6.2 Breach & Remedies

Contract remedies are the core of the damages questions on the NALA Certified Paralegal (CP) Knowledge Exam. The organizing principle: contract law compensates; it almost never punishes. Master the categories, the limits, and the equitable fallback remedies, and most remedy questions become arithmetic.

The Three Protected Interests

Courts protect three interests, and every money award fits one of them:

• Expectation interest — put the injured party where they would have been had the contract been performed. This is the default and the exam favorite.
• Reliance interest — reimburse expenditures made in reliance on the contract, used when expectation damages are too speculative (for example, lost profits on a brand-new business).
• Restitution interest — return any benefit conferred on the breaching party, preventing unjust enrichment.

Compensatory Damages

Compensatory damages are the standard award: the money needed to give the injured party the benefit of the bargain. The standard formulas:

• Cost of completion or cover — what it costs to get the promised performance elsewhere, minus any amounts saved by not having to perform.
• Diminution in value — the difference between the value promised and the value received, used when completion cost would be grossly disproportionate (economic waste).
• For a seller of goods reselling after a buyer's breach: contract price minus resale price (UCC § 2-706) or contract price minus market price (UCC § 2-708), plus incidental damages.

Worked example: Dana contracts to buy 1,000 custom binders at $10 each. The seller breaches; Dana buys substitute binders elsewhere for $12 each. Cover damages: ($12 − $10) × 1,000 = $2,000, plus any incidental costs of finding the substitute.

Consequential Damages

Consequential (special) damages compensate for downstream losses beyond the contract price — most importantly lost profits. They are recoverable only under the rule of Hadley v. Baxendale: the loss must have been reasonably foreseeable to the breaching party at the time of contracting, either because it arises in the ordinary course of events or because the breaching party knew of special circumstances.

A miller who pays extra for late delivery of a crankshaft can recover ordinary carriage damages, but not lost mill profits unless the carrier was told the mill was standing idle waiting for the part. Exam trap: foreseeability is measured at formation, not at breach, and not with hindsight.

Liquidated, Nominal, and Punitive Damages

Liquidated damages are damages the parties fix in advance by contract clause. Enforceable only if both are true: (1) actual damages were difficult to estimate at the time of contracting, and (2) the fixed amount is a reasonable forecast of anticipated harm. A clause designed to terrorize performance — an amount wildly disproportionate to any plausible loss — is an unenforceable penalty. Courts test reasonableness, not the label the parties used; calling a penalty "liquidated damages" does not save it.

Nominal damages — a trivial sum such as $1 — are awarded when a breach is proven but no actual loss is shown. They vindicate the legal right and can matter for attorney's-fee clauses.

Punitive damages are designed to punish and deter, and they are almost never available for breach of contract. A breach is a private wrong, not a public outrage. The narrow exception: when the breach also constitutes an independent tort (such as fraud or bad-faith denial of an insurance claim), punitive damages may attach to the tort. On the exam, any answer awarding punitive damages for a simple breach is wrong.

The Duty to Mitigate

The non-breaching party may not recover damages it could have reasonably avoided. This is the duty to mitigate. A fired employee must make reasonable efforts to find comparable employment; wages from a comparable job (or that could have been earned) are deducted from the award. The injured party need not take inferior or different work, need not spend excessively, and can recover reasonable mitigation expenses. Critically, mitigation never requires accepting a humiliating or substantially different substitute — a wrongfully dismissed schoolteacher need not take a janitorial job.

Equitable Remedies

When money is inadequate, equity steps in:

• Specific performance — a court order to perform the contract itself. Available only when the subject matter is unique: real estate (every parcel is legally unique), rare art, heirlooms, custom items. It is never ordered for personal-service contracts — involuntary servitude concerns and supervision problems — though courts may enforce a negative covenant (an injunction against working for a competitor). For goods, UCC § 2-716 allows specific performance for unique goods or "other proper circumstances" such as inability to cover.
• Rescission — cancellation of the contract, restoring the parties to their pre-contract positions. The remedy for mutual mistake, misrepresentation, duress, or undue influence.
• Restitution — return of benefits conferred, measured by the defendant's gain rather than the plaintiff's loss. Available even when no enforceable contract exists (quasi-contract / unjust enrichment), and to a plaintiff who has itself breached, limited by the other party's damages.
• Reformation — judicial rewriting of a written contract to reflect the parties' actual agreement when a drafting mistake or misrepresentation corrupted the writing.

Paralegal Scenario

Your client, a bakery, ordered a one-of-a-kind antique display oven; the seller now refuses delivery. Money is arguably inadequate because the oven is unique — a specific performance complaint is the right vehicle, and the paralegal should draft the prayer for relief accordingly. If the same seller instead failed to deliver standard flour, the remedy is cover damages: the resale/market-price differential plus incidental costs, reduced by anything the bakery could have avoided through reasonable substitute purchases.