When contracts are broken, knowing your remedies is crucial. What are the five remedies for breach of contract? The five remedies for breach of contract—compensatory, consequential, liquidated, nominal, and punitive damages—provide avenues for recourse and compensation. This article details each, helping you understand when and how they are applied to protect your rights in a breach. Expect to gain insights into the legal solutions available to you without needing to sift through legal jargon or complex explanations.
Understanding Breach of Contract
A breach of contract occurs in the realm of contract law when one party fails to perform as promised in the terms and conditions of a contract. This failure to fulfill obligations can lead to legal consequences, such as breach of contract lawsuits. Such breaches can take many forms, including:
- Minor breaches: characterized by less severe infractions, like performance delays
- Material breaches: take place when the item you receive greatly differs from what the contract terms and conditions specified. For instance, you ordered a red car but received a black one.
- Actual breaches: occur when one party fails to perform their obligations at the agreed-upon time
- Anticipatory breaches: happen when one party indicates that they will not be able to fulfill their obligations in the future
Understanding the different types of breaches can help you navigate the legal implications and seek appropriate remedies.
Actual breach is characterized as failing to meet obligations by the due date, or doing so improperly or incompletely, which can sometimes result in a material breach. For instance, if a builder fails to complete your home renovation by the agreed-upon date, it’s an actual breach, and depending on the severity, it could be considered a minor breach.
Meanwhile, an anticipatory breach signals future intentions of not performing the contractual duties. Say you’ve hired a band for your wedding, but two weeks before the event, they inform you they won’t be able to perform. That’s an anticipatory breach.
What is a Remedy in Contract Law?
In contract law, a “remedy” is a court-ordered resolution to one party’s breach of contract. A breach of contract occurs when one party to a contract has not fulfilled his or her obligation under the agreement. The non-breaching party is also known as the “injured” party, and the purpose of remedies is to place the injured party in the position they would have otherwise been in had the contract been performed as it was agreed upon.
Compensatory Damages for Breach of Contract Explained
Award of damages is the most common remedy for breach of contract as one party seeks compensation for financial losses as a result of breach of contract. The party who is injured by the breach of contract is entitled to the benefit (consideration) of the agreement they entered, or the net gain they would’ve accrued had it not been for the breach. This type of remedy is known as “compensatory damages.”
During the court case, the injured party becomes the plaintiff. In the instance of a total breach, the plaintiff may recover damages in an amount that’s equal to the sum or value they would have received had the contract been fully performed by the defendant. Sometimes, this includes lost profits from a business operation.
If the breach is only partial and the defendant carried out a majority of the contract, the plaintiff may seek damages in an amount equal to the cost of hiring someone else to complete the performance. If the portion of the uncompleted performance is quite small in terms of cost, however, the court may only award damages in an amount that’s equal to the difference between the diminished value of the agreement as completed and the full value as stated in the contract.
Punitive Damages for Breach of Contract Explained
Compensatory, or actual damages, cover the loss the non-breaching party incurred as a result of the breach. Punitive damages, known as exemplary damages, are awarded to punish or make an example of the wrongdoing of a party that acted willfully, maliciously or fraudulently. Punitive damages are awarded in addition to compensatory damages. However, punitive damages are rarely awarded in breach of contract cases. Punitive damages are most often used in tort cases in which personal harm was a result of the wrongdoing and actual damages are minimal.
Restitution in Breach of Contract Cases Explained
Restitution is remedy designed to restore the injured party to its state or position before the contract was created. Unlike an award of damages, parties seeking restitution may not demand compensation for lost profits or other financial losses caused by a breach. Instead, restitution is meant to return any money or property given to the defendant under the contract back to the plaintiff.
Typically, a party will seek restitution when a contract they entered has been voided by courts because of the defendant’s incompetence or incapacity. Contract law allows incompetent and incapacitated individuals to be relieved of their contractual obligations, but only if the plaintiff is not hindered by the dismissal. In either case, if the defendant received any money or property by means of the contract that is now voided, the plaintiff is to be restored of that money or property.
Rescission in Breach of Contract Cases Explained
Rescission is a remedy used to terminate a contract when parties entered into a contract by way of fraud, undue influence, coercion, or mistake. In the case of rescission, the contractual obligations of both parties are therefore terminated, and the contract will no longer exist.
Reformation in Breach of Contract Cases Explained
Reformation is similar to rescission as it’s a result of parties entering into a contract based on fraud, undue influence, coercion, or mistake, but rather than terminating the contract and the parties’ obligations entirely, the court will change the substance of a contract to correct the inequities suffered as a result.
Specific Performance of a Contract Explained
Specific performance is a remedy for breach of contract in which the court forces the breaching party to perform the services or deliver the goods the promised goods per the contract. Specific Performance is only available when money damages are inadequate to compensate the plaintiff for a breach. This remedy is typically used when the goods or services are so unique that no other remedy could suffice.
A good example is an individual who’s looking to buy a rare piece of art. He or she forms a contract with someone to obtain this piece of art. The buyer’s offer becomes the price for the piece of art and the other party accepts by a promise of delivering the art in exchange for the agreed amount. If the other party joins in this contract, yet fails to deliver the art, the buyer can take the case to court as a breach of contract. The court could rule specific performance the remedy for breach of contract, as the buyer would not be able to get this rare piece of art elsewhere. The defendant would then be required by the court to deliver the goods – in this case, the art – as agreed upon in the contract.
Injunctions
Contrarily, an injunction is a court order that either prohibits or compels parties to execute certain actions. For example, if a lifeguard equipment supplier breaches a contract by selling to a competitor, the court may issue an injunction to stop the supplier from making further sales to the competitor.
Injunctions can either be temporary, serving to maintain the status quo while litigation is ongoing, or permanent, issued after a case concludes to provide a long-term remedy. They play a pivotal role in preventing potential harm or maintaining the status quo in breach of contract disputes.
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