Chapter 20 BREACH OF CONTRACT AND REMEDIES

1. Chapter 20BREACH OF CONTRACTAND REMEDIES

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. 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 without thereby waiving a claim for breach if the party makes a reservation of rights. • A reservation of rights can be made by stating that the defective performance is accepted “without prejudice,” “under protest,” or “with reservation of rights.”

4. 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.

5. What Follows the Breach? Contract Continues as Though There Were No Breach Waiver of 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 Contractual Limitations of Remedy or Provision for Liquidated Damages Remedy Specified in Contract Breach of Contract Action for Damages Action for Recession Action for Specific Performance Action for Injunction

6. 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.

7. Damages and Remedies Nominal Damages Compensatory Damages Punitive Damages Consequential Damages Incidental Damages Rescission Specific Performance Injunction Possible remedies for breach of contract

8. Damages and Remedies } Limitation of Remedies Subject to Judicial Review Liquidated Damages Exculpatory Clauses (Limitation of Liability) Contract provisions which may limit remedies or damages

9. 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. • 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.

10. 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. • 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.

11. 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.

12. 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. • Limitation of Liability (Exculpatory) clauses. • Private agreement is permissible. • Invalid when public interest is involved and there is willful conduct or gross negligence.