15.4: Equitable Remedies

LEARNING OBJECTIVES

1. Know when equitable (as opposed to legal) remedies will be allowed.
2. Understand the different types of equitable remedies: specific performance, injunction, and restitution.

Overview

The real explanation for the differences between law and equity lies in the history and politics of England, beginning in the twelfth century. Over time, the English legal system developed two separate court systems: courts of law, which could award only money damages, and courts of equity, which could provide other forms of relief when money was inadequate. Though the institutional separation is long gone, the distinction between law and equity remains significant in modern remedies.

Several practical differences stand out:

1. Use of juries. Juries are used in legal cases but not in equitable ones.
2. Role of precedent. Courts of equity rely less rigidly on precedent and more on principles of fairness and justice.
3. Nature of relief. Most importantly, equity provides remedies when money damages are inadequate.

In equity, a judge may:

• Order specific performance, compelling the breaching party to deliver unique property or perform a promised act;
• Grant an injunction, requiring a party to stop engaging in conduct that violates the agreement; or
• Award restitution, returning the parties to their precontract positions by requiring the return of consideration.

In short, legal remedies primarily involve monetary compensation, while equitable remedies step in when justice requires action beyond money.

Types of Remedies in Equity

There are three types of equitable remedies: specific performance, injunction, and restitution.

Specific Performance

Definition.
Specific performance is a judicial order requiring the promisor to carry out the precise performance promised in the contract. It is an alternative to damages and may be issued at the court’s discretion when money damages are inadequate to compensate the nonbreaching party.

The Role of Uniqueness.
The most important limitation on specific performance is the requirement of uniqueness. Courts grant specific performance only where the subject matter of the contract is so unique that monetary damages cannot provide an adequate substitute. The uniqueness requirement ensures that specific performance is reserved for extraordinary cases, not routine breaches.

• Real estate. Every parcel of land is considered legally unique. No two pieces of property have exactly the same location, characteristics, or value to a particular buyer. Therefore, contracts to sell real estate are the classic cases for granting specific performance.
• One-of-a-kind goods. Specific performance may also be granted for rare or unique personal property—such as antiques, family heirlooms, artworks, or custom-made items—because a buyer cannot simply go out and purchase an identical substitute.
• Sentimental or personal value. Even if an item is not rare in the market, its special significance to the nonbreaching party may justify specific performance. For instance, a gold samovar with unique family history may be irreplaceable to its intended recipient.
• Non-unique goods. If the subject matter of the contract is readily available in the marketplace (e.g., standard consumer goods, fungible commodities like grain or oil), then monetary damages are adequate. Courts will not compel specific performance simply because one party would prefer it.

Limitations.
Specific performance is never available to compel personal services, even if the service is highly skilled or unique. Forcing someone to work against their will would amount to involuntary servitude, which is prohibited. However, a court may issue an injunction to prevent a party from breaching a negative covenant (for example, working for a competitor in violation of a noncompete clause).

Example.
Emily contracts to sell Charlotte a gold samovar, a Russian antique of great sentimental value because it once belonged to Charlotte’s mother. Emily repudiates before delivery. Because the samovar is unique and damages would not adequately compensate Charlotte, a court may order Emily to specifically perform the contract and deliver the samovar.

Injunction

Definition.
An injunction is a court order directing a party either to stop doing something (prohibitory injunction) or, more rarely, to affirmatively do something (mandatory injunction). In contract law, injunctions are most often used to prevent a party from breaching a promise not to act in a certain way.

Key Principle.
The purpose of an injunction is not to award money damages but to prevent harm that cannot be adequately remedied through compensation. Injunctions are particularly useful when the contract contains a negative covenant—a promise not to do something—that is central to the bargain.

Applications in Contract Law.

• Noncompete agreements. If an employee agrees not to work for a competitor after leaving a company, and then takes a competing job, a court may issue an injunction preventing the employee from continuing with the competitor.
• Exclusive rights. If a seller grants a buyer a right of first refusal on a parcel of land or a unique work of art but attempts to sell it to a third party, the buyer may seek an injunction to prevent the sale.
• Confidentiality agreements. Courts may enjoin a party from disclosing trade secrets or confidential business information in violation of a contract.

Enforcement.
Violating an injunction is a serious matter. A party who disobeys may be held in contempt of court, facing fines or even imprisonment. Courts rely on this power to ensure compliance when damages alone would not deter or repair the harm.

Limitations.

• Courts are generally cautious in granting injunctions because they restrict freedom of action.
• The nonbreaching party must demonstrate that damages would be inadequate to make them whole.
• Injunctions will not be issued where they would impose disproportionate hardship on the breaching party compared to the benefit to the nonbreaching party.

Examples.

• An employer secures an injunction preventing a former employee from working for a competitor for six months, enforcing a valid noncompete clause.
• A buyer obtains an injunction stopping a seller from selling a rare painting to another purchaser, honoring the buyer’s contractual right of first refusal.
• In Madison Square Garden v. Carnera Corporation (Section 16.6.3), the court issued an injunction to prevent a boxer from breaching a negative covenant by fighting elsewhere in violation of his contract.

Restitution

Definition.
Restitution is an equitable remedy designed to restore to one party the benefit conferred on the other, preventing unjust enrichment. Unlike expectation or reliance remedies, restitution is not primarily concerned with the nonbreaching party’s loss but with ensuring that the breaching party does not unfairly retain a gain.

Key Principle.
Restitution is rooted in fairness: a party should not be enriched at another’s expense when the underlying contract fails or is breached. Recovery is limited to the value of the benefit actually conferred and does not serve as a penalty.

Applications in Contract Law.

1. Total Nonperformance or Repudiation.
   When one party completely fails to perform, the other party may recover the value of what was provided.

   • Example: Calhoun contracts to build $3,000 worth of fences for Arlene for $2,000. He completes the work, but Arlene refuses to pay. Calhoun may recover the $2,000 contract price. Had Arlene repudiated before completion, Calhoun could recover the market value of his work or the amount by which Arlene’s land was enhanced.

2. Return of Specific Property.
   Restitution may take the form of specific restitution of property transferred under the contract.

   • Example: If Arlene gave Calhoun a Ming vase as consideration for building the fences, and Calhoun breached, Arlene could demand return of the vase.

3. Measuring Restitution.
   Courts have discretion in calculating restitution, typically using either:

   • The market value of services rendered, or
   • The value by which the breaching party’s property or wealth was enhanced.
   • Example: Calhoun agrees to construct ten fences for $25,000 but only builds three, worth $7,500 on the market. If the fences increase Arlene’s property value by $8,000, restitution may be set at either $7,500 or $8,000, depending on fairness. Courts usually adopt the smaller measure to prevent disproportionate awards.

4. Part Performance and Then Breach.
   Even a breaching party may sometimes recover in restitution if the benefit conferred exceeds the loss suffered by the nonbreaching party.

   • Example: Calhoun pays Arlene $30,000 toward a $120,000 land purchase but repudiates before closing. Arlene resells the property for $110,000, suffering a $10,000 loss. Calhoun may recover $20,000 in restitution ($30,000 paid minus Arlene’s $10,000 loss). Otherwise, Arlene would be unjustly enriched by receiving $140,000 for property worth $120,000.

5. Other Situations.
   Restitution may be available when a contract is void or voidable due to incapacity, mistake, misrepresentation, duress, or the Statute of Frauds (unless this would frustrate the statute’s purpose). It may also be available if duties are discharged due to impossibility, impracticability, frustration of purpose, failure of a condition, or a beneficiary’s disclaimer.

Limitations.

• Restitution is not meant to punish the breaching party; recovery is limited to the value conferred.
• Courts avoid awarding excessive amounts, particularly where the benefit conferred cannot be reasonably measured (e.g., lifesaving medical treatment).
• Restitution is unavailable when the only remaining obligation is for payment of a definite sum of money. In that case, expectation damages suffice.

---

KEY TAKEAWAY

Equitable remedies for breach of contract are available when legal remedies won’t make the nonbreaching party whole. The equitable remedies are specific performance (an order directing a person to deliver to the buyer the unique thing the seller contracted to sell), injunction (an order directing a person to stop doing that which he should not do), and restitution (the return by one party of the benefit conferred on him when the contract is not performed, to the extent necessary to avoid imposing a penalty on the breaching party).

EXERCISES

1. Buyer contracts to buy a 1941 four-door Cadillac convertible from Seller for $75,000. Seller, having found a Third Party who will pay $85,000 for the car, refuses to sell to Buyer. What is Buyer’s remedy?
2. Assume Third Party had paid the $85,000 and Seller was ordered to sell to Buyer. What is Third Party’s remedy?
3. Professor Smith contracts to teach business law at State University for the academic year. After the first term is over, she quits. Can State University get an order of specific performance or an injunction requiring Professor Smith to return for the second term?
4. Now suppose that the reason Professor Smith quit work at State University is because she got a better job at Central University, fifteen miles away. Can State University get an injunction prohibiting her from teaching at Central University?