What Is an Equitable Remedy? Everything You Need to Know
What is an equitable remedy? This is an action the court chooses to address a breach of contract.3 min read
2. Equitable Remedy
3. Specific Performance
4. Contract Rescission and Reformation
5. Total Nonperformance by Breaching Party
Updated November 24, 2020:
What is an equitable remedy? This is an action the court chooses to address a breach of contract. It is designed to return the aggrieved party to its original position or in the same position as if the breach had not occurred.
Types of Remedies
Parties must enter legal contracts in good faith. If this does not occur, the harmed party is entitled to a legal remedy. For example, if you pay someone $500 in advance to conduct a service, and he or she fails to do so, you are out $500. You can then file a lawsuit for breach of contract, and the court may order the person or the company to refund your money.
Historically, remedies are categorized as either legal or equitable. This is based on the system of English common law, which was divided into courts of law that could award monetary damages and courts of equity of chancery. This could grant equitable remedies if the court remedy was deemed unfair or insufficient.
Today, a single breach or wrong may result in more than one remedy, such as monetary damages along with equitable damages. The latter does not involve a jury, relies on service of justice rather than precedent, and seeks equity where no adequate financial remedy exists.
With equity, the breaching party could be ordered to:
- Deliver property (specific performance)
- Return consideration (restitution)
- Stop doing a specific action (injunction).
Legal remedies include consequential and compensatory damages. These are designed to allow the aggrieved party to recover financial loss resulting from the breach.
Instead of imposing a fine, equitable remedy is when the court orders the defendant to complete a contract as originally agreed. This step is taken when payment alone is not sufficient to make up for damages. Equitable relief can also be offered if legal damages are not available. The court can also modify the contract terms or cancel the contract if it is deemed unfair to one or both parties.
Specific performance is a court order to fulfill a contract as written. This remedy is subject to several legal exceptions. Although this seems like the best remedy for any breach of contract, it only makes sense to use it when the item in question is unique, such as a family heirloom or a parcel of real estate. Items that are not unique can easily be replaced through the award of monetary damages.
However, the burden of proof is on the plaintiff to prove that the item in question is unique. Also, specific performance cannot be used where continuous and varied acts are contractually required. This would require constant judicial supervision.
Contract Rescission and Reformation
When a breached contract is rescinded or canceled, this is known as contract rescission. A new contract can be written to address each party's needs, which is called contract reformation. A negative covenant is a promise to not do something; one example is a non-compete agreement. If an injunction of this kind is violated, the party in breach could be held for contempt of court.
For reformation to occur, a valid contract must exist. This is usually ordered if a term in the original contract was wrong or misrepresented. This is sometimes called rectification.
Restitution can be applied when a contract was breached because of misrepresentation or incapacity. This requires one party to restore what he or she received from the other party. The non-breaching party should not be enriched beyond his or her losses, and the person who breached the agreement is not punished.
Total Nonperformance by Breaching Party
If nonperformance occurs, the party that did not breach the contract is entitled to restitution. If a job is completed and the party does not pay, the restitution amounts to the contract price. If the job is not complete at repudiation, the contractor can sue for the market value or the appreciated value of the project. If the property can be returned, the court usually orders the breaching party to do so.
Calculating the interest on restitution can be a challenge. The court has discretion in this matter. If a doctor performs lifesaving services, for example, the benchmark would be the market value of medical care and not the value of the patient's life.
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