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Contracts > Remedies > Flashcards

Remedies Flashcards

1
Q

NONMONETARY REMEDIES

A
  • There are 2 broad branches of remedies available in BOK situations: nonmonetary & monetary.
  • Primary nonmonetary remedy: specific performance
  • Art 2 has a # of other specific nonmonetary remedies for certain situations involving SOGKs
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2
Q

Specific Performance

A
  • If legal remedy (money damages) is inadequate, nonbreaching party may seek specific performance (order from ct to breaching party to perform/face contempt charges)
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3
Q

Tip

A

Watch for fact pattern where party is seeking to specifically enforce a K containing liquidated damages clause (does not make the legal remedy adequate)

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4
Q

Available for Land and Rare or Unique Goods

A
  • Specific performance is always available for land sale Ks
  • Also available for goods that are rare/unique at time performance is due (ex. rare paintings, gasoline in short supply b/c of oil embargoes, etc.).
  • Not available for BOK to provide services, even if services are rare/unique.
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5
Q

Injunction as Alternate Remedy

A
  • Ct may enjoin a breaching employee from working for a competitor throughout duration of K if services contracted for are rare/unique
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6
Q

Covenant Not to Compete

A
  • Most cts will grant an order of specific performance to
    enforce a K not to compete if:
    (1) services to be performed are unique (thus rendering money damages inadequate); and
    (2) covenant is reasonable.

To be reasonable:
(1) Covenant must be reasonably necessary to protect a legitimate interest of person benefited by the covenant (employer/purchaser of covenantor’s business);
(2) Covenant must be reasonable as to its geographic scope & duration (it cannot be broader than benefited person’s customer base & typically cannot be longer than 1/2 years); and
(3) Covenant must not harm the public.

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7
Q

Equitable Defenses Available
.

A
  • In addition to standard K defenses, an action for
    specific performance is subject to equitable defenses of:
    (1) Laches (claim that P has delayed bringing action & delay has prejudiced D);
    (2) Unclean hands (claim that party seeking specific performance is guilty of wrongdoing in transaction being sued upon); and
    (3) Sale to a bona fide purchaser (claim that SM has been sold to person who purchased for value & in good faith)
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8
Q

Buyer’s Nonmonetary Remedies: Cancellation

A
  • If buyer rightfully rejects goods b/c they are nonconforming, buyer can cancel K.
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9
Q

Buyer’s Right to Replevy Identified Goods
—

A

On Buyer’s Prepayment
- If buyer has made at least part payment of purchase price of goods that have been identified under K & seller has not delivered goods, buyer may recover goods from seller in 2 circumstances:
(1) Seller becomes insolvent w/in 10 days after receiving buyer’s 1st payment; or
(2) Goods were purchased for personal, family, or
household purposes.
- In either case, buyer must tender any unpaid portion of purchase price to seller.

On Buyer’s Inability to Cover
- In addition, buyer may recover undelivered, identified goods from seller if buyer, after reasonable effort, is unable to secure adequate substitute goods (cover).

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10
Q

Buyer’s Right to Specific Performance

A
  • A right closely related to buyer’s right to replevy is
    the right to specific performance “where goods are
    unique or in other proper circumstances.”
  • Ct may order specific performance even where goods have not yet been identified to the K by seller.
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11
Q

Seller’s Nonmonetary Remedies: Seller’s Right to Withhold Goods

A
  • If buyer fails to make a payment due on/before delivery, seller may w/hold delivery of goods.
  • Seller may also w/hold goods when goods are sold on credit and, before goods are delivered, seller discovers that buyer is insolvent.
  • However, in such a case, seller must deliver goods if buyer tenders cash for their payment.
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12
Q

Seller’s Right to Recover Goods

A

Right to Recover from Buyer on Buyer’s Insolvency
- If seller learns that buyer has received delivery of goods on credit while insolvent, seller may reclaim goods upon demand made w/in 10 days after buyer’s receipt of goods.
- However, the 10-day limitation does not apply if a misrep of solvency has been made in writing to particular seller w/in 3 months before delivery.
- Right to Recover Shipped or Stored Goods from
Bailee

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13
Q

On Buyer’s Insolvency

A

-Seller may stop delivery of goods in possession of a carrier/other bailee if they discover that buyer is insolvent.
- Of course, seller must deliver goods if buyer tenders cash for their payment

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14
Q

On Buyer’s Breach

A
  • Seller may stop delivery of carload, truckload, planeload, or larger shipments of goods if buyer breaches K/seller has a right to w/hold performance pending receipt of assurances.
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15
Q

Seller’s Ability to Force Goods on Buyer Limited

A
  • Seller’s ability to force goods on buyer is limited to an action for price when seller cannot resell goods at reasonable price.
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16
Q

Right to Demand Assurances

A
  • Where party to a K but don’t CLEARLY indicate that performance will not occur may not be treated immediately as an anticipatory repudiation
  • Instead, if there are reasonable grounds for insecurity w/ respect to party’s performance, other party may demand in writing assurances that performance will occur at proper time.
  • Until they receive adequate assurances, party may suspend their own performance.
  • If proper assurances are not given w/in a reasonable time (w/in 30 days after demand for assurances), they may then treat K as repudiated.
  • What constitutes adequate assurance depends on facts
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17
Q

Tip:

A

Be sure you understand difference between circumstances giving rise to a right to demand assurances & those constituting anticipatory repudiation. The right to demand assurances arises when there are reasonable grounds for insecurity—something makes a party nervous that other will not perform. Anticipatory repudiation requires much more than nervousness; there must be a CLEAR indication that other party is unwilling/unable to perform. Ex. “I’m not going to perform” is an anticipatory repudiation, but “I’m not sure if I can perform” most likely is only a reason to demand assurances.

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18
Q

MONETARY REMEDY—DAMAGES

A
  • Damages can be recovered only to extent they can be proved w/ REASONABLE CERTAINTY & could not be avoided w/ REASONABLE EFFORT
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19
Q

Compensatory Damages

A
  • The usual goal of damages for BOK is to put nonbreaching party in position they would have been in had the promise been performed, so far as money can do this.
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20
Q

“Standard Measure” of Damages—Expectation
Damages

A
  • “Expectation” damages: sufficient to buy a substitute performance.
  • Also known as “benefit of bargain” damages.
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21
Q

Reliance Damage Measure

A
  • If P’s expectation damages are too speculative to measure (ex. P cannot show w/ sufficient certainty the profits they would’ve made if D had performed the K), P may elect to recover those based on their reasonable reliance on the K.
  • Reliance damages awards P cost of their performance (they are designed to put P in the position that would have been in had K never been formed.
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22
Q

Incidental Damages

A
  • Compensatory damages may also include incidental damages.
  • Incidental damages are associated w/ SOGs & typically include expenses REASONABLY INCURRED by buyer REASONABLY INCIDENT to seller’s breach, & by seller as a result of buyer’s breach.
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23
Q

Consequential Damages

A
  • Consequential damages are special damages & reflect losses over & above standard expectation damages.
  • They arise b/c of nonbreaching party’s particular circumstances, & most often they consist of LOST PROFITS.
  • May be recovered only if, at time K was made, a REASONABLE person would have FORESEEN damages as PROBABLE result of a breach.
  • Foreseeability is key
  • To recover consequential damages, breaching party must have known/had reason to know of special circumstances giving rise to damages.
  • Note that in SOGs, only buyer may recover consequential damages.
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24
Q

Certainty Rule

A
  • P must prove that losses suffered were certain & not speculative.
  • Traditionally, if breaching party prevented nonbreaching party from setting up a new business, cts would not award lost profits from prospective business as damages, b/c they were too speculative.
  • However, modern cts may allow lost profits as damages if they can be made more certain by observing similar businesses in the area/other businesses previously owned by same party
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25
Q

Punitive Damages

A
  • Punitive damages are generally not awarded in K cases.
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26
Q

Nominal Damages

A
  • Nominal (token) damages (ex. $1) may be awarded when a breach is shown but no actual loss is proven
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27
Q

Liquidated Damages

A
  • Parties to a K may stipulate what damages are to be paid for a breach.
  • Liquidated damages must be for a REASONABLE amount in view of actual/anticipated harm caused by breach.
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28
Q

Requirements for Enforcement: LD

A
  • Liquidated damage clauses - 2 requirements are:
    (1) Damages for contractual breach are difficult to estimate AT TIME K is formed; and
    (2) Amount agreed on is a REASONABLE forecast of compensatory damages for breach.
  • Reasonableness test: comparison between amount of damages prospectively probable AT TIME of K formation & liquidated damages figure.
  • If liquidated damages amount is unreasonable, cts will construe this as a penalty & will not enforce provision.
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29
Q

Recoverable Even If No Actual Damages: LD

A
  • If above requirements are met, P will receive liquidated damages amount.
  • Even if no actual money /pecuniary damages have been suffered
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30
Q

SOGKs - Buyer’s Damages : Seller Does Not Deliver or Buyer Rejects/Revokes

A
  • If seller doesn’t deliver, or buyer properly rejects goods/revokes acceptance of goods, buyer’s basic damages consist of difference between K price & either:
    (1) market price or
    (2) cost of cover, plus incidental & consequential damages (if any) minus costs saved due to seller’s breach
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31
Q

Difference Between Contract Price and Cost of
Replacement Goods—“Cover”

A
  • If buyer chooses cover measure (difference between K price & cost of buying replacement goods), buyer must make a reasonable K/substitute goods in good faith & w/out unreasonable delay.
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32
Q

Difference Between Contract Price and Market Price

A
  • If buyer measures damages by difference between K price & market price, market price usually is determined as of time buyer learns of breach & at place of tender.
33
Q

Tip

A
  • Buyer’s damages are measured as of time they learn of breach, while seller’s damages are measured as of time for delivery.
34
Q

Seller Delivers Nonconforming Goods that Buyer
Accepts

A

Warranty Damages
- If buyer accepts goods that breach one of seller’s warranties, buyer may recover damages breach.”
- Basic measure of damages in such a case is difference between value of goods as delivered & value they would have had if they had been according to K, plus incidental & consequential damages.

Notice Requirement
- To recover damages for any defect as to accepted
goods, buyer must, w/in a reasonable time after they discover/should have discovered defect, notify seller of defect.
- If they do not notify seller w/in a reasonable time, they lose their right to sue.
- “Reasonable time” is a flexible standard.

35
Q

Seller Anticipatorily Breaches Contract

A
  • The measure of damages when seller anticipatorily
    breaches K is difference between market price at time buyer learned of breach & K price.
36
Q

Consequential Damages

A

Seller is liable for consequential damages from their breach if:
(1) they had reason to know buyer’s requirements, and
(2) subsequent loss resulting from those needs could not reasonably be prevented by cover.
- Particular needs must be made known to seller, but general requirements usually need not be.

37
Q

Consequential Damages: Goods for Resale

A
  • If buyer is in the business of reselling goods, seller is deemed to have knowledge of the resale.
38
Q

Consequential Damages: Goods Necessary for Manufacturing

A
  • If seller knows that goods they provide are to be
    used in the manufacturing process, they should know
    that their breach would cause a disruption in production leading to a loss of profits.
39
Q

Seller’s Damages: Where Buyer Repudiates or Refuses to Accept Conforming Goods

A
  • The Code provides 3 measures for damages for
    when buyer wrongfully repudiates/refuses to accept conforming goods.
  • In addition to incidental damages (ex. costs of storing, shipping, reselling), seller can:
    (i) Resell goods & recover difference between K price & resale price
    (ii) Recover difference between market price (measured as of time & at place of delivery) & K price, or
    (iii) If above measures are inadequate b/c seller could have made an additional sale, recover under a “lost profits” measure difference between K price & cost to seller.
40
Q

Tip

A
  • Other damages measures will never be adequate
    if seller is a lost volume seller. To determine
    whether lost profits measure is appropriate,
    look at seller’s supply. If seller’s supply of goods is unlimited (they can obtain all goods they can sell), then they are a lost volume seller, and lost profits
    measure can be used. If seller’s supply is limited (they cannot obtain all goods they can sell, as with the
    sale of a unique item), lost profits measure cannot be
    used, and one of the other two measures must be used instead.
41
Q

Where Buyer Accepted Goods—Action for Price

A
  • If buyer has accepted goods & has not paid/ has not accepted goods, & seller is unable to resell them at any reasonable price, or if goods have been lost/ damaged at a time risk of loss was on buyer, seller may maintain an action against buyer for full K price
42
Q

Contracts for Sale of Land

A
  • The standard measure of damages for breach of land sale Ks is difference between K price & fair market value of land.
43
Q

Employment Ks

A
  • In employment Ks, check to see whether breach
    was by the employer/employee.
44
Q

Breach by Employer

A
  • Irrespective of when breach occurs—before performance, after part performance, or after full performance—standard measure of employee’s damages is the full K price (although such damages may be reduced if employee fails to mitigate).
45
Q

Breach by Employee

A
  • If an employee materially breaches an employment K employer is entitled to recover cost of replacing employee (wages employer must pay to a replacement employee minus breaching employee’s wages).
  • Breaching employee may offset money owed for
    work done to date.
46
Q

Employment at Will

A

-When employment is at will, it may be terminated at any time for any reason.
- Thus termination of at-will employment by either party does not result in breach.
- A position characterized as “permanent” creates an employment-at-will relationship.

47
Q

Construction Contracts

A
  • If a construction K is breached by owner, builder will be entitled to PROFITS that would have resulted
    from K plus any COSTS expended.
  • If K is breached after construction is completed, measure is FULL K price plus INTEREST.
  • If K is breached by builder, owner is entitled to COST OF COMPLETION plus REASONABLE COMPENSATION for delay.
  • Most cts allow builder to offset/recover for work performed to date to avoid unjust enrichment of owner.
  • If breach is only late performance, owner is entitled to DAMAGES incurred b/c of late performance.
48
Q

Building Ks: Restoration and Economic Waste

A
  • Usually, when building K is not properly performed, owner is entitled to cost of fixing defect.
  • However, unless there is special significance attached to use of a particular item (ex. owner is CEO
    of particular brand of copper pipe specified) & that
    significance is communicated to builder, a ct will
    not order a remedy that results in undue economic waste.
  • Cts are split on result when party Ks to restore property & willfully refuses to do so b/c it
    is much more costly than any diminution in value of property.
49
Q

Contracts Calling for Installment Payments

A
  • If K calls for payments in installments & a payment
    is not made, there is only a partial breach.
  • Aggrieved party is limited to recovering only the missed payment, not entire K price.
  • However, K may include an acceleration clause making entire amount due on any late payment, in which case aggrieved party may recover entire amount.
50
Q

Avoidable Damages (Mitigation)

A
  • Under CL, nonbreaching party cannot recover damages that could have been avoided w/ reasonable effort.
  • Thus, they must refrain from piling up losses after they receive notice of breach.
  • They must not incur further expenditures/costs, & they must make reasonable efforts to cut down their losses by procuring a substitute performance at a fair price.
  • Should they not do so, they will not be allowed to recover those damages that might have been avoided by such mitigation after breach.
  • Generally, a party may recover expenses of mitigation.
  • Note the following specific K situations: employment Ks, Manufacturing Ks, Construction Ks, SOGKs,
51
Q

Employment Contracts

A
  • If breaching employer can prove that a comparable job in same locale was available, then K damages against that breaching employer for lost wages will be
    reduced by wages the P would have received from that comparable job.
52
Q

Manufacturing Contracts

A
  • Generally, in K to manufacture goods, if person for whom goods are being manufactured breaches, manufacturer is under a duty to mitigate by not continuing work after breach.
  • However, if facts are such that completion of manufacturing project will decrease rather
    than increase damages, manufacturer has right to continue
53
Q

Construction Contracts

A
  • Builder does not owe duty to avoid consequences
    of owner’s breach by securing other work, but does have a duty to mitigate by not continuing work
    after breach.
  • If completion will decrease damages, it will be allowed.
54
Q

Contracts for Sale of Goods

A
  • Under Art 2, rule of mitigation generally does not
    apply.
  • An injured buyer is not required to cover, & injured seller is not required to resell.
  • Market damages are always available if buyer does not cover/seller does not resell.
  • Seller generally cannot bring an action against buyer for full K price unless goods cannot be resold at a reasonable price/were damaged/lost when risk of loss was on buyer.
55
Q

Tip

A

Keep in mind that duty to mitigate only reduces a recovery; it does not prohibit recovery. Thus, if fact pattern shows a clear breach & P does not attempt to mitigate damages, they can recover for breach, but recovery will be reduced by damages that would have been avoided by mitigation.

56
Q

RESTITUTION

A
  • As an alternative to K damages discussed above,
    restitution may be available in K-type situation.
  • Restitution is not really part of K law, but rather is a
    distinct concept.
  • Restitution is based on preventing unjust enrichment when one has conferred a benefit on another w/o gratuitous intent.
  • Restitution can provide a remedy not only when a K exists & has been breached, but also when K is unenforceable, & in some cases when no contractual relationship exists at all between parties
57
Q

Terminology

A
  • When K is unenforceable/no K between parties exists, an action to recover restitutionary damages often is referred to as an action for an implied in law K, an action in quasi-K, or an action for quantum meruit
58
Q

Measure of Damages

A
  • Generally, measure of restitution is value of benefit conferred.
  • Although this is usually based on benefit received by D (ex. increase in value of D’s property/ value of goods received), recovery may also be measured by “detriment” suffered by P (ex. reasonable value of work performed/services rendered) if benefits are difficult to measure/“benefit” measure would achieve an unfair result
59
Q

Restitution: When K is Breached

A
  • When a K has been breached & nonbreaching
    party hasn’t fully performed, they may choose to cancel K & sue for restitution to prevent unjust enrichment.
  • Note if P has fully performed, they are limited to their damages under K.
  • This may be less than they would’ve received in a restitutionary action, b/c a restitutionary remedy isn’t limited to K price.
60
Q

Restitution: Losing Ks

A
  • A restitutionary remedy often is desirable in the case
    of a “losing” K (K in which actual value of services /goods to be provided under K is higher than K price), b/c normal K expectation damages/reliance damages would be for a lesser amount.
61
Q

Restitution: Breach by P

A
  • Under some circumstances, P may seek restitution
    even though P is the party who breached.
  • If breach was intentional, some cts won’t grant breaching party restitution; modern cts, however,
    will permit restitutionary recovery but limit it to K price less damages incurred as a result of breach.
62
Q

Restitution: Restitution of Advance Payments or Deposit If Buyer
of Goods Breaches

A
  • If buyer has paid part of purchase price in advance & then breaches K, they can usually recover some payments.
  • Unless seller can prove greater damages, they may keep advance payments totaling 20% of purchase price/$500, whichever is less.
  • Balance must be returned to buyer.
  • If there is a valid liquidated damages clause, seller need refund only excess of buyer’s payments over amount of liquidated damages.
63
Q

Tip:

A

Generally, when a breaching party attempting
to collect on a partially performed K, you should consider:
(1) substantial performance,
(2) divisibility, and
(3) restitution—in that order.
- You must read call of the question and each answer choice carefully, and of course, you must be able to regroup when your expected answer isn’t one of the choices.

64
Q

Restitution: When K Unenforceable—Quasi- K Remedy

A
  • Restitution may be available in a quasi-K action when K was made but is unenforceable & unjust enrichment otherwise would result (ex. celebrity is hired to sign autographs and is paid, but dies before they perform; the other party has a restitutionary action to recover payment).
65
Q

Restitution: When No K Involved—Quasi-K
Remedy

A
  • Restitution may also be available in a quasi-K action
    when there is no contractual relationship between the
    parties if:
    (1) P has conferred a benefit on D by rendering services/expending properties;
    (2) P conferred benefit w/ reasonable expectation of being compensated for its value;
    (3) D knew/had reason to know of P’s expectation; AND
    (3) D would be unjustly enriched if they were allowed to retain benefit w/o compensating P
66
Q

tip:

A

Always keep the quasi-K remedy in the back of your mind. Look first for a valid K allowing P relief. But if there is no valid K, quasi-K may provide a remedy if P has suffered a loss or rendered services.

67
Q

RESCISSION

A
  • Rescission is a remedy where original K is voidable & rescinded.
  • Parties are left as though K had never been made.
  • Grounds for rescission must have occurred either before/at K formation.
  • Grounds are:
    (1) Mutual mistake of material fact
    (2) Unilateral mistake if other party knew/should have known of mistake
    (3) Unilateral mistake if hardship by mistaken party is
    so extreme it outweighs other party’s expectations under K
    (4) Misrep of fact/law by either party as to a material factor in negotiations that was relied upon, and
    (5) Other grounds, such as duress, undue influence,
    illegality, lack of capacity, and failure of consideration
68
Q

Rescission: Defenses

A
  • Generally all equitable defenses (including laches & unclean hands) are available in a rescission action.
  • Note that P’s negligence isn’t a defense.
69
Q

Rescission: Additional Relief

A
  • If P has paid money to D, they are entitled to restitution in addition to rescission
70
Q

Reformation

A
  • Reformation is the remedy where the writing setting forth agreement between parties is changed so it
    conforms to original intent of parties.
71
Q

Reformation - Grounds

A

Mistake
- To reform K b/c of mistake, there must be:
(1) an agreement between parties,
(2) an agreement to put agreement in writing, and
(3) a variance between original agreement & writing.

Misrepresentation
- If writing is inaccurate b/c of a misrep, P can choose between reformation & avoidance.
- To qualify for reformation, misrep must relate to content/legal effect of the record.
- Misreps as to SM of the agreement aren’t grounds for reformation; rescission & damages are the proper remedy for that.

72
Q

Negligence Does Not Bar Reformation

A
  • Failure to read record of agreement doesn’t preclude party from obtaining reformation.
  • In nearly every case in which record doesn’t reflect the agreement, either one/both parties have failed to read it.
73
Q

Reformation: Clear and Convincing Evidence Standard

A
  • The variance between antecedent agreement & writing must be established by clear & convincing
    evidence.
74
Q

Reformation: Parol Evidence Rule and Statute of Frauds Do Not Apply

A
  • PER isn’t applied in reformation actions.
  • Majority rule: SOF does not apply—but many cts will deny reformation if it would add land to K w/o complying with SOF
75
Q

Reformation: Defenses

A
  • In addition to the general equitable defenses, the existence of a bona fide purchaser for value is also a defense to reformation.
  • Similarly, reformation isn’t permitted if rights of 3rd parties will be unfairly affected.
76
Q

STATUTE OF LIMITATIONS UNDER UCC

A
  • For sales Ks, UCC provides for a 4-year statute of
    limitations.
  • Parties may shorten period by agreement to no less than 1 year, but can’t lengthen it.
77
Q

SOL: Accrual of Action

A
  • Statutory period begins to run when a party can bring suit (when breach occurs).
  • Period begins to run regardless of whether aggrieved party knows about breach.
78
Q

SOL: Breach of Warranty Actions

A
  • For breach of warranty action, breach occurs & limitations period begins to run upon delivery of goods.
  • This is true even if buyer doesn’t discover breach until much later.

Warranty Extends to Future Performance
- If there is an express warranty that explicitly extends to future performance of goods, 4-year period doesn’t
begin to run until buyer should’ve discovered breach.

Implied Warranties Breached on Delivery
- B/c implied warranties cannot “explicitly” extend to
future performance, they are breached, if at all, upon delivery

Contracts (12 decks)

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