Remedies Against Breach of Contract
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When two parties make a contract and one breaches it, there are generally two types of remedies that are available to the non-breaching party: equitable remedies and legal remedies. Each type has several subtypes of remedies that may be available.
Equitable remedies are those that are imposed when money damages would not adequately cure the non-breaching party. The following types of equitable remedies may be available in the given case:
- Specific Performance
Specific performance is an order by the court that requires the breaching party to carry out the contract as it was originally written. This type of remedy is rare. However, it may be ordered in certain circumstances. For example, specific performance may be imposed when the subject matter is unique, such as a famous painting or a specific piece of property. Courts are hesitant to order specific performance because it requires the ongoing monitoring by the court of the contract.
Rescission of the contract is a remedy that allows the non-breaching party to cancel his or her responsibilities under the contract. This remedy might be available when the contract was based on fraud or a mistake by one or both of the parties. It is also available if both parties prefer to cancel the contract and return any money that had been advanced as part of the contract.
Reformation allows two parties to modify a contract so that it more accurately reflects what the parties intend. This remedy requires that the contract be valid. It may be available when one of the parties had a mistaken understanding about a material term of the contract.
- Legal Remedies
Legal remedies often take the form of monetary damages that are awarded to help make the innocent party whole. Some examples of legal remedies are discussed below.
Compensatory damages are those that are meant to compensate the non-breaching party for the breach. These include expectation damages and consequential damages. Expectation damages are those that give the non-breaching party the monetary funds that he or she would have received had the contract been performed. These damages are usually based on the contract itself or the fair market value of the subject matter of the contract.
For example, compensatory damages may be the amount necessary for the non-breaching party to purchase a substitute product that is equivalent to the one contracted for. If the contract was for a sale of goods, compensatory damages are usually the difference between the contract price and the market value of the goods.
These damages also consist of the expenses necessary to make the non-breaching party whole after the breach, such as advertising expenses to advertise the products that the breaching party failed to pay for. However, the non-breaching party generally has a duty to mitigate his or her losses.
Consequential damages are those damages that reimburse the innocent party for indirect costs that resulted from the breach. They often result from special circumstances that are involved in the contract that may not be ordinarily predictable. For example, an innocent party may ask to be reimbursed for the loss of business profits that derived from not having access to the necessary materials to produce a product for a third party.
In order for the innocent party to receive these damages, he or she must show that this loss was reasonably foreseeable to both parties when they wrote the contract and the loss was a direct result of the breach.
In some contracts, specific damages are pre-determined. These damages are called liquidated damages. They are typically part of contracts where it would be difficult to determine the actual amount that a party was damaged due to a breach, such as a breach of a contract not to compete.
Punitive damages are meant to punish a guilty party in order to prevent that party or others from engaging in similar conduct in the future. However, punitive damages usually require a stronger intent than is necessary in standard breach of contract claims. For example, to be awarded punitive damages, a plaintiff may have to show that the breaching party acted in a malicious or fraudulent matter. Some states specifically prohibit plaintiffs from recovering punitive damages on breach of contract claims.
Attorney Fees and Costs
The prevailing party in a breach of contract claim may be able to collect attorney fees and costs that he or she incurred in order to bring about legal action. Some states only allow these damages if they are specifically provided for in the contract.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.