Contracts give the parties legal rights and obligations. If another party is not living up to their end of the bargain in a contract you signed with them, you have the legal ability to file a lawsuit. If you can prove breach of contract, a court would force the other party to honor their obligations, either by paying you money or performing the actions the contract required them to perform. Breach of contract lawsuits can be high-stakes litigation, and they could have a big economic impact on your business. Below we will discuss the most common breach of contract remedies available under Texas law.
The most common remedy for breach of contract is monetary damages. Parties to a contract are legally entitled to receive damages for their losses resulting from the breach. The court may order one or more types of compensatory damages, including the following:
For all monetary losses, you have a duty to mitigate. You cannot sit and do nothing in the hopes that you would get everything back in a lawsuit. You must take steps to reduce your losses. For example, if someone was contracted to buy something of yours but did not, you must try to sell that item elsewhere and seek the difference in price in a lawsuit.
Punitive damages are rare in a breach of contract case. If the breaching party acted maliciously, willfully, or fraudulently, a jury may try to make an example out of them or send them a strong message by assessing punitive damages. These damages are meant more as a punishment against the other party than to compensate you. They would be awarded in addition to any other compensatory damages you would receive.
Monetarily, you may be awarded nominal damages for a breach of contract. Other than losing a lawsuit, this may be the worst-case scenario for you. Courts award nominal damages when you cannot support your compensatory damages claim. Invariably, this damage award would be less than you are seeking.
You may also set the penalty for a breach of the contract ahead of time. Some contracts contain a liquidated damages provision that is triggered when one party does not follow the terms of the contract. Liquidated damages can either be a set sum or the result of a contractual formula. They are often used in real estate and construction contracts. They are a substitute for having to figure out the compensatory damages for a breach of contract.
The parties cannot simply choose any amount they want as liquidated damages. The amount must be reasonable in relation to the contract. If the liquidated damages are excessive, a court will not enforce the provision.
In most cases, the court would order damages for breach of contract. Specific performance is a rare and extraordinary remedy. It is a form of relief in which the court orders an action to be taken.
Specific performance is most often ordered when the contract at issue concerns the sale of something. The court may order a party to go ahead with the transaction they promised to complete. For example, in a mergers and acquisition context, a business may sue a would-be acquirer, seeking specific performance of the deal to which the two parties agreed.
Specific performance is often the remedy received when there is no other alternative to the transaction, and money would not be adequate compensation. One party may have put themselves in a position where they are relying on the contract to be completed and may suffer incalculable losses if the other party does not perform. You will almost never see specific performance awarded or ordered in a personal services contract breach claim.
Courts may issue an injunction to prevent a party from breaching a contract. An injunction is when the court orders a certain action not be taken, as opposed to requiring a party to affirmatively do something. Injunctions are usually an interim form of relief while the court considers the merits of the parties’ arguments, but they can also be permanent in some cases.
Sometimes, you may be able to get out of a contract entirely through rescission, but it is not a common remedy. Rescission makes it as if the contract never happened, and you are restored to your initial position before the contract was signed.
Rescission is a possible remedy when there was misconduct in the formation of the contract, such as:
If there was a misrepresentation involved, it must go to the heart of the contract. If it was about a minor detail, it would not be material, and a court would not order rescission. Like specific performance, rescission is an extraordinary remedy that is not always granted by a court. If you want to rescind a contract, you must do so in its entirety. You cannot rescind only part of a contract.
How you act during a contractual dispute could affect the legal remedies available to you. It is vital to contact a breach of contract attorney early on if you have a disagreement with another party over a contract you signed.