When a contract is breached, the injured party has a number of legal remedies available to them.
These remedies attempt to restore the injured party to the position they would have been in if the contract had been fulfilled. Remedies can range from simple monetary compensation, to the court ordering the breaching party to fulfill their contractual obligations.
In this article, we discuss 7 types of remedies for breach of contract. Let’s begin.
1. Financial Compensation for Breached Contracts
Business contracts are the foundations of business transactions. When one party breaches the terms of the contract, it can cause significant harm to other party. Businesses can lose profits, sustain extra costs, and waste investments of time and money when a contract is not fulfilled.
Financial compensation can often be the most straightforward remedy for breached contracts. Here are a few types of financial compensation that can be awarded:
Compensatory Damages
Compensatory damages are the most common remedy for breached contracts. These damages aim to compensate the non-breaching party for the financial losses they suffered due to the breach. Examples of compensatory damages include:
- Lost profits,
- additional expenses incurred, or;
- the difference in value between the promised contractual performance and what was actually delivered.
Compensatory damages are calculated based on actual losses. These are proven with documents such as receipts, invoices, and bills.
Expectation damages and consequential damages are two types of compensatory damages. Both are explained next.
Expectation Damages
These are damages that result directly from the breach of contract. They are typically calculated in two ways:
- Contract value, which is the specific value of promised goods or services outlined in the contract.
- Current market value of the promised goods or services. You subtract the amount of delivered goods or services, if any occurred prior to the breach, and be left with the amount you are entitled to recover.
Consequential Damages
These can be more difficult to recover than expectation damages. Consequential damages require proving that the breaching party was aware of the potential consequences of their actions at the time the contract was formed.
This would mean that they signed the contract knowing that they possibly would be breaching it later on.
Our breach of contract attorneys can help prove consequential damages and maximize your payout. Maximizing your breach of contract claim also means including incidental damages, discussed next.
Incidental Damages
These are foreseeable losses that can be directly tied to the breach in contract. These are not primary losses but rather secondary expenses that were incurred as a consequence of the breached contract.
For example:
- If you incurred storage fees for products that needed to be housed while a delay occurred;
- Or financing charges that you had to pay while you were waiting for payment from the breaching party.
These can also be easily proven with receipts, invoices, and other documentation, but they will need to be shown to stem directly from the breach.
2. Specific Performance in Contract Law
In some breach of contract cases, the court may order the breaching party to fulfill their contractual obligations.
This remedy is typically only used if monetary damages cannot provide sufficient compensation and the goods or services promised are unique or irreplaceable.
Specific performance is commonly applied in cases involving distinctive items, such as real estate or rare artwork. In these cases, a financial award cannot replace the promised performance specified in the contract.
Several factors must also be met for specific performance to be granted:
- The contract terms must be clear and leave no room for misinterpretation regarding the specified promised performance.
- The court must be confident that the breaching party can actually fulfill the specific performance order.
- Both parties must be bound to perform their mutual obligations under the contract.
3. Legal Injunctions in Contract Disputes
Legal injunctions can work with or in place of monetary damages. Injunctions, versus financial compensation, focus on preventing specific actions and enforcing specific behaviors.
When is an injunction granted?
The court may grant an injunction when irreparable harm was caused by the breach that cannot be compensated solely by financial compensation.
More often than not, the injunction is focused on stopping a specific action. Typically injunctions happen early in a lawsuit to stop the breaching party from continuing their actions.
Injunctions can be permanent or temporary.
A temporary injunction occurs just during pending litigation. If the breaching party fails to comply with the injunction, they could be held in contempt of court, resulting in further criminal or civil liability.
A permanent injunction can be issued as a part of the court’s final ruling in a lawsuit and will last in perpetuity.
4. Rescission and Restitution
With rescission, the injured party is able to void the contract and proceed as if it never existed. The goal of rescission and restitution is to put both parties back into the position they would have been in if they had not made a contract in the first place.
To do this, the breach must be considered material.
A material breach of contract is directly tied to the essence of the contract itself. Rescission will then effectively allow you to cancel the contract with an immediate stop to performing any promised duties or actions.
Rescission can be initiated by the injured party or can be a mutual agreement to end the contract.
Partial rescission is also an option. A partial recision removes some parts of the contract but keeps others intact without canceling the full contract.
Restitution in contrast, requires the breaching party to give back any benefits they received under the contract. In situations where services were rendered instead of goods exchanged, restitution is not possible.
5. Liquidated Damages
In some contracts, the agreeing parties set a specific sum of money or a formula for calculating how much money is to be paid out as compensation in the event of a breach. This avoids lengthy court negotiations to determine damages and saves on legal fees and time.
These are often built into real estate contracts, construction contracts, and partnership agreements, but other industries sometimes see liquidated damages as well.
Either party can raise issue with the liquidated damages, such as if the breaching party thinks the liquidated damages are set unreasonably high or the injured party believes the liquidated damages are not adequate to compensate them. The court will then determine whether or not the amount specified is a reasonable estimate of the actual damages and enforce it based on that.
6. Punitive Damages
This type of damage is awarded with an intention to punish the breaching party. Punitive damages, also called exemplary damages.
Punitive damages are typically awarded in cases where the breach is associated with business fraud, malice, or gross negligence.
Under Texas Civil Practice and Remedies Code Chapter 41,:
Exemplary damages cannot exceed $200,000 or two times the amount of economic damages, plus an amount equal to any non-economic damages found by the jury, not to exceed $750,000.
While punitive damages are unlikely to be awarded in most breach of contract claims, they are still important to note for cases like these.
7. Nominal Damages for Contract Violators
Nominal damages are a small token amount of money awarded by the court to an injured party who has successfully proven that a breach of contract has occurred but has not been able to prove any substantial financial losses as a result of the breach. The court may award them as a legal remedy, but it is more of a symbolic victory than one that is helpful to the injured company.
With nominal damages, you will not receive any significant financial compensation because a technical breach occurred with no losses, or your losses were not supported by proper evidence.
Nominal damages will typically only cover attorney fees. To make sure that your breach and losses are represented properly and avoid being awarded nominal damages, make sure you work with an experienced contract law attorney who knows how to best support your case.
Speak to Feldman & Feldman Today About Breach of Contract Remedies for Your Case
If someone has breached a contract with you or your business, we can help you understand your rights and legal options that you can pursue as a remedy to the situation.
For businesses and individuals facing contract disputes, the experienced breach of contract attorneys at Feldman & Feldman can help you achieve a successful resolution. Contact us for advice regarding your breach of contract case and get your questions answered today. Our Houston contract lawyers have decades of experience working to protect our clients’ best interests and remedying breached contracts. Call us to request a consultation regarding your best options moving forward.