FYLSX Contract Breach and Remedies 5 — Questions and Answers
Question 1: Which factor do courts consider in determining whether a contractual liquidated damages clause is enforceable?
- Whether the clause benefits the party seeking to enforce it
- Whether the amount was a reasonable forecast of actual harm at the time of contracting and actual damages are difficult to prove (Correct answer)
- Whether the clause was negotiated by attorneys
- Whether the breaching party can afford to pay the amount specified
Correct answer: Whether the amount was a reasonable forecast of actual harm at the time of contracting and actual damages are difficult to prove
Courts enforce liquidated damages clauses only when the amount represents a reasonable pre-estimate of harm and actual damages would be uncertain or hard to prove.
Question 2: Builder fully performs a construction contract but installs the wrong brand of pipe, which would cost $50,000 to replace but adds no functional value. The contract price was $100,000. How will a court likely measure damages?
- $50,000 — cost to cure regardless of economic waste
- $0 — the builder substantially performed so no damages are owed
- Diminution in value of the property, likely near $0 since function is unaffected (Correct answer)
- Full forfeiture of the $100,000 contract price
Correct answer: Diminution in value of the property, likely near $0 since function is unaffected
When curing a technical defect would cause economic waste disproportionate to the benefit, courts use diminution in market value rather than cost of completion.
Question 3: A vendor repudiates a software services contract. The client immediately brings suit. The vendor then attempts to retract the repudiation. When is retraction of an anticipatory repudiation effective?
- Any time before the performance date
- Any time before the repudiation, retroactively
- Before the non-breaching party materially changes position or treats the repudiation as final (Correct answer)
- Only if both parties sign a new agreement
Correct answer: Before the non-breaching party materially changes position or treats the repudiation as final
A repudiating party may retract the repudiation until the other party has materially relied on it, accepted it as final, or commenced an action based on it.
Question 4: Reliance damages in a breach of contract case are intended to:
- Award the plaintiff the profits they expected to earn under the contract
- Reimburse the plaintiff for expenses reasonably incurred in reliance on the contract (Correct answer)
- Compensate the plaintiff for the benefit conferred on the defendant
- Punish the defendant for failing to perform
Correct answer: Reimburse the plaintiff for expenses reasonably incurred in reliance on the contract
Reliance damages restore the non-breaching party to their pre-contract position by reimbursing expenditures made in reasonable reliance on the contract.
Question 5: Under the UCC, if a buyer wrongfully rejects conforming goods and the seller cannot resell them at a reasonable price, what remedy may the seller pursue?
- Only the difference between the contract price and market price
- The full contract price under the action for the price (§2-709) (Correct answer)
- Only consequential damages
- The seller has no remedy if the goods are still in their possession
Correct answer: The full contract price under the action for the price (§2-709)
Under UCC §2-709, a seller may sue for the full contract price when the buyer wrongfully rejects goods and the seller is unable to resell them at a reasonable price.
Question 6: A party enters a contract based on a mutual mistake of a material fact. What is the appropriate remedy?
- Damages equal to the contract price
- Rescission of the contract, restoring both parties to pre-contract positions (Correct answer)
- Specific performance at the contract terms
- The mistaken party must still perform with no remedy available
Correct answer: Rescission of the contract, restoring both parties to pre-contract positions
When both parties share a mistake about a material fact at the time of contracting, the contract is voidable and the mistaken party may seek rescission.
Question 7: A contractor completes a project but the owner refuses to pay, claiming breach. The contractor sues for the contract price. The owner counterclaims for defective work. What principle governs the contractor's right to recover?
- The contractor cannot recover if any defect exists, regardless of severity
- If the contractor substantially performed, they may recover the contract price minus damages for any defects (Correct answer)
- The owner's counterclaim automatically bars all contractor recovery
- The contractor recovers the full price only if the work was perfect
Correct answer: If the contractor substantially performed, they may recover the contract price minus damages for any defects
Under substantial performance, a contractor who has substantially—though not perfectly—performed is entitled to the contract price less the owner's damages for any deficiency.
FYLSX Contract Breach and Remedies 5
Which factor do courts consider in determining whether a contractual liquidated damages clause is enforceable?