Chapter 14 – Remedies
14.4 Equitable Remedies
When legal remedies are inadequate to make the non-breaching party whole, or a breach of contract involves unique circumstances that make monetary compensation insufficient, equitable remedies may be available. Equitable remedies are non-monetary remedies that are designed to put the non-breaching party in the position they would have been in if the contract had been performed as promised. Equitable remedies include specific performance, injunctions, and restitution. Specific performance requires the breaching party to fulfill their contractual obligations, while injunctions prevent the breaching party from taking certain actions. Restitution is a remedy that allows the parties to return to the consideration the non-breaching party gave so as to return the parties to the precontract status. Each of these types of equitable remedies are discussed below.
Three Types of Equitable Remedies
Specific Performance
Specific performance is an equitable remedy that is available in limited situations when one party to a contract fails to perform their obligations under the contract. It is a court-ordered remedy that requires the breaching party to fulfill their contractual obligations as promised. In other words, specific performance is a remedy that compels the breaching party to do what they promised to do in the contract. For example, Emily signs a contract to sell Charlotte a gold samovar, a Russian antique of great sentimental value because it once belonged to Charlotte’s mother. Emily then repudiates the contract and refuses to transfer gold samovar. In a lawsuit, a court may properly grant Charlotte an order of specific performance against Emily, which means that Charlotte will get the gold samovar instead of legal damages. Specific performance essentially gives the non-breaching party the benefit of their bargain, by requiring the breaching party to fulfill their obligations under the contract.
Specific performance is a very limited remedy: it is only available for breach of contract to sell a unique item, that is, a unique item of personal property (the samovar), or a parcel of real estate (all real estate is unique). But if the item is not unique, so that the non-breaching party can go out and buy another one, then the legal remedy of money damages will solve the problem. Specific performance is not available as a remedy to force a person to perform a service, as this would be involuntary servitude. Courts will generally only order specific performance if the non-breaching party can show that monetary damages are inadequate and that specific performance is necessary to avoid an unjust result.
Injunction
An injunction is the second type of equitable remedy available in contract (it is also available in tort). It is a court order directing a person to stop doing that which she should not do. In the context of contract law, injunctions are often used as an equitable remedy to prevent a breach of contract. For example, if an employer has a valid noncompete contract with an employee, and the employee, in breach of that contract, nevertheless undertakes to compete with his former employer, a court may enjoin (issue an order of injunction), directing the former employee to stop such competition. Or if Seller promises to give Buyer the right of first refusal on a parcel of real estate or a unique work of art, but Seller, in breach of a written promise, offers the thing to a third party, a court may enjoin Seller from selling it to the third party. Injunctions are often used when monetary damages would not be an adequate remedy for a breach of contract. This may be because the harm caused by the breach is ongoing, or because the harm is difficult to quantify in monetary terms. Injunctions can be particularly useful in cases where the harm caused by a breach of contract is irreparable, meaning that it cannot be undone through monetary compensation alone.
It is important to note that injunctions are a discretionary remedy, meaning that a court may choose to grant or deny an injunction based on the particular circumstances of the case. Additionally, injunctions can be temporary or permanent, depending on the circumstances of the case. If a person violates an injunction, which is a court order, he may be held in contempt of court and even wind up in jail.
Case 14.3
Madison Square Garden Corporation v. Carnera, 52 F.2d 47 (2d Cir. Ct. App. 1931)
CHASE, J.
On January 13, 1931, the plaintiff and defendant by their duly authorized agents entered into the following agreement in writing:
1. Carnera agrees that he will render services as a boxer in his next contest (which contest, hereinafter called the ‘First Contest.’…
9. Carnera shall not, pending the holding of the First Contest, render services as a boxer in any major boxing contest, without the written permission of the Garden in each case had and obtained. A major contest is understood to be one with Sharkey, Baer, Campolo, Godfrey, or like grade heavyweights, or heavyweights who shall have beaten any of the above subsequent to the date hereof. If in any boxing contest engaged in by Carnera prior to the holding of the First Contest, he shall lose the same, the Garden shall at its option, to be exercised by a two weeks’ notice to Carnera in writing, be without further liability under the terms of this agreement to Carnera. Carnera shall not render services during the continuance of the option referred to in paragraph 8 hereof for any person, firm or corporation other than the Garden. Carnera shall, however, at all times be permitted to engage in sparring exhibitions in which no decision is rendered and in which the heavy weight championship title is not at stake, and in which Carnera boxes not more than four rounds with any one opponent.’…
Thereafter the defendant, without the permission of the plaintiff, written or otherwise, made a contract to engage in a boxing contest with the Sharkey mentioned in paragraph 9 of the agreement above quoted, and by the terms thereof the contest was to take place before the first contest mentioned in the defendant’s contract with the plaintiff was to be held.
The plaintiff then brought this suit to restrain the defendant from carrying out his contract to box Sharkey, and obtained the preliminary injunction order, from which this appeal was taken. Jurisdiction is based on diversity of citizenship and the required amount is involved.
The District Court has found on affidavits which adequately show it that the defendant’s services are unique and extraordinary. A negative covenant in a contract for such personal services is enforceable by injunction where the damages for a breach are incapable of ascertainment. [Citations]
The defendant points to what is claimed to be lack of consideration for his negative promise, in that the contract is inequitable and contains no agreement to employ him. It is true that there is no promise in so many words to employ the defendant to box in a contest with Stribling or Schmeling, but the agreement read as a whole binds the plaintiff to do just that, provided either Stribling or Schmeling becomes the contestant as the result of the match between them and can be induced to box the defendant. The defendant has agreed to ‘render services as a boxer’ for the plaintiff exclusively, and the plaintiff has agreed to pay him a definite percentage of the gate receipts as his compensation for so doing. The promise to employ the defendant to enable him to earn the compensation agreed upon is implied to the same force and effect as though expressly stated. [Citations] The fact that the plaintiff’s implied promise is conditioned, with respect to the contest with the winner of the Stribling-Schmeling match, upon the consent of that performer, does not show any failure of consideration for the defendant’s promise, [Citation].
As we have seen, the contract is valid and enforceable. It contains a restrictive covenant which may be given effect. Whether a preliminary injunction shall be issued under such circumstances rests in the sound discretion of the court. [Citation] The District Court, in its discretion, did issue the preliminary injunction.…
Order affirmed.
Case questions
- Why did the plaintiff not want the defendant to engage in any boxing matches until and except the ones arranged by the plaintiff?
- What assertion did the defendant make as to why his promise was not enforceable? Why wasn’t that argument accepted by the court?
- If the defendant had refused to engage in a boxing match arranged by the plaintiff, would a court force him to do what he had promised?
Restitution
The third type of equitable remedy is restitution. Restitution is a remedy applicable to several different types of cases: those in which the contract was avoided because of incapacity or misrepresentation, those in which the other party breached, and those in which the party seeking restitution breached. As the word implies, restitution is a restoring to one party of what he gave to the other. Therefore, only to the extent that the injured party conferred a benefit on the other party may the injured party be awarded restitution. The point is, a person who breaches a contract should not suffer a punishment, and the non-breaching party should not be unjustly enriched.
Total Nonperformance by Breaching Party
The non-breaching party is always entitled to restitution in the event of total breach by nonperformance or repudiation, unless both parties have performed all duties except for payment by the other party of a definite sum of money for the injured party’s performance. For example, Calhoun, a contractor, agrees to build $3,000 worth of fences for only $2,000 and completes the construction. Arlene, the landowner, refuses to pay. Calhoun’s only right is to get the $2,000; he does not have a restitution right to $2,500, the market price of his services (or $3,000, the amount by which her property increased in value); he is entitled, instead, only to $2,000, his contract price. Had Arlene repudiated prior to completion, however, Calhoun would then have been entitled to restitution based either on the market price of the work or on the amount by which he enhanced her property. If the one-party breaches, the non-breaching party is generally entitled to restitution of property that can be returned. Suppose Arlene gives Calhoun a valuable Ming vase in return for his promise to construct the fences. Upon Calhoun’s breach, Arlene is entitled to specific restitution of the vase.
Measuring restitution interest can be problematic. The courts have considerable discretion to award either what it would have cost to hire someone else to do the work that the non-breaching party performed (generally, the market price of the service) or the value that was added to the property of the party in breach by virtue of the claimant’s performance. Calhoun, the contractor, agrees to construct ten fences around Arlene’s acreage at the market price of $25,000. After erecting three, Calhoun has performed services that would cost $7,500, market value. Assume that he has increased the value of Arlene’s grounds by $8,000. If Arlene repudiated, there are two measures of Calhoun’s restitution interest: $8,000, the value by which the property was enhanced, or $7,500, the amount it would have cost Arlene to hire someone else to do the work. Which measure to use depends on who repudiated the contract and for what reason. In some cases, the enhancement of property or wealth measurement could lead to an award vastly exceeding the market price for the service. In such cases, the smaller measure is used. For a doctor performing lifesaving operations on a patient, restitution would recover only the market value of the doctor’s services—not the monetary value of the patient’s life.
Part Performance and Then Breach
A party who has substantially performed and then breached is entitled to restitution of a benefit conferred on the injured party, if the injured party has refused (even though justifiably) to complete his own performance owing to the other’s breach. Since the party in breach is liable to the injured party for damages for loss, this rule comes into play only when the benefit conferred is greater than the amount the non-breaching party has lost. Arlene agrees to sell her property to Calhoun for $120,000, and Calhoun makes a partial payment of $30,000. He then repudiates. Arlene turns around and sells the property to a third party for $110,000. Calhoun—the breaching party—can get his money back, less the damages Arlene suffered as a result of his breach. He gets $30,000 minus the $10,000 loss Arlene incurred. He gets $20,000 in restitution. Otherwise Arlene would be enriched by Calhoun’s breach: she’d get $140,000 in total for real estate worth $120,000. But if he gets $20,000 of his $30,000 back, she receives $110,000 from the third party and $10,000 from Calhoun, so she gets $120,000 total (plus, we hope, incidental damages, at least).
Restitution in Other Cases
Upon repudiation of an oral contract governed by the Statute of Frauds, the non-breaching party is not entitled to her expectation interest, but she may recover in restitution unless the purpose of the statute would be frustrated. When one party avoids a contract owing to lack of capacity, mistake, misrepresentation, duress, or the like, she is entitled to restitution for benefit conferred on the other party. Restitution is also available if a contract duty is discharged or never arises because (1) performance was impracticable, (2) the purpose of the contract was frustrated, (3) a condition did not occur, or (4) a beneficiary disclaimed his benefit.
Check your Understanding
ways to make a party whole, for example through specific performance, injunctions, or restitution
a contract remedy provided by a court that orders the losing side to perform its part of an agreement rather than, or possibly in addition to, paying money damages to the winner
a writ (order) issued by a court ordering someone to do something or prohibiting some act after a court hearing
returning property or its monetary value to the rightful owner
a court orders that someone either do a specific act, cease a course of conduct or be prohibited from committing a certain act; such an order is called an injunction
actions demonstrating that one party to a contract refuses to perform an obligation
a law in every state that requires certain types of documents to be in writing and signed by the party to be charged (usually, the defendant in a lawsuit)
the interest of a party to a breached contract in receiving the benefit of the bargain by being put in a position as good as that which would have resulted had the contract been performed
