Remedies for Failing to Perform Contract Obligations

The failure to perform the obligations of the contract entitles the nonbreaching party to seek remedies for the breach of contract. Contractual remedies are allowed because the nonbreaching party will not receive the benefit of the bargain.

Damages

The most common form of remedy is damages. Damages are the amount of money necessary to compensate the nonbreaching party for the loss of the bargain. Compensatory damages are awarded for the losses actually sustained because of the breach of contract. If the nonbreaching party must replace defective goods from another source at a higher price, the costs of replacement are compensatory damages.

If the breach of contract results in expenses to the nonbreaching party, the award can include these incidental expenses as well. For example, a contract that calls for the seller to pay the cost of shipping the goods is breached when the seller fails to deliver the goods. The costs of replacing the goods are compensatory damages; if the buyer must pay shipping costs for the new goods, these are incidental damages.

Consequential damages may be awarded when the nonbreaching party suffers damages because of the breach, but it is not directly related to the performance of the contract itself. These are damages that stem from the breach, as when the failure to deliver goods causes the buyer to be unable to fulfill other contractual obligations.

Specific Performance

Specific performance is an order that the breaching party fulfill its obligations under the contract. It is reserved for those cases where other remedies are insufficient. The object of the contract must be unique and not easily replaced, such as a custom-made product or an artistic performance. Specific performance is a commonly requested remedy in disputes involving the sale of real estate.

Other Remedies

Sometimes, the best remedy for a breach of contract is to place the parties in the positions they held before the contract was formed. This involves relieving each of the parties of their obligations under the contract. This remedy is called recission. Recission of a contract means that neither party is obligated to perform the obligations of the contract.

If one of the parties has partially performed the obligations of the contract, fairness requires compensation for that part performance. If goods have been shipped, they must be returned or paid for. If money has been paid, it must be repaid. This form of remedy is called restitution.

Occasionally the parties will agree that the contract does not actually express the agreement of the parties. Since the parties do not require actual performance of the contractual obligations, the terms of the contract must be changed to accurately reflect the agreement of the parties. The remedy of reformation allows the court to alter the contract to impose the true obligations contemplated by the parties.

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