FYLSX Contract Breach and Remedies 4 — Questions and Answers
Question 1: What is 'efficient breach' theory in contract law?
- A doctrine that prevents parties from breaching contracts under any circumstances
- The idea that breach may be economically rational if the breaching party can pay damages and still profit (Correct answer)
- A rule requiring courts to maximize the number of contracts enforced
- A UCC rule allowing sellers to breach if market prices rise
Correct answer: The idea that breach may be economically rational if the breaching party can pay damages and still profit
Efficient breach theory holds that a party may rationally breach a contract when it is more economically efficient to pay damages and redirect resources to a higher-valued use.
Question 2: A seller repudiates a contract before the delivery date. The buyer does nothing and waits. Market prices then fall. How are the buyer's damages measured?
- At the time of the seller's repudiation
- At the contract delivery date when performance was due (Correct answer)
- At the time the buyer actually learns of the repudiation
- At the highest market price between repudiation and trial
Correct answer: At the contract delivery date when performance was due
Under the majority rule, damages for anticipatory repudiation are measured at the time performance was due under the contract, not at the time of repudiation.
Question 3: When a non-breaching party elects rescission as a remedy, what are the consequences?
- The contract remains enforceable but the price is reduced
- Both parties are restored to their pre-contract positions and the contract is treated as void (Correct answer)
- Only the breaching party's obligations are cancelled
- Rescission eliminates the right to seek restitution
Correct answer: Both parties are restored to their pre-contract positions and the contract is treated as void
Rescission cancels the contract and requires mutual restoration of whatever each party received, returning both parties to their pre-contractual positions.
Question 4: A homeowner contracts with a painter for custom interior work for $10,000. The painter abandons the job after receiving a $3,000 deposit. The homeowner hires a second painter for $12,000. What are the homeowner's expectation damages?
- $3,000 (deposit only)
- $5,000 ($12,000 cost minus $10,000 contract price, plus $3,000 deposit) (Correct answer)
- $2,000 (cost overrun only)
- $12,000 (full cost of completion)
Correct answer: $5,000 ($12,000 cost minus $10,000 contract price, plus $3,000 deposit)
The homeowner recovers the $3,000 deposit plus the $2,000 extra cost to complete ($12,000 − $10,000), totaling $5,000 to be placed in the expected position.
Question 5: Under UCC Article 2, when may a seller cure a defective tender?
- Never — rejection is final once made
- Only if the buyer expressly agrees in writing to allow cure
- Before the contract delivery date has expired, or within a reasonable time if the seller had reasonable grounds to believe the tender was acceptable (Correct answer)
- Only if the defect is trivial and does not affect the goods' value
Correct answer: Before the contract delivery date has expired, or within a reasonable time if the seller had reasonable grounds to believe the tender was acceptable
UCC §2-508 allows the seller to cure a defective tender before the performance date, or after if the seller had reasonable belief the nonconforming tender would be accepted.
Question 6: What is 'nominal damages' in a contract breach action?
- A large damages award reduced by the court
- A small, symbolic damages award given when breach is proven but no actual loss occurred (Correct answer)
- Damages equal to the contract price
- Damages calculated based on the nominal value of the contract
Correct answer: A small, symbolic damages award given when breach is proven but no actual loss occurred
Nominal damages—typically a small sum like $1—are awarded when a technical breach is proven but the plaintiff suffered no measurable financial loss.
Question 7: A buyer breaches a contract to purchase a unique painting for $50,000. The seller cannot resell the painting at any price. What is the seller's best remedy?
- Liquidated damages
- Cover damages under UCC Article 2
- Specific performance compelling the buyer to pay the contract price (Correct answer)
- Nominal damages only
Correct answer: Specific performance compelling the buyer to pay the contract price
When the seller cannot resell unique goods, specific performance compelling the buyer to pay the contract price may be the most appropriate remedy.
FYLSX Contract Breach and Remedies 4
What is 'efficient breach' theory in contract law?