Equitable Remedies for Breach of Contract
In New Jersey business law, equitable remedies are sometimes available when money is insufficient to adequately compensate a person, business or other entity for the harm caused by another party’s breach of contract. These equitable business law remedies are granted by a judge, rather than a jury. Judges can, if certain prerequisites have been met, fashion non-monetary remedies to put an innocent party in as good a position as it should have been.
The New Jersey Constitution of 1947 merged courts of equity and law, and New Jersey judges now have both inherent equitable and legal powers. However, New Jersey’s Rules of Court provide that in state court cases in which the primary relief sought is equitable remedies rather than money damages, the proper venue is the Chancery Division of the Superior Court of New Jersey, which can grant both equitable remedies and money damages.
The most frequent equitable remedies available for breach of contract are contract reformation, specific performance of a contract, and rescission of a contract.
Contract Reformation
Under certain circumstances New Jersey business law allows courts to grant the equitable remedy of contract reformation. When a judge grants a request for contract reformation, the judge essentially rewrites the contract in question or a relevant part of it.
The purpose behind contract reformation is that a contract is supposed to reflect and embody what the two sides agreed to. If it doesn’t, then equity, or fairness and justice, allows the judge to revise those portions of the contact so that they do, in fact, reflect the parties’ mutual intention. This is in keeping with the age old doctrine of equity that substance should take precedence over form.
However, the two sides wrote the contract themselves to formulate the rules governing their relationship and transactions – essentially, they have written their own law for their relationship, which is embodied in the terms of the contract. When a court reforms a contract, it is taking that power away from the parties, which the law considers an extraordinary remedy.
Therefore, when one party asks a court to reform a contract it generally must prove a good reason, such as a mistake of fact, a mistake of law, or a scrivener’s error. When such a mistake occurs, the mistake should have been mutual because the court is taking the power of writing the contract away from the parties, and thus reformation should only be granted to carry out the intentions of both of the parties.
Specific Performance of a Contract
Specific performance is an equitable remedy in which a judge orders a breaching party to perform its requirements under a contact. However, a simple breach of contract is not enough to entitle a party to obtain an order for specific performance. Instead, the party asking the court to order specific performance must prove that money damages or an insufficient remedy. The party seeking specific performance must also show that it is, in fact, possible for the breaching party to perform its requirements under the contract.
There are several additional prerequisites to specific performance. The terms of the contract must be “clear and specific” so that performance can be ordered with specificity. The party asking the court to order specific performance must prove that it performed its own contract requirements in good faith. The non-breaching party must also be ready, willing and able to perform its own remaining requirements under the contract.
A contract for a sale of real estate sale is a classic example of a candidate for specific performance. Because real estate, legally known as real property, is deemed to be unique, courts will often order specific performance and compel the sale of real property when the prerequisites are met.
Contract Rescission
Another equitable contract remedy is rescission. Rescission is a process by which a court, when certain requirements have been proven, may cancel a contract.
Again, cancelling, or rescinding, a contract entails voiding an agreement which parties freely entered into. It is therefore “extraordinary,” and is thus a remedy resorted to only “sparingly.” Thus, when a person or business asks a court to rescind a contract, that party has the obligation to demonstrate duress, undue influence, fraud, insufficiency of consideration, mutual mistake, lack of mental capacity, or intoxication. Likewise, the party seeking rescission must show that money damages would not be able to adequately compensate the innocent party.
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