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CHAPTER 18
BREACH OF CONTRACT AND REMEDIES
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 18.1—QUESTION (PAGE 337)
THE E-COMMERCE DIMENSION
If a Web merchant loses business due to a computer system’s failure that can be attributed to
malfunctioning software, can the merchant recover the lost profits from the software maker? Explain.
CASE 18.2—QUESTIONS (PAGE 339)
1A. In deciding whether a clause is a liquidated damages clause or a penalty clause, should the courts
ever consider the circumstances that caused the nonperforming party to breach the contract? Explain.
It is not the function of the court to consider how a liquidated damages clause might affect the
breaching party when determining whether the clause is enforceable. There are countless reasons why
breaching parties do not perform their contracts. If the courts took these reasons into account when
deciding on the enforceability of liquidated damages clauses, it would undermine one of the basic
assumptions of contract law—that contracts will be enforced as written. Freedom of contract means
2A. Why did the court determine that the contract clause at issue was an enforceable liquidated
damages clause and not an unenforceable penalty clause? When determining whether a liquidated
154 UNIT THREE: CONTRACTS AND E-CONTRACTS
damages clause should be enforced, the courts usually consider two questions: (1) Were the damages
difficult to estimate at the time the contract was formed? (2) Were the damages set forth in the clause
reasonable and not excessive? If the answers to both questions are yes, then typically the clause will be
CASE 18.3—QUESTIONS (PAGE 342)
THE E-COMMERCE DIMENSION
Is a mistake such as the one in this case likely to occur when software is used to draft a document? Why
or why not? When technology is used to execute a document, there may be different types of errors,
but the use of software may not contribute to fewer mistakes. Technology only responds to the
directions of the person who uses it. Transposed numbers, misspelled words, omitted information, and
other mistakes can still occur. There may be “checks” and prompts built into software, however, that
could prevent some errors.
THE ETHICAL DIMENSION
What may have motivated the defendants in this case to assert that there was no mistake in the deed?
Discuss. One motivation behind the defendants’ denial of a mistake might have been greed—in this
ANSWERS TO QUESTIONS IN THE REVIEWING FEATURE
AT THE END OF THE CHAPTER
1A. Specific performance
The contract between Bruno and X Entertainment is a personal-service contract, and courts are normally
reluctant to grant specific performance of contracts for personal services. To order a party to perform
personal services against his or her will amounts to a type of involuntary servitude, which is contrary to
the public policy (expressed in the Thirteenth Amendment). Also, the courts do not want to monitor
such contracts.
2A. Limitation-of-liability clause
CHAPTER 18: BREACH OF CONTRACT AND REMEDIES 155
In light of Bruno’s status in the stunt industry, the clause would likely be enforced. When an exculpatory
clause for negligence is contained in a contract made between parties who have roughly equal
bargaining positions, the clause usually will be enforced. Besides, his presumed experience and
knowledge suggest that he likely carries his own insurance.
3A. Liquidated damages or penalty
To determine whether a provision is for liquidated damages or for a penalty, a court asks (1) at the time
the contract was formed, was it apparent that damages would be difficult to estimate in the event of a
breach, and (2) was the amount set as damages a reasonable estimate of the potential damages and not
excessive. If the answer to both questions is yes, the provision normally will be enforced. If either
answer is no, the provision will normally not be enforced.
4A. Consequential damages
When consequential damages are awarded, compensation is given only for those injuries that a
defendant could reasonably have foreseen as a probable result of the usual course of events following a
breach. If the injury complained of is outside the usual and foreseeable course of events, the plaintiff
ANSWER TO DEBATE THIS QUESTION IN THE REVIEWING FEATURE AT THE END OF THE
CHAPTER
Courts should always uphold limitation-of-liability clauses, no matter what are the respective
bargaining powers of the two parties to the contract. One of the reasons that imitation-of-liability
clauses are included in contracts is to allow sellers to predict the extent of their liabilities should
something go wrong. Without such clauses, sellers would have a difficult time obtaining liability
insurance and when such insurance could be obtained, it would be at higher prices. All consumers
How can a judge or jury uphold all limitation-of-liability clauses when in so doing they often
would be perpetuating gross injustices? After all, such clauses are usually contained in long contracts
156 UNIT THREE: CONTRACTS AND E-CONTRACTS
ANSWERS TO QUESTIONS AND CASE PROBLEMS
AT THE END OF THE CHAPTER
18-1A. Liquidated damages
(Chapter 18—Pages 338–339)
The entire issue rests on whether the provision is an enforceable liquidated damages clause or a penalty.
Generally, the courts will enforce liquidated damages clauses under the principle of freedom of contract
if damages resulting from breach would have been difficult to estimate at the time the contract was
entered into and, more importantly, if the amount set is a reasonable estimate of what such damages
would be. If the amount is excessive, the court will declare the clause to be a penalty and
unenforceable, and only the amount of actual damages proved will be allowed. If, however, the amount
in the clause is a reasonable estimate, the court will enforce the clause, even if the actual damages
18-2A. QUESTION WITH SAMPLE ANSWER: Specific performance
Generally, the equitable remedy of specific performance will be granted only if two criteria are met:
monetary damages (under the situation) must be inadequate as a remedy, and the subject matter of the
contract must be unique.
(a) In the sale of land, the buyer’s contract is for a specific piece of real property. The land
under contract is unique, because no two pieces of real property have the same legal description. In
addition, money damages would not compensate a buyer adequately, as the same land cannot be
18-3A. Mitigation of damages
(Chapter 18—Pages 337–338)
The question of whether a party properly mitigates damages is a question of fact. Here, there is
18-4A. CASE PROBLEM WITH SAMPLE ANSWER: Damages
The court should hold that Peterson breached the contract with Ek and award her damages. Of the four
broad categories of damages, she would be entitled at least to compensatory damages, which would
cover her direct losses and costs. The standard measure of compensatory damages is the difference
18-5A. Waiver of breach
(Chapter 18—Pages 344–345)
The court concluded in part that RDP waived its right to enforce the original “substantial completion
date by accepting Clark’s continued performance” and thus was not entitled to any damages, but that
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Clark was entitled to payment for its work. On RDP’s appeal, the U.S. Court of Appeals for the Eleventh
Circuit affirmed these conclusions. The appellate court pointed out that “RDP allowed the substantial
18-6A. Remedies
(Chapter 18—Pages 340–341)
The court ruled in Bucklin’s favor and ordered the remedy of specific performance: Morelli was to
18–7A . Quasi contract
(Chapter 18—Pages 342–343)
The requirements for recovery on a quasi-contract theory are: (1) one party must confer a benefit on
another party, (2) the party must confer the benefit with the reasonable expectation of being paid, (3)
18–8A. Liquidated damages and penalties
(Chapter 18—Pages 338–339)
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The prepayment penalty is not improper. The word “penalty” is used in many contracts when in fact
18–9A. A QUESTION OF ETHICS: Remedies
(a) Both parties filed motions for summary judgment. The court granted Cohen’s motion and
issued a judgment of liability against the Seinfelds for breach of contract. The court denied the Seinfelds’
motion, in which they had contended that Cohen was not a licensed broker—she was. The court
reasoned, “[T]he evidence clearly indicates that [Cohen] served as the Seinfelds’ real estate broker.
Indeed, she located several townhouses at Galistino’s request, showed the premises in question to
Galistino and Jessica Seinfeld on [Friday} February 11, 2005, and made arrangements to have the
Seinfelds see the premises the following week.”
The court emphasized, ”[T]he contract clearly provided that the sellers would pay Sanchez’s
brokers fees and the buyers (the Seinfelds) would pay the buyers’ broker’s fees. These facts . . .
establish that there was a co-brokerage agreement whereby plaintiff would receive one half of the
broker’s fee. The only real issue here, as far as the Court is concerned, is whether the broker’s fee was
(b) It does not seem unreasonable that parties in business transactions should respect each
other’s religious beliefs. It does seem, however, that a party owes a concomitant duty to inform others,
when necessary, of those beliefs and what their practice may involve. This would seem especially to be
warranted when, as in the Cohen case, none of the other parties indulged in the same practices.
One step that the parties in this case might have taken to avoid their conflict would have been to
communicate more clearly. Cohen, for example, could have set out in writing the details of what she
expected from any completed transaction. She also could have been more emphatic in explaining to the
Seinfelds that her religious practices limited her availability for showing properties. The Seinfelds could
then have explained that they wanted a representative who would be more available, and the parties
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could have made different arrangements. These other arrangements might have involved a substitute
broker, or some other temporary representative, who would have been acceptable to Cohen, just as the
Seinfelds used Galistinos and Liebling as their representatives.
ANSWER TO VIDEO QUESTION NO. 18–10
Midnight Run
(a) In the video, Eddie (Joe Pantoliano) and Jack (Robert DeNiro) negotiate a contract for Jack
to find the Duke, a mob accountant who embezzled funds, and bring him back for trial. Assume
that the contract is valid. If Jack breaches the contract by failing to bring in the Duke, what kinds
seek compensatory damages (to cover direct losses and costs) and consequential damages (to
cover foreseeable losses, such as the $450,000 bond). Of course, Eddie would have a duty to
mitigate his damages by hiring another bounty hunter, for example, to bring in the Duke.
(b) Would the equitable remedy of specific performance be available to either Jack or Eddie
in the event of a breach? Why or why not? Specific performance is typically available only when
the legal remedy (money damages) is inadequate. For example, courts will grant specific
performance in contracts for the sale of land or the sale of unique goods. Courts normally will not
grant specific performance as a remedy in breached contracts for personal services, as is the
situation here. This is because to order a party to perform personal services against his or her will
amounts to involuntary servitude.
(c) Now assume the contract between Eddie and Jack is unenforceable. Nevertheless, Jack
performs his side of the bargain (brings in the Duke). Can Jack recover from Eddie in this situation
under the theory of quasi contract? Why or why not? Jack may have a remedy based on quasi
a benefit upon Eddie and did so with the expectation of being paid. He would also need to show
that he did not volunteer to bring back the Duke, and that allowing Eddie to retain the benefit (of
not forfeiting his bond) without paying for it would result in unjust enrichment. If Jack can show
all of these elements, he may be able to recover.