12.3 Contract Remedies

When a duty has been breached and not discharged, the question is what the court will award. The PCCE blueprint names specific remedies. Learn each label, when it is available, and which combinations are inconsistent. Contract law's ordinary goal is compensation, not punishment. Punitive damages are generally not awarded for a mere breach of contract unless an independent tort (fraud, conversion) is proved.

Expectation damages

Expectation (benefit-of-the-bargain) damages are the default money remedy. They aim to put the injured party in the position performance would have produced. A working formula is:

loss in value of the other party's performance + other loss − cost avoided − loss avoided.

A buyer of services who must hire a substitute at a higher price recovers the difference, plus reasonably foreseeable extras, minus expenses saved by not having to perform. A seller who resells for less recovers the contract-market or contract-resale gap. Expectation requires proof with reasonable certainty. Speculative lost profits — especially of an untested new business — may fail that proof, which is when counsel pivots to reliance.

Mitigation

The injured party has a duty to mitigate: it cannot recover damages that it could have avoided by reasonable effort without undue risk, burden, or humiliation. A fired employee must make reasonable efforts to find comparable work. A seller of goods should make a reasonable resale; a buyer should make a reasonable cover (UCC 2-706, 2-712). Failure to mitigate does not forfeit the lawsuit; it reduces recovery by the avoidable amount. The breaching party has the burden of showing that a reasonable substitute was available.

Mitigation is not a duty to take a substantially different or inferior job, or to deal with the breaching party on humiliating terms. It is a duty of reasonable avoidance.

Liquidated damages

A liquidated-damages clause sets the amount payable on breach in advance. It is enforceable if, at the time of contracting:

1. Anticipated actual damages were difficult to estimate, and
2. The stipulated amount is a reasonable forecast of just compensation.

If the clause is designed to punish or to terrorize performance — a sum grossly disproportionate to probable loss — it is a penalty and will not be enforced. Courts then award ordinary proven damages instead. UCC 2-718 uses a similar reasonableness idea and expressly addresses deposits. A clause can be valid as to some breaches and a penalty as to others. Do not stack a penalty on top of a full expectation recovery for the same loss.

Restitution

Restitution returns the benefit conferred on the other party. Its goal is to prevent unjust enrichment, not to deliver the plaintiff's lost profit. The measure is typically the reasonable value of the benefit (quantum meruit or quantum valebant) or the increase in the defendant's wealth.

Restitution is available after rescission of a voidable contract (fraud, mistake, duress); when a contract is unenforceable (Statute of Frauds) but one party has conferred a benefit; to a breaching plaintiff in a limited Restatement or statutory measure so the breacher is not unjustly drained or unjustly enriched; and in quasi-contract when there was no enforceable contract at all.

Restitution is not specific performance of the original bargain. It looks backward at the benefit, not forward at the expectation.

Reformation

Reformation is an equitable order that rewrites the written instrument so it matches the parties' actual agreement. Typical use: the writing, by mutual mistake in integration — or by one party's fraud and the other's mistake — omits a term or misstates the price or the property description. The court does not make a new deal; it conforms the paper to the deal that was made. Parol evidence is admissible to prove the mistake in integration. Reformation is not a tool to rescue a party from a bad bargain that was accurately written down.

Specific performance

Specific performance is an equitable decree ordering the defendant to perform. It is available when the legal remedy is inadequate — money cannot readily replace the bargained-for performance.

• Land. Every parcel is unique. A buyer of real property is the classic specific-performance plaintiff. Sellers sometimes obtain it as well.
• Unique goods. UCC 2-716: specific performance may be decreed where the goods are unique or in other proper circumstances (output or requirements contracts; inability to cover). Heirlooms, custom goods, and scarce items qualify more readily than fungible commodities.
• Personal services. Courts will not specifically enforce a contract to perform personal services (employment; a named artist's concert). Compelling labor raises Thirteenth Amendment and supervision problems. A court may sometimes enjoin a unique performer from working for a competitor for a limited period (the negative-covenant cousin), but that is not an order to sing.

Equity is discretionary. Unclean hands, laches, impossibility of supervision, and lack of mutuality of remedy can defeat the request.

Incidental and consequential damages; Hadley

Incidental damages are the commercially reasonable costs of dealing with the breach: inspection, receipt, transportation, care, and custody of rejected goods; commercially reasonable charges in stopping delivery or effecting cover or resale (UCC 2-710, 2-715). They are ordinary follow-on expenses, not lost profits.

Consequential damages are losses that do not flow automatically from every breach of this kind of contract, but from the injured party's special circumstances — a factory shutdown, a lost resale to a particular customer, a penalty the plaintiff owes a third party. Hadley v. Baxendale (1854) is the foreseeability rule: consequential loss is recoverable only if, at the time of contracting, it was reasonably foreseeable as a probable result of breach — either because it arises in the ordinary course or because the special circumstances were communicated to the other party. The mill shaft in Hadley did not support lost mill profits because the carrier was not put on notice that delay would idle the mill.

Consequentials also require reasonable certainty and mitigation. UCC 2-715(2) tracks Hadley for buyers: loss resulting from general or particular requirements of which the seller had reason to know and which could not reasonably be prevented by cover.

Reliance damages and election of remedies

Reliance damages put the plaintiff in the position as if the contract had never been made: out-of-pocket expenses incurred in reliance on the promise, minus any loss the defendant can prove the plaintiff would have suffered anyway. Use reliance when expectation profits cannot be proved with certainty, or on a promissory estoppel theory (Restatement § 90) where a promise induced foreseeable reliance and injustice can be avoided only by enforcement. Reliance should not deliver a greater recovery than a full expectation measure would have, once losing-contract facts are shown.

Election of remedies is the idea that a plaintiff may not recover inconsistent remedies that produce a double recovery. A party who rescinds and takes restitution has treated the contract as avoided and generally may not also collect expectation as if the contract were affirmed. A party who obtains specific performance of the land sale does not also keep the full deposit as liquidated damages for nonconveyance of the same land. Modern procedure is more flexible than old election-at-filing rules: pleadings can be in the alternative, and the election is often delayed until judgment. The exam still wants the concept: pick a consistent theory; do not collect the same loss twice.

Related labels: nominal damages (a token sum when a breach is proved but no actual loss); limitation-of-liability clauses (generally enforced if not unconscionable); attorney's fees (American Rule — each side pays its own unless a statute or the contract shifts them).

The paralegal's remedies checklist

1. Identify the breach and whether duties were discharged.
2. Default measure: expectation, with a mitigation file (cover bids, job-search records, resale records).
3. Separate incidental costs from Hadley consequentials; hunt the intake notes for what the other party was told.
4. If a clause sets a number, run the liquidated-versus-penalty test; do not assume every liquidated-damages heading is valid.
5. If money is inadequate (land, unique goods), flag specific performance; if the contract is personal services, flag that specific performance is the wrong box.
6. If the writing is wrong, consider reformation; if the client conferred a benefit on a voidable or unenforceable deal, consider restitution.
7. Do not plead rescission plus full expectation for the same bargain without an alternative-pleading plan.

Worked path. A dealer contracts to sell a one-of-a-kind vintage racing car for $80,000 and then sells it to someone else. Specific performance may still reach the car if it can be reached; otherwise expectation is the cover or market differential plus incidentals. Lost profits from a weekend promotional appearance the buyer never told the dealer about are likely unforeseeable consequentials under Hadley. A clause that said "if seller breaches, seller pays $2 million" against an $80,000 unique-car deal is a penalty, not liquidated damages. If the buyer already paid $10,000 and prefers to unwind rather than chase the car, restitution of the $10,000 is the clean election.