1. Remedies: When a party breaches a contractual promise and refuses to perform, a number of
remedies are available to the injured party. The three most common remedies are:
a. Monetary damages: Awarding money as compensation for a breach of contract is the
most common remedy issued by a court. Monetary damages are only given for losses that
are foreseeable, unavoidable, certain, and consequential.
1) Foreseeable: When a person is trying to decide whether he or she can carry out a
contract promise that he or she made, or to violate it, the person must have a good
idea what the consequences of his or her decision will be. How much will he or she
have to pay in damages for violating the contract? To say that damages must be
foreseeable means that the party who is about to violate a contract must be able to
determine approximately how much he or she will have to pay as a result.
Example: Homer and Barry sign a contract in which Homer promises to sell his
Babe Ruth autographed baseball to Barry for $10,000. Homer refuses to sell when he
discovered that the market value of this baseball is $14,000. Homer should know that
he will be expected to pay Barry damages in the amount of $4,000. The damages in
this case would be the difference between the contract price and the market price. In
this case, the damage was foreseeable because Homer could have made the
calculation based on his knowledge of the market price and the contract price.
2) Damages must be certain: In order to recover damages, the plaintiff cannot simply
make a guess as to what his or her losses are. He or she must be able to show how
much loss he or she suffered. In the above example, Barry could prove how much he
lost as a result of Homer’s breach by having the baseball appraised or by showing a
collector’s magazine containing such an appraisal.
3) Damages must have been unavoidable: When a party is victimized by another
person who refuses to carry out his or her contractual obligations, the injured party
must take steps to mitigate his or her harm.
Example: If a teacher is wrongfully discharged, the teacher simply cannot sit home
and watch TV. The teacher must mitigate the harm he or she suffered by looking for
other teaching positions.
b) Restitution: Restitution is a remedy that compels one party who breached the agreement
to return whatever benefits he or she received. The primary objective of the law, where
contractual remedies are concerned, is to place the injured party in the position that he or
she would have occupied had the other party performed the contract obligation as agreed.
The objective of restitution is to place the injured party in the position that he or she
occupied before the contract was signed. This is an alternative remedy.
Example - violation of Statute of Frauds: Jerry makes an oral promise to be responsible
for the debt of his son, Ken. As a result, Macy’s sells Ken a $1,000 washer/dryer. Ken
cannot pay for the appliance, and Jerry refuses to pay because his promise was not in
writing. Macy’s may simply ask for the return of the appliance.
Example - voidable contracts: Blake sells her car to Lenny for $4,000. Blake said the car
had just 40,000 miles on it. Lenny discovers that the true mileage was 140,000 and
wishes to void the contract. Lenny would be entitled to restitution for the $4,000.
c) Liquidated damages: Parties to a contract may agree in advance as to damages the
parties would have to pay in the event one party breaches. This is called liquidated
damages. Liquidated damages will be enforced if the damages agreed upon reasonably
approximate the damages the injured party might suffer from a breach. If the amount of
the liquidated damages is much higher than the actual damages, it would be seen as a
penalty and would be unenforceable. A liquidated damages provision may be seen as a
penalty if the intent is not to compensate the injured party but to prevent the other party
from breaching the agreement by making the damages as severe as possible.
d) Nominal damages: A breach of contract may take place in which the injured party
cannot show actual damages. In such cases, since a breach did take place, the injured
party would be entitled to at least nominal damages.
e) Remedies in equity: In some cases, damages in the form of money may not be adequate
compensation for the injured party. In such cases, the injured party may request specific
performance, injunction or reformation. Equitable rights are only given when the courts
feel that money damages are insufficient.
1) Specific performance: When specific performance is requested, the injured party is
asking the court to force the other party to carry out the contractual promise. Specific
performance is only given when damages in the form of money are inadequate.
Example: Davis promises to sell his used Toyota to Adelle for $500. Davis refuses to
sell because he found out that the car is worth $560. Adelle can sue Davis for $60, the
difference between the contract price and the market value. With the $60 and her
$500, Adelle will be able to buy a used Toyota of the model and condition she was
hoping to buy from Davis. In this case suing for money damages will place Adelle in
the same position she would have been had Davis kept his promise.
On the other hand, If Davis promised to sell a Picasso painting to Adelle for $100,000
and refused to perform, money damages may not be sufficient to compensate Adelle.
She was promised a one-of-a-kind painting and money simply is not an adequate
substitute. She could sue for specific performance and have a court order Davis to
carry out his part of the bargain.
2) Injunction: An injunction is an equitable remedy in which a court orders a party that
breached a contract from engaging in certain activities.
Example: Thor sells his coin operated Laundromat to Sylvia, and promises not to go
into the coin operated Laundromat business in the same city for one year. Six months
later, he opens a Laundromat a few blocks away from Sylvia’s business. In this case,
Sylvia has a right to ask a court to issue an injunction that prohibits Thor from
opening the new business. Money damages are not adequate in this case, because it
would be difficult for Sylvia to place a dollar figure on the losses she might suffer.
3) Reformation: A contract may be reformed or rewritten if the contract does not
reflect the true intent of the parties. Example: Pacific Lumber Co enters into a contract with Bill which would pay Bill a pension of $5,000 per month for 5 years. Due to a clerical mistake, the contract states
the Company will pay $500 per month. The contract can be reformed.
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