Gavin Howe
When a contracting party breaches an agreement, the injured party can sue in court for a sum of money to make up for the breach. The amount of money received by the injured party depends on various factors, including the extent of the breach, the type of damages, and the specifics of the case. The purpose of awarding damages is to compensate the injured party for its losses and put them in the same position as if the breach had not occurred. The non-breaching party has a duty to mitigate damages by minimizing their losses where reasonable, and they cannot recover losses that could have been avoided.
| Characteristics | Values |
|---|---|
| Determining damages | Financial loss, lost opportunities, or other impacts |
| Valid claim | A legally binding contract, plaintiff fulfilled their obligations, defendant breached their obligations, plaintiff suffered losses as a result |
| Special/incidental damages | Expenses incurred in expectation of contract fulfilment, additional losses due to breach |
| Compensatory damages | No cap in most states, but non-breaching party must mitigate damages |
| Consequential/punitive damages | Only available in cases of tort, such as fraud |
| Nominal damages | Awarded for technical breach of contract with no significant losses |
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What You'll Learn
Compensatory damages
In most breach of contract lawsuits, the plaintiff must specifically state that they are requesting compensatory damages when they file the claim. This is crucial for special damages, as they involve losses not addressed in the contract's terms. If the plaintiff fails to request compensatory damages, they may not be eligible for monetary compensation.
To prove compensatory damages, the plaintiff must demonstrate the following:
- Causation: The breach must be the reason for the plaintiff's economic losses.
- Direct harm: The plaintiff must prove that they or their business suffered harm due to the breach.
- Foreseeability: The damages must be reasonably foreseeable and a direct result of the breach.
- Proof: The plaintiff must be able to prove their damages through clear, ascertainable measures that can be demonstrated to a judge or jury.
It is important to note that most states require the plaintiff to choose between monetary damages and equitable remedies at the beginning of the trial. Equitable remedies, such as an injunction ordering the defendant to perform their contractual duties, do not result in monetary compensation.
When determining how much to sue for breach of contract, it is essential first to establish if you have a viable claim. The plaintiff must be able to prove that they suffered demonstrable losses due to the defendant's breach. Additionally, the plaintiff has a legal obligation to prove the scope of their damages and how much they lost due to the breach. However, other measures of damages may be considered, either based on the specific facts of the case or what is specified in the contract.
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Incidental damages
In the landmark 1929 case of Hawkins v. McGee, it was held that the non-breaching party may recover damages based on the difference between the value of the contract if it had been fully performed and the actual value of the non-breaching party's present condition, plus any incidental damages reasonably foreseeable at the time of contract formation. Thus, incidental damages do not have to be expressly included in the original contract to be recoverable, as long as they are foreseeable.
Special damages, also known as incidental damages, can include any expenses incurred by the plaintiff in expectation of the contract being fulfilled. For example, if a consultant purchases specific equipment or software to service a client, these costs could qualify as special damages. Special damages can also include additional losses suffered by the plaintiff due to the breach, such as a business having to shut down for a week if it is not supplied with a necessary product or service.
To determine how much can be claimed in incidental damages, it is essential to prove the full extent of the financial losses incurred due to the breach. This requires ample and timely records. A business with thorough books is in a better position to request maximum compensation. When suing for breach of contract, it is also necessary to determine if there is a viable claim and whether the breach caused demonstrable harm. In most states, including Washington, there are no caps on compensatory damages. However, the non-breaching party must take reasonable steps to minimise their damages.
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Consequential damages
When one party breaches a contract, the injured party has the right to seek damages. Consequential damages, also known as special damages, refer to indirect losses that occur as a foreseeable consequence of a breach of contract. They are distinct from direct damages, which are losses that flow directly and immediately from the breach, such as repair costs or lost wages.
To recover consequential damages in a lawsuit, the plaintiff must prove that the damages were a foreseeable result of the breach and that the amount of damages can be established with reasonable certainty. This involves demonstrating how the breach specifically caused the subsequent financial losses. Documentation, such as financial records, and expert testimony may be required to substantiate the claim.
Many contracts include clauses that limit or exclude consequential damages, particularly in commercial agreements. These clauses are negotiated to control potential liability and make the risks of the contract more predictable. The enforceability of such clauses depends on the specific language and the governing laws of the jurisdiction.
Calculating the exact amount of damages for a breach of contract can be complex and may require legal expertise. The specific laws and regulations of the relevant jurisdiction, such as Washington or California, will also play a significant role in determining the amount of damages that can be recovered.
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Punitive damages
There are a few exceptions where punitive damages may be awarded in contract disputes. One such exception is in insurance bad faith cases, where an insurance company breaches its requirement of good faith and fair dealing. For example, if an insurance company acts in bad faith against a policy owner, they may be liable for punitive damages. Another instance where punitive damages may be awarded is when there is a crossover of contract and tort issues, and the tort portion causes significant harm.
The amount of punitive damages awarded can vary depending on the circumstances of the case, the state or local regulations, and the other damages awarded. While there is no set maximum amount for punitive damages, the Supreme Court of the United States has issued decisions limiting punitive damages. In California, for instance, punitive damages cannot exceed 10% of the defendant's entire worth. According to research by the U.S. Department of Justice, around 2% of tort cases involve punitive damages, with an average award amount of $50,000.
It is important to note that punitive damages are generally awarded in addition to compensatory damages, which aim to compensate the plaintiff for their actual losses. When determining the amount of compensatory damages, it is crucial to prove the full extent of the plaintiff's financial losses due to the breach of contract through accurate and timely records.
Overall, while punitive damages are not commonly awarded in contract law, there are specific circumstances where they may be applicable, and the amount awarded can vary significantly depending on the case and the applicable laws.
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Nominal damages
The amount of nominal damages awarded is usually small, sometimes as little as $1 or £5, and is not intended to unfairly compensate the claimant for losses they haven't actually suffered. Nominal damages are typically awarded when the claimant has suffered a legal wrong, but the loss is negligible or non-existent. For example, in a case of false imprisonment where the claimant was trapped in a doorway for a few seconds, the Court of Appeal awarded nominal damages of £5 because the claimant had suffered no actual loss.
In contract law, nominal damages are awarded when one party breaches a term of the agreement, but the innocent party has not suffered any actual loss or injury as a result. Since contractual damages are not punitive, an innocent party who has suffered no loss cannot recover substantial compensation. Nominal damages are awarded in these cases to acknowledge that the innocent party is legally in the right and to establish that their legal rights have been violated.
The calculation of damages for breach of contract can be complex and varies depending on the jurisdiction and the specific circumstances of the case. In some states, such as Washington, there is no cap on compensatory damages, while in California, the law on damages for breach of contract is considered very complicated. It is important to consult a contract lawyer to determine the types of damages appropriate for a specific situation and to help with damage calculations before filing a breach of contract lawsuit.
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Frequently asked questions
The amount of money you can receive in damages for a breach of contract depends on various factors. These include the financial loss, lost opportunities, and other impacts you experienced due to the breach. The purpose of awarding damages is to compensate the non-breaching party for their losses and put them in the same position as if the breach had not occurred. In most states, there is no cap on compensatory damages, but the non-breaching party has a duty to mitigate their damages by minimizing the amount reasonably.
There are several types of damages that may be available in a breach of contract case, depending on the specifics of your case. These include compensatory damages, consequential or special damages, incidental damages, and liquidated damages. Compensatory damages aim to compensate the non-breaching party for their actual financial losses. Consequential or special damages are indirect but reasonably foreseeable results of the breach, such as lost profits or damaged reputation. Incidental damages cover the immediate costs incurred by the non-breaching party due to the breach, such as substitute goods or services. Liquidated damages are specified in the contract and agreed upon by both parties in advance.
Calculating your damages for a breach of contract can be complex, and it is recommended to consult with an experienced contract lawyer. You must be able to prove the full extent of your financial losses and demonstrate that they were a direct result of the breach. Keep accurate and timely records to support your claim. Additionally, consider any incidental expenses incurred due to the breach, such as substitute goods or services, and ensure you can show that the breaching party was aware of these potential costs.
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