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4 Legal Remedies for Breach of Contract in Business

On Behalf of | Oct 14, 2022 | Business And Corporate Law

When you sign a contract, you expect the other party to deliver what they promised. However, not everyone performs perfectly all the time. When that happens, you may wonder if you are entitled to remedies for breach of contract. The attorneys at Batson Nolan PLC are experienced in handling Tennessee contract law matters and can help you understand your rights. Contact us today.

What Is a Contract?

A contract is a legally enforceable exchange of promises. For example, the buyer promises to pay an amount in exchange for the seller’s delivery of a good or service. An agreement may be oral or written, but to be an enforceable contract, it must include the following:

  • Offer—the buyer offers to pay an amount or provide something of value for the seller’s goods or services;
  • Acceptance—the seller agrees to deliver the goods or services for the offered terms;
  • Consideration—each party must bring something of value to the deal.

Once all three elements are in place, each party must perform their obligations by doing what they promised to do.

What Is a Breach of Contract?

If one party fails to perform their part of the deal, there has been a breach of contract. The non-breaching party has the right to recover damages if the breach is material.

A material breach causes harm to the non-breaching party. If the breach is not material, the non-breaching party has not lost anything and, therefore, has no right to recover.

Tennessee case law provides some helpful examples. In one case, a contractor who used a rubberized roof material instead of a rubber material committed a non-material breach. In that case, because the owner could not show that the two materials were not functionally equivalent, there was no loss and nothing to recover. On the other hand, a material breach occurred when a contractor overran the agreed budget and failed to protect a home from rainfall during a renovation. Because of the damages caused to the home, the homeowners had the right to recover damages.

What Are the Remedies for Breach of Contract?

You are entitled to recovery when you or your business experience a loss because of a breach of contract. Depending on the contract’s subject matter, the legal remedies for breach of contract may be set by statute or common (i.e., judge-made) law. For example, the Uniform Commercial Code governs contracts for the sale of goods. Also, parties may set unique, binding terms in a deal and vary the applicable law or available remedies.

In general, four legal remedies are available for a breach of contract: award of damages, restitution, rescission or reformation, and specific performance.

What Is an Award of Damages?

If a court orders a damages award, the breaching party must pay to put the non-breaching party in the same position they would be in had there been no breach. The injured party has a right to recover the benefit they contributed to the agreement—which is usually the consideration they paid—or the net gain they would have realized had the breach not occurred. Sometimes this includes reimbursement for the profit they could have made if there had been no breach. These types of damages are called compensatory damages because they compensate the injured party for the loss of the deal.

Are Punitive Damages Available for Breach of Contract?

In cases of egregious conduct, a court may order punitive damages, sometimes called exemplary damages. Punitive damages are an additional damages award meant to punish the wrongdoer rather than compensate the injured party. Punitive damages are rare in breach of contract cases. They are more commonly awarded in tort cases when someone acted intentionally after knowing it was likely to hurt someone else.

What Is Restitution?

Restitution means the breaching party must return the injured party to the same state they would have been in had the deal never happened. Parties receiving restitution will not recover for lost earnings or other financial losses caused by a breach. Instead, restitution means the breaching party must return any money or property received under the contract. Restitution is a good remedy for a breach of contract when the only performance has been an exchange of money.

What Happens During a Rescission or Reformation?

In some breach of contract cases, letting both parties out of the deal makes sense. Rescission is a way to get out of a contract when one or both parties agreed to it because of fraud, coercion, undue influence, or mistake. In the case of rescission, both parties are released from their obligations under the contract, and the contract will no longer exist.

Reformation is another option for correcting fraud, coercion, undue influence, or mistake. When reformation occurs, the court changes the contract to repair the harm and inequality caused by the original agreement. The parties will still be on the hook to perform according to the terms of the reformed contract.

What Is Specific Performance?

If the contract involves a unique good, the court may order specific performance. Specific performance means the court requires the parties to perform as agreed. A court might order specific performance when the contract involves the sale of unique art or real estate. Specific performance is used by courts when no alternative remedy, such as monetary damages, will suitably compensate the party seeking relief.

Call Batson Nolan PLC for Your Contract Needs

Contracts are essential to running a business, and you rely on others to deliver their part of the bargain. The best way to avoid a breach of contract is to have an attorney negotiate and document the terms of your agreement so that all parties are fully informed about their obligations. Still, things may change over the life of a deal, regardless of whether you had an attorney draft your contract. The attorneys at Batson Nolan have years of experience helping clients seek remedies for breach of contract. We will help you develop a personalized, individually-tailored solution for your situation and needs. We have helped businesses of all sizes, from sole proprietorships to corporations, navigate breaches of contract. Contact us today to find out how we can help you handle a breach of contract.