The ABCs of Contract Remedies / March 01, 2008
by Jeffrey Huron

Contracts are frequently broken. Before you break a contract or sue a party for breaking a contract, you should first know the remedies for breaking contracts.

The primary purpose of contract remedies is to make the injured party whole by either awarding money damages or non-monetary relief. Therefore, depending on the type and terms of the contract and circumstances of the breach, one or more of the following remedies may be available to the injured party. View a sample Hlg HelpfulHint!

A. Damages
A party injured by a breach of contract may recover the amount of money which would be likely to result from the breach. The purpose of such damages is to insure that the injured party receives what he or she expected to receive from the contract. However, there are a few limitations on the recovery of such damages.

First, damages are limited to losses that were foreseeable – that is, considered by the parties when they entered into the contract. Consequential or special damages (e.g., lost profits or income) are only recoverable when special circumstances exist which cause some unusual injury provided the breaching party knew, or should have known, of the special circumstances when entering into the contract. Many contracts now include provisions waiving consequential damages. View a sample Hlg Helpful Hint!

Second, damages that are speculative or merely possible are not recoverable. In other words, you must establish damages with reasonable certainty.

Third, the injured party cannot recover punitive or emotional distress damages for breach of a contract, even if the breaching party intentionally breached the contract.

Fourth, the injured party must take reasonable steps after a breach to minimize his or her losses. For example, a merchant who fails to receive goods because of a manufacturer’s breach is required to replace those goods from another source and sue for the difference between the actual and contract price. Therefore, an injured party cannot recover damages for any loss he or she could have reasonably avoided by the breach.

1. Liquidated Damages. If damages will be difficult to determine in the event of a breach, parties may agree in advance for a payment of a certain fixed amount for breach of the contract. The amount of damages agreed upon in the contract, if any, is liquidated damages.

   Liquidated damage provisions are common in agreements to purchase real estate. For buyers, the liquidated damage clauses limit their loss if they default. Sellers benefit by not having to prove the amount of their damages, which may be difficult and time consuming to do, if buyers breach.

   Courts generally do not enforce liquidated damage provisions that are a penalty for a breach or far exceed the amount of the anticipated or actual damages. In other words, courts will only award liquidated damages if they are equal to, or almost equal to, the anticipated or actual damages.

2. Attachment. Attachment is a remedy that allows a party injured by a breach of a commercial contract to create a judicial lien on the breaching party’s property in California prior to trial. To obtain a right to attach order, the injured party must establish a fixed or readily ascertainable amount of damages, and a reasonable likelihood of prevailing on his or her claim for breach of contract.

B. Non-monetary Relief
Courts may award non-monetary relief when damages are unavailable or to prevent unfairness or unjust enrichment.

1. Specific Performance. Specific performance is an extraordinary remedy that compels the breaching party to perform the contract according to its terms. Courts will only order specific performance when the subject of the contract is unique such as real estate, works of art, and custom-made goods.


2. Injunctive Relief. An injunction is a court order usually requiring the breaching party to refrain from doing something. For example, a court may enjoin a former employee from using trade secrets or soliciting customers of his or her former employer.


3. Rescission. Rescission involves setting aside a contract. The purpose of rescission is to place the parties back to the position they were before they entered into the contract. A party who relies on a material misrepresentation in entering a contract is entitled to rescind the contract.


4. Reformation. If there is a mistake in the contract, courts may reform (change) the contract to reflect the parties’ actual intentions.

C. Attorney’s Fees
Attorney’s fees are only recoverable if the contract expressly provides for them in the event of a dispute.

A party injured by breach of a contract may be entitled to more than one of these remedies against the breaching party. Whether you are considering breaching a contract or taking action against someone who breached a contract, you should first consider what remedies are available for the breach. By evaluating the remedies first, you will make a better decision when deciding whether to breach a contract or sue for breach of contract.