- You are representing a concert promoter who hired a famous singer for a one-night performance for a fee of $200,000. The promoter spent an additional $150,000 on non-refundable venue rental, advertising, and staffing. One week before the show, the singer accepted a more lucrative offer and canceled the concert. All ticket revenue had to be refunded. Your client wants to sue the singer for damages. Proving the amount of profit that would have been earned from merchandise and concession sales is highly speculative.
Answer: The promoter can recover the $150,000 spent on non-refundable expenses in preparation for the concert.
The correct answer is B. When expectation damages (lost profits) are too speculative to be proven with reasonable certainty, the non-breaching party may recover reliance damages. These are the costs incurred in preparation for or performance of the contract. Here, the promoter's lost profits are speculative. However, the promoter spent $150,000 on non-refundable expenses in reliance on the singer's promise to perform. These reliance damages are recoverable. The promoter cannot recover the $200,000 fee (A, C) because that money was never paid and recovering it would be a windfall.
- An entrepreneur planned to open a new, avant-garde art gallery. She contracted with a construction company to renovate a unique historical building into a gallery space, with a grand opening scheduled for September 1. The contractor breached the contract, and the gallery could not open until December 1, missing the lucrative fall art season. The entrepreneur sued for the profits she lost during the three-month delay. To prove her damages, she presented a detailed business plan and expert testimony projecting profits of $90,000 for that period based on the performance of established galleries in other, larger cities.
Answer: The lost profits are not recoverable because damages for a new, unestablished business are considered too speculative.
The correct answer is B. To recover lost profits, they must be proven with reasonable certainty. Under the "new business rule," prospective profits for a new venture are often considered too speculative and uncertain to be recovered. While the modern trend has relaxed this rule if profits can be proven with reasonable certainty, projections based on established businesses in different markets are typically insufficient. The avant-garde nature of the gallery further increases the uncertainty. Therefore, a court is likely to find the damages too speculative. While foreseeability (A) is required, it is not sufficient if certainty is lacking. Reliance damages (C) are an alternative but the question asks about recovering the lost profits. (D) is incorrect because the evidence presented is likely insufficient to meet the certainty standard.
- Contractor finishes a new cafe three months late. Cafe sues for first-year lost profits. What recovery?
Answer: No lost profits; reliance
Because the cafe is new, it has no earnings history, so under the traditional rule its first-year lost profits are too speculative to support an expectation award. The contractor's delay still breached, so the cafe can recover reliance damages - the expenses it spent in reliance on the contract. A projected-profit figure is tempting, and many modern courts do allow a new business to prove profits through comparables or expert market analysis, but on these facts the traditional rule controls.
- A city contracted with a company to stage a major fireworks display for its Fourth of July celebration, for a fee of $50,000. The contract included a clause stating, 'If the company fails to perform the fireworks display for any reason other than hazardous weather, the company shall pay the city $100,000 as liquidated damages.' The company failed to show up. At the time of contracting, it was acknowledged that a failure to perform would cause difficult-to-measure harm to the city's reputation and citizen morale. The city suffered no direct financial loss.
Answer: The clause is unenforceable because the liquidated amount of $100,000 is not a reasonable forecast of the actual or anticipated harm.
The correct answer is C. A liquidated damages clause is enforceable only if (1) damages were difficult to ascertain at the time of contracting, and (2) the amount stipulated is a reasonable forecast of the damages. While the damages here were difficult to ascertain, an amount that is double the contract price ($100,000 vs. $50,000) appears to be a penalty intended to compel performance rather than a reasonable estimate of just compensation. Because the amount is not a reasonable forecast of the harm, it is an unenforceable penalty. (D) is incorrect because the lack of actual damages is not dispositive if the clause was a reasonable forecast at the time of formation.
- A specialty baker entered into a contract with a courier for the overnight delivery of a custom-made gear for her primary commercial oven. The baker told the courier's agent, "This part is essential for my oven, and I need it delivered by tomorrow morning to resume my operations." The courier negligently delayed delivery by three days. As a result, the baker could not fulfill a unique, high-volume catering order for a corporate event, resulting in a loss of $5,000 in profits. The baker had not informed the courier about this specific catering order.
Answer: $0, because the loss of profits from a specific, unusually large catering order was not foreseeable to the courier at the time of contracting.
The correct answer is D. Consequential damages, such as lost profits, are only recoverable if they were reasonably foreseeable to the breaching party at the time the contract was made. While the courier knew the part was for a commercial oven and that a delay would cause some business interruption (general damages), the loss of a specific, unusually large $5,000 order constitutes special circumstances. Because the baker did not communicate these special circumstances to the courier, the resulting loss was not foreseeable. Therefore, these consequential damages are not recoverable.
- A car dealership that sells a popular sedan model has a virtually unlimited supply of the cars from the manufacturer. The dealership contracted to sell one such sedan to a buyer for $25,000. The dealership's wholesale cost for the car was $22,000. The buyer breached the contract and refused to take delivery. The following day, the dealership sold the specific car allocated to the first buyer to a second buyer for the same price of $25,000. The dealership had plenty of other identical sedans in stock.
Answer: $3,000, because the dealership lost the volume of one sale and its resulting profit due to the buyer's breach.
When a seller has an unlimited supply of goods, you're dealing with a "lost volume seller" situation—a key concept in contract damages. The critical question is whether the seller lost a sale they otherwise would have made.
Here, the dealership had virtually unlimited inventory of identical sedans. When the first buyer breached, the dealership didn't just find a substitute sale—they lost one transaction entirely. Even though they sold the car to a second buyer, that second buyer likely would have purchased a different car from their abundant stock anyway. The breach cost them the profit from one sale they can never recover.
The correct damages are $3,000 (the $25,000 contract price minus $22,000 wholesale cost), representing the lost profit from the volume of sales. This is why answer A is correct.
Answer B incorrectly applies the standard mitigation rule. While sellers typically must mitigate by reselling, when you have unlimited supply, resale doesn't actually reduce damages—it just prevents further losses.
Answer C suggests nominal damages, but this misses that the dealership suffered actual financial harm. Their position did change: they made one fewer profitable sale than they should have.
Answer D represents the full contract price, but this ignores that the dealership would have had costs ($22,000) to fulfill the contract, so their actual loss is only the profit margin.
Remember: When you see unlimited supply or inventory in contracts questions, think "lost volume seller." The key is whether the seller lost sales volume, not just whether they found another buyer.
- A boat builder entered into a contract to construct a custom sailboat for a buyer for $300,000. The builder estimated his total cost would be $240,000, yielding a $60,000 profit. After the builder had spent $30,000 on materials, the buyer telephoned him and repudiated the contract. The builder, believing he was required to minimize the buyer's damages, immediately ceased all work on the sailboat. The specialized materials he purchased now have a scrap value of $5,000.
Answer: $85,000, representing the costs incurred less salvage value, plus the expected profit.
The correct answer is C. When a buyer repudiates a construction contract, the builder's damages are typically calculated as the costs incurred up to the point of repudiation, plus the expected profit, minus any salvage value from the materials. Here, the builder properly mitigated damages by ceasing work. The damages are the costs incurred ($30,000) plus the expected profit ($60,000), minus the salvage value of the materials ($5,000). The total is $30,000 + $60,000 - $5,000 = $85,000. This calculation places the builder in the position he would have been in had the contract been fully performed.
- Your client, a bakery, contracted with a supplier for 500 pounds of a rare, imported vanilla bean, essential for its signature wedding cakes, for $10,000. The supplier was informed of the specific purpose for the vanilla. The supplier breached and failed to deliver. Your client made diligent efforts but was unable to find a substitute source for this specific vanilla bean. As a result, the bakery had to cancel three wedding cake orders, losing a total of $15,000 in profits. The bakery had not yet paid the supplier.
Answer: $15,000, representing the foreseeable consequential damages that could not be prevented by cover.
The correct answer is A. Under the UCC, a buyer can recover consequential damages for a seller's breach if the seller had reason to know of the buyer's particular needs and the loss could not be reasonably prevented by cover. Here, the supplier knew the beans were for a specific purpose, making the lost profits from canceled orders foreseeable. The bakery mitigated by attempting to cover but was unable to, so the full extent of the lost profits is recoverable. The damages are the lost profits ($15,000), not net profits, as the cost of the beans ($10,000) was never paid and is not an expense to be deducted from the recovery.
- A manufacturer contracted to sell 50 custom-designed circuit boards to a tech company for $500 each, for a total of $25,000. After the manufacturer completed production, the tech company wrongfully repudiated the contract. The circuit boards are unique to the tech company's product and have no readily available secondary market. The manufacturer spent $2,000 on advertising in specialized trade journals trying to find another buyer but was unsuccessful. The boards have a scrap value of $10 per board ($500 total).
Answer: The full contract price of $25,000, less the scrap value, plus the $2,000 in advertising costs.
The correct answer is D. Under the UCC, if a seller is unable to resell goods after a reasonable effort, the seller may recover the contract price as damages. Here, the goods were custom-made and had no market, and the seller made a reasonable but unsuccessful effort to resell. The seller is therefore entitled to the contract price ($25,000). The seller must credit the buyer for any salvage value, so the scrap value of $500 is subtracted. Additionally, the seller can recover incidental damages, which include the commercially reasonable advertising costs of $2,000. The total is $25,000 - $500 + $2,000 = $26,500.
- A homeowner contracted with a builder to construct a house. The contract specified that "All plumbing pipes shall be Brand X copper pipes." After the house was completed and the homeowner had moved in, he discovered that the builder had installed Brand Y copper pipes. Brand Y pipes are of identical quality, durability, and chemical composition to Brand X pipes, and are functionally equivalent in every respect. The only difference is the brand name stamped on them. Replacing the pipes would require tearing down several walls and would cost $75,000. The use of Brand Y pipes instead of Brand X pipes decreased the market value of the home by $200.
Answer: $200, because the cost to replace the pipes is grossly disproportionate to the diminution in value caused by the breach.
The correct answer is C. When a breach of a construction contract results in a trivial defect, and the cost of completion or correction is grossly and unfairly out of proportion to the good to be attained, the measure of damages is the diminution in value. Here, spending $75,000 to fix a purely aesthetic defect that reduces the home's value by only $200 would constitute economic waste. Therefore, the court will limit the homeowner's damages to the $200 diminution in market value. (A) states the general rule, but the economic waste exception applies here. (B) is incorrect because while the builder did substantially perform, the homeowner is still entitled to damages for the partial breach. (D) is incorrect because courts will not grant specific performance that results in such significant economic waste.
- An author granted a publisher the exclusive right to publish and market her manuscript. The publisher agreed to pay the author a 10% royalty on all sales. The publisher printed the book but breached the contract by failing to engage in any marketing efforts. As a result, sales were minimal. The author sued for damages. At trial, the author sought to introduce expert testimony that, based on sales of comparable books by new authors in the same genre, a reasonable marketing effort would have resulted in sales of at least 50,000 copies.
Answer: The author may recover lost royalties based on the expert's testimony if it provides a reasonable basis for calculating the loss.
The correct answer is D. While damages must be proven with reasonable certainty, they do not require mathematical precision. In cases where a party's breach prevents the other party's opportunity to earn profits, courts often relax the certainty requirement and allow evidence, including expert testimony based on comparable products or businesses, to establish a reasonable basis for calculating damages. The expert testimony provides such a basis, and if the court finds it credible, the author can recover the lost royalties. This is preferable to reliance (A) or restitution (B) because it protects the author's expectation interest. (C) states an overly strict version of the certainty rule that many modern courts have rejected.
- A software company hired a consultant for a six-month, $90,000 project. After one month of work, for which she was paid $15,000, the consultant was wrongfully terminated. She spent $1,000 on a career coach to help her find a new position. After one month of searching, she accepted a new, comparable consulting project that lasted for the remaining four months of her original contract period and paid her $65,000. She sues the software company for breach of contract.
Answer: $11,000, representing the unpaid salary less her new earnings, plus the cost of the career coach.
The correct answer is C. The consultant's damages are the remaining contract price less any amount she earned in mitigation. The remaining contract price was $75,000 ($90,000 - $15,000). She earned $65,000 from the new job. So, her direct loss is $10,000. Additionally, a non-breaching party can recover incidental damages, which are reasonable costs incurred in mitigating damages. The $1,000 spent on a career coach to find the new job is a reasonable mitigation cost. Therefore, her total damages are $10,000 (lost wages) + $1,000 (incidental damages) = $11,000.
- Buyer breaches a $20,000 car deal; dealer with ample inventory resells for $18,000. Seller's damages?
Answer: Full profit, no offset
Because the dealer had ample inventory, it is a lost-volume seller: the $18,000 resale would have occurred anyway, so it does not replace the breached $20,000 sale. The seller therefore keeps the full profit it would have earned on that sale, with no offset. The tempting $2,000 price-gap answer wrongly treats the resale as mitigation, which only applies when the seller had only one item to sell.
- A tenant signed a two-year commercial lease at a rate of $5,000 per month. After one year, the tenant wrongfully abandoned the premises. The landlord, wanting to upgrade the unit, let it sit vacant for two months while making significant renovations that were not required by the breach. After the renovations were complete, the landlord immediately listed the property and found a new tenant within one month, at a rate of $6,000 per month for a three-year term. The landlord sues the original tenant for unpaid rent.
Answer: $5,000, because the landlord failed to make reasonable mitigation efforts for two of the three vacant months.
The correct answer is B. A landlord has a duty to mitigate damages by making reasonable efforts to re-let the premises. The landlord is entitled to damages for the period the property is reasonably vacant while searching for a new tenant. Here, the landlord spent two months making voluntary upgrades, not searching for a tenant. This was a failure to mitigate. The landlord only began mitigation efforts after the two months, and it took one reasonable month to find a new tenant. Therefore, the tenant is only liable for one month's rent, which is $5,000.
- A couple hired a professional photographer for their wedding for a fee of $8,000. The contract specified that the photographer would provide all-day coverage and deliver a high-quality album. On the wedding day, the photographer failed to appear. The couple had to rely on photos taken by guests with their phones. They sued the photographer for breach of contract, seeking a refund and additional damages for their emotional distress and the loss of irreplaceable memories.
Answer: They can recover the $8,000 fee and damages for emotional distress, because the nature of the contract made severe emotional distress a particularly likely result of a breach.
The correct answer is B. While emotional distress damages are generally not recoverable for breach of contract, there is an exception for contracts where a breach is particularly likely to cause serious emotional disturbance. Contracts related to personal and sensitive events, like weddings and funerals, often fall into this category. The photographer's complete failure to appear at a once-in-a-lifetime event makes it foreseeable that the couple would suffer significant emotional distress. Therefore, a court would likely allow recovery for emotional distress in addition to the contract price.
- A widget retailer contracted to buy 1,000 standard widgets from a manufacturer for $10 per widget, for delivery on July 1. On July 1, the market price for widgets was $12. The manufacturer failed to deliver. The retailer, needing the widgets for its inventory, purchased 1,000 identical widgets from another supplier on July 10 for $15 each, which was the market price on that day. The retailer sues the original manufacturer for damages.
Answer: $5,000, the difference between the retailer's cover price and the original contract price.
When analyzing breach of contract damages in sales law, you need to understand that buyers have two primary remedies: cover damages and market damages. The key is knowing which one applies and how to calculate it correctly.
Here, the retailer chose to cover by purchasing substitute widgets from another supplier. Under UCC § 2-712, cover damages equal the difference between the cover price and the original contract price, plus any incidental damages. The retailer paid $15,000 for replacement widgets ($15 × 1,000) versus the original contract price of $10,000 ($10 × 1,000), yielding $5,000 in damages. This is the correct measure because the retailer actually covered and can prove these concrete damages.
Answer A correctly calculates cover damages as $5,000. Answer B incorrectly applies the market damages formula (UCC § 2-713), which would use the July 1 market price of $12 instead of the actual cover price. When a buyer covers, they recover cover damages, not market damages. Answer C creates a nonsensical hybrid by measuring the difference between cover price and market price—this isn't a recognized damages measure. Answer D wrongly suggests the 9-day delay was unreasonable, but courts generally allow buyers reasonable time to arrange substitute purchases, especially for standard commercial goods.
Remember this pattern: when the buyer actually purchases substitute goods (covers), use cover damages regardless of market price. Only use market damages when the buyer doesn't cover. Cover damages often provide more complete compensation because they reflect the buyer's actual economic loss.
- An accountant was employed under a one-year contract at a salary of $120,000. With six months remaining on the contract, her employer wrongfully terminated her. The accountant immediately began searching for new work. She was offered a comparable accounting position at a firm in a neighboring town for $110,000 per year, but she rejected it because it would require a 45-minute commute each way, whereas her previous job had a 10-minute commute. She remained unemployed for the next six months despite her diligent search for a job in her own town.
Answer: $5,000, representing the difference between her original salary and the offered salary for the six-month period.
The correct answer is B. A wrongfully discharged employee has a duty to mitigate damages by accepting comparable employment. A job is generally considered comparable even with a moderately longer commute. A 45-minute commute is typically considered reasonable, so the job offer was for comparable employment. By rejecting it, the accountant failed to mitigate her damages. Her damages will be reduced by the amount she could have earned from the rejected offer. Her remaining salary was $60,000 for six months. The offered job would have paid $55,000 for six months. The difference, $5,000, is the amount of her recoverable damages.
- A corporation contracted with a delivery service to transport a sensitive corporate merger document, which had to be delivered across the country by a 5:00 p.m. deadline to close the deal. The corporation's officer told the service, "This is the most important package we will ever ship. It absolutely must be there by 5:00 p.m. today." The service accepted the package but negligently failed to put it on the correct flight, and it arrived the next day. As a result, the merger deal, from which the corporation expected a $10 million profit, fell through.
Answer: $10 million, because the service was put on notice of the extreme importance and time-sensitive nature of the package.
The correct answer is A. This is a modern application of the foreseeability rule from Hadley v. Baxendale. Consequential damages are recoverable if the breaching party had reason to know of the special circumstances at the time of contracting. Here, the officer's statement, while not specifying the exact nature of the transaction or the amount at stake, clearly communicated that extraordinary consequences would result from a delay. This was sufficient to put the delivery service on notice that its liability could be far beyond the cost of shipping. Therefore, the lost profit from the failed merger was a foreseeable consequence of the breach.
- A farmer contracted to purchase a specialized tractor from a dealer for $150,000, with delivery scheduled for August 1, just before the harvest season. The dealer was aware that the farmer operated a commercial farm. The dealer breached the contract and failed to deliver the tractor. The farmer was forced to rent a comparable tractor for the harvest season at a cost of $25,000. Because he had to use the rental tractor for his own fields, the farmer was unable to perform a side contract to harvest a neighbor's field, which would have netted him a $5,000 profit. The farmer had not told the dealer about the contract with his neighbor.
Answer: $25,000, representing the reasonable cost of renting a substitute tractor.
The correct answer is B. The cost of renting a substitute good after a seller's breach is a form of cover and constitutes general damages, which are considered foreseeable. The dealer knew the farmer was commercial and needed the tractor for the harvest, so the need to rent a substitute is a direct and foreseeable consequence. The $5,000 lost profit from the neighbor's contract is consequential damage. It is not recoverable because the dealer was not made aware of this specific side contract, making the loss unforeseeable. Therefore, the farmer can recover the $25,000 cost of cover but not the $5,000 in lost profits.
- A homeowner entered into a contract with a contractor to build a swimming pool for $50,000. After the homeowner paid a $10,000 deposit and the contractor had excavated the hole, the contractor abandoned the project. The homeowner obtained several bids to complete the pool. The lowest bid from a reputable company was $45,000. Annoyed, the homeowner decided not to build the pool at all and instead filled in the hole at a cost of $5,000. The homeowner then sued the original contractor for breach.
Answer: $5,000, representing the amount by which the cost of completion exceeded the remaining contract price.
The correct answer is D. The standard measure of damages for a builder's breach is the cost of completion minus the unpaid contract price. Here, the cost of completion was $45,000 and the unpaid portion of the contract was $40,000 ($50,000 - $10,000). The homeowner's expectation damages are therefore $5,000 ($45,000 - $40,000). The fact that the homeowner chose not to complete the pool does not change the measure of damages. The homeowner is entitled to be put in the position she would have been in financially had the contract been performed. Restitution of the deposit (B) or the cost to restore the land (A, C) are alternative measures, but expectation damages are the standard and are calculable here.
