Breach of Contract Remedies: What the CP Exam Expects You to Know

When a party fails to perform their obligations under a contract, the non-breaching party is entitled to remedies designed to put them in the position they would have been in had the contract been fully performed. Understanding the available remedies for breach of contract is essential for the NALA Certified Paralegal exam and for everyday paralegal work. This guide covers each type of remedy, when it applies, and how to analyze breach of contract questions on the exam.

Types of Breach

Before analyzing remedies, you must understand the types of breach. A material breach is a failure to perform a substantial part of the contract, excusing the non-breaching party from further performance and entitling them to damages. A minor (partial) breach is a failure to perform some aspect of the contract that does not defeat the overall purpose; the non-breaching party must continue performing but can recover damages for the shortfall. An anticipatory breach occurs when a party clearly communicates, before performance is due, that they will not perform their obligations.

Compensatory Damages

Compensatory damages are the primary remedy for breach of contract. They are designed to give the non-breaching party the "benefit of the bargain" by putting them in the economic position they would have occupied had the contract been performed. Compensatory damages include:

Expectation Damages

Expectation damages measure the value the non-breaching party expected to receive from full performance minus any costs saved by not having to perform. This is the standard measure of contract damages and reflects the difference between what was promised and what was actually received.

Consequential Damages

Consequential damages (also called special damages) compensate for losses that flow as a natural and foreseeable consequence of the breach but are not directly caused by it. Under the rule from Hadley v. Baxendale, consequential damages are recoverable only if they were foreseeable to the breaching party at the time the contract was formed or if the breaching party was informed of special circumstances that made such losses likely.

Incidental Damages

Incidental damages cover the costs incurred by the non-breaching party in attempting to mitigate losses or in dealing with the aftermath of the breach. Examples include the cost of finding a replacement supplier, storage costs for undelivered goods, and communication expenses.

Reliance Damages

Reliance damages compensate the non-breaching party for expenditures made in reliance on the contract. This remedy is used when expectation damages are too speculative to calculate, such as in cases involving new businesses or uncertain ventures. Reliance damages put the party back in the position they were in before the contract was made.

Restitution

Restitution requires the breaching party to return any benefit they received under the contract, preventing unjust enrichment. This remedy focuses on the defendant's gain rather than the plaintiff's loss. Restitution is often sought when the contract is voidable (due to fraud, mistake, or incapacity) or when the non-breaching party has conferred a benefit that the breaching party would otherwise retain unfairly.

Specific Performance

Specific performance is an equitable remedy that orders the breaching party to perform their contractual obligations. Courts grant specific performance only when money damages are inadequate to compensate the non-breaching party. The most common application is in contracts for the sale of real property, which is considered unique by law. Specific performance is generally not available for personal service contracts because ordering someone to work involuntarily raises constitutional concerns.

Rescission and Reformation

Rescission cancels the contract and returns both parties to their pre-contract positions. It is typically available when the contract was induced by fraud, mutual mistake, duress, or undue influence. Reformation is an equitable remedy that rewrites the contract to reflect the parties' actual agreement when a written contract does not accurately reflect their intent due to a scribe's error or mutual mistake.

Liquidated Damages

Liquidated damages are a pre-determined amount of damages specified in the contract itself. They are enforceable if two conditions are met: (1) the anticipated damages at the time of contracting were difficult to estimate, and (2) the amount is a reasonable forecast of actual damages. If the liquidated damages clause is found to be a penalty (an amount grossly disproportionate to anticipated harm), courts will not enforce it.

The Duty to Mitigate

The non-breaching party has a duty to take reasonable steps to minimize their losses after a breach. Damages that could have been avoided through reasonable mitigation efforts are not recoverable. This duty does not require extraordinary measures, only reasonable ones under the circumstances.

Study Contract Remedies for the CP Exam

Contract remedies questions on the CP exam require you to identify the appropriate remedy based on the facts and calculate damages accurately. Practice with ParalegalPrep flashcards to learn the rules and work through scenarios. Create your free account to access contract law practice questions, or see our pricing plans for comprehensive access.

Breach of Contract Remedies: Complete Guide for the CP Exam