What Is the Most Common Legal Remedy for a Breach of Contract?

Contracts are a favorite tool of business owners everywhere. Business contracts lend assurance and definition to transactions. But what happens when someone doesn't do what they said they would in a contract? In the legal world, this is a "breach," and there are several remedies for this situation.

For more information, see FindLaw's section on Contract Law.

What Is Breach of Contract?

A contract is breached when a party fails to act in good faith or does not fulfill their obligations under the agreement. There are several types of contract breaches:

• Material breach: A material breach of contract is a serious violation of the terms of a contract. Imagine you've ordered a certain make and model of a car, but the seller delivers a different model instead. This is a major violation because you're not getting what you explicitly requested. Thus, it constitutes a material breach of contract. Such a breach allows you, the injured party, to seek legal remedies such as damages or to terminate the contract and stop any further obligations.

• Minor breach: A minor breach is often referred to as a "partial breach" or "immaterial breach." It occurs when a party to a contract fails to perform a small or less essential part of the contract. It's like ordering a car with upgraded wheels, but it arrives with standard wheels instead. While the seller hasn't fully delivered per your specifications, the essential item (the car) was delivered. In this situation, you typically can't terminate the contract. However, you might be able to seek damages to compensate for the missing upgraded wheels.

• Anticipatory breach: An anticipatory breach happens when one party indicates — either through words or actions — that they will not be fulfilling their contractual obligations before they are due. Let's take another look at the car example. If the seller tells you a week before delivery that they won't be able to deliver the car, that's an anticipatory breach. You don't have to wait until the delivery date passes to take action. In anticipation of the breach, you can seek remedies such as terminating the contract or suing for damages.

When faced with one of these contract issues, the non-breaching party often resorts to legal action. Of course, there are several avenues for legal action, including mediation, arbitration, and litigation. Let's focus on the remedies available if a lawsuit is on the horizon.

Types of Remedies for a Party's Breach

There are two types of remedies for breach of contract:

• Monetary damages, which are also called a "remedy in law"
• Injunctive relief, which is also called an "equitable remedy"

Remedies in Law

Financial compensation is a common remedy for breach of contract. When lawyers talk about "remedies in law," they are talking about money damages. For breach of contract cases, there are several different types of monetary compensation remedies:

Compensatory Damages

This is the most common breach of contract remedy. When compensatory damages are awarded, a court orders the person who breached the contract to pay the other person enough money to get what they were promised in the contract.

For example, suppose you hire and pay someone to clean your house for $100, but they can't do it. You search for a new cleaning service, and the cheapest one will clean your house for $150. If this cost is reasonable, your first cleaner must pay you $150 in compensatory damages, allowing you to get your house professionally cleaned as the contract intended.

Restitution

When a court orders restitution, they tell the person who breached the contract to repay the other person. In the example above, the court would order the first cleaner to pay you back $100 since that's what you paid him to clean your house.

Punitive Damages

Punitive damages are a sum of money intended to punish the breaching party and are usually reserved for cases in which something morally reprehensible happened, such as a manufacturer deliberately selling a retailer unsafe or substandard goods.

Nominal Damages

A court awards nominal damages when there has been a breach of contract, but no party to the contract suffered any harm.

Liquidated Damages

These are damages that the parties agree to pay if a contract is breached. They agree to an amount ahead of time, and that amount is included in the contract terms.

Quantum Meruit

A court can award one party payment for what they deserve for any work they performed before the other party breached the contract. This is known as "quantum meruit."

For example, if the cleaner in the example above had cleaned half the house, and then you decided you didn't want him to finish, he can demand $50 as quantum meruit. Translated from Latin, the term means "as much as he deserved."

Remedies in Equity

A remedy in equity is when the court orders someone to do something. This is also called "injunctive relief." In breach of contract cases, this can look like any of the following:

• Cancellation: The court cancels the contract and decides the parties are no longer bound by it.

• Specific Performance: This is when the court forces the breaching party to perform the service or deliver the goods promised in the contract. In other words, the breaching party must honor the terms of the contract. This is typically reserved for contract disputes when the goods or services are unique and no other remedy will suffice.

Facing a Breach of Contract Lawsuit? Protect Your Business and Call an Attorney

If you've been accused of breaching a contract in a legal action or believe another party has breached a contract with you, you'll need legal advice. A business lawyer can provide sound legal representation. Failing to seek the legal services of a contract lawyer can cost you a fortune or even your business. Find a small business attorney licensed to practice in your state to get started.