BUSINESS LAW
Alternate Edition 11thEd.
Jentz  Miller  Cross
Chapter 18
Contracts—Breach and Remedies
Copyright © 2009 South-Western Legal Studies in Business,
a part of South-Western Cengage Learning.
Introduction
 Most Common Remedies:
– Damages.
– Rescission and Restitution.
– Specific Performance.
– Reformation.
– Recovery Based on Quasi Contract.
Copyright © 2009 South-Western Legal Studies in Business,
a part of South-Western Cengage Learning.
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§1: Damages
 Compensatory Damages—direct losses.
– Sale of Goods: difference between contract and
market price.
– Sale of Land: specific performance.
– Construction Contracts: varies.
 Consequential (Special) Damages—
foreseeable losses.
– Breaching party is aware or should be aware,
cause the injury party additional loss.
– CASE 18.1 Hadley v. Baxendale (1854).
Copyright © 2009 South-Western Legal Studies in Business,
a part of South-Western Cengage Learning.
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Damages
 Punitive Damages—punish or deter future
conduct.
– Generally not available for mere breach of
contract.
– Usually tort (e.g., fraud) is also involved.
 Nominal Damages—no financial loss.
– Defendant is liable but only a technical injury.
Copyright © 2009 South-Western Legal Studies in Business,
a part of South-Western Cengage Learning.
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Mitigation of Damages
 When breach of contract occurs, the
innocent injured party is held to a duty to
reduce the damages that he or she
suffered.
 Duty owed depends on the nature of the
contract.
 CASE 18.2 Hanson v. Boeder (2007).
Copyright © 2009 South-Western Legal Studies in Business,
a part of South-Western Cengage Learning.
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Liquidated Damages Provisions
 Liquidated Damages.
– A contract provides a specific amount to be
paid as damages in the event of future default
or breach of contract.
 Penalties.
– Specify a certain amount to be paid in the
event of a default or breach of contract and
are designed to penalize the breaching party.
Copyright © 2009 South-Western Legal Studies in Business,
a part of South-Western Cengage Learning.
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§2: Rescission and Restitution
 Rescission.
– A remedy whereby a contract is canceled and
the parties are restored to the original
positions that they occupied prior to the
transactions.
 Restitution.
– Both parties must return goods, property, or
money previously conveyed.
 Note: Rescission does not always call for
restitution. Restitution is called for in some
cases not involving rescission.
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§3: Specific Performance
 Equitable remedy calling for the
performance of the act promised in the
contract.
 Provides remedy in cases involving:
– Unique (sale of land) CASE 18.3
Stainbrook v. Low (2006).
– Not available remedy in contracts for
personal services.
Copyright © 2009 South-Western Legal Studies in Business,
a part of South-Western Cengage Learning.
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§4: Reformation
 Equitable remedy allowing a contract
to be reformed, or rewritten to reflect
the parties true intentions.
 Available when an agreement is
imperfectly expressed in writing.
Copyright © 2009 South-Western Legal Studies in Business,
a part of South-Western Cengage Learning.
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§5: Recovery Based on
Quasi Contract
 Equitable theory imposed by courts to obtain
justice and prevent unjust enrichment.
 Party seeking quantum meruit must show the
following:
– A benefit was conferred to the other party.
– Party conferring did so with the reasonable expectation
of being paid.
– The benefit was not volunteered.
– Retaining benefit without paying for it would result in
unjust enrichment of the party receiving the benefit.
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a part of South-Western Cengage Learning.
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§6: Election of Remedies
 Doctrine created to prevent double
recovery.
 Nonbreaching party must choose which
remedy to pursue.
 UCC rejects election of remedies.
– Cumulative in nature and include all the
available remedies for breach of contract.
Copyright © 2009 South-Western Legal Studies in Business,
a part of South-Western Cengage Learning.
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§7: Waiver of Breach
 A pattern of conduct that waives a number
of successive breaches will operate as a
continued waiver.
 Nonbreaching party can still recover
damages, but contract is not terminated.
 Nonbreaching party should give notice to
the breaching party that full performance
will be required in the future.
Copyright © 2009 South-Western Legal Studies in Business,
a part of South-Western Cengage Learning.
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§8: Contract Provisions
Limiting Remedies
 Exculpatory clauses.
– Provisions stating that no damages can be
recovered.
 Limitation of liability clauses.
– Provisions that affect the availability of certain
remedies.
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a part of South-Western Cengage Learning.
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