Supply Chain Survival Series: Remedies for Breach of Contract

We have previously discussed the obligations a non-breaching party has to mitigate its own damages in the event of a contract breach. Assuming a party has mitigated its damages, this article discusses the potential remedies parties have for a breach of contract claim. Specifically, this article explores three common types of remedies a party can seek including: (1) injunctive relief; (2) specific performance; and (3) monetary damages.

Injunctive Relief

In contract disputes, injunctive relief is a court order that prevents a party from taking specific actions. Injunctive relief for a breach of contract claim may be appropriate where a party could suffer irreparable harm from the breach and where money damages would not be enough to put the non-breaching in the same position it would have been in if the breach never happened. For example, if an employee breaches a confidentiality agreement, the employer could seek injunctive relief to affirmatively prevent the former employee from continuing to misuse the employer’s confidential information. Two common forms of injunctive relief include: temporary restraining orders (“TROs”) and preliminary injunctions. Both TROs and preliminary injunctions seek to prevent irreparable harm by preventing specific actions while a lawsuit plays out.

Granting injunctive relief is generally within the discretion of a court. To obtain injunctive relief against a breaching party, the non-breaching party must typically show the following¹:

1. It is likely to succeed in the underlying lawsuit;
2. It will suffer irreparable harm if injunctive relief is not granted;
3. The harm to the non-breaching party outweighs the damage to the breaching party that would be caused by the injunctive relief; and
4. Any public impact.

First, a party seeking injunctive relief must show that it is likely to succeed on the merits of its breach of contract claim. It does not need to prove it will “definitely win the case, but it must demonstrate how it intends to prove the key elements of its case.² Second, a party must show “irreparable harm” which means the harm “cannot be prevented or fully rectified by the final judgment after trial.”³ As part of this analysis, the party must also show that traditional legal remedies are not sufficient. Finally, a court will consider the consequences to the public (meaning any non-parties) of granting or denying the injunction. If a party seeking injunctive relief establishes the above factors, a court may grant an injunction to prevent a breaching party from engaging in certain acts.

Specific Performance

Specific performance under the Uniform Commercial Code (“UCC”) is a remedy available for contract breaches involving the sale of goods.⁴ Specific performance under the UCC allows a buyer to compel the other party to perform their contractual obligations. Specific performance is typically sought when the goods are unique or rare, making monetary damages an inadequate remedy.  Specifically, UCC § 2-716(1)-(3) states that “specific performance may be decreed where the goods are unique or in other proper circumstances” and the court may order conditions relating to payment of price, damage and other remedies. Specific performance can only be ordered if the performance requested is both feasible and not unduly burdensome on the party against whom enforcement is sought.⁵

One common scenario where specific performance arises in a business context is when a manufacturer agrees to produce custom-made equipment for a company, but the manufacturer fails to deliver the equipment. Here, the company could pursue specific performance ordering the manufacturer to produce and deliver the custom equipment because the equipment was custom made for the company and cannot be readily replaced.

Monetary Damages

Finally, the most common remedy for breach of contract is monetary damages. Under UCC § 2-713, a buyer can recover its financial loses resulting directly from the seller’s failure to deliver goods under a contract. UCC § 2-713 states:

(1)  . . . the measure of damages for non-delivery or repudiation by the seller is the difference between the market price at the time when the buyer learned of the breach and the contract price together with any incidental and consequential damages provided in this Article (Section 2-715), but less expenses saved in consequence of the seller’s breach.

Direct damages are calculated based on the difference between the contract price and the market price of the goods at the time and place where the buyer learned of the breach.  For example, if a trucking company purchases 1,000 trailer hitches from a manufacturer for $50 each, and the manufacturer never delivers the hitches, the trucking company could recover the difference in price to purchase the hitches from another company. If the trucking company had to purchase the hitches for $60.00 each from another manufacturer, the company’s direct damages would be the difference in market price for the hitches ($60-$50 = $10) multiplied by the number of hitches purchased (1,000). In this scenario, the trucking company’s total direct damages would be  $10,000.

In addition to a buyer’s direct or compensatory damages, a non-breaching buyer can also recover incidental and consequential damages under the UCC. Specifically, UCC § 2-715 states:

(1) Incidental damages resulting from the seller’s breach include expenses reasonably incurred in inspection, receipt, transportation and care and custody of goods rightfully rejected, any commercially reasonable charges, expenses or commissions in connection with effecting cover and any other reasonable expense incident to the delay or other breach.

(2) Consequential damages resulting from the seller’s breach include:

(a) any loss resulting from general or particular requirements and needs of which the seller at the time of contracting had reason to know and which could not reasonably be prevented by cover or otherwise; and

(b) injury to person or property proximately resulting from any breach of warranty.

Incidental damages refer to the reasonable expenses that a buyer incurs because of a seller’s breach of contract. As explained above, the UCC provides a list of what could be considered incidental damages. Incidental damages are intended to compensate a buyer for the additional costs and inconvenience caused by a seller’s failure to perform under the contract. Similar to direct damages, incidental damages aim to place the buyer in the position they would have been in had the contract been properly fulfilled, including reimbursing the buyer for expenses reasonably incurred due to the breach.

Consequential damages refer to additional losses or damages that a buyer may suffer as a consequence of a seller’s breach of contract. These damages go beyond the immediate costs of the breach (such as the direct and incidental damages) and encompass indirect but foreseeable losses resulting from the breach. Common examples of consequential damages include lost profits and business interruption costs. For example, if a buyer relies on the delivery of goods from a seller to run its business and the delay leads to lost production or increased operational costs, the buyer could recover these costs as consequential damages. The threshold question to determine whether consequential damages are recoverable is whether the damages were reasonably foreseeable at the time the contract was created.

The UCC also provides specific monetary and non-monetary remedies for a seller upon a buyer’s breach. Under UCC § 2-703, if a buyer wrongfully rejects goods under a contract or fails to make a payment, the seller may do any of the following:

(a) withhold delivery of such goods;

(b) stop delivery;

(d) resell and recover damages;

(e) recover damages for non-acceptance (Section 2-708) or in a proper case the price (Section 2-709); or

(f) cancel.

As referenced above, a seller may recover damages for a buyer’s non-acceptance under UCC 2 -708. UCC § 2-708(1) states: “the measure of damages for non-acceptance or repudiation by the buyer is the difference between the market price at the time and place for tender and the unpaid contract price together with any incidental damages provided in this Article (Section 2-710), but less expenses saved in consequence of the buyer’s breach.” Furthermore,  UCC § 2-708(2) clarifies that if the previously described damages are inadequate to put the seller in as good a position as it would have been absent the buyer’s breach, then the measure of damages is “the profit (including reasonable overhead) which the seller would have made from full performance by the buyer, together with any incidental damages provided in this Article (Section 2-710), due allowance for costs reasonably incurred and due credit for payments or proceeds of resale.” Overall, UCC § 2-708 allows a seller to recover damages by compensating it for the difference between the contract price and the market price at the time of the buyer’s rejection or cancellation. This ensures that sellers are protected from losses incurred due to breaches by buyers in sales contracts governed by the UCC.

Attorney fees are one key category of damages generally not recoverable as either direct, incidental or consequential damages. Most courts have held that attorney fees are not recoverable under the UCC based on the theory that if the UCC intended to cover attorney fees, it would have done so expressly. Because the UCC does not address attorney fees as consequential damages, most courts have held those fees cannot be recovered as consequential damages.⁶ Furthermore, in the absence of any applicable statutes, attorney fees are not automatically recoverable even if a party wins its contract dispute. As such, parties should consider including an explicit fee-shifting provision in a contract specifying that attorney fees are recoverable when enforcing contract provisions.

Overall, the remedies available for breach of contract—including injunctive relief, specific performance, and monetary damages—serve to protect the rights of parties and ensure contractual obligations are enforced. Each remedy addresses different aspects of harm caused by breaches, whether by compelling performance, preventing irreparable harm, or compensating for monetary losses. Understanding these remedies is crucial for both parties involved in contract negotiations to anticipate potential outcomes in the event of a breach.

If you have any specific questions on this article, please contact your Quarles attorney:

• Brandon Krajewski: (414) 277-5783 / brandon.krajewski@quarles.com
• Patrick Taylor: (414) 277-5523 / patrick.taylor@quarles.com
• Hannah Schwartz: (414) 277-5551 / hannah.schwartz@quarles.com

Quarles attorneys Michael Chargo, Lauren Zenk and Elizabeth Lacey also contributed to this article.

END NOTES

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¹ Katch, LLC v. Sweetser, 143 F. Supp. 3d 854, 865 (D. Minn. 2015).

² Newman v. Nazcr Trac Prop. Owners Ass’n, Inc., 601 F. Supp. 3d 357, 363 (E.D. Wis. 2022).

³ Id.

⁴ UCC § 2-716.

⁵ UCC §2-716(3).

⁶ See, e.g, Med. City Dallas, Ltd. v. Carlisle Corp., 251 S.W.3d 55, 60 (Tex. 2008).