Types of Damages in BREACH OF CONTRACT Cases

Breach of contract damages are the legal remedies available to a party when the other party has failed to fulfill their obligations under the contract. The purpose of these damages is to put the non-breaching party in the position they would have been in if the breach had not occurred. There are several types of damages that a court may award in a breach of contract case:

Compensatory Damages

Compensatory damages serve as the cornerstone of contract remedies. They are awarded to "make the plaintiff whole," which means they aim to cover the actual loss the non-breaching party suffered. This loss includes both the direct loss (also known as the “expectation interest”) and any incidental losses incurred while attempting to mitigate the breach. For example, if a contractor fails to complete a building project on time, compensatory damages would include the cost to hire a new contractor to finish the job and any additional rental costs the client incurs due to the delay.

Consequential Damages

Also referred to as indirect damages, consequential damages are awarded for losses that the breaching party could have reasonably foreseen at the time the contract was formed. These damages are not directly caused by the breach but result from the breach. An example might include a business losing profits because a critical piece of machinery, which was to be provided under a contract, was not delivered on time. The business could claim the profits it lost due to the inability to operate without that machinery.

Liquidated Damages

In many contracts, the parties agree in advance on the amount of damages to be paid if a breach occurs. These liquidated damages must approximate the actual harm done and cannot be punitive in nature. Courts will assess whether the predetermined amount of damages was a reasonable estimate at the time the contract was signed. If the amount is found to be a penalty rather than a reasonable estimate, the court may not enforce the liquidated damages clause.

Punitive Damages

Punitive damages are rare in breach of contract cases because their purpose is to punish, not compensate. They are usually awarded only when the breaching party's actions were willful, malicious, or fraudulent. For example, if a party not only breaches a contract but also commits fraud in their dealings, punitive damages might be considered appropriate to deter such behavior in the future.

Nominal Damages

Where there is a breach of contract but no actual financial loss to show for it, nominal damages may be awarded. They are a symbolic payment, acknowledging the breach and affirming the wronged party’s rights under the contract. These are important in principle because they establish a legal precedent, even if they do not offer substantial compensation.

Restitution

Restitution is designed to prevent unjust enrichment. If one party has conferred a benefit on the other in the expectation of receiving something in return, and the return is not forthcoming, restitution requires that the unjustly enriched party pay the reasonable value of the benefit they received. This is about equity and fairness, rather than compensation for contractual damages.

Specific Performance

Specific performance is an equitable remedy, typically invoked when monetary damages are inadequate. This could apply in cases involving unique items, like art, antiques, or real estate, where the non-breaching party can argue that no amount of money could replace the specific item promised under the contract. The court, in such cases, may compel the breaching party to fulfill their end of the contract, effectively enforcing the contract as agreed.

Reformation

Reformation is a remedy that allows a contract to be amended or "reformed" to truly reflect what the parties intended. This remedy is applicable when the written agreement, due to a mutual mistake or fraudulent misrepresentation, does not actually express the agreement the parties intended to make.

Rescission

Rescission is the legal unwinding of a contract. It is as if the contract never existed. This remedy is most often used when there has been a significant breach, or when the agreement was entered into based on a mistake, misrepresentation, duress, or undue influence. Rescission restores the parties to the positions they would have been in if the contract had never been formed.

Conclusion

Understanding these remedies is crucial for both parties in a contract. Contracts can be complex, and the remedies for breach of contract can be just as intricate.

For more information concerning breach of contract damages and other types of damages in civil litigation, check out the Self Rep Edge Video Series and Civil Litigation Workbook.