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CHAPTER 19
BREACH OF CONTRACT AND REMEDIES
ANSWER TO CRITICAL THINKING QUESTION
IN THE FEATURE
DIGITAL UPDATE—CRITICAL THINKING
Within Instagram’s current terms of service there is a statement “We may not always
identify paid services, sponsored content, or commercial communications as such.” Is it
ethical for Instagram to post advertisements without identifying them as advertisements?
Discuss. Instagram was started as a free service and attained a large user base quickly.
Facebook paid a significant sum to acquire Instagram and clearly wants to earn profits from the
ANSWERS TO QUESTIONS
AT THE ENDS OF THE CASES
CASE 19.1—LEGAL REASONING QUESTIONS
1. In this case, what was the basis for the students’ suit? In the Baird case, the basis for
the plaintiffs’ suit was an alleged breach of contract with purported resulting damages.
Owens Community College in Ohio maintains a registered nursing program approved by
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2. What was the college’s argument against the students’ allegations? Against the
students’ allegations of breach of contract and resulting damages for the college’s loss of
accreditation in its nursing program, the college asserted a general disclaimer printed in the
program’s course book, reserving its right to modify its rules and policies.
3. In whose favor did the court rule? Why? What remains to be determined? In the Baird
case, at the trial level, the court issued a summary judgment in favor of the college. The trial
court reasoned that the students suffered no damages because the loss of accreditation did not
CASE 19.2—CRITICAL THINKING
CULTURAL
How does a college basketball team’s record of wins and losses, and its ranking in its
conference, support the court’s decision in this case? In this case, the court enforced a
liquidated damages clause, determining that when the contract was entered into, ascertaining
the damages resulting from the defendant’s breach was difficult, if not impossible. And the
CASE 19.3—CRITICAL THINKING
LEGAL ENVIRONMENT
When rescission is awarded, what is the measure of recovery? What did the recovery
include in this case? The rescission of a contract voids the contract as if the parties had never
entered into it. On rescission, both parties make restitution to each other by returning the
benefits—goods, property, or funds—transferred as part of the deal. The measure of a party’s
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
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2A. Limitation-of-liability clause
In light of Bruno’s status in the stunt industry, the clause would likely be enforced. When an
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
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
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
CHAPTER 19: BREACH OF CONTRACT AND REMEDIES 5
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
ANSWERS TO ISSUE SPOTTERS
AT THE END OF THE CHAPTER
1A. Greg contracts to build a storage shed for Haney, who pays Greg in advance, but
Greg completes only half the work. Haney pays Ipswich $500 to finish the shed. If Haney
sues Greg, what would be the measure of recovery? A nonbreaching party is entitled to his
or her benefit of the bargain under the contract. Here, the innocent party is entitled to be put in
2A. Lyle contracts to sell his ranch to Marley, who is to take possession on June 1.
Lyle delays the transfer until August 1. Marley incurs expenses in providing for livestock
that he bought for the ranch. When they made the contract, Lyle had no reason to know
of the livestock. Is Lyle liable for Marley’s expenses in providing for the cattle? Why or
ANSWERS TO BUSINESS SCENARIOS
AT THE END OF THE CHAPTER
19-1A. Liquidated damages
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
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19-2A. 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
same land cannot be purchased elsewhere. Specific performance is an appropriate remedy.
(b) The basic criteria for specific performance do not apply well to personal-service
contracts. If the identical service contracted for is readily available from others, the service is
not unique, and monetary damages for nonperformance are adequate. If, however, the services
(c) A rare coin is unique, and monetary damages for breach are inadequate, as
Hoffman cannot obtain a substantially identical substitute in the market. This is a typical case in
which specific performance is an appropriate remedy.
(d) The key issue here is that this is a closely held corporation. Therefore, the stock is
ANSWERS TO BUSINESS CASE PROBLEMS
AT THE END OF THE CHAPTER
19–3A. Liquidated damages and penalties
The prepayment penalty is not improper. The word “penalty” is used in many contracts when in
fact liquidated damages are being assessed. “Where there is a breach of a contract, liquidated
damages provisions must be ‘reasonable in the light of the anticipated or actual loss caused by
the breach and the difficulties of proof of loss.’ A liquidated damages provision must not be
CHAPTER 19: BREACH OF CONTRACT AND REMEDIES 7
19–4A . Measure of damages
The Testas may recover compensatory damages and consequential damages for the breach of
their contract with GSI. Damages that compensate a nonbreaching party for the loss of the
bargain are compensatory damages. These damages compensate the injured party for the
damages actually sustained and proved to have arisen directly from the loss of the bargain
caused by the breach. The standard measure of compensatory damages is the difference
between the value of the breaching party’s performance under the contract and the value of his
or her actual performance. A measure of the compensatory damages in this case could be the
difference in the value of the property with and without a septic system.
19–5A. BUSINESS CASE PROBLEM WITH SAMPLE ANSWER—Consequential damages
Simard is liable only for the losses and expenses related to the first resale. Simard could
reasonably have anticipated that his breach would require another sale and that the sales price
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19–6A. Liquidated damages
Yes, Cuesport has to pay Critical Developments $126 for each of the 260 days that elapsed
between the contract deadline and the date of the completion of the wall. A liquidated damages
provision in a contract specifies a certain dollar amount to be paid in the event of a future default
or breach of contract. A penalty provision also specifies a certain amount to be paid in the event
of a default or breach of contract but is designed to penalize the breaching party. Liquidated
damages provisions are usually enforceable. A provision that calls for a penalty, however, will
not be enforced—recovery will be limited to actual damages. To determine if a provision is for
liquidated damages or a penalty, a court asks when the contract was agreed to (1) was it
19–7A. Limitation-of-liability clauses
Yes, the limitation-of-liability agreement that Eriksson signed is likely to be enforced in her
parents’ suit against Nunnink, their daughter’s riding coach. And this would likely result in a
judgment against them unless they can establish Nunnink’s “direct, willful and wanton
negligence.” A limitation-of-liability clause affects the availability of certain remedies. Under
basic contract principles, to be enforceable, these clauses must be clear and unambiguous.
CHAPTER 19: BREACH OF CONTRACT AND REMEDIES 9
19–8A. Damages
If Morris succeeds in the action against his former employer for fraudulently inducement, he is
most likely to be awarded compensatory damages. Plaintiffs are awarded compensatory
damages to compensate for actual losses. The goal is to make the plaintiffs whole and place
them in the same positions that they would have been in if the damage had not occurred.
19–9A. 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
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(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.
ANSWERS TO LEGAL REASONING GROUP ACTIVITY QUESTIONS
AT THE END OF THE CHAPTER
19–10A. LEGAL REASONING GROUP ACTIVITY—Breach and remedies
(a) The court should rule in Bucklin’s favor—Morelli was to convey the house with
whatever title she had. In this problem, a valid agreement existed and Bucklin was ready to pay
(b) The court should order the remedy of specific performance. Specific performance
is an available remedy when a purchaser of real estate under a written contract demonstrates