CHAPTER 18

Remedies for Breach of Contract

§18.1 THE SCOPE OF THIS CHAPTER

Because a contract creates obligations enforceable in law, its breach by one of the parties entitles the other to commence action to enforce it. This action may be a suit in court, or, where parties have so agreed, may be by some form of alternative dispute resolution, such as arbitration. This does not mean, of course, that the victim of a breach will inevitably take enforcement action. For most people, litigation or arbitration to enforce the contract is usually the last resort, after it becomes clear that the breach cannot be resolved by less formal means, such as a request to rectify the breach or by negotiation. Even where informal resolution fails, the victim of the breach may decide not to seek enforcement of the contract for any of a number of reasons. For example, because this may damage an important relationship between the parties, or the amount at stake is too small to justify the expense of litigation or arbitration, or it will be too difficult to prove economic injury, or the breaching party has no funds or other assets available to pay any judgment or award that may be obtained. Although these considerations should always be borne in mind, they are not addressed here. It is the concern of this chapter to set out the policies, general principles, and rules that govern the choice of remedy for breach and the measurement of compensation. We therefore focus on the judicial enforcement of the contract following its breach.

  This chapter examines the remedies available for breach of contract. It presupposes that a valid and enforceable contract has been entered into and that one of the parties has breached it materially and totally.¹ If your contracts course covers remedies at or near the beginning, you will be reading this chapter before you get to questions of formation, performance, and breach. Remedial issues fall into three distinct but interrelated inquiries: First we must determine the nature and extent of the plaintiff’s compensable loss, including both the harm suffered and the availability and form of the legal remedy or remedies to redress it. Second, if there is more than one means of remedying the loss, we must decide which of the available remedies most efficiently and comprehensively compensates for it. Finally, we must take into account any policies or principles that may limit the defendant’s liability for the loss.