Contracts: Remedies
Contracts: Remedies
When a contract is breached, the law does not treat the broken promise as an abstract moral wrong. It treats it as an economic and practical injury, and it asks a focused question: what remedy will most appropriately respond to the breach? Contract remedies are designed primarily to protect the value of the bargain, allocate risk in a predictable way, and encourage efficient planning in commerce. They are not, as a rule, meant to punish. Instead, they aim to compensate, restore, or, in limited cases, compel performance.
The main remedies for breach of contract fall into a few familiar categories: expectation damages, reliance damages, restitution, specific performance, and liquidated damages. Each responds to a different kind of loss and a different objective of contract law.
The purpose of contract remedies
A contract is an exchange. One side promises something of value, the other gives something in return. A breach disrupts that exchange, so remedies focus on putting the injured party into an appropriate position relative to the promised performance.
In practical terms, courts tend to choose remedies that:
- compensate the non-breaching party for proven losses
- prevent unjust enrichment when one party benefits unfairly
- respect party autonomy when the contract reasonably pre-sets damages
- avoid waste and excessive supervision when performance is hard to police
That framework explains why money damages are the default and why equitable remedies like specific performance are comparatively rare.
Expectation damages: the benefit of the bargain
Expectation damages are the centerpiece of contract remedies. The goal is to place the non-breaching party in the position they would have occupied if the contract had been performed as promised. This is often described as protecting the “benefit of the bargain.”
What expectation damages cover
Expectation damages typically include:
- the value of the promised performance
- losses caused by the breach that are connected to the contract’s purpose
- costs avoided because performance did not occur (which are subtracted)
A common way to express the idea is:
In a straightforward sale-of-goods context, expectation damages may look like the difference between the contract price and the market price at the time of breach, plus any reasonable additional costs incurred because of the breach.
Practical example
If a contractor agrees to renovate an office for a fixed price and walks off the job halfway through, the owner’s expectation interest is measured by what it will cost to obtain the promised result, compared with what was originally agreed. If completion by another contractor costs more than the original contract price, that difference is often recoverable, along with related expenses that were reasonably tied to the breach.
Expectation damages, however, are not unlimited. They must be proven with reasonable certainty and must connect to the bargain the parties actually made.
Reliance damages: reimbursement for expenditures
Sometimes expectation damages are difficult to prove. A business may have planned around a contract, but the profits it expected are uncertain or speculative. In those cases, the law may protect the reliance interest: reimbursing the non-breaching party for costs reasonably incurred in reliance on the contract.
Reliance damages aim to put the injured party in the position they would have been in if the contract had never been made.
What reliance damages cover
Reliance damages can include:
- out-of-pocket expenditures made to prepare for performance
- costs incurred in performing before the breach
- other foreseeable expenses directly tied to reliance on the agreement
Reliance is particularly important in early-stage deals where performance has not matured into measurable profits. For example, if a company spends money on staffing, materials, or marketing because it reasonably believed a supplier would deliver, and the supplier breaches, reliance damages may compensate those expenditures even if lost profits are uncertain.
Reliance recovery is typically limited so it does not overcompensate. If the breaching party can show the injured party would have lost money even if the contract had been performed, a court may reduce reliance damages to reflect that reality.
Restitution: preventing unjust enrichment
Restitution is different in aim and logic. It is not focused primarily on the injured party’s expected gain. Instead, it prevents the breaching party from being unjustly enriched by retaining benefits conferred under the contract.
Restitution can be especially relevant when:
- one party has partially performed and the other party breaches
- the contract is unenforceable for some reason but benefits were still exchanged
- expectation or reliance damages are inadequate to address the benefit retained
What restitution measures
Restitution usually measures the value of the benefit conferred, not the injured party’s losses. For instance, if a service provider performs valuable work before the other party wrongfully terminates the contract, restitution may allow recovery of the reasonable value of those services.
Restitution can also function as a strategic alternative. In some disputes, the value of the benefit conferred may exceed what expectation damages would yield, especially where the contract price is low compared with the value delivered before breach.
Specific performance: compelling the promised act
Specific performance is an equitable remedy that orders the breaching party to perform their contractual obligation rather than pay money damages. Despite its prominence in popular discussions, it is not the standard response to breach.
Courts generally reserve specific performance for situations where money damages are inadequate. That tends to occur when the subject matter of the contract is unique or difficult to value.
Common settings where specific performance may apply
- real estate transactions, because each parcel of land is considered unique
- rare goods, unique art, or items with no readily available substitute
- specialized assets where the market cannot easily replace performance
Specific performance is also shaped by practical considerations. Courts are reluctant to order performance that requires ongoing, detailed supervision, such as complex service obligations over time. Similarly, contracts for personal services are generally not specifically enforced, both for policy reasons and because compelled personal labor raises serious concerns.
Even when specific performance is available, courts may condition relief on fairness. If the contract terms are oppressive, unclear, or the requesting party acted inequitably, equitable relief may be denied.
Liquidated damages: pre-agreed compensation
Liquidated damages are a contractual provision that sets damages in advance if a breach occurs. They are widely used in construction contracts, leases, and agreements where breach could cause real but hard-to-measure losses, such as delay or disruption.
Why parties use liquidated damages
- predictability in risk allocation
- reduced litigation over proving losses
- faster resolution when breach occurs
- pricing and planning based on known exposure
Enforceability: liquidated damages vs penalties
Courts generally enforce liquidated damages when they function as a reasonable estimate of anticipated harm at the time of contracting and when actual damages would be difficult to calculate. If the amount is designed primarily to punish the breaching party rather than compensate for likely loss, it may be treated as an unenforceable penalty.
A practical way to think about the line is this: liquidated damages should approximate compensation, not serve as leverage or retribution.
Choosing among remedies in real disputes
In practice, remedies are not chosen in a vacuum. Plaintiffs often plead multiple theories, and the available recovery depends on proof, causation, and the structure of the transaction. The same breach might support an expectation measure in one case, reliance in another, and restitution in a third, depending on what can be shown with credible evidence.
A buyer who can readily cover in the market may pursue expectation damages based on price difference. A startup whose profits are speculative may favor reliance damages for documented expenditures. A contractor terminated after substantial performance may seek restitution for the value delivered if the contract’s profit expectations are contested.
Conclusion
Contract remedies reflect a pragmatic commitment to honoring bargains without turning every breach into a moral offense. Expectation damages protect the promised value of the deal. Reliance damages reimburse reasonable commitment to an agreement when profits are uncertain. Restitution prevents one party from keeping benefits unfairly. Specific performance compels performance only when money cannot make the injured party whole. Liquidated damages, when properly drafted, allow parties to set fair, predictable consequences in advance.
Understanding these remedies is not just an academic exercise. It shapes contract drafting, negotiation strategy, and litigation outcomes. Most importantly, it clarifies what contract law is trying to do when promises break: restore the appropriate economic position, not punish the breach.