Although contracts bring predictability and accountability to your business operations, contracts can also be breached. When contracts are breached it leaves you in a position of trying to figure out, what do I do now? How do I continue to get my business running? How do I make up for any loss that's associated with the breach of the contract? In this lesson, we're going to talk about remedies for breach of contract. We'll talk about legal and monetary damages, which is one type of remedy for a breach of contract. Then we'll talk about equitable remedies. These are remedies that don't involve money. Then the legal concept of the duty to mitigate. We'll spend a few minutes talking about that. First, legal and monetary damages. These are quite familiar. These are the damages that the non-breaching party to a contract may be entitled to you as a result of a breach. The first is expectation damages. The idea behind expectation damages is to make sure the non-breaching party gets the benefit of their bargain. For example, let's say, Abigail had a contract with Billy in which Abigail would pay Billy $1,000 to build her website. Billy builds the website but Abigail doesn't pay him the $1,000. She only pays him $500. Under expectation damages, Billy expected to get $1,000 for the services that he performed. In a case around breach of that contract, the court would make sure that Billy gets what he expected to get from the deal. So while Abigail gave him $500, the court would award Billy the additional $500 to ensure that he got the full $1,000 that he expected from the deal. The next type of damage is what we call reliance damages. Reliance damages is used to allow the non-breaching party to recover the amount of money that they are entitled to based on their reliance on the breaching party's agreement in the contract. It's similar to expectation damages, except reliance damages will allow a plaintiff to get additional damages that may not be part of the contract per se. For example, if a plaintiff decided to have a business with a third party in reliance on the contract that they have with you, by you breaching that agreement you may be responsible for making sure that the plaintiff gets what they relied on from a third party. Restitution damages is designed at putting both parties back to where they would have been had the contract not been entered into. A court will look at where both parties were, what monies were spent, what expenses were incurred as a result of the contract and then attempt to put both parties where they were had the contract never been entered into. Those types of damages are what we call restitution damages. Finally, consequential damages. These are things that happen as a result of the breach. Anytime that's a foreseeable occurrence, anything that would be foreseeable as a result of you breaching the contract, could be encompassed under consequential damages. Sometimes money is not enough. A party may have breached the contract such that money will not fully satisfy the non-breaching party. This is where equitable remedies come into place. A court has the ability to fashion equitable remedies to really get at a just result. That's how courts like to look at it. One equitable remedy is called specific performance. That essentially allows the court to force the breaching party to perform their job under the contract. For example, in the example we gave what Abigail not paying Billy the $1,000 for the website design, let's flip that example and say that Abigail had a contract with Billy. Billy would build a website for Abigail and Abigail would pay Billy $1,000. Let's say part of that contract required Abigail to pay Billy the $1,000 upfront and Abigail does that. But Billy doesn't build the website. Money won't necessarily solve that. A court could force Billy to give Abigail the $1,000 back. But under specific performance, the court could say, "Hey, in order for this to be equitable, we're going to force Billy to actually build the website." A specific performance would force Billy to perform his obligations under the contract as agreed. Injunctions is another type of equitable remedy that a court can fashion. Injunctions come in two forms. An injunction can actually force a party to do something or an injunction can stop a party from doing something that they already are doing. A court is able to do that under its equitable power remedies. Rescission is another method that the court can use. A rescission just allows a party to ignore the contract. They can resend the contract and no longer be bound by the terms of the contract. Promissory estoppel and quantum meruit are not necessarily equitable remedies but they are ways of that quasi-contracts. A promissory estoppel has the same effect as a contract if a party relies on representations that you make to their detriment. So if you make a recommendation or a promise to a party, that party relies on that representation and engages in an act in reliance on your representation. Then the court may treat that as a contract and enforce it as if it is a contract. A quantum meruit allows a party to not unfairly gain from their actions. I know you guys need a big break from a lot of legalese, so I figured I'd give you this here. But as you enjoy this, I want to talk about the duty to mitigate because this is an obligation on all parties to a contract. Even if someone else breaches a contract, you can't sit back as the non-breaching party and say, "They breached the contract. I'm going to let my damages rack up so I can take them the town." That's not what you're able to do as a non-breaching party. Every party to a contract has a duty to mitigate damages. If the other party to the contract breaches, you have to take certain steps to make sure that you keep the damages from racking up. You actually have to take affirmative steps to ensure that the damages are mitigated. Failure to do this can actually hurt you in terms of the damages you're able to receive or the remedies the court is able to fashion for you. Keep that in mind. If you're dealing with a vendor, or a supplier, or landlord, or some third-party that you have a contract with and they breached the contract, make sure that you take appropriate steps to ensure that you're mitigating the potential damages from that breach. Just as a matter of summary. Breach of contract, it happens. Every agreement that you have you should have provisions in place to account for what happens in the event of a breach. But when there is a breach, there are remedies that are available to you. They can be in the form of legal or monetary remedies, such as expectation damages, reliance damages, restitution, or consequential damages. Or the court can give equitable remedies such as specific performance, making a party perform under the contract, or an injunction, stopping a party from doing something or making a party do something, or rescission, allowing the party to rescind the contract. These are all remedies that may be available to you as a result of a breach of contract.
