Types of Remedies for Breach of Contract

Key Takeaways

• The primary types of remedies in contract law are legal remedies (monetary damages) and equitable remedies (non-monetary court orders).
• Legal remedies include compensatory, punitive, nominal, liquidated, and quantum meruit damages.
• Equitable remedies include specific performance, rescission, restitution, and injunctions.
• Courts may enforce duty to mitigate damages, requiring non-breaching parties to reduce losses.
• The availability of a remedy often depends on whether monetary compensation is sufficient to make the injured party whole.

There are numerous contract remedies that can be utilized when a breach of contract occurs. Some of the most common remedies when a breach occurs include:

• Awarding damages
• Specific performance
• Rescission
• Restitution

What Types of Damages Can be Awarded for a Breach of Contract?

There are two primary categories that award damages can fall into when the court hears a case of breach of contract.

Compensatory Damages

Compensatory damages — also referred to as actual damages — cover the amount that the non-breaching party lost or expenses incurred due to the contract breach. These damages are used to replace the loss the non-breaching party suffered to help make them whole again. Under the term compensatory damages, there are two main types: general damages and special damages.

• General damages: This award amount is the most common type of damages and can include a number of costs related to a breach such as refund of money paid for a product, reimbursement for expenses that a company incurred due to the breach such as return shipping, and additional payments a company might have incurred such as the original purchase of a product for the contract.
• Special damages: Special damages are also referred to as consequential damages. They cover losses incurred by the non-breaching party due to special conditions or circumstances that were not predictable. These losses are caused by the breach of contract, though they will not occur in an immediate or direct way. When trying to get special damages, the non-breaching party needs to be able to prove that the party that committed the breach knew about the special obligations or requirements at the time the contract was made.

Punitive Damages

Punitive damages are also referred to as exemplary damages and can be awarded as a way to punish the breaching party if they were acting in a willful, malicious, or fraudulent way. Punitive damages are often a large sum of money and are typically reserved for cases where a party acted immorally.

These damages will not cover any actual or sustained loss and are often awarded along with compensatory damages. You will find punitive damage awards for such cases as:

• Breach of contract
• Tort cases
• Punishment for personal harm and reckless misconduct

There are three other types of damage awards that a court can grant, though this does not occur as often as the primary two.

• Nominal damages: These damages can be awarded when a breach has occurred but there was no harm suffered by either party.
• Liquidated damages: These damages are amounts the parties will agree to pay in response to a breach.
• Quantum Meruit: This award is used to compensate a party for the completed work before the breach of contract occurred. An example would be a cleaning service that cleaned half of the house before they were told to stop. They may demand a Quantum Meruit award for the work already done.

Contract Remedies in Equity

A remedy in equity is a term used when the court orders someone to do something. It may also be referred to as an injunctive relief. Some forms of injunctive relief can include:

• Cancellation: The court can cancel a contract which means that parties will no longer be bound by it.
• Specific performance: In this instance, the court can force the party that committed the breach to deliver the promised goods or perform the services outlined in the contract. This is often done when the product or service is unique.

Restitution and Rescission Explained

Restitution aims to restore the injured party to the position they were in before the contract was made. This typically involves returning any benefits conferred to the breaching party. Unlike compensatory damages, restitution focuses on the unjust enrichment of the breaching party rather than the losses of the injured party.

Rescission voids the contract entirely, releasing all parties from their obligations. It is commonly used when a contract is formed based on misrepresentation, fraud, duress, or mutual mistake. Rescission and restitution are often paired, as rescission cancels the contract and restitution ensures fairness in undoing any gains or losses.

Differences Between Legal and Equitable Remedies

Legal remedies typically involve monetary compensation to the injured party, while equitable remedies involve court-ordered actions. Legal remedies are available as a right when damages can adequately resolve the harm. In contrast, equitable remedies are discretionary and granted only when monetary relief is insufficient.

Key distinctions include:

• Legal remedies are more straightforward and common, often used when the contract breach results in measurable financial harm.
• Equitable remedies are used in cases where a unique item or service is at stake (e.g., real estate or a rare work of art).
• Courts will often only grant equitable remedies if the plaintiff has "clean hands," meaning they have acted fairly and in good faith.

Why Should You Contact an Attorney if You Are Facing a Breach of Contract Lawsuit?

There are many reasons why you should contact a lawyer if you are facing a lawsuit for breach of contract. Contracts can carry an extreme amount of weight in a case to their strict enforcement. Lawsuits for breach of contract can also result in large damage awards, which can cost you a significant amount of money and may even put you at risk for losing your business.

How Does the Court Calculate Compensatory Damages?

Compensatory damages are calculated depending on the type of contract that was breached as well as the type of loos that occurred. In general:

• Damages can be calculated using the amount that the non-breaching party must pay to buy a substitute.
• Damages can be measured using the actual contract or the market price of the goods.

Factors Influencing Remedy Selection

Courts consider several factors when determining which type of remedy is appropriate, such as:

• Whether monetary damages can sufficiently compensate the injured party.
• The availability of a substitute for the goods or services involved.
• The nature of the contract and the conduct of both parties.
• Whether the breach was material or minor.
• Whether enforcing the contract is fair and feasible.

In complex disputes, courts may grant multiple remedies—such as awarding damages and ordering restitution—when necessary to ensure fairness.

Duty to Mitigate Damages

In breach of contract cases, the non-breaching party is obligated to mitigate damages. This means they must take reasonable steps to minimize their losses rather than allow damages to accumulate. For example, if a contractor breaches a building contract, the client must attempt to hire a replacement instead of leaving the project incomplete.

If the injured party fails to mitigate damages, the court may reduce the awarded compensation accordingly.

Frequently Asked Questions

1. What are the main types of remedies for breach of contract?
   The main remedies include compensatory, punitive, nominal, and liquidated damages, along with equitable remedies like specific performance, restitution, and rescission.
2. When is specific performance awarded instead of damages?
   Specific performance is awarded when the subject of the contract is unique and monetary compensation would not be adequate, such as in real estate deals.
3. What’s the difference between legal and equitable remedies?
   Legal remedies involve monetary compensation, while equitable remedies require a party to act or refrain from acting, such as performing a contract or stopping a specific action.
4. Can I recover damages if I didn’t lose money?
   Yes. In such cases, courts may award nominal damages to recognize the breach, even if there was no significant financial harm.
5. Do I have to do anything to reduce my losses after a breach?
   Yes. Courts require the non-breaching party to mitigate their damages by taking reasonable steps to minimize losses resulting from the breach.

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