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Question: What is the standard measure of compensatory damages when a contract is breached?

26 Apr 2023,6:21 PM


Discussion 10

Contracts are meant to be broken. What happens when you breach a contract? Find a case or situation in the news and explain what went wrong. Did the Parties need to mitigate damages? How would you have handled the situation to avoid the outcome breach? Are you in agreement with the outcome? Why? Remember to cite the names and give us a factual background as to what happened.

Chapter 15


Breach and Remedies


Focus Questions

The four Focus Questions below are designed to help improve your understanding. After reading this chapter, you should be able to answer the following questions:

What is the standard measure of compensatory damages when a contract is breached?

When do courts grant specific performance as a remedy?

What remedy is available when a court imposes a quasi contract?

What is a limitation-of-liability clause, and when will courts enforce it?


“There’s a remedy for everything except death.”

Miguel de Cervantes 1547–1616 (Spanish author)

When one party breaches a contract, the other party—the nonbreaching party—can choose one or more of several remedies. A remedy is the relief provided to an innocent party when the other party has breached the contract. It is the means employed to enforce a right or to redress an injury. Although it may be an exaggeration to say there is a remedy for “everything” in life, as Cervantes claimed in the chapter-opening quotation, there is a remedy available for nearly every contract breach.

The most common remedies available to a nonbreaching party under contract law include damages, rescission and restitution, specific performance, and reformation. Courts distinguish between remedies at law and remedies in equity. Today, the remedy at law is normally monetary damages. Usually, a court will not award an equitable remedy unless the remedy at law is inadequate.

Suppose Daren, an orthodontist, is having a new office built for his orthodontic practice. He contracts with Bryan, doing business as Desert Sun Landscaping, to build a fountain in front of the new office for $14,000. Desert Sun installs the fountain while the office building is still under construction. Three weeks later, the fountain stops working properly. Desert Sun repairs the problem, which Bryan claims was caused by dirt and debris coming from the office construction.

The fountain continues to have problems, however. Within a month, the concrete slab underneath it irreparably cracks, and a pipe leading to the spray nozzles comes loose. Daren hires another landscaper to remove the defective fountain. Can Daren sue Bryan for breach of contract? If he sues and is successful, can he recover the $14,000 he paid for the fountain, as well as the cost of removing the fountain? These are the kinds of issues concerning breach and damages that we consider in this chapter.

15–1. Damages

Know This

The terms of the contract must be sufficiently definite for a court to determine the amount of damages to award.

A breach of contract entitles the nonbreaching party to sue for monetary damages. In contract law, damages compensate the nonbreaching party for the loss of the bargain (whereas in tort law, damages compensate for harm suffered as a result of another’s wrongful act). Often, courts say that innocent parties are to be placed in the position they would have occupied had the contract been fully performed.

15–1a. Types of Damages

There are basically four broad categories of damages:

Compensatory (to cover direct losses and costs).

Consequential (to cover indirect and foreseeable losses).

Punitive (to punish and deter wrongdoing).

Nominal (to recognize wrongdoing when no monetary loss is shown).

Compensatory and punitive damages were discussed in the context of tort law. Here, we look at these types of damages, as well as consequential and nominal damages, in the context of contract law.

Compensatory Damages

Damages that compensate the nonbreaching party for the loss of the bargain are known as compensatory damages. These damages compensate the injured party only for damages actually sustained and proved to have arisen directly from the loss of the bargain caused by the breach of contract. They simply replace what was lost because of the wrong or damage, and, for this reason, are often said to “make the person whole.”

Example 15.1.

Jane wires Roy, her financial advisor, $34,980 to purchase an allocation of FluidCoin’s initial cryptocurrency offering. Roy does not invest these funds as agreed, instead commingling them with funds used for his personal acquisition of FluidCoin. Jane sues Roy, seeking $34,980 in compensatory damages. Finding breach of contract, a court awards Jane the $34,980 plus attorney’s fees and litigation costs, with interest.

There is a two-step process to determine whether a breach of contract has resulted in compensatory damages. Initially, it must be established that there is a contract between the parties and that the contract has been breached. Next, it must be proved that the breach caused damages.

Case Example 15.2.

Owens Community College lost its accreditation from the National League for Nursing Accreditation Commission (NLNAC) in July. The college did not inform its nursing students of this development until after classes had started in the fall. Carianne Baird and sixty-one other students from the program filed a breach of contract suit against Owens.

An Ohio appeals court determined that a contract existed in which the students paid their fees in exchange for a degree from an NLNAC-accredited institution. By losing that accreditation, Owens breached the contract. The court also recognized the probability that this breach would harm the plaintiffs’ career prospects. Therefore, compensatory damages could be determined by measuring the difference between their future earnings capacity as graduates of an NLNAC-accredited nursing college and their future earnings capacity as graduates of now-unaccredited Owens.*

Monkey Business Images/

How might a court determine the compensatory damages for students whose contract with a nursing school has been breached?

This chapter’s Cybersecurity and the Law feature examines contractual issues, including potential damages, that arose when a popular fast food chain suffered a significant data breach.

Cybersecurity and the Law

Arby’s Restaurant Group, Inc.

The restaurant chain Arby’s was the target of third-party hackers who breached its credit card point-of-sale machines and stole the personal information of hundreds of thousands of customers. A group of these customers sued the company. The plaintiffs claimed that, despite being aware of other high-profile data breaches in the business world, Arby’s failed to make meaningful improvements to the security of its point-of-sale network. The plaintiffs contended that any modern business transaction involves an implied contract in which, in return for a consumer’s patronage, the retailer promises to take sufficient measures to protect the consumer’s private information.

Arby’s countered that the plaintiffs could not unilaterally impose a contractual obligation to safeguard credit card data. The company insisted that its only responsibility was to provide food in return for payment for the food. Rejecting these arguments, a federal court in Georgia ruled that a reasonable jury could find that an implied contract existed between Arby’s and the plaintiffs. When customers use a credit card, the court concluded, they intend to share their financial information only with the merchant. If the customers had known that this information was at risk of being stolen, they likely would have taken their business elsewhre.*

Critical Thinking

Suppose a court rules that Arby’s weak point-of-sale security system does constitute a breach of contract. What might be some of the compensatory damages due to customers whose credit card information was stolen by hackers?


STANDARD MEASURE The standard measure of compensatory damages is the difference between the value of the breaching party’s promised performance under the contract and the value of that party’s actual performance. This amount is reduced by any loss that the injured party has avoided.

Focus Question


What is the standard measure of compensatory damages when a contract is breached?

Example 15.3.

Randall contracts to perform certain services exclusively for Hernandez during the month of March for $4,000. Hernandez cancels the contract and is in breach. Randall is able to find another job during March but can earn only $3,000. He can sue Hernandez for breach and recover $1,000 as compensatory damages. Randall can also recover from Hernandez the amount that he spent to find the other job.

Expenses that are directly incurred because of a breach of contract—such as those incurred to obtain performance from another source—are called incidental damages.

Note that the measure of compensatory damages often varies by type of contract. Certain types of contracts deserve special mention and are discussed next.

SALE OF GOODS In a contract for the sale of goods, the usual measure of compensatory damages is the difference between the contract price and the market price.*


Example 15.4.

Medik Laboratories contracts to buy ten model UTS 400 network servers from Cal Industries for $4,000 each, but Cal Industries fails to deliver the servers. The market price of the servers at the time Medik learns of the breach is $4,500. Therefore, Medik’s measure of damages is $5,000 (10 × $500), plus any incidental damages (expenses) caused by the breach.

Sometimes, the buyer breaches when the seller has not yet produced the goods. In that situation, compensatory damages normally equal the seller’s lost profits on the sale, not the difference between the contract price and the market price.

SALE OF LAND Ordinarily, because each parcel of land is unique, the remedy for a seller’s breach of a contract for a sale of real estate is specific performance, in which the buyer is awarded the bargained-for parcel of property. (Specific performance will be discussed more fully later in the chapter.) The majority of states follow this rule.

A minority of states apply a different rule when the seller breaches a land-sale contract unintentionally (for instance, when the seller cannot deliver good title to the land for an unforeseeable reason). In these states, a prospective buyer is limited to a refund of any down payment made plus any expenses incurred (such as fees for title searches, attorneys, and escrows). Thus, the minority rule effectively returns purchasers to the positions they occupied prior to the sale, rather than giving them the benefit of the bargain.

When the buyer is the party in breach, the measure of damages is typically the difference between the contract price and the market price of the land. The same measure is used when specific performance is not available (because the seller has sold the property to someone else, for instance).


CONSTRUCTION CONTRACTS The measure of damages in a building or construction contract depends on which party breaches and when the breach occurs.

Breach by owner. The owner may breach at three different stages—before performance has begun, during performance, or after performance has been completed. If the owner breaches before performance has begun, the contractor can recover only the profits that would have been made on the contract. (Profits equal the total contract price less the cost of materials and labor.) If the owner breaches during performance, the contractor can recover the profits plus the costs incurred in partially constructing the building. If the owner breaches after construction has been completed, the contractor can recover the entire contract price, plus interest.

Breach by contractor. When the contractor breaches the contract—either by failing to begin construction or by stopping work partway through the project—the measure of damages is the cost of completion. The cost of completion includes reasonable compensation for any delay in performance. If the contractor finishes late, the measure of damages is the loss of use.

Case Example 15.5.

To remodel his home in Connecticut, Richard Viola hired J. S. Benson of J. S. Benson Woodworking & Design as his contractor. Over a period of five years, Viola paid Benson more than $500,000 to fabricate and install windows and doors, nearly $50,000 for the purchase of lumber, $10,000 to ship and store the lumber, as well as $111,000 toward the contract price. Nevertheless, Benson failed to complete the project and would not give Viola the lumber that he had purchased despite repeated requests. Viola eventually sued Benson for breaching the contract. A state court held that Benson had breached the contract and ordered him to pay $848,000 in damages. The damages awarded included additional amounts to reimburse Viola for attorneys’ fees, rental costs (because he was unable to live in the home), and property taxes.*


Vasily Pindyurin/fStop/Getty Images

When a woodworking contractor breaches a contract, how is the measure of damages calculated?

Breach by both owner and contractor. When the performance of both parties—the construction contractor and the owner—falls short of what their contract required, the courts attempt to strike a fair balance in awarding damages.

Exhibit 15–1 summarizes the rules for the measure of damages in breached construction contracts.



Measure of Damages—Breach of Construction Contracts


Owner          Before construction has begun Profits (contract price less cost of materials and labor)

Owner          During construction           Profits plus costs incurred up to time of breach

Owner          After construction is completed   Full contract price, plus interest

Contractor   Before construction has begun Cost in excess of contract price to complete work

Contractor   Before construction is completed   Generally, all costs incurred by owner to complete

Consequential Damages

Foreseeable damages that result from a party’s breach of contract are called consequential damages, or special damages. They differ from compensatory damages in that they are caused by special circumstances beyond the contract itself. They flow from the consequences, or results, of a breach. When a seller fails to deliver goods, knowing that the buyer is planning to use or resell those goods immediately, a court may award consequential damages for the loss of profits from the planned resale. In the following case, an advertising company sought to recover consequential damages consisting of lost profits that the company claimed had been caused by a delay in the delivery of a customized truck.

Case 15.1.HDAV Outdoor, LLC v. Red Square Holdings, LLC

Court of Appeals of Nevada,* __ P.3d __, 2019 WL 6974770 (2019).


HDAV Outdoor, LLC, contracted with Red Square Holdings, LLC, to customize an Isuzu Diesel Eco Max box truck with LED light displays that would allow Red Square to use the truck for mobile advertising. HDAV Outdoor agreed to complete the customization within eight weeks after Red Square delivered the truck. HDAV Outdoor did not finish the job, however, until four and a half months after the eight-week completion date.

Red Square filed a suit in a Nevada state district court against HDAV Outdoor, alleging breach of contract and seeking damages. Mohamood Razack, Red Square’s sales manager, testified that, based on the company’s record of past profits, it had lost $12,000 per month in profits because of HDAV’s “untimely” work.

The district court ruled in Red Square’s favor and awarded damages in the amount of $45,000 in lost profits for the delay. HDAV Outdoor appealed, challenging the award.


Did the district court abuse its discretion by awarding Red Square $45,000 in lost profits?


No. The Nevada Court of Appeals affirmed the lower court’s ruling and award. “HDAV Outdoor’s challenge to the award of lost profits fails.”


The appellate court acknowledged that damages resulting from a breach of contract must be reasonably foreseeable at the time of the contract. The court recognized that those damages could include an award of lost profits that result from “an inability to timely use equipment as long as the delay is attributable to the breaching party.”

In this case, HDAV Outdoor did not deliver the truck by the promised delivery date. Red Square claimed that its inability to use the truck until it was delivered resulted in lost profits. The appellant argued that Red Square had not provided evidence of its costs to offset against the sought-after lost profits. The appellate court explained, however, that an award of delay damages does not require the consideration of such an offset. “Obviously, Red Square was not incurring any costs specifically related to operating the truck because it did not have the truck to operate.”

Finally, the court pointed out, “Red Square specifically notified HDAV Outdoor that it intended to commence advertising with the truck, and thus it was reasonably foreseeable that any delay in delivering the truck would adversely affect Red Square’s profitability.”

Critical Thinking

Legal Environment What might explain the difference between Razack’s estimate and the district court’s award of Red Square’s lost profits for the delay in the delivery of the truck? Discuss.

Economic Instead of being awarded as consequential damages, should “lost profits” be considered a risk in the change of value to the object of a contract assumed by the nonbreaching party? Why or why not?

For the nonbreaching party to recover consequential damages, the breaching party must know (or have reason to know) that special circumstances will cause the nonbreaching party to suffer an additional loss.* See this chapter’s Landmark in the Law feature for a discussion of the nineteenth-century English case that established this rule on consequential damages.

Landmark in the Law

Hadley v. Baxendale (1854)

The rule that requires a breaching party to have notice of special (“consequential”) circumstances that will result in additional loss to the nonbreaching party before consequential damages can be awarded was first enunciated in Hadley v. Baxendale,* a landmark case decided in 1854.

Case Background

The case involved a broken crankshaft used in a flour mill run by the Hadley family in Gloucester, England. The crankshaft attached to the steam engine in the mill broke, and the shaft had to be sent to a foundry in Greenwich so that a new shaft could be made to fit the engine.

The Hadleys hired Baxendale, a common carrier, to transport the shaft from Gloucester to Greenwich. Baxendale received payment in advance and promised to deliver the shaft the following day. It was not delivered for several days, however. The Hadleys had no extra crankshaft on hand to use, so they had to close the mill during those days. The Hadleys sued Baxendale to recover the profits they lost during that time. Baxendale contended that the loss of profits was “too remote.”

In the mid-1800s, it was common knowledge that large mills, such as that run by the Hadleys, normally had more than one crankshaft in case the main one broke and had to be repaired. It is against this background that the parties presented their arguments on whether the damages resulting from the loss of profits while the crankshaft was out for repair were “too remote” to be recoverable.

The Issue Before the Court and the Court’s Ruling

The crucial issue for the court was whether the Hadleys had informed the carrier, Baxendale, of the special circumstances surrounding the crankshaft’s repair. Specifically, did Baxendale know at the time of the contract that the mill would have to shut down while the crankshaft was being repaired?

In the court’s opinion, the only circumstances communicated by the Hadleys to Baxendale at the time the contract was made were that the item to be transported was a broken crankshaft of a mill and that the Hadleys were the owners and operators of that mill. The court concluded that these circumstances did not reasonably indicate that the mill would have to stop operations if the delivery of the crankshaft was delayed.

Application to Today’s World

Today, the rule enunciated by the court in this case still applies. When damages are awarded, compensation is given only for those injuries that the defendant could reasonably have foreseen as a probable result of the usual course of events following a breach. If the alleged injury is outside the usual and foreseeable course of events, the plaintiff must show specifically that the defendant had reason to know the facts and foresee the injury.

This rule applies to contracts in the online environment as well. For example, suppose that an online merchant loses business (and profits) due to a computer system’s failure. If the failure was caused by malfunctioning software, the merchant normally may recover the lost profits from the software maker if these consequential damages were foreseeable.

Know This

To avoid the risk of consequential damages, a seller can limit the buyer’s remedies via contract.

Punitive Damages

Punitive damages generally are not awarded in lawsuits for breach of contract. Because punitive damages are designed to punish the wrongdoer and set an example to deter similar conduct in the future, they have no legitimate place in contract law. A contract is simply a civil relationship between the parties. The law may compensate one party for the loss of the bargain—no more and no less. In a few situations, when a person’s actions cause both a breach of contract and a tort, punitive damages may be available.

Nominal Damages

When no actual damage or financial loss results from a breach of contract and only a technical injury is involved, the court may award nominal damages to the innocent party. Nominal damages awards are often small, such as one dollar, but they do establish that the defendant acted wrongfully. Most lawsuits for nominal damages are brought as a matter of principle under the theory that a breach has occurred and some damages must be imposed regardless of actual loss.

15–1b. Mitigation of Damages

In most situations, when a breach of contract occurs, the injured party is held to a duty to mitigate, or reduce, the damages suffered. Under this doctrine of mitigation of damages, the required action depends on the nature of the situation.

Employment Contracts

In the majority of states, a person whose employment has been wrongfully terminated has a duty to mitigate damages incurred because of the employer’s breach of the employment contract. In other words, a wrongfully terminated employee has a duty to take a similar job if one is available.

If the employee fails to do this, the damages received will be equivalent to the person’s former salary less the income that person would have received in a similar job obtained by reasonable means. The employer has the burden of proving that such a job existed and that the employee could have been hired. Normally, a terminated employee is under no duty to take a job that is not of the same type and rank.

15–1c. Liquidated Damages versus Penalties

A liquidated damages provision in a contract specifies that a certain dollar amount is to be paid in the event of a future default or breach of contract. (Liquidated means determined, settled, or fixed.)

Liquidated damages differ from penalties. Although a penalty also specifies a certain amount to be paid in the event of a default or breach of contract, it is designed to penalize the breaching party, not to make the innocent party whole. Liquidated damages provisions normally are enforceable. In contrast, if a court finds that a provision calls for a penalty, the agreement as to the amount will not be enforced, and recovery will be limited to actual damages.


To determine whether a particular provision is for liquidated damages or a penalty, the court must answer two questions:

At the time the contract was formed, was it apparent that damages would be difficult to estimate in the event of a breach?


Was the amount set as damages a reasonable estimate and not excessive?*

If the answers to both questions are yes, the provision normally will be enforced. If either answer is no, the provision usually will not be enforced.

In the following Spotlight Case, the court had to decide whether a clause in a contract was an enforceable liquidated damages provision or an unenforceable penalty.

Spotlight on Liquidated Damages: Case 15.2.Kent State University v. Ford

Court of Appeals of Ohio, Eleventh District, Portage County 2015-Ohio-41, 26 N.E.3d 868 (2015).

©Debby Wong/

If a college coach quits before the end of his contract, can the university recover liquidated damages?


Gene Ford signed a five-year contract with Kent State University in Ohio to work as the head coach for the men’s basketball team. The contract provided that if Ford quit before the end of the contract term, he would pay to the school liquidated damages in an amount equal to his salary ($300,000), multiplied by the number of years remaining on the contract. Laing Kennedy, Kent State’s athletic director, told Ford that the contract would be renegotiated within a few years.

Four years before the contract expired, however, Ford left Kent State and began to coach for Bradley University at an annual salary of $700,000. Kent State filed a suit in an Ohio state court against Ford, alleging breach of contract. The court enforced the liquidated damages clause and awarded the university $1.2 million. Ford appealed, arguing that the liquidated damages clause in his employment contract was an unenforceable penalty.


Was the liquidated damages clause in Ford’s contract enforceable?


Yes. A state intermediate appellate court affirmed the lower court’s award. The clause was not a penalty. “There was justification for seeking liquidated damages to compensate for Kent State’s losses” on Ford’s breach.


At the time the contract was entered into, determining the damages that would result from a breach was “difficult, if not impossible.” The resignation of a head coach from a university’s basketball team may cause a loss in ticket sales and a drop in community and alumni support for the team. The university’s ability to recruit players may also be affected. Of course, a search for a new coach and coaching staff will be required. These effects are not easy to measure before they happen, especially considering that such results may be different at different times in a coach’s tenure. Kennedy’s statement that the contract would be renegotiated indicated that Kent State was interested in the stability of these factors. And in this case, “based on the record, . . . the damages were reasonable.” The salary that Bradley was willing to pay Ford showed the cost to Kent State of finding a new coach with his skill and experience. “There was also an asserted decrease in ticket sales, costs associated with the trip for the coaching search, and additional potential sums that may be expended.”

15–2. Equitable Remedies

Sometimes, damages are an inadequate remedy for a breach of contract. In these situations, the nonbreaching party may ask the court for an equitable remedy. Equitable remedies include rescission and restitution, specific performance, and reformation.

15–2a. Rescission and Restitution

As previously discussed, rescission is essentially an action to undo, or cancel, a contract—to return nonbreaching parties to the positions that they occupied prior to the transaction.* When fraud, mistake, duress, undue influence, lack of capacity, or failure of consideration is present, rescission is available. Rescission may also be available by statute.* The failure of one party to perform under a contract entitles the other party to rescind the contract. The rescinding party must give prompt notice to the breaching party.

Rescission of a contract on the basis of a breach is appropriate where the breach is found to be material and willful. A party seeking rescission must also show that the contracting parties can be restored to the status quo. In the following case, a landlord overcharged a tenant certain fees and did not explain how the amount was calculated, as the lease required. The question was whether these circumstances entitled the tenant to rescind the lease.

15–2b. Specific Performance

Focus Question


When do courts grant specific performance as a remedy?

The equitable remedy of specific performance calls for the performance of the act promised in the contract. This remedy is attractive to a nonbreaching party because it provides the exact bargain promised in the contract. It also avoids some of the problems inherent in a suit for monetary damages, such as collecting a judgment and arranging another contract. Moreover, the actual performance may be more valuable (to the promisee) than the monetary damages.

Normally, however, specific performance will not be granted unless the party’s legal remedy (monetary damages) is inadequate.* For this reason, contracts for the sale of goods rarely qualify for specific performance. Monetary damages ordinarily are adequate in sales contracts because substantially identical goods can be bought or sold in the market. Only if the goods are unique will a court grant specific performance. For instance, paintings, sculptures, and rare books and coins are often unique, and monetary damages will not enable a buyer to obtain substantially identical substitutes in the market.

Sale of Land

A court may grant specific performance to a buyer in an action for a breach of contract involving the sale of land. In this situation, the legal remedy of monetary damages may not compensate the buyer adequately because every parcel of land is unique. The same land in the same location obviously cannot be obtained elsewhere. Only when specific performance is unavailable (such as when the seller has sold the property to someone else) will damages be awarded instead.

15–2c. Reformation

Reformation is an equitable remedy used when the parties have imperfectly expressed their agreement in writing. Reformation allows a court to rewrite the contract to reflect the parties’ true intentions.

Fraud or Mutual Mistake

Courts order reformation most often when fraud or mutual mistake is present.

15–3. Recovery Based on Quasi Contract

Focus Question


What remedy is available if a court imposes a quasi contract?

In some situations, when no actual contract exists, a court may step in to prevent one party from being unjustly enriched at the expense of another party. As previously discussed, quasi contract is a legal theory under which an obligation is imposed in the absence of an agreement.

The legal obligation arises because the law considers that the party accepting the benefits has made an implied promise to pay for them. Generally, when one party has conferred a benefit on another party, justice requires that the party receiving the benefit pay the reasonable value for it. The party conferring the benefit can recover in quantum meruit, which means “as much as one deserves.”

15–3a. When Quasi Contract Is Used

Quasi contract allows a court to act as if a contract exists when there is no actual contract or agreement between the parties. Therefore, if the parties have entered into a contract concerning the matter in controversy, a court normally will not impose a quasi contract. A court can also use the doctrine when the parties entered into a contract that is unenforceable for some reason.


Quasi-contractual recovery is often granted when one party has partially performed under a contract that is unenforceable. Quasi contracts provide an alternative to suing for damages and allow the party to recover the reasonable value of the partial performance. Depending on the case, the amount of the recovery may be measured either by the benefit received or by the detriment suffered.

15–3b. The Requirements of Quasi Contract

To recover on a quasi contract theory, the party seeking recovery must show the following:

The party conferred a benefit on the other party.

The party conferred the benefit with the reasonable expectation of being paid.

The party did not act as a volunteer in conferring the benefit.

The party receiving the benefit would be unjustly enriched if allowed to retain the benefit without paying for it.

15–4. Contract Provisions Limiting Remedies

A contract may include provisions stating that no damages can be recovered for certain types of breaches or that damages will be limited to a maximum amount. A contract may also provide that the only remedy for breach is replacement, repair, or refund of the purchase price. In addition, a contract may provide that one party can seek injunctive relief if the other party breaches the contract. Provisions stating that no damages can be recovered are called exculpatory clauses. Provisions that affect the availability of certain remedies are called limitation-of-liability clauses.

15–4a. Sales Contracts

The Uniform Commercial Code (UCC) provides that remedies can be limited in a contract for the sale of goods. We will examine the UCC provisions on limitation-of-liability clauses again in the context of the remedies available on the breach of a contract for the sale or lease of goods.

15–4b. Enforceability of Limitation-of-Liability Clauses

Focus Question


What is a limitation-of-liability clause, and when will courts enforce it?

Whether a limitation-of-liability clause in a contract will be enforced depends on the type of breach that is excused by the provision. Clauses that normally will not be enforced include provisions excluding liability for fraudulent or intentional injury or for illegal acts or other violations of law. Clauses excluding liability for negligence may be enforced in certain situations, however. When an exculpatory clause for negligence is contained in a contract made between parties who have roughly equal bargaining positions, the clause usually will be enforced.


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