Contract Law - Part 2: Remedies

What a remedy is for

John paid CoolWaters $50,000 for a plunge pool that was supposed to chill to 55 degrees. It never got colder than 65, and CoolWaters could not fix it, so John paid another company $10,000 for a new chiller. Now he is suing CoolWaters for all $60,000. Is that the right number? John’s pool is the first of four breaches in the Remedies activity, and each one asks what an injured party is owed once a contract breaks.

Contract damages are compensation, usually measured against one benchmark: where the injured party would stand if the contract had been fully performed. An award aims to close the gap between that point and where the plaintiff stands now. Even a deliberate breach adds nothing to it, and being wronged earns no bonus. A plaintiff who asks for more than the gap is asking for a windfall the law will not grant.

Classify the breach first

Before a court computes anything, it decides how serious the breach was. The line between a material and a minor breach matters because it controls what the injured party can ask for. A wedding photographer who delivers the album two weeks late has broken the contract, but the couple still got what they paid for: the photographs. That breach is minor, so the couple must still pay, less whatever the delay actually cost them. A photographer who never shows up has defeated the whole point of the contract. That breach is material: the couple owes nothing more and can sue, starting with the deposit they already paid.

The label matters for one more reason. After a material breach, the injured party can treat the deal as undone and ask for its money back, an option the next section explains.

The three remedies

The default is expectation damages, the money that closes the gap between where the plaintiff stands and where performance would have put it. A landscaper contracts for forty palm trees at $150 each, and the nursery sells them to someone else. Buying the same palms elsewhere costs $175 apiece, so the landscaper is out $25 a tree, or $1,000. The Uniform Commercial Code calls that replacement purchase cover. Under section 2-712 (opens in a new tab), a buyer of goods can recover the difference between the cost of cover and the contract price. Cornell’s Wex entry on expectation damages (opens in a new tab) adds the costs that ride along with that difference, the incidental and consequential ones. The number also needs proof. The law does not demand precision, only an amount the evidence supports with reasonable certainty. A number built on hope instead of records gets cut down.

Sometimes the injured party would rather undo the deal than enforce it. After a material breach, it can elect restitution. The breaching party then hands back what it received, less the value of anything it delivered, so it keeps nothing it did not earn. Cornell’s Wex entry on restitution (opens in a new tab) draws the line cleanly: this remedy follows what the defendant gained, not what the plaintiff lost. Picture a band that pays a recording studio a $3,000 deposit, only to have the studio close before the first session. The band may never be able to prove what the album would have earned, but it can prove the $3,000. Restitution also serves a plaintiff who made a poor bargain, where expectation damages come to little or nothing and the breaching party would otherwise keep the overpayment.

The third remedy is not money at all. Specific performance is an order to do what the contract promised, and courts save it for the case where money cannot buy a substitute. A buyer under contract for a particular lot on the Halifax River cannot find that lot anywhere else, so a court may order the seller to convey it. A buyer of a hundred office chairs can buy chairs from another dealer, so it gets damages instead. Real property and rare items are the usual subjects, as Cornell’s Wex entry on specific performance (opens in a new tab) notes. Courts will not order a person to perform personal services, either. A singer who backs out of a concert pays damages but cannot be made to sing.

Two limits on the number

Two doctrines can shrink a damages award. The first is mitigation of damages: the law will not pay for a loss the injured party could have avoided with reasonable effort. An employee fired a year into a two-year contract can claim the salary for the year that remained. A court then subtracts what the employee earned, or with reasonable diligence could have earned, in similar work. In Florida, the employer has to prove that amount. Courts often call this a duty, and so does Cornell’s Wex entry on the duty to mitigate (opens in a new tab). Nothing punishes a party for ignoring it, though, except a smaller recovery.

The rule has exceptions, and a Florida statute supplies one for residential rentals. Under section 83.595, Florida Statutes (opens in a new tab), a landlord whose tenant moves out early may stand by, do nothing, and hold the tenant liable for the rent as it comes due. A landlord who retakes the unit for the tenant’s account must make a good-faith effort to rent it again.

The second limit is foreseeability, and it governs consequential damages: losses that reach past the deal itself, like the income a business loses while a breach keeps it closed. Cornell’s Wex entry on consequential damages (opens in a new tab) says they need not arise from the breach directly, so long as they result naturally from it. The limit comes from an English case decided in 1854, Hadley v. Baxendale. A mill in Gloucester stopped when its crankshaft broke. The owners sent the broken shaft by carrier to the engineers making a new one, and the carrier took days longer than promised. The mill sat idle, and its owners sued for the profits they lost. The court held that the jury should not have counted those profits, and it ordered a new trial. Its rule: a party in breach answers only for losses that arise naturally from the breach, or that both sides could have foreseen as its probable result when they contracted. Most mills, the court reasoned, would not sit idle waiting on a shipment, and as it read the record, no one had told the carrier that this one would. The optional textbook chapter (opens in a new tab) tells the whole story.

Profits the broken contract itself would have earned are a different matter, because anyone can see that losing a deal loses its profit. The foreseeability limit bites on profits lost somewhere else. A plaintiff who wants those has to show that the breaching party had reason to see them coming, which is harder than proving the loss happened.

Putting a number on a breach

So is $60,000 the right number for John’s pool? Hold it against the benchmark from the first section before you decide. The Remedies activity gives you his claim and three others, each built on a Florida opinion that measured a similar loss. Show the arithmetic behind every answer. A figure with its work shown can be checked and defended; a bare figure can only be believed or rejected.