Foreseeable Contract Damage Laws

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 What is a Contract?

A contract is an agreement between two or more parties that creates legal obligations for all parties. It can be oral or written.

To be valid and enforceable, a contract must include:

An offer
An acceptance of the offer presented
A promise on each side to perform their contractual duties
A valuable consideration from each party (“consideration” means something that each party will give up or do. For example, in a contract to buy a car, the buyer’s consideration is the money for the car, and the seller’s consideration is turning over ownership of the car)

In addition to those provisions, which are the minimal requirements for a contract to be valid, most contracts also contain the following:

  • A time when the performance of the contractual duties must be made
  • Terms and conditions for performance
  • Actual performance

Due to a law called the Statute of Frauds, the court will not enforce certain contracts unless they are in writing. These include:

  • Marriage contracts
  • Contracts that will not be performed within one year
  • Contracts for land or interests in land
  • Contracts paying a decedent’s debt guarantees
  • The sale of goods contracts over a specific amount of money. Each state has set its own amount.

The majority of contracts are governed by statutes of the state in which they are made. Therefore, it is important to consider local laws when dealing with a contract issue. An attorney will know the local laws and how they apply to a contract.

What is a Breach of Contract?

If a party fails to fulfill their responsibilities under the contract, that party has breached it. There are two main types of breaches in contract law: a minor breach and a material breach.

A minor breach occurs when a party substantially performs their contractual duties. They meet the essential obligations of the contract but do not meet a minor condition. This minor breach does not significantly affect the contract terms. The parties involved may fulfill any remaining contractual obligations despite the breach.

A material breach, also known as a total breach, is a serious violation of the terms of the contract. It generally only harms one party to the contract. If a material breach occurs, the non-breaching party is not required to fulfill their obligations under the contract, and they may file a lawsuit to seek legal remedies to recover for the harm they suffered.

What Legal Remedies are Available for Breach of Contract?

Legal remedies are available to compensate for losses when someone breaches a contract. A party can:

  • Sue for damages – this means asking for money to compensate for any financial losses caused by the other party’s breach. For example, Party A was supposed to sell a particular house to Party B. Party A sold the house to someone else. Party A can recover any losses they suffered, such as payments to Party B for the house, payments to moving companies, costs of packing up their belongings, etc. Compensatory damages are by far the most common form of relief in a breach of contract lawsuit.
  • Demand specific performance this is demanding that the party fulfill their obligations under the contract. This type of remedy is usually only granted if there is something unique about the way the contract was supposed to be fulfilled, and monetary damages are not a sufficient form of remedy. Drawing on the example above, perhaps the house that is being sold is very unique, and there is no equivalent house that Party A could buy. In that case, Party A would sue Party B for specific performance.
  • Terminate the contract

Ultimately, the select remedy and the amount of damages will be decided by the court.

If a material breach has occurred, making it extremely difficult or impossible for the other parties to fulfill their own duties under the contract, a court may award an equitable remedy instead of a monetary remedy. Examples of equitable remedies include:

  • Specific performance (discussed above)
  • Contract rescission (cancellation of the contract)
  • Issuance of an injunction (an order to do or not do something)
  • Contract reformation (rewriting or canceling just a portion of the contract. This can happen if the parties make a mistake of fact when they set up the contract. An example would be if Party A contracted with Party B for numerous landscaping services, including planting trees, installing a fence, and digging and building a pond for koi fish. If it turns out that the pond cannot be created because there is bedrock where Party B would have to dig, then the contract can be reformed so there is no obligation to build or pay for a pond, but the rest of the contract continues.

It is important to note that equitable remedies may be requested, but the court does not always grant them. As mentioned, equitable remedies are only awarded when the court determines that a monetary award would be inadequate to compensate the party harmed by the material breach of contract.

Must the Damages be Foreseeable?

When the court considers what remedies to order, it will only consider foreseeable damages that the injured party should receive due to the breach. Foreseeable damages are those that reasonably arose naturally from the breach or which the parties expected could occur if there were a contract breach.

What Rules Govern the Principle of Foreseeability?

There are 3 important rules courts generally recognize when applying the principle of foreseeability. These are:

  • The aggrieved party may recover those damages reasonably and naturally arising in the normal or usual course of the contract, known as general damages
  • Recovery of damages is allowed for those reasonably contemplated by the parties to the contract at the time the contract was made as a probable result of a breach. Less obvious types of damages that the parties actually contemplated are also considered foreseeable damages. Also, if there were damages that would normally be considered unusual if the promisor knew or should have known that there were special circumstances that would give rise to such damages, those damages are foreseeable.
  • For a situation to be foreseeable, the breaching party should have had enough knowledge about a particular situation for them to have contemplated that those damages might occur. If one party informed the other about a special need, the breaching party will be held responsible for any damages arising from the fact that the special need was not met.
    • For example, if Party B promises to deliver a car to Party A by a specific date, and Party A tells Party B that they intend to sell a car at an upcoming car show and that’s why they need the car to be delivered by the specific date, and then Party B fails to deliver it on time, Party B will be held liable for the lost sales opportunity.

Should I Contact an Attorney Regarding the Foreseeability of Contract Damages?

Yes. It is important to contact an experienced contract attorney for any foreseeability issues you may face. These cases are often complex and involve areas of law that are complicated. A contract attorney will be able to review your case and your contract, provide advice on how to proceed, and represent you in negotiations and court proceedings, if necessary.


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