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Breach, Remedies, and Defenses

Remedies for Contract Breaches

A contract remedy, or compensation for harm, aims to put the injured party in the same position as if the contract had been performed. This is achieved through expectation damages. The other remedies for breach of contract are restitution, punitive damages, and—rarely—specific performance.

Compensatory damages are payments allowing the nonbreaching party to get what they were promised elsewhere. For example, suppose Tom promises to paint Erika's house for $200 but breaches, or fails to perform as promised in the contract after Erika pays him. Erika then finds someone else to paint her house, but that person charges $300. In this case, a court might order Tom to pay compensatory damages in the amount of $100.

Typically, restitution requires by court that a breaching party reimburse and pay a nonbreaching party and to give up whatever benefit it already received. In the case above, a court could order Tom to return the $200 to Erika as restitution damages. Contracts can also be rescinded if they are breached. Rescission is the revocation or cancellation of the agreement.

Punitive damages are intended to punish the breaching party and usually apply in severe circumstances, as such damages can be very significant. These damages are typically reserved for cases where the conduct was deemed intentionally harmful. Fraud in the inducement and bad-faith breach of first-party insurance contracts are the most common contracts resulting in punitive damages.

Finally, specific performance is when a court orders the breaching party to perform their duties under the contract. Many times, this remedy is reserved for contracts that are unique in nature. For example, the law considers real estate unique because no two parcels or lots of land are the same. So in real estate contracts, courts usually order specific performance to buyers in breached real estate transactions. A court, however, would not specifically enforce someone to build a home, because service contracts can be remedied solely with damages.

Available Remedies upon Breach

There are various remedies that are available when a party breaches a contract, including rescission, specific performance, injunctions, and monetary damages.