Instructor: Kat Kadian-Baumeyer
Kat has a Master of Science in Organizational Leadership and Management and teaches Business courses.
There are several remedies a court can impose on parties in a breach of a contract case: rescission, restitution, specific performance, injunction, reformation or quasi-contract. Learn about each of these remedies in this lesson.
What Is a Breach of Contract?
A breach of contract occurs when one party does not perform as promised according to the terms of the contract. When this happens, the courts decide the best way to make the injured party, or the party who sustained the breach, whole again. What the courts will do is decide whether a legal remedy, which is a remedy that restores the breached party financially, will do, like having a hairdresser refund your money for a really bad haircut.
Then, there is an equitable remedy. This type of remedy is really an action prescribed by the court to resolve the matter. This type of remedy is often used when there is simply no financial remedy available. In other words, there is no money to be given to the breached party.
Three Main Equitable Remedies
Let's focus on the three main equitable remedies imposed by courts:
- Specific performance
Rescission happens when a previously existing contract was retracted because it was breached. The contract can be re-written in a different way so that both parties are satisfied with the terms. An example will help make this concept clearer.
Marty and Sarah settled on a real estate contract for an oceanfront condo. Marty drafts a contract that includes the sale price, address and everything included in the price. After thinking about it, Marty decided he wants to keep a few things included in the price, like his favorite bird feeder, a shrub and his mailbox.
When Sarah arrived at her new home, she noticed a few things missing. Upset by this, she contacted Marty and demanded the things be returned or a new contract be made excluding the items from the price. What actually happened was the original contract was rescinded because Marty breached it by taking items that were included in the contract for the sale of the condo. No harm was done. As long as both parties agree to the rescission of the old contract, it's easy to make a new one.
Sometimes the court will require specific performance from the breaching party, making the party do everything promised in the contract. In the condo sale between Marty and Sarah, had Sarah really wanted those sentimental items Marty took, the courts could require that Marty return them to the home and place them in their original setting. In other words, Marty would have to specifically perform what he promised to do in the original contract.
Contract reformation is a bit more complicated. It requires that there be an existing contract that needs to be re-written in a more clear way. A few elements are necessary for a reformation to occur:
- A valid contract exists.
- There are grounds for reformation, including a mistake or misrepresentation.
- There is no other defense available to the parties.
This is worth further exploration. Contract reform simply means re-doing the contract so that it is easier to understand. This could happen for a couple of reasons. A mistake or an error
in the terms in the contract, like the wrong address in a real estate contract, is definitely a reason for reformation. A wrong address could create a world of other problems down the road. Misrepresentation is a more important issue. This includes deceitful or fraudulent distortion of terms in the contract. It doesn't have to be intentional either.
When Marty created the contract for the condo sale, he never mentioned that the condo taxes have not been paid in years. After a title search came back showing $10,000 taxes were due, Sarah asked to reform the contract to exclude the taxes from her balance due to Marty when they close on the house.
Don't be confused with a breach of contract. Marty did not neglect to perform a promise. He neglected to include the back taxes. He actually misrepresented the total cost of buying the home by not including the past due taxes. A new contract will be written to either include the back taxes or include a clause stating that Marty must pay them from his profit.
There are a few other equitable remedies a court may use to resolve a contract dispute.
Other Equitable Remedies
Sometimes a court will order an injunction that requires a party to either do something or stop doing something for a period of time or indefinitely. In other words, the court wants everything to return to the status quo.
A marina owner may file an injunction against a boat slip renter if the boat or owner poses a threat to the other boats in the marina. Captain Clay has a boat dock contract with the Municipal Marina. He docks his boat there each night after fishing. Each night, he cleans his catch and leaves the bones and skin for the pelicans. This may be a good thing for the seabirds, but a bad thing for people who stroll along the boardwalk in the evening. Some have even slipped and fell into the water because of Clay's careless fish cleaning ways.
The marina owner has a right to ask the court to stop the lease agreement with Clay because his antics are causing chaos on the docks. Once he removes his boat, the marina will be back to the status quo - a peaceful place to relax.
Restitution is another equitable remedy and involves restoring a breached party back to his original state, whether it is financially or in action. Remember Marty and Sarah's condo sale? Once they cut through all of the red tape in the condo sale, Sarah was ready to start her new life in her home. She contracted Mitch to paint the place. She emailed him the specific paint color, Toadstool Green, along with the product code.
Mitch forgot to take Sarah's email to the paint store and relied on memory only. He thought she asked for Moonlight Steel and proceeded to buy the paint and start the job. When Sarah returned home from work, she was shocked at the color of the walls. This wasn't the green she hoped for. In fact, it wasn't green at all. But all Sarah could see was red. She was fumed by the painter's mistake and demanded justice.
A court may impose restitution in this case. By this, the judge may require that Mitch repaint the walls to the color Sarah requested in the contract at his expense. Sarah will not receive a financial reward for the error in memory, but having the walls repainted to the color she wanted or to the original color will restore her.