a party to complete the manufacture of goods to avoid having to sell unfinished goods at the lower salvage value

Question 8

Material breach of divisible contract

Answer 8

recovery is available for SUBSTANTIAL PERFORMANCE for the divisible part, even though there has been material breach of the entire contract

Question 9

Failure to perform by the time stated IS/IS NOT generally a material breach is performance is rendered within a reasonable time.

Answer 9

IS NOT; it is material is time is a material aspect of the contract

Question 10

Perfect Tender Rule: rejects common law substantial performance rule

Answer 10

if GOODS OR THEIR DELIVERY fail to conform to the k in ANY WAY, buyer generally may reject ALL, accept all, or accept any commercial units and reject the rest

Question 11

Buyer’s right to reject under UCC cut off by acceptance

Answer 11

Buyer deemed to ACCEPT when:
(1) buyer indicates to seller that the GOODS CONFORM (after reasonable opportunity to inspect) OR they will keep the goods even though they dont conform;
(2) buyer FAILS TO REJECT WITHIN REASONABLE TIME after tender or delivery of goods, or fail to SEASONABLY NOTIFY seller of their rejection; or
(3) buyer does ANY ACT INCONSISTENT WITH SELLER’S OWNERSHIP

Question 12

A buyer CAN/CANNOT revoke acceptance if there is a defect and they did not know about it, or could not reasonably discover defect.

Answer 12

CAN

Question 13

Buyer’s responsibilities after rejecting goods

Answer 13

has to hold the goods with reasonable care at seller’s disposition for a time sufficient to permit seller to remove them; MERCHANT buyer has obligation to OBEY ANY REASONABLE INSTRUCTIONS from the seller as to the rejected goods

Question 14

If the buyer rejects, and the seller does not give instructions, what are the buyer’s options?

Answer 14

(1) RESHIP the goods to the seller;
(2) STORE the goods for the seller’s account; or
(3) RESELL the goods for the seller’s account (public/private sale) after giving seller REASONABLE NOTICE of the intent to resell

Question 15

Situations where buyer can revoke acceptance

Answer 15

Standard: can revoke acceptance if the goods have a defect that SUBSTANTIALLY IMPAIRS their VALUE TO THE BUYER, and:
(1) buyer accepted goods on REASONABLE BELIEF that defect would be CURED and it has not been; or
(2) buyer accepted goods because of the DIFFICULTY OF DISCOVERING THE DEFECTS or because of the seller’s ASSURANCES that the goods conformed to the k

Question 16

When must revocation of acceptance of goods occur?

Answer 16

(1) within REASONABLE TIME after the buyer DISCOVERS or SHOULD HAVE DISCOVERED the defects; and
(2) BEFORE ANY SUBSTANTIAL CHANGE TO THE GOODS has occurred that is not caused by a defect present at the time the seller relinquished possession

Question 17

Exceptions to Perfect Tender Rule: Seller’s Right to Cure

Answer 17

(1) cure by notice and new tender WITHIN TIME for performance (buyer MUST accept);
(2) seller’s right to cure BEYOND original contract term (if seller REASONABLY BELIEVED that the tender would be acceptable, seller has FURTHER REASONABLE TIME to make conforming tender upon notice to buyer)

Question 18

When might a seller reasonably believe that a nonconforming tender is appropriate when it actually isnt?

Answer 18

(1) trade practices or PRIOR DEALINGS WITH BUYER led seller to believe that goods would be acceptable; or
(2) seller could NOT HAVE KNOWN of the defect, despite proper business conduct

Question 19

Right to revoke acceptance of installment contract

Answer 19

installment can be rejected ONLY IF the nonconformity SUBSTANTIALLY IMPAIRS the value of the installment and CANNOT BE CURED

whole k breached only if the nonconformity SUBSTANTIALLY IMPAIRS the value of the ENTIRE K

Question 20

Standard remedy for breach of contract

Answer 20

expectation damages: what the non breaching party would have received, but for the breaching party breaching the contract

Question 21

definition of specific performance

Answer 21

order from the court to the breaching party to perform or face contempt of court charges

Question 22

When is specific performance available as a remedy?

Answer 22

when legal remedy (money damages) is inadequate

Question 23

When is specific performance not available as a remedy and why?

Answer 23

contracts for services; violates the 13th Amendment (prohibition against involuntary servitude)

Question 24

Specific performance is ALWAYS available for contracts involving…

Answer 24

land, or unique/rare goods at the time that performance is due

Question 25

Seller contracts to sell an antique painting to Buyer, then breaches. Can Buyer get the painting from Seller?

Answer 25

YES through specific performance; the antique painting is assumably unique unless told otherwise

Question 26

What may the court order for a breach of an employment contract instead of specific performance, when there is no other legal remedy available?

Answer 26

injunction; ordering specific performance would violate 13th Amendment court can enjoin breaching employee from working for competitor for duration of k if the services contracted for are RARE OR UNIQUE (NFL players breaching their k)

Question 27

Covenants not to compete: Courts will grant order of specific performance to enforce k not to compete if:

Answer 27

(1) the SERVICES to be performed are rare; and (2) the covenant is REASONABLE

Question 28

For a covenant to be reasonable...

Answer 28

(1) REASONABLY NECESSARY to protect a LEGITIMATE INTEREST of the person benefitted by the covenant (employer/purchaser of business); (2) must be reasonable as to its GEOGRAPHIC SCOPE AND DURATION; and (3) must not HARM THE PUBLIC

Question 29

Equitable defense against specific performance: laches

Answer 29

claim that II has delayed bringing the action and that the delay has PREJUDICED the D

Question 30

Equitable defense against specific performance: unclean hands

Answer 30

party seeking specific performance is guilty of wrongdoing IN THE TRANSACTION BEING SUED UPON

Question 31

Equitable defense against specific performance: bona fide purchaser

Answer 31

subject matter has been sold to a person who purchased FOR VALUE and in GOOD FAITH

Question 32

Nonmonetary damages under Article 2: Buyer's right to cancellation

Answer 32

rightfully reject goods b/c they DO NOT CONFORM TO K

Question 33

Nonmonetary damages under Article 2: Buyer's right to replevy identified goods

Answer 33

buyer must have made at least PART PAYMENT and seller HAS NOT DELIVERED; buyer may replevy the goods from the seller if: (1) seller becomes INSOLVENT WITHIN 10 DAYS AFTER RECEIVING buyer's payment; or (2) goods were purchased for PERSONAL, FAMILY, OR HOUSEHOLD PURPOSES

Question 34

If buyer uses right to replevy identified goods, what must they do?

Answer 34

tender any unpaid portion of the purchase price to the seller

Question 35

Nonmonetary damages under Article 2: Buyer's inability to cover

Answer 35

buyer can replevy UNDELIVERED, IDENTIFIED goods from the seller if the buyer, AFTER REASONABLE EFFORT, is UNABLE TO SECURE ADEQUATE SUBSTITUTE GOODS

Question 36

Nonmonetary damages under Article 2: Buyer's right to specific performance

Answer 36

if goods are unique/rare, court can order specific performance EVEN WHERE THE GOODS HAVE NOT BEEN IDENTIFIED BY THE SELLER

Question 37

Seller's Nonmonetary Remedies: Seller's right to withhold goods

Answer 37

buyer fails to make payment due ON OR BEFORE delivery, seller may withhold delivery; can also withhold if goods are sold on CREDIT and before ether goods are delivered, SELLER DISCOVERS THAT BUYER IS INSOLVENT

Question 38

If buyer pays cash even after seller learns that they are insolvent, what must seller do?

Answer 38

deliver the goods

Question 39

Seller's Nonmonetary Remedies: Right to recover from buyer on buyer's insolvency

Answer 39

If seller learns that a buyer has received delivery of goods ON CREDIT while insolvent, seller may: (1) reclaim the goods UPON DEMAND; and (2) WITHIN 10 DAYS after buyer's receipt of the goods 10-day limit does not apply if a MISREPRESENTATION OF INSOLVENCY WAS MADE IN WRITING to the particular seller WITHIN 3 MONTHS before delivery

Question 40

Seller's Nonmonetary Remedies: Right to recover shipped or stored goods from bailee (on buyer's insolvency)

Answer 40

seller may stop delivery if they discover that buyer is insolvent; seller must deliver goods if buyer tenders cash

Question 41

Seller's Nonmonetary Remedies: Right to recover shipped or stored goods from bailee (on buyer's breach)

Answer 41

seller may stop delivery if the buyer BREACHES THE K or the seller HAS THE RIGHT TO WITHHOLD PERFORMANCE pending receipt of assurances

Question 42

Limitation on seller's ability to force goods upon buyer

Answer 42

limited to an action for price when seller is unable to resell the goods to others at a reasonable price

Question 43

Seller's Nonmonetary Remedies: Right to demand assurances

Answer 43

(1) reasonable grounds for insecurity; (2) demand IN WRITING assurances that performance will be forthcoming at proper time (if not received within REASONABLE TIME, contract can be treated as repudiated) until adequate assurances are obtained, party seeking assurances may SUSPEND THEIR OWN PERFORMANCE

Question 44

Compensatory damages

Answer 44

put the non breaching party IN THE POSITION THEY WOULD HAVE BEEN, had the promise been performed

Question 45

Standard measure of damages: Expectation damages (default)

Answer 45

sufficient damages for nonbreaching party to buy SUBSTITUTE PERFORMANCE

Question 46

Example: I agree to paint Beyonce's house for $10,000. I breach. She pays another painter $3,000 to paint the house. (i) How much can Beyonce recover from me? (ii) Same facts, except Beyonce refuses to pay me after I have started painting her house. I have already spent $5,000. I expected to have $1,500 in profit. What are my damages? (iii) If my profits were uncertain, what would my reliance damages be? (iv) What would my damages be in restitution?

Answer 46

(i) $3,000; difference that would put her in the same position she would have been in, absent breach (ii) $5,000 (what I already spent) + $1,500 (how much profit I expect) = $6,500 (iii) $5,000 (I spent $5,000 before she fired me) (iv) might be $5,000 in restitution, this is uncertain

Question 47

Reliance damages

Answer 47

damages that the plaintiff has suffered based on their REASONABLE RELIANCE on the k designed to put plaintiff in the position that it would have been in, had the k never been formed

Question 48

Incidental damages

Answer 48

CAN ALWAYS GET THESE; NOT FORESEEABLE DAMAGES DO NOT FALL FOR THIS TRICK!!!!!!! expenses REASONABLY incurred by buyer in inspection, receipt, transportation, care, and custody of goods rightfully rejected

Question 49

Damages: Certainty rule

Answer 49

II must prove that losses suffered were CERTAIN in their nature and NOT SPECULATIVE

Question 49

Consequential damages

Answer 49

must be FORESEEABLE at the time of K FORMATION; measured on a REASONABLE PERSON STANDARD To recover: breaching party must have KNOWN OR HAD REASON TO KNOW of the special circumstances giving rise to the damages k for sale of goods: only BUYER can recover these

Question 50

Punitive damages

Answer 50

NEVER EVER EVER EVER GIVEN IN CONTRACTS CASES

Question 51

Nominal damages

Answer 51

may be awarded when a breach is shown BUT NO ACTUAL LOSS IS PROVEN

Question 52

Liquidated damages

Answer 52

must be an amount that is REASONABLE in view of the actual or anticipated harm caused by breach

Question 53

To enforce liquidated damages clauses:

Answer 53

(1) damages for contractual breach are DIFFICULT TO ESTIMATE OR ASCERTAIN at the time that the k IS FORMED; and (2) amount agreed upon is a REASONABLE FORECAST of compensatory damages in the case of breach reasonableness: comparison between the amount of damages PROSPECTIVELY probable at the time of k formation and the liquidated damages FIGURE

Question 54

If a court determines that the amount of a liquidated damages clause is unreasonable, what happens?

Answer 54

the court will deem the amount a PENALTY and will NOT ENFORCE the clause

Question 55

Buyer's monetary damages options for breach of k under UCC Article 2

Answer 55

(1) Cover damages (cover price - original k price) = $x (2) Market damages (market price - original k price) = $x (3) Loss in value (value as promised - value as delivered) = $x

Question 56

Example: Brian contracts to buy carpeting for $2,500. Sean doesnt deliver. The market price for similar carpeting is $2,700. What are Brian's damages if Brian pays $2,800 for the same carpeting?

Answer 56

$300, the amount of the difference between the cover price minus the original k price

Question 57

If seller delivers nonconforming goods that buyer accepts, and the goods breach one of the seller's warranties, what happens?

Answer 57

buyer may recover as damages LOSS RESULTING WITH NORMAL COURSE OF EVENTS FROM BREACH, i.e., "loss in value" PLUS incidental and consequential damages buyer has to give seller notice WITHIN REASONABLE TIME after the buyer DISCOVERS/SHOULD HAVE DISCOVERED THE DEFECT

Question 58

Example: Bridget contracts to buy an antique painting for $4,000. She later discovers it's not antique, but keeps it anyway. The painting is worth $2,000. Had it been antique, it would be worth $5,000. What are Bridget's damages?

Answer 58

$3,000; $5,000 (value as promised) - $2,000 (value as delivered) = $3,000 loss in value

Question 59

If seller anticipatory breaches the contract:

Answer 59

difference between the MARKET PRICE at the time the buyer LEARNED of the breach and the K PRICE

Question 60

When is a seller liable for consequential damages?

Answer 60

(1) they had REASON TO KNOW of buyer's general/particular requirements; and (2) subsequent loss resulting from those needs COULD NOT BE REASONABLY PREVENTED BY COVER

Question 61

Goods for resale

Answer 61

if the buyer is in the business of reselling goods, the seller is DEEMED TO HAVE KNOWLEDGE of the resale

Question 62

Sellers damages: buyer repudiates or refuses to accept conforming goods

Answer 62

Seller can: (1) RESELL the goods and recover difference between K PRICE and RESALE PRICE (2) Recover the difference between the MARKET PRICE (at the time of delivery) and K PRICE (3) recover under LOST PROFITS only if the above options are inadequate (difference between k price and cost to seller) AND the seller is a lost volume seller

Question 63

Lost volume seller

Answer 63

if seller's supply of goods is UNLIMITED (ex. car dealerships), the lost profits measure CAN BE USED because they are a lost volume seller

Question 64

Example: Cheryl contracts to buy a Model X for $100,000 from her local Tesla dealership out of its regular inventory. The dealership would've made a profit of $10,000. Cheryl backs out of the deal. A week later, the dealership sells the same car to someone else. What are the dealer's damages?

Answer 64

dealership is a lost volume seller, so $10,000 has unlimited supply of goods (cars), and could have made 2 sales for $20,000 had Cheryl not backed out of the deal

Question 65

Damages for breach of land sale k

Answer 65

difference between K PRICE and FMV OF LAND

Question 66

Breach of employment k by employer

Answer 66

damages: full k price

Question 67

Breach of employment k by employee

Answer 67

damages: cost of replacing the employee

Question 68

Termination of an employment at-will k DOES/DOES NOT result in breach

Answer 68

DOES NOT

Question 69

Construction contracts: breach by owner

Answer 69

builder entitled to PROFITS that WOULD HAVE RESULTED from k, plus any COSTS EXPENDED

Question 70

Construction contracts: breach by builder

Answer 70

owner is entitled to the COST OF COMPLETION plus REASONABLE COMPENSATION FOR DELAY

Question 71

Avoidable damages: mitigation

Answer 71

Common law: non breaching party cannot recover damages that could have been avoided with REASONABLE EFFORT; can generally recover the EXPENSES OF MITIGATION UCC: does not apply this rule unless goods cannot be resold at reasonable price or risk of loss was ON BUYER when goods damages/lost; SELLER GENERALLY CANNOT BRING ACTION FOR FULL K PRICE

Question 72

Contracts where losses generally have to be mitigated

Answer 72

Employment k; manufacturing k (dont continue working without being paid); construction k (dont continue working without being paid)

Question 73

Restitution

Answer 73

based on preventing UNJUST ENRICHMENT; measure of damages is the VALUE OF THE BENEFIT CONFERRED

Question 74

Restitution where k has been breached

Answer 74

non breaching party HAS NOT FULLY PERFORMED, can: (1) cancel the k; and (2) sue for restitution to prevent unjust enrichment if non breaching party has FULLY PERFORMED, they are LIMITED TO THEIR DAMAGES UNDER THE K

Question 75

Restitution where plaintiff breaches

Answer 75

if the breach was INTENTIONAL: likely cannot get any restitution modern view: courts will permit restitution but limit it to K PRICE - DAMAGES INCURRED AS RESULT OF BREACH

Question 76

Restitution of advance payments or deposit if buyer of goods breaches

Answer 76

buyer has paid PART of purchase price THEN breaches: recover some of the payments; seller may keep advance payments totaling 20% of purchase price OR $500, whichever is less BALANCE MUST BE RETURNED TO BUYER if liquidated damages clause is valid, seller only has to return the EXCESS OF BUYER'S PAYMENTS over the amount of liquidated damages

Question 77

K unenforceable - Quasi k remedy

Answer 77

restitution may be available if k was made but is UNENFORCEABLE and unjust enrichment otherwise would result ex. celebrity is hired to sign autographs and is paid, but they die before they perform

Question 78

No k involved - Quasi k remedy

Answer 78

no contractual relationship between parties, may still be able to use restitution if: (1) II has CONFERRED BENEFIT on D by rendering services; (2) II conferred benefit with REASONABLE EXPECTATION OF BEING PAID; (3) D KNEW OR HAD REASON TO KNOW of II's expectation; and (4) D would be UNJUSTLY ENRICHED if they were allowed to retain benefit without compensating II

Question 79

Rescission (invalidating a k)

Answer 79

grounds for rescission must have occurred either BEFORE OR AT THE TIME the k was formed; grounds are: (1) MUTUAL MISTAKE of material fact; (2) UNILATERAL MISTAKE if the other party KNEW OR SHOULD HAVE KNOWN of the mistake; (3) Unilateral mistake if HARDSHIP BY MISTAKEN PARTY IS SO EXTREME that it outweighs the other party's expectations under the k; (4) MISREPRESENTATION OF LAW OR FACT by either party as to material factor that was relied on; and (5) OTHER GROUNDS such as duress, undue influence, illegality, lack of capacity, and failure of consideration

Question 80

K reformation

Answer 80

agreement between parties is changed so that it CONFORMS to the original intent of the parties

Question 81

Grounds for k reformation

Answer 81

(1) Mistake (agreement between parties, agreement to put the agreement in writing, and variance between the original agreement and the writing); (2) Misrepresentation (II can choose between reformation and avoidance; must be a misrepresentation of LEGAL EFFECT OF RECORD, not misrepresentation of subject matter [rescission/damages are proper there])

Question 82

The variance between the antecedent agreement and the writing must be established by ____________________.

Answer 82

clear and convincing evidence

Question 83

Do the parol evidence and SOF rules apply to k reformations?

Answer 83

NO is the majority; some courts apply SOF to contracts for sale of land still upon reformation

Question 84

General defenses to k reformation

Answer 84

can use general equitable defenses, but also BONA FIDE PURCHASER FOR VALUE is a defense

Question 85

State of limitations under UCC

Answer 85

4 years; parties can agree to shorten it to NO LESS than one year, but cannot agree to go beyond 4 years

Question 86

Accrual of an action for SOL purposes under UCC

Answer 86

statutory period begins to run when a party can bring suit, which is when the breach occurs period begins to run REGARDLESS OF WHETHER THE AGGRIEVED PARTY KNOWS OF THE BREACH

Question 87

Accrual of breach of warranty action

Answer 87

breach occurs and limitations period begins to run UPON DELIVERY OF THE GOODS (true even if the buyer doesnt know of the breach until later)

Question 88

If there is an express warranty that explicitly extends future performance of the goods, the 4-year period doesnt begin to run until when?

Answer 88

the buyer SHOULD HAVE DISCOVERED the breach

Question 89

Because implied warranties cannot "explicitly" extend to future performance, they are breached, if at all, when?

Answer 89

UPON DELIVERY