Chapter 18 Contracts—Breach and Remedies Copyright © 2009 South-Western Legal Studies in...

Chapter 18 Chapter 18 Contracts—Breach and RemediesContracts—Breach and Remedies

Copyright © 2009 South-Western Legal Studies in Business,

a part of South-Western Cengage Learning.

Jentz Miller Cross

BUSINESS LAW BUSINESS LAW Alternate Edition 11Alternate Edition 11ththEd.Ed.



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IntroductionIntroduction

Most Common Remedies:Most Common Remedies:– Damages.Damages.– Rescission and Restitution.Rescission and Restitution.– Specific Performance.Specific Performance.– Reformation.Reformation.– Recovery Based on Quasi Contract.Recovery Based on Quasi Contract.



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§1: §1: DamagesDamages Compensatory Damages—direct losses.Compensatory Damages—direct losses.

– Sale of Goods: difference between contract and Sale of Goods: difference between contract and market price.market price.

– Sale of Land: specific performance.Sale of Land: specific performance.– Construction Contracts: varies.Construction Contracts: varies.

Consequential (Special) Damages—Consequential (Special) Damages—foreseeable losses.foreseeable losses.– Breaching party is aware or should be aware, Breaching party is aware or should be aware,

cause the injury party additional loss.cause the injury party additional loss.– CASE 18.1 CASE 18.1 Hadley v. BaxendaleHadley v. Baxendale (1854). (1854).



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DamagesDamages

Punitive Damages—punish or deter future Punitive Damages—punish or deter future conduct.conduct.– Generally not available for mere breach of Generally not available for mere breach of

contract.contract.– Usually tort (e.g., fraud) is also involved.Usually tort (e.g., fraud) is also involved.

Nominal Damages—no financial loss.Nominal Damages—no financial loss.– Defendant is liable but only a technical injury.Defendant is liable but only a technical injury.



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Mitigation of DamagesMitigation of Damages

When breach of contract occurs, the When breach of contract occurs, the innocent injured party is held to a duty to innocent injured party is held to a duty to reduce the damages that he or she reduce the damages that he or she suffered.suffered.

Duty owed depends on the nature of the Duty owed depends on the nature of the contract.contract.

CASE 18.2 CASE 18.2 Hanson v. BoederHanson v. Boeder (2007). (2007).



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Liquidated Damages Liquidated Damages Provisions Provisions

Liquidated Damages.Liquidated Damages.– A contract provides a specific amount to be A contract provides a specific amount to be

paid as damages in the event of future default paid as damages in the event of future default or breach of contract.or breach of contract.

Penalties.Penalties.– Specify a certain amount to be paid in the Specify a certain amount to be paid in the

event of a default or breach of contract and event of a default or breach of contract and are designed to penalize the breaching party.are designed to penalize the breaching party.



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Rescission.Rescission.– A remedy whereby a contract is canceled and A remedy whereby a contract is canceled and

the parties are restored to the original the parties are restored to the original positions that they occupied prior to the positions that they occupied prior to the transactions.transactions.

Restitution.Restitution.– Both parties must return goods, property, or Both parties must return goods, property, or

money previously conveyed. money previously conveyed. NoteNote: Rescission does not always call for : Rescission does not always call for

restitution. Restitution is called for in some restitution. Restitution is called for in some cases not involving rescission.cases not involving rescission.

§2: §2: Rescission and Rescission and RestitutionRestitution



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§3: §3: Specific PerformanceSpecific Performance

Equitable remedy calling for the Equitable remedy calling for the performance of the act promised in the performance of the act promised in the contract.contract.

Provides remedy in cases involving: Provides remedy in cases involving: – Unique (sale of land) Unique (sale of land) CASE 18.3 CASE 18.3

Stainbrook v. LowStainbrook v. Low (2006). (2006).– Not available remedy in contracts for Not available remedy in contracts for

personal services.personal services.



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§4: §4: ReformationReformation

Equitable remedy allowing a contract Equitable remedy allowing a contract to be reformed, or rewritten to reflect to be reformed, or rewritten to reflect the parties true intentions.the parties true intentions.

Available when an agreement is Available when an agreement is imperfectly expressed in writing.imperfectly expressed in writing.



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§5: §5: Recovery Based on Recovery Based on QuasiQuasi Contract Contract

Equitable theory imposed by courts to obtain Equitable theory imposed by courts to obtain justice and prevent unjust enrichment.justice and prevent unjust enrichment.

Party seeking Party seeking quantum meruitquantum meruit must show the must show the following:following:– A benefit was conferred to the other party.A benefit was conferred to the other party.– Party conferring did so with the reasonable expectation Party conferring did so with the reasonable expectation

of being paid.of being paid.– The benefit was not volunteered.The benefit was not volunteered.– Retaining benefit without paying for it would result in Retaining benefit without paying for it would result in

unjust enrichment of the party receiving the benefit.unjust enrichment of the party receiving the benefit.



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§6: §6: Election of RemediesElection of Remedies

Doctrine created to prevent double Doctrine created to prevent double recovery.recovery.

Nonbreaching party must choose which Nonbreaching party must choose which remedy to pursue.remedy to pursue.

UCC rejects election of remedies.UCC rejects election of remedies.– Cumulative in nature and include all the Cumulative in nature and include all the

available remedies for breach of contract.available remedies for breach of contract.



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§7: §7: Waiver of BreachWaiver of Breach

A pattern of conduct that waives a number A pattern of conduct that waives a number of successive breaches will operate as a of successive breaches will operate as a continued waiver.continued waiver.

Nonbreaching party can still recover Nonbreaching party can still recover damages, but contract is not terminated. damages, but contract is not terminated.

Nonbreaching party should give notice to Nonbreaching party should give notice to the breaching party that full performance the breaching party that full performance will be required in the future.will be required in the future.



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§8: §8: Contract Contract Provisions Provisions

Limiting RemediesLimiting Remedies Exculpatory clauses. Exculpatory clauses.

– Provisions stating that no damages can be Provisions stating that no damages can be recovered.recovered.

Limitation of liability clauses.Limitation of liability clauses.– Provisions that affect the availability of certain Provisions that affect the availability of certain

remedies.remedies.

Chapter 18 Contracts—Breach and Remedies Copyright © 2009 South-Western Legal Studies in...

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