Types of Contract Damages
In New Jersey business law disputes, there are two broad categories of damages, legal damages and equitable damages.
Briefly, legal damages, or remedies in law, are money damages. Legal damages are for harms which can be compensated by the payment of money by the party which breached the contract. In New Jersey contract law, punitive damages are not allowed. Likewise, attorneys fees cannot be recovered unless the contract provider for it. Compensatory damages, which are the amount of money needed to make the innocent party whole, may be awarded when they can be proved. In business disputes these are often lost profits, but may also include other damages such as diminution of value of property.
Equitable damages may be available where legal damages are not sufficient to make the innocent party whole for the breaching party’s wrongdoing. Their origins rest in justice, fairness and equity, rather than statutes or the common law. They are judge-made remedies, rather than jury awards. Equity allows judges to fashion remedies which go beyond money.
Historically, courts of equity and law were separate. However, the functions have merged. All New Jersey state courts are courts of equity, and New Jersey Superior and appellate court judges have inherent equitable powers. However, at the state trial level, cases which seek primarily equitable remedies are filed in the Chancery Division of the Superior Court of New Jersey, and cases which seek primarily legal damages are filed in the Law Division. Thus, if all a party was seeking was money as a remedy for the breach of a contract it would file in the Law Division. However, if it was seeking only equitable remedies, or money damages and equitable remedies, it would file in the Chancery Division where the judge would hear the case without a jury.
The equitable remedies provided by New Jersey business law for breach of contract are many. However, the most frequent are specific performance, reformation, and rescission.
Specific Performance
The equitable remedy of specific performance allows a court to require the breaching party to actually perform its requirements under a contract. A breach is not enough to trigger specific performance. The party seeking specific performance must show why other remedies, such as money damages, are insufficient, and that performance is actually possible.
The party seeking performance must show that it has performed its requirements under the contract and acted in good faith towards the other party. The terms must be clear and specific so that the court can order the performance “with precision.”
A classic example of specific performance is in a contract for the sale of real estate. This is because real property is deemed in law to be unique. Therefore, if the non-breaching party is ready, willing and able to compare the purchase, specific performance may be ordered in appropriate circumstances.
Contract Reformation
Another equitable remedy available under New Jersey business law is reformation of a contract. In reformation, a judge will essentially rewrite a contract to carry out the intentions of the parties (it is an old legal maxim that equity places substance over form). Generally, a party seeking to reform a contract must demonstrate a scrivener’s error, a mistake of fact, or a mistake of law. Mistakes should be mutual, as the purpose of reformation is to carry out the collective intention of the parties.
Rescission of a Contract
Rescission is one of the traditional powers of chancery courts. Essentially, rescission is cancelling a contract. However, it is considered an “extraordinary” remedy, and therefore granted “sparingly.” Generally the party seeking rescission must show fraud, undue influence, duress, lack of mental capacity, mutual mistake, insufficiency of consideration, or intoxication. Examples of the types of contracts where rescission has been granted include mortgages, contracts for the sale of personal property, insurance policies, deeds, negotiable instruments such as notes, real estate, and partnership agreements.
Again, this is another “exceptional” remedy. Because it would entail cancelling a contract the parties agreed to, if adequate money damages are available rescission will be denied.
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