Special damages are a specific type of damages available for breach of contract. When a contract is breached, special damages may be awarded to reimburse the non-breaching party for damages that result indirectly from, or that “flow from” the breach. Special damages awards cover losses besides the contractual losses; this may include a broad range of losses such as loss of profits or damage to business reputation.
Special damages are often requested in addition to general damages. General damages in a breach of contract claim cover contractual losses, such as the difference between market prices and contract prices, or losses due to money being withheld. Both general and specific damages fall under the category of “compensatory damages”.
The phrase “special damages” is often used interchangeably with the term “consequential damages”. This is to indicate that the damages are the “consequence” of a contractual breach, though they might not have been directly caused by the breach of contract.
Special damages cover most losses that are not remedied through a general damages award. Some examples of losses that “flow from” a breach may include:
- Loss of profits, business opportunities, or contacts
- Loss of product or business property
- Damage or harm to business reputation
- Loss of operating revenue (for example, if a business did not open on the scheduled date because construction was not completed)
- Loss of time or other inconveniences
A common example of a special damages award is when a breach causes a loss of profits. For example, suppose that two parties enter into a contract for the sale of a painting. The painting is worth $5,000 and the buyer intended to re-sell the painting at $6,000. If the seller breaches the contract by selling the painting to a different buyer, the non-breaching party may be entitled to special damages.
In this case, the special damages would equal $1,000 ($6,000-$5,000), which is the amount of profit that the buyer would have gained through the resale.
Usually, special damages must be specifically requested during filing, as they do not normally arise in every case. Failing to request for special damages can result in the non-breaching party losing their rights to special damages.
In order to obtain a special damages award, several other requirements must be fulfilled. The losses suffered must be:
- Foreseeable: The losses must be reasonably foreseeable or “within the contemplation of the parties” at the time the contract was formed.
- Flowing from the Breach: The losses don’t need to be a direct consequence of the breach. However, there should be some causal connection between the losses and the breach.
- Calculable: Since special damages cover losses not provided for in the contract terms, it can be difficult to calculate the amount. For example, it may be difficult to determine how much one has lost due to a damaged business reputation. Losses must be calculable at the time of contract formation.
Some contracts allow one party to require the other party to forfeit their rights to special damages as a condition in the contract. This is common where losses are difficult to calculate or foresee. Some jurisidictions also require that the losses be unavoidable.
Special damages are also available in torts and personal injury claims. However, in torts claims, the terms special damages and general damages apply differently than in contracts claims. For example, special damages in a personal injury lawsuit refer to tangible damages that can be calculated accurately (such as lost wages). And general damages refer to other losses that can be difficult to determine (such as pain and suffering).
As you can see, this is almost the complete opposite of how the terms are used in a contract claim. This difference is important to note, since many contracts claims involve tort issues. Thus, the amount of damages that the plaintiff can recover may depend on whether they attempt to characterize the violation as a tort or a contract breach.
Obtaining special damages in a breach of contract claim can sometimes be complex. It involves an analysis of several different factors such as foreseeable and causation. Therefore, you may wish to contact a contract lawyer for advice if you need assistance with your claim. A lawyer can review the contract and determine whether you can file for special damages under the contract laws of your state.