Remedies for a Breach of Contract

David Allen

Partner, Jaburg | Wilk Attorneys at Law

Most people understand that for a binding contract to exist there must be a meeting of the minds between two or more contracting parties whereby the parties agree to provide something of value to each other. What many people do not fully understand however, is what their available legal remedies are in the event a contract to which they are a party to is breached by another party.

While there are various legal remedies available, they all fall into one of two categories; namely, equitable remedies and legal damages. Equitable remedies are usually available in situations where monetary damages would be insufficient to compensate the non-breaching party. Equitable remedies, in general, compel the breaching party to either take some action or refrain from taking some action. One such remedy is “specific performance,” whereby the breaching party is ordered by the Court to carry out their contractual promise. This is often seen when a seller refuses to complete a sale of property, and the Court orders that they do so. Another equitable remedy is “rescission,” whereby a contract is canceled by the Court, and the parties are put back into the position that they would have been in but for the existence of the contract. A third equitable remedy is “reformation,” whereby the Court will modify the contract to correct an error or mistake that was made, often ministerial in nature, so as to correctly reflect the actual intent of the contracting parties, even though the contract may not have been properly written.

The most common type of legal damages for the breach of a contract are “compensatory damages.” The purpose of compensatory damages is to make the non-breaching party “whole,” such that they are put into the same position as they would have been had the contract not been breached. One type of compensatory damages is “expectation damages,” meaning what was expected to be paid under the terms of the contract. A second type of compensatory damages is “consequential damages,” meaning those damages “outside of the contract” that result from the breach of the contract. For example, if a party breaches a contract by failing to pay $10,000 to the non-breaching party, and if the non-breaching party lost an investment opportunity to invest the $10,000 and make another $5,000, there would be $10,000 of expectation damages and $5,000 of consequential damages.

Another type of legal damages, often seen in real estate contracts, is “liquidated damages,” where the parties agree at the time of contracting that because the actual amount of damages in the event of a breach of the contract will be difficult to determine, that should a breach occur a sum certain will be paid. Such amount must be objectively “reasonable” to be enforced. A final type of legal damages, although not available for the breach of a contract without some related tort claim, are punitive damages, which are intended to punish a party that has acted in an outrageous manner, and to deter any such future conduct.