Question

What are the equitable remedies if a contract is breached? Let's assume two parties agree that Party A will finish construction on a home by September 1st. If he has only completed half by that date, has he substantially performed? What's the remedy if the court determines there was a breach?

Answer 1

A contract is an agreement that is usually between two parties. Contracts typically outline the rules that each party must follow; if a party fails to do what they said they would, the other party may be entitled to compensation.

In some cases, when a party breaks their promise, known as breach of contract, the damage done to the other party is minimal. In these cases, remedies may include specific performance, contract rescission, or contract modification.

However, in other cases, the damage can be extensive. This means the breaching party may be ordered to pay a large sum of money, known as damages, to help bring the injured party back to where they were before the breach of contract.

Remedies available:

As mentioned, equitable remedies require the ordered party to act or refrain from acting in some way. The court could order:

• Specific Performance: which requires the breaching party to perform their part of the contract.
• Contract Rescission: which would cancel the contract. In this case, it would be possible to form a new contract that suits both parties.
• Contract Reformation: the contract is rewritten so that the intentions of both parties are well-represented and expressed.

Specific performance isn’t always available, for example, if it is impossible for the contract to be completed. While the non-breaching party might want the contract to be completed, the court cannot order the breaching party to complete the impossible.

A contract rescission would put the parties in the situation they were before the contract was formed; as if the contract never existed. This means that any money or goods exchanged during the contract would need to be returned. While it allows both parties to form a new, different contract, it is often used in situations where a party was fraudulently induced to sign the contract.

Contract reformation can be used for something as simple as a mistake/error in the contract, like a misplaced comma that turns $12,000 into $120,000. It can also be used in cases of fraud, if the other party still wants to enter a contract and the fraudulent party agrees to fix the contract.

Remedies for breach of contract are typically monetary damages. Expectation damages, including compensatory and consequential damages, can be recovered. However, consequential damages may not be speculative. Indeed, they must be foreseeable to both parties at the time of the contract formation to constitute damages by breach. Specific performance might be required under certain types of contracts, such as in contracts for land. For example, in contracts for real property, the assumption is that land is unique. Therefore, monetary damages are not adequate, because “replacement” land cannot be found that would be like the land that is the subject of the contract. Importantly, specific performance is not an appropriate remedy for service contracts, given the prohibition against involuntary servitude in the Thirteenth Amendment to the U.S. Constitution. Finally, it is important to note that on breach, the injured party has a duty to mitigate his damages. This means that he must avoid damages by making reasonable efforts to do so. If a tenant breaches a contract by moving out of his apartment before the lease is over, the landlord will be able to recover damages from that tenant for breaking the lease (i.e., breaching the contract). However, the landlord also has a duty to mitigate those damages by trying to find another tenant.

In some circumstances, damages will not be an adequate remedy and therefore equitable remedies, such as specific performance and/or an injunction, may be awarded.

Specific performance is an equitable, discretionary remedy that, if granted, compels a party to perform a contractual obligation.

Injunctive relief can be either:

1. •mandatory—requiring the defaulting party to take a certain step(s), or
2. •prohibitory—restraining the defaulting party from taking (further) step(s)

Injunctive relief is also at the discretion of the court.

Injunctions can be ordered on either:

1. •an interim basis—effectively preserving the status quo until the underlying dispute between the parties can be resolved, or
2. •a final basis (perpetual)

A common example of interim injunctive relief is an order restraining the respondent from dealing in certain property until the substantive dispute has been concluded. Such an injunction may then become final following resolution of the dispute.

Claims for injunctive relief and/or specific performance are often brought as an addition or in the alternative to a claim for damages, depending on the circumstances.

Many complex commercial cases involving elements of fraud or dishonesty may also be accompanied by an application for a search order and/or a freezing order, as an aid to the claimant in determining the whereabouts and extent of assets, and in preventing the respondent from dissipating its assets prior to conclusion of the substantive dispute.