Cecily Zamora
Damages are a remedy that a party requests the court award in order to compensate for a breach of contract. Damages are usually monetary and are paid to the innocent party to compensate for their losses. There are several types of damages, including compensatory damages, nominal damages, and liquidated damages. Compensatory damages aim to compensate the non-breaching party for their actual financial losses, while nominal damages are symbolic and awarded when the breach has not caused significant harm. Liquidated damages are specified in the contract and are agreed upon by both parties in advance. While damages and money damages are closely related, they are not exactly the same, as there may be other forms of compensation awarded by the court, such as specific performance or restitution.
| Characteristics | Values |
|---|---|
| Definition of damages | The remedy that a party requests the court to award to try to make the injured party whole |
| Damages award form | Monetary compensation to the harmed party |
| Damages imposition | When the court finds that a party breached a duty under contract or violated some right |
| Sum of money in damages | Compensatory damages, punitive damages, nominal damages, liquidated damages, expectancy damages, reliance damages, restitution, consequential damages, incidental damages |
| Compensatory damages | Based on the harmed party's actual losses |
| Punitive damages | Intended to punish the wrongdoer |
| Nominal damages | A token amount of money awarded to a party that has suffered a technical breach of contract but has not incurred significant actual damages |
| Liquidated damages | Damages that parties can agree to in advance in the event of a breach |
| Expectancy damages | What the party expected to receive under the contract |
| Reliance damages | The economic position the party would have been in had they not relied on the contract |
| Restitution | An equitable remedy to take away profits from the party that breached |
| Consequential damages | Indirect damages resulting from special circumstances caused by a party's actions on a project |
| Incidental damages | Expenses incurred by the non-breaching party due to the breach of contract |
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What You'll Learn
Compensatory damages
Damages are the monetary compensation awarded to an injured party in a lawsuit. Compensatory damages are a type of damage that compensates the plaintiff for their losses. They are the most common type of damage awarded. Compensatory damages are intended to cover the financial, emotional, and physical losses of the injured party, making them whole again.
There are two types of compensatory damages: general and actual. Actual damages aim to provide the plaintiff with the exact monetary amount required to cover their losses, and nothing more. General compensatory damages, on the other hand, are more complex and do not represent a specific monetary loss. They are intended to compensate for the broader, non-monetary impacts of an injury, such as pain and suffering, and are often more subjective in nature.
Special compensatory damages, also known as economic damages, cover specific monetary losses directly tied to the injury. These can include medical expenses, lost wages, and loss of earning capacity. Special compensatory damages can be easily proven with documentation such as receipts, bills, or pay stubs. General compensatory damages, meanwhile, can be calculated using the "multiplier method", which involves multiplying the sum of actual damages by a number reflecting the seriousness of the injury, or the "per diem" method, which assigns a dollar value to each day the plaintiff suffers.
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Nominal damages
For example, in a case involving false imprisonment, a claimant who was trapped in a doorway for a few seconds by a police officer was awarded nominal damages of £5, as they had suffered no loss apart from the brief confinement. Similarly, in a case where a council sold land with planning permission for 72 houses, and the developer obtained permission to build five additional houses, the council was awarded nominal damages because it had not suffered any actual loss.
In another example, a plaintiff may sue a defendant for failing to provide insurance as promised in a contract. If the plaintiff made alternative arrangements to ensure they were insured, the court might rule in their favour but only award nominal damages since the plaintiff suffered no financial loss. Nominal damages may also be awarded in cases where property values cannot be calculated or in mixed lawsuits involving both contract and tort claims.
The amount of nominal damages is usually a token sum, often as little as $1 or £5. Some courts may include the cost of the lawsuit in the total nominal damages awarded. Nominal damages differ from compensatory damages, which aim to place the non-breaching party in the same position they would have been in had the contract been fulfilled, and consequential damages, which compensate for indirect losses resulting from special circumstances.
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Liquidated damages
The purpose of liquidated damages is to compensate the injured party for their losses, including intangible or hard-to-define losses. They provide a clear monetary value, saving time and resources that would otherwise be spent on litigation to determine compensatory damages. For example, in the 1997 case of Sun Microsystems, Inc. vs. Microsoft, the plaintiff, Sun Microsystems, claimed $35 million in liquidated damages for Java source code disclosure, which was settled with a $20 million payment by Microsoft.
To be enforceable, liquidated damages must be a reasonable estimate of potential losses. Courts will evaluate whether the liquidated amount reflects the probable loss from the breach and whether the loss was difficult to estimate in advance. If the liquidated damages clause is deemed punitive or excessive, it may be considered a penalty and not upheld by the court.
In summary, liquidated damages serve as a pre-agreed-upon compensation for breach of contract, providing a clear and efficient way to address losses that may be challenging to quantify. They are an essential tool in contract law, particularly in industries like construction, where they help manage risks and provide certainty for all parties involved.
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Expectation damages
Damages in civil cases are a monetary award imposed by the court to compensate the injured party and hold the breaching party accountable. Damages can be of various types, including compensatory damages, punitive damages, nominal damages, and expectation damages, which is the focus of this discussion.
The calculation of expectation damages involves three parts: the loss in value of the other party's performance, any additional losses caused by the breach (incidental or consequential damages), and any costs or losses avoided by not having to perform under the contract. For example, consider a contractor who agreed to remodel a homeowner's bathroom for a total of $15,000. If the homeowner breaches the contract after making two progress payments of $5,000 each, the contractor's expectation damages would include the remaining $5,000 loss in value, plus any incidental costs incurred due to the breach, minus any savings the contractor made by not having to complete the job.
In some jurisdictions, such as Australia, expectation damages may not always be awarded. In cases where expectation damages are deemed challenging to prove, reliance damages, which cover wasted expenditure, may be claimed instead. Nevertheless, expectation damages are generally favoured as they often result in a similar recovery amount as reliance damages but are easier to prove.
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Punitive damages
Damages in civil cases are monetary compensation awarded to the harmed party when a party breaches a contract or violates a right. Damages can be compensatory, calculated based on the harmed party's actual losses, or punitive, intended to punish the wrongdoer. Punitive damages, also known as exemplary damages, are awarded at the court's discretion in addition to actual damages when the defendant's behaviour is particularly harmful or egregious. The purpose of punitive damages is to punish and deter similar conduct in the future, but they are generally not awarded in contract law cases as the law recognises that parties should be allowed to breach a contract if it is more economically efficient to do so.
However, punitive damages are generally not available for breach of contract, as illustrated in the case of Paper Reclaim Ltd vs. Aotearoa International Ltd. German courts also do not award punitive damages and consider foreign punitive damages unenforceable. In the United States, punitive damages are rarely awarded in breach of contract cases, and in Texas, they are generally unavailable unless an independent tort, such as fraud, is involved.
While punitive damages are not commonly awarded in contract law, there may be rare exceptions where egregious conduct or intentional torts are involved. The courts will consider the proportionality of punitive damages to the actual harm suffered and evaluate their appropriateness compared to compensatory damages.
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Frequently asked questions
Damages in contract law refer to the sum of money paid to the innocent party as compensation for a breach of contract.
Compensatory damages aim to compensate the non-breaching party for the actual financial losses suffered as a direct result of the breach. The goal is to place the non-breaching party in the same position they would have been in had the contract been fulfilled.
Nominal damages are a symbolic amount, usually a small sum of money, awarded to a party that has suffered a technical breach of contract but has not incurred significant actual damages. Nominal damages serve to recognize the breach and vindicate the claimant's rights.
Liquidated damages refer to specific amounts of money listed in a contract that can be collected in the event of a breach. These amounts are typically reasonably calculated estimates of the expected losses from a breach.
Yes, damages in contract law typically refer to monetary compensation awarded to the harmed party. Damages can be compensatory, nominal, or liquidated, among other types, but they generally involve a sum of money paid to the non-breaching party.
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