Types of Damages Available for Breach of Contract
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What Can I Do If Someone Breaches a Contract?
Contracts bind the parties of a contract to the terms of the agreement. As such, contracts form the basis of many business transactions and if one party breaches the agreement, the other party can be severely injured. In order to discourage people from breaching a contract and also to compensate the injured party for any losses, the law provides several remedies for breach of contract: damages, specific performance, contract recession, and contract modification.
What Are Damages?
Damages are monetary awards and can include:
1) Compensatory Damages: These are damages for a monetary amount that is intended to compensate the non-breaching party for losses that result from the breach. The aim is to "make the injured party whole again". There are two types of compensatory damages:
- Expectation Damages: These are damages that are intended to cover what the injured party expected to receive from the contract. Calculations are usually straightforward as they are based on the contract itself or market values.
- Consequential Damages: These are intended to reimburse the injured party for indirect damages other than contractual loss; for example, loss of business profits due to an undelivered machine. In order to recover, the injuries must "flow from the breach," i.e. be a direct result of the breach, and be reasonably foreseeable to both parties when they entered into the contract.
2) Liquidation Damages: Damages that are specifically stated in the contract. These are available when damages may be hard to foresee and must be a fair estimate of what damages might be if there is a breach. Both parties determine what would be an appropriate amount during contract negotiations.
3) Punitive Damages: These are damages that are intend to punish the breaching party and to deter him or her from committing any future breaches. They are rarely awarded in contract cases, though they may be available in some fraud or tort cases that overlap with contract law.
4) Nominal Damages: These are damages that are awarded when the injured plaintiff does not actually incur a monetary loss, but the judge wants to show that the winning party was in the right. These are typically rarely awarded in contract cases because breaches of contract usually involve some sort of loss to one party, however they might be awarded in tort cases that cross over with a breach of contract case.
5) Restitution: These are not really legal damages per se, but rather are an equitable remedy awarded to prevent the breaching party from being unjustly enriched. For example, if one party has delivered goods but the other party has failed to pay, the party that delivered the goods may be entitled to restitution, i.e. the cost of the delivered goods, in order to prevent the unjust enrichment.
What Other Remedies Are Available If There Has Been a Breach of Contract?
Relief for contract breaches can come in two forms: legal damages, which are the monetary awards discussed above, and equitable remedies.
Equitable remedies are typically awarded when monetary damages will not properly remedy the situation. They involve the court ordering the parties to act or to refrain from acting. Types of equitable remedies include:
- Specific Performance: A court decree that requires the breaching party to perform their part of the bargain indicated in the contract. For example, if one party has paid for a delivery of goods, but the other party did not ship them, a specific performance decree might require the goods to be properly delivered.
- Contract Rescission: The former contract which is the subject of dispute is "rescinded" (cancelled), and a new one may be formed to meet the parties’ needs. This is a remedy typically given when both parties agree to cancel the contract or if the contract was created through fraud.
- Contract Reformation: The former contract is rewritten with the new contract reflecting the parties’ true intent. Reformation requires a valid contract to begin with and often is used the parties had a mistaken understanding when forming the contract.
Do I Need an Attorney?
A business lawyer can help you understand which types of remedies are available to you under legal or equitable principals. The law of contracts can often change from region to region, as well as over time. Working with an attorney can help ensure that you are familiar with the various types of remedies that might be available.
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Last Modified: 06-25-2014 04:38 PM PDT
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