Where two parties have made a contract which one of them later breaks, the foreseeable damages which the other party should receive due to the breach should be considered as reasonably:
- Arising naturally from the breach; or
- In the contemplation of both parties as the probable result of contract breach.
Courts have generally recognized three important rules in applying the principle of foreseeability:
- The wronged party may recover those damages reasonably and naturally arising in the normal or usual course of things, sometimes referred to as general damages.
- Recovery is allowed for damages reasonably in the contemplation of both parties, at the time they made the contract, as the probable result of the breach itself. These less obvious kinds of damages are deemed to be contemplated if the promisor knows or should know there are special circumstances which will give rise to such damages.
- For something to be foreseeable, the breaching party needs to have enough knowledge about a particular situation for him to have contemplated those likely damages
Suppose that party A makes a contract with party B. The agreement is that party B will deliver a car to party A at party A’s house by a specific date. Party A informs party B that A needs the car by that date so that A can show the car off at a car show. B fails to deliver the car by the date.
In the situation described above, B would not only be liable for not delivering the car on time, B would also be responsible for lost profits since B knew that A needed the car to be in the show. If A had not given B that information, the lost profits would not have been foreseeable by B (assuming that A could prove exactly how much profits were lost).
Thus, sharing information in contract negotiations creates foreseeability and thus liability in the other party for breach of contract. Although there are situations where disclosure of information might not be a good idea, in general foreseeability creates an incentive for disclosure in the parties involved in an agreement.
In many contracts, it is foreseeable by both parties that breach of a contract would cause emotional distress. Such distress would also be a natural and reasonable consequence of the breach. The emotional distress would also not be part of a claim in court. For example, the loss of a job would likely cause emotional distress in an employee, but courts have ruled that breach of employment contract cannot include emotional distress since allowing liability for such distress would create too much litigation in the legal system.
The only exceptions are if the breach also caused bodily harm or if the breach is of a kind that serious emotional distress was a particularly likely result. Breaching a promise to marriage, for example, is one of the only breaches where emotional distress alone could carry the case.
If you are involved with a breach of contract matter, and there’s a dispute over the foresseability of the requested damages, you may find the advice of a business attorney extremely helpful. Due to the complex nature of contract law the assistance of an experienced business attorney can be extremely beneficial when establishing your case.