1. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning Chapter 20 Breach of Contract and Remedies Twomey Jennings Anderson’s Business Law and the Legal Environment, Comprehensive 20e Anderson’s Business Law and the Legal Environment, Standard 20e Business Law: Principles for Today’s Commercial Environment 2e

2. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 2 Breach of Contract Breach is a failure to act or perform in the manner called for by the contract. Anticipatory Breach: When a party makes it clear that she does not intend to fulfill the contract. –Repudiation by Conduct: When this party clearly states that the performance will not happen.

3. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 3 Waiver of Breach The effect of a breach is nullified if the aggrieved person by word or conduct waives the right to object to the breach. Conversely, an aggrieved party may accept a defective performance (cure) without thereby waiving a claim for breach if the party makes a reservation of rights. 

4. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 4 Waiver of Breach A reservation of rights can be made by stating that the defective performance is accepted “without prejudice,” “under protest,” or “with reservation of rights.”

5. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 5 Remedies For Breach The aggrieved person may usually sue for damages caused by the breach if the breach is not waived. When an anticipatory repudiation occurs, the aggrieved party may either wait until the time of performance or may proceed immediately with an action for damages.

6. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 6 Action for Damages Action for Recession Action for Specific Performance Action for Injunction Contractual Limitations of Remedy or Provision for Liquidated Damages Remedy Specified in Contract Waiver of Breach Contract Continues as Though There Were No Breach Contract Continues as Modified Defective Performance Accepted 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?

7. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 7 Measure of Damages What may be recovered is either direct or consequential damages. –Direct damages are those caused directly by the breach. –Consequential damages are extra expenditures made by the injured party to rectify the breach.

8. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 8 Incidental Damages Damages and Remedies Nominal Damages Compensatory Damages Punitive Damages Consequential Damages Rescission Specific Performance Injunction Possible remedies for breach of contract

9. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 9 Damages and Remedies } Subject to Judicial Review Liquidated Damages Exculpatory Clauses (Limitation of Liability) Limitation of Remedies Contract provisions which may limit remedies or damages

10. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 10 Rescission The aggrieved person also has the option of rescinding the contract if: –(1) the breach has been made concerning a material term and –(2) the aggrieved party returns everything to the way it was before the contract was made.

11. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 11 Rescission Rescission and recovery of money damages are mutually exclusive remedies except when the contract relates to the sale of goods, in which case, the aggrieved party may both rescind and obtain money damages.

12. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 12 Specific Performance When an aggrieved party compels the other party to perform the acts called for by the contract. –Specific performance is always obtainable for the breach of a contract to sell land or real estate on the theory that such property has a unique value.

13. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 13 Specific Performance / Injunction Conversely, a court may place an injunction on the breaching party; this is an order to refrain from doing some act that was prohibited by the broken contract. An injunction is a court order to stop performance prohibited by contract.

14. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 14 Reformation Written contract that does not clearly state the agreement of the parties. Court will reform or correct the writing to reflect the original intentions of the parties. Assumes parties want to continue to do business.

15. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 15 Limits on Remedies and Damages The aggrieved person has a duty to mitigate or reduce damages by reasonable means. Liquidated Damages may be limited to a specific amount.

16. Copyright © 2008 by West Legal Studies in Business A Division of Thomson Learning 16 Limits on Remedies and Damages Limitation of Liability (Exculpatory) clauses. –Private agreement is permissible. –Invalid when public interest is involved and there is willful conduct or gross negligence.