Contract Law Chapter Review
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Questions and Answers

Which situation provides a lawful excuse for not fulfilling contractual obligations?

  • The performance was rendered impossible due to an unforeseeable event. (correct)
  • The parties explicitly agree to terminate the contract.
  • One party becomes ill and cannot perform their duties.
  • The other party is unhappy with the contract terms.

What occurs as a result of a breach of contract?

  • Automatic discharge of the contract.
  • The injured party must continue to perform their duties.
  • A secondary obligation to provide compensation. (correct)
  • Termination of all related contracts.

What does repudiation of a contract entail?

  • A breach that allows the injured party to terminate the contract. (correct)
  • Automatically forgives the breach without consequences.
  • A minor violation of the contract terms.
  • It is a refusal to continue negotiations.

Which of the following is an example of repudiatory breach?

<p>A party expresses they have no intention to perform the contract. (D)</p> Signup and view all the answers

Which circumstance does NOT qualify as a type of repudiatory breach?

<p>Failure to partially fulfill a contract. (C)</p> Signup and view all the answers

If a party chooses to affirm the contract after a repudiatory breach, what does this imply?

<p>They continue to demand strict performance from the other party. (D)</p> Signup and view all the answers

What is one of the effects of non-performance agreed upon by the parties?

<p>It may excuse both parties from their obligations. (A)</p> Signup and view all the answers

In which case would incapacity be considered as refusal to perform?

<p>A party commits an intentional act that prevents them from fulfilling the contract. (D)</p> Signup and view all the answers

What is the purpose of damages in contract law?

<p>To restore the injured party to the position they would have been in if the contract had been performed (B)</p> Signup and view all the answers

What does the remoteness of damage refer to in contract law?

<p>The extent to which consequences of a breach are connected to the breach itself (A)</p> Signup and view all the answers

Under the rule in Hadley v Baxendale, when are damages not awarded?

<p>If the loss did not arise from a natural consequence of the breach (A)</p> Signup and view all the answers

In what scenario can a claimant recover damages for losses that are not generally foreseeable?

<p>If the defendant was aware of special circumstances leading to those losses (A)</p> Signup and view all the answers

What does protecting the expectation interest involve?

<p>Restoring the injured party to the position they would have been in if the contract had been fulfilled (C)</p> Signup and view all the answers

In which case was it established that a defendant must show that expenditure would not have been recovered if the contract had been performed?

<p>C &amp; P Haulage v Middleton (A)</p> Signup and view all the answers

How does reliance interest differ from expectation interest?

<p>Reliance interest seeks to restore the position before reliance on the contract, while expectation interest seeks to fulfill the benefits of the contract. (C)</p> Signup and view all the answers

What additional context might impact a claim for calculating measure of damages?

<p>Whether the contract is speculative (A)</p> Signup and view all the answers

What occurs when a party anticipatorily breaches a contract?

<p>Both parties are discharged from their primary obligations. (B)</p> Signup and view all the answers

Which of the following is NOT a right of the innocent party after terminating a contract for repudiatory breach?

<p>Request performance of the contract still to be done. (B)</p> Signup and view all the answers

In the context of breach of contract, what is the significance of the term 'innominate term'?

<p>Its effect can only be assessed after a breach has occurred. (C)</p> Signup and view all the answers

If a party chooses to affirm a contract after acknowledging a repudiatory breach, what is the outcome?

<p>The contract remains fully in force. (A)</p> Signup and view all the answers

Which of the following is a correct outcome for the innocent party if they decide to continue with the contract until an actual breach occurs?

<p>They can recover the agreed price for their services. (C)</p> Signup and view all the answers

What must the innocent party do to terminate a contract due to repudiatory breach?

<p>Notify the other party of their decision to terminate. (B)</p> Signup and view all the answers

What is the primary remedy in cases of breach of contract?

<p>Compensatory damages to the injured party. (A)</p> Signup and view all the answers

Which statement about claiming damages in breach of contract is true?

<p>Damages are assessed on the basis of real losses incurred. (D)</p> Signup and view all the answers

What is the general principle of damages in contract law?

<p>To compensate for actual financial loss (C)</p> Signup and view all the answers

What happens when a buyer fails to purchase goods as per the contract?

<p>The seller can sell the goods on the open market and recover losses (A)</p> Signup and view all the answers

Under what circumstances might damages be awarded for non-financial loss?

<p>When mental distress is the main result of the breach (D)</p> Signup and view all the answers

What determines whether a claimant can receive the cost of cure for a breach of contract?

<p>Whether the cost is proportionate to the breach (C)</p> Signup and view all the answers

In which scenario is the injured party expected to mitigate their losses?

<p>In any reasonable way possible (D)</p> Signup and view all the answers

What is the main difference between liquidated damages and penalty clauses?

<p>Penalty clauses aim to punish the breaching party (A)</p> Signup and view all the answers

Who bears the burden of proof regarding the claimant's mitigation efforts?

<p>It is on the defendant to show reasonable opportunities were not taken (D)</p> Signup and view all the answers

What is a key consideration in the measure of damages for breaches of contract in sales?

<p>The market price of equivalent goods at the time of breach (D)</p> Signup and view all the answers

Under what condition may an action for the price be brought in a contract for the sale of goods?

<p>If property has passed to the buyer (A)</p> Signup and view all the answers

What is the meaning of the term quantum meruit?

<p>How much it is worth (A)</p> Signup and view all the answers

When would a quantum meruit claim likely be sought?

<p>When one party has performed part of their obligations and the other party repudiates (B)</p> Signup and view all the answers

Why are quantum meruit awards generally smaller than awards for damages?

<p>They are based on actual losses incurred (D)</p> Signup and view all the answers

What is specific performance in the context of equitable remedies?

<p>A court order for a party to perform an obligation (D)</p> Signup and view all the answers

In which situation will a court NOT grant an order for specific performance?

<p>For employment contracts (C)</p> Signup and view all the answers

What must be considered by the court when granting specific performance?

<p>Whether the contract requires lengthy performance (D)</p> Signup and view all the answers

What concept does the term 'restitutory award' relate to in quantum meruit claims?

<p>Restoring to the pre-contract state (B)</p> Signup and view all the answers

What are liquidated damages defined as?

<p>A fixed or ascertainable sum agreed by the parties at the time of contracting. (A)</p> Signup and view all the answers

Under what condition will a court enforce liquidated damages?

<p>If they represent a genuine attempt to pre-estimate the likely loss. (C)</p> Signup and view all the answers

What constitutes a penalty clause according to the law?

<p>A contractual term designed as a penalty to discourage breach. (C)</p> Signup and view all the answers

What is a test for determining whether a clause is a penalty or not?

<p>The amount must be proportionate to the primary obligation. (C)</p> Signup and view all the answers

In which scenario is an action for the price necessary?

<p>When a party does not pay the contractually agreed price. (D)</p> Signup and view all the answers

Which of the following statements is true regarding liquidated damages?

<p>They should not exceed the actual loss incurred. (A)</p> Signup and view all the answers

What happens to a penalty clause that does not protect the legitimate interest of the innocent party?

<p>It is void and therefore unenforceable. (C)</p> Signup and view all the answers

Why are liquidated damages clauses considered onerous terms?

<p>They must be highlighted distinctly in the contract. (A)</p> Signup and view all the answers

Flashcards

Impossibility of performance

When a party fails to perform their contractual obligations due to an event beyond their control.

Repudiation of a contract

When a party clearly indicates they won't perform their obligations, either through words or actions.

Repudiatory breach

A breach of contract that allows the injured party to end the contract and seek damages.

Refusal to perform (Renunciation)

When a party refuses to perform their obligations under a contract, signaling they won't fulfill their end of the deal.

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Incapacitation

A situation where a party cannot fulfill their contractual obligations due to their own actions, making it impossible to perform.

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Primary obligation

The obligation to perform a contract's terms remains even after a breach, unless the breaching party repudiates the contract.

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Secondary obligation

The obligation to pay damages to the injured party when a contract is breached.

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Entire obligation

A contract that specifies complete and precise performance as a requirement for the other party's performance.

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Breach of Condition

A fundamental term of the contract, breach of which allows the injured party to terminate the contract and claim damages.

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Breach of Innominate Term

A term of the contract where the effect of the breach is unclear until it occurs. If it deprives the injured party of the main benefit of the contract, it can be treated as a breach of condition.

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Anticipatory Breach

A breach that occurs before the performance date. One party indicates they won't perform or makes performance impossible.

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Affirmation After Repudiatory Breach

A breach of contract where the innocent party decides to keep the contract alive despite the other party's breach.

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Damages

The main remedy for breach of contract, aiming to put the injured party in the same position they would have been in if the contract had been performed.

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Quantum Meruit

The amount of money a court orders the breaching party to pay the injured party for their losses.

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Contract Discharge

A contractual agreement where both parties are released from their obligations.

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Damages for Breach of Contract

The general principle is to compensate for actual financial loss incurred due to a breach of contract.

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Market Price Rule

The usual measure of damages for breaches of contract for the sale of goods is based on the market price of the goods.

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Non-Financial Loss

In some cases, damages have been awarded for mental distress caused by a breach, but there is still uncertainty on the extent of this in law.

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Cost of Cure

A claimant might try to 'cure' a defect by seeking the cost to fix it, but this cost will be denied if it's disproportionate to the breach.

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Mitigation of Loss

It's assumed that a claimant will take reasonable steps to minimize their loss after a breach.

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Liquidated Damages and Penalty Clauses

Pre-agreed terms in a contract about the calculation of damages or penalties for breach.

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Liquidated Damages Clause

A liquidated damages clause specifies a reasonable pre-determined amount of damages payable for a breach.

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Penalty Clause

Penalty clauses aim to punish a party for a breach, but these clauses are usually unenforceable in law.

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Remoteness of Damage

This legal principle determines whether the consequences of a breach are too far removed from the original contract to be considered the defendant's fault.

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Hadley v Baxendale Rule

This rule, established in 1854, sets out the limits on what types of losses are recoverable for breach of contract.

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Types of Recoverable Losses (Hadley)

In Hadley v Baxendale, damages may only be granted for losses that arise naturally from the breach, or for losses that were reasonably foreseeable at the time the contract was made.

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Measure of Damages

Refers to the amount of money awarded to compensate for the breach of contract. Determining the damages is a key aspect of the legal process.

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Expectation Interest

A type of compensation that aims to put the claimant in the position they would have been in if the contract had been fulfilled.

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Reliance Interest

Another type of compensation that aims to reimburse the claimant for expenses incurred in reliance on the contract.

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C & P Haulage v Middleton Rule

This rule, established in 1983, clarifies that the defendant must prove the claimant's reliance expenditures would not have been recovered even if the contract had been performed.

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Liquidated Damages

A contractual clause that specifies a fixed or predetermined amount payable in the event of a breach of contract. It's an attempt to pre-estimate likely losses.

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Penalty Clause: Proportionality Test

A clause in a contract that requires a party to pay a sum exceeding their actual losses upon breach. It's enforceable only if it's proportionate to the primary obligation.

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Penalty Clause: Excessive Sum Test

A clause in a contract that imposes an excessive sum, not protecting the legitimate interests of the innocent party. It won't be enforced.

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Action for the Price

A legal action taken by a creditor against a debtor who fails to pay the contractually agreed price. It's a straightforward remedy for recovering the owed amount.

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Action for the Price: Limitations

Action for the price has two limitations. The creditor must have performed their contractual obligations, and the goods must be ready for the debtor's possession.

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Specific Performance

A court order instructing a party to fulfill their contractual obligation. Used when damages are not a sufficient remedy.

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When will specific performance be refused?

A court order for specific performance will not be granted if the court cannot effectively ensure full compliance with the order, typically in cases involving ongoing performance or personal services.

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Specific performance for Land

Specific performance may be ordered in contracts for the sale of land because damages alone wouldn't adequately compensate the buyer who needs the land for a specific purpose.

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Quantum meruit vs Damages

Claims for quantum meruit are usually smaller than damage awards because they aim to restore the claimant to their position before the contract, rather than compensating for future losses.

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Quantum meruit when damages are nominal

Quantum meruit can provide compensation even if the claimant would not have been able to fulfill the contract, offering a higher amount than nominal damages.

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Equity remedies - Discretionary

Equity remedies, like specific performance, are discretionary and granted at the court's discretion, not automatic.

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Study Notes

Breach of Contract and Remedies

  • Contracts are discharged in several ways, including agreement, frustration, performance, and breach.
  • Breach of contract occurs when a party fails to fulfill their obligations without lawful excuse.
  • Lawful reasons for non-performance include impossibility, rejected tender of performance, another party preventing performance, and frustration of contract.
  • Breach of contract results in secondary obligations to pay damages to the injured party.
  • Repudiation occurs when a party expresses their intention not to perform the contract or actions imply that.
  • Repudiation can be an express statement of intent or inferred from actions.
  • A repudiatory breach occurs when one party indicates they won't fulfill contractual obligations. This can often be due to a breach of condition or a breach that has significant consequences.
  • Options for the injured party when faced with a repudiatory breach are to treat it as discharged, or to affirm the contract.

Damages

  • Damages aim to restore the injured party to the pre-breach position.
  • Damages are assessed considering remoteness and measure.
  • Remoteness of damages is determined by the rule in Hadley v Baxendale 1854: damages must arise naturally from the breach or be considered foreseeable by the parties.
  • Expectation interest of the claimant is restored to the position they would have been in had the contract been performed.
  • In contrast, the reliance interest focuses on recovering costs incurred due to relying on the contract.
  • Financial loss, including lost profits, are compensable. Loss is often measured by the market price.
  • Non-financial losses, like distress or inconvenience, are sometimes compensable but depend on the circumstances.
  • Parties can agree in advance on a liquidated damages clause to pre-define remedies for breach.
  • Penalty clauses, which aim to deter breach, are unenforceable if deemed excessive.

Other Common Law Remedies

  • Action for the price is a remedy available when the other party doesn't pay.
  • This action is usually sought in circumstances where property has passed from seller to buyer.
  • There may be limitations on the remedy.
  • In some cases, quantum meruit can be sued for - the claim is based on 'how much is it worth', restoring the claimant to the position beforehand.
  • Useful for partial performance or when other remedies are unsuitable.

Equitable Remedies

  • Equitable remedies (like specific performance and injunctions) are court-ordered actions that focus on correcting the harm caused by breach, rather than simply paying money.
  • Specific performance requires a party to perform their contractual obligations.
  • It is useful for contracts where damages won't adequately compensate the injured party, for example, land sale contracts.
  • Injunctions stop a party from performing an act, often used to prevent ongoing breach.
  • Rescission cancels the contract, returning parties to their pre-contract positions, useful in cases of misrepresentation or duress.
  • Rescission is possible only under certain conditions.

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F4 Chapter 6: Breach of Contract and Remedies PDF

Description

Test your knowledge on key concepts of contract law with this quiz. It covers topics such as lawful excuses for breaching contracts, repudiation, and damages. Understand the underlying principles that govern contractual obligations and their implications.

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