Comprehensive Volume, 18 th Edition Chapter 21: Breach of Contract and Remedies

Breach of Contract When a party fails to perform a contract or performs improperly, it is a breach of the contract. When one party makes it clear that she does not intend to fulfill the contract, it is considered an anticipatory breach. When this party clearly states that the performance will not happen, it is anticipatory repudiation. When the party’s actions make it clear that the performance will not happen, it is anticipatory repudiation by conduct.

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.”

Remedies Upon 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.

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.

Incidental Damages Damages and Remedies } Subject to Judicial Review Nominal DamagesCompensatory Damages Punitive Damages Consequential Damages Rescission Specific Performance Injunction Possible remedies for breach of contract Liquidated Damages Exculpatory Clauses (Limitation of Liability) Limitation of Remedies Contract provisions which may limit remedies or damages

Limits on Damages The aggrieved person has a duty to mitigate or reduce damages by reasonable means. Damages may be limited to a specific amount by a liquidated damages clause. Damages may be canceled out completely by a limitation-of-liability clause.

Specific Performance In a few situations, an aggrieved party may be able to compel 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.

Right to Rescind 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.

What Follows the Breach? 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