Remedies for Contract Breach

Why This Matters

Contract remedies are the teeth behind every agreement—they're what makes a promise legally meaningful. When you're tested on remedies, you're being asked to demonstrate mastery of a fundamental question: what does the law do when someone breaks their word? The answer isn't always "pay money." Understanding the full toolkit of remedies—from damages to equitable relief to restitution—shows you grasp how courts balance competing interests: compensating the injured party, preventing windfalls, and maintaining efficiency in commercial relationships.

Here's what separates strong exam answers from weak ones: knowing which remedy applies when and why. Courts don't just pick remedies at random—they follow a hierarchy based on principles like adequate remedy at law, foreseeability, mitigation, and unjust enrichment. You'll encounter questions asking you to calculate damages, argue for specific performance, or explain why punitive damages almost never apply in contract cases. Don't just memorize the definitions—know what problem each remedy solves and when courts prefer one over another.

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Monetary Damages: The Default Remedy

When a contract is breached, money damages are the presumptive remedy. Courts start here because damages are efficient, calculable, and don't require ongoing judicial supervision. The key question is always: what position should the injured party be restored to?

Expectation Damages

• The gold standard of contract damages—these put the non-breaching party in the position they would have occupied had the contract been performed
• Calculated as value of promised performance minus costs saved due to not having to complete your own obligations
• Requires reasonable certainty—you can't recover speculative profits, but courts allow reasonable estimates based on available evidence

Reliance Damages

• Compensates for out-of-pocket expenses incurred in reasonable reliance on the contract being performed
• Restores the party to their pre-contract position—useful when expectation damages are too speculative to calculate
• Often the fallback when a new business can't prove lost profits or when the contract itself was a losing deal

Consequential Damages

• Special damages flowing from the breach—lost profits, additional costs, or downstream harms beyond the contract's face value
• Must satisfy the Hadley v. Baxendale foreseeability test—losses must have been within the contemplation of both parties at contract formation
• Commonly tested limitation: if the breaching party didn't know about special circumstances, they're not liable for resulting losses

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Limiting Principles: What You Can't Recover

Contract law isn't about making injured parties rich—it's about making them whole. These doctrines prevent overcompensation and encourage efficient behavior after breach.

Mitigation of Damages

• Injured parties must take reasonable steps to reduce losses—you can't sit back and let damages pile up
• Burden of proof on the breaching party to show the injured party failed to mitigate and that mitigation would have reduced losses
• Reasonableness is the standard—you don't have to accept a demeaning substitute or spend more than you'd recover

Nominal Damages

• Token awards (often $1$) when breach is proven but no actual loss occurred—vindicates the legal right without a windfall
• Establishes that a wrong happened and can serve as a basis for recovering attorney's fees in some jurisdictions
• Strategically important for establishing precedent or preserving appeal rights when damages are uncertain

Punitive Damages

• Almost never available in pure contract cases—contract law compensates, it doesn't punish
• Exception: when breach also constitutes an independent tort (fraud, bad faith in insurance contexts, intentional interference)
• Requires clear and convincing evidence of egregious conduct beyond mere breach

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Restitution: Preventing Unjust Enrichment

Restitution operates on a different theory than damages—it's not about what the injured party lost, but about what the breaching party gained. This prevents windfalls to contract-breakers.

Restitution

• Strips the breaching party of benefits received under the contract, returning them to the injured party
• Available even without proven damages—the focus is on the defendant's gain, not the plaintiff's loss
• Can exceed contract price in some cases where the benefit conferred is worth more than the agreed payment

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Equitable Remedies: When Money Isn't Enough

Courts only grant equitable relief when monetary damages are inadequate. This is a threshold requirement—you must argue why money won't work before asking for specific performance.

Specific Performance

• Court order compelling the breaching party to perform—the contract is enforced directly rather than substituted with damages
• Requires unique subject matter where no substitute is available: real estate (always unique), rare goods, custom items
• Never available for personal service contracts—courts won't force someone to work for another (constitutional concerns, practical enforcement problems)

Liquidated Damages

• Pre-agreed damage amounts written into the contract—provides certainty and avoids litigation over actual losses
• Must be reasonable estimate of anticipated harm at the time of contracting, not a penalty
• Two-part enforceability test: (1) actual damages must be difficult to calculate, and (2) the amount must be reasonable, not punitive

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Quick Reference Table

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Self-Check Questions

1. A plaintiff spent $50,000$ preparing to perform a contract that the defendant then breached. The plaintiff cannot prove what profits they would have made. Which remedy should they pursue, and why might this be strategically preferable to expectation damages?

2. Compare and contrast restitution and expectation damages. In what scenario might restitution actually give the plaintiff more than expectation damages would?

3. A contract includes a clause requiring $500,000$ payment for any breach, even minor ones. The actual harm from a typical breach would be around $10,000$. How should a court analyze this clause, and what happens if it's unenforceable?

4. Why does the law refuse to grant specific performance for personal service contracts, even when the services are highly unique? What remedy is the injured party limited to instead?

5. Defendant breaches a contract to deliver custom machinery. Plaintiff does nothing for six months, then sues for lost profits that accumulated during that period. What doctrine will defendant raise, and who bears the burden of proof?