A contract is an agreement between two or more parties which creates certain legal obligations. If one or more parties to a contract do not perform according to the terms of the agreement, then there is a breach of a contract. The five types of remedies for breach of contract are:
- Money damages;
- Reformation; and
- Specific Performance.
Money damages refer to the monetary payments which a breaching party has to make for violating the terms of contract. The type of breach determines the extent of the damages. If it is a total breach, then the plaintiff can recover the sum or value which the plaintiff would have received had the contract been fully performed by the defendant and this includes lost profits.
However, if it is a partial breach, the plaintiff can recover a sum which equals the amount necessary to hire someone else to complete that part of the contract. However, in some cases of partial breach, the cost of completion can be quite expensive and the portion of the contract which was unperformed may be small.
In these cases, a court may only award damages which are equal to the difference between the value of the contract as performed and the full value of the contract which was originally agreed to by the parties.
There are different types of money damages such as:
- Compensatory Damages: This is meant to cover the loss incurred by the non-breaching party because of the breach of contract. The breaching party will have to pay an amount which replaces the loss incurred by the other party
- Punitive Damages: This is rarely awarded for breach of contract cases. Unlike compensatory damages which are meant to cover the actual loss, punitive damages are awarded to punish the wrongdoer for egregious behavior and to deter others from committing similar acts. Punitive damages are given in addition to compensatory damages.
- Keep in mind that punitive damages are requested and it is up to the court to decide if they wish to award them and the amount.
The two types of compensatory damages are general and special damages. General damages cover the loss which was directly connected to the breach of contract and they are the most common type of damages which are awarded for breaches of contracts.
In contrast, special damages (also referred to as “consequential damages”) cover any loss which was incurred because of special circumstances or conditions which the breaching party knew about when the contract was made.
It is important to note that the non-breaching party has a duty to mitigate. This means that it has to do what is possible and reasonable to minimize or avoid the losses which were incurred because of the breach of contract.
Damages are not awarded for any loss which could have been avoided or substantially reduced if the non-breaching party took reasonable efforts to mitigate. In these cases, the damages will be reduced by the amount which could have been reasonably avoided.
Restitution is a remedy which is used to restore the injured party to the position occupied before the contract. Under the principle of restitution, the defendant is supposed to give back any money or property received from the plaintiff under the contract and restitution is not used to compensate the plaintiff for lost profits or other earnings because of the breach of contract.
Restitution is typically used in cases where the contract is voided by the court because the defendant lacked the competence or capacity necessary to enter into a contract.
Sometimes, the contractual duties of both parties may be terminated by the court and when this happens, it is called rescission. This remedy is used in certain cases such as when the parties enter into a contract because of mistake, fraud, undue influence or duress and the only way to do justice is to terminate the contract.
However, sometimes the remedy of reformation may be used which is when a court reforms or changes a contract to correct any inequities. In these cases, instead of setting aside the entire contract, the terms of the contract may be rewritten to do justice.
Under specific performance, the breaching party has to perform their duties as specified by the contract and it is used when money damages are not adequate to compensate the plaintiff. Specific performance is used in cases which involve giving a piece of land or a valuable item to the plaintiff.
While the legal system frowns upon forcing individuals to do something against their will, if a person signed a contract selling the item but had the intent to defraud the other party, then the court can force them to sell the item. So long as the other party was willing to pay the contracted amount and was ready to do so.
Contract issues can be quite complex and if you are involved in a contract dispute, it is important to consult with a local contract attorney before proceeding.