Equitable remedies are a distinct category of remedies that can be obtained in a breach of contract situation. In general, remedies may be divided into two categories: legal and equitable. Legal remedies allow the non-breaching party to recover monetary damages. In contrast, equitable remedies are actions that the court prescribes which will serve to resolve the breach or dispute.
Equitable remedies are typically granted when legal remedies or monetary compensation cannot adequately resolve the wrongdoing. It is often a requirement that legal damages be unavailable before a court will decide to issue equitable relief.
There are three main equitable remedies in the event that a contract is breached.
- Specific Performance: This is basically a decree or court order which requires the party in breach to completely perform their part of the bargain according to the contract. For example, this can include requiring the breaching party to deliver goods which have already been paid for, or to render payment for services.
- Contract Rescission: This is where the old contract which was breached is rescinded or cancelled. A new contract may be written which more clearly addresses the different needs of each party.
- Contract Reformation: The former contract is rewritten in a manner that reflects the true intentions of each party more accurately. The remedy of reformation requires that a valid, working contract be in existence (otherwise there is nothing to re-write). Reformation is often prescribed where there was a mistake or misrepresentation in one of the contract terms. A contract may be reformed in whole or in part. Reformation is sometimes called “rectification.”
A judge may prescribe any of these equitable remedies according to the demands of the situation. Courts have much discretion when issuing equitable relief. They will consider several different factors, including the prior business dealings of the parties and the respective bargaining power of each party.
Normally, it is a requirement that legal damages in the form of monetary compensation are unavailable before equitable relief can be obtained. This is especially true for the equitable remedy of specific performance. If monetary compensation can correct the breach, then there is no need for a court to compel a party to render specific performance.
On the other hand, there are certain situations where a party to a contract can receive monetary compensation under rules of equity. These are known as “restitutionary damages” and are a very specific and limited type of damages in a breach of contract.
Restitutionary damages basically prevent one party from being unjustly enriched through their breach. For example, if one party has already delivered their goods but the other has not paid for them, then a judge may order the breaching party to pay restitutionary damages in order to prevent the unjust gain.
Equitable remedies are very specific to the individual contract and circumstances of the parties. Therefore, it is to your advantage to work with a business lawyer if there has been a breach of contract. Your attorney will be able to take the facts of your case and determine whether an equitable remedy is available or necessary. Also, you may wish to contact an attorney to help you draft the contract so that disputes or errors are avoided in the first place.