Breach of Contract Remedies

When contracts are broken, the law provides various remedies to address the harm caused. Understanding these remedies is crucial for both parties to a contract: those seeking compensation for breaches and those who may face liability. The primary goal of contract remedies is to put the non-breaching party in the position they would have occupied had the contract been performed. This principle shapes the types and extent of remedies available.

Understanding Breach of Contract

A breach occurs when one party fails to perform any duty arising under the contract. Breaches range from minor deviations to complete failure to perform. The severity and nature of the breach determine available remedies. Material breaches go to the heart of the contract and excuse the other party from further performance. Minor breaches may entitle the injured party to damages but don't excuse their own performance obligations.

Anticipatory breach occurs when one party indicates they won't perform before performance is due. If a contractor announces two weeks before starting that they won't do the work, the property owner needn't wait until the start date to seek remedies. This doctrine allows the non-breaching party to mitigate damages and make alternative arrangements promptly.

The timing of breach matters for remedy calculation. Damages are typically measured at the time of breach, though market fluctuations may affect the ultimate recovery. Courts also consider whether the breach was willful or inadvertent, though this rarely affects contract damages directly. Unlike tort law, contract law generally doesn't punish bad behavior with punitive damages.

Compensatory Damages

Compensatory damages are the most common remedy for breach of contract. These monetary awards aim to compensate for actual losses caused by the breach. They divide into general damages (direct losses flowing naturally from the breach) and special or consequential damages (indirect losses that were reasonably foreseeable when the contract was made).

General damages in a sales contract might include the difference between the contract price and market price. If you contracted to buy wheat at $5 per bushel and the seller breaches when market price is $7, your general damages are $2 per bushel. These damages flow directly and predictably from the breach.

Consequential damages cover additional losses beyond the immediate transaction. If the wheat buyer lost a profitable resale contract due to the breach, those lost profits might be recoverable as consequential damages. However, recovery requires that such losses were reasonably foreseeable to the breaching party at contract formation. A seller who didn't know about the resale contract might not be liable for those lost profits.

The Duty to Mitigate

The non-breaching party has a duty to take reasonable steps to minimize their losses. This mitigation principle prevents parties from sitting idle while damages accumulate. An employee wrongfully terminated must seek comparable employment. A buyer whose seller breaches must attempt to purchase substitute goods if reasonably available.

Mitigation efforts must be reasonable, not perfect. The injured party needn't accept substantially different arrangements or incur significant expense to reduce the breaching party's liability. A senior executive needn't accept a minimum-wage job to mitigate wrongful termination damages. The breaching party bears the burden of proving failure to mitigate.

Reasonable mitigation expenses are recoverable even if mitigation efforts fail. If a buyer spends money trying to find substitute goods after seller's breach, those costs are recoverable whether or not substitutes are found. This encourages appropriate mitigation efforts without penalizing good-faith attempts to minimize losses.

Reliance Damages

Sometimes expectation damages are too speculative or proving lost profits is impossible. Reliance damages offer an alternative measure, reimbursing expenses incurred in reliance on the contract. These put the plaintiff in the position they would have occupied had the contract never been made, rather than the position if it had been performed.

A business that spends money preparing to perform before the other party breaches can recover those preparation costs as reliance damages. A caterer who buys ingredients for an event that the customer cancels might recover the ingredient costs. Reliance damages are particularly useful in cases involving new businesses or speculative ventures where profits are unprovable.

Courts won't award reliance damages exceeding expectation damages when the contract would have been a losing proposition. If evidence shows the non-breaching party would have lost money even with full performance, reliance damages are reduced accordingly. This prevents parties from escaping bad bargains through the other party's breach.

Restitution

Restitution prevents unjust enrichment by requiring the breaching party to return benefits received. Unlike compensatory damages based on the plaintiff's loss, restitution focuses on the defendant's gain. If a homeowner pays a contractor who never starts work, restitution requires return of the payment regardless of whether the homeowner suffered additional losses.

Restitution can exceed traditional contract damages in cases of total breach. A partially performing party who encounters the other's breach might elect restitution over contract damages. A contractor who completes 80% of a job before wrongful termination might recover the reasonable value of work performed, which could exceed the contract price in a below-market contract.

The election between restitution and contract damages requires strategic consideration. Restitution might be preferable when contract prices were unfavorable or when proving contract damages is difficult. However, restitution is unavailable to parties who have substantially performed, as they must seek recovery under the contract.

Specific Performance

Monetary damages sometimes inadequately compensate for breach. Specific performance orders the breaching party to perform their contractual obligations. This equitable remedy is exceptional, granted only when monetary damages are inadequate and the subject matter is unique.

Real estate contracts commonly receive specific performance because each parcel is considered unique. A seller who breaches an agreement to sell Blackacre can be ordered to complete the sale. Personal property rarely qualifies unless it has unique characteristics: artwork, antiques, or custom-manufactured goods might warrant specific performance.

Courts won't order specific performance of personal service contracts due to enforcement difficulties and constitutional concerns about involuntary servitude. An opera singer who breaches can't be ordered to perform, though injunctions might prevent performances elsewhere. Employment contracts receive damages, not specific performance, for similar reasons.

Liquidated Damages

Parties can agree in advance on damages for breach through liquidated damages clauses. These provisions specify amounts owed for particular breaches, providing certainty and avoiding litigation over damages. Valid liquidated damages clauses are enforceable, saving time and expense in resolving breaches.

However, liquidated damages must represent reasonable estimates of anticipated harm, not penalties for breach. Courts refuse to enforce penalty clauses that bear no reasonable relationship to probable damages. A $10,000 charge for each day of delay in a $50,000 contract likely constitutes an unenforceable penalty.

The reasonableness of liquidated damages is judged at contract formation, not breach. If parties reasonably estimated damages when contracting, the clause is enforceable even if actual damages differ. This encourages thoughtful contract drafting while providing predictability about breach consequences.

Nominal Damages

When breach causes no actual harm, courts may award nominal damages—typically a dollar or other small sum. These awards vindicate the plaintiff's rights without providing substantial compensation. A seller who breaches when market prices have fallen below contract price causes no economic harm, but the buyer might receive nominal damages recognizing the breach.

Nominal damages serve important purposes beyond their minimal monetary value. They establish breach, which might trigger other contract provisions or preserve claims. In some cases, nominal damages support awards of attorney fees where contracts or statutes allow fee recovery to prevailing parties.

Attorney Fees and Costs

The American rule generally requires each party to bear their own attorney fees regardless of outcome. Contract damages typically exclude legal costs unless contracts specifically provide for fee shifting. Many commercial contracts include prevailing party attorney fee clauses to discourage frivolous claims and defenses.

Fee-shifting provisions require careful drafting. Some are one-sided, allowing only one party to recover fees. Others are mutual but may define prevailing party narrowly. Courts sometimes have discretion in awarding fees even under mandatory-seeming language. Understanding fee provisions helps in evaluating litigation risks and settlement positions.

Equitable Defenses

Even clear breaches might not yield remedies if equitable defenses apply. The unclean hands doctrine denies relief to parties guilty of related misconduct. Laches bars claims when unreasonable delay prejudices the defendant. Waiver and estoppel prevent parties from asserting rights they've abandoned or positions contradicting prior representations.

These defenses reflect equity's focus on fairness beyond strict legal rights. A party who encourages breach through their own behavior might be estopped from claiming damages. One who delays asserting rights while the other party's position worsens might face laches. Understanding these defenses helps both in asserting claims and defending against them.

Selecting appropriate remedies requires understanding both legal options and practical considerations. The strongest legal claim means little if the defendant lacks assets to satisfy judgments. Sometimes quick settlements for lesser amounts better serve client interests than protracted litigation seeking maximum recoveries. Effective remedy selection balances legal merits, practical constraints, and client objectives to achieve optimal outcomes in the imperfect world of contract disputes.