CONTRACTS

[BREACH REMEDIES STATUTE OF LIMITATIONS UNDER UCC]

BREACH
A. WHEN DOES A BREACH OCCUR?
a. Breach of a contract, i.e., a failure to perform, occurs when it is found that:
i.
The promisor is under an absolute duty to perform; and
ii.
This absolute duty of performance has not been discharged.
b. The nonbreaching party who sues for breach of contract must show that she is willing and able to
perform but for the breaching partys failure to perform.
c. The key inquiry is whether the breaching party rendered SUBSTANTIAL PERFORMANCE.

B. MATERIAL OR MINOR BREACH COMMON LAW CONTRACTS.

a. Once it has been determined a breach has occurred, the effect of that breach is determined by
whether it is a material breach or a minor breach.
b. Effect of Breaches.
i.
Minor Breach. A breach of K is minor if the obligee against the substantial benefit of her bargain. A
Minor Breach does not relieve the aggrieved party of her duty to perform under the K, but gives her the
right to sue for setoff damages for the minor breach. Setoff damages are damages that compensate for
deficiencies in the breaching partys performance.

ii.

1. Essay Factors for Determining the Materiality of a Breach:

a. The AMT of benefit received by the nonbreaching party;
b. The adequacy of compensation for DMGs to the injured party;
c. The extent of part performance by the breaching party;
d. Hardship to the breaching party;
e. Negligent or willful behavior of the breaching party; and
f. The likelihood that the breaching party will perform the remainder of the contract.
2. The nonbreaching party must show that he was both willing and able to perform.
Material Breach. If the obligee does not receive the substantial benefit of her bargain, the
breach is considered material. If the breach is material, the nonbreaching party:
1. May treat the K as at an end, i.e., any duty of counter-performance owed by her will be
discharged; and
2. Will have an immediate right to all remedies for breach of the entire K, including total

damages.

iii.

Minor Breach Coupled with Anticipatory Repudiation. If a minor breach is coupled with
anticipatory repudiation, the nonbreaching party may treat it as a material breach, i.e., the
nonbreaching partys duties are discharged and she has an immediate right to all remedies for breach.
Anticipatory Repudiation occurs if a promisor, prior to the time set for performance of his promise,
indicates that he will not perform when the time comes. A.R. only applies if there is a bilateral K with
executory (unperformed) duties on both sides. A.R. is determined by looking to the words and/or conduct
of the promisor to see if the promiser unequivocally indicated that he cannot or will not perform when
the time comes. See PERFORMANCE for more about A.R.
1. Courts will hold that the aggrieved party must not continue on, because to do so would be a failure to
mitigate damages.
2. The UCC modifies this to permit a party to complete the manufacture of goods to avoid having to sell
unfished goods at the [lower] salvage value.

iv.

Material Breach of a Divisible Contract. In a divisible K, recovery is available for substantial

performance of a divisible part even though there has been a material breach of the entire K.
c. Timeliness of Performance. In general, failure to perform by the time stated in the K is not a
material breach if performance is rendered within a reasonable time.
i.
However, if the nature of the contract makes timely performance essential, or if the K
expressly provides that time is of the essence, then failure to perform on time is a material
breach. Merely indicating a date for performance does not make time of the essence.
ii.
Note: that while traditionally any delay in performance of a K with a time of the essence provision was a
material breach, modern courts look at the totality of the circumstances to determine whether
performance on the specified date was vitally important & whether the parties truly intended it to be so.

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[BREACH REMEDIES STATUTE OF LIMITATIONS UNDER UCC]
C. PERFECT TENDER RULE BREACH OF Ks FOR THE SALE OF GOODS

a. Under UCC Article 2, Ks for the Sale of Goods must follow The Perfect Tender Rule, i.e., if goods or their

delivery fail to conform to the K in any way, the buyer generally may reject all, accept all, or accept any
commercial units and reject the rest.

b. Right to Reject Cut Off by Acceptance. A buyers right to reject under the Perfect Tender Doctrine is
generally cut off by acceptance. Under UCC Article 2, a buyer accepts when:
i.
After a reasonable opportunity to inspect the goods, she indicates to the seller that they conform to
requirements or that she will keep them even though they fail to conform; or
ii.
She fails to reject within a reasonable time after tender or delivery of the goods or fails to seasonably
notify the seller of her rejection; or
iii.
She does any act inconsistent with the sellers ownership .
c. Buyers Responsibility for Goods After Rejection. After rejecting goods in her physical possession, the
buyer has an obligation to hold them w/reasonable care at the sellers disposition and t obey any reasonable
instructions as to the rejected goods (e.g., arrange to reship/return the goods).
i.
If the seller gives no instructions within a reasonable time, the buyer may:
1. Reship the goods back to the seller; or
2. Store them for the sellers account; or
3. Resell them for the sellers account.
ii.
If the buyer resells, she is entitled to recover her expenses and a reasonable commission.
d. Buyers Right to Revoke Acceptance. In general, once a buyer accepts goods, the buyers right to reject
the goods is terminated and the buyer is obligated to pay the contract price less any damages resulting from
the sellers breach.
i.
WHEN ACCEPTANCE MAY BE REVOKED: However, A buyer may revoke her acceptance if the
goods have a defect that substantially impairs their value to her and:
1. She accepted them based on a reasonable belief that the defect would be cured, and it has not; OR
2. She accepted them based on the difficulty of discovery defects or because the seller assured her that
the goods conformed to the K.
ii.
WHEN REVOCATION MUST OCCUR: Revocation of acceptance must occur:
1. Within a reasonable time after the buyer discovers or should have discovered the defects; and
2. Before any substantial change in the goods occurs that is not caused by a defect present at the time
the seller relinquished possession.
iii.
EFFECT OF REVOCATION: A proper revocation of acceptance has the effect of a rejection; and the
buyer may reship, store, or resell (see above).

e. Exceptions to the Perfect Tender Rule.

i.
Buyers Right to Reject Shipments under Installment Ks. Installment Ks are Ks for the Sale of
Goods that include more than one delivery. The right to reject a shipment under an installment K is
much more limited than the right to reject under a single delivery K.
1. Under an installment K, an installment can be rejected only if the nonconformity substantially
impairs the value of THAT installment and cannot be cured (see below).
2. In addition, I-K is breached only if the nonconformity substantially impairs the value of the entire K.

ii.

Sellers Right to Cure.

1. Single Delivery Ks. If the buyer rejects goods for defects under a single delivery K, the seller can
cure by giving reasonable notice he will cure & he makes a new tender of conforming goods within
time for performance that the buyer then accepts.
a. In general, a Seller does not have a right to cure beyond the original contract time. However, if
the buyer rejects a tender of nonconforming goods that the seller reasonably believed would be
acceptable with or without money allowance, the seller, upon reasonable notice to the buyer, has
a further reasonable time beyond the original K time w/in which to make a conforming tender.
b. A Seller will probably be found to have had a reasonable belief that the tender would be
acceptable if the seller can show that:
i.
Trade practices or prior dealings with the buyer lead the seller to believe as such; OR
ii.
The Seller could not have known of the defect despite proper business conduct (e.g., packaged
goods purchased from a supplier).
2. Installment Ks. UCC Article 2 provides that a defective shipment in an installment K cannot be
rejected if the defect can be cured.
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CONTRACTS
[BREACH REMEDIES STATUTE OF LIMITATIONS UNDER UCC]
D. BREACH OF WARRANTY
a. Sellers give warranties as to the condition of the goods that apply even after acceptance of the
goods by the buyer.
b. If goods fail to conform with the promises made under a sellers warranties constitutes a breach of
warranty, for which remedies are available (see below).

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CONTRACTS
[BREACH REMEDIES STATUTE OF LIMITATIONS UNDER UCC]

REMEDIES
A. NONMONETARY REMEDIES [Spec. Perfm. UCC Art 2 Non$Rems Dmnd Assurances]
a. Specific Performance. If the legal remedy (money damages) is inadequate, the nonbreaching party may
seek specific performance, i.e., an order from the court to the breaching party to perform or face contempt of
court charges. The existence of a liquidated damages clause does not make the remedy under such clause
adequate.
i.
S.P. is always available for Land-Sale-K and Ks to buy/sell Rare or Unique Goods.
ii.
Not available for Services (involuntary servitude barred by the Constitution).
1. However, an employee in breach of an employment K where the work is rare or unique gives rise to
grounds for an action to seek an injunction to prevent/enjoin the employee from working for a
competitor doing similar work (no non-compete nec.).
iii.
Covenant Not to Compete Most courts will grant an order of specific performance to enforce a K not
to compete if: (i) the services to be performed are unique (thus rendering monetary damages inadequate);
and (ii) the covenant is reasonable. To be reasonable:
1. The covenant must be reasonably necessary to protect a legitimate interest of the person benefited
by the covenant (i.e., an employer or the purchaser of the covenantors business);
2. The covenant must be reasonable as to geographic scope; &
3. The covenant must not harm the public.

iv.

Equitable Defenses Available.

1. Laches a claim that the Plaintiff has delayed bringing the action and that the delay has prejudiced
the Defendant;
2. Unclean Hands a claim that the party seeking specific performance is guilty of wrongdoing in the
transaction being sued upon; and
3. Sale to a bona fide purchaser a claim that the subject matter has been sold to a person who
purchased for value & in good faith.

b. Nonmonetary Remedies Under UCC Article 2.

i.

ii.

Buyers Nonmonetary Damages.

1. Cancellation If a buyer rightfully rejects a shipment of nonconforming goods, she may outright
cancel the K.
2. Right to Replevy Identified Goods (to seize the goods by Ct Order)
a. On Buyers Prepayment If a buyer has made at least part payment of the purchase price of
goods that have been identified under a K and the seller has not delivered the goods, the buyer
may Replevy the goods from the seller in 2 circumstances:
i.
The seller becomes insolvent within 10 days after receiving the buyers 1st payment; or
ii.
The goods were purchased for personal, family, or household purposes.
b. On Buyers Inability to Cover In addition, the buyer may replevy undelivered, identified goods
from the seller if the buyer, after reasonable effort, is unable to secure adequate substitute goods
(i.e., cover).
3. Specific Performance A buyer has the right to specific performance where the goods are unique or
in other proper circumstances. The court may order specific performance even where the goods have
not yet been identified to the K by the seller.
Sellers Nonmonetary Remedies
1. Right to Withhold Goods
a. If the buyer fails to make a payment due on or before delivery, the seller may withhold delivery
of the goods.
b. The seller may also withhold goods when the goods are sold on credit and, before the goods are
delivered, the seller discovers that the buyer is insolvent.
c. However, in such a case, the seller must deliver the goods if the buyer tenders cash for their
payment.
2. Right to Recover Goods
a. When the Buyer is Insolvent if a seller learns that a buyer has received delivery of goods on
credit while insolvent, the seller may reclaim the goods upon demand made within 10 days after
the buyers receipt of the goods.
i.
However, the 10 day limit does not apply if a misrepresentation of solvency has been made in
writing to the particular seller within 3 months before delivery.
b. Right to Recover Shipped or Stored Goods from Bailee
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[BREACH REMEDIES STATUTE OF LIMITATIONS UNDER UCC]
i.
ii.

When Buyer is Insolvent the seller may stop delivery of goods in the possession of a carrier
or other Bailee if he discovers that the buyer is insolvent. However, the seller must deliver if
the buyer tenders cash for their payment.
On Buyers Breach The seller may stop delivery of carload, truckload, planeload, or larger
shipments of goods if the buyer breaches the K or the seller has a right to withhold
performance pending receipt of assurances (see the right to demand assurances , below).

3. Summary: When Buyer is Insolvent:

a. When a seller discovers that a buyer who is insolvent and has not yet paid for the goods agreed
upon, the seller has the right to do take action depending on whether the goods have been
delivered to the buyer yet. If the goods have not been delivered, the seller may withhold the
goods or stop delivery if the goods are in the possession of a carrier or other Bailee unless
payment is made. If delivery has been made and the Buyer received the goods on credit or failed
to pay on time as agreed, then the seller may demand recovery of the goods within 10 days after
the buyers receipt of the goods and the goods were to be paid for upon delivery and buyer
failed to pay or the buyer received the goods on credit. However, the 10 day limit to submit
such a demand does not apply if the buyer misrepresented her solvency in writing within the 3
months prior to delivery. However, if an insolvent buyer tenders cash regardless of the method
of payment agreed upon in the K then the seller must accept the payment and deliver the
goods.
b. When a seller discovers that a buyer is insolvent, and the buyer is paying on credit or is required
to pay upon receipt, then the seller may take the above actions under UCC Article 2 without first
making a demand for assurances.
4. Ability to Force Goods on Buyer (limited) The sellers ability to force goods on a buyer is limited to
an action for price when the seller is unable to resell the goods to others at a reasonable price.

c. Right to Demand Assurances

i. Actions or circumstances that increase the risk of nonperformance by a party to a K but
do not clearly indicate that performance will not be forthcoming may not be treated
immediately as an anticipatory repudiation.
ii. Instead, if there are reasonable grounds for insecurity with respect to a partys
performance, the other party may demand in writing assurances that the performance
will be forthcoming at the proper time.
iii. Until the seller receives adequate assurances, the seller may suspend his own
performance. If the proper assurances are not given within a reasonable time (about
30 days after the demand), he may then treat the K as repudiated. Whether the
assurances are adequate is a fact-specific inquiry [look at the demand & custom].
d. ESSAY WRAP-UP: Minor Breach, Assurances Demands, Anticipatory Repudiation,
Insolvency, and Material Breach.
i. The Issue is whether the [party] has made an unequivocal manifestation of [his/her]
intent not to perform by the Ks due date, or whether the circumstances have merely
given rise to doubts about [party]s likelihood to perform. The General Rule is that if
the party has, then they have made an Anticipatory Repudiation.

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[BREACH REMEDIES STATUTE OF LIMITATIONS UNDER UCC]
B. MONETARY REMEDY DAMAGES
a. Types of Damages.
i. Punitive generally not awarded in K cases.
ii. Nominal token damages may be awarded when a breach is shown but no actual loss
is proven.
iii. Compensatory places the nonbreaching party in the position she would have been in
had the promise been performed, so far as money can do this.
1. Standard Measure Expectation Damages. In most cases, the Plaintiffs standard
measure of damages will be based on an expectation measure, i.e., sufficient
damages for her to buy a substitute performance. AKA, benefit of the bargain
damages.
2. Reliance Damage Measure If the Plaintiffs damages are too speculative to
measure (e.g., Plaintiff is unable to show the lost profits of an unbuilt business), the
Plaintiff may elect to recover damages based on a reliance measure. Reliance
damages award the Plaintiff the cost of her performance such that she is restored to
the position she would have been in had the K never been formed.
3. Consequential Damages are special damages and reflect losses over and above
Standard Measure damages. They arise because of the nonbreaching partys
particular circumstances, and most often they consist of lost profits. Only
reasonably foreseeable damages at the tiem of formation (that could arise if breach
occurs) are recoverable. In Ks for the sale of goods, only a buyer may recover
consequential damages.
4. Incidental Ks for the Sale of Goods. Incidental Damages for breach of K-for-thesale-of-goods includes expenses reasonably incurred by the buyer in inspection,
receipt, transportation, care, and custody of goods rightfully rejected and other
expenses reasonably incident to the sellers breach, and by the seller in storing,
shipping, returning, and reselling the goods as a result of the buyers breach.
5. Certainty Rule. The Plaintiff must prove that the losses suffered were certain in
their nature and not speculative. Traditionally, if the breaching party prevented
the nonbreaching party from setting up a new business, courts would not award lost
profits from the prospective business as damages, because they were too
speculative. However, modern courts may allow lost profits as damages if they can
be made more certain by observing similar businesses in the area or other
businesses previously owned by the same party.
iv. Liquidated the parties to a K may stipulate what damages are to be paid in the event
of a breach. These liquidated damages must be in an amount that is reasonable in
view of the actual or anticipated harm caused by the breach.
1. Requirements for Enforcement:
a. Damages for K-breach must have been difficult to estimate or ascertain at the
time the K was formed; and
b. The amount agreed upon must have been a reasonable forecast of compensatory
damages in the case of breach.
2. If the liquidated damages amount is unreasonable, then courts will construe the
provision as a penalty and will not enforce it.
3. Recoverable Even if No Actual Damages if the above requirements are met, the
Plaintiff will receive the liquidated damages amount, even if no actual money or
pecuniary damages have been suffered.
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[MONETARY DAMAGES CONTINUED]

b. Sale of Goods Contracts (UCC Article 2)
i. Buyers Damages
1. |Seller Does Not Deliver | Buyer Rejects Goods |or| Buyer Revokes Acceptance. The
buyers basic damages [under these circumstances] will be:
a. The difference between the K-Price and (i) Market Price; or (ii) Cover; and
b. Incidental and Consequential Damages; less
c. Expenses saved as a result of the sellers breach.
i.
Note: Market Price is determined at the time the buyer learns of the breach.
ii.
Note: If the Buyer opts for Cover, then the buyer must make a reasonable K for
substitute goods in good faith and without unreasonable delay.
2. Seller Delivers Nonconforming Goods that Buyer Accepts
a. Warranty Damages. If the buyer accepts goods that breach one of the sellers
warranties, the buyer may recover as damages loss resulting in the normal course of
events from the breach. The basic measure of damages in such a case is:
i.
The difference between the Value of the Goods As Delivered and the Value of the
Goods had they conformed to the K; and
ii.
Incidental and Consequential Damages.
b. Notice Requirement. To recover damages for any defect as to accepted goods, the buyer
must, within a reasonable time after she discovers or should have discovered the defect,
notify the seller of the defect. If the buyer does not notify the seller within a reasonable
time, the buyer loses the right to sue. Reasonable time is a flexible standard.
3. Seller Anticipatorily Breaches K. Here, the damages are the difference between the Market
Price (at the time buyer learns of the breach) and the K-Price.
4. Consequential Damages. A seller is liable for Consequential Damages arising from his
breach if:
a. He had reason to know of the buyers general or particular requirements; and
b. The subsequent loss resulting from those needs could not reasonably be prevented by
Cover. Note: Particular needs must be made known to seller, but general requ.s usually do not.
c. Goods for Resale. If the buyer is in the business of reselling the goods, the seller is
deemed to have knowledge of the resale.
d. Goods Necessary for Manufacturing. If a seller knows that the goods he provides are to
be used in the manufacturing process, he should know that his breach would cause a
disruption production leading to a loss of profits.

ii.

Sellers Damages
1. When Buyer Repudiates |or| When Buyer Refuses to Accept Conforming Goods. The
UCC provides 3 measures for damages when the buyer wrongfully repudiates or refuses to
accept conforming goods. In addition to Incidental Damages (e.g., costs of storing, shipping,
reselling), the seller can:
a. Recover Expectation Damages (benefit of the bargain): difference between the
i.
Market Price (at the time & place of delivery) & the K-Price.
b. Resell the goods and recover the difference between K-Price & Resale Price; or
c. Lost Profits (Consequential Dmgs) are available if the above measures are inadequate
because the seller could have made an additional sale: dif btwn:
i.
K-Price & Cost to the Seller.
ii.

Note: The other measures will never be adequate if the Seller is a Lost Volume Seller. A
seller is a Lost Volume Seller if their supply is unlimited. If the Sellers supply is limited
(unique items, cannot obtain all that he can sell), then the lost profits measure cannot be
used.
2. When Buyer Accepted Goods, But Has Not Paid. Action for Price. If the buyer has accepted
the goods & has not paid, or hasnt accepted the goods, & the seller is unable to resell them at any
reasonable price, or if the goods have been lost or damaged a.t.t. the risk of loss was on the buyer
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[BREACH REMEDIES STATUTE OF LIMITATIONS UNDER UCC]

[MONETARY DAMAGES CONTINUED]

c. Sale of Land Contracts. Buyer is liable for the K-Price minus Fair Market Value of the Land.
d. Employment Contracts. Damages depend on whether the employer or employee breached:
i.
ii.

Breach by Employer: Irrespective of when the breach occurs (before/after full/part

performance), the standard measure of the employees damages is the Full K-Price (less
damages the employer fails to mitigate).
Breach by Employee: If an employee materially breaches an employment-K, the employer is
entitled to recover the cost of replacing the employee (i.e., the wages the employer must pay to
a replacement employee minus the breaching employees wages). The breaching employee may
offset money owed for work done to date.

e. Construction Contracts.
i.

If the Owner breaches a construction-K, the builder is entitled to profits that would have
resulted from the K plus any costs expended.
1. If the K is breached after construction is complete, the measure is the full K-Price plus
interest.
ii.
If the Builder breaches a construction-K, the owner is entitled to the cost of completion plus
reasonable compensation for the delay.
1. Most courts allow the builder to offset or recover for work performed to date to avoid unjust
enrichment of the owner.
2. If the breach is only late performance, the owner is entitled to damages incurred because of
late performance nothing more (i.e., or punitive).
iii.
Restoration Is Discovered Not Worth It and Economic Waste.
1. If a building-K is not properly performed, the owner is entitled to the cost of fixing the
defect. However, if it is discovered that it is much more costly to restore property than to
leave the property at its diminished value (due to its pre-restoration state), the courts are
split on whether they will force the builder to continue forcing a builder to continue under
such circumstances may amount to economic waste.
f. Ks with Installment Payments. If a K calls for payments in installments & a PMT is not made,
there is only a partial breach. The aggrieved party is limited to recovering only the missed PMT,
not the entire K-Price. However, the K may include an acceleration clause making the entire
amount due on any late PMT, in which case the aggrieved party may recover the entire amount.
g. Avoidable Damages (Mitigation). Under the CL, the nonbreaching party cannot recover
damages that could have been avoided with reasonable effort. Generally, a party may recover the
expenses of mitigation. Note the following specific K situations:
i.
ii.
iii.

iv.

v.

Employment Ks. If an employee fails to obtain new employee and the employer can prove that a
comparable job in the same locale was available, then the employee may recover lost wages less those he
could have earned from the comparable job.
Manufacturing Ks. If a buyer breaches, manufacturers have a duty to mitigate by halting production
after the breach. However, if the facts are such that completion of the mfrg project will decrease rather
than increase damages, the mfr has a right to continue.
Construction Ks. A builder does not owe a duty to avoid the consequences of an owners breach, e.g., by
securing other work. However, a builder has a duty to mitigate damages (in terms of the costs of further
construction and materials) by not continuing work after the breach. However, if completion will
decrease damages, a builder is permitted to complete construction (e.g., rather than leave a house halffinished and open to the elements).
Ks For the Sale of Goods. Under UCC, the Rule of Mitigation generally does not apply.
1. Injured Buyers are not required to Cover. Injured Sellers are not required to resell.
2. Market damages are always available if buyer does not cover or seller does not resell.
3. Note: Generally, a seller cannot bring an action against the buyer for the full K-Price unless the
goods cannot be resold at a reasonable price or were damages or lost when the risk of loss was on the
buyer.
Note: The duty to mitigate only reduces a recovery; it does not per se prohibit it.

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C. RESTITUTION & QUASI-Ks
a. Concepts. Restitution is not a part of K-Law, it is a distinct concept. Restitution is based on
preventing unjust enrichment when one has conferred a benefit on another without gratuitous
intent. Restitution can provide a remedy not only when a K exists and has been breached, but also
when a K is unenforceable, and in some cases when no K relationship exists at all between the
parties.
b. Terminology. When a K is unenforceable or no K between the parties exists, an action to recover
restitutionary damages often is referred to as an action for an implied in law K, an action in quasiK, or an action for quantum meruit.
c. Measure of Damages. Generally, the measure of restitution is the value of the benefit conferred.
i.
This amount is usually based on the benefit received by the Defendant, recovery may also be
measured by the detriment suffered by the Plaintiff (e.g., the reasonable value of the work
performed or the services rendered) if using the benefit-based measure is either difficult to
assess or if the benefit-based measure has an unfair result.

d. Specific Applications.
i.

ii.

iii.

When K Unenforceable Quasi-K Remedy. Restitution may be available in a Quasi-K action

when a K was made but is unenforceable and unjust enrichment otherwise would result (e.g.,
when a celebrity is hired to sign autographs and is paid, but dies mid-signing; the other party
has a restitutionary action to recover the payment).
When No K Involved Quasi-K Remedy. Restitution may also be available in a quasi-K action
when there is no K-relationship between the parties if:
1. The Plaintiff has conferred a benefit on the Defendant by rendering services or expending
properties;
2. The Plaintiff conferred the benefit with the reasonable expectation of being compensated for
its value;
3. The Defendant knew or had reason to know of the Plaintiffs expectation; and
4. The Defendant would be unjustly enriched if he were allowed to retain the benefit without
compensating the Plaintiff.
5. Note: Quasi-K actions are only possible where there is no valid K, written or oral.

When K is Breached Where Non-Breaching Party Has Not Fully Performed.

1. In General. When a K has been breached and the nonbreaching party has not fully
performed, he may choose to [first] cancel the K and [second] sue for restitution to prevent
unjust enrichment. Note: if the Plaintiff has fully performed, he is limited to his damages
under the K. This may be less than he would have received in a restitutionary action,
because a restitutionary remedy is not limited to the K-Price.
2. Losing Ks (the K-Price is less than the actual value of the services or goods). A restitutionary
remedy often is desirable in the case of a losing K because normal K-ExpectationDamages or Reliance Damages would be for a lesser amount (i.e., the low-low K-Price).
3. Breach by Plaintiff [Plaintiff has unclean hands]. Under some circumstances, a Plaintiff
may seek restitution even though the Plaintiff is the party who breached. If the breach was
intentional, some courts will not grant the breaching party restitution. Modern Courts,
however, do but they limit it to the K-Price less damages incurred as result of the breach.
a. Restitution of Advance Payments or Deposit If Buyer of Goods Breaches. If the buyer
has paid part of the purchase price in advance, and then the buyer breaches, he can
usually recover some of the payments. Unless the seller can prove greater damages, he
may keep 20% of the advanced payments, or $500, whichever is less. The balance must
be returned to the buyer. If there is a valid liquidated damages clause, the seller need
refund only the excess of the buyers PMTs over the amount of the liquidated damages.
4. Note: Generally, when there is a breaching party attempting to collect on a partially performed K,
you should consider in order (1) Substantial Performance, (2) Divisibility, and then (3)
Restitution. THIS TIP IS FOR MBE QUESTIONS.
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D. RESCISSION
a. Concepts. Rescission is a remedy whereby the original K is considered voidable &
rescinded. The parties are left as though a K had never been made. The grounds for
rescission must have occurred either before or at the time the K was entered into.
b. The grounds are:
i. Mutual Mistake of a material fact;
ii. Unilateral mistake [plus] if the other party knew or should have known of the mistake;
iii. Misrepresentation of fact or law by either party as to a material factor in the
negotiations that was relied upon; and
iv. Other Grounds, such as duress, undue influence, illegality, lack of capacity, and failure
of consideration.
1. Defenses: Generally, all equitable defense are available. Note: Plaintiffs negligence
is not a defense.
2. Additional Relief: If the Plaintiff has paid money to the Defendant, Plaintiff is
entitled to restitution in addition to rescission.
E. REFORMATION
a. Concept. Reformation is the remedy whereby the writing setting forth the agreement between the
parties is changed so that it conforms to the original intent of the parties.
b. Grounds.
i.
Mistake. To reform a K because of Mistake, there must be:
1. An agreement between the parties;
2. An agreement to put the agreement in writing; and
3. A variance between the original agreement and the writing.
ii.
Misrepresentation. If a writing is inaccurate because of a misrepresentation, the Plaintiff can
choose between reformation and avoidance. To qualify for reformation, the misrepresentation
must relate to the content or the legal effect of the record. Misrepresentations as to the subject
matter of the agreement are not grounds for reformation; rescission and damages are the
proper remedy for that.
c. Negligence Does Not Bar Reformation. Failure to read the record of the agreement does not
preclude a party from obtaining reformation. In nearly every case in which the record does not
reflect the agreement, either one or both parties have failed to read it.
d. Clear & Convincing Evidence Standard. The standard of proof for showing the variance between
the antecedent agreement and the writing is clear and convincing.
e. Parole Evidence Rule & Statute of Frauds Do Not Apply. The parol evidence rule is not applied in
reformation actions. Likewise, the majority rule is that the SOF does not apply but many courts
will deny reformation if it would add land to the K w/o complying with SOF.
f. Defenses. All equitable defenses are available as well as the existence of a bona fide purchaser for value.
Similarly, reformation is not permitted if the rights of 3Ps will be unfairly affected.

F. STATUTE OF LIMITATIONS UNDER UCC

a. Concept. For sales Ks, the UCC provides a 4 YEAR STATUTE OF LIMITATIONS. The parties may
shorten the period by agreement to no less than one year, but may not lengthen the period.
b. Accrual of Action. The statutory period begins to run when a party can bring suit i.e., when breach
occurs. The period begins to run regardless if the aggrieved party knows about the breach.
c. Breach of Warranty Actions. For a breach of warranty action, the breach occurs and the limitations
period begins to run upon delivery of the goods. This is true even if the buyer does not discover the
breach until after delivery no matter how much later.
i.
Warranty Extends to Future Performance. If there is an express warranty that explicitly extends
to future performance of the goods, the 4 year period does not begin to run until the buyer should
have discovered the breach.
ii.
Implied Warranties Breached on Delivery. Because implied warranties cannot explicitly extend
to future performance, they are breached, if at all, upon delivery.
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