Remedies for Breach of Contract: Practical Guide to Damages and Legal Actions

The Goal of a Remedy: Making Things Right

So, what is the ultimate goal of seeking a remedy? It’s not about punishing the party who broke the contract. Instead, the primary purpose of a remedy is to place the non-breaching party in the position they would have been in if the contract had been performed as promised.

Think of it as a toolkit. You wouldn’t use a hammer to fix a leaky faucet. Similarly, the remedy you seek must fit the specific harm you’ve suffered. These tools generally fall into two broad categories: legal remedies (money) and equitable remedies (court-ordered actions).

Your Toolkit of Remedies: The Two Main Types

When a contract is breached, you have several potential paths to resolution. Understanding the difference between asking for money versus asking for a specific action is the first crucial step in developing your strategy.

Legal Remedies: When Money Can Solve the Problem

In most business disputes, the harm caused by a breach can be calculated and compensated with a monetary award. These are known as legal remedies or “damages,” and they are the most common solution for a breach of an enforceable contract.

Here are the most common types and examples of monetary damages:

• Compensatory Damages: This is the most straightforward remedy. It’s money paid to reimburse you for the direct losses you incurred because of the breach. The goal is to give you the “benefit of the bargain.”
• Industry Example (Construction): A contractor installs lower-grade windows than specified in the contract. Compensatory damages would cover the cost of purchasing the correct windows and paying another contractor to install them.
• Consequential Damages: These are damages that flow as an indirect but foreseeable result of the breach. They go beyond the contract itself to cover related losses.
• Industry Example (Freelance Services): A marketing agency fails to deliver a campaign on time for a client’s seasonal product launch. The client can’t just sue for the money paid to the agency; they can also sue for the lost profits they reasonably expected from that launch.
• Liquidated Damages: Sometimes, a contract will include a clause that specifies a pre-determined amount of money to be paid if a certain type of breach occurs. This is common in situations where actual damages would be very difficult to calculate.
• Industry Example (SaaS): A software provider’s Service Level Agreement (SLA) promises 99.9% uptime. The contract might state that for every hour of downtime below that threshold, the customer is entitled to a $500 service credit. This is a liquidated damages clause.

Equitable Remedies: When Money Isn’t Enough

What happens when no amount of money can truly fix the problem? In these unique situations, a court may turn to equitable remedies, which compel a party to either do something or stop doing something.

These equitable remedies for breach of contract are less common and are only granted when monetary damages are inadequate.

• Specific Performance: This is a court order demanding that the breaching party perform their contractual duties exactly as promised. It is reserved for cases where the subject of the contract is rare or unique.
• Industry Example (Real Estate): You have a contract to buy a specific plot of land for a new factory. The seller backs out. Since land is considered unique, a court could order the seller to go through with the sale rather than just awarding you money.
• Injunction: An injunction is a court order that prohibits a party from performing a specific act. It can be temporary or permanent.
• Industry Example (Employment): An executive leaves your company and immediately starts working for a direct competitor, violating a non-compete clause in their employment agreement. You could seek an injunction to stop them from working for that competitor for the period specified in the contract.
• Rescission and Restitution: Rescission essentially cancels the contract, treating it as if it never existed. Both parties are relieved of their obligations. It is typically followed by restitution, where both parties must return any benefits (like money or property) they received from one another.
• Industry Example (Sales): You purchase a piece of equipment based on fraudulent claims about its capabilities. A court could grant rescission, allowing you to return the equipment and get your money back, effectively unwinding the entire transaction.

How Do You Choose the Right Path Forward?

With several remedies available, deciding which one to pursue can feel overwhelming. The right choice depends on the nature of the breach, the type of business you’re in, and what outcome would truly make your business whole. The goal is to choose the remedy that best aligns with the reality of your situation.

A key principle to remember is the duty to mitigate. The law requires the non-breaching party to take reasonable steps to minimize the financial damage caused by the breach. You can’t simply let a problem fester and then claim an inflated amount of damages. For example, if a supplier fails to deliver raw materials, you are expected to try to find an alternative supplier to keep your losses to a minimum. Documenting these efforts is crucial for mitigating contract risk and strengthening your claim.