Key Takeaways:

  • Equitable remedies address fairness and are used when monetary damages are insufficient.
  • Examples of equitable remedies include specific performance, injunctions, and restitution.
  • Courts may grant specific performance to enforce unique obligations or prevent unfair outcomes.
  • Injunctions stop parties from engaging in prohibited actions or enforce negative covenants.
  • Restitution aims to restore the injured party to their original state without punishing the breaching party.

Examples of equitable remedies include remedies obtained in situations involving a breach of contract. These remedies don't relate so much to monetary damages as they do to fairness.

What Is an Equitable Remedy?

In general, remedies may be legal or equitable.

In legal remedies, the non-breaching party can recover monetary damages. By contrast, a party may obtain an equitable remedy when a court forces the other party to perform to its part of the contract. This is in lieu of imposing a fine.

A court may decide on equitable remedies when it believes a simple payment of damages isn't good enough to settle the case.

A common type of equitable remedy used in the case of unique goods is called "specific performance." In this type, a court orders the breaching party to fulfill the exact terms of the agreement.

For example, you run an art gallery. It's contracted to display a piece by a well-known artist in an upcoming exhibition. However, the dealer doesn't deliver the piece. The court can then order the dealer to produce that exact piece.

Courts may also modify contract terms to make it more fair for one or both contractual parties. In cases where the contract is especially unfair to one side, the court may cancel or rescind the agreement altogether, which places both sides in the positions they were in prior to entering the contract.

Differences Between Legal and Equitable Remedies

Legal remedies typically involve monetary compensation for losses, while equitable remedies focus on fairness and justice when money is inadequate. Equitable remedies are discretionary and are often applied when specific actions, rather than payments, are needed to resolve a dispute. For instance, legal remedies might address financial losses due to a breach, but equitable remedies compel or restrain actions to ensure justice.

Examples of Equitable Remedies

Common equitable remedies include the following:

  • Specific performance
  • Injunction
  • Restitution

Constructive Trust and Equitable Lien

A constructive trust is an equitable remedy imposed by a court to prevent unjust enrichment. It requires the person holding property improperly to transfer it to the rightful owner. For example, if an employee embezzles funds to buy real estate, the court may declare the property subject to a constructive trust in favor of the employer.

An equitable lien, on the other hand, gives the injured party a claim over specific property as security for a debt or obligation. Unlike a constructive trust, the wrongdoer retains ownership until the obligation is fulfilled.

Specific performance

A court may issue specific performance as an alternative remedy to damages, depending on the circumstances.

This example involves two parties, Ann and Cheryl. Ann signs a contract to sell a gold samovar to Cheryl. The samovar is a Russian antique holding a lot of sentimental value to Cheryl because it used to belong to her mother.

Ann then breaches the contract by not selling the samovar. A court may grant Cheryl an order of specific performance against Ann.

It seems reasonable for the non-breaching party to ask a court to order the promisor to do what it agreed to do. However, specific performance is very limited because it involves a unique item, such as an irreplaceable piece of personal property (the samovar, in this example) or piece of real estate.

When the item isn't unique, the non-breaching party can simply buy another one. A legal remedy of monetary damages would suffice.

Courts won't use specific performance to force a person to act against his or her will. While it may force a people to stop doing something they shouldn't, it can't force them do something they don't want to do.

Injunction

An injunction is another equitable remedy, which directs someone to stop doing something he or she shouldn't do.

For example, an employer and employee sign a non-compete agreement. After the employee leaves the employer, he breaches the contract by competing with his former company. A court may issue an order of injunction, directing him to stop such competition.

When a person makes a promise not to do something — in this case, to not compete — it's known as a negative covenant, or contractual promise.

In another example, a seller promises a buyer the right of first refusal on a unique artwork or real estate parcel. The seller breaches the written contract by offering the item to a third party. A court may order the seller not to sell to that third party.

Someone who violates an injunction may be held in contempt of court and sentenced to jail.

Types of Injunctions

Injunctions are categorized into preliminary, mandatory, and prohibitory types:

  • Preliminary Injunction: Issued temporarily to maintain the status quo until a case is resolved.
  • Mandatory Injunction: Compels a party to take a specific action, such as removing an illegal structure.
  • Prohibitory Injunction: Prevents a party from continuing harmful actions, such as violating a non-compete clause.

Restitution

Restitution is restoring to a party what was given to the other, and it applies to the following types of situations:

  • Incapacity or misrepresentation voids the contract.
  • One party breaches the agreement.
  • The party seeking restitution breaches the contract.

The injured party can only receive a fair amount of restitution because the point of it is to not punish the breaching party and to not unjustly enrich the non-breaching one.

When a contract is breached, different outcomes may result. Sometimes, awarding monetary damages is appropriate, but in other cases, courts may order equitable remedies instead, in the interest of fairness to all involved.

Unjust Enrichment and Quantum Meruit

Restitution aims to prevent unjust enrichment by ensuring a party does not profit unfairly at another's expense. Courts may use the principle of quantum meruit, which allows a party to recover the reasonable value of services provided when a formal contract does not exist or is unenforceable.

FAQ Section

  1. What is an equitable remedy? An equitable remedy is a court-ordered action aimed at ensuring fairness when monetary compensation is insufficient, such as compelling specific performance or issuing an injunction.
  2. How do equitable remedies differ from legal remedies? Legal remedies involve monetary compensation, while equitable remedies focus on compelling actions or inactions to achieve fairness.
  3. What are examples of equitable remedies? Examples include specific performance, injunctions, constructive trusts, and restitution.
  4. When are equitable remedies used in contracts? They are used when monetary damages cannot adequately address the harm, such as cases involving unique goods or personal obligations.
  5. Can a court deny an equitable remedy? Yes, courts can deny equitable remedies if monetary damages are sufficient or if the plaintiff has acted unfairly (unclean hands doctrine).

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