Compensatory damages in a contract claim are those types of damages that are meant to compensate the non-breaching party for their losses. These types of damages awards are usually issued if there has been a breach of contract.
The term “compensatory damages” involves two types of damages awards: General damages and Specific damages. General damages usually cover losses that are directly related to the subject matter of the contract, such as failing to meet a number of shipments. Specific damages compensate the plaintiff for losses related to the breach, but not resulting directly from the breach, such as damage to a business’ reputation.
State laws may vary as to the amount of compensation that a party can receive.
In most contract lawsuits, the plaintiff must specifically state that they are requesting compensatory damages when they file the claim. This is especially true for special damages, since those involve losses that are not addressed in the contract. Failing to request compensatory damages can make the party ineligible for monetary damages.
Some of the other requirements for proving compensatory damages include:
- Causation: The defendant’s breach must have caused the plaintiff’s economic losses. These may either be directly caused (as in general damages) or indirectly caused (special damages)
- Foreseeability: The losses must be foreseeable at the time of contract formation. If the losses were not foreseeable, a compensatory damages award will not be issued
- Calculable: The losses must be capable of being calculated into specific monetary amounts. This is usually done using fair market values at the time of contract formation. Losses that cannot be quantified or reduced to dollar amounts will not be considered
- Unavoidable: The losses must have been unavoidable. If the non-breaching party could have prevented the losses but failed to do so, it will disqualify them from receiving compensatory damages. This is known as “the doctrine of avoidable consequences”
In order to prove each of these requirements, it may be necessary for the non-breaching party to provide additional evidence in support of their claims. For example, the victim of the breach may need to provide evidence that the parties engaged in discussion regarding the risks involved with the contract. The victim might then submit transcripts or records of negotiations showing that the parties discussed potential losses. This would help prove the element of “foreseeability” mentioned above.
Compensatory damages may not always be awarded in every case. State statutes might limit the amount of compensation that a plaintiff can receive in a contract claim. Also, it is common for the parties to waive their rights to compensatory damages in a provision in the contract.
If compensatory damages are unavailable for whatever reason, there still may be other remedies available. For example, it may be possible to request for certain equitable remedies (such as an injunction ordering the defendant to perform their contractual duties).
However, most states require the plaintiff to choose whether they will be requesting monetary damages or equitable remedies at the beginning of trial. It is usually not possible for a plaintiff to claim both types of remedies.
Contract claims can often be complex by nature. Once a contract is breached, it can make the arrangements even more complicated. If you need assistance with contract issues such as compensatory damages, you may wish to speak with a lawyer for advice. An experienced business lawyer can help determine whether compensatory damages are an appropriate remedy for your situation.