A contract is an agreement between at least two parties (although there can be more than two parties involved in the agreement). The contract outlines the rules that the parties agree to follow, and may also set forth consequences in the event that one (or both) of the parties fails to live up to the terms of the contract. If a party fails to keep up their end of the contract, then the other party may be entitled to compensation.
“Breach of contract” is the term used to refer to a situation where one party breaks the promise they made in the contract. The type of remedy that a party may be entitled to is largely determined by the severity of the breach of the contract, as well as the damage done to the other party. If the damage done to the other party is minimal, remedies for breach of contract may include contract rescission or modification.
However, if the damage done is extensive and severe, the breaching party may be ordered to pay money to help restore the injured party to where they were before the breach occurred. These monetary payments are often referred to in the legal system as “damages.”
While “damages” generally refers to money awarded to a party who has suffered loss or injury, there are several different types of monetary remedies in the legal system. Some types of damages commonly issued in a breach of contract case include:
Compensatory damages are the most common remedy in cases of breach of contract. Usually this type of remedy is intended to compensate the non-breaching party for losses suffered as the result of a contract breach. They are not intended to punish the breaching party, but to make the injured party “whole again” under the law.
For example, say that you hire a caterer to provide meals for a big party at the price of $1000, and you pay the fee. Before the party, happens, the caterer tells you that they are unable to provide the meals on the date of the party. You are able to find another caterer to provide the food, but the new caterer charges $1500. You file suit against the first caterer for breach of contract.
Depending on the finding of the court in the case, the first caterer may be ordered to pay you $1500 in compensatory damages; this reimburses you for the additional fee that you incurred because the first caterer did not fulfill their part of the agreement.
Restitution is often ordered to make the breaching party pay the injured party back. The intent of restitution is to restore the injured party to the position they were in before the contract was created. Because these damages are intended to restore the injured party to their original position, this does not include lost profits or earnings caused by the breach of contract.
Take the above example of the caterer backing out before the party. Restitution would require the first caterer to pay the back the $1000 fee that you paid in advance.
Some contracts include provisions that dictate a pre-set amount of damages that they will pay in the event of a breach. These are called “liquidated damages.” Liquidated damages provisions are often included when damages are difficult to foresee, and an estimate for potential damages is necessary.
Nominal damages are usually awarded when there was no real harm done as a result of the breach of contract. They are called “nominal” because the amount of damages is usually very small — sometimes as little as $1.00. You might consider this more of a symbolic victory, or a matter of principal.
The Latin phrase “quantum meruit” refers to monetary damages that are awarded to a party for any performance prior to the other party’s breach of contract. For example, if painters begin painting a house and complete the first three rooms, but the homeowner decides that she does not want the painters to finish painting the rest of the house, the court could order the homeowner to pay for the work that was completed.
Remedies in Equity
“Remedies in equity” refer to when the court orders a party to do something, rather than pay monetary damages. This could take many different form, from cancelling the contract and releasing the parties from their responsibilities under the agreement, to specific performance (which is outlined below).
This is pretty much what it sounds like — damages that are intended to punish the offending party. Punitive damages are not available in every situation, though. This type of damages is reserved for cases where the other party has behaved in a morally reprehensible way, where punishment is warranted. A simple misunderstanding is unlikely to result in punitive damages.
Besides monetary damages, you can also request other types of remedies (called “equitable remedies”) that require the other party to do something specific, or act or refrain from acting in a certain way. Examples of these equitable remedies include specific performance, contract rescission, and contract reformation.
Specific performance requires the breaching party to perform their part of the contract. This equitable remedy is fairly common in real estate contracts and land deals, especially since each piece of land is considered to be unique.
Contract rescission cancels the contract, which allows the parties to form a new contract that better suits the needs and desires of both parties.
With contract reformation, the contract is rewritten (either in part or in whole) so that the intentions of both parties to the agreement are better expressed and represented.
Of course, these equitable remedies do have their limits. Specific performance, for example, is not always available. If it becomes impossible for the contract to be completed, the contract can’t order a party to do the impossible.
If you are facing legal issues as a result of a breach of contract, it is in your best interests to contact an experienced business lawyer in your area. The right lawyer can review your contract and advise you regarding the best way to proceed. They can talk you through your options and help you protect your rights, and if necessary, your lawyer can also represent you in court.