Chapter 20Chapter 20BREACH OF CONTRACTBREACH OF CONTRACT

AND REMEDIESAND REMEDIES

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Breach of ContractBreach of Contract

Breach is a failure to act or perform in Breach is a failure to act or perform in the manner called for by the contract. the manner called for by the contract.

AnticipatoryAnticipatory Breach: When a party Breach: When a party makes it clear that she does not intend makes it clear that she does not intend to fulfill the contract. to fulfill the contract. Repudiation by Conduct: When this party Repudiation by Conduct: When this party

clearly states that the performance will not clearly states that the performance will not happen.happen.

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Waiver of BreachWaiver of Breach

The effect of a breach is nullified if the aggrieved The effect of a breach is nullified if the aggrieved person by word or conduct waives the right to object person by word or conduct waives the right to object to the breach. to the breach.

Conversely, an aggrieved party may accept a defective Conversely, an aggrieved party may accept a defective performance without thereby waiving a claim for performance without thereby waiving a claim for breach if the party makes a reservation of rights. breach if the party makes a reservation of rights. A reservation of rights can be made by stating that the A reservation of rights can be made by stating that the

defective performance is accepted “without prejudice,” defective performance is accepted “without prejudice,” “under protest,” or “with reservation of rights.”“under protest,” or “with reservation of rights.”

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Remedies For BreachRemedies For Breach

The aggrieved person may usually sue for The aggrieved person may usually sue for damages caused by the breach if the breach is damages caused by the breach if the breach is not waived. not waived.

When an anticipatory repudiation occurs, the When an anticipatory repudiation occurs, the aggrieved party may either wait until the time aggrieved party may either wait until the time of performance or may proceed immediately of performance or may proceed immediately with an action for damages.with an action for damages.

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Action for Damages

Action for Recession

Action for Specific Performance

Action for Injunction

Contractual Limitations ofRemedy or Provision for

Liquidated DamagesRemedy Specified in Contract

Waiver of Breach Contract Continuesas Though There Were No Breach

Contract Continues as ModifiedDefective PerformanceAccepted with Reservation

of Right to Damages Contract Performed but at Reduced Price or, in Suit for Full Price,

Counterclaim for Damages

Breach of Contract

What Follows the Breach?What Follows the Breach?

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Measure of DamagesMeasure of Damages

What may be recovered is either direct or What may be recovered is either direct or consequential damages. consequential damages. DirectDirect damages are those caused directly by the damages are those caused directly by the

breach. breach. ConsequentialConsequential damages are extra expenditures made damages are extra expenditures made

by the injured party to rectify the breach.by the injured party to rectify the breach.

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Incidental Damages

Damages and RemediesDamages and Remedies

Nominal Damages

Compensatory Damages

Punitive Damages

Consequential Damages

Rescission

Specific Performance

Injunction

Possible remedies for breach of contract

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Damages and RemediesDamages and Remedies

}Subject to JudicialReview

Liquidated Damages

Exculpatory Clauses (Limitation of Liability)

Limitation of RemediesContract

provisions which may

limit remedies or

damages

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RescissionRescission

The aggrieved person also has the option of rescinding The aggrieved person also has the option of rescinding the contract if: the contract if: (1) the breach has been made concerning a material term and (1) the breach has been made concerning a material term and (2) the aggrieved party returns everything to the way it was (2) the aggrieved party returns everything to the way it was

before the contract was made. before the contract was made. Rescission and recovery of money damages are Rescission and recovery of money damages are

mutually exclusive remedies except when the contract mutually exclusive remedies except when the contract relates to the sale of goods, in which case, the relates to the sale of goods, in which case, the aggrieved party may both rescind and obtain money aggrieved party may both rescind and obtain money damages.damages.

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Specific PerformanceSpecific Performance

When an aggrieved party compels the other When an aggrieved party compels the other party to perform the acts called for by the party to perform the acts called for by the contract. contract. Specific performance is always obtainable for the Specific performance is always obtainable for the

breach of a contract to sell land or real estate on the breach of a contract to sell land or real estate on the theory that such property has a unique value. theory that such property has a unique value.

Conversely, a court may place an injunction on Conversely, a court may place an injunction on the breaching party; this is an order to refrain the breaching party; this is an order to refrain from doing some act that was prohibited by the from doing some act that was prohibited by the broken contract.broken contract.

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ReformationReformation

Written contract that does not clearly state the Written contract that does not clearly state the agreement of the parties.agreement of the parties.

Court will reform or correct the writing to Court will reform or correct the writing to reflect the original intentions of the parties.reflect the original intentions of the parties.

Assumes parties want to continue to do Assumes parties want to continue to do business.business.

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Limits on Remedies and DamagesLimits on Remedies and Damages

The aggrieved person has a duty to The aggrieved person has a duty to mitigatemitigate or reduce damages by reasonable means.or reduce damages by reasonable means.

LiquidatedLiquidated Damages may be limited to a Damages may be limited to a specific amount.specific amount.

Limitation of Liability (Exculpatory) Limitation of Liability (Exculpatory) clauses. clauses. Private agreement is permissible.Private agreement is permissible. Invalid when public interest is involved and Invalid when public interest is involved and

there is willful conduct or gross negligence.there is willful conduct or gross negligence.