Final answer:
When a contract is breached, the outcomes can range from specific performance to different types of damages: compensatory, consequential, and restitution. Liquidated damages are prespecified sums set in the contract to cover losses from a breach, constrained to reasonable estimates of actual harm.
Step-by-step explanation:
When a party to a contract breaches the agreement, four possible situations might occur. These include:
- Specific Performance - The court orders the breaching party to perform their part of the contract.
- Compensatory Damages - The non-breaching party is awarded money to cover the loss incurred due to the breach.
- Consequential Damages - The non-breaching party is compensated for additional losses that are a foreseeable result of the breach.
- Restitution - The non-breaching party is put back in the position they were in before the contract.
Liquidated damages are a predetermined amount of money that is stipulated within the contract, representing a genuine attempt to estimate in advance the loss that would occur from a breach. The total amount of liquidated damages is limited to what is reasonable in relation to the anticipated or actual harm caused by the breach, and cannot be punitive in nature.